<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
WHITE RIVER CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------
(2) Aggregate number of securities to which applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form of schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
WHITE RIVER CORPORATION
TWO GANNETT DRIVE, SUITE 200
WHITE PLAINS, NEW YORK 10604
(914) 251-0237
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
White River Corporation, a Delaware corporation ("White River"), to be held on
June 26, 1998, at 10:00 a.m. local time, at the RyeTown Hilton, 699
Westchester Avenue, Rye Brook, New York 10573 (the "Special Meeting").
At the Special Meeting, stockholders of record of White River at the close
of business on May 22, 1998 will be asked to consider and vote upon the
proposal to (i) adopt and approve the Amended and Restated Agreement and Plan
of Merger, dated as of December 11, 1997, as amended by Amendment Number 1 to
the Amended and Restated Agreement and Plan of Merger, dated as of April 6,
1998 (as amended, the "Merger Agreement"), by and among Demeter Holdings
Corporation, a Massachusetts corporation ("Demeter"), WRC Merger Corp., a
Delaware corporation ("MergerCo"), WRV Merger Corp., a Delaware corporation
("Merger Sub"), White River and White River Ventures, Inc., a Delaware
corporation ("WRV"), and (ii) approve the transactions contemplated thereby.
If the Merger Agreement and the transactions contemplated thereby are approved
and such transactions are consummated, among other things, MergerCo will be
merged with and into White River, which will thereupon become a wholly owned
subsidiary of Demeter (the "Merger"). The Merger Agreement permits White River
to transfer certain assets to a liquidating trust for the benefit of the
stockholders of White River prior to the consummation of the Merger (the
"Trust Transaction"), as described further in the accompanying Proxy
Statement. White River will consummate the Trust Transaction subject to
approval of the Merger Agreement by the stockholders of White River and the
agreement of White River and Demeter with respect to the terms of the
liquidating trust. Under the Merger Agreement, (i) each share of White River
common stock, par value $0.01 per share ("White River Common Stock") (other
than treasury shares held by White River or shares with respect to which
appraisal rights are perfected under the Delaware General Corporation Law),
outstanding at the effective time of the Merger will be converted into the
right to receive approximately $90.67 in cash, without interest and subject to
adjustment for certain expenditures made, expenses and liabilities paid or
incurred, and amounts received by White River subsequent to September 30, 1997
and prior to the effective time of the Merger, the effect of which, White
River estimates as of the date of this letter, could range from a decrease of
approximately $0.16 per share to an increase of approximately $0.42 per share,
although no assurances can be given, and (ii) each share of Series A Non-
Participating Cumulative Preferred Stock, par value $1.00 per share, will be
converted into the right to receive the stated value of $1,000 per share plus
any accrued and unpaid dividends until the effective time of the Merger, in
each case, as described further in the accompanying proxy statement. In
addition to the amount set forth in clause (i) of the foregoing sentence,
holders of White River Common Stock will receive a portion of the proceeds, if
any, received subsequent to the effective time of the Merger with respect to
the assets transferred to the liquidating trust to be established in
connection with the Trust Transaction, although no assurance can be given that
the Trust Transaction will be consummated, or if consummated, that any
proceeds will be distributed to stockholders. Because the amount of
consideration that holders of White River Common Stock will receive as a
result of the Merger will be subject to adjustments to be made subsequent to
the Special Meeting, holders of White River Common Stock will not know, at the
time of the Special Meeting, the amount that they will receive on the
Effective Time, and it is possible that, as a result of such adjustments, such
amount may be zero.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT LIMITATION, THE MERGER
AND THE TRUST TRANSACTION, ARE ADVISABLE AND IN THE BEST INTEREST OF
STOCKHOLDERS OF WHITE RIVER, AND RECOMMENDS THAT YOU VOTE FOR THE ADOPTION AND
APPROVAL OF THE MERGER AGREEMENT AND THE APPROVAL OF THE TRANSACTIONS
CONTEMPLATED THEREBY INCLUDING, WITHOUT LIMITATION, THE MERGER AND THE TRUST
TRANSACTION.
<PAGE>
Your Board of Directors has received a written opinion from McDonald &
Company Securities, Inc. ("McDonald & Company") dated April 6, 1998 (which has
been updated by McDonald & Company as of the date of this Proxy Statement)
that, as of the date of such opinion and subject to the considerations set
forth
therein, the consideration to be received by the holders of White River Common
Stock pursuant to the Merger Agreement was fair, from a financial point of
view, to such holders. The written opinion of McDonald & Company is included
in the accompanying Proxy Statement and should be read carefully by
stockholders.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the accompanying proxy and return it in the enclosed postage prepaid
envelope to White River Corporation, c/o First Chicago Trust Company of New
York, P.O. Box 8072, Edison, New Jersey 08818-9347, as soon as possible so
that your shares will be represented at the Special Meeting. If you attend the
Special Meeting, you may revoke your proxy and vote in person. If you have any
questions regarding the proposed transaction, please call Corporate Investor
Communications, Inc., our proxy solicitation agent, toll free at (800) 206-
8851.
Sincerely,
/s/ Gordon S. Macklin
Gordon S. Macklin
President, Chief Executive Officer
and Chairman of the Board
June 3, 1998
2
<PAGE>
WHITE RIVER CORPORATION
TWO GANNETT DRIVE, SUITE 200
WHITE PLAINS, NEW YORK 10604
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 26, 1998
----------------
To the Stockholders of
White River Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of White River
Corporation, a Delaware corporation ("White River"), will be held on June 26,
1998 at 10:00 a.m. local time, at the RyeTown Hilton, 699 Westchester Avenue,
Rye Brook, New York 10573, for the following purposes:
1. To consider and vote upon a proposal to (a) adopt and approve the
Amended and Restated Agreement and Plan of Merger, dated as of December 11,
1997, as amended by Amendment Number 1 to the Amended and Restated
Agreement and Plan of Merger, dated as of April 6, 1998 (as amended, the
"Merger Agreement") by and among Demeter Holdings Corporation, a
Massachusetts corporation ("Demeter"), WRC Merger Corp., a Delaware
corporation ("MergerCo"), WRV Merger Corp., a Delaware corporation ("Merger
Sub"), White River and White River Ventures, Inc., a Delaware corporation
("WRV"), pursuant to which, among other things, (i) MergerCo will be merged
with and into White River (the "Merger"), (ii) each share of White River
common stock, par value $0.01 per share (other than treasury shares and
shares with respect to which appraisal rights are perfected under the
Delaware General Corporation Law), outstanding at the effective time of the
Merger will be converted into the right to receive approximately $90.67 in
cash, without interest and subject to adjustment for certain expenditures
made, expenses and liabilities paid or incurred, and amounts received by
White River subsequent to September 30, 1997 and prior to the effective
time of the Merger the effect of which, White River estimates as of the
date of this notice, could range from a decrease of approximately $0.16 per
share to an increase of approximately $0.42 per share, although no
assurances can be given, (iii) each share of White River Common Stock, par
value $0.01 per share (other than treasury shares and shares with respect
to which appraisal rights are perfected under the Delaware General
Corporation Law), outstanding at the effective time of the Merger will be
entitled to receive a portion of the proceeds, if any, received subsequent
to the effective time of the Merger with respect to certain assets that are
to be transferred to a liquidating trust for the benefit of stockholders of
White River, although there can be no assurance that such transaction will
be consummated, or if consummated, that any proceeds will be distributed to
stockholders of White River as a result thereof, and (iv) each share of
Series A Non-Participating Cumulative Preferred Stock, par value $1.00 per
share, will be converted into the right to receive the stated value of
$1,000 per share plus any accrued and unpaid dividends until the effective
time of the Merger and (b) to approve the transactions contemplated thereby
including, without limitation, (i) the Merger and (ii) the transfer of
certain assets to a liquidating trust for the benefit of the stockholders
of White River, or other disposition of such assets, each as described
further in the accompanying Proxy Statement.
2. To transact such other business as may properly come before the
Special Meeting.
The close of business on May 22, 1998 has been fixed as the record date for
the determination of the stockholders entitled to notice of and to vote at the
Special Meeting.
Stockholders are invited to attend the Special Meeting. WHETHER OR NOT YOU
EXPECT TO ATTEND, WE URGE YOU TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. If you attend the Special
Meeting, you may vote your shares in person, which will revoke any previously
executed proxy.
<PAGE>
If your shares are held of record by a broker, bank or other nominee and you
wish to attend the Special Meeting, you must obtain a letter from the broker,
bank or other nominee confirming your beneficial ownership of the shares and
bring it to the Special Meeting. In order to vote your shares at the Special
Meeting, you must obtain from the record holder a proxy issued in your name.
Regardless of how many shares you own, your vote is very important. Please
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.
By Order of the Board of Directors
/s/ Michael E. B. Spicer
Michael E. B. Spicer
Secretary
June 3, 1998
2
<PAGE>
WHITE RIVER CORPORATION
TWO GANNETT DRIVE, SUITE 200
WHITE PLAINS, NEW YORK 10604
----------------
PROXY STATEMENT
----------------
This Proxy Statement ("Proxy Statement") is being furnished to the
stockholders of White River Corporation ("White River") in connection with the
solicitation of proxies by the White River Board of Directors (the "White
River Board") for use at a special meeting of White River stockholders to be
held at 10:00 a.m., local time, on June 26, 1998 at the RyeTown Hilton, 699
Westchester Avenue, Rye Brook, New York 10573, and at any adjournment or
postponement thereof (the "Special Meeting").
At the Special Meeting, White River stockholders will be asked to consider
and vote upon a proposal regarding (i) the adoption and approval of the
Amended and Restated Agreement and Plan of Merger, dated as of December 11,
1997, as amended by Amendment Number 1 to the Amended and Restated Agreement
and Plan of Merger, dated as of April 6, 1998, by and among Demeter Holdings
Corporation, a Massachusetts corporation ("Demeter"), WRC Merger Corp., a
Delaware corporation ("MergerCo"), WRV Merger Corp., a Delaware corporation
("Merger Sub"), White River and White River Ventures, Inc., a Delaware
corporation ("WRV") (as amended, the "Merger Agreement") and the consummation
of the transactions contemplated thereby, including without limitation, the
Merger and the possible transfer by White River of certain assets of White
River to a liquidating trust for the benefit of stockholders of record of
White River on May 22, 1998 or other disposition of such other assets (the
"Trust Transaction"), and (ii) to transact such other business as may properly
come before the Special Meeting. A copy of the Merger Agreement is attached to
this Proxy Statement as Annex A. White River will consummate the Trust
Transaction subject to the approval of the Merger Agreement by the
stockholders of White River and the agreement of White River and Demeter with
respect to the terms of the Trust Transaction. See "The Trust Transaction."
Under the Merger Agreement, among other things, MergerCo will be merged with
and into White River (the "Merger"), and each share of White River common
stock, par value $0.01 per share (the "White River Common Stock") (other than
treasury shares held by White River or Dissenting Shares (as defined herein)),
outstanding at the effective time of the Merger (the "Effective Time") will be
converted into the right to receive approximately $90.67 in cash, without
interest and subject to adjustment under certain circumstances as described
further herein (the "Common Stock Merger Price"). White River currently
estimates that the effect of adjustments to the Common Stock Merger Price
could range from a decrease of approximately $0.16 per share to an increase of
approximately $0.42 per share, assuming an Effective Time of June 26, 1998.
Because the Common Stock Merger Price will be subject to adjustments to be
made subsequent to the Special Meeting, holders of White River Common Stock
will not know, at the time of the Special Meeting, what the Common Stock
Merger Price will be as of the Effective Time and it is possible that the
Common Stock Merger Price could be zero. See "Terms of the Merger--Merger
Consideration." Holders of White River's Series A Non-Participating Cumulative
Preferred Stock, par value $1.00 per share ("Series A Preferred Stock") will
receive the stated value of $1,000 per share plus any accrued and unpaid
dividends until the Effective Time. Holders of White River Common Stock will
also be entitled to receive a portion of the proceeds received subsequent to
the Effective Time, if any, with respect to the assets transferred to a
liquidating trust to be established in connection with the Trust Transaction
although there is no assurance that the Trust Transaction will be consummated
or, if consummated, that any proceeds will be distributed to the stockholders
of White River as a result thereof. The Merger Agreement contemplates that
White River will consummate the Trust Transaction (if the Trust Transaction is
consummated) prior to the Effective Time. See "The Trust Transaction."
<PAGE>
This Proxy Statement and the accompanying form of proxy are first being sent
to White River stockholders on or about June 3, 1998. Only holders of record
of White River Common Stock as of the close of business on May 22, 1998 are
entitled to vote at the Special Meeting. Holders of White River Common Stock
are entitled to one vote for each share held of record. On May 22, 1998, White
River had outstanding and entitled to vote at the Special Meeting 4,874,756
shares of White River Common Stock. The presence in person or by proxy of the
holders of not less than a majority of the shares of White River Common Stock
entitled to vote at the Special Meeting will constitute a quorum to transact
business at the Special Meeting.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 5
THE COMPANIES............................................................. 6
White River............................................................. 6
WRV..................................................................... 6
Demeter................................................................. 6
MergerCo................................................................ 6
Merger Sub.............................................................. 6
THE SPECIAL MEETING....................................................... 7
Time, Date and Place.................................................... 7
Purpose of the Meeting.................................................. 7
Record Date............................................................. 7
Voting Rights........................................................... 7
Vote Required........................................................... 7
Revocability of Proxy................................................... 7
THE MERGER................................................................ 8
General................................................................. 8
Effective Time.......................................................... 8
Merger Consideration.................................................... 8
Dissenters' Appraisal Rights............................................ 9
Recommendation of the White River Board and Reasons for the Merger...... 9
Opinion of Financial Advisor to White River............................. 10
Interests of Certain Persons in the Merger and Possible Conflicts of In-
terest................................................................. 11
Conditions to the Merger................................................ 11
Termination and Expenses Upon Termination............................... 11
Certain Federal Income Tax Consequences of the Merger................... 12
THE TRUST TRANSACTION..................................................... 12
THE SPECIAL MEETING....................................................... 14
General................................................................. 14
Purpose of the Special Meeting.......................................... 14
Record Date; Shares Outstanding......................................... 14
Voting Agreements....................................................... 14
Voting at the Special Meeting........................................... 14
Solicitation of Proxies................................................. 16
Dissenters' Appraisal Rights............................................ 16
THE MERGER................................................................ 17
General................................................................. 17
Background of the Merger................................................ 17
Recommendation of the White River Board and Reasons for the Merger...... 25
Opinion of Financial Advisor to White River............................. 26
Interests of Certain Persons in the Merger and Possible Conflicts of In-
terest................................................................. 33
Incentive Plan........................................................ 33
Deferral Plans........................................................ 33
Indemnification......................................................... 33
Certain Federal Income Tax Consequences of the Merger................... 34
General............................................................... 34
Treatment of Dividends Paid on Series A Preferred Stock............... 35
Information Reporting and Backup Withholding.......................... 36
Regulatory Approvals.................................................... 36
Dissenters' Appraisal Rights............................................ 37
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE TRUST TRANSACTION.................................................... 38
TERMS OF THE MERGER...................................................... 41
The Merger; Effective Time............................................. 41
Merger Consideration................................................... 41
Payment Procedures..................................................... 44
Representations and Warranties......................................... 45
Certain Agreements Regarding the Conduct of Business Pending the Merg-
er.................................................................... 46
Certain Additional Covenants........................................... 48
Conditions to the Merger............................................... 49
Termination............................................................ 50
Expenses of the Transaction............................................ 51
Non-Survival of Representations, Warranties, Covenants and Agreements.. 51
Amendment and Waiver................................................... 52
ADDITIONAL INFORMATION CONCERNING WHITE RIVER CORPORATION AND
SUBSIDIARIES............................................................ 53
Business............................................................... 53
Employees.............................................................. 59
Properties............................................................. 59
Legal Proceedings...................................................... 60
SELECTED FINANCIAL INFORMATION........................................... 61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 63
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........... 74
Management of White River.............................................. 74
Certain Beneficial Owners.............................................. 75
DIVIDENDS AND PRICE RANGE OF COMMON STOCK................................ 76
INDEPENDENT AUDITORS..................................................... 77
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.............................................................. 77
PROPOSALS BY STOCKHOLDERS FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS.... 77
SOLICITATION OF PROXIES.................................................. 77
CONSOLIDATED FINANCIAL STATEMENTS........................................ F-1
</TABLE>
ANNEXES
A Amended and Restated Agreement and Plan of Merger, dated as of December 11,
1997, by and among Demeter Holdings Corporation, WRC Merger Corp., WRV
Merger Corp., White River Corporation and White River Ventures, Inc., as
amended by Amendment Number 1 to the Amended and Restated Agreement and
Plan of Merger, dated as of April 6, 1998.
B Section 262 of the Delaware General Corporation Law
C Fairness Opinion of McDonald & Company Securities, Inc. in connection with
the Merger
4
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement, including the Annexes hereto, which are a part of this Proxy
Statement. This summary is not, and is not intended to be, complete in itself.
Reference is made to, and this summary is qualified in its entirety by, the
more detailed information contained elsewhere in this Proxy Statement.
Stockholders are encouraged to read carefully all of the information contained
in the Proxy Statement, including the Annexes hereto. For purposes of this
Proxy Statement, the term "Merger" shall refer to the merger of MergerCo with
and into White River and the merger of Merger Sub with and into WRV, except
where the context requires that the term only refer to the merger of MergerCo
with and into White River.
GENERAL
Under the terms of the Merger Agreement, MergerCo will be merged with and
into White River which will become a wholly owned subsidiary of Demeter and the
White River Common Stock and White River Series A Preferred Stock will be
converted into the right to receive a specified amount of cash. The Merger will
be treated, for accounting purposes, as a purchase. The assets to be
transferred in the Trust Transaction will be transferred at their estimated
fair market value and the excess, if any, of the fair market value over the
carrying value of such assets will be recognized as gain by White River.
The assets of White River at the Effective Time of the Merger will consist
primarily of White River's holdings of (i) common and preferred stock of CCC
Information Services Group, Inc. ("CCC") through WRV, (ii) common stock of
Cross Timbers Oil Company ("Cross Timbers"), (iii) limited partnership interest
in Richard C. Blum & Associates--NWA Partners, L.P. ("NWA Partners"), which
holds common stock of Northwest Airlines Corporation ("Northwest Airlines"),
(iv) common stock of Hanover Accessories, Inc. ("Hanover"), (v) common stock of
Just Kiddie Rides Enterprises, Inc. ("JKR"), and (vi) certain cash and cash
equivalents. See "The Merger--General."
The Merger Agreement permits White River to transfer certain assets (the
"Trust Assets") to a liquidating trust (the "Liquidating Trust") which will pay
the proceeds received upon disposition of such assets, if any, to the White
River stockholders. The Merger Agreement permits White River to include cash,
in an amount not to exceed $1 million, in the Trust Assets to cover the
expenses of the Liquidating Trust, although White River currently intends to
include only $200 thousand to $500 thousand in the Trust Assets. The total
consideration to be paid for all outstanding shares of White River Common Stock
(other than treasury shares) (the "Merger Price") will be reduced by the amount
of cash included in the Trust Assets as well as any tax liability incurred by
White River as a result of the transfer of the Trust Assets to the Liquidating
Trust. In lieu of transferring the Trust Assets to the Liquidating Trust, White
River may sell such Assets to a third party in which case the Merger Price will
be increased by an amount equal to 65% of proceeds received by White River in
connection with any such sale. White River will consummate the Trust
Transaction subject to the approval of the Merger Agreement by the stockholders
of White River and the agreement of White River and Demeter with respect to the
terms of the Trust Transaction. However, no assurance can be given that the
Liquidating Trust will be formed, or, if the Liquidating Trust is not formed,
that the Trust Assets will be sold to a third party prior to the Effective Time
of the Merger. See "The Trust Transaction."
5
<PAGE>
THE COMPANIES
WHITE RIVER
White River, created by and spun-off in its current form by Fund American
Enterprises Holdings, Inc. ("Fund American") in 1993, is a corporation whose
assets consist primarily of common and preferred stock of CCC indirectly
through WRV, cash balances totaling approximately $190 million as of the date
of this Proxy Statement and a portfolio of investment securities. White River's
investment securities consist primarily of its interests in Cross Timbers and
in NWA Partners, which holds common stock of Northwest Airlines. The principal
executive office of White River is located at Two Gannett Drive, Suite 200,
White Plains, New York 10604 and its telephone number is (914) 251-0237. See
"Additional Information Concerning White River Corporation and Subsidiaries."
WRV
WRV is a wholly owned subsidiary of White River Enterprises, Inc., which, in
turn, is a wholly owned subsidiary of White River. WRV's principal asset is the
capital stock of CCC owned by White River. Prior to the consummation of the
Merger, it is expected that WRV will be a direct wholly owned subsidiary of
White River. The principal executive office of WRV is located at Two Gannett
Drive, Suite 200, White Plains, New York 10604, and its telephone number is
(914) 251-0237.
DEMETER
Demeter invests in private equities and real estate for the benefit of the
Harvard University endowment fund. Demeter's investment advisor is Harvard
Private Capital Group, Inc. ("Harvard Capital"), which manages the private
equities and real estate portfolios of the Harvard University endowment fund.
The principal executive office of Demeter is located at 600 Atlantic Avenue,
Boston, MA 02212, and its telephone number is (617) 523-4400
MERGERCO
MergerCo is a wholly owned subsidiary of Demeter formed by Demeter to effect
the Merger. MergerCo has had no prior business, and upon consummation of the
Merger, its separate corporate existence will cease.
MERGER SUB
Merger Sub is a wholly owned subsidiary of MergerCo formed by MergerCo and
will be merged with and into WRV with WRV surviving as a wholly owned
subsidiary of White River (the "Subsidiary Merger"). Merger Sub has had no
prior business, and upon consummation of the Subsidiary Merger, its separate
corporate existence will cease.
6
<PAGE>
THE SPECIAL MEETING
TIME, DATE AND PLACE
The Special Meeting will be held on June 26, 1998 at 10:00 a.m., local time,
at the RyeTown Hilton, 699 Westchester Avenue, Rye Brook, New York 10573. See
"The Special Meeting--General."
PURPOSE OF THE MEETING
Holders of White River Common Stock will be asked to consider and vote upon
the proposal to adopt and approve the Merger Agreement and the transactions
contemplated thereby including, without limitation, the Merger and the Trust
Transaction (the "Merger Proposal"). The attorneys-in-fact named in the
accompanying proxy also will have discretionary authority to vote upon other
business, if any, that properly comes before the Special Meeting. See "The
Special Meeting--Purpose of the Special Meeting."
RECORD DATE
The holders of record of shares of White River Common Stock at the close of
business on May 22, 1998 (the "Record Date") are entitled to notice of and to
vote at the Special Meeting. There were 4,874,756 shares of White River Common
Stock outstanding and entitled to vote as of the Record Date. As of that date,
White River's directors and executive officers owned 317,615 shares of White
River Common Stock (6.5% of the shares outstanding), all of which are expected
to be voted FOR the Merger Proposal. See "The Special Meeting--Record Date;
Shares Outstanding."
VOTING RIGHTS
Each share of White River Common Stock is entitled to one vote with respect
to all matters presented at the Special Meeting. See "The Special Meeting--
Voting at the Special Meeting."
VOTE REQUIRED
The affirmative vote of the holders of at least a majority of the outstanding
shares of White River Common Stock is required to adopt and approve the Merger
Proposal.
Under the Delaware General Corporation Law (the "DGCL"), holders of White
River Common Stock are entitled to appraisal rights in connection with the
Merger. See "The Special Meeting--Voting at the Special Meeting" and "The
Merger--Dissenters' Appraisal Rights."
Patrick M. Byrne, Andrew Delaney, Robert T. Marto, Gordon S. Macklin, and
Bonnie Stewart, each an officer or director of White River, John J. Byrne and
an individual who votes certain shares of White River Common Stock for the
benefit of John J. Byrne, have entered into a voting agreement with Demeter
pursuant to which such persons have agreed to, among other things, vote the
shares of White River Common Stock that they own and/or vote in favor of the
Merger Proposal. The foregoing persons own and/or vote, in the aggregate,
approximately 20% of the White River Common Stock outstanding.
REVOCABILITY OF PROXY
Any holder of White River Common Stock who executes and returns a proxy may
revoke such proxy at any time before it is voted by (i) filing with the
Secretary of White River, at or before the Special Meeting, a written notice of
revocation bearing a later date than the proxy, (ii) duly executing a
subsequent proxy relating to the same shares of White River Common Stock and
delivering it to the Secretary of White River at or before the Special Meeting
with a subsequent date or (iii) attending the Special Meeting and voting in
person by ballot.
7
<PAGE>
Attendance at the Special Meeting will not, in and of itself, constitute
revocation of a proxy. See "The Special Meeting--Voting at the Special
Meeting."
THE MERGER
GENERAL
Upon the terms and subject to the conditions of the Merger Agreement,
MergerCo will be merged with and into White River, with White River surviving
as a wholly owned subsidiary of Demeter and Merger Sub will be merged with and
into WRV with WRV surviving as a wholly owned subsidiary of White River. See
"The Merger--General."
EFFECTIVE TIME
It is presently expected that the Merger will become effective within three
business days immediately after approval of the Merger at the Special Meeting,
assuming all other conditions have been satisfied or waived. See "Terms of the
Merger--The Merger; Effective Time" and "--Conditions to the Merger."
MERGER CONSIDERATION
Under the terms of the Merger Agreement, the Merger Price is $442 million
subject to certain adjustments. The Merger Agreement provides that the Merger
Price will be: (i) decreased to reflect decreases in cash and cash equivalents
of White River and its subsidiaries from September 30, 1997 until the Effective
Time; (ii) decreased to reflect liabilities incurred by White River after
September 30, 1997 and prior to the Effective Time; (iii) decreased by 65% of
the liabilities of White River with respect to benefit, compensation,
incentive, retirement or similar plans to the extent such liabilities exceed a
specified amount and increased by 65% of the amount such specified amount
exceeds such liabilities; (iv) decreased to the extent that certain incentive
payments made to certain persons under certain White River benefit plans exceed
$7.5 million; (v) decreased to the extent that amounts paid to holders of
Series A Preferred Stock exceed $7 million; (vi) decreased to the extent that
aggregate bonus, severance, termination and similar payments, are greater than
$1,033,000, and increased to the extent that such payments are less than
$1,033,000; (vii) decreased by 35% of the amount of payments made under certain
benefit plans of White River subsequent to December 31, 1997; (viii) increased
to the extent that certain liabilities are released prior to the Effective
Time; (ix) increased by 65% of the proceeds received by White River if the
Trust Assets are sold to a third party rather than transferred to the
Liquidating Trust; and (x) decreased by the amount of any cash contributed to
the Liquidating Trust by White River. Although no assurances can be given,
White River currently estimates that the aggregate effect of the foregoing
adjustments to the Merger Price could range from a decrease of approximately
$0.8 million to an increase of approximately $2.0 million, assuming that the
Effective Time will be June 26, 1998. See "Terms of the Merger--Merger
Consideration--White River Common Stock."
Each outstanding share of White River Common Stock (other than treasury
shares and Dissenting Shares) at the Effective Time of the Merger will be
converted into the right to receive the Common Stock Merger Price of
approximately $90.67 in cash, without interest which amount shall be adjusted
to reflect adjustments to the Merger Price. Although no assurances can be
given, White River currently estimates that the effect of adjustments to the
Merger Price on the Common Stock Merger Price could range from a decrease of
approximately $0.16 per share to an increase of approximately $0.42 per share,
assuming that the Effective Time will be June 26, 1998. If the Effective Time
were the date of this Proxy Statement, the White River Board estimates that,
although no assurances can be given, the foregoing adjustments would increase
the Common Stock Merger Price by approximately $0.17. See "Terms of the
Merger--Merger Consideration--White River Common Stock." In addition to the
foregoing amount, holders of White River Common Stock shall be entitled to
receive a portion of the proceeds, if any, received subsequent to the Effective
Time of the Merger by the liquidating trust to be established in connection
with the Trust Transaction, although no assurance can be given that the Trust
Transaction will be consummated, or if consummated, that any proceeds will be
distributed to stockholders as a result thereof. See "The Trust Transaction."
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The Common Stock Merger Price will be subject to adjustments to be made
subsequent to the Special Meeting. Accordingly, at the time of the Special
Meeting, holders of White River Common Stock will not know what the Common
Stock Merger Price will be as of the Effective Time. It is possible that, as a
result of such adjustments, the Common Stock Merger Price could be zero.
Adjustments to the Common Stock Merger Price will be determined by White
River and Demeter pursuant to the terms of the Merger Agreement. See "Terms of
the Merger--Merger Consideration--White River Common Stock."
Holders of White River's Series A Preferred Stock will receive cash in an
amount equal to $1,000 per share plus any accrued and unpaid dividends until
the Effective Time (the "Series A Merger Price"). If the Effective Time were
the date of this Proxy Statement, the Series A Merger Price would be
approximately $1,000 per share. See "Terms of the Merger--Merger
Consideration--Series A Preferred Stock."
As soon as reasonably practicable after the Effective Time, MergerCo will
instruct a designated Exchange Agent (the "Exchange Agent") to mail to each
holder of record of a certificate or certificates which immediately prior to
the Effective Time represented outstanding shares of White River Common Stock
or Series A Preferred Stock ("Certificates") (i) a letter of transmittal to be
used by such holders in forwarding their Certificates and (ii) instructions for
effecting the surrender of such holders' Certificates in exchange for the
Common Stock Merger Price or the Series A Merger Price, as the case may be (the
"Applicable Merger Price"). Upon surrender to the Exchange Agent of a
Certificate for cancellation, together with such letter of transmittal, duly
executed, and such other customary documents as may be required pursuant to
instructions given by the Exchange Agent, the holder of such Certificate will
be entitled to receive the Applicable Merger Price which such holder has the
right to receive in respect of the Certificate surrendered, and the Certificate
so surrendered will be canceled. WHITE RIVER STOCKHOLDERS SHOULD NOT SEND IN
THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL. See "Terms of
the Merger--Payment Procedures."
DISSENTERS' APPRAISAL RIGHTS
Under the DGCL, White River stockholders who do not vote for the Merger and
who comply with the other statutory requirements of the DGCL may elect to
receive, in cash, the judicially determined appraised value of their shares of
White River Common Stock. See "The Merger--Dissenters' Appraisal Rights" and
"Annex B."
RECOMMENDATION OF THE WHITE RIVER BOARD AND REASONS FOR THE MERGER
The White River Board reviewed the terms and conditions of the Merger
Agreement and determined that the Merger Agreement, and the transactions
contemplated thereby, including, without limitation, the Merger and the Trust
Transaction are advisable and in the best interest of the stockholders of White
River. The White River Board unanimously approved the Merger Agreement and the
transactions contemplated thereby including the Merger and the Trust
Transaction, and unanimously recommends that White River stockholders vote for
the Merger Proposal. See "The Merger--Interests of Certain Persons in the
Merger and Possible Conflicts of Interest."
The determination of the White River Board to approve the Merger Agreement
and the transactions contemplated thereby including, without limitation, the
Merger and the Trust Transaction, was based upon consideration of a number of
factors including the following: (i) the business operations, financial
condition, competitive position and prospects of CCC, White River's other
operating subsidiaries, and each of the entities in which White River has a
significant investment, and the nature of the industries in which White River's
operating subsidiaries operate, and in which White River's investments have
been made, both on a historical and prospective basis; (ii) the influence of
current and prospective industry, economic and market conditions, including
increased volatility in the financial markets; (iii) the historical and
prospective market prices of White
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River Common Stock, the stock of CCC and White River's other operating
subsidiaries and that of the other entities in which White River has
significant investments compared to the consideration to be received in the
Merger; (iv) the White River Board's belief that volatility in the stock
markets experienced in late 1997 would continue; (v) the low average trading
volume for White River Common Stock and the frequent large spreads between bid
and ask prices for White River Common Stock; (vi) the White River Board's
review of oral presentations by, and discussion of the terms and conditions of
the Merger Agreement with, senior executive officers of White River,
representatives of its legal counsel and representatives of McDonald & Company;
(vii) the fact that Demeter evidenced a strong ability to finance the
transaction and an ability to complete the transaction in a relatively short
time frame; (viii) the White River Board's receipt of the written opinion of
McDonald & Company to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the consideration to be
received by the holders of White River Common Stock pursuant to the Merger
Agreement was fair from a financial point of view to such holders; (ix) the
White River Board's consideration of the terms of the Merger Agreement,
including, without limitation: (a) the inclusion of an affirmative statement
that any officer or director of White River may, in accordance with such
officer's or director's fiduciary duty to stockholders of White River under
applicable law, solicit, respond to inquiries from, negotiate with, enter into
confidentiality agreements with, and/or grant access to nonpublic information
regarding White River or any of its subsidiaries to any third party in
connection with the creation of an Acquisition Proposal (as defined in the
Merger Agreement); (b) the inclusion of a "fiduciary out" provision allowing
for the termination of the Merger Agreement by White River in the event, among
others, that the White River Board withdraws, modifies or changes its approval
or recommendation of the Merger Agreement or the Merger in a manner adverse to
Demeter, or the White River Board recommends to White River stockholders an
Alternative Transaction (as defined in the Merger Agreement); (c) a material
adverse change condition that requires the absence of any event or change in
circumstances involving White River or any of its subsidiaries (including any
event or change in circumstances affecting or relating to the business,
financial condition, assets or results of operation of CCC, Cross Timbers or
Northwest Airlines causing a decrease in the Public Trading Price of the
capital stock of such companies from the last public trading price on March 31,
1998 but excluding any other decreases in the Public Trading Price of the
capital stock of such companies), that, when taken together with all other such
events or changes in circumstances, MergerCo reasonably determines will, or is
reasonably likely to, diminish the value of White River and its subsidiaries
taken as a whole by more than $25 million or is reasonably likely to prevent
the consummation of the transactions consummated by the Merger Agreement; and
(d) the absence of a financing condition; and (x) the White River Board's
consideration of the feasibility of the Liquidating Trust on terms and
conditions which are in the interests of the stockholders of White River.
If the Merger is not consummated, White River will continue to operate as an
independent company and will review alternatives that may become available to
it from time to time. See "The Merger--Recommendation of the White River Board
and Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR TO WHITE RIVER
McDonald & Company Securities, Inc. ("McDonald & Company") delivered an oral
opinion on April 6, 1998 (which it subsequently confirmed in writing as of that
same date) to the White River Board to the effect that, as of the date of such
opinion, the consideration to be received by the holders of White River Common
Stock pursuant to the Merger Agreement was fair from a financial point of view
to such holders. McDonald & Company has updated its opinion as of June 3, 1998.
In connection with rendering its updated opinion, McDonald & Company estimated
a range of fairness for White River Common Stock, as of June 1, 1998 and based
on the assumptions and analysis discussed under "The Merger--Opinion of
Financial Advisor to White River," of $79.25 to $87.50 per share. A copy of the
written opinion of McDonald & Company, dated as of June 3, 1998, setting forth
the assumptions made, the matters considered, the scope and limitations on the
review undertaken and the procedures followed by McDonald & Company in
rendering such opinion, is attached as Annex C to this Proxy Statement. The
opinion of McDonald & Company should be carefully read in its entirety. See
"The Merger--Opinion of Financial Advisor to White River."
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INTERESTS OF CERTAIN PERSONS IN THE MERGER AND POSSIBLE CONFLICTS OF INTEREST
White River stockholders should be aware that the directors and certain
officers of White River may be deemed to have an interest in the Merger in
addition to their interests as White River stockholders. Patrick M. Byrne,
Andrew Delaney, Robert T. Marto, Gordon S. Macklin, Bonnie Stewart and Michael
E.B. Spicer, each an officer or director of White River, are expected to
receive payments under the White River Corporation 1993 Incentive Compensation
Plan (the "Incentive Plan") as of the Effective Time, in amounts of $6,346,900,
$1,904,070, $634,960, $634,960, $634,960 and $453,350, respectively. In
addition, all of the current directors and officers of White River received, as
required by the terms of the Merger Agreement, their balances under the White
River Corporation Deferred Benefit Plan, the White River Corporation Voluntary
Deferred Compensation Plan and the White River Corporation Directors' Deferred
Compensation Plan (collectively the "Deferral Plans") on or prior to December
30, 1997, and in connection therewith, certain of such persons received
payments ("Acceleration Payments") intended to compensate them for the loss of
the ability to continue to defer the receipt of their Deferral Plan balances.
The following payments were made to the following persons, each of whom is
currently an officer or director of White River, with respect to the Deferral
Plans during 1997: Mr. Marto $21,641,289 (including $6,671,297 of Acceleration
Payments), Mr. Macklin $3,879,758, Mr. Delaney $1,293,226 and Ms. Stewart
$1,121,888 (including $345,841 of Acceleration Payments). See "The Merger--
Interests of Certain Persons in the Merger and Possible Conflicts of Interest--
Incentive Plans" and "--Deferral Plans" and "Terms of the Merger--Certain
Agreements Regarding the Conduct of Business Pending the Merger--Company
Plans."
White River has entered into indemnification agreements ("Indemnity
Agreements") with each of its officers and directors indemnifying such persons
against certain claims and liabilities resulting from having served as an
officer or director of White River. In addition, Demeter has agreed to keep
White River in existence and to continue to have such entity hold net assets
worth at least $50 million for a period of at least two years following the
Effective Time, or to have the Indemnity Agreements assumed by an entity
meeting such requirements. See "The Merger--Indemnification" and "Terms of the
Merger--Certain Agreements Regarding the Conduct of Business Pending the
Merger--Indemnity Agreements."
The White River Board was aware of these interests and considered them, among
other matters, in approving the Merger Agreement and the transactions
contemplated thereby and in recommending the same for stockholder approval.
CONDITIONS TO THE MERGER
The respective obligations of White River, Demeter and the other parties to
the Merger Agreement to effect the Merger are subject to the satisfaction or
waiver of certain conditions described elsewhere herein. None of the parties to
the Merger Agreement has any present intention to waive any material condition
to the Merger. See "Terms of the Merger--Conditions to the Merger."
TERMINATION AND EXPENSES UPON TERMINATION
The Merger Agreement may be terminated at any time prior to the effective
time of the Merger, whether before or after stockholder approval, by the mutual
consent of Demeter, MergerCo and White River or by certain of the parties under
certain circumstances as described herein. Under certain circumstances, White
River or Demeter may be obligated to pay up to $1.5 million in out-of-pocket
expenses to the other parties upon termination. In addition, in certain
situations, White River may be obligated to pay Demeter $15 million upon
termination of the Merger Agreement. See "Terms of the Merger--Termination" and
"--Expenses of the Transaction--Expenses Upon Termination."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The receipt by White River stockholders of cash and, if applicable,
Beneficial Interests in the Liquidating Trust, for shares of White River Common
Stock and cash for shares of Series A Preferred Stock in the Merger or pursuant
to the exercise of dissenters' appraisal rights will be taxable transactions
for federal income tax purposes and may also be taxable transactions under
applicable state, local, foreign and other laws. See "The Merger--Certain
Federal Income Tax Consequences of the Merger."
THE TRUST TRANSACTION
During the negotiations with respect to the Merger, Harvard Capital informed
White River that it would assign no value to the Trust Assets. The White River
Board determined that the sale of such assets prior to the anticipated
consummation of the Merger might not be feasible. As a result, in order to
maximize the value of such assets to the stockholders of White River in
connection with the Merger Agreement, the White River Board determined it was
advisable to consider engaging in the Trust Transaction whereby the Trust
Assets would be transferred to the Liquidating Trust which would distribute the
proceeds, if any, derived from such assets, whether by sale or otherwise, to
the White River stockholders. See "The Merger--Background of the Merger."
The Trust Assets consist of (i) an interest in an escrow fund; (ii) an
interest in certain litigation; (iii) the right to receive an amount equal to a
portion of the reduction, if any, of certain tax liabilities for White River's
1997 taxable year; and (iv) shares of common stock, constituting a minority
interest, in a company. In addition to the foregoing, the Merger Agreement
permits White River to include in the Trust Assets, up to $1 million in cash to
cover the expenses of the Liquidating Trust (which would reduce the Merger
Price by such amount), although White River currently anticipates that the
amount included in the Trust Assets will be between $200 thousand and $500
thousand. None of the Trust Assets other than the shares of common stock, which
have a carrying value of approximately $275 thousand, and any cash to be
contributed to the Liquidating Trust are reflected on White River's financial
statements. For a more detailed description of the Trust Assets, see "The Trust
Transaction" and Exhibit E to the Merger Agreement which is attached as Annex A
to this Proxy Statement.
Under the terms of the Merger Agreement, Demeter has agreed that White River
may transfer the Trust Assets to the Liquidating Trust, provided that the terms
of the Liquidating Trust, and the transfer of the assets thereto, would be
pursuant to terms mutually agreed upon by White River and Demeter, to be
negotiated by White River and Demeter in good faith. In the event that (i)
White River and Demeter are not able to reach an agreement with respect to the
terms of the Liquidating Trust and the transfer of the assets thereto or (ii)
White River determines that it is not practicable to establish the Liquidating
Trust prior to the Effective Time, White River would be permitted to sell the
Trust Assets prior to the Effective Time, pursuant to an agreement that Demeter
reasonably determines will not subject White River to any additional
liabilities or obligations, prior to the Effective Time; provided, that no such
sale of Trust Assets may be to an "affiliate" or "associate" of White River as
such terms are defined in the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
Subject to the events set forth above, the Liquidating Trust would be
established prior to the Effective Time for the exclusive benefit of the
holders of White River Common Stock at the Effective Time (each, a
"Beneficiary"), and each such holder of White River Common Stock would become a
Beneficiary of the Liquidating Trust with a beneficial interest in the
Liquidating Trust equal to his proportionate interest in White River (a
"Beneficial Interest"). A trustee for the Liquidating Trust has not been chosen
although White River anticipates that a bank or similar institution will be
chosen to perform such function based on such institution's relevant experience
and expertise, reputation and cost for performing such function. No
certificates or other documents evidencing Beneficial Interests will be issued.
Title to Beneficial Interests will be reflected only on the records maintained
by the Liquidating Trust. Beneficial Interests would be non-transferable except
for
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transfers occurring by operation of law as a result of a Beneficiary's death or
(in the case of a Beneficiary that is not a natural person) as a result of a
merger, consolidation, sale of assets, reorganization or dissolution. The
Liquidating Trust would be formed solely to receive from White River all of its
right, title and interest to the Trust Assets. The Merger Agreement permits
White River to contribute up to $1 million in cash to the Liquidating Trust to
cover expenses although it is currently anticipated that the amount that would
actually be contributed would be between $200 thousand and $500 thousand. The
Merger Price will be reduced by the amount of cash contributed to the
Liquidating Trust plus any tax liability incurred by White River as a result of
transferring the Trust Assets to the Liquidating Trust. White River currently
estimates that the foregoing tax liability could range from zero to
approximately $255 thousand, although the actual amount of such liability will
depend on the value of the Trust Assets at the time of transfer to the
Liquidating Trust which is to be agreed to by White River and Demeter prior to
the Effective Time and no assurance can be given that the actual tax liability
will not be higher. In the event that White River and Demeter are not able to
agree as to the value of the Trust Assets prior to the Effective Time, the
Trust Assets may remain with White River through the Merger rather than being
transferred to the Liquidating Trust, in which event holders of White River
Common Stock will receive no consideration with respect to such Assets. It is
expected that the Liquidating Trust would terminate on the date that the last
of the Trust Assets is liquidated and the proceeds distributed to the
Beneficiaries which is expected to occur within three years, provided that the
Liquidating Trust will terminate automatically on its third anniversary unless
the trustee extends the Trust after having received confirmation from the
Division of Corporation Finance of the SEC that it will not recommend
enforcement action due to such extension. As of the date of this Proxy
Statement, White River has not sought such confirmation and such confirmation
will not be sought until after the Liquidating Trust has been established and
no assurance can be given that such confirmation, if sought, will be received.
See "The Trust Transaction."
DUE TO THE SPECULATIVE NATURE OF THE TRUST ASSETS, IT IS POSSIBLE THAT NO
PAYMENTS WOULD BE MADE TO THE LIQUIDATING TRUST IN RESPECT OF THE TRUST ASSETS
OR THAT ALL PROCEEDS RECEIVED WOULD BE USED TO DISCHARGE LIABILITIES OF THE
LIQUIDATING TRUST. CONSEQUENTLY, STOCKHOLDERS ARE ADVISED TO EVALUATE THE
MERGER WITHOUT REGARD TO THE AMOUNT WHICH MAY BE HELD IN THE LIQUIDATING TRUST.
Consummation of the Trust Transaction is not a condition to the consummation of
the Merger.
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THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to holders of White River Common
Stock in connection with the solicitation of proxies by the White River Board
for use at the Special Meeting. Each copy of this Proxy Statement mailed to
White River stockholders is accompanied by a form of proxy for use at the
Special Meeting. The Special Meeting is scheduled to be held on June 26, 1998,
at 10:00 a.m., local time, at the RyeTown Hilton, 699 Westchester Avenue, Rye
Brook, New York 10573.
HOLDERS OF WHITE RIVER COMMON STOCK ARE REQUESTED TO COMPLETE, SIGN AND DATE
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO WHITE RIVER IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, holders of White River Common Stock will be asked to
consider and vote upon the proposal to adopt and approve the Merger Agreement
and the transactions contemplated thereby including, without limitation, the
Merger and the Trust Transaction. Holders of White River Common Stock will
also be asked to transact such other business as may properly come before the
meeting.
The White River Board, based upon the factors described elsewhere herein,
including the fairness opinion of McDonald & Company, has concluded that the
Merger Agreement and the transactions contemplated thereby, including, without
limitation, the Merger and the Trust Transaction are advisable and in the best
interest of stockholders of White River and has approved the Merger Agreement
and the transactions contemplated thereby including, without limitation, the
Merger and the Trust Transaction. THE WHITE RIVER BOARD UNANIMOUSLY RECOMMENDS
THAT THE STOCKHOLDERS OF WHITE RIVER VOTE IN FAVOR OF THE MERGER PROPOSAL AT
THE SPECIAL MEETING. See "The Merger--Recommendation of the White River Board
and Reasons for the Merger," "--Opinion of Financial Advisor" and "--Interests
of Certain Persons in the Merger and Possible Conflicts of Interest."
RECORD DATE; SHARES OUTSTANDING
The close of business on May 22, 1998 has been fixed as the record date for
the determination of the holders of White River Common Stock entitled to
notice of and to vote at the Special Meeting. On the Record Date, there were
4,874,756 shares of White River Common Stock issued and outstanding and
entitled to vote at the Special Meeting. All directors and executive officers
of White River are expected to vote, or cause to be voted, all shares of White
River Common Stock over which they exercise voting control (an aggregate of
317,615 shares of White River Common Stock or 6.5% of the outstanding shares
of White River Common Stock on the Record Date) FOR the adoption of the Merger
Proposal.
VOTING AGREEMENTS
Patrick M. Byrne, Andrew Delaney, Robert T. Marto, Gordon S. Macklin, and
Bonnie Stewart, each an officer or director of White River, John J. Byrne and
an individual who votes certain shares of White River Common Stock for the
benefit of John J. Byrne, have entered into a voting agreement with Demeter
pursuant to which such persons have agreed to, among other things, vote the
shares of White River Common Stock that they own and/or vote in favor of the
Merger Proposal. The foregoing persons own and/or vote, in the aggregate,
approximately 20% of the White River Common Stock outstanding.
VOTING AT THE SPECIAL MEETING
The presence, either in person or by proxy, of the holders of a majority of
the shares of White River Common Stock entitled to vote at the Special Meeting
is necessary to constitute a quorum at the Special Meeting.
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The adoption of the Merger Proposal requires the affirmative vote of at least
a majority of the outstanding shares of White River Common Stock. Votes may be
cast for or against the Merger Proposal or stockholders may abstain from
voting.
At the Special Meeting, abstentions and broker non-votes will be counted for
purposes of determining the presence or absence of a quorum. An abstention
with respect to the Merger Proposal will have the effect of a vote against the
Merger Proposal. A "broker non-vote" will occur when a broker holding shares
of White River Common Stock in street name (i.e., as nominee for the
beneficial owner) returns an executed proxy (or voting directions) indicating
that the broker does not have discretionary authority to vote on a proposal.
Under the rules of Nasdaq, brokers who hold shares of White River Common Stock
as nominees will not have discretionary authority to vote such shares on the
Merger Proposal in the absence of specific instructions from the beneficial
owners thereof. Under the DGCL, a broker non-vote is counted as present for
quorum purposes but is not considered to be entitled to vote on the specified
matter. Therefore, broker non-votes generally have no effect on the outcome of
a vote on a specific matter. However, because the adoption of the Merger
Proposal requires the affirmative vote of a specified minimum percentage of
all of the outstanding shares of White River Common Stock, rather than the
vote of a specified percentage of the shares present at the meeting and
entitled to vote, broker non-votes will have the effect of votes against the
adoption of the Merger Proposal.
Proxies will be voted as specified by the holders of White River Common
Stock. If a White River stockholder does not return a signed proxy, such
stockholder's shares will not be voted. White River stockholders are urged to
mark the appropriate box on the form of proxy enclosed herewith to indicate
how their shares are to be voted. Each White River stockholder is entitled to
cast one vote per share of White River Common Stock held by such stockholder
on each matter to be voted upon at the Special Meeting. If a White River
stockholder returns a signed proxy, but does not indicate how such
stockholder's shares are to be voted, the shares of White River Common Stock
represented by the proxy will be voted FOR the adoption of the Merger
Proposal. The proxy also confers discretionary authority on the attorneys-in-
fact named in the accompanying form of proxy to vote the shares of White River
Common Stock represented thereby on any other matter that may properly arise
at the Special Meeting, including consideration of a motion to adjourn or
postpone the Special Meeting to another time and/or place, provided that each
proxy specifying that the shares of White River Common Stock represented
thereby be voted against the adoption of the Merger Proposal will not be voted
in favor of a motion to adjourn or postpone the Special Meeting to another
time and/or place.
Returning a signed proxy will not affect a White River stockholder's right
to attend the Special Meeting and vote in person. Any White River stockholder
who executes and returns a proxy may revoke such proxy at any time before it
is voted by (i) filing with the Secretary of White River, at or prior to the
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a subsequent proxy relating to the same shares of
White River Common Stock and delivering it to the Secretary of White River at
or before the Special Meeting with a subsequent date or (iii) attending the
Special Meeting and voting in person by ballot. Attendance at the Special
Meeting will not, in and of itself, constitute revocation of a proxy.
In the event that a quorum is not present at the Special Meeting when
convened, or if for any other reason White River believes that additional time
should be allowed for the solicitation of proxies, White River may adjourn the
Special Meeting by a vote of the majority of the shares represented at such
meeting with respect to such adjournment. The persons named in the enclosed
form of proxy will vote all shares of White River Common Stock for which they
have voting authority in favor of such adjournment, provided that proxies
specifying that the shares of White River Common Stock represented thereby be
voted against the adoption of the Merger Proposal will not be voted in favor
of adjournment.
As of the date of this Proxy Statement, the White River Board does not know
of any other matters to be presented for action by White River stockholders at
the Special Meeting. If, however, any other matters not now known are properly
brought before the Special Meeting, the attorneys-in-fact named in the
accompanying proxy will vote the proxies upon such matters according to their
discretion and best judgment.
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SOLICITATION OF PROXIES
Pursuant to the Merger Agreement, the entire cost of White River's
solicitation of proxies will be borne by White River. In addition to
solicitations by mail, solicitations may also be made by personal interview,
facsimile transmission, telegram and telephone. White River has retained
Corporate Investor Communications, Inc. ("CIC"), a proxy solicitation firm,
for assistance in connection with the Special Meeting at an estimated expense
of approximately $15,000 plus reasonable out-of-pocket expenses. Arrangements
will be made with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy material to their principals, and White
River will reimburse them for their customary expenses in so doing.
DISSENTERS' APPRAISAL RIGHTS
Under the DGCL, holders of White River Common Stock are entitled to
appraisal rights in connection with the Merger. See "The Merger--Dissenters'
Appraisal Rights."
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THE MERGER
GENERAL
Upon the terms and subject to the conditions of the Merger Agreement,
Demeter will acquire White River in a business combination in which MergerCo
will merge with and into White River, which will thereupon become a wholly
owned subsidiary of Demeter. The Merger will become effective (the "Effective
Time") upon the filing of a certificate of merger with the Delaware Secretary
of State, or at such later date or time specified in the certificate of
merger. Under the Merger Agreement, each outstanding share of White River
Common Stock (other than treasury shares and Dissenting Shares) will be
converted into the right to receive the Common Stock Merger Price and each
share of Series A Preferred Stock will be converted into the right to receive
the Series A Merger Price. No cash distributions will be made by White River
to its stockholders in advance of the Merger. See "Terms of the Merger--Merger
Consideration." Following consummation of the Merger, the White River Common
Stock will be delisted from the Nasdaq National Market ("Nasdaq"), the
registration of White River Common Stock under the Exchange Act will be
terminated and White River will no longer be required to file periodic reports
with the Securities and Exchange Commission (the "SEC").
BACKGROUND OF THE MERGER
In early 1997, as a result of the large amount of cash and cash equivalents
held by White River as a result of the disposition of various assets, the
management of White River began a review of potential structural changes and
business transactions for White River in an effort to maximize the value of
the holdings of the stockholders of White River. By July 1997, the management
of White River had evaluated a number of different options, including:
(a) liquidating White River's holdings in CCC and in its other operating
subsidiaries, and its positions in its key remaining investments, including
its holdings in Cross Timbers and NWA Partners;
(b) spinning off in the form of a dividend many of White River's key
assets, other than CCC, to the stockholders of White River in order to
maximize value;
(c) redeploying its significant balances of cash and cash equivalents to
acquire new operating businesses with higher earnings potential;
(d) distributing a portion of its existing cash and cash equivalent
balances to stockholders; and
(e) a sale or merger of White River at a price reflecting the underlying
value of its significant assets.
In reviewing the numerous options, management considered the restrictions on
the resale of its shares of CCC imposed under a stockholders agreement, in
addition to those imposed by the Securities Act, and the significant
limitations on the sale of many of its key investments, including: (i) the
resale of the common stock of Cross Timbers is subject to the limitations
imposed by Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), unless sold in a transaction otherwise exempt from
registration under the Securities Act or through the exercise of registration
rights under its registration rights agreement with Cross Timbers; and (ii)
White River holds its interest in Northwest Airlines indirectly through its
interest in a limited partnership which it does not control and the resale of
such partnership interest is subject to restrictions imposed by the
partnership agreement with respect thereto.
During July 1997, representatives of Capricorn Investors, II L.P.
("Capricorn") initiated discussions with White River regarding a transaction
involving the purchase of all or a part of White River. On July 18, 1997,
Herbert S. Winokur, Jr. and Dudley C. Mecum of Capricorn met with Robert T.
Marto, then President and Chief Executive Officer and a director of White
River, to discuss the possibility of a transaction. Later that day, Mr.
Winokur contacted Michael R. Eisenson of Harvard Capital to discuss whether
Harvard Capital was interested in pursuing a possible acquisition of White
River. White River has been informed that Mr. Winokur of Capricorn is a member
of the Board of Directors of Harvard Management Company, Inc., the parent of
Harvard Capital, and that Harvard Capital owns the single largest limited
partnership interest in Capricorn.
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On July 24, 1997, White River and Capricorn entered into a confidentiality
agreement (the "Confidentiality Agreement") to facilitate further discussions
and negotiations regarding a potential transaction. Subsequent to that date,
Capricorn determined that it was not interested in acquiring White River and
held further discussions with Harvard Capital regarding its interest in such a
transaction. On August 5, 1997, Harvard Capital confirmed to Mr. Winokur that
it was interested in pursuing a possible acquisition of White River and agreed
to be bound by the terms of the Confidentiality Agreement.
On August 12, 1997, Mr. Eisenson requested that Mr. Winokur communicate to
White River Harvard Capital's interest in a transaction valuing White River at
the sum of its component market values less all liabilities and contingent
liabilities, including deferred tax liabilities ("Marked to Market Value"),
subject to a due diligence review of White River, which interest was
communicated by Mr. Winokur and Mr. Mecum to Mr. Marto on August 14, 1997. Mr.
Marto discussed the proposal with the other members of the White River Board
who considered the proposal and determined that it was in the best interest of
the White River stockholders to engage in further discussions and negotiations
with respect to the proposal.
On September 4, 1997, Mr. Eisenson met with Mr. Marto along with Mr. Winokur
and Mr. Mecum. Mr. Eisenson described Harvard Capital and expressed its
interest in White River. They discussed a possible transaction valued at the
Marked to Market Value of White River and also discussed Harvard Capital's
proposed due diligence review of White River. Mr. Eisenson and Mr. Marto
discussed White River's various assets, White River's employee benefit plans,
and Harvard Capital's desire to exclude from the transaction Hanover and
certain Hanover "add on" acquisitions, as well as other miscellaneous assets
(but not White River's interests in CCC, Cross Timbers or NWA Partners), by
transferring those assets to a company (the "Spin out Company") the ownership
of which would be distributed to White River shareholders.
On September 10, 1997, Harvard Capital and White River entered into a letter
agreement pursuant to which White River agreed to provide representatives of
Harvard Capital with reasonable access to White River to allow Harvard Capital
to evaluate White River through the end of September 1997. White River agreed
to reimburse Harvard Capital for up to $200,000 of out-of-pocket expenses
incurred in connection with its evaluation of White River if Harvard Capital,
at the conclusion of its evaluation, offered to purchase White River for at
least White River's marked to market book value, and such offer was rejected
by White River.
Throughout September, various business, accounting and legal representatives
of Harvard Capital had meetings and discussions with various representatives
of White River and CCC for purposes of conducting Harvard Capital's due
diligence review of White River.
On September 30, 1997, Mr. Eisenson called Mr. Marto and outlined a possible
proposal for a transaction in which Harvard Capital or one of its affiliates
would acquire White River by merger, subject to certain conditions being
satisfied including (i) the review by Harvard Capital's representatives of
CCC's board of directors minutes, (ii) the receipt of a September 30, 1997
White River balance sheet that reflected no material changes from the June 30,
1997 White River balance sheet, (iii) access for one day by Harvard Capital's
accounting representatives to CCC's finance staff and (iv) structuring the
payout of deferred compensation under the White River employee benefit plans
in a manner satisfactory to Harvard Capital. White River would be permitted to
distribute the Spin out Company to its shareholders after the transfer to the
Spin out Company of Hanover, certain other assets and $10 million in cash. The
proposed aggregate value per share of White River Common Stock to be provided
to shareholders would be $77.00 (including an assumed value for an interest in
the Spin out Company), if the Spin out Company could satisfactorily indemnify
the surviving company from certain specified liabilities, or $73.60 (including
an assumed value for an interest in the Spin out Company), otherwise. The
parties discussed the basis for the offer and the conditions. Mr. Marto told
Mr. Eisenson that the offer was not sufficient, that the appropriate Marked to
Market Value of White River was much higher than $77.00 per share and that
White River would continue to explore other strategic transactions which might
be available that would be of more value to the stockholders of White River.
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On October 1, 1997, Mr. Eisenson spoke to Mr. Marto again and told Mr. Marto
that, subject to the conditions discussed on their call of the previous day,
Harvard Capital could propose a transaction in which the aggregate value to
White River shareholders would be $80 per share (including an assumed value
for an interest in the Spin out Company) if Harvard Capital could get
comfortable that White River did not have other potential liabilities. Mr.
Marto told Mr. Eisenson that at that time the Marked to Market Value of White
River was at least $81.79 per share. The parties discussed the timing of a
potential offer and a draft merger agreement.
On October 7, 1997, Mr. Eisenson spoke with Mr. Marto and further discussed
the possibility of a transaction, subject to certain conditions, based on
White River's assets and liabilities as of September 30, 1997 as if the
transaction occurred on that date. Mr. Eisenson suggested that such
transaction, based on the Market Value of White River's assets using current
prices, would be valued at $85 per share (including an assumed value for an
interest in the Spin out Company). After the parties discussed related items,
Mr. Marto expressed his view that, in general terms, subject to receipt of a
written agreement acceptable to White River and the resolution of issues
associated therewith, such an offer could be acceptable.
On October 10, 1997, Harvard Capital provided White River with a first draft
of a proposed merger agreement, with a letter indicating that the proposed
pricing was contingent on signing a merger agreement by October 20, 1997.
Throughout the next several weeks, Mr. Eisenson and Mr. Rosen of Harvard
Capital, Mr. Marto and Michael E.B. Spicer, Chief Financial Officer of White
River, representatives of Ropes & Gray, Harvard Capital's outside legal
counsel, and representatives of LeBoeuf, Lamb, Greene & MacRae, L.L.P., White
River's outside legal counsel, had various discussions and negotiations
regarding the proposed merger agreement. Material issues discussed were the
representations and warranties of White River (in particular, those relating
to CCC); actions to be taken by White River with respect to the termination of
its employee benefit plans; the conduct of the business of White River and CCC
until the consummation of the merger; the practicability and mechanics of
using the Spin out Company; the ability of White River to solicit, negotiate
and accept competing offers; the ability of the White River Board to withdraw
or modify its recommendation that White River's stockholders approve the
Merger; the payment of "break up" fees and the reimbursement of expenses upon
termination of the merger agreement in certain circumstances; and price
adjustments for various changes in the assets and liabilities of White River
from September 30, 1997 until the effective time of the Merger. These
adjustments were generally intended to reflect the understanding of the
parties that Harvard Capital would purchase White River based on its assets
and liabilities as of September 30, 1997. During this period representatives
of Harvard Capital continued the due diligence review of White River.
During the discussions held on October 10, 1997, Mr. Marto and Mr. Spicer,
in consultation with LeBoeuf, Lamb, Greene & MacRae, L.L.P., White River's
outside legal counsel, determined that it was impracticable to transfer
Hanover and the other assets that Harvard Capital either wanted to exclude
from the transaction or would provide no value for, to a Spin out Company.
This was based on a determination that the value of Hanover and the other
assets was not sufficient to justify the time and expense required to
establish the Spin out Company as well as the ongoing expense of maintaining
the Spin out Company as a publicly traded entity, especially in light of the
expected lack of liquidity in the securities of such Company. Accordingly, it
was determined that it would be more expedient to find a buyer for these
assets. Because of the insubstantial value of Hanover and the other assets,
White River decided that it would be more beneficial to the stockholders of
White River to sell such assets to an entity to be formed by Mr. Marto for a
purchase price equal to the cost of these assets to White River (the "Asset
Disposition"), rather than to incur the time and expense of finding another
buyer for these assets, provided that White River could obtain a fairness
opinion with respect to the transaction from its financial advisor. However,
McDonald & Company was unable to provide a fairness opinion with respect to
the Asset Disposition if certain assets of a contingent nature were included
in the Asset Disposition. In order to obtain some value for its stockholders
for these assets which could not be included in the Asset Disposition, White
River determined to engage in the Trust Transaction pursuant to which these
assets would be transferred to the Liquidating Trust for the benefit of the
stockholders of White River.
During the discussions held on September 30 and October 10, 1997, Harvard
Capital expressed its desire that all amounts to which employees of White
River would be entitled under employee benefit plans be paid,
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and the plans terminated, prior to the consummation of the Merger. Mr. Marto
stated that White River was willing to take such actions provided that it
would be permitted to make certain additional payments to Deferral Plan
participants who received their balances under the Plan in 1997, which
payments would compensate such participants for the loss of the ability to
continue to defer the receipt of their Deferral Plan balances. After
negotiations, Mr. Marto and Mr. Eisenson agreed to a proposal made by Mr.
Marto that White River be permitted to make such payments in an amount of up
to $7.5 million.
In a letter sent to Mr. Marto on October 20, 1997, Mr. Eisenson noted that
the parties had not yet reached agreement on all terms and that the Marked to
Market Value continued to fluctuate. As a result, the parties agreed that the
parties should wait to determine pricing until both parties had resolved some
of the outstanding issues. In early November, at the request of Harvard
Capital, White River provided Harvard Capital with a Statement of Net Assets
to be Sold (the "Statement of Assets"), which presented the assets and
liabilities of White River to be included in the Merger (other than White
River's interest in CCC, Hanover and certain other wholly owned subsidiaries
of White River), as of September 30, 1997 presented on a basis consistent with
the methodology used in the preparation of White River's consolidated
financial statements as of December 31, 1996. On November 7, 10, 11 and 12,
the parties again discussed the potential pricing of the transaction. On
November 7, Mr. Eisenson proposed a transaction valued at $394 million and Mr.
Marto proposed a transaction valued at $415 million. On November 12, Mr. Marto
suggested a transaction for White River valued at $399.85 million (or $82.02
per share of White River Common Stock), subject to adjustments based on
certain changes in the assets and liabilities of White River from September
30, 1997 through the Effective Time from those reflected in the Statement of
Assets, and based on certain other actions by White River. Mr. Marto and Mr.
Eisenson agreed that such terms could be acceptable, subject to certain
additional diligence items and assuming that all other remaining issues could
be satisfactorily resolved. The price of $82.02 was exclusive of the value, if
any, that White River Stockholders might receive as a result of the Trust
Transaction and assumed that White River would receive for the assets
transferred in the Asset Disposition an amount equal to the cost of such
assets to White River.
Representatives of the parties continued negotiations with respect to the
Merger Agreement. On December 5, 1997, the following members of the White
River Board met to discuss the proposed transaction with Harvard Capital; Mr.
Byrne; Mr. Macklin; Mr. Delaney; and Mr. Marto. The White River Board heard
oral presentations from its legal advisors, LeBoeuf, Lamb, Greene & MacRae,
L.L.P., with respect to the terms of the Merger Agreement, the related
transactions and each director's fiduciary duty to the stockholders of White
River. McDonald & Company also gave a presentation to the Board which
presentation was limited to the methodology to be used in determining the
fairness of the merger consideration and did not include the delivery of a
fairness opinion. Members of the White River Board had the opportunity to and
did ask questions of the officers of White River and the legal and financial
advisors. At the meeting, Mr. Macklin and Mr. Delaney, independent members of
the White River Board, also had the opportunity to consult with and did
consult with their own counsel. After a discussion of the material terms of
the Merger Agreement, including without limitation, the payment of balances
due under the Deferral Plans, (see "--Recommendation of the White River Board
and Reasons for the Merger.") and the remaining open issues, the White River
Board decided not to take any action with respect to the Merger Agreement
until the remaining open issues were satisfactorily resolved. These issues
included the size of the break-up fee to be paid under certain circumstances
in the event of a termination of the Merger Agreement and the circumstances
under which White River could solicit and entertain other acquisition
proposals.
On December 8, 9 and 10, representatives of the parties satisfactorily
resolved all remaining issues with respect to the Merger Agreement and the
transactions contemplated thereby. The White River Board met again during the
evening of December 10, 1997 to discuss the Merger Agreement and the
resolution of the remaining issues. At that time, McDonald & Company delivered
an oral opinion that, as of December 10, 1997, the consideration to be
received by the holders of White River Common Stock in the Merger was fair
from a financial point of view to such holders. The White River Board
unanimously approved the Merger Agreement and the transactions contemplated
thereby, including the Merger, the Asset Disposition and the Trust
Transaction, and resolved to recommend to the stockholders of White River that
such stockholders should approve the Merger Agreement and the transaction
contemplated thereby. At the December 10 meeting, the members of the White
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River Board not having an interest in the Asset Disposition, unanimously
determined that the Merger Agreement and the transactions contemplated
thereby, including the Merger, the Asset Disposition and the Trust
Transaction, were advisable and in the best interest of the stockholders of
White River.
On December 11, 1997, the parties executed the Merger Agreement and White
River issued a press release announcing its execution. The material
differences between the Merger Agreement executed on December 11, 1997 and the
October 10, 1997 draft provided by Harvard Capital, were that the October 10
draft included a $20 million break-up fee and a "no-shop" provision which
would have prevented White River from soliciting other transactions under any
circumstances. Neither of these provisions were included in the Merger
Agreement that was executed. The Merger Agreement as executed also included
(i) a provision permitting White River to make certain payments in an amount
of up to $7.5 million ("Acceleration Payments") to Deferral Plan participants
receiving their balances under the Deferral Plan (see "Interests of Certain
Persons in the Merger and Possible Conflicts of Interest--Deferral Plans")
without adjustment of the Merger Price, and (ii) a broader "fiduciary-out"
provision than in the October 10 draft.
The opinion rendered by McDonald & Company at the December 10, 1997 Board
meeting addressed the fairness of the consideration to be received by the
White River stockholders with respect to the transactions contemplated by the
Merger Agreement. For purposes of rendering its opinion with respect to the
Merger Agreement McDonald & Company informed the White River Board that based
upon its preliminary review of the value of the assets to be sold pursuant to
the Asset Disposition (the "Excluded Assets") it would be able to render an
opinion to the White River Board with respect to the fairness of the Asset
Disposition promptly after the December 10, 1997 meeting of the White River
Board. McDonald & Company also informed the White River Board that the value
of the assets to be disposed of pursuant to the Asset Disposition was
immaterial when compared to the aggregate consideration to be received
pursuant to the Merger and, accordingly, even if de-minimis consideration were
received for the Excluded Assets its opinion as to the fairness of the
consideration to be received pursuant to the Merger would not be adversely
affected. However, because these assets were to be transferred to an entity
owned by Mr. Marto, the Board determined that the transaction should be
ratified by the members of the Board not having an interest in the Asset
Disposition and that a fairness opinion with respect to the transaction should
be obtained. Accordingly, on December 16, 1997, Mr. Macklin and Mr. Delaney,
the members of the White River Board who were not interested in the Asset
Disposition, held a meeting to discuss the Asset Disposition. At such meeting,
McDonald & Company made a presentation regarding the Asset Disposition, and
rendered its opinion that, as of such date, the consideration to be received
by White River in the Asset Disposition was fair from a financial point of
view to White River. Mr. Macklin and Mr. Delaney had the opportunity to ask
questions of LeBoeuf, Lamb, Greene & MacRae, L.L.P., McDonald & Company as
well as their own counsel. Mr. Macklin and Mr. Delaney asked questions
concerning the methodology supporting McDonald & Company's opinion, which
questions were answered by McDonald & Company. Mr. Macklin and Mr. Delaney
unanimously approved the Asset Disposition, including establishing the price
to be paid for the Excluded Assets at the book value of each of the assets.
On December 22, 1997, Mr. Marto submitted his resignation as President and
Chief Executive Officer of White River and Bonnie B. Stewart submitted her
resignation as Secretary of White River, each as required by the Merger
Agreement. See "Terms of the Merger--Certain Agreements Regarding the Conduct
of Business Pending the Merger--Company Plans." Mr. Marto continued to serve
as a director of White River and Ms. Stewart was elected to the position of
director by the directors then in office.
On December 24, 1997, White River made payments of balances under the
Deferral Plans to certain participants and made certain Acceleration Payments,
as permitted by the Merger Agreement, to certain participants who, under their
original Deferral Plan elections, would not have received full distribution of
their balances under the Deferral Plans for a number of years. The following
individuals, each of whom was either an officer or a director of White River,
in exchange for consenting to receive the balances under the Deferral Plans,
received Acceleration Payments: Mr. Marto; Mr. Macklin; Mr. Delaney; and Ms.
Stewart. Mr. Marto, chief executive officer of White River during the period
in which the Merger Agreement was negotiated, was principally responsible for
the negotiation of the Merger Agreement and he and Mr. Macklin and Mr. Delaney
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are directors of White River who voted to approve the Merger. On December 30,
1997, White River terminated the Deferral Plans as required by the Merger
Agreement. See "Terms of the Merger--Certain Agreements Regarding the Conduct
of Business Pending the Merger--Company Plans."
Following the White River Board's approval of the Merger Agreement and the
transactions contemplated thereby, White River and its advisors took steps to
consummate the transaction, including the preparation of proxy solicitation
materials which were filed with the SEC on January 23, 1998. On March 10,
1998, while White River was in the process of responding to SEC comments, in a
letter to Mr. Macklin, Fund American Enterprises Holdings, Inc. ("Fund
American") proposed to purchase all outstanding shares of White River Common
Stock not currently owned by Fund American for a price of up to $85 per share
in cash. The proposal was subject to satisfactory completion of due diligence
as well as successful negotiation, Board approval and execution of a
definitive agreement.
On March 13, 1998 the White River Board held a telephonic meeting to discuss
the Fund American proposal and White River's response thereto and to discuss
the issues posed by the fact that two members of the White River Board, Mr.
Macklin and Mr. Byrne, had substantial ties to Fund American. The White River
Board received advice from its legal advisors LeBoeuf, Lamb, Greene & MacRae,
L.L.P. concerning the procedures required under Delaware law respecting the
evaluation of proposals from entities with sufficient connection to members of
the board of directors to cause a potential or actual conflict of interest. At
this meeting, each of the Directors was polled to determine the basis of any
affiliation with Fund American which would disqualify them from serving on a
special committee to be formed to evaluate the Fund American Proposal. Mr.
Macklin and Mr. Byrne each stated that they were members of the board of
directors of Fund American, served on Fund American's Human Resources and
Compensation Committee, and owned stock in Fund American. Mr. Marto, Ms.
Stewart and Mr. Delaney each stated that they currently had no ties to Fund
American other than stock ownership interests which were immaterial compared
to their interests in White River, although Mr. Marto had served as an
officer, and Mr Delaney as a director, of Fund American until approximately
1993. Based on their responses, and advice of legal counsel, it was determined
that Mr. Macklin and Mr. Byrne would not be able to serve on the special
committee but that Mr. Marto, Ms. Stewart and Mr. Delaney would be able to
serve on the special committee. The Board then unanimously approved the
formation of a special committee (the "Special Committee") consisting of Mr.
Delaney, Mr. Marto and Ms. Stewart to evaluate the Fund American proposal as
well as any other proposals to acquire White River.
On March 13, 1998, Mr. Marto and Ms. Stewart met with K. Thomas Kemp,
President and Chief Executive Officer of Fund American, and Raymond Barette,
Executive Vice President and Chief Financial Officer of Fund American, at Fund
American's offices to obtain more information concerning Fund American's
proposal. Mr. Marto emphasized that the Special Committee was interested in
receiving the best offer for White River's shareholders. Mr. Marto explained
that White River would send a confidentiality agreement to Fund American.
Shortly after the March 13, 1998 meeting, Mr. Marto sent a confidentiality
and standstill agreement to Fund American. Fund American rejected the
agreement. In a letter dated March 19, 1998, Mr. Kemp reaffirmed Fund
America's offer to negotiate.
On March 20, 1998, the Special Committee held a telephonic meeting with
counsel for the Special Committee, LeBoeuf, Lamb, Greene & MacRae, L.L.P. The
Special Committee discussed the March 13, 1998 meeting with Mr. Kemp and Mr.
Barrette; Fund American's rejection of the confidentiality and standstill
agreement; and the steps the Special Committee should take to facilitate
receiving multiple bids for White River.
On the morning of March 23, 1998, the Special Committee met again via
teleconference with LeBoeuf, Lamb, Greene & MacRae, L.L.P. The Special
Committee discussed its response to Fund American's letter of March 19, 1998
as well as the likelihood that Harvard Capital would enhance its prior bid of
$82.02 per share. Discussions were also held concerning the best way of
assuring the continuation of a process by which multiple bids would be
received, ensuring that shareholders would receive the highest price for their
interest in White River. Later that day, Mr. Delaney sent a letter on behalf
of the Special Committee to Mr. Kemp, responding to
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Mr. Kemp's letter of March 19. In the letter, Mr. Delaney emphasized that the
Special Committee was eager to receive bids for White River, and considered
its primary duty to obtain the highest value for White River shareholders. The
Special Committee reiterated its reasons for requesting a standstill agreement
from Fund American.
On the evening of March 23, 1998, in a letter from Mr. Eisenson to Mr.
Delaney, Harvard Capital proposed an amendment to the Merger Agreement. Under
the terms of the proposed amendment, the amount to be paid to White River
shareholders was increased to $89 per share subject to adjustment. However,
the proposed amendment would require White River to pay a "break-up" fee of
$13.5 million in addition to the $1.5 million reimbursement of expenses in the
event that the Merger is not consummated for reasons other than the breach of
the Merger Agreement by Harvard Capital.
On March 30, 1998, in a letter from Mr. Kemp to White River, Fund American
revised its March 10 proposal pursuant to which White River stockholders would
receive $85 per share in a tender offer transaction by increasing the proposed
cash payment to $90 per share, which amount would not be subject to any
adjustments. In addition, Fund American proposed that changes with respect to
the public trading prices for Cross Timbers, Northwest Airlines, and CCC,
which were included in the "material adverse change" clause in the Merger
Agreement, would be deleted provided that Mr. Byrne, Mr. Marto and Harvard
Capital entered into binding agreements in favor of the transaction. However,
under the terms of the revised offer, White River would be subject to a "no-
shop" clause with a "fiduciary out" provision. In addition, White River would
be required to pay a $15 million break-up fee if the transaction did not close
for any reason. The offer was also subject to the following contingencies: (i)
Fund American obtaining financing; (ii) review of the transaction by major
rating agencies; (iii) the tender of 91% of shares of White River stock
(including those owed by Fund American); (iv) the purchase by Fund American of
100% of the preferred stock of White River; (v) completion of additional due
diligence; and (vi) execution of a mutually satisfactory definitive
acquisition agreement.
On March 31, 1998, the Special Committee held a meeting at noon to discuss
and review the March 30 Fund American proposal. Mr. Marto discussed the
differences between the proposal and the terms of the Merger Agreement. There
was discussion concerning the differences between the two proposals, including
the price of the bids and the contingencies pertaining to the Fund American
offer. The Special Committee decided to call both Fund American and Harvard
Capital to discuss and seek clarification regarding their respective
proposals. After the meeting, Mr. Marto called Fund American and Harvard
Capital to discuss their latest proposals. Fund American was willing to remove
some of the contingencies to its proposal, including, the rating agency
contingency and the listing of Harvard Capital as an approving entity under
the material adverse change provision. At 4:30 p.m. on March 31, 1998, the
Special Committee held another meeting at which Mr. Marto reported on the
results of his telephone contacts with Fund American and Harvard Capital, in
which Fund American agreed to the removal of the contingency related to major
rating agencies' review. The Special Committee determined that discussions
should continue with both Fund American and Harvard Capital with the goal of
obtaining improved proposals from each.
On April 1, 1998, Mr. Marto received a letter from Fund American discussing
Fund American's proposal and the removal of some of the contingencies. Mr.
Marto also called Mr. Kemp regarding Fund American's proposal and the
remaining contingencies, which included a financing contingency, a breakup
fee, and the requirement that 91% of the White River's shareholders vote for
the transaction. Mr. Marto also spoke with representatives from Harvard
Capital and discussed the changes to Fund American's proposal. Harvard Capital
said that it was willing to bid again, but that the next bid would be its
last. Later in the day on April 1, 1998 the Special Committee held another
meeting. The Special Committee discussed Mr. Marto's conversations with Fund
American and Harvard Capital, and the details of the Fund American and Harvard
Capital proposals, including the break-up fees proposed by Fund American and
Harvard Capital. The Special Committee decided to meet again on Monday, April
6.
On April 2, 1998, in a letter from Mr. Eisenson to Mr. Delaney, Harvard
Capital revised its offer to (i) increase the per share consideration to
$90.67, subject to adjustment; (ii) eliminate the Asset Disposition from
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the transaction; (iii) remove from the material adverse change clause, changes
in the public trading price of Cross Timber, CCC and Northwest Airlines,
provided that Fund American, Mr. Marto and Mr. John J. Byrne, former Chairman,
President and Chief Executive Officer of Fund American, father of White River
Board member Patrick Byrne, whose direct and indirect ownership interests in
White River are described more fully below at "Security Ownership of Certain
Beneficial Owners and Management," agreed to enter into voting agreements with
respect to the transaction; and (iv) include a "break-up" fee of $13.5 million
in the event that the transaction did not close. Mr. Eisenson stated in the
April 2 letter that Harvard Capital would not make any additional proposals in
the event that the revised proposal contained in the letter was rejected. The
April 2 proposal was accompanied by a proposed amendment to the Merger
Agreement (the "Amendment"). On April 5, in a conversation with Mr. Marto, Mr.
Eisenson agreed to remove the condition that Fund American agree to the
transaction provided that the break-up fee be increased to $15 million.
On April 2, 1998, Mr. Kemp sent a letter to the White River Board in which
Fund American removed the financing contingency, reduced the minimum tender
requirement from 91% to 51%, removed the preferred stock purchase contingency,
and eliminated the break-up fee. However, Fund American did not propose to
increase the merger price from $90.00 per share. On April 6, 1998, Mr. Marto
contacted Mr. Kemp to discuss Harvard Capital's latest bid and offer Fund
American an opportunity to strengthen its bid. Fund American declined. In the
afternoon of April 6, the Special Committee met again via teleconference with
counsel, LeBoeuf, Lamb, Greene & MacRae, L.L.P., and its financial advisor,
McDonald & Company, to discuss the bids from Harvard Capital and Fund
American. LeBoeuf, Lamb, Greene & MacRae, L.L.P. provided a non-financial
comparison of the two bids. The Special Committee then discussed the most
significant differences in the bids, which consisted of the price, material
adverse change provisions, break-up fees and no-shop provisions. McDonald &
Company delivered an oral opinion that, as of April 6, 1998, the consideration
to be received by the shareholders of White River under either the Merger
Agreement as modified by the Amendment or the Fund American proposal was fair
from a financial point of view to such holders. The Special Committee
determined that Harvard Capital had put forth the superior offer and
unanimously recommended the proposal to the Board. The Special Committee based
its determination that Harvard Capital's proposal was superior to Fund
American's on the following factors, each of which supported the Special
Committee's determination: (i) the higher price under the Harvard proposal;
(ii) the adjustments to the price under the Harvard proposal which would
likely be positive; (iii) the fiduciary out provision in the Harvard proposal
permitting White River to terminate the Merger Agreement in certain
situations; (iv) the lack of a no-shop clause in the Harvard proposal thereby
permitting White River to pursue alternate transactions; and (v) the
preferable material adverse change provision contained in the Harvard proposal
which was narrower than, and therefore preferable to, the corresponding
provision in the Fund American proposal. These factors offset the break-up fee
which was included in the Harvard Capital proposal but not in the Fund
American proposal.
Directly after the Special Committee meeting, the White River Board held a
telephonic meeting. Mr. Marto discussed the differences between the Harvard
Capital and Fund American proposals and the Special Committee's reasons for
concluding that Harvard Capital had presented the superior proposal. Mr. Marto
noted that Harvard Capital's agreement to alter the material adverse change
provision was subject to certain directors and Mr. John Byrne agreeing to
execute voting agreements. The named directors agreed to sign the voting
agreements (with Mr. Patrick Byrne stating that his father, Mr. John Byrne,
would sign such an agreement). Thereafter, McDonald & Company delivered an
oral opinion that, as of April 6, 1998, the consideration to be received by
the shareholders of White River under the Harvard Capital proposal was fair
from a financial point of view to such holders.
The White River Board determined that the Merger Agreement as amended by the
Amendment and the transactions contemplated thereby, including, without
limitation, the Merger and the Trust Transaction are advisable and in the best
interest of the stockholders of White River. Accordingly, at such meeting the
White River Board unanimously approved the Merger Agreement as amended by the
Amendment and the transactions contemplated thereby including, without
limitation, the Merger and the Trust Transaction, and directed that the Merger
Agreement as amended by the Amendment be submitted to the White River
stockholders for approval.
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RECOMMENDATION OF THE WHITE RIVER BOARD AND REASONS FOR THE MERGER
The determination of the White River Board to approve the Merger Agreement
and the transactions contemplated thereby including, without limitation, the
Merger and the Trust Transaction, was based upon consideration of the
following factors:
(i) The White River Board's familiarity with the business, operations,
financial condition, competitive position and prospects of White River,
including the business operations, financial condition, competitive
position and prospects of each of White River's operating subsidiaries and
each of the other entities in which White River has a significant
investment, and the nature of the industries in which such entities
operate, both on a historical and prospective basis;
(ii) The White River Board's consideration of, among other things,
information with respect to the financial condition, results of operations
and business of White River and each of White River's operating
subsidiaries and each of the other entities in which White River has a
significant investment on both a historical and a prospective basis, and
the influence of current and prospective industry, economic and market
conditions, including increased volatility in the financial markets;
(iii) The White River Board's review of the historical and prospective
market prices of White River Common Stock and that of the entities in which
White River has significant investments compared to the consideration to be
received in the Merger;
(iv) The White River Board's belief that volatility in the stock markets
experienced in late 1997 and early 1998 would continue;
(v) The White River Board's consideration of the low average trading
volume for White River Common Stock and the frequent large spreads between
bid and ask prices for White River Common Stock;
(vi) The White River Board's review of oral presentations by, and
discussion of the terms and conditions of the Merger Agreement, including
the changes proposed by the Amendment, including those terms and conditions
relating to the Trust Transaction, with, senior executive officers of White
River, representatives of its legal counsel and representatives of McDonald
& Company;
(vii) The fact that Demeter evidenced a strong ability to finance the
transaction and an ability to complete the transaction in a relatively
short time frame;
(viii) The White River Board's receipt of the oral opinion of McDonald &
Company to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated therein, the consideration to be
received by the holders of White River Common Stock pursuant to the Merger
Agreement was fair from a financial point of view to such holders;
(ix) The White River Board's consideration of the terms of the Merger
Agreement, including, without limitation:
(a) the inclusion of an affirmative statement that any officer or
director of White River may, in accordance with such officer's or
director's fiduciary duty to stockholders of White River under
applicable law, solicit, respond to inquiries from, negotiate with,
enter into confidentiality agreements with, and/or grant access to
nonpublic information regarding White River or any of its subsidiaries
to any third party in connection with the creation of an Acquisition
Proposal (as defined in the Merger Agreement);
(b) the inclusion of a "fiduciary out" provision allowing for the
termination of the Merger Agreement by White River in the event, among
others, that the White River Board withdraws, modifies or changes its
approval or recommendation of the Merger Agreement or the Merger in a
manner adverse to Demeter, or the White River Board recommends to White
River stockholders an Alternative Transaction (as defined in the Merger
Agreement);
(c) a material adverse change condition that requires the absence of
any event or change in circumstances involving White River or any of
its subsidiaries (including any event or change in circumstances
affecting or relating to the business, financial condition, assets or
results of operation of CCC, Cross Timbers or Northwest Airlines
causing a decrease in the Public Trading Price of the capital
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stock of such companies from the last public trading price on March 31,
1998 but excluding any other decreases in the Public Trading Price of
the capital stock of such companies) that, when taken together with all
other such events or changes in circumstances, MergerCo reasonably
determines will, or is reasonably likely to, diminish the value of
White River and its subsidiaries taken as a whole by more than $25
million or is reasonably likely to prevent the consummation of the
transactions contemplated by the Merger Agreement;
(d) the adjustments to the Merger Price under the Merger Agreement
which adjustments the Board estimated would, in the aggregate, result
in an increase in the Merger Price, even if $1 million were contributed
to the Liquidating Trust as permitted by the Merger Agreement;
(e) the payments to be made under the Deferral Plan and the Incentive
Plan and the Acceleration Payments and the effect of such payments on
the Merger Price; and
(f) the absence of a financing condition;
(x) The White River Board's consideration of the following factors with
respect to the Fund American proposal:
(a) the higher price offered by Harvard Capital;
(b) the less favorable material adverse change clause in the Fund
American proposal; and
(c) the very restrictive "no-shop" provision contained in the Fund
American proposal; and
(xi) The recommendation of the Special Committee that the Harvard Capital
proposal be accepted.
Each of the factors identified above, except those identified in paragraphs
(ix)(c) and (ix)(e) directly supported the Board's determination to approve
the Merger Agreement. The Board determined that the factors identified in
paragraphs (ix)(c) and (ix)(e), which were either neutral or slightly
negative, were outweighed by the other factors considered.
In addition to considering the above factors, the White River Board
considered the risk that the Merger would not be consummated as a result of
one or more of the conditions to Demeter's performance under the Merger
Agreement not being satisfied. The Board also considered that the Harvard
Capital proposal contained a break-up fee of $15 million which was not
included in the Fund American proposal. However, the White River Board
determined that these factors were offset by the features of the Merger
Agreement identified above.
The foregoing list of factors considered by the White River Board in its
evaluation of the Merger Agreement and the transactions contemplated thereby
including, without limitation, the Merger and the Trust Transaction, is not
intended to be exhaustive. In view of the wide variety of factors considered
in connection with its evaluation of the Merger, the White River Board did not
find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the White River Board were
not polled with respect to the specific factors considered and may well have
given different weights to different factors.
THE WHITE RIVER BOARD UNANIMOUSLY RECOMMENDS THAT THE WHITE RIVER
STOCKHOLDERS VOTE IN FAVOR OF THE MERGER PROPOSAL AT THE SPECIAL MEETING.
OPINION OF FINANCIAL ADVISOR TO WHITE RIVER
On December 2, 1997, the White River Board retained McDonald & Company to
render an opinion to the White River Board concerning the fairness, from a
financial point of view, to common stockholders, of the consideration to be
paid pursuant to the Merger Agreement. McDonald & Company was retained by
White River on the basis of its experience and expertise and its familiarity
with the industries in which the companies in which White River has ownership
interests operate. As part of its investment banking business, McDonald &
Company is customarily engaged in the valuation of businesses and securities
in connection with mergers and acquisitions, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
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Representatives of McDonald & Company participated in the April 6, 1998
meeting of the White River Board at which the directors considered the merger
proposal and approved the Merger Agreement. At such meeting, representatives
of McDonald & Company made presentations and reviewed various aspects of the
Merger, including the financial terms and conditions of the Merger.
At the April 6, 1998 meeting of the White River Board, McDonald & Company
rendered its oral opinion (which was subsequently confirmed in writing) to the
White River Board to the effect that, as of that date, the consideration to be
paid in connection with the Merger was fair, from a financial point of view,
to White River's stockholders. The Merger Agreement provides that as a
condition to the obligations of White River and Demeter to perform thereunder,
that McDonald & Company provide the White River Board with an updated opinion
dated as of the date of this Proxy Statement. The full text of McDonald &
Company's updated opinion, dated June 3, 1998, is attached as Annex C to this
Proxy Statement and is incorporated herein by reference. The description of
the opinion set forth herein is qualified in its entirety by reference to
Annex C. Stockholders are urged to read the opinion in its entirety for a
description of the procedures followed, assumptions and qualifications made,
matters considered, and limitations on the reviews undertaken by McDonald &
Company in rendering its opinion.
MCDONALD & COMPANY'S OPINION IS DIRECTED TO THE WHITE RIVER BOARD AND THE
SPECIAL COMMITTEE AND ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, TO WHITE RIVER'S STOCKHOLDERS OF THE CONSIDERATION TO BE PAID PURSUANT
TO THE MERGER AGREEMENT. THE OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE SPECIAL MEETING.
The McDonald & Company opinion dated June 3, 1998 is substantially similar
to the McDonald & Company opinion dated April 6, 1998.
In arriving at its opinion, McDonald & Company reviewed, among other things,
the Merger Agreement, together with exhibits and schedules thereto, certain
publicly available information relating to the business, financial condition
and operations of White River, CCC and the securities of companies held in
White River's investment portfolio (the "Portfolio Companies") as well as
certain other non-public information, primarily financial in nature, furnished
to it by White River relating to the respective businesses, earnings, assets
and prospects of White River, CCC and White River's other operating
subsidiaries (CCC and such other operating subsidiaries, the "Operating
Companies") and the Portfolio Companies. McDonald & Company also held
discussions with members of senior management of White River and CCC
concerning their respective businesses, assets and prospects. McDonald &
Company also reviewed certain publicly available information concerning the
trading of, and the trading market for, shares of White River Common Stock,
CCC's shares and the Portfolio Companies' shares.
McDonald & Company was not engaged to and did not conduct a physical
inspection of any of the assets, properties, or facilities of White River, the
Operating Companies or the Portfolio Companies and was not engaged to and has
not made, obtained or been furnished with any independent evaluation or
appraisal of any of such assets, properties, or facilities or any of the
liabilities of White River, the Operating Companies or the Portfolio
Companies. McDonald & Company has assumed and relied upon, without independent
investigation, the accuracy and completeness of the financial and other
information provided to it or publicly available, has relied upon the
representations and warranties of White River contained in the Merger
Agreement and has not independently attempted to verify such information.
McDonald & Company has also assumed that all of the conditions to the Merger
set forth in the Merger Agreement would be satisfied and that the Merger would
be consummated on a timely basis in the manner contemplated by the Merger
Agreement. No limitations were imposed by White River upon McDonald & Company
with respect to the scope of McDonald & Company's investigation, nor were any
specific instructions given to McDonald & Company in connection with its
fairness opinion.
In connection with rendering its opinion dated April 6, 1998, and as updated
to the date of this Proxy Statement, McDonald & Company considered a variety
of financial analyses, which are summarized below. McDonald & Company believes
that its analyses must be considered as a whole and that selecting portions of
such analyses and of the factors considered by McDonald & Company without
considering all such analyses and factors may create an incomplete view of the
analytical process underlying McDonald & Company's opinion. In
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its analyses, McDonald & Company made numerous assumptions with respect to
industry performance, business and economic conditions and other matters. Any
estimates contained in McDonald & Company's analyses are not necessarily
indicative of future results or values, which may be significantly more or
less favorable than such estimates.
The following is a summary of all material analyses considered by McDonald &
Company in connection with McDonald & Company's opinion dated June 3, 1998:
Balance Sheet Analyses. McDonald & Company reviewed White River's assets and
liabilities as of December 31, 1997 as reflected in White River's
consolidating trial balances in order to determine White River's equity value.
For purposes of its analysis, McDonald & Company made certain adjustments to
the values of the White River assets reflected on the statement of net assets
to be sold to reflect the fair market values of White River's ownership
interest in the Operating Companies and the Portfolio Companies determined in
accordance with the analytical techniques described below, and to reflect
adjustments in White River's cash and liabilities resulting from transactions
which management advised McDonald & Company were reasonably likely to take
place subsequent to December 31, 1997. McDonald & Company also made certain
adjustments to the liabilities reflected on the consolidating trial balances
based on information provided by management concerning changes in incentive
compensation and deferred tax liabilities arising in connection with the
transactions contemplated by the Merger Agreement.
White River's assets are composed primarily of its operating subsidiaries,
cash and cash equivalents and its ownership interest in the Portfolio
Companies. In conducting its analysis, McDonald & Company relied upon the
accuracy of the consolidating trial balances with respect to the value of the
cash and cash equivalents and the liabilities reflected on the trial balances
as of the date thereof, and relied upon the accuracy and completeness of the
information provided by management with respect to adjustments in cash levels
and in liabilities subsequent to such date without independent verification.
Due to the speculative nature of the Trust Assets and the fact that the
stockholders will retain (through their beneficial interests in the
Liquidating Trust) their ownership in the Trust Assets, McDonald & Company did
not assign any value to such assets for purposes of its analysis. McDonald &
Company noted in its opinion that the consideration in the Merger is subject
to adjustment as provided in the Merger Agreement. McDonald & Company also
reviewed with the management of White River, and relied upon, management's
expectations regarding the nature and ranges of the possible adjustments. The
opinion of McDonald & Company considered possible adjustments to the
consideration in the Merger (including adjustments attributable to the Trust
Transaction) as estimated by management of White River as of the date of the
opinion, which adjustments were not material in amount and therefore did not
affect the opinion.
White River's assets were evaluated via the following techniques: (i) public
information was analyzed relative to the company's industry outlook; (ii) a
peer group market analysis was generated from public information on the
Operating Companies and the Portfolio Companies and their peers which is
discussed in greater detail below; (iii) an analysis of the consensus research
analyst recommendations on the Operating Companies and the Portfolio Companies
was prepared and reviewed; (iv) in the case of CCC, McDonald & Company spoke
with CCC management regarding the reasonableness of analyst estimates and the
future prospects of the business; and (v) an evaluation of the appropriate
premium or discount with respect to the liquidity or presence of control
relative to the holdings of the the Operating Companies and the Portfolio
Companies was performed, which is discussed in greater detail below.
Market Analysis. McDonald & Company performed a peer group market analysis
for CCC, one of the Operating Companies, and the two significant Portfolio
Companies in which White River holds ownership interests. White River holds
approximately 35% of the common shares and the majority of the preferred
shares of CCC (which provide White River with voting control of CCC), which
was compared to certain other publicly traded computer technology services
companies. Companies included in the peer group for CCC were Affiliated
Computer Services, American Management Systems Corp., Complete Business
Solutions, Computer Sciences Corp., Metamor Worldwide (formerly COREstaff),
May and Speh, Metzler Group, Solectron Corp., The Dil
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Group, Inc., Vanstar Corp., Whittman-Hart, Cambridge Technology Partners,
Keane, Inc., Maximus, SunGard Data Systems and Technology Solutions. As of
June 1, 1998, CCC was trading at 34.3 times 1997 earnings. The median and
average peer group multiples were 36.7 and 42.8 times 1997 earnings,
respectively, and the range of multiples for the peer group was 14.4 to 74.5
times 1997 earnings. CCC traded at 27.6 times 1998 estimated earnings compared
to the median and average peer group multiples of 28.4 and 30.5 times 1998
estimated earnings, respectively (with a range of 11.9 to 54.3). CCC traded at
a price/book ratio of 13.1 compared to the median and average peer price/book
ratio of 5.0 and 6.3, respectively (with a range of 2.1 to 16.4). The result
of this comparative analysis of the market price of CCC's common stock with
the market prices of securities of peer group companies indicated that CCC's
stock prices reasonably reflected publicly available information concerning
CCC's financial condition, results of operations and future prospects.
McDonald & Company reviewed the terms of White River's preferred stock
holdings of CCC. White River holds 630 shares of CCC Series C Cumulative
Redeemable Preferred Stock, 3,601 shares of Series D Cumulative Redeemable
Preferred Stock and 500 shares of CCC Series E Cumulative Redeemable Preferred
Stock. (The shares of CCC Series E Cumulative Redeemable Preferred Stock
combined with common shares of CCC owned by White River provide White River
with voting control of CCC.) Each series of preferred stock noted above has a
stated value of $1,000 per share. In the absence of a public market for the
preferred shares, the stated value of $1,000 per share was deemed to
reasonably reflect the value of such shares based on publicly available
information concerning CCC's financial condition, results of operations and
future prospects.
McDonald & Company performed a peer group market analysis for Cross Timbers,
a Portfolio Company of which White River held approximately 11.6% of the
common shares as of June 1, 1998. The peer group consisted of certain large
cap companies including Anadarko Petroleum, Apache Corp., Enron Oil & Gas,
Noble Affiliates, Oryx Energy, Seagull Energy, Union Pacific Resources and
Vastar Resources. The domestic small and mid cap companies included Barrett
Resources, Belco Oil & Gas, Devon Energy Corp., Forcenergy, Inc., Newfield
Exploration, Pogo Producing, Rutherford-Moran, The Houston Exploration Co.,
Tom Brown, Inc., and Vintage Petroleum. Cross Timbers, as of June 1, 1998, was
trading at 7.9 times its discretionary cash flows in 1997, compared to median
and average 1997 discretionary cash flow multiples for the large cap peer
group of 4.9 and 5.8, respectively (with a range of 3.8 to 11.9), and median
and average 1997 discretionary cash flow multiples of 5.4 and 5.5 with a range
of 2.4 to 9.4, respectively, for the mid and small cap peer group. Cross
Timbers was trading at 6.2 times its estimated discretionary cash flows in
1998, compared to estimated median and average 1998 discretionary cash flow
multiples for the large cap peer group of 4.8 and 5.2, respectively (with a
range of 3.8 to 9.4), in 1998, and estimated median and average 1998
discretionary cash flow multiples of 5.2 and 5.3 with a range of 2.6 to 7.7,
respectively, for the mid and small cap peer group. Cross Timbers was trading
at 30.0 times 1997 earnings compared to the large cap peer group median and
average earnings multiples of 20.7 and 22.2, respectively (with a range of
14.0 to 36.1), and the mid and small cap peer group median and average
earnings multiples of 19.1 and 19.3, respectively (with a range of 7.6 to
36.8). Cross Timbers was trading at 37.6 times 1998 estimated median earnings
multiples versus the large cap peer group estimated median and average
earnings multiples of 35.1 and 45.2, respectively (with a range of 21.1 to
88.3), and the mid and small cap peer group estimated median and average
earnings multiples of 33.2 and 58.0, respectively (with a range of 23.5 to
160.6). The results of this comparative analysis, particularly the comparison
of discretionary cash flow multiples which is most relevant to the valuation
of exploration and production companies, indicated that Cross Timbers' stock
price reasonably reflected publicly available information concerning Cross
Timbers' financial condition, results of operations and future prospects.
McDonald & Company performed a peer group market analysis for the common
stock of Northwest Airlines, which White River holds in a limited partnership
investment (NWA Partners). The peer group companies included America West
Airline Holdings, AMR Corp., U.S. Airways Group, Continental Airlines, Inc.,
Delta Air Lines, Southwest Airlines and UAL Corporation. Northwest Airlines'
earnings multiple ratio for 1997 and estimated 1998 earnings was compared to
the median estimates for the peer group. Northwest Airlines traded at an
earnings multiple of 8.2 times 1997 earnings compared to median and average
earnings multiples for the peer group of 11.1 and 12.3 (with a range of 7.7 to
18.5). Northwest Airlines traded at an earnings
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multiple of 7.0 times 1998 estimated earnings compared to median and average
earnings multiples for the peer group of 10.0 and 10.7 (with a range of 7.4 to
15.1). Northwest Airlines was trading at a discount to its peer group due to
the structure of its capitalization (negative equity and high debt levels),
its heavy dependence on the Asian market relative to its peer group and the
old age of Northwest Airlines' aircraft fleet. When taking these variables
under consideration, the results of this comparative analysis of the market
price of Northwest Airlines' common stock with the market prices or securities
of peer group companies, indicated that Northwest Airlines' stock price
reasonably reflected publicly available information concerning Northwest
Airlines' financial condition, results of operations and future prospects.
McDonald & Company determined that with respect to each of CCC, Cross
Timbers, and Northwest Airlines, the stock price of each such company relative
to its earnings, discretionary cash flows or book value was within the range
of ratios of its competitors and reasonably approximated the median values of
these ratios based on the publicly available information relative to each of
these stocks as of the date of the Opinion. Accordingly, McDonald & Company
was able to determine that the price of the stock of these companies
reasonably reflected publicly available information.
Premium and Discount. McDonald & Company evaluated the appropriateness of
the application of premiums or discounts to White River's assets. Regarding
CCC, White River holds 35% of the common shares and through its ownership of
Series E Cumulative Preferred Shares, White River holds a 51% voting control
until June, 1999 unless the inside directors (management of CCC) decide to
undertake an equity offering, the proceeds of which could be used to redeem
the Series E preferred shares, thus eliminating the absolute voting control.
McDonald & Company's analysis indicated a historical premium range of 30% to
40% above minority values in transfers of controlling positions. The control
premiums tend to be at the lower end of this range when stocks are traded at
high Price/Earnings ratios and during strong stock market conditions. McDonald
& Company analyzed premiums on acquisition transactions occurring from January
1, 1997 through December 10, 1997 in CCC's industry group for which pricing
information was available. The median premium paid on the 24 transactions
analyzed compared to the stock price one week and four weeks prior to the
transaction announcement was 30.5% and 29.7%, respectively. Therefore, a 30%
control premium would be considered reasonable for CCC as a base case. Certain
other conditions were evaluated in determining a reasonable range for CCC's
premium, including the temporal nature of the voting control, the likelihood
of White River's ownership stake precluding a pooling transaction (and the
amount of goodwill therefore which would be necessary in a purchase
transaction), the absence of anti-dilution protection with respect to White
River's position and the ability of directors not affiliated with White River
to authorize the issuance of additional shares and finally contractual
limitations on White River's ability to cause CCC to engage in a merger or
similar change in control transaction. In light of the foregoing, McDonald &
Company determined that it was appropriate to apply a control premium to White
River's ownership interest in CCC ranging from 0% to 15%.
On June 1, 1998, White River owned approximately 11.6% of Cross Timbers'
common shares. The Cross Timbers common shares owned by White River are not
covered by an effective registration statement; however White River does have
limited demand registration rights with respect to such shares. White River
may also sell its holdings of Cross Timbers common stock in accordance with
the volume, manner of sale, nature and other provisions of Rule 144 of the
Securities Act of 1933. McDonald & Company projected a share liquidation
analysis which estimated an orderly disposition of Cross Timbers shares
according to both Rule 144 and a level which would not disturb the market
price relative to the normal volume. Based upon this analysis, McDonald &
Company determined that it was appropriate to apply a 10% discount to White
River's ownership interest in Cross Timbers. The demand registration rights
yielded a discount similar to the Rule 144 liquidation due to the fact that
White River would be responsible for underwriting discounts and commissions
and potentially the expenses of an offering as well as the downward pressure
on the market price from the offering.
NWA Partners, a limited partnership, was evaluated for a discount due to the
lack of marketability inherited by the limited partners, subject to the
general partner's discretion up until June 30, 2002. McDonald & Company
concluded that a 30% to 40% discount would be appropriate for a limited
partnership investment with the lack of liquidity and tenure as noted above.
McDonald & Company applied the range of premium and discounts to White
River's assets. McDonald & Company estimated a premium range on the holding of
CCC's common shares from 0% to 15%. Applying the
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premium range to CCC's average 10 day closing price as of June 1, 1998,
yielded a range in value of $165,046,000 to $193,287,000. McDonald & Company
estimated a discount on Cross Timbers of 10%. Applying the discount to Cross
Timbers' average 10 day closing price as of June 1, 1998 produced a value of
$86,116,000 McDonald & Company estimated a discount range of 30% to 40% on
White River's holdings of Northwest Airlines shares as part of its investment
in NWA Partners. Applying the discount range to Northwest Airlines' average 10
day closing price as of June 1, 1998, yielded a range in values of $24,855,000
to $28,998,000.
The range of values computed on White River's assets reflect values prior to
tax considerations. A disposition of the assets by White River would result in
the recognition of taxable income on any gain at the applicable corporate tax
rate. Based upon its review of tax issues associated with the disposition of
White River's ownership interest in the Operating Companies and the Portfolio
Companies (which included consultation with an independent accounting firm
concerning the limitations on White River's ability to engage in a more tax
advantaged disposition of such ownership interests), McDonald & Company
determined to apply a 35% discount to the gains associated with the sale of
securities of the Operating Companies and the Portfolio Companies for purposes
of assessing the value of those securities.
Other Assets and Liabilities. McDonald & Company determined values as of the
date of the fairness opinion for three additional public securities held by
White River, specifically the Republic NY Corporation Subordinated Note, the
common stock of Todd Shipyards Corp. and the common stock of Texas Pacific
Land Trust which were valued at $2,081,000, $799,000 and $4,000, respectively.
The values represented the publicly traded price of such securities as of the
close of business on June 1, 1998. McDonald & Company also assumed that the
value of Hanover and JKR was book value as of date of the opinion. Book value
for such assets at December 31, 1997 was approximately $4.5 million. Values
for other assets including accrued interest and dividends, purchased software
and equipment and income taxes receivable were based on management's
representations in its financial statements.
McDonald & Company relied upon management's representations of liabilities
as represented in the consolidating trial balances as of December 31, 1997.
The liability values were modified by management for certain events, primarily
the change in value of the company's retirement and benefit plans due to the
expected appreciation in the value of vested shares due to the proposed merger
and the vesting of additional performance units due to the achievement of
performance levels triggering the release of restrictions on performance
shares resulting from the expected appreciation in the stock price. McDonald &
Company also reviewed and recomputed management's representation of the
deferred tax liability resulting from the appreciation of the assets and
management's representation of the increase in the retirement and benefit plan
liabilities.
Valuation Summary. To estimate a range of fairness for White River Common
Stock as of June 1, 1998, McDonald & Company estimated the fair market values
of each of the assets and liabilities of White River as of June 1, 1998. In
the case of assets described above with estimated ranges of fair market value
(specifically, CCC and Northwest Airlines), McDonald & Company utilized the
midpoint of the ranges. Totaling the estimated fair market values of the
assets and subtracting the estimated fair market value of the liabilities
resulted in an estimated fair market value of the net assets of White River at
the date of the opinion. Because of the numerous assumptions underlying such a
determination of the estimated fair market value, McDonald & Company believed
that a range of 5% above and below the indicated midpoint should be used to
arrive at an estimated range of fairness. Based on the assumptions identified
above, McDonald & Company estimated a range of fairness as of June 1, 1998 for
White River Common Stock of $79.25 to $87.50 per share, or $386.3 million to
$426.5 million. Applying the same methodology utilized in rendering its June
3, 1998 opinion, McDonald & Company estimated a range of fairness for White
River Common Stock, as of April 6, 1998, of $88.50 to $97.75 per share, or
$431.4 million to $476.5 million. The differences between the April 6, 1998
range of fairness and the June 1, 1998 range of fairness were attributable to
declines in the average market value of CCC, Cross Timbers and Northwest
Airlines during such period. CCC's preceding ten day average closing price was
$27.81 as of April 6, 1998 and $21.93 as of June 1, 1998. Cross Timbers'
preceding ten day average closing price was $19.98 as of April 6, 1998 and
$17.72 as of June 1, 1998. Northwest Airlines' preceding ten day average
closing price was $59.51 as of April 6, 1998 and $46.26 as of June 1, 1998.
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Other Matters. The summary of McDonald & Company's opinion set forth above
does not purport to be a complete description of the presentation by McDonald
& Company to the White River Board or of the analyses performed by McDonald &
Company. The preparation of a fairness opinion is not necessarily susceptible
to partial analysis or summary description. McDonald & Company believes that
its analyses and the summary set forth above must be considered as a whole and
that selecting portions of its analyses, without considering all analyses, or
of the above summary, without considering all factors and analyses, would
create an incomplete view of the process underlying the analyses set forth in
McDonald & Company's report to the White River Board and its opinion. In
addition, McDonald & Company may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting
from any particular analysis described above should not be taken to represent
the actual value of White River, the Operating Companies or any of the
Portfolio Companies.
In performing its analyses, McDonald & Company made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of White River, the
Operating Companies and the Portfolio Companies. The analyses performed by
McDonald & Company are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than
suggested by such analyses. The Balance Sheet analysis along with the Market
Analysis and the Premium and Discount Analysis were utilized to evaluate and
compute a range of fair value for the assets held by White River. Such
analyses were prepared solely as part of McDonald & Company's analysis of the
fairness of the consideration to be paid pursuant to the Merger and were
provided to the White River Board in connection with the delivery of McDonald
& Company's opinion. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or the prices at
which any securities may trade at the present time or at any time in the
future.
The term "fair from a financial point of view" is a standard phrase
contained in investment banking fairness opinions and refers to the fact that
McDonald & Company's opinion as to the fairness of the consideration is
addressed solely to the financial attributes of the consideration. The
analyses do not purport to be appraisals or to reflect the prices at which a
company might actually be sold. In addition, as described above, McDonald &
Company's opinion was one of many factors taken into consideration by the
White River Board in making its determination to approve the Merger Agreement.
Consequently, the McDonald & Company analyses described above should not be
viewed as determinative of the White River Board's conclusions with respect to
the value of White River or of the decision of the White River Board to agree
to the Merger.
McDonald & Company's opinion is based on economic and market conditions and
other circumstances existing on, and information made available as of, the
date of the opinion. In addition, the opinion does not address the underlying
business decision to effect the Merger or any other terms of the Merger.
McDonald & Company's opinion does not represent its opinion as to what the
value of White River Common Stock may be at the Effective Time.
In connection with its opinion dated as of the date of this Proxy Statement,
McDonald & Company performed procedures to update certain of its analyses and
reviewed the assumptions on which such analyses were based and the factors
considered herewith.
McDonald & Company is not affiliated with White River. In the ordinary
course of business, McDonald & Company may actively trade White River Common
Stock and the securities of the Operating Companies and the Portfolio
Companies for its own account and for the accounts of customers. At any time
and from time to time, McDonald & Company may hold a short or long position in
such securities.
For McDonald & Company's services as financial advisor, White River has paid
McDonald & Company a fee of $150,000 upon rendering its December 10, 1997
opinion and a fee of $50,000 upon rendering its April 6, 1998 fairness
opinion. An additional fee of $150,000 was payable to McDonald & Company upon
issuance of the updated fairness opinion. White River has also agreed to
reimburse McDonald & Company for its reasonable out-of-pocket expenses and to
indemnify McDonald & Company against certain liabilities, including certain
liabilities under federal securities laws.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER AND POSSIBLE CONFLICTS OF INTEREST
White River stockholders should be aware that the directors and officers of
White River may be deemed to have interests in the Merger in addition to their
interests as White River stockholders. The White River Board was aware of
these interests and considered them, among other matters, in approving the
Merger Agreement and the transactions contemplated thereby and recommending
the same for stockholder approval.
Incentive Plan. All of the current directors and officers of White River are
expected to receive payments with respect to performance units previously
granted pursuant to the terms of the White River Corporation 1993 Incentive
Compensation Plan (the "Incentive Plan"). These awards allow participants to
receive a specified number of shares of White River Common Stock, or the cash
value thereof, in the event that certain performance objectives are reached.
Under the terms of the Incentive Plan in the event of a "change in control,"
the Compensation Committee of the White River Board (the "Compensation
Committee") may, in its sole discretion, vest previously granted awards. A
"change of control" is defined under the Incentive Plan to include the
acquisition, other than by certain specified persons, of beneficial ownership
of 35% or more of the voting stock of White River, as will occur upon
consummation of the Merger. It is expected that the Compensation Committee
will fully vest the awards previously granted to each of the directors and
officers of White River under the Incentive Plan based on its determination
that the Common Stock Merger Price of $90.67 per share satisfies the original
performance objectives. It is expected that the participants will be paid
their awards in lump sum cash payments as of the Effective Time. Based on an
assumed price of $90.67 per share of White River Common Stock, Mr. Marto, Mr.
Macklin, Mr. Delaney, Mr. Byrne, Ms. Stewart and Mr. Spicer are expected to
receive awards in amounts of $6,346,900, $1,904,070, $634,960, $634,960,
$634,960 and $453,350, respectively. See "Terms of the Merger--Certain
Agreements Regarding the Conduct of Business Pending the Merger--Company
Plans." The amounts actually paid will be greater or lesser than the foregoing
amounts to the extent that the Common Stock Merger Price is greater or lesser
than $90.67.
Deferral Plans. As required by the terms of the Merger Agreement, White
River approached each of the participants in the White River Corporation
Deferred Benefit Plan, the White River Corporation Voluntary Deferred
Compensation Plan and the White River Corporation Directors' Deferred
Compensation Plan (collectively, the "Deferral Plans") regarding the possible
payment in cash by White River on or prior to December 30, 1997 of the entire
balance to the credit of such participant's "Deferred Retirement Benefit
Account" or "Deferred Compensation Account" (each as defined in the Deferral
Plans). White River agreed to make certain Acceleration Payments to certain of
the Deferral Plan participants who accepted payment in full in 1997 of amounts
in their Deferral Plan accounts and who otherwise would not have received full
distribution of their balances under the Deferral Plans for a number of years.
Pursuant to the terms of the Merger Agreement, up to $7.5 million of such
incentive payments could have been made without a reduction of the Merger
Price. See "Terms of the Merger--Merger Consideration" and "--Certain
Agreements Regarding the Conduct of Business Pending the Merger--Company
Plans." The following persons, each a director or an officer of White River,
received the following amounts in 1997: Mr. Marto $21,641,289 (including
$6,671,297 of Acceleration Payments), Mr. Macklin $3,879,758, Mr. Delaney
$1,293,226 and Ms. Stewart $1,121,888 (including $345,841 of Acceleration
Payments). The Deferral Plans were terminated prior to year end 1997 in
accordance with the terms of the Merger Agreement. The only remaining
liabilities of White River with respect to the Deferral Plans consist of
liabilities with respect to the balances in the Deferral Plan accounts of two
former officers of White River who did not receive such balances during 1997.
As of the date of this Proxy Statement, the obligation of White River with
respect to these balances is approximately $0.8 million.
INDEMNIFICATION
In addition to the indemnification provisions applicable to the directors
and officers of White River contained in White River's Certificate of
Incorporation and Bylaws, Demeter has agreed to allow White River to enter
into indemnification agreements ("Indemnity Agreements") with its directors
and officers. Pursuant to such Indemnity Agreements, White River or any
permissible assignee shall, to the fullest extent permitted by applicable law
as then in effect, indemnify such director or officer if such person was or is
involved in any manner (including, without limitation, as a party or a
witness) or is threatened to be so involved in any
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threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action, suit or proceeding by or in the
right of White River to procure a judgment in its favor) (a "Proceeding") by
reason of the fact that he is or was a director, officer, employee or agent of
White River, or is or was serving at the request of White River as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (including, without limitation, any employee benefit
plan) against any expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with a Proceeding, subject to the further provisions of the
Indemnity Agreements. All reasonable expenses incurred by or on behalf of such
director or officer in connection with any Proceeding shall be advanced to
such person by White River, whether prior to or after final disposition of
such Proceeding and, if required by law or requested by White River at the
time of such advance, shall include or be accompanied by an undertaking by or
on behalf of such person to repay the amounts advanced if it should ultimately
be determined that such person is not entitled to be indemnified against such
expenses. Demeter has also agreed to keep White River in existence and to
continue to have such entity hold net assets worth at least $50 million for a
period of at least two years following the Effective Time, or to have the
Indemnity Agreements assumed by an entity meeting such requirements. The
following persons, each a director or officer of White River, have entered
into an Indemnity Agreement: Mr. Marto, Mr. Macklin, Mr. Delaney, Mr. Byrne,
Ms. Stewart, and Mr. Spicer.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary discusses the material federal income tax consequences
of the Merger to White River stockholders. The summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
Regulations thereunder and administrative rulings and judicial authority as of
the date hereof, including modifications made by the Taxpayer Relief Act of
1997. All of the foregoing are subject to change, and any such change could
affect the continuing validity of the discussion. The discussion assumes that
holders of shares of White River Common Stock and holders of Series A
Preferred Stock hold such shares as a "capital asset" within the meaning of
Section 1221 of the Code and does not address the tax consequences that may be
relevant to a particular stockholder subject to special treatment under
certain federal income tax laws, such as dealers in securities, banks,
insurance companies, tax-exempt organizations, corporate stockholders which
are collapsible corporations, non-United States persons and stockholders who
acquired shares of White River Common Stock pursuant to the exercise of
options or otherwise as compensation or through a tax-qualified retirement
plan, nor any consequences arising under the laws of any state, locality or
foreign jurisdiction.
The following discussion is limited to the United States federal income tax
consequences relevant to a holder of securities that is a citizen or resident
of the United States, or any state thereof, or a corporation or other entity
created or organized under the laws of the United States, or any political
subdivision thereof, or an estate the income of which is subject to United
States federal income tax regardless of its source or a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States persons who have the authority to
control all substantial decisions of the trust.
No ruling from the Internal Revenue Service (the "IRS") concerning the
federal income tax consequences of the purchase, ownership, and disposition of
the securities will be requested. The consequences set forth in this
discussion are not binding on the IRS or the courts and no assurance can be
given that contrary positions will not be successfully asserted by the IRS or
adopted by a court if the issues are litigated. White River has not sought and
will not seek any rulings from the IRS with respect to the positions of White
River discussed herein, and there can be no assurance that the IRS will not
take a different position concerning the tax consequences of the purchase,
ownership or disposition of the securities.
General. The receipt of cash by a White River stockholder in the Merger or
pursuant to the exercise of dissenters' appraisal rights will be a taxable
transaction for federal income tax purposes, treated, in the case of the White
River Common Stock, in part as a complete redemption under Section 302(b)(3)
of the Code and in part as sale, and, in the case of Series A Preferred stock,
as a complete redemption under Section 302(b)(3) of the Code (except to the
extent of accrued and unpaid dividends, the treatment of which is discussed
below). Such transaction may also be a taxable transaction under applicable
state, local, foreign income or other tax laws.
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Generally, a stockholder will recognize gain or loss in an amount equal to the
difference between the cash received by the stockholder pursuant to the Merger
and the stockholder's adjusted tax basis in the White River Common Stock
and/or Series A Preferred Stock purchased pursuant to the Merger. For federal
income tax purposes, such gain or loss will be a capital gain or loss if the
shares are a capital asset in the hands of the stockholder, and a long-term
capital gain or loss if the stockholder meets one of the holding periods set
forth below as of the Effective Time. There are significant limitations on the
deductibility of capital losses by individuals or corporations. Capital losses
can offset capital gains on a dollar-for-dollar basis and, in the case of an
individual stockholder, capital losses in excess of capital gains can be
deducted to the extent of $3,000 annually. An individual can carry forward
unused capital losses indefinitely. A corporation can utilize capital losses
only to offset capital gain income. Generally, a corporation's unused capital
losses can be carried back three years and forward five years.
In the event a Liquidating Trust, as permitted by the Merger Agreement, is
established, the fair market value of the property placed in trust will also
be treated as an amount realized by the holders of White River Common Stock,
along with the cash received pursuant to the Merger. White River will include
the fair market value of the assets placed in the Liquidating Trust in
reporting the amount realized by each holder of White River Common Stock based
upon such stockholder's proportionate share of such amount. However, no
assurance can be given that the Internal Revenue Service will not assert that
the fair market value of the assets transferred to the Liquidating Trust was
different than that determined by White River. The amount realized on the
transaction will not be affected if additional cash is placed into the trust
since the terms of the Merger Agreement contemplate a reduction in the amount
of cash received directly by the holders of Common Stock pursuant to the
Merger if a trust is established and cash is paid to the trust. If the trust
is established, the holders of White River Common Stock will be treated as
having received the assets, including any cash, placed in the trust directly
in the Merger and then having contributed these assets to the trust.
Accordingly, the trust will be taxed as a grantor trust under the Code. Any
income or capital gain realized by the trust will be taxable to any
shareholder holding a beneficial interest in the trust. The income will have
the same character in the hands of the shareholder as it had in the trust.
Long-term capital gains recognized after July 28, 1997, on marketable
securities such as the shares of White River Common Stock will be taxable at a
maximum rate of 20% for individuals if the individual's holding period is more
than 18 months and 28% if the holding period is more than one year but not
more than 18 months, and 35% for corporations. Ordinary income is taxable at a
maximum rate of 39.6% for individuals and 35% for corporations.
Treatment of Dividends Paid on Series A Preferred Stock. The dividends paid
on the Series A Preferred Stock will be taxable to a holder as (i) ordinary
income to the extent of White River's current or accumulated earnings and
profits (as determined for federal income tax purposes), (ii) a return of
capital that will reduce the holder's adjusted tax basis in such Series A
Preferred Stock to the extent, if any, the distribution exceeds White River's
current or accumulated earnings and profits (as determined for federal income
tax purposes) and (iii) capital gain to the extent, if any, the portion of the
distribution not treated as a dividend exceeds such holder's adjusted tax
basis in such Series A Preferred Stock. White River management currently
expects that White River will have sufficient current or accumulated earnings
and profits (as determined for federal income tax purposes) so that dividends
paid on the Series A Preferred Stock will be taxable as ordinary income. For
purposes of the remainder of this discussion, the term "dividend" refers to a
distribution taxed as ordinary income as described above unless the context
indicates otherwise.
Dividends received by corporate holders will generally be eligible for the
70% dividends-received deduction under Section 243 of the Code, subject to
limitations contained in Sections 246 and 246A of the Code. Corporate holders
should consult their tax advisors to determine the availability of the
dividends-received deduction and the application of any potential limitations
under Sections 246 and 246A of the Code.
Section 1059 of the Code requires a corporate shareholder to reduce its
adjusted tax basis (but not below zero) in the Series A Preferred Stock by the
"nontaxed portion" of any "extraordinary dividend" if the holder
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has not held its Series A Preferred Stock for more than two years before the
earliest of the date such dividend is agreed to, announced or declared.
Corporate holders should also consult their tax advisors concerning the
potential application of Section 1059 of the Code to dividends paid on the
Series A Preferred Stock.
Information Reporting and Backup Withholding. A holder of White River Common
Stock or Series A Preferred Stock may be subject to backup withholding at the
rate of 31% with respect to "reportable payments," which may include payments
of dividends and the gross proceeds of a sale of the White River Common Stock
or the Series A Preferred Stock. The payor will be required to deduct and
withhold the prescribed amounts unless such holder (i) is a corporation or
comes within other exempt categories and, when required, demonstrates this
fact or (ii) provides a correct taxpayer identification number, certifies as
to no loss to exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A holder of White
River Common Stock or Series A Preferred Stock who does not provide White
River with his or her correct taxpayer identification number may be subject to
penalties imposed by the IRS. Amounts paid as backup withholding do not
constitute an additional tax and will be credited against the holder's federal
income tax liabilities, so long as the required information is provided to the
IRS. White River will report to the IRS the amount of any "reportable
payments" for each calendar year and the amount of tax withheld, if any, with
respect to payment on the Stock.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. THUS,
WHITE RIVER STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL,
AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE
TAX LAWS.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger cannot be consummated until requisite pre-
merger notifications have been filed and certain information has been
furnished to the Antitrust Division of the U.S. Department of Justice (the
"Antitrust Division") and the FTC, and a specified waiting period has expired
or been terminated. The required pre-merger notification and report forms
under the HSR Act were filed with the FTC and the Antitrust Division on or
about February 28, 1998. On or about March 15, 1998, early termination of the
waiting period under the HSR was granted. At any time before or after the
Effective Time, the Antitrust Division, if it deems it to be necessary or
desirable in the public interest to do so, could act under the federal
antitrust laws and seek to enjoin consummation of the Merger or seek the
divestiture of substantial assets of Demeter or White River. At any time
before or after the Effective Time, and notwithstanding that the HSR Act
waiting period has expired, any state attorney general also could take action
under its antitrust laws to seek to enjoin consummation of the Merger or
seeking divestiture of substantial assets of Demeter or White River. Private
parties also may take legal action under federal and/or state antitrust laws
under certain circumstances. There can be no assurance that a challenge to
consummation of the Merger on antitrust grounds will not be made or that, if
such a challenge were made, Demeter and White River would prevail or would not
be required to accept certain conditions, including certain divestitures, in
order to consummate the Merger.
Other than the early termination of the relevant waiting periods under the
HSR Act, which has been granted as of the date of this Proxy, there are no
regulatory approvals required from any governmental authorities to consummate
the Merger.
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DISSENTERS' APPRAISAL RIGHTS
The DGCL sets forth certain rights and remedies applicable to stockholders
of record of White River who may object to the Merger. These rights are
available only to stockholders holding shares of White River Common Stock
through the Effective Time and who comply with the requirements of Section 262
of the DGCL (the "Dissenting Shares"). Set forth below is a summary of the
rights provided to the holders of White River Common Stock by Section 262 of
the DGCL. A copy of Section 262 of the DGCL is attached to this Proxy
Statement as Annex B. The following discussion is not a complete statement of
the law relating to appraisal rights and is qualified in its entirety by
reference to Annex B. This discussion and Annex B should be reviewed carefully
by any holder who wishes to exercise statutory appraisal rights or who wishes
to preserve the right to do so, because the failure to comply strictly with
the procedures set forth herein or therein will result in the loss of such
appraisal rights. Any White River common stockholder who contemplates the
assertion of appraisal rights is urged to consult his or her own counsel.
Under Section 262 of the DGCL, when a merger is to be submitted for approval
at a meeting of stockholders, not less than 20 days prior to the meeting, a
constituent corporation must notify each of the holders of its stock for which
appraisal rights are available that such appraisal rights are available and
include in each such notice a copy of Section 262 of the DGCL. This Proxy
Statement constitutes such notice to White River stockholders.
White River common stockholders who desire to exercise their appraisal
rights must satisfy all of the following conditions. Any such White River
stockholder must be a stockholder of record of White River from the date he or
she makes a written demand for appraisal (as described below) through the
Effective Time and must continuously hold his or her Dissenting Shares
throughout the period between such dates. A written demand for appraisal of
the Dissenting Shares must be delivered to the Secretary of White River before
the stockholder vote at the Special Meeting. The demand will be sufficient if
it reasonably informs White River of the identity of the White River
stockholder and that the White River stockholder intends thereby to demand the
appraisal of his or her Dissenting Shares. Any written demand for appraisal of
Dissenting Shares must be in addition to and separate from any proxy or vote
abstaining from or voting against the Merger Agreement. Although a White River
common stockholder must vote against, abstain from voting or fail to vote on
the Merger Agreement to preserve his or her rights to appraisal, a vote
against, a failure to vote or an abstention from voting will not, in and of
itself, constitute a demand for appraisal within the meaning of Section 262 of
the DGCL.
Holders of Dissenting Shares electing to exercise their appraisal rights
under Section 262 of the DGCL must neither vote for approval of the Merger
Agreement nor consent thereto in writing. A White River stockholder who signs
and returns a proxy card without expressly specifying a vote against approval
of the Merger Agreement or a direction to abstain, by checking the applicable
box on the proxy card enclosed herewith, effectively will waive appraisal
rights as to those shares because, in the absence of express instructions to
the contrary, such Dissenting Shares will be voted in favor of the Merger
Agreement. Accordingly, a White River stockholder who desires to perfect his
or her appraisal rights with respect to any Dissenting Shares must, as one of
the procedural steps involved in such perfection, either (i) refrain from
executing and returning a proxy card and from voting in person in favor of the
Merger Agreement or (ii) check either the "Against" or the "Abstain" box next
to the proposal on such card or affirmatively vote in person at the Special
Meeting against the Merger Agreement or register in person at the Special
Meeting an abstention with respect thereto.
A demand for appraisal must be executed by or for the White River common
stockholder, fully and correctly, exactly as such White River stockholder's
name appears on the certificate or certificates representing his or her
Dissenting Shares. If the Dissenting Shares are owned of record by more than
one person, as in a joint tenancy or tenancy in common, such demand must be
executed by all joint owners. An authorized agent, including an agent for two
or more joint owners, may execute the demand for appraisal for a White River
common stockholder; however, the agent must identify the beneficial owner and
expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record owner. If a White River stockholder holds
Dissenting Shares through a broker who in turn holds the shares through a
central securities depository nominee, a demand for appraisal of such
Dissenting Shares must be made by or on behalf of the depository nominee and
must identify the depository nominee as the holder of record.
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THE TRUST TRANSACTION
In connection with the negotiation of the Merger, Harvard Capital informed
White River that it would assign no value to certain assets held by White
River. However, the White River Board, based on its judgment and experience
with respect to such assets, believed that the these assets had value.
Accordingly, in order to maximize the value of such assets for the benefit of
the stockholders of White River in connection with the Merger Agreement, the
White River Board determined it was advisable to consider engaging in the
Trust Transaction by forming a liquidating trust (the "Liquidating Trust") to
distribute the proceeds, if any, derived from such assets, whether by sale or
otherwise. In the judgment of the White River Board, the anticipated expenses
of establishing and operating the Liquidating Trust, which the Board currently
estimates will be between $200 thousand and $500 thousand, plus any tax
liability incurred by White River as a result of transferring the assets to
the Liquidating Trust, will be less than the proceeds derived from such assets
and therefore establishing the Trust is in the best interest of the White
River stockholders. In contemplation of the Merger, White River may, prior to
the Effective Time, transfer the following assets (the "Trust Assets") to the
Liquidating Trust:
(i) White River's rights to any net proceeds from the Escrow Agreement,
dated July 31, 1996, by and among Precision CastParts Corp., those
individuals and/or holders of the capital stock of NewFlo Corporation, and
Republic National Bank of New York, as Escrow Agent;
(ii) White River's rights to its share of any recovery in respect of any
claims Rocky Mountain Financial Corporation might have against governmental
entities regarding the loss of supervisory goodwill as a result of the
passage of the Financial Institutions Reform, Recovery and Enforcement Act
of 1989. White River's rights are derived in connection with a 1994 stock
purchase agreement for the sale of Rocky Mountain to Metropolitan Federal
Bank;
(iii) The right to receive 75% of the reduction, if any, in tax liability
resulting from the Surviving Corporation (as defined herein) taking the
position, at the Surviving Corporation's option and in its sole discretion,
on White River's 1997 federal tax return (the "1997 Return") that the basis
in White River's interest in NWA Partners is such that the Surviving
Corporation's federal tax liability resulting from the redemption in
October 1997 of the preferred stock of Northwest Airlines held by NWA
Partners is less than it would have been had the Surviving Corporation
claimed no basis in White River's interest in NWA Partners on White River's
1997 Return in excess of White River's allocable share of the income
reported by the partnership for such year;
(iv) 20,777 common shares and options to purchase 25,972 common shares of
Faneuil ISG, Inc. (the "Faneuil Shares"); and
(v) up to $1,000,000 in cash (the "Expense Reserve"). (The Merger Price
will be reduced by the amount of the Expense Reserve. See "Terms of the
Merger--Merger Consideration.")
None of the Trust Assets, other than the Faneuil Shares, which have a
carrying value of approximately $275 thousand, and any cash constituting the
Expense Reserve are reflected on White River's financial statements.
White River has agreed in the Merger Agreement that the terms of the
Liquidating Trust, and the transfer of the assets thereto, would be pursuant
to terms mutually agreed upon by White River and Demeter, to be negotiated by
White River and Demeter in good faith. In the event that (i) White River and
Demeter are not able to reach an agreement with respect to the terms of the
Liquidating Trust and the transfer of the assets thereto or (ii) White River
determines that it is not practicable to establish the Liquidating Trust prior
to the Effective Time, White River would be permitted to sell the Trust
Assets, pursuant to an agreement that Demeter reasonably determines would not
subject White River to any additional liabilities or obligations, prior to the
Effective Time; provided, that no such sale of Trust Assets may be to an
"affiliate" or "associate" of White River as such terms are defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In the event
that any of the Trust Assets are sold prior to the Effective Time, the Merger
Price will be increased by 0.65 multiplied by the amount of cash paid to White
River in any such sale. However, if the Liquidating Trust is not formed, no
adjustment will be made to the Merger Price with respect to Trust Assets that
are not sold prior to the Effective
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Date, which assets will stay with White River through the Merger. See "Terms
of the Merger--Merger Consideration."
Under the terms of the Merger Agreement, the Merger Price will be reduced by
the amount of any liabilities incurred by White River prior to the Effective
Time, which would include any tax liability incurred by White River as a
result of the transfer of the Trust Assets to the Liquidating Trust. The
amount of this tax liability, if any, will be determined by agreement of White
River and Demeter prior to the Effective Time and will depend on the value of
the Trust Assets at the time of transfer to the Liquidating Trust compared to
White River's basis in such Assets. White River estimates that the value of
the Trust Assets, as of the date of transfer to the Liquidating Trust, could
range from approximately $275 thousand to approximately $1 million resulting
in a tax liability, if the Trust Transaction is consummated, ranging from zero
to approximately $255 thousand, although no assurance can be given that the
actual liability will not be higher. In the event that White River and Demeter
are not able to agree as to the value of the Trust Assets, and corresponding
tax liability, prior to the Effective Time, the Trust Assets may remain with
White River through the Merger rather than being transferred to the
Liquidating Trust, in which event holders of White River Common Stock will
receive no consideration with respect to such Assets.
Subject to the events set forth above, the Liquidating Trust would be
established prior to the Effective Time for the exclusive benefit of the
holders of White River Common Stock at the Effective Time, and each such
holder of White River Common Stock would become a Beneficiary of the
Liquidating Trust with a Beneficial Interest in the Liquidating Trust equal to
his proportionate interest in White River. The Liquidating Trust would be
formed solely to receive from White River all of its right, title and interest
to the Trust Assets. White River anticipates that a bank, or similar financial
institution, will serve as trustee of the Liquidating Trust. In the event that
the Liquidating Trust is established, White River expects to transfer between
$200 thousand and $500 thousand to the Trust as an Expense Reserve.
Beneficial Interests would be non-transferable except for transfers
occurring by operation of law as a result of a Beneficiary's death or (in the
case of a Beneficiary that is not a natural person) as a result of a merger,
consolidation, sale of assets, reorganization or dissolution. No certificates
or other documents evidencing Beneficial Interests would be issued. Title to
Beneficial Interests would be reflected only in the records maintained by the
Liquidating Trust. The Beneficial Interests would not pay any dividends or
bear any stated rate of interest and have no voting or other stockholder
rights. The Beneficial Interests would represent only the contingent right to
receive the net assets (if any) of the Liquidating Trust under the
circumstances described in this Proxy Statement. The recourse of all third
party claimants against the Liquidating Trust will be limited to the Trust
Assets and accordingly, if the expenses of the Liquidating Trust exceed the
amount held in the Liquidating Trust (including the Expense Reserve), neither
White River, the owners of Beneficial Interests in the Liquidating Trust, nor
the trustees of the Liquidating Trust would be liable for such difference. In
addition, it is anticipated that if the trustee determines, at any time, that
the expected expenses of the Liquidating Trust will exceed the Expense Reserve
plus any proceeds expected to be received with respect to the other Trust
Assets, the trustee will liquidate the Trust Assets as soon as practicable,
distribute the proceeds to the Beneficiaries, and terminate the Liquidating
Trust.
White River expects that each of the trustees of the Liquidating Trust would
be entitled to receive out of the assets of the Liquidating Trust, to the
extent available, reasonable and customary compensation plus reimbursement for
reasonable expenses, including attorneys' fees, out of the assets of the
Liquidating Trust. The trustees of the Liquidating Trust would be indemnified
out of the assets of the Liquidating Trust from and against all liabilities
and expenses incurred by them unless they are adjudicated to have acted with
willful misconduct, gross negligence, or fraud in the exercise and performance
of their duties. The Liquidating Trust may also obtain liability insurance for
the benefit of the trustees.
White River anticipates that it will submit a "no-action" request to the
staff of the SEC seeking relief from certain provisions of the federal
securities laws, including without limitation, the periodic reporting
requirements applicable under the Exchange Act. However, even if such relief
is granted, White River expects that the trustee
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would issue periodic reports to the beneficiaries showing the assets and
liabilities of the Liquidating Trust at the end of each calendar year during
any part of which the trustees have received any proceeds from White River's
right to recoveries from any of the Trust Assets or from the sale of any
assets of the Liquidating Trust and the receipts and disbursements of the
trustees for the period. Such annual reports would also describe material
changes in the assets or liabilities of the Liquidating Trust during the
period and actions taken by the trustees in the performance of their duties
during the period. As soon as reasonably practicable after the close of each
calendar year, the trustees would supply each Beneficiary with the information
necessary to determine the amount of taxable income (or deduction) from the
Liquidating Trust for inclusion in the Beneficiary's federal income tax return
for the preceding year.
It is expected that the Liquidating Trust would terminate automatically on
the date that the last of the assets of the Liquidating Trust is distributed
to the Beneficiaries, but not later than three years from the date of the
Liquidating Trust (unless the trustee extends the date of termination upon
receipt of confirmation from the Division of Corporation Finance of the SEC
that it will not recommend enforcement action due to such extension).
Upon receipt by the Liquidating Trust of any proceeds from the Trust Assets
(other than the Expense Reserve), the proceeds would be distributed to the
Beneficiaries as soon as practicable upon receipt of such amounts. All
distributions would be made pro rata according to the Beneficiaries'
respective Beneficial Interests in the Liquidating Trust; provided, however,
that no distribution would be made to Beneficiaries without first satisfying
or providing adequate reserves for the reasonable expenses incurred or to be
incurred by the trustees.
DUE TO THE SPECULATIVE NATURE OF THE TRUST ASSETS, IT IS POSSIBLE THAT NO
PAYMENTS WOULD BE MADE TO THE LIQUIDATING TRUST IN RESPECT OF THE TRUST ASSETS
OR THAT ALL PROCEEDS RECEIVED WOULD BE USED TO DISCHARGE LIABILITIES OF THE
LIQUIDATING TRUST. CONSEQUENTLY, STOCKHOLDERS ARE ADVISED TO EVALUATE THE
MERGER WITHOUT REGARD TO THE AMOUNT WHICH MAY BE HELD IN THE LIQUIDATING
TRUST. Consummation of the Trust Transaction is not a condition to the
consummation of the Merger.
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TERMS OF THE MERGER
The following is a summary of material provisions of the Merger Agreement. A
copy of the Merger Agreement is attached as Annex A to this Proxy Statement
and is incorporated herein by reference. All capitalized terms used but not
defined herein shall have the meaning ascribed to such terms in the Merger
Agreement. The following summary does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement.
THE MERGER; EFFECTIVE TIME
MergerCo is a wholly owned subsidiary of Demeter, Merger Sub is a wholly
owned subsidiary of MergerCo and WRV is a wholly owned subsidiary of White
River. Upon the terms and subject to the conditions contained in the Merger
Agreement, at the Effective Time (as defined below) (i) MergerCo will merge
with and into White River, the separate existence of MergerCo will cease and
White River will continue as the surviving corporation (the "Surviving
Corporation") and (ii) Merger Sub will merge with and into WRV, the separate
existence of Merger Sub will cease and WRV will continue as the surviving
corporation (the "Subsidiary Surviving Corporation"). From the Effective Time,
the Surviving Corporation will be a wholly owned subsidiary of Demeter and the
Subsidiary Surviving Corporation will be a wholly owned subsidiary of the
Surviving Corporation. The Merger and the Subsidiary Merger will become
effective upon the execution and filing of the Certificate of Merger and the
Subsidiary Certificate of Merger, respectively, with the Secretary of State of
Delaware (the time of such filing or such other time as is specified in such
Certificates is referred to herein as the "Effective Time"). Such filing will
be made no later than the third business day after the satisfaction or waiver
of the conditions set forth in the Merger Agreement. See "--Conditions to the
Merger." At the Effective Time, the certificate of incorporation, by-laws and
directors and officers of MergerCo will become the certificate of
incorporation, by-laws and directors and officers of the Surviving
Corporation. At the Effective Time, the certificate of incorporation, by-laws
and directors and officers of Merger Sub will become the certificate of
incorporation, by-laws and directors and officers of the Subsidiary Surviving
Corporation. It is anticipated that no director or executive officer of White
River will serve as a director or executive officer of either the Surviving
Corporation or the Subsidiary Surviving Corporation at the Effective Time.
MERGER CONSIDERATION
White River Common Stock. At the Effective Time, each issued and outstanding
share of White River Common Stock (other than treasury shares held by White
River or Dissenting Shares) will be converted into the right to receive the
Common Stock Merger Price pursuant to the payment procedures described below.
See "--Payment Procedures." The Common Stock Merger Price will be the quotient
obtained by dividing (i) the Merger Price, by (ii) the number of shares of
White River Common Stock issued and outstanding and not held in treasury
immediately before the Effective Time. The Merger Price under the Merger
Agreement is $442 million and is subject to adjustments thereunder. These
adjustments generally reflect the understanding of the parties that Demeter
will purchase White River based on its assets and liabilities as of September
30, 1997.
The following adjustments will be made to the Merger Price under the terms
of the Merger Agreement (with estimates as of the date of this Proxy Statement
of the amount of the adjustments to be made as of the Effective Time,
including ranges with respect to the adjustments that are likely to vary
materially and assuming that the Effective Time occurs on June 26, 1998):
1. The Merger Price will be decreased by the amount of any decrease in the
aggregate cash and cash equivalents of White River and its wholly owned
subsidiaries from September 30, 1997 until the Effective Time as a result of
any expenditures out of the ordinary course, including for this purpose,
without limitation:
(i) the sum of (x) expenditures after September 30, 1997 in connection
with the acquisition of other companies, partnerships or other business
organizations or divisions thereof or investment assets in excess of
$1,281,000 and (y) to the extent not duplicative of expenditures described
in clause (x), cash contributed
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to Hanover or JKR or their respective subsidiaries after September 30, 1997
without written consent of Demeter in excess of $925,000;
White River estimates that no more than $300 thousand of such expenditures
will be made. The Merger Price will be reduced by the amount of these
expenditures, if any, unless Demeter consents thereto.
(ii) Acceleration Payments (as defined in "--Certain Agreements Regarding
the Conduct of Business Pending the Merger--Company Plans," below), if any,
not paid on or before December 30, 1997; and
All Acceleration Payments were made on or before December 30, 1997 and
accordingly, no adjustment of the Merger Price will be made pursuant to
this provision.
(iii) any expenditures in connection with the Merger or otherwise in
connection with the transactions contemplated by the Merger Agreement,
except to the extent such expenditures are applied to pay amounts reserved
as "Accrued Expenses" on a Statement of Net Assets to be Sold (the
"Statement of Assets"). (The Statement of Assets is attached as Exhibit B
to the Merger Agreement.)
White River estimates that these expenditures could range from
approximately $1.5 million to $2.1 million as of the Effective Time
resulting in a reduction of the Merger Price by the amount of such
expenditures.
The Merger Price shall be increased by the amount of interest earned by
White River and its wholly owned subsidiaries with respect to the cash and
cash equivalents (including interest on a Republic NY Corporation
Subordinated Note 7.25% due July 15, 2002) of White River and its wholly
owned subsidiaries from September 30, 1997 until the Effective Time.
White River estimates that interest earned could range from approximately
$7.8 million to $8.3 million as of the Effective Time resulting in an
increase of the Merger Price by such amount.
2. Without duplication of any other change in the Merger Price, the Merger
Price will also be decreased by the aggregate amount of all liabilities
(absolute, accrued, contingent, due, to become due or otherwise) incurred by
White River (offset by any payments made in respect of such liabilities) after
September 30, 1997 and before the Effective Time, including without limitation
any liabilities incurred in connection with the Merger or otherwise in
connection with the transactions contemplated by the Merger. The Merger
Agreement does not provide for decreases of the Merger Price for any
liabilities incurred by White River after the Effective Time.
White River estimates that these liabilities (exclusive of any tax
liabilities attributable to the transfer of the Trust Assets to the
Liquidating Trust, if the Trust Transaction is consummated) could range
from approximately $2.1 million to $2.7 million as of the Effective Time
resulting in a reduction of the Merger Price by such amount. White River
estimates that the tax liability attributable to the transfer of the Trust
Assets to the Liquidating Trust, if the Trust Transaction is consummated,
could range from zero to approximately $255 thousand as of the Effective
Time resulting in a reduction of the Merger Price by such amount.
3. The Merger Price will be adjusted based on the amount of certain payments
under White River benefit plans. In particular, the Merger Price will be (i)
decreased by the amount equal to 0.65 multiplied by the aggregate amount of
all cash liabilities for which White River, the Surviving Corporation and
their respective wholly owned subsidiaries will be liable in respect of
benefit, compensation, incentive, retirement or other Company Plans
(collectively, "Benefit Costs") other than any Severance Costs (as defined
below) in excess of the Benefits Threshold (as defined in the next sentence),
if any, or (ii) increased by the amount equal to 0.65 multiplied by the
excess, if any, of the Benefits Threshold over the aggregate amount of all
Benefit Costs other than any Severance Costs. The "Benefits Threshold" is the
sum of (i) $36,660,000 and (ii) the product of (x) the lesser of (A) 123,000
and (B) the number of performance units outstanding under the Incentive Plan
as of the time payments are made thereunder multiplied by (y) the excess, if
any, of (A) the lesser of (1) $90.67 and (2) the lowest actual share price
used by White River to calculate payments under the Incentive Plan with
respect to performance units outstanding thereunder over (B) $82.02.
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As of the date of this Proxy Statement, White River has made approximately
$22.2 million of payments under the Company Plans and anticipates making an
additional $12.5 million of payments prior to the Effective Time (the
actual amount of such payments will depend in part on the actual Merger
Price) resulting in total payments as of the Effective Time of
approximately $34.7 million. Payment of these amounts would increase the
Merger Price by approximately $2.0 million.
4. The Merger Price will be decreased to the extent the Acceleration
Payments paid by White River or its subsidiaries on or before December 30,
1997 exceeded $7,500,000. Notwithstanding any changes which would otherwise be
made to the Merger Price other than pursuant to this provision, no change will
be made to the Merger Price as a result of the Acceleration Payments if
payments made prior to December 30, 1997 did not exceed $7,500,000. (Under the
Merger Agreement, White River is not permitted to make any additional
Acceleration Payments.)
As of December 30, 1997, White River had made $7,500,000 in Acceleration
Payments, resulting in no adjustment to the Merger Price.
5. The Merger Price will be decreased by the excess of (i) the sum of the
aggregate Series A Merger Price payable by Demeter as a result of the Merger
and any dividends paid by White River with respect to the Series A Preferred
Stock after September 30, 1997 and before the Effective Time over (ii)
$7,000,000.
Holders of shares of Series A Preferred Stock are entitled to receive
cumulative dividends, payable on a quarterly basis, calculated at a rate of
6.75% per annum. It is anticipated that the Series A Merger Price will be
$7.0 million and dividends paid with respect to the Series A Preferred
Stock will be approximately $394 thousand as of the Effective Time,
resulting in a reduction of the Merger Price of approximately $394
thousand.
6. The Merger Price will be adjusted based on amounts of bonus, severance,
termination and similar payments. In particular, the Merger Price will be (i)
decreased to the extent the aggregate amount of all bonus, severance,
termination and similar payments, excluding Benefit Costs, that would be
payable by White River or its wholly owned subsidiaries (whether or not paid
as of the Effective Time) as a result of the termination of all of the
employees of White River and its wholly owned subsidiaries ("Severance Costs")
exceeds $1,033,000 or (ii) increased to the extent such amount is less than
$1,033,000.
White River anticipates that these payments will equal approximately $834
thousand resulting in an increase of the Merger Price of approximately $199
thousand.
7. The Merger Price will be decreased as a result of payments made with
respect to the Deferral Plans subsequent to December 31, 1997. In particular,
in the event any of the actions described below in "Certain Agreements
Regarding the Conduct of Business Pending the Merger--Company Plans" were not
taken by White River on or before December 30, 1997, the Merger Price will be
decreased by the amount equal to 0.35 multiplied by the aggregate amount of
payments made on or after January 1, 1998 pursuant to or in connection with
the Deferral Plans and by the amount equal to 0.35 multiplied by the aggregate
amount of payments made on or after January 1, 1998 pursuant to the Incentive
Plan, as the same may be amended. As of December 30, 1997, no such payments
had been made in respect of the Incentive Plan; however, White River expects
to make certain payments pursuant to the Incentive Plan on or after January 1,
1998 and prior to the Effective Time. See "The Merger--Interests of Certain
Persons in the Merger and Possible Conflicts of Interest--Incentive Plan."
White River anticipates that these payments will total approximately $12.5
million resulting in a reduction of the Merger Price of approximately $4.4
million.
8. The Merger Price will be increased by the amount of any liabilities
reserved for on the Statement of Assets released prior to the Effective Time
with the consent of Demeter to be granted or withheld in Demeter's sole
discretion.
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White River anticipates that these liabilities will be immaterial and
accordingly, no adjustment of the Merger Price will result from this
provision.
9. The Merger Price will be increased by the amount equal to 0.65 multiplied
by the amount of any cash paid to White River upon the sale by White River of
the Trust Assets, if such Trust Assets are sold by White River as described
above in "Related Transactions--Trust Transaction."
It is anticipated that all of the Trust Assets will be transferred to the
Liquidating Trust rather than sold by White River and accordingly, no
adjustment of the Merger Price will result from this provision.
10. The Merger Price will be decreased by the amount of cash, if any, paid
to the Liquidating Trustee as described in "The Trust Transaction."
White River estimates that the amount of cash to be contributed to the
Liquidating Trust will be between $200 thousand and $500 thousand,
resulting in a reduction of the Merger Price by such amount.
As of the date of this Proxy Statement and based on the assumptions
described above, although no assurances can be given, the effect of the
foregoing adjustments on the Merger Price could range from a decrease of $0.8
million ($0.16 per share) to an increase of $2.0 million ($0.42 per share).
Under the terms of the Merger Agreement, it is a condition to closing that
White River provide Demeter with a certificate detailing the calculation and
amount of each of the adjustments to the Merger Price set forth above,
reasonably acceptable to Demeter.
Series A Preferred Stock. At the Effective Time, each outstanding share of
Series A Preferred Stock will be converted into the right to receive $1,000
per share of Series A Preferred Stock plus an amount per share equal to any
accrued and unpaid dividends on such share of Series A Preferred Stock as of
the Effective Time (the "Series A Merger Price"). As of the date of this Proxy
Statement, White River has 7,000 shares of Series A Preferred Stock
outstanding.
Treasury Shares. Each share of White River Common Stock and each share of
Series A Preferred Stock issued and outstanding immediately prior to the
Effective Time which is then held as a treasury share by White River or held
by WRV shall, by virtue of the Merger and without any action on the part of
White River, be canceled and cease to exist without any conversion thereof.
Restriction on Share Issuance. Under the terms of the Merger Agreement,
White River is prohibited from issuing any shares of capital stock of any
class, or any options, warrants, convertible securities or other rights of any
kind to acquire shares of capital stock, prior to the Effective Time without
the prior consent of Demeter.
Statement of Net Assets. The Statement of Assets was prepared by White River
during the negotiations with respect to the Merger, at the request of Harvard
Capital, to provide Harvard Capital with information regarding certain assets
and liabilities of White River as of September 30, 1997. The difference
between the Merger Price and the approximately $260 million of "net assets to
be sold" indicated on the Statement of Assets is attributable, primarily, to
the exclusion from the Statement of White River's interest in CCC ($120
million), the inclusion of a valuation of NWA Partners that was not based on
the Marked to Market Value method used in arriving at the Merger Price ($28
million), and the exclusion of Hanover ($4.4 million) and certain other wholly
owned subsidiaries of White River as of the date of the Statement.
PAYMENT PROCEDURES
As soon as reasonably practicable after the Effective Time, MergerCo will
instruct the Exchange Agent to mail to each holder of record of a Certificate
or Certificates which immediately prior to the Effective Time represented
outstanding shares of White River Common Stock or Series A Preferred Stock
(collectively, "Company Stock") (i) a letter of transmittal to be used by such
holders in forwarding their Certificates and
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(ii) instructions for effecting the surrender of such holders' Certificates in
exchange for the Common Stock Merger Price or the Series A Merger Price, as
the case may be (the "Applicable Merger Price"). Upon surrender to the
Exchange Agent of a Certificate for cancellation, together with such letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to instructions given by the Exchange Agent, the holder of
such Certificate will be entitled to receive the Applicable Merger Price which
such holder has the right to receive in respect of the Certificate
surrendered, and the Certificate so surrendered will be canceled. WHITE RIVER
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER
OF TRANSMITTAL.
In the event of a transfer of ownership of shares of Company Stock which is
not registered in the transfer books of White River as of the Effective Time,
the Applicable Merger Price may be paid to a transferee if the Certificate
evidencing such shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer as well as evidence
that all applicable stock transfer taxes have been paid. No transfer of
Company Stock will be made on the stock transfer books of White River at or
after the Effective Time.
No interest or dividends shall accrue or be payable or be paid on any
portion of the Applicable Merger Price payable to any person pursuant to the
Merger Agreement. At the Effective Time, each holder of a Certificate shall
cease to have any rights as a stockholder of White River, except the right to
surrender Certificates in exchange for payment of the Applicable Merger Price
or, in the case of a holder of Dissenting Shares, the right to perfect the
right to receive payment with respect to Dissenting Shares pursuant to Section
262 of the DGCL. See "The Merger--Dissenters' Appraisal Rights."
Beginning six months after the Effective Time, the Surviving Corporation may
require any holder of Certificates who has not previously surrendered each
Certificates or made a written demand for payment as a holder of Dissenting
Shares to look solely to the Surviving Corporation rather than the Exchange
Agent for payment of the Applicable Merger Price upon due surrender of such
Certificates.
The Exchange Agent or the Surviving Corporation, as the case may be, shall
be entitled to deduct and withhold from the Applicable Merger Price otherwise
payable to any holder of Certificates such amounts as the Exchange Agent or
the Surviving Corporation, as the case may be, is required to deduct and
withhold pursuant to any federal, state, local or foreign tax law.
In the event that any Certificate has been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and the posting by such person of
a bond in such amount as Demeter, MergerCo or the Exchange Agent may
reasonably direct as indemnity against any claim that may be made against
Demeter, MergerCo or the Exchange Agent, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the Applicable Merger
Price payable in respect thereof.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
White River with respect to White River and its subsidiaries regarding. The
following is a list of these representations and warranties: organization and
qualification; standing and corporate power to conduct business of White River
and its subsidiaries; the absence of any conflicts with their respective
certificates of incorporation and by-laws; capitalization of White River, WRV
and CCC; corporate power and authority of White River and WRV to enter into
and perform their respective obligations under the Merger Agreement; the
absence of conflicting agreements, consents and approvals in connection with
the transactions contemplated by the Merger Agreement; compliance with laws
and regulatory provisions; filings with the SEC; financial statements; the
absence of certain changes or events; the absence of undisclosed liabilities;
lack of litigation; employee benefit plans and employment agreements; certain
labor matters; the accuracy of information contained in this Proxy Statement;
the absence of any subsidiaries as of the Effective Time other than WRV, CCC
and CCC's subsidiaries; title to property and restrictions on transfer of
stock or assets held by White River or its subsidiaries; the filing of all tax
returns and
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the payment of all taxes; compliance with environmental laws and lack of
claims with respect thereto; intellectual property matters; lack of
transactions with interested parties except as described in this Proxy
Statement; the absence of powers of attorney; the completeness of corporate
books and records; brokers; absence of change of control payments except as
set forth in this Proxy Statement and the completeness of disclosure generally
in connection with the Merger Agreement. The Merger Agreement also contains
various representations and warranties of Demeter, MergerCo and Merger Sub
regarding, among other things: organization and qualification; standing and
corporate power to conduct business; corporate power and authority to enter
into the Merger Agreement; the absence of any conflicts with their respective
certificates of incorporation and by-laws; the absence of conflicting
agreements; consents and approvals; the adequacy of financing and the accuracy
of information supplied for purposes of inclusion in this Proxy Statement.
CERTAIN AGREEMENTS REGARDING THE CONDUCT OF BUSINESS PENDING THE MERGER
Conduct of Business by White River. White River has agreed, except in
certain limited circumstances, from the date of the Merger Agreement through
the Effective Time, to conduct its business, cause the businesses of its
wholly owned subsidiaries to be conducted, and use its reasonable efforts to
cause the businesses of CCC and its subsidiaries to be conducted, in the
ordinary course of business and in a manner consistent with past practices.
Specifically, White River has agreed that, among other things, it will not,
and will use its reasonable efforts to cause CCC and its subsidiaries not to,
do or propose to do any of the following without the prior written consent of
MergerCo (except to the extent that taking or failing to take such actions
with respect to CCC and its subsidiaries would have a significant possibility,
based on written advice of counsel, of constituting a breach by CCC's
directors of their fiduciary duties to the stockholders of CCC under
applicable law): (i) amend or otherwise change the certificate of
incorporation, by-laws or similar organizational documents of White River or
any of its subsidiaries or the Stockholders Agreement dated June 16, 1994
among certain stockholders of CCC, including WRV; (ii) with certain
exceptions, issue, sell or otherwise distribute any shares of capital stock
(or securities convertible into capital stock of White River or its
subsidiaries); (iii) sell or otherwise dispose of any assets of White River or
any of its subsidiaries (except for (x) sales by CCC of goods and services in
the ordinary course of business, or (y) the disposition by CCC of obsolete,
worthless or immaterial assets); (iv) with certain exceptions, pay dividends,
split, combine, redeem, purchase or otherwise amend the terms of any class or
series of stock or securities of White River or its subsidiaries; (v) with
certain exceptions, (A) with respect to White River and its wholly owned
subsidiaries, make any acquisitions, (B) incur indebtedness or issue debt
securities, (C) enter into or amend any material contract, or (D) authorize
any capital expenditures or purchase of fixed assets; (vi) with certain
exceptions (see "--Company Plans," "--Acceleration Payments" and "Interests of
Certain Persons in the Merger and Possible Conflicts of Interest"), enter into
or amend any employment, severance, compensation, bonus or benefit plan or
arrangement of White River or its subsidiaries; (vii) make any material change
to the accounting policies or procedures; (viii) make any material tax
election inconsistent with past practice or settle or compromise any material
tax liability; (ix) discharge, pay or satisfy any liabilities not reflected or
reserved against in prior financial statements unless incurred in the ordinary
course of business and consistent with past practice; (x) take, or agree to
take, any of the actions described above, or any action which would make any
of the representations or warranties of White River contained in the Merger
Agreement untrue or incorrect or prevent White River from performing or cause
White River not to perform its covenants thereunder.
Notice of Acquisition Proposal. White River has agreed to immediately notify
MergerCo in the event that White River or any of its subsidiaries, prior to
the Effective Time, enters into a confidentiality agreement with any person
related to an Acquisition Proposal (as defined below) or White River receives
an Acquisition Proposal which includes a definitive price. For purposes of the
Merger Agreement, an "Acquisition Proposal" is any inquiry or proposal
regarding any merger, sale of substantial assets, reorganization,
recapitalization, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving White
River or any of its subsidiaries (other than the Merger). The Merger Agreement
provides, however, that the officers and directors of White River are not
restricted from soliciting, responding to inquiries from, negotiating with or
entering into confidentiality agreements with, and/or granting access to
nonpublic information
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regarding White River or any of its subsidiaries to any Third Party in
connection with an Acquisition Proposal in accordance with such officer's or
director's fiduciary duty to stockholders of White River under applicable law.
Company Plans. With respect to the Deferral Plans, White River has agreed to
take all reasonable action prior to the Effective Time towards the goal of
ensuring that all amounts payable at any time by White River in connection
with such plans will be deductible in White River's 1997 taxable year for
federal income tax purposes. Such actions will include (x) taking all
necessary and/or appropriate steps to amend and terminate the Deferral Plans
(with the prior written consent of the participants in such plans as
required), (y) the payment to participants in the Deferral Plans of amounts
accrued as deferred benefits or deferred compensation pursuant to such plans
prior to the termination of such plans and (z) the resignation of Robert Marto
as chief executive officer and president of White River and Bonnie Stewart as
secretary of White River and the termination by each of any other employment
relationship with White River or any of its subsidiaries; provided, however,
that Mr. Marto and Ms. Stewart may in any event serve as independent directors
of White River until the Effective Time. White River will be permitted to make
payments ("Acceleration Payments") in an aggregate of up to $7.5 million to
participants in the Deferral Plans to compensate the participants for the
costs of foregoing additional deferral under the Plans. White River has also
agreed that, prior to the Effective Time, the White River Board will take all
necessary and/or appropriate steps to amend the Incentive Plan to provide for
payment in cash of all amounts to which participants are entitled thereunder
and to subsequently terminate the Incentive Plan, each prior to the Effective
Time.
CCC Board Seats. White River has agreed to use its reasonable efforts in
accordance with its rights under the Stockholders Agreement to cause four
persons designated by MergerCo to be validly appointed as of the Effective
Time to the board of directors of CCC in place of the current designees of
White River on such board.
Voting. White River has agreed that until the Effective Time, neither White
River nor any of its wholly owned subsidiaries, without the prior written
consent of MergerCo, (i) will vote any shares of Cross Timbers or CCC owned by
White River or any of such subsidiaries in favor of, or give any written
consent with respect to (a) any amendment to the certificates of incorporation
or by-laws of Cross Timbers or CCC or (b) any merger of, sale of all or
substantially all the assets of or any similar transaction involving Cross
Timbers or CCC or (ii) shall give any consent with respect to White River's
interest in NWA Partners.
NWA Partners. White River has agreed to use its reasonable efforts to assist
MergerCo to cause NWA Partners to have no indebtedness as of the Effective
Time, if so requested by MergerCo. The Merger Agreement does not require White
River to use any of its funds to eliminate the indebtedness of NWA Partners.
Acceleration Payments. White River was entitled to pay, on or prior to
December 30, 1997, Acceleration Payments to participants in the Deferral Plans
in an aggregate amount of up to $7.5 million to compensate the participants
for the costs of foregoing additional deferral under the Plans. See "--Merger
Consideration" and "The Merger--Interests of Certain Person in the Merger and
Possible Conflicts of Interest--Deferral Plans."
Indemnity Agreements. White River was permitted to enter into the Indemnity
Agreements with officers and directors of White River. See "The Merger--
Indemnification."
Lease. White River has agreed not to amend, extend or renew its lease for
office space in White Plains, New York, except for an extension on a month to
month basis on terms reasonably satisfactory to Demeter.
Liquidating Trust. White River and Demeter have agreed that White River may
take the actions described above in "Related Transactions--Trust Transaction."
Tax Returns. White River has agreed to make all necessary filings on or
prior to March 15, 1998 to extend the period of filing its 1997 Federal and
state, if any, tax returns. White River has also agreed not to file any
Federal or state income tax return for 1997 prior to the termination of the
Merger Agreement in accordance with its terms.
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CERTAIN ADDITIONAL COVENANTS
Hart-Scott-Rodino Act. White River and Demeter have agreed to file
notifications under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), as promptly as practicable after the execution and
delivery of the Merger Agreement and to respond as promptly as practicable to
any inquiries received from the Federal Trade Commission and/or the Antitrust
Division of the Department of Justice or any other governmental entity making
an inquiry in response to such notification. See "The Merger--Regulatory
Approvals."
Proxy Statement. Prior to the date of approval of the Merger by the
stockholders of White River, each of Demeter, MergerCo, Merger Sub, White
River and WRV have agreed to correct promptly any information provided by it
to be used specifically in this Proxy Statement that shall have become false
or misleading in any material respect. White River has agreed to take any
steps necessary to file with the SEC, and to issue to the stockholders of
White River, any necessary amendments or supplements to this Proxy Statement.
White River has agreed to consult with MergerCo with respect to any such
amendments and supplements and afford MergerCo a reasonable opportunity to
comment thereon. Any such amendments or supplements must be reasonably
satisfactory to MergerCo.
Stockholders Meeting. White River has agreed to call and hold a meeting of
its stockholders for the purpose of obtaining the requisite stockholder
approval of the Merger and the Trust Transaction. See "Related Transactions."
White River has agreed that unless its board of directors determines in good
faith after consultation with and based upon the written advice of outside
legal counsel that to do so would have significant possibility of constituting
a breach of the directors' fiduciary obligations to the stockholders of White
River under applicable law, White River will (i) recommend approval of the
transactions contemplated by the Merger Agreement and included such
recommendation in this Proxy Statement and (ii) use all reasonable efforts to
solicit from stockholders of White River proxies in favor of adoption of the
Merger Agreement and approval of the transactions contemplated thereby, and
take all other actions necessary or advisable to obtain such approval of the
stockholders.
Access to Information. White River has agreed to afford, or use reasonable
efforts to afford, MergerCo and its representatives access during normal
business hours to all such books, records and information concerning the
business, properties and personnel of White River and its subsidiaries as
MergerCo or its representatives may reasonably request.
Consents and Approvals. White River, WRV, Demeter, MergerCo and Merger Sub
have agreed to use all reasonable effort to obtain all consents and approvals,
and each of them shall make all filings required to be made by each of them in
connection with the authorization, execution and delivery of the Merger
Agreement and the consummation by them of the transactions contemplated
thereby.
Notification of Certain Matters. White River has agreed to give prompt
notice to MergerCo, and Demeter and MergerCo have agreed to give prompt notice
to White River, of (i) the occurrence of non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the notifying party contained in the Merger
Agreement to become materially untrue or inaccurate or (ii) the failure of
White River, WRV, Demeter, MergerCo or Merger Sub, as the case may be,
materially to comply with or satisfy any covenant, condition or agreement of
the notifying party contained in the Merger Agreement; provided, however, that
the delivery of such notice will not in any way limit or otherwise affect the
remedies available to any party upon receipt of such notice.
Further Action. Each of the parties of the Merger Agreement have agreed to
use all reasonable efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by the Merger Agreement, to obtain in a timely manner all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings, and otherwise to satisfy or cause to be satisfied
all conditions precedent to such party's obligations under the Merger
Agreement.
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Maintenance of Surviving Corporation. Demeter has agreed that, unless the
Indemnity Agreements with officers and directors of White River are assumed by
Demeter in accordance with the terms of the Indemnity Agreements, the
Surviving Corporation will remain in existence for a period of two years
following the Effective Time and during such time continue to hold net assets
worth at least $50 million. See "The Merger--Indemnification."
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligation to Effect the Merger. The respective
obligations of each party to the Merger Agreement to effect the Merger and the
Subsidiary Merger are subject to the satisfaction on or prior to the Effective
Time of the following conditions: (i) the Merger Agreement and the
transactions contemplated thereby (including the Merger and the Trust
Transaction) shall have been approved and adopted by the requisite vote of the
stockholders of White River, (ii) the waiting period applicable to the
consummation of the Merger and the Subsidiary Merger under the HSR Act shall
have expired or been terminated, (iii) no statute, rule, regulation, ruling or
order shall have been enacted or otherwise issued by any court or governmental
authority which prohibits, restrains, enjoins, or restricts the consummation
of the Merger or the Subsidiary Merger, (iv) White River shall have received
an opinion from a nationally recognized investment banking firm to the effect
that the consideration to be received by the holders of White River Common
Stock pursuant to the Merger Agreement is fair from a financial point of view
to the holders of White River Common Stock and (v) each of the Merger and the
Subsidiary Merger shall be consummated simultaneously at the Effective Time.
Additional Conditions to Obligations of Demeter, MergerCo and Merger
Sub. The obligations of Demeter and MergerCo to effect the Merger and of
Merger Sub to effect the Subsidiary Merger are also subject to the
satisfaction of the following conditions: (i) the representation and warranty
of White River to the effect that, immediately before the Effective Time,
White River would have no subsidiaries other than WRV, CCC, and CCC's
subsidiaries shall be true and correct in all respects at and as of the
Effective Time as if made at and as of such time, (ii) the other
representations and warranties of White River contained in the Merger
Agreement shall be true and correct in all respects at and as of the Effective
Time as if made at and as of such time except for (x) changes specifically
contemplated by the Merger Agreement and (y) those representations and
warranties which address matters only as of a particular date (which shall
have been true and correct as of such date), and except to the extent that the
failure of such representations and warranties to be true and correct at and
as of the Effective Time would not, or would not be likely to, individually
and in the aggregate, diminish the value of White River and its subsidiaries
(including CCC and its subsidiaries) taken as a whole by more than
$25,000,000, (iii) White River shall have performed or complied in all
material respects with all agreements and covenants required by the Merger
Agreement to be performed or complied with by it at or prior to the Effective
Time, and White River shall have taken such actions described above in "--
Certain Agreements Regarding the Conduct of Business Pending the Merger--
Company Plans" with respect to the Deferral Plans and the Incentive Plan by
such dates as are specified in the Merger Agreement, (iv) there shall not have
occurred any event or change in circumstances involving White River or any of
its subsidiaries (excluding a decrease in the Public Trading Price from the
last public trading price on March 31, 1998 of the capital stock of CCC, Cross
Timbers or Northwest Airlines but including any event or change in
circumstances affecting or relating to the business, financial condition,
assets or results of operation of such companies that may have caused such
decrease) that, when taken together with all other such events or changes in
circumstances, MergerCo reasonably determines will, or is reasonably likely
to, diminish the value of White River and its subsidiaries taken as a whole by
more than $25,000,000 (other than to the extent that the Merger Price has been
decreased for such events or changes) or is reasonably likely to prevent the
consummation of the transactions contemplated by the Merger Agreement, (v) all
consents and approvals from all federal, state and local governmental agencies
and other third parties reasonably required by Demeter, MergerCo or Merger Sub
to consummate the transaction contemplated by the Merger Agreement shall have
been obtained, (vi) holders of no more than 7% of the outstanding White River
Common Stock shall be entitled to assert appraisal rights, (vii) White River
shall have furnished Demeter, MergerCo and Merger Sub with an opinion of
LeBoeuf, Lamb, Greene & MacRae, L.L.P., as to the following matters:
organization and corporate power to conduct business of White River and WRV;
corporate power and
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authority of White River and WRV to enter into and perform their respective
obligations under the Merger Agreement; due authorization and execution of
Merger Agreement by White River and WRV; enforceability of Merger Agreement;
absence of any conflicts with the certificate of incorporation and by-laws of
White River or WRV, or with any applicable, law, rule, regulation, judgement
or decree of any court or governmental authority; the absence of conflicting
agreements, consents and approvals in connection with the transactions
contemplated by the Merger Agreement; and effectiveness of the Merger, (viii)
four designees selected by MergerCo shall have been validly appointed to the
board of directors of CCC in place of White River's four designees to such
board (which shall at the time of such appointment consist of not more that
seven persons), (ix) Demeter shall have received a certificate signed by the
Chief Executive Officer and Chief Financial Officer of White River detailing
the calculation of the adjustments applicable to the Common Stock Merger Price
and (xi) neither CCC nor any of its subsidiaries shall have acquired, or shall
have agreed to acquire, any material corporation, partnership or other
business organization, or any division thereof, outside of the computer
software or data service industries.
Additional Conditions to Obligations of White River and WRV. The obligations
of White River to effect the Merger and WRV to effect the Subsidiary Merger
are also subject to the satisfaction of the following conditions: (i) the
representations and warranties of MergerCo and Merger Sub contained in the
Merger Agreement shall be true and correct in all material respects at and as
of the Effective Time with the same force and effect as if made at and as of
the Effective Time (except for (x) changes specifically contemplated by the
Merger Agreement and (y) those representations and warranties which address
matters only as of a particular date (which shall be true and correct as of
such date)) and (ii) MergerCo and Merger Sub shall have performed or complied
in all material respects with all agreements and covenants required by the
Merger Agreement to be performed or complied with by it at or prior to the
Effective Time.
TERMINATION
The Merger Agreement may be terminated and abandoned at any time prior to
the Effective Time, whether before or after stockholder approval, (i) by
mutual written consent duly authorized by the boards of directors of Demeter,
MergerCo and White River, (ii)(A) by Demeter, MergerCo, Merger Sub, White
River or WRV if each of the Merger and the Subsidiary Merger shall not have
been consummated by June 30, 1998 (which date may be extended by White River
for up to 45 days with the written consent of Demeter, such consent not to be
unreasonable withheld, if the failure to consummate the Merger by June 30,
1998 is the result of delays in the review of this Proxy Statement by the SEC,
provided that the delay is not the result of a material act or omission of
White River) provided that the right to terminate the Merger Agreement 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
Merger to occur on or before June 30, 1998, (B) by Demeter, MergerCo, Merger
Sub, White River or WRV if a court of competent jurisdiction or governmental,
regulatory or administrative agency shall have issued a non-appealable final
order, decree or ruling or taken any other action having the effect of
permanently restraining or otherwise prohibiting the Merger or the Subsidiary
Merger (provided that the right to terminate this agreement shall not be
available to any party who has not complied with its obligation to obtain all
necessary governmental consents for the Merger and the Subsidiary Merger and
such non-compliance materially contributed to the issuance of the order,
decree or ruling prohibiting the Merger or Subsidiary Merger), (C) by Demeter,
MergerCo or Merger Sub only if the requisite vote of the stockholders of White
River shall not have been obtained at a duly held meeting of the stockholders
by June 30, 1998 (which date may be extended by White River for up to 45 days
with the written consent of Demeter, such consent not to be unreasonably
withheld, if the failure to hold such stockholders meeting is the result of
delays in the review of the proxy statement by the SEC, which delay is not the
result of a material act or omission of White River) or (D) by Demeter,
MergerCo, Merger Sub, White River or WRV if (x) the White River Board shall
have withdrawn, modified or changed its approval or recommendation of the
Merger Agreement or the Merger in a manner adverse to Demeter or MergerCo, (y)
the White River Board shall have recommended to the stockholders of White
River an Alternative Transaction (as defined below) or (z) a tender offer or
exchange offer for 25% or more of the outstanding shares of White River Common
Stock is commenced (other than by Demeter or MergerCo or an affiliate thereof)
and the White River Board recommends that the stockholders of White River
tender their shares in such tender or
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exchange offer; provided, however, White River will not be entitled to
exercise any termination rights unless the White River Board determines in
good faith upon written advice of outside counsel that a failure to take any
of the actions described in this clause (D) would have a significant
possibility of constituting a breach of such directors' fiduciary duties to
the stockholders under applicable law. For purposes of clause (D), an
"Alternative Transaction" means any of (x) a transaction or series of
transactions pursuant to which a Third Party directly or indirectly acquires
or would acquire more than 25% of the outstanding shares of White River Common
Stock, (y) any acquisition or proposed acquisition of White River or any of
its subsidiaries by a merger, acquisition of assets, acquisition of stock or
other business combination or (z) any other transaction pursuant to which any
Third Party acquires or would acquire control of assets (including equity
securities of subsidiaries of White River) of White River or any of its
subsidiaries having a fair market value equal to more that 25% of the fair
market value of all the assets of White River immediately prior to such
transaction.
In the event of the termination of the Merger Agreement pursuant to the
provisions described above, the Merger Agreement shall be void and there shall
be no further obligation on the part of any party thereto or any of such
party's affiliates, directors, officers or stockholders except as set forth
below in "Expenses of the Transaction--Expenses Upon Termination" and "--
Termination Fee"; provided, however, that no party shall be relieved from
liability for any breach of the Merger Agreement occurring prior to the
termination thereof.
EXPENSES OF THE TRANSACTION
Generally. Except as provided below, Demeter, MergerCo and White River shall
each pay all of their respective costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby, including
without limitation legal and accounting fees and disbursements.
Expenses Upon Termination. White River will pay the out-of-pocket expenses,
up to a maximum amount of $1.5 million, of Demeter, MergerCo and Merger Sub
upon the termination of the Merger Agreement by Demeter, MergerCo, Merger Sub,
White River or WRV (i) if the Merger and Subsidiary Merger shall not have been
consummated by June 30, 1998 or any permissible extension of such deadline
(unless the failure to consummate the Merger or Subsidiary Merger by such date
was solely as a result of a breach by Demeter or MergerCo of its obligations
under the Merger Agreement), (ii) if the Merger or Subsidiary Merger is
restrained or otherwise prohibited by a court or other governmental body,
(iii) if the requisite vote of the stockholders approving the transactions
contemplated by the Merger Agreement is not obtained by June 30, 1998 or any
permissible extension of such deadline or (iv) the White River Board
withdraws, modifies or changes its approval or recommendation of the Merger
Agreement or Merger in a manner adverse to Demeter or MergerCo, or the White
River Board recommends an Alternative Transaction or a tender or exchange
offer not involving Demeter or MergerCo is commenced. Demeter shall pay White
River's out-of-pocket expenses up to a maximum amount of $1.5 million upon the
termination of the Merger Agreement by Demeter, MergerCo or White River (i) if
the Merger and Subsidiary Merger shall not have been consummated by June 30,
1998 or any permissible extension of such deadline and the failure to
consummate the Merger was solely as a result of a breach by Demeter, MergerCo
or Merger Sub of their respective obligations under the Merger Agreement or
(ii) if a court or other governmental body restrains or prohibits the Merger
of Subsidiary Merger and a failure of Demeter, MergerCo or Merger Sub to
comply with its obligations to obtain all necessary governmental consents
materially contributed to the issuance of the order, decree or ruling
restraining or otherwise prohibiting the Merger.
Termination Fee. Upon the termination of the Merger Agreement by Demeter,
MergerCo, Merger Sub, White River or WRC for one of the reasons set forth in
the first sentence of the preceding paragraph, in addition to making the
payment set forth in such sentence, White River shall pay Demeter $15 million.
NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
The representations, warranties, covenants and agreements contained in the
Merger Agreement or in any instrument delivered pursuant to the Merger
Agreement will not survive the consummation of the transactions
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contemplated thereby and shall terminate at the Effective Time, except for
agreements which by their terms expressly survive the Effective Time.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties at any time prior to the
Effective Time; provided, however, that after the approval of the Merger by
the stockholders of White River, no amendment may be made which by law would
require further approval by the stockholders of White River without such
further approval. Any amendment to the Merger Agreement must be in writing and
signed by the parties thereto. At any time prior to the Effective Time, any
party to the Merger Agreement may with respect to any other party (i) extend
the time for performance of any of the obligations or other acts of such other
party, (ii) waive any inaccuracies in the representations and warranties
contained in the Merger Agreement or any other document delivered pursuant
thereto or (iii) waive compliance with any of the agreements or conditions
contained in the Merger Agreement. Any such extension or waiver must be in
writing and signed by the party or parties to be bound thereby.
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ADDITIONAL INFORMATION CONCERNING
WHITE RIVER CORPORATION AND SUBSIDIARIES
BUSINESS
White River Corporation (together with its wholly-owned subsidiaries, unless
the context requires otherwise, "White River" or, together with all of its
subsidiaries, the "Company"), formerly named FF Re Inc., was incorporated in
Delaware in September 1989 and commenced operations in its present form on
September 24, 1993, concurrent with the purchase and other transfer of
selected assets and the assumption of certain liabilities (collectively, the
"Capitalization") from its former parent company, Fund American Enterprises
Holdings, Inc. and certain of its subsidiaries (together, "Fund American").
Additionally, on September 24, 1993, the Fund American board of directors
approved in principle a plan to distribute (the "Distribution") approximately
75% of the outstanding shares of White River Common Stock, to all holders of
Fund American common stock. The Distribution commenced on December 22, 1993.
Prior to the Capitalization, White River served as the holding company for
Fund American's investment management subsidiaries (the "Investment Management
Group") and certain of Fund American's insurance subsidiaries. The insurance
subsidiaries have had essentially no activity since their formation and White
River ceased the operations of the Investment Management Group during August
1994.
During June 1994, White River completed its acquisition of a majority of the
total outstanding shares of common stock, par value $0.10 per share (the "CCC
Common Stock"), of CCC Information Services Group Inc., formerly InfoVest
Corporation, (together with its subsidiaries, unless the context requires
otherwise, "CCC"). During August 1996, CCC completed an initial public
offering of approximately 29% of the resulting total outstanding CCC Common
Stock for net proceeds of $72.1 million (the "CCC IPO"). As of December 31,
1997, White River held: (i) approximately 35% of the total outstanding shares
of CCC Common Stock, (ii) 630 shares of CCC Series C Cumulative Redeemable
Preferred Stock, stated value $1,000 per share (the "CCC Series C Preferred"),
(iii) 3,601 shares of CCC Series D Cumulative Redeemable Preferred Stock,
stated value $1,000 per share (together with the Series C Preferred, the "CCC
Preferred Stock"), and 500 shares of CCC Series E Cumulative Redeemable
Preferred Stock, stated value $1,000 per share (the "CCC Series E Preferred").
According to the terms of the CCC Series E Preferred, White River continues to
have a majority of the voting power associated with CCC's total outstanding
voting stock. CCC is a supplier of automobile claims information and
processing, claims management software and communications services.
Regulation
Based upon the composition of its assets at the time of the Capitalization,
White River met the definition of an investment company (an "Investment
Company") under the Investment Company Act of 1940 (the "Investment Company
Act") and, accordingly, was subject to registration and regulation under such
legislation. However, on December 6, 1993, White River received from the
Securities and Exchange Commission (the "Commission") a temporary exemption
(the "Exemptive Order") from registering as an Investment Company and was
exempted from some, but not all, of the provisions of the Investment Company
Act for a period of up to two years from the date of the Exemptive Order.
White River requested this temporary exemption to provide management with time
to dispose of a sufficient amount of investments, to acquire a majority
interest in one or more operating businesses, or to take such other actions
necessary to cause White River not to meet the definition of an Investment
Company. During October 1995, White River filed a report with the Commission
which concluded that, effective September 30, 1995, White River no longer met
the definition of an Investment Company. Accordingly, White River no longer
needs to rely upon the relief provided by the Exemptive Order.
White River ceased to be an Investment Company because the value of its
holdings of investment securities was less than 40 percent of its total assets
(excluding Government securities and cash) on an unconsolidated basis. This
change was principally the result of a significant increase in the investment
in White River's majority-
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owned operating subsidiary, CCC, which was acquired by White River in 1994. In
addition, since it began operating independently in 1993, White River has
conducted its business so that it is not an investment company. White River
has continued to seek and acquire new operating businesses and has been
actively involved in the management and operations of its subsidiaries. It has
disposed of its holdings of investment securities to the greatest extent
possible, given pre-existing restrictions and other limits on its ability to
sell or otherwise dispose of certain of those holdings. So as to be ready to
make appropriate acquisitions of operating business, White River has
maintained its reserves in "cash and cash items," as those terms are used in
the Investment Company Act, that is, in deposits with banks that are payable
on demand or on less than seven days' notice. White River has purchased no new
investment securities.
Investment Operations
In accordance with its plan to cease to meet the definition of an Investment
Company, White River disposed of investments for proceeds and other
consideration totaling $308.3 million during the period from the
Capitalization through December 31, 1997. Such dispositions include $90.0
million of investments which were transferred during 1995 to Fund American in
settlement of outstanding balances under a credit agreement between White
River and Fund American (the "Credit Agreement").
As of December 31, 1997, White River's investments totalled $164.4 million,
as compared to a total of $99.1 at December 31, 1996. The increase in 1997
related primarily to an increase of $55.6 million in the carrying values of
White River's investment in Cross Timbers Oil Company ("Cross Timbers") common
stock and the increase in value associated with White River's interest in the
Richard C. Blum & Associates--NWA Partners, L.P. ("NWA Partners") (see Note 2
to accompanying financial statements), and to CCC's additional net purchase of
$21.1 million of U.S. Treasury Bills. The disposition of McFarland Energy
Corporation ("McFarland") common stock and the distribution by NWA Partners,
as described below, reduced investments by $11.3 million.
During 1997, White River disposed of certain investments and received
proceeds of approximately $39.0 million. Such dispositions include proceeds of
$26.3 million in connection with its investment in NWA Partners. The
distribution represented White River's share of proceeds arising primarily
from the distribution by NWA Partners, which holds equity securities in
Northwest Airlines Corporation ("NWA Corp."). The distribution represented
White River's share of proceeds arising primarily from the redemption of NWA
Partners investment in preferred stock of NWA Corp, but also in part due to
the sale of 0.7 million shares of NWA Corp. Common Stock subject to a call
option. Additionally, White River received proceeds of $12.0 million from the
sale of its entire investment in common stock of McFarland due primarily to
the purchase of McFarland by Monterey Investment Acquisition Corporation.
As of December 31, 1996, White River's investments totalled $99.1 million,
as compared to a total of $76.3 million as of December 31, 1995. The increase
during 1996 relates primarily to CCC's purchase of U.S. Treasury Bills and the
increase in value of White River's investment in Cross Timbers common stock.
The 1996 year end investment balances consisted primarily of White River's
interests in Cross Timbers ($60.8 million) and in NWA Partners ($21.8
million), as well as U.S. Treasury Bills ($9.1 million) held by CCC.
During 1996, White River disposed of certain investments and received
proceeds of $21.1 million. Such dispositions included proceeds of $14.5
million from the sale of White River's investment in common and preferred
stock of Newflo Corporation ("Newflo") in connection with the purchase of
Newflo by Precision Castparts Corporation. Additionally, White River received
proceeds of $6.5 million from the sale of a portion of its investment in the
common stock of Cross Timbers.
White River's dispositions of investments totaled $118.9 million during the
year ended December 31, 1995. The 1995 investment dispositions included the
transfer of $90.0 million of investments to Fund American in settlement of
outstanding balances under a credit agreement White River entered into in 1993
with Fund American (the "Credit Agreement"), which resulted in pretax net
investment gains of $11.0 million (see Note 7 to accompanying financial
Statements).
54
<PAGE>
Investment income, including interest earned on cash and cash equivalent
balances, totalled $11.4 million, $9.0 million and $8.3 million for the years
ended December 31, 1997, 1996 and 1995, respectively. Net investment gains
totalled $27.5 million, $16.2 million and $36.3 million, for the years ended
December 31, 1997, 1996 and 1995, respectively.
White River, through its wholly-owned subsidiary White River Partners, Inc.
("Partners"), seeks to acquire and operate distressed companies in various
industries. During April 1996, Partners, through its wholly-owned subsidiary
Hanover Accessories, Inc. ("Hanover"), acquired the business and assets of a
company engaged in the design, distribution, sale and retail servicing of
popular-priced fashion accessories, primarily for the children's market.
Hanover currently markets over 3,500 different styles of products, many of
which are exclusive designs available only to Hanover. All of Hanover's
products are supplied through contract manufacturers. Hanover's revenues were
$9.0 million in 1997 and $5.4 million from its commencement of operations
during April 1996 through December 31, 1996.
Effective November 7, 1997, Partners purchased from European American Bank
certain assets of Just Kiddie Rides, Inc. Through its indirect wholly-owned
subsidiary, Just Kiddie Rides Enterprises, Inc., ("JKRE"), a Delaware
corporation, White River will market and manufacture licensed kiddie rides.
Revenues of JKRE from its commencement of operations in November 1997 through
December 31, 1997 were $0.5 million.
Insurance-Related Services
The Company's revenues from insurance-related services totalled $159.1
million, $131.0 million and $115.5 million for the years ended December 31,
1997, 1996 and 1995 respectively.
During the years ended December 31, 1997, 1996 and 1995, 66%, 69%, and 70%,
respectively, of total insurance-related services revenue were attributable to
the insurance industry.
Products
The principal services and products offered by CCC automate the process of
evaluating and settling both total loss and repairable automobile claims. When
a vehicle cannot be repaired, CCC's vehicle valuation services and products,
primarily Total Loss, provide insurance companies with the ability to effect
total loss settlements on the basis of market-specific vehicle values. When a
vehicle is repairable, CCC's collision estimating services and products,
principally EZEst and Pathways, provide insurance appraisers and collision
repair facilities with up-to-date pricing, interactive decision support and
computer-assisted logic to produce accurate collision repair estimates. CCC's
claims outsourcing services and products include ACCESS, a vehicle restoration
and management service. The Company also offers a complete auto claims
outsourcing solution that handles the entire process from initial loss report
through settlement. Communication services offered by CCC connect insurers,
appraisers and collision repair facilities, providing the information required
for decision making. CCC also provides a wide variety of related services and
products intended to facilitate the overall management of the automobile
claims process. CCC's Pathways workflow management software is designed to
integrate each of CCC's product offerings on a common platform with a common
graphical user interface, facilitating the learning of new applications while
providing CCC's customers with a broader tool set for claims completion. CCC's
services and products represent an integrated solution, combining information,
claims management software and secure communication systems to improve the
efficiency of the automobile claims process.
CCC's services and products are integrated for use with one another across
multiple platforms and are designed for ease of use by the large number of
people involved in the automobile claims process on a daily basis.
Approximately 66% of CCC's consolidated revenue for 1997 was from the sale of
services and products to insurance companies with the remainder sold to
collision repair facilities and other customers. Revenues from Total Loss
valuation services and EZEst and Pathways Collision Estimating software
licensing accounted for 32% and 47%, respectively, of CCC's consolidated 1997
revenue.
55
<PAGE>
Vehicle Valuation Services and Products. CCC's Total Loss service provides
insurance companies the ability to effect total loss settlements on the basis
of market-specific values based upon physically inspected used car
inventories. CCC's management believes that CCC's vehicle database, which
contains detailed information about millions of vehicles either physically
inventoried from one of more than 4,500 dealer lots or taken from recent
advertisements, is the most comprehensive in North America. CCC uses its
proprietary database and valuation software to provide insurance companies
with independent, current, local, market values and vehicle identification
data. CCC's Total Loss product complies with the regulatory requirements of
all 50 states. Each total loss valuation includes a vehicle identification
search under VINguard, CCC's vehicle identification number fraud protection
program which matches current claims against CCC's database of previously
totalled or stolen vehicles.
Collision Estimating Services and Products. EZEst was the first stand-alone,
PC-based collision estimating system utilizing intelligent logic to automate
the process of eliminating repair activity overlaps and automating all
included operations and ancillary repair work in preparing an estimate.
Intelligent logic represents automation of procedure pages from crash
estimating guides that detail the steps involved in repairing various parts of
a damaged vehicle depending on the extent of the damage. EZEst provides
automobile insurers with fast and reliable estimates at a low cost. EZEst runs
on any IBM-compatible laptop or desktop computer and contains all nine volumes
of the Motor Crash Estimating Guide and other data necessary to build an
estimate. CCC licenses the Motor Crash Estimating Guide data from a subsidiary
of The Hearst Corporation. A unique feature of EZEst is its recycled part
valuation upgrade which will display and automatically insert into the
estimate a predicted price of those recycled or salvage automotive parts
statistically known to be available in the local market in which the estimate
is written. The EZEst software, Motor Crash Estimating Guide database and
other associated databases are updated via a monthly CD-ROM. EZEst is sold
under multi-year contracts on a monthly subscription basis to both insurers
and collision repair facilities. In April 1996, CCC began delivery of its
next-generation estimating product, Pathways Collision Estimating, which
provides all of the functionality of the EZEst product while adding the
functionality of total loss and settlement processing, claim payment, salvage
disposal and custom electronic forms. In November 1996, CCC introduced a
collision repair facility version of Pathways Collision Estimating.
EZWorks Productivity Tools. EZWorks is a set of modular applications that
assist collision repair businesses with a variety of management functions such
as job costing, operations analysis, and accounting interfaces. EZWorks
provides an important interface between EZEst and a leading commercial
accounting product.
Claims Outsourcing Services and Products. ACCESS is an outsourced vehicle
appraisal and restoration management service. Insurance companies use ACCESS
to appraise and settle claims without hiring either additional staff or
independent appraisers. ACCESS uses a network of CCC certified, fully equipped
repair facilities and CCC's claims management tools to provide fast, low cost
claims settlement with high customer satisfaction. In addition, CCC provides
reinspection and restoration management staff for quality assurance. ACCESS is
sold on a per claim basis under multi-year agreements. The Company offers a
complete claims outsourcing service that manages all aspects of the claim
process. Using a proprietary, state-of-the-art, paperless claims management
system, the outsourcing service takes the initial loss notification and
manages the file through settlement.
EZNet Communications Network. EZNet connects insurers with their appraisers
and repair network partners. EZNet's process management capabilities provide
the information required to make appropriate and timely decisions, regardless
of location or settlement process. EZNet is used principally for the complete
electronic communication of work files and estimates to staff appraisers or
insurance company direct repair program ("DRP") partners and for the receipt
of auditable estimate data. (A DRP allows an insured whose automobile is
involved in a collision to have the repair performed within a network of
approved repair facilities.) EZNet is the only communications network tailored
to provide automated communication services to participants in the automobile
physical damage claim process, including: mailboxing, messaging, routing,
imaging,
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<PAGE>
assignment tracking, record library and third-party gateways. A unique feature
of EZNet is the electronic appraisal review feature that provides real-time
exception reporting to target re-inspections and improves management control
of DRP networks and appraisers. EZNet also facilitates the management of car
rental and salvage disposition. EZNet is sold both on a per transaction basis
and on a monthly subscription basis.
Digital Imaging. The computerized digital photo imaging system allows
automobile insurers and collision repairers to visually document vehicle
damage and electronically communicate the image. This reduces claims cycle
time while eliminating film cost and saving travel and overnight delivery
expense. In September 1997, CCC began delivery of its next generation system,
Pathways Digital Imaging.
GuidePost Decision Support. GuidePost is an executive information and data
navigation software package. GuidePost allows managers to electronically
evaluate results, format reports, drill down for subject or personnel review
and compare performance to industry and regional indices. GuidePost updates
are distributed monthly on diskettes and development for network delivery is
underway. While introduced as an element of CCC's suite of electronic DRP and
collision estimating tools, GuidePost will be made available for all CCC's
products, extending the integration of a multi-channel claims process.
ACCLAIM Litigation Management. ACCLAIM is an outsourcing service offered to
insurance companies for the processing and management of defined soft-tissue
bodily injury claims. ACCLAIM uses CCC's licensed case management software and
information management tools in connection with a national network of lawyers
(the "Lawyers Network") to defend and dispose of lawsuits filed against
insured-parties. ACCLAIM services are sold to insurance companies on a fixed
fee, per claim basis.
Pathways Appraiser Workstation Software. Pathways is a windows-based
appraiser workstation software platform designed to better serve the overall
workflow needs of insurance field staffs. Pathways offers a common, graphical
user interface across all applications which organizes claims in tabbed,
electronic workfiles and reduces the time required to learn or develop new
software functions or applications. Pathways includes a workflow manager which
assists users in managing all aspects of their day-to-day activities,
including receipt of new assignments, communication of completed activity,
electronic file notes and reports as well as the automatic logging of key
events in the claims process. CCC intends to integrate all of its existing
field applications into this platform and develop all future field
applications on Pathways. Pathways is fully integrated with CCC's
communications network, allowing claim adjusters to operate in the field, and
thereby reduce office and other expenses. The first Pathways application was
Pathways Collision Estimating which provides all of the functionality of the
EZEst product while adding the functionality of total loss and settlement
processing, claim payment, salvage disposal and custom electronic forms.
Pathways is sold under multi-year contracts on a monthly subscription basis.
Customers
CCC's business is based on relationships with the two primary users of CCC's
services: automobile insurance companies and collision repair facilities.
CCC's customers include the largest U.S. automobile insurance companies and
most of the small to medium size automobile insurance companies in the
country.
CCC's products are used by approximately 12,000 collision repair facilities.
CCC has collision repair customers in all 50 states, including most major
metropolitan markets. In addition to assisting collision repair facilities in
managing their businesses, many of these customers use CCC's services and
products as a means to participate in insurance DRP programs, thereby making
the use of CCC's services and products important to the customer's business
growth.
Over 60% of CCC's revenue for 1997 was for services and products sold
pursuant to contracts, which generally have multi-year terms. A substantial
portion of CCC's remaining revenue represented sales to customers that have
been doing business with CCC for many years. CCC's services and products are
sold either on a monthly subscription or a per transaction basis.
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<PAGE>
Product Development and Programming
CCC's ability to maintain and grow its position in the claims industry is
dependent upon the expansion of its products and services. Investments in
development are therefore critical to obtaining new customers and renewals
from existing customers. CCC's product development and programming efforts
principally consist of software development, development of enhanced
communication protocols and custom user interfaces and applications, and
database design and enhancement. The custom interfaces and applications are
developed through CCC's Business Solution Group. CCC employs approximately 300
people in its product development organization. This group is comprised of
database analysts, software engineers, business systems analysts, product
managers and quality assurance employees responsible for client systems,
server systems, data warehousing and distribution systems. Product engineering
activities focus on improving speed to market of new products, services, and
enhancements, adding new business functions without affecting existing
services and products, and reducing development costs. CCC uses its class
library of objects, knowledge of its clients' workflows and its automated
testing tools to deliver quality workflow-oriented solutions to the
marketplace quickly. CCC develops products in close collaboration with its
clients based on specific needs. CCC's total product development and
programming expense was $20.2 million, $17.0 million and $14.9 million for the
years ended December 31, 1997 and 1996, and 1995, respectively.
Intellectual Property
CCC relies primarily on a combination of contracts, intellectual property
laws, confidentiality agreements and software security measures to protect its
proprietary technology. CCC distributes its products under written license
agreements, which grant end-users a license to use CCC's services and products
and which contain various provisions intended to protect CCC's ownership and
confidentiality of the underlying technology. CCC also requires all of its
employees and other parties with access to its confidential information to
execute agreements prohibiting the unauthorized use or disclosure of CCC's
technology.
CCC has trademarked virtually all of its services and products. These marks
are used by CCC in the advertising and marketing of CCC's services and
products. EZEst and CCC are well-known marks within the automobile insurance
and collision repair industries. CCC has patents for its collision estimation
product pertaining to the comparison and analysis of the "repair or replace"
and the "new or used" parts decisions. While the Total Loss calculation
process is not patented, the methodology and processes are trade secrets of
CCC and are essential to CCC's Total Loss business. Despite these precautions,
management believes that existing laws provide only limited protection for
CCC's technology and that it may be possible for a third party to
misappropriate CCC's technology or to independently develop similar
technology.
Certain data used in CCC's services and products is licensed from third
parties for which they receive royalties. Management does not believe that
CCC's services and products are significantly dependent upon licensed data,
other than the Motor Crash Estimating Guide data, because management believes
it can find alternative sources for such data. CCC's management does not
believe that it has access to an alternative database that would provide
comparable information to the Motor Crash Estimating Guide, licensed from the
Hearst Corporation through a scheduled expiration of April 30, 2002. Absent
notification of cancellation by either CCC or the Hearst Corporation two years
before the license's scheduled expiration, the license agreement is
automatically extended for one year on a rolling annual basis. Any
interruption of CCC's access to the Motor Crash Estimating Guide data could
have a material adverse effect on CCC's business, financial condition and
results of operations.
CCC is not engaged in any material disputes with other parties with respect
to the ownership or use of CCC's proprietary technology. CCC has been
previously involved, however, in intellectual property litigation concerning
certain data ownership rights, the resolution of which resulted in substantial
payments by CCC. There can be no assurance that other parties will not assert
technology infringement claims against CCC in the future. The litigation of
such a claim may involve significant expense and management time. In addition,
if any such claim were successful, CCC could be required to pay monetary
damages and may also be required to either
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<PAGE>
refrain from distributing the infringing product or obtain a license from the
party asserting the claim (which license may not be available on commercially
reasonable terms).
Competition
The market for CCC's products is highly competitive. CCC competes primarily
on product differentiation, customer service and price. CCC's principal
competitors are small divisions of two well capitalized, multinational firms,
Automatic Data Processing ("ADP") and Thomson Publishing Corporation
("Thomson"). ADP offers both a PC-based collision estimating system and a
total loss product to the insurance industry. ADP offers a different collision
estimating system and a digital imaging system to the collision repair
industry. Thomson publishes crash guides for both the insurance and automobile
collision repair industries and markets collision estimating, shop management
and imaging products. In addition, there are several very small collision
estimating programs sold into the market which do not use intelligent logic.
CCC has experienced steady competitive price pressure, particularly in the
collision estimating market, over the past few years and expects that trend to
continue. The strength of this trend may cause CCC to alter its mix of
services, features and prices.
CCC intends to address the competitive price pressures by providing high
quality, feature enhanced products and services to its clients. CCC intends to
continue to develop user-friendly claims products and services incorporating
its comprehensive proprietary inventory of data. CCC expects that the Pathways
workflow manager will provide the necessary position with its insurance
customers to effectively compete against competitive price pressures.
At times, insurance companies have entered into agreements with service
providers (including ADP, Thomson and CCC) wherein the agreement provides, in
part, that the insurance company will either use the product or service of
that vendor on an exclusive basis or designate the vendor as a preferred
provider of that product or service. If it is an exclusive agreement, the
insurance company mandates that collision repair facilities, independent
appraisers and regional offices use the particular product or service. If the
vendor is a preferred provider, the collision repair facilities, appraisers
and regional offices, are encouraged to use the preferred product, but may
still choose another vendor's product or service. Additionally, some insurance
companies mandate that all products be tested and approved at the companies'
national level before regional levels can purchase such products. The benefits
of being an endorsed product or on the approved list of an insurance company
include immediate customer availability and a head start over competitors who
may not be so approved. With respect to those insurance companies that have
endorsed ADP or Thomson, but not CCC, CCC will be at a competitive
disadvantage.
In connection with CCC's strategy to provide outsourced claims processing
services, CCC will compete with other third-party service providers, some of
whom may have more capital and greater resources than CCC.
CCC currently processes the majority of insurer-to-collision repair facility
repair assignment and estimate retrieval for DRPs through its EZNet
communications network. Management believes there is a wide range of
prospective competitors in this service area, many of which have greater
resources than CCC.
EMPLOYEES
At December 31, 1997, the Company had approximately 1,200 full-time
employees, of which approximately 1,100 individuals were employed by CCC and
approximately 75 individuals were employed by Hanover and approximately 14 by
JKRE. The Company's employees are not covered by a collective bargaining
agreement and the Company considers its employee relations to be satisfactory.
PROPERTIES
White River leases approximately 500 square feet of office space as its
principal executive office in White Plains, New York, on a month-to-month
basis.
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CCC leases approximately 150,000 square feet of a multi-tenant facility as
its principal office in Chicago, Illinois, under several leases, the last of
which expire in 2008. CCC also leases approximately 84,000 square feet in
Glendora, California, under a lease expiring in 2000. The Glendora facility
consists of a satellite development and distribution center.
Hanover leases approximately 22,700 square feet of space as its principal
office and warehouse in Plymouth, Minnesota, under a lease expiring in 2001.
Hanover also leases approximately 4,000 square feet of space in two additional
locations under separate leases, the last of which expires in 2001.
JKRE leases approximately 12,000 square feet of space as its office and
warehouse in Edgewood, New York under a single lease expiring in 2003.
Management believes that its existing facilities and additional or
alternative available space are adequate to meet the Company's requirements
for the foreseeable future. Future requirements may be impacted by the growth
of the Company.
LEGAL PROCEEDINGS
The Company is a party to various other legal proceedings in the ordinary
course of its business. The Company's management believes that the ultimate
resolution of these matters will not have a material effect on the Company's
consolidated financial position.
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SELECTED FINANCIAL INFORMATION
The following selected financial information for the years ended December
31, 1997, 1996, 1995, 1994 and 1993 has been derived from the audited
consolidated financial statements of White River. The selected financial
information set forth below for the three months ended March 31, 1998 and
1997, has been derived from the unaudited consolidated quarterly financial
statements of White River. The selected financial information set forth below
should be read in conjunction with the historical financial statements and
related notes of White River included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ----------------------------------------------
1998 1997 1997 1996 1995(1) 1994(2) 1993(3)
------- ------- -------- -------- -------- ------- -------
(UNAUDITED) (IN THOUSANDS, UNLESS OTHERWISE NOTED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $50,901 $40,898 $179,910 $145,398 $123,795 $62,539 $ 1,843
Operating expenses...... 45,539 40,675 174,355 138,559 127,210 87,263 1,688
------- ------- -------- -------- -------- ------- -------
Operating income
(loss)................. 5,362 223 5,555 6,839 (3,415) (24,724) 155
------- ------- -------- -------- -------- ------- -------
Other income (expense)
Net investment gains
(losses)............. -- 669 27,492 16,150 36,255 49,678 (8,501)
Minority interest..... (2,807) (2,111) (10,065) (971) -- -- --
Interest expense...... (65) (37) (171) (2,562) (8,936) (6,464) (823)
------- ------- -------- -------- -------- ------- -------
Total other income.. (2,872) (1,479) 17,256 12,617 27,319 43,214 (9,324)
------- ------- -------- -------- -------- ------- -------
Pretax income (loss).... 2,490 (1,256) 22,811 19,456 23,904 18,490 (9,169)
Income tax expense (ben-
efit).................. 3,202 1,248 15,610 14,306 7,909 (8,580) --
------- ------- -------- -------- -------- ------- -------
Income (loss) before
extraordinary item..... (712) (2,504) 7,201 5,150 15,995 27,070 (9,169)
Extraordinary loss on
early retirement of
debt, net of tax....... -- -- -- 678 -- -- --
------- ------- -------- -------- -------- ------- -------
Net income (loss)....... (712) (2,504) $ 7,201 4,472 15,995 27,070 (9,169)
Dividends and accretion
on redeemable preferred
stock.................. 118 118 473 727 585 530 88
------- ------- -------- -------- -------- ------- -------
Net income (loss)
applicable to common
stock.................. $ (830) $(2,622) $ 6,728 $ 3,745 $ 15,410 $26,540 $(9,257)
======= ======= ======== ======== ======== ======= =======
Earnings (loss) per com-
mon share:
Basic:
Income (loss) before
extraordinary item.... (0.17) (0.54) 1.38 0.91 2.94 4.47 (1.45)
Net income (loss)
applicable to common
stock................. (0.17) (0.54) 1.38 0.77 2.94 4.47 (1.45)
Diluted:
Income (loss) before
extraordinary item.... (0.17) (0.54) 1.31 0.85 2.84 4.38 (1.45)
Net income (loss)
applicable to common
stock................. (0.17) (0.54) 1.31 0.73 2.84 4.38 (1.45)
Cash dividends declared
per common share...... $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
- -------
(1) As discussed in Note 2 to the consolidated financial statements contained
elsewhere in this Proxy Statement, White River adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," effective
September 30, 1995.
(2) See Note 3 to the consolidated financial statements contained elsewhere in
this Proxy Statement for a discussion of the acquisition of CCC by White
River.
(3) White River, commenced operations in its present form on September 24,
1993. See Note 1 to the consolidated financial statements contained
elsewhere in this Proxy Statement for a discussion of the spin-off of
White River from Fund American and related transactions.
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BALANCE SHEET DATA:
<TABLE>
<CAPTION>
(UNAUDITED)
AT AT DECEMBER 31,
MARCH 31, --------------------------------------------
1998 1997 1996 1995(1) 1994(2) 1993(3)
----------- -------- -------- -------- -------- --------
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash
equivalents............ $196,465 $190,515 $188,365 $139,245 $ 94,985 $ 62,349
Investment securities,
at market value ....... 118,783 122,688 72,699 48,154 16,400 50,204
Accounts receivable and
other current assets... 28,955 26,708 15,206 14,482 14,044 7,044
-------- -------- -------- -------- -------- --------
Total current assets.. 344,203 339,911 276,270 201,881 125,429 119,597
Investment securities,
at market value ....... 52,338 41,434 -- -- -- --
Long term investment.... 20,000 -- -- -- -- --
Other investments....... 276 276 26,420 28,103 129,383 131,835
Goodwill, net........... 17,492 18,754 23,730 34,806 41,000 --
Purchased software and
equipment, net......... 21,299 18,431 20,478 25,791 36,239 135
Deferred income taxes
and other assets....... 8,249 8,327 7,614 6,174 9,462 176
-------- -------- -------- -------- -------- --------
Total assets.......... $463,857 $427,133 $354,512 $296,755 $341,513 $251,743
======== ======== ======== ======== ======== ========
LIABILITIES:
Accounts payable,
accrued expenses and
deferred revenues...... 31,661 29,958 27,043 26,260 18,918 5,758
Current portion of
contract funding....... -- -- 123 3,328 10,133 --
Current portion of notes
payable and other
debt................... 80 111 120 7,660 5,340 --
Redeemable preferred
stock.................. 7,000 7,000 -- -- -- --
-------- -------- -------- -------- -------- --------
Total current
liabilities.......... 38,741 37,069 27,286 37,248 34,391 5,758
Notes payable and other
debt................... -- -- 111 27,220 85,753 50,000
Deferred income taxes
and other liabilities.. 66,489 55,441 44,458 30,751 17,981 1,122
-------- -------- -------- -------- -------- --------
Total liabilities..... 105,230 92,510 71,855 95,219 138,125 56,880
Redeemable preferred
stock.................. 192 189 7,175 8,275 8,162 7,000
Minority interest....... 38,203 33,687 18,950 -- -- --
Stockholders' equity.... 320,232 300,747 256,532 193,261 195,226 187,863
-------- -------- -------- -------- -------- --------
Total liabilities,
redeemable preferred
stock and stockholders'
equity................. $463,857 $427,133 $354,512 $296,755 $341,513 $251,743
======== ======== ======== ======== ======== ========
Book value per common
and common equivalent
share(3)............... $ 66.00 61.88 51.98 39.01 33.75 29.29
</TABLE>
- --------
(1) As discussed in Note 2 to the consolidated financial statements contained
elsewhere in this Proxy Statement, White River adopted the provisions of
SFAS No. 115, effective September 30, 1995.
(2) See Note 3 to the consolidated financial statements contained elsewhere in
this Proxy Statement for a discussion of the acquisition of CCC by White
River.
(3) The calculation of book value per common and common equivalent share
reflects the potentially dilutive effects of White River's outstanding
incentive and directors' compensation awards. See Note 2 to the
consolidated financial statements contained elsewhere in this Proxy
Statement.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION--AS OF DECEMBER 31, 1997 AND 1996
Book value per common equivalent share, as defined below, increased $9.90,
or 19.0%, to $61.88 at December 31, 1997, from $51.98 at December 31, 1996.
Such change reflects an increase of $7.33 per share relative to the after tax
increase in net unrealized investment gains (including $3.51 per share related
to the increase in value of White River's interest in NWA Partners, as
discussed in Note 2 to the accompanying financial statements), which were
recorded directly to stockholders equity, and realized gains on the
distribution received from NWA Partners of $2.55 per share after tax.
The calculation of book value per common and common equivalent share
reflects the potentially dilutive effects of White River's outstanding
incentive and directors' compensation awards. In the calculation of book value
per common and common equivalent share: (i) the numerator is the sum of
stockholders' equity and the tax benefit which would result from the
settlement of outstanding performance units, directors' compensation awards
and balances within White River's retirement plans with shares of Common
Stock, based upon the current market price of the Common Stock and assuming a
statutory tax rate of 35%, and (ii) the denominator is the sum of the shares
of Common Stock outstanding and shares deemed issued in settlement of
outstanding performance units, directors' compensation awards and balances
within such retirement plans. See Note 9 of the accompanying financial
statements for a discussion of White River's retirement plans and Notes 10 and
11 of the accompanying financial statements for a discussion of the incentive
and directors' compensation plans which gives rise to White River's
potentially dilutive securities.
As of December 31, 1997, the Company had consolidated cash and cash
equivalents of $190.5 million, (which included $2.9 million related to the
operations of CCC, Hanover, and JKRE), as compared to $188.4 million as of
December 31, 1996. Substantially all of the cash and cash equivalent balances
of $187.3 million held by White River as of December 31, 1997, other than
those of CCC, Hanover and JKRE, were deposited with several major banking
institutions in interest- bearing accounts with maturities of six days or
less. As of December 31, 1997, such deposits earned a weighted average
interest rate of 5.5% per annum.
Working capital (current assets less current liabilities) increased by $53.9
million to $302.8 million at December 31, 1997 from December 31, 1996
primarily due to a net increase in the Company's investments of $50.0 million.
Additionally, accounts receivable and other current assets increased by $11.5
million during the same period. The inclusion of the current portion of
redeemable preferred stock at December 31, 1997 reduced working capital by
$7.0 million.
The reclassification of White River's investment in NWA Partners from "other
investments" to "investment securities-non current" resulted in a $41.4
million increase in total "investment securities", as discussed in Note 2 to
the accompanying financial statements.
Capital expenditures were $9.8 million during the year ended December 31,
1997 compared to $5.6 million during the year ended December 31, 1996
primarily due to expansion of CCC's office space as well as expenditures
related to CCC's new products.
FINANCIAL CONDITION--AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
Book value per common equivalent share, as defined below, increased $4.12,
or 6.7%, to $66.00 at March 31, 1998, from $61.88 at December 31, 1997. Such
change reflects an increase of $4.00 per share related to the after tax
increase in net unrealized investment gains, which were recorded directly to
stockholders' equity as part of Accumulated Other Comprehensive Income.
The calculation of book value per common and common equivalent share
reflects the potentially dilutive effects of White River's outstanding
incentive and directors' compensation awards. In the calculation of book value
per common and common equivalent share: (i) the numerator is the sum of
stockholders' equity and the
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tax benefit which would result from the settlement of outstanding performance
units, directors' compensation awards and balances within White River's
retirement plans with shares of Common Stock, based upon the current market
price of the Common Stock and assuming a statutory tax rate of 35%, and (ii)
the denominator is the sum of the shares of Common Stock outstanding and
shares deemed issued in settlement of outstanding performance units,
directors' compensation awards and balances within such retirement plans.
As of March 31, 1998, the Company had consolidated cash and cash equivalents
of $196.5 million, (which included $7.8 million related to the operations of
CCC, Hanover, and JKRE), as compared to $190.5 million as of December 31,
1997. Substantially all of the cash and cash equivalent balances of $188.7
million held by White River as of March 31, 1998, other than those of CCC,
Hanover and JKRE, were deposited with several major banking institutions in
interest-bearing accounts with maturities of six days or less. As of March 31,
1998, such deposits earned a weighted average interest rate of 5.4% per annum.
Working capital (current assets less current liabilities) increased by $2.7
million to $305.5 million at March 31, 1998 from $302.8 million at December
31, 1997 primarily due to an increase in the Company's balances of
cash and cash equivalents of $6.0 million, which was offset by a reduction in
the Company's investment securities as a result of the sale of certain of
CCC's short-term investments in U.S. Treasury Bills and, as discussed below,
the purchase by CCC of a long term investment.
On February 10, 1998, CCC signed an agreement with InsurQuote Systems, Inc.
("InsurQuote"), a provider of insurance rating information and the software
used to manage that information, and invested $20 million to acquire 19.9% of
the InsurQuote common stock, a subordinated note from InsurQuote, warrants,
and shares of InsurQuote preferred stock. The warrants provide the right to
acquire additional shares of InsurQuote common stock and are exercisable by
CCC through February 10, 2008, subject to potential early termination
provisions. The Series C stock is redeemable in full at the end of five years,
or earlier under certain conditions, if not converted prior to that time. Each
share of Series C and D preferred stock is initially convertible into one
common share at the option of CCC. CCC is accounting for its investment in
InsurQuote using the cost method.
Capital expenditures were $7.6 million for the quarter ended March 31, 1998
compared to $1.8 million during the quarter ended March 31, 1997 primarily due
to expansion of CCC's office space as well as expenditures related to CCC's
new products.
RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Consolidated net income applicable to common stock totalled $6.7 million for
the year ended December 31, 1997, or $1.31 per diluted common share, as
compared to $3.7 million, or $0.73 per diluted common share, for the year
ended December 31, 1996, and $15.4 million, or $2.84 per diluted common share,
for the year ended December 31, 1995. The 1997 results reflect pretax net
investment gains of $27.5 million, as compared to $16.2 million reported for
1996 and $36.3 million for 1995.
INVESTMENT OPERATIONS
Investment Results
Based upon the composition of its assets at the time of the Capitalization,
White River met the definition of an Investment Company under the Investment
Company Act. As such, White River's accounting policies regarding the carrying
value of investments as well as the treatment of changes in unrealized gains
and losses relating to such investments conformed to generally accepted
accounting principles ("GAAP") for Investment Companies until such time as
White River ceased to meet the definition of an Investment Company. White
River ceased to meet the definition of an Investment Company effective
September 30, 1995, and, accordingly, as discussed further in Note 2 to the
accompanying financial statements, adopted the provisions of SFAS No. 115, as
of such date. Under SFAS No. 115, changes in net unrealized investment gains
and losses relating to White River's marketable equity securities and debt
which are classified as available for sale are reported net of tax as a
separate component of stockholders' equity and, except for declines in value
which are deemed to be other
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than temporary in nature, changes in net unrealized investment gains and
losses relating to White River's other investments are not recognized until
realized. Pretax net unrealized gains of $55.5 million and $17.0 million were
recorded directly to stockholders' equity during 1997 and 1996, respectively.
For the year ended December 31, 1997, pretax investment income totalled
$11.4 million, including $10.2 million of interest income generated from
higher cash and cash equivalents balances held during 1997. Pretax investment
income totalled $9.0 million for the year ended December 31, 1996, and $8.3
million for the year ended December 31, 1995.
White River's proceeds from dispositions of investments totalled $39.0
million, $21.2 million and $118.9 million during the years ended December 31,
1997, 1996 and 1995, respectively. See "Additional Information Concerning
White River Corporation and Subsidiaries--Investment Operations" for a
discussion of 1997 and 1996 investment dispositions. The 1995 investment
dispositions include the transfer of certain securities with a carrying value
of $93 million and a fair value of $104 million to Fund American. In
conjunction with the transfer of such securities, White River also received an
additional $14 million in cash from Fund American. The assets transferred by
White River were in satisfaction of the outstanding borrowings under the
Credit Agreement. Accordingly, management accounted for the transaction as a
retirement of debt with no corresponding gain or loss, and the remaining $11
million was recognized as realized investment gains.
Investment Holdings
The Company's investment holdings as of December 31, 1997 consist primarily
of its interests in Cross Timbers; U.S. Treasury Bills held by CCC, and NWA
Partners which represented 54.6%, 18.5% and 25.2%, respectively, of White
River's total investments. White River's management believes that this
concentration may make the value of White River's investments more volatile
than the value of a more diversified portfolio.
Cross Timbers was organized in 1990 and is engaged in the acquisition and
development of producing oil and gas properties and the marketing and
transportation of oil and natural gas. Cross Timbers' oil and gas properties
are concentrated in major producing basins in Oklahoma, East Texas and the
Permian Basin of West Texas and New Mexico. Based upon information available
to the Company, White River's holdings represented 13.6% of the total
outstanding Cross Timbers common stock as of December 31, 1997. The Cross
Timbers common stock held by White River generally is not registered for sale
in the open market; however, White River does have limited demand registration
rights with regard to such shares. In addition, White River can sell its
holdings of Cross Timbers common stock in accordance with the volume
restrictions under Rule 144 of the U.S. Securities Act of 1933, as amended.
During 1997, such sales totalled 20,000 shares resulting in gross proceeds of
$0.6 million.
The common stock of Cross Timbers is traded on the New York Stock Exchange
under the symbol "XTO", and during the 52-week period ended December 31, 1997,
its daily closing market price ranged between a high of $28 11/16 and a low of
$14 11/16 per share. The closing market price of such shares as of December
31, 1997, was $24 15/16 per share. Such prices were as listed on the New York
Stock Exchange during 1997, and do not reflect the stock split noted below. In
recognition of White River's demand registration rights with respect to its
shares of Cross Timbers common stock, White River began carrying its interest
in Cross Timbers at market value effective September 30, 1995, upon the
adoption of SFAS No. 115. Accordingly, White River's interest in Cross Timbers
was carried at $89.8 million and $60.8 million under the caption investment
securities in the accompanying consolidated statement of financial condition
as of December 31, 1997 and 1996, respectively.
On January 30, 1998, Cross Timbers announced a three-for-two stock split, to
be effective on February 24, 1998 for stockholders of record on February 12,
1998. As a result of the stock split, White River's holdings of Cross Timbers
common stock increased from 3,600,009 shares to 5,400,013 shares.
White River recognized dividend income of $0.8 million for each of the years
ended December 31, 1997, 1996 and 1995, from its interest in Cross Timbers.
There can be no assurance that Cross Timbers will continue to pay dividends on
its common stock at this level, or if dividends will be paid at all.
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The energy and natural resources industries, particularly the oil and
natural gas industries, are highly competitive, require significant capital
expenditures, and are subject to extensive regulation at both the national and
local levels. Unpredictable fluctuations in the prices of oil, natural gas and
other natural resources, as well as changes in the level of development and
production expenditures by the operators of companies in this sector,
generally affect the market price of the securities of such companies. For
these reasons, among others, management believes that the value of its
interest in Cross Timbers may be subject to additional market price volatility
not applicable to the securities markets in general.
NWA Partners is a limited partnership formed during 1989 under the laws of
the State of California for the purpose of investing in Northwest Airlines
Corporation ("Northwest Airlines") equity securities. During December 1993,
NWA Partners entered into a stockholders' agreement (the "NWA Stockholders'
Agreement") with the participants in the Northwest Airlines leveraged buyout
(the "Northwest LBO"), which, among other things, restricted transfer of most
of the shares of Northwest Airlines common stock held by the parties to the
Northwest LBO until June 1997. Accordingly, the Company considered such
investments as restricted in accordance with SFAS No. 115, and carried such
investments at adjusted carring value (see Note 2 to the accompanying
financial statements) until such time as the restrictions expired (June 1997).
Thereafter, the Company accounted for its investment in NWA Partners as an
available for sale security. NWA Partners has an original term of ten years,
which is extendable at the discretion of the general partner for up to two
additional years.
White River acquired its interest in NWA Partners in connection with the
Capitalization. White River's interest in NWA Partners represented
approximately 21% of partnership assets as of December 31, 1997 and 1996.
During the year ended December 31, 1997, White River received a $26.3 million
partial distribution on its investment resulting in a pretax investment gain
of $19.4 million. The distribution represented White River's share of proceeds
arising primarily from the redemption of NWA Partners' investment in preferred
stock of NWA Corp., but also in part due to the sale of 0.7 million shares of
NWA Corp. common stock subject to a call option. No distributions were
received during 1996. During the year ended December 31, 1995, White River
received distributions totaling $3.5 million from NWA Partners, resulting in
pretax net investment gains of $2.8 million. These distributions represented
White River's share of the proceeds from the sale of a portion of NWA
Partners' assets. As of December 31, 1997, NWA Partners' remaining assets
consisted primarily of 4.7 million shares of Northwest Airlines Class A common
stock, par value $0.01 per share (the "Northwest Common Stock").
As discussed in Note 1 of the accompanying financial statements, prior to
September 30, 1995, investments classified by White River as "other
investments" included its partnership interest in NWA Partners, which had no
established market value at the time. White River carried its interest in NWA
Partners at internally appraised values, giving due consideration to the
current market value of the unrestricted Northwest Common Stock and the
estimated value of the Northwest Preferred Stock. To arrive at fair value,
White River applied a significant discount to such values due to liquidity
restrictions caused in part by restrictions on transfer imposed by the NWA
Stockholders' Agreement, as well as the partnership terms of NWA Partners.
Upon White River ceasing to meet the definition of an Investment Company,
White River adopted SFAS No. 115, and the Company recorded its limited
partnership interest investment in NWA Partners at its then carrying value
(due to the restrictions on the investments held by the NWA Partnership).
Since the lapse of the restrictions on such investment in June 1997, the
Company recorded its investment in NWA Partners as an available for sale
security. Accordingly, the carrying value of NWA Partners at December 31, 1997
was $41.4 million, as compared to a carrying value of $21.8 million at
December 31, 1996, which reflected the adjusted cost basis at that time.
Since the passage of the Airline Deregulation Act of 1978, the airline
industry has been characterized by strong competition and industry
consolidation. A number of airlines have filed for bankruptcy and/or ceased
operations. Airlines offer discount fares, a wide range of schedules, frequent
flyer mileage programs, and ground and in-flight services as competitive tools
to attract passengers and increase market share. Because of the relative ease
with which U.S. carriers can enter new markets, each carrier's domestic
service is subject to potential increases in competition from other air
carriers, the extent and effect of which cannot be predicted. The airline
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industry is subject to substantial price competition as U.S. carriers are free
to determine domestic pricing policies without government regulation. Domestic
price competition has accelerated the efforts of airline management to reduce
costs and improve productivity. Although the U.S. government retains authority
over international fares, such fares are also subject to the jurisdiction of
the foreign countries being served. For these reasons, among others, White
River's management believes that the value of its interest in NWA Partners may
be subject to additional price volatility not applicable to the securities
markets in general.
INSURANCE-RELATED SERVICES
Revenues for the year ended December 31, 1997 of $159.1 million were $28.1
million, or 21.5%, higher than the prior year. The increase in revenues was
due primarily to higher revenues from workflow/collision estimating software
licensing and valuation services. Workflow/collision estimating software
revenue increased due to an increase in the number of units sold in both the
autobody and insurance markets. Valuation services revenue increased due to
higher transaction volume.
Revenues for the year ended December 31, 1996 of $131.0 million were $15.5
million, or 13.4%, higher than the prior year. The increase in revenues was
due primarily to higher revenues from collision estimating software licensing,
from ACCESS claims services and from Total Loss vehicle valuation services.
Collision estimating software licensing revenues increased primarily because
of an increase in the number of software licenses, particularly at collision
repair facilities. ACCESS claims services revenues increased primarily as a
result of higher transaction volume. Total Loss revenues increased as a result
of both higher volume and a slightly higher rate per transaction.
On a stand-alone basis, CCC reported net income before accretion and
dividends on preferred stock of $15.8 million, $14.8 million and $1.3 million
for the years ended December 31, 1997, 1996 and 1995, respectively. The 1995
results include the $4.5 million pretax provision for loss relating to the
MacLean Hunter litigation claim. White River's adjustment for the amortization
of goodwill and purchased software related to the CCC acquisition (see Note 2
to the accompanying financial statements), as well as the minority
shareholders' interest in the earnings of CCC during these periods, reduced
net income by $17.4 million, $14.8 million and $9.0 million for the years
ended December 31, 1997, 1996 and 1995, respectively.
During August 1996, CCC completed the initial public offering of 6.9 million
newly issued shares of Common Stock, resulting in net proceeds to CCC of $72.1
million. As a result of the IPO, CCC's $49.6 million deficiency in
stockholders equity was eliminated resulting in stockholders' equity of $22.5
million immediately after the IPO. Prior to CCC's IPO, the minority interest
in CCC was not reflected in the consolidated statements of financial condition
because the minority interest did not guarantee the obligations of CCC nor was
it otherwise committed to provide further financial support. However, as a
result of eliminating CCC's deficiency in stockholders' equity, a minority
interest liability was included in the Company's statement of financial
condition. Such minority interest liability was $33.7 million and $19.0
million for the years ended December 31, 1997 and 1996, respectively.
OTHER REVENUES--CONSOLIDATED
1997 versus 1996
Other revenue of $9.6 million for the year ended December 31, 1997 consisted
of Hanover sales of $9.0 million, and JKRE sales of $0.5 million. The
corresponding sales amount of $5.4 million in 1996 is not comparable since
Hanover operations did not commence until April 1996, while JKRE was not
established until November 1997.
Hanover, which began operations in April 1996, generated $9.0 million in
revenue from the sale of fashion accessories for the year ended December 31,
1997, with a net loss of $0.5 million. As of December 31, 1997, White River's
investment in and advances to Hanover totalled $3.8 million.
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Hanover generated revenues of $5.4 million for the year ended December
31,1996. Hanover's operations had breakeven operating results for the period
April 1996 to December 31, 1996, and the dollar amount of the investment in
and advances to this entity totalled $1.6 million at December 31, 1996.
OPERATING EXPENSES
1997 versus 1996
For the year ended December 31, 1997, compensation and benefits expense
totalled $82.0 million, as compared to $63.7 million for 1996. The 1997 year
results include a $7.3 million increase in White River's provision for stock
based incentive awards, a $1.7 million increase related to Hanover which began
operations in April 1996, and a $8.8 million increase in CCC's compensation
and benefits to recruit and retain key employees.
For the year ended December 31, 1997, other operating expenses totalled
$92.3 million, as compared to $74.8 million for the 1996 period, representing
an increase of 23.4%. Such increase was due to an increase in CCC's operating
expenses of $13.7 million in 1997 which was primarily attributable to an
increase in product development and customer support capacity necessary to
support increased revenues, as well as to efforts to build and upgrade
internal systems. Furthermore, during 1996, CCC had constraints imposed on
operating expenditures due to principal payment obligations and restrictive
covenants attributable to its previous commercial bank credit facility.
Additionally, Hanover's other operating expenses increased by $2.5 million in
1997 primarily because 1997 included a full year of expenses.
1996 versus 1995
Compensation and benefits expense increased by 23.1% to $63.7 million for
the year ended December 31, 1996, as compared to $51.8 million for the year
ended December 31, 1995. The 1996 increase reflects a $5.2 million increase in
White River's provision for stock-based incentive awards, which was due to
increases in the market value of Common Stock during such period as well as to
accelerated vesting of certain awards due in part to the effects of the CCC
IPO upon White River's book value per common and common equivalent share. In
addition, CCC's compensation and benefits increased by $5.5 million for the
year ended December 31, 1996 when compared to the prior year, as a result of
increased staffing required to support revenue growth and product development
activities.
Other operating expenses decreased by 0.8% to $74.8 million for the year
ended December 31, 1996, as compared to $75.4 million for the same period in
1995. The decrease in other operating expenses during the year ended December
31, 1996 is attributable to effective cost containment initiatives and the
postponement by CCC of certain operating expenditures that it would have made
during the first half of 1996 in the absence of covenants under its previous
bank credit facility.
INCOME TAXES
The Company's effective tax rate is higher than the statutory rate of 35%
due to the fact that the Company provides for deferred taxes on its equity
interest in the net income of CCC, as well as due to the effect of the
amortization of goodwill.
VALUATION ALLOWANCE
As of December 31, 1995, CCC carried a valuation allowance of $5.0 million
against future income tax benefits which were not recognized for book purposes
due to the existence of historical operating losses and the resulting
uncertainties regarding the availability of future taxable income. CCC reduced
valuation allowances by $4.7 million thus reducing its stand-alone income tax
expense in 1996 as a result of its successful recapitalization, through the
CCC IPO, and its demonstrated pattern of profitability. White River treated
its share of the reversal of these CCC tax benefits as a reduction of its
goodwill relating to the CCC acquisition. CCC's remaining valuation allowance
of $0.3 million as of December 31, 1997 and December 31, 1996, pertains to
capital loss carry forwards, the realization of which is not assured.
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RESULTS OF OPERATIONS--QUARTERS ENDED MARCH 31, 1998 AND 1997
The consolidated net loss applicable to common stock totalled $0.8 million
for the quarter ended March 31, 1998, or $0.17 per diluted common share, as
compared to a net loss of $2.6 million, or $0.54 per diluted common share for
the quarter ended March 31, 1997.
Investment Operations
Under SFAS No. 115, changes in net unrealized investment gains and losses
relating to White River's marketable equity securities and debt which are
classified as available for sale are reported net of tax as a separate
component of stockholders' equity (Accumulated Other Comprehensive Income)
and, except for declines in value which are deemed to be other than temporary
in nature, changes in net unrealized investment gains and losses relating to
White River's other investments are not recognized until realized. Pretax net
unrealized gains of $30.0 million were recorded directly to stockholders'
equity as part of Accumulated Other Comprehensive Income during the quarter
ended March 31, 1998, and pretax net investment losses of $0.7 million were
recorded directly to stockholders' equity as part of Accumulated Other
Comprehensive Income during the quarter ended March 31, 1997.
For the quarter ended March 31, 1998, pretax investment income totalled $2.9
million, including $2.6 million of interest income generated from the cash and
cash equivalents balances held during the first quarter 1998. Pretax
investment income totalled $2.6 million for the quarter ended March 31,1997,
including $2.3 million of interest income generated from the cash and cash
equivalent balances held during the first quarter 1997.
Proceeds from dispositions of investments during the quarters ended March
31, 1998 and March 31, 1997 were $31.1 million and $1.2 million, respectively.
The increase in 1998 relates to CCC's dispositions of short-term investments
in U.S. Treasury bills.
Insurance-Related Services
Revenues for the quarter ended March 31, 1998 of $44.7 million were $7.9
million, or 21.5%, higher than the same period in 1997. The increase in
revenues was due primarily to higher revenues from workflow/collision
estimating software licensing and valuation services. Workflow/collision
estimating software revenue increased due to an increase in the number of
units sold in both the autobody and insurance markets. Valuation services
revenue increased due to higher transaction volume.
On a stand-alone basis, CCC reported net income before accretion and
dividends on preferred stock of $4.4 million and $3.4 million for the quarters
ended March 31, 1998 and March 31, 1997, respectively. White River's
adjustment for the amortization of goodwill and purchased software related to
the CCC acquisition, as well as the minority shareholders' interest in the
earnings of CCC during these periods, reduced net income by $4.6 million and
$4.0 million for the quarters ended March 31, 1998, and March 31, 1997,
respectively.
Other Revenues--Consolidated
Other revenue of $3.3 million for the quarter ended March 31, 1998 consisted
of Hanover Accessories, Inc. ("Hanover") sales of $2.8 million, and Just
Kiddie Rides Enterprises, Inc. ("JKRE") sales of $0.5 million. The
corresponding sales amount of $1.6 million for the same period in 1997
includes only the operations of Hanover, since JKRE was not established until
November 1997.
Hanover generated $2.8 million in revenue from the sale of fashion
accessories for the quarter ended March 31, 1998, with a net loss of $0.1
million. As of March 31, 1998, White River's investment in and advances to
Hanover totalled $3.7 million. Hanover generated revenues of $1.6 million for
the quarter ended March 31,1997, with a net loss of $0.2 million.
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JKRE generated $0.5 million in revenue for the quarter ended March 31, 1998,
with a net loss of $0.2 million. As of March 31, 1998, White Rivers investment
in and advances to JKRE totalled $2.1 million.
Operating Expenses
For the quarter ended March 31, 1998, compensation and benefits expense
totaled $20.2 million, as compared to $19.1 million for the same period in
1997. The first quarter 1998 increase is entirely the result of an increase in
CCC's compensation and benefits to recruit and retain key employees. For the
quarter ended March 31, 1998, other operating expenses totalled $25.3 million,
as compared to $21.6 million for the same period in 1997, representing an
increase of 17.2%. Such increase was due to an increase in CCC's operating
expenses of $3.1 million, which was primarily attributable to product
development and customer service expenses necessary to support increased
revenues, as well as to efforts to build and upgrade internal systems.
Income Taxes
The Company's effective tax rate is higher than the statutory rate of 35%
due to the fact that the Company provides for deferred taxes on its equity
interest in the net income of CCC, as well as due to the effect of the
amortization of goodwill.
The Company provides for deferred income taxes which reflect the effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Furthermore, deferred tax assets are recorded net of a valuation allowance if
management believes that it is more likely than not that some portion or all
of the deferred tax assets will not be realized.
LIQUIDITY AND CAPITAL RESOURCES--DECEMBER 31, 1997
Total Company (consolidated basis)
During the year ended December 31, 1997, the Company's cash and cash
equivalent balances increased by $2.2 million (see "Consolidated Statements of
Cash Flows" on page F-4 of the accompanying financial statements). The major
source of cash provided was $93.1 million from sales of investments, and net
income of $7.2 million which was reduced by net investment gains of $27.5
million and increased by non-cash charges relating to depreciation and
amortization ($17.2 million), minority interest ($10.1 million) and deferred
tax expense ($2.5 million). In addition, the Company's working capital
requirements increased cash used by operations primarily due to an increase in
other current assets and accounts receivable ($11.5 million) and a reduction
in other liabilities ($7.2 million). The Company used $75.2 million for the
purchase of investment securities (all of which were related to CCC's
rollovers of Treasury securities) and $9.8 million for the purchase of
software and equipment.
During the year ended December 31, 1996, the Company's cash and cash
equivalent balances increased by $49.1 million. The major components of cash
provided were: $11.8 million provided from operations, $21.1 million from
sales of investments, net proceeds of $73.8 million from CCC's IPO in August
1996, and $10.8 million of proceeds from notes payable and other debt. The
Company used cash of $46.7 million for principal payments on notes and other
debt, $11.0 million for the purchase of investment securities (all of which
were related to CCC's rollovers of Treasury securities), and $5.6 million for
the purchase of software and equipment.
During the year ended December 31, 1995, the Company's cash and cash
equivalent balances increased by $44.3 million. The major components of cash
provided were $10.0 million provided from operations, $30.0 million from sales
of investments and $44.0 million of proceeds from notes payable and other
debt. The Company used cash of $25.7 million for repurchases of common stock,
$11.1 million for principal payments on notes payable and other debt and $3.0
million for the purchase of software and equipment.
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Management believes that cash flows from operations, sales of investment
securities, and available borrowings as discussed separately below under "CCC"
will be sufficient to satisfy the Company's capital expenditure and working
capital requirements for the foreseeable future.
White River
As of December 31, 1997, the Company had consolidated cash and cash
equivalents of $190.5 million, of which $187.3 million relates to balances
held by White River, with the remaining $2.9 million related to the operations
of CCC, Hanover and JKRE. White River's primary sources of additional cash
include sales of investments, interest earned on cash equivalents and
dividends earned on investments. During the years ended December 31, 1997,
1996 and 1995, White River generated cash proceeds from the sale of
investments aggregating $39.0 million, $21.1 million and $28.9 million,
respectively.
For the foreseeable future, White River does not expect to receive cash
dividends on its holdings of CCC Common Stock, and, based upon the terms of
the CCC Preferred Stock, further dividends will not begin to accrue until June
1998. White River has not made any formal or informal commitment to make
additional investments in or advances to CCC.
The White River Board has not declared, and currently does not intend to
declare, ordinary periodic dividends on the Common Stock. However, the White
River Board intends to reevaluate from time to time the declaration of
dividends with due consideration given to the financial characteristics of
White River's remaining investments, its continuing operations and the amount
and regularity of its cash flows as of that time. There can be no assurance as
to when or whether the White River Board will declare any such dividends.
During the year ended December 31, 1997, White River did not repurchase any
shares of Common Stock. Cumulative share repurchases since the formation of
White River through December 31, 1997, totalled approximately 1,495,000 shares
of Common Stock at an aggregate cost of $48.9 million. As of December 31,
1997, White River may repurchase an additional 523,000 shares of Common Stock
under its existing share repurchase authorization.
As part of the Capitalization, White River issued to Fund American 7,000
shares of White River Series A NonParticipating Cumulative Preferred Stock,
par value $1.00 per share (the "Redeemable Preferred Stock"), which are
entitled to aggregate annual dividends of $0.5 million and must be redeemed
during September 1998, at a redemption price of $1,000 per share. Fund
American sold the Redeemable Preferred Stock to two unaffiliated institutional
investors at the time of the Distribution.
Management believes that available cash and funds generated from sales of
investments will be sufficient for White River to satisfy its working capital
requirements for the foreseeable future.
CCC
CCC's primary source of cash includes receipts of customer billings, which
are generally invoiced monthly in advance for EZEst units and Pathways
subscriptions and monthly in arrears for Total Loss and EZNet transactions.
During the years ended December 31, 1997 and 1996, CCC generated net cash from
operating activities of $20.1 million and $20.3 million, respectively. CCC
used $8.1 million and $5.6 million, respectively excluding noncash capital
expenditures, to purchase equipment and software and invested the remaining
cash in marketable securities.
On August 21, 1996, CCC completed its initial public offering of common
stock, generating proceeds of $72.1 million, net of underwriters' discounts
and related equity issue costs. Proceeds from the offering of $36.1 million
were used to redeem approximately 87% of the CCC Preferred Stock at stated
value plus accrued dividends. In addition, proceeds from the offering of $28.0
million were used to make principal repayments on long-term debt. The balance
of CCC's principal repayments during the year ended December 31, 1996, was
generated from operations.
71
<PAGE>
On August 22, 1996, CCC secured a $20.0 million revolving credit facility
through a commercial bank. As a result, the balance of deferred financing fees
associated with CCC's previous credit facility, which consisted of a term loan
and a revolving credit facility, was written off in 1996 as an extraordinary
loss, net of income taxes. There have been no borrowings under the current
bank credit facility. Indebtedness under the current bank credit facility
would bear interest at either of two rates as selected by CCC: the London
Inter-Bank Offering Rate plus 1.5% per annum, or the prime rate. Following the
offering, CCC's principal liquidity requirements include its operating
activities, including product development, and its investments in internal and
customer capital equipment.
Under the current credit facility, CCC is, with certain exceptions,
prohibited from making certain sales or transfers of assets, incurring
nonpermitted indebtedness or encumbrances, and redeeming or repurchasing its
capital stock, among other restrictions. In addition, the current credit
facility also requires CCC to maintain certain levels of operating cash flow
and interest expense coverage, and limits CCC's ability to make capital
expenditures and investments and declare dividends.
Management believes that cash flows from operations and the current credit
facility will be sufficient to meet CCC's liquidity needs over the next 12
months. There can be no assurance, however, that CCC will be able to satisfy
its liquidity needs in the future without engaging in financing activities
beyond those described above.
LIQUIDITY AND CAPITAL RESOURCES--MARCH 31, 1998
Total Company (consolidated basis)
During the quarter ended March 31, 1998, the Company's cash and cash
equivalent balances increased by $6.0 million (see "Consolidated Interim
Statements of Cash Flows (unaudited)" on page F-31). The major sources of cash
provided were $31.1 million from sales of investments, and net cash provided
from operations of $10.1 million. The Company used $20.0 million for the
purchase of a long-term investment (see below under "CCC"), $8.3 million for
the purchase of investment securities and $7.6 million for the purchase of
software and equipment.
Management believes that cash flows from operations, sales of investment
securities and available borrowings as discussed separately below under "CCC"
will be sufficient to satisfy the Company's capital expenditure and working
capital requirements for the foreseeable future.
White River
As of March 31, 1998, the Company had consolidated cash and cash equivalents
of $196.5 million, of which $188.7 million relates to balances held by White
River, with the remaining $7.8 million related to the operation of CCC,
Hanover and JKRE. White River's primary sources of additional cash include
sales of investments, interest earned on cash equivalents and dividends earned
on investments. There were no cash proceeds generated from the sale of
investments during the quarter ended March 31, 1998, as compared to $1.2
million cash generated from the sale of investments during the quarter ended
March 31, 1997.
Management believes that available cash and funds generated from sales of
investments will be sufficient for White River to satisfy its working capital
requirements for the foreseeable future.
CCC
CCC's primary source of cash includes receipts of customer billings, which
are generally invoiced monthly in advance for EZEst units and Pathways
subscriptions and monthly in arrears for Total Loss and EZNet transactions.
During each of the quarters ended March 31, 1998 and March 31, 1997, CCC
generated net cash from operating activities of $8.0 million. CCC used $6.1
million and $1.8 million, during the quarters ended March 31, 1998 and March
31, 1997, respectively, excluding noncash capital expenditures, to purchase
equipment and software and invested the remaining cash in marketable
securities. In addition, CCC invested $20 million in InsurQuote during the
quarter ended March 31, 1998, using cash provided from sales of investments.
72
<PAGE>
Management believes that cash flows from operations and the current credit
facility will be sufficient to meet CCC's liquidity needs over the next 12
months. There can be no assurance, however, that CCC will be able to satisfy
its liquidity needs in the future without engaging in financing activities
beyond those described above.
YEAR 2000 ISSUE
The year 2000 issue relates to computer system programs which may not
properly recognize the change in date years from 1999 to 2000. As a result of
this time sensitivity of existing software, any business entity is at risk for
possible system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. In addition,
entities that provide software solutions to their customers must monitor the
year 2000 concerns in the applications their software supports.
Based on risk assessment, CCC is currently modifying or replacing
significant portions of its software so that its computer systems will
function properly with respect to the year 2000 date recognition. White River
is currently in the process of replacing significant portions of its software
and expects to have such upgrades completed by December 31, 1998. CCC
presently believes that with modifications to existing software and
conversions to new software, the year 2000 issue will not pose a significant
operational problem. However, if such modifications and conversions are not
made, or not completed timely, the year 2000 issue could have a material
adverse effect on CCC's business, financial condition and results of
operations.
The Company is utilizing both internal and external resources to reprogram,
or replace, and test software for the year 2000 modifications. The Company
anticipates completing the year 2000 project in early 1999. The total cost of
the year 2000 project for the Company is not material.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 ("the Act") provides a
safe harbor for forward-looking information made on behalf of the Company. All
statements, other than statements of historical facts, which address
activities or actions that the Company expects or anticipates will or may
occur in the future, including such things as expansion and growth of the
Company's operations and other such matters are forward
looking statements. To take advantage of the safe harbor provided by the Act,
the Company is identifying certain factors that could cause actual results to
differ materially from those expressed in any forward-looking statements made
by the Company.
Any one, or a combination, of these factors could materially affect the
results of the Company's operations. These factors include competitive
pressures, changes in customer preferences, acceptance of new product
introductions and other marketing and sales initiatives, legal and regulatory
initiatives and conditions in the capital markets. Forward-looking statements
made by the Company are based on knowledge of its business and the environment
in which it operates, but because of the factors listed above, as well as
other factors, beyond the control of the Company, actual results may differ
from those in the forward-looking statements.
73
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 29, 1998, information concerning
the beneficial ownership of shares of White River Common Stock by each
director and executive officer of White River individually and by all current
directors and executive officers as a group. As of May 29, 1998, White River
had 4,874,756 outstanding shares of White River Common Stock.
MANAGEMENT OF WHITE RIVER
<TABLE>
<CAPTION>
NUMBER OF SHARES OF WHITE RIVER COMMON STOCK
-------------------------------------------------------
RIGHTS TO
SHARES ACQUIRE OWNERSHIP
NAME OF BENEFICIAL OWNER(1) OWNED(2) SHARES(3) TOTAL PERCENTAGE(4)
- --------------------------- ----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Patrick M. Byrne(4)..... -- -- -- --
Andrew Delaney.......... 500 -- 500 (5)
Gordon S. Macklin....... 5,000 -- 5,000 (5)
Robert T. Marto......... 16,505 294,432 310,937 6.4%
Bonnie B. Stewart....... 1,178 -- 1,178 (5)
Michael E. B. Spicer.... -- -- -- --
Brian P. Zwarych........ -- -- -- --
All current directors
and executive officers
as a group............. 23,183 294,432 317,615 6.5%
</TABLE>
- --------
(1) All current directors and executive officers may be contacted at White
River's principal executive office at Two Gannett Drive, Suite 200, White
Plains, NY 10604.
(2) Determined based on the beneficial ownership provisions specified in Rule
13d-3(d)(1) of the Exchange Act. Unless otherwise noted, the indicated
beneficial ownership represents sole voting and investment powers.
(3) Represents shares of White River Common Stock deliverable upon exercise of
options to purchase shares of White River Common Stock owned by Fund
American. Such options expire in 1998 and were issued, concurrent with the
purchase and other transfer of selected assets and the assumption of
certain liabilities from Fund American, to replace then outstanding
employee options to purchase Fund American common stock.
(4) Patrick M. Byrne has voting power with respect to 15,000 shares of White
River Common Stock held in trust for his benefit but he disclaims any
beneficial ownership of such shares of White River Common Stock. In
addition, he is the son of John J. Byrne, who is the beneficial owner of
835,112 shares of White River Common Stock, representing 17.1% of the
total outstanding shares of White River Common Stock. Patrick M. Byrne
disclaims any beneficial ownership of shares of White River Common Stock
held by John J. Byrne.
(5) Represents less than 1.0% of the total outstanding shares of White River
Common Stock.
74
<PAGE>
CERTAIN BENEFICIAL OWNERS
To the knowledge of White River, no person or entity beneficially owns more
than 5% of the outstanding White River Common Stock, except as follows:
<TABLE>
<CAPTION>
OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED(1) PERCENTAGE(1)
------------------------------------ --------------- -------------
<S> <C> <C>
Fund American Enterprises Holdings, Inc.(2)...... 1,014,250 20.8%
80 South Main Street
Hanover, NH 03755
John J. Byrne(3)................................. 835,112 17.1%
c/o Fund American Enterprises Holdings, Inc.
80 South Main Street
Hanover, NH 03755
Robert T. Marto(4)............................... 310,937 6.4%
777 Westchester Avenue, Suite 201
White Plains, NY 10604
</TABLE>
- --------
(1) Determined based on the beneficial ownership provisions specified in Rule
13d-3(d)(1) of the Exchange Act.
(2) According to filings made by Fund American with the SEC, Fund American
reported that it and John J. Byrne believe that they do not constitute a
group with respect to shares of White River Common Stock owned by Fund
American. In addition, Fund American disclaims any beneficial ownership of
shares of White River Common Stock owned by John J. Byrne. See note (3).
(3) John J. Byrne is the Chairman, and former President and Chief Executive
Officer of Fund American. According to a filing made by John J. Byrne with
the Commission, he believes that he and Fund American do not constitute a
group with respect to shares of White River Common Stock owned by him, and
he disclaims any beneficial ownership of shares of White River Common
Stock owned by Fund American. John J. Byrne has sole voting and investment
power with respect to shares of White River Common Stock for which he
claims beneficial ownership. See note (2).
(4) According to a filing made by Mr. Marto with the Commission, the shares of
White River Common Stock to which Mr. Marto claims beneficial ownership
include options to purchase 294,432 shares of White River Common Stock
owned by Fund American. Such options expire in 1998 and were issued,
concurrent with the purchase and other transfer of selected assets and the
assumption of certain liabilities from Fund American, to replace then
outstanding employee options to purchase Fund American common stock.
75
<PAGE>
DIVIDENDS AND PRICE RANGE OF COMMON STOCK
The White River Common Stock is listed and traded on the Nasdaq under the
symbol "WHRC" The following table reflects the high and low sales prices per
share of White River Common Stock, as reported on the Nasdaq. Since September
24, 1993, the date White River was spun off from Fund American, no dividends
have been declared on shares of White River Common Stock and the White River
Board currently does not intend to declare ordinary periodic dividends to
holders of White River Common Stock. If the Merger is not consummated, the
White River Board intends to reevaluate from time to time the declaration of
ordinary dividends with due consideration given to the financial
characteristics of White River's investments, its continuing operations and
the amount and regularity of its cash flows as of that time. There can be no
assurance as to when or whether the White River Board will declare any
ordinary dividends. In addition, under certain circumstances, White River may
make an extraordinary distribution of investments, cash, or a combination
thereof to stockholders if, in the judgment of the White River Board, the
available resources of White River exceed its internal and acquisition needs.
<TABLE>
<CAPTION>
HIGH LOW
--------- --------
<S> <C> <C>
1996
1st Quarter............................................. $38 3/4 $36 1/2
2nd Quarter............................................. $46 10/16 $37 1/4
3rd Quarter............................................. $65 $44 1/2
4th Quarter............................................. $65 $52 5/16
1997
1st Quarter............................................. $69 $54 1/2
2nd Quarter............................................. $73 $61 1/2
3rd Quarter............................................. $84 $59 1/2
4th Quarter............................................. $81 $65 1/8
1998
1st Quarter............................................. $91 3/4 $76 5/16
2nd Quarter (through June 2, 1998)...................... $90 1/2 $86 1/2
</TABLE>
On April 6, 1998, the last trading day before White River announced that the
White River Board had approved the Merger Agreement, the high and low sales
prices for White River Common Stock on the Nasdaq were $90 and $89 1/2,
respectively. On June 2, 1998, the last trading day practicable for which
quotations were available prior to the printing of this Proxy Statement, the
closing price for White River Common Stock on the Nasdaq was $88.
76
<PAGE>
INDEPENDENT AUDITORS
It is anticipated that a representative from Ernst & Young LLP, White
River's independent auditors, will be present at the Special Meeting and will
have the opportunity to make a statement and respond to appropriate questions.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PROPOSALS BY STOCKHOLDERS FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS
If the Merger is not consummated, or if it is not consummated within the
time period currently contemplated, White River will hold a 1998 Annual
Meeting of Stockholders. As described in White River's proxy statement
relating to its 1997 Annual Meeting of Stockholders, in order for proposals of
White River's stockholders to be considered for inclusion in the proxy
statement relating to its 1998 Annual Meeting of Stockholders, such proposals
must have been received at White River's executive office not later than
December 8, 1997. No such proposals were received by White River by such date.
SOLICITATION OF PROXIES
Proxies will be solicited by mail, telephone, or other means of
communication. Solicitation of proxies also may be made by directors, officers
and regular employees of White River. White River has retained CIC to assist
in the solicitation of proxies from stockholders. CIC will receive a fee of
approximately $15,000 plus expenses. White River will request banks, brokerage
firms, custodians, nominees and fiduciaries to forward materials to the
beneficial owners of shares and will reimburse such persons, in accordance
with the rules of Nasdaq, for reasonable expenses incurred by them in
forwarding such materials. The entire cost of solicitations will be borne by
White River.
77
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Statements of Financial Condition............................. F-1
Consolidated Statements of Income.......................................... F-2
Consolidated Statements of Stockholders' Equity............................ F-3
Consolidated Statements of Cash Flows...................................... F-4
Notes to Consolidated Financial Statements................................. F-5
Report on Management's Responsibilities.................................... F-26
Report of Ernst & Young LLP................................................ F-27
Report of Price Waterhouse LLP............................................. F-28
Consolidated Interim Statements of Financial Condition..................... F-29
Consolidated Interim Statements of Operations (Unaudited).................. F-30
Consolidated Interim Statements of Cash Flow (Unaudited)................... F-31
Notes to Consolidated Interim Financial Statements (Unaudited)............. F-32
</TABLE>
All financial statement schedules are omitted as they are not applicable or
the information required is included in the consolidated financial statements
or notes thereto.
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS
<S> <C> <C>
ASSETS
Cash and cash equivalents......................... $ 190,515 $ 188,365
Investment securities, at market value (adjusted
cost: $63,940 and $42,892)....................... 122,688 72,699
Accounts receivable, less allowances of $2,661 and
$1,942........................................... 19,617 10,661
Other current assets.............................. 7,091 4,545
------------ ------------
Total current assets............................ 339,911 276,270
Investment securities, at market value (adjusted
cost: $14,855)................................... 41,434 --
Other investments, at adjusted cost (fair value:
$276 and $39,813)................................ 276 26,420
Goodwill, less accumulated amortization of $20,051
and $14,675...................................... 18,754 23,730
Purchased software and equipment, net............. 18,431 20,478
Deferred income tax asset......................... 7,264 6,410
Other assets...................................... 1,063 1,204
------------ ------------
Total assets.................................... $ 427,133 $ 354,512
============ ============
LIABILITIES
Accounts payable and accrued expenses............. $ 24,134 $ 21,334
Deferred revenues................................. 5,824 5,709
Current portion of contract funding............... -- 123
Current portion of notes payable and other debt... 111 120
Redeemable preferred stock........................ 7,000 --
------------ ------------
Total current liabilities....................... 37,069 27,286
Deferred income tax liability..................... 44,676 21,867
Notes payable and other debt...................... -- 111
Other liabilities................................. 10,765 22,591
------------ ------------
Total liabilities............................... 92,510 71,855
------------ ------------
Redeemable preferred stock........................ 189 7,175
------------ ------------
Minority interest................................. 33,687 18,950
------------ ------------
Stockholders' equity
Series B, Participating Cumulative Preferred
Stock--par value $1.00 per share; 50,000 shares
designated; none issued.......................... -- --
Common stock--par value $0.01 per share;
62,500,000 shares authorized; 6,370,000 shares
issued........................................... 64 64
Common paid-in surplus............................ 250,942 249,546
Retained earnings................................. 43,166 36,438
Net unrealized investment gains, net of tax....... 55,449 19,358
Common stock in treasury, at cost (1,495,244
shares).......................................... (48,874) (48,874)
------------ ------------
Total stockholders' equity...................... 300,747 256,532
------------ ------------
Total liabilities, redeemable preferred stock,
minority interest and stockholders' equity....... $ 427,133 $ 354,512
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-1
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
------------ ------------ ------------
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C>
REVENUES
Insurance-related services............ $ 159,106 $ 130,977 $ 115,519
Investment income..................... 11,362 8,984 8,276
Other revenues........................ 9,442 5,437 --
------------ ------------ ------------
Total revenues.................... 179,910 145,398 123,795
------------ ------------ ------------
OPERATING EXPENSES
Compensation and benefits............. 82,028 63,725 51,781
Other operating expenses.............. 92,327 74,834 75,429
------------ ------------ ------------
Total operating expenses.......... 174,355 138,559 127,210
------------ ------------ ------------
Operating income (loss)........... 5,555 6,839 (3,415)
------------ ------------ ------------
NET INVESTMENT GAINS
Net realized investment gains......... 27,492 16,150 25,037
Change in net unrealized investment
gains and losses..................... -- -- 11,218
------------ ------------ ------------
Net investment gains.................. 27,492 16,150 36,255
------------ ------------ ------------
OTHER EXPENSE
Interest expense...................... 171 2,562 8,936
Minority interest..................... 10,065 971 --
------------ ------------ ------------
Total other expense............... 10,236 3,533 8,936
------------ ------------ ------------
PRETAX INCOME......................... 22,811 19,456 23,904
Income tax expense.................... 15,610 14,306 7,909
------------ ------------ ------------
Income before extraordinary item...... 7,201 5,150 15,995
Extraordinary loss on early retirement
of debt, net of tax of $437.......... -- 678 --
------------ ------------ ------------
Net income............................ 7,201 4,472 15,995
Dividends and accretion on redeemable
preferred stock...................... 473 727 585
------------ ------------ ------------
Net income applicable to common
shares............................... $ 6,728 $ 3,745 $ 15,410
============ ============ ============
EARNINGS PER COMMON SHARE:
Basic:
Income before extraordinary items... $ 1.38 $ 0.91 $ 2.94
Net income.......................... $ 1.38 $ 0.77 $ 2.94
Diluted:
Income before extraordinary items... $ 1.31 $ 0.85 $ 2.84
Net income.......................... $ 1.31 $ 0.73 $ 2.84
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
COMMON UNREALIZED COMMON
COMMON PAID-IN RETAINED INVESTMENT STOCK IN
TOTAL STOCK SURPLUS EARNINGS GAINS TREASURY
-------- ------ -------- -------- ---------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Balances as of December
31, 1994............... $195,226 $64 $199,936 $17,283 $ -- $(22,057)
Net income............ 15,995 15,995
Dividends and
accretion on
redeemable preferred
stock................ (585) (585)
Adoption of SFAS No.
115, effective
September 30, 1995,
net of tax........... 2,484 2,484
Change in unrealized
investment gains and
losses, net of tax... 5,835 5,835
Repurchases of 762,410
shares of Common
Stock................ (25,694) (25,694)
-------- --- -------- ------- ------- --------
Balances as of December
31, 1995............... $193,261 $64 $199,936 $32,693 $ 8,319 $(47,751)
Net income............ 4,472 4,472
Dividends and
accretion on
redeemable preferred
stock................ (727) (727)
Change in unrealized
investment gains and
losses, net of tax... 11,039 11,039
Repurchases of 28,165
shares of Common
Stock................ (1,123) (1,123)
Effects of initial
public offering of
CCC Common Stock, net
of tax............... 49,506 49,506
Other, net............ 104 104
-------- --- -------- ------- ------- --------
Balances as of December
31, 1996............... $256,532 $64 $249,546 $36,438 $19,358 $(48,874)
-------- --- -------- ------- ------- --------
Net income............ 7,201 7,201
Dividends and
accretion on
redeemable preferred
stock................ (473) (473)
Change in unrealized
investment gains and
losses, net of tax... 36,091 36,091
Other, net............ 1,396 1,396
-------- --- -------- ------- ------- --------
Balances as of December
31, 1997............... $300,747 $64 $250,942 $43,166 $55,449 $(48,874)
======== === ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
IN THOUSANDS
<S> <C> <C> <C>
Net income...................................... $ 7,201 $ 4,472 $ 15,995
Adjustments to reconcile net income to net cash
and cash equivalents provided from (used for)
operations:
Net investment gains.......................... (27,492) (16,150) (36,255)
Amortization and depreciation................. 11,823 12,213 14,170
Repayment of contract funding balances........ (123) (3,340) (10,249)
Deferred income tax expense (benefit)......... 2,520 (3,358) 9,002
Amortization of goodwill...................... 5,376 5,186 6,194
Minority interest............................. 10,065 971 --
Extraordinary loss on early retirement of
debt, net of tax............................. -- 678 --
Changes in:
Other current assets and accounts receivable.. (11,502) (724) --
Accounts payable and accrued expenses......... 2,800 137 6,030
Other liabilities............................. (7,154) 9,935 1,990
Deferred revenues............................. 115 646 --
Other, net.................................... (490) 1,105 3,117
-------- -------- --------
Net cash and cash equivalents provided from
(used for) operations.......................... (6,861) 11,771 9,994
-------- -------- --------
Cash flows provided from investing activities:
Proceeds from sales of investments............ 93,148 21,106 29,921
Purchases of investments...................... (75,164) (11,005) --
Purchases of software and equipment........... (9,776) (5,568) (3,003)
Proceeds from Faneuil Sale, net of expenses... -- -- 500
Other, net.................................... -- (97) 48
-------- -------- --------
Net cash and cash equivalents provided from in-
vesting activities............................. 8,208 4,436 27,466
-------- -------- --------
Cash flows provided from (used for) financing
activities:
Net proceeds from issuance of subsidiary
stock........................................ 1,396 73,795 --
Proceeds from notes payable and other debt.... -- 10,750 44,000
Payment of equity and debt issue costs........ -- (2,053) --
Repurchases of Common Stock................... -- (1,188) (25,652)
Redemption of redeemable preferred stock,
including accrued dividends.................. -- (1,354) --
Principal payments on notes payable and other
debt......................................... (120) (46,740) (11,101)
Dividends paid on redeemable preferred stock.. (473) (473) (473)
Other, net.................................... -- 176 26
-------- -------- --------
Net cash and cash equivalents provided from fi-
nancing activities............................. 803 32,913 6,800
-------- -------- --------
Net increase in cash and cash equivalents during
period......................................... 2,150 49,120 44,260
Cash and cash equivalents balance at beginning
of period...................................... 188,365 139,245 94,985
-------- -------- --------
Cash and cash equivalents balance at end of pe-
riod........................................... $190,515 $188,365 $139,245
======== ======== ========
Supplemental information:
Income taxes paid (refunded).................. $ 10,219 $ 12,690 $ (943)
Interest paid................................. $ 130 $ 2,573 $ 7,324
Non-cash equipment financing.................. $ -- $ 1,341 $ 888
Exchanges of investments in settlement of
notes payable and other debt................. $ -- $ -- $ 90,000
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
White River Corporation (together with its wholly-owned subsidiaries, unless
the context requires otherwise, "White River" or, together with all of its
subsidiaries, the "Company") commenced operations in its present form on
September 24, 1993, concurrent with the purchase and other transfer of
selected assets and the assumption of certain liabilities (collectively, the
"Capitalization") from its former parent company, Fund American Enterprises
Holdings, Inc. and certain of its subsidiaries (together, "Fund American").
Prior to the Capitalization, White River served as the holding company for
Fund American's investment management subsidiaries, and essentially inactive
insurance subsidiaries. On December 22, 1993 (the "Distribution Date"), Fund
American distributed (the "Distribution") approximately 75% of the outstanding
shares of White River common stock, par value $0.01 per share (the "Common
Stock"), to all holders of Fund American common stock.
During June 1994, White River completed its acquisition of a majority of the
total outstanding common stock, par value $0.10 per share (the "CCC Common
Stock"), of CCC Information Services Group Inc., formerly InfoVest
Corporation, (together with its subsidiaries, unless the context requires
otherwise, "CCC"). CCC, through CCC Information Services Inc. and certain
other subsidiaries, is a supplier of automobile claims information and
processing, claims management software and communication services. As of
December 31, 1997, White River held approximately 35% of the total outstanding
shares of CCC Common Stock and shares of CCC preferred stock that in the
aggregate continue to provide White River with a majority of the voting power
associated with CCC's total outstanding voting stock.
Based upon the composition of its assets at the time of the Capitalization,
White River met the definition of an investment company (an "Investment
Company") under the Investment Company Act of 1940 (the "Investment Company
Act"). In anticipation of the Distribution, White River submitted an
application to the Securities and Exchange Commission (the "Commission")
seeking exemptive relief from various provisions of the Investment Company
Act. During December 1993, White River received from the Commission a
temporary exemption (the "Exemptive Order") from registering as an Investment
Company. As such, White River was exempted from some, but not all, of the
provisions of the Investment Company Act for a period of up to two years from
the date of such Exemptive Order. From September 30, 1993 until October 1995,
White River was an Investment Company as defined in section 3(a)(3) of the
1940 Act. The 1993 exemptive order granted by the Commission did not change
its status, and therefore it was appropriate to use investment company
accounting for White River during this time. During October 1995, White River
filed a report with the Commission which concluded, effective September 30,
1995, that White River no longer met the definition of an Investment Company,
at which time White River commenced the preparation of its financial
statements in accordance with GAAP for operating companies. Accordingly, White
River no longer needs to rely upon the relief provided by the Exemptive Order.
Since the filing of such report, White River has conducted and intends to
continue to conduct its business operations so as to avoid having to register
as an Investment Company under the Investment Company Act.
On December 11, 1997, White River announced the signing of a merger
agreement under which an affiliate of Harvard Private Capital Group, Inc.
("Harvard Private Capital") would acquire White River for approximately $400
million in cash. Under the Merger Agreement, among other things, WRC
MergerCorp. ("MergerCo") would be merged with and into White River (the
"Merger"), and each share of Common Stock, par value $0.01 per share (the
"White River Common Stock") (other than treasury shares held by White River or
Dissenting Shares), outstanding at the Effective Time would be converted into
the right to receive approximately $82.02 in cash, without interest and
subject to adjustment under certain circumstances as described further in the
Merger Agreement. The transaction would be fully financed and would not be
subject to a financing condition. The merger price would be subject to
adjustment under certain circumstances, and,
F-5
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
therefore, the price per share actually received upon consummation of the
merger could be greater or less than $82.02. Holders of White River's Series A
Preferred Stock would receive the stated value of $1,000 per share plus any
accrued and unpaid dividends.
In connection with the transaction, White River amended its shareholders'
rights plan to provide, among other things, that the exercisability of rights
will not be triggered by the merger agreement and that the rights will expire
immediately prior to the consummation of the merger. Accordingly, the rights
will not be redeemed and no payment will be made to stockholders in respect of
their rights.
On March 10, 1998, Fund American made a proposal to White River to negotiate
the acquisition of all of the outstanding shares of common stock of White
River not owned by Fund American for a total consideration of up to $85.00 per
share in cash, subject to satisfactory completion of due diligence and to
successful negotiation, Fund American Board approval and signing of a
definitive agreement.
On March 23, 1998, Harvard Private Capital proposed an amendment to the
Merger Agreement which would modify the Merger Agreement by: 1) increasing the
merger consideration to approximately $434 million ($89.00 per share), subject
to certain adjustments; and 2) requiring White River to pay a "break up" fee
of $13.5 million in the event that the merger is not successfully concluded by
June 30, 1998 for reasons other than a breach of the Merger Agreement by
Harvard Private Capital.
On March 30, 1998, Fund American increased its proposal to purchase all
shares of White River not owned by Fund American to $90 cash per share,
contingent, among other things, on White River Board acceptance by Monday,
April 6, 1998, and execution of a mutually satisfactory definitive agreement,
and certain other contingencies.
On April 2, 1998, Harvard Private Capital proposed another amendment to the
Merger Agreement. The proposed amendment would modify the Merger Agreement by,
among other things: 1) increasing the merger consideration to approximately
$442 million ($90.67 per share), subject to certain adjustments; and 2)
requiring White River to pay a "break up" fee of $13.5 million in the event
that the merger is not successfully concluded by June 30, 1998 for reasons
other than a breach of the Merger Agreement by Harvard Private Capital.
On April 3, 1998, Fund American reaffirmed its proposal to purchase all
shares of White River not owned by Fund American for $90 cash per share, and
removed certain contingencies.
On April 6, 1998, after further discussions with Harvard Private Capital and
Fund American, the White River Board evaluated the two proposals based on its
fiduciary duty to maximize shareholder value and decided to accept the Harvard
Private Capital proposal. Under the terms of the amended agreement, Harvard
Private Capital, among other things, will pay White River shareholders $90.67
per share in cash, subject to adjustment which could result in a higher or
lower price at closing. In addition, White River agreed to pay Harvard Private
Capital a termination fee of $15 million, plus up to $1.5 million in
reimbursable expenses, in the event that the merger agreement is terminated
under certain circumstances.
Consummation of the merger is subject to customary conditions, including the
approval of White River's stockholders and the absence of any material adverse
change. The merger agreement may be terminated by any of the parties in the
event that the Board of Directors of White River withdraws its recommendation
of the transaction to stockholders or recommends an alternative transaction.
The parties expect the merger to occur during the second quarter of 1998.
F-6
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
White River and its subsidiaries, including those of CCC from the effective
date of the acquisition of CCC by White River. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP"). All significant intercompany balances have been
eliminated in consolidation. Certain prior period balances have been
reclassified to conform to current financial statement presentation.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amount
of assets and liabilities as well as the disclosure of contingent assets and
liabilities as of the date of the financial statements. Such estimates also
have a pervasive affect upon the reported amounts of revenues and expenses
reflected in the consolidated statements of operations. Actual results could
differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents.
Substantially all of the Company's cash and cash equivalents as of December
31, 1997 and 1996 are in interest-bearing deposits with maturities of six days
or less. The majority of such deposits are held by major banking institutions.
INVESTMENTS
White River considers its investment securities to be available for sale.
Based on the composition of its assets at the time of the Capitalization,
White River met the definition of an Investment Company under the Investment
Company Act. Accordingly, White River's accounting policies regarding the
carrying value of investments, as well as the treatment of changes in net
unrealized gains and losses relating to investments held, conformed to GAAP
for Investment Companies until such time as White River ceased to meet the
definition of an Investment Company. As discussed in Note 1, effective
September 30, 1995, White River no longer meets the definition of an
Investment Company. Accordingly, White River adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" as of such date. As a
result of the adoption of SFAS No. 115, investments classified by White River
as investment securities continue to be carried at market value; however,
changes in net unrealized gains and losses are reported net of tax as a
separate component of stockholders' equity. Securities classified by White
River as other investments, which had been carried at market value under GAAP
for Investment Companies, are carried at adjusted cost, which reflects such
securities' carrying value immediately preceding the adoption of SFAS No. 115.
As a result of the adoption of SFAS No. 115, the carrying value of White
River's interest in Cross Timbers Oil Company ("Cross Timbers") common stock
increased by $3.8 million to reflect the undiscounted market value of such
interest as of September 30, 1995. Such increase totalled $2.5 million net of
tax and was recorded directly as a separate component of stockholders' equity.
Investments classified by White River as investment securities include
certain common shares, trust units, limited partnership interests and debt
securities that are not restricted by contract or governmental statute or
F-7
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
regulation as to resale and which have established fair market values.
Investment securities as of December 31, 1997, include White River's interest
in Cross Timbers common stock due to White River's demand registration rights
relating to such securities, and White River's interest in NWA Partners, due
to the lapsing of restrictions on the investments held by such partnership
(prior to the lapsing of such restrictions, the investment was recorded in
"other investments"). Prior to September 30, 1995, investment securities were
carried at market value and changes in net unrealized gains and losses were
included in net income. Effective September 30, 1995, investment securities
continue to be carried at market value, however, changes in net unrealized
gains and losses are reported net of tax as a separate component of
stockholders' equity. During 1997, the restrictions on the sale of the
underlying assets (marketable equity securities) in NWA Partners lapsed.
Accordingly, at December 31, 1997, the Company has classified its investment
in NWA Partners as an available for sale security and has recorded such
investment at fair value ($41.4 million), resulting in an unrealized gain (net
of tax) of $17.3 million. Prior to June 1997 (lapsing of restrictions), such
investment was carried at adjusted cost (see Note 4).
Prior to September 30, 1995, investments classified by White River as other
investments included certain securities and partnership interests having no
established market value and carried at internally appraised values, certain
convertible securities having no established market value and carried at
internally appraised values based upon their conversion features, and certain
securities which, due to restrictions regarding resale, were carried at a
discount to the quoted market value for similar unrestricted securities. Upon
the adoption of SFAS No. 115, securities which continue to be classified by
White River as other investments are carried at adjusted cost, which reflects
such securities' carrying value immediately preceding the adoption of SFAS No.
115. White River's internal valuation techniques are intended to provide good
faith estimates of the fair values of the underlying securities for which
objective market valuations are unavailable. The actual amounts realized on
disposition of these other investments may differ significantly from such good
faith estimates due to changes in facts and circumstances which occur or
become quantifiable subsequent to the time that such estimates are made,
particularly because changes in estimated fair value of these securities that
occur subsequent to September 30, 1995, will not be reflected in such
securities' carrying values unless the change represents a decline in value
which is deemed to be other than temporary in nature. Prior to September 30,
1995, changes in net unrealized gains and losses relating to other investments
were included as a component of net income.
Purchases and sales of investments are recorded as of the trade date.
Realized gains and losses resulting from sales of investments are accounted
for using the specific identification method. Interest income on debt
securities and interest-bearing cash and cash equivalents is recognized when
earned and dividends on investments are recognized as of the ex-dividend date.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a summary of activity in the allowance for doubtful
accounts ($ in millions):
<TABLE>
<S> <C>
January 1, 1995....................................................... $ 0.9
Write-offs.......................................................... (1.7)
Provision........................................................... 2.3
-----
December 31, 1995..................................................... 1.5
Write-offs.......................................................... (3.4)
Provisions.......................................................... 3.8
-----
December 31, 1996..................................................... 1.9
Write-offs.......................................................... (2.7)
Provisions.......................................................... 3.5
-----
December 31, 1997..................................................... $ 2.7
=====
</TABLE>
F-8
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GOODWILL
Goodwill represents the excess of the acquisition cost of CCC, including
liabilities assumed, over the fair value of the net assets acquired. Goodwill
is amortized on a straight-line basis over its expected economic life of seven
years. The original goodwill recorded in connection with the acquisition of
CCC by White River has been adjusted to reflect subsequent changes in the cost
of acquiring CCC and to reflect the reversal of certain deferred tax asset
valuation allowances relating to CCC.
The carrying value of goodwill is periodically reviewed by management and a
write-down for permanent impairment would be recognized if and when the
expected cash flows relating to these assets indicate that such carrying value
is not recoverable.
PURCHASED SOFTWARE AND EQUIPMENT
Purchased software is stated at cost, net of accumulated amortization.
Amortization is provided on a straight-line basis over estimated useful lives
ranging from two to five years. Equipment is stated at cost, net of
accumulated depreciation. Depreciation is provided on a straight-line basis
over estimated useful lives ranging from two to 15 years.
The carrying value of purchased software and equipment is periodically
reviewed by management and a write-down for permanent impairment would be
recognized if and when the expected cash flows derived from these assets
indicate that such carrying value is not recoverable.
CONTRACT FUNDING
The right to receive future revenue streams under certain end-user collision
estimating contracts (the "Contracts") have been discounted and sold to
various investors ("Contract Funding"). Cash proceeds from a sold Contract
equals the Contract's future revenue stream, discounted at a rate of
approximately 14% per annum, less, for certain Contracts, investor reserves
for customer nonperformance under the Contracts. Sales proceeds and related
interest expense are recognized as revenue and interest expense, respectively,
over the life of the Contract. CCC no longer utilizes Contract Funding as a
source of financing.
REVENUE RECOGNITION
Insurance-related services revenue, including vehicle valuation, claims
management and other service revenues, are recognized as services are
provided. During the years ended December 31, 1997 and 1996, and 1995, 66%,
69% and 70%, respectively, of total insurance-related services revenue were
attributable to the insurance industry.
INCENTIVE COMPENSATION
White River ratably recognizes expense relating to its long-term incentive
and director compensation plans over the applicable service periods based upon
projected future payments under these plans. For this purpose, such projected
future payments are determined using the current end-of-period market price of
the Common Stock.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs incurred by CCC, principally in connection
with the design and development of software products, are expensed as
incurred. Such expenses incurred by CCC of $5.5 million, $4.3 million and $3.5
million are reflected in the accompanying consolidated statements of
operations for the years ended December 31, 1997, 1996, and 1995,
respectively.
F-9
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Software development costs, if material, are capitalized when sufficient
evidence exists that technological feasibility has been established.
Technological feasibility is considered to be established upon completion of a
working model. The time period during which costs would be capitalized, from
the point of attaining technological feasibility until the time of general
product release, is very short and, consequently, the amounts that could be
capitalized are not material to the Company's consolidated financial position
or results of operations.
INCOME TAXES
White River and its qualifying subsidiaries file a consolidated Federal
income tax return, and CCC and its qualifying subsidiaries file their own
consolidated Federal income tax return. The consolidated income tax provision
for book purposes is computed by combining the separate tax provisions of
White River and CCC.
The Company provides for deferred income taxes which reflect the tax effects
of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes. In this context, the tax effect is measured using the statutory
tax rate expected to apply to taxable income in the periods in which the
deferred tax liability or asset is expected to be settled or realized.
Furthermore, deferred tax assets are recorded net of a valuation allowance if
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. White River's and CCC's deferred tax assets and
liabilities are not netted for financial reporting purposes.
ISSUANCE OF SUBSIDIARY STOCK
White River records the gain or loss associated with issuances of subsidiary
stock as a component of consolidated stockholders' equity within the caption
Common Paid-in Surplus.
EARNINGS PER SHARE
In December 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128 "Earnings Per Share," and restated prior periods.
Under this statement, primary and fully diluted EPS were replaced with basic
and diluted EPS, respectively. In computing basic EPS, the dilutive effect of
stock options and warrants are excluded.
The following table presents the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Net earnings available to common
shareholders........................... $6,728,000 $3,745,000 15,410,000
Denominator:
Denominator for basic earnings per
share--weighted-average shares......... 4,874,756 4,881,190 5,237,348
Dilutive effect of performance-based
compensation............................. 248,353 298,517 191,348
---------- ---------- ----------
Denominator for diluted earnings per
share.................................. 5,123,109 5,179,707 5,428,696
---------- ---------- ----------
Basic earnings per share.................. $ 1.38 $ 0.77 $ 2.94
---------- ---------- ----------
Diluted earnings per share................ $ 1.31 $ 0.73 $ 2.84
========== ========== ==========
</TABLE>
F-10
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ADOPTION OF ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". In addition to net income, comprehensive income includes items
recorded directly to stockholders' equity, such as unrealized gains and losses
on certain investments in equity, preferred stock accretion, preferred stock
dividends and the income tax benefit related to the exercise of certain stock
options. This statement establishes new standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997. Adoption of this standard will require an additional
financial statement disclosure detailing the Company's comprehensive income.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes new
standards for reporting information about operating segments in interim and
annual financial statements. This statement is also effective for fiscal years
beginning after December 15, 1997. The Company is currently evaluating the
impact this statement will have on the consolidated financial statements.
NOTE 3. CCC
CCC IPO
During August 1996, CCC completed its IPO resulting in net proceeds of $72.1
million. Proceeds from the CCC IPO were used to repay certain bank debt and,
as required by the terms of the CCC Preferred Stock, CCC used 50% of the net
proceeds to redeem 87.4% of the outstanding shares of CCC Preferred Stock at
stated value of $34.1 million, plus accrued dividends of $2.0 million. White
River received principal of $32.8 million and dividends totaling $2.0 million
as a result of the redemption of the CCC Preferred Stock.
As of December 31, 1997, White River held approximately 35% of the total
outstanding shares of CCC Common Stock, all 630 shares of Series C Preferred
Stock with an aggregate stated value of $0.6 million, 3,601 of the 3,785
shares of Series D Preferred Stock with an aggregate stated value of $3.8
million and all 500 shares of Series E Preferred Stock with an aggregate
stated value of $0.5 million, which together with the shares of CCC Common
Stock held by White River, continue to provide White River with a majority of
the voting power associated with CCC's total outstanding voting stock. Since
White River retained in excess of 50% of the voting rights of CCC, and in view
of White River's representation on the CCC Board, White River continues to
consolidate the accounts of CCC.
In connection with the execution of the 1994 CCC Reorganization Agreement,
White River, CCC and certain identified stockholders of CCC executed a
stockholders' agreement dated as of June 16, 1994 (the "CCC Stockholders'
Agreement"), which, among other things, addresses the corporate governance of
CCC and certain other matters relating to the conduct of its business. The CCC
Stockholders' Agreement provides that CCC's board of directors (the "CCC
Board") will consist of seven members, two of whom will be designated by White
River until such time as all of the shares of CCC Preferred Stock have been
redeemed and two of whom will be nominated by White River, subject to CCC's
approval (which will not be unreasonably withheld), until the earlier of: (i)
an initial public offering of CCC Common Stock, or (ii) redemption of all of
the shares of the CCC Preferred Stock. After the CCC IPO, White River's
designees to the CCC Board continue to be the Chairman of the board of
directors of White River (the "White River Board") and an additional director
of White River, and White River continues to provide two additional nominees.
White River and CCC executed an agreement dated as of June 16, 1994,
pursuant to which CCC agreed to issue to White River 500 shares of CCC Series
E Cumulative Redeemable Preferred Stock, stated value $1,000 per share (the
"Series E Preferred Stock"), in exchange for 500 shares of Series D Preferred
Stock. The issuance
F-11
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of the Series E Preferred Stock would occur only in the event that the number
of shares of CCC Common Stock owned by White River represented less than a
majority of the total issued and outstanding shares of CCC Common Stock. When
issued, the Series E Preferred Stock would represent up to a maximum of 51% of
the voting power of CCC when combined with the total shares of CCC Common
Stock already owned by White River. Immediately following the CCC IPO, White
River exchanged 500 shares of Series D Preferred Stock for the Series E
Preferred Stock.
The CCC Preferred Stock is subject to mandatory redemption by CCC five years
from the date of issuance (June 16, 1994) and is subject to earlier
redemption, in full or in part, upon the occurrence of certain events,
including a sale of CCC or public offerings of CCC Common Stock. During August
1996, CCC completed the initial public offering of 6.9 million newly issued
shares of CCC Common Stock, representing approximately 29% of the resulting
total outstanding CCC Common Stock (the "CCC IPO"). The CCC Preferred Stock
accrued cumulative dividends at a rate of 2.75% per annum through the CCC IPO.
Upon the CCC IPO, CCC made the required redemption in accordance with the
terms of the CCC Preferred Stock, and, in accordance with such terms,
dividends from the date of the CCC IPO through June 1998 are eliminated.
Thereafter, dividends will accrue at the rate of 8% per annum and will be paid
quarterly until such time as the CCC Preferred Stock is redeemed.
The Series E Preferred Stock will be redeemed by CCC in proportion to any
redemption of the CCC Preferred Stock, and is also subject to the same
mandatory redemption date of June 16, 1999. In accordance with the terms of
the Series E Preferred Stock, dividends through June 1998 are eliminated.
Thereafter, dividends will accrue at the rate of 8% per annum and will be paid
quarterly until such time as the Series E Preferred Stock is redeemed.
Pursuant to the terms of the Certificate of Designations for Series E
Preferred Stock, the voting power of the outstanding shares of Series E
Preferred Stock is reduced according to a formula to the extent that
outstanding shares of Series E Preferred Stock are either redeemed by CCC or
no longer owned by White River and its affiliates. If White River and its
affiliates were to continue to hold 35.0% of the outstanding shares of CCC's
Common Stock, the Series E Preferred Stock voting power combined with the
voting power of the CCC Common Stock held by White River would be less than a
majority when 353 (or 70.6%) of the 500 shares of Series E Preferred Stock had
been so redeemed or are no longer so owned. The outstanding shares of Series E
Preferred Stock are redeemable pro rata with the outstanding shares of Series
C and Series D Preferred Stock and other parity stock, if any.
CCC STOCK OPTION PLAN
CCC sponsors a nonqualified stock option plan (the "CCC Stock Option Plan")
pursuant to which the compensation committee (the "CCC Committee") of the CCC
Board may grant options with an exercise price not less than the greater of
$1.375 or the fair market value of the CCC Common Stock at the date of grant
(the "CCC Stock Options"). CCC Stock Options will generally be exercisable
within 5 years from the date of grant, subject to vesting schedules determined
at the discretion of the CCC Committee. In general, the outstanding CCC Stock
Options vest over 4 years. In accordance with the CCC Reorganization
Agreement, the total number of CCC Stock Options issuable under the CCC Stock
Option Plan were limited to 2,956,040. CCC's Board of Directors has approved a
new stock option plan that provides for the granting to employees of up to
675,800 new options to purchase CCC common stock. The proforma effects upon
reported net income assuming CCC had adopted the fair value based model of
accounting for stock options were insignificant.
As of December 31, 1997, 1,935,603 CCC Stock Options remained outstanding at
a weighted average exercise price of $7.11 per option, and a weighted average
remaining contractual life of 3.18 years. Based upon
F-12
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the number of shares of CCC Common Stock held by White River as of December
31, 1997, if all of the outstanding CCC Stock Options were exercised, White
River would own approximately 32% of the then total outstanding shares of CCC
Common Stock on a pro forma basis. However, as long as all of the shares of
the Series E Preferred Stock are outstanding, White River would continue to
have 51% of the vote associated with the total CCC voting stock outstanding.
NOTE 4. INVESTMENTS
Investment securities as of December 31, 1997 and 1996, consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
ADJUSTED CARRYING ADJUSTED CARRYING
COST VALUE COST VALUE
-------- -------- -------- --------
IN THOUSANDS
<S> <C> <C> <C> <C>
Cross Timbers Oil Company; common stock... $30,780 $ 89,777 $31,037 $60,803
United States Treasury Bills.............. 30,363 30,363 9,058 9,058
Other..................................... 2,797 2,548 2,797 2,838
------- -------- ------- -------
Total investment securities--current.... 63,940 122,688 42,892 72,699
------- -------- ------- -------
Richard C. Blum & Associates--NWA
Partners, L.P.; limited partnership
interest................................. 14,855 41,434 -- --
------- -------- ------- -------
Total investment securities--
noncurrent............................. 14,855 41,434 -- --
------- -------- ------- -------
Total investment securities............. $78,795 $164,122 $42,892 $72,699
======= ======== ======= =======
</TABLE>
Other investments as of December 31, 1997 and 1996, consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
ADJUSTED CARRYING ADJUSTED CARRYING
COST VALUE COST VALUE
-------- -------- -------- --------
IN THOUSANDS
<S> <C> <C> <C> <C>
Richard C. Blum & Associates--NWA
Partners, L.P.; limited partnership
interest................................. $-- $-- $21,848 $21,848
McFarland Energy, Inc.; common stock...... -- -- 4,295 4,295
Other..................................... 276 276 277 277
---- ---- ------- -------
Total other investments................. $276 $276 $26,420 $26,420
==== ==== ======= =======
</TABLE>
See Note 2 for a discussion of the investment in Richard C. Blum and
Associates--NWA Partners, L.P.
Investment income for the years ended December 31, 1997, 1996 and 1995,
consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
-------- ------- -------
IN THOUSANDS
<S> <C> <C> <C>
Interest income.................................... $ 10,570 $ 8,160 $ 6,814
Dividend, royalty trust and equity income.......... 792 824 1,462
-------- ------- -------
Total investment income.......................... $ 11,362 $ 8,984 $ 8,276
======== ======= =======
</TABLE>
F-13
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The investment securities contained unrealized gains of $85.3 million and
$29.8 million at December 31, 1997 and 1996, respectively. At December 31,
1995, the components of net unrealized gains and losses in the investment
securities portfolio consisted of unrealized gains of $12.9 million and
unrealized losses of $0.1 million.
Pretax net realized investment gains relating to the investment securities
portfolio were $27.5 million and $16.2 million during 1997 and 1996,
respectively. During the period September 30, 1995, through December 31, 1995,
pretax net realized investment losses relating to the investment securities
portfolio of $0.1 million consisted of realized gains of $0.8 million and
realized losses of $0.9 million.
During 1995, certain securities with an aggregate carrying value of $90.0
million were transferred to Fund American as repayment of the outstanding
principal balance due under White River's credit agreement with Fund American
(the "Credit Agreement"). See Note 7 for further discussion.
NOTE 5. PURCHASED SOFTWARE AND EQUIPMENT
Purchased software and equipment as of December 31, 1997 and 1996, consisted
of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
IN THOUSANDS
<S> <C> <C>
Purchased software, licenses and databases............... $ 31,052 $ 29,585
Computer equipment....................................... 27,934 22,866
Furniture and other equipment............................ 5,720 2,889
Leasehold improvements................................... 620 219
-------- --------
Total cost............................................. 65,326 55,559
Less accumulated depreciation and amortization........... (46,895) (35,081)
-------- --------
Total purchased software and equipment, net............ $ 18,431 $ 20,478
======== ========
</TABLE>
Purchased software, licenses and databases includes software with an
original cost of $31.9 million acquired by White River through the acquisition
of CCC, as well as software purchased from third-parties and used during
development of software products or for other internal operational activities.
Accumulated amortization of purchased software, licenses and databases
totalled $24.0 million and $17.9 million as of December 31, 1997 and 1996,
respectively.
Computer equipment, net of accumulated depreciation, on lease to customers
under operating leases of $2.4 million and $3.6 million, is included in
purchased software and equipment as of December 31, 1997 and 1996,
respectively. Future minimum lease payments under noncancellable customer
leases aggregate approximately $1.0 million in 1998.
Furniture and other equipment includes equipment under capital leases as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ------
IN THOUSANDS
<S> <C> <C>
Capital leases........................................... $ 574 $ 574
Less accumulated depreciation............................ (474) (357)
------ ------
Total, net............................................. $ 100 $ 217
====== ======
</TABLE>
F-14
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of December 31, 1997 and 1996,
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
IN THOUSANDS
<S> <C> <C>
Accounts payable............................................ $ 7,434 $ 6,760
Accrued compensation........................................ 7,479 5,092
Income taxes payable........................................ 2,712 4,097
Accrued professional fees................................... 2,725 1,484
Accrued sales tax........................................... 1,237 1,283
Accrued commissions......................................... 1,521 1,162
Other....................................................... 1,026 1,456
------- -------
Total accounts payable and accrued expenses............... $24,134 $21,334
======= =======
</TABLE>
NOTE 7. NOTES PAYABLE AND OTHER DEBT
Notes payable and other debt as of December 31, 1997 and 1996, consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
------ ------
IN THOUSANDS
<S> <C> <C>
CCC:
Equipment financing and capital lease obligations.......... $ 111 $ 231
CCC term loan.............................................. -- --
CCC revolving credit facility.............................. -- --
------ ------
Total.................................................... 111 231
Less current portion of notes payable and other debt......... (111) (120)
------ ------
Total notes payable and other debt....................... $ -- $ 111
====== ======
</TABLE>
WHITE RIVER
During December 1993, White River and Fund American entered into the Credit
Agreement which provided White River with a $50.0 million term loan which was
due and payable in March 1996 (the "Term Loan"), and a $40.0 million revolving
credit facility which expired in March 1995 (the "Revolver"). During 1995,
White River drew down $40.0 million under the Revolver prior to its
expiration. The Term Loan accrued interest at 6% per annum. Amounts borrowed
under the Revolver accrued interest at 2% per annum over the prime rate of
interest specified by the Credit Agreement. The interest rate in effect for
advances under the Revolver during 1995 was 11.0% per annum.
During 1995, and in accordance with the terms of the Credit Agreement, White
River repaid the principal balance of both the Term Loan and the Revolver, and
received an additional $14 million in cash from Fund American, by transferring
certain securities to Fund American with a carrying value of $93 million and a
fair value of $104 million. Accordingly, management accounted for the
transaction as retirement of debt with no corresponding gain or loss, and the
remaining $11 million was recognized as realized investment gains. Interest
expense relating to balances due under the Credit Agreement totalled $3.1
million for the year ended December 31, 1995.
CCC
In August 1996, CCC negotiated a credit facility with a commercial bank to
replace its prior bank credit facility (a term loan and revolving credit
facility). Upon refinancing of its prior credit facility, CCC wrote off all
unamortized deferred financing fees related to its prior bank credit facility
and recorded the loss as an
F-15
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
extraordinary item, net of tax, in its consolidated statement of income. The
current bank facility provides CCC with the ability to borrow up to $20
million under a revolving line of credit for general corporate purposes. The
interest rate under the current bank facility is the London Interbank Offering
Rate plus 1.5% per annum or the prime rate in effect from time to time, as
selected by CCC. When borrowings are outstanding, interest payments are made
monthly. There were no borrowings under the current bank credit facility
during 1997. CCC pays a commitment fee of 0.25% per annum on any unused
portion of the current bank credit facility. The current bank credit facility
terminates on October 1, 2001.
Under the current bank credit facility, CCC is, with certain exceptions,
prohibited from making certain sales or transfers of assets, incurring
nonpermitted indebtedness or encumbrances, and redeeming or repurchasing its
capital stock, among other restrictions. In addition, the current bank
facility requires CCC to maintain certain levels of operating cash flow and
debt coverage, and limits CCC's ability to make capital expenditures and
investments and declare dividends.
CCC's prior bank facility consisted of a term loan and revolving credit
facility. The annual average interest rate in effect during the years ended
December 31, 1996 and 1995, for the term loan and revolving credit facility
was 8.7% and 8.7%, and 9.2% and 9.0%, respectively.
White River has not made any formal or informal commitment to make
additional investments in or advances to CCC and is not a direct or indirect
guarantor of any CCC indebtedness.
NOTE 8. INCOME TAXES
White River and CCC file separate consolidated Federal income tax returns.
The components of the Company's income tax expense (benefit) for the years
ended December 31, 1997, 1996 and 1995, follow:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
IN THOUSANDS
<S> <C> <C> <C>
Current:
Federal....................................... $10,919 $16,629 $ (948)
State......................................... 2,202 1,034 (121)
International................................. (31) 1 (24)
------- ------- -------
Total current income tax expense (benefit).. 13,090 17,664 (1,093)
------- ------- -------
Deferred:
Federal....................................... 2,641 (2,895) 9,011
State......................................... (121) (463) (9)
------- ------- -------
Total deferred income tax expense
(benefit).................................. 2,520 (3,358) 9,002
------- ------- -------
Total income tax expense.................... $15,610 $14,306 $ 7,909
======= ======= =======
</TABLE>
During the years ended December 31, 1997 and 1996, the following deferred
income tax provisions were recorded directly to stockholders' equity:
<TABLE>
<CAPTION>
1997 1996
------- ------
IN THOUSANDS
<S> <C> <C>
Change in net unrealized investment gains.................... $19,434 $5,944
Effects of the CCC IPO....................................... $ -- $4,869
======= ======
</TABLE>
F-16
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the income tax expense for the years ended December 31,
1997, 1996 and 1995, calculated using the Federal statutory tax rate, to the
Company's income tax expense for such periods follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------- ------------- --------------
IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory
rate............................ $ 7,984 35.0% $ 6,810 35.0% $ 8,366 35.0%
Differences in income taxes re-
sulting from:
Net earnings relating to CCC... 5,539 24.3 4,855 25.0 1,140 4.8
State taxes, net of Federal
benefit and before valuation
reserve....................... 1,352 5.9 2,426 12.5 105 0.4
Amortization of goodwill....... 1,845 8.1 1,815 9.3 2,168 9.1
Dividends received deduction... (292) (1.3) (202) (1.0) (358) (1.5)
Adjustment to tax basis in
certain investments........... -- -- -- -- (2,450) (10.3)
Prior year taxes............... (804) (3.5) -- -- -- --
Other, net..................... (23) (0.1) (390) (2.0) 198 0.8
Change in valuation allowance.. 9 -- (1,008) (5.2) (1,260) (5.2)
------- ---- ------- ---- ------- -----
Income tax expense (benefit)..... $15,610 68.4% $14,306 73.6% $ 7,909 33.1%
======= ==== ======= ==== ======= =====
</TABLE>
F-17
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's deferred income tax assets and
liabilities as of December 31, 1997 and 1996, measured using the Federal
statutory tax rate, are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
IN THOUSANDS
<S> <C> <C>
White River:
Deferred income tax assets related to:
Employee and director compensation accruals.......... $ 2,099 $ 6,023
Other................................................ 179 140
-------- --------
Deferred income tax asset.......................... 2,278 6,163
-------- --------
Deferred income tax liabilities related to:
Certain investments.................................. (34,121) (17,442)
Unrealized gains and undistributed earnings relating
to CCC.............................................. (10,201) (6,128)
Purchased software................................... (2,420) (4,248)
Investment in CCC Preferred Stock.................... (212) (212)
-------- --------
Deferred income tax liability...................... (46,954) (28,030)
-------- --------
Net deferred income tax liability................ $(44,676) $(21,867)
======== ========
Deferred income tax assets related to:
CCC:
Deferred revenue..................................... $ 1,993 $ 1,893
Rent................................................. 1,474 1,363
Depreciation and amortization........................ 1,330 997
Bad debt expense..................................... 1,064 759
Capital loss carry forward........................... 293 284
Compensation accruals................................ 281 247
Long-term receivable................................. 143 145
Lease termination.................................... -- 48
Net operating loss carry forwards.................... -- 18
Other, net........................................... 952 940
Valuation allowance.................................. (293) (284)
-------- --------
Net deferred income tax asset...................... $ 7,237 $ 6,410
Other.................................................. 27 --
-------- --------
Net deferred income tax asset.......................... $ 7,264 $ 6,410
======== ========
</TABLE>
NOTE 9. RETIREMENT PLANS
White River has established two non-qualified plans under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), for the purpose
of providing deferred compensation benefits for certain management employees.
The White River Voluntary Deferred Compensation Plan (the "Deferred
Compensation Plan") and the White River Deferred Benefit Plan (together with
the Deferred Compensation Plan, the "Retirement Plans") both became effective
on December 31, 1993. The Retirement Plans are unfunded and the employees'
right to receive future payments thereunder represent an unsecured claim
against the general assets of White River. No assets of White River shall in
any way be held in trust for, or be subject to, any claim by a participant or
his beneficiary under the Retirement Plans. In the event that a change in
control, as defined by the Retirement Plans, occurs, the provisions of these
plans require the White River Board to cause the creation and funding by White
River of a trust with cash payments, shares of Common Stock, or a combination
thereof
F-18
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
sufficient to cover the value of existing plan balances. The assets of such
trust shall at all times be subject to the claims of the general creditors of
White River. The recorded liabilities related to the Retirement Plans totalled
$0.8 million and $12.5 million as of December 31, 1997 and 1996, respectively.
The Retirement Plans were terminated effective as of December 30, 1997,
pursuant to the Merger Agreement. In connection with the termination of the
Retirement Plans, White River made certain payments to plan participants in
1997 totalling $24.7 million, using the available cash resources of White
River. Benefit payments under such plans were nominal in 1996.
NOTE 10. INCENTIVE COMPENSATION PLANS
The White River 1993 Incentive Compensation Plan (the "Incentive Plan") is a
non-qualified plan under ERISA and provides for granting to officers and key
employees of White River and its participating subsidiaries various types of
incentive awards including non-qualified and incentive stock options ("Stock
Options"), stock appreciation rights ("SARs"), and performance units
("Performance Units"). The Compensation Committee is responsible for the
general administration of the Incentive Plan. As of December 31, 1997, no
Stock Options or SARs have been awarded pursuant to the Incentive Plan.
Performance Units are conditional grants of a specified maximum number of
shares of Common Stock or equivalent amount of cash, payable at the end of a
specified period, subject to the achievement of specific financial goals and
measures of individual performance, as determined by the Compensation
Committee. The financial goal for full payment of Performance Units is a 15%
average annual return on stockholders' equity ("ROE") measured as the change
in book value per common and common equivalent share (as adjusted for
dividends paid, stock splits and other adjustments necessary to reflect true
economic value) over the applicable performance period (the "Performance
Target"). At an average ROE of 15% or above, Performance Units will become
fully payable. At an average ROE of less than 15%, the percentage of
Performance Units paid will be determined by the Compensation Committee and
may result in no payout at all.
A summary of Performance Unit award activity follows:
<TABLE>
<CAPTION>
NUMBER OF
PERFORMANCE UNITS
-----------------
<S> <C>
Outstanding as of December 31, 1994........................ 259,526
Canceled................................................. (16,532)
--------
Outstanding as of December 31, 1995........................ 242,994
Paid..................................................... (242,994)
Awarded.................................................. 94,500
--------
Outstanding as of December 31, 1996........................ 94,500
Canceled................................................. (14,000)
Awarded.................................................. 7,500
--------
Outstanding as of December 31, 1997........................ 88,000
</TABLE>
Upon the third anniversary of the Capitalization and based upon the
attainment of the Performance Target, the White River Board declared all
outstanding Performance Units payable during September 1996. Of the total
outstanding Performance Units, approximately 196,000 were deferred by
participants in the Deferred Compensation Plan and approximately 46,400 were
paid in cash. The resulting cash payment amount totalled $2.8 million.
All Performance Units outstanding as of December 31, 1997 expire on
September 23, 1999. Compensation and benefits expense for the years ended
December 31, 1997, 1996, and 1995, includes $2.5 million, $8.6 million, and
$3.5 million, respectively, relating to outstanding Performance Units.
F-19
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1997, approximately 9,000 shares of Common Stock remained
available for future awards under the Incentive Plan.
NOTE 11. COMPENSATION OF DIRECTORS
Effective upon the Distribution, White River provided non-employee directors
(the "Eligible Directors") with an aggregate grant of 64,865 performance units
(the "Director Performance Units") in lieu of an annual retainer and meeting
attendance fees. Effective December 31, 1996, all units under such plan were
earned.
During September 1996, The White River Board granted a new award of Director
Performance Units to Eligible Directors totaling 35,000 units. This new grant
of Director Performance Units will become vested on September 23, 1999,
contingent upon the attainment of the Performance Target during the three-year
period then ended. Other operating expenses for the years ended December 31,
1997, 1996, and 1995, includes $1.0 million, $2.0 million, and $1.0 million,
respectively, relating to the Director Performance Units.
Effective August 8, 1996, the White River Board adopted the White River
Directors' Deferred Compensation Plan (the "Directors Plan"). The Directors
Plan allows Eligible Directors to defer receipt of Directors' compensation.
Effective June 30, 1997, the 64,865 Director Performance Units were
transferred by the recipients into the Directors Plan. The Directors Plan will
be unfunded and the directors' right to receive future benefits thereunder
will represent an unsecured claim against the general assets of White River.
The Directors' Deferred Compensation Plan was terminated effective as of
December 30, 1997, pursuant to the Merger Agreement. In connection with the
termination of the Directors' Plan at year end 1997, White River made certain
payments to Plan Participants in 1997 totalling $5.2 million.
NOTE 12. REDEEMABLE PREFERRED STOCK
WHITE RIVER
White River has authorized the issuance of 5,000,000 shares of preferred
stock, par value $1.00 per share.
In connection with the Capitalization, White River issued 7,000 shares of
Series A, Non-Participating Cumulative Preferred Stock (the "Redeemable
Preferred Stock"), to Fund American. Pursuant to the terms of the Redeemable
Preferred Stock, under certain circumstances following a merger or
consolidation of White River or following a sale by White River of all or
substantially all of its assets, or in the event of liquidation, White River
must redeem the Redeemable Preferred Stock at a price of $1,000 per share plus
accrued and unpaid dividends thereon. In any event, the Redeemable Preferred
Stock must be redeemed on September 24, 1998, at a price of $1,000 per share,
plus any accrued and unpaid dividends. Each share of Redeemable Preferred
Stock is non-voting and is entitled to a preferential quarterly dividend
payment of $16.875. Holders of the Redeemable Preferred Stock will have the
right to elect two additional directors to the White River Board if the
equivalent of six full quarterly dividends payable on the Redeemable Preferred
Stock are in default. Concurrent with the Distribution, Fund American sold the
Redeemable Preferred Stock to two unaffiliated institutional investors.
As more fully discussed in Note 13, the White River Board has designated and
authorized for issuance 50,000 shares of Series B, Participating Cumulative
Preferred Stock (the "Participating Preferred Stock").
NOTE 13. SHAREHOLDERS' RIGHTS PLAN
On December 14, 1993, the White River Board adopted a shareholders' rights
plan (the "Rights Plan") under which rights to purchase Participating
Preferred Stock (the "Rights") were issued and attached to shares of Common
Stock at the rate of one Right for each share of Common Stock outstanding.
Each Right entitles the registered holder under certain circumstances to
purchase from White River one one-thousandth ( 1/1000) of a
F-20
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
share of Participating Preferred Stock at a price of $90, subject to
adjustment to prevent dilution. Each share of Participating Preferred Stock is
non-redeemable and will be entitled to a minimum preferential quarterly
dividend payment of $50 per share, and will be entitled to an aggregate
dividend equal to 1,000 times the dividend declared, if any, per share of
Common Stock. In addition, holders of Participating Preferred Stock will have
the right to elect two additional directors to the White River Board if the
equivalent of six full quarterly dividends payable on the Participating
Preferred Stock are in default. The terms of the Participating Preferred Stock
will be such that each one one-thousandth (1/1000) of a share would be
entitled to vote on an equivalent basis with one whole share of Common Stock.
The Rights are non-voting and do not participate in dividends.
The Rights will be exercisable only if an unrelated person or group (an
"Acquiring Person") acquires 25% or more or a tender offer or exchange offer
is commenced for 25% or more of the outstanding shares of Common Stock (a
"Triggering Event"). For this purpose, an Acquiring Person excludes, among
others, subsidiaries of White River, Fund American and Fund American's
Chairman, President and Chief Executive Officer ("Fund American's Chairman").
The Rights will enable the holder to acquire additional equity in either White
River or the Acquiring Person.
Once a Triggering Event has occurred, the Rights would trade separately from
shares of Common Stock and separate certificates representing the Rights would
be issued. The Rights will expire ten years after their issuance and will be
redeemable earlier by White River at a price of $0.01 per Right at any time
until White River learns of the existence of an Acquiring Person. Under
certain circumstances, the White River Board will be able to redeem the Rights
if a majority of the "disinterested directors", as defined by the Rights Plan,
agrees that the redemption is in the best interests of White River and its
stockholders. White River will reserve 50,000 of its authorized preferred
shares as Participating Preferred Stock for issuance under the terms of the
Rights Plan.
In connection with the pending merger, White River amended its shareholders'
rights plan to provide, among other things, that the exercisability of rights
would not be triggered by the merger agreement and that the rights would
expire immediately prior to the consummation of the merger. Accordingly, if
the merger is consummated, the rights will not be redeemed and no payment will
be made to stockholders in respect of their rights.
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as of
December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
IN THOUSANDS
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents................. $190,515 $190,515 $188,365 $188,365
Investment securities -- current.......... 122,688 122,688 72,699 72,699
Accounts receivable, net.................. 19,617 19,617 10,661 10,661
Investment securities--noncurrent......... 41,434 41,434 -- --
Other investments......................... 276 276 26,420 39,813
Other financial assets.................... 457 457 403 403
-------- -------- -------- --------
Financial liabilities:
Total notes payable and other debt........ $ 111 $ 111 $ 234 $ 234
Total contract funding.................... -- -- 123 123
Other financial liabilities............... 23,979 23,979 20,513 20,513
Redeemable preferred stock................ 7,189 6,943 7,175 6,948
======== ======== ======== ========
</TABLE>
F-21
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following methods and assumptions were used by White River to estimate
the fair value of each class of financial instruments for which it is
practicable to estimate such value:
Cash and Cash Equivalents and Accounts Receivable. The carrying amount of
these assets approximates or equals their fair value.
Investment Securities and Other Investments. Fair values of investment
securities are based on quoted market prices which equal carrying value, and
fair values of other investments have been derived from quoted market values
for similar unrestricted securities or determined using internal appraisal
techniques and policies.
Other Financial Assets. This caption includes investment income receivable,
receivables on sales of securities, and certain trade receivables. The
carrying amount of these assets approximates their fair value.
Contract Funding, Notes Payable and Other Debt, and Redeemable Preferred
Stock. Fair value is estimated by discounting future cash flows using
estimated incremental rates for similar types of arrangements.
Other Financial Liabilities. This caption includes accrued interest payable,
payables on purchases of securities, and certain other payables. The carrying
amount of these liabilities approximates their fair value.
NOTE 15. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
As of December 31, 1997, Fund American held 1.0 million shares, or 20.8% of
the total outstanding shares of Common Stock. Also, as of December 31, 1997,
Fund American's Chairman claimed beneficial ownership of 0.8 million shares,
or 17.1% of the total outstanding shares of Common Stock. During 1995, White
River repurchased 100,000 shares of Common Stock from Fund American's Chairman
at an aggregate purchase price of $3.4 million. The Chairman of the White
River Board is also a director of Fund American.
As more fully discussed in Note 7, White River executed the Credit Agreement
with Fund American, and during 1995 repaid balances totaling $90.0 million by
transferring certain securities to Fund American, resulting in pretax net
investment gains of $11.0 million. Interest expense relating to balances due
under the Credit Agreement totalled $3.1 million for the year ended December
31, 1995.
NOTE 16. COMMITMENTS AND CONTINGENCIES
The Company leases facilities, computers, telecommunications and office
equipment under the terms of noncancellable operating lease agreements which
expire at various dates through 2008. At December 31, 1997, future minimum
lease payments were as follows:
<TABLE>
<CAPTION>
FUTURE MINIMUM
LEASE PAYMENTS
--------------
IN THOUSANDS
<S> <C>
Payments due in:
1998........................................................ $ 4,330
1999........................................................ 4,704
2000........................................................ 3,304
2001........................................................ 2,249
2002........................................................ 2,182
Thereafter.................................................. 14,428
-------
Total..................................................... $31,197
=======
</TABLE>
F-22
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Operating lease expense was $3.9 million, $3.4 million, $3.1 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
CCC entered into a contract with Faneuil, a former subsidiary, under which
Faneuil is to provide certain computer services to CCC through June 1999. The
contract provides that CCC make minimum payments to Faneuil through June 1997,
and contains an option under which CCC can elect to extend the contract for
certain services through June 1999. For the years ended December 31, 1997 and
1996 and 1995, charges from Faneuil to CCC for computer services have totalled
$3.1 million, $3.6 million and $3.2 million, respectively.
NOTE 17. LEGAL PROCEEDINGS
During March 1991, CCC sought a declaratory judgment in the U.S. District
Court for the District of Connecticut (the "District Court") against MacLean
Hunter Market Reports, Inc. ("MacLean Hunter"), an independent corporate
publisher of used car valuation books, that would render certain of such
publisher's copyright claims invalid or unenforceable. MacLean Hunter, in
turn, filed a counterclaim against CCC for copyright infringement. During June
1993, the District Court granted CCC's request for summary judgment on the
copyright issue. MacLean Hunter filed a notice of appeal with the U.S. Court
of Appeals for the Second Circuit which, during December 1994, reversed the
decision of the District Court and remanded the case to the District Court for
a determination of damages and injunctive relief. In a related matter, CCC
received claims from another licensee of the MacLean Hunter data alleging
copyright infringement, unfair competition arising under the Trademark Act of
1946 and common law unfair competition. During December 1995, substantive
settlement discussions were held. As a result of such discussions, CCC and all
parties in these matters conditionally agreed to a settlement structure that
would resolve all outstanding disputes. All conditions precedent to such
settlement agreement were satisfied in 1996. As a result, all issues arising
out of the litigation between the parties have been fully and completely
settled and each civil action had been dismissed with prejudice. The
settlement amount approximated the settlement charge of $4.5 million recorded
during 1995 in connection with such matter. In conjunction with the settlement
agreement, CCC received a three-year license to MacLean Hunter's used car
valuation book data at market rates.
The Company is a party to various other legal proceedings in the ordinary
course of its business. The Company's management believes that the ultimate
resolution of these matters will not have a material effect on the Company's
consolidated financial position.
NOTE 18. SUBSEQUENT EVENTS
On February 10, 1998, CCC signed an agreement with InsurQuote Systems, Inc.
("Insur-Quote") and invested $20 million to acquire 333,750 shares of common
stock (or 19.9% of the common stock), an $8.9 million subordinated note, and
shares of Series C redeemable convertible preferred stock, and Series D
convertible preferred stock. The subordinated note, which bears interest at
7.5%, carries warrants to acquire additional shares of common stock and is
exercisable by CCC through February 10, 2008, subject to potential early
termination provisions. The Series C stock is redeemable in full at the end of
five years, or earlier under certain conditions, if not converted prior to
that time. Each share of Series C and D preferred stock is initially
convertible into one share of common stock at the option of CCC.
InsurQuote is a provider of insurance rating information and the software
tools used to manage that information. Its range of products is primarily
focused towards insurance companies, insurance agents, and the related
consumer market.
Under the terms of the investment agreement and at InsurQuote's request, CCC
has the opportunity to purchase additional shares of Series C Preferred Stock
after January 1, 1999. Furthermore, the investment
F-23
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
agreement provides that at any time after July 1, 2000 and until as late as
July 1, 2010, under certain conditions, CCC has the option to purchase
sufficient shares of InsurQuote's common stock at the then fair market value
to increase CCC's voting interest to at least 51%. This right may be
terminated or be converted to a fixed number of shares subject to a warrant
with a strike price equal to 120% of a public offering price, if not exercised
earlier in connection with a sale of InsurQuote or on an initial public
offering of InsurQuote's common stock. If this right is exercised, Series E
Preferred Stock carrying super voting rights will be issued to the Company.
The transaction has an "earn out" component measured on June 30, 2000, that
may have the effect of decreasing the percentage ownership of the Company or
requiring an increasing in the investment by the Company.
NOTE 19. INFORMATION ON BUSINESS SEGMENTS
Information on business segments as of and for the years ended December 31,
1997, 1996 and 1995, follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
INSURANCE- INSURANCE- INSURANCE-
RELATED INVESTMENT CONSOLI- RELATED INVESTMENT CONSOLI- RELATED INVESTMENT CONSOLI-
SERVICES OPERATIONS DATED SERVICES OPERATIONS DATED SERVICES OPERATIONS DATED
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues............... $159,106 $ 20,804 $179,910 $130,977 $ 14,421 $145,398 $115,519 $ 8,276 $123,795
Operating expenses:
Compensation and
benefits and other
operating expenses... 124,114 33,042 157,156 102,942 18,218 121,160 99,215 7,631 106,846
Depreciation and
amortization (a)..... 16,932 267 17,199 17,370 29 17,399 20,336 28 20,364
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses............. $141,046 33,309 174,355 120,312 18,247 138,559 119,551 7,659 127,210
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss)............... $ 18,060 $(12,505) $ 5,555 $ 10,665 $ (3,826) $ 6,839 $ (4,032) $ 617 $ (3,415)
======== ======== ======== ======== ======== ======== ======== ======== ========
Statement of Financial
Condition Data:
Identifiable assets
(b)................... $ 98,972 $301,582 $400,554 $ 82,895 $271,617 $354,512 $ 84,973 $211,782 $296,755
Capital expenditures... $ 8,051 $ 1,725 $ 9,776 $ 6,909 $ -- $ 6,909 $ 3,891 $ -- $ 3,891
</TABLE>
- --------
(a) Insurance-related services' depreciation and amortization expense includes
amortization of goodwill and purchased software relating to the
acquisition of CCC by White River of $10.5 million, $12.1 million and
$14.8 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
(b) Insurance-related services' identifiable assets include goodwill of $18.5
million, $23.7 million and $34.8 million and purchased software of $6.9
million, $12.1 million and $19.0 million relating to the acquisition of
CCC by White River as of December 31, 1997, 1996 and 1995, respectively.
F-24
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for 1997 and 1996 is shown in the
following table. Such data includes, in the opinion of management, all
recurring adjustments necessary for a fair presentation of the results of
operations for such interim periods.
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- ------- ------- ------- -------- -------- ------- -------
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 40,898 $42,799 $45,852 $50,361 $ 33,338 $ 33,892 $38,115 $40,053
Operating expenses...... 40,675 38,769 38,518 56,393 31,070 33,765 40,337 33,387
-------- ------- ------- ------- -------- -------- ------- -------
Operating income
(loss)................ 223 4,030 7,334 (6,032) 2,268 127 (2,222) 6,666
-------- ------- ------- ------- -------- -------- ------- -------
Net investment gains.... 669 505 6,966 19,352 -- 996 15,148 6
Interest expense........ 37 35 34 65 1,032 950 526 54
Minority interest....... 2,111 2,443 2,532 2,979 (335) 1,306
-------- ------- ------- ------- -------- -------- ------- -------
Pretax income (loss).... (1,256) 2,057 11,734 10,276 1,236 173 12,735 5,312
Income tax expense...... 1,248 2,353 6,179 5,830 2,744 2,869 7,866 827
-------- ------- ------- ------- -------- -------- ------- -------
Income (loss) before
extraordinary item..... (2,504) (296) 5,555 4,446 (1,508) (2,696) 4,869 4,485
Extraordinary loss on
early retirement of
debt, net of income
taxes.................. -- -- -- -- -- -- 678 --
-------- ------- ------- ------- -------- -------- ------- -------
Net income (loss)....... (2,504) (296) 5,555 4,446 (1,508) (2,696) 4,191 4,485
Dividend and accretion
on redeemable preferred
stock.................. 118 118 118 119 149 147 309 122
-------- ------- ------- ------- -------- -------- ------- -------
Net income (loss)
applicable to common
stock.................. $ (2,622) $ (414) $ 5,437 $ 4,327 $ (1,657) $ (2,843) $ 3,882 $ 4,363
Earnings (loss) per
common share:
Basic:
Income(loss) before
extraordinary item.... $ (0.54) $ (0.08) $ 1.12 $ 0.89 $ (0.34) $ (0.58) $ 0.94 $ 0.90
Net income (loss)...... $ (0.54) $ (0.08) $ 1.12 $ 0.89 $ (0.34) $ (0.58) $ 0.80 $ 0.90
Diluted:
Income (loss) before
extraordinary items... $ (0.54) $ (0.08) $ 1.05 $ 0.88 $ (0.34) $ (0.58) $ 0.88 $ 0.84
Net income (loss)...... $ (0.54) $ (0.08) $ 1.05 $ 0.88 $ (0.34) $ (0.58) $ 0.75 $ 0.84
======== ======= ======= ======= ======== ======== ======= =======
</TABLE>
F-25
<PAGE>
REPORT ON MANAGEMENT'S RESPONSIBILITIES
The financial data included in this Annual Report to Stockholders and Form
10-K (the "Annual Report"), including the consolidated financial statements,
has been prepared by the management of White River Corporation ("White River"
or the "Company"). The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and, where necessary,
include amounts based on informed estimates and judgments. In those instances
where there is no single specified accounting principle or standard,
management makes a choice from reasonable, accepted alternatives which are
believed to be most appropriate under the circumstances. Financial data
presented elsewhere in this Annual Report is consistent with that shown in the
consolidated financial statements.
The Company maintains internal financial and accounting controls ("Internal
Controls") designed to provide reasonable and cost effective assurance that
assets are safeguarded from loss or unauthorized use, that transactions are
recorded in accordance with management's policies and that financial records
are reliable. The Company's business ethics policies require adherence to the
highest ethical standards in the conduct of its business. Compliance with
these Internal Controls, policies and procedures is continuously maintained
and monitored by management.
Our independent auditors provide an objective, independent review and
evaluation of the structure of Internal Controls to the extent they consider
necessary in their audit of the Company's consolidated financial statements.
Management reviews all recommendations of the independent auditors concerning
the structure and implementation of Internal Controls and responds to such
recommendations with corrective actions, as deemed appropriate.
The Audit Committee of the White River board of directors (the "Audit
Committee") is comprised of all non-management directors and has general
responsibility for the oversight and surveillance of the accounting, reporting
and financial control practices of White River. The Audit Committee annually
reviews the effectiveness of management and the independent auditors with
respect to the financial reporting process and the adequacy of Internal
Controls. The independent auditors have at all times free access to the Audit
Committee, without members of management present, to discuss the results of
their audits, the adequacy of Internal Controls and any other matter that they
believe should be brought to the attention of the Audit Committee.
Gordon S. Macklin Michael E.B. Spicer
President and Chief Executive Officer Chief Financial Officer,
Treasurer and Corporate Secretary
F-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of White River Corporation
We have audited the accompanying consolidated statements of financial
condition of White River Corporation and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1997. 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 did not audit the financial
statements of CCC Information Services Group Inc., a subsidiary, as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997. The financial statements of CCC Information Services Group
Inc. reflect approximately 23% and 13% of total assets as of December 31, 1997
and 1996, respectively. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to
data included for CCC Information Services Group Inc., is based solely on the
report of the other auditors.
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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of White River Corporation and
subsidiaries at December 31, 1997 and 1996, and the consolidated 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/ Ernst & Young LLP
Stamford, Connecticut
April 6, 1998
F-27
<PAGE>
REPORT OF PRICE WATERHOUSE LLP
To the Board of Directors and Stockholders of CCC Information Services Group
Inc.
We have audited the consolidated balance sheet of CCC Information Services
Group Inc. (a subsidiary of White River Corporation) and its subsidiaries as
of December 31, 1997 and 1996, and the related consolidated statements of
operations, of stockholders' equity and of cash flows for each of the three
years in the period ended December 31, 1997 (not presented separately herein).
These consolidated financial statements are the responsibility of CCC
Information Services Group Inc's. management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 consolidated financial statements audited by us present
fairly, in all material respects, the financial position of CCC Information
Services Group Inc. and its subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flow for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Price Waterhouse LLP
Chicago, Illinois
January 21, 1998
Except as to Note 15 which is as of February 10, 1998
F-28
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, 1998 DEC. 31, 1997
-------------- -------------
IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS
<S> <C> <C>
ASSETS (UNAUDITED)
Cash and cash equivalents......................... $ 196,465 $190,515
Investment securities, at market value (adjusted
cost: $40,944 and $63,940)....................... 118,783 122,688
Accounts receivable, less allowances of $2,769 and
$2,661........................................... 20,843 19,617
Other current assets.............................. 8,112 7,091
----------- --------
Total current assets.......................... 344,203 339,911
Investment securities, at market value (adjusted
cost: $14,855)................................... 52,338 41,434
Long term investment.............................. 20,000 --
Goodwill, less accumulated amortization of $21,418
and $20,051...................................... 17,492 18,754
Purchased software and equipment, less accumulated
amortization and depreciation of $51,458 and
$46,895.......................................... 21,299 18,431
Deferred income tax asset......................... 7,162 7,264
Other assets...................................... 1,363 1,339
----------- --------
Total assets.................................. $ 463,857 $427,133
=========== ========
LIABILITIES
Accounts payable and accrued expenses............. $ 25,851 $ 24,134
Deferred revenues................................. 5,810 5,824
Current portion of notes payable and other debt... 80 111
Redeemable preferred stock........................ 7,000 7,000
----------- --------
Total current liabilities..................... 38,741 37,069
Deferred income tax liability..................... 54,894 44,676
Other liabilities................................. 11,595 10,765
----------- --------
Total liabilities............................. 105,230 92,510
----------- --------
Redeemable preferred stock........................ 192 189
----------- --------
Minority interest................................. 38,203 33,687
----------- --------
Stockholders' equity
Series B, Participating Cumulative Preferred
Stock--par value $1.00 per share; 50,000 shares
designated; none issued........................ -- --
Common stock--par value $0.01 per share;
62,500,000 shares authorized; 6,370,000 shares
issued......................................... 64 64
Common paid-in surplus.......................... 251,760 250,942
Retained earnings................................. 42,336 43,166
Accumulated other comprehensive income, net of
tax.............................................. 74,946 55,449
Common stock in treasury, at cost (1,495,244
shares).......................................... (48,874) (48,874)
----------- --------
Total stockholders' equity.................... 320,232 300,747
----------- --------
Total liabilities, redeemable preferred stock,
minority interest and stockholders' equity... $ 463,857 $427,133
=========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated interim
financial statements.
F-29
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
--------------------------
1998 1997
------------ ------------
IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS
<S> <C> <C>
Revenues
Insurance-related services...................... $ 44,692 $ 36,777
Investment income............................... 2,868 2,562
Other revenues.................................... 3,341 1,559
------------ ------------
Total revenues................................ 50,901 40,898
------------ ------------
Operating expenses
Compensation and benefits....................... 20,248 19,103
Other operating expenses........................ 25,291 21,572
------------ ------------
Total operating expenses...................... 45,539 40,675
------------ ------------
Operating income.................................. 5,362 223
------------ ------------
Net investment gains.............................. -- 669
------------ ------------
Other expense
Interest expense................................ 65 37
Minority interest............................... 2,807 2,111
------------ ------------
Total other expenses.......................... 2,872 2,148
------------ ------------
Pretax income (loss).............................. 2,490 (1,256)
Income tax expense................................ 3,202 1,248
------------ ------------
Net (loss)........................................ (712) (2,504)
Dividends and accretion on redeemable preferred
stock............................................ 118 118
------------ ------------
Net loss applicable to Common Shares.............. $ (830) $ (2,622)
============ ============
Basic and diluted loss per Common Share........... $ (0.17) $ (0.54)
Weighted average shares used in computing basic
and diluted loss per Common Share................ 4,874,756 4,874,756
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated interim
financial statements.
F-30
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
------------------------
1998 1997
----------- -----------
IN THOUSANDS
<S> <C> <C>
Net (loss).......................................... $ (712) $ (2,504)
Adjustments to reconcile net (loss) to net cash and
cash equivalents provided from (used for)
operations:
Net investment gains.............................. -- (669)
Amortization and depreciation of purchased
software and equipment........................... 4,653 2,811
Amortization of goodwill.......................... 1,367 1,317
Minority interest................................. 2,807 2,111
Contract funding revenue amortization............. -- (96)
Deferred income tax expense (benefit)............. (293) (2,115)
Changes in:
Other current assets and accounts receivable.... (2,247) (2,090)
Other liabilities............................... 2,539 4,898
Deferred revenues............................... (14) 3,337
Accounts payable and accrued expenses........... 1,717 893
Other, net...................................... 274 (221)
----------- -----------
Net cash and cash equivalents provided from
operations......................................... 10,091 7,672
----------- -----------
Cash flows provided from (used for) investing
activities:
Proceeds from sales of investment securities...... 31,080 1,207
Purchase of long term investment.................. (20,000) --
Purchases of software and equipment............... (7,557) (1,825)
Purchases of investment securities................ (8,333) (950)
----------- -----------
Net cash and cash equivalents used for investment
activities......................................... (4,810) (1,568)
----------- -----------
Cash flows provided from (used for) financing
activities:
Proceeds from issuance of subsidiary stock........ 818 786
Principal payments on notes payable and other
debt............................................. (31) (29)
Dividends paid on redeemable preferred stock...... (118) (118)
Other, net........................................ -- 5
----------- -----------
Net cash and cash equivalents provided from
financing activities............................... 669 644
----------- -----------
Net increase in cash and cash equivalents during
period............................................. 5,950 6,748
Cash and cash equivalents balance at beginning of
period............................................. 190,515 188,365
----------- -----------
Cash and cash equivalents balance at end of period.. $ 196,465 $ 195,113
=========== ===========
Supplemental information:
Income taxes paid................................. $ 773 $ 1,101
Interest paid..................................... $ 34 $ 17
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated interim
financial statements.
F-31
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated interim financial statements include the
accounts of White River Corporation (together with its wholly-owned
subsidiaries, unless the context requires otherwise, "White River" or,
together with all of its subsidiaries, the "Company") and its subsidiaries,
including those of CCC Information Services Group, Inc. ("CCC"). The
consolidated interim financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-
X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. All significant
intercompany balances have been eliminated in consolidation. The consolidated
interim financial statements include all adjustments (consisting solely of
normal recurring adjustments) considered necessary by management to fairly
present the financial condition, results of operations and cash flows of the
Company. Notwithstanding the foregoing, these consolidated interim financial
statements may not be indicative of financial results for the full year or for
any other future period. The balance sheet at December 31, 1997 has been
derived from the audited financial statements at that date. Such consolidated
interim financial statements should be read in conjunction with White River's
1997 Annual Report to Stockholders on Form 10-K as filed with the Securities
and Exchange Commission.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amount
of assets and liabilities as well as the disclosure of contingent assets and
liabilities as of the date of the financial statements. Such estimates also
have a pervasive effect upon the reported amounts of revenues and expenses
reflected in the consolidated interim statements of operations. Actual results
could differ from these estimates.
Certain accounts in prior year financial statements have been reclassified
for comparative purposes to conform with the presentation in the current year
financial statements.
NOTE 2. ADOPTION OF ACCOUNTING STANDARDS
As of January 1, 1998, the Company is required to adopt SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's net income or
stockholders' equity. SFAS No. 130 requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were reported
separately in stockholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to
the requirements of SFAS No. 130.
During the first quarter of 1998, total comprehensive income amounted to
$18.7 million. In the first quarter of 1997, total comprehensive income
amounted to a loss of $3.1 million.
The components of comprehensive income (loss), net of related tax, for the
three-month periods ended March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net loss......................................... $ (830) $ (2,622)
Unrealized gains on available for sale
securities...................................... 19,497 (436)
----------- -----------
Comprehensive income (loss)...................... $ 18,667 $ (3,058)
=========== ===========
</TABLE>
F-32
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED)
Accumulated other comprehensive income, net of related tax, at March 31,
1998 and December 31, 1997 is comprised solely of unrealized gains on
available for sale securities.
As of January 1, 1998, the Company is required to adopt SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. Under the
provisions of SFAS No. 131, the Company has elected to disclose segment
information for its interim periods commencing with the filing of its 1998
Annual Report on Form 10-K.
NOTE 3. INCOME TAXES
Income tax expense is based on income recognized for financial statement
purposes and includes the effects of temporary differences between such income
and that recognized for tax return purposes. For the quarter ended March 31,
1998, the Company recorded income tax expense of $3.2 million on pretax income
of $2.5 million. For the quarter ended March 31, 1997, the Company recorded
income tax expense of $1.2 million on a pretax loss of $1.3 million. The major
components that caused the Company's effective tax rate to exceed the Federal
statutory rate of 35% in both years are the amortization of goodwill, which is
not deductible for tax purposes, and the undistributed earnings of CCC, for
which the Company provides deferred taxes.
NOTE 4. SUBSEQUENT EVENT
White River has entered into an Amended and Restated Agreement and Plan of
Merger, dated as of December 11, 1997, as amended by Amendment Number 1 to the
Amended and Restated Agreement and Plan of Merger, dated as of April 6, 1998,
by and among certain affiliates of Harvard Private Group, Inc. ("Harvard
Private Capital"), White River and White River Ventures, Inc., a wholly owned
subsidiary of White River (as amended, the "Merger Agreement") pursuant to
which, among other things, (i) an affiliate of Harvard Private Capital will
merge with and into White River, with White River remaining as the surviving
corporation (the "Merger"), (ii) each share of White River common stock, $.01
par value per share (other than treasury shares and shares with respect to
which appraisal rights are perfected under the Delaware General Corporation
Law), outstanding at the time of the Merger will be converted into the right
to receive approximately $90.67 in cash, without interest and subject to
adjustment under certain circumstances as described in the Merger Agreement
and (iii) each share of Series A Non-Participating Cumulative Preferred Stock,
par value $1.00 per share, will be converted into the right to receive the
stated value of $1,000 per share plus any accrued and unpaid dividends until
the effective time of the Merger. In addition, White River has agreed to pay
Harvard Private Capital a termination fee of $15 million, plus up to $1.5
million in reimbursable expenses, in the event that the Merger Agreement is
terminated under certain circumstances.
Consummation of the Merger is subject to customary conditions, including the
approval of White River's stockholders and the absence of any material adverse
change. The Merger Agreement may be terminated by any of the parties in the
event that the Board of Directors of White River withdraws its recommendation
of the transaction to stockholders or recommends an alternative transaction.
The parties expect the merger to occur during the second quarter of 1998.
F-33
<PAGE>
ANNEX A
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DEMETER HOLDINGS CORPORATION
WRC MERGER CORP.,
WRV MERGER CORP.,
WHITE RIVER CORPORATION
AND
WHITE RIVER VENTURES, INC.
DATED AS OF DECEMBER 11, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I................................................................ 2
THE MERGER............................................................... 2
SECTION 1.1 The Closing............................................. 2
SECTION 1.2 Effective Time.......................................... 2
SECTION 1.3 Effect of the Merger.................................... 2
SECTION 1.4 Certificate of Incorporation; By-Laws................... 2
SECTION 1.5 Directors and Officers.................................. 2
SECTION 1.6 Effect on Capital Stock................................. 2
SECTION 1.7 Exchange of Certificates................................ 3
SECTION 1.8 Stock Transfer Books.................................... 4
SECTION 1.9 No Further Ownership Rights in Company Stock............ 4
SECTION 1.10 Lost, Stolen or Destroyed Certificates.................. 4
SECTION 1.11 Common Stock Merger Price............................... 5
SECTION 1.12 Further Action.......................................... 6
SECTION 1.13 Material Adverse Effect................................. 6
ARTICLE 1A.............................................................. 6
THE SUBSIDIARY MERGER................................................... 6
SECTION 1A.1 The Closing............................................. 6
SECTION 1A.2 Effective Time.......................................... 7
SECTION 1A.3 Effect of the Subsidiary Merger......................... 7
SECTION 1A.4 Certificate of Incorporation; By-Laws................... 7
SECTION 1A.5 Directors and Officers.................................. 7
SECTION 1A.6 Effect on Capital Stock................................. 7
SECTION 1A.7 Stock Transfer Books.................................... 7
SECTION 1A.8 Further Action.......................................... 7
ARTICLE II.............................................................. 8
REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 8
SECTION 2.1 Organization and Qualification; Subsidiaries............ 8
SECTION 2.2 Certificate of Incorporation and By-Laws................ 8
SECTION 2.3 Capitalization.......................................... 8
SECTION 2.4 Authority Relative to this Agreement.................... 9
SECTION 2.5 No Conflict; Required Filings and Consents.............. 10
SECTION 2.6 Compliance; Permits..................................... 11
SECTION 2.7 SEC Filings; Financial Statements; Investments.......... 11
SECTION 2.8 Absence of Certain Changes or Events.................... 13
SECTION 2.9 No Undisclosed Liabilities; No Liabilities Related to
Purchasing LLC........................................ 13
SECTION 2.10 Absence of Litigation................................... 13
SECTION 2.11 Employee Benefit Plans; Employment Agreements........... 14
SECTION 2.12 Labor Matters........................................... 14
SECTION 2.13 Proxy Statement......................................... 15
SECTION 2.14 Subsidiaries............................................ 15
SECTION 2.15 Title to Property; Restrictions on Transfer............. 15
SECTION 2.16 Taxes................................................... 15
SECTION 2.17 Environmental Matters................................... 16
SECTION 2.18 Intellectual Property................................... 17
SECTION 2.19 Interested Party Transactions........................... 17
SECTION 2.20 Powers of Attorney...................................... 18
SECTION 2.21 Books and Records...................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
SECTION 2.22 Brokers................................................ 18
SECTION 2.23 Change in Control Payments.............................. 18
SECTION 2.24 Disclosure.............................................. 18
ARTICLE III............................................................. 18
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERCO................... 18
SECTION 3.1 Organization and Qualification.......................... 18
SECTION 3.2 Charter and By-Laws..................................... 18
SECTION 3.3 Subsidiaries............................................ 18
SECTION 3.4 Authority Relative to this Agreement.................... 19
SECTION 3.5 No Conflict; Required Filings and Consents.............. 19
SECTION 3.6 Financing............................................... 19
SECTION 3.7 Proxy Statement......................................... 19
ARTICLE IV.............................................................. 20
CONDUCT OF BUSINESS PENDING THE MERGER.................................. 20
SECTION 4.1 Conduct of Business by the Company Pending the Merger... 20
SECTION 4.2 Notice of Acquisition Proposal.......................... 22
SECTION 4.3 Actions With Respect To Company Plans................... 22
SECTION 4.4 Voting.................................................. 23
SECTION 4.5 Fairness Opinion........................................ 23
SECTION 4.6 Partnership Debt........................................ 24
SECTION 4.7 CCC Board Seats......................................... 24
SECTION 4.8 Acceleration Payments................................... 24
SECTION 4.9 Indemnity Agreements.................................... 24
SECTION 4.10 Lease................................................... 24
SECTION 4.11 Contributions........................................... 24
SECTION 4.12 Trust Assets............................................ 24
SECTION 4.13 Tax Returns............................................. 24
ARTICLE V............................................................... 24
ADDITIONAL AGREEMENTS................................................... 24
SECTION 5.1 HSR Act; Etc............................................ 24
SECTION 5.2 Proxy Statement......................................... 25
SECTION 5.3 Stockholders Meeting.................................... 25
SECTION 5.4 Access to Information................................... 25
SECTION 5.5 Consents; Approvals..................................... 26
SECTION 5.6 Notification of Certain Matters......................... 26
SECTION 5.7 Further Action.......................................... 26
SECTION 5.8 Public Announcements.................................... 26
SECTION 5.9 Conveyance Taxes........................................ 26
SECTION 5.10 Maintenance of Assets................................... 27
ARTICLE VI.............................................................. 27
CONDITIONS TO THE MERGER................................................ 27
SECTION 6.1 Conditions to Obligation of Each Party to Effect the
Merger................................................ 27
SECTION 6.2 Additional Conditions to Obligations of Parent, MergerCo
and Merger Sub........................................ 27
SECTION 6.3 Additional Conditions to Obligation of the Company and
WRV................................................... 29
ARTICLE VII............................................................. 29
TERMINATION............................................................. 29
SECTION 7.1 Termination............................................. 29
SECTION 7.2 Effect of Termination................................... 30
SECTION 7.3 Expenses Upon Termination............................... 30
</TABLE>
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<TABLE>
<C> <S> <C>
ARTICLE VIII............................................................ 31
GENERAL PROVISIONS...................................................... 31
SECTION 8.1 Non-Survival of Representations, Warranties, Covenants
and Agreements........................................ 31
SECTION 8.2 Investigations; Disclosure.............................. 31
SECTION 8.3 Notices................................................. 31
SECTION 8.4 Definitions............................................. 32
SECTION 8.5 Definitions............................................. 33
SECTION 8.6 Amendment............................................... 34
SECTION 8.7 Waiver.................................................. 34
SECTION 8.8 Headings................................................ 34
SECTION 8.9 Severability............................................ 35
SECTION 8.10 Entire Agreement........................................ 35
SECTION 8.11 Assignment.............................................. 35
SECTION 8.12 Parties in Interest..................................... 35
SECTION 8.13 Failure or Indulgence Not Waiver; Remedies Cumulative... 35
SECTION 8.14 Governing Law........................................... 35
SECTION 8.15 Counterparts............................................ 35
SECTION 8.16 Construction............................................ 35
SECTION 8.17 Expenses................................................ 36
</TABLE>
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<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER is dated as of
December 11, 1997 (this "Agreement"), among Demeter Holdings Corporation, a
Massachusetts corporation ("Parent"), WRC Merger Corp., a Delaware corporation
and a wholly owned subsidiary of Parent ("MergerCo."), WRV Merger Corp., a
Delaware corporation and a wholly owned subsidiary of WRC Merger Corp.
("Merger Sub"), White River Corporation, a Delaware corporation (the
"Company") and White River Ventures, Inc., a Delaware corporation and a wholly
owned subsidiary of Company ("WRV").
RECITALS:
WHEREAS, Parent, MergerCo, Merger Sub, the Company and WRV have previously
entered into the Agreement and Plan of Merger, dated as of December 11, 1997,
as amended by Amendment No. 1 (as so amended, the "Merger Agreement");
WHEREAS, the parties to the Merger Agreement desire to amend and restate the
Merger Agreement as set forth herein;
WHEREAS, the Boards of Directors of Parent, MergerCo, Merger Sub, the
Company and WRV have each determined that it is advisable and in the best
interests of their respective stockholders for (i) MergerCo to enter into a
business combination with the Company and (ii) Merger Sub to enter into a
business combination with WRV, each upon the terms and subject to the
conditions set forth herein;
WHEREAS, in furtherance of such combination, (i) the Boards of Directors of
MergerCo and the Company have each approved the merger (the "Merger") of
MergerCo with and into the Company in accordance with the applicable
provisions of the Delaware General Corporation Law (the "DGCL") and (ii) the
Boards of Directors of Merger Sub and WRV have each approved the merger (the
"Subsidiary Merger") of Merger Sub with and into the WRV in accordance with
the applicable provisions of the DGCL;
WHEREAS, pursuant to the Merger, each outstanding share (each, a "Share") of
(i) the Company's common stock, $0.01 par value (the "Company Common Stock"),
shall be converted into the right to receive the Common Stock Merger Price (as
defined in Section 1.11) and (ii) the Company's Series A Non-Participating
Cumulative Preferred Stock, $1.00 par value (the "Company Series A Preferred
Stock"), shall be converted into the right to receive the Series A Merger
Price (as defined in Section 1.7(b)) (the Company Common Stock and the Company
Series A Preferred Stock are referred to collectively herein as the "Company
Stock"), all upon the terms and subject to the conditions set forth herein;
and
WHEREAS, prior to the consummation of the Merger, the Company will sell to a
limited liability company or other entity (the "Purchasing LLC") (i) those
assets described on Exhibit A for a cash purchase price (the "Excluded Asset
Price") of at least $3.2 million and (ii) all investment assets purchased by
the Company after September 30, 1997 and all assets acquired other than in the
ordinary course of business after September 30, 1997 (other than cash and cash
equivalents) for a cash amount equal to the aggregate price paid by the
Company for such assets (collectively, the "Excluded Assets"), and the
Purchasing LLC will assume any and all liabilities (absolute, accrued,
contingent, due, to become due or otherwise) of or relating to the Excluded
Assets (collectively, the "Excluded Liabilities"). Such transaction is
referred to herein as the "Asset Disposition."
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations and warrants and mutual covenants and agreements herein
contained, and intending to be legally bound hereby, Parent, MergerCo, Merger
Sub, the Company and WRV hereby agree as follows:
<PAGE>
ARTICLE I
THE MERGER
Section 1.1 The Closing.
(a) The Merger. At the Effective Time (as defined in Section 1.2), and
subject to and upon the terms and conditions of this Agreement and the DGCL,
MergerCo shall be merged with and into the Company, the separate corporate
existence of MergerCo shall cease, and the Company shall continue as the
surviving corporation. The Company as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
(b) Time and Place. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1 and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the consummation of the Merger will take place at the offices of
Ropes & Gray, One International Place, Boston, Massachusetts, unless another
place is agreed to in writing by the parties hereto.
Section 1.2 Effective Time. As promptly as practicable but in any event no
later than the third business day after the satisfaction or waiver of the
conditions set forth in Article VI, the parties hereto shall cause the Merger
to be consummated by filing a certificate of merger as contemplated by the
DGCL (the "Certificate of Merger"), together with any required related
certificates, with the Secretary of State of the State of Delaware, in such
form as required by, and executed in accordance with the relevant provisions
of, the DGCL (the time of such filing or such later time as is specified in
the Certificate of Merger being the "Effective Time").
Section 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of the DGCL. 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 MergerCo shall
vest in the Surviving Corporation.
Section 1.4 Certificate of Incorporation; By-Laws.
(a) Certificate of Incorporation. At the Effective Time, the Certificate of
Incorporation of MergerCo, as in effect on the date hereof, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended in accordance with the DGCL and such Certificate of Incorporation,
except that the name of the Surviving Corporation shall be the name of the
Company.
(b) By-Laws. The By-Laws of MergerCo, as in effect on the date hereof, shall
be the By-Laws of the Surviving Corporation until thereafter amended in
accordance with the DGCL, the Certificate of Incorporation of the Surviving
Corporation and such By-Laws; and the Board of Directors of the Surviving
Corporation shall consist of the same number of directors as the number of
directors of MergerCo at the Effective Time.
Section 1.5 Directors and Officers. The directors of MergerCo immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
the MergerCo 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 1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, MergerCo, the Company or
the holders of any of the following securities:
(a) Conversion of Securities. Each Share issued and outstanding immediately
prior to the Effective Time (excluding any Shares to be canceled pursuant to
Section 1.6(b)) shall be converted into the right to receive the Applicable
Merger Price (as defined in Section 1.7(b)).
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(b) Cancellation. Each Share held in the treasury of the Company and each
Share owned by any wholly owned Subsidiary of the Company immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on
the part of the holder thereof, cease to be outstanding, be canceled and
retired without payment of any consideration therefor and cease to exist.
(c) Capital Stock of MergerCo. Each share of common stock, $0.001 par value,
of MergerCo issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, $0.001 par value, of the Surviving
Corporation.
Section 1.7 Exchange of Certificates.
(a) Exchange Agent. At or prior to the Effective Time, (i) the Company shall
deposit to or for the account of First Chicago Trust Company of New York, or
such other bank or trust company as shall be designated by MergerCo (the
"Exchange Agent"), in trust for the benefit of the holders of Company Stock,
for exchange in accordance with this Section 1.7, through the Exchange Agent,
an amount (the "Company Deposit"), in immediately available funds, equal to
all of the Company's cash and cash equivalents (excluding any cash and cash
equivalents included in the Excluded Assets) as of the Effective Time and (ii)
Parent shall deposit, or shall cause to be deposited, to or for the account of
the Exchange Agent, in trust for the benefit of the holders of Company Stock,
for exchange in accordance with this Section 1.7 through the Exchange Agent,
an amount, in immediately available funds, equal to the aggregate amount
payable in accordance with Section 1.7(b) less the Company Deposit. The
Exchange Agent shall agree to hold such funds (together with earnings thereon,
being referred to herein as the "Exchange Fund") for delivery as contemplated
by this Section 1.7 and upon such additional terms as may be agreed upon by
the Exchange Agent, the Company and MergerCo before the Effective Time.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, MergerCo will instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior to
the Effective Time represented outstanding Shares of Company Stock (each, a
"Certificate") (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent and shall
be in such form and have such other provisions as MergerCo may reasonably
specify) and (ii) instructions to effect the surrender of the Certificates in
exchange for the Applicable Merger Price (as defined below). Upon surrender of
a Certificate for cancellation to the Exchange Agent together with such letter
of transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions, the holder of such Certificate shall
be entitled to receive in exchange therefor (A) in the case of holders of
Company Common Stock, the Common Stock Merger Price (as determined pursuant to
Section 1.11) in cash, and (B) in the case of holders of Company Series A
Preferred Stock, $1,000 per share of such Company Series A Preferred Stock
plus an amount equal to any accrued and unpaid dividends until the Effective
Time in cash (the "Series A Merger Price," and the merger price applicable to
any given Share being referred to herein as the "Applicable Merger Price") and
the Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of shares of Company Stock which is not registered in
the transfer records of the Company as of the Effective Time, the Applicable
Merger Price may be paid in accordance with this Article I to a transferee if
the Certificate evidencing such Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer
pursuant to this Section 1.7(b) and by evidence that any applicable stock
transfer taxes have been paid. Anything herein to the contrary
notwithstanding, no interest or dividends shall accrue or be payable or paid
on any portion of the Applicable Merger Price payable to any person hereunder.
At and after the Effective Time, each holder of a Certificate to be canceled
pursuant to this Section 1.7(b) or Dissenting Shares (as defined below) shall
cease to have any rights as a stockholder of the Company, except for the right
to surrender Certificates in the manner prescribed by this Section 1.7(b) in
exchange for payment of the Applicable Merger Price or, in the case of a
holder of Dissenting Shares, the right to perfect the right to receive payment
for Dissenting Shares pursuant to Section 262 of the DGCL. No transfer of
Company Stock shall be made on the stock transfer books of the Surviving
Corporation at or after the Effective Time.
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<PAGE>
(c) No Liability. At any time following six months after the Effective Time,
the Surviving Corporation shall be entitled to require the Exchange Agent to
deliver to the Surviving Corporation any remaining amount of the Exchange Fund
which had been made available to the Exchange Agent pursuant hereto and which
has not been disbursed to holders of Certificates, and thereafter such holders
shall be entitled to look to the Surviving Corporation only as general
creditors thereof with respect to the Applicable Merger Price payable upon due
surrender of their Certificates. Notwithstanding the foregoing, none of
Parent, MergerCo or the Company shall be liable to any holder of Company Stock
for any Applicable Merger Price delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(d) Withholding Rights. The Surviving Corporation or the Exchange Agent
shall be entitled to deduct and withhold from the Applicable Merger Price
otherwise payable pursuant to this Agreement to any holder of Company Stock
such amounts as the Surviving Corporation or the Exchange 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"), or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
Surviving Corporation or the Exchange Agent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder
of the Shares of Company Stock in respect of which such deduction and
withholding was made by the Surviving Corporation or the Exchange Agent.
(e) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary but only in the circumstances and to the extent provided by the DGCL,
shares of Company Stock which are outstanding immediately prior to the
Effective Time and which are held by stockholders who did not vote such shares
in favor of the Merger or consent thereto in writing and who shall have
properly and timely delivered to the Company a written demand for payment of
the fair cash value of shares of Company Stock in the manner provided in and
complied with all of the relevant provisions of Section 262 of the DGCL
("Dissenting Shares") shall not be converted into or represent the right to
receive the Applicable Merger Price. Instead, the holders thereof shall be
entitled to payment of the fair cash value of such shares in accordance with
the provisions of Section 262 of the DGCL; provided, however, that (i) if any
holder of Dissenting Shares shall subsequently deliver a written withdrawal of
his demand for payment of the fair cash value of such shares and the Board of
Directors of the Company or the Surviving Corporation, as the case may be,
shall consent thereto, or (ii) if any holder fails to establish and perfect
his entitlement to the relief provided in such Section 262 or if the right of
such holder to receive the fair cash value of such shares of Company Stock as
to which he seeks relief otherwise terminates pursuant to Section 262 of the
DGCL, such shares shall thereupon cease to be deemed to be Dissenting Shares
and shall be deemed to have been converted into and represent the right to
receive, upon the surrender of the Certificates representing such shares, as
of the Effective Time, the Applicable Merger Price. The Company will not
settle any demand with respect to any Dissenting Shares without the written
consent of MergerCo.
Section 1.8 Stock Transfer Books. At the Effective Time, the stock transfer
books of the Company relating to the Company Stock shall be closed, and there
shall be no further registration of transfers of Company Stock thereafter on
the records of the Company.
Section 1.9 No Further Ownership Rights in Company Stock. The Applicable
Merger Price delivered upon the surrender for exchange of Shares of Company
Stock in accordance with the terms hereof shall be deemed to have been issued
in full satisfaction of all rights pertaining to such Shares. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article
I.
Section 1.10 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof and delivery of
bond in such sum as the Exchange Agent, Parent or MergerCo may reasonably
direct as indemnity against any claim that may be made against Parent,
MergerCo or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed, such Applicable Merger Consideration as
may be required pursuant to Section 1.7.
4
<PAGE>
Section 1.11 Common Stock Merger Price.
(a) The "Common Stock Merger Price" shall be the quotient obtained by
dividing (i) the Merger Price (as defined below) by (ii) the number of shares
of Company Common Stock issued and outstanding and not held in treasury
immediately before the Effective Time. The "Merger Price" shall be
$399,850,000, as adjusted by this Section 1.11.
(b) The Merger Price shall be decreased by the amount of any decrease in the
aggregate cash and cash equivalents of the Company and its wholly owned
Subsidiaries from September 30, 1997 until the Effective Time as a result of
any expenditures out of the ordinary course, including for this purpose,
without limitation, (i) the sum of (x) expenditures in connection with the
acquisition of investment assets and (y) cash contributed to Hanover
Accessories, Inc. or to any other companies acquired by the Company after
September 30, 1997 (offset by the aggregate of all cash payments made to the
Company in respect of the Excluded Assets by Purchasing LLC in excess of $3.2
million), (ii) Acceleration Payments, if any, not paid on or before December
30, 1997 and (iii) any expenditures in connection with the Merger, the Asset
Disposition or otherwise in connection with the transactions contemplated by
this Agreement, except to the extent such expenditures are applied to pay
amounts reserved as "Accrued Expenses" on the Statement of Net Assets to be
Sold attached hereto as Exhibit B (the "Statement of Assets"). The Merger
Price shall be increased by the amount of interest earned by the Company and
its wholly owned Subsidiaries with respect to the cash and cash equivalents
(including interest on the Republic NY Corporation Subordinated Note 7.25% due
July 15, 2002) of the Company and its wholly owned Subsidiaries from September
30, 1997 until the Effective Time.
(c) Without duplication of any other change in the Merger Price pursuant to
this Section 1.11, the Merger Price shall also be decreased by the aggregate
amount of all liabilities (absolute, accrued, contingent, due, to become due
or otherwise) incurred by the Company (offset by any payments made in respect
of such liabilities), other than Excluded Liabilities, after September 30,
1997 and before the Effective Time, including without limitation any
liabilities incurred in connection with the Merger, the Asset Disposition or
otherwise in connection with the transactions contemplated by this Agreement.
(d) Without duplication of any other change in the Merger Price pursuant to
Section 1.11, the Merger Price shall also be (i) decreased by the amount equal
to 0.65 multiplied by the aggregate amount of all Benefit Costs (as herein
defined) other than any Severance Costs in excess of $36,660,000, if any, or
(ii) increased by the amount equal to 0.65 multiplied by the excess, if any,
of $36,660,000 over the aggregate amount of all Benefit Costs other than any
Severance Costs.
(e) Without duplication of any other decrease pursuant to this Section 1.11,
the Merger Price shall also be decreased to the extent the Acceleration
Payments (as defined in Section 4.8) paid by the Company or its Subsidiaries
on or before December 30, 1997 exceed $7,500,000. Notwithstanding any changes
which would otherwise be made pursuant to this Section 1.11, other than the
changes to the Merger Price in this Section 1.11(e), no change shall be made
to the Merger Price as a result of the Acceleration Payments, if such payments
are made in accordance with the provisions of Section 4.8.
(f) The Merger Price shall also be decreased by the excess of (i) the sum of
the aggregate Series A Merger Price payable by Parent hereunder as a result of
the Merger and any dividends paid by the Company with respect to the Company
Series A Preferred Stock after September 30, 1997 and before the Effective
Time over (ii) $7,000,000.
(g) Without duplication of any other change in the Merger Price pursuant to
this Section 1.11, the Merger Price shall also be (i) decreased to the extent
the aggregate amount of all bonus, severance, termination and similar
payments, excluding Benefit Costs, that would be payable by the Company or its
wholly owned Subsidiaries (whether or not paid as of the Effective Time) as a
result of the termination of all of the employees of the Company and its
wholly owned Subsidiaries ("Severance Costs") exceeds $1,033,000 or (ii)
increased to the extent such amount is less than $1,033,000.
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(h) In the event any of the actions set forth in Section 4.3(a)(i) or 4.3(b)
are not taken by the Company on or before December 30, 1997, the Merger Price
shall be decreased by the amount equal to 0.35 multiplied by the aggregate
amount of payments made on or after January 1, 1998 pursuant to or in
connection with the Deferral Plans, as the same may be amended, and by the
amount equal to 0.35 multiplied by the aggregate amount of payments made on or
after January 1, 1998 pursuant to the Incentive Plan, as the same may be
amended.
(i) Without duplication of any other change in the Merger Price pursuant to
this Section 1.11, the Merger Price shall also be increased by the amount of
any liabilities reserved for on the Statement of Assets released prior to the
Effective Time with the consent of Parent to be granted or withheld in
Parent's sole discretion.
(j) Without duplication of any other change in the Merger Price pursuant to
this Section 1.11, the Merger Price shall be decreased to the extent, if any,
that the Excluded Asset Price is less than $3.2 million in cash.
(k) Without duplication of any other change in the Merger price pursuant to
this Section 1.11, the Merger Price shall be increased by an amount equal to
0.65 multiplied by the amount of any cash paid to the Company upon the sale by
the Company of the Trust Assets (as defined in Section 4.12 hereof) if such
Trust Assets are sold by the Company in accordance with the last sentence of
Section 4.12 hereof.
(l) Without duplication of any other change to the Merger Price pursuant to
this Section 1.11, the Merger Price shall be decreased by the amount of cash,
if any, paid to the Liquidating Trustee as described in Section 4.12 hereof.
Section 1.12 Further Action. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises
of the Company and MergerCo, the officers and directors of the Company and
MergerCo immediately prior to the Effective Time are fully authorized in the
name of their respective corporations or otherwise to take all such lawful and
necessary action and will take all such lawful and reasonably necessary
action.
Section 1.13 Material Adverse Effect. When used in connection with the
Company or any of its Subsidiaries, the term "Material Adverse Effect" means
any change, effect or circumstance that, individually or when taken together
with all other such changes, effects or circumstances that have occurred prior
to the date of determination of the occurrence of the Material Adverse Effect,
(a) is or is reasonably likely to be materially adverse to the business,
assets, financial condition or results of operations of the Company and its
Subsidiaries or the Surviving Corporation and its Subsidiaries, in each case
taken as a whole or (b) does or is reasonably likely to materially delay or
prevent the consummation of the transactions contemplated hereby.
ARTICLE 1A
THE SUBSIDIARY MERGER
Section 1A.1 The Closing.
(a) The Subsidiary Merger. At the Effective Time and subject to and upon the
terms and conditions of this Agreement and the DGCL, Merger Sub shall be
merged with and into WRV, the separate corporate existence of Merger Sub shall
cease, and WRV shall continue as the surviving corporation. WRV as the
surviving corporation after the Subsidiary Merger is hereinafter sometimes
referred to as the "Subsidiary Surviving Corporation."
(b) Time and Place. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1 and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the consummation of the Subsidiary Merger will take place at the
offices of Ropes & Gray, One International Place, Boston, Massachusetts,
unless another place is agreed to in writing by the parties hereto.
6
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Section 1A.2 Effective Time. The parties hereto shall cause the Subsidiary
Merger to be consummated by filing a certificate of merger as contemplated by
the DGCL (the "Subsidiary Certificate of Merger"), together with any required
related certificates, with the Secretary of State of the State of Delaware, in
such form as required by, and executed in accordance with the relevant
provisions of, the DGCL to be effective as of the Effective Time.
Section 1A.3 Effect of the Subsidiary Merger. At the Effective Time, the
effect of the Subsidiary Merger shall be as provided in this Agreement, the
Subsidiary Certificate of Merger and the applicable provisions of the DGCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
WRV and Merger Sub shall vest in the Subsidiary Surviving Corporation.
Section 1A.4 Certificate of Incorporation; By-Laws.
(a) Certificate of Incorporation. At the Effective Time, the Certificate of
Incorporation of the Subsidiary Merger Sub, as in effect on the date hereof,
shall be the Certificate of Incorporation of the Subsidiary Surviving
Corporation until thereafter amended in accordance with the DGCL and such
Certificate of Incorporation, except that the name of the Subsidiary Surviving
Corporation shall be the name of WRV.
(b) By-Laws. The By-Laws of Merger Sub, as in effect on the date hereof,
shall be the By-Laws of the Subsidiary Surviving Corporation until thereafter
amended in accordance with the DGCL, the Certificate of Incorporation of the
Subsidiary Surviving Corporation and such By-Laws; and the Board of Directors
of the Subsidiary Surviving Corporation shall consist of the same number of
directors as the number of directors of Merger Sub at the Effective Time.
Section 1A.5 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of the Subsidiary
Surviving Corporation, each to hold office in accordance with the Certificate
of Incorporation and By-Laws of the Subsidiary Surviving Corporation, and the
officers of the Merger Sub immediately prior to the Effective Time shall be
the initial officers of the Subsidiary Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
Section 1A.6 Effect on Capital Stock. At the Effective Time, by virtue of
the Subsidiary Merger and without any action on the part of Parent, MergerCo,
Merger Sub, the Company or WRV, (i) each share of common stock, $1.00 par
value, of WRV issued and outstanding immediately prior to the Effective Time
shall be one validly issued, fully paid and nonassessable share of common
stock, $0.001 par value, of the Subsidiary Surviving Corporation, and, (ii)
each share of common stock $0.001 par value, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be canceled, and
(iii) any other capital stock of either Merger Sub or WRV outstanding
immediately prior to the Effective Time shall be canceled.
Section 1A.7 Stock Transfer Books. At the Effective Time, the stock transfer
books of WRV relating to the capital stock of WRV shall be closed, and there
shall be no further registration of transfers of the capital stock of WRV
thereafter on the records of WRV.
Section 1A.8 Further Action. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Subsidiary Surviving Corporation with full right,
title and possession to all assets, property, rights, privileges, powers and
franchises of WRV and Merger Sub, the officers and directors of the WRV and
Merger Sub immediately prior to the Effective Time are fully authorized in the
name of their respective corporations or otherwise to take all such lawful and
necessary action and will take all such lawful and reasonably necessary
action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and MergerCo as
follows:
Section 2.1 Organization and Qualification; Subsidiaries. Each of the
Company and each of its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority necessary to
own, lease and operate the properties it owns, leases or operates and to carry
on its business as it is now being conducted. Each of the Company and each of
its Subsidiaries 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 activities
makes such qualification or licensing necessary.
Section 2.2 Certificate of Incorporation and By-Laws. The Company has
heretofore furnished to MergerCo a complete and correct copy of its
Certificate of Incorporation and By-Laws and the Certificate of Incorporation
and By-laws of CCC Information Services Group Inc. ("CCC"), each as most
recently restated and subsequently amended to date. Such Certificates of
Incorporation and By-Laws are in full force and effect. Neither the Company
nor any of its Subsidiaries is in violation of any of the provisions of its
respective Certificate of Incorporation or By-Laws.
Section 2.3 Capitalization.
(a) Capitalization of the Company. The authorized capital stock of the
Company consists of (i) 62,500,000 shares of Company Common Stock and (ii)
5,000,000 shares of Preferred Stock, $1.00 par value, of which 7,000 shares
have been designated as Company Series A Preferred Stock and 50,000 shares
have been designated as Series B Participating Cumulative Preferred Stock (the
"Company Series B Preferred Stock"). 6,370,000 shares of Company Common Stock
are issued and outstanding, all of which are validly issued, fully paid and
nonassessable, and 1,495,244 of such 6,370,000 shares of Company Common Stock
are held in treasury. 7,000 shares of Company Series A Preferred Stock are
issued and outstanding, all of which are validly issued, fully paid and
nonassessable, and no shares of Company Series A Preferred Stock are held in
treasury. No shares of Company Series B Preferred Stock are issued and
outstanding. Except as set forth in Section 2.3(a) of the written disclosure
schedule delivered on or prior to the date hereof by the Company to Parent and
MergerCo that is arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article II (the "Company 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 of its wholly owned Subsidiaries
or obligating the Company or any of its wholly owned Subsidiaries to issue or
sell any shares of capital stock of, or other equity interests in, the Company
or any of its wholly owned Subsidiaries. No shares of Company Common Stock or
Company Series A Preferred Stock are held by Subsidiaries of the Company. As
of the date hereof, there are no accrued and unpaid dividends with respect to
the Company Series A Preferred Stock. None of the outstanding securities of
the Company was issued in violation of the Securities Act of 1933, as amended
(the "Securities Act"), or the securities or blue sky laws of any state or
jurisdiction. Except as disclosed in Section 2.3(a) of the Company Disclosure
Schedule, there are no obligations, contingent or otherwise, of the Company or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares
of Company Stock or the capital stock of any Subsidiary or to provide funds to
or make any investment (in the form of a loan, capital contribution, guaranty
or otherwise) in any such Subsidiary. Except as set forth in Section 2.3(a) of
the Company Disclosure Schedule, all of the outstanding shares of capital
stock of each of the Company's Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable, and, except for the shares of capital
stock of CCC's Subsidiaries and except for the shares of capital stock of CCC
not owned by the Company or the Company's wholly-owned Subsidiaries, all such
shares are owned by the Company or its wholly-owned Subsidiaries free and
clear of all security interests, liens, claims, pledges, agreements,
limitations in the Company's voting rights, charges or other encumbrances of
any nature whatsoever (collectively, "Liens"), except for the Stockholders
Agreement.
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(b) Capitalization of CCC. The authorized capital stock of CCC consists of
(i) 30,000,000 shares of common stock, $.10 par value (the "CCC Common
Stock"), and (ii) 100,000 shares of Preferred Stock, $1.00 par value, of which
5,000 shares have been designated Series C Cumulative Redeemable Preferred
Stock (the "CCC Series C Preferred Stock"), 34,000 shares have been designated
Series D Cumulative Redeemable Preferred Stock (the "CCC Series D Preferred
Stock") and 500 shares have been designated Series E Cumulative Redeemable
Preferred Stock (the "CCC Series E Preferred Stock"). 24,577,350 shares of CCC
Common Stock are issued and outstanding, all of which are validly issued,
fully paid and nonassessable, and 117,618 of such 24,577,350 shares of CCC
Common Stock are held in treasury. 630 shares of CCC Series C Preferred Stock
are issued and outstanding, all of which are validly issued, fully paid and
nonassessable, and no shares of CCC Series C Preferred Stock are held in
treasury. 3,785 shares of CCC Series D Preferred Stock are issued and
outstanding, all of which are fully paid and nonassessable, and no shares of
CCC Series D Preferred Stock are held in treasury. 500 shares of CCC Series E
Preferred Stock are issued and outstanding, all of which are fully paid and
nonassessable, and no shares of CCC Series E Preferred Stock are held in
treasury. Except as set forth in Section 2.3(b) of the Company 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 CCC or any of its Subsidiaries or obligating CCC or
any of its Subsidiaries to issue or sell any shares of capital stock of, or
other equity interests in, CCC or any of its Subsidiaries. All shares of
capital stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid and nonassessable. None
of the outstanding securities of CCC issued since January 1, 1993 was issued
in violation of the Securities Act or the securities or blue sky laws of any
state or jurisdiction. Except as set forth in Section 2.3(b) of the Company
Disclosure Schedule, all of the outstanding shares of capital stock of each of
CCC's Subsidiaries are owned by CCC or its wholly-owned Subsidiaries free and
clear of all Liens.
(c) The authorized capital stock of WRV consists solely of 1,000 shares of
common stock, $1.00 par value, all of which are issued and outstanding and are
validly issued, fully paid and nonassessable.
Section 2.4 Authority Relative to this Agreement.
(a) The Company has all necessary corporate power and authority to execute
and deliver this Agreement and, subject to requisite shareholder approval, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the Merger, the Asset
Disposition and the other transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action, and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than the
adoption of this Agreement by the holders of at least a majority of the
outstanding shares of Company Common Stock entitled to vote in accordance with
the DGCL and the Company's Certificate of Incorporation and By-Laws). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent, MergerCo and
Merger Sub constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, (i) except as
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
subject to general principles of equity.
(b) The Board of Directors of the Company has duly and validly approved and
taken all corporate action required to be taken by the Board of Directors for
the consummation of the Merger, the Asset Disposition and the other
transactions contemplated by this Agreement, including, but not limited to,
all actions necessary to render the provisions of Section 203 of the DGCL
inapplicable to this Agreement and the Merger. The Board of Directors of the
Company has determined that it is advisable and in the best interest of the
Company's stockholders for the Company to enter into a business combination
with Parent and MergerCo upon the terms and subject to the conditions of this
Agreement, and has recommended that the Company's stockholders approve and
adopt this Agreement, the Merger and the Asset Disposition.
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(c) All of the Continuing Directors of the Company (as defined in the
Certificate of Incorporation of the Company) have approved the transactions
contemplated by this Agreement for purposes of Paragraph B.1 of Article Eight
of the Certificate of Incorporation of the Company. The Board of Directors of
the Company has taken all action necessary to amend the Rights Agreement to
ensure that such transactions will not cause any Rights (as defined in the
Rights Agreement) to become exercisable and to ensure that such Rights will
not exist after consummation of the Merger.
(d) WRV has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by WRV and the consummation by WRV of the Subsidiary Merger and
the other transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action, and no other corporate
proceedings on the part of WRV are necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by WRV and, assuming the due authorization,
execution and delivery by Parent, MergerCo and Merger Sub, constitutes a
legal, valid and binding obligation of WRV enforceable against WRV in
accordance with its terms, (i) except as may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) subject to general
principles of equity.
Section 2.5 No Conflict; Required Filings and Consents.
(a) The exhibit index to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1997, as supplemented by Section
2.5(a)(i) of the Company Disclosure Schedule, includes each agreement,
contract or other instrument (including all amendments thereto) to which the
Company or any of its Subsidiaries is a party or by which any of them is bound
and which would be required pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the rules and regulations thereunder to be
filed as an exhibit to an Annual Report on Form 10-K, a Quarterly Report on
Form 10-Q or a Current Report on Form 8-K and each other agreement, contract
or other instrument to which the Company is a party. The Company has made
available to MergerCo on or prior to the date hereof true, correct and
complete copies of each such agreement, contract, instrument and amendment. To
the actual knowledge of the Company, the exhibit index to CCC's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1997, as
supplemented by Section 2.5(a)(ii) of the Company Disclosure Schedule,
includes each agreement, contract or other instrument (including all
amendments thereto) to which CCC or any of its Subsidiaries is a party or by
which any of them is bound and which would be required pursuant to the
Exchange Act and the rules and regulations thereunder to be filed as an
exhibit to an Annual Report on Form 10-K, a Quarterly Report on Form 10-Q or a
Current Report on Form 8-K. The Company has made available to MergerCo on or
prior to the date hereof true, correct and complete copies of each such
agreement, contract, instrument and amendment.
(b) Except as disclosed in Section 2.5(b) of the Company Disclosure
Schedule, and except as disclosed in the Company SEC Reports and the CCC SEC
Reports, (i) neither the Company nor any of its Subsidiaries has breached, is
in default under, or has received written notice of any breach of or default
under, any of the agreements, contracts or other instruments referred to in
Section 2.5(a), (ii) to the best knowledge of the Company and its
Subsidiaries, no other party to any of the agreements, contracts or other
instrument referred to in Section 2.5 (a) has breached or is in default of any
of its obligations thereunder, and (iii) to the knowledge of the Company, each
of the agreements, contracts and other instruments referred to in Section
2.5(a) is in full force and effect. The representations and warranties in this
Section 2.5(b) are made only to the actual knowledge of the Company to the
extent they relate to CCC and its Subsidiaries.
(c) Except as set forth in Section 2.5(c) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by each of the Company
and WRV does not, and the performance of this Agreement by each of the Company
and WRV and the consummation of the Merger, the Asset Disposition, the
Subsidiary Merger and the other transactions contemplated hereby will not, (i)
conflict with or violate the Certificate of Incorporation or By-Laws of the
Company or the Certificate of Incorporation or By-Laws of any of its
Subsidiaries, (ii) conflict with or violate any federal, foreign, state or
provincial law, rule, regulation, order,
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judgment or decree (collectively, "Laws") applicable to the Company or any of
its Subsidiaries or by which its or any of their respective properties is
bound or affected, or (iii) result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or impair the Company's or any of its Subsidiaries' rights or alter the
rights or obligations of any third party under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of the Company or any of
its Subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries or its or any of their respective
properties is bound or affected. The representations and warranties in clauses
(ii) and (iii) of this Section 2.5(c) are made only to the actual knowledge of
the Company to the extent they relate to CCC and its Subsidiaries.
(d) The execution and delivery of this Agreement by each of the Company and
WRV does not, the performance of this Agreement by each of the Company and WRV
will not, and the consummation by the Company of the Merger, the Asset
Disposition and the other transactions contemplated hereby and the
consummation by WRV or the Subsidiary Merger will not, require the Company or
WRV to receive any consent, approval, authorization or permit of, or filing
with or notification to, any domestic or foreign governmental or regulatory
authority except for applicable requirements, if any, of the Securities Act,
the Exchange Act, the pre-merger notification requirements of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the
filing and recordation of appropriate merger or other documents as required by
the DGCL.
Section 2.6 Compliance; Permits.
(a) Except as disclosed in Section 2.5(b) or 2.6(a) of the Company
Disclosure Schedule, and except as disclosed in the Company SEC Reports and
the CCC SEC Reports, neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, (i) any Law applicable to the
Company or any of its Subsidiaries or by which its or any of their respective
properties 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 of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries or its or any of their respective
properties is bound or affected. The representations and warranties in this
Section 2.6(a) are made only to the actual knowledge of the Company to the
extent they relate to CCC and its Subsidiaries.
(b) Except as disclosed in Section 2.6(b) of the Company Disclosure
Schedule, and except as disclosed in the Company SEC Reports and the CCC SEC
Reports, the Company and its Subsidiaries hold all permits, licenses,
easements, franchises, variances, exemptions, consents, certificates, orders,
authorizations and approvals from governmental authorities (collectively, the
"Company Permits") which are necessary or appropriate to own, lease and
operate the properties it owns, leases or operates and for the operation of
the business of the Company and its Subsidiaries as it is now being conducted.
Except as disclosed in the Company SEC Reports and the CCC SEC Reports, the
Company and its Subsidiaries are in compliance with the terms of the Company
Permits. The representations and warranties in this Section 2.6(b) are made
only to the actual knowledge of the Company to the extent they relate to CCC
and its Subsidiaries.
Section 2.7 SEC Filings; Financial Statements; Investments.
(a) The Company has timely filed all forms, reports and documents required
to be filed with the Securities and Exchange Commission (the "SEC") and has
made available to MergerCo (i) its Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, (ii) all other reports or registration
statements filed by the Company with the SEC since January 1, 1996, (iii) all
proxy statements relating to the Company's meetings of stockholders (whether
annual or special) since January 1, 1996 and (iv) all amendments and
supplements to all such reports and registration statements filed by the
Company with the SEC pursuant to the requirements of the Exchange Act or the
Securities Act ((i)-(iv) collectively, the "Company SEC Reports"). The Company
SEC Reports (i) were prepared in all material respects in accordance with the
requirements of the Securities Act or
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the Exchange Act, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then also on the date of such filing) 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 therein, in the light of
the circumstances under which they were made, not misleading. CCC has timely
filed all forms, reports and documents required to be filed with the SEC and
the Company has made available to MergerCo (i) CCC's Annual Report on Form 10-
K for the fiscal year ended December 31, 1996, (ii) all other reports or
registration statements filed by CCC with the SEC since January 1, 1996, (iii)
all proxy statements relating to CCC's meetings of stockholders (whether
annual or special) since January 1, 1996 and (iv) all amendments and
supplements to all such reports and registration statements filed by CCC with
the SEC pursuant to the requirements of the Exchange Act or the Securities Act
((i)-(iv) collectively, the "CCC SEC Reports"). The CCC SEC Reports (i) were
prepared in all material respects in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (ii) did not at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then also on the date of such filing) 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 therein, in
the light of the circumstances under which they were made, not misleading.
None of the Company's Subsidiaries (other than CCC) is required to file any
forms, reports or other documents with the SEC.
(b) The Company has heretofore delivered to MergerCo the following financial
statements (including, in each case, any related notes thereto): (i) audited
consolidated and consolidating statements of financial condition of the
Company and its Subsidiaries as of December 31, 1995 and 1996, and the related
consolidated and consolidating statements of operations, statements of
stockholders' equity and statements of cash flow for the fiscal years ended
December 31, 1995 and 1996, and (ii) the unaudited consolidated and
consolidating statements of financial condition of the Company and its
Subsidiaries as of September 30, 1997 and the related consolidated and
consolidating statements of operations, statements of stockholders' equity and
statements of cash flows for the nine months ended September 30, 1997, each of
which such audited and unaudited financial statements has been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated
in the notes thereto), and each of which fairly presents in all material
respects the consolidated financial position of the Company and its
Subsidiaries as at the respective dates thereof and the consolidated results
of its operations and cash flows and stockholder's equity for the periods
indicated, except that the unaudited interim financial statements are subject
to normal and recurring year-end adjustments which will not be material in
amount. Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the CCC SEC Reports was prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated
in the notes thereto), and each of which fairly presents in all material
respects the consolidated financial position of CCC and its Subsidiaries as at
the respective dates thereof and the consolidated results of its operations
and cash flows and stockholder's equity for the periods indicated, except that
the unaudited interim financial statements are subject to normal and recurring
year-end adjustments which will not be material in amount.
(c) As of September 30, 1997, the Company and its wholly owned Subsidiaries
had cash and cash equivalents (including cash and cash equivalents included in
the Excluded Assets and excluding cash and cash equivalents of Hanover
Accessories, Inc.) determined in accordance with generally accepted accounting
principles applied on a consistent basis with prior periods of at least
$191,832,629 (the "September 30 Cash Amount"). The Company and its wholly
owned Subsidiaries own beneficially and of record 8,584,564 shares of CCC
Common Stock, 630 shares of CCC Series C Preferred Stock, 3,601 shares of CCC
Series D Preferred Stock and 500 shares of CCC Series E Preferred Stock. The
Company and its wholly owned Subsidiaries own beneficially and of record
3,600,009 shares of Common Stock of Cross Timbers Oil Company and a 21.33%
limited partnership interest in Richard C. Blum & Associates, NWA Partners,
L.P. (the "Partnership"). The assets of the Partnership include 5,396,643
shares of Class A Common Stock of Northwest Airlines Corp., 658,755 of which
shares are subject to the options (the "Options" ) set forth in the
Stockholders Agreement described in Section 2.7(c) of the Company Disclosure
Schedule, and 1,727 shares of Series B Preferred Stock
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(the "NWA Preferred") of Northwest Airlines Corp. As of October 14, 1997, the
Options had been exercised and the NWA Preferred then held by the Partnership
had been redeemed, and, accordingly, the Company's cash and cash equivalents
increased by $26,346,049 after the distribution of such cash proceeds by the
Partnership. The organizational and charter documents of the Partnership and
all agreements between the Company and its Subsidiaries on one hand and the
Partnership on the other, and, to the actual knowledge of the Company, all
agreements affecting the assets of the Partnership are listed on Section
2.7(c) of the Company Disclosure Schedule. Section 2.7(c) of the Company
Disclosure Schedule lists any other securities (other than capital stock of
wholly-owned Subsidiaries) held by the Company or any of its wholly owned
Subsidiaries.
Section 2.8 Absence of Certain Changes or Events. As of the date of this
Agreement, except as set forth in Section 2.8(a) through Section 2.8(g) of the
Company Disclosure Schedule, the Company SEC Reports or the CCC SEC Reports
and except for the execution and delivery of this Agreement, since January 1,
1997, each of the Company and its Subsidiaries has conducted its business in
the ordinary course consistent with past practice and there has not occurred:
(a) any Material Adverse Effect; (b) any amendments or changes in the
Certificate of Incorporation or By-laws of the Company or similar
organizational documents of its Subsidiaries; (c) any material damage to,
destruction or loss of any material asset of the Company or any of its
Subsidiaries (whether or not covered by insurance) (d) any material change by
the Company or by CCC in its accounting methods, principles or practices; (e)
any material revaluation by the Company or by CCC of any of their respective
assets or any of their respective Subsidiaries' assets, including, without
limitation, any writing down of the value of inventory or writing off of notes
or accounts receivable; (f) any sale, disposition of or Lien upon any assets
of the Company or any of its Subsidiaries (except (i) sales of goods and
services by CCC and its Subsidiaries in the ordinary course of business and in
a manner consistent with past practice, (ii) dispositions by CCC of obsolete
or worthless assets and (iii) sales of immaterial assets by CCC); or (g) any
other action or event that would have required the consent of MergerCo
pursuant to any of the following provisions of Section 4.1 had such action or
event occurred after the date of this Agreement: Section 4.1(d), Section
4.1(e), Section 4.1(f), Section 4.1(g), Section 4.1(h), Section 4.1(i), and
Section 4.1(j). The representations and warranties in this Section 2.8 are
made only to the actual knowledge of the Company to the extent they relate to
CCC and its Subsidiaries.
Section 2.9 No Undisclosed Liabilities; No Liabilities Related to Purchasing
LLC. Except as is disclosed in Section 2.9(i) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries has, and, except for
liabilities of MergerCo prior to the Effective Time, neither the Surviving
Corporation nor any of its Subsidiaries immediately after giving effect to the
Merger and the Asset Disposition will have, any liabilities (absolute,
accrued, contingent, due, to become due or otherwise), except liabilities (a)
in the aggregate adequately provided for on the face of the September 30, 1997
Balance Sheet contained in the Company's Report on Form 10-Q for the quarter
ended September 30, 1997 (the "September 30, 1997 Balance Sheet"), (b) in the
aggregate adequately provided for on the face of CCC's audited balance sheet
for the fiscal year ended December 31, 1996 contained in the CCC SEC Reports,
(c) incurred since September 30, 1997 by the Company and its wholly owned
Subsidiaries in the ordinary course of business consistent with past
practices, (d) incurred since December 31, 1996 by CCC and its Subsidiaries in
the ordinary course of business consistent with past practice or (e) Excluded
Liabilities. Except as set forth in Section 2.9(ii) of the Company Disclosure
Schedule, after the consummation of the Asset Disposition, (a) neither the
Company nor any of its Subsidiaries (i) will be providing credit support for,
or guaranteeing the payment or performance of, any liability or obligation of
the Purchasing LLC, or (ii) will otherwise directly or indirectly be liable or
responsible for any Excluded Liability, (b) the Purchasing LLC will not have
any obligation or liability, or be a party to any contract, agreement or other
instrument, a default with respect to which would give rise to any right by
the Purchasing LLC or any third party against the Company or any of its
Subsidiaries or any of their respective assets and (c) neither the Company nor
its Subsidiaries will have any liability or obligation to the Purchasing LLC
or any third party as a result of the Asset Disposition. The representations
and warranties in this Section 2.9 are made only to the actual knowledge of
the Company to the extent they relate to CCC and its Subsidiaries.
Section 2.10 Absence of Litigation. Except as set forth in Section 2.10 of
the Company Disclosure Schedule, there are no claims, actions, suits,
proceedings or investigations pending or, to the best knowledge of
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the Company or its Subsidiaries, threatened against the Company or any of its
Subsidiaries, or any properties or rights of the Company or any of its
Subsidiaries, or any basis therefor, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign. Except as set forth in Section 2.10 of the Company Disclosure
Schedule, no judgment, order or decree of any governmental authority has been
issued against the Company or any of its Subsidiaries. The representations and
warranties in this Section 2.10 are made only to the actual knowledge of the
Company to the extent they relate to CCC and its Subsidiaries.
Section 2.11 Employee Benefit Plans; Employment Agreements. Except in each
case as set forth in Section 2.11 of the Company Disclosure Schedule, (i)
there has been no "prohibited transaction," as such term is defined in Section
406 of ERISA and Section 4975 of the Code, with respect to any employee
pension plans (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), any employee welfare plans (as
defined in Section 3(1) of ERISA) or any bonus, stock option, stock purchase,
incentive, deferred compensation, deferred benefits, supplemental retirement,
severance and other similar fringe or employee benefit plans, programs or
arrangements (collectively, the "Company Plans"), which could result in
liability of the Company or any of its Subsidiaries; (ii) all Company Plans
are in compliance in all material respects with the requirements prescribed by
any and all Laws (including ERISA and the Code), currently in effect with
respect thereto (including all applicable requirements for notification to
participants or the Department of Labor, Pension Benefit Guaranty Corporation
(the "PBGC"), Internal Revenue Service (the "IRS") or the Secretary of the
Treasury), and the Company and each of its Subsidiaries have performed all
material obligations required to be performed by them under, are not in any
respect in default under or violation of, and have no knowledge of any
material default or violation by any other party to, any of the Company Plans;
(iii) each Company Plan intended to qualify under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code is the
subject of a favorable determination letter from the IRS, and nothing has
occurred which may reasonably be expected to impair such determination; (iv)
all contributions required to be made to any Company Plan pursuant to Section
412 of the Code, or the terms of the Company Plan or any collective bargaining
agreement, have been made on or before their due dates; (v) with respect to
each Company Plan, no "reportable event" within the meaning of Section 4043 of
ERISA (excluding any such event for which the 30-day notice requirement has
been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 of ERISA has occurred; (vi) no
withdrawal (including a partial withdrawal) has occurred with respect to any
multiemployer plan within the meaning set forth in Section 3(37) of ERISA that
has resulted in, or could reasonably be expected to result in, any withdrawal
liability for the Company or any of its Subsidiaries; and (vii) neither the
Company nor any of its Subsidiaries has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA (other than liability for premium
payments to the PBGC, and contributions not in default to the respective
plans, arising in the ordinary course). As of the date of this Agreement, the
aggregate amount of cash liabilities (the "Benefit Costs") for which the
Surviving Corporation, the Company and the Company's wholly-owned Subsidiaries
will be liable pursuant to or in connection with all Company Plans (taking
into account the effect of the consummation of the Merger and the Asset
Disposition and the completion by the Company of the actions set forth in
Section 4.3), other than any Severance Costs, will not exceed $36,660,000.
Section 2.11 of the Company Disclosure Schedule lists all employment and
consulting agreements to which the Company or any of its wholly owned
Subsidiaries is a party and all Company Plans. The representations and
warranties in this Section 2.11 are made only to the actual knowledge of the
Company to the extent they relate only to CCC and its Subsidiaries.
Section 2.12 Labor Matters. Except as set forth in Section 2.12 of the
Company Disclosure Schedule: (i) there are no claims, disputes or proceedings
pending or, to the best knowledge of the Company or any of its wholly-owned
Subsidiaries, threatened, between the Company or any of its wholly-owned
Subsidiaries and any of their respective employees; (ii) neither the Company
nor any of its wholly-owned Subsidiaries is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by the Company or its wholly-owned Subsidiaries, nor does the Company
or any of its wholly-owned Subsidiaries know of any activities or proceedings
of any labor union to organize any such employees; and (iii) neither the
Company nor any of its wholly-owned Subsidiaries has any knowledge of any
strikes, slowdowns, work stoppages,
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lockouts, or threats thereof, by or with respect to any employees of the
Company or any of its wholly-owned Subsidiaries.
Section 2.13 Proxy Statement. The information supplied by the Company for
inclusion or incorporation by reference in the proxy statement to be sent to
the stockholders of the Company in connection with the meeting of the
stockholders of the Company to consider the Merger (the "Company Stockholders
Meeting") (such proxy statement as amended or supplemented is referred to
herein as the "Proxy Statement"), will not, on the date the Proxy Statement is
first mailed to stockholders, at the time of the Company Stockholders Meetings
or at the Effective Time, contain any statement which, at such time and in
light of the circumstances under which it shall be made, is false or
misleading with respect to any material fact, or shall omit to state any
material fact necessary in order to make the statements made in such
information not false or misleading or omit to state any material fact
necessary to correct any statement in any earlier communication with respect
to the solicitation of proxies for the Company Stockholders Meetings which has
become false or misleading. If at any time prior to the Effective Time any
event relating to the Company or any of its respective affiliates, officers or
directors should be discovered by the Company which should be set forth in a
supplement to the Proxy Statement, the Company shall promptly inform MergerCo.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information contained in the Proxy Statement provided by
Parent or MergerCo in writing specifically for inclusion in the Proxy
Statement
Section 2.14 Subsidiaries. Immediately before the Effective Time, the
Company will have no Subsidiaries other than WRV, CCC and CCC's Subsidiaries.
Section 2.15 Title to Property; Restrictions on Transfer. Except as set
forth in Section 2.15(i) of the Company Disclosure Schedule, and except, with
respect to CCC and its Subsidiaries, as set forth in the CCC SEC Reports, the
Company and each of its Subsidiaries have good, defensible and marketable
title to all of their respective properties and assets, free and clear of all
Liens; and all leases pursuant to which the Company or any of its Subsidiaries
lease from others material amounts of real or personal property, are in good
standing, valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event of
default (or event which with notice or lapse of time, or both, would
constitute a default). Except as set forth in Section 2.15(ii) of the Company
Disclosure Schedule no assets of the Company or any of its wholly-owned
Subsidiaries are, and none of the assets described in Section 2.7(c) and no
other material assets of the Surviving Corporation or any of its wholly-owned
Subsidiaries after giving effect to the Merger will be, subject to any
restrictions limiting the sale, transfer or other disposition of such assets.
Section 2.16 Taxes.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean any and all
taxes, fees, levies, duties, tariffs, imposts, and governmental impositions or
charges of any kind in the nature of (or similar to) taxes, payable to any
federal, state, local or foreign taxing authority, including (without
limitation) (i) income, franchise, profits, gross receipts, ad valorem, net
worth, value added, sales, use, service, real or personal property, special
assessments, capital stock, license, payroll, withholding, employment, social
security, workers' compensation, unemployment compensation, utility,
severance, production, excise, stamp, occupation, premiums, windfall profits,
transfer and gains taxes, and (ii) all interest, penalties, additional taxes
and additions to tax imposed with respect thereto; and "Tax Returns" shall
mean returns, reports, and information statements with respect to Taxes
required to be filed with the Internal Revenue Service or any other federal,
foreign, state or provincial taxing authority, domestic or foreign, including,
without limitation, consolidated, combined and unitary tax returns.
(b) Other than as disclosed in Section 2.16(b) of the Company Disclosure
Schedule, (i) each of the Company and each wholly-owned Subsidiary has timely
filed all Tax Returns required to be filed by it and all such Tax Returns were
complete and correct when filed, (ii) the Company and its wholly-owned
Subsidiaries have paid all Taxes due, (iii) each of the Company and each
wholly-owned Subsidiary has withheld and paid all
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Taxes required to have been withheld and paid in connection with amounts paid
or to be paid to any employee, independent contractor, creditor, stockholder
or other third party.
(c) Except as disclosed in Section 2.16(c) of the Company Disclosure
Schedule: (i) no deficiency or proposed adjustment for any Taxes has been
asserted or assessed in writing by any taxing authority against the Company or
any wholly-owned Subsidiary; (ii) neither the Company nor any wholly-owned
Subsidiary has waived any statute of limitations in respect of Taxes or
consented in writing to extend the time in which any Tax may be assessed or
collected by any taxing authority; (iii) neither the Company nor any wholly-
owned Subsidiary has requested or been granted an extension of time for filing
any Tax Return to a date later than the Closing Date; (iv) neither the Company
nor any wholly-owned Subsidiary has ever been the subject of any action,
proceeding, audit or examination with respect to any liability (or asserted
liability) for Taxes within the most recent four taxable years or for taxable
years for which the applicable statute of limitations has not run; (v) there
are no liens on any assets of the Company or any wholly-owned Subsidiary
arising from the failure (or alleged failure) to pay any Tax; (vi) neither the
Company nor any wholly-owned Subsidiary is a party to or bound by any Tax
allocation or Tax sharing agreement with any Person, has ever been a member of
an affiliated group (within the meaning of Code Section 1504) filing
consolidated federal income Tax Returns (other than a group the common parent
of which was the Company), or has any liability for the Taxes of any other
Person, whether under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract or otherwise; (vii) neither the Company nor any wholly-owned
Subsidiary has filed a consent under Code Section 341(f); (viii) neither the
Company nor any wholly-owned Subsidiary has agreed to make or is required to
make, any adjustment under Section 481 of the Code or any comparable provision
of state or foreign tax laws by reason of a change in accounting method or
otherwise; (ix) neither the Company nor any wholly-owned Subsidiary is or has
been a United States real property holding corporation (within the meaning of
Code Section 897(c)(2)) during the applicable period specified in Code Section
897(c)(1)(A)(ii); (x) no claim has ever been made by a taxing authority in a
jurisdiction in which the Company or a wholly-owned Subsidiary does not file
Tax Returns that either the Company or the wholly-owned Subsidiary is or may
be subject to taxation under the laws of such jurisdiction; (ix) neither the
Company nor any wholly-owned Subsidiary has a permanent establishment in any
foreign country, as defined in the relevant tax treaty or convention between
the United States of America and such foreign country or, if a treaty does not
exist, under the laws of such foreign country; and (xii) the Company has
previously furnished to MergerCo or its designee true, correct and complete
copies of all income Tax Returns, examination reports and statements of
deficiencies filed by or with respect to, assessed against or agreed to by, as
the case may be, the Company or any wholly-owned Subsidiary in respect of each
of its four most recent taxable years.
(d) Neither the Company nor any of its wholly-owned Subsidiaries owns any
property of a character, the indirect transfer of which, pursuant to this
Agreement, would give rise to any material documentary, stamp or other
transfer tax.
Section 2.17 Environmental Matters. Except as set forth in Section 2.17 of
the Company Disclosure Schedule, and except as disclosed in the Company SEC
Reports and the CCC SEC Reports, the Company and each of its Subsidiaries: (i)
have obtained all material Company Permits which are required to be obtained
under all applicable federal, state, foreign or local laws or any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic
materials or wastes into ambient air, surface water, ground water, or land or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants or hazardous or toxic materials or wastes ("Environmental Laws")
by the Company or its Subsidiaries or their respective agents; (ii) are in
material compliance with all terms and conditions of such required Company
Permits, and also are in material compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in applicable Environmental Laws; (iii) as
of the date hereof, do not have actual knowledge of nor have received written
notice of any past or present violations of Environmental Laws or (iv) have
taken all actions necessary
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under applicable Environmental Laws to register any products or materials
required to be registered by the Company or its Subsidiaries (or any of their
respective agents) thereunder. There is no event, condition, circumstance,
activity, practice, incident, action or plan which has occurred which is
reasonably likely to interfere with or prevent continued compliance with
Environmental Laws or which would give rise to any common law or statutory
liability, or otherwise form the basis of any claim, action, suit or
proceeding, against the Company or any of its Subsidiaries based on or
resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge or
release into the environment, of any pollutant, contaminant or hazardous or
toxic material or waste. The representations and warranties in this Section
2.17 are made only to the actual knowledge of the Company to the extent they
relate to CCC and its Subsidiaries.
Section 2.18 Intellectual Property.
(a) The Company, directly or indirectly through its Subsidiaries, owns, or
is licensed or otherwise possesses legally enforceable rights to use, all
patents, trademarks, trade names, service marks, copyrights, technology, know-
how and tangible or intangible proprietary information or material that are
material to the business of the Company and its Subsidiaries as currently
conducted by the Company or its Subsidiaries (the "Company Intangible Property
Rights").
(b) Except as set forth in the Company SEC Reports and the CCC SEC Reports,
either the Company or one of its Subsidiaries is the owner of, or the
exclusive or non-exclusive licensee of the Company Intangible Property Rights,
and, in the case of Company Intangible Property Rights owned by the Company or
any of its Subsidiaries, has sole and exclusive rights to the use thereof or
the material covered thereby in connection with the services or products in
respect of which the Company Intangible Property Rights are being used. Except
as set forth in Section 2.18(b) of the Company Disclosure Schedule, and except
as disclosed in the Company SEC Reports and the CCC SEC Reports, no claims
with respect to the Company Intangible Property Rights have been asserted or,
to the knowledge of the Company, are threatened by any person (i) to the
effect that the manufacture, sale, licensing, or use of any of the products of
the Company or any of its Subsidiaries as now manufactured, sold or licensed
or used or proposed for manufacture, use, sale or licensing by the Company or
any of its Subsidiaries infringes on any copyright, patent, trade mark,
service mark or trade secret, (ii) against the use by the Company or any of
its Subsidiaries of any trademarks, service marks, trade names, trade secrets,
copyrights, patents, technology or know-how used in the business of the
Company and its Subsidiaries as currently conducted or as proposed to be
conducted, or (iii) challenging the ownership by the Company or any of its
Subsidiaries or the validity of any of the Company Intangible Property Rights.
All material registered trademarks, service marks and copyrights held by the
Company are valid and subsisting. Except as set forth on Section 2.18(b) of
the Company Disclosure Schedule, and except as disclosed in the Company SEC
Reports and the CCC SEC Reports, to the knowledge of the Company, there is no
unauthorized use, infringement or misappropriation of any of the Company
Intangible Property Rights by any third party, including any employee or
former employee of the Company or any of its Subsidiaries. No Company
Intangible Property Right or product of the Company or any of its Subsidiaries
is subject to any outstanding decree, order, judgment, or stipulation
restricting in any manner the licensing thereof by the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries has entered into
any agreement under which the Company or its Subsidiaries is restricted from
selling, licensing or otherwise distributing any of its products to any class
of customers, in any geographic area, during any period of time or in any
segment of the market. The representations and warranties in this Section 2.18
(i) are made only to the actual knowledge of the Company with respect to CCC
and its Subsidiaries and (ii) are not made to the extent any inaccuracy in
such representations and warranties with respect to CCC and its Subsidiaries
would not have a Material Adverse Effect.
Section 2.19 Interested Party Transactions. Except as set forth in Section
2.19(i) of the Company Disclosure Schedule or disclosed in the Company SEC
Reports under an appropriate heading, since January 1, 1996, no event has
occurred that would be required to be reported by the Company as a Certain
Relationship or Related Transaction, pursuant to Item 404 of Regulation S-K
promulgated by the SEC. Except as set forth in Section 2.19(ii) of the Company
Disclosure Schedule or disclosed in the CCC SEC Reports under an appropriate
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heading, since January 1, 1996, no event has occurred that would be required
to be reported by CCC as a Certain Relationship or Related Transaction,
pursuant to Item 404 of Regulation S-K promulgated by the SEC.
Section 2.20 Powers of Attorney. There are no outstanding powers of attorney
or proxies executed on behalf of the Company or WRV in respect of their
respective assets, liabilities or business.
Section 2.21 Books and Records. The books and corporate records (including
minute books, stock record books and financial records) of the Company and
each of its Subsidiaries are correct and complete in all material respects and
have been maintained in accordance with sound business practices and
applicable law. The representations and warranties in this Section 2.21 are
made only to the actual knowledge of the Company with respect to CCC and its
Subsidiaries.
Section 2.22 Brokers. Except as set forth in Section 2.22 of the Company
Disclosure Schedule, no broker, finder or investment banker or other party is
entitled to any brokerage, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company or its Subsidiaries or
affiliates. The fees and expenses of the entities listed on Section 2.22 of
the Company Disclosure Schedule will be paid by the Company. The Company has
heretofore furnished to MergerCo a complete and correct copy of all agreements
between the Company and the entities listed on Section 2.22 of the Company's
Disclosure Schedule pursuant to which such entities could be entitled to any
payment relating to the transactions contemplated hereunder.
Section 2.23 Change in Control Payments. Except as set forth on Section 2.23
of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries have any plans, programs or agreements to which they are parties,
or to which they are subject, pursuant to which payments (or acceleration of
benefits) may be required upon, or may become payable directly or indirectly
as a result of, a change of control of the Company or any of its Subsidiaries.
The representations and warranties in this Section 2.23 are made only to the
actual knowledge of the Company with respect to CCC and its Subsidiaries.
Section 2.24 Disclosure. This Agreement (including the Company Disclosure
Schedule) and the financial statements referred to herein do not, considered
as a whole, omit to state a material fact necessary in order to make the
statements contained herein and therein not misleading. The representations
and warranties in this Section 2.24 are made only to the actual knowledge of
the Company with respect to CCC and its Subsidiaries.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERCO
Parent, MergerCo and Merger Sub hereby jointly and severally represent and
warrant to the Company and WRV as follows:
Section 3.1 Organization and Qualification. Each of Parent, MergerCo and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and has the
requisite corporate power and authority necessary to own and lease the
properties it owns or leases and to carry on its business as it is now being
conducted. Each of Parent, MergerCo and Merger Sub 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 or leased by it
or the nature of its activities makes such qualification or licensing
necessary.
Section 3.2 Charter and By-Laws. Neither Parent, MergerCo nor Merger Sub is
in violation of any of the provisions of its respective charter or by-laws.
Section 3.3 Subsidiaries. MergerCo has no Subsidiaries other than Merger
Sub.
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Section 3.4 Authority Relative to this Agreement. Each of Parent, MergerCo
and Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its respective obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Parent, MergerCo and Merger Sub and the consummation by
Parent, MergerCo and Merger Sub of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of Parent, MergerCo and Merger Sub, and no other corporate proceedings on the
part of Parent, MergerCo or Merger Sub are necessary to consummate the
transactions so contemplated (other than the approval of the Merger and the
Subsidiary Merger in accordance with the DGCL). The Board of Directors of
MergerCo has determined that it is advisable and in the best interest of
MergerCo's stockholder for MergerCo to enter into a business combination with
the Company upon the terms and subject to the conditions of this Agreement.
The Board of Directors of Merger Sub has determined that it is advisable and
in the best interest of Merger Sub's stockholder for Merger Sub to enter into
a business combination with WRV upon the terms and subject to the conditions
of this Agreement. This Agreement has been duly and validly executed and
delivered by Parent, MergerCo and Merger Sub and, assuming the due
authorization, execution and delivery by the Company and WRV, constitutes a
legal, valid and binding obligation of Parent, MergerCo and Merger Sub
enforceable against each of them in accordance with its terms, (i) except as
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to enforcement of creditors rights generally and (ii)
subject to general principles of equity.
Section 3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent, MergerCo and
Merger Sub do not, and the performance of this Agreement by Parent, MergerCo
and Merger Sub and the consummation of the transactions contemplated hereby
will not, (i) conflict with or violate the charter or by-laws of Parent,
MergerCo or Merger Sub, (ii) conflict with or violate any Laws applicable to
Parent, MergerCo or Merger Sub or by which any of their respective properties
are 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 impair Parent's, MergerCo's or Merger Sub's rights or alter
the rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result
in the creation of a Lien on any of the properties or assets of Parent,
MergerCo or Merger Sub pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent, MergerCo or Merger Sub is a party or by which
Parent, MergerCo or Merger Sub or its respective properties are bound or
affected except in the case of clauses (ii) or (iii) for any such conflicts,
violations, breaches, defaults or other occurrences that will not adversely
affect the ability of Parent, MergerCo or Merger Sub to perform its respective
obligations hereunder or to consummate the transactions contemplated hereby.
(b) The execution and delivery of this Agreement by Parent, MergerCo and
Merger Sub does not, and the performance of this Agreement by Parent, MergerCo
and Merger Sub will not, and the consummation by Parent, MergerCo and Merger
Sub of the Merger and the other transactions contemplated hereby will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or
foreign, except for applicable requirements, if any, of the Securities Act,
the Exchange Act, the pre-merger notification requirements of the HSR Act and
the filing and recordation of appropriate merger or other documents as
required by the DGCL.
Section 3.6 Financing. Parent has, and as of the Closing will have,
sufficient cash available to it to consummate the transactions contemplated
hereby.
Section 3.7 Proxy Statement. The information supplied by Parent, MergerCo or
Merger Sub in writing specifically for inclusion in the Proxy Statement will
not, on the date the Proxy Statement is first mailed to stockholders, at the
time of the Company Stockholders Meetings or at the Effective Time, contain
any statement which, at such time and in light of the circumstances under
which it shall be made, is false or misleading with respect to any material
fact, or shall omit to state any material fact necessary in order to make the
statements made in such information not false or misleading or omit to state
any material fact necessary to correct any
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statement in any earlier information supplied by Parent, MergerCo or Merger
Sub in writing specifically for inclusion in the Proxy Statement which has
become false or misleading. If at any time prior to the Effective Time any
event relating to Parent, MergerCo or Merger Sub or any of its respective
affiliates, officers or directors should be discovered by Parent, MergerCo or
Merger Sub which should be set forth in a supplement to the Proxy Statement,
Parent, MergerCo or Merger Sub shall promptly inform the Company. Neither
Parent, MergerCo nor Merger Sub makes any representation or warranty with
respect to any information contained in the Proxy Statement not provided by
Parent, MergerCo or Merger Sub in writing specifically for inclusion in the
Proxy Statement.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
Section 4.1 Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, unless MergerCo shall otherwise agree in
writing, the Company shall conduct its business, shall cause the businesses of
its wholly-owned Subsidiaries to be conducted and shall use its reasonable
efforts to cause the businesses of CCC and its Subsidiaries to be conducted
only in, and the Company and its wholly-owned Subsidiaries shall not and the
Company shall use its reasonable efforts to cause CCC and its Subsidiaries not
to take any action except in, the ordinary course of business and in a manner
consistent with past practice; and the Company shall use all reasonable
efforts to preserve substantially intact the business, assets and organization
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to take any such action with respect to CCC and its
Subsidiaries to the extent such action would have a significant possibility,
based on written advice of counsel, of constituting a breach by CCC's
directors of their fiduciary duties to the stockholders of CCC under
applicable law. By way of amplification and not limitation, except as
contemplated by this Agreement, neither the Company nor any of its
Subsidiaries shall and the Company shall use its reasonable efforts to cause
CCC and its Subsidiaries not to, during the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, directly or indirectly do, or propose to do,
any of the following without the prior written consent of MergerCo (provided,
however, that the Company shall not be required to take any such action with
respect to CCC and its Subsidiaries to the extent such action would have a
significant possibility, based on written advice of counsel, of constituting a
breach by CCC's directors of their fiduciary duties to the stockholders of CCC
under applicable law):
(a) amend or otherwise change the Certificate of Incorporation or By-Laws of
the Company or similar organizational documents of any of its Subsidiaries or
the Stockholders Agreement (the "Stockholders Agreement") dated June 16, 1994
among InfoVest Corporation (predecessor to CCC), WRV, David M. Phillips and
various funds managed by Loeb Partners Corporation or similar documents of the
Company and its Subsidiaries;
(b) except with respect to issuances by CCC or any of its Subsidiaries under
existing benefit and incentive plans, issue, sell, pledge, dispose of or
encumber, or authorize the issuance, sale, pledge, disposition or encumbrance
of, any shares of capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
capital stock, or any other ownership interest (including, without limitation,
any phantom interest) in the Company or any of its Subsidiaries;
(c) sell, pledge, dispose of or encumber any assets of the Company or any of
its Subsidiaries, including without limitation the Company's or its
Subsidiaries' interests in CCC, Cross Timbers Oil Company and the Partnership
(except for (i) sales by CCC and its Subsidiaries of goods and services in the
ordinary course of business and in a manner consistent with past practice,
(ii) dispositions by CCC of obsolete or worthless assets and (iii) sales by
CCC of immaterial assets); provided, however, nothing in this Section 4.1(c)
shall prohibit the
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consummation of the Asset Disposition if, after the consummation of the Asset
Disposition, the representations and warranties of the Company made in Section
2.9 would continue to be true and correct;
(d) (i) except for regular dividends on the Company Series A Preferred Stock
or any class of CCC capital stock, declare, set aside, make or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of any of its capital stock, except that a
wholly owned Subsidiary of the Company and a wholly owned Subsidiary of CCC
may declare and pay a dividend to its parent, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities or property in respect of, in lieu of or in
substitution for shares of its capital stock, or (iii) amend the terms or
change the period of exercisability of, purchase, repurchase, redeem or
otherwise acquire, or permit any Subsidiary to purchase, repurchase, redeem or
otherwise acquire, any of its securities or any securities of its
Subsidiaries, including, without limitation, shares of Company Stock;
provided, however, nothing in this Section 4.1(d) shall prohibit the
consummation of the Asset Disposition if, after the consummation of the Asset
Disposition, the representations and warranties of the Company made in Section
2.9 would continue to be true and correct;
(e) (i) with respect to the Company and its wholly owned Subsidiaries only,
except for the consummation of transactions described in Section 4.1(e) of the
Company Disclosure Schedule in accordance with the terms described therein,
and except for acquisitions by the Company which do not in the aggregate
consist of more than $20,000,000 of consideration paid by the Company, acquire
(by merger, consolidation, or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof, (ii) incur any
indebtedness for borrowed money or issue any debt securities, except for
short-term, working capital and commercial paper borrowings by CCC and its
Subsidiaries incurred in the ordinary course of business consistent with past
practice, or assume, guarantee or endorse or otherwise as an accommodation
become responsible for, the obligations of any person or, except for loans or
advances made by CCC and its Subsidiaries in the ordinary course of business
consistent with past practice, make any loans or advances, (iii) enter into or
amend any material contract or agreement without the consent of MergerCo which
shall not be unreasonably withheld, except by CCC and its Subsidiaries in the
ordinary course of business, (iv) with respect to the Company and its wholly
owned Subsidiaries only, authorize any capital expenditures or purchase of
fixed assets, (v) enter into or amend any contract, agreement, commitment or
arrangement to effect any of the matters prohibited by this Section 4.1(e),
(vi) with respect to the Company and its wholly owned Subsidiaries only,
acquire any investment assets from the date of this Agreement without first
providing all material details regarding any such acquisition to MergerCo or
(vii) with respect to the Company and its wholly owned Subsidiaries only,
acquire any investment assets after the date the proxy statement referred to
in Section 5.2 is first mailed to the Company's stockholders in the aggregate
in excess of $5,000,000;
(f) except for payments required to be made pursuant to Section 4.3 or made
pursuant to Section 4.8, (i) increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages
of employees of the Company or its Subsidiaries who are not officers of the
Company in the ordinary course of business in accordance with past practice,
(ii) increase the amount otherwise payable pursuant to any Company Plan as a
result of the Merger or otherwise, (iii) grant any severance or termination
pay (other than pursuant to existing agreements or arrangements disclosed in
Section 4.1(f) of the Company Disclosure Schedule) to, or enter into any
employment or severance agreement with any director, officer or other employee
of the Company or any of its wholly owned Subsidiaries or (iv) with respect to
the Company and its wholly owned Subsidiaries, establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any current or former directors,
officers or employees, except, in each case, as may be required by law;
(g) except as may be required as a result of a change in law or in generally
accepted accounting principles, take any action to change in any material
respect accounting policies or procedures (including, without limitation,
procedures with respect to revenue recognition, payments of accounts payable
and collection of accounts receivable);
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(h) make any material tax election inconsistent with past practice or settle
or compromise any material federal, state, local or foreign tax liability or
agree to an extension of any statute of limitations;
(i) without the prior consent of Parent, which shall not be unreasonably
withheld, pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of liabilities reflected or reserved against
in the financial statements contained in the Company SEC Reports filed prior
to the date of this Agreement or the September 30, 1997 Balance Sheet, in the
case of the Company, and the CCC SEC Reports filed prior to the date of this
Agreement, in the case of CCC and its Subsidiaries, or incurred in the
ordinary course of business and consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1 (a) through (i) above, or any action which would
make any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect or prevent the Company from performing or cause
the Company not to perform its covenants hereunder.
Section 4.2 Notice of Acquisition Proposal.
(a) Immediately after the earlier of (i) the date the Company or any of its
Subsidiaries enters into any confidentiality agreement with any person or
entity in connection with an Acquisition Proposal (as defined below) and (ii)
the date the Company receives an Acquisition Proposal which includes a
definitive price, the Company agrees to notify MergerCo of entering into such
confidentiality agreement or the receipt of such Acquisition Proposal or any
modification of or amendment to such Acquisition Proposal. Such notice to
MergerCo shall be made orally and in writing, and shall indicate whether the
Company has provided, is providing or intends to provide the person making the
Acquisition Proposal with access to information concerning the Company. An
"Acquisition Proposal" shall be any inquiries or proposals regarding any
merger, sale of substantial assets, reorganization, recapitalization, sale of
shares of capital stock (including without limitation by way of a tender
offer) or similar transactions involving the Company or any Subsidiaries of
the Company other than the Merger and the Asset Disposition.
(b) Solicitation of Acquisition Proposals. Notwithstanding anything in this
Agreement to the contrary, any officer or director of the Company may, in
accordance with such officer's or director's fiduciary duty to stockholders of
the Company under applicable law, solicit, respond to inquiries from,
negotiate with, enter into confidentiality agreements with, and/or grant
access to nonpublic information regarding the Company or any of its
Subsidiaries to any Third Party (as defined in Section 7.1) in connection with
the creation of an Acquisition Proposal.
Section 4.3 Actions With Respect To Company Plans.
(a) The Company shall take all reasonable action prior to the Effective Time
towards the goal of ensuring that all of the amounts payable at any time on or
after the date hereof by the Company in connection with (I) the WRC Deferred
Benefit Plan, as approved by the Company's Board of Directors and adopted by
the sole shareholder of the Company on or about September 24, 1993, (II) the
WRC Voluntary Deferred Compensation Plan, as approved by the Company's Board
of Directors and adopted by the sole shareholder of the Company on or about
September 24, 1993, and (III) the WRC Directors' Deferred Compensation Plan,
as approved by the Company's Board of Directors on or about August 8, 1996
(collectively, the "Deferral Plans"), will be deductible in the Company's 1997
taxable year for federal income tax purposes, which actions shall include (but
not be limited to) the following:
(i) on or prior to December 30, 1997, (a) the Company's Board of
Directors shall take all necessary and/or appropriate steps to amend each
of the Deferral Plans (which steps shall include securing the prior written
consent to such amendments of all participants in the Deferral Plans) so
that each Deferral Plan requires payment to each participant therein of the
entire amount in such participant's Deferred Retirement Benefit Account or
Deferred Compensation Account (as defined in the Deferral Plans), as the
case may be,
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no later than December 30, 1997, (b) all such amounts shall be paid to such
participants in full in cash (subject to required withholding), and (c)
each Deferral Plan shall be terminated;
(ii) on or prior to December 29, 1997, the employment of each of Robert
Marto and Bonnie Stewart with the Company and its Subsidiaries shall
terminate, and the Company and its Subsidiaries shall take all other steps
deemed necessary or appropriate by MergerCo to ensure that neither Mr.
Marto nor Ms. Stewart is an employee of the Company or its Subsidiaries,
within the meaning of Treasury Regulation Section 1.162-27(c)(2), or
otherwise provides services in any capacity to the Company or any
Subsidiary, at any time after December 29, 1997, which steps shall include
but not be limited to (i) securing the written resignation of Mr. Marto as
Chief Executive Officer and President of the Company and of each Subsidiary
in which he serves in such capacity and from any other office that he holds
in the Company or any Subsidiary, all of which such resignations shall be
effective on or prior to December 29, 1997, (ii) securing the written
resignation of Ms. Stewart as Corporate Secretary of the Company and of
each Subsidiary in which she serves in such capacity and from any other
office that she holds in the Company or any Subsidiary, all of which such
resignations shall be effective on or prior to December 29, 1997, and (iii)
appointing effective upon the resignation of Mr. Marto or Ms. Stewart, as
the case may be, as the new Chief Executive Officer, President, Corporate
Secretary or other officer of the Company and of each Subsidiary in which
either Mr. Marto or Ms. Stewart held such office one or more individuals,
each of whose total compensation from the Company and its Subsidiaries for
each of 1997 and 1998 will be less than $1,000,000 (notwithstanding the
foregoing, Mr. Marto and Ms. Stewart may each serve from and after the
termination of his or her employment as an independent director of the
Company provided that neither he nor she provides any services to the
Company or any Subsidiary in the nature of services that would customarily
be provided by an executive officer or any other employee of the Company or
any Subsidiary);
(iii) if the Closing shall not have occurred prior to January 31, 1998,
then on or prior to January 31, 1998, the Company shall deliver to each
person who was a participant in one or more Deferral Plans at any time
during calendar year 1997, an Internal Revenue Service Form W-2 (or such
other Internal Revenue Service document as shall be appropriate) which
reflects the aggregate amount paid in 1997 to such person under the
Deferral Plans and the aggregate amount of all Acceleration Payments paid
in 1997 to such person; and
(b) Prior to the Effective Time, (a) the Company's Board of Directors must
take all necessary and/or appropriate steps to amend the WRC 1993 Incentive
Compensation Plan, as approved by the Company's Board of Directors and adopted
by the sole shareholder of the Company on or about September 24, 1993 (the
"Incentive Plan") to provide for payment in cash prior to the Effective Time
of all amounts to which the participants are entitled thereunder, (b) all such
amounts shall be paid in full in cash (subject to the required withholding),
and (c) the Incentive Plan shall be terminated.
(c) On or prior to the Effective Time, the Company will take all necessary
and/or appropriate steps to cause the Company and its Subsidiaries to have no
liability of any kind (whether absolute, accrued, contingent, due, to become
due or otherwise) pursuant to or in connection with the Deferral Plans or the
Incentive Plan.
Section 4.4 Voting. The Company covenants and agrees that during the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, neither the Company nor
any of its wholly-owned Subsidiaries, without the prior written consent of
MergerCo, (i) shall vote any shares of Cross Timbers Oil Company or CCC in
favor of, or give any written consent with respect to, (a) any amendment of
the charter or by-laws of Cross Timbers Oil Company or CCC or (b) any merger
of, sale of all or substantially all of the assets of, or any similar
transaction with respect to Cross Timbers Oil Company or CCC or (ii) shall
give any consent with respect to its interest in the Partnership.
Section 4.5 Fairness Opinion. The Company covenants and agrees to use its
best efforts to obtain the fairness opinion referred to in Section 6.1(d).
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Section 4.6 Partnership Debt. The Company covenants and agrees to use its
reasonable efforts to assist MergerCo to cause the Partnership to have no
indebtedness as of the Effective Time, if so requested by MergerCo.
Section 4.7 CCC Board Seats. The Company covenants and agrees to use its
reasonable efforts in accordance with its rights under the Stockholders
Agreement to cause four designees of MergerCo to be validly appointed as of
the Effective Time to the Board of Directors of CCC in place of the Company's
four designees to such Board.
Section 4.8 Acceleration Payments. Notwithstanding any covenant in this
Article IV, in addition to any payments required to be made by the Company
pursuant to Section 4.3, the Company may pay, on or prior to December 30,
1997, to the participants in the Deferral Plans an aggregate amount of up to
$7,500,000 (the "Acceleration Payments") as an incentive for participants in
the Deferral Plan to agree to permit the Company to accelerate the payment to
them of certain amounts under such Deferral Plan.
Section 4.9 Indemnity Agreements. Notwithstanding any covenant in this
Article IV, the Company may enter into an Indemnification Agreement, in the
form of Exhibit C hereto, with each officer and director of the Company.
Section 4.10 Lease. The Company agrees not to amend, extend or renew its
lease for office space in White Plains, New York except for an extension on a
month to month basis on terms reasonably acceptable to Parent.
Section 4.11 Contributions. Notwithstanding any covenant in this Article IV,
the Company may contribute up to $2,000,000 in the aggregate to Hanover
Accessories, Inc. and any other company acquired by the Company after
September 30, 1997.
Section 4.12 Trust Assets. Prior to the Effective Time, the assets (the
"Trust Assets") of the Company and its Subsidiaries set forth on Exhibit E
hereto plus up to $1,000,000 in cash will be permitted to be granted to a
Trustee (the "Liquidating Trustee") for the benefit of the stockholders of the
Company immediately prior to the Effective Time. The Liquidating Trustee will
have the obligation of disposing of the assets and remitting the proceeds
thereof to the beneficiaries of the trust in accordance with each such
stockholder's proportionate common equity interest in the Company. The terms
of the trust, and the transfer of the assets thereto shall be pursuant to
terms mutually agreed upon by Parent and Company, to be negotiated by Parent
and Company in good faith. In the event that (i) the Company and Parent are
not able to reach an agreement with respect to the terms of the trust and the
transfer of the assets thereto or (ii) the Company determines that it is not
practicable to establish the trust prior to the Effective Time, the Company
shall be permitted to sell the Trust Assets, pursuant to an agreement that
Parent reasonably determines will not subject the Company to any additional
liabilities or obligations, prior to the Effective Time; provided, that no
such sale of Trust Assets shall be to an "affiliate" or "associate" of the
Company as such terms are defined in the Securities Exchange Act of 1934, as
amended.
Section 4.13 Tax Returns. The Company agrees to make all necessary filings,
on or prior to March 15, 1998, to extend the period for filing its 1997
federal and state, if any, Tax Returns. The Company agrees not to file any
federal or state income Tax Return for 1997 prior to the termination of this
Agreement in accordance with its terms.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 HSR Act; Etc. As promptly as practicable after the date of the
execution of this Agreement, the Company and Parent shall file notifications
under and in accordance with the HSR Act. The Company and Parent shall respond
as promptly as practicable to any inquiries received from the Federal Trade
Commission
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(the "FTC") and the Antitrust Division of the Department of Justice (the
"Antitrust Division") for additional information or documentation and shall
respond as promptly as practicable to all inquiries and requests received from
any State Attorney General or other governmental authority (foreign or
domestic) in connection with antitrust matters.
Section 5.2 Proxy Statement.
(a) As soon as practicable following the date of this Agreement, the Company
shall prepare and file the Proxy Statement, reasonably acceptable to Parent,
with the SEC and shall use its best efforts to have the Proxy Statement
cleared by the SEC as promptly as practicable, and, in addition, shall also
take any action required to be taken under applicable law in connection with
the consummation of the transactions contemplated by this Agreement. Parent
and the Company shall promptly furnish to each other all information, and take
such other actions, as may reasonably be requested in connection with any
action by any of them in connection with the provisions of this Section 5.2.
(b) Prior to the date of approval of the Merger by Company's stockholders,
each of Parent, MergerCo, Merger Sub, the Company and WRV shall correct
promptly any information provided by it to be used specifically in the Proxy
Statement that shall have become false or misleading in any material respect,
and, the Company shall take all steps necessary to file with the SEC and have
cleared by the SEC any amendment or supplement to the Proxy Statement as so
corrected to be disseminated to the stockholders of Company to the extent
required by applicable law. Without limiting the generality of the foregoing,
the Company shall notify MergerCo promptly of the receipt of the comments of
the SEC and of any request by the SEC for amendments or supplements to the
Proxy Statement, or for additional information, and shall supply MergerCo with
copies of all written correspondence and details of all oral correspondence
between the Company or its representatives, on the one hand, and the SEC or
members of its staff, on the other hand, with respect to the Proxy Statement.
Whenever any event occurs which is required to be described in an amendment or
a supplement to the Proxy Statement, the Company shall, upon learning of such
event, promptly prepare, file and clear with the SEC and mail to the
stockholders of Company such amendment or supplement; provided, however, that,
prior to such mailing, (i) the Company shall consult with MergerCo with
respect to such amendment or supplement, (ii) the Company shall afford
MergerCo reasonable opportunity to comment thereon and (iii) each such
amendment or supplement shall be reasonably satisfactory to MergerCo.
Section 5.3 Stockholders Meeting. The Company shall call and hold the
Company Stockholders Meeting and provide the Proxy Statement to its
stockholders in connection therewith as promptly as practicable and in
accordance with applicable laws for the purpose of voting upon the approval of
the Merger and the adoption of the Merger Agreement, the Asset Disposition,
and if the Company transfers Trust Assets to the Liquidating Trustee as
described in Section 4.12, such transfer to the Liquidating Trustee. Unless
the Board of Directors of the Company determines in good faith after
consultation with and based upon the written advice of their respective
outside legal counsel, that to do so would have a significant possibility of
constituting a breach of their fiduciary duties to stockholders under
applicable law, the Company shall (i) recommend approval of the transactions
contemplated by this Agreement by the stockholders of the Company and include
in the Proxy Statement such recommendation and (ii) use all reasonable efforts
to solicit from stockholders of the Company proxies in favor of adoption of
this Agreement and approval of the transactions contemplated hereby, and shall
take all other action necessary or advisable to secure the vote or consent of
stockholders to obtain such approvals.
Section 5.4 Access to Information. The Company shall (and shall cause each
of its wholly owned Subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of MergerCo reasonable access
during normal business hours, during the period prior to the Effective Time,
to all of the properties, books, contracts, commitments and records of the
Company and its wholly owned Subsidiaries and, during such period, the Company
shall (and shall cause each of its Subsidiaries to) furnish promptly to
MergerCo all information concerning its business, properties and personnel of
the Company and its Subsidiaries as MergerCo or its representatives may
reasonably request, and shall make available to MergerCo or its
representatives the appropriate individuals (including attorneys, accountants
and other professionals) for such
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discussion of the business, properties and personnel of the Company and its
Subsidiaries as MergerCo or its representatives may reasonably request;
provided, however, that any such access shall be conducted in such a manner as
not to interfere unreasonably with the business or operation of the Company or
any of its Subsidiaries. Without in any way limiting the foregoing, the
Company shall afford or, with respect to CCC and its subsidiaries, use
reasonable efforts to afford, MergerCo and its representatives access,
reasonably acceptable to MergerCo, to (i) all board of directors minutes of,
and all information and reports provided to the board of directors of, CCC and
each of its Subsidiaries, (ii) all of the management of CCC and each of its
Subsidiaries to discuss financial and accounting matters, (iii) all
information and reports provided to any of the Company and its wholly owned
Subsidiaries, provided, however, the Company need not make such information
available to MergerCo if the directors of the Company determine, based on
written advice of counsel, that providing such information to MergerCo would
have a significant possibility of subjecting the directors of the Company to
liability for breach of their fiduciary duties under applicable law, (iv) the
employees of the Company and its wholly-owned Subsidiaries and any advisors
and consultants responsible for preparing the Company's tax returns and (v)
the Company and its advisors, including without limitation Ernst & Young, the
Company's independent accountants, regarding the Company's expected tax
liabilities (or credits) for the year ending December 31, 1997.
Section 5.5 Consents; Approvals. The Company, WRV, Parent, MergerCo and
Merger Sub shall each use all reasonable efforts to obtain all consents and
approvals, and the Company, WRV, Parent, MergerCo and Merger Sub shall make
all filings (including, without limitation, all filings with federal, state
and local governmental or regulatory agencies), required to be made by it in
connection with the authorization, execution and delivery of this Agreement by
the Company, WRV, Parent, MergerCo and Merger Sub and the consummation by them
of the transactions contemplated by each hereby, in each case as promptly as
practicable. The Company, WRV, Parent, MergerCo and Merger Sub shall furnish
promptly all information required to be included in the Proxy Statement or for
any application or other filing to be made pursuant to the rules and
regulations of any federal, state or local governmental body in connection
with the transactions contemplated by this Agreement.
Section 5.6 Notification of Certain Matters. The Company shall give prompt
notice to MergerCo, and Parent and MergerCo shall give prompt notice to the
Company, of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty
by such party contained in this Agreement to become materially untrue or
inaccurate, or (ii) any failure of the Company, WRV, Parent, MergerCo or
Merger Sub, as the case may be, materially to comply with or satisfy 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 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
Section 5.7 Further Action. Upon the terms and subject to the conditions
hereof each of the parties hereto shall use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all other
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement, to
obtain in a timely manner all necessary waivers, consents and approvals and to
effect all necessary registrations and filings, and otherwise to satisfy or
cause to be satisfied all conditions precedent to its obligations under this
Agreement.
Section 5.8 Public Announcements. MergerCo, Parent, Merger Sub, WRV and the
Company shall consult with each other before issuing any press release with
respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement without the prior consent of the
other party, which shall not be unreasonably withheld; provided, however, that
a party may, without the prior consent of the other party, after timely
providing the other party with the text of such release or statement and
consulting with the other party with respect thereto, issue such press release
or make such public statement as may upon the advice of outside counsel be
required by law or the rules and regulations of Nasdaq.
Section 5.9 Conveyance Taxes. MergerCo, Parent and the Company shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications, or other documents regarding any real property
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transfer or gains, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees, and any similar
taxes which become payable in connection with the transactions contemplated
hereby that are required or permitted to be filed at or before the Effective
Time.
Section 5.10 Maintenance of Assets. For the benefit of the Company's
officers and directors, Parent agrees that, unless the Indemnity Agreement is
assumed by Parent in accordance with Section 9 thereof, for a period of at
least two years following the Effective Time, the Surviving Corporation will
remain in existence and continue to hold net assets worth at least
$50,000,000.
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.1 Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger and the Subsidiary
Merger shall be subject to the satisfaction at or prior to the Effective Time
of the following conditions:
(a) Stockholder Approval. This Agreement, the transactions contemplated
hereby, including the Merger, and the Asset Disposition shall have been
approved and adopted by the requisite vote of the stockholders of the Company;
(b) HSR Act. The waiting period applicable to the consummation of the Merger
and the Subsidiary Merger under the HSR Act shall have expired or been
terminated;
(c) No Injunctions or Restraints; Illegality. No statute, rule, regulation,
executive order, decree, ruling, temporary restraining order, preliminary or
permanent injunction or other order shall have been enacted, entered,
promulgated, enforced or issued by any court or governmental authority of
competent jurisdiction or shall otherwise be in effect which prohibits,
restrains, enjoins or restricts the consummation of the Merger or the
Subsidiary Merger;
(d) Fairness Opinion. The Company shall have received a written opinion or
opinions, dated as of the date the proxy statement referred to in Section 5.2
is furnished to the Company's stockholders, from a nationally recognized
investment banking firm, addressed to the Company and its board of directors,
that the consideration to be received by the holders of Company Common Stock
pursuant to this Agreement, and the consideration to be received by the
Company in the Asset Disposition, are fair to the holders of Company Common
Stock from a financial point of view.
(e) Merger and Subsidiary Merger. Each of the Merger and Subsidiary Merger
shall be consummated simultaneously at the Effective Time.
Section 6.2 Additional Conditions to Obligations of Parent, MergerCo and
Merger Sub. The obligations of Parent and MergerCo to effect the Merger and
the obligations of Merger Sub to effect the Subsidiary Merger are also subject
to the satisfaction of the following conditions in all material respects
(other than Section 6.2(a) which must be satisfied in all respects):
(a) Representations and Warranties. The representations and warranties of
the Company contained in Section 2.14 hereof shall be true and correct in all
respects at and as of the Effective Time as if made at and as of such time,
with the same force and effect as if made at and as of the Effective Time, and
Parent, MergerCo and Merger Sub shall have received a certificate to such
effect signed by the chief executive officer and the chief financial officer
of the Company;
(b) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement other than those described in Section
6.2(a) shall be true and correct in all respects at and as of
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the Effective Time as if made at and as of such time, with the same force and
effect as if made at and as of the Effective Time, except for (x) changes
specifically contemplated by this Agreement and (y) those representations and
warranties which address matters only as of a particular date (which shall
have been true and correct as of such date), and except to the extent the
failure of such representations and warranties to be true and correct at and
as of the Effective Time would not, or would not be likely to, individually or
in the aggregate diminish the value of the Company and its Subsidiaries taken
as a whole by more than $25 million, and Parent, MergerCo and Merger Sub shall
have received a certificate to such effect signed by the chief executive
officer and the chief financial officer of the Company.
(c) Agreements and Covenants. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Effective
Time, and MergerCo and Merger Sub shall have received a certificate to such
effect signed by the chief executive officer and the chief financial officer
of the Company, and the Company shall have performed or complied with the
provisions of Section 4.3 at or prior to the dates specified in Section 4.3,
and MergerCo and Merger Sub shall have received a certificate to such effect
signed by the chief executive officer and the chief financial officer of the
Company.
(d) No Company Material Adverse Change. There shall not have occurred any
event or change in circumstances involving the Company or any of its
Subsidiaries (including without limitation a decrease in the Public Trading
Price from the Historic Public Trading Price of the capital stock of Cross
Timbers Oil Company, CCC or Northwest Airlines Corp.), that, when taken
together with all other such events or changes in circumstances, MergerCo
reasonably determines will, or is reasonably likely to, diminish the value of
the Company and its Subsidiaries taken as a whole by more than $25 million
(other than to the extent the Merger Price has been decreased for such change
pursuant to Section 1.11) or is reasonably likely to prevent the consummation
of the transactions contemplated by the Merger Agreement or the Subsidiary
Merger.
(e) Consents. All consents and approvals from all federal, state and local
governmental agencies and other third parties reasonably required by Parent,
MergerCo or Merger Sub to consummate the transactions contemplated hereby
shall have been received.
(f) No Appraisal Rights. Holders of no more than seven percent (7%) of the
Company Common Stock shall be entitled to assert appraisal rights.
(g) Asset Disposition. The Company shall have consummated the Asset
Disposition in a manner reasonably satisfactory to Parent and MergerCo.
(h) Opinion of Counsel. The Company shall have furnished Parent, MergerCo
and Merger Sub with the opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.,
counsel for the Company, in substantially the form attached hereto as Exhibit
D.
(i) Board of CCC. Four designees designated by MergerCo (if designated by
MergerCo) shall have been validly appointed to the Board of Directors of CCC
in place of the Company's four designees to such Board, which such Board shall
consist of not more than seven directors.
(j) Pricing Certificate. Parent shall have received a certificate,
reasonably acceptable to Parent, signed by the chief executive officer and
chief financial officer of the Company detailing the calculation of the
amounts necessary for each clause in Section 1.11 to calculate the Merger
Price.
(k) CCC Acquisition. Neither CCC nor any of its Subsidiaries shall have
acquired, or shall have agreed to acquire, (by merger, consolidation or
acquisition of stock or assets) any material corporation, partnership or other
business organization or division thereof outside of the computer software or
data service industries.
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Section 6.3 Additional Conditions to Obligation of the Company and WRV. The
obligations of the Company to effect the Merger and WRV to effect the
Subsidiary Merger are also subject to the satisfaction of the following
conditions in all material respects:
(a) Representations and Warranties. The representations and warranties of
MergerCo and Merger Sub contained in this Agreement shall be true and correct
in all respects at and as of the Effective Time, as if made at and as of such
time, except for (i) changes specifically contemplated by this Agreement, and
(ii) those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date) with
the same force and effect as if made at and as of the Effective Time, and the
Company shall have received a certificate to such effect signed by the chief
executive officer and the chief financial officer of MergerCo and Merger Sub;
and
(b) Agreements and Covenants. MergerCo and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it at or prior
to the Effective Time, and the Company shall have received a certificate to
such effect signed by the chief executive officer of MergerCo and Merger Sub.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, notwithstanding approval thereof by the stockholders of
the Company:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent, MergerCo and the Company; or
(b) by Parent, MergerCo, Merger Sub, the Company or WRV if each of the
Merger and the Subsidiary Merger shall not have been consummated by April 30,
1998, which date may be extended by the Company for up to forty-five days with
the written consent of Parent, not to be unreasonably withheld, if the failure
to consummate the Merger is the result of delays in the review of the Proxy
Statement by the SEC, which delay is not the result of a material act or
omission of the Company (provided that the right to terminate this Agreement
under this Section 7.1(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 Merger to occur on or before such date); or
(c) by Parent, MergerCo, Merger Sub, the Company or WRV if a court of
competent jurisdiction or governmental, regulatory or administrative agency or
the SEC shall have issued a nonappealable final order, decree or ruling or
taken any other action having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger or the Subsidiary Merger (provided that
the right to terminate this Agreement under this Section 7.1(c) shall not be
available to any party who has not complied with its obligations under Section
5.5 and such noncompliance materially contributed to the issuance of any such
order, decree or ruling or the taking of such action); or
(d) by Parent, MergerCo or Merger Sub, if the requisite vote of the
stockholders of the Company shall not have been obtained at a duly held
meeting of such stockholders or any adjournment thereof by April 30, 1998,
which date may be extended by the Company for up to forty-five days with the
written consent of Parent, not to be unreasonably withheld, if the failure to
hold such meeting is the result of delays in the review of the Proxy Statement
by the SEC, which delay is not the result of a material act or omission of the
Company; or
(e) by Parent, MergerCo, Merger Sub, the Company or WRV, if (i) the Board of
Directors of the Company shall have withdrawn, modified or changed its
approval or recommendation of this Agreement or the Merger in a manner adverse
to Parent or MergerCo, (ii) the Board of Directors of the Company shall have
recommended to the stockholders of the Company an Alternative Transaction (as
defined below); or (iii) a tender offer or
29
<PAGE>
exchange offer for 25% or more of the outstanding shares of Company Common
Stock is commenced (other than by Parent or MergerCo or an affiliate of Parent
or MergerCo) and the Board of Directors of the Company recommends that the
stockholders of the Company tender their shares in such tender or exchange
offer; provided, that, the Company shall not be entitled to exercise any
termination rights under this Section 7.1(e) unless the Board of Directors of
the Company determines in good faith upon written advice of outside legal
counsel that a failure to take any of the actions referred to in (i), (ii) or
(iii) above would have a significant possibility of constituting a breach of
their fiduciary duties to stockholders under applicable law.
As used herein, "Alternative Transaction" means any of (i) a transaction or
series of transactions pursuant to which any person (or group of persons)
other than Parent or MergerCo or their designated affiliates (a "Third Party")
directly or indirectly acquires or would acquire shares of Company Common
Stock, or other securities exchangeable for or convertible into shares of
Company Common Stock, in excess of 25% of the shares of Company Common Stock
outstanding as of the date hereof, whether from the Company or pursuant to a
tender offer or exchange offer or otherwise, (ii) any acquisition or proposed
acquisition of the Company or any of its Subsidiaries by a merger, acquisition
of assets, acquisition of stock or other business combination (whether or not
the Company or any of its significant Subsidiaries is the entity surviving any
such merger or business combination) or (iii) any other transaction pursuant
to which any Third Party acquires or would acquire control of assets
(including for this purpose the outstanding equity securities of Subsidiaries
of the Company and any entity surviving any merger or business combination
including any of them) of the Company or any of its Subsidiaries having a fair
market value equal to more than 25% of the fair market value of all the assets
of the Company immediately prior to such transaction.
Section 7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and there shall be no further obligation on the part of any party hereto or
any of its affiliates, directors, officers or stockholders except (i) as set
forth in Section 7.3 hereof, and (ii) nothing herein shall relieve any party
from liability for any breach hereof occurring prior to termination.
Section 7.3 Expenses Upon Termination.
(a) The Company shall pay Parent the Parent's, MergerCo's and Merger Sub's
(including their affiliates) out-of-pocket expenses up to a maximum amount of
$1.5 million upon the termination of this Agreement by Parent, MergerCo,
Merger Sub, the Company or WRV pursuant to Section 7.1(b) (unless the failure
to consummate the Merger was solely as a result of a breach by Parent or
MergerCo of its obligations under this Agreement), Section 7.1(c) (only if the
failure of the Company to comply with its obligations under Section 5.5
materially contributed to the issuance of the applicable order, decree or
ruling or taking of action), Section 7.1(d) or Section 7.1(e).
(b) Parent shall pay the Company the Company's out-of-pocket expenses up to
a maximum amount of $1.5 million upon the termination of this Agreement by
Parent, MergerCo or the Company pursuant to Section 7.1(b) (only if the
failure to consummate the Merger was solely as a result of a breach by Parent,
MergerCo or Merger Sub of its obligations under this Agreement) or 7.1(c)
(only if the failure of Parent, MergerCo or Merger Sub to comply with its
obligations under Section 5.5 materially contributed to the issuance of the
applicable order, decree or ruling or taking of action).
(c) The amounts payable pursuant to Section 7.3(a) or 7.3(b), as the case
may be, shall be paid within one business day after the termination of this
Agreement by Parent, MergerCo, Merger Sub, the Company or WRV pursuant to
Section 7.1(b), Section 7.1(c), Section 7.1(d) or Section 7.1(e).
(d) The payment of expenses pursuant to this Section 7.3 shall not be an
exclusive remedy in the event of a breach of this Agreement.
30
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall not survive the consummation of the transactions contemplated
hereby, but shall terminate at the Closing, except for such agreements which
expressly by their terms survive the Closing.
Section 8.2 Investigations; Disclosure. Subject to Section 8.1, the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party
or any of their officers or directors, whether prior to or after the execution
of this Agreement. Any disclosure made with reference to one or more sections
of the Company Disclosure Schedule shall be deemed disclosed only with respect
to such section.
Section 8.3 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly
given or made if and when delivered personally or by overnight courier to the
parties at the following addresses or sent by electronic transmission, with
confirmation of receipt, to the telecopy numbers specified below (or at such
other address or telecopy number for a party as shall be specified by like
notice):
(a) If to Parent, MergerCo or Merger Sub, to such party at:
c/o Harvard Private Capital Group, Inc.
600 Atlantic Avenue, 26th Floor
Boston, Massachusetts 02210
Attention: Michael R. Eisenson
Telecopier: (617) 523-1063
Telephone: (617) 523-4400
With a copy to:
Larry J. Rowe, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopier: (617) 951-7050
Telephone: (617) 951-7407
(b) If to the Company or WRV:
White River Corporation
777 Westchester Avenue, Suite 201
White Plains, New York 10604
Telecopier No.: (914) 251-0313
Telephone No.: (914) 251-0237
Attention: Robert T. Marto
President and Chief Executive Officer
Michael E. B. Spicer
Chief Financial Officer
31
<PAGE>
With a copy to:
Alexander M. Dye, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Telecopier No.: (212) 424-8500
Telephone No.: (212) 424-8000
Section 8.4 Definitions. For purposes of this Agreement, the term:
(a) "Affiliates" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person;
(b) "Beneficial Owner" with respect to any shares of Company Common Stock
means a person who shall be deemed to be the beneficial owner of such shares
(i) which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 of the Exchange Act) beneficially owns, directly or
indirectly, (ii) which 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), 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 pursuant to any agreement, arrangement or understanding, or (iii)
which are beneficially owned, directly or indirectly, by any other persons
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 other than a day on which banks in The
Commonwealth of Massachusetts or New York City are required or authorized to
be closed;
(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 or policies of
a person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise;
(e) "Generally Accepted Accounting Principles" shall mean United States
generally accepted accounting principles;
(f) "Historic Public Trading Price" means:
(i) with respect to a security which is listed on a recognized securities
exchange or the Nasdaq National Market System ("NMS"), the average of the
last sales prices (or, if no sale occurred on such date, at the last "bid"
price thereon) for each business day during the period beginning on
September 30, 1997 and ending on (and including) November 6, 1997; and
(ii) with respect to a security which is traded over-the-counter (other
than on the NMS), the average of the last "bid" prices for each business
day during the period beginning on September 30, 1997 and ending on (and
including) November 6, 1997.
(g) "Person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act);
(h) "Public Trading Price" means:
(i) with respect to a security which is listed on a recognized securities
exchange or the NMS, the average of the last sales prices (or, if no sale
occurred on such date, at the last "bid" price thereon) for each business
day during the five business days ending on the day before the satisfaction
of all of the conditions in Section 6.2, other than Section 6.2(d), and of
Sections 6.1(a) and (b); and
32
<PAGE>
(ii) with respect to a security which is traded over-the-counter (other
than on the NMS), the average of the last "bid" prices for each business
day during the five business days ending on the day before the satisfaction
of all of the conditions in Section 6.2, other than Section 6.2(d), and of
Sections 6.1(a) and (b).
(i) "Rights Agreement" means the Rights Agreement dated December 14, 1993
between the Company and First Chicago Trust Company of New York, as Rights
Agent; and
(j) "Subsidiary" or "Subsidiaries" of the Company, the Surviving Corporation
or any other person means any of (i) any corporation, partnership, joint
venture or other legal entity of which the Company or the Surviving
Corporation or such other person, as the case may be (either alone or through
or together with any other subsidiary), owns, directly or indirectly, more
than 50% of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity as well as (ii) CCC
and its Subsidiaries in the case of the Company.
(k) "wholly owned Subsidiary" shall mean, with respect to the Company, all
of the Company's Subsidiaries other than CCC and CCC's Subsidiaries.
Section 8.5 Definitions. The following terms are defined in the Sections
hereof listed below:
<TABLE>
<S> <C>
"Acceleration Payments" Section 4.8
"Acquisition Proposal" Section 4.2
"Agreement" Preamble
"Alternative Transaction" Section 7.1(e)
"Antitrust Division" Section 5.1
"Applicable Merger Price" Section 1.7(b)
"Asset Disposition" Recitals
"Benefit Costs" Section 2.11
"CCC" Section 2.2
"CCC Common Stock" Section 2.3(b)
"CCC SEC Reports" Section 2.7(a)
"CCC Series C Preferred
Stock" Section 2.3(b)
"CCC Series D Preferred
Stock" Section 2.3(b)
"CCC Series E Preferred
Stock" Section 2.3(b)
"Certificate" Section 1.7(b)
"Certificate of Merger" Section 1.2
"Code" Section 1.7(d)
"Common Stock Merger Price" Section 1.11(a)
"Company" Preamble
"Company Common Stock" Recitals
"Company Deposit" Section 1.7(a)
"Company Disclosure Schedule" Section 2.3(a)
"Company Intangible Property
Rights" Section 2.18(a)
"Company Permits" Section 2.6(b)
"Company Plans" Section 2.11
"Company SEC Reports" Section 2.7(a)
"Company Series A Preferred
Stock" Recitals
"Company Series B Preferred
Stock" Section 2.3(a)
"Company Stock" Recitals
"Company Stockholders Meet-
ing" Section 2.13
"Deferral Plans" Section 4.3
"DGCL" Recitals
"Dissenting Shares" Section 1.7(e)
"Effective Time" Section 1.2
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
"Environmental Laws" Section 2.17
"ERISA" Section 2.11
"Exchange Act" Section 2.5(a)
"Exchange Agent" Section 1.7(a)
"Exchange Fund" Section 1.7(a)
"Excluded Assets" Recitals
"Excluded Liabilities" Recitals
"FTC" Section 5.1
"HSR Act" Section 2.5(d)
"Incentive Plan" Section 4.3
"IRS" Section 2.11
"Laws" Section 2.5(c)
"Liens" Section 2.3(a)
"Material Adverse Effect" Section 1.13
"Merger" Recitals
"MergerCo" Preamble
"Merger Price" Section 1.11(a)
"NWA Preferred" Section 2.7(c)
"Options" Section 2.7(c)
"Parent" Preamble
"PBGC" Section 2.11
"Proxy Statement" Section 2.13
"Purchasing LLC" Recitals
"SEC" Section 2.7(a)
"Securities Act" Section 2.3(a)
"September 30, 1997 Balance
Sheet" Section 2.9
"September 30 Cash Amount" Section 2.7(c)
"Series A Merger Price" Section 1.7(b)
"Share" Recitals
"Statement of Assets" Section 1.11(b)
"Stockholders Agreement" Section 4.1(a)
"Surviving Corporation" Section 1.1(a)
"Tax" or "Taxes" Section 2.16(a)
"Tax Returns" Section 2.16(a)
"Third Party" Section 7.1(e)
</TABLE>
Section 8.6 Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after approval of
the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
Section 8.7 Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, or (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall
be valid only if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
Section 8.8 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
34
<PAGE>
Section 8.9 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such 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 an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the fullest extent possible.
Section 8.10 Entire Agreement. This Agreement constitutes the entire
agreement 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.
Section 8.11 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto by operation of law or otherwise, without the prior written consent of
the other parties, and any attempt to make any such assignment shall be null
and void.
Section 8.12 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, including, without limitation, by way of
subrogation, except as specifically set forth in Section 5.10.
Section 8.13 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
any other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
Section 8.14 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware
applicable to contracts executed and fully performed within the State of
Delaware.
Section 8.15 Counterparts. This Agreement may be executed in one or more
counterparts, 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.
Section 8.16 Construction. The parties hereto have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word "including" shall mean including without
limitation. Nothing in the Company Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein
unless the Company Disclosure Schedule identifies the exception with
particularity. Without limiting the generality of the foregoing, the mere
listing (or inclusion of a copy) of a document or other item shall not be
deemed adequate to disclose an exception to a representation or warranty made
herein (unless the representation or warranty has to do with the existence of
the document or other item itself). The parties hereto intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any party hereto has breached any representation, warranty,
or covenant contained herein in any respect, the fact that there exists
another representation, warranty, or covenant relating to the same subject
matter (regardless of the relative levels of specificity) which the party has
not breached shall not detract from or mitigate the fact that the party is in
breach of the first representation, warranty, or covenant.
35
<PAGE>
Section 8.17 Expenses. Except as otherwise expressly provided herein,
Parent, MergerCo and the Company shall each pay all of their respective costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby, including without limitation, legal, accounting fees and
disbursements.
36
<PAGE>
IN WITNESS WHEREOF, the Company, WRV, Parent, MergerCo and Merger Sub have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
White River Corporation
/s/ Gordon S. Macklin
By:__________________________________
Title: President & CEO
White River Ventures, Inc.
/s/ Michael E.B. Spicer
By:__________________________________
Title: President & CEO
Demeter Holdings Corporation
/s/ Michael R. Eisenson
By:__________________________________
Title: Authorized Signatory
/s/ Mark A. Rosen
By:__________________________________
Title: Authorized Signatory
WRC Merger Corp.
/s/ Michael R. Eisenson
By___________________________________
Title: Authorized Signatory
/s/ Mark A. Rosen
By:__________________________________
Title: Authorized Signatory
WRV Merger Corp.
/s/ Michael R. Eisenson
By___________________________________
Title: Authorized Signatory
/s/ Mark A. Rosen
By:__________________________________
Title: Authorized Signatory
37
<PAGE>
EXHIBIT A--EXCLUDED ASSETS
Hanover Accessories, Inc.
The following subsidiaries of the Company unless dissolved or merged out of
existence prior to the Effective Time: White River Partners, Inc., White River
Reinsurance Holdings, Ltd., White River Life Reinsurance, Ltd., and WR
Associates LLC.
An aggregate of $3.3 million of term notes of Hanover Accessories, Inc. held
by White River Partners, Inc. unless canceled without payment or otherwise
paid by Hanover Accessories, Inc.
An aggregate of $3.3 million of term notes of White River Partners, Inc.
held by White River Enterprises, Inc. unless canceled without payment or
otherwise paid by White River Partners, Inc.
A-1
<PAGE>
EXHIBIT B
WHITE RIVER CORPORATION
STATEMENT OF NET ASSETS TO BE SOLD
SEPTEMBER 30, 1997
<PAGE>
WHITE RIVER CORPORATION
STATEMENT OF NET ASSETS TO BE SOLD
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Statement of Net Assets to be Sold.......................................... 2
Notes to Statement of Net Assets to be Sold................................. 3
</TABLE>
B-1
<PAGE>
WHITE RIVER CORPORATION
STATEMENT OF NET ASSETS TO BE SOLD
SEPTEMBER 30, 1997
DOLLARS IN THOUSANDS
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents............................................ $191,164
Investment securities, at market value (adjusted cost: $33,577)...... 90,340
Other investments, at adjusted cost (fair value: $44,304)............ 21,848
Other assets......................................................... 367
--------
Total assets....................................................... $303,719
LIABILITIES
Accrued expenses..................................................... $ 3,468
Deferred income tax liability........................................ 18,218
Employee benefit liabilities......................................... 22,422
--------
Total liabilities.................................................. $ 44,108
--------
NET ASSETS TO BE SOLD.................................................. $259,611
========
</TABLE>
The accompanying notes are an integral part of this statement of net assets to
be sold.
B-2
<PAGE>
WHITE RIVER CORPORATION
NOTES TO STATEMENT OF NET ASSETS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying statement of net assets to be sold includes the accounts of
White River Corporation ("White River" or the "Company"), exclusive of its
interests in and balances related to wholly owned subsidiaries or the accounts
of CCC Information Services Group, Inc. ("CCC") of which White River owns 36%
of the total outstanding shares at September 30, 1997. The Statement of Net
Assets to be Sold has been prepared in accordance with generally accepted
accounting principles ("GAAP") and in connection with the proposed sale of
certain net assets and is not intended to be a complete presentation of White
River Corporation's assets and liabilities. In addition, the Company has
included the deferred tax liability associated with the difference between the
book and tax basis of the net assets to be sold. Such liability would transfer
to the acquirer only if the tax basis in such assets were to carryforward. The
Statement of Net Assets to be Sold includes all adjustments considered
necessary by management to fairly present the financial condition of the
Company.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amount
of assets and liabilities as well as the disclosure of contingent assets and
liabilities as of the date of the financial statements. Actual results could
differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents as of September 30, 1997 consist primarily of
interest-bearing deposits with maturities of six days or less. The majority of
such deposits are held by major banking institutions.
Investments
Investments classified by White River as investment securities include certain
common shares, trust units and debt securities that are not restricted by
contract or governmental statute or regulation as to resale and which have
established fair market values. Investment securities as of September 30, 1997
include White River's interest in Cross Timbers common stock due to White
River's demand registration rights relating to such securities. White River
considers its investment securities to be available for sale.
Securities classified by White River as other investments are carried at
adjusted cost, which reflects such securities' carrying value immediately
preceding the adoption of SFAS No. 115, White River's internal valuation
techniques are intended to provide good faith estimates of the fair values of
the underlying securities for which objective market valuations are
unavailable. The actual amounts realized on disposition of these other
investments may differ significantly from such good faith estimates due to
changes in facts and circumstances which occur or become quantifiable
subsequent to the time that such estimates are made.
Incentive Compensation
White River ratably recognizes expense relating to its long-term incentive
and director compensation plans (see Notes 5, 6 and 7) over the applicable
service periods based upon projected future payments under these plans. For
this purpose, such projected future payments are determined using the current
end-of-period markets price of the Company's Common Stock.
Income taxes
The income taxes payable at September 30, 1997 is reduced by payments made
to the Internal Revenue Service by the Company on behalf of the Company and
its wholly owned subsidiaries.
B-3
<PAGE>
WHITE RIVER CORPORATION
NOTES TO STATEMENT OF NET ASSETS--(CONTINUED)
The Company provides for deferred income taxes which reflect the tax effects
of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes. In this context, the tax effect is measured using the statutory
tax rate expected to apply to taxable income in the periods in which the
deferred tax liability or asset is expected to be settled or realized.
Furthermore, deferred tax assets are recorded net of a valuation allowance if
it is more likely than not that some portion or all of the deferred tax assets
will not be realized.
NOTE 2. INVESTMENTS
Investment securities as of September 30, 1997 consisted of the following:
<TABLE>
<CAPTION>
ADJUSTED CARRYING
COST VALUE
-------- --------
IN THOUSANDS
<S> <C> <C>
Cross Timbers Oil Company; common stock.................... $30,780 $87,750
Other...................................................... 2,797 2,590
------- -------
Total investment securities.............................. $33,577 $90,340
======= =======
</TABLE>
Other investments as of September 30, 1997 consisted of the following:
<TABLE>
<CAPTION>
ADJUSTED CARRYING
COST VALUE
-------- --------
IN THOUSANDS
<S> <C> <C>
Richard C. Blum & Associates--NWA Partners, L.P.;
limited partnership interest.............................. $21,848 $21,848
------- -------
Total other investments.................................. $21,848 $21,848
======= =======
</TABLE>
As of September 30, 1997, the investment securities portfolio contained
unrealized gains of $56.8 million.
NOTE 3. ACCRUED EXPENSES
Accrued expenses as of September 30, 1997 consisted of the following:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Accrued compensation............................................ $1,033
Income taxes payable............................................ 1,485
Accrued professional fees....................................... 917
Other........................................................... 33
------
Total accounts payable and accrued expenses................... $3,468
======
</TABLE>
B-4
<PAGE>
WHITE RIVER CORPORATION
NOTES TO STATEMENT OF NET ASSETS--(CONTINUED)
NOTE 4. INCOME TAXES
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred income tax assets and
liabilities as of September 30, 1997 measured using the Federal statutory tax
rate, are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Deferred income tax assets related to:
Employee and director compensation accruals................... $ 8,209
Other......................................................... 143
-------
Deferred income tax asset.................................... 8,352
-------
Deferred income tax liabilities related to:
Investments................................................... 26,570
-------
Deferred income tax liability................................ 26,570
-------
Net deferred income tax liability........................... $18,218
=======
</TABLE>
NOTE 5. RETIREMENT PLANS
White River has established two non-qualified plans under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), for the purpose
of providing deferred compensation benefits for certain management employees.
The White River Voluntary Deferred Compensation Plan (the "Deferred
Compensation Plan") and the White River Deferred Benefit Plan (together with
the Deferred Compensation Plan, the "Retirement Plans") both became effective
on December 31, 1993. The Retirement Plans are unfunded and the employees'
right to receive future payments thereunder represent an unsecured claim
against the general assets of White River. In the event that a change in
control, as defined by the Retirement Plans, occurs, the provisions of these
plans require the White River Board to cause the creation and funding by White
River of a trust with cash payments, shares of Common Stock, or a combination
thereof sufficient to cover the value of the plan's obligations. The recorded
liabilities related to the Retirement Plans totaled $15.3 million as of
September 30, 1997.
Benefit payments made pursuant to the Retirement Plans will be made in cash
or shares of Common Stock (for certain balances) at the discretion of the
Compensation Committee of the White River Board (the "Compensation
Committee").
NOTE 6. INCENTIVE COMPENSATION PLANS
The White River 1993 Incentive Compensation Plan (the "Incentive Plan") is a
non-qualified plan under ERISA and provides for granting to offices and key
employees of White River and its participating subsidiaries various types of
incentive awards including non-qualified and incentive stock options ("Stock
Options"), stock appreciation rights ("SARs"), and performance units
("Performance Units"). The Compensation Committee is responsible for the
general administration of the Incentive Plan. As of September 30, 1997, no
Stock Options or SARs have been awarded pursuant to the Incentive Plan.
Performance Units are conditional grants of a specified maximum number of
shares of Common Stock or equivalent amount of cash, payable at the end of a
specified period, subject to the achievement of specific financial goals and
measures of individual performance, as determined by the Compensation
Committee. The financial goal for full payment of Performance Units is a 15%
annual return on stockholders' equity ("ROE")
B-5
<PAGE>
WHITE RIVER CORPORATION
NOTES TO STATEMENT OF NET ASSETS--(CONTINUED)
measured as the change in book value per common and common equivalent share
(as adjusted for dividends paid, stock splits and other adjustments necessary
to reflect true economic value) over the applicable performance period (the
"Performance Target"). At an ROE of 15% or above, Performance Units will
become fully payable. At an ROE of less than 15%, the percentage of
Performance Units paid will be determined by the Compensation Committee and
may result in no payout at all.
A summary of Performance Unit award activity follows:
<TABLE>
<CAPTION>
NUMBER OF
PERFORMANCE UNITS
-----------------
<S> <C>
Outstanding as of December 31, 1996........................ 94,500
Awarded.................................................. 7,500
Canceled................................................. (14,000)
-------
Outstanding as of September 30, 1997....................... 88,000
=======
</TABLE>
The recorded liability related to the Incentive Plan totaled $2.0 million as
of September 30, 1997. All Performance Units outstanding as of September 30,
1997 expire on September 23, 1999.
NOTE 7. COMPENSATION OF DIRECTORS
At December 31, 1996, there were 99,865 shares outstanding related to
performance units granted to Directors (the "Director Performance Units").
Such units vest based on the attainment of specific performance targets. On
June 30, 1997, 64,865 performance units became fully vested and were
transferred to the Directors's Deferred Compensation Plan (see below). At
September 30, 1997, 35,000 Director Performance Units remained outstanding.
Such units would vest, subject to the attainment of specific performance
targets through September 23, 1999. The recorded liability related to the
Director Performance Units was $0.8 million as of September 30, 1997.
Effective August 8, 1996, the White River Board adopted the White River
Directors' Deferred Compensation Plan (the "Directors Plan"). The Directors
Plan is similar to the Deferred Compensation Plan and allows Eligible
Directors to defer receipt of Directors' compensation. The Directors Plan will
be unfunded and the directors' right to receive future benefits thereunder
will represent an unsecured claim against the general assets of White River.
As of September 30, 1997, the recorded liability related to the Directors Plan
was $4.3 million.
NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as of
September 30, 1997 were as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Financial assets:
Cash and cash equivalents............................... $191,164 $191,164
Investment securities................................... 90,340 90,340
Other investments....................................... 21,849 44,304
Other financial assets.................................. 301 301
======== ========
Financial liabilities:
Other financial liabilities............................. $ 4,894 $ 4,894
======== ========
</TABLE>
B-6
<PAGE>
WHITE RIVER CORPORATION
NOTES TO STATEMENT OF NET ASSETS--(CONTINUED)
The following methods and assumptions were used by White River to estimate
the fair value of each class of financial instruments for which it is
practicable to estimate such value:
Cash and Cash Equivalents. The carrying amount of these assets approximates
or equals their fair value.
Investment Securities and Other Investments. Fair values of investments
securities are based on quoted market prices which equal carrying value, and
fair values of other investments have been derived from quoted market values
for similar unrestricted securities or determined using internal appraisal
techniques and policies.
Other Financial Assets. This caption includes investment income receivable,
and certain other receivables. The carrying amount of these assets
approximates their fair value.
Other Financial Liabilities. This caption includes payables on taxes due to
the federal and state governments, accruals for certain employee related
compensation and certain other payables. The carrying amount of these
liabilities approximates their fair value.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company leases an office facility under the terms of a noncancelable
operating lease which expires on January 31, 1998. At September 30, 1997,
future minimum lease payments were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
1997.................................................. $52
1998.................................................. 17
---
Total............................................... $69
===
</TABLE>
NOTE 10. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings in the ordinary course
of its business. The Company's management believes that the ultimate
resolution of these matters will not have a material effect on the Company's
consolidated financial position.
NOTE 11. SUBSEQUENT EVENT
On October 14, 1997, White River received a $26.3 million distribution on
its investment in the Richard C. Blum & Associates--NWA Partners LP ("NWA
Partners"), which holds equity securities in Northwest Airlines Corporation
("NWA Corp."). The distribution represented White River's share of proceeds
arising primarily from the redemption of NWA Partners' investment in preferred
stock of NWA Corp., but also in part due to the sale of 0.7 million shares of
NWA Corp. common stock subject to a call option.
B-7
<PAGE>
EXHIBIT C
INDEMNIFICATION AGREEMENT
This Agreement is made this day of December, 1997, by and between White
River Corporation, a Delaware corporation (the "Company"), and
("Indemnitee").
WITNESSETH
WHEREAS, the By-laws of the Company, as of the date hereof, provides for
indemnification of officers and directors of the Company; and
WHEREAS, the Company is considering engaging in a business combination
transaction in which the ownership of the Company will be changed by merger;
and
WHEREAS, the Company wished to create certainty as to the availability of
indemnification of its officers and directors prior to entering into such
business combination transaction; and
WHEREAS, the Company, in order to induce the Indemnitee to continue to serve
the Company, has agreed to provide the Indemnitee with the benefits
contemplated by this Agreement which benefits are intended to supplement any
benefits provided by the By-laws of the Company; and
WHEREAS, as a result of the provision of such benefits, the Indemnitee has
agreed to serve as [an officer][a director] of the Company;
NOW, THEREFORE, in consideration of the promises, conditions,
representations and warranties set forth herein, including the Indemnitee's
continuing service to the Company, the Company and Indemnitee hereby agree as
follows:
1. Definitions. The following terms, as used herein, shall have the
following respective meanings:
(a) "Covered Amount" means any expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by Indemnitee in connection with a Proceeding.
(b) "Excluded Claim" means payment made in connection with any claim:
(i) Based upon or attributable to Indemnitee gaining in fact any
personal profit or advantage to which Indemnitee is not entitled; or
(ii) For the return by Indemnitee of any remuneration paid to
Indemnitee without the previous approval of the stockholders of the
Company which is illegal; or
(iii) For an accounting of profits in fact from the purchase or sale
by Indemnitee of securities of the Company within the meaning of
Section 16 of the Securities Exchange Act of 1934, as amended, or
similar provisions of any state law; or
(iv) Resulting from Indemnitee's knowingly fraudulent, dishonest or
willful misconduct; or
(v) The payment of which the Company under this Agreement is not
permitted by applicable law to make.
(c) "Proceeding" means any threatened, pending or completed
investigation, claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, without limitation, any action,
suit or proceeding by or in the right of the Company to procure a judgment
in its favor).
2. Indemnification. The Company shall, to the fullest extent permitted by
applicable law as then in effect, indemnify Indemnitee if Indemnitee was or is
involved in any manner (including, without limitation, as a party or a
witness) or is threatened to be so involved in any Proceeding by reason of the
fact that he is or was a director, officer, employee or agent of the Company,
or is or was serving at the request of the Company as a director,
C-1
<PAGE>
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (including, without limitation, any employee benefit
plan) against any Covered Amounts, subject to the further provisions of this
Agreement.
3. Excluded Coverage.
(a) The Company shall have no obligation to indemnify Indemnitee for and
hold him harmless from any Covered Amounts which have been determined, by
final adjudication by a court of competent jurisdiction, to constitute an
Excluded Claim.
(b) The Company shall have no obligation to indemnify Indemnitee and hold
Indemnitee harmless from any Covered Amounts to the extent that Indemnitee
is actually indemnified by the Company pursuant to the Company's By-laws or
otherwise indemnified.
4. Advancement of Expenses; Procedures; Presumptions and Effect of Certain
Proceedings; Remedies. In furtherance, but not in limitation of the foregoing
provisions, the following procedures, presumptions and remedies shall apply
with respect to advancement of expenses and the right to indemnification under
this Agreement:
(a) Advancement of Expenses. All reasonable expenses incurred by or on
behalf of the Indemnitee in connection with any Proceeding shall be
advanced to the Indemnitee by the Company within twenty (20) days after the
receipt by the Company of a statement or statements from the Indemnitee
requesting such advance or advances from time to time, whether prior to or
after final disposition of such Proceeding. Such statement or statements
shall reasonably evidence the expenses incurred by the Indemnitee and, if
required by law or requested by the Company at the time of such advance,
shall include or be accompanied by an undertaking by or on behalf of the
Indemnitee to repay the amounts advanced if it should ultimately be
determined that the Indemnitee is not entitled to be indemnified against
such expenses pursuant to this Agreement.
(b) Procedure for Determination of Entitlement to Indemnification.
(i) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Secretary of the Company a written request, including
such documentation and information as is reasonably available to the
Indemnitee and reasonably necessary to determine whether and to what
extent Indemnitee is entitled to indemnification (the "Supporting
Documentation"). The determination of the Indemnitee's entitlement to
indemnification shall be made not later than one hundred twenty (120)
days after receipt by the Company of the written request for
indemnification together with the Supporting Documentation. The
Secretary of the Company shall, promptly upon receipt of such a request
for indemnification, advise the Board of Directors or its designee in
writing that the Indemnitee has requested indemnification.
(ii) The Indemnitee's entitlement to indemnification under this
Agreement shall be determined in one of the following ways: (A) by a
majority vote of the Disinterested Directors (as hereinafter defined),
if they constitute a quorum of the Board; (B) by a written opinion of
Independent Counsel (as hereinafter defined) if (x) a Change in Control
(as hereinafter defined) shall have occurred and the Indemnitee so
requests or (y) a quorum of the Board of Directors consisting of
Disinterested Directors is not attainable or, even if attainable, a
majority of such Disinterested Directors so directs; (C) by the
stockholders of the Company (but only if a majority of the
Disinterested Directors, if they constitute a quorum of the Board of
Directors, presents the issue of entitlement to indemnification to the
stockholders for their determination); or (D) as provided in Section
4(c).
(iii) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to
Section 4(b)(ii), a majority of the Disinterested Directors shall
select the Independent Counsel, but only an Independent Counsel to
which the Indemnitee does not reasonably object; provided, however,
that if a Change in Control shall have occurred or if there are no
Disinterested Directors, the Indemnitee shall select such Independent
Counsel, but only an Independent Counsel to which the Board of
Directors does not reasonably object.
C-2
<PAGE>
(c) Presumptions and Effect of Certain Proceedings. Except as otherwise
expressly provided in this Agreement, if a Change in Control shall have
occurred, the Indemnitee shall be presumed to be entitled to
indemnification under this Agreement upon submission of a request for
indemnification together with the Supporting Documentation in accordance
with Section 4(b)(i), and thereafter the Company shall have the burden of
proof to overcome that presumption in reaching a contrary determination. In
any event, if the person or persons empowered under Section 4(b) to
determine entitlement to indemnification shall not have been appointed or
shall not have made a determination within one hundred twenty (120) days
after receipt by the Company of the request therefor together with the
Supporting Documentation, the Indemnitee shall be deemed to be entitled to
indemnification and the Indemnitee shall be entitled to such
indemnification unless (A) the Indemnitee misrepresented or failed to
disclose a material fact in making the request for indemnification or in
the Supporting Documentation or (B) such indemnification is prohibited by
law. The termination of any Proceeding, or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, adversely affect
the right of the Indemnitee to indemnification or create a presumption that
the Indemnitee did not act in good faith and in a manner which the
Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company or, with respect to any criminal Proceeding, that
the Indemnitee had reasonable cause to believe that the Indemnitee's
conduct was unlawful.
(d) Remedies of Indemnitee.
(i) In the event that a determination is made, pursuant to Section
4(b) that the Indemnitee is not entitled to indemnification under this
Agreement, (A) the Indemnitee shall be entitled to seek an adjudication
of his entitlement to such indemnification either, at the Indemnitee's
sole option, in (x) an appropriate court of the State of Delaware or
any other court of competent jurisdiction or (y) an arbitration to be
conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association; (B) any such judicial Proceeding or
arbitration shall be de novo and the Indemnitee shall not be prejudiced
by reason of such adverse determination; and (c) if a Change in Control
shall have occurred, in any such judicial Proceeding or arbitration the
Company shall have the burden of proving that the Indemnitee is not
entitled to indemnification under this Agreement.
(ii) If a determination shall have been made or deemed to have been
made, pursuant to Section 4(b) or (c), that the Indemnitee is entitled
to indemnification, the Company shall be obligated to pay the amounts
constituting such indemnification within fifteen (15) business days
after such determination has been made or deemed to have been made and
shall be conclusively bound by such determination unless (A) the
Indemnitee misrepresented or failed to disclose a material fact in
making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law. (The
events referred to in subparagraph (A) and (B) are each referred to
hereafter as a "Disqualifying Event".) In the event that (x)
advancement of expenses is not timely made pursuant to Section 4(a) or
(y) payment of indemnification is not made within fifteen (15) business
days after a determination of entitlement to indemnification has been
made or deemed to have been made pursuant to Section 4(b) or (c), the
Indemnitee shall be entitled to seek judicial enforcement of the
Company's obligation to pay to the Indemnitee such advancement of
expenses or indemnification. Notwithstanding the foregoing, the Company
may bring an action, in an appropriate court in the State of Delaware
or any other court of competent jurisdiction, contesting the right of
the Indemnitee to receive indemnification hereunder due to the
occurrence of a Disqualifying Event; provided, however, that in any
such action the Company shall have the burden of proving the occurrence
of such Disqualifying Event.
(iii) The Company shall be precluded from asserting in any judicial
Proceeding or arbitration commenced pursuant to this Section 4(d) that
the procedures and presumptions of this Agreement are not valid,
binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Company is bound by all the provisions of
this Agreement.
(iv) In the event that the Indemnitee, pursuant to this Section 4(d),
seeks a judicial adjudication of or an award in arbitration to enforce
his rights under, or to recover damages for breach of, this
C-3
<PAGE>
Agreement, the Indemnitee shall be entitled to recover from the
Company, and shall be indemnified by the Company against, any expenses
actually and reasonably incurred by the Indemnitee if the Indemnitee
prevails in such judicial adjudication or arbitration. If it shall be
determined in such judicial adjudication or arbitration that the
Indemnitee is entitled to receive part but not all of the
indemnification or advancement of expenses sought, the expenses
incurred by the Indemnitee in connection with such judicial
adjudication or arbitration shall be prorated accordingly.
(e) Definitions. For purposes of this Section 4:
(i) "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934 (the "Act"), whether or not the Company is then
subject to such reporting requirement; provided that, without
limitation, such change in control shall be deemed to have occurred if
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing thirty (30) percent or more of the combined voting power
of the Company's then outstanding securities without the prior approval
of at least two-thirds of the members of the Board of Directors in
office immediately prior to such acquisition; (ii) the Company is a
party to a merger, consolidation, sale of assets or other
reorganization, or proxy contest, as a consequence of which members of
the Board of Directors in office immediately prior to such transaction
or event constitute less than a majority of the Board of Directors
thereafter; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board
of Directors (including for this purpose any new director whose
election or nomination for election by the Company's stockholders was
approved by a vote of at least a majority of the directors then still
in office who were directors at the beginning of such period) cease for
any reason to constitute at least a majority of the Board of Directors.
(ii) "Disinterested Director" means a director of the Company who is
not or was not a party to the Proceeding in respect of which
indemnification is sought by the Indemnitee.
(iii) "Independent Counsel" means a law firm or a member of a law
firm that neither presently is, nor in the past five years has been,
retained to represent: (A) the Company or the Indemnitee in any matter
material to either such party or (B) any other party to the Proceeding
giving rise to a claim for indemnification under this Agreement.
Notwithstanding the foregoing, the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing under the law of the State of Delaware, would
have a conflict of interest in representing either the Company or the
Indemnitee in an action to determine the Indemnitee's rights under this
Agreement.
5. Settlement. The Company shall have no obligation to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any Proceeding
effected without the Company's prior written consent. The Company shall not
settle any claim in any manner which would impose any fine or any obligation
on Indemnitee without Indemnitee's written consent. Neither the Company nor
Indemnitee shall unreasonably withhold their consent to any proposed
settlement.
6. Rights Not Exclusive. The right of indemnification provided in this
Agreement shall not be exclusive of any other rights to which the Indemnitee
may otherwise be entitled, and the provisions of this Agreement shall inure to
the benefit of the heirs and legal representatives of the Indemnitee and shall
be applicable to Proceedings commenced or continuing after the execution of
this Agreement arising from acts or omissions occurring before or after such
execution and before any Change in Control becomes effective.
7. Severability. If any provision or provisions of this Agreement shall be
held to be invalid, illegal or unenforceable for any reason whatsoever: (a)
the validity, legality and enforceability of the remaining provisions of this
Agreement (including, without limitation, all portions of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or
C-4
<PAGE>
unenforceable) shall not in any way be affected or impaired thereby and (b) to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, all portions of any Section of this Agreement containing
any such provision held to be invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
8. Choice of Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
9. Assignment; Release. The Indemnitee hereby acknowledges and agrees that
the obligations and rights of the Company hereunder may be assumed at any time
on or after the date hereof by Demeter Holdings Corporation and by
Indemnitee's signature hereto, Indemnitee agrees that upon any such
assumption, Indemnitee will release and hold harmless the Company from and
after such assumption from any claim arising under this Agreement, provided
that in the event that such assumption shall occur within two years of a
Change in Control, the assuming party shall agree to hold net assets worth at
least $50,000,000 for a period of two years from the date such Change in
Control becomes effective.
10. Amendment. No amendment, modification, termination or cancellation of
this Agreement shall be effective unless made in a writing signed by each of
the parties hereto.
IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement
as of the day and year first above written.
WHITE RIVER CORPORATION
By: _________________________________
Title:
_____________________________________
"Indemnitee"
Attest:
By: _________________________________
Title:
Witness
C-5
<PAGE>
EXHIBIT D
1. Each of the Company and WRV is a corporation validly existing and in good
standing under the laws of the State of Delaware, has the corporate power and
authority to own, operate and lease its properties and to carry on its
business as now conducted.
2. Each of the Company and WRV has all requisite corporate power and
authority to execute, deliver and perform its respective obligations under the
Merger Agreement. The Merger Agreement has been duly authorized, executed and
delivered by each of the Company and WRV and constitutes the legal, valid and
binding obligation of each of the Company and WRV, enforceable against each in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, fraudulent conveyance, transfer, moratorium or other law
relating to or affecting creditors' rights generally and of general principles
of equity (regardless of whether such enforceability is conducted in a
proceeding at law or in equity).
3. None of the execution and delivery of the Merger Agreement by each of the
Company and WRV, the consummation of the Merger or the Subsidiary Merger or
the performance by each of the Company and WRV of its respective obligations
under the Merger Agreement will conflict with or constitute a violation under
the Certificate of Incorporation or by-laws of the Company or WRV, under any
law, rule or regulation applicable to the Company or WRV, or any judgment,
order or decree known to us of any court or governmental authority binding
upon the Company or WRV or either's properties or assets.
4. None of the execution and delivery of the Merger Agreement by each of the
Company and WRV, the consummation of the Merger or the Subsidiary Merger or
the performance by either of the Company or WRV of its respective obligations
under the Merger Agreement will conflict with, constitute a violation of or
result in a breach of or a default (or an event that, with notice or lapse of
time or both, would constitute a default) under, or cause or permit the
acceleration or modification of any rights or obligation under any agreement
or instrument listed in Section 2.5(a)(i) of the Company Disclosure Schedule
or listed as an exhibit to any Company SEC Reports.
5. No consent, approval, authorization, order, registration, qualification
or filing of or with any court or any regulatory, administrative or other
governmental body is required by the Company or WRV or with respect to their
respective assets or properties or otherwise for the consummation of the
transactions contemplated by the Merger Agreement that has not been obtained,
except for the filing of the Merger Certificates with respect to the Merger
and the Subsidiary Merger with the Secretary of State of the State of
Delaware.
6. Upon the filing of the Merger Certificates with the Secretary of State of
the State of Delaware, each of the Merger and the Subsidiary Merger will be
effective under the laws of the State of Delaware, with the effects described
in the Merger Agreement.
We have not independently verified the accuracy, completeness or fairness of
the statements made or the information contained in the Proxy Statement, and
we do not pass upon and do not assume any responsibility for such statements
or information. In the course of the preparation by the Company of the Proxy
Statement, we have participated in discussions with officers and other
representatives of the Company and representatives of the independent public
accountants for the Company in which the business and affairs of the Company
and the contents of the Proxy Statement were discussed. On the basis of
information that we have gained in the course of our representation of the
Company in connection with the Company's preparation of the Proxy Statement
and our participation in the discussions referred to above, we believe that
the Proxy Statement, as of the date of the Proxy Statement and as of the time
of the approval of the stockholders of the Company required in connection with
the Merger, complied and complies as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder with respect to information concerning the Company and
the Merger. Based on such information and participation, we have no reason to
believe that the Proxy Statement, as of its date or the date hereof, contained
or contains any untrue statement of a material fact concerning the Company or
the Merger or omitted or omits to state any material fact concerning the
Company or the Merger necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. We express no
opinion, however, as to the financial statements, including the notes and
schedules thereto, or any other financial or accounting information set forth,
incorporated or referred to in the Proxy Statement.
D-1
<PAGE>
EXHIBIT E
20,777 common shares and options to purchase 25,972 common shares of Faneuil
ISG, Inc.
The Company's rights to any net proceeds from the Escrow Agreement, dated
July 31, 1996, by and among Precision CastParts Corp., those individuals
and/or holders of the capital stock of NewFlo Corporation, and Republic
National Bank of New York, as Escrow Agent.
The Company's rights to its share of any recovery in respect of any claims
Rocky Mountain Financial Corporation might have against governmental entities
regarding the loss of supervisory goodwill as a result of the passage of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989. The
Company's rights are derived in connection with a 1994 stock purchase
agreement for the sale of Rocky Mountain to Metropolitan Federal Bank.
The right to receive 75% of the reduction, if any, in tax liability
resulting from the Surviving Corporation taking the position, at the Surviving
Corporation's option and in its sole discretion, on the Company's 1997 federal
tax return (the "1997 Return") that the basis in the Company's interest in the
Partnership is such that the Surviving Corporation's federal tax liability
resulting from the redemption in October 1997 of the NWA Preferred held by the
Partnership is less than it would have been had the Surviving Corporation
claimed no basis in the Company's interest in the Partnership on the Company's
1997 Return in excess of the Company's allocable share of the income reported
by the Partnership for such year. Any amount payable as a consequence of such
reduction in tax liability shall be paid to the Liquidating Trust as a
purchase price adjustment.
E-1
<PAGE>
AMENDMENT NUMBER 1
TO THE
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
The Amendment Number 1 to the Amended and Restated Agreement and Plan of
Merger (the "Merger Agreement") dated as of December 11, 1997 by and among
Demeter Holdings Corporation, WRC Merger Corp., WRV Merger Corp., White River
Corporation (the "Company") and White River Ventures, Inc. (collectively, the
"Parties") is made among the Parties as of April 6, 1998.
WHEREAS, the Parties entered into the Merger Agreement; and
WHEREAS, the Parties wish to amend the Merger Agreement as set forth below;
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the Parties hereby agree to amend the Merger Agreement as
follows:
1. Amendment to RECITALS. The paragraph in the RECITALS beginning "WHEREAS,
prior to the consummation of the Merger," and ending with "as the 'Asset
Disposition"' is hereby deleted.
2. Amendment to 1.7(a). Clause (i) of Section 1.7(a) is hereby amended by
deleting the phrase "(excluding any cash and cash equivalents included in the
Excluded Assets)".
3. Amendment to Section 1.11(a). Section 1.11 is hereby amended by deleting
"$399,850,000" and substituting "$442,000,000" therefor.
4. Amendment to Section 1.11(b) and Section 1.11(d). Clause (i) of Section
1.11(b) is hereby amended to read in its entirety as follows: "the sum of (x)
expenditures after September 30, 1997 in connection with the acquisition of
other companies, partnerships or other business organizations or divisions
thereof (collectively, "Acquired Businesses") or investment assets in excess
of $1,281,000 and (y) to the extent not duplicative of expenditures described
in clause (x), cash contributed to Hanover Accessories, Inc. ("Hanover") or
Just Kiddie Rides, Inc. ("JKR") or their respective Subsidiaries after
September 30, 1997 without the written consent of Parent in excess of
$925,000." Section 1.11(d) is hereby amended by deleting $36,660,000 each time
it appears and substituting the phrase "the Benefits Threshold" therefore.
Section 1.11(d) is further amended by adding a sentence to the end of Section
1.11(d) that reads as follows: "The "Benefits Threshold' shall be the sum of
(i) $36,660,000 and (ii) product of (x) the lesser of (A) 123,000 and (B) the
number of performance units outstanding under the Incentive Plan as of the
time payments are made thereunder pursuant to Section 4.3(b) multiplied by (y)
the excess, if any, (which may be zero) of (A) the lesser of (1) $90.67 and
(2) the lowest actual share price used by the Company to calculate payments
under the Incentive Plan made pursuant to Section 4.3(b) with respect to
performance units outstanding thereunder over (B) $82.02."
5. Deletion of Section 1.11(j). Section 1.11(j) is hereby deleted in its
entirety.
6. Amendments to Various Sections. Sections 1.11(b), 1.11(c), 2.4(a),
2.4(b), 2.5(c) and 2.5(d) are each hereby amended by deleting the phrase ",
the Asset Disposition" therefrom each time it appears. In addition, Section
1.11(c) is hereby amended by removing ", other than Excluded Liabilities"
therefrom.
7. Amendment to Section 2.4(b). Section 2.4(b) is hereby amended by deleting
therefrom all of the words following "approve and adopt this" and substituting
"Agreement and the Merger" therefor.
8. Amendments to Section 2.7(c). Section 2.7(c) is amended by deleting from
the first sentence thereof the phrase "including cash and cash equivalents
included in the Excluded Assets."
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9. Amendment to Section 2.9. Section 2.9 is hereby amended by deleting "or
(e) Excluded Liabilities" in the first sentence and substituting "or (e)
liabilities of Subsidiaries of the Company other than WRV for which neither
the Company nor WRV (i) provides credit support for or guarantees the payment
or performance of or (ii) is otherwise directly or indirectly liable or
responsible for." Section 2.9 is further amended hereby by deleting the second
sentence.
10. Amendment to Section 2.11. Section 2.11 is hereby amended by deleting
"and the Asset Disposition" therefrom.
11. Amendment to Section 2.14. Section 2.14 is hereby amended by inserting
"Hanover, JKR," between "WRV," and "CCC" and by adding a second sentence that
reads as follows: "Immediately before the Effective Time, each of WRV, Hanover
and JKR shall be direct wholly-owned subsidiaries of the Company and CCC shall
be a direct subsidiary of WRV."
12. Amendment to Sections 4.1(c) and 4.1(d). Each of Sections 4.1(c) and
4.1(d) are hereby amended by deleting all of the words after and including
"provided, however," in each such section.
13. Amendment to Section 4.1(e). Section 4.1(e) is hereby amended by (a)
deleting the phrase ", and except for acquisitions by the Company which do not
in the aggregate consist of more than $20,000,000 of consideration paid by the
Company," (b) deleting clauses (vi) and (vii) in their entirety, and (c)
inserting "or" before the phrase "(v) enter into."
14. Amendment to Section 4.2(a). Section 4.2(a) is hereby amended by
deleting "and the Asset Disposition" from the last sentence thereof.
15. Amendment to Section 4.11. Section 4.11 is hereby amended to read in its
entirety as follows: "[Reserved]".
16. Amendment to Section 5.3. The first sentence of Section 5.3 is hereby
amended by deleting "the Asset Disposition," therefrom.
17. Amendment to Section 6.1(a). Section 6.1(a) is hereby amended by
deleting "and the Asset Disposition" therefrom.
18. Amendment to Section 6.1(d). Section 6.1(d) is hereby amended by
replacing the phrase ", and the consideration to be received by the Company in
the Asset Disposition, are" with "is."
19. Amendment to Section 6.2(d). Section 6.2(d) is hereby amended by
deleting the phrase "from the Historic Public Trading Price" and substituting
therefore the phrase "the last public trading prices on March 31, 1998;"
provided, however, if Parent is delivered a Voting Agreement within five (5)
calendar days of the date of this Amendment in substantially the form attached
hereto as Exhibit 1 satisfactory to Parent, executed by each of John J. Byrne,
Patrick M. Byrne, Robert Marto, each other director and officer of the Company
who beneficially owns or has the right to vote equity securities of the
Company and any affiliates of the foregoing that beneficially owns or has the
right to vote equity securities of the Company, then Section 6.2(d) instead
shall be amended by deleting the phrase "including without limitation a" and
substituting therefor the phrase "excluding any" and by inserting after the
words "Northwest Airlines Corp." the phrase "but including any event or change
in circumstances affecting or relating to the business, financial condition,
assets or results of operations of Northwest Airlines Corp., Cross Timbers Oil
Company, CCC or CCC's Subsidiaries that may have caused any such decrease."
20. Deletion of Section 6.2(g). Section 6.2(g) is hereby amended to read in
its entirety as follows: "[Reserved]."
21. Amendment to Sections 7.1(b) and 7.1(d). Each of Sections 7.1(b) and
7.1(d) are hereby amended by deleting "April 30" each time it appears and
substituting "June 30" therefor.
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22. Amendment to Section 7.3(a). Section 7.3(a) is hereby amended to read in
its entirety as follows:
"(a) The Company shall pay Parent the sum of (i) Parent's, MergerCo's and
Merger Sub's (including their affiliates) out-of-pocket expenses up to a
maximum amount of $1.5 million and (ii) $15.0 million upon the termination
of this Agreement by Parent, MergerCo, Merger Sub, the Company or WRV
pursuant to Section 7.1(b) (unless the failure to consummate the Merger was
solely as a result of a breach by Parent or MergerCo of its obligations
under this Agreement), Section 7.1(c), Section 7.1(d) or Section 7.1(e).
23. Amendment to Section 7.3(d). Section 7.3(d) is hereby amended to replace
the words "payment of expenses" with "payments."
24. Amendment to Section 8.4. Section 8.4 is amended by deleting therefrom
the following definitions: "Asset Disposition", "Excluded Assets", "Excluded
Asset Price", "Excluded Liabilities" and "Purchasing LLC."
25. Deletion of Exhibit A. Exhibit A is hereby deleted in its entirety.
26. The representations and warranties made in Section 2.4 of the Merger
Agreement are hereby made by the Company to Parent and MergerCo. as of the
date of this Amendment with references to the "Agreement" in such section
being read as references to the "Merger Agreement" as amended hereby.
27. Except as otherwise amended hereby, all provisions of the Merger
Agreement will remain in full force and effect.
28. This Amendment may be executed in more than one counterpart, each of
which shall be deemed an original but all of which shall constitute one and
the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed as
of the date first written above by their respective officers thereunto duly
authorized.
WHITE RIVER CORPORATION
By: /s/ Gordon S. Macklin
-----------------------------------
Title: President and CEO
WHITE RIVER VENTURES, INC.
By: /s/ Gordon S. Macklin
-----------------------------------
Title: President and CEO
DEMETER HOLDINGS CORPORATION
By: /s/ Mark A. Rosen
-----------------------------------
Title: Authorized signatory
By: /s/ Michael Eisenson
-----------------------------------
Title: Authorized signatory
WRC MERGER CORP.
By: /s/ Mark A. Rosen
-----------------------------------
Title: Authorized signatory
By: /s/ Michael Eisenson
-----------------------------------
Title: President and CEO
WRV MERGER CORP.
By: /s/ Mark A. Rosen
-----------------------------------
Title: Authorized signatory
By: /s/ Michael Eisenson
-----------------------------------
Title: President and CEO
4
<PAGE>
VOTING AGREEMENT
This VOTING AGREEMENT dated as of April 11, 1998 is made among WRC Merger
Co., a Delaware corporation ("MergerCo"), White River Corporation, a Delaware
corporation (the "Company"), and the stockholders of the Company set forth on
Schedule 1 hereto (collectively, the "Stockholders"). All capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to such
terms in the Amended and Restated Agreement and Plan of Merger dated as of
December 11, 1997 between the Company, MergerCo, Demeter Holdings Corporation,
a Massachusetts corporation, WRV Merger Corp., a Delaware corporation ("Merger
Sub"), and White River Ventures, a Delaware corporation ("WRV"), as amended on
April 6, 1998 (such Amended and Restated Agreement and Plan of Merger as
amended, the "Merger Agreement" and such amendment, the "Amendment").
RECITALS:
WHEREAS, the Stockholders directly or Beneficially Own (as defined in Section
1.01) as (i) the number of shares of common stock, par value $0.01 per share,
of the Company (the "Company Stock") set forth on Schedule 1 hereto;
WHEREAS, pursuant to the Merger Agreement, MergerCo will be merged with and
into the Company (the "Merger") with the Company being the surviving
corporation in the Merger, and Merger Sub will be merged with and into WRV
with WRV being the surviving corporation in the merger; and
WHEREAS, as an inducement and a condition to entering into the Amendment,
MergerCo required that the Stockholders agree, and the Stockholders have
agreed, (i) to vote their shares of Company Stock in accordance with, and
grant a proxy pursuant to, Article II hereof, (ii) to not sell, transfer or
otherwise dispose of their shares of Company Stock other than at the Effective
Time and (iii) to cooperate in and support the consummation of the
transactions contemplated by this Agreement and the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 For purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act, including pursuant
to any agreement, arrangement or understanding, whether or not in writing).
Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities
Beneficially Owned by all other Persons with whom such Person would constitute
a "group" within the meaning of Section 13(d)(3) of the Exchange Act.
(b) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(c) "Person" shall mean an individual, corporation, partnership, joint
venture, association, trust, incorporated organization or other entity.
(d) "Shares" shall mean all shares of Company Stock currently Beneficially
Owned or held of record by any Stockholder.
ARTICLE II
VOTING AGREEMENT
Section 2.01 Agreement to Vote Shares. At every meeting of the stockholders
of the Company called with respect to any of the following, and at every
adjournment thereof, and on every action or approval by written consent of the
stockholders of the Company with respect to any of the following, each
Stockholder shall vote all
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or cause to be voted the shares of Company Stock that it owns directly or
Beneficially Owns on the record date of any such vote: (i) in favor of the
Merger and the transactions contemplated by the Merger Agreement, the adoption
of the Merger Agreement and the approval of the terms thereof and (ii) against
the following actions (other than the Merger and the transactions contemplated
by the Merger Agreement): (1) any merger, consolidation or other business
combination involving the Company or its Subsidiaries; (2) a sale, lease or
transfer of a material amount of the stock or assets of the Company or its
Subsidiaries or a reorganization, recapitalization, dissolution or liquidation
of the Company or its Subsidiaries that under applicable law requires the
approval of the Company's stockholders; (3) (a) any change in the majority of
the board of directors of the Company; (b) any material change in the present
capitalization of the Company or any amendment of the Company's Certificate of
Incorporation that under applicable law requires the approval of the Company's
stockholders; (c) any other material change in the Company's corporate
structure or business that under applicable law requires the approval of the
Company's stockholders; or (d) any other action that under applicable law
requires the approval of the Company's stockholders which is intended, or
could reasonably be expected, to impede, interfere with, delay, postpone, or
materially adversely affect the consummation of the Merger or the transactions
contemplated by the Merger Agreement or this Agreement.
Section 2.02 Irrevocable Proxy. EACH STOCKHOLDER HEREBY GRANTS TO AND
APPOINTS MERGERCO AND THE PRESIDENT OF MERGERCO AND THE TREASURER OF MERGERCO,
IN THEIR RESPECTIVE CAPACITIES AS OFFICERS OF MERGERCO, AND ANY INDIVIDUAL WHO
SHALL HEREAFTER SUCCEED TO ANY SUCH OFFICE OF MERGERCO, AND ANY OTHER DESIGNEE
OF MERGERCO, AND EACH OF THEM INDIVIDUALLY, SUCH STOCKHOLDER'S PROXY AND
ATTORNEY- IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE OR ACT BY WRITTEN
CONSENT WITH RESPECT TO THE SHARES OF COMPANY STOCK DIRECTLY OR BENEFICIALLY
OWNED BY SUCH STOCKHOLDER SOLELY WITH RESPECT TO THE MATTERS IN CLAUSES (i)
and (ii) OF, AND SOLELY IN ACCORDANCE WITH, SECTION 2.01 HEREOF. THIS PROXY IS
COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE, AND EACH STOCKHOLDER WILL
TAKE SUCH FURTHER ACTION OR EXECUTE SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY
TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY
GRANTED BY IT WITH RESPECT TO THE SHARES OF COMPANY STOCK DIRECTLY OR
BENEFICIALLY OWNED BY SUCH STOCKHOLDER.
ARTICLE III
COVENANTS OF THE STOCKHOLDERS
Section 3.01 No Solicitation. Each Stockholder shall not, directly or
indirectly, solicit (including by way of furnishing information) or respond to
any inquiries regarding the making of any Acquisition Proposal (as defined in
the Merger Agreement) or enter into or maintain or continue discussions or
negotiate with any Person in furtherance of such inquiries or to obtain an
Acquisition Proposal or agree to or endorse any Acquisition Proposal, or
authorize or permit any of its officers, directors or employees or affiliates
(other than the Company) to take any such action unless such action or actions
would be permissible under Section 4.2(b) of the Merger Agreement if
undertaken by the Board of Directors of the Company. Each Stockholder will,
except as explicitly permitted pursuant to Section 4.2(b) of the Merger
Agreement, immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. Nothing contained in this Section 3.01
shall prevent the Board of Directors of the Company from considering,
negotiating, discussing, approving and recommending to the stockholders of the
Company a bona fide Acquisition Proposal not solicited in violation of this
Agreement or the Merger Agreement, provided the Board of Directors of the
Company determines in good faith (upon written advice of outside counsel) that
it is required to do so in order to discharge properly its fiduciary duties.
Section 3.02 Restriction on Transfer and Non-Interference. Except as
applicable in connection with the transactions contemplated by the Merger
Agreement or Article II hereof, no Stockholder shall, directly or indirectly
(i) offer for sale, sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other arrangement
or understanding with respect to, or consent to, an offer for sale, sale,
2
<PAGE>
transfer, tender, pledge, encumbrance, assignment or other disposition of, any
or all of its Shares or any interest therein or (ii) take any action that
would make any representation or warranty of the Stockholder contained herein
untrue or incorrect or have the effect of preventing or disabling the
Stockholder from performing such Stockholder's obligations under this
Agreement.
Section 3.03 Cooperation; Further Assistance. From time to time, at the
request of MergerCo and without further consideration, each Stockholder shall
execute and deliver such additional documents and take all such further lawful
action as may be necessary or desirable to carry out, in the most expeditious
manner practicable, the provisions of this Agreement and the Merger Agreement.
Subject to the last sentence of Section 3.01, the Company and the Stockholder
agree to cooperate in and support the consummation of the transactions
contemplated by the Merger Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder represents and warrants to MergerCo that:
Section 4.01 Ownership of Shares; Voting Power. The Stockholder is the
record or Beneficial Owner of the number of Shares shown next to such
Stockholder's name on Schedule 1 hereto, and on the date hereof such Shares
constitute all of the Shares of Company Stock owned of record or Beneficially
Owned by the Stockholder; the Stockholder has good title to all of such
Shares, free of all claims, liens, options, charges, security interests or
other legal or equitable rights and encumbrances (other than any of the
foregoing arising out of an action or omission of MergerCo) of whatsoever
nature, and with no restriction on the voting rights pertaining thereto; and
the Stockholder has sole voting power and sole power to issue instructions
with respect to the matters set forth in Article II hereof, sole power of
disposition, sole power of conversion, sole power to demand appraisal rights
and sole power to agree to all of the matters set forth in this Agreement, in
each case with respect to all of such Shares, with no limitations,
qualifications or restrictions on such rights, subject to applicable
securities laws and the terms of this Agreement.
Section 4.02 Power; Binding Agreement. The Stockholder has the legal
capacity, power and authority to enter into and perform all of its obligations
under this Agreement and the execution, delivery and performance of this
Agreement by the Stockholder will not violate any other agreement to which the
Stockholder is a party including, without limitation, any voting agreement,
stockholder agreement or voting trust. This Agreement has been duly and
validly executed and delivered by the Stockholder and constitutes a valid and
binding agreement of the Stockholder, enforceable against the Stockholder in
accordance with its terms. There is no beneficiary or holder of a voting trust
certificate or other interest of any trust of which the Stockholder is trustee
whose consent is required for the execution and delivery of this Agreement or
the consummation by the Stockholder of the transactions contemplated hereby.
Section 4.03 No Conflicts. No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by the Stockholder and the
consummation by the Stockholder of the transactions contemplated hereby and
none of the execution and delivery of this Agreement by the Stockholder, the
consummation by the Stockholder of the transactions contemplated hereby or
compliance by the Stockholder with any of the provisions hereof shall (1)
conflict with or result in any breach of any applicable organizational
documents applicable to the Stockholder, (2) result in a violation or breach
of, or constitute (with or without notice or lapse of time or both) a default
(or give rise to any third party's right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
instrument or obligation of any kind to which the Stockholder is a party or by
which the Stockholder or any of the Stockholder's properties or assets may be
bound or (3) violate any order, writ, injunction, decree, judgment, order,
statute, rule or regulation applicable to the Stockholder or any of the
Stockholder's properties or assets.
Section 4.04 No Finder's Fees. No broker, investment banker, financial
advisor or other Person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with this
Agreement.
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<PAGE>
Section 4.05. Reliance by MergerCo. The Stockholder understands and
acknowledges that MergerCo's willingness to enter into the Amendment is
subject to the Stockholder's execution and delivery of this Agreement and the
Stockholder's performance of all of its obligations hereunder.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to MergerCo and the Stockholders that
the Company has all necessary power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement have been duly and validly authorized by the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement. This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms.
ARTICLE VI
MISCELLANEOUS
Section 6.01. Termination. Except as provided in Section 6.12 hereof, this
Agreement shall terminate on and be of no further force or effect upon the
termination of the Merger Agreement for any reason; provided, however, that
the termination of this Agreement shall not relieve any party hereto from any
liability or obligation in respect of any breach of this Agreement by such
party prior to the termination of this Agreement.
Section 6.02. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof.
Section 6.03. Certain Events. The Stockholders agree that this Agreement and
the obligations hereunder shall attach to the Shares and shall be binding upon
any Person to which legal or Beneficial Ownership of such Shares shall pass,
whether by operation of law or otherwise. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
Section 6.04. Assignment. This Agreement shall not be assigned by the
Stockholders or the Company by operation of law or otherwise without the prior
written consent of MergerCo.
Section 6.05. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by each of the
relevant parties hereto, delivered as follows:
If to any Stockholder, to such Stockholder at its respective address
indicated on Schedule 1 hereto.
If to MergerCo: WRC Merger Corp.
c/o Harvard Private Capital Group,
Inc.
600 Atlantic Avenue, 26th Floor
Boston, MA 02210
(617) 523-4400 (telephone)
(617) 523-1063 (telecopier)
Attn: Michael R. Eisenson
copy to: Ropes & Gray
One International Place
Boston, MA 02110
(617) 951-7000 (telephone)
(617) 951-7050 (telecopier)
Attn: Larry J. Rowe, Esq.
4
<PAGE>
If to Company: White River Corporation
Two Gannett Drive, Suite 200
White Plains, NY 10604
(914) 251-0237 (telephone)
(914) 251-0313 (telecopier)
Attn: Michael E.B. Spicer
copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019
(212) 424-8000 (telephone)
(212) 424-8500 (telecopier)
Attn: Alexander M. Dye, Esq.
or to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 6.06 Severability. Whenever possible, each provision or portion of
any provisions of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provisions or portion of any provision
had never been contained herein.
Section 6.07 Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the
aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
Section 6.08 Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
Section 6.09 No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by
such party of its rights to exercise any such or other right, power or remedy
or to demand such compliance.
Section 6.10 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware, without giving effect to
the principles of conflicts of law thereof.
Section 6.11 Waiver of Jury Trial. Each party hereto hereby waives any right
to a trial by jury in connection with any such action, suit or proceeding.
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<PAGE>
Section 6.12 Survival of Representations and Warranties. All representations
and warranties contained herein which are made by the parties hereto shall
survive the Effective Time and the termination of this Agreement.
Section 6.13 Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
Section 6.14 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
IN WITNESS WHEREOF, MergerCo, the Company and the Stockholders have caused
this Agreement to be duly executed as of the day and year first above written.
WRC MERGER CORP.
By:__________________________________
Name:
Title:
WHITE RIVER CORPORATION
By:__________________________________
Name:
Title:
_____________________________________
John J. Byrne
_____________________________________
Patrick M. Byrne
_____________________________________
Robert Marto
_____________________________________
Name:
_____________________________________
Name:
_____________________________________
Name:
_____________________________________
Name:
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SCHEDULE 1
STOCKHOLDERS
NAME AND ADDRESS OF STOCKHOLDER SHARES OF COMPANY STOCK HELD
- ------------------------------- ----------------------------
7
<PAGE>
ANNEX B
<PAGE>
DELAWARE CODE ANNOTATED
COPYRIGHT (C) 1975-1997 BY THE STATE OF DELAWARE
ALL RIGHTS RESERVED.
*** THIS SECTION IS CURRENT THROUGH THE 1997 SUPPLEMENT ***
*** (1997 REGULAR SESSION OF THE 139TH GENERAL ASSEMBLY) ***
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
8 DEL. C. (S) 262 (1997)
(S) 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S) 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
<PAGE>
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each consitutent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constitutent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby
<PAGE>
to demand the appraisal of such holder's shares. If such notice did not
notify stockholders of the effective date of the merger or consolidation,
either (i) each such constitutent corporation shall send a second notice
before the effective date of the merger or consolidation notifying each of
the holders of any class or series of stock of such constitutent
corporation that are entitled to appraisal rights of the effective date of
the merger or consolidation or (ii) the surviving or resulting corporation
shall send such a second notice to all such holders on or within 10 days
after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constitutent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of
<PAGE>
the merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
<PAGE>
ANNEX C
<PAGE>
June 3, 1998
PERSONAL AND CONFIDENTIAL
Mr. Andrew Delaney
Mr. Robert T. Marto
Ms. Bonnie Stewart
(Collectively, the "Special Committee")
White River Corporation
Two Gannett Drive, Suite 200
White Plains, NY 10604
The Board of Directors
White River Corporation
Two Gannett Drive, Suite 200
White Plains, NY 10604
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, of the consideration to be paid by Demeter Holdings Corporation
("Demeter") to the holders of the issued and outstanding shares of Common
Stock, $.01 par value (the "Common Stock") of White River Corporation (the
"Company") in connection with the proposed merger (the "Merger") of WRV Merger
Corp., a wholly-owned subsidiary of Demeter ("MergerCo."), with and into the
Company pursuant to the Agreement and Plan of Merger dated as of December 11,
1997 and amended as of April 6, 1998 (the "Agreement") by and among Demeter,
MergerCo., WRC Merger Corp., a wholly-owned subsidiary of MergerCo. ("Merger
Sub"), the Company and White River Ventures, Inc., a wholly-owned subsidiary
of the Company ("WRV").
You have advised us that, pursuant to the Agreement, MergerCo. will be
merged with and into the Company and Merger Sub will be merged with and into
WRV. Upon consummation of the Merger, the Company and WRV will become wholly-
owned subsidiaries of Demeter, and each outstanding share of Common Stock
(other than treasury shares and shares held by wholly-owned subsidiaries of
the Company) will be converted into the right to receive an amount determined
by dividing (i) $442,000,000 (subject to adjustment in certain events as
provided in the Agreement) (the "Consideration") by (ii) the number of shares
of Common Stock issued and outstanding and not held in treasury immediately
before the effective time of the Merger (the "Effective Time").
McDonald & Company Securities, Inc., as part of its investment banking
business, is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
In connection with rendering this opinion, we have reviewed and analyzed,
among other things, the following: (i) the Agreement, including the exhibits
and schedules thereto; (ii) certain publicly available information concerning
the Company, including the Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1998 and the Company's Annual Reports to
Stockholders and Annual Reports on Form 10-K for each of the years in the
three year period ended December 31, 1997; (iii) certain other internal
information, primarily financial in nature, concerning the business and
operations of the Company furnished to us by the Company for purposes of our
analysis; (iv) certain publicly available information concerning the trading
of, and the trading market for, the Common Stock and the securities of CCC
Information Services Group, Inc. ("CCC") and of certain companies held in the
Company's investment portfolio (the "Portfolio Companies"); (v) certain
publicly available information with respect to certain other companies that we
believe
<PAGE>
The Special Committee
The Board of Directors
June 3, 1998
Page 2
to be comparable to the Company, CCC or the Portfolio Companies and the
trading markets for certain of such other companies' securities; and (vi)
certain publicly available information concerning the nature and terms of
certain other transactions that we consider relevant to our inquiry. We have
also participated in meetings and telephone conferences with certain officers
and employees of the Company and CCC to discuss the business and prospects of
the Company, CCC and the Portfolio Companies, as well as other matters we
believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and
other information provided us or publicly available and have assumed and
relied upon the representations and warranties of the Company and WRV
contained in the Agreement. We have not been engaged to, and have not
independently attempted to, verify any of such information. With respect to
CCC and the Portfolio Companies, we have used and relied upon certain
projections issued by securities analysts for purposes of certain of our
analysis. We have assumed that such financial and operational forecasts were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of such persons as to the matters covered thereby. We have not
been engaged to express an opinion with respect to such projections or the
assumptions underlying the same, and express no opinion with respect to such
matters. In addition, we have not conducted a physical inspection or appraisal
of any of the assets, properties or facilities of the Company, CCC or any of
the Portfolio Companies nor have we been furnished with any such evaluation or
appraisal. We have also assumed that the conditions to the Merger as set forth
in the Agreement would be satisfied and that the Merger would be consummated
on a timely basis in the manner contemplated by the Agreement. Due to the
speculative nature of the Trust Assets (as defined in the Agreement) and the
fact that the stockholders will retain (through their beneficial interests in
the Liquidating Trust) their ownership in the Trust Assets, we did not assign
any value to such assets for purposes of our analysis. We note that the
Consideration in the Merger is subject to adjustment as provided in the
Agreement. We have reviewed with management, and we have relied upon,
management's expectations regarding the nature and ranges of the possible
adjustments.
It should be noted that this opinion is based on economic and market
conditions and other circumstances existing on, and information made available
as of, the date hereof and does not address any matters subsequent to such
date. In addition, our opinion is, in any event, limited to the fairness, as
of the date hereof, from a financial point of view, of the Consideration to be
received by the holders of the Common Stock pursuant to the Merger and does
not address the Company's underlying business decision to effect the Merger or
any other terms of the Merger.
Our engagement has been limited to the rendering of the opinion expressed in
this letter. We will receive a fee from the Company for our services in
rendering such opinion, as well as the Company's agreement to indemnify us
under certain circumstances.
In the ordinary course of our business, we may actively trade securities of
the Company, CCC and the Portfolio Companies for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this opinion is directed to and has been prepared for
the confidential use of the Special Committee and the Board of Directors of
the Company. This opinion shall not be reproduced, summarized, described or
referred to or given to any other person without our prior written consent.
Notwithstanding the foregoing, the opinion may be included in a proxy
statement to be mailed to the holders of White River Common Stock in
connection with the Merger, provided that this opinion will be reproduced in
such proxy statement in full, and any description or reference to us or our
actions, or any summary of the opinion in such proxy statement,
<PAGE>
The Special Committee
The Board of Directors
June 3, 1998
Page 3
will be in a form acceptable to us and our counsel. Our opinion does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote at the stockholders' meeting held in connection with
the Merger.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof, the Consideration to be received by the holders of Common Stock
pursuant to the Agreement is fair, from a financial point of view, to the
holders of such Common Stock.
Very truly yours,
/s/ McDonald & Company Securities, Inc.
MCDONALD & COMPANY SECURITIES, INC.
<PAGE>
CONSENT OF MCDONALD & COMPANY SECURITIES, INC.
We consent to the inclusion in the White River Corporation Proxy Statement
of our opinion dated as of June 3, 1998, and to the summarization of our
opinion in the Proxy Statement under the caption "Opinion of Financial Advisor
to White River". Further, we consent to all references to our firm in such
Proxy Statement.
/s/ McDonald & Company Securities, Inc.
McDONALD & COMPANY SECURITIES, INC.
Cleveland, Ohio
June 3, 1998
4
<PAGE>
----- WHITE RIVER CORPORATION -----
P PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF WHITE RIVER
R CORPORATION ("WHITE RIVER") FOR THE SPECIAL MEETING
O
X The undersigned hereby appoints Gordon S. Macklin and Michael E.B. Spicer,
Y and each of them, proxies, with full power of substitution, to vote all
shares of White River Common Stock (as defined herein) of the undersigned
at the Special Meeting of Stockholders of White River to be held at the Rye
Town Hilton, 699 Westchester Avenue, Rye Brook, New York on June 26, 1998,
and at any adjournment thereof, upon all subjects that may properly come
before the meeting including the Merger Proposal described in the Proxy
Statement (the "Special Meeting") furnished herewith (receipt of which is
acknowledged by the undersigned), subject to any directions indicated on
the reverse of this card or below. If directions are given to vote against
the Merger Proposal, the proxies will not vote in favor of a motion to
adjourn or postpone the Special Meeting. IF NO DIRECTIONS ARE GIVEN, THE
PROXIES WILL VOTE FOR THE MERGER PROPOSAL AND AT THEIR DISCRETION ON ANY
OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.
(Change of Address/Comments)
Your vote for the Merger Proposal may be indicated on the reverse.
_____________________________
_____________________________
_____________________________
_____________________________
(If you have written in the
above space, please mark the
corresponding box on the
reverse side of this card).
YOUR VOTE IS IMPORTANT! PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND
RETURN PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR OTHERWISE TO WHITE
RIVER CORPORATION, C/O FIRST CHICAGO TRUST COMPANY OF NEW YORK, POST OFFICE BOX
8072, EDISON, NEW JERSEY 08818-9347.
PLEASE RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
______________
SEE REVERSE
SIDE
______________
<PAGE>
[X] PLEASE MARK YOUR
VOTES AS IN THIS 7794
EXAMPLE.
This proxy when properly executed will be voted in the manner directed herein.
If no directions are made, this proxy will be voted FOR the Merger Proposal.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE MERGER PROPOSAL BELOW.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
[_] [_] [_]
MERGER PROPOSAL: A proposal to (a) adopt and approve the Amended and Restated
Agreement and Plan of Merger, dated as of December 11, 1997, as amended by
Amendment Number 1 to the Amended and Restated Agreement and Plan of Merger,
dated as of April 6, 1998 (as amended, the "Merger Agreement") by and among
Demeter Holdings Corporation, a Massachusetts corporation ("Demeter"), WRC
Merger Corp., a Delaware corporation ("MergerCo"), WRV Merger Corp., a
Delaware corporation ("Merger Sub"), White River and White River Ventures,
Inc., a Delaware corporation ("WRV"), pursuant to which, among other things,
(i) MergerCo will be merged with and into White River (the "Merger"), (ii)
each share of White River common stock, par value $0.01 per share (other than
treasury shares and shares with respect to which appraisal rights are
perfected under the Delaware General Corporation Law), outstanding at the
effective time of the Merger will be converted into the right to receive
approximately $90.67 in cash, without interest and subject to adjustment under
certain circumstances and (iii) each share of Series A Non-Participating
Cumulative Preferred Stock, par value $1.00 per share, will be converted into
the right to receive the stated value of $1,000 per share plus any accrued and
unpaid dividends until the effective time of the Merger and (b) to approve the
transactions contemplated thereby including, without limitation, (i) the
Merger and (ii) the transfer of certain assets to a liquidating trust for the
benefit of the stockholders of White River.
Change of Address/Comments on Reverse Side (Check Here)
- --------------------------------------------------------------------------------
The signer hereby revokes all
proxies heretofore given by the
signer to vote at said meeting or
any adjournment thereof.
Please sign exactly as name appears
hereon. Joint owners should each
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such.
__________________________________
__________________________________
SIGNATURE(S) DATE
<PAGE>
WHITE RIVER CORPORATION
----- -----
P PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF WHITE RIVER
R CORPORATION ("WHITE RIVER") FOR THE SPECIAL MEETING
O
X The undersigned hereby appoints Gordon S. Macklin and Michael E.B. Spicer,
Y and each of them, proxies, with full power of substitution, to vote all
shares of White River Common Stock (as defined herein) of the undersigned
at the Special Meeting of Stockholders of White River to be held at the Rye
Town Hilton, 699 Westchester Avenue, Rye Brook, New York on June 26 1998,
(the "Special Meeting") and at any adjournment thereof, upon all subjects
that may properly come before the meeting including the Merger Proposal
described in the Proxy Statement furnished herewith (receipt of which is
acknowledged by the undersigned), subject to any directions indicated on
the reverse of this card or below. If directions are given to vote against
the Merger Proposal, the proxies will not vote in favor of a motion to
adjourn or postpone the Special Meeting. IF NO DIRECTIONS ARE GIVEN, THE
PROXIES WILL VOTE FOR THE MERGER PROPOSAL AND AT THEIR DISCRETION ON ANY
OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.
(Change of Address/Comments)
Your vote for the Merger Proposal may
be indicated on the reverse. ________________________________
________________________________
________________________________
________________________________
(If you have written in the
above space, please mark the
corresponding box on the reverse
side of this card).
YOUR VOTE IS IMPORTANT! PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND
RETURN PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR OTHERWISE TO WHITE
RIVER CORPORATION, C/O FIRST CHICAGO TRUST COMPANY OF NEW YORK, POST OFFICE BOX
8072, EDISON, NEW JERSEY 08818-9347.
PLEASE RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
-----------
SEE REVERSE
SIDE
-----------
<PAGE>
PLEASE MARK YOUR
- ---
X VOTES AS IN THIS 2477
- ---
EXAMPLE.
This proxy when properly executed will be voted in the manner directed herein.
If no directions are made, this proxy will be voted FOR the Merger Proposal.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE MERGER PROPOSAL BELOW.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
------- ------- -------
------- ------- -------
-------
-------
MERGER PROPOSAL: A proposal to (a) adopt and approve the Amended and
Restated Agreement and Plan of Merger, dated as of December 11, 1997,
as amended by Amendment Number 1 to the Amended and Restated
Agreement and Plan of Merger, dated as of April 6, 1998 (as amended,
the "Merger Agreement") by and among Demeter Holdings Corporation, a
Massachusetts corporation ("Demeter"), WRC Merger Corp., a Delaware
corporation ("MergerCo"), WRV Merger Corp., a Delaware corporation
("Merger Sub"), White River and White River Ventures, Inc., a
Delaware corporation ("WRV"), pursuant to which, among other things,
(i) MergerCo will be merged with and into White River (the "Merger"),
(ii) each share of White River common stock, par value $0.01 per
share (other than treasury shares and shares with respect to which
appraisal rights are perfected under the Delaware General Corporation
Law), outstanding at the effective time of the Merger will be
converted into the right to receive approximately $90.67 in cash,
without interest and subject to adjustment under certain
circumstances and (iii) each share of Series A Non-Participating
Cumulative Preferred Stock, par value $1.00 per share, will be
converted into the right to receive the stated value of $1,000 per
share plus any accrued and unpaid dividends until the effective time
of the Merger and (b) to approve the transactions contemplated
thereby including, without limitation, (i) the Merger and (ii) the
transfer of certain assets to a liquidating trust for the benefit of
the stockholders of White River.
Change of Address/Comments on Reverse Side (Check Here)
- --------------------------------------------------------------------------------
The signer hereby revokes all proxies heretofore given
by the signer to vote at said meeting or any
adjournment thereof.
Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such.
____________________________________________
____________________________________________
SIGNATURE(S) DATE
