<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
J&L SPECIALTY STEEL, INC.
(NAME OF SUBJECT COMPANY)
------------------------
ICE ACQUISITION CORP.
USINOR
(BIDDER)
------------------------
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
------------------------
466046 10 9
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
PATRICK LETOURNEUR
ICE ACQUISITION CORP.
USINOR
13, COURS VALMY
92070 LA DEFENSE CEDEX, FRANCE
011-331-41-25-61-88
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF BIDDER)
------------------------
With Copies to:
<TABLE>
<S> <C>
ROBERT C. TREUHOLD, ESQ. JOHN J. MADDEN, ESQ.
SHEARMAN & STERLING SHEARMAN & STERLING
114, AVENUE DES CHAMPS-ELYSEES 599 LEXINGTON AVENUE
75008 PARIS, FRANCE NEW YORK, NEW YORK 10022
011-331-53-89-70-00 (212) 848-4000
</TABLE>
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
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TRANSACTION VALUATION AMOUNT OF FILING FEE
- -------------------------------------------------------------------------------------------------------
<S> <C>
$114,928,500.00* $22,985.70**
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</TABLE>
* Calculated by multiplying $6.375, the per share tender offer price, by
18,028,000, the number of currently outstanding shares of Common Stock sought
in the tender offer.
** Calculated as 1/50 of 1% of the transaction value.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
<TABLE>
<S> <C>
Amount Previously Paid: Filing Party:
Form or Registration No.: Date Filed:
</TABLE>
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<PAGE> 2
This Tender Offer Statement on Schedule 14D-1 (the "Statement") relates to
the offer by Ice Acquisition Corp., a Pennsylvania corporation ("Purchaser") and
a wholly owned subsidiary of Usinor, a societe anonyme organized under the laws
of the Republic of France ("Parent"), to purchase all outstanding shares (the
"Shares") of common stock, par value $0.01 per share (the "Common Stock"), of
J&L Specialty Steel, Inc., a Pennsylvania corporation (the "Company"), at a
price of $6.375 per Share, net to the seller in cash, upon the terms and subject
to the conditions set forth in Purchaser's Offer to Purchase dated November 12,
1998 (the "Offer to Purchase") and in the related Letter of Transmittal (which
together constitute the "Offer"), copies of which are attached hereto as
Exhibits (a)(1) and (a)(2), respectively.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is J&L Specialty Steel, Inc., a
Pennsylvania corporation (the "Company"), which has its principal executive
offices at One PPG Place, 18th Floor, Box 3373, Pittsburgh, PA 15230-3373.
(b) The exact title of the class of equity securities being sought is
shares of Common Stock, par value $0.01 per share, of the Company. The
information set forth under "INTRODUCTION" and "THE TENDER OFFER -- Section 1.
Terms of the Offer; Expiration Date" of the Offer to Purchase is incorporated
herein by reference.
(c) The information concerning the principal market in which the Shares are
traded and certain high and low sales prices for the Shares in such principal
market set forth under "THE TENDER OFFER -- Section 6. Price Range of Shares;
Dividends" of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This Statement is filed by Purchaser and Parent. The
information concerning the name, state or other place of organization, principal
business and address of the principal office of each of Purchaser and Parent,
and the information concerning the name, business address, present principal
occupation or employment and the name, principal business and address of any
corporation or other organization in which such employment or occupation is
conducted, material occupations, positions, offices or employments during the
last five years and citizenship of each of the executive officers and directors
of Purchaser and Parent are set forth under "INTRODUCTION", "THE TENDER
OFFER -- Section 8. Certain Information Concerning Purchaser and Parent" and
Schedule I of the Offer to Purchase and are incorporated herein by reference.
(e) and (f) During the last five years, none of Purchaser or Parent, and,
to the best knowledge of Purchaser and Parent, none of the persons listed in
Sections 1 and 2 of Schedule I of the Offer to Purchase, has been (i) convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors)
or (ii) a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any violation
of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) The information set forth under "SPECIAL FACTORS -- Background of the
Offer and the Merger", "SPECIAL FACTORS -- The Merger Agreement", "SPECIAL
FACTORS -- Related Party Transactions" and "THE TENDER OFFER -- Section 8.
Certain Information Concerning Purchaser and Parent" in the Offer to Purchase is
incorporated herein by reference.
(b) The information set forth under "INTRODUCTION", "SPECIAL
FACTORS -- Background of the Offer and the Merger", "SPECIAL FACTORS -- Purpose
and Structure of the Offer and the Merger; Reasons of Parent and Purchaser for
the Offer and the Merger", "SPECIAL FACTORS -- Plans for the Company After the
Offer and the Merger; Certain Effects of the Offer", "SPECIAL FACTORS -- The
Merger Agreement", "THE TENDER OFFER -- Section 7. Certain Information
Concerning the Company" and "THE TENDER OFFER -- Section 8. Certain Information
Concerning Purchaser and Parent" of the Offer to Purchase is incorporated herein
by reference.
2
<PAGE> 3
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(c) The information set forth under "THE TENDER OFFER -- Section 9.
Financing of the Offer and the Merger" of the Offer to Purchase is incorporated
herein by reference.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth under "INTRODUCTION", "SPECIAL
FACTORS -- Background of the Offer and the Merger", "SPECIAL FACTORS -- Purpose
and Structure of the Offer and the Merger; Reasons of Parent and Purchaser for
the Offer and the Merger", "SPECIAL FACTORS -- Plans for the Company After the
Offer and the Merger; Certain Effects of the Offer" and "SPECIAL FACTORS -- The
Merger Agreement" of the Offer to Purchase is incorporated herein by reference.
(f) and (g) The information set forth under "SPECIAL FACTORS -- Plans for
the Company After the Offer and the Merger; Certain Effects of the Offer" and
"THE TENDER OFFER -- Section 11. Effect of the Offer on the Market for the
Shares, the NYSE and Exchange Act Registration" of the Offer to Purchase is
incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) The information set forth under "SPECIAL FACTORS -- Beneficial
Ownership of Common Stock" and "THE TENDER OFFER -- Section 8. Certain
Information Concerning Purchaser and Parent" of the Offer to Purchase is
incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth under "INTRODUCTION", "SPECIAL
FACTORS -- Background of the Offer and the Merger", "SPECIAL FACTORS -- Purpose
and Structure of the Offer and the Merger; Reasons of Parent and Purchaser for
the Offer and the Merger", "SPECIAL FACTORS -- Plans for the Company After the
Offer and the Merger; Certain Effects of the Offer", "SPECIAL FACTORS -- The
Merger Agreement" and "THE TENDER OFFER -- Section 8. Certain Information
Concerning Purchaser and Parent" of the Offer to Purchase is incorporated herein
by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under "INTRODUCTION", "SPECIAL FACTORS -- Opinion
of Lehman Brothers Inc.", "SPECIAL FACTORS -- Analysis of Financial Advisor to
Parent", "SPECIAL FACTORS -- Fees and Expenses" and "THE TENDER OFFER -- Section
14. Fees and Expenses" of the Offer to Purchase is incorporated herein by
reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth under "THE TENDER OFFER -- Section 8. Certain
Information Concerning Purchaser and Parent" of the Offer to Purchase is
incorporated herein by reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) Not applicable.
(b)-(c) and (e) The information set forth under "THE TENDER
OFFER -- Section 13. Certain Legal Matters and Regulatory Approvals" of the
Offer to Purchase is incorporated herein by reference.
(d) The information set forth under "THE TENDER OFFER -- Section 11. Effect
of the Offer on the Market for the Shares, the NYSE and Exchange Act
Registration" of the Offer to Purchase is incorporated herein by reference.
3
<PAGE> 4
(f) The information set forth in the Offer to Purchase and Letter of
Transmittal and the Agreement and Plan of Merger, dated as of November 5, 1998,
among Parent, Purchaser and the Company, copies of which are attached hereto as
Exhibits (a)(1), (a)(2) and (c)(1), is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
(a)(1) Form of Offer to Purchase dated November 12, 1998.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter from Morgan Stanley & Co. Incorporated to
Brokers, Dealers, Commercial Banks, Trust Companies and
Nominees.
(a)(5) Form of Letter from Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees to Clients.
(a)(6) Form of Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.
(a)(7) Summary Advertisement as published in The Wall Street
Journal on November 12, 1998.
(a)(8) Joint Press Release issued by Parent and the Company on
November 5, 1998.
(b) None.
(c)(1) Agreement and Plan of Merger, dated as of November 5, 1998,
among Parent, Purchaser and the Company.
(d) None.
(e) Not applicable.
(f) None.
</TABLE>
4
<PAGE> 5
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
November 12, 1998
ICE ACQUISITION CORP.
By: /s/ ROBERT HUDRY
Name: Robert Hudry
Title: Vice President
5
<PAGE> 6
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
November 12, 1998
USINOR
By: /s/ ROBERT HUDRY
------------------------------------
Name: Robert Hudry
Title: Chief Financial Officer
6
<PAGE> 7
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<S> <C>
(a)(1) Form of Offer to Purchase dated November 12, 1998.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter from Morgan Stanley & Co. Incorporated to
Brokers, Dealers, Commercial Banks, Trust Companies and
Nominees.
(a)(5) Form of Letter from Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees to Clients.
(a)(6) Form of Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.
(a)(7) Summary Advertisement as published in The Wall Street
Journal on November 12, 1998.
(a)(8) Joint Press Release issued by Parent and the Company on
November 5, 1998.
(b) None.
(c)(1) Agreement and Plan of Merger, dated as of November 5, 1998,
among Parent, Purchaser and the Company.
(d) None.
(e) Not applicable.
(f) None.
</TABLE>
<PAGE> 1
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
J&L Specialty Steel, Inc.
at
$6.375 Net Per Share
by
Ice Acquisition Corp.
a wholly owned subsidiary of
Usinor
------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, DECEMBER 10, 1998,
UNLESS THE OFFER IS EXTENDED.
---------------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED
AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST A MAJORITY OF
THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE
(THE "SHARES"), OF J&L SPECIALTY STEEL, INC. (THE "COMPANY"), WITHOUT REGARD TO
THE SHARES CURRENTLY OWNED BY USINOR ("PARENT") (THE "MINIMUM CONDITION"). THE
MINIMUM CONDITION MAY NOT BE WAIVED WITHOUT THE CONSENT OF THE SPECIAL COMMITTEE
(AS DEFINED BELOW).
------------------------
THE BOARD OF DIRECTORS OF THE COMPANY, BY THE UNANIMOUS VOTE OF ALL DIRECTORS
PRESENT, BASED UPON, AMONG OTHER THINGS, THE UNANIMOUS RECOMMENDATION AND
APPROVAL OF A COMMITTEE OF THE BOARD OF DIRECTORS (THE "SPECIAL COMMITTEE")
COMPRISED OF DISINTERESTED DIRECTORS, HAS DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND RECOMMENDS
THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER.
------------------------
IMPORTANT
Any shareholder desiring to tender all or any portion of his Shares should
either (1) complete and sign the Letter of Transmittal (or a facsimile thereof)
in accordance with the instructions in the Letter of Transmittal and mail or
deliver it, together with the certificate(s) evidencing tendered Shares and any
other required documents, to Harris Trust Company of New York (the "Depositary")
at one of the Depositary's addresses set forth on the back cover of this Offer
to Purchase or tender such Shares pursuant to the procedure for book-entry
transfer set forth in "THE TENDER OFFER -- Section 3. Procedures for Accepting
the Offer and Tendering Shares" or (2) request his broker, dealer, commercial
bank, trust company or other nominee to effect the transaction for him. Any
shareholder whose Shares are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee if he desires to tender
such Shares.
A shareholder who desires to tender Shares and whose certificates evidencing
such Shares are not immediately available or who cannot deliver such
certificates and all other documents required by the Letter of Transmittal to
the Depositary prior to the Expiration Date (as defined herein) or who cannot
complete the procedure for delivery by book-entry transfer on a timely basis,
may tender such Shares by following the procedure for guaranteed delivery set
forth in "THE TENDER OFFER -- Section 3. Procedures for Accepting the Offer and
Tendering Shares".
Questions or requests for assistance may be directed to Innisfree M&A
Incorporated (the "Information Agent") or Morgan Stanley & Co. Incorporated (the
"Dealer Manager") at their respective addresses and telephone numbers set forth
on the back cover of this Offer to Purchase. Additional copies of this Offer to
Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may
also be obtained from the Information Agent or from brokers, dealers, commercial
banks or trust companies.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The Dealer Manager for the Offer is:
MORGAN STANLEY DEAN WITTER
November 12, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION................................................
1
SPECIAL FACTORS.............................................
3
Background of the Offer and the Merger....................
3
Recommendation of the Company's Board; Fairness of the
Offer and the Merger...................................
3
Recommendation of the Special Committee and the
Company's Board.......................................
3
Fairness of the Offer and the Merger...................
3
Opinion of Lehman Brothers Inc. ..........................
3
Company Budget Information and Financial Projections......
3
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS.............................................
4
Position of Parent and Purchaser Regarding Fairness of the
Offer and the Merger...................................
5
Analysis of Financial Advisor to Parent...................
5
Purpose and Structure of the Offer and the Merger; Reasons
of Parent and Purchaser for the Offer and the Merger...
8
Plans for the Company After the Offer and the Merger;
Certain Effects of the Offer...........................
9
Rights of Shareholders in the Offer and the Merger........
9
Filing Notice of Intention to Demand Fair Value........
10
Record Owners and Beneficial Owners....................
10
Notice to Demand Payment...............................
10
Payment of Fair Value of Shares........................
11
Estimate by Dissenter of Fair Value of Shares..........
11
Valuation Proceedings..................................
11
Costs and Expenses of Valuation Proceedings............
12
Other..................................................
12
The Merger Agreement......................................
12
Interests of Certain Persons in the Offer and the
Merger.................................................
18
Beneficial Ownership of Common Stock......................
19
Related Party Transactions................................
20
Fees and Expenses.........................................
20
THE TENDER OFFER............................................
22
1. Terms of the Offer; Expiration Date..................
22
2. Acceptance for Payment and Payment for Shares........
23
3. Procedures for Accepting the Offer and Tendering
Shares.................................................
24
4. Withdrawal Rights....................................
26
5. Certain U.S. Federal Income Tax Consequences.........
27
6. Price Range of Shares; Dividends.....................
27
7. Certain Information Concerning the Company...........
28
8. Certain Information Concerning Purchaser and
Parent.................................................
32
9. Financing of the Offer and the Merger................
33
10. Dividends and Distributions..........................
34
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
11. Effect of the Offer on the Market for the Shares, the
NYSE and Exchange Act Registration................... 34
12. Certain Conditions of the Offer...................... 35
13. Certain Legal Matters and Regulatory Approvals....... 36
14. Fees and Expenses.................................... 38
15. Miscellaneous........................................ 38
</TABLE>
<TABLE>
<S> <C> <C>
Schedule I. Directors and Executive Officers of Parent, Purchaser and
the Company
Schedule II. Opinion of Lehman Brothers Inc.
Schedule III. Sections 1930(a) and 1571-80 (Subchapter D of Chapter 15) of
the Pennsylvania Business Corporation Law
Schedule IV. Audited Financial Statements (and Related Notes) for the
Company for the Years Ended December 31, 1997, 1996 and 1995
Schedule V. Unaudited Financial Statements (and Related Notes) for the
Company for the Three-Month and Six-Month Periods Ended June
30, 1998 and June 30, 1997
</TABLE>
ii
<PAGE> 4
To the Holders of Common Stock of
J&L Specialty Steel, Inc.:
INTRODUCTION
Ice Acquisition Corp., a Pennsylvania corporation ("Purchaser") and a
wholly owned subsidiary of Usinor, a societe anonyme organized under the laws of
the Republic of France ("Parent"), hereby offers to purchase all issued and
outstanding shares (the "Shares") of common stock, par value $0.01 per share
(the "Common Stock"), of J&L Specialty Steel, Inc., a Pennsylvania corporation
(the "Company"), at a price of $6.375 per Share, net to the seller in cash, upon
the terms and subject to the conditions set forth in this Offer to Purchase and
in the related Letter of Transmittal (which together constitute the "Offer").
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the purchase of Shares by
Purchaser pursuant to the Offer. Purchaser will pay all charges and expenses of
Morgan Stanley & Co. Incorporated ("Morgan Stanley") which is acting as Dealer
Manager for the Offer (in such capacity, the "Dealer Manager"), Harris Trust
Company of New York (the "Depositary") and Innisfree M&A Incorporated (the
"Information Agent") incurred in connection with the Offer. See "THE TENDER
OFFER -- Section 14. Fees and Expenses".
Parent currently owns 20,730,000 Shares (the "Parent Shares"), constituting
approximately 53.5% of the Shares. The purpose of the Offer is to facilitate the
acquisition of all of the remaining Shares and thereby enable Parent to acquire,
directly or indirectly, 100% of the Common Stock.
The board of directors of the Company (the "Board"), by the unanimous vote
of all directors present, based upon, among other things, the unanimous
recommendation and approval of a committee of the Board (the "Special
Committee") comprised of disinterested directors, has determined that the Offer
and the Merger (as defined below) are fair to, and in the best interests of, the
Company and recommends that shareholders accept the Offer and tender their
Shares pursuant to the Offer.
The Company has advised Parent that Lehman Brothers Inc. ("Lehman
Brothers") has delivered to the Special Committee its written opinion dated
November 5, 1998 that, as of such date, from a financial point of view, the
consideration to be offered to the shareholders of the Company, other than
Parent and its subsidiaries, pursuant to the Offer and the Merger is fair to
such shareholders. The Company has filed with the Securities and Exchange
Commission (the "Commission") a Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to shareholders
herewith.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST A
MAJORITY OF THE THEN ISSUED AND OUTSTANDING SHARES, WITHOUT REGARD TO THE PARENT
SHARES (THE "MINIMUM CONDITION"). THE MINIMUM CONDITION MAY NOT BE WAIVED
WITHOUT THE CONSENT OF THE SPECIAL COMMITTEE. SEE "THE TENDER OFFER -- SECTION
12. CERTAIN CONDITIONS OF THE OFFER," WHICH SETS FORTH IN FULL THE CONDITIONS TO
THE OFFER.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 5, 1998 (the "Merger Agreement"), among Parent, Purchaser and the
Company. The Merger Agreement provides that, among other things, as promptly as
practicable after the purchase of Shares pursuant to the Offer and the
satisfaction or, if permissible, waiver of the other conditions set forth in the
Merger Agreement, in accordance with the relevant provisions of the Pennsylvania
Business Corporation Law of 1988, as amended (the "PBCL"), Purchaser will be
merged with and into the Company (the "Merger"). Following consummation of the
Merger, the Company will continue as the surviving corporation (the "Surviving
Corporation") and will become a wholly owned subsidiary of Parent. At the
effective time of the Merger (the "Effective Time"), each Share issued and
outstanding immediately prior to the Effective Time (other than Shares held in
the treasury of the Company and each Share owned by Purchaser, Parent or any
direct or indirect wholly owned subsidiary of Parent or of the Company) shall be
canceled and, subject to dissenters rights under the PBCL,
<PAGE> 5
converted automatically into the right to receive $6.375 in cash or any higher
price that may be paid per Share in the Offer (the "Merger Consideration"),
without interest. The Merger Agreement is more fully described in "SPECIAL
FACTORS -- The Merger Agreement". Shareholders who fully comply with the
statutory dissenters procedures set forth in the PBCL, the relevant portions of
which are attached to this Offer to Purchase as Schedule III, will be entitled
to receive in connection with the Merger, instead of the Merger Consideration,
payment of the fair value of their Shares (which may be more than, equal to, or
less than the Merger Consideration) as determined pursuant to the procedures
prescribed by the PBCL. NO DISSENTERS RIGHTS ARE AVAILABLE IN CONNECTION WITH
THE OFFER. SEE "SPECIAL FACTORS -- RIGHTS OF SHAREHOLDERS IN THE MERGER".
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including, if required by applicable law, the approval and
adoption of the Merger Agreement by the requisite vote of the shareholders of
the Company. See "SPECIAL FACTORS -- The Merger Agreement". Under the PBCL, the
affirmative vote of a majority of the votes cast by all shareholders entitled to
vote thereon is required to approve and adopt the Merger Agreement. Parent
currently has sufficient voting power to approve and adopt the Merger Agreement
without the vote of any other shareholder.
Under the PBCL, if Purchaser acquires, pursuant to the Offer or otherwise,
at least 80% of the then outstanding Shares, Purchaser's Board of Directors will
be able to adopt a plan of merger to effect the Merger without a vote of the
Company's shareholders (a "Short-Form Merger"). Pursuant to the Merger
Agreement, Purchaser may extend the Offer under certain circumstances in the
event that the number of Shares validly tendered and not withdrawn, when taken
together with the Parent Shares, does not constitute at least 80% of the then
issued and outstanding Shares. If Purchaser does acquire sufficient Shares to
effect a Short-Form Merger, Parent, Purchaser and the Company have agreed to
take all necessary and appropriate action to cause the Merger to become
effective as promptly as practicable after such acquisition, without a meeting
of the Company's shareholders. If Purchaser does not acquire at least 80% of the
then issued and outstanding Shares pursuant to the Offer or otherwise, a vote of
the Company's shareholders is required under the PBCL to effect the Merger and a
significantly longer period of time will be required to effect the Merger. See
"SPECIAL FACTORS -- Purpose and Structure of the Offer and the Merger; Reasons
of Parent and Purchaser for the Offer and the Merger".
The Company has advised Purchaser that, as of November 5, 1998, (i)
38,758,000 Shares were issued and outstanding, (ii) no Shares were held in the
treasury of the Company and (iii) 890,000 Shares were reserved for future
issuance pursuant to outstanding employee stock options ("Options") granted
pursuant to the Company's 1993 Stock Incentive Plan, as amended (the "Stock
Incentive Plan"), all of which will become exercisable as a result of the Offer
("Exercisable Options"). The Company has further advised Parent that, as of
November 6, 1998, there were approximately 295 holders of record of the issued
and outstanding Shares. Parent beneficially owns 20,730,000 Shares. If all
Exercisable Options are exercised, the Minimum Condition would be satisfied if
9,459,001 Shares were validly tendered in the Offer and not withdrawn prior to
the expiration of the Offer, and Purchaser would be able to effect a Short-Form
Merger if 10,988,400 Shares were validly tendered in the Offer and not withdrawn
prior to the expiration of the Offer. Each of the Exercisable Options was issued
at an exercise price greater than the per Share consideration to be paid in the
Offer and the Merger. Assuming no Exercisable Options are exercised, the Minimum
Condition would be satisfied if 9,014,001 Shares were validly tendered in the
Offer and not withdrawn prior to the expiration of the Offer, and Purchaser
would be able to effect a Short-Form Merger if 10,276,400 Shares were validly
tendered in the Offer and not withdrawn prior to the expiration of the Offer.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
2
<PAGE> 6
SPECIAL FACTORS
BACKGROUND OF THE OFFER AND THE MERGER
In June 1990, Ugine S.A. ("Ugine"), at the time a 95.3% owned subsidiary of
Parent, acquired all of the outstanding capital stock of the Company from
certain members of the then-current management and other shareholders of the
Company, who had acquired their shares in a management-led leveraged buyout in
1986. In December 1993, the Company completed an initial public offering of
17,940,000 Shares, approximately 60% of which were sold for the account of
Ugine. Following that offering, 46.4% of the outstanding Shares were publicly
held, and the remaining 53.6% were held by Ugine. In December 1995, Ugine became
a division of Parent, and Parent became the direct owner of the Shares formerly
owned by Ugine. Currently, Parent owns approximately 53.5% of the outstanding
Shares, and the remaining 46.5% are publicly held.
During the first quarter of 1998, the management of the Company informed
certain directors of the Company who are officers of Parent or one of its
divisions or other subsidiaries (the "Affiliate Directors") that the Company was
experiencing financial difficulties that, if they continued, would affect its
ability to remain in compliance with certain financial covenants as early as the
third or fourth quarter of 1998. These covenants are contained in a five-year
$125 million revolving credit facility and a seven-year $125 million term loan
facility that the Company entered into in June 1997 (the "Credit Agreements").
In particular, the Credit Agreements require the Company to maintain a specified
minimum consolidated tangible net worth (as defined in the Credit Agreements) as
of the end of each fiscal quarter. The Company's existing and prospective
financial difficulties were largely the result of significant declines in the
prices for the Company's products over the prior 18 months, the likelihood that
those prices would not improve in the near term, and the additional costs
incurred and delays experienced by the Company in starting up its new Direct
Roll, Anneal and Pickle ("DRAP") line.
In March 1998, members of the management of the Company had preliminary
discussions with representatives of Parent regarding the legal and financial
advantages and disadvantages of issuing preferred stock to Parent as a means of
avoiding a breach of the Credit Agreements. No further steps were taken at that
time with respect to such an issuance.
In April 1998, Parent retained Morgan Stanley as its financial advisor to
review financial alternatives available to Parent with respect to its interest
in the Company. Also in April 1998, the Company retained Corporate Value
Associates ("CVA") to review strategic alternatives available to the Company in
light of conditions in the North American stainless steel industry.
On April 30, 1998, representatives of Morgan Stanley met with Kirk F.
Vincent, Executive Vice President, Finance and Administration and Chief
Financial Officer of the Company, Jean-Didier Dujardin, Finance Director of
Ugine, and Philippe Chevallier, Corporate Finance Officer of Parent, to discuss
potential ways for the Company to avoid breaching the relevant financial
covenants in the Credit Agreements. In May 1998, representatives of Morgan
Stanley, the Company and Parent met to discuss such alternatives in more detail,
including reducing the Company's dividend, the issuance of equity or
equity-linked securities by the Company, renegotiating the relevant covenants in
the Credit Agreements and replacing the Credit Agreements.
Immediately prior to a meeting of the Board on May 29, 1998, certain
Affiliate Directors were given a presentation by the Company's management
concerning the Company's projected 1998 financial losses, its potential breach
of the consolidated tangible net worth covenant in the Credit Agreements and its
worsening liquidity situation. Subsequently, at the Board meeting, all the
directors of the Company who were present were given the same presentation, and
the Board decided to reduce the quarterly cash dividend from $0.10 to $0.025 per
Share. The Board also authorized the Company to enter into an accounts
receivable financing with three other subsidiaries of Parent in order to
alleviate the Company's liquidity problems and to reduce the Company's interest
expense. The Board understood that any such financing would require the consent
of the lenders under the Credit Agreements.
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<PAGE> 7
In June 1998, Parent was approached by a stainless steel producer about a
possible transaction between that corporation and the Company. Concurrently, in
addition to the Company's retention of CVA described above, Parent engaged CVA
to study possible alliances between the Company and other stainless steel
producers that could enhance the value of Parent's investment in the Company,
including in particular a business combination with the stainless steel producer
that had contacted Parent. Parent asked the management of the Company to explore
with that producer any potential operational savings and synergies that might
result from such a combination, and a number of meetings for that purpose were
held in July 1998. A representative of Parent was present at some of those
meetings. No bona fide offer was made to the Company or Parent during the course
of those discussions or otherwise. During the first week of August 1998, and
after having considered the results of the July meetings, the Company and Parent
agreed not to proceed with further discussions with the other stainless steel
producer.
On August 3 and 4, 1998, the management of the Company met with the
Chairman of the Board of the Company, Guy R. Dolle, who was also the General
Manager of Ugine, and Mr. Dujardin (who is also an Affiliate Director) to
discuss the most viable options for the Company.
Throughout the summer of 1998, the Company and Parent, with the assistance
of Morgan Stanley, continued to study possible means to improve the Company's
financial condition, including issuing preferred stock or subordinated debt.
Given the Company's situation, it was recognized that the dividend rate or
interest rate, as applicable, of any such securities would be substantially
higher than the interest rates under the Credit Agreements. Issuing such
securities was not pursued as an alternative because of that cost and the
volatility in the capital markets that became more severe as time went on.
Subsequently, it was preliminarily decided that the Company, with Morgan
Stanley's assistance, would prepare documentation for a distribution by the
Company to its existing shareholders of rights to purchase additional Shares
that would result in aggregate proceeds to the Company of up to $75 million upon
exercise of those rights. Parent indicated to the Company that it would be
willing to participate in that offering by exercising all of its rights, and, to
the extent that other shareholders of the Company did not exercise their rights,
Parent would consider committing to purchase additional Shares. Morgan Stanley
advised Parent that, in its view, it was not likely that a significant number of
shareholders other than Parent would subscribe to such an offering. A Board
meeting was scheduled for September 22, 1998 to consider this potential rights
offering and related matters.
In September 1998, after considering the dilutive effect that such a rights
offering was likely to have on the public shareholders of the Company if a
significant number of shareholders other than Parent did not subscribe to that
offering, and that the net proceeds of such an offering would not provide the
Company with sufficient funds to satisfy both its current and longer term
financial requirements, Parent determined that it should consider solutions for
the Company that would address those longer term financial needs in addition to
relieving short term liquidity problems. It also appeared possible to Parent
that the proceeds of such an offering might not be sufficient even to satisfy
the Company's liquidity requirements if current conditions in the stainless
steel industry persisted beyond late 1999. In light of the foregoing, Parent
determined that it would not be in the best interests of the Company to pursue
such an offering.
In September 1998, Robert Hudry, the Chief Financial Officer of Parent and
an Affiliate Director, asked Morgan Stanley to evaluate an acquisition by Parent
of all the outstanding Shares that it did not then own. On September 18, 1998,
Messrs. Hudry, Dolle and Dujardin discussed with representatives of Morgan
Stanley and Shearman & Sterling, counsel to Parent, the significant steps that
would likely be involved in, and the possible terms of, such an acquisition.
Following this meeting, Francis Mer, the Chairman of Parent and an Affiliate
Director, and Mr. Hudry decided to inform Parent's Board of Directors at its
meeting to be held on September 22, 1998 of Parent's decision to make a proposal
to acquire the Shares it did not then own for cash at a price of $5.75 per Share
(the "Proposal"). On September 19, 1998, Mr. Vincent and Eugene A. Salvadore,
the President and Chief Executive Officer and a director of the Company, were
informed that Parent had decided, subject to discussion with Parent's Board of
Directors, to make the Proposal (although they were not informed at what price)
in lieu of the previously discussed rights offering.
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<PAGE> 8
At a meeting of the Board on September 22, 1998, following a meeting of
Parent's Board of Directors at which the Proposal was discussed, Mr. Hudry, on
behalf of Parent, made the Proposal to the Company and discussed Parent's
reasons for the Proposal. The Board then voted to form a committee of
disinterested directors, consisting of William S. Dietrich, II, as Chairman,
Pierre de Ravel d'Esclapon and John J. Sheehan. The Board authorized that
committee (i) to evaluate the fairness of the Proposal or any other similar
transaction that Parent decided to propose as an alternative, (ii) to negotiate
the terms of any proposed agreement for a transaction with Parent on behalf of
the Company, and (iii) to retain independent professional advisors. On September
23, 1998, the Company issued a press release announcing the Proposal and the
Board's appointment of a special committee. On September 24, 1998, Mr. de Ravel
d'Esclapon indicated that, given his prior representation of Parent and the
continuing representation of certain affiliates of Parent by the law firm of
which he is a partner, he believed it would be inappropriate for him to serve on
that committee. Consequently, the Special Committee was comprised of Messrs.
Dietrich and Sheehan.
The Special Committee retained Kirkpatrick & Lockhart LLP as its counsel.
The Special Committee held its first meeting on September 25, 1998 to discuss,
among other things, the possible universe of investment banking firms that might
act as financial advisor to the Special Committee. At that meeting, after
considering the qualifications and independence of various firms, the Special
Committee authorized Mr. Dietrich to engage Lehman Brothers on behalf of the
Special Committee if satisfactory terms of engagement could be agreed upon.
On September 28, 1998, Mr. Dolle received two letters from Mr. de Ravel
d'Esclapon in which Mr. de Ravel d'Esclapon requested that Parent provide to the
"Disinterested Directors" of the Company (as such term is defined in the
Articles of Incorporation of the Company) any studies that Parent had prepared
internally or that any outside advisors to Parent had prepared in connection
with the Proposal and raised certain questions with respect to the duties of the
Company's directors in considering the Proposal. Parent responded in writing to
these letters by indicating that Parent planned to communicate concerning the
Proposal primarily with the Special Committee, which would, in turn, report to
Mr. de Ravel d'Esclapon and the other members of the Board and that Mr. de Ravel
d'Esclapon should contact the Special Committee and its legal advisors for
advice on the duties of the Company's directors in considering the Proposal.
During the weeks of September 28, 1998 and October 5, 1998, representatives
of Lehman Brothers and Kirkpatrick & Lockhart LLP commenced their due diligence
reviews of the Company's business and operations and their respective valuation
and legal analyses.
At a meeting of the Special Committee on October 9, 1998, Lehman Brothers
reviewed with the Special Committee its preliminary study and evaluation of the
Company and the Proposal, which included analyses of data about comparable
companies and comparable transactions and a discounted cash flow analysis based
on projections provided by the Company. Kirkpatrick & Lockhart LLP summarized
the obligations of the members of the Special Committee and the directors as a
whole under Pennsylvania law and summarized briefly the principal terms of the
draft merger agreement provided by counsel to Parent on October 8, 1998. After
an extensive discussion of these presentations and of the terms of the Proposal,
the Special Committee authorized Lehman Brothers to contact Morgan Stanley
concerning the financial terms of the Proposal.
On October 12, 1998, representatives of Shearman & Sterling and Kirkpatrick
& Lockhart LLP spoke by telephone to discuss the legal issues and comments on
the draft merger agreement that had been raised during the October 9, 1998
meeting of the Special Committee.
On October 13, 1998, Mr. Vincent and Mr. Dujardin spoke by telephone about
organizational matters relating to the meeting of the Board scheduled to occur
on October 29, 1998. During this conversation, Mr. Vincent indicated that
William M. Mercer, Incorporated ("Mercer"), which the Company had retained to
advise it with respect to executive compensation and employee benefits matters
arising in connection with the proposed transaction, would be evaluating
possible long-term compensation plans for management of the Surviving
Corporation and considering the possible treatment of the Options and other
stock-based rights of management in the proposed transaction. On October 16,
1998, Mr. Dolle spoke with Mr. Salvadore and indicated that Parent did not
intend to address the treatment of the Options and other existing stock-based
5
<PAGE> 9
compensation or to negotiate any new management compensation arrangements
(including long-term incentive programs) until after consummation of any
transaction.
On October 14, 1998, at a meeting of the Special Committee, its counsel
provided a more comprehensive review of the draft merger agreement. The Special
Committee discussed with its advisers possible strategies for negotiations and
directed Kirkpatrick & Lockhart LLP to prepare a mark-up of the draft merger
agreement reflecting the Special Committee's comments to be sent to Shearman &
Sterling.
On October 14, 1998, representatives of Lehman Brothers and Morgan Stanley
discussed the material terms of the Proposal and the financial condition of the
Company.
On October 15, 1998, representatives of Lehman Brothers and Morgan Stanley
discussed Lehman Brothers' preliminary analyses of the range of valuations for
the Company. During this conversation, Lehman Brothers indicated that the
Special Committee believed an increase in the price proposed by Parent was
appropriate.
On October 17, 1998, Mr. Dolle contacted Mr. Dietrich to discuss the
significant terms of the Proposal, Parent's strategic rationale therefor, and
the Company's future financing needs. During this conversation, Mr. Dietrich
suggested that Mr. Dolle contact Mr. Sheehan to discuss Parent's intentions with
respect to the future growth of the Company. On October 18, 1998, Mr. Dolle
spoke with Mr. Sheehan, who indicated that the Special Committee was seeking
confirmation from Parent that it intended to support the growth of the Company
in accordance with the Company's strategic plan following consummation of the
proposed transaction.
At a meeting of the Special Committee on October 19, 1998, Lehman Brothers
summarized for the Special Committee its conversations with Morgan Stanley
regarding the financial terms of the Proposal. Kirkpatrick & Lockhart LLP
advised the Special Committee that it had had preliminary discussions with
Shearman & Sterling concerning the draft merger agreement and would be in a
better position to discuss the unresolved issues on Friday, October 23, 1998,
after a meeting with Shearman & Sterling scheduled for October 22, 1998. The
Special Committee also discussed the potential treatment of the Options and the
Company's other existing stock-based compensation arrangements in any
transaction with Parent and agreed that the Special Committee needed to
understand the possible timing of any decision with respect thereto and the
anticipated role of Mercer.
On October 19, 1998, Mercer presented to Messrs. Dolle and Dujardin a
preliminary review of possible long-term incentive plans for management of the
Company. Mr. Dolle reiterated Parent's position that it did not intend to
address the treatment of the Options and other existing stock-based compensation
arrangements or to negotiate any new management compensation arrangements
(including long-term incentive programs) until after the consummation of the
proposed transaction.
In a telephone conversation on October 20, 1998, Morgan Stanley advised
Lehman Brothers that, in light of their prior discussions concerning the price
and other terms of the Proposal, Parent was prepared to increase the price to be
paid per Share to $5.875. Later that day, Lehman Brothers informed Morgan
Stanley that the Special Committee had rejected the proposed increased per Share
price. On October 21, 1998, Morgan Stanley advised Lehman Brothers that Parent
might be willing to increase its proposed price to $6.00 per Share, subject to
the satisfactory resolution of other issues in the draft merger agreement. Later
that day, Lehman Brothers advised Morgan Stanley that the Special Committee was
not prepared to agree to recommend a price of $6.00 per Share but that it would
recommend a price of $6.375 per Share.
On October 23, 1998, the Special Committee held a meeting at which Lehman
Brothers reviewed its conversations with Morgan Stanley. Lehman Brothers stated
that it believed Parent would offer $6.125 per Share if the Special Committee
would indicate that it was prepared to recommend that price. Kirkpatrick &
Lockhart LLP summarized its discussions with representatives of the Company and
Shearman & Sterling concerning the treatment of the Options and the Company's
other stock-based compensation arrangements. The Special Committee decided to
schedule another meeting for October 25, 1998 to review that issue further, to
discuss the recently received redraft of the merger agreement and to consider
the Special Committee's schedule and strategy over the following week prior to
the scheduled Board meeting.
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<PAGE> 10
At the October 25, 1998 meeting of the Special Committee, Kirkpatrick &
Lockhart LLP and Lehman Brothers reviewed the issues arising from the potential
means of addressing the Company's stock-based compensation arrangements. After
some discussion, the Special Committee decided to inform the Company and the
advisors to Parent that the Special Committee was indifferent concerning any
issues related to the treatment of the Company's existing stock-based
compensation or future management incentive plans, assuming that no
understanding had been reached in that regard between Parent and management of
the Company (as the Special Committee had been told).
On October 26, 1998, Mr. Dolle called Mr. Sheehan to discuss in more detail
Parent's strategic reasons for seeking to acquire the entire equity interest in
the Company. Mr. Dolle stated that, as Parent had disclosed publicly, its
strategic goal was to focus on the development of its flat carbon and stainless
steel businesses and that Parent desired to be a worldwide competitor in the
stainless steel industry. He further advised Mr. Sheehan that the Company was
the business unit through which this strategy would be implemented in North
America. Mr. Dolle further indicated that Parent intended to turn certain large
capital expenditures made by the Company in the past into key features for the
Company's future by targeting certain customer industries thereby assisting the
Company to strengthen its positions with the relevant North American
manufacturers. Mr. Dolle told Mr. Sheehan that Parent was working with the
Company to resolve the issues arising under the Credit Agreements. Mr. Dolle
stated that, while the Board had decided to postpone investing in a steckel
mill, Parent was aware of the need to address the high costs of hot rolling
currently faced by the Company and that, after reviewing alternative solutions
available to the Company, Parent intended to make a decision that optimized the
Company's production costs, flexibility and quality.
At a meeting of the Special Committee held on October 28, 1998, counsel to
the Special Committee discussed the negotiations that had been held that morning
with counsel to Parent concerning the terms of the draft merger agreement.
Counsel stated that they believed that there were very few substantive issues
separating the parties with respect to the draft merger agreement and that the
most significant remaining issue was a proposed condition to Parent's obligation
to close the tender offer. Lehman Brothers summarized for the Special Committee
its conversations with Morgan Stanley over the last few days and said that while
the stated offer by Parent was $6.125 per Share, Lehman Brothers believed that
Parent would offer $6.25 per Share if the Special Committee would state that it
was prepared to recommend the proposed transaction. Lehman Brothers further
stated that it believed that Morgan Stanley might not have had authority from
Parent to negotiate an offer of more than $6.25 per Share. In Lehman Brothers'
view, Mr. Dietrich would have to speak directly to Mr. Dolle or Mr. Hudry if
further progress was to be made on pricing, and the Special Committee authorized
Mr. Dietrich to do so.
On October 28, 1998, Messrs. Dolle, Dujardin, Dietrich, Sheehan, Salvadore,
Vincent and other officers and directors of the Company had dinner together.
During this dinner, Messrs. Dolle, Dietrich and Dujardin discussed the
outstanding issues with respect to the draft merger agreement, including the
price per Share to be paid in the proposed transaction. In light of Mr.
Dietrich's indication that the Special Committee was not willing to recommend
$6.25 per Share, Mr. Dolle stated that further discussion of the price would
need to be held with Mr. Hudry the following morning.
At two meetings held on October 29, 1998, the Special Committee reviewed
with its legal and financial advisors the terms of the draft merger agreement
and the negotiations concerning the proposed price to be paid for the publicly
held Shares. At the second of those meetings, Mr. Dietrich explained to the
Special Committee that, after several conversations with Mr. Hudry that day,
following consultation with the Special Committee's advisers, he had
preliminarily agreed with Mr. Hudry on a resolution of the principal outstanding
issues, including a price of $6.25 per Share. Lehman Brothers delivered to the
Special Committee its oral opinion that the proposed transaction with Parent at
$6.25 per Share was fair to the Company's public shareholders. Kirkpatrick &
Lockhart LLP told the Special Committee that, having reviewed the most recent
draft of the merger agreement, Kirkpatrick & Lockhart LLP was satisfied that
there remained only a small number of limited issues to resolve with Shearman &
Sterling. On that basis, the Special Committee decided to approve the merger
agreement and recommend that the entire Board approve the merger agreement and
recommend to the Company's shareholders that they accept the proposed tender
offer and tender their Shares.
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<PAGE> 11
At the subsequent Board meeting on October 29, 1998, Mr. Dietrich gave a
report to the entire Board concerning the activities of the Special Committee
and its advisors. Kirkpatrick & Lockhart LLP discussed the fiduciary obligations
of the directors of the Company in considering a transaction such as the one
proposed by Parent and summarized the principal terms of the draft merger
agreement. Lehman Brothers reviewed with the Board its study and evaluation of
the Company and of the proposed transaction as embodied in the draft merger
agreement.
Following these presentations, during which directors asked questions of
both Lehman Brothers and Kirkpatrick & Lockhart LLP, Mr. de Ravel d'Esclapon
asked that he and the other Disinterested Director who was not on the Special
Committee be permitted to meet privately with the Special Committee and its
advisors. At that private session, Mr. de Ravel d'Esclapon asked, among other
things, whether this was the appropriate time to agree to a merger transaction
with Parent. Lehman Brothers explained that, given the financial condition of
the Company and the issues related to its ability to comply with the terms of
the Credit Agreements, the Company only had a limited number of options. Lehman
Brothers then discussed the financial value to the public shareholders of the
previously proposed rights offering, which Lehman Brothers estimated as being
less than the price proposed to be paid for the publicly held Shares by Parent.
Mr. de Ravel d'Esclapon then inquired whether the Special Committee had ever
received any evaluation or similar materials concerning the Company prepared by
or for the benefit of Parent. The Special Committee's advisors explained to Mr.
de Ravel d'Esclapon that several requests had been made to the advisors to
Parent for such materials, although none had been provided. Lehman Brothers did
indicate that it had received from the Company certain materials prepared in May
1998 by Morgan Stanley and a few pages of analysis prepared at some later date
by Morgan Stanley.
When the Board meeting reconvened, Mr. de Ravel d'Esclapon asked the
Affiliate Directors whether any such evaluation or similar materials had been
prepared. One of the Affiliate Directors noted that there had been discussions
among Parent and its advisers concerning a valuation of the Company and how the
process of completing a transaction such as this one would ordinarily proceed.
Another Affiliate Director stated that a report from Morgan Stanley would be
included in the documents to be filed with the Commission.
After further discussion, a motion was made, seconded and unanimously
approved by the Board to accept Parent's proposal, to execute a definitive
merger agreement and to recommend that the public shareholders of the Company
accept Parent's tender offer and tender their Shares.
Late in the evening of October 29, 1998, counsel to the Special Committee
and Parent finalized the draft merger agreement and the parties executed that
merger agreement, dated as of October 29, 1998 (the "Initial Merger Agreement"),
and, early in the morning of October 30, 1998, the parties announced that the
Initial Merger Agreement had been signed.
After the Special Committee and the Board had both acted to approve the
Initial Merger Agreement, representatives of the Special Committee and the
Company learned that, prior to making the Proposal, certain officers of Parent
(including certain Affiliate Directors) had been provided with a draft of
valuation and related materials concerning the Company prepared by Morgan
Stanley, which draft materials had not been provided to the Special Committee or
its advisors. Parent provided the Special Committee and its advisors with the
final Morgan Stanley report, although Parent declined to provide them with the
prior draft materials. On November 3, 1998, the Special Committee resolved to
withdraw its recommendation of the Initial Merger Agreement unless it was
provided with a copy of those draft materials and advised Parent of its
decision. Parent then agreed to provide a copy of the requested materials, and
that copy was delivered to Mr. Dietrich's office on the morning of November 4,
1998.
Upon reviewing that draft, it was determined that some of the information
contained therein warranted further analysis, particularly certain potential
ranges of prices that Parent might consider. Given the fact that the Special
Committee determined that it could not at that time recommend the proposed
transaction to shareholders of the Company and that Parent's tender offer for
the publicly-held Shares had to be commenced on the next day under the relevant
rules of the Commission, the Special Committee decided to withdraw such
8
<PAGE> 12
recommendation. At approximately 2:00 p.m., Eastern time, on November 4, 1998,
the Special Committee issued the following press release:
PITTSBURGH, November 4, 1998 -- The Special Committee of the Board of
Directors of J&L Specialty Steel, Inc. (NYSE: JL) announced today that, in
light of additional information provided to the Special Committee today by
Usinor, the Committee was withdrawing its prior recommendation that
shareholders accept the proposed tender offer by Usinor for all
publicly-held shares at $6.25 per share. The Chairman of the Special
Committee stated that this additional information requires further study by
the Special Committee in consultation with its professional advisors and
that the Special Committee will promptly assess its options in light of
that further study.
The Special Committee, comprised of disinterested directors of J&L, was
formed to consider the proposal made in September by Usinor to acquire the
46.5% of J&L not already owned by Usinor.
Following the issuance of that press release, representatives of the
Special Committee and Parent held several conversations concerning the
appropriate next steps. Parent informed the Special Committee that, in
accordance with the terms of the Initial Merger Agreement, as a result of the
Special Committee's withdrawal of its recommendation, Parent would terminate the
Initial Merger Agreement and would not continue with its tender offer. Parent
informed the Special Committee that it would be willing to execute a new merger
agreement containing the same terms and conditions as the Initial Merger
Agreement, if the Special Committee and the Board would be willing to recommend
the transaction. Before the opening of trading on the following day, November 5,
1998, Parent issued the following press release:
Paris, France, November 5, 1998 -- Usinor announced today that it had
determined not to continue with a previously announced tender offer to
acquire shares of J&L Specialty Steel, Inc. (NYSE: JL) and that it had
terminated its previously announced merger agreement entered into with J&L
on October 29, 1998. Usinor's decision was made in response to an
announcement yesterday by the Special Committee of the J&L Board of
Directors that, in light of additional information provided to the Special
Committee by Usinor, the Special Committee was withdrawing its
recommendation that shareholders accept Usinor's proposed offer. Usinor
informed the Special Committee that if, after the Special Committee's
review of such additional information, the Special Committee were prepared
today to recommend a transaction with Usinor and the J&L Board of Directors
to approve an agreement between Usinor and J&L to effect such a transaction
on the same terms and conditions as those set forth in the October 29, 1998
merger agreement, Usinor would be prepared to execute such an agreement and
to consummate such a transaction.
With a worldwide production of approximately 16.1 million tons in 1997,
Usinor is a world leading producer of steel. Its principal activities are
divided into Flat Carbon Steels, Stainless Steel and Alloys and Specialty
Steels.
The Special Committee's advisors reviewed the Morgan Stanley draft
materials after they were provided by Parent to the Special Committee and
discussed with the Special Committee the implications of those materials for the
Special Committee in its deliberations. On November 5, 1998, the Special
Committee convened a meeting at which Lehman Brothers advised the Special
Committee that the valuation materials contained in the draft did not change its
valuation of the Company or its assessment as to fairness, from a financial
point of view, of the $6.25 price per Share contemplated by the Initial Merger
Agreement, because the analyses in those materials were substantially the same
as the analyses Lehman Brothers had performed, Morgan Stanley had not reached
conclusions that were materially different from those of Lehman Brothers and to
the extent there was any divergence, it was primarily the result of Lehman
Brothers' use of more current projections prepared by the Company's management,
which were more pessimistic than those prepared by the Company's management
earlier in the year and used in preparing the draft Morgan Stanley materials.
Lehman Brothers also reminded the Special Committee that the draft materials
represented the views of Morgan Stanley and to the extent the price ranges
therein included prices that were higher than the proposed price, this was also,
in part, a result of the use of the more optimistic projections.
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<PAGE> 13
In light of the information contained in the materials, the Special
Committee resolved to have Mr. Dietrich contact Parent to discuss a possible
increase in the purchase price. After further discussions, Parent agreed to
increase the price per Share to $6.375. Thereafter, the Special Committee
resolved to recommend that the Board approve the transaction with Parent and the
Merger Agreement and that the Board recommend that the public shareholders
accept the Offer and tender their Shares in the Offer. Following a report of the
Special Committee and its recommendations and the delivery of an oral opinion of
Lehman Brothers concerning the fairness of the per Share consideration, the
Board, by the unanimous vote of all directors present, approved the Merger
Agreement and the transactions contemplated thereby (the "Transactions"). The
Merger Agreement was executed on November 5, 1998.
During the week of November 2, 1998, representatives of Parent and the
Company met with representatives of the agent bank under the Credit Agreements,
to discuss a proposed amendment to the Credit Agreements. In the event that the
proposed amendment is not executed, a put event may be triggered under the
Credit Agreements, permitting any of the banks to require the Company to pay off
such portion of the loans or, if possible, the Company may secure another bank
to assume such portion of the loans. As a result of that meeting, the agent
determined to recommend that the other lenders under the Credit Agreements agree
to changes thereto that would include (i) a guaranty by Parent of the Company's
payment obligations under the Credit Agreements; (ii) having a favorable
adjustment to the interest rates on the outstanding loans thereunder; (iii)
deleting most of the operating and financial covenants made by the Company
therein; and (iv) effectively substituting covenants by Parent with the same
terms as given by Parent to the lenders under its own most recent revolving
credit agreement. It is currently contemplated that this amendment to the Credit
Agreements will be executed in the coming weeks, assuming agreement can be
reached with the bank group.
RECOMMENDATION OF THE COMPANY'S BOARD; FAIRNESS OF THE OFFER AND THE MERGER
Recommendation of the Special Committee and the Company's Board
On November 5, 1998, the Special Committee, by the unanimous vote of both
of its members, determined that the Merger Agreement and the Transactions,
including the Offer and the Merger, are fair to and in the best interests of the
Company, approved the Merger Agreement and the Transactions and voted to
recommend that the Board approve the Merger Agreement and the Transactions.
On November 5, 1998, the Board, based in part on the unanimous
recommendation of the Special Committee, by the unanimous vote of all directors
present, determined that the Merger Agreement and the Transactions, including
the Offer and the Merger, are fair to and in the best interests of the Company,
and approved the Merger Agreement and the Transactions. In addition, the Board,
by the unanimous vote of all directors present, recommended that the
shareholders of the Company accept the Offer and tender their Shares pursuant to
the Offer and, if necessary, approve and adopt the Merger Agreement and approve
the Merger. Messrs. Francis Mer and Michel Le Page were not present at this
Board meeting.
Fairness of the Offer and the Merger
In making the decisions referred to above, the Special Committee considered
the following factors, which, in the view of the Special Committee, when taken
together, supported such decisions:
(i) the likelihood (x) that the Company would breach at least one of
the financial covenants contained in the Credit Agreements at December 31,
1998 if the Company did not obtain additional equity capital or amend or
replace the Credit Agreements, and that the Company might not be able to
obtain from its lenders a waiver of any such breach, negotiate necessary
amendments to those covenants or improve its capital structure without
Parent's active participation; (y) that any such waiver or amendments, even
if obtained, would require the Company to pay substantial fees and higher
rates of interest on the amounts outstanding under the Credit Agreements if
Parent was not financially involved; and (z) that any attempt to raise
funds in the capital markets would be unsuccessful without Parent's
substantial participation (Moreover, although Parent has indicated that it
is willing to participate in negotiations relating to modification of the
Credit Agreements, guarantee the Company's payment obligations thereunder
and participate in any capital-raising transaction by the Company, Parent
has no
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obligation to do so or to agree to any particular forms of assistance or
particular terms for any such assistance.);
(ii) the Company's worsening liquidity situation, including the fact
that, during most of the period since the appointment of the Special
Committee by the Board, the Company had available less than $10 million of
borrowing capacity pursuant to the terms of the Credit Agreements;
(iii) the probability that the Company's financial condition, which
has several causes, including (x) the fact that the Company has realized
very low, if not negative, operating profit margins during this year on
many of the products the Company sells, and (y) start-up problems with the
Company's new DRAP line at its Midland, Pennsylvania plant, was unlikely to
improve in the near-term;
(iv) the Company's uncertain longer-term prospects given (w) the
difficulty of predicting when prices in the stainless steel industry will
begin to recover and to what level; (x) the difficulty of forecasting the
results and ultimate effect of the unfair trade practice cases filed by the
Company and others and the timing of any such effect; (y) the likely
effects on the prices of stainless steel commodity products of the start-up
of full-scale production at two new domestic plants; and (z) the
substantial funds required for capital expenditures that the Company
believes are necessary to remain competitive in the longer term;
(v) Mr. Dolle's statements to members of the Special Committee that
Parent's strategic goal was to focus on the development of its flat carbon
and stainless steel businesses and that the Company was the business unit
through which this strategy would be implemented in North America;
(vi) the historical market prices and recent trading activity in the
Shares, including (x) that the Offer price of $6.375 per Share represents a
premium of approximately 100% over the $3.1875 per Share closing price on
September 22, 1998, the day prior to the announcement of the Proposal, a
premium of approximately 117% over the closing price of $2.9375 per Share
one week prior to the announcement of the Proposal, a premium of
approximately 26% over the closing price of $5.0625 per Share one month
prior to the announcement of the Proposal and a premium of approximately 5%
over the closing price of $6.0625 per Share two months prior to the
announcement of the Proposal and (y) that the Shares never traded on the
New York Stock Exchange (the "NYSE") above $6.25 per Share after the
September 23, 1998 announcement of the Proposal;
(vii) the history of the negotiations between the Special Committee
and its representatives and Parent and its representatives, including (x)
that the negotiations resulted in an increase in the price at which Parent
agreed to acquire the Shares from $5.75 to $6.375 per Share; and (y) the
Special Committee's considered belief that Parent would not further
increase the Offer price and, accordingly, that $6.375 per Share was, in
the view of the Special Committee, the highest price that could be obtained
from Parent by the Special Committee;
(viii) the opinion of Lehman Brothers that, based upon and subject to
the assumptions and qualifications stated therein, the $6.375 price per
Share to be received by the shareholders of the Company (other than Parent
and its subsidiaries) in the Offer and the Merger is fair to such holders
from a financial point of view, and the analyses that Lehman Brothers
presented to the Special Committee in connection therewith (see "SPECIAL
FACTORS -- Opinion of Lehman Brothers Inc.");
(ix) the requirement of the Minimum Condition that the Offer cannot be
consummated without the consent of the Special Committee unless at least a
majority of the Shares not owned by Parent or Purchaser are tendered
pursuant to the Offer and not withdrawn;
(x) the fact that Parent owns a sufficient number of Shares to control
any disposition of the Company and has indicated that it does not have any
current plans to sell any Parent Shares; and the fact that, accordingly,
the Special Committee and Lehman Brothers were not authorized to, and did
not, solicit third party indications of interest to acquire the Company as
a whole or any of its businesses;
(xi) the terms of the Merger Agreement, including (a) that the
conditions to the Offer may not be changed in any manner that is materially
adverse to the public shareholders without the consent of the
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<PAGE> 15
Special Committee and a majority of the Disinterested Directors; (b) that
the recommendation of the Special Committee may be withdrawn, modified or
amended to the extent the Special Committee believes it necessary to do so
in the exercise of its fiduciary duties; (c) that the Offer is not subject
to any financing condition; (d) that the terms of the Merger Agreement may
only be amended or waived with the consent of the Special Committee and a
majority of the Disinterested Directors; (e) that it is a condition to the
Merger that all Shares validly tendered and not withdrawn pursuant to the
Offer shall have been purchased by Purchaser; and (f) the limited nature of
the other conditions to the Offer and the Merger; and
(xii) the availability of dissenters' rights pursuant to which the
public shareholders of the Company may have the fair value of their Shares
judicially determined under Pennsylvania law in connection with the Merger.
In making its decisions referred to above, the Board considered the
following factors, which, in the view of the Board, when taken together,
supported such decisions: (i) the conclusions and recommendations of the Special
Committee; (ii) the factors referred to above as having been taken into account
by the Special Committee, including the receipt by the Special Committee of the
opinion of Lehman Brothers addressed solely to the Special Committee that, based
upon and subject to the assumptions stated therein, the $6.375 per Share to be
received by the shareholders of the Company (other than Parent and its
subsidiaries) in the Offer and the Merger is fair to such holders from a
financial point of view and the analysis presented by Lehman Brothers to the
Board; and (iii) the fact that the $6.375 per Share Offer price and the terms
and conditions of the Merger Agreement were the result of extended arm's-length
negotiations between the Special Committee and Parent.
The members of the Board, including the members of the Special Committee,
evaluated the Offer and the Merger in light of their knowledge of the business,
financial condition and prospects of the Company and after their receipt of the
advice of their financial and legal advisors. In light of the number and variety
of factors that the Board and the Special Committee considered in connection
with their evaluations of the Offer and the Merger, neither the Board nor the
Special Committee found it practicable to assign relative weights to the
foregoing factors, and, accordingly, neither the Board nor the Special Committee
did so.
The Board, including the members of the Special Committee, believes that
the Offer and the Merger are procedurally fair because, among other things: (i)
the Special Committee consisted of Disinterested Directors appointed to
represent the interests of the shareholders other than Parent; (ii) the Special
Committee retained and was advised by independent legal counsel; (iii) the
Special Committee retained Lehman Brothers as its independent financial advisor
to assist it in evaluating the Proposal made by Parent and received advice from
Lehman Brothers; (iv) the Minimum Condition (which may not be waived without the
consent of the Special Committee) has the effect of requiring the holders of a
majority of the Shares (other than Parent) to tender their Shares into the Offer
in order for it to be consummated; (v) of the process of the deliberations
pursuant to which the Special Committee evaluated the Offer and the Merger and
alternatives thereto; (vi) of the fact that the $6.375 per Share price and the
other terms and conditions of the Merger Agreement resulted from the active
arm's-length bargaining between representatives of the Special Committee, on the
one hand, and representatives of Parent, on the other; and (vii) of the
availability of dissenters' rights to the public shareholders.
The Board and the Special Committee recognized that the Merger was not
structured to require the approval of a majority of the shareholders of the
Company other than Parent, and that Parent currently has sufficient voting power
to approve the Merger without the affirmative vote of any other shareholder of
the Company. However, the Special Committee and the Board also recognized that,
since (x) it is a condition to the Merger that Parent shall have purchased all
Shares validly tendered and not withdrawn pursuant to the Offer, and (y) it is a
condition (waivable only with the consent of the Special Committee) to
consummation of the Offer that there be validly tendered and not withdrawn at
least a majority of the issued and outstanding Shares without regard to the
Shares owned by Parent (i.e., the Minimum Condition), the Merger is effectively
conditioned on satisfaction of the Minimum Condition.
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<PAGE> 16
The Board and the Special Committee also recognized that the terms of the
Merger Agreement did not require cancellation of the Options or any other
existing rights on the part of management to acquire equity of the Company, and
that there was no assurance that such rights would be eliminated or on what
terms. However, the Special Committee and the Board also believed that
management would be likely to agree to such a cancellation in connection with
any new management incentive plans adopted for the Surviving Corporation, and
that any such plans were unlikely to be more generous in any material way than
incentive plans of comparable companies.
OPINION OF LEHMAN BROTHERS INC.
Lehman Brothers has acted as the financial advisor to the Special Committee
in connection with the Offer and the Merger. On November 5, 1998, Lehman
Brothers delivered its oral opinion to the Special Committee and the Board
(subsequently confirmed in writing as of such date) that the consideration to be
offered to the shareholders of the Company other than Parent (the "Public
Shareholders") is fair, from a financial point of view, to the Public
Shareholders.
The full text of the opinion of Lehman Brothers dated November 5, 1998 (the
"Lehman Opinion") is attached hereto as Schedule II and is incorporated herein
by reference. Shareholders should read the Lehman Opinion for a discussion of
matters considered and limitations on the review undertaken by Lehman Brothers
in rendering its opinion. The summary of the Lehman Opinion set forth in this
Offer to Purchase is qualified in its entirety by reference to the full text of
the Lehman Opinion.
No limitations were imposed by the Company or the Special Committee on the
scope of Lehman Brothers' investigation or the procedures to be followed by
Lehman Brothers in connection with preparing the Lehman Opinion, except that
Lehman Brothers was not authorized to solicit, and did not solicit, any
indications of interest from any third party with respect to a purchase of all
or any part of the Company's business. Lehman Brothers was not requested to and
did not make any recommendation to the Special Committee as to the form or
amount of consideration to be received by the Public Shareholders in the Offer
and the Merger, which was determined primarily through negotiations between the
Special Committee and Parent (although Lehman Brothers did participate in such
negotiations). In arriving at the Lehman Opinion, Lehman Brothers did not
ascribe a specific range of value to the Company, but rather made its
determination as to the fairness, from a financial point of view, of the
consideration to be offered to the Public Shareholders in the Offer and the
Merger on the basis of the financial and comparative analyses described below.
The Lehman Opinion is for the use and benefit of the Special Committee and was
rendered to it in connection with its consideration of the Offer and the Merger
and is not intended to be and does not constitute a recommendation to any Public
Shareholder as to whether to accept the consideration to be offered to such
shareholder in the Offer or the Merger. Lehman Brothers was not requested to
opine as to, and the Lehman Opinion does not in any manner address, the
Company's underlying business decision to proceed with or effect the Offer or
the Merger.
In arriving at the Lehman Opinion, Lehman Brothers reviewed and analyzed:
(a) the Merger Agreement and the specific terms of the Offer and the Merger; (b)
the annual report of the Company for the fiscal year ended December 31, 1997
filed on Form 10-K, the quarterly financial report of the Company for the fiscal
quarter ended June 30, 1998 filed on Form 10-Q, and such other publicly
available information concerning the Company that Lehman Brothers believed to be
relevant to its analysis; (c) financial and operating information with respect
to the business, operations and prospects of the Company furnished to Lehman
Brothers by the Company; (d) a trading history of the Shares from December 14,
1993 (the date of the Company's initial public offering) to the present and a
comparison of that trading history with those of other companies that Lehman
Brothers deemed relevant; (e) a comparison of the historical financial results
and present financial condition of the Company with those of other companies
Lehman Brothers deemed relevant; (f) a comparison of the financial terms of the
Offer and the Merger with the financial terms of certain other merger
transactions that Lehman Brothers deemed relevant; (g) current conditions of and
forecasts for the industry in which the Company operates; and (h) the Company's
current cash flow forecast and limited cash position, its ability to meet
short-term liquidity requirements and longer-term capital expenditures and the
potential alternatives available to the Company to fund such requirements and
expenditures. In addition, Lehman Brothers had
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<PAGE> 17
discussions with the management of the Company concerning its business,
operations, assets, liabilities, financial condition, liquidity and prospects
and undertook such other studies, analyses and investigations as Lehman Brothers
deemed appropriate.
In arriving at the Lehman Opinion, Lehman Brothers assumed and relied upon
the accuracy and completeness of the financial and other information made
available to Lehman Brothers without assuming any responsibility for independent
verification of such information and further relied upon the assurances of
management of the Company that they were not aware of any facts or circumstances
that would make such information inaccurate or misleading. With respect to the
financial projections of the Company, upon advice of the Company, Lehman
Brothers assumed that such projections had been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company
and that the Company would perform substantially in accordance with such
projections. In arriving at the Lehman Opinion, Lehman Brothers conducted only a
limited physical inspection of the properties and facilities of the Company and
did not make or obtain any evaluations or appraisals of the assets or
liabilities of the Company. In addition, the Company did not authorize Lehman
Brothers to solicit, and Lehman Brothers did not solicit, any indications of
interest from any third party with respect to the purchase of all or any part of
the Company's business. The Lehman Opinion was necessarily based upon market,
economic and other conditions as they existed on, and could be evaluated as of,
the date of the Lehman Opinion.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial and comparative analysis
and the application of those methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to summary description.
Furthermore, in arriving at the Lehman Opinion, Lehman Brothers did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevancy of each
analysis and factor. Accordingly, Lehman Brothers believes that its analyses
must be considered as a whole and that considering any portions of its analyses
and of the factors considered by it, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
the Lehman Opinion. In its analyses, Lehman Brothers made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the Company's control. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than as set forth therein. Additionally, analyses relating to the
value of businesses do not purport to be appraisals or to reflect the prices at
which businesses actually may be sold.
Discounted Cash Flow Analysis. Lehman Brothers performed a discounted cash
flow analysis on the projected financial information of the Company for the last
three months of fiscal 1998 and the fiscal years 1999 through 2007 based upon
operating and financial assumptions, forecasts and other information provided to
Lehman Brothers by the management of the Company. Using this information, Lehman
Brothers discounted to present value the projected stream of unleveraged net
income (earnings before interest and after taxes) for the last three months of
1998 and the fiscal years 1999 through 2007 as adjusted for: (i) certain
projected non-cash items (such as depreciation and amortization and non-cash
post-retirement expenses); (ii) forecasted capital expenditures (including
discretionary capital expenditures); (iii) forecasted working capital
adjustments; and (iv) pension funding requirements. To estimate the residual
value of the Company at the end of the forecast period (the "Terminal Value"),
Lehman Brothers utilized two approaches, applying a range of 5.0x-7.0x multiples
to projected fiscal 2007 earnings before interest, taxes, depreciation and
amortization and applying terminal period growth rates of 1.0%-3.0% to projected
fiscal 2007 operating cash flow.
Lehman Brothers applied discount rates that varied from 10% to 12% or from
15% to 17% based upon different assumptions concerning the Company's ability to
fund its capital needs and avoid a default under the Credit Agreements. The
equity value per Share resulting from these analyses ranged from $2.78 per Share
to $10.54 per Share or from ($1.79) per Share to $2.98 per Share, respectively,
depending upon the discount rate applied.
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<PAGE> 18
Comparable Public Company Analysis. Lehman Brothers compared the
historical financial, operating and stock market performances of certain
publicly traded companies that it considered relevant with the historical
financial and operating performance of the Company, based upon information that
was publicly available and based upon information provided to Lehman Brothers by
management of the Company. Lehman Brothers considered companies in three
principal industry segments, stainless steel producers, specialty metals
producers and carbon steel producers. The companies that Lehman Brothers
included in its universe of stainless steel producers were Allegheny Teledyne
Incorporated, Armco Inc. and Carpenter Technology Corporation (the "Comparable
Stainless Steel Producers"), in its universe of specialty metals producers were
Quanex Corporation, RTI International Metals, Inc., Special Metals Corporation,
The Timken Company and Titanium Metals Corporation (the "Comparable Specialty
Metals Producers"), and in its universe of carbon steel producers were AK Steel
Holding Corporation, Bethlehem Steel Corporation, Geneva Steel Company, The LTV
Corporation, National Steel Corporation, Nucor Corporation, Rouge Industries
Inc., Steel Dynamics, Inc., USX Corporation-U.S. Steel Group and Weirton Steel
Corporation (the "Comparable Carbon Steel Producers" and, together with the
Comparable Stainless Steel Producers and the Comparable Specialty Metals
Producers, the "Comparable Companies").
Lehman Brothers calculated a range of market multiples for the Comparable
Companies by dividing the aggregate value (total common shares outstanding
multiplied by the closing market price per share on October 26, 1998, plus the
latest reported debt, unfunded pension and non-pension retiree benefits,
preferred stock and minority interest, minus the latest reported cash and cash
equivalents) of each of the Comparable Companies by such company's net sales and
net tangible asset value (total assets less intangible assets less cash) as
reported in publicly available information. In addition, Lehman Brothers divided
the equity value per share on October 26, 1998 of each of the Comparable
Companies by the latest reported tangible equity value per share as reported in
publicly available information and by projected earnings per share ("EPS") for
1999 calendar year as represented by the mean estimate reported by First Call
Corporation. This analysis indicated that the relevant ranges of multiples
derived from the Comparable Companies were (i) net sales: 0.16x to 2.14x; (ii)
net tangible asset value: 0.27x to 1.80x; (iii) tangible equity value: 0.32x to
3.75x; and (iv) 1999 EPS: 4.7x to 25.5x.
Lehman Brothers then calculated imputed valuation ranges of the Company,
both before the potential dilutive effect of a common stock rights offering and
assuming dilution, by applying a range of multiples, derived from its analysis
of the Comparable Companies, to the results of the Company. This analysis
resulted in a range of values of the Company of ($0.05) to $3.83 per Share.
Because of the inherent differences between the business, operations and
prospects of the Comparable Stainless Steel Producers, the Comparable Specialty
Metals Producers and the Comparable Carbon Steel Producers, on the one hand, and
the Company, on the other, Lehman Brothers believed that it was inappropriate
to, and therefore did not, rely solely on the quantitative results of the
analysis but rather also made qualitative judgments concerning differences
between the financial and operating characteristics and prospects of the
Comparable Stainless Steel Producers, the Comparable Specialty Metals Producers
and the Comparable Carbon Steel Producers, on the one hand, and the Company, on
the other, that would affect the public trading values of each.
Common Stock Price Analysis. Lehman Brothers compared the Company's stock
price performance from December 14, 1993, the day of the Company's initial
public offering, until September 22, 1998, one day before public announcement of
the Proposal. Using December 14, 1993 as the base of 100%, on September 22,
1998, the Company's common stock price was 22% of the base value, as compared to
the S&P 400 Index value of 229%.
Lehman Brothers also compared the Company's stock price performance from
December 14, 1993 to September 22, 1998 with those of an index of the Comparable
Stainless Steel Producers, an index of the Comparable Specialty Metals Producers
and an index of the Comparable Carbon Steel Producers. Using December 14, 1993
as the base of 100%, on September 22, 1998, the Company's common stock price was
22% of the base value, as compared to the values of the Comparable Stainless
Steel Producers, the Comparable
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<PAGE> 19
Specialty Metals Producers and the Comparable Carbon Steel Producers indices of
85%, 97% and 66% of their base values, respectively.
Lehman Brothers noted that the Offer price of $6.375 per Share was 100%
above the closing stock price one day prior to the announcement of the Proposal
of $3.1875 per Share, 117% above the closing price one week prior to the
announcement of the Proposal of $2.9375 per Share, 26% above the closing price
one month prior to the announcement of the Proposal of $5.0625 per Share, 5%
above the closing price two months prior to the announcement of the Proposal of
$6.0625 per Share and 54% below the Company's 52-week high through September 22,
1998. As of September 22, 1998, the Comparable Stainless Steel Producers were
down an average 42% from their 52-week highs, the Comparable Specialty Metals
Producers were down an average 50% from their 52-week highs and the Comparable
Carbon Steel Producers were down an average 54% from their 52-week highs.
Overall, the Comparable Companies were down an average 51% from their 52-week
highs. Lehman Brothers also considered the fact that each of the Comparable
Companies had positive earnings before interest and taxes ("EBIT") during the
twelve-month period ended June 30, 1998, while the Company had negative EBIT for
that period.
Lehman Brothers also considered the liquidity of the Shares on an absolute
basis and relative to the Comparable Companies. The Company's market
capitalization was $124 million as of September 22, 1998 (one day prior to the
announcement of the Proposal), as defined by the Shares outstanding multiplied
by market price per Share, average 200-day daily trading volume level was 69,700
Shares traded, public float was 46% of the Shares outstanding and the market
value of the public float was $57 million as of September 22, 1998. The
Comparable Companies had a mean market capitalization, 200-day daily trading
volume level, public float and market value of public float of $878 million,
267.3 thousand, 77% and $776 million, respectively, as of September 22, 1998.
Comparable Transactions Analysis. Lehman Brothers compared the financial
and operating performance of certain companies that had engaged in merger
transactions since January 1990 with the historical financial and operating
performance of the Company. Lehman Brothers analyzed the purchase prices and
multiples paid or proposed to be paid in selected merger and acquisition
transactions using publicly available information. The transactions that Lehman
Brothers considered comparable to the Offer and the Merger included the
transactions by Imetal SA with Copperweld Corp., by NKK Corp. with National
Steel Corp., by Armco Inc. with Cyclops Industries Inc., by Lukens Inc. with
Washington Steel Corp., by Kyoei Steel Ltd. with Florida Steel Corporation, by
Allegheny Ludlum Corp. with Athlone Industries Inc., by Birmingham Steel Corp.
with American Steel and Wire Corp., by an Investor Group with Gulf States Steel,
Inc., by BRW Steel Corp. with Bliss and Laughlin Industries Inc., by Renco Group
Inc. with WCI Steel Inc., by CPT Holdings, Inc. with Steel of West Virginia
Inc., by Allegheny Teledyne Incorporated with Oregon Metallurgical Corporation,
by Co-Steel, Inc. with New Jersey Steel Corporation, by Bethlehem Steel
Corporation with Lukens Inc., by Allegheny Teledyne Incorporated with Bethlehem
Steel Corporation, by Aluminum Company of America with Alumax Inc., by Ispat
International with Inland Steel Company, by Blackstone Group/Veritas Capital
Partners LP with Republic Engineered Steels, Inc. and by Universal Stainless and
Alloy Products, Inc. with AL Tech Specialty Steel (the "Selected Acquisitions").
Lehman Brothers calculated the purchase price as a multiple of sales for
each acquired company for the four fiscal quarters immediately preceding the
announcement of the transaction. This analysis indicated that the range of
multiples of purchase price to net sales derived from the Selected Acquisitions
was 0.22x to 4.04x. Based on the Offer price, the Company's multiple of net
sales is 1.24x. Lehman Brothers then calculated the imputed valuation ranges of
the Company by applying the results for the preceding four fiscal quarters of
the Company to multiples derived from its analysis of the Selected Acquisitions.
This analysis resulted in a range of values of the Company of $0.60 to $2.32 per
Share.
Lehman Brothers also analyzed the purchase prices paid in connection with
selected minority squeeze-out transactions (i.e., transactions in which a
majority owner bought out the minority stake held by the public) which had
occurred or been announced since January 1990 (the "Squeeze-Out Transactions").
Lehman Brothers calculated the premium per share paid by the acquiror in each of
the Squeeze-Out Transactions as a percentage of the stock price of the acquired
company one day, one week, four weeks, eight weeks, at the 52-
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<PAGE> 20
week high and the 52-week low prior to the original announcement of the
Squeeze-Out Transactions. This analysis indicated that the relative ranges of
premiums were (i) one day: (18)% to 77%; (ii) one week: (19)% to 90%; (iii) four
weeks: (46)% to 88%; (iv) eight weeks: (48)% to 90% (v) at the 52-week high:
(53)% to 56%; and (vi) at the 52-week low: (16)% to 439%. Lehman Brothers
calculated that the mean premium paid in the Squeeze-Out Transactions as a
percentage of the stock price of the acquired company one day, one week, four
weeks, eight weeks, at the 52-week high and at the 52-week low prior to the
original announcement of the Squeeze-Out Transactions was 25%, 32%, 37%, 36%, 1%
and 106%, respectively. Lehman Brothers compared the above-mentioned ranges and
mean premiums of the Squeeze-Out Transactions to the premiums implied by the
Offer price over the closing market price of the Shares one day, one week, four
weeks, eight weeks, at the 52-week high and at the 52-week low prior to the
announcement of the Proposal. The Offer price implied premiums of 100%, 117%,
26%, 5%, (54)% and 117%, respectively, over the closing market price of the
Shares one day, one week, four weeks, eight weeks, at the 52-week high and at
the 52-week low prior to the announcement of the Proposal. Lehman Brothers then
calculated the imputed valuation range of the Company by applying the mean
premiums derived from its analysis of the Squeeze-Out Transactions to the
closing market price of the Shares on the appropriate date. This analysis
resulted in a range of values of the Company of $3.87 to $14.01 per Share.
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations and prospects of the
Company and the acquired businesses analyzed, Lehman Brothers believed that it
was inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis and, accordingly, also made qualitative judgements
concerning differences between the characteristics of these transactions and the
Offer and the Merger that would affect the acquisition value of the Company and
such acquired companies.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Special Committee selected
Lehman Brothers because of its expertise, reputation and familiarity with the
Company and because its investment banking professionals have substantial
experience in transactions similar to the Merger.
In the ordinary course of its business, Lehman Brothers may trade in the
Shares for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in the Shares.
Pursuant to the terms of a letter agreement dated October 1, 1998 (the
"Engagement Letter"), the Special Committee retained Lehman Brothers as the
Special Committee's exclusive financial advisor for the purpose of assisting the
Special Committee in evaluating a transaction with Parent and to render an
opinion with respect to the fairness, from a financial point of view, of the
consideration to be offered to the Public Shareholders pursuant to the Offer and
the Merger.
Pursuant to the Engagement Letter, the Company paid Lehman Brothers an
initial retainer fee of $200,000 and, upon delivery of the Lehman Opinion, an
additional fee of $700,000. Upon consummation of the Offer, the Company has
agreed to pay Lehman Brothers an additional fee of $850,000. The Company will
reimburse Lehman Brothers for its reasonable expenses (including, without
limitation, legal fees and disbursements) incurred in connection with Lehman
Brothers' engagement by the Special Committee. The Company has agreed to
indemnify Lehman Brothers and its controlling persons, affiliates, directors,
officers, employees and agents for certain costs, expenses and liabilities to
which Lehman Brothers or any other indemnified person may become subject arising
out of or in connection with the rendering of services by Lehman Brothers
pursuant to the Engagement Letter or upon the request of the Special Committee.
COMPANY BUDGET INFORMATION AND FINANCIAL PROJECTIONS
The Company does not, as a matter of course, make public forecasts or
projections as to future sales, earnings or other income statement data.
However, in connection with Parent's position as a controlling
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<PAGE> 21
shareholder of the Company, Parent has received and examined certain analyses
prepared by the Company which include projections of future financial results.
Such information has been set forth below for the limited purpose of giving the
Company's shareholders access to financial projections by the Company's
management that were available for review by Parent and Purchaser in connection
with the Offer.
Fourth Quarter Forecast. On October 24, 1998, the Company provided Parent
with projections for the quarter ending December 31, 1998 and for the year
ending December 31, 1998 (together, the "Fourth Quarter Forecast"). The Fourth
Quarter Forecast assumes an inventory clean-up program. Selected information
presented in the Fourth Quarter Forecast is set forth below:
<TABLE>
<CAPTION>
THREE MONTHS ENDING YEAR ENDING
DECEMBER 31, 1998 DECEMBER 31, 1998
(FORECAST) (FORECAST)
---------------------- --------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales........................................ $112,153 $485,781
Gross profit..................................... (12,760) (41,420)
Operating income (loss).......................... (22,330) (70,962)
Net income (loss)................................ (18,247) (57,940)
Earnings (loss) per Share........................ (0.47) (1.50)
</TABLE>
1999 Budget. The Company's management provided projections for the year
ended December 31, 1999 (the "1999 Budget") to Parent on October 15, 1998. On
October 24, 1998, the Company provided Parent with revised assumptions for the
1999 Budget. The most significant change in the assumptions for the 1999 Budget
is a large reduction in shipment volumes of cold rolled products. The Company
did not provide Parent with net sales, gross profit, operating income, net
income and earnings per Share projections taking into account the assumptions
the Company sent Parent on October 24, 1998. Therefore, the selected information
from the 1999 Budget set forth below does not take account of such changes.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-----------------------------
1999 BUDGET
-----------------------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Net sales.................................................. $588,503
Gross profit............................................... 33,055
Operating income (loss).................................... 5,615
Net income (loss).......................................... (9,904)
Earnings (loss) per Share(1)............................... (.26)
</TABLE>
- ---------------
(1) Assumes no change in the number of outstanding Shares.
June Projections. In June 1998, the Company's management provided Parent
with certain projections for the years ending December 31, 1998 through December
31, 2007 (the "June Projections"). These projections were delivered on August
14, 1998 by the Company's management to Morgan Stanley. These projections, which
were updated by the Company on October 2, 1998 for the years 1998 and 1999, were
forwarded by the Company to Lehman Brothers during the week of October 5, 1998.
The June Projections assume a U.S. flat stainless steel market growing at 3.5%
per year with the Company's shipments growing at a higher rate. Selected
information presented in the June Projections (as updated by the Company on
October 2, 1998) is set forth below:
<TABLE>
<CAPTION>
FORECAST
ACTUAL -------------------------------------------------------------------
1997
------ 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.......................... $MM 599 486 589 718 757 811 839 830 824 837 850
Operating income............... $MM -38 -71 5.6 59 82 108 107 82 26 66 105
Net Income..................... $MM -41 -58 -10 23 40 59 62 49 4 30 57
</TABLE>
18
<PAGE> 22
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements that
involve risks and uncertainties. Forward-looking statements include the
information set forth above concerning the Fourth Quarter Forecast, the 1999
Budget and the June Projections (together, the "Projections"). Such information
has been included in this Offer to Purchase for the limited purpose of giving
the Company's shareholders access to financial projections prepared by the
Company's management that were made available to Parent and Purchaser. Such
information was prepared by the Company's management for internal use and not
with a view to publication. The Projections were based on assumptions concerning
the Company's products and business prospects in 1998 through 2007, including
the assumption that the Company would continue to operate under the same
ownership structure as then existed. The Projections were also based on certain
revenue and operating assumptions. Projected information of this type is based
on estimates and assumptions that are inherently subject to significant economic
and competitive uncertainties and contingencies, all of which are difficult to
predict and many of which are beyond the Company's control. Accordingly, there
can be no assurance that the projected results will be realized or that actual
results will not be significantly higher or lower than those set forth above. In
addition, the Projections were not prepared with a view to public disclosure or
compliance with the published guidelines of the Commission or the guidelines
established by the American Institute of Certified Public Accountants regarding
projections and forecasts and are included in this Offer to Purchase only
because such information was made available to Parent and Purchaser by the
Company. Neither Parent's nor the Company's independent accountants have
examined, compiled or applied any agreed upon procedures to this information
and, accordingly, assume no responsibility for this information. None of Parent,
Purchaser, the Company or any other party assumes any responsibility for the
accuracy or validity of the foregoing Projections. Forward-looking statements
also include those preceded by, followed by or that include the words
"believes", "expects", "anticipates" or similar expressions. Such statements
should be viewed with caution.
POSITION OF PARENT AND PURCHASER REGARDING FAIRNESS OF THE OFFER AND THE MERGER
Parent and Purchaser believe that the consideration to be received by the
Company's shareholders, other than Parent and Purchaser, pursuant to the Offer
and the Merger is fair to the Company's shareholders other than Parent and
Purchaser. Parent and Purchaser base their belief solely on (i) the fact that
the Board and the Special Committee concluded that the Offer and the Merger are
fair to, and in the best interests of, the Company, (ii) the fact that the
Disinterested Directors of the Company unanimously approved the execution of the
Merger Agreement and the transactions contemplated thereby, including the Offer
and the Merger, (iii) the fact that the Minimum Condition ensures that, in order
for the Offer to be successful, more than a majority of the Shares not held by
Parent or Purchaser will have to be tendered in the Offer, (iv) the historical
and projected financial performance of the Company and its financial results,
(v) the fact that the consideration to be paid in the Offer and the Merger
represents a premium in excess of 75% over the weighted average per Share
closing price for the one-month period prior to the September 23, 1998 public
announcement of Parent's original offer to acquire the outstanding Shares other
than the Parent Shares and a premium in excess of 96% over the reported per
Share closing price on the last trading day prior to September 23, 1998, (vi)
the fact that the terms of the Merger Agreement were negotiated on an
arm's-length basis, (vii) the fact that the Offer and the Merger will each
provide consideration to the shareholders of the Company entirely in cash,
(viii) notwithstanding the fact that the Lehman Opinion was provided solely for
the information and assistance of the Special Committee and that neither Parent
nor Purchaser is entitled to rely on such opinion, the fact that the Special
Committee received an opinion from Lehman Brothers that, as of November 5, 1998,
from a financial point of view, the $6.375 per Share in cash to be offered to
the holders of Shares other than Parent and its subsidiaries in the Offer and
the Merger is fair to such holders and (ix) the presentation of Morgan Stanley
regarding the Company described below. Parent and Purchaser have reviewed the
factors considered by the Board in support of its decision, as described in the
Schedule 14D-9 and above, and had no basis to question their consideration of or
reliance on those factors. Neither Parent nor Purchaser found it practicable to
assign, nor did either of them assign, relative weights to the individual
factors considered in reaching its conclusion as to fairness.
19
<PAGE> 23
ANALYSIS OF FINANCIAL ADVISOR TO PARENT
On October 29, 1998, representatives of Morgan Stanley discussed its
written presentation regarding the Company (the "Morgan Stanley Presentation")
with senior executives of Parent.
The Morgan Stanley Presentation included a premium analysis, an historical
and comparative market overview of the Company, an analysis of comparable
companies, an analysis of precedent transactions involving minority buyout
transactions and a discounted cash flow analysis of the Company, each of which
is summarized below. Morgan Stanley was not requested to, and did not, render
any opinion with respect to the fairness of the consideration to be paid
pursuant to the Offer or the Merger.
Premium Analysis. The Morgan Stanley Presentation included a premium
analysis which indicated that the $6.25 per Share proposed on October 29, 1998
to be paid in the Offer and the Merger represented a 23% premium over the August
23, 1998 per Share closing price (the closing price 30 days prior to the public
announcement of the Proposal), a 96% premium over the September 22, 1998 per
Share closing price (the last full trading day prior to the public announcement
of the Proposal), a 75% premium over the one-month weighted average per Share
closing price prior to September 23, 1998 and a 22% premium over the three-
month weighted average per Share closing price prior to September 23, 1998.
Company Historical Common Stock Performance. Morgan Stanley's analysis of
the Common Stock performance consisted of an historical analysis of: (i) the
closing prices and trading volumes of the Shares from December 14, 1993 (the
date of the initial public offering of the Company) to October 27, 1998 (the
"Five-Year Analysis"), (ii) the closing prices and trading volumes of the Shares
from October 27, 1997 to October 27, 1998 (the "One-Year Analysis"), (iii) the
closing prices and trading volumes of the Shares from September 23, 1998 to
October 27, 1998, (iv) the price performance of the Shares compared against the
Steel Index (as defined below) and the Standard and Poor's 500 Index from
December 14, 1993 to October 27, 1998, (v) the price performance of the Shares
compared against the foregoing indices from October 27, 1997 to October 27, 1998
and (vi) the price performance of the Shares compared against the foregoing
indices from September 23, 1998 to October 27, 1998. The Steel Index included
the following publicly traded companies: Allegheny Teledyne Incorporated, The
Timken Company, Armco Inc., Carpenter Technology Corporation, Quanex
Corporation, Special Metals Corporation, Titanium Metals Corporation and RMI
Titanium Company. Both the One-Year Analysis and the Five-Year Analysis
indicated that, during the respective comparison periods, the price performance
of each of the indices used for the comparative purposes was superior to the
price performance of the Common Stock.
Comparable Company Analysis. As part of its analysis, Morgan Stanley
compared certain financial information of the Company with a group of public
companies in the Steel Index (as defined above, now collectively the "Comparable
Companies"). Such financial information included price to forecasted 1998 and
forecasted 1999 earnings multiples. Earnings per share estimates for the
Comparable Companies were based on IBES median estimates as of October 23, 1998
and market information was as of October 28, 1998.
Using IBES median estimates as of October 23, 1998, the market price to
estimated 1998 and 1999 earnings per share multiples for the Company were less
than zero and 10.6x, respectively, as of September 22, 1998 and less than zero
and 18.3x, respectively, as of October 28, 1998, compared to mean multiples of
7.9x and 6.6x, respectively, for the Comparable Companies as of October 28,
1998. The implied range of stand-alone values for the Company derived from the
analysis of the Comparable Companies, based on a range of market price to 1998
earnings per share multiples of 12.0x to 14.0x, and market price to 1999
earnings per share multiples of 11.0x to 13.0x, was less than zero, given the
Company's negative 1998 and 1999 earnings forecasts.
Morgan Stanley also performed a forward looking Comparable Companies
analysis by applying a range of market price to 2000 earnings per share
multiples of 10.0x to 12.0x, market price to 2001 earnings per share multiples
of 9.0x to 11.0x and market price to 2002 earnings per share multiples of 8.0x
to 10.0x, and the equity values were then discounted to the present using a
discount rate of 12% representing the weighted average cost of capital for the
Company. Based on this analysis, Morgan Stanley calculated the mean per Share
equity values for the Company ranging from $6.20 to $7.61.
20
<PAGE> 24
No company utilized in the Comparable Companies analysis as a comparison is
identical to the Company. In evaluating the Comparable Companies, Morgan Stanley
made judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of the Company, such as the impact of competition
on the business of the Company and the industry generally, industry growth and
the absence of any adverse material change in the financial condition and
prospects of the Company or the industry or in the financial markets in general.
Mathematical analysis (such as determining the average or median) is not in
itself a meaningful method of using comparable company data.
Precedent Transaction Analysis. Using publicly available information,
Morgan Stanley reviewed selected minority squeeze-out transactions announced
since 1992. The precedent transaction premium analysis indicated median premiums
over the unaffected market price (the price 30 days in advance of the public
announcement of the transaction) of 21% between 1994 and 1998 and 24% between
1997 and 1998. Based on this analysis, Morgan Stanley calculated per Share
values for the Company ranging from $4.30 to $4.60.
No transaction utilized in the precedent transaction analysis is identical
to the Offer and the Merger. In evaluating the precedent transactions, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of the Company, such as the impact of
competition on the business of the Company and the industry generally, industry
growth and the absence of any adverse material change in the financial condition
and prospects of the Company or the industry or in the financial markets in
general. Mathematical analysis (such as determining the average or median) is
not in itself a meaningful method of using comparable transaction data.
Discounted Cash Flow Analysis. The Morgan Stanley Presentation included a
discounted cash flow analysis to estimate the present value of the stand-alone
unleveraged free cash flows that the Company may be expected to generate based
upon estimates prepared by the Company's management. Morgan Stanley discounted
the estimated unleveraged free cash flows over a ten-year period ending with the
2007 calendar year using discount rates of 11.0% to 13.0% and assuming a
terminal value based on a range of earnings before interest, depreciation and
taxes ("EBITDA") multiples of 5.0x to 6.0x. Unleveraged free cash flows were
calculated as the after-tax operating earnings of the Company (excluding any
interest income or expense) plus depreciation and amortization, plus (or minus)
net changes in non-cash working capital, minus projected capital expenditures.
Morgan Stanley added to the present value of the cash flows the derived terminal
value for the Company in 2007 using the range of EBITDA multiples and discount
rates described above. Assuming the range of discount rates and EBITDA multiples
described above, the analysis implied equity values per Share ranging from $4.34
to $7.42.
A copy of the Morgan Stanley Presentation has been filed as an Exhibit to
the Transaction Statement on Schedule 13E-3 filed with the Commission in
connection with the Offer and the Merger. Copies thereof will be made available
for inspection and copying at the principal executive offices of the Company
during regular business hours by any interested shareholder of the Company, or
his representative who has been so designated in writing, and may also be
obtained in the manner described under the "THE TENDER OFFER -- Section 7.
Certain Information Concerning the Company" (except that copies are not
available at the regional offices of the Commission).
The summary set forth above does not purport to be a complete description
of the Morgan Stanley Presentation.
In performing its analyses, Morgan Stanley made numerous assumptions and
may have deemed various assumptions more or less probable than others with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Parent or the Company.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values, which may be significantly more or less favorable than those
suggested by such analyses. Such analyses do not purport to be appraisals or to
reflect the prices at which the Company might actually be sold.
21
<PAGE> 25
In preparing its analyses, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed for purposes of its presentation. With respect to the financial
forecasts referred to above, Morgan Stanley assumed that they had been
reasonably prepared on bases reflecting the best available estimates and
judgments of the future financial performance of the Company at the time they
were prepared. Morgan Stanley did not make any independent valuation or
appraisal of the assets or liabilities of the Company, nor has it been furnished
with any such appraisals. Morgan Stanley analyses were necessarily based on
economic, market and other conditions on, and the information made available to
Morgan Stanley as of the date of its presentation. As described above, the
Morgan Stanley Presentation was one of many factors taken into consideration by
Parent in making its determination to present the Offer. Consequently, the
Morgan Stanley Presentation should not be viewed as determinative of Parent's
decision to proceed with the Offer and the Merger.
Morgan Stanley is an internationally recognized investment banking and
financial advisory firm. Morgan Stanley, as part of its investment banking
business, is continuously engaged in the valuation of businesses and securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and for corporate and other purposes. Morgan Stanley was
retained by Parent as financial advisor to evaluate a possible acquisition of
the Company based upon its qualifications, expertise and reputation, as well as
Morgan Stanley's prior investment banking relationship and familiarity with
Parent.
Morgan Stanley is a full service securities firm engaged in securities
trading and brokerage activities, as well as providing investment banking and
financial advisory services. In the ordinary course of its trading and brokerage
activities, Morgan Stanley or its affiliates may at any time hold long or short
positions, and may trade or otherwise effect transactions for its own account or
the accounts of customers, in debt or equity securities of Parent, Parent's
affiliates or the Company.
Pursuant to a letter agreement, dated as of April 27, 1998 and amended on
September 25, 1998, between Parent and Morgan Stanley, Parent has agreed to pay
Morgan Stanley (i) a monthly advisory fee of $100,000, commencing April 27, 1998
and (ii) a transactional fee of $1.8 million upon Parent's acquisition of any or
all of the outstanding Shares, against which any advisory fee previously paid
pursuant to clause (i) of this sentence, up to $600,000, will be credited.
Parent has also agreed to reimburse Morgan Stanley for all reasonable
out-of-pocket expenses incurred by Morgan Stanley, including the reasonable fees
and expenses of legal counsel, and to indemnify Morgan Stanley against certain
liabilities and expenses in connection with its engagement, including certain
liabilities under the federal securities laws.
PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER; REASONS OF PARENT AND
PURCHASER FOR THE OFFER AND THE MERGER
The purpose of the Offer and the Merger is for Parent to acquire the entire
equity interest in the Company. The purpose of the Merger is for Parent to
acquire all Shares not purchased pursuant to the Offer. Upon consummation of the
Merger, the Company will become a direct wholly owned subsidiary of Parent. The
acquisition of the Shares not owned by Parent or Purchaser has been structured
as a cash tender offer followed by a cash merger in order to effect a prompt and
orderly transfer of ownership of the Company from the public shareholders to
Purchaser and to provide shareholders with cash for all of their Shares.
Under the PBCL, the approval of the Board and, unless the conditions for
effecting a Short-Form Merger are satisfied, the affirmative vote of a majority
of the votes cast by all shareholders entitled to vote thereon are required to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger. The Board has approved and adopted the Merger
Agreement and the transactions contemplated thereby, and, unless a Short-Form
Merger is effected pursuant to the provisions under the PBCL described below,
the only remaining required corporate action of the Company, Parent or Purchaser
is the approval and adoption of the Merger Agreement and the transactions
contemplated thereby by the shareholders of the Company. Parent already has
sufficient voting power to cause the approval and adoption of the Merger
Agreement and the transactions contemplated thereby without the affirmative vote
of any other shareholder of the Company.
22
<PAGE> 26
In the Merger Agreement, the Company has agreed to take all actions
necessary to convene a special meeting of its shareholders as soon as
practicable after the consummation of the Offer for the purpose of considering
and taking action on the Merger Agreement and the transactions contemplated
thereby, if such action is required by the PBCL. Parent has agreed to cause all
Shares owned by it and its subsidiaries to be voted in favor of the approval and
adoption of the Merger Agreement and the transactions contemplated thereby.
Under the PBCL, if Purchaser acquires, pursuant to the Offer or otherwise,
at least 80% of the then outstanding Shares, Purchaser's Board of Directors will
be able to effect a Short-Form Merger. Pursuant to the Merger Agreement,
Purchaser may extend the Offer under certain circumstances in the event that the
number of Shares validly tendered and not withdrawn, when taken together with
the Parent Shares, does not constitute at least 80% of the then issued and
outstanding Shares. If Purchaser does acquire sufficient Shares to effect a
Short-Form Merger, Parent, Purchaser and the Company have agreed in the Merger
Agreement to take all necessary and appropriate action to cause the Merger to
become effective as promptly as practicable after such acquisition, without a
meeting of the Company's shareholders. If Purchaser does not acquire at least
80% of the then issued and outstanding Shares pursuant to the Offer or
otherwise, a vote of the Company's shareholders will be required under the PBCL
to effect the Merger and a significantly longer period of time will be required
to effect the Merger.
Parent's principal strategic objectives have included expanding upon its
commitment to the stainless steel industry, as well as reinforcing its
commitment to the North American market, through its interest in the Company. In
order to further these objectives, Parent has considered various means of
strengthening both its investment in the Company and the Company's financial
condition. Parent concluded that increasing its equity interest in the Company
to 100% would best enable it to satisfy its strategic goals and to support the
Company's financial recovery. Parent chose to undertake the transaction at this
time because Parent wishes to begin managing the Company's financial recovery
before its financial condition worsens, and because the transaction is
consistent with Parent's strategic objectives of improving upon its position in
the North American stainless steel market.
PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER; CERTAIN EFFECTS OF THE
OFFER
Upon consummation of the Offer, Parent and Purchaser intend to effect the
Merger in accordance with the Merger Agreement. See "SPECIAL FACTORS -- The
Merger Agreement".
Except as otherwise described below or elsewhere in this Offer to Purchase,
Parent has no current plans or proposals which relate to or would result in,
other than by virtue of the Merger: (i) an extraordinary corporate transaction,
such as a merger, reorganization or liquidation, involving the Company or any of
its subsidiaries; (ii) a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries; (iii) any material change in the Company's
capitalization or dividend policy or indebtedness; (iv) any change in the
management of the Company, the composition of the Board or any change in any
material term of the employment contract of any executive officer; or (v) any
other material change in the Company's corporate structure or business.
Nevertheless, Parent's management has begun, and intends to continue, a
review of the Company and its assets, corporate structure, capitalization,
operations, properties, policies, management and personnel to determine what
changes, if any, would be desirable following the Merger in order best to
organize and integrate the activities of the Company and Parent. In particular,
Parent may consider making material changes in the present dividend rate and
policy, indebtedness and capitalization of the Company following the Merger.
Parent and Purchaser expressly reserve the right to make any changes that they
deem necessary or appropriate in light of their review or in light of future
developments or that would be desirable to permit Parent more effectively to
manage the Company and to enable the Company to function more efficiently.
As a result of the Offer, the interest of Parent in the Company's net book
value and net earnings will increase to the extent of the number of Shares
acquired pursuant to the Offer. If the Merger is consummated, Parent's interest
in such items will increase to 100%, and Parent and its subsidiaries will be
entitled to all benefits resulting from that interest, including all income
generated by the Company's operations and any
23
<PAGE> 27
future increase in the Company's value and the right to elect all members of the
Board. Similarly, Parent will also bear the risk of any decrease in the value of
the Company after the Merger, including the risk of losses generated by the
Company's operations. Upon consummation of the Merger, the Company will become a
privately held corporation. Accordingly, existing shareholders of the Company,
other than Parent, will not have the opportunity to participate in the earnings
and growth of the Surviving Corporation and will not have any right to vote on
corporate matters. Similarly, existing shareholders of the Company, other than
Parent, will not face the risk of losses generated by the Surviving
Corporation's operations or decline in the value of the Surviving Corporation.
Following the consummation of the Merger, the Shares will no longer be
listed on the NYSE and the registration of the Shares under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), will be terminated.
Accordingly, following the Merger there will be no publicly traded Common Stock
of the Company outstanding and the Company will no longer be required to file
periodic reports with the Commission. See "THE TENDER OFFER -- Section 11.
Effect of the Offer on the Market for the Shares, the NYSE and Exchange Act
Registration". It is expected that, if Shares are not accepted for payment by
Purchaser pursuant to the Offer and the Merger is not consummated, the Company's
current management, under the general direction of the Board, will continue to
manage the Company as an ongoing business.
RIGHTS OF SHAREHOLDERS IN THE OFFER AND THE MERGER
Dissenters Rights
NO DISSENTERS RIGHTS ARE AVAILABLE IN CONNECTION WITH THE OFFER. However,
if the Merger is consummated, shareholders who do not sell their Shares pursuant
to the Offer and who fully comply with the statutory dissenters procedures set
forth in the PBCL, the relevant portions of which are attached to this Offer to
Purchase as Schedule III, will be entitled to receive, in lieu of the Merger
Consideration, cash for the fair value of their Shares (which may be more than,
equal to, or less than the Merger Consideration) as determined pursuant to the
procedures prescribed by the PBCL. Merely voting against the Merger Agreement
(if a vote of the Company's shareholders is required to effect the Merger under
the PBCL) will not perfect a shareholder's dissenters rights. Shareholders are
urged to review carefully the dissenting shareholders' rights provisions of the
PBCL, a description of which is provided below and the full text of which is
attached to this Offer to Purchase as Schedule III and incorporated herein by
reference. SHAREHOLDERS WHO FAIL TO COMPLY STRICTLY WITH THE APPLICABLE
PROCEDURES WILL FORFEIT THEIR DISSENTERS RIGHTS IN CONNECTION WITH THE MERGER.
See Schedule III to this Offer to Purchase.
Sections 1571-80 of the PBCL ("Subchapter D") and 1930(a) of the PBCL,
copies of which are attached to this Offer to Purchase as Schedule III, entitle
any holder of record of Shares who objects to the Merger, in lieu of receiving
the consideration for such Shares provided under the Merger Agreement, to demand
in writing that he be paid in cash the fair value of his Shares. Section 1572 of
the PBCL defines "fair value" as: "The fair value of shares immediately before
the effectuation of the corporate action to which the dissenter objects, taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the corporate action".
Any shareholder contemplating making a demand for fair value is urged to
review carefully the provisions of Subchapter D, particularly the procedural
steps required to perfect his dissenters rights thereunder. DISSENTERS RIGHTS
WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF SUBCHAPTER D ARE NOT FULLY AND
PRECISELY SATISFIED. The following summary does not purport to be a complete
statement of the provisions of Subchapter D of the PBCL and is qualified in its
entirety by reference to Schedule III to this Offer to Purchase and the PBCL.
Filing Notice of Intention to Demand Fair Value. Before the vote of the
shareholders is taken on the Merger (if a vote of the Company's shareholders is
required to effect the Merger under the PBCL), the dissenting shareholder must
deliver to the Company a written notice of intention to demand that he be paid
the fair value of his Shares if the Merger is effected. Such written notice must
be sent to the Secretary of the Company at One PPG Place, 18th Floor, P.O. Box
3373, Pittsburgh, PA 15230-3373. A VOTE AGAINST THE
24
<PAGE> 28
MERGER IS NOT SUFFICIENT TO SATISFY THE REQUIREMENT OF DELIVERING A WRITTEN
NOTICE TO THE COMPANY. In addition, the shareholder must not effect any change
in the beneficial ownership of his Shares from the date of filing the notice
with the Company through the consummation of the Merger, and Shares for which
payment of fair value is sought must not be voted in favor of the Merger, and
the shareholder must vote against, or abstain from voting in favor of, the
Merger. Failure of a dissenting shareholder to comply with any of the foregoing
will result in the forfeiture of any right to demand payment of fair value for
his Shares.
Record Owners and Beneficial Owners. A record holder of Shares held in
whole or in part for the benefit of another person may assert dissenters rights
as to fewer than all of the Shares registered in his name only if he dissents
with respect to all the Shares beneficially owned by any one person and
discloses the name and address of the person or persons on whose behalf he
dissents. A beneficial owner of Shares who is not the record holder may assert
dissenters rights with respect to Shares held on his behalf if he submits to the
Company the written consent of the record holder not later than the time of
assertion of dissenters rights. A beneficial owner may not dissent with respect
to fewer than all of the Shares owned by him whether or not such Shares are
registered in his name.
Notice to Demand Payment. If the Merger is effected as a Short-Form
Merger, without a vote of the Company's shareholders, the Company shall mail to
all shareholders (other than Purchaser, Parent and their respective
subsidiaries) a notice of the consummation of the Merger. The notice shall also
state where and when a demand for payment must be sent and certificates for
Shares deposited in order to obtain payment of fair value for the Shares (which
may be more than, equal to, or less than the Merger Consideration) and must be
accompanied by a copy of Subchapter D and a form for demanding payment. The time
set for the receipt of demands and the deposit of certificates shall not be less
than 30 days from the mailing of the notice. Failure by a shareholder to demand
payment or deposit certificates pursuant to such notice will cause such
shareholder to lose all right to the payment of the fair value of his Shares and
reinstate such shareholder's right to receive the Merger Consideration. If the
Merger has not been effected within 60 days after the date set for demanding
payment and depositing certificates, the Company shall return any certificates
that have been deposited. The Company, however, may at any later time send a new
notice regarding demand for payment and deposit of certificates with like
effect.
In the event that Purchaser does not acquire at least 80% of the then
outstanding Shares pursuant to the Offer or otherwise and the Merger is approved
at a meeting of the Company's shareholders, the Company shall mail to all
dissenters who gave due notice of their intention to demand payment of fair
value and who refrained from voting in favor of the Merger a notice stating
where and when a demand for payment must be sent and certificates for Shares
deposited in order to obtain payment of fair value for the Shares (which may be
more than, equal to, or less than the Merger Consideration). The notice shall be
accompanied by a copy of Subchapter D and a form for demanding payment. The time
set for the receipt of demands and the deposit of certificates shall not be less
than 30 days from the mailing of the notice. Failure by a shareholder to demand
payment or deposit certificates pursuant to such notice will cause such
shareholder to lose all right to the payment of the fair value of his Shares and
reinstate such shareholder's right to receive the Merger Consideration. If the
Merger has not been effected within 60 days after the date set for demanding
payment and depositing certificates, the Company shall return any certificates
that have been deposited. The Company, however, may at any later time send a new
notice regarding demand for payment and deposit of certificates with like
effect.
Payment of Fair Value of Shares. Promptly after the consummation of the
Merger or upon timely receipt of demand for payment if the Merger has already
been effected, the Company shall either (a) remit to dissenters who have made
timely demand and deposited their certificates the amount the Company estimates
to be the fair value of their Shares or (b) give written notice that no
remittance will be made under Section 1577 of the PBCL. Such remittance or
notice will be accompanied by (i) the closing balance sheet and statement of
income of the Company for a fiscal year ending not more than 16 months prior to
the date of remittance or notice together with the latest available interim
financial statements, (ii) a statement of the Company's estimate of the fair
value of the Shares, and (iii) a notice of the right of the dissenting
shareholder to demand payment or supplemental payment, as the case may be,
accompanied by a copy of Subchapter D. If the Company does not remit the amount
of its estimate of the fair value of the Shares, it shall return all
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certificates that have been deposited and may make a notation thereon that a
demand for payment has been made.
If Shares with respect to which notation has been so made shall be
transferred, each new certificate issued therefor shall bear a similar notation
together with the name of the original dissenting holder or owner of such
Shares. A transferee of such Shares shall not acquire by such transfer any
rights in the Company other than those that the original dissenter had after
making demand for payment of fair value for such Shares.
Estimate by Dissenter of Fair Value of Shares. If a dissenting shareholder
believes that the amount estimated or paid by the Company for his Shares is less
than their fair value, the shareholder may send to the Company his own estimate
of the fair value which shall be deemed a demand for payment of the amount or
the deficiency. If the dissenter does not file his own estimate of fair value
within 30 days after the mailing by the Company of its remittance or estimate of
fair value, the dissenter shall be entitled to no more than the amount remitted
to him or estimated by the Company.
Valuation Proceedings. Within 60 days after the latest of (i) the
consummation of the Merger, (ii) timely receipt of any demands for payment and
(iii) timely receipt of any shareholder estimates of fair value, if any demands
for payment remain unsettled, the Company may file in court an application for
relief requesting that the fair value of the Shares be determined by the court.
Each dissenter whose demand has not been settled shall be made a party to the
proceeding and shall be entitled to recover the amount by which the fair value
of his Shares is found to exceed the amount, if any, previously remitted, plus
interest. Such interest shall accrue on such amount from consummation of the
Merger until the date of payment at such rate as is fair and equitable under the
circumstances, taking into account all relevant factors including the average
rate currently paid by the Company on its principal bank loans. If the Company
fails to file an application within the 60-day period, any dissenter who has not
settled his claim may do so in the name of the Company within 30 days after the
expiration of this 60-day period. If no dissenter files an application within
such 30-day period, each dissenter who has not settled his claim shall be paid
no more than the Company's estimate of the fair value of his Shares and may
bring an action to recover any amount not previously remitted.
Costs and Expenses of Valuation Proceedings. The costs and expenses of any
valuation proceedings, including the reasonable compensation and expenses of any
appraiser appointed by the court, shall be determined by the court and assessed
against the Company except that any part of such costs and expenses may be
apportioned and assessed as the court deems appropriate against all or some of
the dissenters whose action in demanding supplemental payment is found by the
court to be dilatory, obdurate, arbitrary, vexatious or in bad faith. The court
may also assess against the Company the fees and expenses of counsel and experts
for any or all of the dissenters if the Company fails to comply substantially
with Subchapter D or acts in bad faith or in a dilatory, obdurate, arbitrary or
vexatious manner. The court can also assess any such fees or expenses incurred
by the Company against a dissenter if such dissenter is found to have acted in
bad faith or in a dilatory, obdurate, arbitrary or vexatious manner. If the
court finds that the services of counsel for any dissenter were of substantial
benefit to the other dissenters and should not be assessed against the Company,
it may award to such counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefitted.
Other
Section 1712 of the PBCL provides that a director of a Pennsylvania
corporation stands in a fiduciary relation to such corporation and must perform
his duties as a director in good faith, in a manner he reasonably believes to be
in the best interests of the corporation and with such care, including
reasonable inquiry, skill and diligence, as a person of ordinary prudence would
use under similar circumstances. Section 1105 of the PBCL provides in substance
that a shareholder of a Pennsylvania corporation shall not have any right to
obtain, in the absence of fraud or fundamental unfairness, an injunction against
any proposed merger, nor any right to claim the right to valuation and payment
of the fair value of his Shares because of such merger, except that he may
dissent and claim such payment if and to the extent provided in Subchapter D,
described above. Absent fraud or fundamental unfairness, such dissenters rights
are the exclusive remedy of such shareholders. However, the United States Court
of Appeals, Third Circuit, interpreting the predecessor statute to Section 1105
of the
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PBCL in Herskowitz v. NutriSystem, Inc., concluded that dissenters rights
co-exist with common law causes of action, such as rescission or money damages,
in the context of an action for breach of fiduciary duty or misrepresentation in
a cash-out merger. Shareholders should be aware that due to the enactment of the
PBCL in 1988 it is unclear whether the decision in Herskowitz remains applicable
to dissenters rights. IN VIEW OF THE COMPLEXITIES OF THESE PROVISIONS OF
PENNSYLVANIA LAW, SHAREHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE MERGER
SHOULD CONSULT THEIR OWN LEGAL COUNSEL.
SEE SCHEDULE III ATTACHED HERETO FOR A REPRODUCTION OF THE TEXT OF THE
RELEVANT SECTIONS OF THE PBCL.
THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is
filed as an Exhibit to the Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1") filed by Purchaser and Parent with the Commission in
connection with the Offer. Such summary is qualified in its entirety by
reference to the Merger Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
as promptly as reasonably practicable, but in no event later than five business
days after the initial public announcement of Purchaser's intention to commence
the Offer. Purchaser shall not, without the consent of the Special Committee,
accept for payment any Shares tendered pursuant to the Offer unless at least a
majority of the then issued and outstanding Shares, without regard to the Parent
Shares, shall have been validly tendered and not withdrawn prior to the
expiration of the Offer. The obligation of Purchaser to accept for payment and
pay for Shares tendered pursuant to the Offer is subject to the satisfaction of
certain other conditions that are described in "THE TENDER OFFER -- Section 12.
Certain Conditions of the Offer" hereof. Purchaser expressly reserves the right
to waive any such condition (except the Minimum Condition), to increase the
amount per Share payable in the Offer and to make any other changes in the terms
and conditions of the Offer; provided, however, that, without the prior written
consent of the Special Committee and, to the extent required by the Company's
Articles of Incorporation, the approval of a majority of the Disinterested
Directors, Purchaser will not decrease the price per Share payable in the Offer,
reduce the maximum number of Shares to be purchased in the Offer, change the
form of consideration payable in the Offer, add to, modify or supplement the
conditions to the Offer set forth in "THE TENDER OFFER -- Section 12. Certain
Conditions of the Offer" hereof or make any other change in the terms or
conditions of the Offer which is materially adverse to the holders of Shares.
Pursuant to the Merger Agreement, in the event all conditions set forth in the
Merger Agreement (including the Minimum Condition) shall have been satisfied or
waived, but the number of Shares validly tendered and not withdrawn pursuant to
the Offer, when taken together with the Parent Shares, does not constitute at
least 80% of the then issued and outstanding Shares, Purchaser may extend the
Offer for a period or periods aggregating not more than 20 business days after
the later of (i) the initial expiration date of the Offer and (ii) the date on
which all other conditions set forth in the Merger Agreement shall have been
satisfied or waived. If, at the beginning of the first such extension period,
all conditions set forth in "THE TENDER OFFER -- Section 12. Certain Conditions
of the Offer", including the Minimum Condition, were satisfied or waived and, at
the expiration of the last such extension period, the conditions set forth in
paragraphs (a) and (b) of "THE TENDER OFFER -- Section 12. Certain Conditions of
the Offer" and the Minimum Condition are satisfied or waived, then, regardless
of whether the number of Shares validly tendered and not withdrawn pursuant to
the Offer, when taken together with the Parent Shares, constitutes at least 80%
of the then issued and outstanding Shares, or any of the other conditions set
forth in paragraphs (c), (d), (e), (f), (g), (h) and (i) of "THE TENDER
OFFER -- Section 12. Certain Conditions of the Offer" are satisfied, Purchaser
shall accept for payment and pay for all Shares validly tendered and not
withdrawn prior to the expiration of the last such extension period. For
purposes of the immediately preceding sentence, the conditions set forth in
paragraph (a) of "THE TENDER OFFER -- Section 12. Certain Conditions of the
Offer" shall be deemed satisfied or waived at the expiration of the last such
extension period unless, after the beginning of the first such extension period,
an action or proceeding of the type described in paragraph (a) of "THE TENDER
OFFER -- Section 12. Certain Conditions of the Offer" shall have been instituted
or the complaint in an action or proceeding of the type described in paragraph
(a) of "THE TENDER OFFER -- Section 12. Certain Conditions of the Offer" pending
prior
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thereto shall have been amended, supplemented or modified after such beginning
in a manner that, in the reasonable judgment of Parent, is reasonably likely to
result, directly or indirectly, in any of the consequences referred to in such
paragraph (a).
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with the PBCL, at the Effective
Time, Purchaser will be merged with and into the Company. As a result of the
Merger, the separate corporate existence of Purchaser will cease and the Company
will continue as the Surviving Corporation and will become a direct wholly owned
subsidiary of Parent. At the Effective Time, each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held in the treasury
of the Company and each Share owned by Purchaser, Parent or any direct or
indirect wholly owned subsidiary of Parent or of the Company, which shall be
canceled without any conversion thereof and with no payment being made with
respect thereto) shall be canceled and, subject to dissenters rights under the
PBCL, shall be converted automatically into the right to receive from the
Company the Merger Consideration.
Pursuant to the Merger Agreement, each share of common stock, par value
$.01 per share, of Purchaser issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for 387,630 validly issued,
fully paid and nonassessable shares of common stock, par value $.01 per share,
of the Surviving Corporation.
The Merger Agreement provides that the directors of the Company immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation and that the officers of the Company immediately prior to the
Effective Time will be the initial officers of the Surviving Corporation. The
Merger Agreement provides that the Articles of Incorporation and By-laws of the
Company, each as in effect immediately prior to the Effective Time, will be the
Articles of Incorporation and By-laws of the Surviving Corporation.
The Surviving Corporation and the designated paying agent shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to the
Merger Agreement to any holder of Shares any amounts that the Surviving
Corporation or the paying agent is required to deduct and withhold with respect
to the making of such payment under the Internal Revenue Code of 1986, as
amended, the rules and regulations promulgated thereunder or any provision of
state, local or foreign tax law.
Agreements of Parent, Purchaser and the Company. Pursuant to the Merger
Agreement, if required by applicable law in order to consummate the Merger, the
Company, acting through the Board, will (i) duly call, give notice of, convene
and hold a special meeting of its shareholders as soon as practicable following
consummation of the Offer for the purpose of considering and taking action on
the Merger Agreement and the transactions contemplated thereby (the
"Shareholders' Meeting") and (ii) subject to its fiduciary obligations under
applicable law as advised by independent counsel, include in the proxy statement
for the Shareholders' Meeting the recommendations of the Board and the Special
Committee that the shareholders of the Company approve and adopt the Merger
Agreement and approve the Transactions. At the Shareholders' Meeting, Parent
will cause all Shares then owned by it and its subsidiaries to be voted in favor
of the approval and adoption of the Merger Agreement and the Transactions. The
Merger Agreement provides that, in the event that Purchaser shall acquire such
number of Shares that, when taken together with any Shares then owned by Parent
or Purchaser, constitutes at least 80% of the then outstanding Shares, Parent,
Purchaser and the Company will, subject to the satisfaction of the conditions to
the Merger described under the subheading "Conditions to the Merger" below, take
all necessary and appropriate action to cause the Merger to become effective in
accordance with the PBCL, as promptly as practicable after such acquisition,
without a meeting of the shareholders of the Company, including, without
limitation, by adoption by the Board of Directors of Purchaser of a plan of
merger providing for the Short-Form Merger.
The Merger Agreement provides that the Company will, if required by
applicable law, as soon as practicable following consummation of the Offer, file
a proxy statement (the "Proxy Statement") with respect to the Shareholders'
Meeting with the Commission under the Exchange Act, and use its reasonable best
efforts to respond to and satisfactorily address any comments that the
Commission may have on the Proxy Statement. Parent, Purchaser and the Company
shall cooperate with each other in the preparation of the
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Proxy Statement, and the Company shall notify Parent of the receipt of any
comments from the Commission with respect to the Proxy Statement and of any
requests by the Commission for any amendment or supplement thereto or for
additional information and shall provide to Parent promptly copies of all
correspondence between the Company or any representative of the Company and the
Commission. The Company shall give Parent and its counsel the opportunity to
review the Proxy Statement prior to its being filed with the Commission and
shall give Parent and its counsel the opportunity to review all amendments and
supplements to the Proxy Statement and all responses to requests for additional
information from the Commission and replies to comments from the Commission
prior to their being filed with, or sent to, the Commission. Each of the
Company, Parent and Purchaser shall use its reasonable best efforts to cause the
Proxy Statement and all required amendments and supplements thereto to be mailed
to the holders of Shares entitled to vote at the Shareholders' Meeting at the
earliest practicable time.
The Company, the Special Committee and their respective counsel shall be
given the opportunity to review and comment on the Offer documents and any
amendments thereto prior to the filing thereof with the Commission. Parent and
Purchaser shall provide the Company, the Special Committee and their respective
counsel with a copy of any written comments or telephonic notification of any
oral comments Parent or Purchaser may receive from the Commission or its staff
with respect to the Offer documents promptly after the receipt thereof. Parent
and its counsel shall provide the Company, the Special Committee and their
respective counsel with a reasonable opportunity to participate in all
communications with the Commission and its staff, including any meetings and
telephone conferences, relating to the Offer documents, the Merger Agreement or
the Transactions.
Pursuant to the Merger Agreement, between the date of the Merger Agreement
and the Effective Time, unless Parent shall otherwise agree in writing, the
businesses of the Company and its subsidiaries (the "Subsidiaries" and,
individually, a "Subsidiary") shall be conducted only in, and the Company and
the Subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice, and the Company shall
use its reasonable best efforts to preserve substantially intact the business
organization of the Company and the Subsidiaries, to keep available the services
of the current officers, employees and consultants of the Company and the
Subsidiaries and to preserve the current relationships of the Company and the
Subsidiaries with customers, suppliers and other persons with whom the Company
or any Subsidiary has significant business relations, in a manner consistent
with past practice. The Merger Agreement provides that by way of amplification
and not limitation, and except as contemplated therein, neither the Company nor
any Subsidiary shall, between the date of the Merger Agreement and the Effective
Time, directly or indirectly, do, or propose to do, any of the following without
the prior written consent of Parent: (i) acquire (including, without limitation,
by merger, consolidation or acquisition of stock or assets) or dispose of any
corporation, partnership, other business organization or any division thereof or
any material amount of assets (other than dispositions of inventory in the
ordinary course of business and in a manner consistent with past practice), (ii)
assume, guarantee or endorse the obligations of any person or make any loans or
advances, (iii) enter into any contract or agreement or authorize any
significant capital expenditure(s) other than in the ordinary course of business
and consistent with past practice or as authorized by resolution of the Board
duly adopted on or prior to November 5, 1998 or (iv) enter into or amend any
contract, agreement, commitment or arrangement with respect to the foregoing.
Pursuant to the Merger Agreement, until the Effective Time, the Company
shall, and shall cause the Subsidiaries and the officers, directors, employees,
auditors and agents of the Company and the Subsidiaries to, afford the officers,
employees and agents of Parent and Purchaser reasonable access during normal
business hours to the officers, employees, agents, properties, offices, plants
and other facilities, books and records of the Company and each Subsidiary, and
shall furnish Parent and Purchaser with all financial, operating and other data
and information as Parent or Purchaser, through its officers, employees or
agents, may reasonably request and Parent and Purchaser have agreed to keep such
information confidential, except in certain circumstances.
The Merger Agreement further provides that the Articles of Incorporation
and the By-laws of the Surviving Corporation shall contain provisions no less
favorable with respect to indemnification and limitation on liability than those
set forth in Articles VII and VIII of the Articles of Incorporation of the
Company and in Sections 2.11 and 2.12 of the By-laws of the Company, which
provisions shall not be amended, repealed or
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otherwise modified for a period of six years from the Effective Time in any
manner that would be reasonably likely to affect adversely the rights thereunder
of individuals who at the Effective Time were directors, officers, employees,
fiduciaries or agents of the Company, unless such modification shall be required
by law.
The Merger Agreement also provides that after the Effective Time, the
Surviving Corporation shall, to the fullest extent permitted under applicable
law, indemnify, defend and hold harmless each present and former director,
officer, employee, fiduciary or agent of the Company and each Subsidiary
(collectively, the "Indemnified Parties") against all costs and expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim, action,
suit, proceeding or investigation (whether arising before or after the Effective
Time), whether civil, criminal, administrative or investigative, arising out of
or pertaining to any action or omission in his or her capacity as an officer,
director, employee, fiduciary or agent, whether occurring before or after the
Effective Time, for a period of six years after the Effective Time. In the event
of any such claim, action, suit, proceeding or investigation, the Merger
Agreement provides that (i) the Surviving Corporation shall pay the reasonable
fees and expenses of counsel selected by the Indemnified Parties, which counsel
shall be reasonably satisfactory to the Surviving Corporation, promptly after
statements therefor are received and (ii) the Surviving Corporation shall
cooperate in the defense of any such matter; provided, however, that the
Surviving Corporation shall not be liable for any settlement effected without
its written consent (which consent may not be unreasonably withheld); and
provided further that the Surviving Corporation shall not be obligated to pay
the fees and expenses of more than one counsel for all Indemnified Parties in
any single action except to the extent that two or more of such Indemnified
Parties shall have conflicting interests with respect thereto; and provided
further that, in the event that any claim for indemnification is asserted or
made within such six-year period, all rights to indemnification in respect of
such claim shall continue until the disposition of such claim. The Merger
Agreement provides that, following the Effective Time, Parent will guarantee the
obligations of the Surviving Corporation described in this paragraph.
The Merger Agreement provides that the Surviving Corporation shall use its
reasonable best efforts to maintain in effect for six years from the Effective
Time, if available, the current directors' and officers' liability insurance
policies maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are not in the aggregate less favorable) with respect to
matters occurring prior to or at the Effective Time; provided, however, that in
no event shall the Surviving Corporation be required to expend more than an
amount per year equal to 200% of the current annual premiums paid by the Company
for such insurance (which premiums the Company has represented to Parent and
Purchaser to be approximately $336,800 in the aggregate).
Parent, Purchaser and the Company have also agreed that in the event that
Parent or the Surviving Corporation or any of their respective successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision shall be made so
that the successors and assigns, as applicable, of Parent or the Surviving
Corporation or, at Parent's option, Parent, shall assume the foregoing indemnity
obligations.
The Merger Agreement provides that, subject to its terms and conditions,
each of the parties thereto shall use its reasonable best efforts to take, or
cause to be taken, all appropriate 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, including, without limitation,
using its reasonable best efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of each U.S. federal, state
or local or any foreign government or any court, administrative or regulatory
agency or commission or other governmental authority or agency, domestic or
foreign (a "Governmental Entity"), and party to a contract with the Company or
any Subsidiary as are necessary for the consummation of the Transactions and to
fulfill the conditions to the Offer and the Merger.
Parent has agreed to review alternatives for the treatment of the Options
following the Effective Time, and the Company has agreed to cooperate with
Parent in conducting such review.
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The Merger Agreement provides that neither the Company nor any Subsidiary
shall, directly or indirectly, through any officer, director, employee, counsel,
investment banker, financial or other advisor or agent (the "Company
Representatives"), (a) solicit, initiate or encourage the submission of any
proposal or offer from any person relating to any acquisition or purchase of all
or any portion of the assets of, or any equity interest in, the Company or any
Subsidiary or any business combination with the Company or any Subsidiary (a
"Competing Proposal"), (b) participate in any negotiations regarding, or furnish
to any other person any information with respect to, or otherwise cooperate in
any way with, or assist or participate in, facilitate or encourage, any effort
or attempt by any other person to do or seek to do any of the foregoing or (c)
enter into any agreement with respect to any Competing Proposal. The Company
shall notify Parent promptly if any Competing Proposal or any inquiry from, or
contact with, any person with respect thereto, is made and shall, in any such
notice to Parent, indicate in reasonable detail the identity of the person
making such Competing Proposal, inquiry or contact and the terms and conditions
of such Competing Proposal, inquiry or contact. Notwithstanding the foregoing,
the Company, the Subsidiaries and the Company Representatives shall not be
obligated to take or refrain from taking any action described in this paragraph
if the Board is advised by independent counsel that to take or to refrain from
taking any such action would result or would be reasonably likely to result in a
violation of its fiduciary obligations under applicable United States federal,
state or local or any foreign statute, law, rule, regulation, ordinance, code,
order, judgment or decree (a "Law").
In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of the Merger Agreement, the
proper officers and directors of each party to the Merger Agreement and the
Surviving Corporation are required to use their reasonable best efforts to take
all such action.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including
representations by the Company, Parent and Purchaser as to the enforceability of
the Merger Agreement and by the Company as to the absence of certain changes or
events concerning the Company's business, compliance with law, absence of
litigation, corporate status, capitalization, the accuracy of financial
statements and filings with the Commission, environmental matters and taxes.
Conditions to the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions: (i) the Merger
Agreement and the Transactions shall have been approved and adopted by the
affirmative vote of the shareholders of the Company to the extent required by
the PBCL and the Articles of Incorporation and the By-laws of the Company; (ii)
no Governmental Entity shall have enacted, issued, promulgated, enforced or
entered any Law (whether temporary, preliminary or permanent) which is then in
effect and has the effect of (a) making the acquisition of Shares by Parent or
Purchaser or any affiliate of either of them illegal or otherwise restricting,
preventing or prohibiting consummation of the Offer or the Merger or (b)
prohibiting or limiting materially the ownership or operation by the Company,
Parent or any of their subsidiaries of (x) all or any material portion of the
business or assets of the Company or any of the Subsidiaries or (y) as a result
of any Transaction, all or any material portion of the business or assets of
Parent or any of its subsidiaries or compelling the Company, Parent or any of
their subsidiaries to dispose of or hold separate (x) all or any material
portion of the business or assets of the Company or any of the Subsidiaries or
(y) as a result of any Transaction, all or any material portion of the business
or assets of Parent or any of its subsidiaries after the Effective Time; and
(iii) Purchaser or its permitted assignee shall have purchased all Shares
validly tendered and not withdrawn pursuant to the Offer; provided, however,
that this condition shall not be applicable to the obligations of Parent or
Purchaser if, in breach of the Merger Agreement or the terms of the Offer,
Purchaser fails to purchase any Shares validly tendered and not withdrawn
pursuant to the Offer.
Termination; Fees and Expenses. The Merger Agreement provides that it may
be terminated and the Merger and the other Transactions may be abandoned at any
time prior to the Effective Time, notwithstanding any requisite approval and
adoption of the Merger Agreement and the Transactions by the shareholders of the
Company: (i) by mutual written consent duly authorized by the Board of Directors
of Parent and the Special Committee and a majority of the Disinterested
Directors on behalf of the Company; (ii) by either Parent, on the one hand, or
the Special Committee and a majority of the Disinterested Directors on behalf of
the Company, on the other hand, if (a) the Effective Time shall not have
occurred on or before April 1, 1999;
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provided, however, that the right to terminate the Merger Agreement under this
clause (ii)(a) shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date, or (b) any court
of competent jurisdiction or other Governmental Entity shall have issued an
order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable; (iii) by Parent if (a) due to an
occurrence or circumstance that would result in a failure to satisfy any
condition set forth in "THE TENDER OFFER -- Section 12. Certain Conditions of
the Offer" hereof, Purchaser shall have (1) failed to commence the Offer within
60 days following the date of the Merger Agreement, (2) terminated the Offer
without having accepted any Shares for payment thereunder, or (3) failed to pay
for the Shares validly tendered pursuant to the Offer within 90 days following
the commencement of the Offer, unless such termination or failure to pay for
Shares shall have been caused by or resulted from the failure of Parent or
Purchaser to perform in any material respect any covenant or agreement of either
of them contained in the Merger Agreement or the material breach by Parent or
Purchaser of any representation or warranty of either of them contained in the
Merger Agreement or (b) prior to the purchase of any Shares validly tendered
pursuant to the Offer, the Special Committee shall have withdrawn or modified in
a manner that is, in the reasonable judgment of Parent, materially adverse to
Purchaser or Parent its approval or recommendation of the Merger Agreement, the
Offer, the Merger or any other Transaction or shall have recommended another
merger, consolidation or business combination involving, or acquisition of, the
Company or its assets or another tender offer for Shares, or shall have resolved
to do any of the foregoing; (iv) by the Company, upon approval of the Special
Committee and a majority of the Disinterested Directors, if due to an occurrence
or circumstance that would result in a failure to satisfy any condition set
forth in "THE TENDER OFFER -- Section 12. Certain Conditions of the Offer"
hereof, Purchaser shall have (a) failed to commence the Offer within 60 days
following the date of the Merger Agreement, (b) terminated the Offer without
having accepted any Shares for payment thereunder, or (c) failed to pay for the
Shares validly tendered pursuant to the Offer within 90 days following the
commencement of the Offer, unless such termination or failure to pay for Shares
shall have been caused by or resulted from the failure of the Company to perform
in any material respect any covenant or agreement of it contained in the Merger
Agreement or the material breach by the Company of any representation or
warranty of it contained in the Merger Agreement; or (v) by the Company, upon
approval of the Special Committee and a majority of the Disinterested Directors,
if any representation or warranty of Parent and Purchaser in the Merger
Agreement which is qualified as to materiality shall not be true and correct in
all respects or any such representation or warranty that is not so qualified
shall not be true and correct in any material respect, in each case as if such
representation or warranty was made as of such time on or after the date of the
Merger Agreement, or Parent or Purchaser shall have failed to perform in any
material respect any obligation or to comply in any material respect with any
agreement or covenant of Parent or Purchaser to be performed or complied with by
it under the Merger Agreement. In the event of the termination of the Merger
Agreement, the Merger Agreement shall forthwith become void, except for certain
provisions of the Merger Agreement (including those related to fees and expenses
described below) that survive termination. The Merger Agreement also provides
that no party shall be relieved from liability for any willful breach thereof.
All fees and expenses incurred in connection with the Merger Agreement and
the Transactions shall be paid by the party incurring such fees and expenses,
whether or not any Transaction is consummated.
INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER
In considering the recommendations of the Board and the Special Committee
with respect to the Offer and the Merger and the fairness of the consideration
to be received in the Offer and the Merger, shareholders should be aware that
certain officers and directors of Parent, Purchaser and the Company have
interests in the Offer and the Merger which are described below and which may
present them with certain potential conflicts of interest. Currently, of the 13
directors of the Company, seven are officers of Parent or an affiliate of
Parent, one was, until his retirement on December 31, 1997, a director and
executive officer of a subsidiary of Parent, and one is a director of Parent.
Mr. Jean-Didier Dujardin, a director of the Company, is Chief Financial Officer
of Ugine; Mr. Michel Le Page, a director of the Company, is Vice President,
Marketing Stainless Steel
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<PAGE> 36
Flat Products of Ugine; Mr. Gerard Martel, a director of the Company, is
Executive Vice President of Ugine; Mr. Guy Dolle, Chairman of the Board of the
Company, is Chief Executive Officer of Ugine; Mr. Gerard Picard, a director of
the Company, is President of Francosteel Corporation, an indirect wholly owned
subsidiary of Parent ("Francosteel"); Mr. Francis Mer, a director of the
Company, is the Chairman and Chief Executive Officer of Parent; Mr. Robert
Hudry, a director of the Company, is Executive Vice President of Parent; and Mr.
Michel J. Longchampt, a director of the Company, was, until his retirement on
December 31, 1997, Chairman and Chief Executive Officer of Francosteel. See
"SPECIAL FACTORS -- Beneficial Ownership of Common Stock" for information
regarding Shares and Options beneficially owned by certain of the Company's,
Parent's and Purchaser's officers or directors. See also "Schedule
I -- Directors and Executive Officers of Parent, Purchaser and the Company".
Shareholders also should be aware that Parent and Purchaser have certain
interests that present actual or potential conflicts of interest in connection
with the Offer and the Merger. As a result of Parent's current ownership of
approximately 53.5% of the Shares and its officers and its affiliates' officers
constituting seven of the Company's 13 directors, Parent may be deemed to
control the Company.
Pursuant to the Stock Incentive Plan, as a result of the Offer, all
outstanding Options (with or without stock appreciation rights) will immediately
become exercisable and the restrictions on all outstanding shares of restricted
stock will immediately lapse. Each of the presently outstanding Options was
issued at an exercise price greater than the per Share consideration to be paid
in the Offer and the Merger. In addition, the employment agreements between the
Company and each of Mr. Salvadore and Mr. Vincent provide for the future
issuance of restricted stock under the Stock Incentive Plan (70,000 future
restricted stock shares for Mr. Salvadore and 18,000 future restricted stock
shares for Mr. Vincent). The terms of the Merger Agreement do not require
cancellation of the outstanding Options or the rights to future issuance of
restricted stock, and there is no right on the part of the Company or Parent
otherwise to require such cancellation. The Company has retained Mercer to
examine the Company's executive compensation arrangements, to advise the Company
and the Board as to appropriate methods of executive motivation and compensation
following the consummation of the Merger, and to evaluate the possible treatment
of the Options and rights to restricted stock. See "SPECIAL
FACTORS -- Background of the Offer and the Merger" and "SPECIAL FACTORS -- The
Merger Agreement".
Messrs. Dietrich and Sheehan constitute the Special Committee. As
compensation for service on the Special Committee, and in lieu of the
compensation otherwise payable to a director for service on a committee of the
Board, Mr. Dietrich (Chairman) will receive $55,000 and Mr. Sheehan will receive
$40,000.
The Special Committee and the Board were aware of these actual and
potential conflicts of interest and considered them along with the other matters
described under "SPECIAL FACTORS -- Recommendation of the Company's Board;
Fairness of the Offer and the Merger".
None of Parent, Purchaser or the Company has been advised by any executive
officers, directors or affiliates of Parent, Purchaser or the Company whether
any of such persons intends to tender Shares owned by them pursuant to the
Offer.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information, as of November 1, 1998,
regarding the ownership of Common Stock by each person known by the Company to
be the beneficial owner of more than 5% of the
33
<PAGE> 37
issued and outstanding Common Stock, and any director or officer of the Company,
Parent or Purchaser who is the beneficial owner of Shares or Options issued by
the Company:
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO PERCENTAGE OF
NUMBER OF SHARES OPTIONS ISSUED BY COMMON STOCK
NAME OF BENEFICIAL OWNER OWNED DIRECTLY THE COMPANY BENEFICIALLY OWNED
- ------------------------ ---------------- ----------------- ------------------
<S> <C> <C> <C>
Parent(1).......................... 20,730,000 0 53.5%
KeyCorp............................ 3,752,723 0 9.7%
Scudder, Stevens & Clark, Inc. .... 3,658,000 0 9.5%
Guy R. Dolle....................... 0 0 *
Pierre F. de Ravel d'Esclapon...... 1,000 0 *
William S. Dietrich, II............ 5,000 0 *
Jean-Didier Dujardin............... 0 0 *
Robert Hudry....................... 0 0 *
Michel Le Page..................... 0 0 *
Michel J. Longchampt............... 0 0 *
Gerard Martel...................... 0 0 *
Francis Mer........................ 0 0 *
Gerard Picard...................... 0 0 *
Eugene A. Salvadore................ 32,000 90,000 *
John J. Sheehan.................... 0 0 *
Daryl K. Fox....................... 5,000 65,000 *
Paul J. Grandy..................... 5,000 30,000 *
Gerald L. Kosko.................... 6,000 65,000 *
David G. Pudelsky.................. 0 0 *
Kirk F. Vincent.................... 21,000 80,000 *
John A. Wallace.................... 13,500 51,000 *
</TABLE>
- ---------------
* Less than 1% of Shares.
(1) The address of the principal executive offices of Parent is 11-13, cours
Valmy, 92070 La Defense Cedex, France.
No director or officer of Parent or Purchaser beneficially owns any Shares
or Options.
RELATED PARTY TRANSACTIONS
The Company entered into a Technology Agreement dated as of October 1, 1993
with Ugine. The Technology Agreement has a ten-year term and will provide the
Company with a broad spectrum of patents, know-how and future research and
development services concerning the manufacturing and processing of flat rolled
stainless steel including, under certain circumstances, any commercially viable
thin strip casting technology developed by Ugine. Ongoing fees to be paid to
Ugine for research and development services are $5 million for 1997 and each
year thereafter for the remaining term of the Technology Agreement. The
Technology Agreement provides for a substantial reduction in these fees, and in
certain cases a refund of part of these fees, if Ugine cannot transfer its thin
strip casting technology to the Company. Upon the merger of Ugine into Parent in
December 1995, Parent assumed the Technology Agreement.
In the ordinary course of its business, the Company purchases stainless
steel from and sells stainless steel to Ugine and certain affiliates of Parent.
In 1997, the Company made no material purchases from Parent or its affiliates,
including Ugine. In 1997, there were no sales to Ugine but there were $48.3
million of sales to its related parties. Included in such sales are sales to a
principal customer of the Company in which an affiliate of Parent owns
approximately 28% of the voting stock. The Company believes that the terms of
such purchases and sales are no less favorable than the Company could obtain in
transactions with unrelated parties purchasing or selling a similar volume of
products.
34
<PAGE> 38
Mr. Dietrich, a director of the Company and the Chairman of the Special
Committee, is a director of Worthington Industries, Inc. ("Worthington"), which
owns 100% of the outstanding capital stock of Dietrich Industries, Inc. Mr.
Dietrich owns 22,000 shares of the common stock of Worthington (which
constitutes less than 1% of the outstanding shares of common stock of
Worthington) and is the Chairman of Dietrich Industries, Inc. In fiscal 1997,
Dietrich Industries, Inc. purchased approximately $7 million of products from
the Company. The Company believes that the terms of such purchases are no less
favorable to the Company than the Company could obtain in transactions with
unrelated parties purchasing a similar volume of products.
The Company currently participates in some of Parent's insurance programs
for Parent's United States subsidiaries. The Company is also covered under
certain other insurance policies maintained by Parent, underwritten on Parent
and its affiliates as a group. The Company believes that the total premium it
pays for its insurance coverage as described above is no less favorable than
that which it could otherwise obtain.
During the week of November 2, 1998, representatives of Parent and the
Company met with representatives of the agent bank under the Credit Agreements
to discuss a proposed amendment to the Credit Agreements that would include,
among other changes, a guaranty by Parent of the Company's payment obligations
under the Credit Agreements. It is contemplated that this amendment will be
executed in the coming weeks, assuming agreement can be reached with the bank
group. See "SPECIAL FACTORS -- Background of the Offer and the Merger".
FEES AND EXPENSES
The following is an estimate of expenses to be incurred in connection with
the Offer and Merger, other than: (i) the fees and expenses of Lehman Brothers
(see "SPECIAL FACTORS -- Opinion of Lehman Brothers"); and (ii) the fees and
expenses of Morgan Stanley (see "SPECIAL FACTORS -- Analysis of Financial
Advisor to Parent" and "THE TENDER OFFER -- Section 14. Fees and Expenses"). The
Merger Agreement provides that all costs and expenses incurred in connection
with the Offer and the Merger will be paid by the party incurring such costs and
expenses.
<TABLE>
<S> <C>
EXPENSES TO BE PAID BY PURCHASER AND ITS AFFILIATES:
Legal Fees and Expenses................................... $520,000
Printing and Mailing...................................... 195,000
Filing Fees............................................... 23,000
Advertising............................................... 150,000
Depositary Fees........................................... 13,000
Information Agent Fees.................................... 10,000
--------
Total............................................. $911,000
========
EXPENSES TO BE PAID BY THE COMPANY:
Legal Fees and Expenses................................... $225,000
Printing and Mailing...................................... 40,000
Special Committee Director's Fees and Expenses............ 125,000
Miscellaneous............................................. 5,000
--------
Total............................................. $395,000
========
</TABLE>
35
<PAGE> 39
THE TENDER OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment), Purchaser will accept for
payment, and will pay for, all Shares validly tendered prior to the Expiration
Date (as defined below) and not withdrawn as permitted pursuant to "THE TENDER
OFFER -- Section 4. Withdrawal Rights". The term "Expiration Date" means 12:00
midnight, New York City time, on Thursday, December 10, 1998, unless and until
Purchaser shall have extended the period during which the Offer is open in
accordance with the terms of the Merger Agreement, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as so
extended by Purchaser, shall expire.
Purchaser expressly reserves the right, in its sole discretion (subject to
the terms and conditions of the Merger Agreement), at any time and from time to
time, to extend for any reason the period of time during which the Offer is
open, including the occurrence of any of the conditions specified in "THE TENDER
OFFER -- Section 12. Certain Conditions of the Offer", by giving oral or written
notice of such extension to the Depositary. During any such extension, all
Shares previously tendered and not withdrawn will remain subject to the Offer,
subject to the right of a tendering shareholder to withdraw his Shares. See "THE
TENDER OFFER -- Section 4. Withdrawal Rights".
Subject to the applicable regulations of the Commission, Purchaser also
expressly reserves the right, in its sole discretion (subject to the terms and
conditions of the Merger Agreement), at any time and from time to time, (i) to
delay acceptance for payment of, or, regardless of whether such Shares were
theretofore accepted for payment, payment for, any Shares, pending receipt of
any regulatory approval specified in "THE TENDER OFFER -- Section 13. Certain
Legal Matters and Regulatory Approval", (ii) to terminate the Offer and not
accept for payment any Shares upon the occurrence of any of the conditions
specified in "THE TENDER OFFER -- Section 12. Certain Conditions of the Offer"
and (iii) to waive any condition, except for the Minimum Condition, or otherwise
amend the Offer in any respect, by giving oral or written notice of such delay,
termination, waiver or amendment to the Depositary and by making a public
announcement thereof. The Merger Agreement provides that, without the prior
written consent of the Special Committee and, if required by the Company's
Articles of Incorporation, the approval of a majority of the Disinterested
Directors, Purchaser will not (i) decrease the price per Share payable pursuant
to the Offer, (ii) reduce the maximum number of Shares to be purchased in the
Offer, (iii) change the form of the consideration payable in the Offer, (iv) add
to, modify or supplement the conditions to the Offer set forth in "THE TENDER
OFFER -- Section 12. Certain Conditions of the Offer" or (v) make any other
change in the terms or conditions of the Offer which is materially adverse to
the holders of Shares. In the event all conditions set forth in "THE TENDER
OFFER -- Section 12. Certain Conditions of the Offer" shall have been satisfied
or waived, but the number of Shares validly tendered and not withdrawn pursuant
to the Offer, when taken together with the Parent Shares, does not constitute at
least 80% of the then issued and outstanding Shares, Purchaser may extend the
Offer for a period or periods aggregating not more than 20 business days after
the later of (i) the initial Expiration Date and (ii) the date on which all
other conditions set forth in the Merger Agreement shall have been satisfied.
If, at the beginning of the first such extension period, all conditions set
forth in "THE TENDER OFFER -- Section 12. Certain Conditions of the Offer",
including the Minimum Condition, were satisfied or waived and, at the expiration
of the last such extension period, the conditions set forth in paragraphs (a)
and (b) of "THE TENDER OFFER -- Section 12. Certain Conditions of the Offer" and
the Minimum Condition are satisfied or waived, then, regardless of whether the
number of Shares validly tendered and not withdrawn pursuant to the Offer, when
taken together with the Parent Shares, constitutes at least 80% of the then
issued and outstanding Shares, or any of the conditions set forth in paragraphs
(c), (d), (e), (f), (g), (h) and (i) of "THE TENDER OFFER -- Section 12. Certain
Conditions of the Offer" are satisfied, Purchaser shall accept for payment and
pay for all Shares validly tendered and not withdrawn prior to the expiration of
the last such extension period. Purchaser acknowledges that (i) Rule 14e-1(c)
under the Exchange Act requires Purchaser to pay the consideration offered or
return Shares tendered promptly after the termination or withdrawal of the Offer
and (ii) Purchaser may not delay acceptance for payment of, or payment for
(except as provided in clause (i) of the first sentence of this paragraph), any
Shares upon the
36
<PAGE> 40
occurrence of any of the conditions specified in "THE TENDER OFFER -- Section
12. Certain Conditions of the Offer" without extending the period of time during
which the Offer is open.
Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, such
announcement in the case of an extension to be made no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
expiration date. Subject to applicable law (including Rules 14d-4(c), 14d-6(d)
and 14e-1 under the Exchange Act, which require that material changes be
promptly disseminated to shareholders in a manner reasonably designed to inform
them of such changes) and without limiting the manner in which Purchaser may
choose to make any public announcement, Purchaser shall have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a press release to the Dow Jones News Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will extend the Offer to the extent required by Rules l4d-4(c),
l4d-6(d) and 14e-1 under the Exchange Act.
Subject to the terms of the Merger Agreement, if, prior to the Expiration
Date, Purchaser should decide to decrease the number of Shares being sought or
to increase or decrease the consideration being offered in the Offer, such
decrease in the number of Shares being sought or such increase or decrease in
the consideration being offered will be applicable to all shareholders whose
Shares are accepted for payment pursuant to the Offer and, if at the time notice
of any such decrease in the number of Shares being sought or such increase or
decrease in the consideration being offered is first published, sent or given to
holders of such Shares, the Offer is scheduled to expire at any time earlier
than the period ending on the tenth business day from and including the date
that such notice is first so published, sent or given, the Offer will be
extended at least until the expiration of such ten-business day period. For
purposes of the Offer, a "business day" means any day other than a Saturday,
Sunday or federal holiday and consists of the time period from 12:01 a.m.
through 12:00 midnight, New York City time.
The Company has provided Purchaser with the Company's shareholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on the Company's
shareholder list and will be furnished, for subsequent transmittal to beneficial
owners of Shares, to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
shareholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and
subject to the conditions of the Offer (including, if the Offer is extended or
amended, the terms and conditions of any such extension or amendment), Purchaser
will accept for payment, and will pay for, all Shares validly tendered and not
properly withdrawn prior to the Expiration Date, promptly after the later to
occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the
conditions to the Offer set forth in "THE TENDER OFFER -- Section 12. Certain
Conditions of the Offer". Subject to applicable rules of the Commission,
Purchaser expressly reserves the right to delay acceptance for payment of, or
payment for, Shares pending receipt of any regulatory approvals specified in
"THE TENDER OFFER -- Section 13. Certain Legal Matters and Regulatory Approvals"
or in order to comply in whole or in part with any other applicable law.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i) the
certificates evidencing such Shares (the "Share Certificates") or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "THE
TENDER OFFER -- Section 3. Procedures for Accepting the Offer and Tendering
Shares", (ii) the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees or, in the
case of a book-entry transfer, an Agent's Message (as defined below) in lieu of
the Letter of Transmittal and (iii) any other documents required under the
Letter of Transmittal. The term "Agent's Message" means a message transmitted by
the Book-Entry Transfer Facility to, and received by, the Depositary and forming
a part of the Book-Entry Confirmation which
37
<PAGE> 41
states that the Book-Entry Transfer Facility has received an express
acknowledgment from the participant in the Book-Entry Transfer Facility
tendering the Shares which are the subject of such Book-Entry Confirmation that
such participant has received and agrees to be bound by the terms of the Letter
of Transmittal and that Purchaser may enforce such agreement against such
participant.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares pursuant to the
Offer. Upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of the
purchase price therefor with the Depositary, which will act as agent for
tendering shareholders for the purpose of receiving payments from Purchaser and
transmitting such payments to tendering shareholders whose Shares have been
accepted for payment. Under no circumstances will interest on the purchase price
for Shares be paid, regardless of any delay in making such payment.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, or if Share Certificates are submitted
evidencing more Shares than are tendered, Share Certificates evidencing
unpurchased Shares will be returned, without expense to the tendering
shareholder (or, in the case of Shares tendered by book-entry transfer into the
Depositary's account at the Book-Entry Transfer Facility pursuant to the
procedure set forth in "THE TENDER OFFER -- Section 3. Procedures for Accepting
the Offer and Tendering Shares", such Shares will be credited to an account
maintained at the Book-Entry Transfer Facility), as promptly as practicable
following the expiration or termination of the Offer.
If, prior to the Expiration Date, Purchaser shall increase the
consideration offered to any holders of Shares pursuant to the Offer, such
increased consideration shall be paid to all holders of Shares that are
purchased pursuant to the Offer, whether or not such Shares were tendered prior
to such increase in consideration.
Purchaser reserves the right to transfer or assign, in whole or from time
to time in part, to one or more of its affiliates, the right to purchase all or
any portion of the Shares tendered pursuant to the Offer, but any such transfer
or assignment will not relieve Purchaser of its obligations under the Offer and
will in no way prejudice the rights of tendering shareholders to receive payment
for Shares validly tendered and accepted for payment pursuant to the Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES. In order for
a holder of Shares validly to tender Shares pursuant to the Offer, the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed,
together with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message in lieu of the Letter of Transmittal) and any other
documents required by the Letter of Transmittal must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase and either (i) the Share Certificates evidencing tendered Shares must
be received by the Depositary at such address or such Shares must be tendered
pursuant to the procedure for book-entry transfer described below and a
Book-Entry Confirmation must be received by the Depositary (including an Agent's
Message if the tendering shareholder has not delivered a Letter of Transmittal),
in each case prior to the Expiration Date, or (ii) the tendering shareholder
must comply with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Depositary will establish accounts with respect
to the Shares at the Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of the Book-Entry Transfer
Facility may
38
<PAGE> 42
make a book-entry delivery of Shares by causing the Book-Entry Transfer Facility
to transfer such Shares into the Depositary's account at the Book-Entry Transfer
Facility in accordance with the Book-Entry Transfer Facility's procedures for
such transfer. However, although delivery of Shares may be effected through
book-entry transfer at the Book-Entry Transfer Facility, a Letter of Transmittal
(or a facsimile thereof), properly completed and duly executed, together with
any required signature guarantees, or an Agent's Message in lieu of a Letter of
Transmittal, and any other required documents, must, in any case, be received by
the Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase prior to the Expiration Date, or the tendering shareholder must
comply with the guaranteed delivery procedure described below. DELIVERY OF
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a member in good standing in the Security Transfer
Agent Medallion Signature Program or by any other "eligible guarantor
institution", as such term is defined in Rule 17Ad-15 under the Exchange Act
(each of the foregoing being referred to as an "Eligible Institution"), except
in cases where Shares are tendered (i) by a registered holder of Shares who has
not completed either the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii)
for the account of an Eligible Institution. If a Share Certificate is registered
in the name of a person other than the signer of the Letter of Transmittal, or
if payment is to be made, or a Share Certificate not accepted for payment or not
tendered is to be returned, to a person other than the registered holder(s),
then the Share Certificate must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name(s) of the registered holder(s)
appears on the Share Certificate, with the signature(s) on such Share
Certificate or stock powers guaranteed by an Eligible Institution. See
Instructions 1 and 5 of the Letter of Transmittal.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's Share Certificates evidencing such Shares are
not immediately available or such shareholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date or such shareholder cannot complete the procedure for delivery
by book-entry transfer on a timely basis, such Shares may nevertheless be
tendered if all the following conditions are satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by Purchaser, is
received prior to the Expiration Date by the Depositary as provided below;
and
(iii) the Share Certificates (or a Book-Entry Confirmation) evidencing
all tendered Shares, in proper form for transfer, in each case together
with the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, with any required signature guarantees (or, in the case
of a book-entry transfer, an Agent's Message), and any other documents
required by the Letter of Transmittal are received by the Depositary within
three NYSE trading days after the date of execution of such Notice of
Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the form
of Notice of Guaranteed Delivery made available by Purchaser.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of the
Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the
delivery of such Shares, and the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees
(or, in the case of a book-entry transfer, an Agent's Message), and any other
documents required by the Letter of Transmittal.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by Purchaser in its sole discretion, which
determination shall be final and binding on all parties. Purchaser reserves the
absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. Purchaser also reserves the absolute right to waive any
condition of the Offer (other
39
<PAGE> 43
than the Minimum Condition) or any defect or irregularity in the tender of any
Shares of any particular shareholder, whether or not similar defects or
irregularities are waived in the case of other shareholders. No tender of Shares
will be deemed to have been validly made until all defects and irregularities
have been cured or waived. None of Purchaser, Parent, the Dealer Manager, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification. Purchaser's interpretation
of the terms and conditions of the Offer (including the Letter of Transmittal
and the instructions thereto) will be final and binding.
Other Requirements. By executing the Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of Purchaser as
such shareholder's proxies, each with full power of substitution, in the manner
set forth in the Letter of Transmittal, to the full extent of such shareholder's
rights with respect to the Shares tendered by such shareholder and accepted for
payment by Purchaser (and with respect to any and all other Shares or other
securities issued or issuable in respect of such Shares on or after November 5,
1998). All such proxies shall be considered coupled with an interest in the
tendered Shares. Such appointment will be effective when, and only to the extent
that, Purchaser accepts such Shares for payment. Upon such acceptance for
payment, all prior proxies given by such shareholder with respect to such Shares
(and such other Shares and securities) will be revoked without further action,
and no subsequent proxies may be given nor any subsequent written consent
executed by such shareholder (and, if given or executed, will not be deemed to
be effective) with respect thereto. The designees of Purchaser will, with
respect to the Shares for which the appointment is effective, be empowered to
exercise all voting and other rights of such shareholder as they in their sole
discretion may deem proper at any annual or special meeting of the Company's
shareholders or any adjournment or postponement thereof, or to act by written
consent in lieu of any such meeting or otherwise. Purchaser reserves the right
to require that, in order for Shares to be deemed validly tendered, immediately
upon Purchaser's payment for such Shares, Purchaser must be able to exercise
full voting rights with respect to such Shares.
The acceptance for payment by Purchaser of Shares pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering shareholder and Purchaser upon the terms and subject to the conditions
of the Offer.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT TO
CERTAIN SHAREHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE
OFFER, EACH SHAREHOLDER WHO IS NOT OTHERWISE EXEMPT MUST PROVIDE THE DEPOSITARY
WITH SUCH SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT
SUCH SHAREHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY
COMPLETING THE SUBSTITUTE FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP
WITHHOLDING APPLIES WITH RESPECT TO A SHAREHOLDER, THE DEPOSITARY IS REQUIRED TO
WITHHOLD 31% OF ANY PAYMENTS MADE TO SUCH SHAREHOLDER. SEE INSTRUCTION 9 OF THE
LETTER OF TRANSMITTAL.
4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are
irrevocable except that such Shares may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by Purchaser
pursuant to the Offer, may also be withdrawn at any time after January 10, 1999.
If Purchaser extends the Offer, is delayed in its acceptance for payment of
Shares or is unable to accept Shares for payment pursuant to the Offer for any
reason, then, without prejudice to Purchaser's rights under the Offer, the
Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares,
and such Shares may not be withdrawn except to the extent that tendering
shareholders are entitled to withdrawal rights as described in this Section 4.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses or its facsimile number set forth on the back cover page of
this Offer to Purchase. Any such notice of withdrawal must specify the name of
the person who tendered the Shares to be withdrawn, the number of Shares to be
withdrawn and the name of the registered holder of such Shares, if different
from that of the person who tendered such Shares. If Share Certificates
evidencing Shares to be withdrawn have been delivered or otherwise identified to
the Depositary, then, prior to the physical release of such Share Certificates,
the serial numbers shown on such Share Certificates must be submitted to the
Depositary and the signature(s) on the notice of withdrawal must be guaranteed
by an
40
<PAGE> 44
Eligible Institution, unless such Shares have been tendered for the account of
an Eligible Institution. If Shares have been tendered pursuant to the procedure
for book-entry transfer as set forth in "THE TENDER OFFER -- Section 3.
Procedures for Accepting the Offer and Tendering Shares", any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Shares.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by Purchaser, in its sole
discretion, whose determination will be final and binding. None of Purchaser,
Parent, the Dealer Manager, the Depositary, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in "THE TENDER OFFER -- Section 3. Procedures for Accepting
the Offer and Tendering Shares".
5. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash for
Shares pursuant to the Offer or in the Merger will be a taxable transaction for
U.S. federal income tax purposes and may also be a taxable transaction under
applicable state, local or foreign tax laws. In general, a shareholder will
recognize gain or loss for U.S. federal income tax purposes equal to the
difference between the amount of cash received in exchange for Shares sold and
such U.S. holder's adjusted tax basis in such Shares. Assuming those Shares
constitute capital assets in the hands of that U.S. holder, such gain or loss
will be capital gain or loss and, in the case of an individual shareholder, will
be taxable at a maximum rate of 20% if the Shares tendered pursuant to the Offer
or converted pursuant to the Merger were held in excess of 12 months. Gain or
loss will be calculated separately for each "block" of Shares tendered pursuant
to the Offer or converted pursuant to the Merger. The deduction of capital
losses is subject to certain limitations. Shareholders should consult their own
tax advisors in this regard.
In general, in order to prevent backup federal income tax withholding at a
rate of 31% on the cash consideration to be received in the Offer or pursuant to
the Merger, each shareholder who is not otherwise exempt from such requirements
must provide such shareholder's correct taxpayer identification number (and
certain other information) by completing the Substitute Form W-9 in the Letter
of Transmittal.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
SHAREHOLDERS, INCLUDING BROKER-DEALERS, SHAREHOLDERS WHO ACQUIRED SHARES
PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION,
INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES AND FOREIGN
CORPORATIONS.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT LAW, WHICH IS SUBJECT TO
CHANGE POSSIBLY WITH RETROACTIVE EFFECT. SHAREHOLDERS ARE URGED TO CONSULT THEIR
TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OFFER AND THE
MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM
TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS.
6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are listed and
principally traded on the NYSE under the symbol "JL". The following table sets
forth, for the quarters indicated, the high and low sales prices per Share on
the NYSE as reported by the Dow Jones News Service and the amount of cash
dividends paid per Share according to published financial sources.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
---- --- ---------
<S> <C> <C> <C>
1996:
First Quarter............................................. $ 18 3/4 $15 5/8 $0.090
Second Quarter............................................ 19 1/4 14 3/8 0.100
Third Quarter............................................. 15 3/8 13 1/8 0.100
Fourth Quarter............................................ 14 10 3/4 0.100
</TABLE>
41
<PAGE> 45
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
---- --- ---------
<S> <C> <C> <C>
1997:
First Quarter............................................. $ 14 3/8 $11 1/4 $0.100
Second Quarter............................................ 13 3/8 11 3/8 0.100
Third Quarter............................................. 13 15/16 11 1/2 0.100
Fourth Quarter............................................ 14 3/16 8 0.100
1998:
First Quarter............................................. $ 10 1/4 $ 8 $0.100
Second Quarter............................................ 9 15/16 5 11/16 0.100
Third Quarter............................................. 6 9/16 2 1/2 0.025
Fourth Quarter (through November 11, 1998)................ 6 5/16 4 9/16 0.025
</TABLE>
On September 22, 1998, the last full trading day prior to the public
announcement of the Proposal, the closing price per Share as reported on the
NYSE was $3.19. On November 5, 1998, the last full trading day prior to the
public announcement of the execution of the Merger Agreement and of Purchaser's
intention to commence the Offer, the closing price per Share as reported on the
NYSE was $5.75. On November 11, 1998, the last full trading day prior to the
commencement of the Offer, the closing price per Share as reported on the NYSE
was $6.25.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
7. CERTAIN INFORMATION CONCERNING THE COMPANY. Except as otherwise set
forth herein, the information concerning the Company contained in this Offer to
Purchase, including financial information, has been furnished by the Company or
has been taken from or is based upon publicly available documents and records on
file with the Commission and other public sources. Neither Purchaser nor Parent
assumes any responsibility for the accuracy or completeness of the information
concerning the Company furnished by the Company or contained in such documents
and records or for any failure by the Company to disclose events which may have
occurred or may affect the significance or accuracy of any such information but
which are unknown to Purchaser or Parent.
General. The Company is a Pennsylvania corporation with its principal
executive offices located at One PPG Place, 18th Floor, Pittsburgh, PA
15230-3373. The Company is a manufacturer of flat rolled stainless steel. The
Company produces both austenitic and ferritic flat rolled stainless steels and
manufactures various grades of stainless steel in the form of cold rolled
stainless steel sheet and strip, hot rolled stainless steel sheet and strip, and
continuous millplate, as well as semifinished stainless steel slabs and coils.
The name, citizenship, business address, principal occupation or
employment, and five-year employment history for each of the directors and
executive officers of the Company and certain other information are set forth in
Section 3 of Schedule I hereto.
Except as described in this Offer to Purchase, (i) to the best knowledge of
the Company, none of the persons listed in Section 3 of Schedule I to this Offer
to Purchase or any associate or majority-owned subsidiary of the Company or any
of the persons so listed, beneficially owns or has any right to acquire,
directly or indirectly, any Shares and (ii) to the best knowledge of the
Company, none of the persons or entities referred to above nor any director,
executive officer or subsidiary of any of the foregoing has effected any
transaction in the Shares during the past 60 days.
Except for the Merger Agreement or as otherwise described in this Offer to
Purchase, to the best knowledge of the Company, none of the persons listed in
Section 3 of Schedule I to this Offer to Purchase has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
such securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies, consents or authorizations. Except as set forth in this Offer to
Purchase, since January 1, 1995, to the best knowledge of the Company, none of
the persons listed on Section 3 of Schedule I hereto has had any business
relationship or transaction
42
<PAGE> 46
with the Company or any of its executive officers, directors or affiliates that
is required to be reported under the rules and regulations of the Commission
applicable to the Offer. Except as set forth in this Offer to Purchase, since
January 1, 1995, there have been no contacts, negotiations or transactions
between any of the Company's subsidiaries or, to the best knowledge of the
Company, any of the persons listed in Section 3 of Schedule I to this Offer to
Purchase, on the one hand, and the Company or its affiliates, on the other hand,
concerning a merger, consolidation or acquisition, tender offer or other
acquisition of securities, an election of directors or a sale or other transfer
of a material amount of assets.
Financial Information. Set forth below is certain selected consolidated
financial information relating to the Company and its subsidiaries which has
been excerpted or derived from the audited financial statements contained in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997
(the "Form 10-K") and the unaudited financial statements contained in the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (the
"Form 10-Q"). More comprehensive financial information is included in the Form
10-K, the Form 10-Q and other documents filed by the Company with the
Commission. The financial information that follows is qualified in its entirety
by reference to such reports and other documents, including the financial
statements and related notes contained therein. Such reports and other documents
may be examined and copies may be obtained from the offices of the Commission in
the manner set forth below. In addition, Schedules IV and V hereto set forth the
Company's most recent audited financial statements and the Company's unaudited
financial statements for the three- and six-month periods ended June 30, 1998
and June 30, 1997, respectively.
J&L SPECIALTY STEEL, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Trade sales, net............................................ $263,455 $326,391
Cost of products sold....................................... 266,473 298,969
Depreciation and amortization expenses...................... 17,389 12,126
Selling, general and administrative expenses................ 9,885 10,305
Research and technology expense............................. 2,923 3,068
Unusual item................................................ -- (5,907)
-------- --------
Operating income (loss)................................... (33,215) 7,830
Interest expense............................................ 8,580 2,027
Interest income............................................. (56) (71)
Other (income) expense, net................................. (163) (61)
-------- --------
Income (loss) before income taxes......................... (41,576) 5,935
Income tax expense (benefit)................................ (13,277) 4,280
-------- --------
Net income (loss)........................................... $(28,299) $ 1,655
======== ========
Earnings (loss) per Share:
Basic..................................................... $ (.73) $ .04
======== ========
Diluted................................................... $ (.73) $ .04
======== ========
</TABLE>
43
<PAGE> 47
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
INCOME STATEMENT DATA:
Total sales, net............................................ $598,931 $628,022
Operating income (loss)(1)(2)............................... (38,117) 51,035
Income before extraordinary item and cumulative effect of
accounting change......................................... $(40,516) $ 24,265
-------- --------
Net income (loss)........................................... $(40,516) $ 24,265
======== ========
EARNINGS (LOSS) PER DILUTED SHARE DATA:
Income before extraordinary item and cumulative effect of
accounting change......................................... $ (1.05) $ .63
-------- --------
Net income (loss)........................................... $ (1.05) $ .63
======== ========
Dividends declared on common stock.......................... $ 15,468 $ 15,468
</TABLE>
- ---------------
(1) Includes DRAP Line commissioning costs incurred throughout 1997 and the
commencement of depreciation during the fourth quarter of 1997, totaling
$31.1 million.
(2) Included in 1997 is a $37.1 million restructuring charge for the Detroit
plant and unusual gains from vendor settlements of $15.9 million.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
-------------- --------------------
1998 1997 1996
-------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 93,492 $ 67,613 $ 68,758
Property, plant and equipment, net...................... 325,782 338,062 304,721
Total assets............................................ 784,337 792,391 771,928
Total debt.............................................. 279,931 245,902 176,657
Shareholders' equity.................................... 306,939 336,506 390,738
</TABLE>
44
<PAGE> 48
Set forth below is certain selected consolidated financial information
relating to the Company and its Subsidiaries which has been excerpted from a
press release issued by the Company on October 26, 1998:
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales....................................... $110,172 $142,561 $373,627 $468,952
Cost of products sold........................... 109,763 136,562 376,236 435,531
Depreciation and amortization expenses.......... 8,665 6,066 26,054 18,192
Selling, general and administrative expenses.... 5,709 4,824 15,594 15,129
Research and technology expense................. 1,453 1,463 4,376 4,531
Unusual item.................................... -- (10,000) -- (15,907)
Operating income (loss).................... (15,418) 3,646 (48,633) 11,476
Interest expense................................ 4,714 1,043 13,294 3,070
Interest income................................. (27) (22) (83) (93)
Other (income) expense, net..................... 197 (68) 34 (129)
Income (loss) before income taxes............. (20,302) 2,693 (61,878) 8,628
Income tax expense (benefit).................... (8,907) 2,038 (22,184) 6,318
Net income (loss)............................. $(11,395) $ 655 $(39,694) $ 2,310
Earnings (loss) per common share:
Basic......................................... $ (.29) $ .02 $ (1.02) $ .06
Diluted....................................... $ (.29) $ .02 $ (1.02) $ .06
Dividends declared per share.................... $ .025 $ .10 $ .15 $ .30
Tons shipped.................................... 71,299 78,403 235,792 257,102
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPT. 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 1,137 $ 1,186
Accounts receivable, net.................................... 54,673 61,392
Inventories................................................. 152,781 151,115
Income tax receivable....................................... 20,711 3,743
Property, plant and equipment, net.......................... 319,974 338,062
Total assets................................................ $782,460 $792,391
Current liabilities......................................... $143,374 $160,282
Long-term debt.............................................. 266,906 222,583
Total liabilities........................................... 487,356 455,885
Shareholders' equity........................................ $295,104 $336,506
</TABLE>
Ratio of Earnings to Fixed Charges; Book Value Per Share. The ratio of
earnings to fixed charges for the fiscal year ended December 31, 1996 is 5.09x
and the ratio of earnings to fixed charges for the six-month period ended June
30, 1997 is 1.17x. The ratios of earnings to fixed charges for the fiscal year
ended December 31, 1997 and for the six-month period ended June 30, 1998 are not
relevant for the Company, given that the Company has had losses in 1997 and for
the six-month period ended June 30, 1998.
The net book value per share was $8.68 at December 31, 1997 and $7.92 per
share at June 30, 1998.
45
<PAGE> 49
The Company is subject to the informational filing requirements of the
Exchange Act and, in accordance therewith, is required to file periodic reports,
proxy statements and other information with the Commission relating to its
business, financial condition and other matters. Information as of particular
dates concerning the Company's directors and officers, their remuneration, stock
options granted to them, the principal holders of the Company's securities and
any material interest of such persons in transactions with the Company is
required to be disclosed in proxy statements distributed to the Company's
shareholders and filed with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's regional offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and the Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Information regarding
the public reference facilities may be obtained from the Commission by
telephoning 1-800-SEC-0330. The Company's filings are also available to the
public on the SEC Internet site (http://www.sec.gov). Copies of such materials
may also be obtained by mail from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Certain
reports and other information concerning the Company may also be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
8. CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT. Parent is a
societe anonyme organized under the laws of the Republic of France. Its
principal offices are located at 11-13, cours Valmy, 92070 La Defense Cedex,
France. Parent and its consolidated subsidiaries produce, process and distribute
a wide range of steel products for a variety of applications. Parent's principal
activities are divided into Flat Carbon Steels, Stainless Steel and Alloys and
Special Steels.
Purchaser is a newly incorporated Pennsylvania corporation organized in
connection with the Offer and the Merger and has not carried on any activities
other than in connection with the Offer and the Merger. The principal offices of
Purchaser are located at 11-13, cours Valmy, 92070 La Defense Cedex, France.
Purchaser is a wholly owned subsidiary of Parent.
Parent publishes its financial statements in French francs ("FRF"), and
such financial statements are prepared on the basis of French generally accepted
accounting principles and accounting standards prescribed by the International
Accounting Standards Committee, which differ in certain material respects from
U.S. generally accepted accounting principles. Based upon the consolidated
financial statements of Parent for the fiscal year ended December 31, 1997
contained in Parent's Annual Report on Form 20-F for the fiscal year then ended
(the "Form 20-F") and the consolidated financial statements of Parent for the
first half of 1998 contained in Parent's Report on Form 6-K for the month of
September 1998 (the "September Form 6-K"), Parent had (i) at December 31, 1997,
consolidated total assets of FRF 65.392 billion, consolidated total liabilities
of FRF 38.433 billion and consolidated total shareholders' equity of FRF 26.959
billion, (ii) for the fiscal year ended December 31, 1997, consolidated net
sales of FRF 72.001 billion and consolidated net income of FRF 2.055 billion,
and (iii) for the first half of 1998, consolidated net sales of FRF 38.162
billion and consolidated net income of FRF 2.035 billion. In a press release
issued by Parent on November 10, 1998, Parent reported that it had consolidated
net sales of FRF 16.7 billion for the third quarter of 1998. More comprehensive
financial information is included in the Form 20-F, the September Form 6-K, and
the other documents filed by Parent with the Commission. The summary financial
information included above is qualified in its entirety by reference to such
reports and other documents, including the financial statements and related
notes contained therein. Such reports and other documents may be examined and
copies may be obtained from the offices of the Commission in the manner set
forth below.
Parent is subject to the informational filing requirements of the Exchange
Act applicable to foreign private issuers and, in accordance therewith, files
reports, including annual reports on Form 20-F, and other information with the
Commission. Such reports and other information can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048, and the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Information regarding the public reference facilities may be
obtained from the Commission by telephoning 1-800-SEC-0330. Copies of such
materials may also be obtained by mail from the Public
46
<PAGE> 50
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Certain reports and other information concerning
Parent may also be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
Until immediately prior to the time that Purchaser will purchase Shares
pursuant to the Offer, it is not anticipated that Purchaser will have any
significant assets or liabilities or engage in activities other than those
incident to its formation and capitalization and the transactions contemplated
by the Offer and the Merger. Because Purchaser is newly formed and has minimal
assets and capitalization, no meaningful financial information regarding
Purchaser is available.
The name, citizenship, business address, principal occupation or
employment, and five-year employment history for each of the directors and
executive officers of Purchaser and Parent and certain other information are set
forth in Sections 1 and 2 of Schedule I hereto.
Parent owns 20,730,000 Shares, representing approximately 53.5% percent of
the 38,758,000 Shares outstanding at November 5, 1998.
Except as described in this Offer to Purchase, (i) none of Purchaser,
Parent nor, to the best knowledge of Purchaser and Parent, any of the persons
listed in Sections 1 and 2 of Schedule I to this Offer to Purchase or any
associate or majority-owned subsidiary of Purchaser, Parent or any of the
persons so listed, beneficially owns or has any right to acquire, directly or
indirectly, any Shares and (ii) none of Purchaser, Parent nor, to the best
knowledge of Purchaser and Parent, any of the persons or entities referred to
above nor any director, executive officer or subsidiary of any of the foregoing
has effected any transaction in the Shares during the past 60 days.
Except for the Merger Agreement or as otherwise described in this Offer to
Purchase, none of Purchaser, Parent nor, to the best knowledge of Purchaser and
Parent, any of the persons listed in Sections 1 and 2 of Schedule I to this
Offer to Purchase has any contract, arrangement, understanding or relationship
with any other person with respect to any securities of the Company, including,
but not limited to, any contract, arrangement, understanding or relationship
concerning the transfer or voting of such securities, joint ventures, loan or
option arrangements, puts or calls, guaranties of loans, guaranties against loss
or the giving or withholding of proxies, consents or authorizations. Except as
set forth in this Offer to Purchase, since January 1, 1995, neither Purchaser
nor Parent nor, to the best knowledge of Purchaser and Parent, any of the
persons listed on Sections 1 and 2 of Schedule I hereto, has had any business
relationship or transaction with the Company or any of its executive officers,
directors or affiliates that is required to be reported under the rules and
regulations of the Commission applicable to the Offer. Except as set forth in
this Offer to Purchase, since January 1, 1995, there have been no contacts,
negotiations or transactions between any of Purchaser, Parent, or any of their
respective subsidiaries or, to the best knowledge of Purchaser and Parent, any
of the persons listed in Sections 1 and 2 of Schedule I to this Offer to
Purchase, on the one hand, and the Company or its affiliates, on the other hand,
concerning a merger, consolidation or acquisition, tender offer or other
acquisition of securities, an election of directors or a sale or other transfer
of a material amount of assets.
9. FINANCING OF THE OFFER AND THE MERGER. The total amount of funds
required by Purchaser to consummate the Offer and the Merger and to pay related
fees and expenses is estimated to be approximately $118 million. Parent will
ensure that Purchaser has sufficient funds to acquire all the outstanding Shares
pursuant to the Offer and the Merger. Parent will provide such funds from its
working capital or its affiliates' working capital or from existing credit
facilities or new credit facilities established for this purpose or from a
combination of the foregoing. No decision has been made concerning which of the
foregoing sources Parent will utilize. Such decision will be made based on
Parent's review from time to time of the advisability of particular actions, as
well as on prevailing interest rates and financial and other economic conditions
and such other factors as Parent may deem appropriate.
Parent anticipates that any indebtedness incurred through borrowings under
credit facilities will be repaid from a variety of sources, which may include,
but may not be limited to, funds generated internally by Parent and its
affiliates (including, following the Merger, funds generated by the Surviving
Corporation), bank refinancing, and the public or private sale of debt or equity
securities. No decision has been made concerning
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<PAGE> 51
the method Parent will employ to repay such indebtedness. Such decision will be
made based on Parent's review from time to time of the advisability of
particular actions, as well as on prevailing interest rates and financial and
other economic conditions and such other factors as Parent may deem appropriate.
10. DIVIDENDS AND DISTRIBUTIONS. If, on or after November 5, 1998, the
Company should declare or pay any dividend on the Shares or make any other
distribution (including the issuance of additional shares of capital stock
pursuant to a stock dividend or stock split, the issuance of other securities or
the issuance of rights for the purchase of any securities) with respect to the
Shares that is payable or distributable to shareholders of record on a date
prior to the transfer to the name of Purchaser or its nominee or transferee on
the Company's stock transfer records of the Shares purchased pursuant to the
Offer other than regular quarterly dividends on the Shares declared and paid at
times consistent with past practice and in an amount not in excess of $0.025 per
Share, then, without prejudice to Purchaser's rights under "THE TENDER
OFFER -- Section 12. Certain Conditions of the Offer", (i) the purchase price
per Share payable by Purchaser pursuant to the Offer will be reduced (subject to
the Merger Agreement) to the extent any such dividend or distribution is payable
in cash and (ii) any non-cash dividend, distribution or right shall be received
and held by the tendering shareholder for the account of Purchaser and will be
required to be promptly remitted and transferred by each tendering shareholder
to the Depositary for the account of Purchaser, accompanied by appropriate
documentation of transfer. Pending such remittance and subject to applicable
law, Purchaser will be entitled to all the rights and privileges as owner of any
such non-cash dividend, distribution or right and may withhold the entire
purchase price or deduct from the purchase price the amount or value thereof, as
determined by Purchaser in its sole discretion.
11. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, THE NYSE AND
EXCHANGE ACT REGISTRATION. The purchase of Shares by Purchaser pursuant to the
Offer will reduce the number of Shares that might otherwise trade publicly and
will reduce the number of holders of Shares, which could adversely affect the
liquidity and market value of the remaining Shares held by the public.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the NYSE for continued listing and
may be delisted from the NYSE. Parent intends to cause the delisting of the
Shares by the NYSE following consummation of the Offer.
According to the NYSE's published guidelines, the NYSE would consider
delisting the Shares if, among other things, the number of record holders of at
least 100 Shares should fall below 1,200, the number of publicly held Shares
(exclusive of holdings of officers, directors and their families and other
concentrated holdings of 10% or more ("NYSE Excluded Holdings")) should fall
below 600,000 or the aggregate market value of publicly held Shares (exclusive
of NYSE Excluded Holdings) should fall below $5,000,000. The Company has advised
Purchaser that, as of November 6, 1998, there were 38,758,000 Shares
outstanding, held by approximately 295 holders of record. If, as a result of the
purchase of Shares pursuant to the Offer or otherwise, the Shares no longer meet
the requirements of the NYSE for continued listing and the listing of the Shares
is discontinued, the market for the Shares could be adversely affected.
If the NYSE were to delist the Shares, it is possible that the Shares would
continue to trade on another securities exchange or in the over-the-counter
market and that price or other quotations would be reported by such exchange or
through the National Association of Securities Dealers Automated Quotation
System or other sources. The extent of the public market therefor and the
availability of such quotations would depend, however, upon such factors as the
number of shareholders and/or the aggregate market value of such securities
remaining at such time, the interest in maintaining a market in the Shares on
the part of securities firms, the possible termination of registration under the
Exchange Act as described below, and other factors. Purchaser cannot predict
whether the reduction in the number of Shares that might otherwise trade
publicly would have an adverse or beneficial effect on the market price for or
marketability of the Shares or whether it would cause future market prices to be
greater or less than the Merger Consideration.
The Shares are currently "margin securities", as such term is defined under
the rules of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), which has the effect, among other things, of allowing brokers
to extend credit on the collateral of such securities. Depending upon factors
similar to those described above regarding listing and market quotations,
following the Offer it is possible that the
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<PAGE> 52
Shares might no longer constitute "margin securities" for purposes of the margin
regulations of the Federal Reserve Board, in which event such Shares could no
longer be used as collateral for loans made by brokers.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by the Company to the Commission
if the Shares are not listed on a national securities exchange and there are
fewer than 300 record holders. The termination of the registration of the Shares
under the Exchange Act would substantially reduce the information required to be
furnished by the Company to holders of Shares and to the Commission and would
make certain provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b), the requirement of furnishing a proxy
statement in connection with shareholders' meetings and the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions, no
longer applicable to the Shares. In addition, "affiliates" of the Company and
persons holding "restricted securities" of the Company may be deprived of the
ability to dispose of such securities pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended. If registration of the Shares under the
Exchange Act were terminated, the Shares would no longer be "margin securities"
or be eligible for NYSE reporting. Purchaser currently intends to seek to cause
the Company to terminate the registration of the Shares under the Exchange Act
as soon after consummation of the Offer as the requirements for termination of
registration are met.
12. CERTAIN CONDITIONS OF THE OFFER. Purchaser shall not, without the
consent of the Special Committee, accept for payment any Shares tendered
pursuant to the Offer unless at least a majority of the then issued and
outstanding Shares, without regard to the Parent Shares, shall have been validly
tendered and not withdrawn prior to the expiration of the Offer. Notwithstanding
any other provision of the Offer, Purchaser shall not be required to accept for
payment or, subject to the applicable rules and regulations of the Commission,
including Rule 14e-1(c) under the Exchange Act, pay for any Shares tendered
pursuant to the Offer, and may terminate or amend the Offer and may postpone the
acceptance for payment of or the payment for any Shares tendered, if (i) the
Minimum Condition shall not have been satisfied or (ii) at any time on or after
November 5, 1998, and prior to the acceptance for payment of any Shares, any of
the following conditions shall exist:
(a) there shall have been instituted or be pending any action or
proceeding before any Governmental Entity (i) challenging or seeking to
make illegal, materially delay or otherwise directly or indirectly restrain
or prohibit or make materially more costly the making of the Offer, the
acceptance for payment of, or the payment for, any Shares by Parent,
Purchaser or any other affiliate of Parent or the consummation of any other
transaction contemplated by the Merger Agreement or seeking to obtain
material damages in connection with any transaction contemplated by the
Merger Agreement; (ii) seeking to prohibit or limit materially the
ownership or operation by the Company, Parent or any of their subsidiaries
of all or any material portion of the business or assets of the Company,
Parent or any of their subsidiaries, or to compel the Company, Parent or
any of their subsidiaries to dispose of or hold separate all or any
material portion of the business or assets of the Company, Parent or any of
their subsidiaries, as a result of the transactions contemplated by the
Merger Agreement; (iii) seeking to impose or confirm limitations on the
ability of Parent, Purchaser or any other affiliate of Parent to exercise
effectively full rights of ownership of any Shares, including, without
limitation, the right to vote any Shares acquired by Purchaser pursuant to
the Offer or otherwise on all matters properly presented to the Company's
shareholders, including, without limitation, the approval and adoption of
the Merger Agreement and the transactions contemplated thereby; or (iv)
seeking to require divestiture by Parent, Purchaser or any other affiliate
of Parent of any Shares;
(b) there shall have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction or
other Law enacted, entered, enforced, promulgated, amended, issued or
deemed applicable to (i) Parent, the Company or any subsidiary or affiliate
of Parent or the Company or (ii) any transaction contemplated by the Merger
Agreement, by any Governmental Entity which has resulted, or is reasonably
likely to result, directly or indirectly, in any of the consequences
referred to in clauses (i) through (iv) of paragraph (a) above;
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<PAGE> 53
(c) there shall have occurred any changes, conditions, events or
developments that, individually or in the aggregate, have a Material
Adverse Effect (as defined in the Merger Agreement);
(d) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities listed on the NYSE, (ii) any
decline in excess of 30%, measured from November 5, 1998, in the Standard &
Poor's 500 Index, (iii) any material adverse change in United States
currency exchange rates, (iv) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or the
Republic of France (whether or not mandatory), (v) any limitation (whether
or not mandatory) by any Governmental Entity on, or other event that in the
reasonable judgment of Parent might affect, the extension of credit by
banks or other lending institutions, (vi) a commencement of war or armed
hostilities or other national or international calamity directly or
indirectly involving the United States or the Republic of France, or (vii)
in the case of any of the foregoing, other than clause (ii), existing on
November 5, 1998, a material acceleration or worsening thereof;
(e) (i) the Special Committee shall have withdrawn or modified in a
manner that is, in the reasonable judgment of Parent, materially adverse to
Parent or Purchaser (including by way of any amendment to the Schedule
14D-9) its recommendation of the Offer, the Merger or the Merger Agreement
or (ii) the Special Committee shall have resolved to do any of the
foregoing;
(f) any representation or warranty of the Company in the Merger
Agreement which is qualified as to materiality shall not be true and
correct in all respects or any such representation or warranty that is not
so qualified shall not be true and correct in any material respect, in each
case as if such representation or warranty was made as of such time on or
after the date of the Merger Agreement;
(g) the Company shall have breached or failed to perform in any
material respect any obligation or to comply in any material respect with
any agreement or covenant of the Company to be performed or complied with
by it under the Merger Agreement;
(h) the Merger Agreement shall have been terminated in accordance with
its terms; or
(i) Parent, Purchaser and the Company (with the approval of the
Special Committee) shall have agreed that Purchaser shall terminate the
Offer or postpone the acceptance for payment of or the payment for Shares
thereunder;
which, in the sole judgment of Purchaser in any such case, and regardless of the
circumstances (excluding, for purposes of paragraphs (c), (f) and (g) above, any
action or inaction by Parent or any of its affiliates) giving rise to any such
condition, makes it inadvisable to proceed with such acceptance for payment or
payment.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent and Purchaser regardless of the circumstances
giving rise to any such condition or, other than the Minimum Condition, may be
waived by Parent and Purchaser in whole or in part at any time and from time to
time in their sole discretion. The failure by Parent or Purchaser at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right; the waiver of any such right with respect to particular facts and
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
13. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.
General. Based upon its examination of publicly available information with
respect to the Company and the review of certain information furnished by the
Company to Parent and discussions of representatives of Parent with
representatives of the Company during Parent's investigation of the Company (see
"SPECIAL FACTORS -- Background of the Offer and the Merger"), neither Purchaser
nor Parent is aware of any license or other regulatory permit that appears to be
material to the business of the Company and the Subsidiaries, taken as a whole,
which might be adversely affected by the acquisition of Shares by Purchaser
pursuant to the Offer or, except as set forth below, of any approval or other
action by any domestic (federal or state) or foreign governmental,
administrative or regulatory authority or agency which would be required prior
to the acquisition of Shares by Purchaser pursuant to the Offer. Should any such
approval or other action be required, it is Purchaser's present intention to
seek such approval or action. Purchaser does not currently
50
<PAGE> 54
intend, however, to delay the purchase of Shares tendered pursuant to the Offer
pending the outcome of any such action or the receipt of any such approval
(subject to Purchaser's right to decline to purchase Shares if any of the
conditions in "THE TENDER OFFER -- Section 12. Certain Conditions of the Offer"
shall have occurred). There can be no assurance that any such approval or other
action, if needed, would be obtained without substantial conditions or that
adverse consequences might not result to the business of the Company, Purchaser
or Parent or that certain parts of the businesses of the Company, Purchaser or
Parent might not have to be disposed of or held separate or other substantial
conditions complied with in order to obtain such approval or other action or in
the event that such approval was not obtained or such other action was not
taken. Purchaser's obligation under the Offer to accept for payment and pay for
Shares is subject to certain conditions, including conditions relating to the
legal matters discussed in this Section 13. See "THE TENDER OFFER -- Section 12.
Certain Conditions of the Offer".
State Anti-Takeover Laws. The Company is incorporated under the laws of
the Commonwealth of Pennsylvania. The Pennsylvania legislature has enacted a
number of anti-takeover statutes designed to make corporate takeovers more
difficult under certain circumstances. The Company has opted out of the
application of the Control Transactions Statute, the Business Combination
Statute, the Control Share Acquisition Statute and the Disgorgement Statute
(Subchapters E, F, G and H, respectively, of Chapter 25 of the PBCL). Opting out
of the Control Share Acquisition Statute also has the effect of making
Subchapters I and J of the PBCL, which relate to certain labor matters,
inapplicable. Accordingly, there are no statutorily-imposed supermajority
shareholder voting requirements applicable to the Merger.
In addition, Pennsylvania has adopted a Takeover Disclosure Law which
purports to regulate attempts to acquire a corporation which (i) is incorporated
in Pennsylvania or (ii) has its principal place of business and substantial
assets located in Pennsylvania. Because the Board has recommended acceptance of
the Offer, the Offer is exempt from the registration requirements of such law,
provided that certain information is filed with the Pennsylvania Securities
Commission and Purchaser undertakes to notify the Company's shareholders that
such filing must be made with the Pennsylvania Securities Commission, must
include substantial additional information about the Offer and must be available
for inspection at the offices of the Pennsylvania Securities Commission, 1010 N.
7th Street, 2nd Floor, Harrisburg, Pennsylvania 17102, during normal business
hours. Purchaser intends to make such filing, and the distribution of this Offer
to the Company's shareholders constitutes the required notification to them.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, shareholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. In Edgar v. MITE Corp., the Supreme Court of
the United States invalidated on constitutional grounds the Illinois Business
Takeover Statute, which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. However, in 1987 in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of
Indiana may, as a matter of corporate law and, in particular, with respect to
those aspects of corporate law concerning corporate governance, constitutionally
disqualify a potential acquiror from voting on the affairs of a target
corporation without the prior approval of the remaining shareholders. The state
law before the Supreme Court was by its terms applicable only to corporations
that had a substantial number of shareholders in the state and were incorporated
there.
The Company, directly or through subsidiaries, conducts business in a
number of states throughout the United States, some of which have enacted
anti-takeover laws. Purchaser does not know whether any of these laws will, by
their terms, apply to the Offer or the Merger and has not complied with any such
laws. Should any person seek to apply any state anti-takeover law, Purchaser
will take such action as then appears desirable, which may include challenging
the validity or applicability of any such statute in appropriate court
proceedings. In the event it is asserted that one or more state anti-takeover
laws are applicable to the Offer or the Merger, and an appropriate court does
not determine that it is inapplicable or invalid as applied to the Offer,
Purchaser might be required to file certain information with, or receive
approvals from, the relevant state authorities. In addition, if enjoined,
Purchaser might be unable to accept for payment any Shares tendered pursuant to
the Offer, or be delayed in continuing or consummating the Offer and the Merger.
In
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such case, Purchaser may not be obligated to accept for payment any Shares
tendered. See "THE TENDER OFFER -- Section 12. Certain Conditions of the Offer".
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules that have been promulgated thereunder by the Federal
Trade Commission (the "FTC"), certain transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the FTC and certain waiting
period requirements have been satisfied. The acquisition of Shares by Purchaser
pursuant to the Offer, however, is not subject to such requirements because
Parent currently owns in excess of 50% of the issued and outstanding Shares. See
"THE TENDER OFFER -- Section 2. Acceptance for Payment and Payment for Shares".
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
Purchaser pursuant to the Offer. At any time before or after the purchase of
Shares pursuant to the Offer by Purchaser, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or seeking the divestiture of Shares purchased by
Purchaser or the divestiture of substantial assets of Parent, the Company or
their respective subsidiaries. Private parties and state attorneys general may
also bring legal action under federal or state antitrust laws under certain
circumstances. Based upon an examination of information available to Parent
relating to the businesses in which Parent, the Company and their respective
subsidiaries are engaged, Parent and Purchaser believe that the Offer will not
violate the antitrust laws. Nevertheless, there can be no assurance that a
challenge to the Offer on antitrust grounds will not be made or, if such a
challenge is made, what the result would be. See "THE TENDER OFFER -- Section
12. Certain Conditions of the Offer".
14. FEES AND EXPENSES. Except as set forth below, Purchaser will not pay
any fees or commissions to any broker, dealer or other person for soliciting
tenders of Shares pursuant to the Offer.
Morgan Stanley is acting as Dealer Manager in connection with the Offer and
has provided certain financial advisory services in connection with the
acquisition of the Shares. See "SPECIAL FACTORS -- Analysis of Financial Advisor
to Parent."
Purchaser and Parent have retained Innisfree M&A Incorporated as the
Information Agent and Harris Trust Company of New York as the Depositary in
connection with the Offer. The Information Agent may contact holders of Shares
by mail, telephone, telecopy, telegraph and personal interview and may request
banks, brokers, dealers and other nominee shareholders to forward materials
relating to the Offer to beneficial owners.
As compensation for acting as Information Agent in connection with the
Offer, Innisfree M&A Incorporated will be paid a fee of $10,000 and will also be
reimbursed for certain out-of-pocket expenses and may be indemnified against
certain liabilities and expenses in connection with the Offer, including certain
liabilities under the federal securities laws. Purchaser will pay the Depositary
reasonable and customary compensation for its services in connection with the
Offer, plus reimbursement for out-of-pocket expenses, and will indemnify the
Depositary against certain liabilities and expenses in connection therewith,
including certain liabilities under federal securities laws. Brokers, dealers,
commercial banks and trust companies will be reimbursed by Purchaser for
customary handling and mailing expenses incurred by them in forwarding material
to their customers.
15. MISCELLANEOUS. Purchaser is not aware of any jurisdiction where the
making of the Offer is prohibited by any administrative or judicial action
pursuant to any valid state statute. If Purchaser becomes aware of any valid
state statute prohibiting the making of the Offer or the acceptance of Shares
pursuant thereto, Purchaser will make a good faith effort to comply with any
such state statute. If, after such good faith effort, Purchaser cannot comply
with any such state statute, the Offer will not be made to (nor will tenders be
accepted from or on behalf of) the holders of Shares in such state. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of Purchaser by the Dealer Manager or by one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER, PARENT OR THE COMPANY NOT CONTAINED IN
THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
Pursuant to Rule 14d-3 under the Exchange Act, Parent and Purchaser have
filed with the Commission the Schedule 14D-1, together with exhibits, furnishing
certain additional information with respect to the Offer. Pursuant to Rule 14d-9
under the Exchange Act, the Company has filed with the Commission the Schedule
14D-9 with respect to the Offer, and may file amendments thereto. Parent,
Purchaser and the Company have filed a statement on Schedule 13E-3 with respect
to the Offer, and may file amendments thereto. Such statements, including
exhibits and any amendments thereto, which furnish certain additional
information with respect to the Offer, may be inspected at, and copies may be
obtained from, the same places and in the same manner as set forth in "THE
TENDER OFFER -- Section 7. Certain Information Concerning the Company" (except
that they will not be available at the regional offices of the Commission).
ICE ACQUISITION CORP.
November 12, 1998
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
PARENT, PURCHASER AND THE COMPANY
1. Directors and Executive Officers of Parent. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Parent. Unless otherwise indicated, the
current business address of each person is 11-13, cours Valmy, 92070 La Defense
Cedex, France. Unless otherwise indicated, each such person is a citizen of the
Republic of France.
A. DIRECTORS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- -------------------------------------------
<S> <C>
Francis Mer................... Director, Chairman of the Board and Chief Executive Officer
of Parent (since 1987); Director of the Company (U.S.A.);
Director of Credit Lyonnais (France); President of Eurofer,
the European steel industry trade association (1990 to
1997); President of the French Steel Federation.
Gerard Beranger............... Director of Parent (since 1986); Professor, Compiegne
c/o Universite de Technologie University of Technology; Director of EDP Sciences S.A.
de Compiegne (France); Director of Societe Francaise de Metallurgie et de
Departement de Genie Mecanique Materiaux.
B.P. 20529
60205 Compiegne Cedex (France)
Serge Boidevaix............... Director of Parent (since 1995); Ambassador of France;
c/o S.B. Consultant General Manager of S.B. Consultant (France); Director of
8, rue des Eaux Bureau Veritas (1995-1998)(France); Member of the
75016 Paris, France International Committee of Banque Paribas (1996-1998)
(France); Member of French Conseil d'Etat (1993-1997);
President of the Atlas Tiger Fund (Atlas Finance Group) in
Paris.
Jean Brunner.................. Director of Parent (since 1995), representing employee
c/o SOLLAC Florange shareholders; Employee of the Usinor group.
(Usinor group)
B.P. 70011
57191 Florange Cedex, France
Viviane Claux................. Director of Parent (since 1995); Employee of the Usinor
c/o Sollac (Usinor group) group.
Route de Saint Leu
60160 Montataire, France
</TABLE>
I-1
<PAGE> 58
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- -------------------------------------------
<S> <C>
Compagnie Generale de COGEMA: Director of Parent (since 1995); Director of:
Matieres.................... Compagnie Europeenne du Zirconium (CEZUS); Compagnie
Nucleaires (COGEMA), Francaise de Mokta; Compagnie Miniere d'Akouta; Compagnie
represented by des Mines d'Uranium de Franceville; Compagnie Nucleaire de
Jean Syrota Services CNS; Societe de la Conversion de l'Uranium en Metal
c/o COGEMA et Hexafluorure (COMURHEX); Societe Generale pour les
2, rue Paul Dautier Techniques Nouvelles; Societe Industrielle de Combustible
78140 Velizy-Villacoublay, Nucleaire; Codem (GIE); Societe de Financement de la Route
France Tahoua-Arlit (SFRTA); Societe Concessionnaire de la Route
Tahoua-Arlit (CONCERTA); Societe Industrielle des Minerais
de l'Ouest; Societe des Mines de l'Air, Transnucleaire;
Melox; Cerca; Societe Franco-Iranienne pour l'enrichissement
de l'Uranium par Diffusion Gazeuse (SOFIDIF); Societe pour
le Conditionnement des Dechets et Effluents Industriels,
Member of Supervisory Board of Eurodif; Manager of: Cogema
et Framatome; Societe Franco-Belge de Fabrication de
Combustibles; Zircotube.
Jean Syrota: COGEMA's representative on the board of Parent
(since 1995); Director of Total (since 1993)(France), CEA
(since 1993) (France), SAGEM (since 1996)(France) and ERAP
(since 1998) (France); Director and member of the Management
Committee of Framatome S.A. (since 1989)(France).
Pierre Coletti................ Director of Parent (since 1995); Employee of the Usinor
c/o Unimetal Gandrange group.
(Usinor group)
25, rue de l'Usine
57120 Rombas, France
Credit Lyonnais, represented Credit Lyonnais: Director of Parent (since 1995); Director
by.......................... and Member of the Supervisory Board of a large number of
Jean-Yves Durance companies. Jean-Yves Durance: Representative of Credit
c/o Credit Lyonnais Lyonnais on the Board of Parent; Deputy General Manager of
Tour Ariane Credit Lyonnais; Chairman of Slivarente; Director of Marceau
5, place de la Pyramide Investissements; Director of Sopartech; Representative of
92088 Paris La Defense Cedex, Credit Lyonnais on the board of Finalion; Member of the
France Supervisory Board of Clinvest and Pinault-Printemps-Redoute.
Electricite de France EDF: Director of Parent (since 1995); Director of Centrale
(EDF),...................... de Richemont; Codem; Compagnie d'Applications et de
represented by Francois Realisations Thermiques et Hydrauliques; Compagnie Nationale
Roussely du Rhone; EDF International; H4Holding; Institut Electricite
c/o EDF Sante; Member of the Supervisory Board of Air Services;
32, rue Monceau Immocec.
75008 Paris, France Francois Roussely: Representative of EDF on the board of
Parent (since 1998); Chairman of EDF; Secretary General of
the Administration at the Ministry of Defense (1991-1997);
Secretary General of SNCF (1997); Chief of Staff of Ministry
of Defense (1997-1998).
Alain Etchegoyen.............. Director of Parent (since 1995); Professor of Philosophy
9, avenue Franklin Roosevelt (since 1981); Professional consultant; Member of the Ethics
75008 Paris, France Committee of the French Republic (since July 1998); Advisor
to the Minister of Education (May 1997-February 1998);
Professor of Business Ethics (1993-1995).
</TABLE>
I-2
<PAGE> 59
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- -------------------------------------------
<S> <C>
Roger Fauroux................. Director of Parent (since 1995); Honorary President of Saint
c/o Saint Gobain Gobain (France); Director of Commercial Union (1992-1996)
Les Miroirs (United Kingdom), Siemens AG (1993-1997) (Germany), Saint
92096 Le Defense Cedex, France Gobain Corp. (since 1992) (U.S.A.) and Commercial Union
France (since 1994) (France).
Arnaud Leenhard............... Director of Parent (since 1995); President of the Union des
c/o Union des Industries Industries Metallurgiques et Minieres (France); President of
Metallurgiques et Minieres the Supervisory Board of Vallourec (since 1994) (France);
56, avenue de Wagram Vice-President of MEDEF (since 1988).
75017 Paris, France
Lucchini International S.A., Lucchini International S.A.; Director of Parent (since
an.......................... 1995).
Italian corporation, Giuseppe Lucchini; Representative of Lucchini International
represented S.A. on the Board of Parent; President of Lucchini
by Giuseppe Lucchini, an International S.A. (Italy); Vice-President of Lucchini
Italian individual S.p.A. (Italy); Director of Credito Agrario Bresciano S.p.A.
c/o Lucchini International (Italy).
S.A.
Via Oberdan n. l/A
25128 Brescia, Italy
Robert W. Murdoch, a Director of Parent (since 1995); Professional consultant;
Canadian.................... Director of Lafarge S.A. (since 1993)(France) and Lafarge
individual Corporation (since 1987) (U.S.A.).
706, South Union Street
Alexandria, Virginia 22314,
U.S.A.
Simon Murray, an English...... Director of Parent (since 1995); Chairman of General
individual Enterprise Management Services (HK) Ltd.; Chairman of
Room 2901 Deutsche Bank Group for the Asian Pacific Region (until May
Sino Plaza 255-257 Gloucester 1998); Deputy Chairman of the Board of Directors of China
Road North Industries Investment Ltd.; Member of the
Causeway Bay, Hong Kong International Advisory Board of General Electric
Corporation.
Rene Thomas................... Director of Parent (since 1995); Honorary President of
c/o Banque Nationale de Paris Banque Nationale de Paris (France); Director of Essilor
16, boulevard des Italiens (since 1997) (France), Saint Gobain (1987-1997) (France),
75009 Paris, France Banque Nationale de Paris (1982-1993) (France) and Vivendi
(since 1984) (France).
Alain Zochowski............... Director of Parent (since 1995); Employee of the Usinor
c/o Unimetal Gandrange group.
(Usinor group)
BP3
57360 Amneville, France
</TABLE>
B. EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- -------------------------------------------
<S> <C>
Francis Mer................... Director, Chairman of the Board and Chief Executive Officer
of Parent (since 1987); Director of the Company (U.S.A.);
Director of Credit Lyonnais (France); President of Eurofer,
the European steel industry trade association (1990 to
1997); President of the French Steel Federation.
</TABLE>
I-3
<PAGE> 60
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- -------------------------------------------
<S> <C>
Guy Dolle..................... Member of the Executive Committee of Parent; Deputy General
Manager of Parent in charge of the Ugine division; Chairman
and Chief Executive Officer of Unimetal, a subsidiary of
Parent (1993-1995); Deputy General Manager of Parent in
charge of Strategy and Planning (1995-1997); Responsible for
the Stainless Steel and Alloys business of Parent since
September 1997; Chairman of the Company since September
1997.
Jean-Claude
Georges-Francois............ Member of the Executive Committee of Parent; Deputy General
Manager of Parent in charge of Human Resources, Regional
Industrial Development and Corporate Communication; Delegate
General of the French Steel Federation (1993-1998).
Robert Hudry.................. Member of the Executive Committee of Parent; Deputy General
Manager of Parent in charge of Finance, Legal Affairs and
Information Systems; Director of the Company (since 1990).
Francois Labadens............. Member of the Executive Committee of Parent; Corporate
Secretary of Parent and Secretary of the Board of Parent;
Director of Corporate Communications of Parent (1986-1996).
Edmond Pachura................ Member of the Executive Committee of Parent, in charge of
the Flat Carbon Steels business; Chairman and Chief
Executive Officer of Sollac (since 1985).
Bernard Rogy.................. Member of the Executive Committee of Parent in charge of
Specialty Steels; Chairman of Aster (since 1995); Chairman
of Ascometal (since 1988); Chairman of Unimetal (since
1995); Chairman of Creusot Loire Industrie (since 1993).
</TABLE>
2. Directors and Executive Officers of Purchaser. The following table
sets forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Purchaser. Unless otherwise indicated, the
current business address of each person is 11-13, cours Valmy, 92070 La Defense
Cedex, France. Unless otherwise indicated, each such person is a citizen of the
Republic of France.
A. DIRECTORS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- -------------------------------------------
<S> <C>
Guy Dolle..................... Director of Purchaser; Member of the Executive Committee of
Parent; Deputy General Manager of Parent in charge of the
Ugine division; Chairman and Chief Executive Officer of
Unimetal, a subsidiary of Parent (1993-1995); Deputy General
Manager of Parent in charge of Strategy and Planning
(1995-1997); Responsible for the Stainless Steel and Alloys
business of Usinor since September 1997; Chairman of the
Company since September 1997.
Robert Hudry.................. Director of Purchaser; Member of the Executive Committee of
Parent; Deputy General Manager of Parent in charge of
Finance, Legal Affairs and Information Systems (since 1995);
Director of the Company (since 1990); Chief Financial
Officer of Parent (1987-1995).
</TABLE>
I-4
<PAGE> 61
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- -------------------------------------------
<S> <C>
Jean-Didier Dujardin.......... Director of Purchaser; Chief Financial Officer of Ugine
(since December 1993); Director of Societe Meusienne de
Construction Mecanique (since February 1996) (France);
Director of Ugine Savoie (since October 1996) (France);
Director of the Company (since 1995).
</TABLE>
B. EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- -------------------------------------------
<S> <C>
Guy Dolle..................... President of Purchaser; Member of the Executive Committee of
Parent; Deputy General Manager of Parent in charge of the
Ugine division; Chairman and Chief Executive Officer of
Unimetal, a subsidiary of Parent (1993-1995); Deputy General
Manager of Parent in charge of Strategy and Planning
(1995-1997); Responsible for the Stainless Steel and Alloys
business of Parent since September 1997; Chairman of the
Company since September 1997.
Robert Hudry.................. Vice-President of Purchaser; Member of the Executive
Committee of Parent; Deputy General Manager of Parent in
charge of Finance, Legal Affairs and Information Systems;
Director of the Company (since 1990).
Jean-Didier Dujardin.......... Treasurer of Purchaser; Chief Financial Officer of Ugine
(since December 1993); Director of Societe Meusienne de
Construction Mecanique (since February 1996) (France);
Director of Ugine Savoie (since October 1996) (France);
Director of the Company (since 1995).
Guillaume Vercaemer........... Secretary of Purchaser; Legal Counsel of Parent; Legal
Counsel, Schlumberger (1993-1996) (France).
</TABLE>
3. Directors and Executive Officers of the Company. The following table
sets forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of the Company. Unless otherwise indicated, the
current business address of each person is One PPG Place, Box 3373, Pittsburgh,
PA 15230-3373. Unless otherwise indicated, each such person is a citizen of the
United States of America.
I-5
<PAGE> 62
A. DIRECTORS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- -------------------------------------------
<S> <C>
Pierre F. de Ravel Director of the Company (since 1990); Partner in the law
d'Esclapon.................. firm of LeBoeuf, Lamb, Greene & MacRae (since 1992).
William S. Dietrich, II....... Director of the Company (since 1998); President and Chief
c/o Dietrich Industries, Inc. Executive Officer of Dietrich Industries, Inc. (1967-1997);
One Mellon Bank Center Director of Worthington Industries, Inc. and Carpenter
Suite 2226 Technology Corporation.
500 Grant Street
Pittsburgh, PA 15219
Guy R. Dolle*................. Chairman of the Board (since 1997); Member of the Executive
11-13, cours Valmy Committee of Parent; Deputy General Manager of Parent in
92070 La Defense Cedex charge of the Ugine division; Chairman and Chief Executive
France Officer of Unimetal, a subsidiary of Parent (1993-1995);
Deputy General Manager of Parent in charge of Strategy and
Planning (1995-1997); Responsible for the Stainless Steel
and Alloys business of Parent since September 1997.
Jean-Didier Dujardin*......... Director of the Company (since 1995); Chief Financial
11-13, cours Valmy Officer of Ugine (since December 1993); Director of Societe
92070 La Defense Cedex Meusienne de Construction Mecanique (since February 1996);
France Director of Ugine Savoie (since October 1996).
Robert Hudry*................. Director of the Company (since 1990); Vice President of
11-13, cours Valmy Purchaser; Member of the Executive Committee of Parent;
92070 La Defense Cedex Deputy General Manager of Parent in charge of Finance, Legal
France Affairs and Information Systems since 1995; Chief Financial
Officer of Parent from 1987 to 1995.
Michel Le Page*............... Director of the Company (since 1996); Vice President,
11-13, cours Valmy Marketing Stainless Steel Flat Products of Ugine (since
92070 La Defense Cedex 1989).
France
Michel J. Longchampt*......... Director of the Company (since 1990); Retired President and
11-13, cours Valmy Chief Executive Officer of Francosteel Company (1976-1997);
92070 La Defense Cedex Chairman and Chief Executive Officer of Francosteel Company
France (1997); Director of The France Growth Fund, a closed-end
mutual fund.
Gerard Martel*................ Director of the Company (since 1996); Executive Vice
11-13, cours Valmy President of Ugine (since 1996); Chairman and Chief
92070 La Defense Cedex Executive Officer of La Meusienne, a wholly-owned subsidiary
France of Parent (1988-1996).
Francis Mer*.................. Director of the Company (since 1990); Director, Chairman of
11-13, cours Valmy the Board and Chief Executive Officer of Parent (since
92070 La Defense Cedex 1987); Director of Credit Lyonnais (France); President of
France Eurofer, the European steel industry trade association (1990
to 1997); President of the French Steel Federation.
Gerard Picard*................ Director of the Company (since 1998); President of
11-13, cours Valmy Francosteel Corporation (since January 1998); Executive
92070 La Defense Cedex Director -- Commercial Department of Sollac (1997); Deputy
France Managing Director of Arus, a Parent sales joint venture
(1993-1996); Director of Financial Services of Parent
(1989-1993).
</TABLE>
I-6
<PAGE> 63
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- -------------------------------------------
<S> <C>
Eugene A. Salvadore........... Director of the Company (since 1996); President and Chief
Executive Officer of the Company (since January 1, 1998);
President and Chief Operating Officer (1995-1997); Vice
President -- Operations (1993-1995); General
Manager -- Operations of the Company (1992-1993).
John J. Sheehan............... Director of the Company (since 1996); Legislative Director
and Assistant to the President of the United Steelworkers of
America until his retirement in 1996.
*Citizen of the Republic of
France.
</TABLE>
B. EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- -------------------------------------------
<S> <C>
Daryl K. Fox.................. Vice President -- Human Resources of the Company since June
1993. From June 1991 to May 1993, Mr. Fox was General
Manager, Industrial Relations at LTV Steel Railroads, a
division of LTV Steel.
Paul J. Grandy................ Vice President -- Engineering of the Company since June
1996. Prior thereto, Mr. Grandy was Vice
President -- Engineering at Lukens, Inc. Mr. Grandy was
Director -- Engineering of the Company from 1986 to 1992,
when he left to join Lukens.
Gerald L. Kosko............... Vice President -- Purchasing and Traffic of the Company
since 1986.
David G. Pudelsky............. Vice President -- Commercial of the Company since October
19, 1998. From 1993 until his employment by the Company, Mr.
Pudelsky was Director of Marketing-Sheet of Allegheny
Teledyne, Inc.
Eugene A. Salvadore........... President and Chief Executive Officer of the Company since
January 1, 1998. Prior thereto, Mr. Salvadore served as
President and Chief Operating Officer from July 1, 1995
until December 31, 1997. From April 1993 through June 1995,
Mr. Salvadore served as Vice President -- Operations. From
June 1992 to April 1993, Mr. Salvadore was General
Manager -- Operations of the Company.
Kirk F. Vincent............... Executive Vice President, Finance and Administration and
Chief Financial Officer of the Company since January 1,
1998. From December 1991 through December 31, 1997, Mr.
Vincent was Vice-President -- Finance and Law of the
Company.
John A. Wallace............... Vice President -- Operations of the Company since 1995. From
1986 through 1995, Mr. Wallace was Plant Manager of the
Company's Midland Plant.
</TABLE>
I-7
<PAGE> 64
SCHEDULE II
[LEHMAN BROTHERS LETTERHEAD]
November 5, 1998
Special Committee of the Board of Directors
J&L Specialty Steel, Inc.
One PPG Place, 18th Floor
P.O. Box 3373
Pittsburgh, PA 15230-3373
Members of the Special Committee of the Board of Directors:
We understand that Usinor, a societe anonyme organized under the laws of
the Republic of France ("Usinor"), Ice Acquisition Corp., a direct wholly owned
subsidiary of Usinor ("Purchaser"), and J&L Specialty Steel, Inc. ("J&L" or
the "Company") intend to enter into an Agreement and Plan of Merger (the
"Agreement") pursuant to which Purchaser will commence a cash tender offer (the
"Offer") to purchase all of the issued and outstanding shares of the Company's
common stock not owned by Usinor or any of its subsidiaries at $6.375 per share
in cash (the "Offer Price"). Pursuant to the terms and subject to the conditions
of the Agreement, after consummation of the Offer, Purchaser will merge with and
into the Company (the "Merger" and, together with the Offer, the "Proposed
Transaction"). Upon effectiveness of the Merger, each issued and outstanding
share of the Company's common stock (other than (i) shares held in the Company's
treasury, (ii) shares held by Usinor or any of its subsidiaries, and (iii)
shares as to which dissenters' rights have been perfected) will be converted
into the right to receive an amount of cash equal to the Offer Price. The terms
and conditions of the Proposed Transaction are set forth in more detail in the
Agreement.
We have been requested by the Special Committee of the Board of Directors
of the Company (the "Special Committee") to render our opinion with respect to
the fairness, from a financial point of view, to the stockholders of the Company
other than Usinor and its subsidiaries (the "Public Stockholders") of the
consideration to be offered to such stockholders in the Proposed Transaction. We
have not been requested to opine as to, and our opinion does not in any manner
address, the Company's underlying business decision to proceed with or effect
the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) the annual report of the
Company for the fiscal year ended December 31, 1997 filed on Form 10-K, the
quarterly report of the Company for the fiscal
<PAGE> 65
November 5, 1998
Page 2
quarter ended June 30, 1998 filed on Form 10-Q, and such other publicly
available information concerning the Company as we believe to be relevant to our
analysis, (3) financial and operating information with respect to the business,
operations and prospects of the Company furnished to us by the Company, (4) a
trading history of the Company's common stock from December 14, 1993 (the date
of the Company's initial public offering) to the present and a comparison of
that trading history with those of other companies that we deemed relevant, (5)
a comparison of the historical financial results and present financial condition
of the Company with those of other companies that we deemed relevant, (6) a
comparison of the financial terms of the Proposed Transaction with the financial
terms of certain other transactions that we deemed relevant, (7) current
conditions of and forecasts for the industry in which the Company operates, and
(8) the Company's current cash flow forecast and limited cash position, its
ability to meet short-term liquidity requirements and to make longer-term
capital expenditures and the potential alternatives available to the Company to
fund such requirements and expenditures. In addition, we have had discussions
with the management of the Company concerning its industry, business,
operations, assets, liabilities, financial condition, liquidity and prospects
and have undertaken such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company that they
are not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the financial projections of the
Company, upon advice of the Company, we have assumed that such projections have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company and that the Company will perform
substantially in accordance with such projections. In arriving at our opinion,
we have conducted only a limited physical inspection of the properties and
facilities of the Company and have not made or obtained any evaluations or
appraisals of the assets or liabilities of the Company. In addition, you have
not authorized us to solicit, and we have not solicited any indications of
interest from any third party with respect to the purchase of all or a part of
the Company's business. Our opinion necessarily is based upon the market,
economic and other conditions as they exist on, and can be evaluated as of, the
date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
offered to the Public Stockholders in the Proposed Transaction is fair to the
Public Stockholders.
We have acted as financial advisor to the Special Committee in connection
with the Proposed Transaction and will receive a fee for our services which is
contingent in part upon the consummation of the Proposed Transaction. In
addition, the Company has agreed to indemnify us for certain liabilities that
may arise out of the rendering of this opinion. In the ordinary course of our
business, we may trade in the equity securities of the Company for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Special Committee and is
rendered to the Special Committee in connection with its consideration of the
Proposed Transaction. This opinion is not intended to be and does not constitute
a recommendation to any stockholder of the Company as to whether to accept the
consideration to be offered to such stockholder in connection with the Proposed
Transaction.
Very truly yours,
/s/ Lehman Brothers
-----------------------
LEHMAN BROTHERS
<PAGE> 66
SCHEDULE III
SECTIONS 1930(a) AND 1571-80
(SUBCHAPTER D OF CHAPTER 15)
OF THE PENNSYLVANIA BUSINESS CORPORATION LAW
SECTION 1930. DISSENTERS RIGHTS
(a) GENERAL RULE. -- If any shareholder of a domestic business corporation
that is to be a party to a merger or consolidation pursuant to a plan of merger
or consolidation objects to the plan of merger or consolidation and complies
with the provisions of Subchapter D of Chapter 15 (relating to dissenters
rights), the shareholder shall be entitled to the rights and remedies of
dissenting shareholders therein provided, if any. See also section 1906(c)
(relating to dissenters rights upon special treatment).
CHAPTER 15
SUBCHAPTER D. -- DISSENTERS RIGHTS
SECTION 1571. APPLICATION AND EFFECT OF SUBCHAPTER
(a) GENERAL RULE. -- Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedure).
(b) EXCEPTIONS. --
(1) Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting
at which a plan specified in any of section 1930, 1931(d), 1932(c) or
1952(d) is to be voted on, are either:
(I) listed on a national securities exchange; or
(II) held of record by more than 2,000 shareholders; shall not have
the right to obtain payment of the fair value of any such shares under
this subchapter.
III-1
<PAGE> 67
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of:
(i) Shares converted by a plan if the shares are not converted
solely into shares of the acquiring, surviving, new or other corporation
or solely into such shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles,
the plan or the terms of the transaction entitle all shareholders of the
class to vote thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a majority of
the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase,
lease, exchange or other disposition all or substantially all of the
shares, property or assets of another corporation by the issuance of
shares, obligations or otherwise, with or without assuming the liabilities
of the other corporation and with or without the intervention of another
corporation or other person, shall not be entitled to the rights and
remedies of dissenting shareholders provided in this subchapter regardless
of the fact, if it be the case, that the acquisition was accomplished by
the issuance of voting shares of the corporation to be outstanding
immediately after the acquisition sufficient to elect a majority or more of
the directors of the corporation.
(c) GRANT OF OPTIONAL DISSENTERS RIGHTS. -- The bylaws or a resolution of
the board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholders to dissenters
rights.
(d) NOTICE OF DISSENTERS RIGHTS. -- Unless otherwise provided by statute,
if a proposed corporate action that would give rise to dissenters rights under
this subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value
of their shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(e) OTHER STATUTES. -- The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) CERTAIN PROVISIONS OF ARTICLES INEFFECTIVE. -- This subchapter may not
be relaxed by any provision of the articles.
(g) CROSS REFERENCES. -- See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to a de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
SECTION 1572. DEFINITIONS
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"CORPORATION." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
III-2
<PAGE> 68
"FAIR VALUE." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects, taking into account all
relevant factors, but excluding any appreciation or depreciation in anticipation
of the corporate action.
"INTEREST." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
SECTION 1573. RECORD AND BENEFICIAL HOLDERS AND OWNERS
(a) RECORD HOLDERS OF SHARES. -- A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he dissents. In that event,
his rights shall be determined as if the shares as to which he has dissented and
his other shares were registered in the names of different shareholders.
(b) BENEFICIAL OWNERS OF SHARES. -- A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
SECTION 1574. NOTICE OF INTENTION TO DISSENT
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
SECTION 1575. NOTICE TO DEMAND PAYMENT
(a) GENERAL RULE. -- If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(b) TIME FOR RECEIPT OF DEMAND FOR PAYMENT. -- The time set for receipt of
the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
III-3
<PAGE> 69
SECTION 1576. FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(a) EFFECT OF FAILURE OF SHAREHOLDER TO ACT. -- A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575 (relating
to notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) RESTRICTION ON UNCERTIFICATED SHARES. -- If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
(c) RIGHTS RETAINED BY SHAREHOLDER. -- The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
SECTION 1577. RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES
(a) FAILURE TO EFFECTUATE CORPORATE ACTION. -- Within 60 days after the
date set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.
(b) RENEWAL OF NOTICE TO DEMAND PAYMENT. -- When the uncertificated shares
have been released from transfer restrictions and deposited certificates have
been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to demand
payment), with like effect.
(c) PAYMENT OF FAIR VALUE OF SHARES. -- Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) FAILURE TO MAKE PAYMENT. -- If the corporation does not remit the
amount of its estimate of the fair value of the shares as provided by subsection
(c), it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had after
making demand for payment of their fair value.
SECTION 1578. ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES
(a) GENERAL RULE. -- If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
III-4
<PAGE> 70
permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
(b) EFFECT OF FAILURE TO FILE ESTIMATE. -- Where the dissenter does not
file his own estimate under subsection (a) within 30 days after the mailing by
the corporation of its remittance or notice, the dissenter shall be entitled to
no more than the amount stated in the notice or remitted to him by the
corporation.
SECTION 1579. VALUATION PROCEEDINGS GENERALLY
(a) GENERAL RULE. -- Within 60 days after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section 1578 (relating
to estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(b) MANDATORY JOINDER OF DISSENTERS. -- All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) JURISDICTION OF THE COURT. -- The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) MEASURE OF RECOVERY. -- Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) EFFECT OF CORPORATION'S FAILURE TO FILE APPLICATION. -- If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
SECTION 1580. COSTS AND EXPENSES OF VALUATION PROCEEDINGS
(a) GENERAL RULE. -- The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, vexatious or in bad faith.
(b) ASSESSMENT OF COUNSEL FEES AND EXPERT FEES WHERE LACK OF GOOD FAITH
APPEARS. -- Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the corporation
and in favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of
III-5
<PAGE> 71
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted in bad faith or in a dilatory, obdurate, arbitrary
or vexatious manner in respect to the rights provided by this subchapter.
(c) AWARD OF FEES FOR BENEFITS TO OTHER DISSENTERS. -- If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefitted.
III-6
<PAGE> 72
SCHEDULE IV
AUDITED FINANCIAL STATEMENTS
(AND RELATED NOTES) FOR THE COMPANY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
IV-1
<PAGE> 73
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors,
J&L Specialty Steel, Inc.:
We have audited the accompanying consolidated balance sheets of J&L
Specialty Steel, Inc., a Pennsylvania corporation, and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of J&L Specialty Steel, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
Arthur Andersen LLP
Pittsburgh, Pennsylvania,
January 21, 1998
IV-2
<PAGE> 74
J&L SPECIALTY STEEL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,186 $ 499
Trade receivables, less allowances of $3,883 and $3,869,
respectively........................................... 54,250 55,153
Trade receivables from affiliates......................... 7,142 6,191
Inventories............................................... 151,115 143,576
Income taxes receivable................................... 3,743 --
Deferred income taxes..................................... 9,366 7,172
Prepaid expenses and other current assets................. 1,093 605
-------- --------
Total current assets.............................. 227,895 213,196
-------- --------
Property, plant and equipment, net.......................... 338,062 304,721
Goodwill, net of accumulated amortization of $69,082 and
$68,194, respectively..................................... 211,932 238,209
Deferred income taxes....................................... 4,569 3,587
Other noncurrent assets..................................... 9,933 12,215
-------- --------
Total assets...................................... $792,391 $771,928
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 76,679 $ 72,621
Construction accounts payable............................. 15,288 22,914
Accrued employee compensation and benefits................ 21,136 19,571
Other accrued liabilities................................. 23,860 23,127
Short-term debt........................................... 23,319 6,205
-------- --------
Total current liabilities......................... 160,282 144,438
-------- --------
Long-term debt.............................................. 222,583 170,452
Postretirement benefits liability........................... 53,473 48,729
Other noncurrent liabilities................................ 19,547 17,571
Shareholders' equity:
Preferred stock (par value $.01 per share; 2,000,000
shares authorized, no shares issued and outstanding)... -- --
Common stock (par value $.01 per share; 100,000,000 shares
authorized, 38,763,000 and 38,670,000 shares issued and
outstanding)........................................... 388 387
Additional paid-in capital................................ 311,823 308,378
Retained earnings......................................... 25,989 81,973
Unearned compensation..................................... (1,694) --
-------- --------
Total shareholders' equity........................ 336,506 390,738
-------- --------
Total liabilities and shareholders' equity........ $792,391 $771,928
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
IV-3
<PAGE> 75
J&L SPECIALTY STEEL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Trade sales, net........................................... $550,615 $579,500 $797,044
Sales to affiliates, net................................... 48,316 48,522 69,978
-------- -------- --------
Total sales, net......................................... 598,931 628,022 867,022
Cost of products sold...................................... 561,992 527,805 665,040
Depreciation and amortization expenses..................... 26,968 23,031 22,797
Selling, general and administrative expenses............... 20,915 20,102 19,739
Research and technology expense............................ 5,980 6,049 4,033
Unusual items.............................................. (15,907) -- --
Restructuring charge....................................... 37,100 -- --
-------- -------- --------
Operating income (loss).................................. (38,117) 51,035 155,413
Interest expense........................................... 6,859 3,909 8,758
Interest income............................................ (120) (262) (2,954)
Other (income) expense, net................................ (245) 378 2,682
-------- -------- --------
Income (loss) before income taxes........................ (44,611) 47,010 146,927
Income tax expense (benefit)............................... (4,095) 22,745 62,525
-------- -------- --------
Net income (loss)........................................ $(40,516) $ 24,265 $ 84,402
======== ======== ========
Earnings (loss) per common share:
Basic.................................................... $ (1.05) $ .63 $ 2.18
======== ======== ========
Diluted.................................................. $ (1.05) $ .63 $ 2.17
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
IV-4
<PAGE> 76
J&L SPECIALTY STEEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(40,516) $ 24,265 $ 84,402
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization of intangibles and depreciation........ 26,968 23,031 22,797
Deferred income taxes............................... (3,176) (1,735) (3,891)
Restructuring charge................................ 37,100 -- --
Amortization of unearned compensation............... 36 -- --
Changes in certain assets and liabilities:
Trade receivables................................... (48) 10,754 25,695
Inventories......................................... (7,539) 18,211 (25,309)
Other current assets................................ (4,231) 587 (418)
Trade accounts payable.............................. 4,058 (14,355) 2,537
Construction accounts payable....................... (7,626) (1,332) 23,789
Accrued employee compensation and benefits.......... (4,955) (9,570) (265)
Other current liabilities........................... 2,449 14 (3,755)
Postretirement benefits liability................... 5,044 2,143 3,747
Other, net.......................................... (1,961) 2,820 3,447
-------- --------- ---------
Net cash provided by operating activities......... 5,603 54,833 132,776
-------- --------- ---------
Cash flows from investing activities:
Capital expenditures................................... (58,693) (103,316) (94,060)
-------- --------- ---------
Net cash used by investing activities............. (58,693) (103,316) (94,060)
-------- --------- ---------
Cash flows from financing activities:
Borrowings on lines of credit, net..................... 66,500 25,600 --
Refinancing of long-term bank loan..................... 125,000 -- 125,000
Repayment of long-term bank loan....................... (125,000) -- (145,000)
Borrowings of industrial development notes, net........ 2,745 3,035 2,414
Common stock dividends paid............................ (15,468) (15,081) (13,921)
-------- --------- ---------
Net cash provided (used) by financing
activities..................................... 53,777 13,554 (31,507)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents..... 687 (34,929) 7,209
Cash and cash equivalents at beginning of year........... 499 35,428 28,219
-------- --------- ---------
Cash and cash equivalents at end of year................. $ 1,186 $ 499 $ 35,428
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
IV-5
<PAGE> 77
J&L SPECIALTY STEEL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS/ UNEARNED
STOCK CAPITAL (DEFICIT) COMPENSATION TOTAL
------ ---------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994....................... $387 $304,946 $ 2,695 $ -- $308,028
Net income................. -- -- 84,402 -- 84,402
Common stock dividends paid
($.27 per share)........ -- -- (10,441) -- (10,441)
Common stock dividends
payable ($.09 per
share).................. -- -- (3,480) -- (3,480)
Income tax benefit from
exercised stock
warrant................. -- 1,716 -- -- 1,716
---- -------- -------- ------- --------
Balance at December 31,
1995....................... 387 306,662 73,176 -- 380,225
Net income................. -- -- 24,265 -- 24,265
Common stock dividends paid
($.30 per share)........ -- -- (11,601) -- (11,601)
Common stock dividends
payable ($.10 per
share).................. -- -- (3,867) -- (3,867)
Income tax benefit from
exercised stock
warrant................. -- 1,716 -- -- 1,716
---- -------- -------- ------- --------
Balance at December 31,
1996....................... 387 308,378 81,973 -- 390,738
Net loss................... -- -- (40,516) -- (40,516)
Common stock dividends paid
($.30 per share)........ -- -- (11,601) -- (11,601)
Common stock dividends
payable ($.10 per
share).................. -- -- (3,867) -- (3,867)
Issuance of restricted
stock, net of
amortization............ 1 1,729 -- (1,694) 36
Income tax benefit from
exercised stock
warrant................. -- 1,716 -- -- 1,716
---- -------- -------- ------- --------
Balance at December 31,
1997....................... $388 $311,823 $ 25,989 $(1,694) $336,506
==== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
IV-6
<PAGE> 78
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 ORGANIZATION AND NATURE OF OPERATIONS
J&L Specialty Steel, Inc. (the "Company") is a leading manufacturer of flat
rolled stainless steel. On June 14, 1990, Ugine s.a. ("Ugine"), a French
corporation, became the sole shareholder of a predecessor to the Company. On
December 6, 1993, two predecessors to the Company were merged with and into a
newly formed corporation, J&L Specialty Steel, Inc., with the Company being the
surviving entity. On December 15, 1993, the Company completed an initial public
offering of common stock. At December 31, 1997 and 1996, Usinor, successor by
merger to Ugine, owned 53.5% and 53.6%, respectively, of the Company's issued
and outstanding shares of common stock.
Flat rolled stainless steel is the Company's only product line. The Company
produces both austenitic and ferritic flat rolled stainless steels; austenitic
stainless steel represents the largest part of the domestic stainless steel
market. The Company manufactures various grades of stainless steel in the form
of cold rolled stainless steel sheet and strip, hot rolled stainless steel sheet
and strip and continuous mill plate, as well as stainless steel slabs. The
Company operates within a single business segment, stainless steel, and
predominantly within a single geographic area, the continental United States.
The principal raw materials used to produce stainless steel are stainless
steel scrap, nickel, ferrochromium, carbon steel scrap, molybdenum,
ferrosilicon, manganese and manganese alloys. Certain of these raw materials,
including the key raw materials nickel and chromite ore (which is the source of
ferrochromium), can be acquired by the Company and its competitors only from
foreign sources, some of which are located in countries which may be subject to
unstable political and economic conditions. These conditions might disrupt
supplies or affect the prices of these raw materials. In addition, the prices of
many of the Company's raw materials are cyclical as a result of being dependent
on international supply and demand relationships. A substantial increase in raw
material prices or a continued interruption in supply could have a material
adverse effect on the Company's financial condition and results of operations.
At present, an integral part of the Company's stainless steel production
process involves the use of a hot strip mill. The Company does not operate a hot
strip mill and maintains tolling arrangements with two other companies for the
use of their hot strip mills. The Company's dependence on these arrangements
could subject it to interruption in service due to strikes and other production
disruptions at the providers' facilities, which are not within the Company's
control. Should this interruption occur, it could have a material adverse effect
on the Company's financial condition and results of operations. The current
labor contract at the primary provider of such tolling services expires on
August 1, 1999.
Virtually all of the Company's hourly labor force is represented by the
United Steelworkers of America, AFL-CIO ("USWA"). The USWA workers located at
the Company's three manufacturing facilities are covered by separate collective
bargaining agreements. These three agreements expire on July 1, 1999.
The Company's stainless steel is used in a wide variety of industrial,
commercial and consumer products, including pressure vessels, chemical and
refinery equipment, environmental control equipment, cargo containers, sinks,
transportation equipment, beer kegs, fast food equipment, automated bank teller
machines, automobile trim, exhaust systems, and kitchen appliances and utensils.
Approximately 50% of the Company's products are sold to steel service centers.
The remainder of the Company's products are sold to stainless steel converters,
manufacturers of finished industrial and consumer products and exporters. The
Company's customer base has been relatively stable.
IV-7
<PAGE> 79
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation and Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents, consisting primarily of commercial paper and money market
funds, are stated at cost which approximates fair market value. For purposes of
the statements of cash flows, the Company considers all highly liquid
investments with a maturity of three months or less at acquisition to be cash
equivalents.
Inventories
Inventories are stated at the lower of cost or market. The cost of raw
materials, including raw materials in work-in-process and finished goods steel
inventories, is determined by the last-in, first-out ("LIFO") method. The
remaining cost of work-in-process and finished goods inventories are determined
by the specific identification cost method. Inventories include material, labor
and overhead costs.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
additions and betterments are capitalized, while those for maintenance, repairs
and minor renewals are expensed as incurred. For financial reporting purposes,
the Company provides for depreciation on the straight-line method over the
estimated useful lives of the related assets. Accelerated depreciation methods
are utilized for federal income tax purposes. In 1997, $6,900 of equipment was
written down. See Note 12.
Intangible Assets
Goodwill is being amortized on a straight-line basis over 40 years. Other
noncurrent assets include patents and manufacturing know-how that are valued on
a continued-use basis with lives not exceeding 15 years.
The Company evaluates the recoverability of intangible assets, including
goodwill, at each balance sheet date based on forecasted future operations and
undiscounted cash flows and other subjective criteria. Based upon historical
data, management believes that the carrying amount of these intangible assets
will be realizable over their respective amortization periods. In 1997, $19,300
of goodwill, related to the partial closure of the Company's Detroit plant, was
written down. See Note 12.
Financial Instruments
The Company enters into nonleveraged interest rate swap agreements to
manage interest rate exposure. The differential to be paid or received is
accrued as interest rates change and is recognized as interest expense or income
in the current period.
IV-8
<PAGE> 80
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Stock-Based Compensation
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS
No. 123") in October 1995. This statement establishes a fair value based method
of financial accounting and related reporting standards for stock-based employee
compensation plans, such as the Company's 1993 Stock Incentive Plan. SFAS No.
123 became effective for calendar year 1996 and provides for adoption in the
income statement or through footnote disclosure only. The Company has continued
to account for its 1993 Stock Incentive Plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") as permitted by SFAS
No. 123, and has provided the new disclosure in Note 17.
NOTE 3 INVENTORIES
The Company values costs of raw materials in all levels of inventory using
the LIFO method in order to match current costs with current revenues.
Inventory balances as of December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Raw materials.......................................... $ 18,621 $ 14,567
Work-in-process........................................ 107,572 104,512
Finished goods......................................... 40,270 39,448
-------- --------
Total inventories at current cost...................... 166,463 158,527
Less allowance to reduce current cost values to LIFO
basis................................................ (15,348) (14,951)
-------- --------
Total inventories...................................... $151,115 $143,576
======== ========
</TABLE>
At December 31, 1997 and 1996, inventories not valued on the LIFO method
were $74,750 and $72,452, respectively. Cost of products sold was increased by
approximately $1,433 in 1996 as a result of the liquidation of LIFO inventories.
The Company enters into fixed price raw material contracts to hedge its
exposure to price fluctuations. Currently, none of these contracts are for more
than one year. The Company's requirement for raw materials is expected to
significantly exceed the amounts under contract.
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and their related allowances for depreciation
as of December 31 were:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Land.................................................. $ 4,802 $ 3,325
Buildings............................................. 41,592 21,242
Machinery and equipment............................... 394,393 191,165
Construction-in-progress.............................. 2,412 183,158
--------- --------
Total property, plant and equipment................... 443,199 398,890
Less allowance for depreciation....................... (105,137) (94,169)
--------- --------
Property, plant and equipment, net.................... $ 338,062 $304,721
========= ========
</TABLE>
During 1997, the Company incurred $28.7 million of commissioning costs
related to its new Direct Roll Anneal and Pickle ("DRAP") Line at its Midland,
Pa. plant. The line was placed into service in
IV-9
<PAGE> 81
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
September 1997. Interest capitalized during 1997, 1996 and 1995 was $7,409,
$6,097 and $1,996, respectively. As of December 31, 1997 and 1996, purchase
commitments for capital expenditures were approximately $700 and $18,000,
respectively.
NOTE 5 SHORT-TERM BORROWING FACILITIES
The Company has $54,400 of uncommitted, short-term lines of credit with
various banks. Borrowings under these unsecured lines of credit are used to
finance the Company's working capital requirements and for other general
corporate purposes. Interest rates are quoted by each bank on an "as offered"
basis depending on the terms of the borrowing (from one day to six months). The
Company had outstanding borrowings of $22,100 and $5,600 under these lines of
credit as of December 31, 1997 and 1996, respectively. The maximum outstanding
borrowing was $30,800 and $20,600 in 1997 and 1996, respectively. The average
amount outstanding during 1997 and 1996 was $18,014 and $10,190, respectively.
The weighted daily average interest rate was 5.9% in 1997 and 5.7% in 1996. The
maximum borrowing available under these lines of credit at December 31, 1997,
after considering the short-term borrowing limitations provided in the revolving
credit facility, was $17,900.
NOTE 6 LONG-TERM DEBT
Long-term debt as of December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Term loan.............................................. $125,000 $125,000
Revolving credit facility.............................. 70,000 20,000
7% pollution control revenue bonds due June 1, 1998
through June 1, 2008................................. 11,975 11,975
6.6% pollution control revenue refunding bonds due
September 1, 2006 through September 1, 2010.......... 8,000 8,000
2%-4% industrial development notes..................... 8,827 6,082
-------- --------
223,802 171,057
Current maturities..................................... (1,219) (605)
-------- --------
Total long-term debt................................... $222,583 $170,452
======== ========
</TABLE>
On June 30, 1997, the Company replaced its existing $125,000 term loan with
a new seven-year term loan. The new $125,000 term loan agreement matures on June
30, 2004. The term loan agreement requires eight semi-annual principal payments
of $15,600 beginning December 31, 2000. Borrowings under the term loan agreement
are at either the bank's base rate or the Euro-Rate (deposits in U.S. dollars
offered to major money center banks in the London interbank market) plus a
variable margin based upon the Company's financial performance. The weighted
average interest rate was 6.1% in 1997 and 6.0% in 1996.
On June 30, 1997, the Company replaced its existing $100,000 revolving
credit facility with a new five-year $125,000 revolving credit agreement. The
credit agreement provides for borrowings at either the bank's base rate or
Euro-Rate plus a variable margin based upon the Company's financial performance.
The Company is obligated to pay a commitment fee on the unused portion of the
loan commitment. The Company had outstanding borrowings of $70,000 and $20,000
under the revolving credit facility as of December 31, 1997 and December 31,
1996, respectively. The maximum outstanding borrowing in 1997 and 1996 was
$70,000 and $20,000, respectively. The average amount outstanding during 1997
and 1996 was $51,517 and $9,745, respectively. The weighted daily average
interest rate was 6.1% in 1997 and 5.9% in 1996. The
IV-10
<PAGE> 82
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
available portion of this line was $55,000 at December 31, 1997. Borrowings
under the revolving credit facility are available to finance the Company's
working capital requirements and for other general corporate purposes.
Both the term loan and the revolving credit agreement are unsecured but
contain certain financial covenants that the Company is required to meet,
including a minimum adjusted consolidated tangible net worth covenant and a
consolidated leverage ratio covenant. The agreements also contain a put event
based on the continued ownership of a majority of the issued and outstanding
shares of common stock of the Company by Usinor or Ugine and an event of default
in certain situations if Usinor or Ugine become involved in bankruptcy or
insolvency proceedings. Neither agreement contains any limitations on the
Company's ability to pay dividends unless there is a covenant violation or
default of the agreement. The Company is in compliance with all applicable
covenants. Currently, the most restrictive provision of the agreements is the
minimum adjusted consolidated tangible net worth covenant. As of December 31,
1997, the Company's adjusted consolidated tangible net worth, as defined in the
agreement, was approximately $136,878, and the minimum required amount was
$90,000.
An $8,300 stand-by letter of credit is outstanding to secure the 6.6%
pollution control revenue refunding bonds. An additional $5,868 in letters of
credit are outstanding with several banks in support of certain other Company
obligations.
During 1997, the Company entered into two separate industrial development
loans totaling $3,500 with maturities of ten and fifteen years, respectively.
The industrial development notes are secured by certain related facilities or
equipment.
Maturities of long-term debt in each of the next five years are as follows:
1998--$1,219; 1999--$1,258; 2000--$16,940; 2001--$32,614; and 2002--$102,626.
Cash paid for interest was $13,916, $8,869, and $11,162 for the years ended
December 31, 1997, 1996, and 1995, respectively. Included in interest paid in
1995 is a loan guarantee fee of $604 paid to Usinor on a former term loan.
NOTE 7 FINANCIAL INSTRUMENTS
The Company's usage of derivative financial instruments has been limited to
nonleveraged interest rate swaps to manage well-defined interest rate risk.
The following table provides information on the interest rate swaps:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NOTIONAL INTEREST RATE
NOTIONAL AMOUNT ----------------
CLASSIFICATION AMOUNT OUTSTANDING RECEIVED PAID
- -------------- -------- ----------- -------- ----
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
SWAP.......................................... $11,975 $11,975 7.0% 5.7%
SWAP.......................................... 62,375 -- 5.7 6.2
YEAR ENDED DECEMBER 31, 1996
SWAP.......................................... $11,975 $11,975 7.0% 5.6%
SWAP.......................................... 62,375 62,375 5.7 6.2
</TABLE>
The Company entered into forward start interest rate swap agreements in
October 1997 that had the effect of converting $100,000 of variable rate debt
into a fixed rate obligation. The start date of the interest rate swap
agreements is January 1998, and the expiration date is July 1998. The cash
settlement of the transactions occurs on a quarterly basis, with the Company
either paying or receiving the difference between the fixed rate of interest and
three-month LIBOR.
IV-11
<PAGE> 83
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company entered into interest rate swap agreements in July 1996 that
had the effect of converting $62,375 of variable rate debt into a fixed rate
obligation. The expiration date of the interest rate swap agreements was October
1997. The cash settlement of the transactions occurred on a quarterly basis,
with the Company either paying or receiving the difference between the fixed
rate of interest and three-month LIBOR.
An interest rate swap agreement was entered into in June 1992 that has the
effect of converting $11,975 of fixed rate borrowings into a variable rate
obligation. The expiration date of the interest rate swap agreement is June
1999. The cash settlement of the transaction occurs on a quarterly and
semiannual basis, with the Company either paying or receiving the difference
between the fixed rate of interest and the three-month LIBOR.
The effect of the interest rate swaps was to increase interest expense by
$73 in 1997 and decrease interest expense by $14 in 1996.
NOTE 8 PENSION BENEFITS
The Company provides retirement benefits under a variety of employee
benefit plans. Virtually all hourly employees are covered by a defined benefit
plan and all salaried employees, and certain hourly employees, are covered by a
defined contribution plan. A group of salaried employees also has benefits under
the qualified defined benefit plan which was frozen as of January 1, 1993.
Certain key management employees are also covered by a nonqualified, unfunded
supplemental defined benefit plan.
Periodic pension expense for the defined benefit plan is actuarially
determined utilizing the projected unit credit method. The Company funds pension
costs for the defined benefit plan in accordance with the funding requirements
of the Employee Retirement Income Security Act of 1974. Pension costs for the
salaried and hourly defined contribution plans are based upon a percentage of
compensation for salaried employees or a multiple of hours worked for hourly
employees, respectively, and are funded monthly.
The following table summarizes total pension expense for the years ended
December 31:
<TABLE>
<CAPTION>
PLAN TYPE 1997 1996 1995
- --------- ------ ------ ------
<S> <C> <C> <C>
Defined benefit.................................. $3,696 $4,171 $4,445
Defined contribution............................. 1,670 1,602 1,478
------ ------ ------
Total.................................. $5,366 $5,773 $5,923
====== ====== ======
</TABLE>
Net periodic pension expense for the defined benefit plans in 1997, 1996,
and 1995 was determined assuming discount rates of 7.25%, 7.0%, and 8.0%,
respectively, and an expected rate of return on plan assets of 9.0% for 1997,
1996, and 1995. Components of net periodic pension expense are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------ --------
<S> <C> <C> <C>
Service cost................................. $ 2,935 $2,930 $ 2,391
Interest cost on projected benefit
obligation................................. 6,073 5,533 5,745
Actual return on assets...................... (14,945) (8,005) (14,678)
Net amortization and deferral................ 9,633 3,713 10,987
-------- ------ --------
Net periodic pension expense................. $ 3,696 $4,171 $ 4,445
======== ====== ========
</TABLE>
In addition to the 1997 net periodic pension expense above, additional
expense of $4,800 was recorded in the 1997 restructuring charge for plan
termination benefits and plan curtailment. See Note 12.
The Company's projected, accumulated and vested defined benefit pension
obligations as of December 31, 1997 and 1996, were determined assuming discount
rates of 7.0% and 7.25%, respectively. The
IV-12
<PAGE> 84
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
assumed rate of salary increase was 4.0% as of December 31, 1997 and 1996. Plan
assets consist primarily of professionally-managed common stocks, fixed income
securities and short-term investments.
<TABLE>
<CAPTION>
BENEFITS 1997 1996
- -------- ------- -------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation................................. $75,470 $61,491
Nonvested benefit obligation.............................. 11,076 10,299
------- -------
Accumulated benefit obligation.............................. 86,546 71,790
Additional obligation for projected compensation
increases................................................. 14,197 11,914
------- -------
Projected benefit obligation................................ 100,743 83,704
Plan assets at market value................................. 78,832 67,588
------- -------
Projected benefit obligation in excess of plan assets....... 21,911 16,116
Unrecognized prior service cost............................. (6,862) (6,857)
Unrecognized net actuarial gain............................. 8,994 6,521
------- -------
Accrued pension cost........................................ $24,043 $15,780
======= =======
</TABLE>
NOTE 9 RETIREMENT BENEFITS OTHER THAN PENSIONS
The Company maintains unfunded postretirement health care and life
insurance benefit plans covering most hourly and salaried employees.
Substantially all of the Company's employees may become eligible for these
benefits if they retire while working for the Company. The basic hourly health
care and life insurance benefit plans are noncontributory, while the major
medical options of the health care plan are contributory. Generally, the
postretirement salaried benefit plans are contributory. In 1995, the Company
agreed to establish a Voluntary Employee Beneficiary Association Trust ("VEBA")
to prefund a portion of health care and life insurance benefits for retirees
covered under the USWA union agreement. The Company funded the VEBA with cash
contributions of $1,800 for the years ended December 31, 1997 and 1996,
respectively. Additionally, the Company is required to make minimum cash
contributions of $1,800 in each succeeding contract year of the USWA union
agreement.
Postretirement benefit expenses for 1997, 1996, and 1995 were determined
assuming discount rates of 7.25%, 7.0%, and 8.0%, respectively. Components of
postretirement benefit expense are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cost of benefits earned during the year.......... $1,849 $1,865 $1,670
Interest on APBO................................. 3,480 3,344 3,249
Actual return on assets.......................... (607) -- --
Net amortization................................. 359 2 (54)
------ ------ ------
Total postretirement benefit expense... $5,081 $5,211 $4,865
====== ====== ======
</TABLE>
In addition to the postretirement benefit expense above, an additional
expense of $3,100 was recorded in the 1997 restructuring charge for plan
termination benefits and plan curtailment. See Note 12.
IV-13
<PAGE> 85
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The accumulated postretirement benefit obligation ("APBO") as of December
31 was:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Retirees................................................. $17,031 $15,653
Fully eligible plan participants......................... 10,819 7,599
Other active plan participants........................... 30,250 27,168
------- -------
Total APBO..................................... 58,100 50,420
Plan assets at market value.............................. 4,207 1,800
------- -------
APBO in excess of plan assets............................ 53,893 48,620
Unrecognized prior service cost.......................... (36) (42)
Unrecognized net actuarial gain.......................... 3,216 3,451
------- -------
Accrued postretirement benefit cost...................... $57,073 $52,029
======= =======
</TABLE>
Postretirement benefit liabilities as of December 31 are reported on the
balance sheets as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accrued compensation and benefits........................ $ 3,600 $ 3,300
Postretirement benefits liability........................ 53,473 48,729
------- -------
Total postretirement benefits liability........ $57,073 $52,029
======= =======
</TABLE>
The discount rate used to determine the APBO was 7.0% at December 31, 1997
and 7.25% at December 31, 1996. The assumed medical cost trend rate at December
31, 1997, was 9.0%, grading down to an ultimate rate of 5.0% in 2007 and
remaining at that level thereafter. The assumed medical cost trend rate at
December 31, 1996, was 10.0%, grading down to an ultimate rate of 5.0% in 2007
and remaining at that level thereafter. A one percentage point increase in the
assumed health care cost trend rates for each future year increases annual
postretirement benefit expense by $1,171 and the APBO by $10,093.
Payments of postretirement benefits were $1,366, $1,271, and $1,118 in
1997, 1996 and 1995, respectively.
NOTE 10 SHAREHOLDERS' EQUITY
In 1988, The LTV Corporation ("LTV"), a former shareholder, exercised its
warrant to purchase 200,000 shares of common stock of J&L Specialty Products
Corporation, predecessor to the Company. A condition to the exercise of the
warrant was an extension of the Tolling Agreement between a subsidiary of LTV
and the Company pursuant to which LTV agreed to convert the Company's steel
slabs into hot bands. For income tax purposes, the difference between the
exercise price plus the amount paid for the warrant and the fair value of the
common stock on the date of exercise is deductible by the Company over the term
of the Tolling Agreement. Accordingly, the Company has increased additional
paid-in capital by $1,716 in 1997, 1996 and 1995 to reflect the income tax
benefit recognized for this amortization.
NOTE 11 UNUSUAL ITEMS
In the first and third quarters of 1997, the Company reached settlements
with two unrelated, third-party vendors concerning commercial disputes relating
to the quality of certain material purchased by the Company. As a result of
these settlements, the Company recorded pretax gains totalling $15,907 in 1997.
IV-14
<PAGE> 86
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12 RESTRUCTURING CHARGE
As a result of the difficult market conditions and the upcoming ability to
move production to the new more cost effective DRAP Line, the need for certain
production facilities at the Detroit plant was reduced. Accordingly, in October
1997 the Company announced that it intended to close certain production
facilities at its Detroit Plant during the fourth quarter of 1997 and layoff
approximately 150 hourly and salary employees. A $37,100 restructuring charge
was recorded in the fourth quarter. Included in the charge was a $26,200
write-down of goodwill and equipment, $7,900 for early retirement benefits and
$3,000 for severance benefits and other exiting costs. The layoffs and shutdowns
of affected equipment are expected to occur gradually during the first half of
1998 as the DRAP Line's production capabilities increase.
NOTE 13 INCOME TAXES
The consolidated provision for income tax expense (benefit) includes
current and deferred taxes as follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current Taxes:
Federal..................................... $ (186) $21,237 $54,862
State and local............................. (733) 3,243 11,554
------- ------- -------
Total.................................... (919) 24,480 66,416
------- ------- -------
Deferred Taxes:
Federal..................................... (3,016) (1,452) (3,196)
State and local............................. (160) (283) (695)
------- ------- -------
Total.................................... (3,176) (1,735) (3,891)
------- ------- -------
Total current and deferred taxes.............. $(4,095) $22,745 $62,525
======= ======= =======
</TABLE>
Income tax expense (benefit) varies from the amount that would be provided
by applying the federal statutory income tax rate to earnings before income
taxes as reflected below:
<TABLE>
<CAPTION>
1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate.................. (35.0)% 35.0% 35.0%
State and local income taxes, net of federal income
tax benefit...................................... (3.4) 2.9 4.3
Amortization of purchase accounting adjustment..... 10.1 10.5 3.3
Restructuring charge............................... 19.1 -- --
----- ---- ----
Effective income tax rate.......................... (9.2)% 48.4% 42.6%
===== ==== ====
</TABLE>
Net deferred income tax assets (liabilities) are composed of the following
as of December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred income tax -- current....................... $ 9,366 $ 7,172
Deferred income tax -- long-term..................... 4,569 3,587
------- -------
Net deferred income tax assets....................... $13,935 $10,759
======= =======
</TABLE>
IV-15
<PAGE> 87
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Consisting of:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Financial reserves not yet deductible.............. $ 16,367 $ 13,563
Postretirement benefits other than pensions........ 21,257 19,116
Depreciation....................................... (26,700) (20,161)
Other, net......................................... 1,727 (1,759)
Alternative minimum tax credit..................... 1,284 --
-------- --------
$ 13,935 $ 10,759
======== ========
</TABLE>
Cash paid for income taxes for 1997, 1996 and 1995 was $4,468, $23,287 and
$68,488, respectively.
As of December 31, 1997, the Company had state income tax net operating
loss carryforwards of approximately $1.5 to $3.0 million expiring in 2000
through 2012.
As a result of its deferred tax attributes and the pretax loss for the
year, the Company did not generate any liability for regular federal income tax
purposes for the year ended December 31, 1997. The Company, however, did
recognize alternative minimum tax of approximately $1.3 million for 1997. The
alternative minimum tax can be carried forward as a credit to offset regular
income tax in years when regular income tax exceeds alternative minimum tax.
NOTE 14 COMMITMENTS
During 1996, the Company entered into a noncancelable contract to purchase
certain manufacturing support services for the Company's DRAP Line. The
five-year contract provides the Company with per unit prices for services to be
provided under the contract plus a minimum monthly obligation related to such
contractor's fixed costs. The contract began February 1, 1997, and the Company's
annual minimum obligation under the contract is approximately $2,000 per year.
The Company leases certain property, plant and equipment under various
operating lease agreements. The total rent expense for the years ended December
31, 1997, 1996 and 1995, was $2,460, $2,362, and $2,271, respectively.
Future minimum lease payments required under noncancelable operating leases
that have initial or remaining lease terms in excess of one year as of December
31, 1997, are: 1998 -- $1,089; 1999 -- $839; 2000 -- $884; 2001 -- $707; and
2002 -- $422.
NOTE 15 RELATED-PARTY TRANSACTIONS
Effective October 1, 1993, the Company entered into a ten-year research and
technology agreement (the "Agreement") with Ugine that provides the Company with
a broad spectrum of patents, know-how and future research and development
services concerning the manufacturing and processing of flat rolled stainless
steel. The Company made an initial $5,000 cash payment to Ugine for the transfer
of rights to existing patents and know-how and for research and development
services provided during the first year of the Agreement. Annual fees for the
years ended December 31, 1997 and 1996, were $5,000 in each year for these
research and development services. Ongoing annual fees to be paid to Ugine for
research and development services will also be $5,000 in 1998 and each year
thereafter for the term of the Agreement.
In addition to the research and technology agreement, the Company has
purchased various steel products and other services from Usinor or its
affiliates. Payments to Usinor relating to certain insurance premiums for the
Company amounted to $61, $57 and $391 in 1997, 1996 and 1995, respectively. The
payments in all three
IV-16
<PAGE> 88
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
years represented coverage for a one-year period. Purchases of steel from Usinor
or its affiliates during the three-year period were insignificant.
See also Note 6 for certain additional related-party transactions.
NOTE 16 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments," defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. The following table presents the carrying
amounts and estimated fair values of the Company's financial instruments as of
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents............. $ 1,186 $ 1,186 $ 499 $ 499
Financial Liabilities:
Interest rate swaps................... -- (240) -- (108)
Term loan............................. 125,000 125,000 125,000 125,000
Revolving credit facility............. 70,000 70,000 20,000 20,000
Short-term borrowings................. 22,100 22,100 5,600 5,600
Pollution control revenue bonds....... 19,975 20,217 19,975 20,162
Industrial development notes.......... 8,827 5,375 6,082 3,997
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each financial instrument:
Cash and cash equivalents: The carrying amounts approximate fair value
because of the short term to maturity of these financial instruments.
Interest rate swaps: The fair value of these instruments is based on the
difference between the interest rates either received or paid on the notional
amount of the underlying liability. The calculation of the fair value was
computed on a net present value basis as if the financial instruments were
terminated on the reporting date. A relationship spread was developed based on
the difference between the three-month LIBOR and quoted three-month treasuries.
This spread was added to the quoted treasury yield for the respective maturity
period of the financial instruments and used to compute the net present value.
The negative or positive fair value is an estimate of the amounts that the
Company would either pay or receive to cancel the contracts at the reporting
date.
Term loan: The carrying amount approximates the fair value of the term
loan as this instrument is variable interest debt with the interest rates reset
at least each quarter.
Revolving credit facility: The carrying amount approximates the fair value
of the revolving credit facility as this instrument is variable interest debt
with the interest rates reset at least each quarter.
Short-term borrowings: The carrying amount approximates the fair value of
the short-term borrowings as these borrowings are variable interest debt with
the interest rates reset from 1 to 180 days.
Pollution control revenue bonds: The estimated fair value of the pollution
control revenue bonds was computed based on quoted market prices as of the
reporting date obtained from an independent financial trading institution.
IV-17
<PAGE> 89
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Industrial development notes: The fair value of these industrial
development notes was computed by discounting expected cash flows at the rates
currently offered to the Company for debt of similar remaining maturities.
Other assets and liabilities: The Company believes that the carrying value
of its other assets and liabilities represent their fair value as of the
reporting date as a result of the short maturity and the reset interest rate
periods for such financial instruments.
NOTE 17 STOCK OPTION PLAN
On October 26, 1993, the Company's Board of Directors authorized the
adoption of the 1993 Stock Incentive Plan ("Plan") under which 2,000,000 shares
of common stock have been reserved for issuance to employees pursuant to the
exercise of incentive stock options ("ISOs") and for issuance to employees and
the Chairman of the Board of Directors of the Company pursuant to the exercise
of nonstatutory stock options. The Plan also provides for alternative stock
appreciation rights ("SARs") with respect to both ISOs and nonstatutory stock
options. The SARs generally give the grantee the right to either receive shares
upon exercise of the option or, at the discretion of the Board of Directors,
cash, shares or a combination thereof equal in value to 100% of the excess of
the fair market value of the common stock on the date of exercise of the option
over the option price.
Under the Plan, the exercise price of each option equals the market price
of the Company's stock on the date of grant. The stock options and stock
appreciation rights are exercisable over a period determined by the Board of
Directors, but no longer than ten years after the date they are granted.
Following are the options granted under the 1993 Stock Incentive Plan:
<TABLE>
<CAPTION>
NUMBER
OPTIONS EXERCISED/ NUMBER
DATE OF GRANT PRICE GRANTED EXPIRED OUTSTANDING WITH SARS EXERCISABLE
- ------------- ------ ------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
October 1993......... $14.00 568,000 65,000 503,000 503,000 194,333
December 1995........ $15.63 330,000 -- 330,000 165,000 143,333
June 1996............ $16.94 30,000 -- 30,000 15,000 --
December 1996........ $12.00 27,000 -- 27,000 13,500 --
December 1997........ $ 9.56 9,000 -- 9,000 4,500 --
------- ------ ------- ------- -------
964,000 65,000 899,000 701,000 337,666
======= ====== ======= ======= =======
</TABLE>
During 1995, 20,000 of the October 1993 stock appreciation rights were
exercised, resulting in a cash payment of $163. There were 234,333 stock options
exercisable at December 31, 1996, and 20,000 exercisable at December 31, 1995.
The Company accounts for the Plan by application of APB No. 25 and related
Interpretations. For the years ended December 31, 1996 and 1995, the
compensation expense (income) related to the stock appreciation rights was
$(1,390) and $404, respectively. No compensation expense or income was recorded
in 1997.
Had compensation cost for the Plan been determined based on the fair value
at the grant dates for awards under the Plan consistent with the method of SFAS
No. 123, the Company's 1997 net loss would have increased to $40,726 and the
diluted loss per share would have been unchanged at $1.05. Net income and
diluted earnings per share in 1996 would have increased to $24,075 and the
diluted earnings per share would have been unchanged at $.63. The pro forma
effect on 1995 was insignificant. Because the SFAS No. 123 method of accounting
has not been applied to options granted prior to January 1, 1995, the resulting
pro forma
IV-18
<PAGE> 90
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
compensation cost may not be representative of that to be expected in future
years. The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model as follows:
<TABLE>
<CAPTION>
ASSUMPTIONS
---------------------------------------------------
FAIR DIVIDEND EXPECTED RISK-FREE EXPECTED
GRANT DATE VALUE YIELD VOLATILITY INTEREST RATE LIVES
- ---------- ----- -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C>
December 1995..................... $5.98 2.4% 35% 5.8% 8
June 1996......................... 6.89 2.4 35 6.9 8
December 1996..................... 4.20 3.3 35 6.4 8
December 1997..................... 2.88 4.2 35 5.9 8
</TABLE>
On June 10, 1997, the Plan was amended and restated to permit the issuance
of restricted shares of the Company's common stock to employees. The amendment
did not increase the total number of shares available for issuance under the
Plan, but did extend the expiration period in which to make future awards from
October 25, 2003 to March 3, 2007. On December 4, 1997, 93,000 time accelerated
restricted shares were issued to certain executives at a fair value of $9.56 per
share. In addition, a total of 88,000 time accelerated restricted shares are
anticipated to be issued in 1998 and 1999 pursuant to certain executive
employment agreements. The vesting of these shares may be accelerated based on
the Company's performance as measured against a steel industry group.
NOTE 18 EARNINGS PER SHARE
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share," ("SFAS No. 128") in February
1997. SFAS No. 128 simplifies the standards for computing earnings per share
("EPS") previously found in APB Opinion No. 15, "Earnings per Share." SFAS No.
128 replaces the presentation of primary EPS with a presentation of basic EPS,
which includes only the weighted average number of common shares outstanding and
does not include any potentially dilutive securities in the calculation.
The 1997 basis EPS computation was done using 38,683,885 shares. Given the
net loss for 1997, there were no reconciling dilutive securities, as the 899,000
outstanding options to purchase common stock would have been antidilutive had
they been exercised. These options expire during 2003 through 2007. Following is
the reconciliation of the basic and diluted per share computations for the years
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------------------------- --------------------------------
NET PER-SHARE NET PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ---------- --------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS................... $24,265 38,670,000 $.63 $84,402 38,670,000 $2.18
Effect of Dilutive
Securities
Common Stock Options...... -- 48,947 -- -- 217,686 .01
------- ---------- ---- ------- ---------- -----
Diluted EPS................. $24,265 38,718,947 $.63 $84,402 38,887,686 $2.17
======= ========== ==== ======= ========== =====
</TABLE>
For the 1996 calculation, options, in addition to those shown in the table,
to purchase 360,000 shares of common stock at $15.63 to $16.94 per share were
outstanding during 1996 but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market price of
the common shares. These options, which expire in December 2005 and June 2006,
were still outstanding at the end of 1996.
IV-19
<PAGE> 91
J&L SPECIALTY STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 19 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales..................... $ 165,095 $ 161,296 $ 142,561 $ 129,979
Unusual income................ (5,907) -- (10,000) --
Restructuring charge.......... -- -- -- 37,100
Operating income (loss)....... 10,513 (2,683) 3,646 (49,593)
Net income (loss)............. 5,041 (3,386) 655 (42,826)
Net income (loss) per common
share:
Basic....................... .13 (.09) .02 (1.11)
Diluted..................... .13 (.09) .02 (1.11)
Weighted average number of
common shares:
Basic....................... 38,670,000 38,670,000 38,670,000 38,725,087
Diluted..................... 38,671,981 38,670,000 38,671,488 38,725,087
1996
- ------------------------------
Net sales..................... $ 184,926 $ 163,704 $ 146,816 $ 132,576
Operating income.............. 20,805 15,546 8,913 5,771
Net income.................... 10,682 7,773 3,834 1,976
Net income per common share:
Basic....................... .28 .20 .10 .05
Diluted..................... .28 .20 .10 .05
Weighted average number of
common shares:
Basic....................... 38,670,000 38,670,000 38,670,000 38,670,000
Diluted..................... 38,820,273 38,812,535 38,673,623 38,670,680
</TABLE>
IV-20
<PAGE> 92
SCHEDULE V
UNAUDITED FINANCIAL STATEMENTS
(AND RELATED NOTES) FOR THE COMPANY
FOR THE THREE-MONTH AND SIX-MONTH
PERIODS ENDED JUNE 30, 1998 AND JUNE 30, 1997
V-1
<PAGE> 93
J&L SPECIALTY STEEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Trade sales, net............................................ $127,575 $161,296
Cost of products sold....................................... 128,401 150,968
Depreciation and amortization expenses...................... 8,656 6,206
Selling, general and administrative expenses................ 4,990 5,304
Research and technology expense............................. 1,460 1,501
-------- --------
Operating income (loss)................................... (15,932) (2,683)
Interest expense............................................ 4,530 1,312
Interest income............................................. (24) (36)
Other (income) expense, net................................. (75) (20)
-------- --------
Income (loss) before income taxes......................... (20,363) (3,939)
Income tax expense (benefit)................................ (6,480) (553)
-------- --------
Net income (loss)......................................... $(13,883) $ (3,386)
======== ========
Earnings (loss) per common share:
Basic..................................................... $ (.36) $ (.09)
======== ========
Diluted................................................... $ (.36) $ (.09)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
V-2
<PAGE> 94
J&L SPECIALTY STEEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Trade sales, net............................................ $263,455 $326,391
Cost of products sold....................................... 266,473 298,969
Depreciation and amortization expenses...................... 17,389 12,126
Selling, general and administrative expenses................ 9,885 10,305
Research and technology expense............................. 2,923 3,068
Unusual item................................................ -- (5,907)
-------- --------
Operating income (loss)................................... (33,215) 7,830
Interest expense............................................ 8,580 2,027
Interest income............................................. (56) (71)
Other (income) expense, net................................. (163) (61)
-------- --------
Income (loss) before income taxes......................... (41,576) 5,935
Income tax expense (benefit)................................ (13,277) 4,280
-------- --------
Net income (loss)......................................... $(28,299) $ 1,655
======== ========
Earning (loss) per common share:
Basic..................................................... $ (.73) $ .04
======== ========
Diluted................................................... $ (.73) $ .04
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
V-3
<PAGE> 95
J&L SPECIALTY STEEL, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 807 $ 1,186
Trade receivables, less allowances of $3,876 and $3,883,
respectively........................................... 47,147 54,250
Trade receivables from affiliates......................... 9,699 7,142
Inventories............................................... 152,772 151,115
Income tax receivable..................................... 18,176 3,743
Deferred income taxes..................................... 10,729 9,366
Prepaid expenses and other current assets................. 559 1,093
-------- --------
Total current assets.............................. 239,889 227,895
-------- --------
Property, plant and equipment, net of accumulated
depreciation of $119,113 and $105,137, respectively....... 325,782 338,062
Goodwill, net of accumulated amortization of $72,351 and
$69,082, respectively..................................... 208,663 211,932
Deferred income taxes....................................... -- 4,569
Other noncurrent assets..................................... 10,003 9,933
-------- --------
Total assets...................................... $784,337 $792,391
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 61,255 $ 76,679
Construction accounts payable............................. 13,567 15,288
Accrued employee compensation and benefits................ 19,174 21,136
Other accrued liabilities................................. 24,611 23,860
Short-term debt........................................... 27,790 23,319
-------- --------
Total current liabilities......................... 146,397 160,282
-------- --------
Long-term debt.............................................. 252,141 222,583
Deferred income taxes....................................... 2,746 --
Postretirement benefits liability........................... 55,609 53,473
Other noncurrent liabilities................................ 20,505 19,547
Shareholders' equity:
Preferred stock (par value $.01 per share; 2,000,000
shares authorized, no shares issued and outstanding)... -- --
Common stock (par value $.01 per share; 100,000,000 shares
authorized, 38,763,000 shares issued and
outstanding)........................................... 388 388
Additional paid-in capital................................ 315,181 311,823
Retained earnings (deficit)............................... (7,155) 25,989
Unearned compensation..................................... (1,475) (1,694)
-------- --------
Total shareholders' equity........................ 306,939 336,506
-------- --------
Total liabilities and shareholders' equity........ $784,337 $792,391
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
V-4
<PAGE> 96
J&L SPECIALTY STEEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1998 1997
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net cash provided (used) by operating activities.......... $(24,902) $ 3,254
-------- ---------
Cash flows from investing activities:
Capital expenditures...................................... (1,772) (38,534)
-------- ---------
Net cash used by investing activities................ (1,772) (38,534)
-------- ---------
Cash flows from financing activities:
Borrowings on lines of credit, net........................ 34,800 41,800
Refinancing of long-term bank loan........................ -- 125,000
Repayment of long-term bank loan.......................... -- (125,000)
Borrowings of industrial development loans, net........... (771) 1,128
Common stock dividends paid............................... (7,734) (7,734)
-------- ---------
Net cash provided by financing activities............ 26,295 35,194
-------- ---------
Net increase (decrease) in cash and cash equivalents........ (379) (86)
Cash and cash equivalents at beginning of period............ 1,186 499
-------- ---------
Cash and cash equivalents at end of period.................. $ 807 $ 413
======== =========
Supplemental disclosures of cash flow information Cash paid
(refunded) during the period for:
Interest.................................................. $ 9,019 $ 8,333
Income taxes.............................................. (8,073) 5,735
</TABLE>
The accompanying notes are an integral part of these financial statements.
V-5
<PAGE> 97
J&L SPECIALTY STEEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 1 FINANCIAL STATEMENTS
The information contained in these financial statements and notes for the
quarter ended June 30, 1998, should be read in conjunction with the audited
financial statements and notes contained in the J&L Specialty Steel, Inc. Annual
Report and Form 10-K for the year ended December 31, 1997. The accompanying
unaudited Condensed Consolidated Financial Statements of J&L Specialty Steel,
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles and the rules and regulations of the Securities and
Exchange Commission. The condensed interim statements do not include all of the
information and footnotes required for complete financial statements. It is
management's opinion that all adjustments (including all normal recurring
adjustments) considered necessary for a fair presentation have been made;
however, results for the interim period are not necessarily indicative of
results to be expected for the full year.
NOTE 2 INVENTORIES
Inventories are stated at the lower of cost or market. Raw materials in all
levels of inventory are valued using the last in, first out ("LIFO") method. The
remaining costs of work-in-process and finished goods inventories are valued
using the specific identification cost method.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
INVENTORIES CONSISTED OF THE FOLLOWING: 1998 1997
- --------------------------------------- -------- ------------
<S> <C> <C>
Raw materials........................................ $ 10,330 $ 18,621
Work-in-process...................................... 124,343 107,572
Finished goods....................................... 23,947 40,270
-------- --------
Total inventories at current cost.................... 158,620 166,463
Less allowance to reduce current cost values
to LIFO basis...................................... (5,848) (15,348)
-------- --------
Total inventories.......................... $152,772 $151,115
======== ========
</TABLE>
NOTE 3 UNUSUAL ITEM
In January 1997, the Company reached a settlement with a third-party vendor
concerning a commercial dispute relating to the quality of certain material
purchased by the Company. As a result of this settlement, the Company received a
$5.9 million cash payment.
NOTE 4 EARNINGS PER SHARE
The second quarter 1998 and 1997 basic earnings per share were calculated
using 38,763,000 and 38,670,000 weighted average shares, respectively. Due to
the net loss for each quarter, there were no reconciling dilutive securities, as
the 890,000 and 935,000 outstanding options to purchase common stock as of June
30, 1998 and 1997, respectively, would have been antidilutive had they been
exercised. These options, with exercise prices ranging from $12.00 to $16.94 per
share, expire during the years 2003 through 2006.
For the six months ended June 30, 1998 and 1997 basic earnings per share
were calculated using 38,763,000 and 38,670,000 weighted average shares,
respectively. Due to the net loss there were no reconciling dilutive securities
in 1998. For the 1997 period, there were 1,668 dilutive common stock options and
38,671,668 shares were used to calculate diluted earnings per share.
V-6
<PAGE> 98
J&L SPECIALTY STEEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 NEW ACCOUNTING PRONOUNCEMENT
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS No.
130"), which establishes standards for the reporting and display of
comprehensive income in financial statements. Comprehensive income is defined as
the change in equity during a period from transactions and other events and
circumstances from nonowner sources. SFAS No. 130 had no impact on the Company's
financial statements, as no items of other comprehensive income were recorded in
the accompanying interim financial statements.
V-7
<PAGE> 99
Facsimiles of the Letter of Transmittal, properly completed and duly signed,
will be accepted. The Letter of Transmittal and certificates evidencing Shares
and any other required documents should be sent or delivered by each shareholder
or his broker, dealer, commercial bank, trust company or other nominee to the
Depositary at one of its addresses set forth below.
THE DEPOSITARY FOR THE OFFER IS:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
BY MAIL BY HAND OR OVERNIGHT DELIVERY BY FACSIMILE
Wall Street Station Receive Window (212) 701-7636
P.O. Box 1023 Wall Street Plaza
New York, New York 88 Pine Street, 19th Floor CONFIRM BY TELEPHONE
10268-1023 New York, New York 10005 (212) 701-7624
</TABLE>
------------------------
Questions or requests for assistance may be directed to the Information Agent or
the Dealer Manager at their respective addresses and telephone numbers listed
below. Additional copies of this Offer to Purchase, the Letter of Transmittal
and the Notice of Guaranteed Delivery may be obtained from the Information
Agent. A shareholder may also contact brokers, dealers, commercial banks or
trust companies for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
[Innisfree Logo]
501 Madison Avenue, 20th Floor
New York, New York 10022
(212) 750-5833
or
Call Toll Free: (888) 750-5834
THE DEALER MANAGER FOR THE OFFER IS:
MORGAN STANLEY DEAN WITTER
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
(212) 761-8178
<PAGE> 1
Letter of Transmittal
to Tender Shares of Common Stock
of
J&L Specialty Steel, Inc.
Pursuant to the Offer to Purchase
Dated November 12, 1998
of
Ice Acquisition Corp.
a wholly owned subsidiary of
Usinor
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, DECEMBER 10, 1998,
UNLESS THE OFFER IS EXTENDED.
THE DEPOSITARY FOR THE OFFER IS:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<CAPTION>
BY MAIL BY HAND OR OVERNIGHT DELIVERY
<S> <C>
Wall Street Station Receive Window
P.O. Box 1023 Wall Street Plaza
New York, New York 10268-1023 88 Pine Street, 19th Floor
New York, New York 10005
</TABLE>
BY FACSIMILE
(212) 701-7636
CONFIRM BY TELEPHONE
(212) 701-7624
DELIVERY OF THIS LETTER OF TRANSMITTAL, OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE TRANSMISSION, TO AN ADDRESS OR
FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
THIS LETTER OF TRANSMITTAL IS TO BE COMPLETED BY SHAREHOLDERS EITHER IF
CERTIFICATES EVIDENCING SHARES (AS DEFINED BELOW) ARE TO BE FORWARDED HEREWITH
OR IF DELIVERY OF SHARES IS TO BE MADE BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT THE DEPOSITORY TRUST COMPANY ("DTC" OR THE "BOOK-ENTRY
TRANSFER FACILITY") PURSUANT TO THE BOOK-ENTRY TRANSFER PROCEDURE DESCRIBED
UNDER "THE TENDER OFFER -- SECTION 3. PROCEDURES FOR ACCEPTING THE OFFER AND
TENDERING SHARES" IN THE OFFER TO PURCHASE (AS DEFINED BELOW). DELIVERY OF
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
A SHAREHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES
EVIDENCING SHARES ("SHARE CERTIFICATES") ARE NOT IMMEDIATELY AVAILABLE OR WHO
CANNOT DELIVER HIS SHARE CERTIFICATES AND ALL OTHER DOCUMENTS REQUIRED HEREBY TO
THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED UNDER "THE TENDER
OFFER -- SECTION 1. TERMS OF THE OFFER; EXPIRATION DATE" IN THE OFFER TO
PURCHASE) OR WHO CANNOT COMPLETE THE PROCEDURE FOR DELIVERY BY BOOK-ENTRY
TRANSFER ON A TIMELY BASIS, MAY TENDER SUCH SHARES BY FOLLOWING THE PROCEDURE
FOR GUARANTEED DELIVERY DESCRIBED UNDER "THE TENDER OFFER -- SECTION 3.
PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES" IN THE OFFER TO
PURCHASE. SEE INSTRUCTION 2.
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution
----------------------------------------------------------------------------
Account Number
----------------------------------------------------------------------------
Transaction Code Number
----------------------------------------------------------------------------
[ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
----------------------------------------------------------------------------
Window Ticket No. (if any)
----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
---------------------------------------------------------------------
Name of Institution which Guaranteed Delivery
-------------------------------------------------------------------------
If delivery is by book-entry transfer, give the following:
DTC Account Number
----------------------------------------------------------------------------
Transaction Code Number
----------------------------------------------------------------------------
<PAGE> 3
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ----------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) SHARE CERTIFICATE(S) AND SHARE(S) TENDERED
ON SHARE CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF
SHARES EVIDENCED
SHARE CERTIFICATE BY SHARE NUMBER OF SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
<S> <C> <C> <C>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL SHARES
- ----------------------------------------------------------------------------------------------------------------------
* Need not be completed by shareholders delivering Shares by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate delivered to
the Depositary are being tendered hereby. See Instruction 4.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Ice Acquisition Corp., a Pennsylvania
corporation ("Purchaser") and a wholly owned subsidiary of Usinor, a societe
anonyme organized under the laws of the Republic of France ("Parent"), the
above-described shares of common stock, par value $0.01 per share (the
"Shares"), of J&L Specialty Steel, Inc., a Pennsylvania corporation (the
"Company"), pursuant to Purchaser's offer to purchase all issued and outstanding
Shares at $6.375 per Share, net to the seller in cash, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated November 12,
1998 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in
this Letter of Transmittal (which, together with the Offer to Purchase,
constitute the "Offer"). The undersigned understands that Purchaser reserves the
right to transfer or assign, in whole or from time to time in part, to one or
more of its affiliates, the right to purchase all or any portion of the issued
and outstanding Shares tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith, in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, Purchaser all
right, title and interest in and to all the Shares that are being tendered
hereby and all dividends, distributions (including, without limitation,
distributions of additional Shares) and rights declared, paid or distributed in
respect of such Shares on or after November 5, 1998 (collectively,
"Distributions") and irrevocably appoints the Depositary the true and lawful
agent and attorney-in-fact of the undersigned with respect to such Shares and
all Distributions, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (i) deliver
Share Certificates evidencing such Shares and all Distributions, or transfer
ownership of such Shares and all Distributions on the account books maintained
by the Book-Entry Transfer Facility, together, in either case, with all
accompanying evidences of transfer and authenticity, to or upon the order of
Purchaser, (ii) present such Shares and all Distributions for transfer on the
books of the Company, and (iii) receive all benefits and otherwise exercise all
rights of beneficial ownership of such Shares and all Distributions, all in
accordance with the terms of the Offer.
The undersigned hereby irrevocably appoints Robert Hudry, Guy Dolle and
Jean-Didier Dujardin, and each of them, as the attorneys and proxies of the
undersigned, each with full power of substitution, to vote in such manner as
each such attorney and proxy or his substitute shall, in his sole discretion,
deem proper and otherwise act (by written consent or otherwise) with respect to
all the Shares tendered hereby which have been accepted for payment by Purchaser
prior to the time of such vote or other action and all Shares and other
securities issued in Distributions in respect of such Shares, which the
undersigned is entitled to vote at any meeting of shareholders of the Company
(whether annual or special and whether or not an adjourned or postponed meeting)
or execute a written consent with respect thereto in lieu of any such meeting or
otherwise. This proxy and power of attorney is coupled with an interest in the
Shares tendered hereby, is irrevocable and is granted in consideration of, and
is effective upon, the acceptance for payment of such Shares by Purchaser in
accordance with the terms of the Offer. Such acceptance for payment shall revoke
all other proxies and powers of attorney granted by the undersigned at any time
with respect to such Shares (and all Shares and other securities issued in
Distributions in respect of such Shares), and no subsequent proxy or power of
attorney shall be given or written consent executed (and, if given or executed,
shall not be effective) by the undersigned with respect thereto. The undersigned
understands that, in order for Shares to be deemed validly tendered, immediately
upon Purchaser's acceptance of such Shares for payment, Purchaser must be able
to exercise full voting and other rights with respect to such Shares, including,
without limitation, voting at any meeting of the Company's shareholders then
scheduled.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and all Distributions, that when such Shares are accepted for
payment by Purchaser, Purchaser will acquire good, marketable and unencumbered
title thereto and to all Distributions, free and clear of all liens,
restrictions, charges and encumbrances, and that none of such Shares and
Distributions will be subject to any adverse claim. The undersigned, upon
request, shall execute and deliver all additional documents deemed by the
Depositary or Purchaser to be necessary or desirable to complete the sale,
assignment and transfer of the Shares tendered hereby and all Distributions. In
addition, the undersigned shall remit and transfer promptly to the Depositary
for the account of Purchaser all Distributions in respect of the Shares tendered
hereby, accompanied by appropriate documentation of transfer, and pending such
remittance and transfer or appropriate assurance thereof, Purchaser shall be
entitled to all rights and privileges as owner of each such Distribution and may
withhold the entire purchase price of the Shares
<PAGE> 5
tendered hereby, or deduct from such purchase price the amount or value of such
Distribution as determined by Purchaser in its sole discretion.
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding upon
the heirs, personal representatives, successors and assigns of the undersigned.
Except as stated in the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in the Offer to Purchase under "THE TENDER
OFFER -- Section 3. Procedures for Accepting the Offer and Tendering Shares" and
in the instructions hereto will constitute the undersigned's acceptance of the
terms and conditions of the Offer. Purchaser's acceptance of such Shares for
payment will constitute a binding agreement between the undersigned and
Purchaser upon the terms and subject to the conditions of the Offer.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions", please issue the check for the purchase price of all Shares
purchased, and return all Share Certificates evidencing Shares not purchased or
not tendered (and accompanying documents, as appropriate) registered in the
name(s) of the registered holder(s) appearing above under "Description of Shares
Tendered". Similarly, unless otherwise indicated in the box entitled "Special
Delivery Instructions", please mail the check for the purchase price of all
Shares purchased and all Share Certificates evidencing Shares not tendered or
not purchased (and accompanying documents, as appropriate) to the address(es) of
the registered holder(s) appearing above under "Description of Shares Tendered".
In the event that the boxes entitled "Special Payment Instructions" and "Special
Delivery Instructions" are both completed, please issue the check for the
purchase price of all Shares purchased and return all Share Certificates
evidencing Shares not purchased or not tendered registered in the name(s) of,
and mail such check and Share Certificates to, the person(s) so indicated. The
undersigned recognizes that Purchaser has no obligation, pursuant to the Special
Payment Instructions, to transfer any Shares from the name of the registered
holder(s) thereof if Purchaser does not purchase any of the Shares tendered
hereby.
<PAGE> 6
------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or Share Certificates evidencing Shares not tendered or not
purchased are to be issued in the name of someone other than the
undersigned.
Issue [ ] Check [ ] Share Certificate(s) to:
Name
----------------------------------------------------
Please Print
Address
--------------------------------------------------
------------------------------------------------------------
(Zip Code)
------------------------------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
------------------------------------------------------------
------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or Share Certificates evidencing Shares not tendered or not
purchased are to be mailed to someone other than the undersigned, or the
undersigned at an address other than that shown under "Description of
Shares Tendered".
Mail [ ] Check [ ] Share Certificate(s) to:
Name
----------------------------------------------------
Please Print
Address
--------------------------------------------------
------------------------------------------------------------
(Zip Code)
------------------------------------------------------------
<PAGE> 7
IMPORTANT
SHAREHOLDERS: SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Signature(s) of Holder(s)
Dated:
----------------------, 199--
(Must be signed by the registered holder(s) exactly as name(s) appear(s)
on Share Certificates or on a security position listing or by the
person(s) authorized to become the registered holder(s) by certificates
and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative
capacity, please provide the following information and see Instruction 5).
Name(s):
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Please Print
Capacity (full title):
-------------------------------------------------------------
Address:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(Zip Code)
Area Code and Telephone No.:
--------------------------------------------------
Tax Identification or Social Security No.: ---------------------------
(See Substitute Form W-9 on Reverse)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY.
FINANCIAL INSTITUTIONS: PLACE MEDALLION
GUARANTEE IN SPACE BELOW.
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. All signatures on this Letter of Transmittal
must be guaranteed by a firm which is a member in good standing in the Security
Transfer Agent Medallion Signature Program or by any other "eligible guarantor
institution", as such term is defined in Rule 17Ad-15 promulgated under the
Securities Exchange Act of 1934, as amended (each of the foregoing being
referred to as an "Eligible Institution"), unless (i) this Letter of Transmittal
is signed by the registered holder(s) (which term, for purposes of this
document, shall include any participant in the Book-Entry Transfer Facility
whose name appears on a security position listing as the owner of Shares) of the
Shares tendered hereby and such holder(s) has (have) completed neither the box
entitled "Special Payment Instructions" nor the box entitled "Special Delivery
Instructions" on the reverse hereof or (ii) such Shares are tendered for the
account of an Eligible Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Share Certificates. This Letter
of Transmittal is to be used either if Share Certificates are to be forwarded
herewith or if Shares are to be delivered by book-entry transfer pursuant to the
procedure set forth under "THE TENDER OFFER -- Section 3. Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase. Share
Certificates evidencing all physically tendered Shares or a confirmation of a
book-entry transfer into the Depositary's account at the Book-Entry Transfer
Facility of all Shares delivered by book-entry transfer, as well as a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and any
other documents required by this Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the reverse hereof prior to the
Expiration Date (as defined under "THE TENDER OFFER -- Section 1. Terms of the
Offer; Expiration Date" in the Offer to Purchase). If Share Certificates are
forwarded to the Depositary in multiple deliveries, a properly completed and
duly executed Letter of Transmittal must accompany each such delivery.
Shareholders whose Share Certificates are not immediately available, who cannot
deliver their Share Certificates and all other required documents to the
Depositary prior to the Expiration Date or who cannot complete the procedure for
delivery by book-entry transfer on a timely basis may tender their Shares
pursuant to the guaranteed delivery procedure described under "THE TENDER
OFFER -- Section 3. Procedures for Accepting the Offer and Tendering Shares" in
the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made
by or through an Eligible Institution; (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form made available
by Purchaser, must be received by the Depositary prior to the Expiration Date;
and (iii) the Share Certificates evidencing all physically delivered Shares in
proper form for transfer by delivery, or a confirmation of a book-entry transfer
into the Depositary's account at the Book-Entry Transfer Facility of all Shares
delivered by book-entry transfer, in each case together with a Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed, with
any required signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message (as defined under "THE TENDER OFFER -- Section 3. Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase)) and any
other documents required by this Letter of Transmittal, must be received by the
Depositary within three New York Stock Exchange, Inc. ("NYSE") trading days
after the date of execution of such Notice of Guaranteed Delivery, all as
described under "THE TENDER OFFER -- Section 3. Procedures for Accepting the
Offer and Tendering Shares" in the Offer to Purchase.
The method of delivery of this Letter of Transmittal, Share Certificates
and all other required documents, including delivery through the Book-Entry
Transfer Facility, is at the option and risk of the tendering shareholder, and
delivery will be deemed made only when those materials are actually received by
the Depositary. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. In all cases, sufficient time
should be allowed to ensure timely delivery.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this Letter of Transmittal
(or a facsimile hereof), a tendering shareholder waives any right to receive any
notice of the acceptance of his Shares for payment.
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Share Certificate numbers, the number of
Shares evidenced by such Share Certificates and the number of Shares tendered
should be listed on a separate schedule that is signed and attached hereto.
4. Partial Tenders (not applicable to shareholders who tender by
book-entry transfer). If fewer than all the Shares evidenced by any Share
Certificate delivered to the Depositary herewith are to be tendered hereby, fill
in the
<PAGE> 9
number of Shares which are to be tendered in the box entitled "Number of Shares
Tendered". In such cases, new Share Certificate(s) evidencing the remainder of
the Shares that were evidenced by the Share Certificates delivered to the
Depositary herewith will be sent to the person(s) signing this Letter of
Transmittal, unless otherwise provided in the box entitled "Special Delivery
Instructions" on the reverse hereof, as soon as practicable after the expiration
or termination of the Offer. All Shares evidenced by Share Certificates
delivered to the Depositary will be deemed to have been tendered unless
otherwise indicated.
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the Share Certificates evidencing such Shares without alteration,
enlargement or any other change whatsoever.
If any Share tendered hereby is owned of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Share Certificates or separate stock
powers are required, unless payment is to be made to, or Share Certificates
evidencing Shares not tendered or not purchased are to be issued in the name of,
a person other than the registered holder(s), in which case the Share
Certificate(s) evidencing the Shares tendered hereby must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Share Certificate(s).
Signatures on such Share Certificate(s) and stock powers must be guaranteed by
an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Share Certificate(s). Signatures on such
Share Certificate(s) and stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to Purchaser of such person's authority so to act must be
submitted.
6. Stock Transfer Taxes. Except as otherwise provided in this Instruction
6, Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or Share
Certificate(s) evidencing Shares not tendered or not purchased are to be issued
in the name of, a person other than the registered holder(s), the amount of any
stock transfer taxes (whether imposed on the registered holder(s), such other
person or otherwise) payable on account of the transfer to such other person
will be deducted from the purchase price of such Shares purchased, unless
evidence satisfactory to Purchaser of the payment of such taxes, or exemption
therefrom, is submitted. Except as provided in this Instruction 6, it will not
be necessary for transfer tax stamps to be affixed to the Share Certificates
evidencing the Shares tendered hereby.
7. Special Payment and Delivery Instructions. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Share Certificate is to be sent to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal at an address other than that shown in the box entitled
"Description of Shares Tendered" on the reverse hereof, the appropriate boxes on
the reverse of this Letter of Transmittal must be completed. All Shares tendered
by book-entry transfer that are not purchased will be returned by crediting the
account at the Book-Entry Transfer Facility from which such Shares were
delivered.
8. Questions and Requests for Assistance or Additional Copies. Questions
and requests for assistance may be directed to the Information Agent or the
Dealer Manager at their respective addresses or telephone numbers set forth
below. Additional copies of the Offer to Purchase, this Letter of Transmittal
and the Notice of Guaranteed Delivery may be obtained from the Information Agent
or from brokers, dealers, commercial banks or trust companies.
<PAGE> 10
9. Substitute Form W-9. Each tendering shareholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information" below,
and to certify, under penalty of perjury, that such number is correct and that
such shareholder is not subject to backup withholding of federal income tax. If
a tendering shareholder has been notified by the Internal Revenue Service that
such shareholder is subject to backup withholding, such shareholder must cross
out item (2) of the Certification box of the Substitute Form W-9, unless such
shareholder has since been notified by the Internal Revenue Service that such
shareholder is no longer subject to backup withholding. Failure to provide the
information on the Substitute Form W-9 may subject the tendering shareholder to
31% federal income tax withholding on the payment of the purchase price of all
Shares purchased from such shareholder. If the tendering shareholder has not
been issued a TIN and has applied for one or intends to apply for one in the
near future, such shareholder should write "Applied For" in the space provided
for the TIN in Part I of the Substitute Form W-9, and sign and date the
Substitute Form W-9. If "Applied For" is written in Part I and the Depositary is
not provided with a TIN within 60 days, the Depositary will withhold 31% on all
payments of the purchase price to such shareholder until a TIN is provided to
the Depositary.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES AND
SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS), OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE.
<PAGE> 11
IMPORTANT TAX INFORMATION
Under the federal income tax law, a shareholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary (as payer)
with such shareholder's correct TIN on Substitute Form W-9 below. If such
shareholder is an individual, the TIN is such shareholder's social security
number. If the Depositary is not provided with the correct TIN, the shareholder
may be subject to a $50 penalty imposed by the Internal Revenue Service, and
payments that are made to such shareholder with respect to Shares purchased
pursuant to the Offer may be subject to backup withholding of 31%. If a
shareholder makes a false statement that results in no imposition of backup
withholding, and there is no reasonable basis for such statement, a $500 penalty
may also be imposed by the Internal Revenue Service.
Certain shareholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such individual must submit a statement, signed under penalties of
perjury, attesting to such individual's exempt status. Forms of such statements
can be obtained from the Depositary. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions. A shareholder should consult his advisor as to such
shareholder's qualification for exemption from backup withholding and the
procedure for obtaining such exemption.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the shareholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a shareholder
with respect to Shares purchased pursuant to the Offer, the shareholder is
required to notify the Depositary of such shareholder's correct TIN by
completing the form below certifying that (a) the TIN provided on Substitute
Form W-9 is correct (or that such shareholder is awaiting a TIN), and (b)(i)
such shareholder has not been notified by the Internal Revenue Service that he
is subject to backup withholding as a result of a failure to report all interest
or dividends or (ii) the Internal Revenue Service has notified such shareholder
that such shareholder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The shareholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
tendered hereby. If the Shares are held in more than one name or are not in the
name of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance on
which number to report. If the tendering shareholder has not been issued a TIN
and has applied for a number or intends to apply for a number in the near
future, the shareholder should write "Applied For" in the space provided for the
TIN in Part I, and sign and date the Substitute Form W-9. If "Applied For" is
written in Part I and the Depositary is not provided with a TIN within 60 days,
the Depositary will withhold 31% of all payments of the purchase price to such
shareholder until a TIN is provided to the Depositary.
<PAGE> 12
PAYER'S NAME: HARRIS TRUST COMPANY OF NEW YORK
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SUBSTITUTE PART I -- Taxpayer Identification Number -- For -------------------------------
FORM W-9 all accounts, enter taxpayer identification Social Security Number
number in the box at right. (For most OR
Payer's Request for Taxpayer individuals, this is your social security -------------------------------
Identification Number (TIN) number. If you do not have a number, see Employer Identification
Obtaining a Number in the enclosed Guidelines.) Number
Certify by signing and dating below. Note: If (If awaiting TIN write "Applied For")
the account is in more than one name, see the
chart in the enclosed Guidelines to determine
which number to give the payer.
----------------------------------------------------------------------------------------
PART II -- For Payees Exempt From Backup Withholding, see the enclosed Guidelines and
complete as instructed therein.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued
to me), and
(2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (the
"IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or the
IRS has notified me that I am no longer subject to backup withholding.
CERTIFICATE INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are subject
to backup withholding because of underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you receive another notification from the IRS that you
are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.)
- -------------------------------------------------------------------------------------------------------------------------
SIGNATURE: DATE ____________ , 199_
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE> 13
Facsimiles of the Letter of Transmittal, properly completed and duly signed,
will be accepted. The Letter of Transmittal and certificates evidencing Shares
and any other required documents should be sent or delivered by each shareholder
or such shareholder's broker, dealer, commercial bank, trust company or other
nominee to the Depositary at one of its addresses or to the facsimile number set
forth below.
THE DEPOSITARY FOR THE OFFER IS:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
BY MAIL BY HAND OR OVERNIGHT DELIVERY BY FACSIMILE
(212) 701-7636
Wall Street Station Receive Window CONFIRM BY TELEPHONE
P.O. Box 1023 Wall Street Plaza (212) 701-7624
New York, New York 10268-1023 88 Pine Street, 19th Floor
New York, New York 10005
</TABLE>
Questions or requests for assistance may be directed to the Information Agent or
the Dealer Manager at their respective addresses and telephone numbers listed
below. Additional copies of the Offer to Purchase, this Letter of Transmittal
and the Notice of Guaranteed Delivery may be obtained from the Information
Agent. A shareholder may also contact brokers, dealers, commercial banks or
trust companies for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
[INNISFREE LOGO]
501 Madison Avenue, 20th Floor
New York, New York 10022
(212) 750-5833
or
Call Toll Free: (888) 750-5834
THE DEALER MANAGER FOR THE OFFER IS:
MORGAN STANLEY DEAN WITTER
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
(212) 761-8178
November 12, 1998
<PAGE> 1
Notice of Guaranteed Delivery
for
Tender of Shares of Common Stock
of
J&L Specialty Steel, Inc.
(Not to Be Used for Signature Guarantees)
This Notice of Guaranteed Delivery, or one substantially in the form hereof,
must be used to accept the Offer (as defined below) (i) if certificates ("Share
Certificates") evidencing shares of Common Stock, par value $0.01 per share (the
"Shares"), of J&L Specialty Steel, Inc., a Pennsylvania corporation (the
"Company"), are not immediately available, (ii) if Share Certificates and all
other required documents cannot be delivered to Harris Trust Company of New
York, as Depositary (the "Depositary"), prior to the Expiration Date (as defined
in "THE TENDER OFFER -- Section 1. Terms of the Offer; Expiration Date" in the
Offer to Purchase (as defined below)), or (iii) if the procedure for delivery by
book-entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery may be delivered by hand or mail or transmitted by telegram
or facsimile transmission to the Depositary. See "THE TENDER OFFER -- Section 3.
Procedures for Accepting the Offer and Tendering Shares" in the Offer to
Purchase.
THE DEPOSITARY FOR THE OFFER IS:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
BY MAIL BY HAND OR OVERNIGHT DELIVERY BY FACSIMILE
(212) 701-7636
Wall Street Station Receive Window
P.O. Box 1023 Wall Street Plaza CONFIRM BY TELEPHONE
New York, New York 10268-1023 88 Pine Street, 19th Floor (212) 701-7624
New York, New York 10005
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a Letter
of Transmittal is required to be guaranteed by an "Eligible Institution" under
the instructions thereto, such signature guarantee must appear in the applicable
space provided in the signature box on the Letter of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Ice Acquisition Corp., a Pennsylvania
corporation ("Purchaser") and a wholly owned subsidiary of Usinor, a societe
anonyme organized under the laws of the Republic of France ("Parent"), upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
November 12, 1998 (the "Offer to Purchase"), and the related Letter of
Transmittal (which together constitute the "Offer"), receipt of each of which is
hereby acknowledged, the number of Shares specified below pursuant to the
guaranteed delivery procedure described under "THE TENDER OFFER -- Section 3.
Procedures for Accepting the Offer and Tendering Shares" in the Offer to
Purchase.
<TABLE>
<S> <C>
Number of Shares:
- ------------------------ --------------------------------------------
--------------------------------------------
Signature of Holder(s)
Certificate Nos. (If Applicable):
- --------------------------------------------
Dated: ----------------------, 199--
Name(s) of Holders:
--------------------------------------------
--------------------------------------------
Please Type or Print
Please check box if Shares will be delivered
by book-entry transfer to The Depository
Trust Company: [ ] --------------------------------------------
Address
Zip Code
--------------------------------------------
Area Code and Telephone Number
Account No.
- ----------------------------
</TABLE>
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member in good standing in the Security
Transfer Agent Medallion Signature Program or is an "eligible guarantor
institution" as such term is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, guarantees to deliver to the Depositary at one
of its addresses set forth above either Share Certificates evidencing the Shares
tendered hereby, in proper form for transfer, or confirmation of book-entry
transfer of such Shares into the Depositary's account at The Depository Trust
Company, with delivery of a Letter of Transmittal (or facsimile thereof)
properly completed and duly executed and any other required documents, all
within three New York Stock Exchange, Inc. trading days of the date hereof.
<TABLE>
<S> <C>
- --------------------------------------- ---------------------------------------
Name of Firm Authorized Signature
- --------------------------------------- ---------------------------------------
Address Title
- --------------------------------------- Name: ---------------------------------
Zip Code Please Type or Print
- --------------------------------------- Dated: ------------------------ , 199--
Area Code and Telephone No.
</TABLE>
DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE.
SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
<PAGE> 1
MORGAN STANLEY DEAN WITTER
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
J&L Specialty Steel, Inc.
at
$6.375 Net Per Share
by
Ice Acquisition Corp.
a wholly owned subsidiary of
Usinor
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, DECEMBER 10, 1998
UNLESS THE OFFER IS EXTENDED.
November 12, 1998
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Ice Acquisition Corp., a Pennsylvania corporation
("Purchaser") and a wholly owned subsidiary of Usinor, a societe anonyme
organized under the laws of the Republic of France ("Parent"), to act as Dealer
Manager in connection with Purchaser's offer to purchase all issued and
outstanding shares of common stock, par value $0.01 per share (the "Shares"), of
J&L Specialty Steel, Inc., a Pennsylvania corporation (the "Company"), at a
price of $6.375 per Share, net to the seller in cash, upon the terms and subject
to the conditions set forth in Purchaser's Offer to Purchase, dated November 12,
1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer") enclosed herewith. Please furnish copies of the
enclosed materials to those of your clients for whose accounts you hold Shares
registered in your name or in the name of your nominee.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST A
MAJORITY OF THE ISSUED AND OUTSTANDING SHARES WITHOUT REGARD TO THE SHARES
CURRENTLY OWNED BY PARENT (THE "MINIMUM CONDITION"). THE MINIMUM CONDITION MAY
NOT BE WAIVED WITHOUT THE CONSENT OF THE SPECIAL COMMITTEE (AS DEFINED IN THE
OFFER TO PURCHASE).
Enclosed for your information and use are copies of the following
documents:
1. Offer to Purchase, dated November 12, 1998;
2. Letter of Transmittal to be used by holders of Shares in accepting
the Offer and tendering Shares;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents are not immediately available or
cannot be delivered to Harris Trust Company of New York (the "Depositary")
by the Expiration Date (as defined in the Offer to Purchase) or if the
procedure for book-entry transfer cannot be completed by the Expiration
Date;
<PAGE> 2
4. A letter which may be sent to your clients for whose accounts you
hold Shares registered in your name or in the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Offer;
5. A letter to shareholders of the Company from Eugene A. Salvadore,
President and Chief Executive Officer of the Company, together with a
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission by the Company;
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
7. Return envelope addressed to the Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, DECEMBER 10, 1998 UNLESS THE OFFER IS EXTENDED.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates
evidencing such Shares (or confirmation of a book-entry transfer of such Shares
into the Depositary's account at the Book-Entry Transfer Facility (as defined in
the Offer to Purchase)), (ii) a Letter of Transmittal (or facsimile thereof)
properly completed and duly executed with any required signature guarantees or,
in the case of book-entry transfer, an Agent's Message (as defined in the Offer
to Purchase) in lieu of the Letter of Transmittal, and (iii) any other required
documents.
A shareholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available or who cannot deliver those
certificates and all other required documents or who cannot comply with the
procedure for book-entry transfer prior to the expiration of the Offer may
tender such Shares by following the guaranteed delivery procedure described
under "THE TENDER OFFER -- Section 3. Procedures for Accepting the Offer and
Tendering Shares" in the Offer to Purchase.
Purchaser will not pay any fees or commissions to any broker, dealer or
other person (other than the Dealer Manager, the Depositary and the Information
Agent as described in the Offer) in connection with the solicitation of tenders
of Shares pursuant to the Offer. However, Purchaser will reimburse you for
customary mailing and handling expenses incurred by you in forwarding any of the
enclosed materials to your clients. Purchaser will pay or cause to be paid any
stock transfer taxes payable with respect to the transfer of Shares to it,
except as otherwise provided in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
Morgan Stanley & Co. Incorporated or Innisfree M&A Incorporated (the
"Information Agent") at their respective addresses and telephone numbers set
forth on the back cover page of the Offer to Purchase.
Additional copies of the enclosed material may be obtained from the
Information Agent at the address and telephone numbers set forth on the back
cover page of the Offer to Purchase.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR
ANY OTHER PERSON THE AGENT OF PURCHASER, THE DEALER MANAGER, THE INFORMATION
AGENT OR THE DEPOSITARY OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE ANY STATEMENT ON BEHALF OF ANY OF
THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE
STATEMENTS CONTAINED THEREIN.
2
<PAGE> 1
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
J&L Specialty Steel, Inc.
at
$6.375 Net Per Share
by
Ice Acquisition Corp.
a wholly owned subsidiary of
Usinor
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, DECEMBER 10, 1998,
UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration are an Offer to Purchase, dated November
12, 1998 (the "Offer to Purchase"), and a related Letter of Transmittal in
connection with the offer by Ice Acquisition Corp., a Pennsylvania corporation
("Purchaser") and a wholly owned subsidiary of Usinor, a societe anonyme
organized under the laws of the Republic of France ("Parent"), to purchase all
issued and outstanding shares of common stock, par value $0.01 per share (the
"Shares"), of J&L Specialty Steel, Inc., a Pennsylvania corporation (the
"Company"), at a price of $6.375 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase and in
the related Letter of Transmittal (which together constitute the "Offer"). We
are (or our nominee is) the holder of record of Shares held by us for your
account. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD
AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU
FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US
FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender on your
behalf any or all of the Shares held by us for your account upon the terms and
subject to the conditions set forth in the Offer.
Your attention is invited to the following:
1. The tender price is $6.375 per Share, net to you in cash.
2. The Offer is being made for all issued and outstanding Shares.
3. The Board of Directors of the Company, by the unanimous vote of all
directors present, and the Special Committee thereof (as defined in the
Offer to Purchase) comprised of disinterested directors by unanimous vote
has each determined that the Offer and the Merger (as defined in the Offer
to Purchase) are fair to, and in the best interests of, the Company, and
recommends that shareholders accept the Offer and tender their Shares
pursuant to the Offer.
4. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON THURSDAY, DECEMBER 10, 1998, UNLESS THE OFFER IS
EXTENDED.
5. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the expiration of the Offer at
least a majority of the issued and outstanding Shares without regard to the
Shares currently owned by Parent (the "Minimum Condition"). The Minimum
Condition may not be waived without the consent of the Special Committee.
<PAGE> 2
6. Tendering shareholders will not be obligated to pay brokerage fees
or commissions or, except as otherwise provided in Instruction 6 of the
Letter of Transmittal, stock transfer taxes with respect to the purchase of
Shares by Purchaser pursuant to the Offer.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing and returning to us the instruction form contained
in this letter. An envelope in which to return your instructions to us is
enclosed. If you authorize the tender of your Shares, all such Shares will be
tendered unless otherwise specified in your instructions. YOUR INSTRUCTIONS
SHOULD BE FORWARDED TO US AS SOON AS POSSIBLE SO THAT WE WILL HAVE AMPLE TIME TO
PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE
OFFER.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal and is being made to all holders of Shares. Purchaser is not aware
of any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to any valid state statute. If Purchaser becomes aware
of any valid state statute prohibiting the making of the Offer or the acceptance
of Shares pursuant thereto, Purchaser will make a good faith effort to comply
with such state statute. If, after such good faith effort, Purchaser cannot
comply with such state statute, the Offer will not be made to (nor will tenders
be accepted from or on behalf of) the holders of Shares in such state. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of Purchaser by Morgan Stanley & Co. Incorporated or one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
2
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF J&L SPECIALTY STEEL, INC.
BY ICE ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
USINOR
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated November 12, 1998, and the related Letter of
Transmittal (which together constitute the "Offer") in connection with the offer
by Ice Acquisition Corp., a Pennsylvania corporation and a wholly owned
subsidiary of Usinor, a societe anonyme organized under the laws of the Republic
of France, to purchase all issued and outstanding shares of common stock, par
value $0.01 per share (the "Shares"), of J&L Specialty Steel, Inc., a
Pennsylvania corporation.
This will instruct you to tender the number of Shares indicated below (or,
if no number is indicated below, all Shares) that are held by you for the
account of the undersigned, upon the terms and subject to the conditions set
forth in the Offer.
Dated: --------------, 199--
<TABLE>
<S> <C>
Number of Shares to be Tendered: SIGN HERE
____________________ Shares*
--------------------------------------------
--------------------------------------------
Signature(s)
--------------------------------------------
--------------------------------------------
Please type or print name(s)
--------------------------------------------
--------------------------------------------
Please type or print address
--------------------------------------------
Area Code and Telephone Number
--------------------------------------------
Taxpayer Identification or Social Security
Number
</TABLE>
- ---------------
* Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
3
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
------------------------------------------------------------------
<TABLE>
<S> <C> <C>
FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY
NUMBER OF --
- ---------------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of the
account) account or, if combined
funds, any one of the
individuals(1)
3. Custodian and wife (joint The actual owner of the
account) account or, if joint funds,
either person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the minor
is the only contributor, the
minor(1)
6. Account in the name of guardian The ward, minor, or
or committee for a designated incompetent person(3)
ward, minor, or incompetent
person
7. a. The usual revocable savings The grantor-trustee(1)
trust account (grantor is also
trustee) The actual owner(1)
b. So-called trust account that
is not a legal or valid trust
under State law
- ---------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
IDENTIFICATION NUMBER OF --
- ---------------------------------------------------------------------
8. Sole proprietorship account The Owner(4)
9. A valid trust, estate, or Legal entity (Do not furnish
pension trust the identifying number of
the personal representative
or trustee unless the legal
entity itself is not
designated in the account
title.)(5)
10. Corporate account The Corporation
11. Religious, charitable, or The organization
educational organization account
12. Partnership account held in the The partnership
name of the business
13. Association, club, or other tax- The organization
exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments
</TABLE>
------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or
agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS. ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045 and 6050A.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
(4) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. -- If you fail to
include any portion of an includible payment for interest, dividends or
patronage dividends in gross income and such failure is due to negligence, a
penalty of 20% is imposed on any portion of any underpayment attributable to the
failure.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
<PAGE> 1
SUMMARY ADVERTISEMENT AS PUBLISHED
IN THE WALL STREET JOURNAL ON NOVEMBER 12, 1998
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares (as defined below). The Offer (as defined below) is made solely
by the Offer to Purchase dated November 12, 1998 and the related Letter of
Transmittal, and is being made to all holders of Shares. Purchaser (as defined
below) is not aware of any state where the making of the Offer is prohibited by
administrative or judicial action pursuant to any valid state statute. If
Purchaser becomes aware of any valid state statute prohibiting the making of the
Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good
faith effort to comply with such state statute. If, after such good faith
effort, Purchaser cannot comply with such state statute, the Offer will not be
made to (nor will tenders be accepted from or on behalf of) the holders of
Shares in such state. In any jurisdiction where the securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of Purchaser by Morgan Stanley & Co.
Incorporated or one or more registered brokers or dealers licensed under the
laws of such jurisdiction.
Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock of
J&L Specialty Steel, Inc. at $6.375 Net Per Share by Ice Acquisition Corp. a
wholly owned subsidiary of Usinor
Ice Acquisition Corp., a Pennsylvania corporation ("Purchaser") and a wholly
owned subsidiary of Usinor, a societe anonyme organized under the laws of the
Republic of France ("Parent"), is offering to purchase all outstanding shares
(the "Shares") of common stock, par value $0.01 per share (the "Common Stock"),
of J&L Specialty Steel, Inc., a Pennsylvania corporation (the "Company"), at a
price of $6.375 per Share, net to the seller in cash, upon the terms and subject
to the conditions set forth in the Offer to Purchase dated November 12, 1998
(the "Offer to Purchase"), and in the related Letter of Transmittal (which
together constitute the "Offer"). Following the Offer, Purchaser intends to
effect the Merger described below.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, DECEMBER 10, 1998, UNLESS THE OFFER IS EXTENDED.
The Offer is conditioned upon, among other things, there being validly tendered
and not withdrawn prior to the expiration of the Offer at least a majority of
the then issued and outstanding Shares, without regard to the Shares currently
owned by Parent (the "Minimum Condition"). The Minimum Condition may not be
waived without the consent of the Special Committee (as defined in the Offer to
Purchase).
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of
-1-
<PAGE> 2
November 5, 1998 (the "Merger Agreement"), among Parent, Purchaser and the
Company. The Merger Agreement provides that, among other things, as promptly as
practicable after the purchase of Shares pursuant to the Offer and the
satisfaction or, if permissable, waiver of the other conditions set forth in the
Merger Agreement, in accordance with relevant provisions of the Pennsylvania
Business Corporation Law of 1988, as amended (the "PBCL"), Purchaser will be
merged with and into the Company (the "Merger"). Following consummation of the
Merger, the Company will continue as the surviving corporation (the "Surviving
Corporation") and will become a wholly owned subsidiary of Parent. At the
effective time of the Merger (the "Effective Time"), each Share issued and
outstanding immediately prior to the Effective Time (other than Shares held in
the treasury of the Company and each Share owned by Purchaser, Parent or any
direct or indirect wholly owned subsidiary of Parent or of the Company) shall be
cancelled and, subject to dissenters rights, converted automatically into the
right to receive $6.375 in cash, or any higher price that may be paid per Share
in the Offer (the "Merger Consideration"), without interest. Shareholders who
fully comply with the statutory dissenters procedures set forth in the PBCL will
be entitled to receive, in connection with the Merger, instead of the Merger
Consideration, cash for the fair value of their Shares (which may be more than,
equal to, or less than the Merger Consideration) as determined pursuant to the
procedures prescribed by the PBCL. No dissenters rights are available in
connection with the Offer.
The Board of Directors of the Company, by the unanimous vote of all directors
present, based upon, among other things, the unanimous recommendation and
approval of a committee of the Board of Directors comprised of disinterested
directors, has determined that the Offer and the Merger are fair to, and in the
best interests of, the Company, and recommends that shareholders accept the
Offer and tender their Shares pursuant to the Offer.
For purposes of the Offer, Purchaser will be deemed to have accepted for payment
(and thereby purchased) Shares validly tendered and not properly withdrawn as,
if and when Purchaser gives oral or written notice to Harris Trust Company of
New York (the "Depositary") of Purchaser's acceptance for payment of such Shares
pursuant to the Offer. Upon the terms and subject to the conditions of the
Offer, payment for Shares accepted for payment pursuant to the Offer will be
made by deposit of the purchase price therefor with the Depositary, which will
act as agent for tendering shareholders for the purpose of receiving payments
from Purchaser and transmitting such payments to tendering shareholders whose
Shares have been accepted for payment. Under no circumstances will interest on
the purchase price for Shares be paid, regardless of any delay in making such
payment. In all cases, payment for Shares tendered and accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary
of (i) the certificates evidencing such Shares (the "Share Certificates") or
timely confirmation of a book-entry transfer of such Shares into the
Depositary's account at the Book-Entry Transfer Facility (as defined in Section
2 under "THE TENDER OFFER" in the Offer to Purchase) pursuant to the procedures
set
-2-
<PAGE> 3
forth in Section 3 under "THE TENDER OFFER" in the Offer to Purchase, (ii) the
Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, with any required signature guarantees or, in the case of a book-entry
transfer, an Agent's Message (as defined in Section 3 under "THE TENDER OFFER"
in the Offer to Purchase) in lieu of the Letter of Transmittal and (iii) any
other documents required under the Letter of Transmittal.
Purchaser expressly reserves the right, in its sole discretion (but subject to
the terms and conditions of the Merger Agreement), at any time and from time to
time, to extend for any reason the period of time during which the Offer is
open, including the occurrence of any condition specified in Section 12 under
"THE TENDER OFFER" in the Offer to Purchase, by giving oral or written notice of
such extension to the Depositary. Any such extension will be followed as
promptly as practicable by public announcement thereof, such announcement to be
made no later than 9:00 a.m., New York City time, on the next business day after
the previously scheduled expiration date of the Offer. During any such
extension, all Shares previously tendered and not withdrawn will remain subject
to the Offer, subject to the rights of a tendering shareholder to withdraw such
shareholder's Shares. Pursuant to the Merger Agreement, in the event all
conditions set forth in the Merger Agreement, including the Minimum Condition,
shall have been satisfied or waived, but the number of Shares validly tendered
and not withdrawn pursuant to the Offer, when taken together with the Shares
currently owned by Parent, does not constitute at least 80% of the then issued
and outstanding Shares, Purchaser may extend the Offer for a period or periods
aggregating not more than 20 business days after the later of (i) the initial
expiration date of the Offer and (ii) the date on which all other conditions set
forth in the Merger Agreement shall have been satisfied or waived.
Tenders of Shares made pursuant to the Offer are irrevocable except that such
Shares may be withdrawn at any time prior to 12:00 midnight, New York City time,
on Thursday, December 10, 1998 (or the latest time and date at which the Offer,
if extended by Purchaser, shall expire) and, unless theretofore accepted for
payment by Purchaser pursuant to the Offer, may also be withdrawn at any time
after January 10, 1999. For the withdrawal to be effective, a written,
telegraphic or facsimile transmission notice of withdrawal must be timely
received by the Depositary at one of its addresses or at its facsimile number
set forth on the back cover page of the Offer to Purchase. Any such notice of
withdrawal must specify the name of the person who tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and the name of the registered
holder of such Shares, if different from that of the person who tendered such
Shares. If Share Certificates evidencing Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, then, prior to the physical
release of such Share Certificates, the serial numbers shown on such Share
Certificates must be submitted to the Depositary and the signature(s) on the
notice of withdrawal must be guaranteed by an Eligible Institution (as defined
in Section 3 under "THE TENDER OFFER" in the Offer to Purchase), unless such
Shares have been tendered for the account of an Eligible Institution. If Shares
have been tendered
-3-
<PAGE> 4
pursuant to the procedure for book-entry transfer as set forth in Section 3
under "THE TENDER OFFER" in the Offer to Purchase, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Shares. All questions as to the form and
validity (including the time of receipt) of any notice of withdrawal will be
determined by Purchaser, in its sole discretion, whose determination will be
final and binding.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended, is
contained in the Offer to Purchase and is incorporated herein by reference.
The Company has provided Purchaser with the Company's shareholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. The Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on the Company's
shareholder list and will be furnished, for subsequent transmittal to beneficial
owners of Shares, to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
shareholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing.
The Offer to Purchase and the related Letter of Transmittal contain important
information which should be read before any decision is made with respect to the
Offer.
Questions and requests for assistance or for additional copies of the
Offer to Purchase and the related Letter of Transmittal and other tender offer
materials may be directed to the Information Agent or the Dealer Manager as set
forth below, and copies will be furnished promptly at Purchaser's expense. No
fees or commissions will be paid to brokers, dealers or other persons (other
than the Information Agent and the Dealer Manager) for soliciting tenders of
Shares pursuant to the Offer.
The Information Agent for the Offer is:
[Innisfree logo]
501 Madison Avenue, 20th Floor
New York, New York 10022
Call Toll Free (888) 750-5834
Banks and Brokers Call: (212) 750-5833 (Collect)
The Dealer Manager for the Offer is:
[Morgan Stanley Dean Witter logo]
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
(212) 761-8178
November 12, 1998
-4-
<PAGE> 1
USINOR, J&L SPECIALTY STEEL, INC. ENTER INTO NEW MERGER AGREEMENT
Pittsburgh, November 5, 1998 - Usinor and J&L Specialty Steel, Inc. (NYSE:JL)
today announced today that they had entered into a new definitive merger
agreement pursuant to which Usinor will offer to acquire all the issued and
outstanding shares of J&L common stock that it does not already own for $6.375
per share in cash. There are 18,033,000 outstanding shares of J&L common stock
not currently owned by Usinor representing approximately 46.5% of the
outstanding shares.
On October 9, 1998, Usinor and J&L had entered into a similar merger agreement
at $6.25 per share. This merger agreement was terminated by Usinor earlier today
following a decision by a special committee of the Board of Directors of J&L to
withdraw its recommendation that J&L shareholders accept the $6.25 per share
offer from Usinor until the special committee had an opportunity to study
additional information.
The new transaction was unanimously approved by the special committee, as
well as by other directors of J&L participating in a special board meeting held
today.
Pursuant to the merger agreement, a wholly owned subsidiary of Usinor will
commence, on or prior to November 12, 1998, a cash tender offer to acquire all
the J&L shares. Unless a majority of the shares not currently owned by Usinor
are validly tendered and not withdrawn, Usinor may not purchase any shares in
the tender offer without the consent of the special committee of the Board of
Directors of J&L. The tender offer will be subject to other customary
conditions. Following the successful completion of the tender offer, the merger
agreement contemplates that a second-step merger will be effected, in which the
remaining shareholders of J&L will be entitled to receive $6.375 per share.
Following the merger, J&L will become a wholly owned subsidiary of Usinor.
J&L Specialty Steel, Inc. is a leading manufacturer of flat rolled stainless
steel products. The company is headquartered in Pittsburgh, Pennsylvania, with
plants located in Midland, Pennsylvania, Louisville, Ohio and Detroit, Michigan.
With a worldwide production of approximately 16.1 million tons in 1997, Usinor
is a world-leading producer of steel. Its principal activities are divided into
flat carbon steels, stainless steel and alloys and specialty steels.
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
among
USINOR,
ICE ACQUISITION CORP.
and
J&L SPECIALTY STEEL, INC.
Dated as of November 5, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
THE OFFER
SECTION 1.01. The Offer ............................................................ 2
SECTION 1.02. Company Action ....................................................... 3
ARTICLE II
THE MERGER
SECTION 2.01. The Merger ........................................................... 5
SECTION 2.02. Effective Time; Closing .............................................. 5
SECTION 2.03. Effect of the Merger ................................................. 5
SECTION 2.04. Articles of Incorporation; By-Laws ................................... 5
SECTION 2.05. Directors and Officers ............................................... 6
SECTION 2.06. Conversion of Securities ............................................. 6
SECTION 2.07. Dissenting Shares .................................................... 6
SECTION 2.08. Surrender of Shares; Stock Transfer Books ............................ 7
SECTION 2.09. Withholding Rights ................................................... 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification; Subsidiaries ......................... 9
SECTION 3.02. Articles of Incorporation and By-laws ................................ 10
SECTION 3.03. Capitalization ....................................................... 10
SECTION 3.04. Authority Relative to this Agreement ................................. 10
SECTION 3.05. No Conflict; Required Filings and Consents ........................... 11
SECTION 3.06. Compliance ........................................................... 11
SECTION 3.07. SEC Filings; Financial Statements .................................... 12
SECTION 3.08. Absence of Certain Changes or Events ................................. 13
SECTION 3.09. Absence of Litigation ................................................ 13
SECTION 3.10. Offer Documents; Schedule 14D-9; Schedule 13E-3;
Proxy Statement .......................................... 14
SECTION 3.11. Taxes ................................................................ 14
SECTION 3.12. Environmental Matters ................................................ 14
SECTION 3.13. Brokers .............................................................. 15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
SECTION 4.01. Organization and Qualification ....................................... 16
SECTION 4.02. Authority Relative to this Agreement ................................. 16
SECTION 4.03. No Conflict; Required Filings and Consents ........................... 16
</TABLE>
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<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 4.04. Offer Documents; Proxy Statement ..................................... 17
SECTION 4.05. Brokers .............................................................. 17
SECTION 4.06. Financing ............................................................ 18
ARTICLE V
COVENANTS
SECTION 5.01. Conduct of the Business Pending the Merger ........................... 18
SECTION 5.02. Shareholders' Meeting; Voting of Shares .............................. 18
SECTION 5.03. Proxy Statement ...................................................... 19
SECTION 5.04. Access to Information; Confidentiality ............................... 19
SECTION 5.05. Directors', Officers' and Others' Indemnification and Insurance ...... 20
SECTION 5.06. Notification of Certain Matters ...................................... 21
SECTION 5.07. Stock Options ........................................................ 21
SECTION 5.08. Further Action; Reasonable Best Efforts .............................. 21
SECTION 5.09. Public Announcements ................................................. 22
SECTION 5.10. No Solicitation of Transactions ...................................... 22
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to the Merger ............................................. 22
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination .......................................................... 23
SECTION 7.02. Effect of Termination ................................................ 25
SECTION 7.03. Amendment ............................................................ 25
SECTION 7.04. Waiver ............................................................... 25
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Non-Survival of Representations, Warranties and Agreements ........... 25
SECTION 8.02. Notices .............................................................. 25
SECTION 8.03. Certain Definitions .................................................. 27
SECTION 8.04. Severability ......................................................... 28
SECTION 8.05. Entire Agreement; Assignment ......................................... 28
SECTION 8.06. Parties in Interest .................................................. 28
SECTION 8.07. Specific Performance ................................................. 28
SECTION 8.08. Fees and Expenses .................................................... 28
SECTION 8.09. Governing Law ........................................................ 28
SECTION 8.10. Headings ............................................................. 29
SECTION 8.11. Counterparts ......................................................... 29
ANNEX A - CONDITIONS TO THE OFFER
</TABLE>
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PAGE
-iii-
<PAGE> 5
Index of Defined Terms
(Not Part of this Agreement)
Location of
Defined Term Definition
1997 Balance Sheet 3.07(c)
affiliate 8.03(a)
Agreement Preamble
Articles of Merger 2.02
Beneficial owner 8.03(b)
Blue Sky Laws 3.05(b)
Board Recitals
Business day 8.03(c)
Certificates 2.08(b)
Code 2.09
Company Preamble
Company Options 3.03
Company Preferred Stock 3.03
Company Representatives 5.10
Competing Proposal 5.10
control 8.03(d)
Disclosure Schedule 3.01
Disinterested Directors 1.01(a)
Dissenting Shares 2.07(a)
Effective Time 2.02
Environmental Laws 3.12(a)
Environmental Permits 3.12(a)
Exchange Act Recitals
Extension Right Condition 1.01(a)
Governmental Entity 3.05(b)
Hazardous Substances 3.12(a)
Indemnified Parties 5.05(b)
Law 3.05(a)
Lehman Brothers Recitals
Material Adverse Effect 3.01
Merger Recitals
Merger Consideration 2.06(a)
Minimum Condition 1.01(a)
Offer Recitals
Offer Documents 1.01(b)
Offer to Purchase 1.01(b)
<PAGE> 6
Parent Preamble
Index of Defined Terms (continued)
(Not Part of this Agreement)
Location of
Defined Term Definition
Parent Shares Recitals
Paying Agent 2.08(a)
Pennsylvania Law Recitals
Per Share Amount Recitals
person 8.03(e)
Proxy Statement 3.10
Purchaser Preamble
Schedule 13E-3 1.01(b)
Schedule 14D-1 1.01(b)
Schedule 14D-9 1.02(b)
SEC 1.01(b)
SEC Reports 3.07(a)
Securities Act 3.07(a)
Shareholders' Meeting 5.02(a)
Shares Recitals
Short-Form Plan of Merger 4.02
Special Committee Recitals
subsidiary 8.03(f)
Subsidiary 3.01
Surviving Corporation 2.01
Transactions 1.01(b)
<PAGE> 7
AGREEMENT AND PLAN OF MERGER, dated as of November 5, 1998
(this "Agreement"), among USINOR, a French societe anonyme ("Parent"), ICE
ACQUISITION CORP., a Pennsylvania corporation and a direct wholly owned
subsidiary of Parent ("Purchaser"), and J&L SPECIALTY STEEL, INC., a
Pennsylvania corporation (the "Company").
WHEREAS, Parent beneficially owns 20,730,000 shares (the
"Parent Shares") of common stock, par value $.01 per share, of the Company (the
"Shares"), representing approximately 53.5% of the outstanding Shares;
WHEREAS, Parent and Purchaser have proposed that Purchaser
acquire beneficial ownership of all of the issued and outstanding Shares not
owned by Parent;
WHEREAS, the Board of Directors of the Company (the "Board")
and a special committee comprised of disinterested directors of the Board (the
"Special Committee") have determined that it is in the best interests of the
Company to approve Purchaser's proposed acquisition and have voted (i) to
recommend that the shareholders of the Company accept the Offer (as defined
below) and tender their Shares pursuant to the Offer and (ii) to approve the
merger (the "Merger") of Purchaser with and into the Company, with the Company
being the surviving corporation, in accordance with the Pennsylvania Business
Corporation Law of 1988, as amended ("Pennsylvania Law"), following consummation
of the Offer;
WHEREAS, it is proposed that Purchaser will make a cash tender
offer (the "Offer") in compliance with Section 14(d)(1) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, to acquire all the issued and outstanding
Shares (other than the Parent Shares) for $6.375 per Share (such amount, or any
greater amount per Share paid pursuant to the Offer, being hereinafter referred
to as the "Per Share Amount"), net to the seller in cash, upon the terms and
subject to the conditions of this Agreement; and that the Offer will be followed
by the Merger, pursuant to which each issued and outstanding Share not owned by
Parent or Purchaser will be converted into the right to receive the Per Share
Amount, upon the terms and subject to the conditions provided herein; and
WHEREAS, the Special Committee has received the opinion of
Lehman Brothers Inc. ("Lehman Brothers") that the consideration to be received
by the holders of Shares (other than Parent and its subsidiaries) pursuant to
the Offer and the Merger is fair to such holders from a financial point of view;
<PAGE> 8
NOW, THEREFORE, in consideration of the foregoing and the
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.01. The Offer. (a) Provided that this Agreement
shall not have been terminated in accordance with Section 7.01 and none of the
events set forth in Annex A hereto shall have occurred or be existing, Purchaser
shall commence, within the meaning of Rule 14d-2 under the Exchange Act, the
Offer as promptly as reasonably practicable after the date hereof, but in no
event later than five business days after the initial public announcement of
Purchaser's intention to commence the Offer. Purchaser shall not, without the
consent of the Special Committee, accept for payment any Shares tendered
pursuant to the Offer unless at least a majority of the then issued and
outstanding Shares, without regard to the Parent Shares, shall have been validly
tendered and not withdrawn prior to the expiration of the Offer (the "Minimum
Condition"). The obligation of Purchaser to accept for payment and pay for
Shares tendered pursuant to the Offer shall be subject to the satisfaction of
the Minimum Condition and the other conditions set forth in Annex A hereto.
Purchaser expressly reserves the right to waive any such condition (except the
Minimum Condition), to increase the Per Share Amount and to make any other
changes in the terms and conditions of the Offer; provided, however, that,
without the prior written consent of the Special Committee and, to the extent
required by the Company's Articles of Incorporation, the approval of a majority
of the "Disinterested Directors" (as defined in the Company's Articles of
Incorporation), Purchaser will not (i) decrease the Per Share Amount, (ii)
reduce the maximum number of Shares to be purchased in the Offer, (iii) change
the form of the consideration payable in the Offer, (iv) add to, modify or
supplement the conditions to the Offer set forth in Annex A hereto or (v) make
any other change in the terms or conditions of the Offer which is materially
adverse to the holders of Shares. Notwithstanding the foregoing, in the event
that all conditions set forth in Annex A, including the Minimum Condition, shall
have been satisfied or waived, but the number of Shares validly tendered and not
withdrawn pursuant to the Offer, when taken together with the Parent Shares,
does not constitute at least 80% of the then issued and outstanding Shares (the
"Extension Right Condition"), Purchaser may extend the Offer for a period or
periods (the "Extension Periods") aggregating not more than 20 business days
after the later of (x) the initial expiration date of the Offer and (y) the date
on which all other conditions set forth in Annex A shall have been satisfied or
waived. If, at the beginning of the first Extension Period, all conditions set
forth in Annex A, including the Minimum Condition, were satisfied or waived and,
at the expiration of the last Extension Period, the conditions set forth in
paragraphs (a) and (b) of Annex A and the Minimum Condition are satisfied or
waived, then, regardless of whether the Extension Right Condition or any of the
conditions set forth in paragraphs (c), (d), (e), (f), (g), (h) and (i) of Annex
A are satisfied, Purchaser shall accept for payment and pay
<PAGE> 9
3
for all Shares validly tendered and not withdrawn prior to the expiration of the
last Extension Period. For purposes of the immediately preceding sentence, the
conditions set forth in paragraph (a) of Annex A shall be deemed satisfied or
waived at the expiration of the last Extension Period unless, after the
beginning of the first Extension Period, an action or proceeding of the type
described in paragraph (a) of Annex A shall have been instituted or the
complaint in an action or proceeding of the type described in paragraph (a) of
Annex A pending prior thereto shall have been amended, supplemented or modified
after such beginning in a manner that, in the reasonable judgment of Parent, is
reasonably likely to result, directly or indirectly, in any of the consequences
referred to in such paragraph (a). The Per Share Amount shall, subject to any
applicable withholding of taxes, be net to each seller in cash, upon the terms
and subject to the conditions of the Offer. Subject to the terms and conditions
of the Offer (including, without limitation, the Minimum Condition and the
Extension Right Condition), Purchaser shall pay, as promptly as practicable
after expiration of the Offer, for all Shares validly tendered and not
withdrawn.
(b) As soon as reasonably practicable on the date of
commencement of the Offer, Purchaser shall file with the Securities and Exchange
Commission (the "SEC") (i) a Tender Offer Statement on Schedule 14D-1, including
all exhibits thereto (together with all amendments and supplements thereto, the
"Schedule 14D-1"), with respect to the Offer and (ii) a Rule 13e-3 Transaction
Statement on Schedule 13E-3, including all exhibits thereto (together with all
amendments and supplements thereto, the "Schedule 13E-3"), with respect to the
Offer and the other transactions contemplated hereby (the "Transactions"). The
Schedule 14D-1 and the Schedule 13E-3 shall contain or shall incorporate by
reference an offer to purchase (the "Offer to Purchase") and the related letter
of transmittal and any related summary advertisement (the Schedule 14D-1, the
Schedule 13E-3, the Offer to Purchase and such other documents, together with
all supplements and amendments thereto, being referred to herein collectively as
the "Offer Documents"). Parent, Purchaser and the Company shall correct promptly
any information provided by any of them for use in the Offer Documents which
shall become false or misleading, and Parent and Purchaser shall take all steps
necessary to cause the Schedule 14D-1 and the Schedule 13E-3, as so corrected,
to be filed with the SEC and the other Offer Documents, as so corrected, to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable Law (as defined below). The Company, the Special Committee and their
respective counsel shall be given the opportunity to review and comment on the
Offer Documents prior to the filing thereof with the SEC. Parent and Purchaser
shall provide the Company, the Special Committee and their respective counsel
with a copy of any written comments or telephonic notification of any oral
comments Parent or Purchaser may receive from the SEC or its staff with respect
to the Offer Documents promptly after the receipt thereof. Parent and its
counsel shall provide the Company, the Special Committee and their respective
counsel with a reasonable opportunity to participate in all communications with
the SEC and its staff, including any meetings and telephone conferences,
relating to the Offer Documents, the Transactions or this Agreement.
<PAGE> 10
4
SECTION 1.02. Company Action. (a) The Company hereby
represents that (i) the Special Committee and the Board, at meetings duly called
and held on November 5, 1998, have each, by the unanimous vote of all directors
present and voting, (A) determined that this Agreement and the Transactions,
including the Offer and the Merger, are fair to and in the best interests of the
Company, (B) approved this Agreement and the Transactions and (C) resolved to
recommend that the shareholders of the Company accept the Offer and tender their
Shares pursuant to the Offer and approve and adopt this Agreement and approve
the Transactions; (ii) Lehman Brothers has delivered to the Special Committee a
written opinion that the consideration to be received by the holders of Shares
(other than Parent and its subsidiaries) pursuant to the Offer and the Merger is
fair to those holders from a financial point of view; and (iii) a majority of
the Disinterested Directors have approved this Agreement and the Transactions.
Subject to the fiduciary obligations of the Board under applicable Law as
advised by independent counsel, the Company hereby consents to the inclusion in
the Offer Documents of the recommendations of the Special Committee and the
Board described in the immediately preceding sentence.
(b) As soon as reasonably practicable on the date of
commencement of the Offer, the Company shall file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9, including all exhibits
thereto (together with all amendments and supplements thereto, the "Schedule
14D-9"), containing the recommendations of the Special Committee and the Board
described in Section 1.02(a), and shall disseminate the Schedule 14D-9 to the
extent required by Rule 14d-9 under the Exchange Act, and any other applicable
Law. The Company, Parent and Purchaser shall correct promptly any information
provided by any of them for use in the Schedule 14D-9 which shall become false
or misleading, and the Company shall take all steps necessary to cause the
Schedule 14D-9, as so corrected, to be filed with the SEC and disseminated to
holders of Shares, in each case as and to the extent required by applicable Law.
Parent and its counsel shall be given the opportunity to review and comment on
the Schedule 14D-9 prior to the filing thereof with the SEC. The Company shall
provide Parent and its counsel with a copy of any written comments or telephonic
notification of any oral comments the Company may receive from the SEC or its
staff with respect to the Schedule 14D-9 promptly after the receipt thereof. The
Company and its counsel shall provide Parent and its counsel with a reasonable
opportunity to participate in all communications with the SEC and its staff,
including any meetings and telephone conferences, relating to the Schedule
14D-9, the Transactions or this Agreement.
(c) In connection with the Transactions, the Company (i) shall
promptly furnish Purchaser with mailing labels containing the names and
addresses of all record holders of Shares and with security position listings of
Shares held in stock depositories, each as of a recent date, together with all
other available listings and computer files containing names, addresses and
security position listings of record holders and beneficial owners of Shares and
(ii) shall furnish Purchaser with such additional information, including,
without limitation, updated listings and
<PAGE> 11
5
computer files of shareholders, mailing labels and security position listings,
and such other assistance as Parent, Purchaser or their agents may reasonably
request in connection with the Offer and the Merger. Subject to the requirements
of applicable Law, and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offer or the
Merger, Parent and Purchaser shall hold in confidence the information contained
in such labels, listings and files, shall use such information only in
connection with the Offer and the Merger, and, if this Agreement is terminated
in accordance with Section 7.01, shall deliver to the Company all copies of such
information then in their possession.
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Pennsylvania Law,
at the Effective Time (as defined below) Purchaser shall be merged with and into
the Company. As a result of the Merger, the separate corporate existence of
Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation").
SECTION 2.02. Effective Time; Closing. As promptly as
practicable after the satisfaction or, if permissible, waiver of the conditions
set forth in Article VI, the parties hereto shall cause the Merger to be
consummated by delivering to the Secretary of State of the Commonwealth of
Pennsylvania the articles of merger, in such form as required by, and executed
and acknowledged in accordance with, the relevant provisions of Pennsylvania Law
(the "Articles of Merger"), and shall make all other filings and recordings
required by Pennsylvania Law in connection with the Merger. The Merger shall
become effective at the time of filing of the Articles of Merger with the
Secretary of State of the Commonwealth of Pennsylvania, or at such later time,
which shall be as soon as reasonably practicable, specified as the effective
time in the Articles of Merger (the "Effective Time"). Prior to such filing, a
closing shall be held at the offices of Shearman & Sterling, 599 Lexington
Avenue, New York, New York USA 10022, or such other place as the parties shall
agree, for the purpose of confirming the satisfaction or waiver, as the case may
be, of the conditions set forth in Article VI.
SECTION 2.03. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Pennsylvania Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of the Company and Purchaser shall vest in the Surviving Corporation,
and all debts, liabilities, obligations, restrictions, disabilities and duties
of the
<PAGE> 12
6
Company and Purchaser shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 2.04. Articles of Incorporation; By-Laws. (a) The
Articles of Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation following the Effective Time until thereafter amended in accordance
with such Articles of Incorporation and Pennsylvania Law.
(b) The By-laws of the Company, as in effect immediately prior
to the Effective Time, shall be the By-laws of the Surviving Corporation
following the Effective Time until thereafter amended in accordance with
Pennsylvania Law, the Articles of Incorporation of the Surviving Corporation and
such By-laws.
SECTION 2.05. Directors and Officers. (a) The directors of the
Company immediately prior to the Effective Time shall be the initial directors
of the Surviving Corporation, each to hold office in accordance with the
Articles of Incorporation and By-laws of the Surviving Corporation.
(b) The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified.
SECTION 2.06. Conversion of Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of Purchaser, the
Company or the holders of any of the following securities and in accordance with
Section 1906 of Pennsylvania Law:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than the Shares being canceled pursuant to
Section 2.06(b)) shall be canceled and, subject to Section 2.07, shall
be converted automatically into the right to receive from the Company
an amount equal to the Per Share Amount in cash (the "Merger
Consideration") payable, without interest, to the holder of such Share,
upon surrender, in the manner provided in Section 2.08, of the
certificate that formerly evidenced such Share;
(b) Each Share held in the treasury of the Company and each
Share owned by Purchaser, Parent or any direct or indirect wholly owned
subsidiary of Parent or of the Company immediately prior to the
Effective Time shall be canceled without any conversion thereof and no
payment or distribution shall be made with respect thereto; and
(c) Each share of common stock, par value $.01 per share, of
Purchaser issued and outstanding immediately prior to the Effective
Time shall be converted into and
<PAGE> 13
7
exchanged for 387,630 validly issued, fully paid and nonassessable
shares of common stock, par value $.01 per share, of the Surviving
Corporation.
SECTION 2.07. Dissenting Shares. (a) Notwithstanding any
provision of this Agreement to the contrary, in the event that this Agreement is
submitted to a vote at the Shareholders' Meeting (as defined below), Shares that
are outstanding immediately prior to the Effective Time and which are held by
shareholders who shall have demanded the right to receive the fair value of
their Shares in accordance with, and otherwise complied in all respects with,
Sections 1930 and 1575 through 1580 of Pennsylvania Law (collectively, the
"Dissenting Shares") shall be canceled but not be converted into or represent
the right to receive the Merger Consideration. Such shareholders shall be
entitled instead to receive payment of the fair value of such Shares (which may
be more than, equal to, or less than the Merger Consideration) in accordance
with the provisions of such Sections 1930 and 1575 through 1580, except that all
Dissenting Shares held by shareholders who shall fail to perfect or who
effectively shall withdraw or lose their rights to be paid the fair value for
such Shares under such Sections 1930 and 1575 through 1580 shall thereupon be
deemed to have been converted into and to have become exchangeable for, as of
the Effective Time, the right to receive the Merger Consideration, without any
interest thereon, upon surrender, in the manner provided in Section 2.08, of the
certificate or certificates that formerly evidenced such Shares.
(b) Notwithstanding any provision of this Agreement to the
contrary, in the event that the Merger is effected as provided in Section
5.02(b) without a Shareholders' Meeting, Shares that are outstanding immediately
prior to the Effective Time shall be canceled and the holders thereof shall be
entitled to a notice to demand payment in accordance with the provisions of
Sections 1930 and 1575 of Pennsylvania Law, and those shareholders who make a
timely demand for payment in accordance with, and otherwise comply in all
respects with, Sections 1575 through 1580 of Pennsylvania Law shall be entitled
to receive, instead of the Merger Consideration, payment of the fair value of
such Shares (which may be more than, equal to, or less than the Merger
Consideration) in accordance with the provisions of such Sections 1930 and 1575
through 1580, except that all Dissenting Shares held by shareholders who shall
fail to perfect or who effectively shall withdraw or lose their rights to be
paid the fair value for such Shares under such Sections 1930 and 1575 through
1580 shall thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the Merger
Consideration, without any interest thereon, upon surrender, in the manner
provided in Section 2.08, of the certificate or certificates that formerly
evidenced such Shares.
(c) The Company shall give Parent (i) prompt notice of any
demands for payment of fair value received by the Company, withdrawals of such
demands, and any other instruments related thereto served pursuant to
Pennsylvania Law and received by the Company and (ii) the opportunity to direct
all negotiations and proceedings with respect to demands for
<PAGE> 14
8
payment of fair value under Pennsylvania Law. The Company shall not, except with
the prior written consent of Parent, make any payment with respect to any demand
for payment of fair value or offer to settle or settle any such demand.
SECTION 2.08. Surrender of Shares; Stock Transfer Books. (a)
Prior to the Effective Time, Purchaser shall designate a bank or trust company
to act as agent (the "Paying Agent") for the holders of Shares in connection
with the Merger to receive the funds to which holders of Shares shall become
entitled pursuant to Section 2.06(a). Parent shall cause such funds to be
deposited with the Paying Agent by the Surviving Corporation as and when
necessary, and such funds shall be invested by the Paying Agent as directed by
the Surviving Corporation.
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each person who was, at the Effective
Time, a holder of record of Shares entitled to receive the Merger Consideration
pursuant to Section 2.06(a) a form of letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the certificates
evidencing such Shares (the "Certificates") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for effecting
the surrender of Certificates pursuant to such a letter of transmittal. Upon
surrender to the Paying Agent of a Certificate, together with such a letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor the Merger Consideration for each Share formerly evidenced
by such Certificate, and such Certificate shall then be canceled. No interest
shall accrue or be paid on the Merger Consideration payable upon the surrender
of any Certificate for the benefit of the holder of such Certificate. If payment
of the Merger Consideration is to be made to a person other than the person in
whose name a surrendered Certificate is registered on the stock transfer books
of the Company, it shall be a condition of payment that the Certificate so
surrendered shall be endorsed properly or otherwise be in proper form for
transfer and that the person requesting such payment shall have paid all
transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such taxes are not applicable.
(c) At any time following the date which is six months after
the date on which the Effective Time occurs, the Surviving Corporation shall be
entitled to require the Paying Agent to deliver to it any funds which had been
made available to the Paying Agent and not disbursed to holders of Shares
(including, without limitation, all interest and other income received by the
Paying Agent in respect of all such funds made available to it), and thereafter
such holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat and other similar laws) only as general creditors
thereof with respect to any
<PAGE> 15
9
Merger Consideration that may be payable upon due surrender of the Certificates
held by them. Notwithstanding the foregoing, neither Parent, the Surviving
Corporation nor the Paying Agent shall be liable to any holder of a Share for
any Merger Consideration delivered in respect of such Share to a public official
pursuant to any abandoned property, escheat or other similar law.
(d) At the Effective Time, the stock transfer books of the
Company shall be closed and thereafter there shall be no further registration of
transfers of Shares on the records of the Company. From and after the Effective
Time, the holders of Shares outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such Shares except as otherwise
provided herein or by applicable Law.
SECTION 2.09. Withholding Rights. The Surviving Corporation
and the Paying Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
Shares any amounts that the Surviving Corporation or the Paying Agent is
required to deduct and withhold with respect to the making of such payment under
the Internal Revenue Code of 1986, as amended (the "Code"), the rules and
regulations promulgated thereunder or any provision of state, local or foreign
tax law. To the extent that amounts are so withheld by the Surviving Corporation
or the Paying Agent, such amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in respect of which
such deduction and withholding was made by the Surviving Corporation or the
Paying Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and
Purchaser that:
SECTION 3.01. Organization and Qualification; Subsidiaries.
Each of the Company and each subsidiary of the Company (a "Subsidiary") is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has the requisite power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not, individually or in
the aggregate, have a Material Adverse Effect (as defined below). Each of the
Company and each Subsidiary is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that would not,
individually or in the aggregate, have a Material
<PAGE> 16
10
Adverse Effect. The term "Material Adverse Effect" means any change or effect
that is or is reasonably likely to be materially adverse to the business,
operations, properties, condition (financial or otherwise), assets or
liabilities (including, without limitation, contingent liabilities) of the
Company and the Subsidiaries taken as a whole. A true and complete list of all
the Subsidiaries, together with the jurisdiction of incorporation of each
Subsidiary and the percentage of the outstanding capital stock of each
Subsidiary owned by the Company and each other Subsidiary, is set forth in
Section 3.01 of the Disclosure Schedule delivered by the Company to Parent on
the date hereof (the "Disclosure Schedule"). Except as disclosed in Section 3.01
of the Disclosure Schedule, the Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
SECTION 3.02. Articles of Incorporation and By-laws. The
Company has heretofore furnished to Parent a complete and correct copy of the
Articles of Incorporation and the By-laws or equivalent organizational
documents, each as amended to date, of the Company and each Subsidiary. Such
Articles of Incorporation, By-laws or equivalent organizational documents are in
full force and effect, and neither the Company nor any Subsidiary is in
violation of any provision of its Articles of Incorporation, By-laws or
equivalent organizational documents.
SECTION 3.03. Capitalization. The authorized capital stock of
the Company consists of 100,000,000 Shares and 2,000,000 shares of preferred
stock, par value $0.01 per share (the "Company Preferred Stock"). As of the date
hereof, (i) 38,763,000 Shares are issued and outstanding, all of which are
validly issued, fully paid and nonassessable, (ii) no Shares are held in the
treasury of the Company, and (iii) 890,000 Shares are reserved for future
issuance pursuant to employee stock options or stock incentive rights granted
pursuant to the Company's 1993 Stock Incentive Plan (the "Company Options"). As
of the date hereof, no shares of Company Preferred Stock are issued and
outstanding. Except as set forth in this Section 3.03 or in Section 3.03 of the
Disclosure Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or any Subsidiary or obligating the Company or any
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, the Company or any Subsidiary. All Shares subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are no outstanding
contractual obligations of the Company or any Subsidiary to repurchase, redeem
or otherwise acquire any Shares or any capital stock of any Subsidiary or to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any person. Each outstanding share of capital
stock of each Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by the Company or another Subsidiary is
free and clear of all security
<PAGE> 17
11
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Company's or such other Subsidiary's voting rights, charges
and other encumbrances of any nature whatsoever.
SECTION 3.04. Authority Relative to this Agreement. The
Company has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
Transactions. The execution and delivery of this Agreement by the Company, the
performance by the Company of its obligations hereunder and the consummation by
the Company of the Transactions have been duly and validly authorized by all
necessary corporate action (including approval by a majority of the
Disinterested Directors) and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the approval and adoption
of this Agreement by the affirmative vote of a majority of the votes cast by all
shareholders of the Company entitled to vote thereon, if and to the extent
required by applicable Law, and the filing and recordation of appropriate merger
documents, if and to the extent required by Pennsylvania Law). This Agreement
has been duly and validly executed and delivered by the Company and, assuming
its due authorization, execution and delivery by Parent and Purchaser,
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. The restrictions on business
combinations contained in Subchapter F of Chapter 25 of Pennsylvania Law are not
applicable to the Transactions.
SECTION 3.05. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Articles of Incorporation or By-laws or equivalent organizational
documents of the Company or any Subsidiary, (ii) conflict with or violate any
United States federal, state or local or any foreign statute, law, rule,
regulation, ordinance, code, order, judgment or decree (a "Law") applicable to
the Company or any Subsidiary or by which any property or asset of the Company
or any Subsidiary is bound or affected, or (iii) result in any breach of, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset of the Company or any Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any property or asset of either of them is bound or affected, except, in the
case of clauses (ii) and (iii), for such conflicts, violations, breaches,
defaults or other occurrences which would not, individually or in the aggregate,
have a Material Adverse Effect.
<PAGE> 18
12
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will not,
require any consent, approval, authorization or permit of, or filing with, or
notification to, any United States federal, state or local or any foreign
government or any court, administrative or regulatory agency or commission or
other governmental authority or agency, domestic or foreign (a "Governmental
Entity"), except (i) for applicable requirements, if any, of the Exchange Act,
French securities laws, state securities or "blue sky" laws ("Blue Sky Laws")
and state anti-takeover laws and the filing of the Articles of Merger with the
Secretary of State of the Commonwealth of Pennsylvania and (ii) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not, individually or in the aggregate,
(A) have a Material Adverse Effect or (B) prevent or delay the performance by
the Company of any of its obligations under this Agreement or the consummation
of any of the Transactions.
SECTION 3.06. Compliance. Except as set forth in Section 3.06
of the Disclosure Schedule, neither the Company nor any Subsidiary is in
conflict with, or in default or violation of (i) any Law applicable to the
Company or any Subsidiary or by which any property or asset of the Company or
any Subsidiary is bound or affected or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any property or asset of the Company or any
Subsidiary is bound or affected, except for any such conflicts, defaults or
violations that would not, individually or in the aggregate, have a Material
Adverse Effect.
SECTION 3.07. SEC Filings; Financial Statements. (a) The
Company has filed all forms, reports and documents required to be filed by it
with the SEC since December 31, 1995, and has heretofore delivered to Parent, in
the form filed with the SEC, (i) its Annual Reports on Form 10-K for the fiscal
years ended December 31, 1995, 1996, and 1997, respectively, (ii) its Quarterly
Reports on Form 10-Q for the periods ended March 31 and June 30, 1998, (iii) all
proxy statements relating to the Company's meetings of shareholders (whether
annual or special) held since December 31, 1995, and (iv) all other forms,
reports and other registration statements (other than Quarterly Reports on Form
10-Q not referred to in clause (ii) above) filed by the Company with the SEC
since December 31, 1995 (the forms, reports and other documents referred to in
clauses (i), (ii), (iii) and (iv) above being referred to herein, collectively,
as the "SEC Reports"). The SEC Reports (x) were prepared in accordance with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the Exchange Act, as applicable, and the rules and regulations thereunder
and (y) did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. No Subsidiary is
required to file any form, report or other document with the SEC.
<PAGE> 19
13
(b) Each of the consolidated financial statements (including,
in each case, any notes thereto) contained in the SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as may be indicated in the notes
thereto) and each fairly presented the consolidated financial position, results
of operations and changes in financial position of the Company and the
consolidated Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein.
(c) Except as and to the extent set forth on the consolidated
balance sheet of the Company and the consolidated Subsidiaries at December 31,
1997, including the notes thereto (the "1997 Balance Sheet"), neither the
Company nor any Subsidiary has any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise) which would be required to
be reflected on a balance sheet, or in the notes thereto, prepared in accordance
with generally accepted accounting principles, except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since December 31, 1997.
(d) The Company has heretofore furnished to Parent complete
and correct copies of all amendments and modifications that have not been filed
by the Company with the SEC to all agreements, documents and other instruments
that previously had been filed by the Company with the SEC and are currently in
effect.
SECTION 3.08. Absence of Certain Changes or Events. Since
December 31, 1997, except as contemplated by this Agreement, as disclosed in
Section 3.08 of the Disclosure Schedule or as disclosed in any SEC Report filed
since December 31, 1997 and prior to the date of this Agreement, the Company and
the Subsidiaries have conducted their businesses only in the ordinary course and
in a manner consistent with past practice and, since December 31, 1997, there
has not been (i) prior to the date of this Agreement, any change in the
business, operations, properties, condition (financial or otherwise), assets or
liabilities (including, without limitation, contingent liabilities) of the
Company or any Subsidiary having, individually or in the aggregate, a Material
Adverse Effect, (ii) any damage, destruction or loss (whether or not covered by
insurance) with respect to any property or asset of the Company or any
Subsidiary and having, individually or in the aggregate, a Material Adverse
Effect, (iii) any change by the Company in its accounting methods, principles or
practices, (iv) any revaluation by the Company of any asset (including, without
limitation, any writing down of the value of inventory or writing off of notes
or accounts receivable), other than in the ordinary course of business
consistent with past practice, (v) any entry by the Company or any Subsidiary
into any commitment or transaction material to the Company and the Subsidiaries
taken as a whole, (vi) any declaration, setting aside or payment of any dividend
or distribution in respect of any capital stock of the Company (other than
regular quarterly dividends on the Shares not in excess of $0.10 per Share) or
(vii) any redemption, purchase or other acquisition of any of its securities,
any increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing,
<PAGE> 20
14
stock option (including, without limitation, the granting of stock options,
stock appreciation rights, performance awards, or restricted stock awards),
stock purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any officers or key employees of
the Company or any Subsidiary, except in the ordinary course of business
consistent with past practice.
SECTION 3.09. Absence of Litigation. Except as disclosed in
the SEC Reports filed prior to the date of this Agreement, there is no claim,
action, proceeding or investigation pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, or any property or asset of
the Company or any Subsidiary, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, which (i)
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect or (ii) seeks to delay or prevent the consummation of any
Transaction. As of the date hereof, neither the Company nor any Subsidiary nor
any property or asset of the Company or any Subsidiary is subject to any order,
writ, judgment, injunction, decree, determination or award having, individually
or in the aggregate, a Material Adverse Effect.
SECTION 3.10. Offer Documents; Schedule 14D-9; Schedule 13E-3;
Proxy Statement. Neither the Schedule 14D-9 nor any information supplied by the
Company for inclusion in the Offer Documents shall, at the respective times the
Schedule 14D-9 or the Offer Documents are filed with the SEC or are first
published, sent or given to shareholders of the Company, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not
misleading. Neither the proxy statement to be sent to the shareholders of the
Company in connection with the Shareholders' Meeting nor the information
statement to be sent to such shareholders, as appropriate (such proxy statement
or information statement, as amended or supplemented, being referred to herein
as the "Proxy Statement"), shall, at the date the Proxy Statement is first
mailed to shareholders of the Company, at the time of the Shareholders' Meeting
and at the Effective Time, be false or misleading with respect to any material
fact, or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not misleading or necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Shareholders' Meeting which shall have become false or
misleading. The Schedule 14D-9 and the Proxy Statement shall comply in all
material respects as to form with the requirements of the Exchange Act and the
rules and regulations thereunder.
SECTION 3.11. Taxes. The Company and the Subsidiaries have
filed all federal, state, local and foreign tax returns and reports required to
be filed by them and have paid and discharged all taxes shown as due thereon and
have paid all applicable ad valorem taxes as are due, other than (a) such
payments as are being contested in good faith by appropriate proceedings
<PAGE> 21
15
and (b) such filings, payments or other occurrences that, individually or in the
aggregate, would not have a Material Adverse Effect. Except as set forth in
Section 3.11 of the Disclosure Schedule, neither the Internal Revenue Service
nor any other taxing authority or agency, domestic or foreign, is now asserting
or, to the knowledge of the Company, threatening to assert against the Company
or any Subsidiary any deficiency or claim for additional taxes or interest
thereon or penalties in connection therewith. Except as set forth in Section
3.11 of the Disclosure Schedule, neither the Company nor any Subsidiary has
granted any waiver of any statute of limitations with respect to, or any
extension of a period for the assessment of, any federal, state, county,
municipal or foreign income tax. The accruals and reserves for taxes reflected
in the 1997 Balance Sheet are adequate to cover all taxes accruable through such
date (including interest and penalties, if any, thereon) in accordance with
generally accepted accounting principles. Neither the Company nor any Subsidiary
has made an election under Section 341(f) of the Code.
SECTION 3.12. Environmental Matters. (a) For purposes of this
Agreement, the following terms shall have the following meanings: (i) "Hazardous
Substances" means (A) those substances defined in or regulated under the
following federal statutes and their state counterparts, as each may be amended
from time to time, and all regulations thereunder: the Hazardous Materials
Transportation Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the Clean
Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal
Insecticide, Fungicide, and Rodenticide Act and the Clean Air Act; (B) petroleum
and petroleum products including crude oil and any fractions thereof; (C)
natural gas, synthetic gas, and any mixtures thereof; (D) radon; (E) any other
contaminant; and (F) any substance with respect to which a federal, state or
local agency requires environmental investigation, monitoring, reporting or
remediation; and (ii) "Environmental Laws" means any federal, state or local law
(A) relating to releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances; (B) relating to the manufacture,
handling, transport, use, treatment, storage or disposal of Hazardous Substances
or materials containing Hazardous Substances; or (C) otherwise relating to
pollution of the environment or the protection of human health.
(b) Except as described in Section 3.12 of the Disclosure
Schedule and except to the extent that any of the following would not,
individually or in the aggregate, have a Material Adverse Effect: (i) the
Company has not violated and is not in violation of any Environmental Law; (ii)
none of the properties owned or leased by the Company (including, without
limitation, soils and surface and ground waters) are contaminated with any
Hazardous Substance; (iii) the Company is not actually or potentially nor, to
the knowledge of the Company, allegedly liable for any off-site contamination;
(iv) the Company is not actually or potentially nor, to the knowledge of the
Company, allegedly liable under any Environmental Law (including, without
limitation, pending or threatened liens); (v) the Company has all permits,
licenses and other authorizations required under any Environmental Law
("Environmental
<PAGE> 22
16
Permits"); and (vi) the Company has always been and is in compliance with its
Environmental Permits.
SECTION 3.13. Brokers. No broker, finder or investment banker
(other than Lehman Brothers) is entitled to any brokerage, finder's or other fee
or commission in connection with the Transactions based upon arrangements made
by or on behalf of the Company. The Company has heretofore furnished to Parent a
complete and correct copy of all agreements between the Company and Lehman
Brothers pursuant to which such firm would be entitled to any payment relating
to the Transactions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent
and warrant to the Company that:
SECTION 4.01. Organization and Qualification. Parent is a
societe anonyme duly organized and validly existing under the laws of the
Republic of France and Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania. Each of Parent and Purchaser has the requisite power and authority
and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not, individually or in
the aggregate, have a material adverse effect on the business or operations of
Parent and Purchaser.
SECTION 4.02. Authority Relative to this Agreement. Each of
Parent and Purchaser has all necessary power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Transactions. The execution and
<PAGE> 23
17
delivery of this Agreement by Parent and Purchaser, the performance by Parent
and Purchaser of their respective obligations hereunder and the consummation by
Parent and Purchaser of the Transactions have been duly and validly authorized
by all necessary corporate action and no other corporate proceedings on the part
of Parent or Purchaser are necessary to authorize this Agreement or to
consummate the Transactions (other than, with respect to the Merger, the filing
and recordation of appropriate merger documents as required by Pennsylvania Law
and, if the Merger is effected as provided in Section 5.02(b), the adoption by
Purchaser's Board of Directors of the plan of merger attached hereto as Annex B
(the "Short-Form Plan of Merger")). This Agreement has been duly and validly
executed and delivered by Parent and Purchaser and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of each of Parent and Purchaser enforceable against each
of Parent and Purchaser in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by Parent and Purchaser do not, and
the performance of this Agreement by Parent and Purchaser will not, (i) conflict
with or violate the statuts (articles of association) or By-laws of Parent or
the Articles of Incorporation or By-laws of Purchaser, (ii) conflict with or
violate any Law applicable to Parent or Purchaser or by which any property or
asset of either of them is bound or affected, or (iii) result in any breach of
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset of Parent or Purchaser pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or Purchaser
is a party or by which Parent or Purchaser or any property or asset of either of
them is bound or affected, except for any such conflicts, violations, breaches,
defaults or other occurrences which would not, individually or in the aggregate,
have a material adverse effect on the business or operations of Parent or
Purchaser and their respective subsidiaries taken as a whole.
(b) The execution and delivery of this Agreement by Parent and
Purchaser do not, and the performance of this Agreement by Parent and Purchaser
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Entity, except (i) for applicable
requirements, if any, of the Exchange Act, French securities laws, Blue Sky Laws
and state anti-takeover laws and the filing of the applicable Articles of Merger
with the Secretary of State of the Commonwealth of Pennsylvania and (ii) where
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay the performance
by Parent or Purchaser of any of its obligations under this agreement or the
consummation of any of the Transactions.
SECTION 4.04. Offer Documents; Proxy Statement. The Offer
Documents will not, at the time the Offer Documents are filed with the SEC or
are first published, sent or given
<PAGE> 24
18
to shareholders of the Company, as the case may be, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements made therein, in light of
the circumstances under which they are made, not misleading. The information
supplied by Parent or Purchaser for inclusion in the Proxy Statement will not,
on the date the Proxy Statement (or any amendment or supplement thereto) is
first mailed to shareholders of the Company, at the time of the Shareholders'
Meeting and at the Effective Time, contain any statement which, at such time and
in light of the circumstances under which it is made, is false or misleading
with respect to any material fact, or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Shareholders'
Meeting which shall have become false or misleading. Notwithstanding the
foregoing, Parent and Purchaser make no representation or warranty with respect
to any information supplied by the Company or any of its representatives which
is contained in any of the foregoing documents or the Offer Documents. The Offer
Documents shall comply in all material respects as to form with the requirements
of the Exchange Act and the rules and regulations thereunder.
SECTION 4.05. Brokers. No broker, finder or investment banker
(other than Morgan Stanley & Co. Incorporated) is entitled to any brokerage,
finder's or other fee or commission in connection with the Transactions based
upon arrangements made by or on behalf of Parent or Purchaser.
SECTION 4.06. Financing. Parent has or will have available,
prior to the expiration of the Offer, and will, as necessary, provide to
Purchaser on a timely basis, sufficient funds to enable Purchaser to consummate
the Offer, the Merger and the other transactions contemplated hereby and to pay
all related fees and expenses.
ARTICLE V
COVENANTS
SECTION 5.01. Conduct of the Business Pending the Merger.
Between the date of this Agreement and the Effective Time, unless Parent shall
otherwise agree in writing, the businesses of the Company and the Subsidiaries
shall be conducted only in, and the Company and the Subsidiaries shall not take
any action except in the ordinary course of business and in a manner consistent
with past practice and the Company shall use its reasonable best efforts to
preserve substantially intact the business organization of the Company and the
Subsidiaries, to keep available the services of the current officers, employees
and consultants of the Company and the Subsidiaries, and to preserve the current
relationships of the Company and the Subsidiaries with customers, suppliers and
other persons with whom the Company or any
<PAGE> 25
19
Subsidiary has significant business relations, in a manner consistent with past
practice. By way of amplification and not limitation, except as contemplated by
this Agreement or as set forth in Section 5.01 of the Disclosure Schedule,
neither the Company nor any Subsidiary shall, between the date of this Agreement
and the Effective Time, directly or indirectly, do, or propose to do, any of the
following without the prior written consent of Parent: (a) acquire (including,
without limitation, by merger, consolidation or acquisition of stock or assets)
or dispose of any corporation, partnership, other business organization or any
division thereof or any material amount of assets (other than dispositions of
inventory in the ordinary course of business and in a manner consistent with
past practice); (b) assume, guarantee or endorse the obligations of any person
or make any loans or advances; (c) enter into any contract or agreement or
authorize any significant capital expenditure(s) other than in the ordinary
course of business and consistent with past practice or as authorized by
resolution of the Board duly adopted on or prior to the date hereof; or (d)
enter into or amend any contract, agreement, commitment or arrangement with
respect to the foregoing.
SECTION 5.02. Shareholders' Meeting; Voting of Shares. (a) If
required by applicable Law in order to consummate the Merger, the Company,
acting through the Board, shall, in accordance with applicable Law and the
Company's Articles of Incorporation and By-laws, (i) duly call, give notice of,
convene and hold a special meeting of its shareholders as soon as practicable
following consummation of the Offer for the purpose of considering and taking
action on this Agreement and the Transactions (the "Shareholders' Meeting") and
(ii) subject to its fiduciary obligations under applicable Law as advised by
independent counsel, include in the Proxy Statement the recommendations of the
Board and the Special Committee that the shareholders of the Company approve and
adopt this Agreement and approve the Transactions. At the Shareholders' Meeting,
Parent shall cause all Shares then owned by it and its subsidiaries to be voted
in favor of the approval and adoption of this Agreement and the Transactions.
(b) Notwithstanding the foregoing, in the event that Purchaser
shall acquire such number of Shares that, when taken together with any Shares
then owned by Parent or Purchaser, constitutes at least 80% of the then
outstanding Shares, the parties shall, subject to Article VI, take all necessary
and appropriate action to cause the Merger to become effective in accordance
with Section 1924(b)(1)(ii) of Pennsylvania Law, as promptly as practicable
after such acquisition, without a meeting of the shareholders of the Company,
including, without limitation, adoption by the Board of Directors of Purchaser
of the Short-Form Plan of Merger.
SECTION 5.03. Proxy Statement. If required by applicable Law,
as soon as practicable following consummation of the Offer, the Company shall
file the Proxy Statement with the SEC under the Exchange Act, and shall use its
reasonable best efforts to respond to and satisfactorily address any comments
that the SEC may have on the Proxy Statement. Parent, Purchaser and the Company
shall cooperate with each other in the preparation of the Proxy Statement, and
the Company shall notify Parent of the receipt of any comments from the SEC
<PAGE> 26
20
with respect to the Proxy Statement and of any requests by the SEC for any
amendment or supplement thereto or for additional information and shall provide
to Parent promptly copies of all correspondence between the Company or any
representative of the Company and the SEC. The Company shall give Parent and its
counsel the opportunity to review the Proxy Statement prior to its being filed
with the SEC and shall give Parent and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information from the SEC and replies to comments from the SEC
prior to their being filed with, or sent to, the SEC. Each of the Company,
Parent and Purchaser shall use its reasonable best efforts to cause the Proxy
Statement to be mailed to the holders of Shares entitled to vote at the
Shareholders' Meeting at the earliest practicable time.
SECTION 5.04. Access to Information; Confidentiality. (a) From
the date hereof to the Effective Time, the Company shall, and shall cause the
Subsidiaries and the officers, directors, employees, auditors and agents of the
Company and the Subsidiaries to, afford the officers, employees and agents of
Parent and Purchaser reasonable access during normal business hours to the
officers, employees, agents, properties, offices, plants and other facilities,
books and records of the Company and each Subsidiary, and shall furnish Parent
and Purchaser with all financial, operating and other data and information as
Parent or Purchaser, through its officers, employees or agents, may reasonably
request.
(b) No investigation pursuant to this Section 5.04 shall
affect any representation or warranty in this Agreement of any party hereto or
any condition to the obligations of the parties hereto.
(c) Information afforded or furnished to Parent or Purchaser
by the Company pursuant to this Section 5.04 shall be kept confidential and
shall not be disclosed to third parties except (i) with the consent of the
Company, (ii) as may be required by law, regulation or by legal process
(including by deposition, interrogatory, request for documents, subpoena, civil
investigative demand or similar process), or (iii) as may be necessary in
connection with the consummation of the Transactions.
SECTION 5.05. Directors', Officers' and Others'
Indemnification and Insurance. (a) The Articles of Incorporation and By-laws of
the Surviving Corporation shall contain provisions no less favorable with
respect to indemnification and limitation on liability than those set forth in
Articles VII and VIII of the Articles of Incorporation of the Company and in
Sections 2.11 and 2.12 of the By-laws of the Company, which provisions shall not
be amended, repealed or otherwise modified, notwithstanding the provisions of
Section 2.04 of this Agreement, for a period of six years from the Effective
Time in any manner that would be reasonably likely to affect adversely the
rights thereunder of individuals who at the Effective Time were directors,
officers, employees, fiduciaries or agents of the Company, unless such
modification shall be required by Law.
<PAGE> 27
21
(b) After the Effective Time, the Surviving Corporation shall,
to the fullest extent permitted under applicable Law, indemnify, defend and hold
harmless each present and former director, officer, employee, fiduciary or agent
of the Company and each Subsidiary (collectively, the "Indemnified Parties")
against all costs and expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and settlement amounts paid in connection
with any claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission in his or
her capacity as an officer, director, employee, fiduciary or agent, whether
occurring before or after the Effective Time, for a period of six years after
the Effective Time. In the event of any such claim, action, suit, proceeding or
investigation, (i) the Surviving Corporation shall pay the reasonable fees and
expenses of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to the Surviving Corporation, promptly after statements
therefor are received, and (ii) the Surviving Corporation shall cooperate in the
defense of any such matter; provided, however, that the Surviving Corporation
shall not be liable for any settlement effected without its written consent
(which consent shall not be unreasonably withheld); and provided further that
the Surviving Corporation shall not be obligated pursuant to this Section
5.05(b) to pay the fees and expenses of more than one counsel for all
Indemnified Parties in any single action except to the extent that two or more
of such Indemnified Parties shall have conflicting interests with respect
thereto; and provided further that, in the event that any claim for
indemnification is asserted or made within such six-year period, all rights to
indemnification in respect of such claim shall continue until the disposition of
such claim. Following the Effective Time, Parent shall guarantee the obligations
of the Surviving Corporation under this Section 5.05(b).
(c) The Surviving Corporation shall use its reasonable best
efforts to maintain in effect for six years from the Effective Time, if
available, the current directors' and officers' liability insurance policies
maintained by the Company (it being understood that the Surviving Corporation
may substitute therefor policies of at least the same coverage containing terms
and conditions which are not in the aggregate less favorable) with respect to
matters occurring prior to or at the Effective Time; provided, however, that in
no event shall the Surviving Corporation be required to expend pursuant to this
Section 5.05(c) more than an amount per year equal to 200% of the current annual
premiums paid by the Company for such insurance (which premiums the Company
represents and warrants to be approximately $336,800 in the aggregate).
(d) In the event that Parent or the Surviving Corporation or
any of their respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person, then, and in each such case,
proper provision shall be made so that the successors and assigns, as
applicable, of Parent or the Surviving Corporation or, at Parent's option,
Parent, shall assume the obligations set forth in this Section 5.05.
<PAGE> 28
22
SECTION 5.06. Notification of Certain Matters. The Company
shall give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (i) the occurrence, or non-occurrence, of any event the occurrence,
or non-occurrence, of which would reasonably be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect and (ii) any failure of the Company, Parent
or Purchaser, as the case may be, to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.06 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 5.07. Stock Options. Following the date of this
Agreement, Parent shall review alternatives for the treatment of the Company
Options following the Effective Time, and the Company shall cooperate with
Parent in conducting such review.
SECTION 5.08. Further Action; Reasonable Best Efforts. Upon
the terms and subject to the conditions hereof, each of the parties hereto shall
use its reasonable best efforts to take, or cause to be taken, all appropriate
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, including, without limitation, using its reasonable best
efforts to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of each Governmental Entity and party to a contract
with the Company or any Subsidiary as are necessary for the consummation of the
Transactions and to fulfill the conditions to the Offer and the Merger. In case
at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement and the Surviving Corporation shall
use their reasonable best efforts to take all such action.
SECTION 5.09. Public Announcements. Parent and the Company
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to this Agreement or any Transaction
and shall not issue any such press release or make any such public statement
prior to such consultation, except as may be required by law or any listing
agreement with a securities exchange to which Parent or the Company is a party.
SECTION 5.10. No Solicitation of Transactions. Neither the
Company nor any Subsidiary shall, directly or indirectly, through any officer,
director, employee, counsel, investment banker, financial or other advisor or
agent (the "Company Representatives"), (a) solicit, initiate or encourage the
submission of any proposal or offer from any person relating to any acquisition
or purchase of all or any portion of the assets of, or any equity interest in,
the Company or any Subsidiary or any business combination with the Company or
any Subsidiary (a "Competing Proposal"), (b) participate in any negotiations
regarding, or furnish to any other
<PAGE> 29
23
person any information with respect to, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any other person to do or seek to do any of the foregoing or (c) enter into any
agreement with respect to any Competing Proposal. The Company shall notify
Parent promptly if any Competing Proposal or any inquiry from, or contact with,
any person with respect thereto, is made and shall, in any such notice to
Parent, indicate in reasonable detail the identity of the person making such
Competing Proposal, inquiry or contact and the terms and conditions of such
Competing Proposal, inquiry or contact. Notwithstanding the foregoing, the
Company, the Subsidiaries and the Company Representatives shall not be obligated
to take or refrain from taking any action pursuant to this Section 5.10 if the
Board is advised by independent counsel that to take or to refrain from taking
any such action would result or would be reasonably likely to result in a
violation of its fiduciary obligations under applicable Law.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to the Merger. The respective
obligations of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Shareholder Approval. This Agreement and the Transactions
shall have been approved and adopted by the affirmative vote of the
shareholders of the Company to the extent required by Pennsylvania Law
and the Articles of Incorporation and By-laws of the Company;
(b) No Order. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any Law (whether temporary,
preliminary or permanent) which is then in effect and has the effect of
(i) making the acquisition of Shares by Parent or Purchaser or any
affiliate of either of them illegal or otherwise restricting,
preventing or prohibiting consummation of the Offer or the Merger or
(ii) prohibiting or limiting materially the ownership or operation by
the Company, Parent or any of their subsidiaries of (x) all or any
material portion of the business or assets of the Company or any of the
Subsidiaries or (y) as a result of any Transaction, all or any material
portion of the business or assets of Parent or any of its subsidiaries
or compelling the Company, Parent or any of their subsidiaries to
dispose of or hold separate (x) all or any material portion of the
business or assets of the Company or any of the Subsidiaries or (y) as
a result of any Transaction, all or any material portion of the
business or assets of Parent or any of its subsidiaries after the
Effective Time; and
<PAGE> 30
24
(c) Offer. Purchaser or its permitted assignee shall have
purchased all Shares validly tendered and not withdrawn pursuant to the
Offer; provided, however, that this condition shall not be applicable
to the obligations of Parent or Purchaser if, in breach of this
Agreement or the terms of the Offer, Purchaser fails to purchase any
Shares validly tendered and not withdrawn pursuant to the Offer.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination. This Agreement may be terminated
and the Merger and the other Transactions may be abandoned at any time prior to
the Effective Time, notwithstanding any requisite approval and adoption of this
Agreement and the Transactions by the shareholders of the Company:
(a) by mutual written consent duly authorized by the Board of
Directors of Parent and the Special Committee and a majority of the
Disinterested Directors on behalf of the Company; or
(b) by either Parent, on the one hand, or the Special
Committee and a majority of the Disinterested Directors on behalf of
the Company, on the other hand, if (i) the Effective Time shall not
have occurred on or before April 1, 1999; provided, however, that the
right to terminate this Agreement under this Section 7.01(b) shall not
be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date; or (ii) any court
of competent jurisdiction or other Governmental Entity shall have
issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and
nonappealable; or
(c) by Parent, if (i) due to an occurrence or circumstance
that would result in a failure to satisfy any condition set forth in
Annex A hereto, Purchaser shall have (A) failed to commence the Offer
within 60 days following the date of this Agreement, (B) terminated the
Offer without having accepted any Shares for payment thereunder, or (C)
failed to pay for the Shares validly tendered pursuant to the Offer
within 90 days following the commencement of the Offer, unless such
termination or failure to pay for Shares shall have been caused by or
resulted from the failure of Parent or Purchaser to perform in any
material respect any covenant or agreement of either of them contained
in this Agreement or the material breach by Parent or Purchaser of any
representation or warranty of either of them contained in this
Agreement or (ii) prior to the purchase of any
<PAGE> 31
25
Shares validly tendered pursuant to the Offer, the Special Committee
shall have withdrawn or modified in a manner that is, in the reasonable
judgment of Parent, materially adverse to Parent or Purchaser its
approval or recommendation of this Agreement, the Offer, the Merger or
any other Transaction or shall have recommended another merger,
consolidation or business combination involving, or acquisition of, the
Company or its assets or another tender offer for Shares, or shall have
resolved to do any of the foregoing; or
(d) by the Company, upon approval of the Special Committee and
a majority of the Disinterested Directors, if due to an occurrence or
circumstance that would result in a failure to satisfy any condition
set forth in Annex A hereto, Purchaser shall have (i) failed to
commence the Offer within 60 days following the date of this Agreement,
(ii) terminated the Offer without having accepted any Shares for
payment thereunder, or (iii) failed to pay for the Shares validly
tendered pursuant to the Offer within 90 days following the
commencement of the Offer, unless such termination or failure to pay
for Shares shall have been caused by or resulted from the failure of
the Company to perform in any material respect any covenant or
agreement of it contained in this Agreement or the material breach by
the Company of any representation or warranty of it contained in this
Agreement; or
(e) by the Company, upon approval of the Special Committee and
a majority of the Disinterested Directors, if any representation or
warranty of Parent and Purchaser in this Agreement which is qualified
as to materiality shall not be true and correct in all respects or any
such representation or warranty that is not so qualified shall not be
true and correct in any material respect, in each case as if such
representation or warranty was made as of such time on or after the
date of this Agreement, or Parent or Purchaser shall have failed to
perform in any material respect any obligation or to comply in any
material respect with any agreement or covenant of Parent or Purchaser
to be performed or complied with by it under this Agreement.
SECTION 7.02. Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 7.01, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto, except (a) as set forth in Section 8.01 and (b) that nothing herein
shall relieve any party from liability for any willful breach hereof.
SECTION 7.03. Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors (and approved by the Special Committee and a majority of the
Disinterested Directors) at any time prior to the Effective Time; provided,
however, that, after the approval and adoption of this Agreement and the
approval of the Transactions by the shareholders of the Company, no amendment
may be made which would reduce the amount or change the type of consideration
into which each Share
<PAGE> 32
26
is to be converted upon consummation of the Merger, impose conditions to the
Merger other than those set forth in Section 6.01 or otherwise amend or change
the terms and conditions of this Agreement in a manner materially adverse to the
holders of the Shares (other than Parent and its affiliates). This Agreement may
not be amended except by an instrument in writing signed by the parties hereto.
SECTION 7.04. Waiver. At any time prior to the Effective Time
except as otherwise provided in this Agreement, any party hereto may (a) extend
the time for the performance of any obligation or other act of any other party
hereto, (b) waive any inaccuracy in the representations and warranties contained
herein and (c) waive compliance with any agreement or condition contained
herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby and, in
the case of any extension or waiver by which the Company is to be bound, only if
approved by the Special Committee and a majority of the Disinterested Directors.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.01, as the case may be, except that (a) the agreements set
forth in Article II and this Article VIII and Section 5.05 shall survive the
Effective Time indefinitely and (b) the agreements set forth in Article VIII and
Section 7.02 shall survive the termination of this Agreement indefinitely.
SECTION 8.02. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
telecopy or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 8.02):
<PAGE> 33
27
if to Parent or Purchaser:
Usinor
Immeuble Pacific
13, cours Valmy
92070 La Defense
Cedex, France
Telecopier No: (011) 331-4125-6892
Attention: Jean-Didier Dujardin
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier No.: (212) 848-7179
Attention: John J. Madden, Esq.
If to the Company:
J&L Specialty Steel, Inc.
One PPG Place
18th Floor
P.O. Box 3373
Pittsburgh, PA 15230-3373
Telecopier No: (412) 338-1614
Attention: Daniel W. Amidon, Esq.
with a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
Telecopier No.: (412) 355-6501
Attention: Janice C. Hartman, Esq.
SECTION 8.03. Certain Definitions. For purposes of this
Agreement:
<PAGE> 34
28
(a) "affiliate" of a specified person means a person who
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with, such specified person;
(b) "beneficial owner" with respect to any Shares means a
person who shall be deemed to be the beneficial owner of such Shares
because (i) such person or any of its affiliates or associates (as such
term is defined in Rule 12b-2 under the Exchange Act) beneficially owns
(as such term is defined in Rule 13d-3 under the Exchange Act) them,
directly or indirectly, (ii) such person or any of its affiliates or
associates has, directly or indirectly, (A) the right to acquire
(whether such right is exercisable immediately or subject only to the
passage of time) them, pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (B) the right to vote
them pursuant to any agreement, arrangement or understanding, or (iii)
such Shares are beneficially owned, directly or indirectly, by any
other persons with whom such person or any of its affiliates or
associates or person with whom such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any Shares;
(c) "business day" means any day on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or,
in the case of determining a date when any payment is due, any day on
which banks are not required or authorized by law or executive order to
close in the City of New York;
(d) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction
of the management and policies of a person, whether through the
ownership of voting securities, as trustee or executor, by contract or
credit arrangement or otherwise;
(e) "person" means an individual, corporation, partnership,
limited partnership, limited liability company, syndicate, person
(including, without limitation, a "person" as defined in Section
13(d)(3) of the Exchange Act), trust, association or entity or
government, political subdivision, agency or instrumentality of a
government; and
(f) "subsidiary" or "subsidiaries" of the Company, the
Surviving Corporation, Parent or any other person means an affiliate
controlled by such person, directly or indirectly through one or more
intermediaries.
SECTION 8.04. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced under any rule
of law or public policy, all other
<PAGE> 35
29
terms and provisions of this Agreement shall nevertheless remain in full force
and effect so long as the economic or legal substance of the Transactions is not
affected in any manner materially adverse to any party. Upon any determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the Transactions may be
consummated as originally contemplated to the fullest extent possible.
SECTION 8.05. Entire Agreement; Assignment. This Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and undertakings, both written
and oral, among the parties, or any of them, with respect to the subject matter
hereof. This Agreement shall not be assigned by operation of law or otherwise,
except that Parent and Purchaser may assign all or any of their rights and
obligations hereunder to any wholly owned subsidiary of Parent; provided,
however, that no such assignment shall relieve the assigning party of its
obligations hereunder if such assignee does not perform such obligations.
SECTION 8.06. Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, other than Section 5.05 (which is intended to be for
the benefit of the persons covered thereby and may be enforced by such persons).
SECTION 8.07. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
is not performed in accordance with the terms hereof and that the relevant party
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or in equity.
SECTION 8.08. Fees and Expenses. All fees and expenses
incurred in connection with this Agreement and the Transactions shall be paid by
the party incurring such fees and expenses, whether or not any Transaction is
consummated.
SECTION 8.09. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the Commonwealth of
Pennsylvania (without regard to conflicts of laws principles thereof). All
actions and proceedings arising out of or relating to this Agreement shall be
exclusively heard and determined in any New York state or federal court sitting
in the County of New York and the parties hereto hereby consent to the
jurisdiction of such courts in any such action or proceeding.
<PAGE> 36
30
SECTION 8.10. Headings. The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 8.11. Counterparts. This Agreement may be executed in
one or more counterparts (including by facsimile transmission), and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
[Remainder of this page intentionally left blank]
<PAGE> 37
31
IN WITNESS WHEREOF, Parent, Purchaser and the Company have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
USINOR
By /s/ Robert Hudry
Name: Robert Hudry
Title: Chief Financial Officer
ICE ACQUISITION CORP.
By /s/ Robert Hudry
Name: Robert Hudry
Title: Vice President
J&L SPECIALTY STEEL, INC.
By /s/ Eugene A. Salvadore
Name: Eugene A. Salvadore
Title: President and
Chief Executive Officer
<PAGE> 38
ANNEX A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Purchaser
shall not be required to accept for payment or, subject to the applicable rules
and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act, pay
for any Shares tendered pursuant to the Offer, and may terminate or amend the
Offer and may postpone the acceptance for payment of or the payment for any
Shares tendered, if (i) the Minimum Condition shall not have been satisfied or
(ii) at any time on or after the date of this Agreement and prior to the
acceptance for payment of any Shares, any of the following conditions shall
exist:
(a) there shall have been instituted or be pending any action
or proceeding before any Governmental Entity (i) challenging or seeking
to make illegal, materially delay or otherwise directly or indirectly
restrain or prohibit or make materially more costly the making of the
Offer, the acceptance for payment of, or the payment for, any Shares by
Parent, Purchaser or any other affiliate of Parent or the consummation
of any other Transaction or seeking to obtain material damages in
connection with any Transaction; (ii) seeking to prohibit or limit
materially the ownership or operation by the Company, Parent or any of
their subsidiaries of all or any material portion of the business or
assets of the Company, Parent or any of their subsidiaries, or to
compel the Company, Parent or any of their subsidiaries to dispose of
or hold separate all or any material portion of the business or assets
of the Company, Parent or any of their subsidiaries, as a result of the
Transactions; (iii) seeking to impose or confirm limitations on the
ability of Parent, Purchaser or any other affiliate of Parent to
exercise effectively full rights of ownership of any Shares, including,
without limitation, the right to vote any Shares acquired by Purchaser
pursuant to the Offer or otherwise on all matters properly presented to
the Company's shareholders, including, without limitation, the approval
and adoption of this Agreement and the Transactions; or (iv) seeking to
require divestiture by Parent, Purchaser or any other affiliate of
Parent of any Shares;
(b) there shall have been any action taken, or any statute,
rule, regulation, legislation, interpretation, judgment, order,
injunction or other Law enacted, entered, enforced, promulgated,
amended, issued or deemed applicable to (i) Parent, the Company or any
subsidiary or affiliate of Parent or the Company or (ii) any
Transaction, by any Governmental Entity which has resulted, or is
reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (iv) of paragraph (a)
above;
(c) there shall have occurred any changes, conditions, events
or developments that, individually or in the aggregate, have a Material
Adverse Effect;
<PAGE> 39
(d) there shall have occurred (i) any general suspension of
trading in, or limitation on prices for, securities listed on the New
York Stock Exchange; (ii) any decline in excess of 30%, measured from
the date hereof, in the Standard & Poor's 500 Index; (iii) any material
adverse change in U.S. currency exchange rates; (iv) a declaration of a
banking moratorium or any suspension of payments in respect of banks in
the United States or the Republic of France (whether or not mandatory);
(v) any limitation (whether or not mandatory) by any Governmental
Entity on, or other event that in the reasonable judgment of Parent
might affect, the extension of credit by banks or other lending
institutions; (vi) a commencement of war or armed hostilities or other
national or international calamity directly or indirectly involving the
United States or the Republic of France; or (vii) in the case of any of
the foregoing, other than clause (ii), existing on the date hereof, a
material acceleration or worsening thereof;
(e) (i) the Special Committee shall have withdrawn or modified
in a manner that is, in the reasonable judgment of Parent, materially
adverse to Parent or Purchaser (including by way of any amendment to
the Schedule 14D-9) its recommendation of the Offer, the Merger or this
Agreement, or (ii) the Special Committee shall have resolved to do any
of the foregoing;
(f) any representation or warranty of the Company in this
Agreement which is qualified as to materiality shall not be true and
correct in all respects or any such representation or warranty that is
not so qualified shall not be true and correct in any material respect,
in each case as if such representation and warranty was made as of such
time on or after the date of this Agreement;
(g) the Company shall have breached or failed to perform in
any material respect any obligation or to comply in any material
respect with any agreement or covenant of the Company to be performed
or complied with by it under this Agreement;
(h) this Agreement shall have been terminated in accordance
with its terms; or
(i) Parent, Purchaser and the Company (with the approval of
the Special Committee) shall have agreed that Purchaser shall terminate
the Offer or postpone the acceptance for payment of or the payment for
Shares thereunder;
which, in the sole judgment of Purchaser in any such case, and regardless of the
circumstances (excluding for purposes of clauses (c), (f) and (g), any action or
inaction by Parent or any of its affiliates) giving rise to any such condition,
makes it inadvisable to proceed with such acceptance for payment or payment.
<PAGE> 40
A-3
The foregoing conditions are for the sole benefit of Parent
and Purchaser and may be asserted by Parent or Purchaser regardless of the
circumstances giving rise to any such condition or may be waived by Parent or
Purchaser in whole or in part at any time and from time to time in their sole
discretion. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right; the waiver
of any such right with respect to particular facts and circumstances shall not
be deemed a waiver with respect to any other facts and circumstances; and each
such right shall be deemed an ongoing right that may be asserted at any time and
from time to time.
<PAGE> 41
ANNEX B
FORM OF SHORT-FORM
PLAN OF MERGER
PLAN OF MERGER
merging
ICE ACQUISITION CORP.
with and into
J&L SPECIALTY STEEL, INC.
Dated as of [____________], 199[_]
<PAGE> 42
PLAN OF MERGER, dated as of [____________], 199[_] (this "Plan
of Merger"), merging ICE ACQUISITION CORP., a Pennsylvania corporation ("Merger
Subsidiary") and a wholly owned subsidiary of USINOR, a French societe anonyme
("Parent"), with and into J&L SPECIALTY STEEL, INC., a Pennsylvania corporation
(the "Company").
WHEREAS, Parent, Merger Subsidiary and the Company are parties
to an Agreement and Plan of Merger, dated as of November 5, 1998 (the "Merger
Agreement"), which provides for the adoption of this Plan of Merger;
WHEREAS, Merger Subsidiary owns [_______] shares of common
stock, par value $.01 per share, of the Company (the "Shares"), representing
more than 80% of the outstanding Shares;
WHEREAS, at all times following the date hereof and prior to
the Effective Time (as defined below), Merger Subsidiary will own more than 80%
of the outstanding Shares;
WHEREAS, the Board of Directors of Merger Subsidiary has (a)
determined that it is in the best interests of Merger Subsidiary to merge (the
"Merger") Merger Subsidiary with and into the Company, with the Company being
the surviving corporation, in accordance with the Pennsylvania Business
Corporation Law of 1988, as amended ("Pennsylvania Law"), and (b) voted to adopt
this Plan of Merger;
NOW, THEREFORE, the Board of Directors of Merger Subsidiary
hereby adopts the following Plan of Merger:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Plan of Merger, and in accordance with Pennsylvania
Law, at the Effective Time Merger Subsidiary shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of Merger
Subsidiary shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation").
SECTION 1.02. Effective Time; Closing. As promptly as
practicable after the satisfaction or waiver of the conditions set forth in
Article II, Merger Subsidiary shall cause the Merger to be consummated by
delivering to the Secretary of State of the Commonwealth of Pennsylvania the
articles of merger, in such form as required by, and executed and acknowledged
in accordance with, the relevant provisions of Pennsylvania Law (the "Articles
of Merger"), and
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shall make all other filings and recordings required by Pennsylvania Law in
connection with the Merger. The Merger shall become effective at the time of
filing of the Articles of Merger with the Secretary of State of the Commonwealth
of Pennsylvania, or at such later time, which shall be as soon as reasonably
practicable, specified as the effective time in the Articles of Merger (the
"Effective Time"). Prior to such filing, a closing shall be held at the offices
of Shearman & Sterling, 599 Lexington Avenue, New York, New York USA 10022, or
such other place as the parties shall agree, for the purpose of confirming the
satisfaction or waiver, as the case may be, of the conditions set forth in
Article II.
SECTION 1.03. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Pennsylvania Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of the Company and Merger Subsidiary shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions, disabilities
and duties of the Company and Merger Subsidiary shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the Surviving
Corporation.
SECTION 1.04. Articles of Incorporation; By-Laws. (a) The
Articles of Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation following the Effective Time until thereafter amended in accordance
with such Articles of Incorporation and Pennsylvania Law.
(b) The By-laws of the Company, as in effect immediately prior
to the Effective Time, shall be the By-laws of the Surviving Corporation
following the Effective Time until thereafter amended in accordance with
Pennsylvania Law, the Articles of Incorporation of the Surviving Corporation and
such By-laws.
SECTION 1.05. Directors and Officers. (a) The directors of the
Company immediately prior to the Effective Time shall be the initial directors
of the Surviving Corporation, each to hold office in accordance with the
Articles of Incorporation and By-laws of the Surviving Corporation.
(b) The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified.
SECTION 1.06. Conversion of Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of Merger Subsidiary,
the Company or the holders of any of the following securities and in accordance
with Section 1906 of Pennsylvania Law:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than the Shares being canceled pursuant to
Section 1.06(b)) shall be canceled and, subject to Section 1.07, shall
be converted automatically into the right to receive
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from the Company an amount equal to $6.375 per share (the "Per Share
Amount") in cash (the "Merger Consideration") payable, without
interest, to the holder of such Share, upon surrender, in the manner
provided in Section 1.08, of the certificate that formerly evidenced
such Share;
(b) Each Share held in the treasury of the Company and each
Share owned by Merger Subsidiary, Parent or any direct or indirect
wholly owned subsidiary of Parent or of the Company immediately prior
to the Effective Time shall be canceled without any conversion thereof
and no payment or distribution shall be made with respect thereto; and
(c) Each share of common stock, par value $.01 per share, of
Merger Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for 387,630
validly issued, fully paid and nonassessable shares of common stock,
par value $.01 per share, of the Surviving Corporation.
SECTION 1.07. Dissenting Shares. Notwithstanding any provision
of this Plan of Merger to the contrary, Shares that are outstanding immediately
prior to the Effective Time shall be canceled and the holders thereof shall be
entitled to a notice to demand payment in accordance with the provisions of
Sections 1930 and 1575 of Pennsylvania Law, and those shareholders who make a
timely demand for payment in accordance with, and otherwise comply in all
respects with, Sections 1575 through 1580 of Pennsylvania Law shall be entitled
to receive, instead of the Merger Consideration, payment of the fair value of
such Shares (which may be more than, equal to, or less than the Merger
Consideration) in accordance with the provisions of such Sections 1930 and 1575
through 1580, except that the Shares of all such shareholders who shall fail to
perfect or who effectively shall withdraw or lose their rights to be paid the
fair value for such Shares under such Sections 1930 and 1575 through 1580 shall
thereupon be deemed to have been converted into and to have become exchangeable
for, as of the Effective Time, the right to receive the Merger Consideration,
without any interest thereon, upon surrender, in the manner provided in Section
1.08, of the certificate or certificates that formerly evidenced such Shares.
SECTION 1.08. Surrender of Shares; Stock Transfer Books. (a)
Prior to the Effective Time, Merger Subsidiary shall designate a bank or trust
company to act as agent (the "Paying Agent") for the holders of Shares in
connection with the Merger to receive the funds to which holders of Shares shall
become entitled pursuant to Section 1.06(a). Parent shall cause such funds to be
deposited with the Paying Agent by the Surviving Corporation as and when
necessary, and such funds shall be invested by the Paying Agent as directed by
the Surviving Corporation.
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each person who was, at the Effective
Time, a holder of record of Shares entitled to receive the Merger Consideration
pursuant to Section 1.06(a) a form of letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the certificates
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evidencing such Shares (the "Certificates") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for effecting
the surrender of Certificates pursuant to such a letter of transmittal. Upon
surrender to the Paying Agent of a Certificate, together with such a letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor the Merger Consideration for each Share formerly evidenced
by such Certificate, and such Certificate shall then be canceled. No interest
shall accrue or be paid on the Merger Consideration payable upon the surrender
of any Certificate for the benefit of the holder of such Certificate. If payment
of the Merger Consideration is to be made to a person other than the person in
whose name a surrendered Certificate is registered on the stock transfer books
of the Company, it shall be a condition of payment that the Certificate so
surrendered shall be endorsed properly or otherwise be in proper form for
transfer and that the person requesting such payment shall have paid all
transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such taxes are not applicable.
(c) At any time following the date which is six months after
the date on which the Effective Time occurs, the Surviving Corporation shall be
entitled to require the Paying Agent to deliver to it any funds which had been
made available to the Paying Agent and not disbursed to holders of Shares
(including, without limitation, all interest and other income received by the
Paying Agent in respect of all such funds made available to it), and thereafter
such holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat and other similar laws) only as general creditors
thereof with respect to any Merger Consideration that may be payable upon due
surrender of the Certificates held by them. Notwithstanding the foregoing,
neither Parent, the Surviving Corporation nor the Paying Agent shall be liable
to any holder of a Share for any Merger Consideration delivered in respect of
such Share to a public official pursuant to any abandoned property, escheat or
other similar law.
(d) At the Effective Time, the stock transfer books of the
Company shall be closed and thereafter there shall be no further registration of
transfers of Shares on the records of the Company. From and after the Effective
Time, the holders of Shares outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such Shares except as otherwise
provided herein or by applicable United States federal, state or local, or any
foreign statute, law, rule, regulation, ordinance, code, order, judgment, decree
or any other requirement or rule of law.
SECTION 1.09. Withholding Rights. The Surviving Corporation
and the Paying Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Plan of Merger to any holder of
Shares any amounts that the Surviving Corporation or the Paying Agent is
required to deduct and withhold with respect to the making of such payment under
the Internal Revenue Code of 1986, as amended, the rules and regulations
promulgated
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thereunder or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or the Paying Agent,
such amounts shall be treated for all purposes of this Plan of Merger as having
been paid to the holder of the Shares in respect of which such deduction and
withholding was made by the Surviving Corporation or the Paying Agent.
ARTICLE II
CONDITIONS TO THE MERGER
SECTION 2.01. Conditions to the Merger. The obligation of
Merger Subsidiary to effect the Merger shall be subject to the condition that,
at or prior to the Effective Time, no Governmental Entity (as defined in the
Merger Agreement) shall have enacted, issued, promulgated, enforced or entered
any Law (as defined in the Merger Agreement) (whether temporary, preliminary or
permanent) which is then in effect and has the effect of (a) restricting,
preventing or prohibiting consummation of the Merger or (b) seeking to prohibit
or limit materially the ownership or operation by the Company, Parent or any of
their subsidiaries of all or any material portion of the business or assets of
the Company, Parent or any of their subsidiaries, or to compel the Company,
Parent or any of their subsidiaries to dispose of or hold separate all or any
material portion of the business or assets of the Company, Parent or any of
their subsidiaries after the Effective Time.
* * * * *
IN WITNESS WHEREOF, Merger Subsidiary has caused this Plan of
Merger to be duly executed as of the date first written above.
ICE ACQUISITION CORP.
By
Name:
Title:
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