<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/x/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
International Specialty Products Inc.
(Name of Registrant as Specified in its Charter)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
70,980,226 SHARES OF COMMON STOCK
---------------------------------
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:*
$
-----------
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$542,288,926.64
- --------------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid: $108,458
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: Schedule 14A
- --------------------------------------------------------------------------------
(3) Filing Party: International Specialty Products Inc.
- --------------------------------------------------------------------------------
(4) Date Filed: April 28, 1998
- --------------------------------------------------------------------------------
* Up to (i) 17,146,893 shares of common stock, $.01 par value per share, of
International Specialty Products Inc. (the "ISP Common Stock"), including
shares which may be received upon exercise of outstanding options, will be,
upon effectiveness of the Merger (as hereinafter defined), converted into
17,146,893 shares of common stock, $.01 par value per share (the "Surviving
Corporation Common Stock") of ISP Holdings Inc., and (ii) 1,758,958 shares
of common stock of ISP Holdings Inc., including shares which may be
received upon exercise of outstanding options, will become, upon the
effectiveness of the Merger, converted into 53,833,333 shares of Surviving
Corporation Common Stock. There is no public market for the common stock of
ISP Holdings Inc. to be received in the Merger. The book value of each such
share is $7.64. Accordingly, the filing fee is equal to: 70,980,226 x $7.64
x 1/50 x 1% = $108,458.
<PAGE>
INTERNATIONAL SPECIALTY PRODUCTS INC.
818 WASHINGTON STREET
WILMINGTON, DELAWARE 19801
SAMUEL J. HEYMAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
June 15, 1998
Fellow Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
International Specialty Products Inc. ('ISP' or the 'Company') to be held on
July 15, 1998, at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue,
25th Floor, New York, New York, at 10:00 a.m., local time (the 'Meeting').
At the Meeting, in addition to the election of seven (7) directors, holders
of common stock of the Company (the 'ISP Common Stock') at the close of business
on June 15, 1998, will consider and vote upon (i) a proposal to adopt an
Agreement and Plan of Merger, dated as of March 30, 1998 (the 'Merger
Agreement'), by and between ISP and ISP Holdings Inc., a Delaware corporation
and the holder of approximately 84% of the issued and outstanding ISP Common
Stock ('Holdings'), pursuant to which, among other things, (A) ISP would be
merged with and into Holdings (the 'Merger') and the name of the surviving
corporation would be changed to 'International Specialty Products Inc.,' (B)
each share of ISP Common Stock issued and outstanding immediately prior to the
effective date (the 'Effective Date') of the Merger (other than shares held by
Holdings) would be automatically converted into one share of common stock of
Holdings (the 'Surviving Corporation Common Stock'), (C) each issued and
outstanding share of ISP Common Stock owned of record by Holdings immediately
prior to the Effective Date would be cancelled and retired without payment of
any consideration therefor and shall cease to exist and (D) each issued and
outstanding share of common stock of Holdings would automatically become a
number of shares of Surviving Corporation Common Stock equal to the quotient
obtained by dividing 53,833,333 by the number of outstanding shares of common
stock of Holdings as of the Effective Date. If the Merger were consummated
today, it would result in the stockholders of Holdings becoming the direct
owners of approximately 78% of the outstanding shares of the Surviving
Corporation, while the existing stockholders of ISP (other than Holdings) would
own the remaining approximately 22% of the outstanding shares thereof.
At the Meeting, holders of ISP Common Stock also will consider and vote
upon (i) an amendment to the Company's 1991 Incentive Plan for Key Employees and
Directors to, among other things, increase the number of shares authorized
thereunder in connection with the consummation of the Merger and (ii) such other
business as may properly come before the Meeting or any adjournments,
continuations or postponements thereof.
The Board of Directors believes that the Merger will enable ISP to utilize
equity more freely. As a result, ISP will have greater access to capital markets
through equity financing and an increased ability to use equity for acquisitions
and other corporate purposes.
A SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS, COMPOSED OF MEMBERS OF THE
BOARD OF DIRECTORS NOT AFFILIATED WITH HOLDINGS OR ITS AFFILIATES, HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY AND, ACCORDINGLY, THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT
HOLDERS OF ISP COMMON STOCK VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
You should read carefully the accompanying Notice of Annual Meeting of
Stockholders and the Proxy Statement/Prospectus for details of the Merger, the
other actions to be taken at the Meeting and additional related information.
Directors and officers of the Company will be present at the Meeting to
respond to any questions that our stockholders may have.
It is important that your shares be represented at the Meeting. Whether or
not you plan to attend the Meeting, we urge you to sign, date and return the
enclosed proxy card at your earliest convenience. Your prompt cooperation will
be greatly appreciated.
Sincerely,
/s/ Samuel J. Heyman
<PAGE>
INTERNATIONAL SPECIALTY PRODUCTS INC.
NOTICE OF ANNUAL MEETING
TO BE HELD JULY 15, 1998
The Annual Meeting of Stockholders (the 'Meeting') of International
Specialty Products Inc., a Delaware corporation ('ISP' or the 'Company'), will
be held at 10:00 a.m., local time, on July 15, 1998 at the offices of Weil,
Gotshal & Manges LLP, 767 Fifth Avenue, 25th Floor, New York, New York, for the
purpose of considering and acting upon the following matters, each of which is
described more fully in the accompanying Proxy Statement/Prospectus:
1. To adopt an Agreement and Plan of Merger, dated as of March 30, 1998
(the 'Merger Agreement'), by and between ISP and ISP Holdings Inc., a
Delaware corporation ('Holdings'), pursuant to which, among other
things, subject to the terms and conditions therein:
(a) (i) ISP will be merged with and into Holdings (the 'Merger'),
with Holdings being the surviving corporation in the Merger (the
'Surviving Corporation'), (ii) each share of ISP common stock,
par value $.01 per share (the 'ISP Common Stock'), issued and
outstanding immediately prior to the effective date (the
'Effective Date') of the Merger (other than shares held in
treasury or by Holdings) will be automatically converted into
one share of common stock, par value $.01 per share (the
'Surviving Corporation Common Stock'), of Holdings, (iii) each
issued and outstanding share of ISP Common Stock owned of record
by Holdings immediately prior to the Effective Date will be
cancelled and retired without payment of any consideration
therefor and will cease to exist and (iv) each issued and
outstanding share of common stock of Holdings will automatically
become a number of shares of Surviving Corporation Common Stock
equal to the quotient obtained by dividing 53,833,333 by the
number of outstanding shares of common stock of Holdings as of
the Effective Date;
(b) The name of ISP Holdings Inc. will be changed to 'International
Specialty Products Inc.'; and
(c) The Surviving Corporation Common Stock will be listed for
trading on the New York Stock Exchange.
2. In connection with the Merger, to consider and approve an amendment
to the Company's 1991 Incentive Plan for Key Employees and Directors,
as amended (the 'ISP Incentive Plan'), to increase by 2,000,000 the
number of shares of Surviving Corporation Common Stock for which
stock options may be granted thereunder and to allow for an exception
to the limit on the number of shares for which stock options may be
granted to any eligible person during any calendar year;
3. To vote upon the election of seven (7) directors of the Company; and
4. To transact such other business as may properly come before the
Meeting.
The Board of Directors of ISP has fixed the close of business on June 15,
1998 as the record date for determination of holders of ISP Common Stock
entitled to notice of, and to vote at, the Meeting.
A list of stockholders entitled to vote at the Meeting will be open to the
examination of any stockholder, for any purpose germane to the Meeting, at the
office of The Bank of New York, 101 Barclay Street, New York, New York, during
ordinary business hours for ten days prior to the Meeting.
Adoption of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of ISP Common Stock entitled to
vote at the Meeting. The vote required for the approval of the amendment to the
ISP Incentive Plan is a majority of the shares of ISP Common Stock present in
person or represented by proxy and entitled to vote at the Meeting. Pursuant to
the Merger Agreement, Holdings, the owner of approximately 84% of the ISP Common
Stock, has agreed to vote in favor of the Merger and the transactions
contemplated thereby, thereby ensuring approval at the Meeting by the holders of
ISP Common Stock of the Merger and the amendment to the ISP Incentive Plan. A
copy of the Merger Agreement is attached as Annex A to the accompanying Proxy
Statement/Prospectus. The accompanying Proxy Statement/Prospectus and the
Annexes thereto, including the Merger Agreement, form a part of this Notice.
The vote required for the election of directors is a plurality of the votes
properly cast at the Meeting. Samuel J. Heyman, Chairman of the Board and Chief
Executive Officer of ISP, directly and indirectly through his beneficial
ownership of approximately 97% of the outstanding capital stock of Holdings,
controls approximately 84% of the voting power of the ISP Common Stock. See
'EXECUTIVE OFFICERS--Security Ownership of Certain Beneficial Owners and
Management.' Mr. Heyman has indicated to ISP that he intends to vote, and to
cause ISP Holdings to vote, for the election of the Board of Directors' nominees
as directors. Accordingly, the election of the nominees is assured.
None of the holders of ISP Common Stock are entitled to appraisal rights in
connection with the Merger.
By Order of the Board of Directors,
/s/ Richard A. Weinberg
Wayne, New Jersey Richard A. Weinberg
June 15, 1998 Secretary
Return of your signed proxy is the only way your shares can be counted unless
you personally cast a ballot at the Meeting.
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD AND SIGN,
DATE AND RETURN IN THE ENVELOPE PROVIDED, WHICH NEEDS NO POSTAGE IF MAILED IN
THE UNITED STATES.
<PAGE>
PROXY STATEMENT/PROSPECTUS
INTERNATIONAL SPECIALTY PRODUCTS INC. ISP HOLDINGS INC.
PROXY STATEMENT PROSPECTUS
FOR ANNUAL MEETING OF STOCKHOLDERS COMMON STOCK
TO BE HELD JULY 15, 1998
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to holders of common
stock, par value $.01 per share ('ISP Common Stock'), of International Specialty
Products Inc., a Delaware corporation ('ISP' or the 'Company'), in connection
with the solicitation of proxies by the Board of Directors of ISP (the 'ISP
Board') for use at the Annual Meeting of Stockholders (the 'Meeting') to be held
at 10:00 a.m., local time, on July 15, 1998, at the offices of Weil, Gotshal &
Manges LLP, 767 Fifth Avenue, 25th Floor, New York, New York, and at any
adjournment, continuation or postponement thereof.
Matters to be Considered. At the Meeting, holders of ISP Common Stock will
be asked:
1. To adopt an Agreement and Plan of Merger, dated as of March 30, 1998
(the 'Merger Agreement'), by and between ISP and ISP Holdings Inc., a
Delaware corporation ('Holdings'), pursuant to which, among other
things:
(a) (i) ISP will be merged with and into Holdings (the 'Merger'),
with Holdings being the surviving corporation in the Merger (the
'Surviving Corporation'), (ii) each share of ISP Common Stock issued and
outstanding immediately prior to the effective date (the 'Effective
Date') of the Merger (other than shares held in treasury or by Holdings)
will be automatically converted into one share of common stock, par
value $.01 per share (the 'Surviving Corporation Common Stock'), of
Holdings, (iii) each issued and outstanding share of ISP Common Stock
owned of record by Holdings immediately prior to the Effective Date will
be cancelled and retired without payment of any consideration therefor
and will cease to exist and (iv) each issued and outstanding share of
common stock of Holdings will automatically become a number of shares of
Surviving Corporation Common Stock equal to the quotient obtained by
dividing 53,833,333 by the number of outstanding shares of common stock
of Holdings as of the Effective Date;
(b) At the Effective Date, the name of ISP Holdings Inc. will be
changed to 'International Specialty Products Inc.'; and
(c) The Surviving Corporation Common Stock will be listed for
trading on the New York Stock Exchange.
2. In connection with the Merger, to consider and approve an amendment to
the Company's 1991 Incentive Plan for Key Employees and Directors, as
amended (the 'ISP Incentive Plan'), to increase by 2,000,000 the number
of shares of Surviving Corporation Common Stock for which stock options
may be granted thereunder and to allow for an exception to the limit
on the number of shares for which stock options may be granted to any
eligible person during any calendar year;
3. To vote upon the election of seven (7) directors of the Company; and
4. To transact such other business as may properly come before the
Meeting.
The Board of Directors has set the close of business on June 15, 1998 as
the record date (the 'Record Date') of determination of holders of ISP Common
Stock entitled to notice of, and to vote at, the Meeting. As of the close of
business on the Record Date, there were outstanding 96,127,754 shares of ISP
Common Stock. Holders of record of shares of ISP Common Stock are entitled to
one vote for each share held by them as of the Record Date on any matter which
may properly come before the Meeting.
The Boards of Directors of ISP and Holdings believe that ISP Common Stock
has been undervalued in the public market for quite some time, primarily because
of the lack of liquidity in the market for ISP Common Stock resulting from the
relatively small public float and the fact that approximately 84% of ISP Common
Stock is held by Holdings. The Boards of Directors of ISP and
(Cover continued on next page)
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of ISP on or about June 16, 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 NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JUNE 15, 1998.
<PAGE>
(Cover continued)
Holdings believe that the Merger is an important step in helping to address the
lack of liquidity in the ISP Common Stock by eliminating the need for Holdings
to maintain ownership of at least 80% of the ISP Common Stock in order to avoid
certain adverse tax consequences, thereby enabling ISP to utilize equity for
equity financings, acquisitions and other corporate purposes. The shares of ISP
Common Stock owned by Holdings, which will be relinquished as part of the
transactions contemplated by the Merger Agreement, were valued by ISP and
Holdings at $16.125 per share. As a result of the Merger, Holdings' cash and
other assets of $110.5 million and Holdings' debt and other liabilities of
$562.9 million, in each case based on book values thereof as of March 29, 1998,
will be included, together with ISP's assets and liabilities, in the Surviving
Corporation. After giving pro forma effect to the Merger, the Surviving
Corporation would have had total assets of $1,697.3 million and total
liabilities of $1,155.5 million, in each case based on book values thereof as of
March 29, 1998.
Adoption of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of ISP Common Stock entitled to
vote at the Meeting. The vote required for the approval of the amendment to the
ISP Incentive Plan is a majority of the shares of ISP Common Stock present in
person or represented by proxy and entitled to vote at the Meeting. Pursuant to
the Merger Agreement, Holdings, the owner of approximately 84% of the ISP Common
Stock, has agreed to vote all of its shares of ISP Common Stock in favor of the
Merger and the transactions contemplated thereby, thereby ensuring approval at
the Meeting by the holders of ISP Common Stock of the Merger and the amendment
to the ISP Incentive Plan. A copy of the Merger Agreement is attached as Annex A
to this Proxy Statement/Prospectus.
The election of directors of the Company requires the affirmative vote of a
plurality of votes properly cast by holders of record of outstanding shares of
ISP Common Stock present in person or represented by proxy and entitled to vote
at the Meeting. Samuel J. Heyman, Chairman of the Board and Chief Executive
Officer of ISP, directly and indirectly through his beneficial ownership of
approximately 97% of the outstanding capital stock of Holdings, controls
approximately 84% of the voting power of the ISP Common Stock. See 'EXECUTIVE
OFFICERS--Security Ownership of Certain Beneficial Owners and Management.' Mr.
Heyman has indicated to ISP that he intends to vote, and to cause ISP Holdings
to vote, for the election of the Board of Directors' nominees as directors.
Accordingly, the election of the nominees is assured.
Stockholders of record holding a majority of the issued and outstanding
shares of Common Stock entitled to vote at the Meeting, present in person or
represented by proxy, constitute a quorum for the transaction of business at the
Meeting. Abstentions and broker non-votes are included in determining whether or
not a quorum is present. Broker non-votes on proposals are treated as shares as
to which the beneficial holders have withheld voting power and, therefore, are
not considered as shares entitled to vote on any proposal to which they relate.
General. Shares of ISP Common Stock represented by a valid, unrevoked
proxy will be voted at the Meeting, or any adjournment, continuation or
postponement thereof, as specified therein by the person giving the proxy; if no
specification is made, the shares represented by such proxy will be voted (1)
FOR the proposal to adopt the Merger Agreement, (2) FOR the adoption of the
amendment to the ISP Incentive Plan, (3) FOR the election of the Board of
Directors' nominees as directors of the Company, and (4) in the discretion of
the persons named as proxies on the enclosed proxy card, on such other matters
as may properly come before the Meeting. Proxies may be revoked by the person
executing the same at any time before the authority thereby granted is exercised
by execution of a later dated proxy, by delivery to and receipt by ISP's
Secretary of written notice to such effect, or by attending the Meeting and
voting in person.
At the Effective Date, the name of Holdings will be changed to
International Specialty Products Inc. The directors and officers of ISP
immediately prior to the Effective Date will be the initial directors and
officers of the Surviving Corporation until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation or as otherwise provided
by law.
The shares of Surviving Corporation Common Stock will be substantially
similar to the shares of ISP Common Stock. It is a condition precedent to the
Merger that the shares of Surviving Corporation Common Stock to be issued
pursuant to the Merger be listed on the New York Stock Exchange (the 'NYSE').
Holdings has filed a Registration Statement on Form S-4 (together with all
amendments, schedules and exhibits thereto, the 'Registration Statement') under
the Securities Act of 1933, as amended (the 'Securities Act'), relating to the
shares of Surviving Corporation Common Stock that are proposed to be issued, and
those shares of common stock of Holdings to be converted, pursuant to the Merger
Agreement. This Proxy Statement/Prospectus also constitutes the Prospectus of
Holdings filed as part of the Registration Statement.
ii
<PAGE>
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY ISP OR HOLDINGS OR ANY OTHER PERSON.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY,
IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF ISP OR HOLDINGS SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
AVAILABLE INFORMATION
Each of ISP and Holdings is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in
accordance therewith files reports, proxy statements (in the case of ISP) and
other information with the Securities and Exchange Commission (the
'Commission'). The reports, proxy statements and other information filed by ISP
and by Holdings with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at 75 Park Place, New York, New York 10007 and Northwestern Atrium Center, 5000
West Madison Street, Suite 1400, Chicago, Illinois 60601-2511. Copies of such
material also can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. In addition, the ISP
Common Stock is listed on the NYSE and materials filed by ISP can be inspected
at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Such
information may also be accessed electronically by means of the Commission's
home page on the Internet at http://www.sec.gov. After consummation of the
Merger, the Surviving Corporation will continue to file periodic reports, proxy
statements or other information with the Commission pursuant to the Exchange Act
and the shares of Surviving Corporation Common Stock to be issued or converted
pursuant to the Merger will be listed on the NYSE.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement filed by Holdings with the Commission, parts
of which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement, including any amendments, schedules and
exhibits filed or incorporated by reference as a part thereof, is available for
inspection and copying as set forth above. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated in this Proxy
Statement/Prospectus by reference as to the contents of any contract or other
document referred to herein or therein 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 or such other document, each such
statement being qualified in all respects by such reference.
iii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by ISP and Holdings
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:
1. ISP's Annual Report on Form 10-K, as amended, for the fiscal year ended
December 31, 1997;
2. ISP's Current Report on Form 8-K filed on April 1, 1998;
3. ISP's Quarterly Report on Form 10-Q for the quarter ended March 29,
1998;
4. Holdings' Annual Report on Form 10-K for the fiscal year ended December
31, 1997; and
5. Holdings' Quarterly Report on Form 10-Q for the quarter ended March 29,
1998.
All documents and reports subsequently filed by ISP and Holdings pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to the date of the Meeting shall be deemed
to be incorporated by reference in this Proxy Statement/Prospectus and to be a
part hereof from the date of filing of such documents or reports. Any statement
contained in a document 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 or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER TO WHOM
THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST,
WITHOUT CHARGE, DIRECTED TO INTERNATIONAL SPECIALTY PRODUCTS INC., 818
WASHINGTON STREET, WILMINGTON, DELAWARE 19801 (TELEPHONE NUMBER (302) 429-8554).
ATTENTION: CORPORATE SECRETARY. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUESTS SHOULD BE MADE BY JULY 8, 1998.
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROXY STATEMENT/PROSPECTUS INCLUDES 'FORWARD-LOOKING STATEMENTS'
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACT INCLUDED
IN THIS PROXY STATEMENT/PROSPECTUS REGARDING THE COMPANY'S, HOLDINGS' OR THE
SURVIVING CORPORATION'S OPERATIONS OR FINANCIAL POSITION MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY
CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS 'MAY,'
'WILL,' 'EXPECT,' 'INTEND,' 'ESTIMATE,' 'ANTICIPATE,' 'BELIEVE' OR 'CONTINUE' OR
THE NEGATIVE THEREOF OR VARIATIONS THEREON OR SIMILAR TERMINOLOGY. ALTHOUGH THE
COMPANY AND HOLDINGS BELIEVE THAT THE EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS ARE REASONABLE AT THIS TIME, NO ASSURANCE CAN BE
GIVEN THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT.
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................................................... 1
COMPARATIVE PER-SHARE DATA................................................................................. 6
MARKET PRICES AND DIVIDENDS................................................................................ 6
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION..................................................... 7
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION..................................................... 9
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................................. 11
THE MEETING................................................................................................ 12
PROPOSAL 1--THE MERGER..................................................................................... 13
THE MERGER AGREEMENT....................................................................................... 20
MARKET PRICES AND DIVIDENDS................................................................................ 24
CAPITALIZATION............................................................................................. 25
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION..................................................... 26
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION..................................................... 28
DESCRIPTION OF SURVIVING CORPORATION COMMON STOCK.......................................................... 31
COMPARISON OF STOCKHOLDERS' RIGHTS......................................................................... 31
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES...................................................... 31
PROPOSAL 2--AMENDMENT OF ISP INCENTIVE PLAN................................................................ 33
PROPOSAL 3--ELECTION OF DIRECTORS.......................................................................... 38
EXECUTIVE OFFICERS......................................................................................... 40
COMPENSATION OF EXECUTIVE OFFICERS OF THE COMPANY.......................................................... 43
CERTAIN TRANSACTIONS....................................................................................... 52
LEGAL MATTERS.............................................................................................. 54
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................. 54
1999 STOCKHOLDERS' PROPOSALS............................................................................... 54
OTHER MATTERS.............................................................................................. 55
</TABLE>
v
<PAGE>
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<PAGE>
SUMMARY
The following is intended only to highlight certain information contained
elsewhere in this Proxy Statement/Prospectus or incorporated by reference herein
(other than the information described below under 'Certain Considerations' which
only appears in this Summary). This Summary is not intended to be complete and
is qualified in its entirety by the more detailed information appearing
elsewhere in this Proxy Statement/Prospectus and the documents incorporated by
reference or otherwise referred to herein, including the Merger Agreement which
is attached hereto as Annex A. Stockholders are urged to review carefully this
entire Proxy Statement/Prospectus, including the Annexes hereto, and the
documents incorporated herein by reference.
THE COMPANIES
ISP. ISP is a leading multinational manufacturer of specialty chemicals,
mineral products and filter products. ISP, incorporated in Delaware in 1991,
operates its business exclusively through 20 domestic subsidiaries, including
ISP Chemicals Inc., ISP Technologies Inc., ISP Van Dyk Inc., ISP Fine Chemicals
Inc. and ISP Freetown Fine Chemicals Inc., 37 international subsidiaries and a
joint venture with Huls Aktiengesellschaft, a German corporation, in which ISP
has a 50% interest and which operates under the name GAF-Huls Chemie GmbH.
ISP is an 84% owned subsidiary of Holdings. ISP is indirectly controlled by
Samuel J. Heyman, Chairman of the Board of Directors and Chief Executive Officer
of ISP, Holdings and GAF Corporation ('GAF'). The remaining 16% of the
outstanding ISP Common Stock is publicly held and traded on the NYSE.
The address and telephone number of the principal executive offices of ISP
are 818 Washington Street, Wilmington, Delaware 19801, (302) 429-8554 or (800)
526-5315.
ISP Holdings Inc. Holdings, incorporated in Delaware in August 1996, owns
approximately 84% of the issued and outstanding ISP Common Stock. Holdings is
controlled by Mr. Heyman. Mr. Heyman also controls GAF and its subsidiaries. See
'EXECUTIVE OFFICERS--Security Ownership of Certain Beneficial Owners and
Management.'
The address and telephone number of the principal executive offices of
Holdings are 818 Washington Street, Wilmington, Delaware 19801, (302) 428-0847.
THE MEETING
The Meeting will be held at 10:00 a.m., local time, on July 15, 1998 at the
offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, 25th Floor, New York,
New York.
At the Meeting, holders of ISP Common Stock will be asked:
1. To consider and vote upon a proposal to adopt the Merger Agreement;
2. To consider and approve an amendment to the ISP Incentive Plan;
3. To elect seven (7) directors of the Company; and
4. To transact such other business as may properly come before the
Meeting.
Holders of record of ISP Common Stock as of the close of business on the
Record Date are entitled to notice of the Meeting and to vote at the Meeting. As
of such date, there were 96,127,754 shares of ISP Common Stock outstanding. Each
share of ISP Common Stock will be entitled to one vote on each proposal properly
presented at the Meeting. Under ISP's By-Laws, the presence at the Meeting,
either in person or by proxy, of the holders of record of a majority of the
outstanding shares of ISP Common Stock entitled to vote at the Meeting is
necessary to constitute a quorum and, under the General Corporation Law of the
State of Delaware (the 'DGCL'), ISP's Certificate of Incorporation (the 'ISP
Charter') and ISP's By-Laws, (i) the affirmative vote of the holders of a
majority of the issued and outstanding shares of ISP Common Stock entitled to
vote at the Meeting is required to adopt the Merger Agreement and (ii) the
affirmative vote of a plurality of votes properly cast at the Meeting is
required for the election of directors. Pursuant to the ISP Incentive Plan, the
affirmative vote of a majority of the shares of ISP Common Stock present in
person or represented by proxy and entitled to vote at the Meeting is
1
<PAGE>
required to approve an amendment thereto. Mr. Heyman, directly and indirectly
through his beneficial ownership of approximately 97% of the outstanding capital
stock of Holdings, controls approximately 84% of the voting power of the ISP
Common Stock. Pursuant to the Merger Agreement, Holdings has agreed to vote its
shares of ISP Common Stock in favor of the Merger and the transactions
contemplated thereby (which include the Amendment to the ISP Incentive Plan).
Mr. Heyman also has indicated to ISP that he intends to vote, and to cause
Holdings to vote, for the election of the ISP Board's nominees as directors.
Accordingly, the approval of the Merger, the election of the nominees to the ISP
Board and approval of the amendment to the ISP Incentive Plan are assured. See
'THE MEETING.'
REASONS FOR THE MERGER
The Boards of Directors of ISP and Holdings believe that ISP Common Stock
has been undervalued in the public market for quite some time, primarily because
of the lack of liquidity in the market for ISP Common Stock resulting from the
relatively small public float and the fact that approximately 84% of ISP Common
Stock is held by Holdings. The Boards of Directors of ISP and Holdings believe
that the Merger is an important step in helping to address the lack of liquidity
in the Company's stock by eliminating the need for Holdings to maintain
ownership of at least 80% of the ISP Common Stock in order to avoid certain
adverse tax consequences, thereby enabling ISP to utilize equity for equity
financings, acquisitions and other corporate purposes.
Holdings may pursue both debt and equity offerings following consummation
of the Merger with a view toward refinancing its debt on more favorable terms
and increasing liquidity in the Surviving Corporation's Common Stock.
RECOMMENDATION OF BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE
In connection with consideration of any proposal by Holdings to enter into
a business combination transaction with ISP, a special committee (the 'Special
Committee') of directors not affiliated with Holdings or its affiliates,
composed of Messrs. Charles M. Diker and Burt C. Manning, was created by the ISP
Board. The Special Committee was advised by J.P. Morgan Securities Inc. ('J.P.
Morgan'), which rendered an opinion as to the fairness, from a financial point
of view, to the stockholders of ISP (other than Holdings), of the consideration
proposed to be paid to them pursuant to the Merger, and by Dewey Ballantine LLP
('Dewey Ballantine'), as legal counsel. The ISP Board, based in part on the
unanimous recommendation of the Special Committee, has approved the Merger and
believes that the terms of the Merger are fair to, and in the best interests of,
ISP and its stockholders. Accordingly, the ISP Board recommends its adoption by
the holders of ISP Common Stock. For a discussion of the factors considered by
the Special Committee in reaching its decision, see 'THE MERGER-- Recommendation
of ISP Board.'
2
<PAGE>
THE MERGER
Effect of the Merger. Prior to the Merger, all of the assets and
liabilities of ISP will be transferred (the 'Transfer') to a newly-formed,
wholly-owned subsidiary of ISP ('Newco'). Upon consummation of the Merger,
pursuant to the Merger Agreement, (a) ISP will be merged with and into Holdings,
with Holdings being the surviving corporation in the Merger, (b) each share of
ISP Common Stock issued and outstanding immediately prior to the Effective Date
(other than shares held in treasury or by Holdings) will be automatically
converted into one share of Surviving Corporation Common Stock, (c) each issued
and outstanding share of ISP Common Stock owned of record by Holdings and each
share of ISP Common Stock held in treasury immediately prior to the Effective
Date will be cancelled and retired without payment of any consideration therefor
and will cease to exist, (d) Newco will become a direct, wholly-owned subsidiary
of the Surviving Corporation and (e) each issued and outstanding share of common
stock of Holdings will automatically become a number of shares of Surviving
Corporation Common Stock equal to the quotient obtained by dividing 53,833,333
by the number of outstanding shares of common stock of Holdings as of the
Effective Date (such quotient being the 'Conversion Rate'). At the Effective
Date, the name of Holdings will be changed to 'International Specialty Products
Inc.' If the Merger were effected as of the date hereof, the Conversion Rate
would result in Holdings' stockholders owning approximately 78% of the Surviving
Corporation Common Stock. As a result of the Merger, Holdings' cash and other
assets of $110.5 million and Holdings' debt and other liabilities of $562.9
million, in each case based on book values thereof as of March 29, 1998, will be
included, together with ISP's assets and liabilities, in the Surviving
Corporation. After giving pro forma effect to the Merger, the Surviving
Corporation would have had total assets of $1,697.3 million and total
liabilities of $1,155.5 million, in each case based on book values thereof as of
March 29, 1998. See 'CAPITALIZATION.'
The directors and officers of ISP immediately prior to the Effective Date
will be the initial directors and officers of the Surviving Corporation until
their respective successors are duly elected or appointed and qualified in the
manner provided in the Certificate of Incorporation and By-Laws of the Surviving
Corporation or as otherwise provided by law.
The shares of Surviving Corporation Common Stock will be substantially
similar to the shares of ISP Common Stock. See 'COMPARISON OF STOCKHOLDERS'
RIGHTS.'
It is a condition precedent to the Merger that the shares of Surviving
Corporation Common Stock to be issued pursuant to the Merger be listed on the
NYSE.
Security Ownership of Directors and Executive Officers. As of April 17,
1998, directors and executive officers of ISP were beneficial owners of
approximately 80,673,039 (or 84%) of the shares of ISP Common Stock outstanding
on such date. Each such director and executive officer has advised ISP that he
intends to vote or direct the vote of all outstanding shares of ISP Common Stock
over which he has voting control in favor of adoption of the Merger Agreement.
Pursuant to the Merger Agreement, Holdings, the owner of 80,500,000 (or 83.7%)
shares of ISP Common Stock, has agreed to vote all of its shares of ISP Common
Stock in favor of the Merger, thereby ensuring adoption at the Meeting of the
Merger Agreement by the holders of ISP Common Stock. See 'EXECUTIVE
OFFICERS--Security Ownership of Certain Beneficial Owners and Management.'
Fairness Opinion. J.P. Morgan has delivered to the Special Committee its
written opinion, dated March 30, 1998 (the 'Fairness Opinion'), to the effect
that, based upon and subject to the various considerations set forth therein, as
of the date of the Merger Agreement, the consideration to be paid to ISP's
stockholders (other than Holdings) in the Merger is fair, from a financial point
of view, to such stockholders. A copy of the Fairness Opinion, which sets forth
the assumptions made, matters considered and limits of the review, is attached
to this Proxy Statement/Prospectus as Annex B and should be read in its
entirety. See 'THE MERGER--Fairness Opinion.'
Interests of Certain Persons in the Merger. In considering the
recommendation of the ISP Board and the Special Committee with respect to the
Merger, stockholders should be aware that certain members of the ISP Board and
ISP's management have certain interests that are in addition to or different
from the interests of stockholders of ISP generally. The Merger Agreement
provides for the Surviving Corporation to make certain indemnification of
present and former officers and directors of ISP against liabilities arising
prior to the Effective Date and to maintain certain directors' and officers'
insurance for at least six years from the Effective Date. In
3
<PAGE>
addition, options to purchase shares of cumulative redeemable preferred stock of
Holdings and stock appreciation rights based on the price of shares of the
common stock of Holdings which are held by officers and directors of Holdings on
the Effective Date will become rights to receive cash and, in certain cases,
options to purchase Surviving Corporation Common Stock. See 'THE
MERGER--Interests of Certain Persons in the Merger'; 'THE MERGER--Interests of
Certain Persons in the Merger--Indemnification'; and 'COMPENSATION OF EXECUTIVE
OFFICERS OF THE COMPANY--Summary Compensation Table.'
Effective Date. The Merger will become effective on the date when the
Certificate of Merger is filed with the Secretary of State of the State of
Delaware (the 'Effective Date'). This filing is anticipated to take place as
soon as practicable after the last of the conditions precedent to the Merger set
forth in the Merger Agreement have been satisfied or, where permissible, waived.
See 'THE MERGER AGREEMENT--The Merger.'
Conditions to the Merger. The respective obligations of ISP and Holdings
to consummate the Merger are subject to the satisfaction of certain conditions,
including, among others, (a) adoption of the Merger Agreement and approval of
the transactions contemplated thereby by the requisite vote of the stockholders
of ISP, (b) adoption of the Merger Agreement by a majority of the outstanding
shares of common stock of Holdings, (c) the absence of any injunction or similar
order preventing consummation of the transactions contemplated by the Merger
Agreement as provided therein, (d) the effectiveness of the Registration
Statement and the absence of any stop order or proceeding seeking a stop order
with respect thereto and (e) the approval for listing on the NYSE, subject to
official notice of issuance, of the shares of Surviving Corporation Common Stock
to be issued in the Merger. See 'THE MERGER AGREEMENT--Conditions to the
Merger.'
Termination of the Merger Agreement. The Merger Agreement may be
terminated at any time prior to the Effective Date, whether before or after
approval by the stockholders of ISP, (i) by mutual consent of the Boards of
Directors of ISP and Holdings, (ii) by the Board of Directors of either ISP or
Holdings if the Merger shall not have been consummated on or before September
26, 1998 or (iii) by the Special Committee or Holdings if the Special Committee
determines in good faith, after consultation with J.P. Morgan and outside
counsel to the Special Committee, that the Special Committee's fiduciary
obligations under applicable law require it to withdraw its recommendation of
the Merger Agreement and the transactions contemplated thereby. In the event of
any such termination, the Merger Agreement will become void and there will be no
liability or obligation on the part of ISP or Holdings or their respective
officers or directors. See 'THE MERGER AGREEMENT-- Termination.'
Indemnification. The Merger Agreement provides that the present and former
directors and officers of ISP will be indemnified by the Surviving Corporation
after the Effective Date against all liabilities pertaining to any matter
existing or occurring on or prior to the Effective Date (including the
transactions contemplated by the Merger Agreement), to the extent that a
corporation is permitted under Delaware law to indemnify its own directors or
officers. The Surviving Corporation has also agreed in the Merger Agreement that
it will maintain, for a period of at least six years from the Effective Date,
directors' and officers' liability insurance providing at least the same amounts
and coverage with respect to all persons currently covered under ISP's officers'
and directors' liability insurance policies pertaining to any matter existing or
occurring on or prior to the Effective Date (including the transactions
contemplated by the Merger Agreement), subject to a cap with respect to the
premium to be paid thereunder. See 'THE MERGER AGREEMENT--Indemnification.'
The By-Laws of the Surviving Corporation will be those of ISP immediately
prior to the Effective Date, and the Certificate of Incorporation of the
Surviving Corporation will be amended as of the Effective Date to be identical
to the ISP Charter. Therefore, the provisions providing for indemnification of
ISP's directors and officers immediately prior to the Merger would remain
unchanged upon consummation of the Merger.
CERTAIN CONSIDERATIONS
In deciding whether to adopt the Merger Agreement, holders of ISP Common
Stock should carefully evaluate the information contained in this Proxy
Statement/Prospectus and, in particular, the following factors: (i) the stock
price of the ISP Common Stock at the Effective Date may differ significantly
from the price of such stock as of the date of execution of the Merger
Agreement, the date of this Proxy Statement/Prospectus or the date on which
stockholders vote on the adoption of the Merger Agreement; (ii) the Merger
Agreement does not contain any provision for adjustment, based on fluctuations
in stock prices or the fair market value thereof, of
4
<PAGE>
(x) the one-for-one ratio of the number of shares of ISP Common Stock to be
converted into shares of Surviving Corporation Common Stock or (y) the
Conversion Rate with respect to the issued and outstanding shares of common
stock of Holdings; (iii) J.P. Morgan does not have an obligation to update its
Fairness Opinion rendered on March 30, 1998; (iv) in addition to the assets and
liabilities of ISP, the Surviving Corporation will include $110.5 million of
Holdings' cash and other assets and will be subject to $562.9 million of
Holdings' debt and other liabilities, in each case based on book values thereof
as of March 29, 1998; and (v) following the Merger, the trading price of
Surviving Corporation Common Stock could be subject, among other things, to
fluctuations in response to general business and market conditions, competitive
factors in the various industries in which the Surviving Corporation will be
competing and variations in the Surviving Corporation's operating and financial
results.
REGULATORY REQUIREMENTS
Except as described in 'THE MERGER AGREEMENT--Conditions to the Merger' and
except for the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware, no other Federal or state regulatory requirements must
be complied with or approvals must be obtained prior to consummation of the
Merger in connection with the Merger.
APPRAISAL RIGHTS
Holders of ISP Common Stock are not entitled to appraisal rights under the
DGCL with respect to their shares in connection with the Merger because such
shares of stock were listed for trading on the NYSE at the Record Date and such
holders will only be entitled to receive shares of Surviving Corporation Common
Stock, which shares will, at the Effective Date, be approved for listing on the
NYSE, subject to official notice of issuance in the Merger.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Holders of ISP Common Stock will not recognize any gain or loss for Federal
income tax purposes upon their receipt of Surviving Corporation Common Stock in
the Merger. The Merger is conditioned upon, among other things, a legal opinion
of counsel as to its tax-free nature. See 'CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES.'
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase under generally accepted
accounting principles.
DESCRIPTION OF HOLDINGS COMMON STOCK
As of the Effective Date, the Surviving Corporation will have authorized
capitalization of 300,000,000 shares of Surviving Corporation Common Stock and
20,000,000 shares of preferred stock.
COMPARISON OF STOCKHOLDERS' RIGHTS
Upon consummation of the Merger, the stockholders of ISP will become
stockholders of Holdings. There will be no material differences between the
rights of holders of shares of ISP Common Stock and shares of common stock of
Holdings. ISP and Holdings are both Delaware corporations, and, upon
consummation of the Merger, (i) the By-Laws of ISP will become the By-Laws of
Holdings (as the Surviving Corporation) and (ii) the Certificate of
Incorporation of Holdings (as the Surviving Corporation) will be identical to
the ISP Charter as in effect immediately prior to the Effective Date.
5
<PAGE>
COMPARATIVE PER-SHARE DATA
The following table presents ISP's historical per-share data and Holdings'
unaudited pro forma per-share data to reflect consummation of the Merger on the
basis set forth in the Pro Forma Condensed Consolidated Financial Information
included elsewhere herein. The unaudited pro forma condensed consolidated
financial information does not purport to be indicative of the results that
would actually have been attained had the Merger been completed as assumed in
such pro forma data. The information contained in the table set forth below
should be read in conjunction with the Pro Forma Condensed Consolidated
Financial Information and with the historical consolidated financial statements
and related notes included in ISP's and Holdings' Annual Reports on Form 10-K
for the year ended December 31, 1997, and Quarterly Reports on Form 10-Q for the
quarter ended March 29, 1998.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------
YEAR ENDED MARCH 30, 1997 MARCH 29, 1998
DECEMBER 31, 1997 (UNAUDITED) (UNAUDITED)
----------------- -------------- --------------
<S> <C> <C> <C>
Earnings per share of common stock:
Historical:
ISP (Basic and diluted).................................. $.96 $.24 $.27
Pro Forma:
Holdings--Basic.......................................... $.94 -- $.27
Holdings--Diluted........................................ $.93 -- $.27
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 MARCH 29, 1998
----------------- --------------
<S> <C> <C> <C>
Book value per share of common stock outstanding:
Historical:
ISP...................................................... $8.17 $ 8.39
Pro Forma:
Holdings................................................. $7.64 $ 7.81
</TABLE>
MARKET PRICES AND DIVIDENDS
Shares of ISP Common Stock are traded on the NYSE. At June 10, 1998, there
were 227 holders of record of ISP Common Stock. The table below sets forth, for
the fiscal periods indicated, the high and low sale prices per share of ISP
Common Stock as reported in the NYSE Composite Transactions in 1997 and during
the first quarter of 1998. No cash dividends have been declared on such stock
since 1995. On March 27, 1998, the last trading day before the public
announcement of the Merger, the high and low sale prices of ISP Common Stock
were $17 15/16 and $17 5/8, respectively. On June 10, 1998, the high and low
sale prices of shares of ISP Common Stock were $18 5/16 and $18 1/16,
respectively. For additional information with respect to market prices in 1996,
see 'MARKET PRICES AND DIVIDENDS.'
<TABLE>
<CAPTION>
MARKET PRICE RANGE
------------------------------------------------------
FISCAL 1998 FISCAL 1997
--------------------------- ------------------------
HIGH LOW HIGH LOW
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
ISP Common Stock
(Symbol: ISP)
1st Quarter.......................................... $18 1/2 $13 9/16 $ 13 3/4 $ 11 3/4
2nd Quarter (through June 10, 1998).................. $20 1/2 $16 13/16 $ 14 3/8 11 1/2
3rd Quarter.......................................... N/A N/A $ 15 1/4 13 1/2
4th Quarter.......................................... N/A N/A $ 16 1/2 13 7/8
</TABLE>
6
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth, for the periods indicated, selected
historical consolidated financial information of ISP. This information should be
read in conjunction with the historical financial statements and notes thereto
included in ISP's Annual Report on Form 10-K for the year ended December 31,
1997, and Quarterly Report on Form 10-Q for the quarter ended March 29, 1998.
SELECTED FINANCIAL DATA OF ISP
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
YEAR ENDED DECEMBER 31, MARCH 30, MARCH 29,
-------------------------------------------------------- 1997 1998
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- -------- ----------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.................... $ 548.3 $ 600.0 $ 689.0 $ 716.5 $ 749.2 $ 191.2 $ 200.7
Gross profit................. 218.7 232.3 274.3 297.6 312.5 77.0 81.5
Operating income............. 65.1 99.2 127.1 136.0 143.3 36.8 38.3
Interest expense............. 24.5 28.7 33.1 28.7 26.1 6.7 6.2
Income before income taxes... 49.8 72.5 106.1 126.0 144.6 36.2 40.9
Net income................... 29.6 44.5 67.4 80.7 92.6 23.2 26.2
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 29,
-------------------------------------------------------- 1998
1993 1994 1995 1996 1997 (UNAUDITED)
-------- -------- -------- -------- -------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total working capital........ $ 78.3 $ 121.8 $ 142.6 $ 219.7 $ 267.0 $ 109.9
Total assets................. 1,243.3 1,251.3 1,312.9 1,316.9 1,395.6 1,435.7
Long-term debt less current
maturities................. 367.7 377.1 347.5 372.9 328.6 141.6
Stockholders' equity......... 534.0 582.4 643.2 701.5 784.2 805.6
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
YEAR ENDED DECEMBER 31, MARCH 30, MARCH 29,
-------------------------------------------------------- 1997 1998
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- -------- ----------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Gross profit margin.......... 39.9% 38.7% 39.8% 41.5% 41.7% 40.3% 40.6%
Operating margin............. 11.9% 16.5% 18.4% 19.0% 19.1% 19.2% 19.1%
Depreciation................. $ 28.7 $ 32.8 $ 36.0 $ 38.3 $ 41.6 $ 10.0 $ 10.5
Goodwill amortization........ 13.9 13.4 13.2 13.2 13.2 3.3 3.3
Capital expenditures and
acquisitions............... 62.9 31.1 38.9 54.6 68.5 13.9 75.1
</TABLE>
7
<PAGE>
The following table sets forth, for the periods indicated, selected
historical consolidated financial information of Holdings. This information
should be read in conjunction with the historical financial statements and notes
thereto included in Holdings' Annual Report on Form 10-K for the year ended
December 31, 1997, and Quarterly Report on Form 10-Q for the quarter ended March
29, 1998. All financial data relating to Holdings and its subsidiaries contained
herein have been prepared to retroactively reflect the formation of Holdings.
SELECTED FINANCIAL DATA OF HOLDINGS
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
YEAR ENDED DECEMBER 31, MARCH 30, MARCH 29,
-------------------------------------------------------- 1997 1998
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- -------- ----------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.................... $ 548.3 $ 600.0 $ 689.0 $ 716.5 $ 749.2 $ 191.2 $ 200.7
Operating income............. 65.1 99.2 127.1 136.0 141.3 36.3 37.8
Interest expense............. 24.5 28.7 33.1 38.3 73.6 18.6 17.9
Income from continuing
operations before income
taxes and extraordinary
items...................... 49.8 72.5 106.1 116.6 107.8 25.2 31.2
Income from continuing
operations before
extraordinary items and
cumulative effect of
accounting change.......... 23.8 37.1 55.1 60.8 54.0 12.2 15.7
Net income................... 14.4 28.0 32.8 53.9 54.0 12.2 15.7
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 29,
-------------------------------------------------------- 1998
1993 1994 1995 1996 1997 (UNAUDITED)
-------- -------- -------- -------- -------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total working capital........ $ 143.9 $ 228.0 $ 290.0 $ 476.8 $ 322.1 $ 165.7
Total assets................. 1,309.0 1,357.5 1,460.4 1,600.4 1,485.7 1,546.0
Long-term debt less current
maturities................. 367.7 285.4 280.3 834.3 798.8 615.7
Stockholders' equity
(deficit).................. (42.6) (15.8) (1.7) 42.7 261.8 272.7
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
YEAR ENDED DECEMBER 31, MARCH 30, MARCH 29,
-------------------------------------------------------- 1997 1998
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- -------- ----------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Depreciation................. $ 28.7 $ 32.8 $ 36.0 $ 38.3 $ 41.9 $ 10.0 $ 10.6
Goodwill amortization........ 13.9 13.4 13.2 13.2 13.3 3.3 3.3
Capital expenditures and
acquisitions............... 62.9 31.1 38.9 54.6 68.7 13.9 75.1
</TABLE>
8
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are pro forma summary condensed consolidated financial data
of Holdings and ISP. The pro forma balance sheet data give effect to the Merger
and the transactions contemplated thereby as if they had been consummated as of
March 29, 1998. The pro forma income statement data give effect to the Merger
and the transactions contemplated thereby as if they had been completed as of
January 1, 1997. The pro forma financial information does not purport to project
the financial position or the results of operations for any future period or to
represent what the financial position or results of operations would have been
if the Merger and the transactions contemplated thereby had been completed as of
the dates indicated.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 29, 1998
(THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HOLDINGS
PARENT ADJUSTMENTS PRO FORMA
ISP COMPANY ------------------------------ AFTER
ACTUAL ACTUAL ELIMINATIONS(1) ADJUSTMENTS MERGER
---------- -------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 15,084 $ 1,235 $ 16,319
Investments in securities and other
short-term investments................... 198,006 83,663 281,669
Accounts receivable--trade and other....... 114,980 114,980
Receivable from related parties, net....... 536 6,479 7,015
Inventories................................ 115,224 $ 5,765(2) 120,989
Other current assets....................... 18,430 555(2) 21,939
2,954(3)
---------- -------- ----------- ----------
Total current assets......................... 462,260 91,377 9,274 562,911
Property plant and equipment, net............ 517,982 5,643 523,625
Excess of cost over net assets of businesses
acquired, net.............................. 400,780 5,766 $ 7 142,102(2) 548,655
Loan receivable from subsidiary.............. 50,013 (50,013) 0
Investment in ISP............................ 675,082 (675,082) 0
Other assets................................. 54,685 7,723 (262) 62,146
---------- -------- --------------- ----------- ----------
Total assets................................. $1,435,707 $835,604 $(725,350) $ 151,376 $1,697,337
---------- -------- --------------- ----------- ----------
---------- -------- --------------- ----------- ----------
Current liabilities:
Short-term debt............................ $ 35,158 $ 16,770 $ 51,928
Current maturities of long-term debt....... 200,609 $ 810(2) 201,419
Accounts payable and accrued liabilities... 109,920 17,713 1,500(2) 137,117
7,984(3)
Income taxes............................... 6,658 1,154 7,812
---------- -------- ----------- ----------
Total current liabilities.................... 352,345 35,637 10,294 398,276
---------- -------- ----------- ----------
Long-term debt less current maturities....... 91,585 524,152 615,737
Long-term notes payable to related party..... 50,013 $ (50,013) 0
Deferred income taxes........................ 74,818 (255) 2,409(2) 76,972
Other liabilities............................ 61,360 3,068 64(3) 64,492
Stockholders' equity:
Common stock and paid-in capital........... 442,552 214,025 (313,217) 143,703(2) 487,063
Treasury stock, at cost.................... (37,091) (1,169) 38,260 0
Retained earnings.......................... 399,126 55,752 (399,126) (5,094)(3) 50,658
Accumulated other comprehensive income..... 999 4,139 (999) 4,139
---------- -------- --------------- ----------- ----------
Total stockholders' equity................... 805,586 272,747 (675,082) 138,609 541,860
---------- -------- --------------- ----------- ----------
Total liabilities and stockholders' equity... $1,435,707 $835,604 $(725,350) $ 151,376 $1,697,337
---------- -------- --------------- ----------- ----------
---------- -------- --------------- ----------- ----------
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
9
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HOLDINGS
PARENT ADJUSTMENTS PRO FORMA
ISP COMPANY ------------------------------ AFTER
ACTUAL ACTUAL ELIMINATIONS(1) ADJUSTMENTS MERGER
-------- ------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................................... $749,208 $ 749,208
-------- ---------
Cost of products sold............................... 436,693 $ 187 436,880
Selling, general and administrative................. 156,042 $ 1,263 425 $ 760(4) 158,490
Goodwill amortization............................... 13,176 118 3,639(5) 16,933
-------- ------- --------------- ----------- ---------
Total costs and expenses............................ 605,911 1,263 730 4,399 612,303
-------- ------- --------------- ----------- ---------
Operating income.................................... 143,297 (1,263) (730) (4,399) 136,905
Equity in net income of ISP......................... 77,103 (77,103)
Interest expense.................................... (26,126) (50,676) 3,190 777(6) (72,835)
Equity in earnings of joint venture................. 5,909 5,909
Other income, net................................... 21,558 15,988 (3,313) 34,233
-------- ------- --------------- ----------- ---------
Income before income taxes.......................... 144,638 41,152 (77,956) (3,622) 104,212
Income taxes........................................ (51,989) 12,853 (6)(7) (39,142)
-------- ------- --------------- ----------- ---------
Net income.......................................... $ 92,649 $54,005 $ (77,956) $ (3,628) $ 65,070
-------- ------- --------------- ----------- ---------
-------- ------- --------------- ----------- ---------
Earnings per common share:
Basic............................................. $ .96 $ .94
-------- ---------
-------- ---------
Diluted........................................... $ .96 $ .93
-------- ---------
-------- ---------
Weighted average number of common and common
equivalent shares outstanding:
Basic............................................. 96,061 69,394
-------- ---------
-------- ---------
Diluted........................................... 97,010 70,343
-------- ---------
-------- ---------
</TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
QUARTER ENDED MARCH 29, 1998
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HOLDINGS
PARENT ADJUSTMENTS PRO FORMA
ISP COMPANY ------------------------------ AFTER
ACTUAL ACTUAL ELIMINATIONS(1) ADJUSTMENTS MERGER
-------- ------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............................................. $200,703 $ 200,703
-------- ---------
Cost of products sold................................. 119,177 119,177
Selling, general and administrative................... 39,926 $ 395 $ 100 $ 190(4) 40,611
Goodwill amortization................................. 3,302 37 888(5) 4,227
-------- ------- --------------- ----------- ---------
Total costs and expenses.............................. 162,405 395 137 1,078 164,015
-------- ------- --------------- ----------- ---------
Operating income...................................... 38,298 (395) (137) (1,078) 36,688
Equity in net income of ISP........................... 21,802 (21,802)
Interest expense...................................... (6,176) (12,486) 724 203(6) (17,735)
Equity in earnings of joint venture................... 1,455 1,455
Other income, net..................................... 7,313 3,395 (753) 9,955
-------- ------- --------------- ----------- ---------
Income before income taxes............................ 40,890 12,316 (21,968) (875) 30,363
Income taxes.......................................... (14,710) 3,356 (5)(7) (11,359)
-------- ------- --------------- ----------- ---------
Net income............................................ $ 26,180 $15,672 $ (21,968) $ (880) $ 19,004
-------- ------- --------------- ----------- ---------
-------- ------- --------------- ----------- ---------
Earnings per common share:
Basic............................................... $ .27 $ .27
-------- ---------
-------- ---------
Diluted............................................. $ .27 $ .27
-------- ---------
-------- ---------
Weighted average number of common and common
equivalent shares outstanding:
Basic............................................... 95,978 69,311
-------- ---------
-------- ---------
Diluted............................................. 96,972 70,305
-------- ---------
-------- ---------
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
10
<PAGE>
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Reflects consolidation eliminations.
2. Reflects the application of the purchase method of accounting to the Merger.
Accordingly, the historical book values of ISP's assets and liabilities
attributable to the shares of ISP Common Stock owned by the minority
shareholders will be adjusted to their fair values as estimated as of the
Effective Date, with any excess of cost over the fair values of the net
assets allocated to goodwill. The pro forma adjustments represent
management's current estimate of the application of the purchase method of
accounting. The actual purchase accounting adjustments may differ from the
pro forma adjustments.
3. Reflects a nonrecurring charge and related deferred tax benefit to be
recorded in connection with the termination of Holdings' Stock Appreciation
Rights and Preferred Stock option programs.
4. Reflects a charge to be recorded over the remaining vesting periods in
connection with the termination of Holdings' Stock Appreciation Rights and
Preferred Stock option programs.
5. Reflects amortization of goodwill over a period of 40 years.
6. Reflects amortization of the write-up of long-term debt to fair value over
its average remaining life as a reduction of interest expense.
7. Reflects the deferred tax expense related to item (6), offset by the deferred
tax benefit related to item (4).
11
<PAGE>
THE MEETING
This Proxy Statement/Prospectus is being furnished to holders of ISP Common
Stock in connection with the solicitation of proxies by the ISP Board for use at
the Meeting.
TIME AND PLACE; PURPOSE
The Meeting will be held at 10:00 a.m., local time, on July 15, 1998 at the
offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, 25th Floor, New York,
New York. At the Meeting, holders of ISP Common Stock will be asked to consider
and vote upon a proposal to adopt the Merger Agreement, a proposal to amend the
ISP Incentive Plan to increase the number of authorized shares thereunder in
connection with the Merger, the election of directors and to transact such other
business as may properly come before the Meeting.
VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
The ISP Board has fixed the close of business on June 15, 1998, as the
Record Date for the determination of holders of ISP Common Stock entitled to
notice of, and to vote at, the Meeting. Only holders of record of shares of ISP
Common Stock at the close of business on that date will be entitled to vote at
the Meeting. At the close of business on the Record Date, there were 96,127,754
shares of ISP Common Stock outstanding and entitled to vote at the Meeting held
by 227 stockholders of record.
Each holder of record of ISP Common Stock on the Record Date is entitled to
cast one vote per share, in person or by proxy, on each proposal properly
presented at the Meeting. The presence, in person or by proxy, of the holders of
record of a majority of issued and outstanding shares of ISP Common Stock
entitled to vote at the Meeting is necessary to constitute a quorum at the
Meeting. The affirmative vote, in person or by proxy, of the holders of a
majority of the outstanding shares of ISP Common Stock is required to adopt the
Merger Agreement. The vote required for the approval of the amendment to the ISP
Incentive Plan is a majority of the shares of ISP Common Stock present in person
or represented by proxy and entitled to vote at the Meeting. The election of
directors of the Company requires the affirmative vote of a plurality of votes
properly cast by holders of record of outstanding shares of ISP Common Stock
present in person or represented by proxy and entitled to vote at the Meeting.
As of April 17, 1998, directors and executive officers of ISP and its
affiliates were beneficial owners of 80,673,039 outstanding shares of ISP Common
Stock, representing approximately 84% in total voting power of the shares of ISP
Common Stock outstanding on such date. Each such director and executive officer
has informed ISP that he intends to vote or direct the vote of all outstanding
shares of ISP Common Stock over which he has voting control in favor of adoption
of the Merger Agreement, in favor of the amendment to the ISP Incentive Plan and
for the election of the Board of Directors' nominees as directors of the
Company. Holdings, the owner of approximately 84% of the outstanding ISP Common
Stock, has agreed, pursuant to the Merger Agreement, to vote its shares in favor
of adoption of the Merger Agreement and the transactions contemplated thereby.
Accordingly, the approval of the Merger by the holders of ISP Common Stock, the
election of the nominees and approval of the amendment to the ISP Incentive Plan
are assured. See 'EXECUTIVE OFFICERS--Security Ownership of Certain Beneficial
Owners and Management.'
PROXIES
All shares of ISP Common Stock represented by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted in
accordance with the instructions indicated in such proxies; however, a properly
executed proxy marked 'Abstain,' although counted for purposes of determining
whether there is a quorum at the Meeting, will not be voted. If no instructions
are indicated, the shares represented by such proxies will be voted (1) FOR the
proposal to adopt the Merger Agreement, (2) FOR the proposal to adopt the
amendment to the ISP Incentive Plan, (3) FOR the election of the Board of
Directors' nominees as directors and (4) in the discretion of the persons named
as proxies on the enclosed proxy card, on such other matters as may properly
come before the Meeting.
A stockholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of ISP a signed notice of revocation or a later
dated signed proxy or by attending the Meeting and voting in person. Attendance
at the Meeting will not in itself constitute the revocation of a proxy. Any
written notice of revocation or subsequent proxy should be sent so as to be
delivered to International Specialty Products Inc., 818 Washington
12
<PAGE>
Street, Wilmington, Delaware 19801, Telephone Number: (302) 429-8554, Attn:
Corporate Secretary, at or before the vote to be taken at the Meeting.
The cost of solicitation of proxies will be paid by ISP. In addition to
solicitation by mail, officers and regular employees of ISP may solicit proxies
by telephone, facsimile or by personal interviews. Such persons will receive no
additional compensation for such services. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward soliciting
material to the beneficial owners of shares held of record by them and will be
reimbursed for their reasonable expenses.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
PROPOSAL 1--THE MERGER
EFFECT OF THE MERGER
Upon consummation of the Merger, pursuant to the Merger Agreement, (a) ISP
will be merged with and into Holdings, with Holdings being the Surviving
Corporation in the Merger, (b) each share of ISP Common Stock issued and
outstanding immediately prior to the Effective Date (other than shares held in
treasury or by Holdings) will be automatically converted into one share of
Surviving Corporation Common Stock, (c) each issued and outstanding share of ISP
Common Stock owned of record by Holdings or held in treasury immediately prior
to the Effective Date will be cancelled and retired without payment of any
consideration therefor and will cease to exist and (d) each issued and
outstanding share of common stock of Holdings will automatically become a number
of shares of Surviving Corporation Common Stock equal to the Conversion Rate. On
the Effective Date, the name of Holdings will be changed to 'International
Specialty Products Inc.'
The directors and officers of ISP on the Effective Date will be the initial
directors and officers of the Surviving Corporation, until their respective
successors are duly elected or appointed and qualified in the manner provided in
the Certificate of Incorporation and By-Laws of the Surviving Corporation or as
otherwise provided by law.
The shares of Surviving Corporation Common Stock will be substantially
similar to the shares of ISP Common Stock. See 'COMPARISON OF STOCKHOLDERS'
RIGHTS.'
It is a condition precedent to the Merger that the shares of Surviving
Corporation Common Stock to be issued pursuant to the Merger be listed on the
NYSE.
If the Merger Agreement is adopted by the stockholders of ISP and the other
conditions to the Merger are satisfied or waived, the Merger will become
effective at the time when the Certificate of Merger is filed with the Secretary
of State of the State of Delaware.
At the Effective Date, each then outstanding option to purchase ISP Common
Stock granted under the ISP Incentive Plan will be assumed by the Surviving
Corporation and will be deemed to constitute an option to acquire shares of
Surviving Corporation Common Stock on terms equivalent to those in effect with
respect to such options immediately prior to the Effective Date. See 'THE MERGER
AGREEMENT--The Merger-- Treatment of Holdings' Options and SARs' and 'AMENDMENT
OF ISP INCENTIVE PLAN.'
REASONS FOR THE MERGER
The Boards of Directors of ISP and Holdings believe that ISP Common Stock
has been undervalued in the public market for quite some time, primarily because
of the lack of liquidity in the market for ISP Common Stock resulting from the
relatively small public float and the fact that approximately 84% of ISP Common
Stock is held by Holdings. The Boards of Directors of ISP and Holdings believe
that the Merger is an important step in helping to address the lack of liquidity
in the Company's stock by eliminating the need for Holdings to maintain
ownership of at least 80% of the ISP Common Stock in order to avoid certain
adverse tax consequences, thereby enabling ISP to utilize equity for equity
financings, acquisitions and other corporate purposes.
Holdings may pursue both debt and equity offerings following consummation
of the Merger with a view toward refinancing its debt on more favorable terms
and increasing liquidity in the Surviving Corporation's stock.
13
<PAGE>
BACKGROUND OF THE MERGER
Commencing in early 1997, the ISP Board began to address itself to the fact
that ISP Common Stock was, in its view, undervalued relative to comparable
specialty chemical companies and its belief that the lack of liquidity in the
public market for shares of ISP Common Stock was having an adverse effect on the
performance of ISP Common Stock.
During a May 19, 1997 telephone conference call, James Rogers, the Chief
Financial Officer of Holdings, expressed to the ISP Board Holdings' concerns
regarding the liquidity and market performance of ISP Common Stock and suggested
that a potential business combination of Holdings and ISP (a 'Merger
Transaction') might be a possible solution to this situation. The ISP Board
determined that, in light of Holdings' significant ownership interest in ISP and
common directors and officers, it was appropriate to form the Special Committee,
and requested that Charles M. Diker and Burt C. Manning, independent directors
of ISP, serve as members thereof. The ISP Board advised Messrs. Diker and
Manning to engage legal counsel and retain a financial advisor so that the ISP
Board would be prepared to respond should Holdings make a proposal regarding a
Merger Transaction.
On May 23, 1997, pursuant to the directions of the ISP Board, Messrs. Diker
and Manning met with representatives of, and retained, the law firm of Dewey
Ballantine as special counsel to the Special Committee. Messrs. Diker and
Manning discussed with representatives of Dewey Ballantine the Special
Committee's role in the Merger Transaction and the fiduciary obligations of the
Special Committee to the ISP stockholders (other than Holdings).
At a meeting of the ISP Board on September 8, 1997, Mr. Rogers, on behalf
of Holdings, made a formal presentation to the ISP Board at which the liquidity
issue and its perceived negative impact on the market price of ISP Common Stock
were further discussed. Mr. Rogers also discussed the possibility that a Merger
Transaction might help to enable ISP to increase the liquidity of its stock. A
formal resolution was adopted by the ISP Board to form the Special Committee to
act on behalf of the ISP Board in matters relating to any transaction proposed
by Holdings to address the Company's equity performance concerns. The Special
Committee was authorized to (i) consider the Merger Transaction and, if a
proposal therefor was made by Holdings, to conduct, or supervise the conduct of,
any negotiations with respect to the Merger Transaction, (ii) make
recommendations to the ISP Board with respect to the Merger Transaction, it
being understood that the ISP Board would not approve the Merger Transaction
unless the Special Committee so recommended, (iii) retain financial advisors of
its choice to assist the Special Committee, including with respect to the
negotiations or preparation of a fairness opinion as appropriate, and (iv)
engage legal counsel of its choice to assist the Special Committee.
During June and September of 1997, Messrs. Diker and Manning interviewed a
number of potential financial advisors to the Special Committee. On October 9,
1997, the Special Committee formally retained J.P. Morgan as financial advisor
to assist the Special Committee in the negotiation of the Merger Transaction and
to issue an opinion as to the fairness, from a financial point of view, to the
stockholders of ISP (other than Holdings) of the Merger Transaction if one was
ultimately agreed to by both parties.
During the period from September 19, 1997 through March 26, 1998, the
Special Committee met on numerous occasions with representatives of J.P. Morgan
and Dewey Ballantine to discuss J.P. Morgan's analysis of the value of ISP
Common Stock and the liabilities of Holdings. During this period J.P. Morgan
conducted additional due diligence and revised its financial assumptions. In
addition, during this period, Dewey Ballantine held discussions with Weil,
Gotshal & Manges LLP, counsel to Holdings ('Weil Gotshal'), regarding the terms
of a merger agreement and Dewey Ballantine and Weil Gotshal revised drafts of
the agreement in the event a proposal regarding the Merger Transaction were
made.
On March 27, 1998, after the close of trading on the NYSE, the Special
Committee received a proposal from Holdings under the terms of which Holdings
and ISP would merge and the stockholders of Holdings would surrender shares of
ISP Common Stock based on a formula which would value the ISP Common Stock at
$18 1/4 per share and value the net liabilities of Holdings at book value of
$400 million. That same day, the Special Committee met with representatives of
Dewey Ballantine and J.P. Morgan. After discussion of such proposal, the Special
Committee determined that the proposal was not a basis for further discussion or
negotiation with Holdings and directed J.P. Morgan to so advise Holdings.
On March 28, 1998, the Special Committee received a revised Merger
Transaction proposal from Holdings, under the terms of which the ISP Common
Stock would be valued at $17 15/16 per share, equal to the closing price
14
<PAGE>
of the ISP Common Stock on the NYSE on March 27, 1998, and the net liabilities
of Holdings would be valued at book value of $400 million. At a meeting with
representatives of Dewey Ballantine and J.P. Morgan, the Special Committee
discussed the revised proposal and again determined that it was not a basis for
negotiation of a merger between Holdings and ISP.
On March 29, 1998, the Special Committee received two revised merger
proposals from Holdings. The first revised proposal valued the ISP Common Stock
at $17 1/4 per share and the net liabilities of Holdings at book value of $400
million. After meeting with representatives of Dewey Ballantine and J.P. Morgan,
and discussing this revised proposal, the Special Committee determined again
that such proposal did not provide a basis for negotiation and determined not to
make a counter-offer to Holdings. This decision was conveyed to Holdings. Later
in the day, on March 29, 1998, the Special Committee received another revised
proposal from Holdings which valued the ISP Common Stock at $16 1/2 per share
and valued the net liabilities of Holdings at $420 million.
After meeting to consider the second revised proposal and discussing such
proposal with representatives of Dewey Ballantine and J.P. Morgan, the Special
Committee made a counter-offer that valued the ISP Common Stock at $15 3/4 per
share and the net liabilities of Holdings at $440 million. Later, on the evening
of March 29, 1998, the Special Committee met with representatives of Dewey
Ballantine and J.P. Morgan to discuss Holdings' response to its counter-offer
and it was reported by J.P. Morgan that Holdings had rejected the Special
Committee's counter-offer and stated that it would not make another revised
proposal. The Special Committee determined not to revise its counter-offer and
the meeting of the Special Committee was adjourned.
On March 30, 1998, the Special Committee met with representatives of Dewey
Ballantine and J.P. Morgan to discuss another revised proposal received from
Holdings which had been communicated by Holdings to representatives of J.P.
Morgan and Dewey Ballantine on March 29, 1998, after adjournment of the final
Special Committee meeting on such date. The Special Committee was advised that
Holdings' revised merger proposal valued the ISP Common Stock at $16 3/8 per
share and valued the net liabilities of Holdings at $425 million. After
discussion of this new proposal, the Special Committee rejected the proposal and
then received a new revised offer from Holdings. Such offer valued the ISP
Common Stock at $16 1/8 per share and valued the net liabilities of Holdings at
$430 million. Following (i) a discussion of the most recent Holdings proposal,
(ii) presentations by J.P. Morgan and (iii) a review of the terms of the Merger
Agreement, the Special Committee unanimously recommended that the ISP Board
approve and adopt the Merger Agreement on those terms.
With respect to their service on the Special Committee, Messrs. Diker and
Manning entered into a Compensation and Indemnification Agreement with ISP,
dated October 10, 1997. Pursuant to this agreement, each of Messrs. Diker and
Manning received $88,000 (which amount consisted of a $50,000 fee for serving on
the Special Committee, plus $2,000 per Special Committee meeting), plus
reimbursement of out-of-pocket expenses, in addition to the regular compensation
paid to members of the ISP Board. Pursuant to this agreement, ISP has agreed to
indemnify and hold harmless Messrs. Diker and Manning with respect to their
service on, and any matter or transaction considered by, the Special Committee
to the full extent permitted by law and by the indemnification provisions of the
ISP Charter.
RECOMMENDATION OF ISP BOARD
On March 30, 1998, by unanimous vote of all directors present and voting,
based in part on the recommendation and approval of the Special Committee, the
ISP Board (i) determined that the Merger Agreement and the transactions
contemplated thereby, including the Merger, are fair to, and in the best
interests of, the stockholders of ISP (other than Holdings), (ii) approved the
Merger Agreement and the transactions contemplated thereby, including the
Merger, and (iii) resolved to recommend to the stockholders of ISP that they
approve and adopt the Merger Agreement and the transactions contemplated
thereby. ACCORDINGLY, THE ISP BOARD RECOMMENDS THAT THE STOCKHOLDERS OF ISP
APPROVE AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY. See 'THE MERGER AGREEMENT.' In considering the recommendation of the
ISP Board and the Special Committee with respect to the Merger, stockholders
should be aware that certain officers and directors of Holdings and ISP have
interests in the Merger which may present them with certain potential conflicts
of interest in connection with the Merger. See '--Interests of Certain Persons
in the Merger.'
15
<PAGE>
In reaching its determination to advise the ISP Board to approve the Merger
Agreement and the transactions contemplated thereby, the Special Committee
considered the following factors, each of which, in the view of the Special
Committee, supported such determination:
(i) the presentation by, and the advice and views of J.P. Morgan and
the opinion of J.P. Morgan, dated as of March 30, 1998, to the effect that
the consideration to be received by the stockholders of ISP (other than
Holdings) in the Merger Transaction was fair to such stockholders from a
financial point of view;
(ii) the terms of the Merger Agreement, including the parties'
respective representations, warranties and covenants and the conditions to
their respective obligations, including a provision whereby the Special
Committee could terminate the Merger Agreement if the Special Committee
determined, in good faith, after consultation with J.P. Morgan and Dewey
Ballantine, that the Special Committee's fiduciary obligations under
applicable law require it to withdraw its recommendation of the Merger
Agreement and the transactions contemplated thereby; and
(iii) certain factors related to the business of Holdings and ISP,
including the advice and views of J.P. Morgan that the merger of Holdings
and ISP provided the opportunity to clarify to the market the relationship
between the two companies.
FAIRNESS OPINION
Pursuant to an engagement letter dated October 9, 1997, ISP retained J.P.
Morgan as its exclusive financial advisor with respect to the delivery of a
fairness opinion to the Special Committee in connection with the proposed
Merger, and to assist the Special Committee in the negotiation of the Merger.
At the meeting of the Special Committee on March 30, 1998, J.P. Morgan
rendered its oral opinion to the Special Committee that, as of such date, the
consideration to be paid to the stockholders of ISP in the proposed Merger was
fair, from a financial point of view, to such stockholders (other than
Holdings). J.P. Morgan has confirmed its oral opinion by delivering its written
opinion to the Special Committee, dated March 30, 1998, that, as of such date,
the consideration to be paid to the stockholders of ISP in the proposed Merger
was fair, from a financial point of view, to such stockholders (other than
Holdings). No limitations were imposed by the Special Committee upon J.P. Morgan
with respect to the investigations made or procedures followed by it in
rendering its opinions.
The full text of the written opinion of J.P. Morgan dated March 30, 1998,
which sets forth the assumptions made, matters considered and limits on the
review undertaken, is attached as Annex B to this Proxy Statement/Prospectus and
is incorporated herein by reference. Stockholders are urged to read the opinion
in its entirety. J.P. Morgan's written opinion is addressed to the Special
Committee, is directed only to the consideration to be paid in the Merger and
does not constitute a recommendation to any stockholder of ISP as to how such
stockholder should vote at the Meeting. The summary of the opinion of J.P.
Morgan set forth in this Proxy Statement/Prospectus is qualified in its entirety
by reference to the full text of such opinion.
In arriving at its opinions, J.P. Morgan reviewed, among other things, (i)
the Merger Agreement, (ii) the audited financial statements of ISP and the
unaudited financial statements of Holdings for the fiscal year ended December
31, 1997, and the unaudited financial statements of ISP for the period ended
February 22, 1998 and of Holdings for the period ended March 27, 1998, (iii)
current and historical market prices of the common stock of ISP, (iv) certain
publicly available information concerning the business of ISP and of certain
other companies engaged in businesses comparable to those of ISP, and the
reported market prices for certain other companies' securities deemed
comparable, (v) certain internal financial analyses and forecasts prepared by
ISP and Holdings and their respective managements, (vi) certain agreements with
respect to outstanding indebtedness or obligations of ISP and Holdings, and
(vii) certain public reports prepared by debt rating agencies. J.P. Morgan also
held discussions with certain members of the management of ISP and Holdings with
respect to certain aspects of the Merger, the past and current business
operations of ISP and Holdings, the financial condition and future prospects and
operations of ISP and Holdings, the effects of the Merger on the financial
condition and future prospects of ISP, and certain other matters believed
necessary or appropriate to J.P. Morgan's inquiry. In
16
<PAGE>
addition, J.P. Morgan reviewed such other financial studies and analyses and
considered such other information as it deemed appropriate for the purposes of
its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by ISP or Holdings or otherwise reviewed by J.P. Morgan, and
J.P. Morgan has not assumed any responsibility or liability therefor. J.P.
Morgan has not conducted any valuation or appraisal of any assets or
liabilities, nor have any valuations or appraisals been provided to J.P. Morgan.
In relying on financial analyses and forecasts provided to J.P. Morgan, J.P.
Morgan has assumed that they have been reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments by management as
to the expected future results of operations and financial condition of ISP to
which such analyses or forecasts relate. J.P. Morgan has also assumed that the
Merger will have the tax consequences described in discussions with, and
materials furnished to J.P. Morgan by, representatives of ISP, and that the
other transactions contemplated by the Merger Agreement will be consummated as
described in the Merger Agreement.
The projections furnished to J.P. Morgan for ISP and Holdings were prepared
by the respective managements of ISP and Holdings. ISP and Holdings do not
publicly disclose internal management projections of the type provided to J.P.
Morgan in connection with J.P. Morgan's analysis of the Merger, and such
projections were not prepared with a view toward public disclosure. These
projections were based on numerous variables and assumptions that are inherently
uncertain and may be beyond the control of management, including, without
limitation, factors related to general economic and competitive conditions and
prevailing interest rates. Accordingly, actual results could vary significantly
from those set forth in such projections.
J.P. Morgan's opinions are based on economic, market and other conditions
as in effect on, and the information made available to J.P. Morgan as of, the
date of such opinions. Subsequent developments may affect the written opinion
dated March 30, 1998, and J.P. Morgan does not have any obligation to update,
revise or reaffirm such opinion. J.P. Morgan expressed no opinion as to the
price at which the Surviving Corporation Common Stock will trade at any future
time.
J.P. Morgan was not requested to and did not provide advice concerning the
structure, the specific amount of consideration, or any other aspects of the
Merger, or to provide services other than the delivery of its opinion. J.P.
Morgan was not authorized to and did not solicit expressions of interest from
any other parties with respect to the sale of all or any part of ISP or any
other alternative transaction.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its opinion.
PUBLIC TRADING MULTIPLES. Using publicly available information, J.P.
Morgan compared selected financial data of ISP with similar data for selected
publicly traded companies engaged in businesses which J.P. Morgan judged to be
analogous to ISP. The companies selected by J.P. Morgan were categorized in two
major groups, specialty chemicals and commodity chemicals, according to the
businesses in which they were participating. The specialty chemicals group
included Albermarle Corp., Cytec Industries Inc., BetzDearborn Inc., Engelhard
Corp., Ecolab Inc., Ethyl Corp., W.R. Grace & Co., Hercules Inc., Lubrizol
Corp., M.A. Hanna & Co., Morton International Inc., Nalco Chemical Co., Witco
Corp., Dexter Corp., and H.B. Fuller Co. The commodity chemicals group included
Arco Chemical Co., Cabot Corp., Dow Chemical, Union Carbide Corp., Georgia Gulf
Corp., Geon Co., Millennium Chemicals Inc., and General Chemical Group Inc.
These companies were selected, among other reasons, because they are engaged in
businesses similar to that of ISP, and have operating and net margins for the
twelve months ended December 31, 1997, as well as long-term earnings growth
rates (as forecasted by the following equity analysts covering ISP: Christopher
Crooks of Janney Montgomery Scott, Michael Kostolansky of BT-Alex Brown,
Kimberly Ritrievi of Goldman Sachs, Timothy Gerdeman of Salomon Smith Barney,
Christopher Bodnar of Bear Stearns, and Stuart Pulvirent of Furman Selz),
similar to ISP's. For each comparable company, publicly available financial
performance through the twelve months ended December 31, 1997 (or, in some
cases, September 30, 1997, as available) was measured. J.P. Morgan selected the
median value for each multiple, specifically: firm value over 1998 and 1999
earnings before interest, taxes, depreciation and amortization ('EBITDA'); and
equity value over 1998 and 1999 earnings. These multiples
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were then applied to ISP's EBITDA and earnings as projected by the
aforementioned equity analysts, yielding implied trading values for ISP Common
Stock of $14.62 to $18.46 per share.
DISCOUNTED CASH FLOW ANALYSIS. J.P. Morgan conducted a discounted cash
flow analysis for the purpose of determining the fully diluted equity value per
share of ISP Common Stock. J.P. Morgan calculated the unlevered free cash flows
that ISP is expected to generate during fiscal years 1998 through 2002 based
upon financial projections prepared by the management of ISP for the year ending
on December 31, 1998 and upon the median earnings long term growth rate as
projected by the aforementioned equity analysts for the fiscal years 1999
through 2002. J.P. Morgan also explored the impact to free cash flows of
alternative business scenarios, such as the lower growth and margins from a
downturn in the business cycle, or higher growth and margins from implementation
of alternative management strategies. J.P. Morgan also calculated a range of
terminal asset values of ISP at the end of the five-year period ending December
31, 2002 by applying an exit multiple ranging from seven times to eight times
ISP's fiscal 2002 EBITDA. The unlevered free cash flows and the range of
terminal asset values were then discounted to present values using a range of
discount rates from 8.5% to 10.5%, which were chosen by J.P. Morgan based upon
an analysis of the weighted average cost of capital of ISP and other companies
with businesses analogous to ISP. The present value of the unlevered free cash
flows and the range of terminal asset values were then adjusted for ISP's
estimated 1997 fiscal year-end excess cash, option exercise proceeds and total
debt. Based on the aforementioned assumptions, the discounted cash flow analysis
indicated a range of equity values for ISP Common Stock of $13.36 to $23.17 per
share.
VALUATION OF HOLDINGS' NET LIABILITIES. J.P. Morgan analyzed the value of
Holdings' assets and liabilities for the purpose of determining the value of the
net liabilities to be assumed by ISP in connection with the Merger. J.P. Morgan
calculated the market value of the net liabilities by marking to market the
public debt of Holdings using the last bid price on March 27, 1998 (the last
business day prior to announcement of the Merger), eliminating book assets
lacking market value (property, plant and equipment, and the goodwill accounts)
and discounting to present values the deferred assets. Based on the
aforementioned assumptions, J.P. Morgan determined the value of the net
liabilities to be assumed by ISP in connection with the Merger to be a range
between the book value and market value of the net liabilities, or approximately
$402.2 million to $442.7 million.
The summary set forth above does not purport to be a complete description
of the analyses or data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. J.P. Morgan believes that the summary set forth
above and their analyses must be considered as a whole and that selecting
portions thereof, without considering all of its analyses, could create an
incomplete view of the processes underlying its analyses and opinion. J.P.
Morgan based its analyses on assumptions that it deemed reasonable, including
assumptions concerning general business and economic conditions and
industry-specific factors. The other principal assumptions upon which J.P.
Morgan based its analyses are set forth above under the description of each such
analysis. J.P. Morgan's analyses are not necessarily indicative of actual values
or actual future results that might be achieved, which values may be higher or
lower than those indicated. Moreover, J.P. Morgan's analyses are not and do not
purport to be appraisals or otherwise reflective of the prices at which
businesses actually could be bought or sold.
As a part of its investment banking business, J.P. Morgan and its
affiliates are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, investments for passive
and control purposes, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements, and valuations for estate,
corporate and other purposes. J.P. Morgan was selected to deliver an opinion to
the Special Committee with respect to the Merger on the basis of such experience
and its familiarity with ISP.
For its services in connection with the Merger (including the delivery of
its opinion), ISP has agreed to pay J.P. Morgan a fee of $1,000,000, $200,000 of
which was paid at the time of J.P. Morgan's engagement, $600,000 of which was
paid at the time J.P. Morgan delivered its opinion, and $200,000 of which is
payable upon closing of the Merger. In addition, ISP has agreed to reimburse
J.P. Morgan for the reasonable fees and disbursements of counsel incurred by
J.P. Morgan in performing its engagement, and will indemnify J.P. Morgan against
certain liabilities, including liabilities arising under the Federal securities
laws.
J.P. Morgan has no other financial advisory or other relationships with ISP
or Holdings. In the ordinary course of their businesses, affiliates of J.P.
Morgan may actively trade the debt and equity securities of ISP or
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Holdings for their own accounts or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Special Committee with respect to
the Merger, stockholders should be aware that certain members of ISP's
management and the ISP Board have certain interests that are in addition to or
different from the interests of stockholders of ISP generally. The Special
Committee was aware of these interests and considered them, among other matters,
in approving the Merger Agreement. See 'COMPENSATION OF EXECUTIVE OFFICERS OF
THE COMPANY--Summary Compensation Table.'
Indemnification. The Merger Agreement provides that the present and former
directors and officers of ISP will be indemnified by the Surviving Corporation
after the Effective Date against all liabilities pertaining to any matter
existing or occurring on or prior to the Effective Date (including the
transactions contemplated by the Merger Agreement), to the extent that a
corporation is permitted under Delaware law to indemnify its own directors or
officers (and the Surviving Corporation will pay expenses in advance of the
final disposition of any such action or proceeding to each such director or
officer of ISP seeking indemnification thereunder to the full extent permitted
by law). The Surviving Corporation has also agreed in the Merger Agreement that,
from and after the Effective Date, it will maintain for a period of at least six
years from the Effective Date, directors' and officers' liability insurance
providing at least the same amounts and coverage with respect to all persons
currently covered under ISP's officers' and directors' liability insurance
policies, which insurance shall contain terms and conditions which are
substantially no less advantageous to the covered persons than such existing
insurance, pertaining to any matter existing or occurring on or prior to the
Effective Date (including the transactions contemplated by the Merger
Agreement); provided, however, that the Surviving Corporation shall not be
required to maintain or procure such coverage to pay an annual premium in excess
of 200% of the current annual premium paid by ISP for its existing coverage (the
'Cap'); and provided, further, that if equivalent coverage cannot be obtained,
or can be obtained only by paying an annual premium in excess of 200% of the
Cap, the Surviving Corporation shall only be required to obtain as much coverage
as can be obtained by paying an annual premium equal to 200% of the Cap. The
By-Laws of the Surviving Corporation will be those of ISP immediately prior to
the Effective Date, and the Certificate of Incorporation of the Surviving
Corporation will be amended as of the Effective Date to be identical to the ISP
Charter. Therefore, the provisions providing for indemnification of ISP's
directors and officers immediately prior to the Merger would remain unchanged
upon consummation of the Merger.
Treatment of Holdings' Options and SARs. In accordance with the Merger
Agreement, upon the Effective Date, (i) each outstanding option (each, a
'Holdings Preferred Stock Option') to purchase shares of Holdings Series A
Cumulative Redeemable Preferred Stock will entitle its holder to receive cash
and options to purchase Surviving Corporation Common Stock under the ISP
Incentive Plan, and (ii) each stock appreciation right (each, an 'SAR') granted
by Holdings based upon the value of the common stock of Holdings will entitle
its holder to receive cash on the Effective Date or on subsequent vesting dates
pursuant to the agreement under which the SARs were granted, if any. See 'THE
MERGER AGREEMENT--The Merger--Treatment of Holdings' Options and SARs' and
'COMPENSATION OF EXECUTIVE OFFICERS OF THE COMPANY--Summary Compensation Table.'
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase under generally accepted
accounting principles.
REGULATORY REQUIREMENTS
Except as described in 'THE MERGER AGREEMENT--Conditions to the Merger' and
except for the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware, no other Federal or state regulatory requirements must
be complied with or approvals must be obtained prior to consummation of the
Merger.
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FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Surviving Corporation Common Stock issued or converted in the
Merger will be freely transferable, except that any shares of Surviving
Corporation Common Stock received by persons who are deemed to be 'affiliates'
(as such term is defined under the Securities Act) of ISP prior to the Merger
may be resold by them only in transactions permitted by the resale provisions of
Rule 145 promulgated under the Securities Act (or Rule 144 if such persons are
or become affiliates of Holdings) or as otherwise permitted under the Securities
Act. Persons who may be deemed to be affiliates of ISP or Holdings generally
include individuals or entities that control, are controlled by, or are under
common control with, such party and may include certain officers and directors
of such party as well as principal stockholders of such party.
APPRAISAL RIGHTS
Holders of ISP Common Stock are not entitled to appraisal rights under the
DGCL with respect to their shares in connection with the Merger because shares
of such stock were listed for trading on the NYSE at the Record Date and such
holders will only be entitled to receive shares of Surviving Corporation Common
Stock, which shares will, at the Effective Date, be approved for listing on the
NYSE, subject to official notice of issuance in the Merger.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, 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 MERGER
The Merger Agreement provides that, following the adoption of the Merger
Agreement by the stockholders of ISP and the satisfaction or waiver of the other
conditions of the Merger, ISP will be merged with and into Holdings, with
Holdings continuing as the Surviving Corporation. As a result of the Merger, ISP
will cease to exist and Holdings will change its name to 'International
Specialty Products Inc.'
If the Merger Agreement is adopted by the stockholders of ISP and the other
conditions to the Merger are satisfied or waived, the Merger will become
effective at the time the Certificate of Merger is filed with the Secretary of
State of the State of Delaware.
Conversion of Shares. Prior to the Merger, all of the assets and
liabilities of ISP will be transferred to Newco pursuant to the Transfer. Upon
consummation of the Merger, pursuant to the Merger Agreement, (a) ISP will be
merged with and into Holdings, with Holdings being the surviving corporation in
the Merger, (b) each share of ISP Common Stock issued and outstanding
immediately prior to the Effective Date (other than shares held in treasury or
by Holdings) will be automatically converted into one share of Surviving
Corporation Common Stock, (c) each issued and outstanding share of ISP Common
Stock owned of record by Holdings and each share of ISP Common Stock held in
treasury immediately prior to the Effective Date will be cancelled and retired
without payment of any consideration therefor and will cease to exist, (d) Newco
will become a direct, wholly-owned subsidiary of the Surviving Corporation, and
(e) each issued and outstanding share of common stock of Holdings will
automatically become a number of shares of Surviving Corporation Common Stock
equal to the Conversion Rate.
Certificate of Incorporation and By-Laws. The Certificate of Incorporation
of the Surviving Corporation, until thereafter amended as provided by the DGCL
and such Certificate of Incorporation, will be the Certificate of Incorporation
of Holdings immediately prior to the Effective Date, except that it will be
amended, as of the Effective Date, to be identical to the ISP Charter as in
effect immediately prior to the Effective Date. The By-Laws of ISP immediately
prior to the Effective Date shall be the By-Laws of the Surviving Corporation
until thereafter amended as provided by the DGCL, the Certificate of
Incorporation of the Surviving Corporation and such By-Laws.
Directors and Officers. The directors of ISP immediately prior to the
Effective Date shall be the initial directors of the Surviving Corporation and
will hold office from the Effective Date, until their respective successors are
duly elected or appointed and qualified in the manner provided in the
Certificate of Incorporation and By-Laws of the Surviving Corporation or as
otherwise provided by law. For information with respect to the
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directors of ISP who have been nominated for election at the Meeting, see
'ELECTION OF DIRECTORS.' The officers of ISP immediately prior to the Effective
Date shall be the initial officers of the Surviving Corporation and will hold
office from the Effective Date until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation or as otherwise provided
by law.
ISP Incentive Plan. As of the Effective Date, by virtue of the Merger and
without any action on the part of the holders thereof, all outstanding stock
options granted pursuant to the ISP Incentive Plan shall be exercisable for
shares of Surviving Corporation Common Stock at the same prices and on the same
terms and conditions as such options would have been exercisable for ISP Common
Stock immediately prior to the Merger. As of the Effective Date, the ISP
Incentive Plan shall continue as the ISP Incentive Plan of the Surviving
Corporation and shall be amended to provide that all stock options issued
thereunder that are outstanding as of the Effective Date, or that may be granted
thereunder after the Effective Date, shall become immediately exercisable if a
Change of Control (as defined in the ISP Incentive Plan) shall occur and at any
time following such Change of Control, the Surviving Corporation (or any
successor thereto) terminates without cause the employment of the holder of such
stock option, such holder's employment is terminated as a result of his death or
permanent disability or such holder terminates such employment for 'good
reason.' The holder thereof shall be deemed to terminate his employment for
'good reason' if he does so as a result of a change or changes in the terms of
his employment that are materially adverse to the holder, including with respect
to his salary and bonus, level of responsibility or geographic location of
employment. For information with respect to proposed amendments to the ISP
Incentive Plan, see 'AMENDMENT TO ISP INCENTIVE PLAN.'
Treatment of Holdings' Options and SARs. (a) As of the Effective Date, by
virtue of the Merger and without any further action on the part of the holders
thereof, each outstanding Holdings Preferred Stock Option that has not vested
prior to the Effective Date, will represent, subject to paragraph (f) below, the
right to receive cash from the Surviving Corporation on each vesting date (each,
a 'Preferred Stock Vesting Date') prescribed by the applicable agreement
pursuant to which Holdings granted such Holdings Preferred Stock Options (the
'Option Agreements'), in an amount equal to the excess of (i) the Option Price
(as hereinafter defined) with respect to the Holdings Preferred Stock Options
that vest on such Preferred Stock Vesting Date, over (ii) the aggregate exercise
price of such vested Holdings Preferred Stock Options. The Option Price shall be
equal to (i) the number of shares of Surviving Corporation Common Stock that
would have been received in the Merger pursuant to the Merger Agreement if,
immediately prior to the Effective Date and subject to paragraph (e) below, the
applicable Holdings Preferred Stock Option had been exercised and the shares of
preferred stock underlying the Holdings Preferred Stock Options had been
converted into shares of common stock of Holdings multiplied by (ii) $16.125
(the value determined by ISP and Holdings with respect to the shares of ISP
Common Stock owned by Holdings being relinquished in the Merger).
(b) On the Effective Date, each holder of Holdings Preferred Stock Options
also will be granted options under the ISP Incentive Plan (the 'New Stock
Options') to purchase such number of shares of Surviving Corporation Common
Stock as the holder would have been entitled to receive pursuant to the Merger
Agreement, assuming such holder had exercised all of such holder's Holdings
Preferred Stock Options immediately prior to the Effective Date and converted
such shares of preferred stock into common stock of Holdings and subject to
paragraph (e) below. The New Stock Options will have an exercise price equal to
$16.125, will vest, subject to the terms of the ISP Incentive Plan, in
accordance with the vesting schedule of such holder's Option Agreement and will
have such other terms as are prescribed by the ISP Incentive Plan and the
agreement pursuant to which the New Stock Options will be issued to such holder.
The term of expiration of the New Stock Options will be the same as the term of
expiration of the Holdings Preferred Stock Options.
(c) As of the Effective Date, with respect to SARs granted by Holdings
based upon the value of common stock of Holdings that are vested as of the
Effective Date and, with respect to SARs that are not vested prior to the
Effective Date, on each subsequent vesting date (each, an 'SAR Vesting Date')
prescribed by the agreement pursuant to which Holdings granted such holder SARs
(the 'SAR Agreements'), such SARs will represent, subject to paragraph (f)
below, the right to receive from the Surviving Corporation cash in an amount
equal to (i) the SAR Price (as hereinafter defined) with respect to SARs that
vest on such SAR Vesting Date, over (ii) the aggregate Appreciation Value (as
defined in the applicable SAR Agreement and as calculated as set forth in
paragraph (e) below) of such SARs. The SAR Price shall be equal to (i) the
number of shares of Surviving
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Corporation Common Stock that would have been received in the Merger pursuant to
the Merger Agreement if, subject to paragraph (e), the shares of common stock of
Holdings underlying the SAR had been outstanding at the Effective Date
multiplied by (ii) $16.125.
(d) On the Effective Date, each holder of an SAR also will be granted
(which grant shall be made as of March 30, 1998) options under the ISP Incentive
Plan (the 'New SAR Options') to purchase such number of shares of Surviving
Corporation Common Stock as is equal to the number of shares of common stock of
Holdings underlying the SAR multiplied by the Conversion Rate. The New SAR
Options will have an exercise price equal to $16.125, will vest, subject to the
terms of the ISP Incentive Plan, in accordance with the existing vesting
schedule of such holder's SAR Agreement and will have such other terms as are
prescribed by the ISP Incentive Plan and the agreement pursuant to which the New
SAR Options will be issued to such holder. The term of expiration of the New SAR
Options will be the same as the term of expiration of the SARs.
(e) With respect to calculating (i) the number of shares of common stock
of Holdings that holders of Holdings Preferred Stock Options would have received
had they exercised their options and converted the underlying preferred stock
immediately prior to the Effective Date and (ii) the Appreciation Value of the
shares of common stock of Holdings underlying the SARs, (A) for purposes of
paragraphs (a) and (c) above, it is assumed that each portion of the Holdings
Preferred Stock Options would have been exercised and the underlying preferred
stock would have been converted on, and that each portion of the SARs would have
been held until, the date such portion would have initially become vested (or,
if later, the Effective Date) and (B) for purposes of paragraph (b) above, it is
assumed that the Holdings Preferred Stock Options would have been exercised and
the underlying preferred stock would have been converted on the date that all of
the options (each grant to be treated separately) held by a holder would have
become vested, so that, in each case, the interest factor under the terms of the
Option Agreements and the SAR Agreements in respect of the shares of common
stock of Holdings underlying the preferred stock and SARs would be deemed to
continue to accrue until such time.
(f) The right of each holder to receive cash in accordance with paragraphs
(a) and (c) shall be subject to the terms of the applicable Option Agreements
and SAR Agreements regarding continued employment with Holdings or its
affiliates. In addition, the right of each holder to receive cash in accordance
with paragraphs (a) and (c), and the right of each holder to exercise New Stock
Options and New SAR Options, shall become immediately exercisable if a Change of
Control (as defined in the ISP Incentive Plan) shall occur and, at any time
following such Change of Control, the Surviving Corporation (or any successor
thereto) terminates without cause the employment of the holder of such Holdings
Preferred Stock Option or SAR, such holder's employment is terminated as a
result of his death or permanent disability or such holder terminates such
employment for 'good reason.' The holder shall be deemed to terminate his
employment for 'good reason' if he does so as a result of a change or changes in
the terms of his employment that are materially adverse to the holder, including
with respect to his salary and bonus, level of responsibility or geographic
location of employment.
Exchange of Shares. On the Effective Date, each issued and outstanding
share of ISP Common Stock (other than the shares owned of record by Holdings,
which will be cancelled) shall automatically, by virtue of the Merger and
without any action on the part of the holder thereof, become one share of
Surviving Corporation Common Stock, and the certificates which represent such
shares of ISP Common Stock will automatically represent the shares of Surviving
Corporation Common Stock into which such shares of ISP Common Stock shall have
been converted in the Merger. After the Effective Date, as presently outstanding
certificates representing shares of ISP Common Stock (other than the shares
owned of record by Holdings) are presented for transfer, new stock certificates
bearing the name of the Surviving Corporation and representing the appropriate
number of shares of Surviving Corporation Common Stock shall be issued.
On the Effective Date, each issued and outstanding share of common stock of
Holdings shall automatically, by virtue of the Merger and without any action on
the part of the holder thereof, become a number of shares of Surviving
Corporation Common Stock equal to the Conversion Rate, and the certificates
which represent such shares of common stock of Holdings will automatically
represent the shares of Surviving Corporation Common Stock into which such
shares of common stock of Holdings shall have become in the Merger. After the
Effective Date, as presently outstanding certificates representing shares of
common stock of Holdings are presented for transfer, new stock certificates
bearing the name of the Surviving Corporation and representing the appropriate
number of shares of Surviving Corporation Common Stock shall be issued.
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CERTAIN COVENANTS
Pursuant to the Merger Agreement, Holdings agreed, among other things, (i)
to promptly prepare and file a registration statement with respect to the shares
of Surviving Corporation Common Stock to be issued in the Merger and to have the
registration statement declared effective, (ii) to call a meeting, or obtain a
written consent, of its stockholders, for the purpose of adopting and approving
the Merger Agreement and the transactions contemplated thereby, (iii) to vote
its shares of ISP Common Stock in favor of the adoption of the Merger Agreement
and the transactions contemplated thereby and (iv) to use its best efforts to
effect authorization for listing on the NYSE of the shares of Surviving
Corporation Common Stock to be issued pursuant to the Merger.
ISP agreed, among other things, (i) to take all steps necessary to hold a
meeting of its stockholders for the purpose of adopting the Merger Agreement and
the transactions contemplated thereby, (ii) to recommend to its stockholders the
adoption of the Merger Agreement and the transactions contemplated thereby,
(iii) to take all necessary steps, no later than immediately prior to the
Effective Date, to effect the Transfer to Newco, and (iv) subject to the
fiduciary duties with respect to ISP's stockholders, to obtain necessary
approval by its stockholders of the Merger Agreement and the transactions
contemplated thereby.
INDEMNIFICATION
The Merger Agreement provides that the present and former directors and
officers of ISP will be indemnified by the Surviving Corporation after the
Effective Date against all liabilities pertaining to any matter existing or
occurring on or prior to the Effective Date (including the transactions
contemplated by the Merger Agreement), to the extent that a corporation is
permitted under Delaware law to indemnify its own directors or officers (and the
Surviving Corporation will pay expenses in advance of the final disposition of
any such action or proceeding to each such director or officer of ISP seeking
indemnification thereunder to the full extent permitted by law). The Surviving
Corporation has also agreed in the Merger Agreement that, from and after the
Effective Date, it will maintain, for a period of at least six years from the
Effective Date, directors' and officers' liability insurance providing at least
the same amounts and coverage with respect to all persons currently covered
under ISP's directors' and officers' liability insurance policies, which
insurance shall contain terms and conditions which are substantially no less
advantageous to the covered persons than such existing insurance, pertaining to
any matter existing or occurring on or prior to the Effective Date (including
the transactions contemplated by the Merger Agreement); provided, however, that
the Surviving Corporation shall not be required to maintain or procure such
coverage to pay an annual premium in excess of 200% of the Cap; and provided,
further, that if equivalent coverage cannot be obtained, or can be obtained only
by paying an annual premium in excess of 200% of the Cap, the Surviving
Corporation shall only be required to obtain as much coverage as can be obtained
by paying an annual premium equal to 200% of the Cap. The By-Laws of the
Surviving Corporation will be those of ISP immediately prior to the Effective
Date, and the Certificate of Incorporation of the Surviving Corporation will be
amended as of the Effective Date to be identical to the ISP Charter. Therefore,
the provisions providing for indemnification of ISP's directors and officers
immediately prior to the Merger would remain unchanged upon consummation of the
Merger.
CONDITIONS TO THE MERGER
The respective obligations of ISP and Holdings to consummate the Merger are
subject to the satisfaction of certain conditions, including, among others, (a)
adoption of the Merger Agreement by the requisite vote of the stockholders of
ISP and the stockholders of Holdings, (b) the absence of any effective
injunction or similar order preventing consummation of the transactions
contemplated by the Merger Agreement as provided therein, (c) the effectiveness
of the Registration Statement and the absence of any stop order or proceeding
seeking a stop order with respect thereto, (d) the approval for listing on the
NYSE, subject to official notice of issuance, of the shares of Surviving
Corporation Common Stock to be issued in the Merger and (e) the delivery to ISP
and Holdings of an opinion of Weil Gotshal to the effect that, for United States
Federal income tax purposes, the Merger and the Transfer to Newco will be
treated as tax-free transactions pursuant to the Internal Revenue Code of 1986,
as amended, and that no income, gain or loss will be recognized by Holdings,
ISP, Newco, any of their respective subsidiaries or any holder of ISP Common
Stock by reason of the Merger and the Transfer. ISP and Holdings also made
customary representations and warranties to each other with respect to the
Merger, their businesses and the transactions contemplated by the Merger
Agreement. It is also a condition of the obligations of ISP and
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Holdings to consummate the Merger that these representations and warranties of
such party be true and correct in all material respects as of the closing date
of the Merger.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Date, whether before or after approval by the stockholders of ISP, (i) by mutual
consent of the Boards of Directors of ISP and Holdings, (ii) by the Board of
Directors of either ISP or Holdings if the Merger shall not have been
consummated on or before September 26, 1998, or (iii) by the Special Committee
or Holdings if the Special Committee determines in good faith, after
consultation with J.P. Morgan and outside counsel to the Special Committee, that
the Special Committee's fiduciary obligations under applicable law require it to
withdraw its recommendation of the Merger Agreement and the transactions
contemplated thereby. In the event of any such termination of the Merger
Agreement, the Merger Agreement will become void and there will be no liability
or obligation on the part of ISP or Holdings or their respective officers or
directors.
AMENDMENT AND WAIVER
Subject to applicable law, the Merger Agreement may be amended at any time
prior to the Effective Date, by the mutual written agreement of ISP and
Holdings; provided, however, that after the Merger Agreement is adopted by
stockholders of ISP or by the stockholders of Holdings, no such amendment may be
made that would decrease the amount or change the form of consideration to be
delivered to such stockholders.
Any failure of ISP or Holdings to comply with any obligation, covenant,
agreement or condition may be waived only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of any subsequent or other failure.
FEES AND EXPENSES
The Merger Agreement provides that each party thereto shall pay all costs
and expenses incurred by it in connection with the Merger Agreement and the
consummation of the transactions contemplated thereby; provided, however, that
if the Merger is not consummated, all costs and expenses incurred in connection
with the Merger Agreement by ISP and Holdings will be paid by Holdings. The
aggregate fees and expenses to be incurred in consummating the Merger, including
filing fees, legal, accounting, solicitation expenses and printing costs, are
expected to be $987,400 (not including amounts payable to J.P. Morgan). See 'THE
MERGER-- Fairness Opinion.'
MARKET PRICES AND DIVIDENDS
Shares of ISP Common Stock are traded on the NYSE. At June 10, 1998, there
were 227 holders of record of ISP Common Stock. The table below sets forth, for
the fiscal periods indicated, the high and low sale prices per share of ISP
Common Stock as reported in the NYSE Composite Transactions. No cash dividends
have been declared on such stock since 1995. On March 27, 1998, the last trading
day before the public announcement of the Merger, the high and low sale prices
of shares of ISP Common Stock were $17 15/16 and $17 5/8, respectively. On June
10, 1998, the high and low sale prices of shares of ISP Common Stock were
$18 5/16 and $18 1/16, respectively.
<TABLE>
<CAPTION>
MARKET PRICE RANGE
------------------------------------------------------------------------
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------------------- ------------------------ ------------------
HIGH LOW HIGH LOW HIGH LOW
--------- ----------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
ISP Common Stock (Symbol: ISP)
1st Quarter......................................... $18 1/2 $13 9/16 $ 13 3/4 $ 11 3/4 $13 1/4 $10 1/8
2nd Quarter (through June 10, 1998)................. 20 1/2 16 13/16 14 3/8 11 1/2 12 5/8 10 3/4
3rd Quarter......................................... N/A N/A 15 1/4 13 1/2 11 3/8 9 5/8
4th Quarter......................................... N/A N/A 16 1/2 13 7/8 12 3/4 9
<CAPTION>
</TABLE>
24
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of ISP and
its subsidiaries and the capitalization of Holdings, in each case as of March
29, 1998, and as adjusted to give effect to the Merger and the transactions
contemplated thereby. This information should be read in conjunction with the
historical financial statements and notes thereto included in ISP's and
Holdings' Annual Reports on Form 10-K for the year ended December 31, 1997,
ISP's and Holdings' Quarterly Reports on Form 10-Q for the quarter ended March
29, 1998, and the pro forma financial statements and notes thereto included
elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 29, 1998
----------------------------------------------------------
HOLDINGS
PARENT PRO FORMA
COMPANY ELIMINATIONS AFTER
ISP ACTUAL ACTUAL AND ADJUSTMENTS(1) MERGER
---------- -------- ------------------ ----------
(THOUSANDS)
<S> <C> <C> <C> <C>
Short-term debt and current maturities
of long-term debt:
Current maturities of long-term debt................. $200,609 $ 810 $ 201,419
Short-term debt...................................... 35,158 $ 16,770 51,928
---------- -------- ------------------ ----------
Total............................................. $235,767 $ 16,770 $ 810 $ 253,347
---------- -------- ------------------ ----------
---------- -------- ------------------ ----------
Long-term debt (excluding current maturities):
Holdings 9% Senior Notes due 2003.................... $324,281 $ 324,281
Holdings 9 3/4% Senior Notes due 2002................ 199,871 199,871
Obligation on mortgaged property, due 1999........... $ 38,125 38,125
Borrowings under revolving credit facility........... 52,000 52,000
Obligations under capital leases..................... 1,247 1,247
Long-term notes payable to related party............. 50,013 $ (50,013)
Other................................................ 213 213
---------- -------- ------------------ ----------
Total long-term debt.............................. $141,598 $524,152 $ (50,013) $ 615,737
---------- -------- ------------------ ----------
---------- -------- ------------------ ----------
Stockholders' Equity.............................. $805,586 $272,747 $ (536,473) $ 541,860
---------- -------- ------------------ ----------
---------- -------- ------------------ ----------
Total capitalization.............................. $947,184 $796,899 $ (586,486) $1,157,597
---------- -------- ------------------ ----------
---------- -------- ------------------ ----------
</TABLE>
- ------------------
(1) For an explanation of the assumptions used to arrive at such pro forma
information, see 'Notes to Pro Forma Condensed Consolidated Financial
Statements.'
25
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth, for the periods indicated, selected
historical consolidated financial information of ISP. This information should be
read in conjunction with the historical financial statements and notes thereto
included in ISP's Annual Report on Form 10-K for the year ended December 31,
1997, and Quarterly Report on Form 10-Q for the quarter ended March 29, 1998.
SELECTED FINANCIAL DATA OF ISP
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
YEAR ENDED DECEMBER 31, MARCH 30, MARCH 29,
-------------------------------------------------------- 1997 1998
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- -------- ----------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................................ $ 548.3 $ 600.0 $ 689.0 $ 716.5 $ 749.2 $ 191.2 $ 200.7
Gross profit............................. 218.7 232.3 274.3 297.6 312.5 77.0 81.5
Operating income......................... 65.1 99.2 127.1 136.0 143.3 36.8 38.3
Interest expense......................... 24.5 28.7 33.1 28.7 26.1 6.7 6.2
Income before income taxes............... 49.8 72.5 106.1 126.0 144.6 36.2 40.9
Net income............................... 29.6 44.5 67.4 80.7 92.6 23.2 26.2
Earnings per common share:
Basic.................................. .30 .45 .68 .83 .96 .24 .27
Diluted................................ .30 .45 .68 .82 .96 .24 .27
Dividends per common share............... .05 .05 -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 29,
-------------------------------------------------------- 1998
1993 1994 1995 1996 1997 (UNAUDITED)
-------- -------- -------- -------- -------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total working capital.................... $ 78.3 $ 121.8 $ 142.6 $ 219.7 $ 267.0 $ 109.9
Total assets............................. 1,243.3 1,251.3 1,312.9 1,316.9 1,395.6 1,435.7
Long-term debt less current maturities... 367.7 377.1 347.5 372.9 328.6 141.6
Stockholders' equity..................... 534.0 582.4 643.2 701.5 784.2 805.6
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
YEAR ENDED DECEMBER 31, MARCH 30, MARCH 29,
-------------------------------------------------------- 1997 1998
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- -------- ----------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Gross profit margin...................... 39.9% 38.7% 39.8% 41.5% 41.7% 40.3% 40.6%
Operating margin......................... 11.9% 16.5% 18.4% 19.0% 19.1% 19.2% 19.1%
Depreciation............................. $ 28.7 $ 32.8 $ 36.0 $ 38.3 $ 41.6 $ 10.0 $ 10.5
Goodwill amortization.................... 13.9 13.4 13.2 13.2 13.2 3.3 3.3
Capital expenditures and acquisitions.... 62.9 31.1 38.9 54.6 68.5 13.9 75.1
</TABLE>
26
<PAGE>
The following table sets forth, for the periods indicated, selected
historical consolidated financial information of Holdings. This information
should be read in conjunction with the historical financial statements and notes
thereto included in Holdings' Annual Report on Form 10-K for the year ended
December 31, 1997, and Quarterly Report on Form 10-Q for the quarter ended March
29, 1998. All financial data relating to Holdings and its subsidiaries contained
herein have been prepared to retroactively reflect the formation of Holdings.
SELECTED FINANCIAL DATA OF HOLDINGS
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
YEAR ENDED DECEMBER 31, MARCH 30, MARCH 29,
-------------------------------------------------------- 1997 1998
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- -------- ----------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................................ $ 548.3 $ 600.0 $ 689.0 $ 716.5 $ 749.2 $ 191.2 $ 200.7
Operating income......................... 65.1 99.2 127.1 136.0 141.3 36.3 37.8
Interest expense......................... 24.5 28.7 33.1 38.3 73.6 18.6 17.9
Income from continuing operations before
income taxes and extraordinary items... 49.8 72.5 106.1 116.6 107.8 25.2 31.2
Income from continuing operations before
extraordinary items and cumulative
effect of accounting change............ 23.8 37.1 55.1 60.8 54.0 12.2 15.7
Net income............................... 14.4 28.0 32.8 53.9 54.0 12.2 15.7
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 29,
-------------------------------------------------------- 1998
1993 1994 1995 1996 1997 (UNAUDITED)
-------- -------- -------- -------- -------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total working capital.................... $ 143.9 $ 228.0 $ 290.0 $ 476.8 $ 322.1 $ 165.7
Total assets............................. 1,309.0 1,357.5 1,460.4 1,600.4 1,485.7 1,546.0
Long-term debt less current maturities... 367.7 285.4 280.3 834.3 798.8 615.7
Stockholders' equity (deficit)........... (42.6) (15.8) (1.7) 42.7 261.8 272.7
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
YEAR ENDED DECEMBER 31, MARCH 30, MARCH 29,
-------------------------------------------------------- 1997 1998
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- -------- ----------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Depreciation............................. $ 28.7 $ 32.8 $ 36.0 $ 38.3 $ 41.9 $ 10.0 $ 10.6
Goodwill amortization.................... 13.9 13.4 13.2 13.2 13.3 3.3 3.3
Capital expenditures and acquisitions.... 62.9 31.1 38.9 54.6 68.7 13.9 75.1
</TABLE>
27
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are pro forma summary condensed consolidated financial data
of Holdings and ISP. The pro forma balance sheet data give effect to the Merger
and the transactions contemplated thereby as if they had been consummated as of
March 29, 1998. The pro forma income statement data give effect to the Merger
and the transactions contemplated thereby as if they had been completed as of
January 1, 1997. The pro forma financial information does not purport to project
the financial position or the results of operations for any future period or to
represent what the financial position or results of operations would have been
if the Merger and the transactions contemplated thereby had been completed as of
the dates indicated.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 29, 1998
(THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HOLDINGS
PARENT ADJUSTMENTS PRO FORMA
COMPANY ------------------------------ AFTER
ISP ACTUAL ACTUAL ELIMINATIONS(1) ADJUSTMENTS MERGER
---------- -------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.................... $ 15,084 $ 1,235 $ 16,319
Investments in securities and other
short-term investments..................... 198,006 83,663 281,669
Accounts receivable--trade and other......... 114,980 114,980
Receivable from related parties, net......... 536 6,479 7,015
Inventories.................................. 115,224 $ 5,765(2) 120,989
Other current assets......................... 18,430 555(2) 21,939
2,954(3)
---------- -------- --------------- ----------- ----------
Total current assets........................... 462,260 91,377 9,274 562,911
Property plant and equipment, net.............. 517,982 5,643 523,625
Excess of cost over net assets of businesses
acquired, net................................ 400,780 5,766 $ 7 142,102(2) 548,655
Loan receivable from subsidiary................ 50,013 (50,013) 0
Investment in ISP.............................. 675,082 (675,082) 0
Other assets................................... 54,685 7,723 (262) 62,146
---------- -------- --------------- ----------- ----------
Total assets................................... $1,435,707 $835,604 $(725,350) $ 151,376 $1,697,337
---------- -------- --------------- ----------- ----------
---------- -------- --------------- ----------- ----------
Current Liabilities:
Short-term debt.............................. $ 35,158 $ 16,770 $ 51,928
Current maturities of long-term debt......... 200,609 $ 810(2) 201,419
Accounts payable and accrued liabilities..... 109,920 17,713 1,500(2) 137,117
7,984(3)
Income taxes................................. 6,658 1,154 7,812
---------- -------- ----------- ----------
Total current liabilities...................... 352,345 35,637 10,294 398,276
---------- -------- ----------- ----------
Long-term debt less current maturities......... 91,585 524,152 615,737
Long-term notes payable to related party....... 50,013 $ (50,013) 0
Deferred income taxes.......................... 74,818 (255) 2,409(2) 76,972
Other liabilities.............................. 61,360 3,068 64(3) 64,492
Stockholders' Equity:
Common stock and paid-in capital............. 442,552 214,025 (313,217) 143,703(2) 487,063
Treasury stock, at cost...................... (37,091) (1,169) 38,260 0
Retained earnings............................ 399,126 55,752 (399,126) (5,094)(3) 50,658
Accumulated other comprehensive income....... 999 4,139 (999) 4,139
---------- -------- --------------- ----------- ----------
Total stockholders' equity..................... 805,586 272,747 (675,082) 138,609 541,860
---------- -------- --------------- ----------- ----------
Total liabilities and stockholders' equity..... $1,435,707 $835,604 $(725,350) $ 151,376 $1,697,337
---------- -------- --------------- ----------- ----------
---------- -------- --------------- ----------- ----------
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
28
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HOLDINGS
PARENT ADJUSTMENTS PRO FORMA
ISP COMPANY ------------------------------ AFTER
ACTUAL ACTUAL ELIMINATIONS(1) ADJUSTMENTS MERGER
-------- -------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.......................................... $749,208 $ 749,208
-------- ---------
Cost of products sold.............................. 436,693 $ 187 436,880
Selling, general and administrative................ 156,042 $ 1,263 425 $ 760(4) 158,490
Goodwill amortization.............................. 13,176 118 3,639(5) 16,933
-------- -------- --------------- ----------- ---------
Total costs and expenses........................... 605,911 1,263 730 4,399 612,303
-------- -------- --------------- ----------- ---------
Operating income................................... 143,297 (1,263) (730) (4,399) 136,905
Equity in net income of ISP........................ 77,103 (77,103)
Interest expense................................... (26,126) (50,676) 3,190 777(6) (72,835)
Equity in earnings of joint venture................ 5,909 5,909
Other income, net.................................. 21,558 15,988 ( 3,313) 34,233
-------- -------- --------------- ----------- ---------
Income before income taxes......................... 144,638 41,152 (77,956) (3,622) 104,212
Income taxes....................................... (51,989) 12,853 (6)(7) (39,142)
-------- -------- --------------- ----------- ---------
Net income......................................... $ 92,649 $ 54,005 $ (77,956) $(3,628) $ 65,070
-------- -------- --------------- ----------- ---------
-------- -------- --------------- ----------- ---------
Earnings per common share:
Basic............................................ $ .96 $ .94
-------- ---------
-------- ---------
Diluted.......................................... $ .96 $ .93
-------- ---------
-------- ---------
Weighted average number of common and common
equivalent shares outstanding:
Basic............................................ 96,061 69,394
-------- ---------
-------- ---------
Diluted.......................................... 97,010 70,343
-------- ---------
-------- ---------
</TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
QUARTER ENDED MARCH 29, 1998
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HOLDINGS
PARENT ADJUSTMENTS PRO FORMA
ISP COMPANY ------------------------------ AFTER
ACTUAL ACTUAL ELIMINATIONS(1) ADJUSTMENTS MERGER
-------- -------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.......................................... $200,703 $ 200,703
-------- ---------
Cost of products sold.............................. 119,177 119,177
Selling, general and administrative................ 39,926 $ 395 $ 100 $ 190(4) 40,611
Goodwill amortization.............................. 3,302 37 888(5) 4,227
-------- -------- --------------- ----------- ---------
Total costs and expenses........................... 162,405 395 137 1,078 164,015
-------- -------- --------------- ----------- ---------
Operating income................................... 38,298 (395) (137) (1,078) 36,688
Equity in net income of ISP........................ 21,802 (21,802)
Interest expense................................... (6,176) (12,486) 724 203(6) (17,735)
Equity in earnings of joint venture................ 1,455 1,455
Other income, net.................................. 7,313 3,395 (753) 9,955
-------- -------- --------------- ----------- ---------
Income before income taxes......................... 40,890 12,316 (21,968) (875) 30,363
Income taxes....................................... (14,710) 3,356 (5)(7) (11,359)
-------- -------- --------------- ----------- ---------
Net income......................................... $ 26,180 $ 15,672 $ (21,968) $ (880) $ 19,004
-------- -------- --------------- ----------- ---------
-------- -------- --------------- ----------- ---------
Earnings per common share:
Basic............................................ $ .27 $ .27
-------- ---------
-------- ---------
Diluted.......................................... $ .27 $ .27
-------- ---------
-------- ---------
Weighted average number of common and common
equivalent shares outstanding:
Basic............................................ 95,978 69,311
-------- ---------
-------- ---------
Diluted.......................................... 96,972 70,305
-------- ---------
-------- ---------
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
29
<PAGE>
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Reflects consolidation eliminations.
2. Reflects the application of the purchase method of accounting to the
Merger. Accordingly, the historical book values of ISP's assets and liabilities
attributable to the shares of ISP Common Stock owned by the minority
shareholders will be adjusted to their fair values as estimated as of the
Effective Date, with any excess of cost over the fair values of the net assets
allocated to goodwill. The pro forma adjustments represent management's current
estimate of the application of the purchase method of accounting. The actual
purchase accounting adjustments may differ from the pro forma adjustments.
3. Reflects a nonrecurring charge and related deferred tax benefit to be
recorded in connection with the termination of Holdings' Stock Appreciation
Rights and Preferred Stock option programs.
4. Reflects a charge to be recorded over the remaining vesting periods in
connection with the termination of Holdings' Stock Appreciation Rights and
Preferred Stock option programs.
5. Reflects amortization of goodwill over a period of 40 years.
6. Reflects amortization of the write-up of long-term debt to fair value
over its average remaining life as a reduction of interest expense.
7. Reflects the deferred tax expense related to item (6), offset by the
deferred tax benefit related to item (4).
30
<PAGE>
DESCRIPTION OF SURVIVING CORPORATION COMMON STOCK
COMMON STOCK
General. On the Effective Date, pursuant to the terms of the Merger
Agreement, the Certificate of Incorporation of the Surviving Corporation shall
be amended to be identical to the ISP Charter as in effect immediately prior to
the Effective Date, until thereafter amended as provided by law. Immediately
after the Effective Date, therefore, the authorized capital stock of the
Surviving Corporation will consist of 300,000,000 shares of Surviving
Corporation Common Stock, par value $0.01 per share, of which, assuming the
Merger were consummated on the date hereof, 69,461,087 shares will be issued and
outstanding, and 20,000,000 shares of preferred stock, par value $0.01 per
share, of which no shares will be issued and outstanding. The Board of Directors
of the Surviving Corporation will have authority to issue, without further
stockholder action, one or more series of preferred stock, and to determine at
the time of issuance of each such series the rights and preferences thereof
(including dividend rate, liquidation priority, and conversion and voting
rights, if any).
Dividends. The Surviving Corporation may pay dividends if, as and when
declared by its Board of Directors, subject to applicable provisions of Delaware
law. The holders of Surviving Corporation Common Stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of the Surviving Corporation out of funds legally available
therefor.
Voting Rights. Holders of Surviving Corporation Common Stock will be
entitled to one vote for each share held by them on all matters submitted for
approval by the stockholders of the Surviving Corporation. Holders of Surviving
Corporation Common Stock do not have cumulative voting rights in the election of
directors.
Liquidation. In the event of liquidation, dissolution or winding up of the
Surviving Corporation, the holders of Surviving Corporation Common Stock would
be entitled to receive, after payment of all its debts and liabilities and other
payments to holders of any preferred stock having priority rights, if any, all
of the assets of the Surviving Corporation available for distribution to the
holders of Surviving Corporation Common Stock. Such stockholders would be
entitled to participate ratably in the net assets available for distribution.
Transfer Agent. The Bank of New York will be the transfer agent and
registrar for shares of Surviving Corporation Common Stock.
COMPARISON OF STOCKHOLDERS' RIGHTS
Upon consummation of the Merger, the stockholders of ISP will become
stockholders of Holdings. Holdings and ISP are both incorporated under the laws
of the State of Delaware and, upon consummation of the Merger, (i) the By-Laws
of ISP will become the By-Laws of Holdings (as the Surviving Corporation), and
(ii) the Certificate of Incorporation of Holdings (as the Surviving Corporation)
will be amended to be identical to the ISP Charter as in effect immediately
prior to the Effective Date. Therefore, the rights of holders of Surviving
Corporation Common Stock which is to be issued to stockholders of ISP pursuant
to the Merger will not differ materially from the rights of ISP stockholders
immediately prior to the Effective Date.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material Federal
income tax consequences of the Merger and is based on the Internal Revenue Code
of 1986, as amended (the 'Code'), the final, proposed and temporary Treasury
Regulations promulgated thereunder, administrative rulings and interpretations,
and judicial decisions, in each case as in effect as of the date hereof. All of
the foregoing are subject to change at any time, possibly with retroactive
effect.
The summary set forth below does not address all aspects of Federal income
taxation that may be relevant either to a stockholder in light of such
stockholder's particular circumstances or to stockholders subject to special
treatment under the Code, such as dealers in securities, banks, insurance
companies, other financial institutions, non-United States persons, tax-exempt
organizations, taxpayers who hold ISP Common Stock as part of a 'straddle,'
'hedge' or 'conversion transaction,' or stockholders who acquired their ISP
Common Stock pursuant to the exercise of employee stock options or otherwise as
compensation. Any additional tax
31
<PAGE>
consequences that may arise under the laws of any state, locality or foreign
jurisdiction also are not discussed. Holders are assumed to hold their shares of
ISP Common Stock as 'capital assets' within the meaning of Section 1221 of the
Code (i.e., property held for investment).
Neither ISP nor Holdings intends to secure a ruling from the Internal
Revenue Service (the 'Service') with respect to the tax consequences of the
Merger. It is a condition to the obligation of ISP and Holdings to consummate
the Merger, however, that each of them shall have received an opinion of Weil
Gotshal to the effect that: (i) no income, gain or loss will be recognized by
ISP, Holdings, Newco or any of their respective subsidiaries by reason of the
Merger and the Transfer and (ii) no income, gain or loss will be recognized by
any of the stockholders of ISP who exchange their ISP Common Stock for Surviving
Corporation Common Stock in the Merger. The opinion of Weil Gotshal will be
based on the law existing as of the Effective Date and will rely on
representations and covenants made by ISP, Holdings and Newco.
Tax Implications to ISP Stockholders. As will be set forth in the opinion
of Weil Gotshal, no gain or loss will be recognized for Federal income tax
purposes by holders of ISP Common Stock upon their receipt of Surviving
Corporation Common Stock in the Merger. In addition, the aggregate adjusted tax
basis to a former stockholder of ISP in the Surviving Corporation Common Stock
received in the Merger will be the same as the stockholder's aggregate adjusted
tax basis in the ISP Common Stock surrendered in exchange therefor. The holding
period of Surviving Corporation Common Stock in the hands of a former
stockholder of ISP will include the period during which such stockholder held
the ISP Common Stock exchanged therefor in the Merger, provided that such shares
of ISP Common Stock are held as capital assets at the Effective Date.
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF
FOREIGN, STATE, LOCAL AND OTHER TAX LAWS AND OF ANY PROPOSED CHANGES IN THE TAX
LAWS.
------------
THE ISP BOARD, BASED IN PART UPON THE ADVICE OF THE SPECIAL COMMITTEE,
RECOMMENDS A VOTE FOR ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
TRANSACTIONS CONTEMPLATED THEREBY.
32
<PAGE>
PROPOSAL 2--AMENDMENT OF ISP INCENTIVE PLAN
As of the Effective Date, by virtue of the Merger and without any action on
the part of the holders thereof or the holders of ISP Common Stock, all
outstanding stock options granted pursuant to the ISP Incentive Plan shall be
exercisable for shares of Surviving Corporation Common Stock at the same prices
and on the same terms and conditions as such options would have been exercisable
for ISP Common Stock immediately prior to the Merger. As of the Effective Date,
the ISP Incentive Plan shall continue as the ISP Incentive Plan of the Surviving
Corporation and all stock options issued thereunder that are outstanding as of
the Effective Date, or that may be granted thereunder after the Effective Date,
shall become immediately exercisable if a Change of Control (as defined in the
ISP Incentive Plan) shall occur and at any time following such Change of
Control, the Surviving Corporation (or any successor thereto) terminates without
cause the employment of the holder of such stock option, such holder's
employment is terminated as a result of his death or permanent disability or
such holder terminates such employment for 'good reason.' See 'THE MERGER
AGREEMENT--The Merger--ISP Incentive Plan.'
In addition to the assumption of the ISP Incentive Plan by the Surviving
Corporation, as a result of the Merger, the Holdings Preferred Stock Options and
the SARs will represent the right to receive, under certain circumstances, cash
and options under the ISP Incentive Plan to purchase shares of Surviving
Corporation Common Stock. See 'THE MERGER AGREEMENT--The Merger--Treatment of
Holdings' Options and SARs.' As a result of this treatment, the ISP Board is
seeking to amend the ISP Incentive Plan to increase the authorized number of
shares of Surviving Corporation Common Stock available for issuance under the
ISP Incentive Plan from 7,000,000 shares of ISP Common Stock to 9,000,000 shares
of Surviving Corporation Common Stock and to allow for the treatment as set
forth in the Merger Agreement with respect to the Holdings Preferred Stock
Options and SARs, notwithstanding the provision in the ISP Incentive Plan with
respect to the maximum number of shares for which stock options may be granted
thereunder to any eligible person during any calendar year.
The Federal income tax consequences of the issuance and exercise of options
pursuant to the ISP Incentive Plan, with respect to the holders of such options
and to the Surviving Corporation, will not change as a result of the above
amendment.
The following is a summary of the principal provisions of the ISP Incentive
Plan as it exists without giving effect to the proposed amendments.
The ISP Board views stock options as an important component of its
long-term compensation philosophy, giving employees incentives based upon the
appreciation in value of the ISP Common Stock. Stock options issued under the
ISP Incentive Plan serve the interests of the Company and its stockholders by
aligning compensation with stockholder objectives and by encouraging and
rewarding performance.
DESCRIPTION OF ISP INCENTIVE PLAN
The ISP Incentive Plan provides for (a) the granting of options to purchase
shares of ISP Common Stock to key employees of ISP, its subsidiaries and parents
and to non-employee directors of ISP and (b) the sale of ISP Common Stock to key
employees of ISP, its subsidiaries and parents. The ISP Incentive Plan was
adopted by the Board of Directors and approved by the sole stockholder of ISP on
June 28, 1991, before the initial public offering of the ISP Common Stock. Under
the ISP Incentive Plan, options may be granted from time to time until June 28,
2000.
Approximately 1,900 persons are eligible to participate in the ISP
Incentive Plan. The ISP Incentive Plan is designed to encourage stock ownership
by key employees and directors. Its objectives are to provide an increased
incentive for employees and directors, to promote the well-being of the Company
and to facilitate the efforts of the Company to secure and retain employees and
directors of outstanding ability.
EMPLOYEES AND DIRECTORS WHO MAY PARTICIPATE
Key employees of ISP, its subsidiaries or parents and non-employee
directors of ISP are eligible to receive options under the ISP Incentive Plan.
The selection of eligible employees to receive options is made by the
Compensation and Pension Committee of the ISP Board (the 'Compensation
Committee'). The Compensation Committee is advised by the Company's management,
including the Company's Chief Executive Officer, as to whom options should be
granted. Awards of options generally are based upon the Compensation Committee's
33
<PAGE>
evaluation of an employee's past or potential contribution to ISP, its
subsidiaries or parents, such employee's respective grade level and the
Company's stock price at the time of grant, as well as the recommendations of
the Company's management.
GRANT OF OPTIONS AND AWARDS
The Compensation Committee determines the number of shares underlying
options to be granted to an employee, the date of the option grant, whether the
option is intended to be an incentive stock option or a non-qualified option,
and other terms governing the options. There is no stated maximum or minimum
number of options or shares which may be issued under the ISP Incentive Plan to
any one eligible person or group of persons, except that currently the number of
shares as to which options may be granted to any eligible person during any
calendar year is limited to 200,000 shares. If the proposed amendment to the ISP
Incentive Plan is approved, an exception will be added to the ISP Incentive Plan
to allow for the treatment set forth in the Merger Agreement with respect to the
Holdings Preferred Stock Options and SARs, notwithstanding that certain option
holders may receive more than 200,000 shares in 1998.
The ISP Incentive Plan also provides for an automatic grant to each
non-employee director of 5,000 non-qualified stock options upon the commencement
of service as a director and an automatic annual grant of 2,500 non-qualified
stock options on each anniversary of the initial grant during the period the
person serves as a director.
Currently, the maximum number of shares for which options may be granted
under the ISP Incentive Plan is 7,000,000. If the proposed amendment to the ISP
Incentive Plan is approved, the maximum number of shares for which options may
be granted under the ISP Incentive Plan will be 9,000,000.
The ISP Incentive Plan also authorizes the sale of up to 1,000,000 shares
subject to prescribed restrictions as to disposition or without such
restrictions.
EXERCISE OF OPTIONS, EXERCISE PRICE AND DURATION
The exercise price of non-qualified options granted under the ISP Incentive
Plan is determined by the Compensation Committee in its discretion at the time
of grant, provided that the exercise price must be at least equal to 50% of the
fair market value of the underlying shares on the date of grant. The exercise
price of incentive stock options must be at least equal to the fair market value
of the underlying shares on the date of grant; provided that if an incentive
stock option is granted to a participant (an 'Over-Ten-Percent Stockholder') who
owns stock possessing more than 10% of the voting rights of the Company's
outstanding capital stock on the date of grant, the exercise price of the option
must be at least equal to 110% of the fair market value on the date of the
grant. The exercise price may be paid either in cash or, subject to certain
limitations, by surrender of shares of ISP Common Stock owned by the optionee
and valued at their then fair market value, or a combination thereof.
The term of each option granted to an employee and the vesting period
thereof is determined by the Compensation Committee in its discretion, except
that incentive stock options granted to an Over-Ten-Percent Stockholder may not
be exercised more than five years after the date of grant. There is no maximum
number of options that may be exercised in any one year.
The term of each option granted to non-employee directors is nine years.
Initial grants vest as to one-third of the shares subject thereto on each of the
first through third anniversaries of the date of grant. Subsequent grants become
exercisable in full on the first anniversary of the date of grant.
Currently, the Compensation Committee may, in its discretion, accelerate
the vesting of options upon a 'Change in Control' (as defined in the ISP
Incentive Plan). Upon the Effective Date, the ISP Incentive Plan will be amended
with the effect that all options will thereafter be accelerated automatically if
at any time following a Change in Control, the holder of such option's
employment is terminated as a result of his death or permanent disability or
such holder terminates his employment for 'good reason.'
TERMINATION OF EMPLOYMENT, TRANSFERABILITY
On termination of employment for any reason except death or disability, an
optionee may, at any time before the earlier to occur of the expiration of 90
days after the date of termination or the expiration date of an option, exercise
any option or portion thereof which was vested on the date of termination. If
any optionee's employment
34
<PAGE>
or service as a non-employee director is terminated as a result of his death or
disability, the optionee or the persons to whom the option is transferred by
will or the laws of descent and distribution may, at any time within one year
after the date of death or disability but no later than the expiration date of
the option, exercise the option to the extent the optionee was entitled to do so
on the date of death or disability. Subject to the foregoing, non-employee
directors have the right to exercise vested options not later than the earlier
to occur of the expiration date of the option or the expiration of 60 days
following the date service as a director ceases.
The ISP Incentive Plan permits option agreements to contain limited stock
appreciation rights ('Limited Rights'). Under the Limited Rights, should a
tender or exchange offer for the ISP Common Stock be made by a bidder other than
the Company, the optionee would be entitled to surrender any option or portion
thereof (regardless of the extent to which the option was then exercisable) and
to receive cash or ISP Common Stock (or a combination thereof), as determined by
the Compensation Committee, equal to the difference between the aggregate fair
market value of the shares subject to options on the date of surrender (as
determined in accordance with the Limited Rights) and the aggregate exercise
price.
Nothing in the ISP Incentive Plan or any option agreement executed in
accordance therewith confers on any employee any right to continue in the employ
of the Company (or any of its parents or subsidiaries) or affects the right of
the Company (or any parent or subsidiary) to terminate such employee's
employment at any time.
FEDERAL INCOME TAX EFFECTS OF PLAN PARTICIPATION
The discussion below is based on Federal income tax law and authorities as
of the date hereof, which are subject to change at any time. The law is
technical and complex and the discussion represents only a general summary of
some of the applicable provisions of Federal income tax law.
Incentive Stock Options. Incentive stock options ('ISOs') granted under
the ISP Incentive Plan are intended to meet the definitional requirements of
Section 422(b) of the Code for 'incentive stock options.'
An employee who receives an ISO does not recognize any taxable income upon
the grant of such ISO. Similarly, the exercise of an ISO generally does not give
rise to federal income tax to the employee, provided that (i) the federal
'alternative minimum tax', which depends on the employee's particular tax
situation, does not apply and (ii) the employee is employed by the Company from
the date of grant of the option until three months prior to the exercise
thereof, except where such employment terminates by reason of disability (where
the three-month period is extended to one year) or death (where this requirement
does not apply). If an employee exercises an ISO after these requisite periods,
the ISO will be treated as an NSO (as defined below) and will be subject to the
rules set forth below under the caption 'Non-Qualified Options.'
Further, if after exercising an ISO, an employee disposes of the ISP Common
Stock so acquired more than two years from the date of grant and more than one
year from the date of transfer of the common stock pursuant to the exercise of
such ISO (the 'applicable holding period'), the employee will normally recognize
a capital gain or loss equal to the difference, if any, between the amount
received for the shares and the exercise price. If, however, an employee does
not hold the shares so acquired for the applicable holding period--thereby
making a 'disqualifying disposition'--the employee would realize ordinary income
on the excess of the fair market value of the shares at the time the ISO was
exercised over the exercise price and the balance, if any, would be mid-term or
long-term capital gain (provided the holding period for the shares exceeded 12
or 18 months, respectively, and the employee held such shares as a capital asset
at such time).
The Company is not allowed a federal income tax deduction upon the grant or
exercise of an ISO or the disposition, after the applicable holding period, of
the common stock acquired upon exercise of an ISO. In the event of a
disqualifying disposition, however, the Company generally will be entitled to a
deduction in an amount equal to the ordinary income included by the employee,
provided that such amount constitutes an ordinary and necessary business expense
to the Company and is reasonable and the limitations of Sections 280G and 162(m)
of the Code (described below) do not apply.
Non-Qualified Options. Non-qualified stock options ('NSOs') granted under
the ISP Incentive Plan are options that do not qualify as ISOs. An employee who
receives an NSO does not recognize any taxable income upon the grant of such
NSO. However, the employee generally will recognize ordinary income upon
exercise of an NSO in an amount equal to the excess of (i) the fair market value
of the shares of ISP Common Stock at the time of exercise over (ii) the exercise
price.
35
<PAGE>
The ordinary income recognized with respect to the receipt of shares upon
exercise of an NSO will be subject to both wage withholding and employment
taxes. In addition to the customary methods of satisfying the withholding tax
liabilities that arise upon the exercise of an NSO, upon the election of the
employee the Company may satisfy the liability in whole or in part by
withholding shares of ISP Common Stock from those that otherwise would be
issuable to the individual or by the employee tendering other shares owned by
him or her, valued at their fair market value as of the date that the tax
withholding obligation arises.
A federal income tax deduction generally will be allowed to the Company in
an amount equal to the ordinary income included by the individual with respect
to his or her NSO, provided that such amount constitutes an ordinary and
necessary business expense to the Company and is reasonable and the limitations
of Sections 280G and 162(m) of the Code (described below) do not apply.
If an individual exercises an NSO by delivering shares of ISP Common Stock
to the Company, other than shares previously acquired pursuant to the exercise
of an ISO which is treated as a 'disqualifying disposition' as described above,
the individual will not recognize gain or loss with respect to the exchange of
such shares, even if their then fair market value is different from the
individual's tax basis. The individual, however, will be taxed as described
above with respect to the exercise of the NSO as if he or she had paid the
exercise price in cash, and the Company likewise generally will be entitled to
an equivalent tax deduction.
Change in Control. As described above, upon a 'Change in Control' (as
defined in the ISP Incentive Plan, as amended), if certain subsequent events
occur, all the then outstanding stock options will immediately become
exercisable. In general, if the total amount of payments to an individual that
are contingent upon a 'change of control' of the Company (as defined in Section
280G of the Code), including payments under the ISP Incentive Plan that vest
upon a 'change in control,' equals or exceeds three times the individual's 'base
amount' (generally, such individual's average annual compensation for the five
complete years preceding the change in control), then, subject to certain
exceptions, the payments may be treated as 'parachute payments' under the Code,
in which case a portion of such payments would be non-deductible to the Company
and the individual would be subject to a 20% excise tax on such portion of the
payments.
ERISA. The ISP Incentive Plan is not subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended.
Certain Limitations on Deductibility of Executive Compensation. Section
162(m) of the Code limits the Company's tax deduction to $1 million per year for
compensation paid to the executive officers named in the Summary Compensation
Table herein unless certain requirements are met. The Compensation Committee has
carefully considered these requirements and the regulations and has structured
its programs so that bonus compensation and gains from exercises of stock
options granted under the ISP Incentive Plan generally will be exempt from the
deduction limitations. The Compensation Committee's present intention is to
structure compensation to be tax-deductible; provided, however, that it retains
the right to authorize compensation that does not qualify for income tax
deductibility.
OPTIONS TO BE HELD BY CERTAIN PERSONS UNDER THE ISP INCENTIVE PLAN
Pursuant to the Merger Agreement, the ISP Incentive Plan will be assumed by
the Surviving Corporation and, by virtue of the Merger and without any action on
the part of the holders of options thereunder or holders of ISP Common Stock,
outstanding options as of the Effective Date to purchase shares of ISP Common
Stock thereunder will be converted into options to purchase an equal number of
shares of Surviving Corporation Common Stock. In addition, holders of Holdings
Preferred Stock Options and SARs will have the right to receive options under
the ISP Incentive Plan to purchase shares of Surviving Corporation Common Stock.
The following table sets forth for certain persons the number of shares of
Surviving Corporation Common Stock which, if the Merger were consummated as of
the date hereof, would underlie options which such holders of Holdings Preferred
Stock Options and SARs would be entitled to receive in accordance with the
Merger Agreement.
36
<PAGE>
ISP INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING OPTIONS
NAME AND POSITION UNDER THE PLAN
- ----------------- ------------------
<S> <C>
Samuel J. Heyman
Chairman of the Board
and Chief Executive Officer....................................................... (1)
Peter R. Heinze
President and Chief Operating Officer............................................. (1)
Carl R. Eckardt
Executive Vice President, Corporate Development................................... (1)
James P. Rogers
Executive Vice President, Finance................................................. 550,124
Richard A. Weinberg
Executive Vice President, General
Counsel and Secretary............................................................. 378,024
Charles M. Diker.................................................................... (1)
Harrison J. Goldin.................................................................. (1)
Sanford Kaplan...................................................................... (1)
Burt Manning........................................................................ (1)
All current executive officers as a group........................................... 1,042,003
All non-employee directors as a group............................................... (1)
All employees (except executive officers) as a group................................ 621,447
</TABLE>
- ------------------
(1) The proposed amendment to the ISP Incentive Plan does not affect the options
held by this person or group.
THE ISP BOARD RECOMMENDS A VOTE FOR ADOPTION OF THE PROPOSED AMENDMENT TO
THE ISP INCENTIVE PLAN.
37
<PAGE>
PROPOSAL 3--ELECTION OF DIRECTORS
Seven directors are to be elected to serve until the next Annual Meeting of
Stockholders and until their successors are elected and have qualified. The
persons designated in the enclosed proxy card will vote shares represented by a
valid unrevoked proxy FOR the election of each of the below-named nominees
unless instructions to the contrary are indicated in the proxy. If any such
nominees should be unable to serve for any reason, which the Company does not
anticipate, it is intended that proxies will be voted for the election of such
other persons as shall be designated by the ISP Board. The directors of ISP
serving immediately prior to the Effective Date will be the initial directors of
the Surviving Corporation.
NOMINEES
The following persons, all of whom are currently directors of ISP, have
been nominated for election as directors. Under ISP's By-Laws, each director
continues in office until the next Annual Meeting of Stockholders and until his
successor is elected and qualified. No family relationship exists between any of
the directors or executive officers of the Company. The information presented
below with respect to each nominee has been furnished by the nominee.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Charles M. Diker.......................... 63 Mr. Diker has been a director of ISP since February 1992. He
has been a non-managing principal of Weiss, Peck & Greer, an
investment management firm, since 1975. He also has been
Chairman of the Board of Cantel Industries Inc., a
manufacturer of medical diagnostics and infection control
products, since 1986. Mr. Diker is a director of
BeautiControl Cosmetics, a cosmetics company, Data
Broadcasting Corporation, a financial data broadcasting
company, Chyron Corporation, a designer and manufacturer of
digital equipment, software and systems, and AMF Bowling,
Inc., an owner and operator of, and manufacturer of equipment
for, commercial bowling centers.
Carl R. Eckardt........................... 67 Mr. Eckardt has been a director of ISP since its formation and
Executive Vice President, Corporate Development, of ISP since
November 1996, which position he had held from ISP's
formation to January 1994. From January 1994 to November
1996, Mr. Eckardt was President and Chief Operating Officer
of ISP. He has been Executive Vice President of Holdings
since its formation. Mr. Eckardt also has been Vice Chairman
of GAF since November 1996 and a director of GAF since April
1987. He was Executive Vice President of GAF from April 1989
to November 1996 and held the same position with GAF's
predecessor from January 1987 to April 1989. Mr. Eckardt has
been Executive Vice President of G-I Holdings Inc. ('G-I
Holdings'), a subsidiary of GAF, since March 1993. Mr.
Eckardt joined GAF's predecessor in 1974.
Harrison J. Goldin........................ 62 Mr. Goldin has been a director of ISP since its formation. Mr.
Goldin has been the senior managing director of Goldin
Associates, L.L.C., a consulting firm, since January 1990.
Mr. Goldin was the Comptroller of the City of New York from
1974 to 1989 and a New York State Senator from 1966 to 1973.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Peter R. Heinze........................... 55 Dr. Heinze has been a director, President and Chief Operating
Officer of ISP since November 1996. He was Senior Vice
President, Chemicals of PPG Industries, Inc., a glass
products, coatings and resins, and chemicals manufacturer,
from April 1993 to November 1996 and Group Vice President,
Chemicals of PPG Industries, Inc. from August 1992 to April
1993. From January 1988 to August 1992, Dr. Heinze was
President, Chemicals Division, and an Executive Vice
President of BASF Corporation, a diversified chemical
manufacturing company.
Samuel J. Heyman.......................... 59 Mr. Heyman has been a director, Chairman and Chief Executive
Officer of ISP since its formation and has held the same
positions with Holdings since its formation. Mr. Heyman also
has been a director, Chairman and Chief Executive Officer of
GAF and certain of its subsidiaries since April 1989, prior
to which he held the same position with GAF's predecessor
from December 1983 to April 1989. Mr. Heyman has been a
director and Chairman of Building Materials Corporation of
America ('BMCA'), an indirect wholly-owned subsidiary of GAF,
since its formation, Chief Executive Officer of BMCA since
June 1996 and a director of U.S. Intec Inc. ('USI'), a
wholly-owned subsidiary of BMCA, since October 1995. He is
also the Chief Executive Officer, Manager and General Partner
of a number of closely held real estate development companies
and partnerships whose investments include commercial real
estate and a portfolio of publicly traded securities.
Sanford Kaplan............................ 81 Mr. Kaplan has been a director of ISP since November 1992. He
has been a private investor and consultant since 1977 when he
retired from Xerox Corporation, where he was a Senior Vice
President and a director. He is also a director emeritus of
Intel Corp., a computer hardware and component manufacturer.
Burt C. Manning........................... 66 Mr. Manning has been a director of ISP since November 1992. Mr.
Manning was Chairman of J. Walter Thompson Company, a
multinational advertising company, from July 1987 through
December 1997 and was Chief Executive Officer of such company
from July 1987 to December 1996. He has served as Chairman
Emeritus of such company since January 1998.
</TABLE>
39
<PAGE>
EXECUTIVE OFFICERS
A brief biography of each executive officer of ISP (other than Messrs.
Heyman and Eckardt and Dr. Heinze, whose biographies are set forth above) is
provided below. Executive officers are typically elected by the Board of
Directors at its annual meeting and hold office until the next annual meeting of
the Board of Directors or until their successors have been duly elected and
qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James P. Rogers........................... 47 Mr. Rogers has been Executive Vice President-Finance of ISP and
Executive Vice President and Chief Financial Officer of
Holdings since December 1996. He was Senior Vice President
and Chief Financial Officer of Holdings from its formation to
December 1996 and Senior Vice President-Finance of ISP from
November 1993 to December 1996. He was Treasurer of ISP from
March 1992 to December 1994 and from September 1995 to
December 1996. Mr. Rogers also has been Executive Vice
President and Chief Financial Officer of GAF, G-I Holdings
and certain of their subsidiaries and Executive Vice
President of BMCA and USI since December 1996. He was Senior
Vice President and Chief Financial Officer of GAF, G-I
Holdings and certain of their subsidiaries from November 1993
to December 1996 and of BMCA from its formation to December
1996. Mr. Rogers has been a director of USI since October
1995 and was Senior Vice President of USI from October 1995
to December 1996. He has served as Treasurer of GAF, G-I
Holdings and certain of their subsidiaries since March 1992
and was Vice President-Finance of such corporations from
March 1992 to October 1993. From August 1987 to March 1992,
Mr. Rogers was Treasurer of Amphenol Corporation, a
manufacturer of electronic connectors.
Andrew G. Mueller......................... 55 Mr. Mueller has been Executive Vice President-Operations of ISP
since May 1997. He was employed by BASF Corporation as Group
Vice President, Colorants & Textile/Leather Chemicals from
December 1995 to April 1997 and as Vice President, Fiber
Intermediates from April 1989 to November 1995.
Richard A. Weinberg....................... 38 Mr. Weinberg has been Executive Vice President and General
Counsel of ISP and certain of its subsidiaries and of
Holdings since May 1998 and was Senior Vice President and
General Counsel of ISP and certain of its subsidiaries from
May 1996 to May 1998 and of Holdings from its formation to
May 1998. He also has been Executive Vice President and
General Counsel of GAF, G-I Holdings, BMCA and certain of
their subsidiaries since May 1998 and was Senior Vice
President and General Counsel of such corporations from May
1996 to May 1998. He was Vice President and General Counsel
of BMCA from September 1994 to May 1996, Vice President-Law
of BMCA from May 1994 to September 1994 and Vice
President-Law of GAFBMC from April 1993 to May 1994. Mr.
Weinberg was employed by Reliance Group Holdings Inc., a
diversified
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
insurance holding company, as Staff Counsel from October 1987
to January 1990 and as Assistant Vice President and Corporate
Counsel from January 1990 to April 1993.
Randall R. Lay............................ 43 Mr. Lay has been Vice President and Chief Financial Officer of
ISP since April 1995. From August 1993 to April 1995, he
served as Controller, Specialty Derivatives of ISP. From
March 1991 to August 1993, he was Director, Financial
Planning of Otis Elevator Company and from July 1989 to March
1991 he was Director, Financial Planning of United
Technologies Corporation.
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of April 17, 1998, the ISP Common Stock was beneficially owned by the
Company's directors, the executive officers named in the Summary Compensation
Table below, directors and executive officers of the Company as a group and each
person or group known by the Company to be the beneficial owner of more than 5%
of the ISP Common Stock as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES
NAME(1) SHARES OWNED % BENEFICIALLY OWNED %
- ------- ------------ - ------------------ -
<S> <C> <C> <C> <C>
Samuel J. Heyman.............................. 125,000 * 80,715,000(2)(3) 83.8%(2)(3)(5)
Carl R. Eckardt............................... 1,000 * 103,832(3)(5) *
Peter R. Heinze............................... 0 -- 0 --
Charles M. Diker.............................. 12,000 * 41,000(3)(4) *
Harrison J. Goldin............................ 0 -- 15,000(3) *
Sanford Kaplan................................ 5,000 * 20,000(3) *
Burt Manning.................................. 7,000(3) * 22,000(3) *
James P. Rogers............................... 20,848(3) * 88,168(3) *
Richard A. Weinberg........................... 0 -- 5,600(3) *
Holdings...................................... 80,500,000 83.7% 80,500,000 83.7%
All directors and executive officers of ISP as
a group (11 persons)........................ 173,039(3) * 81,013,191(2)(3)(5) 84%
</TABLE>
- ------------------------
* Less than 1%.
(1) The business address of each of the directors and executive officers listed
above is 1361 Alps Road, Wayne, New Jersey 07470.
(2) Includes 80,500,000 shares owned by Holdings, a corporation controlled by
Mr. Heyman. The business address of Holdings is 818 Washington Street,
Wilmington, Delaware 19801.
(3) Includes, with respect to Mr. Heyman, 90,000 shares; Mr. Eckardt, 102,832
shares; Mr. Diker, 15,000 shares; Mr. Goldin, 15,000 shares; Mr. Kaplan,
15,000 shares; Mr. Manning, 15,000 shares; Mr. Rogers, 67,320 shares; Mr.
Weinberg, 5,600 shares; and all directors and executive officers as a group,
326,152 shares, subject to options granted under the ISP Incentive Plan
which are currently exercisable or will become exercisable within the next
60 days. Also includes with respect to Mr. Rogers 7,848 shares and for all
directors and executive officers as a group 9,309 shares, which were held in
the GAF Capital Accumulation Plan as of December 31, 1997. Includes with
respect to Mr. Rogers 10,000 shares held jointly with his spouse and with
respect to Mr. Manning 7,000 shares held jointly with his spouse.
(Footnotes continued on next page)
41
<PAGE>
(Footnotes from previous page)
(4) Includes 4,050 shares held by trusts for the benefit of Mr. Diker's children
of which Mr. Diker is trustee; 5,950 shares held by Mr. Diker's spouse, as
to which Mr. Diker disclaims beneficial ownership; and 4,000 shares over
which Mr. Diker shares investment power, as to which Mr. Diker disclaims
beneficial ownership.
(5) The number of shares shown as being beneficially owned by all directors and
officers of the Company as a group attributes ownership of Holdings'
80,500,000 shares to Mr. Heyman. As of June 10, 1998, Messrs. Heyman and
Eckardt beneficially owned 97% and 1.7%, respectively, of the outstanding
capital stock of Holdings.
MEETINGS, COMMITTEES AND DIRECTORS' FEES
The ISP Board met six times in 1997.
The ISP Board has delegated certain of its functions and responsibilities
to committees of the ISP Board.
The Audit Committee reviews the integrity of the Company's financial
statements, internal controls, the internal audit function, the function and
fees of the independent public accountants, and other matters relating to
financial and accounting functions. Messrs. Diker, Goldin and Kaplan presently
constitute the Audit Committee. The Audit Committee met two times in 1997.
The Compensation Committee is responsible for the review and administration
of the Company's compensation practices, policies and plans. Messrs. Diker,
Goldin and Manning presently constitute the Compensation Committee. The
Compensation Committee met four times during 1997.
The ISP Board does not have a nominating committee. Mr. Kaplan attended
three ISP Board meetings and one Audit Committee meeting in 1997.
No directors who are employees of ISP or its affiliates receive
compensation for their services as directors. Outside directors receive an
annual fee of $18,000 and a fee of $750 per meeting of the Board of Directors.
Outside directors are compensated $250 per committee meeting held in connection
with a Board of Directors meeting and $750 per committee meeting held
independently. An additional fee of $3,000 per year is paid to outside directors
who chair a committee. If an outside director chairs more than one committee, no
additional compensation is paid. Under the ISP Incentive Plan, which will be
assumed by the Surviving Corporation in the Merger, each outside director is
granted a non-qualified stock option to purchase 5,000 shares of ISP Common
Stock (the 'Initial Option') on the date such person becomes a director and an
additional non-qualified option to purchase 2,500 shares of ISP Common Stock (an
'Additional Option') on each anniversary of the date of grant of the Initial
Option. The term of each option granted is nine years. Initial Options are
subject to a three-year vesting period, commencing on the first anniversary of
the date of grant, and Additional Options are subject to a one-year vesting
period, becoming exercisable in full on the first anniversary of the date of
grant. The exercise price of the options is equal to the fair market value of
the underlying shares on the date of grant. The Company currently has four
non-employee directors, Messrs. Diker, Goldin, Kaplan and Manning, each of whom
was granted an Additional Option to purchase 2,500 shares of ISP Common Stock
during 1997. See 'THE MERGER--Background of the Merger.'
Following consummation of the Merger, the Board of Directors of the
Surviving Corporation initially will have three committees (which will be the
same as the three committees of the ISP Board). The principal responsibilities
and membership of each such committee initially will be the same as the
principal responsibilities and membership of the corresponding committee of the
ISP Board.
42
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS OF THE COMPANY
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors establishes the
compensation policies of the Company, evaluates and determines the specific
compensation levels for the Company's executive officers and other employees and
administers the Company's compensation plans. The Compensation Committee is
composed of three independent, non-employee directors who have no interlocking
relationships as defined by the rules promulgated by the Securities and Exchange
Commission.
PHILOSOPHY
The objectives of the Company's executive compensation program are to
support the Company's strategic goals, to provide compensation that will
attract, retain and motivate highly qualified executives and to align
executives' long-term interests with those of the Company's stockholders. The
Compensation Committee's philosophy is to compensate the Company's executive
officers based primarily on their performance and level of responsibility.
Generally, the Company seeks to maintain a competitive position in the executive
marketplace with companies identified by the Company, using external surveys, as
being of similar size and engaged in similar businesses, by establishing total
compensation levels for executive officers competitive with the median total
compensation earned by executives with comparable responsibilities in such
comparison group. These companies are not necessarily the same as those
comprising the peer group index in the performance graph included elsewhere in
this proxy statement.
EXECUTIVE COMPENSATION
The principal components of the Company's executive compensation program
are base salary, annual incentive compensation and long-term incentive
compensation primarily in the form of stock options.
Executive salary levels generally are adjusted annually based on an
evaluation of each executive's performance (such as individual managerial
accomplishments and current responsibilities of such executive officer) and the
Company's budgetary considerations.
Annual incentive compensation for executive officers is awarded under the
Company's Executive Incentive Compensation Program ('EIC') and is based on both
corporate and individual performance. In any year, the aggregate EIC pool, if
any, for all awards is based principally on the Company's operating income as a
percentage of the Company's budgeted operating income established at the
beginning of such year. The EIC pool for any year may vary in size depending
upon unusual factors affecting the Company's operating results. Individual award
targets for each participant in the EIC (including executive officers) are
computed as a percentage of base salary based on such participant's grade level.
Individual EIC awards may vary from the applicable percentage based on corporate
performance as described above or any executive officer's individual performance
as described below.
Specific performance-related targets and objectives for an executive
officer are established at the beginning of each year. These individual goals
relate to specific business, department or managerial objectives that support
the Company's overall business plan and other specific corporate goals and
strategic objectives established for the year. After considering the evaluations
and recommendations of the executive officer's supervisor and a senior
management committee comprised of the Company's Chief Executive Officer,
President or Chief Operating Officer and Senior Vice President, Human Resources,
the Compensation Committee determines an executive officer's individual EIC
award based on the Company's financial performance, such officer's achievement
of these pre-established targets and goals and such officer's contribution to
the Company's overall performance. It also exercises discretion in view of the
Company's compensation objectives and policies described above to determine
total annual compensation. Based upon the foregoing criteria, the Compensation
Committee determined that an aggregate of $1,028,269 in EIC awards should be
paid to the Company's executive officers for the year ended December 31, 1997.
The Compensation Committee believes that stock ownership by management
encourages management to enhance stockholder value. Accordingly, options to
purchase shares of ISP Common Stock are an important
43
<PAGE>
component of the Company's performance-based compensation philosophy and provide
a vehicle by which executive officers can obtain a stake in the Company, thus
motivating them to increase the Company's profitability. The Compensation
Committee generally has granted options to executive officers under the ISP
Incentive Plan on a regular, periodic basis based upon the executive's
individual performance, respective grade level and the Company's stock price at
the time of grant. The Compensation Committee also may grant from time to time
options to executives based on individual merit, taking into account, among
other things, an evaluation of the executive's past or potential contribution to
the Company, its parents or subsidiaries and recommendations by the Company's
management including the Chief Executive Officer. In December 1997, such special
option grants included options granted under the ISP Future Leadership Program,
which was adopted by the Board of Directors in December 1995 as part of the ISP
Incentive Plan. During 1997, non-qualified stock options for an aggregate of
76,250 shares of ISP Common Stock were granted to the Company's executive
officers, including options for 7,500 shares granted under the ISP Future
Leadership Program.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Compensation Committee reviews and evaluates the Chief Executive
Officer's total compensation package annually. Although the Compensation
Committee's bases for determining the Chief Executive Officer's compensation are
substantially the same as discussed above with respect to the Company's other
executive officers, the Compensation Committee relies more heavily on the
Company's financial performance, overall financial condition and achievement of
annual and strategic corporate objectives in determining the total annual and
long-term compensation for Mr. Heyman. Among the criteria used in determining
Mr. Heyman's compensation are (i) the Company's financial performance compared
to its performance in the prior year, including the Company's operating income,
revenues, net income per share and overall financial condition, and (ii) the
Company's actual financial performance compared to its annual business plan. In
recognition of the Company's performance during 1996 and the extent to which
certain financial and operational goals were met, the Compensation Committee
increased Mr. Heyman's annual base salary to $581,500, effective as of April 1,
1997.
Mr. Heyman also is eligible to participate in the EIC to the same extent as
other executive officers of the Company. Based on the Compensation Committee
evaluation of both corporate and individual achievement of performance-related
goals as described above, Mr. Heyman was entitled to receive an EIC award of up
to approximately $648,950 for 1997. Mr. Heyman elected not to receive any award
so that the aggregate EIC pool for 1997 could be awarded in its entirety to the
other executives of the Company. The Compensation Committee also considers Mr.
Heyman's total compensation package relative to that of other chief executive
officers in the comparison group of companies of similar size and in similar
businesses to the Company described above. The Company believes that Mr.
Heyman's compensation is below average in comparison to that paid to chief
executive officers of such comparable companies.
Members of the Compensation Committee:
Charles M. Diker
Harrison J. Goldin
Burt C. Manning
44
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of ISP and the four other most highly compensated executive officers of
ISP who were employed by ISP as of December 31, 1997.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------------
------------------------------------------ SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION(1) OPTIONS/SARS(#)(2) COMPENSATION($)
- ------------------------------ ------ --------- ----------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Samuel J. Heyman ............. 1997 $ 579,125 $ 0 $ 0 0 $20,579(3)
Chairman of the Board of 1996 572,000 200,000 0 89,200(ISP-O) 14,739(3)
Directors and Chief 1995 553,666 200,000 0 150,000(ISP-O) 9,848(3)
Executive Officer
Peter R. Heinze .............. 1997 $ 379,725 $ 349,271 $31,774(4) 18,750(ISP-O) $24,291(4)
President and Chief 1996 46,875(4) 40,000(4) 0 156,250(ISP-O) 0(4)
Operating 1995 (4) (4) (4) (4) (4)
Officer
Carl R. Eckardt .............. 1997 $ 340,704 $ 156,277 $ 0 0 $ 8,500(5)
Executive Vice President, 1996 339,612 164,901 0 49,600(ISP-O) 17,756(5)
Corporate Development 1995 325,500 300,000 0 41,600(ISP-O) 10,095(5)
James P. Rogers .............. 1997 $ 275,125 $ 250,000 $ 0 7,500(ISP-O) $18,459(6)
Executive Vice President, 1996 263,467 225,000 0 39,210(ISP-O) / 14,258(6)
Finance(9) 24,095(ISPH-O) (6)(8)
1995 248,333 225,000 0 38,300(ISP-O) 13,154(6)
Richard A. Weinberg .......... 1997 $ 252,475 $ 250,000 $ 0 0 $15,118(7)
Senior Vice President, 1996 130,833(7) 125,014(7) 0 37,410(ISP-O) / 2,960(7)
General Counsel and 31,970(ISPH-O) (7)(8)
Secretary(10) 1995 (7) (7) (7) (7) (7)
</TABLE>
- ------------------
(1) Bonus amounts are payable pursuant to ISP's Executive Incentive
Compensation Program, except that in respect of the bonus amounts paid to
certain executive officers in 1997, ISP was reimbursed under a management
agreement for a portion of the bonus amounts earned by such executive
officers. See 'CERTAIN TRANSACTIONS--Management Agreement.'
(2) The ISP options (ISP-O) are for shares of ISP Common Stock and the Holdings
options (ISPH-O) are for shares of redeemable convertible preferred stock
of Holdings. See '--Options and Stock Appreciation Rights.'
(3) Included in 'All Other Compensation' for Mr. Heyman are: $18,116, $12,989
and $8,598 for the premiums paid by the Company for a life insurance policy
in 1997, 1996 and 1995, respectively; and $1,963, $1,250 and $1,250 for the
premiums paid by the Company for a long-term disability policy in 1997,
1996 and 1995, respectively.
(4) Included in 'Other Annual Compensation' for Dr. Heinze are $25,043 in
payment of moving related expenses and a 'tax gross-up' of $6,731 in 1997.
Included in 'All Other Compensation' for Dr. Heinze are $10,792,
representing the Company's contribution under the GAF Capital Accumulation
Plan in 1997; $11,536 for the premium paid by the Company for a life
insurance policy in 1997; and $1,963 for the premium paid by the Company
for a long-term disability policy in 1997. Dr. Heinze commenced employment
with ISP in November 1996.
(5) Included in 'All Other Compensation' for Mr. Eckardt are: $6,537, $16,506
and $8,845 for the premiums paid by the Company for a life insurance policy
in 1997, 1996 and 1995, respectively; and $1,963, $1,250 and $1,250 for the
premiums paid by the Company for a long-term disability policy in 1997,
1996 and 1995, respectively.
(Footnotes continued on next page)
45
<PAGE>
(Footnotes continued from previous page)
(6) Included in 'All Other Compensation' for Mr. Rogers are: $11,450, $11,198
and $10,963, representing the Company's contribution under the GAF Capital
Accumulation Plan in 1997, 1996 and 1995, respectively; $5,046, $1,810 and
$978 for the premiums paid by the Company for a life insurance policy in
1997, 1996 and 1995, respectively; and $1,963, $1,250 and $1,213 for the
premiums paid by the Company for a long-term disability policy in 1997,
1996 and 1995, respectively. Excluded are the stock appreciation rights
relating to shares of Holdings common stock referred to in Note (2) under
the second table under '--Options and Stock Appreciation Rights.'
(7) Mr. Weinberg commenced service as Senior Vice President, General Counsel
and Secretary of the Company in May 1996. Prior to that time, he served as
Vice President and General Counsel of BMCA. Excluded are amounts paid to
Mr. Weinberg by BMCA prior to May 1996. Included in 'All Other
Compensation' for Mr. Weinberg are: $11,300 and $2,158, representing the
Company's contribution under the GAF Capital Accumulation Plan in 1997 and
1996, respectively; $1,914 and $277 for the premiums paid by the Company
for a life insurance policy in 1997 and 1996, respectively; and $1,904 and
$525 for the premiums paid by the Company for a long-term disability policy
in 1997 and 1996, respectively. Mr. Weinberg was appointed Executive Vice
President, General Counsel and Secretary of the Company in May 1998.
(8) Excluded are the stock appreciation rights relating to shares of GAF common
stock referred to in Note (4) under the second table under '--Options and
Stock Appreciation Rights.'
(9) If the Merger were consummated on the date hereof, Mr. Rogers would
receive, subject to satisfaction of future vesting requirements through
December 2003 and subject to his remaining an employee of the Company at
such vesting periods, $5.3 million and options to purchase 550,124 shares
of Surviving Corporation Common Stock. These options would have an exercise
price of $16.125 per share. See 'THE MERGER AGREEMENT--The
Merger--Treatment of Holdings' Options and SARs.'
(10) If the Merger were consummated on the date hereof, Mr. Weinberg would
receive, subject to satisfaction of future vesting requirements through
December 2003 and subject to his remaining an employee of the Company at
such vesting periods, $3.2 million and options to purchase 378,024 shares
of Surviving Corporation Common Stock. These options would have an exercise
price of $16.125 per share. See 'THE MERGER AGREEMENT--The
Merger--Treatment of Holdings' Options and SARs.'
46
<PAGE>
OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables summarize options to acquire ISP Common Stock ('ISP
Options') granted during 1997 to the executive officers named in the Summary
Compensation Table above, the potential realizable value of such options and the
value of the unexercised ISP Options, Holdings Preferred Stock Options and SARs
held by such persons on December 31, 1997. No Options or SARs were exercised by
such persons, and no Holdings Preferred Stock Options or SARs relating to common
stock of Holdings were granted, during 1997.
ISP COMMON STOCK OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO MARKET OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE/ PRICE ON FOR OPTION TERM
OPTIONS IN FISCAL BASE PRICE DATE OF EXPIRATION -----------------------------
NAME GRANTED 1997 ($/SH) GRANT DATE 0% 5% 10%
- ---- ------------- ---------- ---------- -------- ---------- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Samuel J. Heyman......... -- -- -- -- -- -- -- --
Peter R. Heinze.......... 18,750(ISP-O)(1) 3.6% $ 9.9375 $14.9375 12/31/03 $93,750 $189,003 $309,847
Carl R. Eckardt.......... -- -- -- -- -- -- -- --
James P. Rogers.......... 7,500(ISP-O)(1) 1.5% $ 9.9375 $14.9375 12/31/03 $37,500 $ 75,601 $123,939
Richard A. Weinberg...... -- -- -- -- -- -- -- --
</TABLE>
- ------------------
(1) The ISP Options were granted under the ISP Incentive Plan. The ISP Options
set forth in the foregoing table will become fully vested 2 1/2 years after
the date of grant, and, to the extent vested, are exercisable for six years
from the date of grant. The Compensation Committee may, on a case by case
basis, accelerate the vesting of unvested options in the event of a 'Change
of Control' (as therein defined). See 'AMENDMENT OF ISP INCENTIVE PLAN.'
47
<PAGE>
VALUE OF ISP COMMON STOCK OPTIONS/HOLDINGS PREFERRED STOCK
OPTIONS/HOLDINGS STOCK APPRECIATION RIGHTS AT DECEMBER 31, 1997(4)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED ISP OPTIONS (ISP-O)/ IN-THE-MONEY ISP OPTIONS/HOLDINGS
HOLDINGS OPTIONS (ISPH-O)/HOLDINGS OPTIONS/HOLDINGS SARS
SARS(S) AT 12/31/97 AT 12/31/97(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ---------------------------------- ---------------------------------
<S> <C> <C>
Samuel J. Heyman......................... 60,000/179,200(ISP-O) $ 476,250/$987,550
Peter R. Heinze.......................... 0/175,000(ISP-O) $ 0/$826,172
Carl R. Eckardt.......................... 93,784/92,656(ISP-O) $ 492,907/$457,621
James P. Rogers(4)....................... 61,320/83,690(ISP-O) $ 310,208/$471,329
7,455/1,864(S)(2) $ 834,967/$208,742(2)
0/24,095(ISPH-O)(3) $ 0/$240,727(3)
Richard A. Weinberg(4)................... 2,800/34,610(ISP-O) $ 8,925/$107,393
0/31,970(ISPH-O)(3) $ 0/$560,168(3)
</TABLE>
- ------------------
(1) All ISP Options, Holdings Preferred Stock Options and Holdings SARs were
in-the-money at December 31, 1997.
(2) The Holdings SARs represent the right to receive a cash payment based upon
the appreciation in value of the specified number of shares of Holdings
common stock over the sum of the determined initial Book Value (as defined)
per share of common stock of Holdings, plus interest on such Book Value at a
specified rate. The Holdings SARs vest over a five-year period, subject to
earlier vesting under certain circumstances including in connection with a
change of control, and have no expiration date. The Holdings SARs were
issued on January 1, 1997 to holders of stock appreciation rights relating
to shares of GAF common stock ('GAF SARs'). The grant date of each Holdings
SAR is deemed to be the grant date of such GAF SARs. See '--Summary
Compensation Table.'
(3) The Holdings Preferred Stock Options represent options to purchase shares of
redeemable convertible preferred stock of Holdings (the 'Holdings Preferred
Stock'). Each share of Holdings Preferred Stock is convertible, at the
holder's option, into shares of common stock of Holdings at a formula price
based on the sum of the determined initial Book Value (as defined in the
option agreements) plus interest on such Book Value at a specified rate. The
Holdings Preferred Stock Options are exercisable at a price of $111.44 per
share and vest over seven years, subject to earlier vesting under certain
circumstances including in connection with a change of control. Dividends
will accrue on the Holdings Preferred Stock from the date of issuance at the
rate of 6% per annum. Holdings Preferred Stock is redeemable, at Holdings'
option, for a redemption price equal to the exercise price per share plus
accrued and unpaid dividends. The common stock of Holdings issuable upon
conversion of the Holdings Preferred Stock is subject to repurchase by
Holdings under certain circumstances at a price equal to current Book Value
(as defined). The exercise price of the Holdings Preferred Stock Options is
equal to the fair value per share of the Holdings Preferred Stock at the
date of grant. The Holdings Preferred Stock Options have no expiration date.
The Holdings Preferred Stock Options were issued on January 1, 1997, to
holders of similar options to purchase redeemable convertible preferred
stock of GAF granted during 1996, which GAF options were exchanged for GAF
SARs. See Note (4) below. The grant date of each Holdings Preferred Stock
Option is deemed to be the grant date of such GAF options. See Notes 9 and
10 under '--Summary Compensation Table.'
(4) Excluded are GAF SARs as follows: Mr. Rogers--7,455 exercisable and 10,473
unexercisable GAF SARs, all of which were in-the-money and had a value of
$72,640 in respect of the exercisable and $187,437 in respect of the
unexercisable GAF SARs at December 31, 1997; and Mr. Weinberg--12,320
unexercisable GAF SARs, all of which were in-the-money and had a value of
$225,286 at December 31, 1997.
PENSION PLANS
Non-Qualified Retirement Plan. The Company has a non-qualified retirement
plan for the benefit of certain key employees (the 'Retirement Plan'). The
benefit payable under the Retirement Plan, which vests in accordance with a
10-year schedule, consists of an annual payment commencing at age 65 equal to
25% of a
48
<PAGE>
covered employee's last full year's base salary. The benefit continues for the
longer of 15 years or the joint lifetimes of the employee or his or her spouse.
If a covered employee dies while employed by the Company or a subsidiary, a
death benefit of 36% of the employee's base salary at the date of death is
payable for a term of 15 years to the employee's beneficiary.
No new participants have been admitted to the Retirement Plan since January
1989 and it is not anticipated that any new participants will be admitted
hereafter. Of the executive officers named in the Summary Compensation Table,
only Messrs. Heyman and Eckardt participate in the Retirement Plan.
The following table shows, for the salary levels and years of service
indicated, the annual pension benefit, payable commencing at age 65 to
participants in the Retirement Plan.
<TABLE>
<CAPTION>
NON-QUALIFIED RETIREMENT PLAN
ANNUAL PAYMENTS AT AGE 65
- -------------------------------------------------------------------------------------
YEARS OF SERVICE
- -------------------------------------------------------------------------------------
SALARY 5 10 15 20 25 30 35
- --------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$250,000 $31,250 $62,500 $62,500 $62,500 $62,500 $62,500 $62,500
300,000 37,500 75,000 75,000 75,000 75,000 75,000 75,000
350,000 43,750 87,500 87,500 87,500 87,500 87,500 87,500
400,000 50,000 100,000 100,000 100,000 100,000 100,000 100,000
450,000 56,250 112,500 112,500 112,500 112,500 112,500 112,500
500,000 62,500 125,000 125,000 125,000 125,000 125,000 125,000
550,000 68,750 137,500 137,500 137,500 137,500 137,500 137,500
600,000 75,000 150,000 150,000 150,000 150,000 150,000 150,000
650,000 81,250 162,500 162,500 162,500 162,500 162,500 162,500
700,000 87,500 175,000 175,000 175,000 175,000 175,000 175,000
</TABLE>
The years of service covered by the Retirement Plan are twelve years for
each of Mr. Heyman and Mr. Eckardt. Current salaries covered by the Retirement
Plan are the amounts set forth under the 'salary' column of the Summary
Compensation Table for the above-named executive officers. The annual pension
benefit is not subject to reduction for Social Security and other benefits and
is computed on a straight-life annuity basis.
Additional Arrangements. ISP has agreed to provide Mr. Eckardt, at age 67,
a $200,000 annuity comprising two pieces: (1) the benefits payable under the
Retirement Plan described above, and (2) a supplemental retirement benefit
representing the difference between $200,000 per year and the benefit payable
under the Retirement Plan. The supplemental retirement benefit vests at 20% per
year over a five-year period beginning March 1994. In the event Mr. Eckardt
should die without a surviving spouse, no supplemental retirement benefit will
be payable. In the event Mr. Eckardt should die prior to the termination of his
employment, leaving a surviving spouse, his spouse will be entitled to receive
for her life an annual payment of the portion of the supplemental retirement
benefit in which he was vested on the date of his death. If Mr. Eckardt's
employment is terminated involuntarily other than for cause (as defined), or in
the event Mr. Eckardt becomes totally and permanently disabled, he will be
entitled to receive payment of the portion of the supplemental retirement
benefit in which he is vested on the date of termination or the onset of such
disability. If Mr. Eckardt's employment is terminated for cause, the Company in
its sole discretion may declare all or any portion (whether vested or unvested)
of the supplemental retirement benefits forfeited.
OTHER AGREEMENTS
In connection with his becoming President and Chief Operating Officer of
ISP in November 1996, Dr. Heinze and ISP entered into a letter agreement that
provides, among other things, that Dr. Heinze will receive an initial base
salary of $375,000 per year, certain stock options and other benefits. In
accordance with the letter agreement, on December 9, 1996, Dr. Heinze was
granted under the ISP Incentive Plan 125,000 ISP Options at an exercise price of
$11.25 per share, which options vest in full on December 9, 1999 and expire nine
years from the date of grant, and 31,250 ISP Options at an exercise price of
$6.25 per share, which options vest in full on June 9, 1999 and expire six years
from the date of grant, in each case subject to earlier vesting in the event of
a 'Change of Control' (as defined in the ISP Incentive Plan). He is also
eligible to participate in ISP's Executive Incentive Compensation Program and
the ISP Incentive Plan. The letter agreement also provides that if
49
<PAGE>
Dr. Heinze's employment is terminated by ISP other than for cause, ISP will
continue to pay Dr. Heinze his then base salary for a severance period of up to
18 months depending upon when such termination occurs. In addition, in the event
of a Change of Control of ISP and either (i) the termination of Dr. Heinze's
employment by ISP (or its successor) or other than for cause within twelve
months after such Change in Control or (ii) the termination of employment by Dr.
Heinze under certain circumstances, Dr. Heinze will continue to receive his base
salary in lieu of any other severance for 24 months following such termination.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires ISP's directors, executive
officers and persons who beneficially own more than 10 percent of a registered
class of ISP's equity securities ('10% Owners') to file reports of beneficial
ownership of ISP's securities and changes in such beneficial ownership with the
Commission. Directors, executive officers and 10% Owners are also required by
rules promulgated by the Commission to furnish ISP with copies of all forms they
file pursuant to Section 16(a).
Based solely upon a review of the copies of the forms filed pursuant to
Section 16(a) furnished to ISP, or written representations that no year-end Form
5 filings were required for transactions occurring during fiscal 1997, ISP
believes that its directors, executive officers and 10% Owners complied with
Section 16(a) filing requirements applicable to them during fiscal 1997, except
that Andrew G. Mueller, Executive Vice President, Operations, inadvertently
filed on an untimely basis an initial report of ownership on Form 3.
50
<PAGE>
PERFORMANCE GRAPH
The following graph compares the performance of ISP Common Stock with the
performance of the Standard & Poor's 500 Index and the Standard & Poor's
Specialty Chemicals Index for the period from January 1, 1993 through the end of
1997. The graph assumes that the value of the investment in the ISP Common Stock
and in each index was $100 on December 31, 1992 and that all dividends were
reinvested.
STOCK PRICE PERFORMANCE
TOTAL RETURN ON $100 INVESTMENT
DIVIDEND REINVESTED
[GRAPH INSERTED HERE]
<TABLE>
Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97
<S> <C> <C> <C> <C> <C> <C>
S & P 500 100 114 112 153 189 252
S & P Specialty Chemicals 100 110 100 131 134 166
International Specialty Products Inc. 100 71 75 115 130 158
</TABLE>
The foregoing graph is not incorporated in any prior or future filings of
Holdings or ISP under the Securities Act or the Exchange Act, directly or by
reference to the incorporation of proxy statements of Holdings or ISP, unless
Holdings or ISP specifically incorporates the graph by reference, and the graph
shall not otherwise be deemed filed under such Acts.
51
<PAGE>
CERTAIN TRANSACTIONS
Holdings was a wholly-owned subsidiary of GAF until January 1, 1997, when
all of its capital stock was distributed to the stockholders of GAF in a series
of transactions involving GAF's subsidiaries (the 'Separation Transactions'). As
a result, Holdings and ISP are no longer direct or indirect subsidiaries of GAF
or its subsidiary, G-I Holdings.
MANAGEMENT AGREEMENT
Pursuant to a Management Agreement (the 'Management Agreement') which
expires at the end of 1998, the Company provides certain general management,
administrative, legal, telecommunications, information and facilities services
to Holdings and certain of its affiliates, including GAF, BMCA, G-I Holdings and
GAF Fiberglass Corporation. Charges by the Company for providing such services
aggregated $5.6 million in 1997. Such charges consist of management fees and
other reimbursement expenses attributable to, or incurred by the Company for the
benefit of, the respective parties, which are based on an estimate of the costs
the Company incurs to provide such services. Effective January 1, 1998, the term
of the Management Agreement was extended through the end of 1998, and the
management fees payable under the agreement were adjusted, including an
adjustment to reflect the direct payment by BMCA of the costs of certain
services rendered by third parties that were previously included in the
management fees payable to the Company. The Company and BMCA further modified
the agreement to allocate a portion of the management fees payable by BMCA under
the Management Agreement to separate lease payments for the use of BMCA's
headquarters. Based on the services provided by the Company in 1997, after
taking into account the modifications to the agreement described above, the
aggregate amount payable to the Company under the Management Agreement for 1998
is expected to be approximately $5.6 million. BMCA also is expected to pay
directly certain third-party costs which aggregated approximately $0.4 million
in 1997, that were previously included in the management fees. In addition, the
Company currently anticipates that in 1998 BMCA will require additional space
for its headquarters and will pay additional rent based on the square footage to
be occupied. Although, due to the unique nature of the services provided under
the Management Agreement, comparisons with third-party arrangements are
difficult, the Company believes that the terms of the Management Agreement,
taken as a whole, are no less favorable to the Company than could be obtained
from an unaffiliated third party. Certain of the executive officers of the
Company perform services for affiliates of the Company pursuant to the
Management Agreement, and ISP is indirectly reimbursed therefor by virtue of the
management fees and other reimbursable expenses payable under the Management
Agreement. BMCA reimbursed ISP for a portion of the bonus amounts paid to
Messrs. Rogers and Weinberg in connection with services performed by them for
BMCA during 1997. See 'COMPENSATION OF EXECUTIVE OFFICERS OF THE COMPANY--
Summary Compensation Table.' In connection with the execution of the Merger
Agreement, an amendment to the Management Agreement was executed pursuant to
which G-I Holdings agreed to reimburse the Surviving Corporation for any amounts
paid by the Surviving Corporation pursuant to the exercise of rights to receive
cash and options to purchase Surviving Corporation Common Stock granted to Mr.
Sunil Kumar, the President and Chief Operating Officer of BMCA, by the Surviving
Corporation in accordance with the terms of the Merger Agreement and in exchange
for SARs and Holdings Preferred Stock Options held by Mr. Kumar.
TAX SHARING AGREEMENT
Effective January 1, 1997, the Company and each of its domestic
subsidiaries entered into an agreement (the 'Tax Sharing Agreement') with
Holdings with respect to the payment of Federal income taxes and certain related
matters. During the term of the Tax Sharing Agreement, which extends as long as
the Company or any of its domestic subsidiaries, as the case may be, are
included in a consolidated Federal income tax return filed by Holdings or a
successor entity, the Company is obligated to pay to Holdings an amount equal to
those Federal income taxes the Company would have incurred if, subject to
certain exceptions, the Company (on behalf of itself and its domestic
subsidiaries) filed its own consolidated Federal income tax return. These
exceptions include, among others, that the Company may utilize certain favorable
tax attributes, i.e., losses, deductions and credits (except for a certain
amount of foreign tax credits and, in general, net operating losses), only at
the time such attributes reduce the Federal income tax liability of Holdings and
its consolidated subsidiaries (the 'Holdings Group'); and that the Company may
carry back or carry forward its favorable tax attributes only after taking into
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account current tax attributes of the Holdings Group. In general, subject to the
foregoing limitations, unused tax attributes carry forward for use in reducing
amounts payable by the Company to Holdings in future years. Subject to certain
exceptions, actual payment for such attributes will be made by Holdings to the
Company only when Holdings receives an actual refund of taxes from the Internal
Revenue Service or, under certain circumstances, the earlier of (i) the dates of
the filing of Federal income tax returns of the Company for taxable years of the
Company following the last taxable year in which it was a member of the Holdings
Group, or (ii) when Holdings no longer owns more than 50% of the Company.
Foreign tax credits not utilized by the Company in computing its tax sharing
payments will be refunded by Holdings to the Company, if such credits expire
unutilized, upon the termination of the statute of limitations for the year of
expiration. The Tax Sharing Agreement provides for analogous principles to be
applied to any consolidated, combined or unitary state or local income tax
filings. Under the Tax Sharing Agreement, Holdings makes all decisions with
respect to all matters relating to taxes of the Holdings Group. The provisions
of the Tax Sharing Agreement take into account both the Federal income taxes ISP
would have incurred if it filed its own separate Federal income tax return and
the fact that ISP is a member of the ISP Holdings Group for Federal income tax
purposes.
ISP was a party to tax sharing agreements with members of the GAF
consolidated tax group (the 'GAF Group'). As a result of the Separation
Transactions, ISP is no longer included in the consolidated Federal income tax
returns of GAF and, therefore, such tax sharing agreements are no longer
applicable with respect to the tax liabilities of ISP for periods subsequent to
the Separation Transactions. ISP remains obligated, however, with respect to tax
liabilities imposed or that may be imposed for periods prior to the Separation
Transactions. Among other things, those tax sharing agreements provide for the
sharing of the GAF Group's consolidated tax liability based on each member's
proportionate share of the tax as if such member filed on a separate basis.
Accordingly, ISP would be required to pay an amount equal to its allocable share
of any consolidated tax deficiency of the GAF Group and would be entitled to a
refund if losses or other attributes reduce the GAF Group's consolidated tax
liability. Moreover, foreign tax credits generated by ISP not utilized by GAF
will be refunded by GAF or its subsidiary to ISP, if such credits expire
unutilized upon termination of the statute of limitations for the year of
expiration. Furthermore, those tax sharing agreements provide for an
indemnification to ISP for any tax liability attributable to another member of
the GAF Group.
SALES TO AFFILIATES
BMCA purchases from the Company all of its colored roofing granules
requirements (except for the requirements of BMCA's California roofing plant)
under a requirements contract. In addition, in December 1995, USI commenced
purchasing from the Company substantially all of its requirements for colored
roofing granules (except for the requirements of USI's Stockton, California and
Corvallis, Oregon plants) pursuant to a requirements contract. Each such
requirements contract was renewed for 1998 and is subject to annual renewal
unless terminated by either party to the agreement. In 1997, BMCA and USI
purchased a total of $51.1 million of mineral products from the Company,
representing approximately 7% of the Company's total net sales and approximately
62% of the Company's net sales of mineral products. The Company's supply
arrangements with BMCA and USI are at prices and on terms which the Company
believes are no less favorable to it than could be obtained from an unaffiliated
third party.
AFFILIATE BORROWINGS
Under the terms of its revolving credit facility, the Company and its
subsidiaries are permitted to make loans to affiliates, and provide letters of
credit issued for the benefit of such affiliates, up to an aggregate amount not
to exceed $75 million outstanding at any time. The largest amount of such loans
and letters of credit outstanding at any time during 1997 was $19.0 million.
Such loans and letters of credit were on terms which the Company believes were
no less favorable to the Company than could have been obtained from unaffiliated
third parties. As of March 29, 1998, no loans to affiliates or letters of credit
for the benefit of affiliates were outstanding.
During 1997, the Company and its subsidiaries also borrowed from Holdings
from time to time at the same rates available to the Company under its revolving
credit facility, which the Company believes were on terms no less favorable to
the Company than could be obtained from unaffiliated third parties. The largest
amount of such loans from Holdings outstanding at any time during 1997 was $68.6
million, and as of March 29, 1998 such borrowings outstanding were $50.0
million.
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CERTAIN OTHER TRANSACTIONS
For a discussion of certain arrangements with executive officers of the
Company, see 'COMPENSATION OF EXECUTIVE OFFICERS OF THE COMPANY--Other
Agreements' and '--Pension Plans--Additional Arrangements.'
The Company invests primarily in international and domestic arbitrage and
securities of companies involved in acquisition or reorganization transactions,
including, at times, common stock short positions which are offsets against long
positions in securities which are expected, under certain circumstances, to be
exchanged or converted into the short positions. The latter category of
investments is administered, at no cost or charge to the Company, by certain
investment partnerships controlled by Mr. Heyman and his family, and, when
purchased or sold on the same day as investments purchased or sold by members of
the GAF group of companies, other members of the Holdings group and certain
Heyman family enterprises, are effected at the same price as the investments of
such other entities.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
shares of Surviving Corporation Common Stock to be issued in the Merger will be
passed upon for Holdings by Weil, Gotshal & Manges LLP (a limited liability
partnership including professional corporations), New York, New York. Weil,
Gotshal & Manges LLP has from time to time represented, and may continue to
represent, the Company and certain of its affiliates in connection with certain
legal matters.
INDEPENDENT PUBLIC ACCOUNTANTS
No accounting firm has been selected to date to audit the accounts of the
Company for 1998. No such selection shall be made without the recommendation and
approval of ISP's Audit Committee.
Incorporation by Reference. The consolidated balance sheets and schedules
of ISP and Holdings as of December 31, 1997 and 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997 are incorporated by
reference in this Proxy Statement/Prospectus.
Experts. The consolidated financial statements and schedules of ISP and
Holdings incorporated by reference in this Proxy Statement/Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are incorporated by reference in
reliance upon the authority of said firm as experts in giving said reports.
1999 STOCKHOLDERS' PROPOSALS
Proposals of security holders intended for possible action at the 1999
Annual Meeting of the Company (or, if the Merger has been effected, the
Surviving Corporation) must be received by the Company (or by the Surviving
Corporation, as the case may be) at its principal executive offices prior to
December 15, 1998. All proposals received will be subject to the applicable
rules of the Securities and Exchange Commission.
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OTHER MATTERS
The cost of the solicitation will be borne by ISP. In addition to use of
the mails, proxies may be solicited by telephone, telegraph or personal
interview by employees of ISP without additional compensation.
ISP will reimburse brokerage firms, banks, trustees, nominees and other
persons authorized by ISP for their out-of-pocket expenses in forwarding proxy
materials to the beneficial owners of ISP Common Stock.
By Order of the Board of Directors,
/s/ Richard A. Weinberg
-----------------------------------
Richard A.Weinberg
Secretary
Wayne, New Jersey
June 15, 1998
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ANNEX A
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AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ISP HOLDINGS INC.
AND
INTERNATIONAL SPECIALTY PRODUCTS INC.
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DATED AS OF MARCH 30, 1998
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- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 30, 1998 (this
'Agreement'), by and between ISP Holdings Inc., a Delaware corporation ('ISP
Holdings'), and International Specialty Products Inc., a Delaware corporation
('ISP'). ISP Holdings and ISP are hereinafter sometimes collectively referred to
as the 'Constituent Corporations.'
WHEREAS, ISP has authorized capital stock consisting of (i) 300,000,000
shares of common stock, par value $.01 per share ('ISP Common Stock'), of which
96,057,477 shares are issued and outstanding as of March 20, 1998, and (ii)
20,000,000 shares of preferred stock, par value $.01 per share, none of which is
issued and outstanding as of the date hereof; and
WHEREAS, ISP Holdings owns 80,500,000 shares of ISP Common Stock,
constituting approximately 84% of the outstanding shares of ISP Common Stock;
and
WHEREAS, ISP Holdings has authorized capital stock consisting of (i)
3,000,000 shares of common stock, par value $.01 per share ('ISP Holdings Common
Stock'), of which 1,754,374 shares are issued and outstanding as of March 20,
1998 and (ii) 800,000 shares of cumulative redeemable convertible preferred
stock, par value $.01 per share, none of which is issued and outstanding as of
the date hereof, and has outstanding options to purchase 121,658 shares of ISP
Holdings Series A Redeemable Convertible Preferred Stock and 27,748 stock
appreciation rights outstanding based on the value of ISP Holdings Common Stock;
and
WHEREAS, ISP intends to organize a new direct, wholly owned subsidiary
('Newco'); and
WHEREAS, the respective Boards of Directors of ISP Holdings and ISP believe
it is in the best interest of each of ISP Holdings and ISP and their respective
stockholders to consummate the merger of ISP with and into ISP Holdings (the
'Merger') pursuant to the applicable provisions of the General Corporation Law
of the State of Delaware (the 'DGCL') and in accordance with the terms and
subject to the conditions of this Agreement, immediately following the transfer
by ISP (and at the request of ISP Holdings which request is deemed to be made by
the execution of this Agreement) of all of ISP's assets to Newco and, in
connection therewith, Newco's assumption of all of ISP's liabilities, other than
ISP's rights and obligations under this Agreement (the 'Transfer');
WHEREAS, based upon the unanimous recommendation of the committee of the
Board of Directors of ISP comprised of members thereof who are not stockholders,
directors or officers of, or consultants to, ISP Holdings or its affiliates
(other than ISP and its subsidiaries (the 'Committee')), pursuant to the
applicable provisions of the DGCL, the Board of Directors of ISP has approved
the Merger upon the terms and subject to the conditions set forth herein and has
recommended approval of this Agreement by the stockholders of ISP.
WHEREAS, the Board of Directors of ISP Holdings has unanimously approved
the Merger upon the terms and subject to the conditions set forth herein and has
recommended approval of this Agreement by its stockholders; and
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.01. Surviving Corporation. Upon the terms and subject to the
conditions hereof, on the Effective Date (as defined in Section 1.06 hereof),
ISP shall be merged with and into ISP Holdings in accordance with the applicable
provisions of the DGCL and the separate corporate existence of ISP shall
thereupon cease, and ISP Holdings, as the surviving corporation in the Merger
(hereinafter referred to for periods on and after the Effective Date as the
'Surviving Corporation'), shall continue its corporate existence under the laws
of the State of Delaware under the name 'International Specialty Products Inc.'
The Merger shall have the effects set forth in the DGCL. Without limiting the
generality of the foregoing, and subject to the provisions of the DGCL and the
terms of the documents evidencing the Transfer, at the Effective Date, all
property, real, personal and mixed, and all debts due to any of the Constituent
Corporations on whatever account, or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation; and all property,
rights, privileges, powers and
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franchises, and all and every other interest, shall be thereafter the property
of the Surviving Corporation as they were of the Constituent Corporations, and
the title to any real estate vested by deed or otherwise, under the laws of the
State of Delaware, in any of the Constituent Corporations, shall not revert or
be in any way impaired by reason of the DGCL; but all rights of creditors and
all liens upon any property of any of the Constituent Corporations shall be
preserved unimpaired, and, subject to the terms of the documents evidencing the
Transfer, all debts, liabilities and duties of the respective Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts, liabilities and duties
had been incurred or contracted by it.
Section 1.02. Certificate of Incorporation. The Certificate of
Incorporation of ISP Holdings, as in effect immediately prior to the Effective
Date, shall be the Certificate of Incorporation of the Surviving Corporation,
but shall be amended, as of the Effective Date, to be identical to the
Certificate of Incorporation of ISP as in effect immediately prior to the
Effective Date, until thereafter amended as provided by law.
Section 1.03. By-Laws. The By-Laws of ISP, as in effect immediately prior
to the Effective Date, shall be the By-Laws of the Surviving Corporation (with
the corporate name thereon reflecting the name of the Surviving Corporation)
until thereafter amended as provided by law.
Section 1.04. Directors. The directors of ISP immediately prior to the
Effective Date shall be the directors of the Surviving Corporation and shall
hold office from the Effective Date until their respective successors are duly
elected or appointed and qualify in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation, or as otherwise provided
by law.
Section 1.05. Officers. The officers of ISP immediately prior to the
Effective Date shall be the officers of the Surviving Corporation and shall hold
office from the Effective Date until their respective successors are duly
elected or appointed and qualify in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation, or as otherwise provided
by law.
Section 1.06. Effective Date. Subject to the terms and conditions hereof,
the effective date of the Merger (the 'Effective Date') shall be the date of
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware ('Certificate of Merger'), which shall be no later than the second
business day after satisfaction or waiver in accordance with the terms of this
Agreement of all conditions to the Merger specified in Articles VI, VII and VIII
hereto or such other day as shall be mutually agreeable to the parties hereto.
ARTICLE II
CONVERSION OF SHARES AND OPTIONS
Section 2.01. Conversion of Shares. As of the Effective Date, by virtue
of the Merger and without any action on the part of the holders thereof:
(a) each issued and outstanding share of ISP Common Stock (other than
the shares owned of record by ISP Holdings) shall automatically be
converted into one share of common stock, par value $.01 per share ('New
ISP Common Stock'), of the Surviving Corporation;
(b) each issued and outstanding share of ISP Common Stock owned of
record by ISP Holdings immediately prior to the Effective Date shall be
cancelled and retired without payment of any consideration therefor and
shall cease to exist; and
(c) each issued and outstanding share of ISP Holdings Common Stock
shall automatically become a number of shares of New ISP Common Stock equal
to the quotient obtained by dividing 53,833,333 by the number of
outstanding shares of ISP Holdings Common Stock as of the Effective Date
(such quotient being the 'Conversion Ratio').
Section 2.02. ISP Incentive Plan. As of the Effective Date, by virtue of
the Merger and without any action on the part of the holders thereof, all
outstanding stock options granted pursuant to ISP's 1991 Incentive Plan for Key
Employees and Directors (as amended, from time to time, the 'ISP Incentive
Plan') shall be exercisable for shares of New ISP Common Stock at the same
prices and on the same terms and conditions as such options would have been
exercisable for ISP Common Stock immediately prior to the Merger. As of the
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Effective Date, the ISP Incentive Plan shall continue as the ISP Incentive Plan
of the Surviving Corporation and shall be amended to provide that all stock
options issued thereunder that are outstanding as of the Effective Date, or that
may be granted thereunder after the Effective Date, shall become immediately
exercisable if a Change of Control (as defined in the ISP Incentive Plan) shall
occur and at any time following such Change of Control, the Surviving
Corporation (or any successor thereto) terminates without cause the employment
of the holder of such stock option, such holder's employment is terminated as a
result of his death or permanent disability or such holder terminates such
employment for 'good reason.' The holder thereof shall be deemed to terminate
his employment for 'good reason' if he does so as result of a change or changes
in the terms of his employment that are materially adverse to the holder,
including with respect to his salary and bonus, level of responsibility or
geographic location of employment.
Section 2.03. Treatment of ISP Holdings Options. (a) As of the Effective
Date, by virtue of the Merger and without any further action on the part of the
holders thereof (certain consents of which previously have been obtained or will
be obtained prior to the Effective Date), each outstanding option (the 'ISPH
Preferred Stock Options') to purchase shares of ISP Holdings Series A Cumulative
Redeemable Convertible Preferred Stock that has not vested prior to the
Effective Date, will represent, subject to Section 2.03(f), the right to receive
cash from the Surviving Corporation on each vesting date (each, a 'Preferred
Stock Vesting Date') prescribed by the applicable agreement pursuant to which
ISP Holdings granted such ISPH Preferred Stock Options (the 'Option
Agreements'), in an amount equal to the excess of (i) the Option Price with
respect to the ISP Holdings Preferred Stock Options that vest on such Preferred
Stock Vesting Date, over (ii) the aggregate exercise price of such vested ISPH
Preferred Stock Options. The Option Price shall be equal to the (i) the number
of shares of New ISP Common Stock that would have been received in the Merger in
accordance with Section 2.01(c) if, immediately prior to the Effective Date and
subject to Section 2.03(e), the applicable ISPH Preferred Stock Option had been
exercised and the shares of preferred stock underlying the ISPH Preferred Stock
Options had been converted into shares of ISP Holdings Common Stock multiplied
by (ii) $16.125.
(b) On the Effective Date, each holder of ISPH Preferred Stock
Options also will be granted (which grant shall be deemed to have been made
as of the date hereof), options under the ISP Incentive Plan (the 'New
Stock Options') to purchase such number of shares of New ISP Common Stock
as the holder would have been entitled to receive in accordance with the
conversion rate described in Section 2.01(c), assuming such holder had
exercised all of such holder's ISPH Preferred Stock Options immediately
prior to the Effective Date and converted such shares of preferred stock
into ISP Holdings Common Stock and subject to Section 2.03(e). The New
Stock Options will have an exercise price equal to $16.125, will vest,
subject to the terms of the ISP Incentive Plan, in accordance with the
vesting schedule of such holder's Option Agreement and will have such other
terms as are prescribed by the ISP Incentive Plan and the agreement
pursuant to which the New Stock Options will be issued to such holder. The
term of expiration of the New Stock Options will be the same as the term of
expiration of the ISPH Preferred Stock Options. ISP agrees to take all
action necessary prior to the Effective Date, including presenting the
matter for the vote of the ISP stockholders as contemplated in Section 5.5,
to ensure that there is authorized under the ISP Incentive Plan a
sufficient number of shares of New ISP Common Stock to be issued upon the
exercise of the New Stock Options.
(c) As of the Effective Date, with respect to stock appreciation
rights ('SARs') granted by ISP Holdings based upon the value of ISP
Holdings Common Stock that are vested as of the Effective Date and, with
respect to SARs that are not vested prior to the Effective Date, on each
subsequent vesting date (each a 'SAR Vesting Date') prescribed by the
agreement pursuant to which ISP Holdings granted such holder SARs (the 'SAR
Agreements'), such SARs will represent, subject to Section 2.03(f), the
right to receive from the Surviving Corporation cash in an amount equal to
(i) the SAR Price with respect to SARs that vest on such SAR Vesting Date,
over (ii) the aggregate Appreciation Value (as defined in the applicable
SAR Agreement and as calculated as set forth in Section 2.03(e)) of such
SARs. The SAR Price shall be equal to (i) the number of shares of New ISP
Common Stock that would have been received in the Merger in accordance with
Section 2.01(c) if, subject to Section 2.03(e), the shares of ISP Holdings
Common Stock underlying the SAR had been outstanding at the Effective Date
multiplied by (ii) $16.125.
(d) On the Effective Date, each holder of an SAR also will be granted
(which grant shall be made as of the date hereof) options under the ISP
Incentive Plan (the 'New SAR Options') to purchase such
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number of shares of New ISP Common Stock as is equal to the number of
shares of ISP Holdings Common Stock underlying the SAR multiplied by the
conversion rate set forth in Section 2.01(c) above. The New SAR Options
will have an exercise price equal to $16.125, will vest, subject to the
terms of the ISP Incentive Plan, in accordance with the existing vesting
schedule of such holder's SAR Agreement and will have such other terms as
are prescribed by the ISP Incentive Plan and the agreement pursuant to
which the New SAR Options will be issued to such holder. The term of
expiration of the New SAR Options will be the same as the term of
expiration of the SARs. ISP agrees to take all action necessary prior to
the Effective Date, including presenting the matter for the vote of the ISP
stockholders as contemplated in Section 5.5, to ensure that there is
authorized under the ISP Incentive Plan a sufficient number of shares of
New ISP Common Stock to be issued upon the exercise of the New SAR Options.
(e) With respect to calculating (i) the number of shares of ISP
Holdings Common Stock that holders of ISPH Preferred Stock Options would
have received had they exercised their options and converted the underlying
preferred stock immediately prior to the Effective Date and (ii) the
Appreciation Value of the shares of ISP Holdings Common Stock underlying
the SARs, (A) for purposes of Section 2.03(a) and Section 2.03(c), it is
assumed that each portion of the ISPH Preferred Stock Options would have
been exercised and the underlying preferred stock would have been converted
on, and that each portion of the SARs would have been held until, the date
such portion would have initially become vested (or, if later, the
Effective Date) and (B) for purposes of Section 2.03(b), it is assumed that
the ISPH Preferred Stock Options would have been exercised and the
underlying preferred stock would have been converted on the date that all
of the options (each grant to be treated separately) held by a holder would
have become vested, so that, in each case, the interest factor under the
terms of the Option Agreements and the SAR Agreements in respect of the
shares of ISP Holdings Common Stock underlying the preferred stock and SARs
would be deemed to continue to accrue until such time.
(f) The right of each holder to receive cash in accordance with
Sections 2.03(a) and (c) shall be subject to the terms of the applicable
Option Agreements and SAR Agreements regarding continued employment with
ISP Holdings or its affiliates. In addition, the right of each holder to
receive cash in accordance with Sections 2.03(a) and (c), and the right of
each holder to exercise New Stock Options and New SAR Options, shall become
immediately exercisable if a Change of Control (as defined in the ISP
Incentive Plan) shall occur and at any time following such Change of
Control, the Surviving Corporation (or any successor thereto) terminates
without cause the employment of the holder of such ISPH Preferred Stock
Option or SAR, such holder's employment is terminated as a result of his
death or permanent disability or such holder terminates such employment for
'good reason.' The holder shall be deemed to terminate his employment for
'good reason' if he does so as a result of a change or changes in the terms
of his employment that are materially adverse to the holder, including with
respect to his salary and bonus, level of responsibility or geographic
location of employment.
Section 2.04. Stock Certificates. (a) On the Effective Date, each issued
and outstanding share of ISP Common Stock (other than the shares owned of record
by ISP Holdings, which will be cancelled) shall automatically, by virtue of the
Merger and without any action on the part of the holder thereof, become one
share of New ISP Common Stock, and the certificates which represent such shares
of ISP Common Stock will automatically represent the shares of New ISP Common
Stock into which such shares of ISP Common Stock shall have been converted in
the Merger. After the Effective Date, as presently outstanding certificates
representing shares of ISP Common Stock (other than the shares owned of record
by ISP Holdings) are presented for transfer, new stock certificates bearing the
name of the Surviving Corporation and representing the appropriate number of
shares of New ISP Common Stock shall be issued.
(b) On the Effective Date, each issued and outstanding share of ISP
Holdings Common Stock shall automatically, by virtue of the Merger and
without any action on the part of the holder thereof, become a number of
shares of New ISP Common Stock equal to the Conversion Ratio, and the
certificates which represent such shares of ISP Holdings Common Stock will
automatically represent the shares of New ISP Common Stock into which such
shares of ISP Holdings Common Stock shall have been become in the Merger.
After the Effective Date, as presently outstanding certificates
representing shares of ISP Holdings Common Stock are presented for
transfer, new stock certificates bearing the nameof the Surviving
Corporation and representing the appropriate number of shares of New ISP
Common Stock shall be issued.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ISP
ISP represents and warrants to ISP Holdings as follows:
Section 3.01. Organization. ISP is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted.
Section 3.02. Capitalization. The capitalization of ISP appearing in the
recitals to this Agreement is true and correct as of the date hereof. All of the
issued and outstanding shares of ISP Common Stock are validly issued, fully paid
and non-assessable and free from preemptive rights.
Section 3.03. Authority Relative to this Agreement. ISP has the requisite
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of ISP and, except for the approval of this Agreement in accordance
with the DGCL by the stockholders of ISP, no other corporate proceeding on the
part of ISP is necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by ISP
and constitutes a valid and binding obligation of ISP enforceable against it in
accordance with its terms, subject to (i) approval in accordance with the DGCL
of the stockholders of ISP and (ii) applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
Section 3.04. Consents and Approvals; No Violation. Except for applicable
requirements of the Securities Act of 1933, as amended (the 'Securities Act'),
and the Securities Exchange Act of 1934, as amended (the 'Exchange Act'),
filings with various state blue sky authorities and filing and recordation of
appropriate merger documents as required by the DGCL and the corporate law of
the other states in which the Constituent Corporations are qualified to do
business, no filing with or notice to, and no permit, authorization, consent or
approval of, any public body or authority, the absence of which could be
reasonably expected to, either individually or in the aggregate, have a material
adverse effect on the business, operations or financial condition of ISP and its
subsidiaries, taken as a whole, is necessary for the execution and delivery by
ISP of this Agreement or the consummation by ISP of the transactions
contemplated by this Agreement. Except as set forth in Schedule 3.04, neither
the execution, delivery and performance by ISP of this Agreement nor the
consummation by ISP of the transactions contemplated hereby nor compliance by
ISP with any of the provisions hereof will (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or By-Laws of ISP,
(ii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license, lease
agreement or other instrument or obligation to which ISP is a party or by which
ISP or any of its properties or assets may be bound or (iii) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to ISP or any
of its properties or assets, except with respect to clauses (ii) and (iii), such
violations, breaches or defaults which, either individually or in the aggregate,
could not be reasonably expected to have a material adverse effect on the
business, operations or financial condition of ISP and its subsidiaries, taken
as a whole.
Section 3.05. Proxy Statement/Prospectus. None of the information
supplied or to be supplied by ISP for inclusion in the proxy
statement/prospectus (the 'Proxy Statement') to be mailed to the stockholders of
ISP in connection with the meeting of stockholders of ISP convened in accordance
with Section 5.05 or in the Registration Statement (as defined in Section 5.04)
will, (a) in the case of the Registration Statement, at the time it is filed
with the Securities and Exchange Commission (the 'SEC') or any other regulatory
authority, at the time it becomes effective and at the Effective Date, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, or (b) in the case of the Proxy Statement, at the time it is filed
with the SEC or any other regulatory authority, at the time of the mailing of
the Proxy Statement or any amendment or supplement thereto, at the time of the
meetings of the stockholders to which the Proxy
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Statement relates and at the Effective Date, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Date any event with respect to ISP, its officers and directors or
any of its subsidiaries should occur which is required to be described in an
amendment of, or a supplement to, the Proxy Statement or the Registration
Statement, such event shall be so described, and such amendment or supplement
shall be promptly filed with the SEC and, to the extent required by law,
disseminated to the stockholders of ISP. The Proxy Statement and any other SEC
filing in connection with the Merger will comply (with respect to ISP) in all
material respects, as to form, with the applicable requirements of each of the
Securities Act and the Exchange Act, and the respective rules and regulations
thereunder.
Section 3.06. Fairness Opinion. Each of the Board of Directors and the
Committee has received an opinion of J.P. Morgan & Co., Inc. ('J.P. Morgan'),
financial advisor to ISP, that the terms of the Merger are fair, from a
financial point of view, to ISP and its stockholders (other than ISP Holdings)
(the 'Unaffiliated Stockholders').
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ISP HOLDINGS
ISP Holdings represents and warrants to ISP as follows:
Section 4.01. Organization. Each of ISP Holdings and Belleville Realty
Corp. ('Belleville') is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.
Section 4.02. Capitalization. The capitalization of ISP Holdings
appearing in the recitals of this Agreement is true and correct as of the date
hereof. All the issued and outstanding shares of ISP Holdings Common Stock are
validly issued, fully paid and non-assessable and free from preemptive rights.
Except for the stock options and stock appreciation rights described in the
recitals to this Agreement and in the agreements listed on Schedule 4.02 (true
and complete copies of which have been delivered to the Committee), (i) there
are no subscriptions, options, warrants, calls, rights, contracts, commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
transfer or voting of any equity security of ISP Holdings or Belleville,
including any rights of conversion or exchange under any outstanding securities
or other instruments and (ii) there are not any outstanding obligations of ISP
Holdings to repurchase, redeem or otherwise acquire any share of capital stock
of ISP Holdings or make any material investment (in the form of a loan, capital
contribution or otherwise) in any person.
Section 4.03. Subsidiaries. Except for its ownership of capital stock of
Belleville and ISP and investments in securities in accordance with customary
trading activities, ISP Holdings does not own any capital stock or other equity
securities of any corporation, has no direct or indirect equity or ownership
interest in, by way of stock ownership or otherwise, any corporation,
partnership, joint venture, association or business enterprise and is not
contemplating acquiring any such interest. All of the outstanding shares of
capital stock of Belleville have been validly issued and are fully paid and
nonassessable, and, except as set forth on Schedule 4.03, are owned by ISP
Holdings free and clear of all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever.
Section 4.04. Authority Relative to This Agreement. ISP Holdings has the
requisite corporate power to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of ISP Holdings and, except for the approval of this
Agreement in accordance with the DGCL by the stockholders of ISP Holdings, no
other corporate proceeding on the part of ISP Holdings is necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has been
duly executed and delivered by ISP Holdings and constitutes a valid and binding
obligation of ISP Holdings enforceable against it in accordance with its terms,
subject to (i) approval in accordance with the DGCL of the stockholders of ISP
Holdings and (ii) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and
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similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
Section 4.05. Consents and Approvals; No Violation. Except for applicable
requirements of the Securities Act and the Exchange Act, filings with various
state blue sky authorities and filing and recordation of appropriate merger
documents as required by the DGCL and the corporate law of the other states in
which the Constituent Corporations are qualified to do business, no filing with
or notice to, and no permit, authorization, consent or approval of, any public
body or authority or any other person, the absence of which could reasonably be
expected to, either individually or in the aggregate, have a material adverse
effect on the business, operations or financial condition of ISP Holdings and
Belleville, taken as a whole (a 'Material Adverse Effect'), is necessary for the
execution and delivery by ISP Holdings of this Agreement or the consummation by
ISP Holdings of the transactions contemplated by this Agreement. Except as set
forth in Schedule 4.05, neither the execution, delivery and performance by ISP
Holdings of this Agreement nor the consummation by ISP Holdings of the
transactions contemplated hereby nor compliance by ISP Holdings with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the Certificate of Incorporation or By-Laws of ISP Holdings, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, lease agreement or
other instrument or obligation to which ISP Holdings is a party or by which ISP
Holdings or any of its properties or assets may be bound or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to ISP
Holdings or any of its properties or assets, except with respect to clauses (ii)
and (iii), such violations, breaches or defaults which, either individually or
in the aggregate, would not have a Material Adverse Effect.
Section 4.06. Proxy Statement. None of the information supplied or to be
supplied by ISP Holdings for inclusion or incorporation by reference in the
Proxy Statement or the Registration Statement will, (a) in the case of the
Registration Statement, at the time it is filed with the SEC or any other
regulatory authority, at the time it becomes effective and at the Effective
Date, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading, or (b) in the case of the Proxy Statement, at the time it is filed
with the SEC or any other regulatory authority, at the time of the mailing of
the Proxy Statement or any amendment or supplement thereto, at the time of the
meetings of the stockholders to which the Proxy Statement relates and at the
Effective Date, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. If at any time prior to the Effective Date any event with
respect to ISP Holdings, its officers and directors or any of its subsidiaries
(other than ISP and its subsidiaries) should occur which is required to be
described in an amendment of, or a supplement to, the Proxy Statement or the
Registration Statement, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, to the extent required by
law, disseminated to the stockholders of ISP. The Proxy Statement and any other
SEC filing will comply (with respect to ISP Holdings) in all material respects,
as to form, with the applicable requirements of each of the Exchange Act and the
Securities Act and the respective rules and regulations thereunder.
Section 4.07. SEC Documents. ISP Holdings has filed all forms, reports
and documents required to be filed by it with the Securities and Exchange
Commission ('SEC') since December 24, 1996 through the date hereof
(collectively, the 'Company Reports'). As of their respective dates, the Company
Reports (i) complied as to form in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the 'Securities Act'),
the Securities Exchange Act of 1934, as amended (the 'Exchange Act') and the
rules and regulations thereunder and (ii) did not contain any untrue statement
of material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements of ISP Holdings
included in or incorporated by reference into the Company Reports (including the
related notes and schedules) fairly present the consolidated financial position
of ISP Holdings as of its date, and each of the consolidated statements of
income, retained earnings and cash flows of ISP Holdings included in or
incorporated by reference into the Company Reports (including any related notes
and schedules) fairly presents the results of operations, retained earnings or
cash flows, as the case
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may be, of ISP Holdings for the periods set forth therein, in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. The unaudited,
unconsolidated balance sheet of ISP Holdings as of February 22, 1998 attached
hereto as Schedule 4.07 (the 'Unconsolidated Balance Sheet') fairly presents the
unconsolidated financial position of ISP Holdings as of such date in accordance
with generally accepted accounting principles consistently applied as of the
date thereof, except as may be noted therein.
Section 4.08. Compliance with Laws. Each of ISP Holdings and Belleville,
and to the best knowledge of ISP Holdings, all of their respective officers,
directors, employees, consultants and agents have complied and are in compliance
in all material respects with all applicable statutes, regulations, rules,
orders, ordinances, judgments, decrees, permits, franchises, licenses and other
laws of the United States of America, all state, local and foreign governments
and other governmental bodies and authorities, and agencies of any of the
foregoing ('Governmental Authority') to which it is subject, except to the
extent noncompliance would not have a Material Adverse Effect. Neither ISP
Holdings nor Belleville has received any notice or other communication to the
effect that, or otherwise been advised or become aware that, it or any activity
conducted or monitored by it is not so in compliance with any of such statutes,
regulations and orders, ordinances, other laws or undertakings, and ISP Holdings
has no reason to anticipate that any presently existing circumstances are likely
to result in violations of any such regulations which would have a Material
Adverse Effect.
Section 4.09. Litigation and Claims. Neither ISP Holdings nor Belleville
is subject to any continuing order of, or written agreement or memorandum of
understanding with, or continuing material investigation by any Governmental
Authority or any judgment, order, writ, injunction, decree, or award of any
Governmental Authority or any court or arbitrator, and there is no claim,
action, suit, litigation, proceeding, arbitration, investigation, or controversy
affecting ISP Holdings or Belleville or, to the knowledge of ISP Holdings,
threatened, nor is there any valid basis known to ISP Holdings for any such
claim, action, suit, litigation, proceeding, arbitration, investigation or
controversy except for matters which would not have a Material Adverse Effect.
Section 4.10. Taxes and Tax Returns. (a) Definitions:
'Code' means the Internal Revenue Code of 1986, as amended. All citations
to provisions of the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments thereto and any substitute or successor
provisions thereto.
'Taxes' means all taxes, charges, fees, levies or other assessments,
including income, gross receipts, employment, excise, withholding, property,
sales, use, transfer, license, payroll and franchise taxes, including under
Treasury Regulation Section 1.1502-6 or any similar provision under state or
local law, pursuant to any agreement to share taxes, or as a transferee of
assets, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto, imposed by the United States, or any
state, local or foreign government or subdivision or agency thereof.
'Taxable Period' means any taxable year or any other period that is treated
as a taxable year (or other period, or portion thereof, in the case of a Tax
imposed with respect to such period or portion thereof, e.g., a quarter) with
respect to which any Tax may be imposed under any applicable statute, rule, or
regulation.
'Tax Return' shall mean any report, return, election, notice or other
information required to be supplied to a taxing authority in connection with
Taxes.
(b) All material Tax Returns required to be filed by or with respect to ISP
Holdings or Belleville for all Taxable Periods ending on or before the date
hereof or the Effective Date have been or will be timely filed. All such Tax
Returns (i) were (or, to the extent not yet filed, will be) prepared in the
manner required by applicable law, (ii) are (or, to the extent not yet filed,
will be) true, correct, and complete in all material respects, and (iii) except
to the extent that a proper reserve for Taxes (without regard to deferred Taxes)
has been reflected on the Unconsolidated Balance Sheet in accordance with GAAP,
reflect (or, to the extent not yet filed, will reflect) the liability for Taxes
of ISP Holdings and Belleville. No adjustment to any such Tax Return has been
proposed or threatened formally or informally by any Taxing authority.
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(c) ISP Holdings and Belleville have made (or there has been made on its
behalf) all required current estimated Tax payments sufficient to avoid any
material underpayment penalties.
(d) ISP Holdings and Belleville have (i) timely paid or caused to be paid
or will cause to be timely paid all Taxes that are or were due on or prior to
the date hereof or the Effective Date, whether or not such Taxes are or were
shown (or required to be shown) on a Tax Return, except to the extent that a
proper reserve for Taxes (without regard to deferred Taxes) has been reflected
on the Unconsolidated Balance Sheet, in accordance with GAAP, and (ii) provided
a sufficient reserve for the payment of all Taxes not yet due and payable on the
Unconsolidated Balance Sheet, except, in the case of clauses (i) or (ii), for
Taxes incurred in the ordinary course of business after the date of the
Unconsolidated Balance Sheet which Taxes are not material. There are no Taxes
that would be due with respect to ISP Holdings or Belleville if asserted either
by a Taxing authority or by a party to one of the tax sharing agreements
referred to in Section 4.10(g), except with respect to which ISP Holdings is
maintaining adequate reserves (without regard to deferred Taxes) on such
Unconsolidated Balance Sheet.
(e) No material claim has ever been made in writing by any Taxing authority
with respect to ISP Holdings in a jurisdiction where ISP Holdings or Belleville
do not file reports or returns that ISP Holdings or Belleville is or may be
subject to Tax by that jurisdiction. Except for liens for real and personal
property Taxes that are not yet due and payable, there are no liens for any Tax
upon any asset of ISP Holdings.
(f) Neither ISP Holdings nor Belleville has agreed nor is required to
include in income or make any material adjustment under either Section 481(a) or
Section 482 of the Code (or an analogous provision of state, local or foreign
law) by reason of a change in accounting or otherwise. Neither ISP Holdings nor
Belleville has disposed of any material property in a transaction being
accounted for under the installment method pursuant to Section 453 of the Code.
(g) Neither ISP Holdings nor Belleville is a party to any agreement (other
than the Tax Sharing Agreement, dated October 18, 1996, among GAF Corporation
('GAF'), ISP Holdings and other affiliates of GAF, the Indemnification
Agreement, dated October 18, 1996, among GAF, ISP Holdings and other affiliates
of GAF and the Tax Sharing Agreement, dated January 1, 1997, between ISP
Holdings and ISP) to share Taxes with respect to any Taxable Period.
(h) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could, as a result of the Merger,
give rise to the payment of any amount that would not be deductible by ISP
Holdings or Belleville by reason of Section 280G of the Code.
Section 4.11. Environmental, Health and Safety ('EHS') Matters. (a)
Definitions:
'Contaminant' means any pollutant, hazardous substance, radioactive
substance, toxic substance, hazardous waste, medical waste, radioactive waste,
special waste, petroleum or petroleum-derived substance or waste product,
asbestos, PCBs, or any hazardous or toxic constituent thereof and includes any
waste product, or other substance defined in or regulated under EHS Requirements
of Law.
'EHS Liabilities' means all claims, judgments, damages (including punitive
damages), losses, penalties, fines, interest, fees, liabilities (including
strict liability), encumbrances, liens, costs, and expenses of investigation and
defense of any claim, whether or not such claim is ultimately defeated, and of
any good faith settlement of judgment, of whatever kind or nature, contingent or
otherwise, matured or unmatured, foreseeable or unforeseeable, including
reasonable attorneys' fees and disbursements and consultants' fees, any of which
are incurred at any time as a result of the existence of Contaminants at any
location or noncompliance with EHS Requirements of Law, including:
(i) Damages for personal injury or threatened personal injury
(including sickness, disease or death), or injury or threatened injury to
property or natural resources, foreseeable or unforeseeable, including the
cost of demolition and rebuilding of any improvements on real property;
(ii) Reasonable fees incurred for the services of attorneys,
consultants, contractors, doctors, experts, laboratories and all other
reasonable costs incurred in connection with any damages as described in
subparagraph (i) of this definition, and the investigation or remediation
of Contaminants or the suspected presence of Contaminants or the violation
or threatened violation of EHS Requirements of Law including the
preparation of any feasibility studies or reports or the performance of any
investigations, cleanup,
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treatment, remediation, removal, response, abatement, containment, closure,
storage, disposal, transport, restoration or monitoring work required by
any federal, state, local or foreign governmental agency or political
subdivision, or otherwise expended in connection with such conditions, and
including any reasonable attorneys' fees, costs and expenses incurred in
enforcing this Agreement or collecting any sums due hereunder; and
(iii) Liability to any third person or Governmental Authority to
indemnify such person or Governmental Authority for costs expended in
connection with the items referenced in subparagraphs (i) and (ii) of this
definition.
'EHS Requirements of Law' means all federal, state, local and foreign
laws, statutes, codes, ordinances, rules, regulations, directives, binding
policies, EHS permits, or orders relating to or addressing the environment,
health or safety, including any law, statute, code, ordinance, rule, regulation,
directive, binding policy, EHS permit or order relating to (x) the use, handling
or disposal of any Contaminant or (y) workplace or worker safety and health, as
such requirements are promulgated by the specifically authorized Governmental
Authority responsible for administering such requirements.
(b) Neither ISP Holdings nor Belleville is individually subject to EHS
Liabilities which alone or aggregated with those of the other entity, would have
a Material Adverse Effect.
Section 4.12. Employees and Employee Plans. Except as referred to in
Section 4.02, neither ISP Holdings nor Belleville has any liability or
obligation, contingent or otherwise, to or in respect of any of their current or
former employees or independent contractors. Without limiting the generality of
the foregoing, neither ISP Holdings nor Belleville has any liability or
obligation, contingent or otherwise, to or in respect of any 'employee benefit
plan' (within the meaning of Section 3(3) of ERISA), which is now or has at any
time in the past been maintained, sponsored or contributed by ISP Holdings or
Belleville or any entity that is treated as a single employer with any of the
foregoing (other than ISP and its subsidiaries) for purposes of Section 414 of
the Code other than those arising under plans maintained by ISP or its
subsidiaries.
Section 4.13. No Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger based upon arrangements made by or on behalf of ISP Holdings or
Belleville.
Section 4.14. Absence of Certain Changes. Since December 24, 1996, except
as disclosed in the Company Reports, ISP Holdings has conducted its business
only in the ordinary course of such business, and there has not been any change
in or effect on the business, earnings, assets, liabilities, financial or other
condition or results of operations of ISP Holdings that has had or would have a
Material Adverse Effect and no fact or condition exists or is reasonably
contemplated or threatened which ISP Holdings believes has a reasonable
probability of resulting in any change in or effect on the business, earnings,
assets, liabilities, financial or other condition, results of operations of ISP
Holdings or Belleville.
Section 4.15. Absence of Undisclosed Liabilities. Neither ISP Holdings nor
Belleville has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, whether due or to become due, except (a)
liabilities or obligations reflected or reserved against in the Company Reports
of ISP Holdings and (b) liabilities or obligations which would not have a
Material Adverse Effect.
Section 4.16. Title to Properties and Related Matters. Except as set forth
on Schedule 4.16, neither ISP Holdings nor Belleville owns or leases any real
property.
All representations and warranties contained herein which refer to ISP Holdings
shall be deemed to relate to ISP Holdings alone, and not to ISP Holdings
consolidated with its subsidiaries.
ARTICLE V
COVENANTS
Section 5.01. Capitalization. Prior to the Effective Date, unless the
other party to this Agreement shall agree (provided, in the case of ISP, that
the Committee shall have concurred in the manner set forth in Section 11.10) in
writing and except as otherwise expressly permitted or contemplated by this
Agreement:
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(a) neither ISP Holdings nor ISP shall split, combine or reclassify the
outstanding shares of ISP Holdings Common Stock or ISP Common Stock,
respectively, or declare, set aside or pay any dividend payable in cash, stock
or property or make any distribution with respect to the outstanding shares of
ISP Holdings Common Stock or ISP Common Stock, respectively; or, except for the
repurchase of (i) ISP Holdings Common Stock in accordance with the agreements
listed on Schedule 4.02 and (ii) up to 105,000 shares of ISP Common Stock
pursuant to ISP's existing stock buy-back program, redeem, purchase or otherwise
acquire (or agree to redeem, purchase or otherwise acquire), directly or
indirectly, any shares of ISP Holdings Common Stock or ISP Common Stock,
respectively; and
(b) neither ISP Holdings nor ISP, or any of their respective subsidiaries
shall issue or agree to issue any additional shares of ISP Holdings Common Stock
or ISP Common Stock, respectively, or options, warrants or rights of any kind to
acquire any shares of ISP Holdings Common Stock or ISP Common Stock,
respectively, other than, in the case of ISP, (i) ISP Stock Options issuable
pursuant to the ISP Incentive Plan or (ii) shares issuable pursuant to the
exercise of ISP Stock Options outstanding on the date hereof or hereafter
granted pursuant to the ISP Incentive Plan.
Section 5.02. Certain Actions Pending Merger. Prior to the Effective Date,
neither ISP Holdings nor Belleville shall (i) grant any general increase in
compensation to its employees as a class, or to its officers or directors,
except in accordance with past practice or as required by law, or increases
which are not material, or the payment of year-end bonuses in accordance with
past practice, (ii) effect any change in retirement benefits to any class of
employees or officers (unless any such change shall be required by applicable
law) which would increase its retirement benefit liabilities, (iii) adopt, enter
into, or amend or modify any ISP Holdings benefit plan, (iv) enter into or amend
any employment, severance or similar agreements or arrangements with any
directors or officers, (v) incur any liabilities or obligations except in
accordance with past practices, which practices shall include borrowings from
ISP and its subsidiaries, or (vi) engage in any transaction other than (A)
investments conducted in accordance with past practices or (B) transactions with
ISP and its subsidiaries conducted in accordance with past practices.
Section 5.03. Conduct of Business by ISP Holdings and ISP Pending the
Merger. During the period from the date of this Agreement and continuing until
the Effective Date, ISP Holdings and ISP agree that (except as expressly
contemplated or permitted by this Agreement) neither ISP Holdings nor ISP shall
(a) knowingly take any action that would, or would be reasonably likely to,
result in any of the representations and warranties of ISP Holdings or ISP set
forth in this Agreement not being true in all material respects or in any of the
conditions to the Merger set forth in Articles VI, VII and VIII not being
satisfied or (b) take any action or omit to take any action which would be
reasonably likely to prevent either (i) the Transfer from constituting an
exchange governed by Section 351(a) of the Code or (ii) the Merger from
constituting a reorganization within the meaning of Section 368(a) of the Code.
Section 5.04. Registration Statement. ISP Holdings shall promptly prepare
and file with the SEC a registration statement (the 'Registration Statement')
with respect to the shares of New ISP Common Stock to be issued to the
stockholders of ISP in the Merger and shall use all reasonable efforts to have
the Registration Statement declared effective by the SEC as promptly as
practicable. ISP Holdings also shall use its best efforts to take any reasonable
action required to be taken under state blue sky or securities laws
(collectively, 'Blue Sky Laws') in connection with the issuance of shares of New
ISP Common Stock pursuant to the Merger, and ISP Holdings and ISP shall each
furnish all information concerning ISP Holdings and ISP and the holders of
shares of ISP Common Stock, as the case may be, and shall take such other action
as the other may be reasonably requested in connection with any such action.
Section 5.05. ISP Stockholder Approval. (a) ISP shall take, subject to the
provisions of subsection (c) hereof, all steps necessary to call, give notice
of, convene and hold a special meeting of its stockholders (the 'ISP
Stockholders Meeting'), and shall prepare, file with the SEC and, when and if
the Registration Statement is declared effective, mail to ISP's Stockholders the
Proxy Statement, for the purpose of adopting and approving this Agreement and
the transactions contemplated hereby (including adopting and approving an
amendment to the ISP Incentive Plan to increase the authorized number of shares
of New ISP Common Stock available for issuance thereunder as contemplated by
Section 2.03) and for such other purposes as may be necessary or desirable.
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(b) ISP Holdings shall vote, or cause to be voted, all shares of ISP Common
Stock beneficially owned by ISP Holdings in favor of this Agreement and the
transactions contemplated hereby.
(c) The Committee has unanimously recommended to the Board of Directors of
ISP that the Merger is fair to and in the best interests of the Unaffiliated
Stockholders. Based upon the recommendation of the Committee, the Board of
Directors of ISP has determined that the Merger is advisable and in the best
interests of the Unaffiliated Stockholders and shall, subject to their fiduciary
duties under Delaware law, recommend to its stockholders the adoption and
approval of this Agreement and the transactions contemplated hereby and shall,
subject to their fiduciary duties under Delaware law, use its reasonable efforts
to obtain the necessary approvals by its stockholders of the Merger and the
transactions contemplated hereby.
Section 5.06. ISP Holdings Stockholder Approval. ISP Holdings shall take
all steps necessary to call, give notice of, convene and hold a special meeting,
or in lieu thereof, obtain the written consent, of its stockholders (the 'ISP
Holdings Stockholders Meeting'), and shall mail to its stockholders prior to the
ISP Holdings Stockholder Meeting information regarding the Merger for the
purpose of adopting and approving this Agreement and the transactions
contemplated hereby and for such other purposes as may be necessary or desirable
in connection therewith.
Section 5.07. Reasonable Efforts. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its reasonable efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In case at any time after the Effective Date any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each corporation which is a party to this Agreement shall take all
such necessary or desirable action.
Section 5.08. Exchange Listing. ISP Holdings shall use its best efforts to
effect, on or before the Effective Date, approval for listing on the New York
Stock Exchange (the 'NYSE') upon official notice of issuance, the shares of New
ISP Common Stock to be issued pursuant to the Merger.
Section 5.09. Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses except as expressly provided herein; provided,
however, that in the event that the Merger is not consummated, all costs and
expenses incurred in connection with this Agreement by both parties hereto,
shall be paid exclusively by ISP Holdings.
Section 5.10. Inspection of Records. From the date hereof to the Effective
Date, each of ISP Holdings and ISP shall (i) allow all designated officers,
attorneys, financial advisors, accountants and other representatives of the
other reasonable access at all reasonable times to the offices, records and
files, correspondence, audits and properties, as well as to all information
relating to commitments, contracts, titles and financial position, or otherwise
pertaining to the business and affairs, of ISP Holdings and ISP and their
respective subsidiaries, as the case may be, (ii) furnish to the other, the
other's counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
persons may reasonably request and (iii) instruct the employees, counsel and
financial advisors of ISP Holdings and ISP, as the case may be, to cooperate
with the other in the other's investigation of the business of it and its
subsidiaries.
Section 5.11. Transfer of Assets. ISP shall take, no later than
immediately prior to the Effective Date and in accordance with the direction of
ISP Holdings herein made, all steps necessary to effect the Transfer.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF ISP HOLDINGS OR ISP
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment on or prior to the Closing Date (as defined in
Section 9.01) of the following conditions:
Section 6.01. Stockholder Approval of Agreement. This Agreement and the
transactions contemplated hereby shall have been adopted by (i) the affirmative
vote of the holders of at least a majority of the outstanding shares of ISP
Common Stock at the ISP Stockholders Meeting and (ii) the affirmative vote (or
written consent in lieu thereof) of at least a majority of the outstanding
shares of ISP Holdings Common Stock.
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Section 6.02. Certain Proceedings. No preliminary or permanent injunction
or restraining order or other order, decree or ruling issued by any court of
competent jurisdiction nor any statute, rule, regulation or order entered,
promulgated or enacted by any governmental, regulatory or administrative agency
or authority shall be in effect which would prevent the consummation of the
Merger or the other transactions contemplated by this Agreement (each party
agreeing to use its best efforts (as set forth in Section 5.07 hereof) to have
any such injunction or restraining order or other order, decree or ruling
lifted) and no action, suit, claim or proceeding by a governmental authority
before any domestic court, governmental commission or administrative or
regulatory authority shall have been commenced and be pending which seeks to
restrain, prevent or materially delay or restructure the transactions
contemplated by this Agreement or which otherwise questions the validity or
legality of any such transaction, other than actions, suits, claims and
proceedings which, in the reasonable opinion of counsel to the relevant party,
are unlikely to result in an adverse judgment.
Section 6.03. Registration Statement. The Registration Statement shall
have been declared effective and no stop order suspending such effectiveness
shall have been issued or proceedings for that purpose shall have been
instituted.
Section 6.04. Tax Opinion. There shall have been delivered to ISP and ISP
Holdings an opinion of Weil, Gotshal & Manges LLP, which opinion shall be
reasonably satisfactory to the Committee, to the effect that for federal income
tax purposes (i) the Transfer and Merger will be treated as tax-free
transactions pursuant to Sections 351 and 368 of the Code and (ii) no income,
gain or loss will be recognized by ISP Holdings, ISP, Newco, any of their
respective subsidiaries or any Unaffiliated Stockholder by reason of the
Transfer and/or the Merger. In rendering such opinion, Weil, Gotshal & Manges
LLP shall receive and be entitled to rely upon reasonable customary
representations to be contained in certificates of ISP and ISP Holdings.
Section 6.05. NYSE Listing. The shares of New ISP Common Stock required to
be issued in the Merger shall have been approved for listing on the NYSE,
subject to official notice of issuance.
Section 6.06. Blue Sky Laws. ISP Holdings shall have received all Blue Sky
Law authorizations necessary to issue the shares of New ISP Common Stock in the
Merger.
Section 6.07. Regulatory Approvals. All consents, approvals, permits and
authorizations required to be obtained prior to the Effective Date from
governmental and regulatory authorities in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by ISP Holdings and ISP shall have been obtained without restrictions,
except where the failure to obtain such consents, approvals, permits and
authorizations would not have a Material Adverse Effect.
Section 6.08. Transfer. The Transfer shall have been consummated to the
reasonable satisfaction of ISP Holdings and ISP.
ARTICLE VII
CONDITIONS TO THE OBLIGATION OF ISP
The obligation of ISP to effect the Merger shall be subject to the
satisfaction or waiver, on or before the Closing Date, of the following
conditions:
Section 7.01. Representations and Warranties True. The representations and
warranties of ISP Holdings contained herein shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date.
Section 7.02. Performance of Obligations. ISP Holdings shall have
performed in all material respects its agreements contained in this Agreement
required to be performed by it on or prior to the Effective Date.
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<PAGE>
ARTICLE VIII
CONDITIONS TO THE OBLIGATION OF ISP HOLDINGS
The obligation of ISP Holdings under this Agreement to effect the Merger
shall be subject to the satisfaction or waiver, on or before the Closing Date,
of the following conditions:
Section 8.01. Representations and Warranties True. The representations and
warranties of ISP contained herein shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date.
Section 8.02. Performance of Obligations. ISP shall have performed in all
material respects its agreements contained in this Agreement required to be
performed by it on or prior to the Effective Date.
ARTICLE IX
CLOSING
Section 9.01. Time and Place. Subject to the provisions of Articles VI,
VII, VIII and X, the closing of the Merger (the 'Closing') shall take place at
the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York
10153, as soon as practicable but in no event later than two business days after
the date on which each of the conditions set forth in Articles VI, VII and VIII
has been satisfied or waived by the party or parties entitled to the benefit of
such condition; or at such other place, at such other time, or on such other
date as ISP Holdings and ISP may mutually agree. The date on which the Closing
actually occurs is herein referred to as the 'Closing Date.'
Section 9.02. Filings at the Closing. Subject to the provisions of
Articles VI, VII and VIII hereof, immediately after the Closing ISP Holdings and
ISP shall cause the Certificate of Merger to be filed and recorded in accordance
with the provisions of Section 251 of the DGCL, and shall take any and all other
lawful actions and do any and all other lawful things necessary to cause the
Merger to become effective.
ARTICLE X
TERMINATION AND ABANDONMENT
Section 10.01. Termination. This Agreement may be terminated at any time
prior to the Effective Date, whether before or after approval by the
stockholders of ISP or the stockholders of ISP Holdings:
(a) by mutual consent of the Boards of Directors of ISP Holdings and
ISP;
(b) by ISP Holdings or ISP if, without fault of such terminating
party, the Merger shall not have been consummated on or before 180 days
from the date hereof, which date may be extended by the mutual consent of
the Boards of Directors of ISP Holdings and ISP;
(c) by ISP Holdings or ISP if any court of competent jurisdiction in
the United States shall have issued an order (other than a temporary
restraining order), decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger or the other transactions
contemplated by this Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable; or
(d) by the Committee or ISP Holdings if the Committee determines in
good faith, after consultation with J.P. Morgan and outside counsel to the
Committee, that the Committee's fiduciary obligations under applicable law
require it to withdraw its recommendation of this Agreement and the
transactions contemplated hereby.
Section 10.02. Procedure and Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 10.01(a), the Merger shall be
abandoned, without further action by any of the parties hereto. In the event of
termination and abandonment of the Merger by ISP Holdings or ISP pursuant to
Section 10.01(b) or (c), written notice thereof shall forthwith be given to the
other and this Agreement shall terminate and the Merger shall be abandoned,
without further action by any of the parties hereto.
A-15
<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.01. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement of
ISP Holdings and ISP at any time prior to the Effective Date with respect to any
of the terms contained herein; provided, however, that after this Agreement is
adopted by the ISP stockholders pursuant to Section 5.04 or by the ISP Holdings
stockholders pursuant to Section 5.05, no such amendment or modification shall
decrease the amount or change the form of consideration to be delivered to the
stockholders of ISP or ISP Holdings, as the case may be.
Section 11.02. Waiver of Compliance; Consents. Any failure of ISP, on the
one hand, or ISP Holdings, on the other hand, to comply with any obligation,
covenant, agreement or condition herein may be waived by ISP Holdings or ISP,
respectively, only by a written instrument signed by the party granting such
waiver, but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing in a manner consistent with the requirements
for a waiver of compliance as set forth in this Section 11.02.
Section 11.03. Indemnification by Surviving Corporation.
(a) From and after the Effective Date, the Surviving Corporation shall
indemnify, defend and hold harmless each person who is now an officer or
director of ISP against all losses, claims, damages, costs, expenses or
liabilities or in connection with any claim, action, suit, proceeding or
investigation arising out of the fact that such person is an officer or
director of ISP (or out of any action taken by any such person on behalf of
ISP), pertaining to any matter existing or occurring on or prior to the
Effective Date (including the transactions contemplated by this Agreement),
whether asserted or claimed prior to, or on or after, the Effective Date.
In each case such indemnification shall be to the full extent permitted
under applicable law (and the Surviving Corporation will pay expenses in
advance of the final disposition of any such action or proceeding to each
such director or officer of ISP seeking indemnification hereunder to the
full extent permitted by law).
(b) For a period of six years after the Effective Date, the Surviving
Corporation shall maintain officers' and directors' liability insurance for
all persons currently covered under ISP's officers' and directors'
liability insurance policies, in their capacities as officers and
directors, on terms substantially no less advantageous to the covered
persons than such existing insurance, pertaining to any matter existing or
occurring on or prior to the Effective Date (including the transactions
contemplated by this Agreement), whether asserted or claimed prior to, or
on or after the Effective Date; provided, however, that the Surviving
Corporation shall not be required to maintain or procure such coverage to
pay an annual premium in excess of 200% of the current annual premium paid
by ISP for its existing coverage (the 'Cap'); and provided, further, that
if equivalent coverage cannot be obtained, or can be obtained only by
paying an annual premium in excess of 200% of the Cap, the Surviving
Corporation shall only be required to obtain as much coverage as can be
obtained by paying an annual premium equal to 200% of the Cap.
(c) This Section 11.03 shall survive the consummation of the Merger.
The provisions of this Section 11.03 are intended to be for the benefit of,
and shall be enforceable by the present directors or officers of ISP, as
the case may be. The rights provided under this Section 11.03 shall be in
addition to, and not in lieu of, any rights to indemnity which any party
may have under the Certificate of Incorporation or By-Laws of ISP or the
Surviving Corporation or any other agreements. If the Surviving Corporation
or any of its successors or assigns (i) consolidates with or merges into
any other corporation or entity and is not the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers all
or substantially all of its properties or assets to any individual,
corporation or any other entity, in each such case, proper provision shall
be made so that the successors and assigns of the Surviving Corporation
shall assume the obligations set forth in this Section 11.03.
Section 11.04. Non-Survival of Warranties. Each and every representation
and warranty contained herein shall expire with, and be terminated and
extinguished by, the Merger, or the termination of this Agreement pursuant to
Section 10.01 or otherwise; and thereafter neither ISP Holdings nor ISP, nor any
officer or director
A-16
<PAGE>
thereof shall be under any liability whatsoever with respect to any such
representation or warranty. This Section 11.04 shall have no effect upon any
other obligation of the parties hereto, whether to be performed before or after
the Closing.
Section 11.05. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice; provided, that notices of a change of address shall be effective
only upon receipt thereof):
(a) if to ISP Holdings, to c/o ISP Management Company, Inc.
1361 Alps Road
Wayne, New Jersey 07470
Attention: General Counsel
with a copy to Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Stephen E. Jacobs, Esq.
(b) if to ISP, to International Specialty Products
1361 Alps Road
Wayne, New Jersey 07470
Attention: General Counsel
with a copy to Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019-6092
Attention: Morton A. Pierce, Esq.
Section 11.06. Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but, prior to the Effective
Date, neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties, nor is this Agreement intended to confer
any rights or remedies hereunder upon any other person except the parties
hereto; provided, however, that the provisions of Section 11.03 shall inure to
the benefit of and be enforceable by the persons identified thereunder.
Section 11.07. Governing Law. This Agreement shall be governed by the
laws of the State of Delaware (without regard to its conflicts of law
provisions) as to all matters, including matters of validity, construction,
effect, performance and remedies.
Section 11.08. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 11.09. Interpretation. The article and section headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, the term (i)
'person' shall mean and include an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization and a government or any department or agency thereof and (ii)
'including' and words of similar import shall mean 'including, without
limitation.'
Section 11.10. Actions of ISP. Prior to the Effective Date, any action,
approval, authorization, waiver or consent of ISP (including the Board of
Directors of ISP) required or permitted by this Agreement shall be deemed to
have been taken or given only if such action, approval, authorization, waiver or
consent shall have received the approval of the Committee and shall be effective
with such approval.
Section 11.11. Entire Agreement. This Agreement, including the documents
and instruments referred to herein, embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements and understandings of the parties
hereto with respect to such
A-17
<PAGE>
subject matter. There are no promises, representations, warranties, covenants,
or undertakings, other than those expressly set forth or referred to herein.
Section 11.12. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
IN WITNESS WHEREOF, ISP Holdings and ISP have caused this Agreement to be
signed by their respective duly authorized officers on the date first above
written.
ISP HOLDINGS INC.
By: /s/ RICHARD A. WEINBERG
----------------------------------
Name: Richard A. Weinberg
Title: Senior Vice President & General Counsel
INTERNATIONAL SPECIALTY PRODUCTS INC.
By: /s/ JAMES P. ROGERS
----------------------------------
Name: James P. Rogers
Title: Executive Vice President, Finance
A-18
<PAGE>
ANNEX B
J.P. MORGAN SECURITIES INC.
60 WALL STREET
NEW YORK NY 10260-0060
March 30, 1998
Special Committee of the Board of Directors
International Specialty Products Inc.
1361 Alps Road
Wayne, New Jersey 07470
Attention: Mr. Charles M. Diker
Mr. Burt Manning
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders (other than ISP Holdings Inc. ('ISP')) of
International Specialty Products Inc. (the 'Company') of the consideration
proposed to be paid to them in connection with the proposed merger (the
'Merger') of the Company with and into ISP. Pursuant to the Agreement and Plan
of Merger, dated as of March 30, 1998 (the 'Agreement'), by and between the
Company and ISP, the Company will merge with and into ISP, (i) each issued and
outstanding share of common stock, par value $.01 per share (the 'Company Common
Stock'), of the Company (other than the shares owned of record by ISP) will be
converted into one share of common stock, par value $.01 per share ('New ISP
Common Stock'), of the Surviving Corporation (as defined in the Agreement), (ii)
each issued and outstanding share of Company Common Stock owned by ISP will be
canceled and retired without payment of any consideration therefor and will
cease to exist and (iii) each issued and outstanding share of common stock of
ISP (the 'ISP Common Stock') will become a number of shares of New ISP Common
Stock equal to the quotient obtained by dividing 53,833,333 by the number of
outstanding shares of ISP Common Stock as of the effective date of the Merger.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii)
certain publicly available information concerning the business of the Company
and of certain other companies engaged in businesses comparable to those of the
Company, and the reported market prices for certain other companies' securities
deemed comparable; (iii) current and historical market prices of the common
stock of the Company; (iv) the audited financial statements of the Company and
the unaudited financial statements of ISP for the fiscal year ended December 31,
1997, and the unaudited financial statements of the Company for the period ended
February 22, 1998 and of ISP for the period ended March 27, 1998; (v) certain
agreements with respect to outstanding indebtedness or obligations of the
Company and ISP; (vi) certain public reports prepared by debt rating agencies;
and (vii) certain internal financial analyses and forecasts prepared by the
Company and ISP and their respective managements.
In addition, we have held discussions with certain members of the
management of the Company and ISP with respect to certain aspects of the Merger,
the past and current business operations of the Company and ISP, the financial
condition and future prospects
B-1
<PAGE>
and operations of the Company and ISP, the effects of the Merger on the
financial condition and future prospects of the Company, and certain other
matters we believed necessary or appropriate to our inquiry. We have reviewed
such other financial studies and analyses and considered such other information
as we deemed appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company or ISP or otherwise reviewed by
us, and we have not assumed any responsibility or liability therefor. In relying
on financial analyses and forecasts provided to us, we have assumed that they
have been reasonably prepared based on assumptions reflecting the best currently
available estimates and judgments by management as to the expected future
results of operations and financial condition of the Company. We have also
assumed that the Merger will have the tax consequences described in discussions
with, and materials furnished to us by, representatives of the Company and ISP,
and that the other transactions contemplated by the Agreement will be
consummated as described in the Agreement. We have relied as to all legal
matters relevant to rendering our opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. It should be understood that subsequent developments may affect this
opinion and that we do not have any obligation to update, revise, or reaffirm
this opinion. We are expressing no opinion herein as to the price at which the
New ISP Common Stock will trade at any future time.
In addition, we were not requested to and did not provide advice concerning
the structure, the specific amount of the consideration, or any other aspects of
the Merger, or to provide services other than the delivery of this opinion. We
were not authorized to and did not solicit any expressions of interest from any
other parties with respect to the sale of all or any part of the Company or any
other alternative transaction.
We will receive a fee from the Company for the delivery of this opinion.
Please be advised that we have no other financial advisory or other
relationships with the Company or ISP. In the ordinary course of their
businesses, our affiliates may actively trade the debt and equity securities of
the Company or ISP for their own account or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the consideration to be paid to the Company's stockholders
(other than ISP) in the proposed Merger is fair, from a financial point of view,
to such stockholders.
This letter is provided to the Board of Directors of the Company in
connection with and for the purposes of its evaluation of the Merger. This
opinion does not constitute a recommendation to any stockholder of the Company
as to how such stockholder should vote
B-2
<PAGE>
with respect to the Merger. This opinion may be reproduced in full in any proxy
or information statement mailed to stockholders of the Company.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: /s/ JAMES R. ELLIOTT, III
----------------------------------
Name: James R. Elliott, III
Title: Managing Director
B-3
<PAGE>
INTERNATIONAL SPECIALTY PRODUCTS INC.
Proxy for the Annual Meeting to be held at 10:00 a.m.,
New York City time, on July 15, 1998
Weil, Gotshal & Manges LLP, 767 Fifth Avenue, 25th Floor
New York, New York
The undersigned hereby appoints James P. Rogers and Richard A.
Weinberg, and each of them, proxies, with full power of substitution, to
represent and to vote and act with respect to all of the shares of common stock
of the undersigned at the Annual Meeting of Stockholders of International
Specialty Products Inc. to be held on July 15, 1998, and at any adjournment or
adjournments thereof, as designated herein upon the proposals set forth herein
and, in their discretion, upon such other matters as may properly be brought
before the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY. When
properly executed it will be voted as directed by the stockholder but, unless
otherwise specified, it will be voted FOR the Election of Directors and FOR
Items 1 and 2.
Change of Address
_____________________________________ INTERNATIONAL SPECIALTY PRODUCTS INC.
P.O. BOX 11028
_____________________________________ NEW YORK, N.Y. 10203-0028
_____________________________________
(Continued on Reverse Side)
<PAGE>
The Board of Directors recommends a vote FOR Items 1, 2 and 3.
<TABLE>
<S> <C> <C> <C>
1. Approval of the Agreement and Plan of Merger FOR AGAINST ABSTAIN
by and between ISP Holdings Inc. and International
Specialty Products Inc. dated as of March 30, 1998
2. Amendment of the 1991 Incentive Plan for Key FOR AGAINST ABSTAIN
Employees
<S> <C> <C> <C>
3. Election of Directors: FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS
listed below. for all nominees listed below.
</TABLE>
Nominees: Charles M. Diker, Carl R. Eckardt, Harrison J. Goldin, Peter R.
Heinze, Samuel J. Heyman, Sanford Kaplan and Burt Manning
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
mark the "Exceptions" box and write that nominee's name in the space
provided below.)
*Exceptions_________________________________________________________________
4. Such other business as may properly come before the meeting and any
adjournment thereof.
Change of Address
on Reverse Side
Please vote, sign and date
this proxy and return it
promptly in the enclosed
envelope. No postage is
required if mailed in the
United States. Your
signature(s) should correspond
with the name(s) appearing in
the space at the left. Where
signing in a fiduciary or
representative capacity,
please give your full title as
such. If shares are held in
more than one capacity, this
proxy will be deemed to vote
all shares held in all
capacities.
Dated ______________, 1998
______________________________
Signature
______________________________
Signature, if held jointly
Votes must be Indicated in
Black or Blue Ink.
Please Sign, Date and Return the Proxy Card Promptly Using the Enclosed
Envelope.
2
