As filed with the Securities and Exchange Commission on September 30, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
Giant Cement Holding, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 3241, 4953 57-0997411
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C>
Gary L. Pechota John W. Roberts
Chief Executive Officer and President President
Giant Cement Holding, Inc. Solite Corporation
320-D Midland Parkway 2508 Chamberlayne Avenue
Summerville, SC 29484 Richmond, VA 23222
(803) 851-9878 (804) 321-6761
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of telephone number, including area code, of
registrant's principal executive offices) agent for service)
Copies to:
Robert A. Cantone, Esq. David W. Robertson, Esq.
Proskauer Rose LLP McGuire Woods Battle & Boothe LLP
1585 Broadway 901 East Cary Street
New York, New York 10036-8299 Richmond, VA 23219
(212) 969-3235 (804) 775-1031
</TABLE>
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ---------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ---------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title Of Each Class Of Amount To Be Offering Price Per Aggregate Offering Amount of
Securities To Be Registe Registered (1) Share (2) Price (2) Registration Fee
- ------------------------ ---------------- -------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share ...... 650,000 $23.69 $15,397,000 $4,665.76
</TABLE>
(1) The number of shares of Common Stock (the "Giant Common Stock"), par value
$.01 per share, of Giant Cement Holding, Inc. ("Giant") being registered
is based on the approximate maximum number of shares issuable to the
shareholders of Solite Corporation ("Solite") in connection with the
merger of a wholly-owned subsidiary of Giant with and into Solite.
(2) Estimated solely for purposes of calculating the registration fee and
based, pursuant to Rule 457(f)(1) of the Securities Act of 1933, upon the
average of the high and low prices of the Giant Common Stock on the Nasdaq
National Market ($23.6875) on September 23, 1997.
---------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SOLITE CORPORATION
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
To be held on October 29, 1997
--------------
Giant Cement Holding, Inc.
PROSPECTUS
for up to
650,000 Shares of Common Stock, par value $0.01 per share
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Solite Corporation, a Virginia corporation ("Solite"), with GCHI
Acquisition Corp., a Virginia corporation ("Merger Sub") and a wholly owned
subsidiary of Giant Cement Holding, Inc., a Delaware corporation ("Giant"),
pursuant to an Agreement and Plan of Merger dated as of September 10, 1997, as
amended, including the plan of merger attached thereto (the "Merger Agreement").
As a result of the Merger, Solite will become a wholly owned subsidiary of
Giant. At the effective time of the Merger (the "Effective Time"), each
outstanding share of the common stock, par value $2.00 per share, of Solite
("Solite Common Stock"), including shares of Solite Preferred Stock (as defined)
converted into Solite Common Stock, but excluding shares held by Solite
shareholders who perfect their appraisal rights under the Virginia Stock
Corporation Act (the "VSCA"), will be converted into the right to receive the
number of shares of the common stock, par value $0.01 per share, of Giant
("Giant Common Stock") equal to the quotient derived by dividing (i) 450,000
shares of Giant Common Stock by (ii) the total number of shares of Solite Common
Stock outstanding as of the Effective Time, including all shares of Solite
Common Stock issuable upon conversion of the Solite Preferred Stock. Pursuant to
the Merger Agreement, an additional 200,000 shares of Giant Common Stock will be
placed in escrow upon consummation of the Merger. All, part, or none of 100,000
of such 200,000 shares shall be distributed to the persons who were holders of
Solite Common Stock immediately prior to the Merger (including holders of
Preferred Stock that was converted into Solite Common Stock), depending upon
whether, and the extent by which, as of the Effective Time, Solite's
consolidated net book value (as defined in the Merger Agreement) exceeds $3.1
million and its net current assets (as defined in the Merger Agreement) exceeds
$4.1 million. The other 100,000 shares of Giant Common Stock shall be held in
escrow to satisfy the indemnification claims, if any, of Giant under the Merger
Agreement. Solite is soliciting proxies from its shareholders for use at the
Special Meeting of shareholders of Solite scheduled to be held on October 29,
1997 (the "Special Meeting") to consider the approval of (i) an amendment to the
Solite Articles of Incorporation pursuant to which each outstanding share of the
Series A Preferred Stock, par value $50, of Solite (the "Solite Series A
Preferred Stock"), the Series B Preferred Stock, par value $50, of Solite (the
"Solite Series B Preferred Stock"), and the Series C Preferred Stock, par value
$200, of Solite (the "Solite Series C Preferred Stock" and collectively with the
Solite Series A Preferred Stock and the Solite Series B Preferred Stock, the
"Solite Preferred Stock"), will be converted into Solite Common Stock in
accordance with the formula represented by the Schedule set forth on Annex I
hereto and (ii) the Merger Agreement. The Merger is expected to be consummated
promptly after approval of the Merger Agreement by the shareholders of Solite.
Assuming the conversion of all shares of Solite Preferred Stock on the
basis proposed in this Proxy Statement/Prospectus and assuming the issuance of
450,000 shares of Giant Common Stock, and based upon the closing sales price of
shares of Giant Common Stock on September 29, 1997 reported on the Nasdaq
National Market, each such outstanding share of Solite Common Stock would have
been converted into Giant Common Stock with a then-current market value of
$16.17 had the Merger been consummated on that date, and the aggregate
then-current market value of the shares of Giant Common Stock issued in the
Merger would have been $10,856,000. Assuming the 200,000 shares of Giant Common
Stock placed in escrow are released and based upon the closing sales price of
shares of Giant Common Stock on September 29, 1997 reported on the Nasdaq
National Market, the holder of each outstanding share of Solite Common Stock
would also have received Giant Common Stock with a then current market value of
$7.18 if the escrow shares been released on that date and the aggregate then
current market value of the shares of Giant Common Stock released from escrow
would have been $4,825,000. There can be no assurance that the shares of Giant
Common Stock placed in escrow upon consummation of the Merger will be released
and that holders of Solite Common Stock will receive such shares as
consideration in the Merger.
This Proxy Statement/Prospectus constitutes both the proxy statement of
Solite relating to the solicitation of proxies by its Board of Directors for
use at the Special Meeting and the prospectus of Giant with respect to the
shares of Giant Common Stock to be issued in the Merger upon the conversion of
the outstanding shares of Solite Common Stock. This Proxy Statement/Prospectus
and the enclosed forms of proxy are first being sent to Solite shareholders on
or about October 3, 1997.
See "RISK FACTORS" on page 12 for a description of certain factors
concerning Giant and its operations following the Merger.
THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is October 3, 1997.
<PAGE>
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS,
IN CONNECTION WITH THE SOLICITATION AND THE OFFERING MADE BY THIS PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES IN ANY
JURISDICTION IN WHICH SUCH SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF GIANT OR SOLITE SINCE THE
DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
----------------
AVAILABLE INFORMATION
Giant is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
Exchange Act, Giant files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC").
Giant has filed, through the Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR"), a Registration Statement on Form S-4 (the
"Registration Statement") with the SEC under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the shares of Giant Common Stock
to be issued upon consummation of the Merger. This Proxy Statement/Prospectus
does not contain all the information set forth in the Registration Statement
and the exhibits thereto, certain portions of which have been omitted as
permitted by the rules and regulations of the SEC. Copies of the Registration
Statement (including such omitted portions) are available from the SEC upon
payment of prescribed rates. For further information, reference is made to the
Registration Statement and the exhibits filed therewith. Statements contained
in this Proxy Statement/Prospectus relating to the contents of any contract or
other document referred to herein or therein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such
reference.
This filed material can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the SEC:
Chicago Regional Office (Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661) and New York Regional Office (Seven World Trade
Center, New York, New York 10048). Copies of such material may be obtained by
mail from the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, such material can be inspected at the offices of the National
Association of Securities Dealers, Inc. (the "NASD"), 1735 K Street, N.W.,
Washington, DC 20006. Material filed electronically through EDGAR may also be
accessed through the SEC's home page on the World Wide Web at
http://www.sec.gov.
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act. All of the statements
contained in this Prospectus, other than statements of historical fact, should
be considered forward-looking statements, including, but not limited to, those
concerning combined operations of Giant and Solite after the Merger. Although
the Company believes the expectations reflected in those forward-looking
statements are reasonable, it can give no assurance that those expectations
will prove to have been correct. Important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed in this Prospectus, including, without limitation,
under "Risk Factors" beginning on page 12. All subsequent written and oral
forward-looking statements by or attributable to the Company or persons acting
on its behalf are expressly qualified in their entirety by such Cautionary
Statements. Prospective investors are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof and
are not intended to give any assurance as to future results. The Company
undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated by reference in this Proxy
Statement/Prospectus:
(a) Giant's Annual Report on Form 10-K for the year ended December 31, 1996
(File No. 0-24850);
(b) Giant's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997;
(c) Giant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997; and
(d) the description of Giant's capital stock contained in Giant's
Registration Statement on Form 8-A dated September 23, 1994.
All reports and definitive proxy or information statements filed by Giant
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent
to the date of this Proxy Statement/Prospectus and prior to the date of the
Special Meeting shall be deemed to be incorporated by reference into this Proxy
Statement/Prospectus from the dates of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated in this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement/Prospectus. All
information appearing in this Proxy Statement/Prospectus or in any document
incorporated herein by reference is not necessarily complete and is qualified
in its entirety by the information and financial statements (including notes
thereto) appearing in the documents incorporated by reference herein and should
be read together with such information and documents.
All information contained in this Proxy Statement/Prospectus relating to
Giant or Merger Sub has been supplied by Giant, and all information relating to
Solite and Northeast Solite (as defined) has been supplied by Solite.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS
(EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO THE INFORMATION INCORPORATED HEREIN) ARE
AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF
SOLITE STOCK TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON REQUEST.
WITH RESPECT TO GIANT'S DOCUMENTS, REQUESTS SHOULD BE DIRECTED TO GIANT AT
320-D MIDLAND PARKWAY, SUMMERVILLE, SC 29485, ATTN: TERRY L. KINDER (TELEPHONE:
(803) 851-9898). WITH RESPECT TO SOLITE'S DOCUMENTS, REQUESTS SHOULD BE
DIRECTED TO SOLITE AT 2508 CHAMBERLAYNE AVENUE, RICHMOND, VA 23222, ATTN:
JEREMIAH J. JEWETT, III (TELEPHONE: (804) 321-0409). IN ORDER TO ENSURE TIMELY
DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE BY OCTOBER 19, 1997.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY ............................................................ 1
Giant ............................................................... 2
Solite ............................................................... 2
Special Meeting ................................................... 2
Required Vote ...................................................... 2
Proxies ............................................................ 2
Certain Significant Considerations ................................. 3
The Spin-Off ......................................................... 3
The Conversion ...................................................... 3
The Merger ......................................................... 4
Proxy Agreement ................................................... 7
Regulatory Matters ................................................ 7
Certain Federal Income Tax Consequences ........................... 7
Accounting Treatment ................................................ 8
Dissenters' Rights ................................................ 8
Differences in Shareholder Rights ................................. 9
Market Price Data ................................................... 9
Summary Consolidated Historical and Pro Forma Financial Information 9
Giant Summary Consolidated Historical Financial Information ......... 9
Solite Summary Consolidated Historical Financial Information ...... 10
Historical and Pro Forma Unaudited Per Share Data .................. 11
RISK FACTORS ...................................................... 12
Exchange Ratio ................................................... 12
Difficulty of Integration of Operations Following the Merger ...... 12
Dependence on the Construction Industry; Economic Conditions ...... 12
Highly Competitive and Price Sensitive Industry .................. 12
Cement Imports ................................................... 13
High Fixed Costs and Capital Intensive Industry .................. 13
Impact of Environmental Laws ....................................... 14
Potential Volatility of Giant Common Stock Prices .................. 16
Shares Eligible for Future Sales ................................. 16
THE SPECIAL MEETING ................................................ 18
BACKGROUND OF THE SPIN-OFF AND THE MERGER ........................... 19
Reasons for ther Merger; Recommendation of the Solite Board ......... 20
Opinion of CoView Capital, Inc. .................................... 21
Giant's Reasons for the Merger .................................... 23
THE SPIN-OFF ...................................................... 24
ONVERSION OF THE SOLITE PREFERRED STOCK ........................... 24
Voting Requirements for Approval of Preferred Stock Amendment ...... 26
Recommendation of Solite Board .................................... 26
Opinion of Ferris Baker Watts ....................................... 26
Valuation of Independent Assets ..................................... 27
THE MERGER ......................................................... 29
Effective Time ................................................... 29
Exchange Ratio ................................................... 29
Shares of Giant Common Stock to be Held in Escrow .................. 29
Cancellation of Solite Common Stock Shares ........................ 29
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
Exchange Procedures; Distributions with Respect to Unexchanged Shares; No Further
Ownership
Rights in Solite Common Stock; No Fractional Shares of Giant Common Stock ............ 29
Admission for Trading on Nasdaq National Market ....................................... 30
Certain Significant Considerations ................................................... 31
Certain Federal Income Tax Consequences ................................................ 31
Backup Withholding ...................................................................... 33
Dissenter's Rights ..................................................................... 33
Proxy Agreement ........................................................................ 34
Interests of Certain Persons in the Merger ............................................. 35
Operations After the Merger ............................................................ 35
Dividends .............................................................................. 35
Right of the Solite Board to Withdraw Recommendation ................................. 35
Regulatory Filings and Approvals ...................................................... 36
Resale of Giant Common Stock Received in the Merger .................................... 36
DESCRIPTION OF GIANT .................................................................. 36
General .............................................................................. 36
Competition ........................................................................... 38
Resource Recovery ..................................................................... 39
Management of Giant .................................................................. 39
DESCRIPTION OF SOLITE .................................................................. 41
Certain Historical Unaudited Financial Information of Solite Corporation ................ 41
General ................................................................................. 41
Environmental Matters .................................................................. 42
Legal Matters ........................................................................ 43
Security Ownership of Directors, Executive Officers and Owners of five percent or more of
Solite Stock. ........................................................................ 44
COMPARATIVE STOCK PRICES AND DIVIDENDS ................................................ 45
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS ........................... 46
GIANT CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION AND OTHER
DATA ................................................................................. 51
GIANT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS .................................................................. 52
SOLITE SELECTED HISTORICAL FINANCIAL INFORMATION ....................................... 56
SOLITE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS .................................................................. 57
TERMS OF THE MERGER AGREEMENT ......................................................... 59
The Merger; Exchange and Conversion of Shares .......................................... 59
Shares of Giant Common Stock to be Held in Escrow ....................................... 59
Exchange of Share Certificates ......................................................... 60
Effective Time ........................................................................ 60
Termination Rights ..................................................................... 60
Certain Fees and Expenses ............................................................ 61
Condition to the Merger ............................................................... 61
Representations and Warranties ......................................................... 62
Certain Covenants of Solite ............................................................ 63
Certain Covenants of Solite and Giant ................................................ 63
No Solicitation of Other Offers ...................................................... 63
Amendments ........................................................................... 64
Ancillary Agreements .................................................................. 64
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS OF SOLITE, GIANT, AND
NORTHEAST SOLITE .................................................................. 68
Authorized Capital Stock ......................................................... 68
Shareholder Voting Requirements ................................................... 68
Shareholder Action Without a Meeting ............................................. 68
Dissenters' Rights ............................................................... 69
Amendment of the Certificate or Articles of Incorporation ........................ 69
Amendment of Bylaws ............................................................... 69
Directors ........................................................................ 70
Limitations on Director Liability .................................................. 70
Indemnification .................................................................. 71
Business Combination Statutes ...................................................... 71
EXPERTS ........................................................................... 72
LEGAL MATTERS ..................................................................... 72
SOLITE FINANCIAL STATEMENTS ......................................................... F-1
Financial Statements (Unaudited) of Solite Corporation for the interim periods ended
June 30, 1997 and 1996 ............................................................ F-1
Report On Audits of Financial Statements of Solite Corporation for the years ended
March 31, 1997 and 1996 ......................................................... F-9
ANNEX I -- Preferred Stock Conversion Schedule .................................... I-1
ANNEX II -- Preferred Stock Amendment .............................................. II-1
ANNEX III -- Opinion of Ferris, Baker Watts, Incorporated .......................... III-1
ANNEX IV -- Agreement and Plan of Merger ........................................... IV-1
ANNEX V -- Opinion of CoView Capital, Inc. ......................................... V-1
ANNEX VI -- Article 15 of the Virginia Stock Corporation Act ....................... VI-1
</TABLE>
vi
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained elsewhere
in this Proxy Statement/Prospectus, in the attached Annexes and in the
documents incorporated herein by reference. Shareholders are urged to read
carefully this Proxy Statement/Prospectus and the attached Annexes in their
entirety.
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Solite Corporation, a Virginia corporation ("Solite"), with GCHI
Acquisition Corp., a Virginia corporation ("Merger Sub") and a wholly owned
subsidiary of Giant Cement Holding, Inc., a Delaware corporation ("Giant"),
pursuant to an Agreement and Plan of Merger dated as of September 10, 1997, as
amended, including the plan of merger attached thereto as Schedule A-1 (the
"Merger Agreement"). As a result of the Merger, Solite will become a wholly
owned subsidiary of Giant. At the effective time of the Merger (the "Effective
Time"), each outstanding share of common stock, par value $2.00 per share, of
Solite (the "Solite Common Stock"), including shares of Solite Preferred Stock
(as defined) converted into Solite Common Stock, but excluding shares held by
Solite shareholders who perfect their appraisal rights under the Virginia Stock
Corporation Act (the "VSCA"), will be converted into the right to receive the
number of shares of common stock, par value $0.01 per share, of Giant (the
"Giant Common Stock") equal to the quotient derived by dividing (i) 450,000
shares of Giant Common Stock by (ii) the total number of shares of Solite Common
Stock outstanding as of the Effective Time, including all shares of Solite
Common Stock issuable upon conversion of the Solite Preferred Stock. Pursuant to
the Merger Agreement, an additional 200,000 shares of Giant Common Stock will be
placed in escrow upon consummation of the Merger. All, part, or none of 100,000
of such 200,000 shares shall be distributed to the persons who were holders of
Solite Common Stock immediately prior to the Merger (including holders of Solite
Preferred Stock that was converted into Solite Common Stock), depending upon
whether, and the extent by which, as of the Effective Time, Solite's
consolidated net book value (as defined in the Merger Agreement) exceeds $3.1
million and its net current assets (as defined in the Merger Agreement) exceeds
$4.1 million. The other 100,000 shares of Giant Common Stock shall be held in
escrow to satisfy the indemnification claims, if any, of Giant under the Merger
Agreement. Unless a claim or claims by Giant are then pending in amounts in
excess of the then value of 50,000 shares of Giant Common Stock, 50,000 shares
of Giant Common Stock held in escrow shall be released on the second anniversary
of the Effective Time, and unless any claim or claims by Giant are then pending,
the balance of the shares of Giant Common Stock held in escrow shall be released
on the third anniversary of the Effective Time.
This Proxy Statement/Prospectus also relates to an amendment to the Solite
Articles of Incorporation (the "Preferred Stock Amendment") pursuant to which
each outstanding share of Series A Preferred Stock, par value $50 (the "Solite
Series A Preferred Stock"), of Solite, the Series B Preferred Stock, par value
$50 (the "Solite Series B Preferred Stock") of Solite, and the Series C
Preferred Stock, par value $200, of Solite, (the "Solite Series C Preferred
Stock" and, together with the Solite Series A Preferred Stock and Solite Series
B Preferred Stock, the "Solite Preferred Stock") will be converted (the
"Conversion") into Solite Common Stock in accordance with the formula
represented by the Schedule set forth on Annex I hereto. Immediately following
the Conversion, and immediately before the Merger, Solite will distribute to
each holder of Solite Common Stock (including holders of Solite Common Stock as
a result of the Conversion) a fully paid and nonassessable share of Northeast
Solite Corporation, a New York corporation and a wholly-owned subsidiary of
Solite ("Northeast Solite"), for each share of Solite Common Stock held after
the Conversion.
Assuming the conversion of all shares of Solite Preferred Stock on the
basis proposed in this Proxy Statement/Prospectus and assuming the issuance of
450,000 shares of Giant Common Stock, based upon the closing sales price of
shares of Giant Common Stock on September 29, 1997, as reported on the Nasdaq
National Market, each such outstanding share of Solite Common Stock would have
been converted into Giant Common Stock with a then-current market value of
$16.17 had the Merger been consummated on that date, and the aggregate
then-current market value of the shares of Giant Common Stock issued in the
Merger would have been $10,856,000. Assuming the 200,000 shares of Giant Common
Stock placed in escrow are released and based upon the closing sales price of
shares of Giant Common Stock on September 29, 1997 reported on the Nasdaq
National Market, the holder of each outstanding share of Solite Common Stock
would also have received Giant Common Stock with a then current market value of
$7.18 if the escrow shares had been released on that date and the aggregate then
current market value of the shares of Giant Common Stock released from escrow
would have been $4,825,000. There can be no assurance that the shares of Giant
Common Stock placed in escrow upon consummation of the Merger will be released
and that holders of Solite Common Stock will receive such shares as
consideration in the Merger.
1
<PAGE>
Giant
Giant manufactures a complete line of portland and masonry cements used in
residential, commercial, and infrastructure construction applications. Giant's
manufacturing facilities have an aggregate rated annual clinker capacity of
approximately 1.4 million tons, ranking it as the 17th largest producer of
cement in the United States. Its two manufacturing facilities are fully
integrated from limestone mining through cement production to serve the
South-Atlantic and Middle-Atlantic regions of the United States. Giant
pioneered resource recovery techniques for use in the manufacturing of cement
and is one of the largest users of waste-derived fuels in the cement industry.
Giant Common Stock (symbol: GCHI) is admitted for trading on the Nasdaq
National Market.
Solite
Solite and its subsidiaries produce and sell construction materials to the
commercial, industrial, governmental and residential construction markets,
including building, bridge and road markets. Solite's primary geographic market
is the eastern United States. Solite's principal product is "Solite[RegTM]," a
lightweight aggregate primarily used in concrete and masonry blocks. Solite's
operations also include sand, gravel, masonry block, hazardous waste fuels,
coal and transportation. See "DESCRIPTION OF SOLITE" for selected unaudited
financial data of Solite Corporation as it exists prior to the Spin-Off
referred to below.
Special Meeting
A Special Meeting of the shareholders of Solite will be held at 9:00 a.m.,
local time, on Wednesday, October 29, 1997 (the "Special Meeting"), at the
offices of McGuire Woods Battle & Boothe LLP, fourth floor, 901 East Cary
Street, Richmond, Virginia. Only holders of record of Solite Common Stock and
holders of Solite Preferred Stock at the close of business on October 1, 1997
(the "Record Date"), will be entitled to notice of, and to vote at, the Special
Meeting. The Solite Common Stock and the Solite Preferred Stock are sometimes
hereinafter referred to collectively as the "Solite Stock." At the Special
Meeting, the holders of Solite Stock will be asked to consider and vote upon
the approval of the Preferred Stock Amendment and the Merger Agreement, copies
of which are attached as Annexes II and IV, respectively, to this Proxy
Statement/Prospectus. Solite will be the surviving corporation in the Merger
(the "Surviving Corporation") and will become a wholly owned subsidiary of
Giant. The holders of Solite Stock will also transact such other business as
may properly come before the Special Meeting.
Required Vote
Approval of the Merger Agreement and the Preferred Stock Amendment
requires (i) the affirmative vote of more than two-thirds of the votes that
holders of the outstanding Solite Common Stock and Solite Preferred Stock,
voting as one voting group, are entitled to cast and (ii) the affirmative vote
of more than two-thirds of the votes that the holders of the outstanding Solite
Common Stock, Solite Series A Preferred Stock, Solite Series B Preferred Stock
and Solite Series C Preferred Stock, each voting as a separate voting group,
are entitled to cast. Approval of the Preferred Stock Amendment also requires
the affirmative vote of a majority of the votes that holders of the outstanding
Solite Common Stock and Solite Preferred Stock, other than John W. Roberts and
his family, are entitled to cast.
As an inducement for Giant to enter into the Merger Agreement, certain
shareholders of Solite have entered into a Proxy Agreement with Giant pursuant
to which such shareholders have, among other things, irrevocably appointed Giant
their lawful agent, attorney and proxy to vote all of their shares of Solite
Stock (approximately 76.9%, 100%, 86.9% and 100% of the outstanding shares of
Solite Common Stock, Solite Series A Preferred Stock, Solite Series B Preferred
Stock and Solite Series C Preferred Stock, respectively) in favor of the Merger
Agreement and the Merger. See "THE MERGER--Proxy Agreement" and "THE SPECIAL
MEETING." Consequently, no other affirmative vote is required to approve the
Merger Agreement. However, you are urged to review this Proxy
Statement/Prospectus carefully with respect to the Preferred Stock Amendment and
to decide whether to exercise appraisal rights. See "CONVERSION OF THE SOLITE
PREFERRED STOCK" and "THE MERGER-Dissenters' Rights."
The approval of Giant's shareholders is not required to effect the Merger.
Proxies
Solite shareholders are requested to complete, sign, date and return
promptly the enclosed proxy card in the postage-paid envelope provided for this
purpose to ensure that their shares are voted. A holder of shares of Solite
Stock may revoke a proxy by submitting a later dated proxy with respect to the
same shares at any time prior to
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the vote on the approval of the Merger Agreement, by delivering written notice
of revocation to the Secretary of Solite at any time prior to such vote or by
attending the Special Meeting and voting in person. Mere attendance at the
Special Meeting will not in and of itself revoke a proxy.
Certain Significant Considerations In considering whether to approve the
Merger, the shareholders of Solite should carefully consider the factors
described under "RISK FACTORS" as well as the fact that (i) the total number of
shares of Giant Common Stock issuable pursuant to the Merger will not be
adjusted based upon changes in the market price of the shares of Giant Common
Stock, which at the Effective Time may vary significantly from the most recent
market price set forth in this Proxy Statement/Prospectus or the market price on
the date of the opinion of CoView Capital, Inc. or on the date of the Special
Meeting and (ii) certain members of Solite's management and Solite's financial
advisors have interests in the Merger, which interests may be viewed as giving
rise to potential conflicts of interest. For certain information about these
factors, see "--The Merger--Interests of Certain Persons in the Merger" in this
Summary, "RISK FACTORS--Potential Volatility of Giant Common Stock Prices",
"BACKGROUND OF THE SPIN-OFF AND THE MERGER--General", "--Reasons for the Merger;
Recommendation of the Solite Board", "--Opinion of CoView Capital" and "THE
MERGER--Interests of Certain Persons in the Merger."
The Spin-Off
Immediately following the Conversion, and immediately before the Merger,
Solite will distribute (the "Spin- Off") to each holder of Solite Common Stock
(including holders of Common Stock as a result of the Conversion) a fully paid
and nonassessable share of common stock, par value $.20 per share of Northeast
Solite ("Northeast Solite Common Stock") for each share of Solite Common Stock
held after the Conversion. The Spin-Off is conditioned upon approval of the
Merger Agreement and the Preferred Stock Amendment and will not occur unless
all conditions of the Merger have been satisfied.
Before the Merger and the Spin-Off, Solite will contribute to Northeast
Solite certain assets, as well as stock of certain subsidiaries, in
transactions intended to qualify for tax-free treatment under the Internal
Revenue Code of 1986, as amended (the "Code"). As a result, at the time of the
Spin-Off, Northeast Solite will hold the following: (i) two lightweight
aggregate plants (one located in New York and one located in Kentucky), as well
as hazardous waste fuels facilities associated with the Kentucky plant; (ii)
one masonry block manufacturing and sales facility in Chesapeake, Virginia;
(iii) the coal mining properties owned and leased by Solite in Kentucky and
West Virginia; (iv) a Florida tank farm storage facility and related assets,
(v) a closed Florida lightweight aggregate plant facility and related assets;
(vi) a sand and gravel plant in Hanover County, Virginia; (vii) certain lease
and royalty (income) agreements, a leasehold interest in 365 acres in Wilcox
County, Alabama, an option agreement to acquire 655 acres of real property in
Fluvanna County, Virginia and a 69-acre parcel of real property in Spotsylvania
County, Virginia; and (viii) the stock of Solite's inactive subsidiaries.
See "DESCRIPTION OF SOLITE" for selected unaudited financial data of
Solite Corporation as it exists prior to the Spin-Off.
Conversion of Solite Preferred Stock
In order to simplify Solite's capital structure and to facilitate the
Spin-Off and the Merger, Solite proposes to convert all outstanding shares of
Solite Preferred Stock to Solite Common Stock. The Conversion will be
effectuated by the adoption of the Preferred Stock Amendment, attached hereto
as Annex II. The Merger and the Spin-Off are conditioned upon approval of the
Preferred Stock Amendment and completion of the Conversion. The Conversion will
be effected immediately before the Spin-Off and the Merger, and will occur only
if all other conditions to the Merger have been satisfied.
The Preferred Stock Amendment will convert, without further action by the
holders of the Solite Preferred Stock, each issued and outstanding share of
Solite Preferred Stock into Solite Common Stock in accordance with the formula
represented by the Schedule set forth on Annex I hereto (collectively, the
"Preferred Stock Conversion Formula"). Upon the issuance of a certificate of
amendment by the Office of the Clerk of the State Corporation Commission of the
Commonwealth of Virginia evidencing the adoption of the Preferred Stock
Amendment, each issued and outstanding preferred stock certificate which
previously evidenced ownership of shares of Solite
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Preferred Stock will evidence the ownership of the number of shares of Solite
Common Stock determined in accordance with the Preferred Stock Conversion
Formula. Each holder of shares of Solite Preferred Stock converted into Solite
Common Stock who would otherwise be entitled to receive a fraction of a share
of Solite Common Stock in the Conversion will receive, in lieu thereof, cash
(without interest) in an amount determined as set forth on Annex I.
The Merger
The Parties
Giant Cement Holding, Inc. Giant's principal executive offices are located
at 320-D Midland Parkway, Summerville, SC 29485, telephone number (803)
851-9898. As used in this Proxy Statement/Prospectus, "Giant" refers to Giant
Cement Holding, Inc., its subsidiaries and 50% owned companies, and its
predecessor, unless otherwise indicated.
GCHI Acquisition Corp. Merger Sub is a Virginia corporation, is a wholly
owned subsidiary of Giant formed solely for the purpose of effecting the
Merger.
Solite Corporation. Solite's principal executive offices are located at
2508 Chamberlayne Avenue, Richmond, VA 23222, telephone number (804) 321-6761.
As used in this Proxy Statement/Prospectus, unless otherwise indicated,
"Solite" refers to Solite and its subsidiaries following the Spin-Off.
Exchange Ratio. At the Effective Time, each outstanding share of Solite
Common Stock, other than shares as to which the holders have perfected their
appraisal rights under the VSCA, will be converted into the right to receive
the number of shares of Giant Common Stock equal to the quotient derived by
dividing (i) 450,000 shares of Giant Common Stock by (ii) the total number of
shares of Solite Common Stock outstanding as of the Effective Time, including
all shares of Solite Common Stock issuable upon conversion of the Solite
Preferred Stock. No fractional shares of Giant Common Stock will be issued in
the Merger and the holders of shares of Solite Common Stock will be entitled to
a cash payment in lieu of any such fractional shares of Giant Common Stock that
would otherwise be issued in the Merger.
Shares of Giant Common Stock to be Held in Escrow. Pursuant to the Merger
Agreement, an additional 200,000 shares of Giant Common Stock will be placed in
escrow upon consummation of the Merger.
100,000 of such shares would be returned to Giant and cancelled if, as of
the Effective Time, the consolidated net book value of Solite is $3.1 million
or less or the net current assets of Solite is $4.1 million or less. If such
consolidated net book value is more than $5 million and such net current assets
are more than $6 million, all such 100,000 shares would be distributed to the
persons who were holders of Solite Common Stock immediately prior to the Merger
(including holders of Solite Preferred Stock that was converted into Solite
Common Stock, but excluding holders who have perfected their appraisal rights
under the VSCA) on the basis of each such share of Solite Common Stock
entitling such former holder to the number of shares of Giant Common Stock
equal to the quotient derived by dividing 100,000 by the total number of
outstanding shares of Solite Common Stock as of the Effective Time, other than
shares as to which the holders have perfected their appraisal rights under the
VSCA. If such consolidated net book value is more than $3.1 million but less
than $5 million, or such net current assets are more than $4.1 million but less
than $6 million, the shares of Giant Common Stock held pursuant to such escrow
shall be returned, in part, to Giant for cancellation and distributed, in part,
to such holders of Solite Common Stock on a formula basis with the Giant Common
Stock returned valued at $19 per share.
The other 100,000 shares of Giant Common Stock shall be held in escrow and
shall be available to satisfy the indemnification claims, if any, of Giant
under the Merger Agreement. Unless a claim or claims by Giant are then pending
in amounts in excess of the then value of 50,000 shares of Giant Common Stock,
50,000 shares of Giant Common Stock held in escrow shall be released on the
second anniversary of the Effective Time, and unless any claim or claims by
Giant are then pending, the balance of the shares of Giant Common Stock held in
escrow shall be released on the third anniversary of the Effective Time. See
"TERMS OF THE MERGER AGREEMENT--Indemnification Provisions."
Review and Recommendation of the Merger by the Board of Directors of
Solite. The Board of Directors of Solite (the "Solite Board") has unanimously
approved the Merger Agreement, determined that the Merger is in the best
interests of Solite's shareholders, and recommends that the shareholders of
Solite vote FOR the approval of the Merger Agreement. In reaching its decision
to approve the Merger Agreement and recommend
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approval of the Merger Agreement, the Solite Board considered, without
assigning any relative or specific weights, a number of factors including,
among other things, (i) the Solite Board's familiarity with the history,
financial condition and results of operations of Solite, the financial
condition and results of operations of Giant, the prospects of Solite both as
an independent entity and as an affiliated entity of Giant and the value of the
assets and liabilities to be held by Northeast Solite after the Spin-Off, (ii)
the greater liquidity for Solite shareholders as a result of exchanging Solite
Common Stock, which is not publicly traded, for Giant Common Stock, which
trades on the Nasdaq National Market; (iii) the opportunity for improved
operating performance by Solite as a result of merging with a strong
geographically complimentary company in a closely-related business, with the
expectation that lower costs could be achieved as a result of the Merger; (iv)
the opinions of Solite's financial advisors to the effect that the
consideration to be received by the Solite shareholders in the Merger and the
Conversion is fair, from a financial point of view, to such shareholders; and
(v) the structure of the Merger, Spin-Off and Conversion as transactions
intended to qualify for tax-free treatment under the Code. There can be no
assurance, however, that any or all of the potential results described above
will be achieved if the Merger is consummated. See "BACKGROUND OF THE SPIN-OFF
AND THE MERGER--General" and "--Reasons for the Merger; Recommendation of the
Solite Board."
Opinion of CoView Capital. CoView Capital, Inc. ("CoView Capital"),
delivered an oral opinion on September 9, 1997 to the Solite Board that the
consideration to be received in the Merger by the holders of Solite Common Stock
is fair to such holders from a financial point of view. CoView Capital confirmed
such opinion in writing on September 19, 1997 and September 30, 1997. The full
text of CoView Capital's written opinion, which sets forth assumptions made,
matters considered and limitations on the review undertaken in connection with
the opinion, is attached as Annex V to this Proxy Statement/Prospectus and is
incorporated herein by reference. Holders of Solite Common Stock are strongly
urged to read such opinion in its entirety. See "BACKGROUND OF THE SPIN-OFF AND
THE MERGER--Opinion of CoView Capital."
Interests of Certain Persons in the Merger. As of the Record Date, the
directors and executive officers of Solite beneficially owned an aggregate of
251,055, 8,700, 12,195 and 15,429 shares of Solite Common Stock, Solite Series
A Preferred Stock, Solite Series B Preferred Stock and Solite Series C
Preferred Stock, respectively. Pursuant to the Merger Agreement, Solite's
directors and executive officers will receive the same consideration for their
shares of Solite Common Stock, including shares of Solite Preferred Stock
converted into Solite Common Stock, as the other Solite shareholders.
Pursuant to the CoView Capital engagement letter, CoView Capital provided
advisory services and a financial opinion in connection with the Merger and
Solite has agreed to pay a fee of 1% to CoView Capital based on the aggregate
value of the transaction, including debt assumed, if the Merger is consummated.
Mr. John W. Roberts has personally guaranteed certain obligations of
Solite for borrowings under its bank line of credit. In connection with Merger,
Giant intends to refinance such indebtedness with proceeds from Giant's credit
facilities. As a result of such refinancing, Mr. Roberts will be relieved of
any further obligations under such guarantees. See "THE MERGER--Interests of
Certain Persons in the Merger."
Security Ownership of Certain Persons. As of the Record Date, there were
532,750 shares of Solite Common Stock, 8,700 shares of Solite Series A
Preferred Stock, 14,093 shares of Solite Series B Preferred Stock, and 15,429
shares of Solite Series C Preferred Stock outstanding, of which an aggregate
370,555 shares of Solite Common Stock (69.6%), 8,700 shares of Solite Series A
Preferred Stock (100%), 12,195 shares of Solite Series B Preferred Stock
(86.5%), and 15,429 shares of Solite Series C Preferred Stock (100%) were owned
of record by the directors, officers and persons holding 5% or more of the
outstanding shares of Solite Common Stock, Solite Series A Preferred Stock,
Solite Series B Preferred Stock or Solite Series C Preferred Stock. Certain
Solite shareholders have entered into a Proxy Agreement. See "--Proxy
Agreement."
Conditions to the Merger. The obligations of Giant, Merger Sub and Solite
to consummate the Merger are subject to the satisfaction or waiver of various
conditions, including, without limitation, Solite shareholder approval of the
Merger Agreement and the Preferred Stock Amendment. It is also a condition,
among others, to completion of the Merger, that (i) holders of 1% or more,
owning in the aggregate at least 50%, of the total outstanding capital stock of
Northeast Solite enter into a Northeast Shareholder Agreement restricting his
or her ability to transfer shares of Northeast Solite Common Stock, and (ii)
holders of 1% or more, owning in the aggregate at least 70%, of the
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total outstanding shares of Giant Common Stock to be issued in connection with
the Merger enter in a Giant Shareholder Agreement restricting his or her
ability to transfer shares of Giant Common Stock. See "TERMS OF THE MERGER
AGREEMENT--Conditions to the Merger."
No Solicitation. The Merger Agreement provides that neither Solite, its
subsidiaries or affiliates, nor any of their respective directors, officers,
employees, agents or representatives shall, directly or indirectly, solicit,
initiate, facilitate or encourage any inquiries or the making of any proposal
with respect to any merger, consolidation or other business combination
involving the Core Business (as defined in the Merger Agreement) or the
acquisition of capital stock of Solite or any subsidiary constituting part of
the Core Business or all or any significant assets of the Core Business (an
"Acquisition Transaction") or negotiate, explore or otherwise engage in
discussions with any person (other than Giant and its representatives) with
respect to any Acquisition Transaction, or enter into any agreement,
arrangement or understanding with respect to any such Acquisition Transaction
or which would require it to abandon, terminate or fail to consummate the
Merger or any other transaction contemplated by the Merger Agreement; provided,
however, that Solite may, in response to an unsolicited written proposal from a
third party, furnish information to and engage in discussions with such third
party, in each case only if the Solite Board determines in good faith, by
majority vote after consultation with its financial advisor and based upon the
advice of outside counsel, that failing to take such action would result in a
breach of the fiduciary duties of the Solite Board and prior to taking such
action, Solite (x) provides reasonable notice to Giant to the effect that it is
taking such action and (y) receives from such corporation, partnership, person
or other entity or group (and delivers to Giant) an executed confidentiality
agreement in customary form. In the Merger Agreement, Solite agrees to
immediately advise Giant in writing of any inquiries or proposals (or desire to
make a proposal) received by (or indicated to), any such information from, or
any such negotiations or discussions sought to be initiated or continued with,
any of it, its subsidiaries or affiliates, or any of the respective directors,
officers, employees, agents or representatives of the foregoing in each case
from a person (other than Giant and its representatives) with respect to an
Acquisition Transaction, and the terms thereof, including the identity of such
third party, and to update on an ongoing basis or upon Giant's request, the
status thereof, as well as any actions taken or other developments. See "TERMS
OF THE MERGER AGREEMENT--No Solicitation of Other Offers."
Right of the Solite Board to Withdraw Recommendation. Under the Merger
Agreement, the Solite Board may not (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Giant or Merger Sub, the Solite
Board's approval or recommendation of the Merger Agreement, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Transaction, or
(iii) cause Solite to enter into any agreement with respect to any Acquisition
Transaction. Notwithstanding the foregoing, in the event that prior to the
Effective Time the Solite Board determines in its good faith reasonable
judgment, by majority vote, after consultation with its financial advisors that
the Acquisition Transaction is more favorable to the shareholders of Solite
than the Merger and, based upon the advice of outside counsel to Solite, that
such action is required by the fiduciary duties of the Solite Board, the Solite
Board may withdraw or modify its approval or recommendation of the Merger
Agreement and the Merger, approve or recommend such Acquisition Transaction, or
cause Solite to enter into an agreement with respect to an Acquisition
Transaction, but only if Solite gives Giant at least five business days prior
written notice, during which time Giant may make, and in such event, Solite
shall in good faith consider, a counter proposal to such Acquisition
Transaction.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after the shareholders of Solite shall
have approved the Merger Agreement (i) by mutual written consent of Giant and
Solite or (ii) by either Giant or Solite if the Merger shall not have been
consummated before October 30, 1997, (iii) by Giant, if (a) there has been a
breach of any representations or warranties of Solite set forth in the Merger
Agreement, the effect of which, individually or together with all other such
breaches, is a material adverse effect on the financial condition, results of
operations, business, assets, liabilities, prospects or properties of Solite
and its subsidiaries, taken as a whole, or the ability of Solite to consummate
the Merger and the other transactions contemplated by the Merger Agreement, (b)
there has been a breach in any material respect of any of the covenants or
agreements set forth in the Merger Agreement on the part of Solite, which
breach is not curable or, if curable, is not cured within 30 days after written
notice of such breach is given by Giant to Solite, (c) the Solite Board (1)
withdraws or amends or modifies in a manner adverse to Giant or Merger Sub its
recommendation or approval to shareholders in respect of this Agreement or the
Merger, (2) makes any recommendation with respect to an Acquisition Transaction
(including making no recommendation or stating an inability to make a
recommendation),
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other than a recommendation to reject such Acquisition Transaction, or (3)
takes any action that violates the non-solicitation provisions of the Merger
Agreement, (d) subject to certain exceptions, any person or group ("Acquiring
Person") other than Giant, or any affiliate or subsidiary of Giant, shall have
become the beneficial owner of more than 33-1/3% of the outstanding voting
equity of Solite (either on a primary or a fully diluted basis), or (f) any
other Acquisition Transaction shall have occurred with any Acquiring Person
other than Giant, or any affiliate or subsidiary of Giant, or (iv) by Solite,
if (a) there has been a breach of any representations or warranties of Giant or
the Merger Sub set forth in the Merger Agreement the effect of which,
individually or together with all other such breaches, is a material adverse
effect on the financial condition, results of operations, business, assets,
liabilities, prospects or properties of Giant and its subsidiaries taken as a
whole, or the ability of Giant to consummate the Merger and the other
transactions contemplated by the Merger Agreement, (b) there has been a breach
in any material respect of any of the covenants or agreements set forth in the
Merger Agreement on the part of Giant, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by Solite to Giant or (c) such termination is necessary to allow Solite
to enter into an Acquisition Transaction permitted under the Merger Agreement.
See "TERMS OF THE MERGER AGREEMENT--Termination Rights."
Certain Fees. If the Merger Agreement is terminated as provided above (i)
by Giant due to the Solite Board having withdrawn or modified its
recommendation or approval with respect to the Merger Agreement or the Merger
or having made a recommendation to shareholders with respect to an Acquisition
Transaction or having taken any actions that violate the non-solicitation
provisions of the Merger Agreement, or an Acquiring Person having become the
beneficial owner of 331/3% or more of Solite's outstanding voting equity or any
other Acquisition Event occurs, (ii) by Solite, in order to enter into an
Acquisition Agreement permitted by the Merger Agreement, (iii) by either Giant
or Solite due to the Merger not being consummated before November 30, 1997 or
(iv) by Giant due to a material breach or misrepresentation by Solite and, in
the case of a termination described in these clauses (iii) and (iv), within six
months of such termination Solite or any of its subsidiaries shall have
consummated an Acquisition Transaction or have entered into a definitive
agreement with respect thereto; then Solite shall pay to Giant a termination
fee of $1,750,000 (the "Termination Fee").
Proxy Agreement
Giant and certain shareholders of Solite have entered into a Proxy
Agreement (the "Proxy Agreement"), pursuant to which such shareholders have
granted to Giant an irrevocable proxy to vote all of their shares of Solite
Stock in favor of the Merger Agreement and against any other Acquisition
Transaction. As of the date of this Proxy Statement/Prospectus, such
shareholders owned of record an aggregate of 409,470, 8,700, 12,287 and 15,429,
shares of Solite Common Stock (76.9%), Solite Series A Preferred Stock (100%),
Solite Series B Preferred Stock (87.2%) and Solite Series C Preferred Stock
(100%) outstanding, respectively. See "THE SPECIAL MEETING" and "THE
MERGER--Proxy Agreement." Consequently, no other affirmative vote is required to
approve the Merger Agreement. However, you are urged to review this Proxy
Statement/Prospectus carefully with respect to the Preferred Stock Amendment and
to decide whether to exercise appraisal rights. See "THE CONVERSION OF THE
SOLITE PREFERRED STOCK" and "THE MERGER-Dissenters' Rights."
Regulatory Matters
The Merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules
and regulations thereunder, which provide that certain transactions may not be
consummated until required information and material have been furnished to the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the Federal Trade Commission (the "FTC") and certain waiting periods have
expired or been terminated. Solite and Giant filed the required information and
material with the Antitrust Division and the FTC on September 12, 1997 and
requested early termination of the statutory waiting period under the HSR Act.
See "THE MERGER--Regulatory Filings and Approvals."
Certain Federal Income Tax Consequences
The Conversion. McGuire Woods Battle and Boothe LLP, counsel to Solite, is
of the opinion that the Conversion will qualify as a reorganization and,
accordingly, (except with respect to any Solite Common Stock deemed received
with respect to unpaid dividends on the Solite Preferred Stock) no gain or loss
will be
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recognized by (and no amount will be included in the income of) holders of
Solite Preferred Stock on the Conversion of such stock into Solite Common Stock.
The receipt of cash, however, by holders of Solite Preferred Stock in lieu of
fractional shares of Solite Common Stock may give rise to taxable gain or loss.
The Spin-Off. Solite has obtained a private letter ruling from the
Internal Revenue Service (the "IRS") that, provided that the Merger constitutes
a tax-free reorganization under Section 368(a)(1)(B) of the Code, the Spin-Off
will qualify as a reorganization and, accordingly, no gain or loss will be
recognized by (and no amount will be included in the income of) Solite
shareholders on the receipt of the Northeast Solite Common Stock.
The Merger. McGuire Woods Battle & Boothe LLP and Proskauer Rose LLP are of
the opinion that the Merger will qualify as a reorganization and accordingly, no
gain or loss will be recognized by the Solite shareholders as a result of the
exchange of shares of Solite Common Stock for shares of Giant Common Stock.
However, the receipt of cash by Solite shareholders in lieu of fractional shares
of Giant Common Stock (and the receipt of cash by Solite shareholders who
exercise appraisal rights) may give rise to taxable gain or loss.
Each shareholder of Solite is urged to consult his, her or its tax advisor
to determine the specific tax consequences of the Conversion, Spin-Off and the
Merger to such shareholder. The obligation of Solite to consummate the Merger is
subject to receipt of the opinion of Solite's and Giant's counsel to the effect
that the Merger qualifies as a reorganization and to not receiving an opinion
of counsel that as a result of changes in law the Spin-Off will no longer
qualify as a tax-free reorganization. For a further discussion of the tax
consequences of the Conversion, the Spin-Off and the Merger, see "THE
MERGER--Certain Federal Income Tax Consequences."
Accounting Treatment
Giant will account for the Merger using the purchase method of accounting.
See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
Dissenters' Rights Holders of Solite Stock entitled to vote on the approval
of the Merger Agreement will be entitled to have the fair value of each such
holder's shares of Solite Common Stock immediately prior to consummation of the
Merger paid to such holder in cash, together with interest, if any, by complying
with the provisions of Article 15 of the VSCA ("Article 15"). A written notice
of such holder's intent to demand payment for such holder's Solite Common Stock
must be delivered to Solite before the taking of the vote on approval of the
Merger Agreement. This written notice must be in addition to and separate from
voting against, abstaining from voting, or failing to vote on approval of the
Merger Agreement. Voting against, abstaining from voting or failing to vote on
approval of the Merger Agreement will not constitute written notice of an intent
to demand payment within the meaning of Article 15. See "THE MERGER--Dissenters'
Rights" and the complete text of Article 15, which is attached as Annex VI to
this Proxy Statement/Prospectus.
Differences in Shareholder Rights
If the Merger is consummated, shareholders of Solite will become
shareholders of Giant, a Delaware corporation, which will result in their
rights as shareholders being governed by Delaware law and Giant's Certificate
of Incorporation and By-Laws, rather than Virginia law (Solite is a Virginia
corporation) and Solite's Articles of Incorporation, as amended, and By-Laws,
as amended. In addition, as a result of the Spin-Off, shareholders of Solite
will become shareholders of Northeast Solite, a New York corporation, which
will result in their rights as shareholders being governed by New York law and
Northeast Solite's Certificate of Incorporation and Bylaws, rather than
Virginia law and Solite's Articles and Bylaws, as amended. It is not practical
to describe all the differences between Delaware, New York and Virginia law and
between Solite's governing documents and those of Giant and Northeast Solite. A
summary of certain of such differences is set forth in "CERTAIN DIFFERENCES IN
RIGHTS OF SHAREHOLDERS OF SOLITE, GIANT AND NORTHEAST SOLITE."
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Market Price Data
The Giant Common Stock (symbol: GCHI) is admitted for trading on the
Nasdaq National Market. The following table sets forth the high and low sales
prices per share of the Giant Common Stock and the Solite Common Stock (on an
equivalent per share basis) on the Nasdaq National Market on September 29,
1997.
<TABLE>
<CAPTION>
High Low
---------- ---------
<S> <C> <C>
Giant Common Stock ............ $ 24.125 $23.875
Equivalent share basis(1) ...... 23.35 23.11
</TABLE>
- ------------
(1) Equivalent share basis is determined by multiplying the applicable Giant
Common Stock price by an Exchange Ratio of 0.9679, which assumes the
issuance of 650,000 shares of Giant Common Stock. The price of Giant Common
Stock is subject to fluctuation due to changes in the business, operations
or prospects of Giant, market assessments of the likelihood that the Merger
will be consummated and the timing thereof, general market and economic
conditions, and other factors.
Summary Consolidated Historical and Pro Forma Financial Information
The following tables present summary consolidated selected historical
financial information of Giant and Solite. Giant and Solite's consolidated
historical financial information for each of the annual periods presented have
been derived from their respective audited consolidated financial statements,
and in the case of Giant, previously filed with the SEC. Giant and Solite's
historical consolidated financial information for the six and three months,
respectively, ended June 30, 1997 and June 30, 1996, have been derived from
Giant and Solite's unaudited consolidated financial statements for such
periods, and in the case of Giant, previously filed with the SEC. The summary
consolidated selected historical financial information should be read in
conjunction with the consolidated selected historical financial information
presented elsewhere in this Proxy Statement/Prospectus. See "GIANT CONSOLIDATED
SELECTED HISTORICAL FINANCIAL INFORMATION" and "SOLITE CONSOLIDATED SELECTED
HISTORICAL FINANCIAL INFORMATION."
See "DESCRIPTION OF SOLITE" for selected unaudited financial data of
Solite Corporation as it exists prior to the Spin-Off.
Additionally, the following table presents summary unaudited pro forma
combined financial information after giving effect to the Merger under the
purchase method of accounting as if the Merger had been consummated as of the
beginning of the periods presented. The tables have been derived from, or
prepared on a basis consistent with, the unaudited pro forma combined
information included in this Proxy Statement/Prospectus. The selected pro forma
combined financial information should be read in conjunction with, and is
qualified in its entirety by reference to, the unaudited pro forma combined
condensed financial statements and the notes thereto. See "UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS." The following data are presented for
illustrative purposes only and are not necessarily indicative of the operating
results or financial position that would have occurred or that will occur after
consummation of the Merger.
9
<PAGE>
Giant Summary Consolidated Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended
June 30 Years Ended December 31,
---------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Income Statement Data: (Unaudited)
Total revenues ........................ $ 56,681 $ 53,205 $110,198 $100,185 $90,802 $81,900 $ 72,256
Gross profit ........................ 14,797 13,933 32,380 27,314 20,443 14,845 5,348
Operating income (loss)(1) 10,879 9,717 24,539 19,767 13,752 8,725 (3,833)
Net income (loss) ..................... 6,932 5,899 15,421 12,715 9,195 5,148 (5,693)
Net income (loss) per
common share ..................... 0.73 0.60 $ 1.57 $ 1.27 $ .92 $ .51 $ (.57)
Cash dividends ........................ -- -- -- -- -- -- --
Weighted average
common shares
outstanding ........................ 9,536 9,898 9,833 9,990 10,000 10,000 10,000
Pro Forma Income
Statement Data:
Pro forma revenues .................. $ 82,867 $162,420
Pro forma operating
income ........................... 12,647 27,538
Pro forma net income .................. 7,668 16,609
Pro forma net income per
common share ..................... 0.75 1.58
Pro forma average shares
outstanding ........................ 10,186 10,483
Historical Balance Sheet and Other Data:
Working capital ..................... $ 23,375 $ 19,375 $ 26,706 $ 17,539 $20,513 $12,228 $ 7,830
Total assets ........................ 119,344 111,306 118,616 111,714 90,525 80,944 76,757
Total debt ........................... 11,506 13,422 11,751 17,804 8,403 9,312 10,879
Shareholders' equity .................. 80,034 69,308 77,128 64,614 54,203 42,394 38,225
</TABLE>
- ------------
(1) The 1992 operating results include a nonrecurring charge of $3.0 million to
reflect the actuarial cost of early retirement programs for certain
employees.
Solite Summary Consolidated Historical Financial Information
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 30, Years Ended March 31,
------------------------ -------------------------
1997 1996 1997 1996
------------ --------- ---------- ------------
<S> <C> <C> <C> <C>
Statement of Operations Data: (Unaudited)
Total revenues .................. $ 13,540 $14,488 $52,613 $ 49,443
Gross profit ..................... 4,222 4,976 14,284 15,708
Operating income .................. 1,463 1,983 3,476 4,359
Net income ........................ $ 680 $ 1,028 $ 1,347 $ 1,812
Balance Sheet Data (at period end):
Working capital .................. (10,746) (9,883) (10,658)
Total assets ..................... 32,237 33,588 33,592
Total debt ........................ 18,101 17,038 18,526
Shareholders' equity ............ 5,905 7,108 7,411
</TABLE>
10
<PAGE>
Historical and Pro Forma Unaudited Per Share Data
The following table summarizes certain unaudited per share data for Giant
on a pro forma combined basis, and on a historical basis giving effect to the
Merger as a "purchase" for accounting purposes. Such information is derived
from and should be read in conjunction with the Unaudited Pro Forma Combined
Condensed Financial Information, including the notes thereto, contained
elsewhere in this Proxy Statement/Prospectus. The unaudited pro forma
statements presented are for comparative purposes only and are not necessarily
indicative of future combined earnings or financial position or combined
earnings or financial position that would have been reported had the Merger
been completed at the beginning of the respective periods or as of the dates
for which such unaudited pro forma information is presented.
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30 December 31
------------ ------------
1997 1996
------------ ------------
<S> <C> <C>
PRO FORMA COMBINED
Net income per common share ...... $ 0.75 $ 1.58
Book value per common share ...... 9.29
GIANT--HISTORICAL
Net income per common share ...... 0.73 1.57
Book value per common share ...... 8.39 7.84
</TABLE>
Giant has never paid a cash dividend on its common stock and Solite has
not paid a cash dividend on its common stock in more than five years.
11
<PAGE>
RISK FACTORS
In addition to other information in this Proxy Statement/Prospectus, the
following factors should be considered carefully by the holders of shares of
Solite Stock in evaluating whether to approve the Merger Agreement and the
Preferred Stock Amendment.
Exchange Ratio
In considering whether to approve the Merger Agreement providing for the
Merger, holders of shares of Solite Stock should carefully consider that the
total number of shares of Giant Common Stock to be issued pursuant to the
Merger is fixed and will not be adjusted based on changes in the market price
of the Giant Common Stock, and that the market price of the Giant Common Stock
at the Effective Time may vary from the price as of the date of this Proxy
Statement/Prospectus or the date on which holders of shares of Solite Stock
vote on the Merger due to changes in the business, operations or prospects of
Giant, market assessments of the likelihood that the Merger will be consummated
and the timing thereof, general market and economic conditions, and other
factors.
Difficulty of Integration of Operations Following the Merger
The Board of Directors of Giant (the "Giant Board") and the Solite Board
have each given careful consideration to the Merger and believe it to be in the
best interests of their respective shareholders. However, the Merger involves
the combination of two companies that have operated independently. Accordingly,
there can be no assurance that Solite can be successfully integrated into Giant
or that Giant and its shareholders (including the shareholders of Solite who
become shareholders of Giant) will ultimately realize any benefits from the
Merger. The success of the combined company following the Merger will require
the dedication of management resources which may temporarily detract from
attention to the day to day business of Giant and Solite. There can be no
assurance that such diversion of management resources will not adversely affect
revenues or that other material adverse effects will not result from such
activities.
Dependence on the Construction Industry; Economic Conditions
General and Regional Conditions. Demand for Giant's products is directly
related to activity in the construction industry and general economic
conditions. Various economic factors beyond Giant's control affect cement
consumption, including the level of new residential, commercial and
infrastructure construction activity, which are in turn affected by movement in
interest rates, the availability of short- and long-term financing and the
availability of public funds for infrastructure projects. Accordingly, adverse
economic conditions in Giant's markets or a worsening of general or local
economic conditions could adversely affect Giant's operating results. There can
be no assurance that cement demand will remain at current levels. Giant's
resource recovery operations are dependent on general and regional economic
conditions; federal, state and local environmental policies; and competition
from other waste disposal alternatives. There can be no assurance that Giant's
resource recovery services revenues will remain at current levels. See "GIANT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
Highly Cyclical and Seasonal Industry. Regional cement markets are highly
cyclical, experiencing volatility corresponding to regional construction
cycles. While the impact on Giant of regional downturns in the construction
industry may be mitigated to some degree by Giant's presence in both the
Middle-Atlantic and South-Atlantic markets, profitability is significantly
affected by such construction cycles. In addition, the cement industry is
seasonal in nature primarily due to the effect of weather conditions on
construction activity. Giant has historically experienced lower operating
income during the months of December, January and February, particularly with
respect to its Pennsylvania operations where construction activity is more
significantly affected by inclement weather. See "GIANT MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Highly Competitive and Price Sensitive Industry
Due to the lack of product differentiation and the commodity nature of
cement, the cement industry is highly competitive. Competition is based largely
on price and, to a lesser extent, quality and service. Giant competes with
national and regional cement producers in its markets. Many of Giant's
competitors are larger and have significantly greater resources than Giant. The
prices that Giant charges its customer are not likely to be materially
different from the prices charged by other producers in the same markets.
Accordingly, profitability in the cement industry
12
<PAGE>
is generally dependent on the level of cement demand and on a cement producer's
ability to contain operating costs. Prices are subject to material changes in
response to relatively minor fluctuations in supply and demand, general
economic conditions and other market conditions beyond Giant's control. There
can be no assurance that prices will not decline in the future or that such
declines will not have a material adverse effect on the Company's financial
condition or results of operations. See "GIANT MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--General,"
"DESCRIPTION OF GIANT--Competition."
Cement Imports
During the latter part of the 1980s, an influx of low-priced cement
imports caused prices to deteriorate in many domestic markets, including
portions of the markets served by Giant. Responding to anti-dumping petitions
filed by a group of domestic cement producers, the Department of Commerce
imposed significant anti-dumping duties on cement and clinker imported from
Mexico since 1990 and from Japan since 1991. Upon request by an interested
party, the Department of Commerce will review these duties and an interested
party may appeal the results of such review to the U.S. Court of International
Trade. Such a review could result in a change in the duties now imposed on
Mexican and Japanese imports. In addition, in February 1992 the Department of
Commerce signed a five-year agreement with Venezuelan cement producers designed
to eliminate the dumping of portland cement into Florida and other regions of
the United States.
Legislation was submitted to the Congress in September 1994 to approve and
implement the "Uruguay Round" of multilateral trade negotiations completed
under the auspices of the General Agreement on Tariffs and Trade ("GATT") in
December 1993. The Uruguay Round agreements include modifications to the GATT
Anti-dumping Code (the internationally approved rules concerning anti-dumping
actions) that will require corresponding change in the U.S. anti-dumping laws.
Such legislation may make it more difficult to obtain and maintain U.S.
anti-dumping orders against foreign cement producers exporting to the United
States. While the existing anti-dumping orders imposed on Mexican and Japanese
cement and clinker imports and the agreement with Venezuelan cement producers
will remain in force, "sunset" provisions in the GATT Anti-dumping Code and
such legislation will provide for a review after five years to determine
whether the orders should be terminated, modified, or remain in effect. Current
U.S. legal provisions providing for review and termination of anti-dumping
orders under certain circumstances have resulted in termination of anti-dumping
orders in very few cases.
The North American Free Trade Agreement ("NAFTA"), which entered into
force for Mexico, Canada and the United States on January 1, 1994, does not
modify the substantive anti-dumping rules of the GATT Code or U.S. law.
However, NAFTA provides that appeals from the final results of U.S.
anti-dumping investigations and administrative reviews involving Mexico or
Canada may be taken to bi-national arbitral panels in lieu of the U.S. Court of
International Trade and the Court of Appeals for the Federal Circuit. In such
proceedings, U.S. laws, regulations and administrative practices, as well as
decisional law, will continue to apply.
Portions of the markets served by Giant can be directly or indirectly
impacted by imports of foreign cement. In 1997, a customer of Giant's in the
South-Atlantic region opened a captive import terminal to supply the majority
of its own cement requirements. While Giant does not believe imports have had a
significant impact on its market areas in 1997, there can be no assurance that
importation of lower-priced cement in the future will not have a material
adverse effect on the Company's operations. A substantial reduction or
elimination of the existing anti-dumping duties could have a material adverse
effect on Giant's financial condition or results of operations.
High Fixed Costs and Capital Intensive Industry
The cement industry is highly dependent upon the level of cement demand as
a result of the high fixed costs associated with production. Giant's cost per
ton of production is directly related to the number of tons of cement
manufactured; decreases in production increase Giant's fixed cost per ton.
Equipment utilization percentages or uptime can vary from year to year based
upon demand for Giant's products or as a result of equipment failure. Much of
Giant's significant manufacturing equipment requires long lead-times to replace
and is very costly to replace or repair. Giant attempts to maintain sufficient
spare parts inventories to avoid long periods of shutdown in the event of
equipment failure, but there can be no assurance such shutdowns can be avoided.
13
<PAGE>
Impact of Environmental Laws
Giant's operations and properties are subject to extensive and changing
federal, state, and local environmental laws relating to air and water quality,
as well as to the handling, treatment, storage and disposal of wastes. In
connection with Giant's utilization of hazardous waste-derived fuels,
environmental laws require certain permits and other authorizations mandating
procedures under which Giant shall operate. Environmental laws also provide
significant penalties for violators, as well as liabilities and costs of
cleaning up releases of hazardous wastes into the environment. In addition,
Giant could be subject to claims by employees or others alleging exposure to
toxic or hazardous substances as a result of the failure to observe
environmental laws. Violations of mandated procedures under operating permits,
even if immaterial or unintentional, may result in fines, shutdowns, remedial
actions, or revocation of such permits.
Giant has been performing industrial operations at its properties for many
years. Various materials from these operations that could now be classified as
hazardous under environmental laws have been disposed of in on-site landfills
and may have been disposed of in off-site landfills and other facilities. As a
result, Giant from time to time may be involved in administrative and other
proceedings involving compliance matters and alleged violations of
environmental laws at its operations and facilities.
Giant estimates that annual expenditures for environmental compliance
exceed $3.5 million per year, which includes dust collection and control
systems and compliance expenditures related to Giant's resource recovery
operations. Capital expenditures relative to environmental compliance totaled
$712,000 in 1994, $1.6 million in 1995, and $2.8 million in 1996. In 1997,
Giant committed to construct a landfill at its Pennsylvania plant for the
future management of cement kiln dust ("CKD"), the total capital cost of which
is expected to be $2.4 million over the landfill's estimated 25 year life.
Giant does not believe compliance expenditures impair its competitive position
because its competitors are subject to the same laws and regulations, with the
exception of those regulations specifically relating to resource recovery
operations for which Giant currently receives revenues that more than offset
the related compliance costs. However, Giant has no knowledge of its
competitors' environmental compliance costs and such costs could vary depending
upon the characteristics of a competitor's facilities.
Giant's operations are subject to the Resource Conservation and Recovery
Act of 1976, as amended ("RCRA"), and two delegated state programs, which
together provide a comprehensive regulatory framework for the management of
hazardous wastes at active facilities. RCRA sets up a "cradle to grave" system
for the management of hazardous wastes, imposing upon all parties who generate,
transport, treat, store, or dispose of waste above certain minimum quantities,
requirements, including permitting requirements, for performance, testing, and
record keeping. The boiler and industrial furnaces ("BIF") regulations,
promulgated in 1991 under RCRA, also require, among other things, that cement
kilns utilizing waste-derived fuels obtain operating permits. The BIF
regulations are extremely complex and certain provisions are subject to
different interpretations.
In October 1991, the South Carolina Department of Health and Environmental
Control issued to Giant a RCRA Part B Permit for the storage and management of
hazardous waste. Giant was issued a similar RCRA Part B Permit by the
Commonwealth of Pennsylvania in December 1991. In addition, Giant has received
BIF "interim status" permits which currently allow it to substitute
approximately 100% and 75% of its respective fuel requirements with hazardous
waste-derived fuels. However, Giant is currently limited to approximately 50%
waste fuel substitution by its Pennsylvania Department of Environmental
Protection ("PADEP") air quality plan approval at its Pennsylvania plant.
During this interim status period, Giant's plants must comply with BIF
standards regarding emissions of particulate matter and other parameters. Giant
is currently pursuing RCRA Part B permits for the burning of such fuels
pursuant to the BIF regulations, which the Company believes may take one or
more years to obtain.
Pursuant to the BIF regulations, in order to maintain interim status
permits for the burning of waste-derived fuels, Giant was required to perform
BIF Compliance Tests ("BIF Tests") and submit Certificates of Compliance
("COCs") in 1995 and is required to perform BIF Tests and submit COCs every
three years thereafter. The BIF Tests results and COCs set various operating
parameters within which Giant must operate, including volumes of waste-derived
fuel, qualitative aspects of waste-derived fuel and various other parameters.
The BIF Tests are monitored by the EPA or its representative, and the BIF Tests
results and COCs are subsequently reviewed by the EPA for compliance with the
BIF regulations. Giant believes its COCs are substantially in compliance with
the BIF regulations. However, there can be no assurance that upon EPA's review
of the submissions, the EPA will concur with Giant and not require a new BIF
Test or levy fines for non-compliance. There can be no assurance that the
14
<PAGE>
results of future BIF Tests will be successful or that future COCs will provide
favorable operating parameters for burning waste-derived fuels. The two BIF
Tests conducted in 1995 cost Giant approximately $800,000. Should Giant fail a
BIF Test, it can continue to utilize waste-derived fuels for a total of 720
hours including hours spent conducting a new BIF Test.
Various aspects of Giant's operations are also subject to regulation under
the federal Clean Air Act, as amended (the "CAA"). The CAA amendments of 1990
(the "Amendments") resulted in numerous changes to the CAA, including a new
federal operating permit (Title V permit) and fee program for virtually all
manufacturing operations. The Amendments will likely result in significantly
increased capital and operational expenses for all manufacturers in Giant's
industry in the future, the amounts of which are not presently determinable. In
1996, Giant's plants submitted detailed Title V permit applications for air
emissions. In addition, the EPA is developing regulations for certain air
pollutants under the Amendments for a broad spectrum of industrial sectors,
including portland cement manufacturing. The EPA has indicated that the new
maximum available control technology standard ("MACT") for these pollutants
under these Amendments could require significant reduction of air pollutants
below existing levels prevalent in the industry, which could have a material
adverse effect on Giant's financial condition or results of operations. The EPA
issued draft regulations for MACT in 1996 for public comment and requested
additional public comment on alternative approaches in April 1997, with final
promulgation possible in early 1998.
Many of the raw materials, products, by-products, and wastes associated
with Giant's facilities and operations contain chemical elements or compounds
that are regulated under the environmental laws. Some examples of such
materials are CKD and general purpose solvents, which in some instances may
contain hazardous constituents including trace metals, organics or exhibit
other hazardous waste characteristics. Giant has from time to time transported
or delivered certain of these materials to various on-site and off-site
disposal sites. Treatment and disposal of hazardous wastes generated from
operations at on-site and off-site locations is additionally subject to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986,
"CERCLA." CERCLA imposes joint and several liability (without regard to fault)
on certain categories of persons for clean-up costs related to releases of
certain materials at facility sites, and for damage to natural resources. Giant
has been identified as a potentially responsible party at a site in
Southington, Connecticut under CERCLA. In addition to CERCLA, similar state or
other Environmental Laws may impose the same or even broader liability for the
discharge, release, or the mere presence of certain substances into and in the
environment.
CKD, a by-product of cement manufacturing, is currently excluded from
regulation as a hazardous waste under the "Bevill Amendment" to RCRA. However,
CKD that comes in contact with water might produce a leachate with an elevated
pH. In December 1993, the EPA issued a Report to Congress on CKD in which the
EPA concluded that risks associated with CKD management are generally low, but
that there is potential under certain circumstances for CKD to pose a danger to
human health and the environment, or that it may do so in the future. On
January 31, 1995 the EPA issued a Regulatory Determination on CKD. The EPA
reported that CKD would retain its status as a "Bevill Waste" and remain exempt
from regulation as a hazardous waste until such time as the EPA promulgates new
regulatory controls. The EPA intends to take a "common sense" approach in
developing a highly tailored set of standards that will "prevent damage to
ground and potable water and reduce health risks associated with breathing and
ingesting dust from cement kilns." The EPA further made it clear that it has no
problems with recycling or reuse of CKD, and that it has not limited beneficial
uses of CKD; however, the EPA does not encourage the use of CKD as an
agricultural lime additive. Though the EPA originally intended to conduct a
typical rule-making process which would involve information gathering,
eventually followed by the development of a proposed rule and the promulgation
of a final rule, the EPA is now considering two alternatives to the full
rule-making process. Under the first alternative, a state with a federally
approved hazardous waste program would be able to oversee the management of CKD
on a site-by-site basis, either through regulation, permit, or enforceable
agreement. The second alternative would be to create federal rules that would
set contingent management standards for cement kiln dust to meet before being
exempt from Subtitle C of the Resource Conservation and Recovery Act. Key
components of management conditions would be based on the design of the waste
management unit, dust control practices, and other factors. The process is
expected to take at least two years to complete.
The cement industry will be vigorously pursuing a range of regulatory,
legislative and judicial remedies because the industry continues to believe
that CKD is not a hazardous waste, should never be classified as a hazardous
waste and, therefore, does not warrant RCRA Subtitle C regulation. The industry
believes its voluntary enforceable agreement that was submitted to the Agency
in 1995 offers a responsible and valid approach for
15
<PAGE>
managing CKD outside the realm of RCRA Subtitle C. These standards address all
possible exposure pathways and are fully protective of human health and the
environment. The industry is fully committed to avoiding regulation of CKD as a
hazardous waste while at the same time acknowledging the need to generally
improve CKD management.
Accepted industry practice has been to store CKD on-site. Giant collects
and stores CKD at its plants and recycles CKD related to its operations.
Additionally, Giant markets CKD and, occasionally, a customized blend of CKD
and cement under the registered trade name "StableSorb." StableSorb is utilized
by construction, remediation, and other contractors for the purpose of
solidifying soil, wastes, and other materials. Although the potential costs and
impact of repeal of the Bevill Amendment exemption with respect to CKD or
adoption of particular EPA or State management standards for CKD in the future
cannot be estimated at this time, such costs and impact could have a material
adverse effect on Giant's financial condition or results of operations.
Another RCRA concern in the cement industry involves the disposal of
refractory brick containing chromium. Refractory brick containing chromium was
formerly widely used in the cement industry to line cement kilns and has been
utilized and disposed of on-site by Giant in the past. Giant's facilities
conduct tests on all brick removed from its kilns to determine whether or not
it is a hazardous waste, and these tests have confirmed such brick to be
non-hazardous under the applicable RCRA standards. Giant conducts these tests
in accordance with EPA standards and believes that the EPA would reach the same
conclusions.
Giant's quarry sites must comply with noise and dust suppression
regulations, zoning, and special use permitting requirements, applicable mining
regulations and federal health and safety requirements administered by the Mine
Safety and Health Administration. Giant is also obligated under certain of its
mining permits and certain regulations to engage in reclamation of land within
the quarries upon completion of extraction and mining.
The burning of hazardous waste-derived fuels is a key factor to the
profitability of Giant. A substantial reduction in Giant's ability to
substitute hazardous waste-derived fuels for traditional fossil fuels could
have a material adverse effect on Giant's financial condition or results of
operations. Giant regularly monitors and reviews its operations, procedures,
and policies for compliance with these environmental laws and Giant's operating
permits. Giant believes that its current procedures and practices in its
operations, including those for handling hazardous wastes, are substantially in
compliance with all environmental laws and its material operating permits.
There can be no assurance, however, that a review of Giant's past, present, or
future operations by courts or federal, state, or local regulatory authorities
will not result in determinations that could have a material adverse effect on
Giant's financial condition or results of operations. In addition, the
revocation of any of Giant's operating permits, the denial of any application
by Giant for a permit or the failure to renew any interim permit could have a
material adverse effect on Giant's financial condition or results of
operations. Giant cannot predict what environmental laws will be enacted or
adopted in the future or how such future environmental laws will be
administered or interpreted. The trend has been toward more stringent
environmental standards. Compliance with more stringent environmental laws or
more vigorous enforcement policies or stricter interpretation of current
environmental laws could have a material adverse effect on Giant's financial
condition or results of operation.
Potential Volatility of Giant Common Stock Prices
The market price of the Giant Common Stock may be subject to fluctuations
in response to quarter-to-quarter variations in operating results, changes in
earnings estimates by investment analysts or changes in business or regulatory
conditions affecting Giant, its customers, or its competitors. The stock market
historically has experienced volatility which has particularly affected the
market prices of securities of many companies in the construction related
industries and which sometimes has been unrelated to the operating performances
of such companies. These market fluctuations may adversely affect the market
price of the Giant Common Stock.
Since December 31, 1996, the closing market price of the Giant Common
Stock as reported on the Nasdaq National Market has ranged from a high of
$24.125 to a low of $15.50.
Shares Eligible for Future Sales
Future sales of substantial amounts of Giant Common Stock (including
shares issued upon the exercise of stock options) by Giant's current
shareholders (including certain executive officers, employees and affiliates of
Giant) after the Merger, or the perception that such sales could occur, could
adversely affect the market price for Giant Common Stock.
16
<PAGE>
In addition, all of the shares of Giant Common Stock received by holders
of Solite Common Stock in the Merger will have been registered under the
Securities Act and will be freely transferable, except that (i) persons who are
deemed to be affiliated to Solite prior to the Effective Time may sell the
shares of Giant Common Stock received in the Merger only in transactions
permitted by the resale provisions of Rule 145 promulgated under the Securities
Act (or Rule 144 in the case of such persons who become affiliates of Giant) or
as otherwise permitted by the Securities Act; persons who may be deemed to be
affiliates of Solite or Giant generally include individuals or entities that
control, are controlled by, or are under common control with, such party and
may include certain officers and directors of such party as well as principal
shareholders of such party; and (ii) pursuant to the terms of the Giant
Shareholder Agreement, each person that becomes the holder of 1% or more of the
total outstanding shares of Giant Common Stock to be issued in connection with
the Merger will agree to certain restrictions on the sale or other disposition
of such shares. See "TERMS OF THE MERGER AGREEMENT--Ancillary Agreements."
17
<PAGE>
THE SPECIAL MEETING
The Special Meeting will be held at 9:00 a.m. at the offices of McGuire
Woods Battle & Boothe LLP, fourth floor, 901 East Cary Street, Richmond,
Virginia on October 29, 1997.
At the Special Meeting, the Solite Shareholders will be asked to vote upon
proposals to (i) approve the Preferred Stock Amendment, (ii) approve the Merger
Agreement, and (iii) such other business as may properly come before the
Special Meeting. Promptly following the Effective Time of the Merger, Solite
shareholders will be furnished transmittal letters to surrender their
certificates to Giant for prompt issuance of certificates representing shares
of Giant Common Stock.
The accompanying proxy is solicited by and on behalf of the Solite Board
for use at a Special Meeting or any adjournments thereof, for the purpose set
forth in this Proxy Statement/Prospectus and the attached Notice of Special
Meeting. Costs of solicitation of proxies will be borne by Solite. In addition
to the use of the mails, proxies may be solicited by personal interview,
telephone and telegram by the directors, officers and employees of Solite
without additional compensation to them. Solite may reimburse brokerage houses
and other custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses incurred in forwarding proxy materials to the beneficial owners of
shares held of record by such persons.
The shares of Solite Stock represented by all properly executed proxies
received by the Secretary of Solite and not revoked as herein provided will be
voted as set forth therein unless the shareholder directs otherwise in the
proxy, in which event such Solite Stock will be voted in accordance with such
directions. Any proxy may be revoked at any time before the shares of Solite
Stock to which it relates are voted either by written notice (which may be in
the form of a substitute proxy delivered to the Secretary of the meeting at any
time prior to the vote) or by attending the meeting and voting in person.
The Solite Board has unanimously approved the Merger Agreement, determined
that the Merger is in the best interests of Solite shareholders, and recommends
that the shareholders of Solite vote for the approval of Merger Agreement.
The Solite Board has established the close of business on October 1, 1997
(the "Record Date") as the record date for the determination of Solite
shareholders entitled to receive notice of and to vote at the Special Meeting
and any adjournments thereof. With respect to each matter to be considered at
the Special Meeting, each holder of record of Solite Stock on the Record Date
will be entitled to one quarter vote for each share of Solite Series A
Preferred Stock or Solite Series B Preferred Stock then registered in his name
and to one vote for each share of Solite Series C Preferred Stock or Solite
Common Stock then registered in his name. As of the close of business on the
Record Date, the following shares were outstanding and entitled to vote at the
Special Meeting: 8,700 shares of Solite Series A Preferred Stock, 14,093 shares
of Solite Series B Preferred Stock, 15,429 shares of Solite Series C Preferred
Stock and 532,750 shares of Solite Common Stock. Approval of the Merger
Agreement and the Preferred Stock Amendment requires (i) the affirmative vote
of more than two-thirds of the votes that holders of the outstanding Solite
Common Stock and Solite Preferred Stock, voting as one voting group, are
entitled to cast and (ii) the affirmative vote of more than two-thirds of the
votes that the holders of the outstanding Solite Common Stock, Solite Series A
Preferred Stock, Solite Series B Preferred Stock and Solite Series C Preferred
Stock, each voting as a separate voting group, are entitled to cast. Approval
of the Preferred Stock Amendment also requires the affirmative vote of a
majority of the votes that holders of outstanding Solite Common Stock and
Solite Preferred Stock, other than John W. Roberts and his family, are entitled
to cast.
John W. Roberts, members of his family, officers, directors and certain
other shareholders of Solite, holding an aggregate of more than two thirds of
the Solite Common Stock and each class of Solite Preferred Stock have granted
Giant irrevocable proxies to vote in favor of the Merger Agreement.
Consequently, no other affirmative vote is required to approve the Merger
Agreement. These irrevocable proxies do not include the vote on the Preferred
Stock Amendment. Consequently, in order for the Conversion to be approved and
for the Merger to occur, the Preferred Stock Amendment must be approved by the
requisite vote of Solite shareholders, including approval by the affirmative
vote of a majority of the votes that holders of Solite Common Stock and Solite
Preferred Stock, other than John W. Roberts and members of his family, are
entitled to cast.
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BACKGROUND OF THE SPIN-OFF AND THE MERGER
In April 1995, Gary Pechota, President, CEO and Chairman of the Board of
Giant, called Mr. John Roberts, President, CEO and Chairman of the Board of
Solite and asked if it made strategic sense for the two companies to consider
merging. Mr. Pechota explained that, since Giant went public in October 1994,
it had improved its plant operations, strengthened its balance sheet and was
interested in growing through acquisitions in the construction products
industry and particularly in a geographic area between Giant's two existing
operations in South Carolina and Pennsylvania. In addition, Giant was involved
in resource recovery and this was an important part of Solite's business. Mr.
Roberts indicated an interest and Mr. Pechota and Mr. Roberts had an initial
meeting on April 19, 1995.
At the April 19, 1995 meeting, Mr. Roberts and Mr. Pechota described to
each other in general terms the companies' business operations, operating
philosophies and growth objectives. No specific merger terms were discussed,
but they agreed that it made sense to have further discussions regarding a
proposed merger at a later date.
A second meeting was scheduled on April 17, 1996. Both Mr. Roberts and Mr.
Pechota had additional or follow-up questions from the initial meeting. Mr.
Roberts expressed that it was important to the employees and shareholders of
Solite that Giant use stock as payment. Mr. Roberts explained that any
transaction would need to be nontaxable. It was agreed that representatives of
the Company would set up a further meeting.
On May 18, 1996, Mr. Roberts and Lee Facetti, Vice President and Chief
Financial Officer of Solite met Mr. Pechota and Terry Kinder, Vice President
and Chief Financial Officer of Giant. The Giant and Solite representatives
exchanged additional general information about their respective businesses,
their strategies and the industries in which they operate. A confidentiality
agreement was executed in anticipation of such exchange of information. It was
decided at the May 18 meeting that a stock-for-stock merger should be further
explored. The merger transaction contemplated would include Solite's
lightweight aggregate and block operations strategically located between
Giant's cement manufacturing operations and Solite's related resource recovery
facilities including M&M Chemical. It was determined that Solite should
spin-off the assets that either did not fit Giant strategically or
geographically, including but not limited to the New York, Kentucky and Florida
lightweight aggregate facilities, the coal operations and the sand and gravel
operations.
On June 11, 1996, Mr. Kinder met with Mr. Roberts, Mr. Facetti and Linwood
E. Perkins, Jr., a director of Solite. They discussed Solite's internal
financial statements and the accounting methods Solite uses for intercompany
transactions and other matters with respect to Solite's business.
On July 10, 1996, Mr. Pechota and Mr. Kinder met with Mr. Roberts and Mr.
Facetti to discuss the strengths, weaknesses, opportunities and threats of and
to their respective businesses, the structure of any proposed merger, what
entities within Solite should be included in a transaction and valuation
methodologies.
On August 12, 1996, Mr. Pechota and Mr. Kinder met with Mr. Roberts, Mr.
Facetti and Sam Yellin, Managing Director of CoView Capital, Inc., financial
advisor to Solite. The parties discussed the potential structure for a
transaction, valuation methodologies and possible performance-based contingent
consideration.
On October 11, 1996, Mr. Kinder met with Mr. Yellin to continue
discussions regarding Solite's projections, synergies of the transaction,
Solite's potential overhead cost reductions and valuation methodologies.
During October, November and December of 1996, numerous conference calls
took place between Messrs. Pechota and Mr. Kinder, on the one hand, and Messrs.
Roberts, Facetti and Yellin, on the other, in which the parties negotiated the
structure and pricing of a proposed merger, subject to the completion of due
diligence by both parties.
At a regular meeting of the Giant Board held on October 11, 1996, Mr.
Pechota and Mr. Kinder gave a presentation for the Giant Board regarding Solite
and the potential merger, which presentation included, among other things,
financial and strategic analyses and reports. It was the consensus of the Giant
Board at this meeting that the negotiations with Solite should continue. At a
special meeting of the Giant Board on December 17, 1996, Mr. Pechota and Mr.
Kinder were authorized to enter into a non-binding letter of intent to acquire
Solite subject to satisfactory completion of due diligence and approval of a
definitive agreement by the Giant Board. A letter of intent was executed on
December 20, 1996 contemplating a stock-for-stock merger providing for the
issuance to Solite shareholders of an aggregate 1,300,000 shares of Giant
Common Stock and, potentially, additional shares of Giant Common Stock in the
event certain post-merger financial benchmarks were achieved.
During the first two quarters of 1997, Giant and Solite conducted their
respective due diligence. In May and June 1997, Giant's due diligence included
Coopers & Lybrand, L.L.P.'s audit of the "carve out" financial statements of the
businesses within Solite Corporation to be included in the proposed merger
transaction.
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Subsequent to the completion of due diligence, negotiations were reopened
and numerous conference calls took place between June and September of 1997,
between Messrs. Pechota and Kinder, on the one hand, and Messrs. Roberts and
Facetti and Mr. J.J. Jewett III, Vice President, Legal and Regulatory Affairs,
on the other.
Subsequent to completion of due diligence, Giant proposed a reduction in
the consideration to be paid in the Merger due to lower than expected operating
results for Solite's 1997 fiscal year, reductions in the value of Solite's
current assets as a result of the audit and a need for larger than anticipated
capital expenditures on plant and equipment. Following further negotiations,
Solite and Giant agreed to a reduction in the number of shares of Giant Common
Stock to be issued in the Merger to 750,000 and the elimination of the
contingent earnout. Giant also agreed to increase the maximum amount of debt to
be assumed in the Merger from $18 million to $20 million.
Following amendment of the letter of intent, there were numerous
discussions between Messrs. Pechota and Kinder, on the one hand, and Messrs.
Roberts, Facetti and Jewett, on the other, including meetings on August 20, 21,
and 22 of 1997, concerning the terms of the definitive agreement for the
Merger.
In September 1997, Giant proposed to further reduce the consideration
received in the Merger to 650,000 shares of Giant Common Stock due to lower
than anticipated operating results for Solite's quarter ended June 30, 1997.
After several additional conference calls and phone conversations in late
August and early September of 1997 between Messrs. Pechota, Kinder, Roberts,
Jewett, Facetti and Yellin, the definitive terms of the Merger were agreed
upon. Solite's Board of Directors met on August 29 and September 9, 1997 to
consider the Merger Agreement and the terms of the Merger. The Merger Agreement
was signed on September 10, 1997.
Reasons for the Merger; Recommendation of the Solite Board
The Solite Board unanimously approved the Merger and recommends that
Solite shareholders vote for approval of the Merger Agreement. In reaching this
determination, the Board considered, without assigning any relative or specific
weights, the following material factors:
(i) the Solite Board's familiarity with the history, financial condition
and results of operations of Solite, the financial condition and results of
operation of Giant, the prospects of Solite both as an independent entity and
as an affiliated entity of Giant and the value of the assets and liabilities to
be held by Northeast Solite after the Spin-off;
(ii) the greater liquidity for Solite shareholders as a result of
exchanging Solite Common Stock, which is not publicly traded, for Giant Common
Stock which trades on the Nasdaq National Market;
(iii) the need to provide Solite with access to sufficient financial
resources to make needed capital expenditures;
(iv) the reduction in debt level for Northeast Solite as a result of the
Merger.
(v) the opportunity for improved operating performance by Solite as a
result of merging with a strong geographically complementary company in a
closely related business, with the expectation that lower costs could be
achieved as a result of the Merger;
(vi) the opinions of Solite's financial advisors to the effect that the
consideration to be received by the Solite shareholders in the Merger, from a
financial point of view, to the shareholders;
(vii) the terms and conditions of the Merger Agreement;
(viii) the structure of the Merger, Spin-off and Conversion as
transactions intended to qualify for tax-free treatment under the Code.
In approving the Merger Agreement, the Solite Board was aware that (i) the
Merger Agreement contains certain provisions restricting Solite's ability to
solicit, initiate, encourage or negotiate with respect to other offers or
agreements to acquire Solite (see "TERMS OF THE MERGER AGREEMENT--No
Solicitation of Other Offers"), and (ii) Giant would be entitled to receive a
termination fee from Solite under certain circumstances generally relating to a
failure by Solite to consummate the Merger because of another offer for Solite
(see "TERMS OF THE MERGER AGREEMENT--Termination Rights"). However, the Solite
Board of Directors was also aware that such terms were specifically bargained
for as inducements for Giant to enter into the Merger Agreement and that the
Solite Board's obligation under the Merger Agreement to recommend approval of
the Merger Agreement by its shareholders was explicitly made subject to Solite
Board's fiduciary duties under applicable law. Accordingly, the Merger
Agreement expressly permits the Solite Board, if required by the exercise of
its fiduciary duties under
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applicable law, to withdraw, modify or change such recommendations (see "THE
MERGER--Right of the Solite Board to Withdraw Recommendation").
The Solite Board has determined that the merger, the conversion and
related transactions are in the best interests of the Solite shareholders and
unanimously recommends that Solite shareholders vote "For" approval of the
Merger Agreement and the Preferred Stock Amendment.
Opinion of CoView Capital, Inc.
Pursuant to a letter agreement dated February 19, 1997 (the "CoView
Capital Engagement Letter"), CoView Capital provided a financial fairness
opinion in connection with the Merger. CoView Capital was selected by the
Solite Board to act as Solite's financial advisor based on CoView Capital's
qualifications, expertise and reputation and its knowledge of the business and
affairs of Solite. At the meeting of the Solite Board on September 9, 1997,
CoView Capital rendered its oral opinion, subsequently confirmed in writing as
of September 19, 1997, that as of such date, based upon and subject to the
various considerations set forth in the opinion, the consideration to be
received pursuant to the Merger Agreement was fair from a financial point of
view to the holders of shares of Solite Common Stock. CoView Capital
subsequently confirmed its written opinion by delivery of another written
opinion dated within three days of the date of this Proxy Statement which is
substantially the same as the written opinion dated September 19, 1997.
The full text of the written opinion of CoView Capital dated as of a date
within three days of the date of this Proxy Statement which sets forth, among
other things, assumptions made, procedures followed, matters considered and
limitations on the scope of the review undertaken by CoView Capital in
rendering its opinion, is attached as Annex V to this Proxy Statement. Solite
shareholders are urged to, and should, read the opinion carefully and in its
entirety in conjunction with this Proxy Statement. CoView Capital's opinion is
directed to the Solite Board and addresses only the fairness of the
consideration to be received pursuant to the Merger from a financial point of
view as of the date of the opinion, and does not constitute a recommendation to
any holder of Solite Stock as to how to vote at the Special Meeting. The
summary of the opinion of CoView Capital set forth in this Proxy Statement/
Prospectus is qualified in its entirety by reference to the full text of such
opinion.
In connection with rendering its opinion, CoView Capital, among other
things, reviewed and analyzed: (i) trends in the building, aggregate, cement
and hazardous waste management and treatment industries, including demand,
pricing and competitive factors; (ii) significant developments in Solite's and
Giant's markets; (iii) certain publicly available information with respect to
Solite and Giant competitors; (iv) historical Solite and Giant financial
statements; (v) internal financial statements and other financial and operating
data provided by Solite and Giant managements, including historical, pro forma
statements reflecting the spin-off of certain Solite assets; (vi) Solite
projections for the fiscal years 1998 through 2000; (vii) Giant projections for
the fiscal years 1997 through 2000; (viii) certain analyst projections for
Giant's fiscal years 1997 and 1998; (ix) securities research analysts' reports
regarding Giant; (x) information and market valuations pertaining to
publicly-traded companies which are engaged in activities relatively similar
and comparable to Solite; (xi) publicly-available information pertaining to the
financial terms of generally comparable acquisition transactions; and (xii) the
Merger Agreement. In addition, CoView Capital: (i) participated in discussions
among the representatives of Solite and Giant; (ii) discussed with the
managements of Solite and of Giant the strategic logic for the Merger; (iii)
performed a Discounted Cash Flow (DCF) analysis on future Solite projections
using various discount rates to determine Solite's net present value; and (iv)
discussed with Solite's and Giant's senior management their respective
financial statements, operations, future prospects and financial projections,
as well as the pro forma impact of the Merger.
CoView Capital assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the
purposes of its opinion. With respect to the internal financial statements and
other financial and operating data including estimates of the strategic,
financial and operational benefits anticipated from the Merger provided by
Solite and Giant, CoView Capital assumed that they were reasonably prepared on
bases reflecting the best then currently available estimates and judgments of
the prospects of Giant and Solite, respectively. CoView Capital also relied
upon, without independent verification, the assessment by the managements of
Solite and Giant of the strategic and other benefits expected to result from
the Merger. CoView Capital did not make any independent valuation or appraisal
of the assets or liabilities of Solite or Giant, nor was CoView Capital
furnished with any such appraisals. CoView Capital assumed that the Merger
would be treated as a tax-free reorganization and/or exchange pursuant to the
Code and would be consummated in accordance with the terms set forth in the
Merger Agreement. CoView Capital's opinion is necessarily based on economic,
market and other conditions as in effect on, and the information made available
to it as of, the date of the opinion.
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The following is a brief summary of the analysis performed by CoView
Capital in connection with the preparation of its opinion letter dated
September 19, 1997.
[bullet] Peer Group Comparison. CoView Capital compared certain financial
information of the Solite transaction with that of Building Products
Companies. Such information included, among other things, stock price as a
multiple of earnings per share, enterprise value as a multiple of earnings
before interest, taxes, depreciation and amortization (EBITDA), enterprise
value as a multiple of earnings before interest and taxes (EBIT), and
stock price as a multiple of book value. This comparison was based on the
latest available financial results and the relevant statistics for Solite
(assuming the closing stock price for Giant on September 8, 1997 and
reflecting the terms of the exchange of Giant stock for Solite stock). The
consideration represents a price/ earnings multiple of 11.7x (compared to
the Building Products Companies, whose multiples ranged from 9.3x to 14.2x
and averaged 12.9x), an enterprise value/EBITDA multiple of 5.4x (compared
to the Building Products Companies, whose multiples ranged from 5.7x to
8.2x and averaged 6.7x), an enterprise value/EBIT multiple of 9.0x
(compared to the Building Products Companies, whose multiples ranged from
7.1x to 9.8x and averaged 9.0x), and a price/book multiple of 2.3x
(compared to the Building Products Companies, whose multiples ranged from
1.9x to 3.0x and averaged 2.3x). No company used in the peer group
comparison is identical to Solite and considerable differences were noted
between the positive financial performance of the peer group in recent
years and, prospectively, in 1997 and the declining trend of Solite's
earnings over this same period.
[bullet] Analysis of Selected Comparable Transactions. As part of this
analysis, CoView Capital reviewed several building products transactions.
CoView Capital computed the equity value of Solite implied by certain
statistics of the selected transactions. The analysis showed implied
equity values for Solite ranging from a low of $7.0 million to a high of
$14.7 million based on Solite's financial results for the latest available
twelve months and price/earnings, enterprise value/EBITDA, enterprise
value/EBIT, and price/book value ratios for the selected transactions.
This compares to the $13.7 million value of Giant Common Stock to be
received by Solite shareholders for their equity (assuming the closing
stock price for Giant on September 8, 1997 and reflecting the terms of the
exchange of Giant stock for Solite stock). No transaction used in the
Analysis of Selected Comparable Transactions is identical to the Merger.
[bullet] Discounted Cash Flow Value. CoView Capital performed an analysis
of the present value of Solite's equity based on the Solite's financial
projections for the fiscal years 1998 through 2000, on various EBITDA exit
multiples and on various discount rates. Based on this analysis, CoView
Capital estimated Solite's equity value, based on the present value of
future cash flows, to range between $11.1 million and $15.6 million.
[bullet] Relative Contribution Analysis. CoView Capital analyzed historical
and projected financial results of Giant Cement and Solite based on
respective management estimates. This analysis showed that in terms of
revenue, operating income and net income of a combined company, exclusive
of any projected benefit of such a combination, Solite would contribute
31%, 13% and 9%, respectively, in 1996; 29%, 10% and 5%, respectively, in
1997; 28%, 9% and 4%, respectively, in 1998; and 27%, 8% and 4%,
respectively, in 1999. This analysis also showed that, at closing, the
Solite debt assumed by Giant would account for about 64% of the combined
company's debt and that Solite would account for approximately 7% of the
tangible net worth of the combined company. These figures were compared to
a pro forma ownership of the combined company by Solite shareholders of
6.0% (reflecting the terms of the exchange of Giant stock for Solite
stock).
[bullet] Pro Forma Analysis of the Merger. CoView Capital analyzed the pro
forma impact of the Merger on the earnings attributable to Solite
shareholders. Such analysis was based on a comparison of earnings
estimates for Solite assuming the Merger did not take place and for the
merged company assuming the realization of synergies. Earnings estimates
were based on managements' forecasts, and the comparison reflects the
terms of the Merger. CoView Capital observed that the Merger would result
in earnings accretion (dilution) for Solite shareholders of (3%), 31% and
33% for 1997, 1998 and 1999, respectively, based on the consideration to
be received (reflecting the terms of the exchange of Giant Common Stock
for Solite Common Stock).
In connection with its written opinion dated as of the date of this Proxy
Statement, CoView Capital confirmed the appropriateness of its reliance on the
analyses used to render its written opinion dated September 19, 1997, by
performing procedures to update certain of such analyses and by reviewing the
assumptions upon which such analyses were based and the factors considered in
connection therewith.
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CoView Capital performed a variety of financial and comparative analyses
for purposes of its opinion given in connection herewith. While the foregoing
summary describes the analyses and factors reviewed by CoView Capital in
connection with its opinion, it does not purport to be a complete description
of all the analyses performed by CoView Capital in arriving at its opinion. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. In arriving at its
opinion, CoView Capital considered the results of all of its analyses as a
whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, selecting any portion of its analyses, without
considering all analyses, would create an incomplete view of the process
underlying its opinion. In addition, CoView Capital may have given various
analyses and factors more or less weight than other analyses and factors, and
may have deemed various assumptions more or less probable than other
assumptions, so the ranges of valuations resulting from any particular analysis
described above should not be taken to be CoView Capital's view of the actual
value of Solite. In performing its analyses, CoView Capital made assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Solite or Giant. Any
estimates contained herein are not necessarily indicative of future results or
actual values, which may be significantly more or less favorable than those
suggested by such estimates. The analyses performed were prepared solely as
part of CoView Capital's analysis of the fairness of the consideration to be
received in the Merger to the holders of shares of Solite Common Stock and were
conducted in connection with the delivery of CoView Capital's opinion. The
analyses do not purport to be appraisals or to reflect the prices at which
Solite might actually be sold. The consideration to be received by the
shareholders of Solite pursuant to the Merger was determined through
arm's-length negotiations between Solite and Giant and was approved by the
Solite Board. CoView Capital did not recommend that any specific consideration
constituted the only appropriate consideration for the Merger.
The Solite Board retained CoView Capital based upon CoView Capital's
qualifications, experience and expertise. CoView Capital is an investment
banking and advisory firm focused on middle market companies. CoView Capital,
as part of its investment banking business, is regularly engaged in the
valuation of businesses in connection with mergers and acquisitions, private
placements and valuations for corporate and other purposes.
Pursuant to the CoView Capital Engagement Letter, CoView Capital provided
advisory services and a financial opinion in connection with the Merger and
Solite has agreed to pay a fee of 1% to CoView Capital based on the aggregate
value of the transaction, including debt assumed, if the Merger is consummated
and to reimburse CoView Capital for reasonable expenses as incurred. Solite has
also agreed to indemnify CoView Capital, its directors, officers, agents and
employees against certain liabilities and expenses, including certain
liabilities under the federal securities laws, related to CoView Capital's
engagement.
Giant's Reasons for the Merger
Giant's business strategy includes three primary uses for excess cash
flow; first to reinvest in its cement manufacturing and resource recovery plant
and equipment, second to repurchase its common stock, and third to acquire
companies whose businesses are complementary to Giant's. The cement industry is
dominated by large multinational companies that own more than 65% of United
States capacity. Of the actively traded U.S. public cement companies, Giant's
revenues are less than half of the next largest public company. The capital
intensive nature of the industry could result in larger more well financed
competitors gaining advantages over Giant unless Giant can grow through
acquisitions.
Solite was identified by Giant as an attractive candidate for a business
acquisition. Giant believes that the Merger will broaden its presence on the
east coast, broaden its construction materials product lines, broaden its
resource recovery services capabilities and allow it to compete more
effectively in both of these businesses.
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THE SPIN-OFF
Before the Merger and the Spin-Off, Solite will contribute to Northeast
Solite certain assets, as well as stock of certain subsidiaries, in
transactions intended to qualify for tax-free treatment under the Code. As a
result, at the time of the Spin-Off, Northeast Solite will hold the following:
(i) two lightweight aggregate plants (one located in New York and one located
in Kentucky), as well as hazardous waste fuels facilities associated with the
Kentucky plant; (ii) one masonry block manufacturing and sales facility in
Chesapeake, Virginia; (iii) the coal mining properties owned and leased by
Solite in Kentucky and West Virginia; (iv) a Florida tank farm storage facility
and related assets; (v) a closed Florida lightweight aggregate plant facility
and related assets; (vi) a sand and gravel plant in Hanover County, Virginia;
(vii) certain lease and royalty (income) agreements, a leasehold interest in
365 acres in Wilcox County, Alabama, an option agreement to acquire 655 acres
of real property in Fluvanna County, Virginia, and a 69-acre parcel of real
property in Spotsylvania County, Virginia; and (viii) the stock of Solite's
inactive subsidiaries.
On February 19, 1997, Solite filed a private letter ruling request with the IRS
requesting rulings on the Spin-Off. On September 8, 1997, the IRS issued a
letter ruling to Solite holding that the Spin-Off will not be taxable to either
Solite or Northeast Solite or their respective shareholders.
Immediately following the Conversion, and immediately before the Merger,
Solite will distribute to each holder of Solite Common Stock a fully paid and
non-assessable share of Northeast Solite Common Stock for each share of Solite
Common Stock held after the Conversion. The Spin-Off is conditioned upon
approval of the Merger Agreement and the Preferred Stock Amendment and will not
occur unless all conditions to the Merger have been satisfied. See "TERMS OF
THE MERGER AGREEMENT--Conditions to the Merger." The Articles of Incorporation
and By-laws of Northeast Solite will be amended to conform as nearly as
practicable to the Articles of Incorporation and By-laws of Solite. See
"CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS OF SOLITE, GIANT AND NORTHEAST
SOLITE."
In connection with the Merger, Northeast Solite will enter into the
Northeast Agreement, the Tax Provisions Agreement, the Northeast Indemnity
Agreement, the License Agreement, the Service Agreement, and the Non-
Competition Agreement. See "TERMS OF THE MERGER AGREEMENT--Ancillary
Agreements." In addition to the obligations under the foregoing agreements,
Northeast Solite will be responsible for the liabilities and obligations
associated with the assets transferred to it in connection with, and held by it
after, the Spin-Off.
The shares of Northeast Solite Common Stock distributed in the Spin-Off,
like the outstanding shares of Solite Stock, will not be registered under the
Securities Act, and accordingly, may not be sold or transferred unless
registered under the Securities Act or an applicable exemption from such
registration requirements is available.
John W. Roberts will beneficially own a majority of the outstanding
Northeast Solite Common Stock after the Spin-Off, and consequently will be able
to elect the entire board of directors of Northeast Solite and amend the
certificate of incorporation of Northeast Solite without the vote of any other
shareholder. Mr. Roberts is expected to be a director of both Northeast Solite
and Giant after the Merger.
CONVERSION OF THE SOLITE PREFERRED STOCK
In order to simplify Solite's capital structure and to facilitate the
Spin-Off and the Merger, Solite proposes to convert all outstanding shares of
Solite Preferred Stock to Solite Common Stock. The Conversion will be
effectuated by the adoption of the Preferred Stock Amendment to the Solite
Articles of Incorporation, attached hereto as Annex II. The Merger and the
Spin-Off are conditioned upon approval of the Preferred Stock Amendment and
completion of the Conversion. The Conversion will be effected immediately
before the Spin-Off and the Merger, and will occur only if all other conditions
to the Merger have been satisfied. See "TERMS OF THE MERGER
AGREEMENT--Conditions to the Merger."
The following summarizes certain provisions of the Preferred Stock
Amendment which is attached hereto in their entirety. The following does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all provisions of the Preferred Stock Amendment.
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Authorized and Outstanding Solite Preferred Stock. As of the date hereof,
the Solite Articles of Incorporation authorize the issuance of 100,000 shares
of Solite Preferred Stock, issuable in series, of which Solite has designated
25,000 shares as Solite Series A Preferred Stock, 16,300 shares as Solite
Series B Preferred Stock, and 16,807 shares as Solite Series C Preferred Stock.
As of the Record Date, 8,700 shares of Solite Series A Preferred Stock, 14,093
shares of Solite Series B Preferred Stock and 15,429 shares of Solite Series C
Preferred Stock, were outstanding.
As of the Record Date, John W. Roberts and his family beneficially own
8,700 shares (or 100%) of the outstanding Solite Series A Preferred Stock,
12,518 shares (or 88.8%) of the outstanding Solite Series B Preferred Stock,
and 15,429 shares (or 100%) of the outstanding Solite Series C Preferred Stock.
Effects of the Conversion. The Preferred Stock Amendment will convert,
without further action by the holders of the Solite Preferred Stock, each
issued and outstanding share of Solite Preferred Stock in accordance with the
formula represented by the Schedule set forth on Annex I hereto (collectively,
the "Preferred Stock Conversion Formula"). Upon the issuance of a certificate
of amendment by the Office of the Clerk of the State Corporation Commission of
the Commonwealth of Virginia (the "Virginia SCC") evidencing the adoption of
the Preferred Stock Amendment, each issued and outstanding preferred stock
certificate which previously evidenced ownership of shares of Solite Preferred
Stock will evidence the ownership of the number of shares of Solite Common
Stock determined in accordance with the Preferred Stock Conversion Ratios. Each
holder of shares of Solite Preferred Stock converted into Solite Common Stock
who would otherwise be entitled to receive a fraction of a share of Solite
Common Stock in the Conversion will receive, in lieu thereof, cash (without
interest) in an amount determined as set forth on Annex I.
The Conversion Formula is designed to result in the holders of Solite
Preferred Stock receiving Solite Common Stock with a value equal to the par
value of the Solite Preferred Stock converted based upon certain estimated
equity valuations of the Northeast Solite assets and the Solite assets after the
Spin-Off. See "--Opinion of Ferris Baker Watts." The estimated equity value of
the Solite assets after the Spin-Off is determined by reference to the Giant
Common Stock to be issued in the Merger (valued at the average of the closing
bid and asked price per share of Giant Common Stock for the 20 trading days
before the Effective Date, rounded to the nearest eighth, referred to herein as
the "Giant Conversion Price"). Consequently, the ratios for the conversion of
the Solite Preferred Stock fluctuate with the market price for Giant Common
Stock. The effect of such fluctuation is to reduce the number of shares of Giant
Common Stock received in the Merger by former holders of Solite Preferred Stock
as the price per share of Giant Common Stock increases.
Solite shareholders may refer to the schedule on Annex I to determine the
number of shares of Giant Common Stock and Northeast Solite Common Stock they
will receive in the Merger and Spin-Off depending on the price per share of
Giant Common Stock. For example, if the Giant Conversion Price were $22.50, a
holder of 100 shares of Solite Series B Preferred Stock and 100 shares of Solite
Common would (i) multiply the number of shares of Solite Series B Preferred
Stock by the Conversion Ratio for Solite Series B Preferred Stock appearing
under the Giant Conversion Price of $22.50 (100 x 1.7577 = 175.77); (ii) add
that number (less any fraction which will be paid in cash as set forth in Annex
I) to the number of shares of Solite Common Stock (175 + 100 = 275); and (iii)
multiply the total by the Common Exchange Ratio appearing under the Giant
Conversion Price of $22.50 (275 x 0.6605 = 181.64). In this case, the
shareholder would receive 275 shares of Northeast Solite Common Stock in the
Spin-Off, 181 shares of Giant Common Stock in the Merger (262 of the escrow
shares are released in full) with a cash payment for the fractional share (0.64
x $22.50 = $14.40).
Rights of Solite Preferred Stock.
Solite Series A Preferred Stock. The holders of outstanding shares of
Solite Series A Preferred Stock are entitled to receive, if, when and as
declared by the Solite Board cash dividends at the rate of $4 per share per
annum which, after the first year following their issuance, are cumulative and
are payable annually. Each share is entitled to one quarter vote for all
purposes for which the holders of Solite Common Stock are entitled to vote.
Solite may redeem all or any portion of the outstanding Solite Series A
Preferred Stock for $60 per share, plus accrued dividends. Holders have the
option, subject to certain conditions, of converting shares of Solite Series A
Preferred Stock called for redemption by Solite into shares of Solite Common
Stock at the rate of one share of Solite Common Stock for every four shares of
Solite Series A Preferred Stock converted. The liquidation value of the Solite
Series A Preferred Stock is $50 per share, plus accrued dividends, to be paid
before any distribution to holders of Solite Series B Preferred Stock, Solite
Series C Preferred Stock and Solite Common Stock. Solite Series A Preferred
Stock ranks senior to Solite Series B Preferred Stock and Solite Series C
Preferred Stock.
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Solite Series B Preferred Stock. The holders of outstanding shares of
Solite Series B Preferred Stock are entitled to receive, if, when and as
declared by the Solite Board cash dividends at the rate of $4 per share per
annum which, after the first year following their issuance, are cumulative and
are payable annually. Each share is entitled to one quarter vote for all
purposes for which the holders of Solite Common Stock are entitled to vote.
Solite may redeem all or any portion of the outstanding Solite Series B
Preferred Stock for $60 per share, plus accrued dividends. Holders have the
option, subject to certain conditions, of converting shares of Solite Series B
Preferred Stock called for redemption by Solite into shares of Solite Common
Stock at the rate of one share of Solite Common Stock for every four shares of
Solite Series B Preferred Stock converted. The liquidation value of the Solite
Series B Preferred Stock is $50 per share, plus accrued dividends, to be paid
before any distribution to holders of Solite Series C Preferred Stock and
Solite Series B Preferred Stock ranks junior to Solite Series A Preferred Stock
and senior to Solite Series C Preferred Stock.
Solite Series C Preferred Stock. The holders of outstanding shares of
Solite Series C Preferred Stock are entitled to receive, if, when and as
declared by the Solite Board cash dividends at the rate of $21.50 per share per
annum which , after the first year following their issuance,are cumulative and
are payable annually. Each share is entitled to one vote for all purposes for
which the holders of Solite Common Stock are entitled to vote. Solite may
redeem all or any portion of the outstanding Solite Series C Preferred Stock
for $240 per share, plus accrued dividends. Holders have the option, subject to
certain conditions, of converting shares of Solite Series C Preferred Stock
called for redemption by Solite into shares of Solite Common Stock at the rate
of one share of Solite Common Stock for each share of Solite Series C Preferred
Stock converted. The liquidation value of the Solite Series C Preferred Stock
is $200 per share, plus accrued dividends, to be paid before any distribution
to holders of Solite Common Stock. Solite Series C Preferred Stock ranks junior
to Solite Series A Preferred Stock and Solite Series B Preferred Stock.
Voting Requirements for Approval of Preferred Stock Amendment
Approval of the Preferred Stock Amendment requires (i) the affirmative
vote of more than two-thirds of the votes that holders of the outstanding
Solite Common Stock and Solite preferred Stock, voting as one voting group, are
entitled to cast and (ii) the affirmative vote of more than two-thirds of the
votes that the holders of the outstanding Solite Common Stock, Solite Series A
Preferred Stock, Solite Series B Preferred Stock and Solite Series C Preferred
Stock, each voting as a separate voting group, are entitled to cast. Approval
of the Preferred Stock Amendment also requires the affirmative vote of a
majority of the votes that holders of outstanding Solite Common Stock and
Solite Preferred Stock, other than John W. Roberts and his family, are entitled
to cast.
Recommendation of the Solite Board
The Solite Board has approved the Preferred Stock Amendment and believes
the Conversion is in the best interests of the holders of Solite Preferred
Stock and of Solite Common Stock. THE SOLITE BOARD RECOMMENDS THAT THE HOLDERS
OF SOLITE PREFERRED STOCK AND SOLITE COMMON STOCK VOTE FOR THE APPROVAL OF THE
PREFERRED STOCK AMENDMENT.
Opinion of Ferris Baker Watts
Pursuant to a letter agreement dated January 17, 1997, Ferris, Baker
Watts, Incorporated ("FBW") was retained by the Solite Board to assist the
Solite Board in determining conversion ratios for the Solite Series A Preferred
Stock, Solite Series B Preferred Stock and Solite Series C Preferred Stock and
to provide a fairness opinion that the consideration received by the holders of
Solite Preferred Stock in exchange for their conversion to Solite Common Stock
is fair to the holders of Solite Preferred Stock and the holders of Solite
Common Stock.
At the meeting of Solite's Board on September 23, 1997, FBW provided: (i)
an oral presentation describing its analysis in determining the appropriate
conversion ratios for the Solite Preferred Stock; and (ii) rendered its oral
opinion and delivered an opinion in writing as of such date, based upon and
subject to the various assumptions, qualifications and limitations set forth in
the opinion, that the consideration received by the holders of Solite Preferred
Stock in exchange for their conversion to Solite Common Stock was fair to the
holders of Solite Preferred Stock and the holders of Solite Common Stock.
The full text of the written opinion of FBW dated as of September 23, 1997
which sets forth, among other things, assumptions made, procedures followed,
matters considered and limitations on the scope of the review undertaken by FBW
in rendering its opinion, is attached as Annex III to this Proxy
Statement/Prospectus. Solite shareholders are urged to, and should, read the
opinion carefully and in its entirety in conjunction with this Proxy
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Statement/Prospectus. FBW's OPINION IS DIRECTED TO THE SOLITE BOARD AND DOES
NOT CONSTITUTE A RECOMMENDATION AS TO HOW A SHAREHOLDER SHOULD VOTE ON MATTERS
ASSOCIATED WITH THE SOLITE PREFERRED STOCK. The summary of the opinion of FBW
set forth in this Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion.
In connection with the opinion, FBW reviewed, among other things, (i) the
financial structure of the proposed transaction with Giant, (ii) the Merger
Agreement, (iii) internally prepared, unaudited, historical operating results
of Solite's operations that will constitute Northeast Solite upon consummation
of the Spin-Off, (iv) internally prepared projections for Northeast Solite, (v)
the Series B Preferred Shares Offering Memorandum, (vi) draft of the request
for the private letter ruling submitted to the IRS, (vii) Asset Purchase
Agreement between Solite Corporation, Southern Materials Corporation,
Rappahannock Farm Enterprises, Inc., Rockville Nurseries Corporation, John W.
Roberts, and Mid-Atlantic Materials, Inc., dated August 29, 1997, (viii) third
party appraisals for certain Kentucky and Florida operations, dated August 31,
1992, which were not updated to the present, and (ix) Golder Associates, Inc.
Preliminary Remediation Cost Evaluation for the Florida Solite Company Facility
in Green Cove Springs, Florida, dated April 23, 1997. FBW also held discussions
with the members of the management of Solite regarding its past and current
business operations, financial condition and future prospects. FBW also held
discussions with the Solite's accountants and performed such other
investigations as it deemed necessary.
FBW assumed and relied upon the accuracy and completeness of all financial
and other information reviewed by it for the purposes of the opinion whether
publicly available or provided to FBW by Solite, and FBW has not assumed, and
does not assume, any responsibility for independent verification of such
information.
FBW's opinion is based on economic, market and other considerations as in
effect on, and the information made available to FBW as of, September 23, 1997.
Subsequent events may affect the conclusions reached in the opinion, and FBW
neither has, nor does it assume any obligation to update, revise or reaffirm
the opinion which speaks solely as of September 23, 1997 and with respect to
matters contained therein.
As a condition of the Merger Agreement, the holders of Solite Preferred
Stock are required to convert their shares of Solite Preferred Stock into
shares of Solite Common Stock. FBW determined that a conversion ratio that
resulted in holders of Solite Preferred Stock receiving shares of Solite Common
Stock equal in value to the par value of the Solite Preferred Stock was fair to
the holders of Solite Preferred Stock and the holders of Solite Common Stock.
To determine the appropriate conversion ratios for the Solite Preferred Stock,
FBW utilized various valuation methodologies to estimate the equity value of
Solite's assets prior to the Merger and the Spin-Off. The following is a brief
summary of the analysis performed by FBW in connection with determining the
appropriate conversion ratios for the Solite Preferred Stock and with the
preparation of the opinion letter dated September 23, 1997.
Valuation of Merged Assets. For the assets which will pass to Giant in
connection with the Merger (the "Merged Assets"), FBW used the Giant offer as
described in the Merger Agreement as a proxy for equity valuation, stipulating
that equity value for these assets were determined by good faith negotiations
between a willing buyer and a willing seller. For the purpose of determining
the conversion ratios, the equity value of Merged Assets will equal the sum of
650,000 shares of Giant Common Stock times the average of the closing bid and
asked prices per share for Giant Common Stock for the twenty trading days
immediately preceding closing.
Valuation of Independent Assets
Discounted Free Cash Flow Analysis. FBW performed an analysis of the
present value of the equity value of the assets that will be spun-off to
Northeast Solite ("Northeast Solite Assets") based on the Solite's financial
projections for the fiscal years 1998 through 2001. FBW analyzed both a base
case scenario and a best case scenario. Based on this discounted free cash flow
analysis, FBW estimated Northeast Solite Asset's equity value to range between
$1.1 million under the base case scenario to $6.3 million under the best case
scenario.
Liquidation Analysis. Using appraisals conducted in August 1992 (but not
updated) on certain operations, recent sale transactions and offers for
operations that represent a portion of the Northeast Solite Assets, senior
management of Solite provided FBW its estimate for the orderly liquidation
value of Northeast Solite Assets. One of Northeast Solite Assets's operations,
which cannot be liquidated per the Agreement, was valued on a stand-alone
basis, using a discounted free cash flow analysis. The discounted free cash
flow analysis for the stand-alone entity was performed using both base case and
best case scenarios. FBW analyzed the liquidation estimates provided by senior
management and held various discussions with management not involved with
compiling the estimates.
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Based on this liquidation and discounted free cash flow analysis, FBW estimated
Northeast Solite Asset's equity value to range between $2.4 million under the
base case scenario to $9.3 million under the best case scenario.
FBW performed a variety of financial and comparative analyses for purposes
of determining an equity value of Northeast Solite Assets. While the foregoing
summary describes the analyses and factors reviewed by FBW, it does not purport
to be a complete description of all the analyses performed by FBW in valuing
the Northeast Solite Assets. In the analyses, FBW may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuation for Northeast Solite Assets resulting from any particular analysis
described above should not be taken to be FBW's view of the actual value of
Northeast Solite Assets.
In performing its analysis, FBW made assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond the control of Solite. Any estimates contained herein are
not necessarily indicative of future results or actual values, which may be
significantly more or less favorable than those suggested by such estimates.
The analyses performed were prepared solely as part of FBW's analysis of the
fairness of the consideration to be received by the holders of Solite Preferred
Stock in exchange for their conversion to Solite Common Stock and were
conducted in connection with the delivery of FBW's opinion. The analyses do not
purport to be appraisals or to reflect the prices at which Northeast Solite
Assets might actually be sold.
For the purposes of determining the conversion ratio, FBW gave equal
weight to the high and low estimates of equity value for the Northeast Solite
Assets, resulting in an estimated equity value of the Northeast Solite Assets
of $4,758,150.
Preferred Conversion Ratios. For purposes of determining what percentage
of ownership the Solite Preferred Stock will hold in Solite upon conversion of
its shares, FBW developed a matrix (the "Conversion Matrix") which divides the
par value of the Solite Preferred Stock by the estimated equity value of the
Northeast Solite Assets plus the equity value of Merged Assets. The Conversion
Matrix, which is included in Annex I, accounts for the average closing bid and
asked prices per share for Giant Common Stock for the twenty trading days
immediately preceding closing to be between $15 and $30 per share. The
Conversion Matrix further indicates that for a given price for Giant Common
Stock, what the corresponding conversion ratios would be for the holders of
Solite Preferred Stock.
The Solite Board retained FBW based upon FBW's qualifications, experience
and expertise. FBW, as part of its investment banking business, is regularly
engaged in the valuation of businesses in connection with mergers and
acquisitions, public offerings and private placements, and valuations for
corporate and other purposes.
Pursuant to the FBW Engagement Letter, FBW provided advisory services and
a financial opinion in connection with the consideration to be received by the
holders of Solite Preferred Stock in exchange for their conversion to Common
Stock. Solite has paid FBW $30,000 for the advisory services and financial
opinion and has agreed to pay FBW an additional $30,000 if the Merger is
consummated as well as reimburse FBW for reasonable expenses incurred. In
addition, Solite has also agreed to indemnify FBW, its directors, officers,
agents and employees against certain liabilities and expenses, including
certain liabilities under the federal securities laws, related to FBW's
engagement.
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THE MERGER
Effective Time
The Merger will become effective at such time as a Certificate of Merger
is issued by the Virginia SCC or at such latter time as specified in the
Articles of Merger filed with Virginia SCC. The Merger Agreement provides that
Merger Sub and Solite will execute and file such articles or other appropriate
documents as soon as practicable after the conditions to the Merger are
satisfied. See "TERMS OF THE MERGER--Conditions to the Merger."
Exchange Ratio
At the Effective Time, each share of Solite Common Stock issued and
outstanding immediately prior to the Effective Time, other than shares of
Solite Common Stock held by Solite shareholders who perfect their appraisal
rights under the VSCA, will be converted into the right to receive the number
of shares of Giant Common Stock equal to the quotient derived by dividing (i)
450,000 shares of Giant Common Stock by (ii) the total number of shares of
Solite Common Stock outstanding as of the Effective Time, including all shares
of Solite Common Stock issuable upon conversion of the Preferred Stock.
Shares of Giant Common Stock to be Held in Escrow
Pursuant to the Merger Agreement, an additional 200,000 shares of Giant
Common Stock will be placed in escrow upon consummation of the Merger.
100,000 of such shares would be returned to Giant and cancelled if, as of
the Effective Time, the consolidated net book value (as defined in the Merger
Agreement) of Solite is $3.1 million or less or the net current assets (as
defined in the Merger Agreement) of Solite is $4.1 million or less. If such
consolidated net book value is more than $5 million and such net current assets
are more than $6 million, all such 100,000 shares would be distributed to the
persons who were holders of Solite Common Stock immediately prior to the merger
(including holders of Solite Preferred Stock that was converted into Solite
Common Stock) on the basis of each such share of Solite Common Stock entitling
such former holder to the number of shares of Giant Common Stock equal to the
quotient derived by dividing 100,000 by the total number of shares of Solite
Common Stock outstanding as of the Effective Time. If such consolidated net book
value is more than $3.1 million but less than $5 million, or such net current
assets are more than $4.1 million but less than $6 million, the shares of Giant
Common Stock held pursuant to such escrow shall be returned, in part, to Giant
for cancellation and distributed, in part, to such holders of Solite Common
Stock on a formula basis with Giant Common Stock returned valued at $19 per
share.
The other 100,000 shares of Giant Common Stock shall be held in escrow and
shall be available to satisfy the indemnification claims, if any, of Giant
under the Merger Agreement. Unless a claim or claims by Giant are then pending
in amounts in excess of the then value of 50,000 shares of Giant Common Stock,
50,000 shares of Giant Common Stock held in escrow shall be released on the
second anniversary of the Effective Time, and unless any claim or claims by
Giant are then pending, the balance of the shares of Giant Common Stock held in
escrow shall be released on the third anniversary of the Effective Time.
Upon release of the Giant Common Stock from escrow, Solite shareholders
will be entitled to receive for each share of Solite Common Stock held by them
at the Effective Time the number of shares of Giant Common Stock equal to the
quotient derived by dividing (i) the number of shares of Giant Common Stock
released from escrow by (ii) the total number of shares of Solite Common Stock
outstanding as of the Effective Time, including all shares of Solite Common
Stock outstanding as a result of the Conversion.
Cancellation of Solite Common Stock Shares
As of the Effective Time, all shares of Solite Common Stock shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such shares
of Solite Common Stock shall cease to have any rights with respect thereto,
except the right to receive shares of Giant Common Stock and any cash in lieu
of fractional shares of Giant Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate, in each case without
interest.
Exchange Procedures; Distributions with Respect to Unexchanged Shares; No
Further Ownership Rights in Solite Common Stock; No Fractional Shares of Giant
Common Stock
Exchange Procedures. As soon as reasonably practicable after the Effective
Time, Giant shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares
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of Solite Common Stock (the "Solite Certificates"), whose shares were
converted into the right to receive shares of Giant Common Stock pursuant to the
Merger, (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
delivery of the Solite Certificates to Giant, and shall be in such form and have
such other provisions as Giant may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Solite Certificates in exchange for
certificates representing shares of Giant Common Stock. Upon surrender of a
Solite Certificate for cancellation to Giant, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by Giant, the holder of such Solite Certificate shall be entitled to
receive in exchange therefor certificates representing shares of Giant Common
Stock (rounded down to the nearest whole share) which such holder has the right
to receive after taking into account all the shares of Solite Common Stock then
held by such holder under all such Solite Certificates so surrendered, cash in
lieu of fractional shares of Giant Common Stock, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of Solite Common Stock that is not registered in the transfer records of Solite,
a certificate representing shares of Giant Common Stock may be issued to a
person other than the person in whose name the Solite Certificate so surrendered
is registered, if, upon presentation to Giant, such Solite Certificate is
properly endorsed or otherwise is in proper form for transfer and the person
requesting such payment pays any transfer or other taxes required by reason of
the transfer of Giant Common Stock to a person other than the registered holder
of such Solite Certificate or establishes to the satisfaction of Giant that such
tax has been paid or is not applicable. Until so surrendered, each Solite
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender a certificate representing shares
of Giant Common Stock, cash in lieu of any fractional shares of Giant Common
Stock and any dividends or other distributions to which such holder is entitled
pursuant to the Merger Agreement. No interest will be paid or will accrue on any
cash payable pursuant to the Merger Agreement.
Solite shareholders should not forward Solite certificates to Giant until
they have received transmittal forms. Solite shareholders should not return
stock certificates with the enclosed proxy.
Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to shares of Giant Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Solite Certificate with respect to the shares of Giant Common Stock represented
thereby and no cash payment in lieu of fractional shares of Giant Common Stock
shall be paid to any such holder until the holder of record of such Solite
Certificate shall surrender such Solite Certificate. Following surrender of any
such Solite Certificate, there shall be paid to the record holder of the shares
of Giant Common Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of any cash payable in lieu of a fractional
share of Giant Common Stock and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole shares of Giant Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time, but prior to such surrender, and a payment date subsequent
to such surrender payable with respect to such whole shares of Giant Common
Stock.
No Further Ownership Rights in Solite Common Stock. All shares of Giant
Common Stock issued upon the surrender for exchange of shares of Solite Common
Stock in accordance with the terms of the Merger Agreement (including any cash
paid) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Solite Common Stock, and there shall be no further
registration of transfers on the stock transfer books of the surviving
corporation of the shares of Solite Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time, Solite
Certificates are presented to the surviving corporation or Giant for any
reason, they shall be canceled and exchanged as provided in the Merger
Agreement.
No Fractional Shares of Giant Common Stock. To avoid the expense and
inconvenience of issuing fractional shares no certificates representing
fractional shares of Giant Common Stock shall be issued upon the surrender for
exchange of Solite Certificates. Each holder of shares of Solite Common Stock
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Giant Common Stock (after taking into account
all Solite Certificates delivered by such holder) will receive, in lieu
thereof, cash (without interest) in an amount determined by multiplying (i) the
fractional interest to which such holder would otherwise be entitled and (ii)
the average of the closing bid and asked prices per share for Giant Common
Stock on the Nasdaq National Market for the twenty trading days immediately
preceding the Effective Time.
Admission for Trading on Nasdaq National Market
The outstanding shares of Giant Common Stock are presently admitted for
trading on the Nasdaq National Market. The shares of Giant Common Stock
issuable to Solite's shareholders pursuant to the Merger Agreement shall be
admitted for trading on the Nasdaq National Market, subject to official notice
of issuance.
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Certain Significant Considerations
In considering whether to approve and adopt the Merger Agreement providing
for the Merger, shareholders of Solite should carefully consider those factors
described under "RISK FACTORS" as well as the fact that the total number of
shares of Giant Common Stock to be issued in connection with the Merger is
fixed and will not be adjusted based on changes in the price of Giant Common
Stock, and the price of the shares of Giant Common Stock at the Effective Time
may vary from the price as of the date of this Proxy Statement/Prospectus or
the date on which shareholders of Solite vote on the Merger due to changes in
the business, operations or prospects of Giant, market assessments of the
likelihood that the Merger will be consummated and the timing thereof, general
market and economic conditions, and other factors.
Certain Federal Income Tax Consequences
The following is a discussion of the material federal income tax
consequences to the Solite shareholders of the Conversion, the Spin-Off and the
Merger, without regard to the particular facts and circumstances of each
shareholder. The tax treatment of shareholders may vary depending upon their
particular situations, and certain shareholders (for example, insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
and persons who are neither citizens nor residents of the United States, or who
are foreign corporations, foreign partnerships or foreign estates or trusts as
to the United States) may be subject to special rules not discussed below.
SOLITE SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS, AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS DESCRIBED HEREIN,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
Consummation of the Conversion, the Spin-Off and the Merger are
conditioned upon (a) the receipt of a favorable private letter ruling from the
IRS as to the qualification of the Spin-Off as a reorganization, (b) no opinion
having been received from counsel to Giant, Merger Sub or Solite to the effect
that as a result of a change in law the Spin-Off will no longer qualify as a
reorganization, and (c) the receipt of opinions of McGuire Woods Battle &
Boothe LLP, counsel to Solite, and Proskauer Rose LLP, counsel to Giant, as to
the qualification of the Merger as a tax-free reorganization.
The IRS issued a private letter ruling to Solite dated September 8, 1997
which provides that:
(i) No gain or loss will be recognized by Solite or Northeast Solite upon
the Spin-Off.
(ii) No gain or loss will be recognized by (and no amount will be included
in the income of) the Solite shareholders upon the Spin-Off.
(iii) A Solite shareholder will apportion the tax basis of the Solite
Common Stock held immediately before the Spin-Off between the Solite Common
Stock held immediately after the Spin-Off and the Northeast Solite Common Stock
distributed to the shareholder in the Spin-Off, in proportion to the fair
market value of each at the time of the distribution.
(iv) The holding period of the Northeast Solite Common Stock will include
the holding period of the Solite Common Stock with respect to which the
Northeast Solite Common Stock is received, provided that the Solite Common
Stock is held as a capital asset at the time of the distribution.
A ruling from the IRS, while generally binding on the IRS, may under
certain circumstances be revoked or modified by the IRS retroactively. Neither
Giant nor Solite is currently aware of any facts or circumstances that would
cause the IRS to revoke or modify the ruling it issued to Solite as to the
federal income tax consequences described above.
The Taxpayer Relief Act of 1997 amended the tax-free spin-off provisions
of the Code, effective with respect to distributions occurring after April 16,
1997, to exclude from the coverage of those provisions spin-offs followed by
acquisitions of the distributing or distributed corporation, like the
acquisition of Solite by Giant (so-called "Morris Trust" transactions). The
amendment provides, however, that it shall not be applicable if the transaction
is described in a ruling request submitted to the IRS on or before April 16,
1997. The ruling request with respect to the Spin-Off, which described the
Merger, was submitted to the IRS on February 19, 1997.
The ruling obtained from the IRS is based on the Merger qualifying as a
reorganization within the meaning of section 368(a)(1)(B) of the Code. Solite
has not sought a ruling from the IRS as to the qualification of the Merger
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(or the Conversion) as a reorganization because the IRS takes the position that
the tax consequences of a transaction such as the Merger (or the Conversion) is
adequately established in the law, and it therefore will not issue a "comfort"
ruling as to whether such transaction qualifies as a reorganization.
Solite has also received the opinions of McGuire Woods Battle & Boothe LLP
and Proskauer Rose LLP that:
(i) The Merger will qualify as a reorganization under section 368(a)(1)(B)
of the Code.
(ii) Except for any cash received in lieu of fractional shares (or in
connection with the exercise of dissenters' rights), a Solite shareholder will
not recognize any income, gain or loss as a result of the receipt of Giant
Common Stock in exchange for the shareholder's Solite Common Stock.
(iii) A Solite shareholder's tax basis for shares of Giant Common Stock
received in exchange for the Solite Common Stock, including fractional share
interests for which cash is received, will equal the shareholder's aggregate tax
basis immediately before the Merger in the Solite Common Stock.
(iv) A Solite shareholder's holding period for the Giant Common Stock
Common Stock, including any fractional share interests for which cash is
received, will include the period during which the shares of Solite Common Stock
were held, provided such shares were held as capital assets at the Effective
Time.
(v) Cash received by a Solite shareholder in lieu of a fractional share
interest in Giant Common Stock will be treated as having been received as a
distribution in full payment in exchange for the fractional share interests in
Giant Common Stock which that shareholder would otherwise be entitled to
receive. This receipt of cash will result in gain or loss measured by the
difference between the tax basis of such fractional share interest and the cash
received. Such gain or loss will be capital gain or loss to the shareholder,
provided the Solite Common Stock was a capital asset in that shareholder's
hands.
(vi) Where cash is received by a dissenting Solite shareholder, and that
dissenting shareholder's constructive ownership interest in Solite (through
that shareholder's ownership interest in Giant) after the transaction is such
that the cash payment is not essentially equivalent to a dividend, that cash
payment will be treated as a redemption and that shareholder will recognize
gain measured by the difference between the amount of cash received and the
shareholder's tax basis immediately before the Merger in the Solite Common
Stock.
Solite has also received the opinion of McGuire Woods Battle & Boothe LLP
that:
(i) The Conversion will qualify as a reorganization under section
368(a)(1)(E) of the Code and (except for any Solite Common Stock deemed
received with respect to unpaid dividends on the Solite Preferred Stock) no
income, gain or loss will be a recognized by a holder of Solite Preferred Stock
on its conversion into Solite Common Stock.
(ii) A Solite shareholder's tax basis for shares of Solite Common Stock
received in exchange for Solite Preferred Stock will equal the shareholder's
aggregate tax basis in the Solite Preferred Stock.
(iii) A Solite shareholder's holding period of the Solite Common Stock
received in exchange for Solite Preferred Stock, will include the holding period
of the Solite Preferred Stock, provided that the Solite Preferred Stock was
held as a capital asset at the time of the Conversion.
Copies of the opinions issued by McGuire Woods Battle & Boothe LLP and
Proskauer Rose LLP have been filed as exhibits to the Registration Statement of
which this Proxy Statement/Prospectus is a part.
Opinions of counsel represent such counsel's best legal judgment and are
not binding on the IRS or the courts. There can be no assurance that the IRS or
the courts would not take one or more contrary positions to those expressed in
opinions of counsel. Also, the opinions of McGuire Woods Battle & Boothe LLP
and Proskauer Rose LLP are based on, among other things, current law and
certain representations as to factual matters made by Solite and Giant which,
if incorrect in certain material respects, would jeopardize the conclusions
reached by counsel in their opinions. Neither Solite nor Giant is currently
aware of any facts and circumstances which would cause any such representations
made by it to be untrue or incorrect in any material respect. In addition,
Northeast Solite, the holders of the shares of Northeast Solite Common Stock
and certain holders of Giant Common Stock received in exchange for Solite
Common Stock have agreed to certain restrictions on their future actions to
provide further assurances
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that the Spin-Off and the Merger will be tax-free. See "TERMS OF THE MERGER
AGREEMENT--Conditions to the Merger."
If the Merger does not qualify as a reorganization, the Spin-Off will also
not qualify as a reorganization. As a result, Solite will recognize gain equal
to the excess of the value of the Northeast Solite shares distributed over
Solite's tax basis in those shares, and the Solite shareholders will each
recognize gain or loss equal to the excess of the value of the Northeast Solite
stock received in the Spin-Off and the Giant Common Stock received in the
Merger over the Shareholder's tax basis in the Solite Common Stock immediately
before the Spin-Off and the Merger.
Backup Withholding
Under the backup withholding rules, a Solite shareholder that receives
Giant Common Stock may be subject to backup withholding at the rate of 31% with
respect to dividends and proceeds of redemption, unless the shareholder (i) is
a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. Any amount withheld under these rules will be credited
against the Solite shareholder's federal income tax liability. A Solite
shareholder who does not provide Giant with his or her current taxpayer
identification number also may be subject to penalties imposed by the IRS.
Dissenters' Right
Holders of Solite Stock entitled to vote on approval of the Merger
Agreement will be entitled to have the fair value of each such holder's shares
of Solite Common Stock immediately prior to consummation of the Merger paid to
such holder in cash, together with interest, if any, by complying with the
provisions of Article 15. Under Article 15, the determination of the fair value
of a dissenter's shares would exclude any appreciation or depreciation in the
value of such shares in anticipation of the Merger, unless such exclusion would
be inequitable.
A holder of Solite Stock who desires to exercise such holder's dissenters'
rights must satisfy all of the following conditions. A written notice of such
holder's intent to demand payment for such holder's Solite Common Stock must be
delivered to Solite before the taking of the vote on approval of the Merger
Agreement. This written notice must be in addition to and separate from voting
against, abstaining from voting, or failing to vote on approval of the Merger
Agreement. Voting against, abstaining from voting or failing to vote on
approval of the Merger Agreement will not constitute written notice of an
intent to demand payment within the meaning of Article 15.
A holder of Solite Stock electing to exercise such holder's dissenters'
rights under Article 15 must not vote for approval of the Merger Agreement.
Voting for approval of the Merger Agreement or delivering a proxy in connection
with the Solite Special Meeting (unless the proxy specifies a vote against, or
affirmatively abstaining from voting on, approval of the Merger Agreement),
will constitute a waiver of such holder's dissenters' rights and will nullify
any written notice of an intent to demand payment submitted by such holder.
A holder of record of Solite Stock may assert dissenters' rights as to
less than all of the shares registered in such holder's name only if such
holder dissents with respect to all shares beneficially owned by any one person
and notifies Solite in writing of the name and address of each person on whose
behalf such holder is asserting dissenters' rights. The rights of a partial
dissenter under Article 15 are determined as if the shares as to which the
holder dissents and the holder's other shares were registered in the names of
different shareholders.
A beneficial holder of Solite Stock may assert dissenters' rights as to
shares held on such holder's behalf only if such holder: (i) submits to Solite
the record holder's written consent to the dissent not later than the time the
beneficial holder asserts dissenters' rights; and (ii) does so with respect to
all shares of which such holder is the beneficial holder or over which such
holder has the power to direct the vote.
If the Merger is consummated, Solite will, within ten days after the date
of the Effective Time of the Merger, deliver a dissenters' notice to all
holders who satisfied the foregoing requirements. The dissenters' notice will:
(i) state where payment demand is to be sent and where and when certificates
for Dissenting Shares are to be deposited; (ii) supply a form for demanding
payment that includes the date of the first announcement to news media of the
terms of the Merger, and requires that the person asserting dissenters' rights
certify whether or not such person
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acquired beneficial ownership of such person's Dissenting Shares before or
after such date; (iii) set a date by which Solite must receive the payment
demand, which date may not be less than 30 nor more than 60 days after the date
of delivery of the dissenters' notice; and (iv) be accompanied by a copy of
Article 15.
Except as provided below with respect to after-acquired shares, within 30
days after receipt of a payment demand, Solite shall pay the dissenter the
amount that Solite estimates to be the fair value of the dissenter's shares,
plus accrued interest. The obligation of Solite to make such payment may be
enforced: (i) by the Circuit Court for the City of Richmond, Virginia; or (ii)
at the election of any dissenter residing or having its principal office in
Virginia, by the circuit court in the city or county where the dissenter
resides or has such office. The payment by Solite will be accompanied by: (i)
Solite's balance sheet as of the end of a fiscal year ended not more than 16
months before the date of the Effective Time of the Merger, an income statement
for that year, a statement of changes in shareholders' equity for that year and
the latest available interim financial statements, if any; (ii) an explanation
of how Solite estimated the fair value of the Dissenting Shares and of how the
interest was calculated; (iii) a statement of the dissenter's right to demand
payment as described below; and (iv) a copy of Article 15.
Solite may elect to withhold payment from a dissenter unless the dissenter
was the beneficial owner of the Dissenting Shares on the date of the first
publication by news media or the first announcement to shareholders generally,
whichever is earlier, of the terms of the proposed corporate action, as set
forth in the dissenters' notice, in which case Solite will estimate the fair
value of such after-acquired shares, plus accrued interest, and will offer to
pay such amount to each dissenter who agrees to accept it in full satisfaction
of such dissenter's demand. Solite will send with such offer an explanation of
how it estimated the fair value of the shares and of how the interest was
calculated, and a statement of the dissenter's right to demand payment as
described below.
Within 30 days after Solite makes or offers payment as described above, a
dissenter may notify Solite in writing of the dissenter's own estimate of the
fair value of the Dissenting Shares and the amount of interest due, and demand
payment of such estimate (less any payment by Solite) or reject Solite's offer
and demand payment of such estimate.
If any such demand for payment remains unsettled, within 60 days after
receiving the payment demand Solite will petition the Circuit Court for the
City of Richmond, Virginia to determine the fair value of the shares and the
accrued interest and make all dissenters whose demands remain unsettled parties
to such proceeding, or pay each dissenter whose demand remains unsettled the
amount demanded. Each dissenter made a party to such proceeding is entitled to
a judgment for: (i) the amount, if any, by which the court finds that the fair
value of the Dissenting Shares, plus interest, exceeds the amount paid by
Solite; or (ii) the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which Solite elected to withhold payment. The court
will determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court and assess the
costs against Solite, or against all or some of the dissenters to the extent
the court finds the dissenters did not act in good faith in demanding payment.
The foregoing is only a summary of the rights of a dissenting holder of
Solite Stock. Any holder of Solite Stock who intends to dissent from the Merger
should carefully review the text of Article 15 and should also consult with
such holder's attorney. The failure of a holder of Solite Stock to follow
precisely the procedures summarized above may result in loss of dissenters'
rights. No further notice of the events giving rise to dissenters' rights or
any steps associated therewith will be furnished to holders of Solite Stock,
except as indicated above or otherwise required by law.
In general, any dissenting shareholder who perfects such holder's right to
be paid the fair value of such holder's Solite Common Stock in cash will
recognize taxable gain or loss for federal income tax purposes upon receipt of
such cash. See "--Certain Federal Income Tax Consequences."
Proxy Agreement
As an inducement for Giant to enter into the Merger Agreement, certain
shareholders of Solite have entered into a Proxy Agreement with Giant pursuant
to which such shareholders have, among other things, irrevocably appointed
Giant their lawful agent, attorney and proxy to vote all of their shares of
Solite Stock (approximately 76.9%, 100%, 87.2% and 100% of the outstanding
shares of Solite Common Stock, Solite Series A Preferred Stock, Solite Series B
Preferred Stock and Solite Series C Preferred Stock, respectively) in favor of
the Merger Agreement and the Merger. Consequently, no other affirmative vote is
required to approve the Merger Agreement. However, you are urged to review this
Proxy Statement/Prospectus carefully with respect to the Preferred Stock
Amendment
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and to decide whether to exercise appraisal rights. See "CONVERSION OF THE
SOLITE PREFERRED STOCK" and "THE MERGER--Dissenters Rights." Pursuant to the
Proxy Agreement, each Solite shareholder who is a party to such agreement (a
"Contracting Shareholder") has irrevocably agreed to constitute and appoint
Giant or any designee of Giant as the lawful agent, attorney and proxy of such
Contracting Shareholder to vote all of his or her shares of Solite Stock
(including additional shares as to which one such Contracting Shareholder has an
irrevocable proxy to vote) at any meeting or in connection with any written
consent of Solite's shareholders (i) in favor of the Merger, (ii) in favor of
the Merger Agreement, as it may be modified or amended from time to time, (iii)
against any Acquisition Transaction (other than the Merger) or other merger,
sale or other business combination between Solite and any other person or entity
or any other action which would make it impractical for Giant to effect a merger
or other business combination of Solite with Giant or Merger Sub, and (iv)
against any other action or agreement that would result in a breach of any
covenant, representation or warranty or any other obligation or agreement of
Solite under the Merger Agreement or which would result in any of Solite's
obligations under the Merger Agreement not being fulfilled. An "Acquisition
Transaction" means any merger, consolidation or other business combination
involving the Core Business (as defined in the Merger Agreement) or the
acquisition of capital stock of Solite or any Solite subsidiary constituting
part of the Core Business or all or any significant assets of the Core Business.
The Proxy Agreement terminates on the earlier of (i) the Effective Time or
(ii) the termination of the Merger Agreement.
Interests of Certain Persons in the Merger
As of the Record Date, the directors and executive officers of Solite
beneficially owned an aggregate of 251,055, 8,700, 12,195 and 15,429 shares of
Solite Common Stock, Solite Series A Preferred Stock, Solite Series B Preferred
Stock and Solite Series C Preferred Stock, respectively. Pursuant to the Merger
Agreement, Solite's directors and executive officers will receive the same
consideration for their shares of Solite Common Stock, including shares of
Solite Preferred Stock converted into Solite Common Stock, as the other Solite
shareholders.
Mr. John W. Roberts has personally guaranteed certain obligations of
Solite for borrowings under its bank line of credit. In connection with Merger,
Giant intends to refinance such indebtedness with proceeds from Giant's credit
facilities. As a result of such refinancing, Mr. Roberts will be relieved of
any further obligations under such guarantees.
Operations After the Merger
At the Effective Time, Merger Sub will be merged with and into Solite, and
Solite, as the surviving corporation in the Merger, will become a wholly owned
subsidiary of Giant. Giant plans to cause Solite to become part of the same
consolidated federal income tax return group as Giant.
Dividends
Giant has never paid a cash dividend and Solite has not paid a cash
dividend in at least the last five years. Giant does not anticipate paying any
cash dividends on the Giant Common Stock in the foreseeable future; it intends
to retain its earnings to finance the expansion of its business and for general
corporate purposes. Any payment of dividends will be at the discretion of
Giant's Board and will depend upon the earnings, financial condition, capital
requirements, level of indebtedness, contractual restrictions with respect to
payment of dividends and other factors. Giant's revolving credit agreement
contains financial covenants that could have the effect of limiting the
distribution of dividends without the prior written consent of the lenders who
are parties to such agreement.
Right of the Solite Board to Withdraw Recommendation
Under the Merger Agreement, the Solite Board may not, among other things,
(i) withdraw or modify, or propose to withdraw or modify, in a manner adverse
to Giant or Merger Sub, the Solite Board's approval or recommendation of the
Merger Agreement or the Merger, (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Transaction, or (iii) cause Solite to
enter into any agreement with respect to any Acquisition Transaction.
Notwithstanding the foregoing, if the Solite Board determines in good faith by
majority vote, after consultation with Solite's financial advisor that the
Acquisition Transaction is more favorable to the Shareholders of Solite than
the Merger and, based upon the advice of outside counsel to Solite, that such
action is required by the fiduciary duties of the Board of Directors, the
Solite Board may withdraw or modify its approval or recommendation of the
Merger Agreement or the Merger, approve or recommend an Acquisition
Transaction, or cause Solite to enter into an agreement with respect to an
Acquisition Transaction, provided, in each case that Solite provides at least
five business days prior notice to Giant or Merger Sub to the effect that it is
taking such action.
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Regulatory Filings and Approvals The Merger is subject to the requirements
of the HSR Act and the rules and regulations thereunder, which provide that
certain transactions may not be consummated until required information and
materials have been furnished to the Antitrust Division and the FTC and certain
waiting periods have expired or been terminated. Giant and Solite filed the
required information and materials with the Antitrust Division and the FTC on
September 12, 1997 and requested early termination of the statutory waiting
period under the HSR Act.
The Antitrust Division and the FTC frequently scrutinize the legality
under the antitrust laws of transactions such as the Merger. At any time before
or after the Effective Time, either the Antitrust Division or the FTC could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest, or certain other persons could take action under the
antitrust laws, including seeking to enjoin the Merger.
Resale of Giant Common Stock Received in the Merger
All Giant Common Stock received by holders of Solite Common Stock in the
Merger will have been registered under the Securities Act and will be freely
transferable, except as described herein. Giant Common Stock received by
persons who are deemed to be affiliated to Solite (for purposes of Rule 145
under the Securities Act) prior to the Merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144 in the case of such persons who become
affiliates of Giant) or as otherwise permitted by the Securities Act. Persons
who may be deemed to be affiliates of Solite or Giant generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal shareholders of such party. The rights of affiliates
of Solite to receive Giant Common Stock in the Merger are conditioned upon the
execution by each of such affiliates of a written agreement to the effect that
such person will not offer or sell or otherwise dispose of any of the Giant
Common Stock issued to such person in the Merger in violation of Securities Act
or the rules and regulations promulgated thereunder. The Giant Common Stock
received in the Merger by such affiliates will bear a restrictive legend to
such effect.
Additionally, pursuant to the terms of the Giant Shareholder Agreement,
each person that becomes the holder of 1% or more of the total outstanding
shares of Giant Common Stock to be issued in connection with the Merger will
agree to certain restrictions on the sale or other disposition of such shares.
See "TERMS OF THE MERGER AGREEMENT--Ancillary Agreements--Giant Shareholder
Agreement."
DESCRIPTION OF GIANT
General
Giant Cement Holding, Inc. (herein referred to as "Giant" on a
consolidated basis or "GCHI" on a separate company basis) was incorporated
under the laws of the state of Delaware in April 1994. Giant manufactures a
complete line of portland and masonry cements used in residential, commercial,
and infrastructure construction applications. Giant's manufacturing facilities
have an aggregate rated annual clinker capacity of approximately 1.4 million
tons, ranking it as the 17th largest producer of cement in the United States.
In September 1994, 10,000,000 shares of common stock of GCHI were sold to
the public in an initial public offering. The offering resulted in GCHI and its
subsidiaries being spun-off from its predecessor parent. GCHI's primary
subsidiaries have been in operation since 1883 and 1928.
GCHI and its subsidiaries are involved in a single business segment which
includes the domestic manufacture and sale of portland and masonry cements and
related aggregates. Giant derives revenues from the sales of products,
primarily cement and to a much lesser extent construction aggregates, as well
as from the provision of resource recovery services. Resource recovery services
revenue is primarily derived from third parties that pay Giant to utilize their
waste as fuel, which additionally reduces the cost of traditional fossil fuels
used in the manufacture of cement. Due to the nature of Giant's operations and
the fact that the burning of waste-derived fuels is inseparable from the
manufacture of cement, it is impractical to disaggregate the costs of sales and
services by revenue classification.
Information concerning Giant's net sales, operating income and assets for
each of the years in the three-year period ended December 31, 1996 is included
under "Five-Year Summary of Consolidated Financial Data" in the 1996 Annual
Report.
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Giant owns and operates two limestone quarries and cement manufacturing
facilities through its wholly-owned subsidiaries Giant Cement Company ("Giant
Cement") and Keystone Cement Company ("Keystone"). Giant Cement, located in
Harleyville, South Carolina, serves the South-Atlantic region of the United
States and Keystone, located in Bath, Pennsylvania, serves the Middle-Atlantic
region. Giant pioneered resource recovery techniques for use in the
manufacturing of cement in the late 1970's and is one of the largest users of
waste-derived fuels in the cement industry.
Operations. Giant Cement was founded in 1883 and commenced operations in
Harleyville, South Carolina in 1947. Giant Cement owns approximately 2,100
acres of land in Harleyville, where its cement production facilities and
230-acre limestone quarry are located. Giant Cement presently estimates that
Giant Cement's limestone reserves are adequate to meet its plant requirements
for in excess of 50 years. Giant Cement has four wet process kilns with a
combined rated annual clinker capacity of approximately 840,000 tons and a
manufacturing plant with an annual finish grinding capacity of approximately
950,000 tons.
Keystone, founded in 1928, owns approximately 1,000 acres of land in Bath,
Pennsylvania, in the Lehigh Valley region approximately 60 miles north of
Philadelphia. Keystone obtains the cement rock used in its production from its
200-acre limestone quarry located adjacent to its plant. Giant presently
estimates that Keystone's limestone reserves are adequate to meet its plant
requirements for in excess of 50 years. The two wet process kilns used in
Keystone's operations have a combined rated annual clinker capacity of
approximately 600,000 tons and its manufacturing plant has an annual finish
grinding capacity of approximately 750,000 tons.
Rated annual clinker capacity is based upon the cement kiln manufacturer's
specifications. Giant's historical annual clinker production has not exceeded
1.3 million tons.
In addition to limestone, the other principal raw materials used in the
manufacturing of cement are silica, alumina, iron oxide, and gypsum, which are
purchased from various suppliers. Management believes that the supply of these
raw materials will be adequate to permit production at planned capacities for
the foreseeable future.
Products. Giant Cement principally manufactures a full line of portland
cement, which is the fundamental binding agent in concrete. Giant's cement has
a low alkali content, a characteristic favored for use by federal and state
governments on certain projects due to its minimal reaction with soil and other
aggregates. Keystone also produces limited quantities of low alkali cement.
Giant believes that Keystone is the only cement manufacturer currently
producing a low alkali cement within a 100 mile radius of the Keystone plant.
In addition to portland cement, Giant manufactures masonry cement, which is
used in the preparation of mortar used in block and brick masonry. Giant also
mines, crushes, screens, and sells various sizes of stone and gravel, known as
aggregates, to the construction industry for use in paving, road base material,
and assorted small volume applications. Additionally, Giant markets cement kiln
dust ("CKD") and, occasionally, a customized blend of CKD and cement under the
registered trade name "StableSorb." StableSorb is utilized by construction,
remediation, and other contractors for the purpose of solidifying soil, wastes,
and other materials.
Cement is made in a multi-stage process that begins with the crushing,
grinding, and mixing of calcium (usually in the form of quarried limestone or
"cement rock"), silica, alumina, iron oxide, and other materials. This raw
material is then processed in a rotary kiln at extremely high temperatures,
causing it to undergo a chemical reaction. The resulting marble-sized,
pellet-like material (known as "clinker") is then cooled and ground with a
small quantity of gypsum to produce cement.
Marketing and Distribution. Giant Cement markets its products to ready-mix
concrete plants, concrete product manufacturers, building material dealers,
construction contractors, and state and local government agencies through its
experienced sales force. Approximately 85% of Giant Cement's cement is sold in
bulk, primarily to ready-mix and concrete products manufacturers, with the
remainder sold in individually packed bags, primarily to building materials
dealers.
South-Atlantic Region. Giant Cement's market area covers most of the
South-Atlantic region of the United States, from southern Virginia to southern
Georgia. The South-Atlantic region is one of the largest cement markets in the
United States in terms of cement consumption. Giant Cement's sales are most
heavily concentrated in North and South Carolina, with the remainder of its
sales in Georgia and southern Virginia.
Middle-Atlantic Region. Keystone's market area, which covers most of the
Middle-Atlantic region of the United States, includes eastern Pennsylvania,
southeastern New York, New Jersey, western Connecticut, and
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portions of Delaware and Maryland. Keystone's sales are most heavily
concentrated in eastern Pennsylvania, southeastern New York, and New Jersey,
with the remainder of its sales in Connecticut, Delaware, and Maryland.
Sales Practices and Distribution. Giant has more than 500 customers, the
majority of which have been doing business with Giant for more than five years.
No single customer accounted for 10% or more of Giant's cement sales during
1996, and Giant believes that the loss of any single customer would not have a
material adverse effect on Giant's financial condition or results of
operations.
Giant, following the sales practices characteristic of its industry, does
not provide the right to return nonfaulty product or extended payment terms to
customers in the ordinary course of business. As is customary in the industry,
Giant does not typically enter into long-term sales contracts, except with
respect to major construction projects. Because the needs of its customers are
generally short term in nature, backlog orders are not significant in the
cement industry.
The production facilities of both Keystone and Giant Cement are located
near, and served by, major rail transportation lines, which provide ready
access for transporting cement to Giant's customers or terminals. In 1996,
Giant Cement delivered a substantial portion of its product by rail either
directly to its customers or to its terminals where the product is picked up by
customers. At Keystone, almost all product is shipped via truck, with a
substantial amount being picked up by customer-owned trucks. Both Giant Cement
and Keystone have good relations with contract carriers which operate fleets of
trucks to provide quick delivery, on demand, to Giant's customers requesting
truck deliveries.
To meet the needs of its customers in the South-Atlantic market area,
Giant Cement operates one terminal and three distribution warehouses, with
annual throughput capacity of approximately 165,000 finished tons, and 25,000
square feet of storage capacity for bagged product.
General and Regional Economic Conditions. Demand for Giant's products is
directly related to activity in the construction industry and general economic
conditions. Various economic factors beyond Giant's control affect cement
consumption, including the level of new residential, commercial and
infrastructure construction activity, which are in turn affected by movement in
interest rates, the availability of short and long-term financing and the
availability of public funds for infrastructure projects. Accordingly, adverse
economic conditions in Giant's markets or a worsening of general or local
economic conditions could adversely affect Giant's operating results. Cement
demand reached a cyclical low in 1991, and, as a consequence, Giant experienced
a decline in sales in 1991. Demand was flat to slightly higher in most regions
of the country during 1992 and increased in 1993, 1994, 1995 and 1996 to record
levels for U.S. cement consumption. While U.S. cement consumption was at record
levels in 1996 and exceeded U.S. supply, there can be no assurance that
increased cement demand will continue or that demand will remain at current
levels.
Competition
Due to the lack of product differentiation and the commodity nature of
cement, the cement industry is highly competitive. Competition is based largely
on price and, to a lesser extent, quality and service. Giant competes with
national and regional cement producers in its markets. Many of Giant's
competitors are larger and have significantly greater resources than Giant. The
prices that Giant charges its customers are not likely to be materially
different from the prices charged by other producers in the same markets.
Accordingly, profitability in the cement industry is generally dependent on the
level of cement demand and on a cement producer's ability to contain operating
costs. Prices are subject to material changes in response to relatively minor
fluctuations in supply and demand, general economic conditions and other market
conditions beyond Giant's control. Prior to 1993, cement prices in the United
States, including Giant's markets, had fallen and remained depressed for
several years, primarily due to the economic recession and competition from
lower priced foreign imports. Although Giant has been able to increase its
cement prices during 1994, 1995, 1996 and 1997, there can be no assurance that
prices will not decline in the future.
There are 11 companies in the South-Atlantic region which compete with
Giant Cement in some portion of its market, including three direct competitors,
two of which compete throughout its market area. There are 15 companies in the
Middle-Atlantic region which compete with Keystone in some portion of its
market, including five direct primary competitors. Giant believes that Keystone
is the only cement plant currently producing low alkali cement in its immediate
market area. Additionally, none of Keystone's direct competitors are currently
permitted to utilize waste-derived fuel as an alternative source of fuel.
38
<PAGE>
During the latter part of the 1980's, an influx of low-price cement
imports caused prices to deteriorate in many domestic markets. A portion of the
market served by Keystone may be directly subject to imports of foreign cement
which can affect pricing in all of its market areas. The market areas served by
Giant Cement are also impacted indirectly by imports of foreign cement. Imports
declined significantly from 1987 to 1992. Giant believes the decline was the
result of increased foreign consumption, increased ocean transportation costs
and the imposition of anti-dumping duties, among other things. From 1993 to
1996, imports into the United States increased significantly as a result of the
US demand and consumption exceeding the domestic supply. Through 1996, the
increase in the cement imports has had little effect on current prices. While
Giant does not believe imports had a significant impact on its market areas in
1996, nationally, imports increased significantly and there can be no assurance
that importation of lower-priced cement in the future will not increase.
Resource Recovery
The cost of energy represents a significant percentage of total cement
manufacturing costs. Giant's plants utilize the "wet kiln" process. While the
"wet kiln" process requires more thermal energy than the alternative "dry kiln"
process, Giant has implemented technology which utilizes liquid and solid
industrial wastes with high BTU values ("waste-derived fuels") as fuel
substitutes ("resource recovery") in the process of manufacturing cement.
In the late 1970's, Keystone pioneered resource recovery techniques in the
U.S. cement industry. Giant Cement also began the limited use of waste as a
fuel substitute in 1987 and has since expanded its use of industrial solvents
and other hazardous waste-derived fuels, including waste solids. These resource
recovery efforts have significantly reduced Giant's traditional fossil fuel
consumption and production costs, while providing it with an additional source
of revenue as industrial companies pay Giant to utilize these waste-derived
fuels. In 1996, waste-derived fuels comprised about 45% of Keystone's total
fuel usage and 53% of Giant Cement's. These percentages have grown
significantly since such programs were initiated, allowing fuel costs to be
substantially reduced.
Although Giant was among the first in the cement industry to utilize
resource recovery as a substitute for fossil fuels, this technique has since
been adopted by a number of other U. S. cement producers and is utilized at
over 20 cement plants. Six of the ten largest cement companies in the United
States utilize resource recovery at one or more of their production facilities.
Keystone is, however, one of only two Pennsylvania plants which are presently
permitted to commercially burn hazardous waste, and the only facility in the
Lehigh Valley area which is permitted to utilize this economically beneficial
process. Keystone is currently permitted to burn such waste at rates of up to
approximately 50% of its fuel requirements and is seeking to increase such
rates to 75%. While Giant Cement is one of two plants in its immediate market
area that is presently permitted to burn numerous categories of hazardous and
non-hazardous liquids and solids, it is the only one in such area that is
presently permitted to burn such wastes at rates of up to approximately 100% of
its fuel requirements. Additionally, Giant Cement has developed techniques to
increase the proportion of higher revenue waste solids used in its resource
recovery activities. Giant's subsidiaries, Keystone, Giant Cement and Giant
Resource Recovery Company, Inc. ("GRR"), utilize a network of brokers, fuel
blenders, and treatment, storage, and disposal facilities to obtain
waste-derived fuels. The sources for such waste products range from Fortune 500
companies to small independent waste treatment, storage, and disposal
facilities. Giant's resource recovery operations are dependent on general and
regional economic conditions; federal, state and local environmental laws,
regulations and policies; and Giant's cement kiln utilization. Giant competes
with numerous other companies for the supply of waste-derived fuels primarily
on the basis of service and price.
Management of Giant
Directors and Executive Officers.
The following table sets forth certain information regarding the directors
and executive officers of Giant. Mr. Roberts will become a director of Giant
upon the consummation of the Merger.
39
<PAGE>
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- ----- ----------------------------------------------------
<S> <C> <C>
Gary L. Pechota ......... 47 Chairman, President, Chief Executive Officer and
Director
Terry L. Kinder ......... 39 Vice President, Chief Financial Officer, Secretary,
Treasurer and Director
Richard A. Familia ...... 44 Vice President, Environmental Affairs
Dean M. Boylan ......... 69 Director
Edward Brodsky ......... 66 Director
Robert L. Jones ......... 59 Director
</TABLE>
Background of Directors and Executive Officers.
Gary L. Pechota has served as Chairman, President, Chief Executive Officer
and a director of Giant since its inception in April 1994. Mr. Pechota also has
served as Chairman of Giant Cement and GRR since January 1993, as Chairman of
Keystone since September 1992 and as President of Keystone Cement Company since
May 1992. Prior to joining Keystone Cement Company, Mr. Pechota served as
President and Chief Executive Officer of Dacotah Cement Company, a state-owned
cement company, from January 1982 to May 1992. Mr. Pechota has been employed in
the cement industry for over 14 years.
Terry L. Kinder has served as Vice President, Chief Financial Officer,
Secretary, Treasurer and a director of Giant since April 1994 and a director of
Giant Cement, Keystone and GRR since June 1989. Mr. Kinder has also served as
Vice President, Secretary and Treasurer of Giant Group Ltd. from June 1986 to
September 1994. From June 1989 to December 1992, Mr. Kinder also served as
Chairman of Giant Cement and GRR, and from June 1989 to August 1992, he served
as Chairman of Keystone. Prior to joining Giant Group Ltd., Mr. Kinder was a
Certified Public Accountant with Coopers & Lybrand L.L.P. from January 1980 to
June 1986.
Richard A. Familia has served as Vice President, Environmental Affairs of
Giant since April 1994. Mr. Familia has also served as President and Chief
Operating Officer of GRR since February 1992. From 1987 to February 1992, he
served as Director of Operations for various environmental and other
businesses. Mr. Familia has been employed in the environmental industry for
over 20 years.
Dean M. Boylan has been a director of Giant since April 1994. He served as
a director of Giant Group Ltd. from 1985 to September 1994 and was a director
of Keystone Cement Company from 1976 until January 1985 when it was acquired by
Giant Group Ltd. Mr. Boylan has been an employee and director of Boston Sand &
Gravel Company, Inc., a publicly-held company since prior to 1985 and is
presently Vice Chairman.
Edward Brodsky has been a director of Giant since April 1994. He served as
a director of Giant Group Ltd. from 1986 to September 1994. Mr. Brodsky has
been a partner at the law firm Proskauer Rose LLP, New York, New York, which
renders legal services to Giant since August 1992. Prior thereto, he was a
partner at the law firm of Spenglar Carlson Gubar Brodsky & Frischling, New
York, New York, from 1977 to August 1992.
Robert L. Jones has been a director of Giant since April 1994. He served
as a director of Giant Group Ltd. from 1984 to September 1994. Mr. Jones has
been the Chairman of Davidson-Jones-Beers since February 1995 and prior thereto
was the President of Davidson & Jones Corporation--a predecessor holding
company located in Raleigh, North Carolina, engaged in general contracting and
real estate activities--since prior to 1986. Since 1990, he has been a director
of Carolina Power & Light Company (New York Stock Exchange).
40
<PAGE>
DESCRIPTION OF SOLITE
Solite and its subsidiaries produce and sell construction materials to the
commercial, industrial, governmental and residential construction markets,
including building, bridge and road markets. Solite's primary geographic market
is the eastern United States. Solite's principal product is "Solite[RegTM]," a
lightweight aggregate primarily used in concrete and masonry blocks. Solite's
operations also include sand, gravel, masonry block, hazardous waste fuels,
coal and transportation.
Certain Historical Unaudited Financial Information of Solite Corporation
The following historical unaudited financial information is that of Solite
Corporation and all of its subsidiaries including those "non-core businesses"
which will be spun off and excluded from the Merger. The Solite financial
statements included elsewhere herein have been prepared on a "carve out" basis
to reflect Solite as if the Spin-Off described elsewhere herein had already
occurred.
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------
1997 1996
Statement of Operations Data: ------------ -----------
<S> <C> <C>
Total revenues ..................... $ 66,779 $ 61,956
Gross profit ........................ 17,543 17,821
Operating loss ..................... (1,833) (2,470)
Net loss (1) ........................ (3,174) (7,333)
Balance Sheet Data (at period end):
Working capital (deficit)(2) ...... (13,179) 6,948
Total assets ........................ 54,054 57,074
Total debt ........................ 26,913 28,053
Shareholder's equity ............... 14,692 17,832
</TABLE>
- ----------
(1) Net loss includes pretax gains on sales of assets of $810,000 in 1997 and
$246,000 in 1996 and additionally in 1996, a pretax charge of $2.9 million
to record an impairment loss on the assets of the Florida lightweight
aggregate manufacturing facilities, which were permanantly closed in 1995.
(2) As a result of due date extensions received in 1997 on the Company's debt,
a portion of the debt was classified as long-term at March 31, 1996.
General
For operational and management purposes, Solite is organized into six
"groups." Of Solite's six groups, three produce and sell various building
materials. These are the Lightweight Aggregate Group ("LWA Group"), the Concrete
Aggregates Group ("ConAgg Group") and the Block Group. Two other groups, the
Coal Group and the Fuels Group, historically have supplied fuel to the LWA Group
and to other companies. The Transportation Group manages trucking (other than
fuels trucking) and ancillary services either directly by operating trucking
units, or indirectly by out-sourcing or brokering trucking services for the LWA
Group, the ConAgg Group and the Block Group, as well as unrelated customers.
Lightweight Aggregate Group. Solite and three subsidiaries--Northeast
Solite, Kentucky Solite Corporation ("Kentucky Solite") and Carolina Solite
Corporation ("Carolina Solite")--constitute the LWA Group. At five active sites,
the LWA Group historically has mined shale or slate and processed this raw
material in rotary kilns to produce the lightweight aggregate Solite[RegTM].
Solite directly operates two quarries and associated processing plants located
in Virginia. Northeast operates a quarry and processing plant located in New
York. The quarry and processing plant located in Kentucky are owned by Kentucky
Solite. While the Kentucky plant is not currently mining shale or manufacturing
unfinished lightweight aggregate ("clinker"), it is processing stockpiles of
clinker to produce finished Solite[RegTM] and selling Solite[RegTM] manufactured
at other plants. The fifth quarry and processing plant is located in North
Carolina and is owned by Carolina Solite. In addition, Carolina Solite owns a
Florida plant for the production of lightweight aggregate, which was permanently
shut down in 1995. This plant site, outside of Jacksonville, Florida, is now
being utilized as a dispersal site for lightweight aggregate railed in from the
Virginia or North Carolina plants.
The LWA Group plants are located on 200 to 1,000 acre sites and each has
over a 50-year supply of raw materials. The plants are readily accessible by
highway, railway and/or navigable waterway. As a general rule, plants ship
Solite[RegTM] to customers within an approximately 200-mile radius. The plants
enable Solite to reach the northeastern, mid-Atlantic, and southeastern United
States markets, as well as other major markets east of the Mississippi.
Solite[RegTM] lightweight aggregate is shipped via rail, water or highway
directly to customers or to dispersal sites for stockpiling and subsequent
distribution. In addition to Carolina Solite's Florida site, Northeast has a
dispersal site in New Jersey,
41
<PAGE>
Kentucky Solite has dispersal sites in Kentucky and Tennessee, and Solite has
dispersal sites located in Virginia and Maryland.
The LWA Group operations also include (i) a facility which designs and
fabricates parts and equipment, the majority of which are for Solite, (ii) a
facility which repairs and rebuilds off-road equipment such as front-end
loaders, and (iii) constructing or managing the construction of plant
facilities.
Concrete Aggregates Group. The ConAgg Group operates a pit and processing
plant for the extraction and processing of sand and gravel in Hanover County,
Virginia. The material is mined with front-end loaders, hauled to the processing
plant, placed on conveyor belts, washed, crushed in the case of some gravel, and
screened into gradations of sand and gravel. Customers include ready mix
concrete producers, asphalt producers, masonry block producers, highway
construction contractors, general contractors, and the Commonwealth of Virginia
(for road maintenance).
Block Group. The Block Group is composed of six masonry block manufacturing
and dispersal facilities, three of which are located in North Carolina and three
of which are located in Virginia, and one sales and dispersal facility located
in Virginia. The Block Group manufacturers and sells concrete masonry blocks,
including lightweight blocks made from Solite[RegTM]. The Block Group produces
about 19 million block equivalents per year. Blocks are sold to general
contractors, commercial builders and home builders. Due to the expense of
transporting block, plants are located within a one hundred mile radius of the
market being served. The Block Group provides a presence for Solite in certain
geographic markets where a competitor might otherwise dominate, and serves as a
significant outlet for the sale of Solite[RegTM] lightweight aggregate. To
position themselves as full-service block companies, the plants also sell
merchandise such as coatings, mortar mix, and reinforcing wire.
Coal Group. The Coal Group owns and leases coal mining properties in
Kentucky and West Virginia. Currently the Kentucky properties generate a small
amount of royalty income. The West Virginia properties are not currently being
mined.
Only the lightweight aggregate plants in New York and North Carolina use
significant amounts of coal for kiln fuel, but they purchase coal from third
parties due to lower transportation costs. Therefore, the Coal Group's coal
reserves are not being used by Solite. However, the Coal Group's reserves of
coal are available to Solite in the event it becomes economically feasible in
the future to extract coal for the use of the LWA Group.
Fuels Group. Producing Solite[RegTM] lightweight aggregate is an energy
intensive process which uses about one million gallons of liquid fuel per
month. The Fuels Group provides waste-derived fuels, such as waste solvents and
used-petroleum products, as fuels for the LWA Group's kilns. Currently, four of
the five lightweight aggregate plants are capable of using these waste-derived
fuels (only the Northeast plant is not). The Fuels Group gives Solite a
competitive advantage by providing an inexpensive source of energy to produce
lightweight aggregate. The Fuels Group collects waste solvents, inks, oils and
other high BTU wastes from a wide variety of sources including paint
manufacturers, solvent recyclers, industrial plants, automotive maintenance
shops and trucking terminals. Tanker trucks then transport the waste fuels to
tank farm facilities located at the lightweight aggregate plants.
The Fuels Group also recycles used solvents and transports, blends and
stores hazardous waste fuel. It receives waste from chemical plants, recyclers
and other industrial plants in bulk and in 55 gallon drums. Waste fuel is
supplied to cement kilns in addition to Solite kilns. In connection with these
operations, the Fuel Group reconditions and resells empty 55 gallon drums.
Transportation Group. Because transportation is an integral part of its
business, Solite operates, for internal and external customers, a specialized
fleet of over-the-road tractors and dump trailers, and tanker units. The
Transportation Group also hauls non-Solite[RegTM] products.
Environmental Matters
Solite's facilities, particularly the lightweight aggregate plants, the
facilities and trucking operations of Oldover Corporation and Environmental
Conservation Systems, Inc., and the M&M Chemical and Equipment Company
facilities and trucking operations, are heavily regulated by the EPA and state
environmental agencies, and are subject to numerous permit requirements. Solite
believes that its level of compliance with such requirements is generally good,
but as with any company subject to such a complex system of environmental
regulation, there is a significant potential for future fines and penalties
associated with enforcement actions.
42
<PAGE>
Solite's lightweight aggregate plants which burn hazardous waste as fuel
are in the process of obtaining final hazardous waste management permits. These
permits, when obtained, may impose additional operating limitations and
compliance costs on the facilities.
As new hazardous waste management permits are obtained (or, in the case of
the Florida facilities, relinquished), corrective action may be required for
existing environmental conditions at the facilities subject to such permits.
Carolina Solite has entered into administrative orders on consent concerning
corrective action with EPA for its Florida facility (which will be transferred
to Northeast Solite in the Spin-Off) and with the State of North Carolina for
its North Carolina facility. The full cost of compliance with the North
Carolina administrative order cannot be reliably estimated, but is not expected
to be material. The full cost of compliance with the EPA administrative order
at the Florida facility also cannot be reliably predicted, but the
environmental consulting firm responsible for implementing the order has
estimated, on a preliminary basis, that remedial costs will fall within a range
of $500,000 to $1,150,000 over a period of up to 15 years.
EPA is in the process of promulgating new regulations for Hazardous Waste
Combustors, including lightweight aggregate kilns. These regulations are
expected to be issued in 1998, with a compliance date three years after
issuance. The precise requirements that will be included in the new regulations
are uncertain, and the ultimate costs of compliance could be substantial.
The Carolina Solite facility in Aquadale, North Carolina was issued a new
state permit for the construction and operation of air emission sources,
including new limitations relating to toxic air pollutants (the "Air Permit"),
on July 10, 1996. The Air Permit was appealed in the North Carolina Office of
Administrative Hearings by both Carolina Solite and a citizens group, the
Stanly Citizens Opposed to Toxic Chemical Hazards ("SCOTCH"). The Carolina
Solite appeal, after lengthy negotiations, was settled and a revised Air Permit
was issued on June 13, 1997. The revised Air Permit was also appealed by SCOTCH
and the North Carolina Waste Awareness and Reduction Network ("N.C. WARN"). It
was discovered in July, 1997 that the revised Air Permit was based on erroneous
air quality modeling assumptions. As a result of this discovery, on July 22,
1997, the North Carolina Division of Air Quality issued a Notice to Terminate
Carolina Solite's revised Air Permit. Carolina Solite has filed a timely appeal
of this Notice and has submitted to the Division corrected air quality modeling
data. Carolina Solite believes is likely that another revised Air Permit will
be issued containing limitations that will be more stringent than those
contained in previous Air Permits. Solite expects that if such Air Permit
requires the installation of additional pollution control equipment, Carolina
Solite will be allowed to operate substantially as it has in the past pending
installation of such equipment.
After SCOTCH filed its first appeal of the Air Permit, Carolina Solite
brought a civil action against SCOTCH and its president, Joann Almond, in
Stanly County Superior Court seeking an injunction and damages for breach of a
1993 Settlement Agreement pursuant to which SCOTCH and Mrs. Almond agreed to
support the modification of Carolina Solite's Air Permit. Carolina Solite's
Motion for Summary Judgment on the issue of liability was granted on August 6,
1997. SCOTCH and Mrs. Almond have filed a motion for reconsideration of the
Order granting summary judgment.
On December 20, 1996 Martin Marietta Materials, Inc. ("MMM") notified the
Company of a claim for waste and debris removal and remediation costs,
estimated at $355,725, under an Asset Purchase Agreement between Solite and MMM
dated June 10, 1994. The MMM claim relates to conditions at a stone quarry in
Caroline County, Virginia sold to MMM by Solite. Solite has evaluated the MMM
claim and has concluded that it should have little if any liability for the
removal and remedial costs alleged by MMM under the indemnification provisions
of the Asset Purchase Agreement, based on currently available information.
Legal Matters
In addition to the environmental matters discussed herein, Solite is
involved in legal proceedings, including litigation in the ordinary course of
its business. These proceedings are not expected to have a material adverse
effect on Solite or Northeast Solite.
43
<PAGE>
Security Ownership of Directors, Executive Officers and Owners of five percent
or more of Solite Stock
The following table sets forth certain information with respect to the
beneficial ownership of Solite Stock as of October 1, 1997, by each shareholder
known by Solite to be the beneficial owner of more than 5% of the outstanding
Solite Common Stock and each class of Solite Preferred Stock, by each director,
by each of the executive officers and by all directors and executive officers
as a group:
<TABLE>
<CAPTION>
Solite Solite Solite
Solite Percent Series A Percent Series B Percent Series C Percent
Common of Preferred of Preferred of Preferred of
Name Stock Class Stock Class Stock Class Stock Class
- --------------------------- ---------------- --------- ----------- --------- --------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John W. Roberts ......... 227,475(a) 42.7% 8,700 100% 11,375(a) 80.7% 15,429 100%
Joan R. Cates ............ 13,150 2.5% -- -- -- -- -- --
Arthur W. Helwig ......... -- -- -- -- -- -- -- --
Linwood F. Perkins ...... 100 * -- -- 60 * -- --
A. Cabell Ford, Jr. ...... 1,775 * -- -- 60 * -- --
Jeremiah J. Jewett, III 425 * -- -- 60 * -- --
Don K. Burris ............ 3,055(b) * -- -- 426(b) 3% -- --
J. Wayne Thornton ...... 1,400 * -- -- 65 * -- --
Lee A. Facetti ......... 850 * -- -- 23 * -- --
William T. Johnson ...... 1,800 * -- -- 51 * -- --
Kenneth R. Armistead ... 325 * -- -- 25 * -- --
William E. Saunders, Jr. 700 * -- -- 50 * -- --
Mrs. Clay H. Barr ...... 35,500(c) 6.7% -- -- -- -- -- --
George M. Kaufman ...... 57,500(d) 10.8% -- -- -- -- -- --
Mrs. Elise H. Wright ... 26,500(e) 5.0% -- -- -- -- -- --
All Executive Officers and
Directors as a group ... 251,055(f) 47.1% 8,700 100% 12,195 86.5% 15,429 100%
</TABLE>
- ----------
* Less than 1%.
(a) Includes 150,000 shares of Solite Common Stock held as trustee, 12,625
shares of Solite Common Stock and 5,940 shares of Solite Series B
Preferred Stock held by his wife.
(b) Includes 100 shares of Solite Common Stock and 213 shares of Solite Series
B Preferred Stock held by his wife.
(c) Includes 3,000 shares of Solite Common Stock held as custodian.
(d) Includes 3,000 shares of Solite Common Stock held as custodian, 27,500
shares of Solite Common Stock held by his wife, and 2,000 shares of Solite
Common Stock held by his wife as custodian.
(e) Includes 400 shares of Solite Common Stock held by her husband as trustee.
(f) See Notes (a) and (b)
44
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
Giant Common Stock is traded on the Nasdaq National Stock Market (symbol:
GCHI).
The high, low and last reported sales prices per share of the Giant Common
Stock on the Nasdaq National Market on September 9, 1997, the last trading day
prior to the date of the public announcement of the signing of the Merger
Agreement were $23.00, $22.50 and $22.50, respectively.
The following table sets forth for the periods indicated the high and low
reported sales prices of the Common Stock on the Nasdaq National Market System.
<TABLE>
<CAPTION>
High Low
--------- ---------
<S> <C> <C>
Year ended December 31, 1995:
First Quarter .................................... $13.5 $10.375
Second Quarter ................................. $13.875 $11.25
Third Quarter .................................... $13.5 $11.625
Fourth Quarter ................................. $11.875 $ 8.75
Year ended December 31, 1996:
First Quarter .................................... $12.75 $10.4375
Second Quarter ................................. $14.625 $12.325
Third Quarter .................................... $16.325 $12.625
Fourth Quarter ................................. $16.125 $14.75
Year ended December 31, 1997:
First Quarter .................................... $17.125 $15.25
Second Quarter ................................. $18.75 $15.5
Third Quarter (through September 26, 1997) ...... $24.50 $18.125
</TABLE>
On September 9, 1997, there were approximately 100 holders of record of
Giant Common Stock.
Giant does not anticipate paying any cash dividends on the Giant Common
Stock in the foreseeable future; it intends to retain its earnings to finance
the expansion of its business and for general corporate purposes. Any payment
of dividends will be at the discretion of the Giant Board and will depend upon
the earnings, financial condition, capital requirements, level of indebtedness,
and contractual restrictions with respect to payment of dividends and other
factors. In addition, Giant's revolving credit agreement contains financial
covenants that could have the effect of limiting the distribution of dividends
without the prior written consent of the lenders who are parties to such
agreement. See "GIANT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
45
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the Merger using the "purchase" method of accounting, after
giving effect to the pro forma adjustments described in the accompanying notes.
These unaudited pro forma combined condensed consolidated financial statements
have been prepared from and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of Giant, which are
incorporated by reference in the Proxy Statement/Prospectus, and Solite which
are included herein.
The unaudited pro forma statements are presented for illustrative purposes
only and are not necessarily indicative of the operating results or financial
position that would have occurred had the Merger been consummated at the dates
indicated, nor is it necessarily indicative of future operating results or
financial position of the merged companies. Pro forma adjustments include
estimates for fair value adjustments required under purchase accounting for the
Solite assets and liabilities and are subject to revision when final analyses
of such values are completed. Pro forma adjustments to income and expense for
Solite's fiscal years ended March 31, 1997 and 1996 and the six months ended
June 30, 1997 are based on management's estimate of the financial effects of
the Merger and for the period and as of the date presented.
Giant has a fiscal year which ends December 31 whereas Solite has a fiscal
year which ends March 31. The Unaudited Pro Forma Combined Condensed Balance
Sheet gives effect to the Merger as if it had occurred June 30, 1997, combining
the balance sheets of Solite at June 30, 1997 with that of Giant as of June 30,
1997. The Unaudited Pro Forma Combined Condensed Statements of Operations give
effect to the Merger as if it had occurred at the beginning of the earliest
period presented, combining the results of Solite for the year ended March 31,
1997 and six months ended June 30, 1997 with those of Giant for the year ended
December 31, 1996 and six months ended June 30, 1997. Accordingly, the
financial data of Solite for the three month period ended March 31, 1997 is
included in both the unaudited pro forma combined condensed financial data for
the period ended December 31, 1996 and June 30, 1997.
As a result of the Merger, the merged companies expect to incur certain
acquisition and transition related costs in connection with consummating the
transaction and integrating the operations of Giant and Solite. The acquisition
and transition related costs consist principally of professional and
registration fees, employment contract termination costs, systems modification
costs and other costs associated with the integration of the two businesses
resulting from the Merger. The exact timing, nature and amount of these
acquisition and transition related costs are subject to change and cannot be
reasonably determined and accordingly have not been reflected in the
accompanying unaudited pro forma combined condensed financial statements.
46
<PAGE>
Unaudited Pro Forma Combined Condensed Balance Sheet
June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
GCHI Solite Adjustments Combined
------------ ------------ ---------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ........................ $ 1,043 $ 563 $ -- $ 1,606
Accounts receivable, net ........................ 20,036 6,327 -- 26,363
Inventories .................................... 16,686 7,587 220 (4) 24,493
Other .......................................... 2,196 1,109 -- 3,305
-------- -------- -------- --------
Total current assets ........................... 39,961 15,586 220 55,767
Property and equipment, net ..................... 75,905 14,165 5,200 (4) 95,270
Deferred income taxes ........................... -- 1,026 (1,026)(6) --
Deferred charges and other ........................ 3,478 1,460 -- 4,938
Goodwill .......................................... -- -- 5,200 (4) 7,100
1,900 (7)
-------- -------- -------- --------
Total assets .................................... $119,344 $ 32,237 $ 11,494 $163,075
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................. $ 7,215 $ 5,520 $ -- $ 12,735
Short-term borrowings ........................... 500 1,321 (1,321)(5) 500
Accrued expenses ................................. 7,979 2,711 -- 10,690
Current maturities of long-term debt ............ 892 16,780 (14,380)(5) 3,292
-------- -------- -------- --------
Total current liabilities ..................... 16,586 26,332 (15,701) 27,217
Long-term debt .................................... 10,114 -- 17,600 (5) 27,714
Accrued pension and postretirement benefits ...... 6,485 -- -- 6,485
Deferred income taxes ........................... 6,125 -- 1,900 (4) 6,999
(1,026)(6)
-------- -------- -------- --------
Total liabilities .............................. 39,310 26,332 2,773 68,415
-------- -------- -------- --------
Shareholders' equity:
Preferred stock ................................. 4,225 (4,225)(4)
Common stock .................................... 100 1,062 (1,056)(4) 106
Capital in excess of par value .................. 41,103 822 (822)(4) 55,723
14,620 (4)
Retained earnings .............................. 48,967 (204) 204 (4) 48,967
Treasury stock ................................. (8,598) -- -- (8,598)
Reduction for addl. pension liability ............ (1,538) -- -- (1,538)
-------- -------- -------- --------
Total Shareholders' equity ..................... 80,034 5,905 8,721 94,660
-------- -------- -------- --------
$119,344 $ 32,237 $ 11,494 $163,075
======== ======== ======== ========
</TABLE>
47
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Operations For the Six
Months Ended June 30, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
GCHI Solite Adjustments Combined
------------ ------------ ---------------- ----------
<S> <C> <C> <C> <C>
Total revenues .................................... $56,681 $26,583 $(397)(1) $82,867
Cost of sales .................................... 41,884 19,244 (397)(1) 60,969
238 (2)
------- ------- --------- --------
Gross profit .................................... 14,797 7,339 (238) 21,898
Selling, general and administrative expense ...... 3,918 5,333 -- 9,251
------- ------- --------- ---------
Operating income ................................. 10,879 2,006 (238) 12,647
Interest expenses ................................. (473) (831) 81(3) (1,223)
Other, net ....................................... 126 114 -- 240
------- ------- --------- ---------
Income before taxes .............................. 10,532 1,289 (157) 11,664
Provisions for income taxes ..................... 3,600 451 (55)(8) 3,996
------- ------- --------- ---------
Net income ....................................... $ 6,932 $ 838 $ (102) $ 7,668
======= ======= ========= =========
Net income per share .............................. $ 0.73 N/A N/A $ 0.75
Weighted average shares outstanding ............... 9,536 N/A N/A 10,186
</TABLE>
48
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Operations (in thousands,
except per share data)
<TABLE>
<CAPTION>
For the Year Ended
------------------------------------
December 31, 1996 March 31, 1997
------------------- ----------------
Historical Historical Pro Forma Pro Forma
GCHI Solite Adjustments Combined
------------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Total revenues .............................. $110,198 $ 52,613 $(391)(1) $162,420
Cost of sales .............................. 77,818 38,329 (391)(1) 116,233
477 (2)
-------- -------- --------- ---------
Gross Profit ................................. 32,380 14,284 (477) 46,187
Selling, general and administrative expenses 7,841 10,808 -- 18,649
-------- -------- --------- --------
Operating income ........................... 24,539 3,476 (477) 27,538
Interest expenses ........................... (1,141) (1,732) 232 (3) (2,641)
Other, net ................................. 298 313 -- 611
-------- -------- --------- --------
Income before taxes ........................ 23,696 2,057 (245) 25,508
Provisions for income taxes ............... 8,275 710 (86)(8) 8,899
-------- -------- --------- --------
Net income ................................. $ 15,421 $ 1,347 $(159) $16,609
======== ======== ========= ========
Net income per share ........................ $ 1.57 N/A N/A $ 1.58
Weighted average shares outstanding ......... 9,833 N/A N/A 10,483
</TABLE>
49
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
1) Represents an adjustment to eliminate Giant's sales of cement and resource
recovery services to Solite of $226,000 and $171,000 in 1997, and $6,000
and $385,000 in 1996, respectively.
2) Represents the amortization of excess purchase price over the underlying
value of the net assets acquired over an average period of 22 years (15
years for property, plant and equipment and 40 years for goodwill).
3) Represents an adjustment to reduce Solite's interest cost to reflect Giant's
cost of borrowing $20.0 million on an annual basis at an assumed constant
rate of 7.5% (lesser of LIBOR plus 1.75% or prime minus 1.0% borrowing
rate). A 50 basis point change in the interest rate would change interest
expense $100,000 per annum.
4) The adjustments reflect the issuance of 650,000 shares of Giant Common Stock
which represents an aggregate purchase price of approximately $14.6
million together with the conversion and elimination of all outstanding
Solite Preferred Stock and Solite Common Stock. These adjustments assume
that the 200,000 shares held in escrow are issued. If all or part of the
escrowed shares are retained by Giant, the purchase price and proforma
adjustments would be modified accordingly.
The cost in excess of assets acquired represents the purchase price of
approximately $14.6 million less the net assets acquired less amounts
allocated to the write-up of inventories as required by purchase
accounting.
The Merger of Solite and Giant results in a new basis of accounting for
Solite. Accordingly, the tangible and intangible assets and the liabilities
of Solite will be reported at their fair values, determined by independent
appraisals, at the date of the Merger. At the date of this Proxy
Statement/Prospectus, such independent appraisals have not been performed,
and for purposes of this presentation goodwill amortization expense shown
on the pro forma combined statements of income data was determined as
though the net assets acquired were equal to the net book value of Solite
as of June 30, 1997 and were stated at estimated fair market value except
inventory and property, plant and equipment, which would be increased by
one-half of the excess cost of approximately $10.4 million and the other
one-half of the excess cost was goodwill to be amortized over a 40-year
period. Giant believes, pending the outcome of the independent appraisals,
that this is a reasonable assumption for the purposes of this pro forma
information.
5) Represents an adjustment to reflect Solite's long-term and short-term debt
of $20.0 million. While not reflected in the Solite balance sheet as of
June 30, 1997, as a result of the Spin-Off and the Merger Agreement, Giant
has agreed to assume up to $20.0 million in debt. Solite's closing balance
sheet is expected to reflect total debt of $20.0 million. Simultaneous
with the closing, Solite will become a borrower under, and borrow from,
Giant's Revolving Credit and Letter of Credit Facilities. Giant has
executed a commitment letter to extend the Credit Facility to $44.0
million, amortizing $200,000 per month for sixty months, or $2.4 million
per annum.
6) Represents the reclassification of long-term deferred income tax assets to
reduce long-term deferred income liabilities.
7) Represents the combined tax effect of the adjustments to write-up property
and equipment and inventories ($5,200 and $220) at an effective tax rate
of 35 percent.
8) Represents the pro forma tax expense at an effective tax rate of 35 percent.
50
<PAGE>
GIANT CONSOLIDATED SELECTED HISTORICAL FINANCIAL
INFORMATION AND OTHER DATA
The following consolidated selected financial data with respect to Giant's
financial position and its results of operations for each of the five years in
the period ended December 31, 1996 set forth below has been derived from
Giant's audited consolidated financial statements, which have previously been
filed with the SEC. The selected financial data as of and for the six months
ended June 30, 1997 and 1996 have been derived from unaudited financial
statements also previously filed with the SEC. The consolidated selected
financial data presented below should be read in conjunction with such audited
consolidated financial statements and related notes and the other information
set forth in this Proxy Statement/Prospectus or incorporated by reference
herein. See "GIANT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS."
<TABLE>
<CAPTION>
Six Months Ended Years Ended December 31,
------------------------------- -----------------------------------------------------
June 30, 1997 June 30, 1996 1996 1995 1994 1993 1992
--------------- --------------- ---------- ---------- --------- --------- -----------
(Unaudited) (In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues ............ $ 56,681 $ 53,205 $110,198 $100,185 $90,802 $81,900 $ 72,256
Cost of sales ............... 41,884 39,272 77,818 72,871 70,359 67,055 66,908
-------- -------- -------- -------- ------- ------- --------
Gross profit ............... 14,797 13,933 32,380 27,314 20,443 14,845 5,348
Selling, general and
administrative expenses ... 3,918 4,216 7,841 7,547 6,691 6,120 6,142
Special charges(1) ......... -- -- -- -- -- -- 3,039
-------- -------- -------- -------- ------- ------- --------
Operating income ............ 10,879 9,717 24,539 19,767 13,752 8,725 (3,833)
Interest expense ............ (473) (578) (1,141) (181) (761) (804) (941)
Other Income (expense), net 126 (63) 298 (24) (219) (450) (990)
-------- -------- -------- -------- ------- ------- --------
Income before income taxes 10,532 9,076 23,696 19,562 12,772 7,471 (5,764)
Provision for income taxes 3,600 3,177 8,275 6,847 3,577 2,323 (71)
-------- -------- -------- -------- ------- ------- --------
Net income .................. $ 6,932 $ 5,899 $15,421 $12,715 $9,195 $5,148 $ (5,693)
======== ======== ======== ======== ======= ======= ========
Net income (loss) per
common share ............... $ 0.73 $ 0.60 $ 1.57 $ 1.27 $ 0.92 $ 0.51 $ (0.57)
Weighted avg common
shares outstanding ......... 9,536 9,898 9,833 9,990 10,000 10,000 10,000
Other Data:
Depreciation and
amortization ............... 5,078 4,743 9,462 8,347 7,773 7,444 6,802
Capital expenditures ...... 11,715 4,477 9,819 23,898 7,527 5,471 3,125
Balance Sheet Data:
Working capital ............ 23,375 19,375 26,706 17,539 20,513 12,228 7,830
Total assets ............... 119,344 111,306 118,616 111,714 90,525 80,944 76,757
Total debt .................. 11,506 13,422 11,751 17,804 8,403 9,312 10,879
Shareholders' equity ...... 80,034 69,308 77,128 64,614 54,203 42,394 38,225
</TABLE>
- ----------
(1) The 1992 operating results include a nonrecurring charge of $3.0 million to
reflect the actuarial cost of early retirement programs for certain
employees.
51
<PAGE>
GIANT MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of Giant's consolidated financial
condition and consolidated results of operations should be read in conjunction
with Giant's consolidated historical financial statements and notes thereto.
See "GIANT CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION AND OTHER
DATA."
General
Giant's cement operations are directly related to the construction
industry. The regional markets in which Giant operates, the Middle-Atlantic and
South-Atlantic regions, are highly cyclical, experiencing peaks and valleys in
demand corresponding to regional and national construction cycles.
Additionally, the demand for cement is seasonal because construction activity
diminishes during the winter months of December, January, and February. The
seasonal impact can be particularly acute in Giant's Middle-Atlantic market. In
addition, Giant performs a substantial portion of its routine annual major
maintenance projects during the period of low plant utilization, typically the
first quarter of its fiscal year, which results in significant additional
expense during this period. Giant believes that the routine annual maintenance
performed in the first quarter results in lower maintenance costs throughout
the remainder of the year. Accordingly, Giant has historically experienced its
lowest levels of revenue and gross profit during the first quarter.
Giant derives revenues from the sales of products, primarily cement and
construction aggregates, as well as from the provision of resource recovery
services. Resource recovery services revenue is primarily derived from third
parties that pay Giant to utilize their waste as fuel, which additionally
reduces the cost of traditional fossil fuels used in the manufacture of cement.
Due to the nature of Giant's operations and the fact that the burning of
waste-derived fuels is inseparable from the manufacture of cement, it is
impractical to disaggregate the costs of sales and services by revenue
classification. Giant's resource recovery operations are dependent on general
and regional economic conditions; federal, state, and local environmental
policies; and competition from other waste disposal alternatives.
Cement is a commodity product sold primarily on the basis of price. The
price of cement tends to rise in periods of high demand and can fall if supply
exceeds demand. The economic recovery that began in 1993 resulted in improved
demand and increased pricing for Giant's products. Demand for cement has
exceeded available supplies in Giant's South-Atlantic markets at various times
since 1993, causing cement shortages. Demand in Giant's Middle-Atlantic markets
has been good for most of the past three years. In 1995, Giant realized a price
increase of $6 per ton in its Middle-Atlantic markets and a price increase of
$8 per ton in its South-Atlantic markets. In 1996, Giant realized a $4 per ton
price increase in its South-Atlantic markets. In 1997, Giant realized a $4 per
ton increase in its Middle-Atlantic markets. Effective for April 1, 1998, Giant
has announced a $4 per ton increase in its Middle-Atlantic markets; and a $3
per ton increase in its South-Atlantic markets, although there can be no
assurance that these price increases will be realized or that current price
levels will not decline should cement demand decline in relation to supply.
Giant's cement manufacturing hourly employees are represented by the
United Paperworkers International Union ("UPIU"). The Agreement between
Keystone Cement Company and the UPIU Local expires May 1, 1998. While Giant
will endeavor to negotiate a new agreement with the UPIU, there can be no
assurance that an agreement will be reached on terms favorable to Giant, nor
can there be assurance that Giant will not incur work stoppages, slowdowns or a
strike.
Results of Operations
Six month period ended June 30, 1997 versus six month period ended June 30,
1996.
Operating revenues increased 6.6% to $56.7 million in 1997 compared with
$53.2 million in 1996. Revenues from product sales increased $1.6 million or
3.4% to $48.6 million in 1997, compared with $47.0 million in 1996, as a result
of higher average selling prices of cement and increased aggregate sales.
Cement shipping volumes decreased 2.0% in 1997, primarily as a result of volume
decreases in Giant's Middle-Atlantic market area.
Giant's average selling price per ton of cement increased 4.2% for the
period ended June 30, 1997 compared with 1996, as a result of price increases
implemented in April 1996 and 1997. Giant realized a price increase of $4 per
ton in April 1997 in its Middle-Atlantic market.
52
<PAGE>
Resource recovery services revenues increased $1.9 million or 30.6% to
$8.1 million in 1997, compared with $6.2 million in 1996. Liquid fuels utilized
increased 12.3%, while liquids pricing improved 8.8% over the prior year
period. Giant's solid fuels volume increased 48% to 8,800 tons. The average
price realized improved 16% over the first six months of 1996 for solid fuels.
Giant anticipates that its year over year growth rate of resource recovery
revenues will be more modest in the third and fourth quarter of 1997 due to a
more difficult comparison to the prior year.
Gross profit increased 6.5% to $14.8 million in 1997, compared with $13.9
million in 1996, as a result of higher cement selling prices and resource
recovery revenues. Giant's gross margins in the 1997 and 1996 periods were 26%.
In 1997, cost of sales and services increased $2.6 million or 6.6% to $41.9
million, compared with $39.3 million in 1996. The increase in cost was the
result of a more extensive winter maintenance shutdown, higher resource
recovery volumes, and higher costs incurred to import clinker to meet customer
demand in Giant's South- Atlantic markets. Cost of sales per ton of cement
increased 2.6% in 1997 compared to 1996.
Selling, general and administrative expenses decreased $298,000 to $3.9
million in 1997 compared with $4.2 million in 1996. The expense decrease
primarily related to lower insurance and other administrative costs.
Interest costs decreased $105,000 for the six month period to $473,000 as
a result of lower average borrowings outstanding.
The income tax provisions recorded for the six month periods ended June
30, 1997 and 1996, relate to federal and state income taxes and were recorded
at estimated annual effective rates of 34.2% and 35.0%, respectively.
Net income increased $1.0 million or 17.0% to $6.9 million in 1997
compared with $5.9 million in 1996, primarily as a result of increased
operating revenues. Net income as a percentage of net sales increased from
11.1% in 1996 to 12.2% in 1997.
1996 Versus 1995
Total operating revenues increased $10.0 million or 10.0% to $110.2
million in 1996, compared with $100.2 million in 1995. Product sales increased
$9.6 million or 11.0% to $96.2 million in 1996, compared with $86.6 million in
1995, as a result of increased shipping volumes and higher average selling
prices of cement. Cement shipping volumes increased 6.7% in 1996, as a result
of volume increases in both of Giant's market areas. Giant's average selling
price per ton of cement increased 4.1% in 1996, as a result of price increases
in its South-Atlantic market. No price increases were realized in Giant's
Middle-Atlantic market in 1996. Resource recovery revenues increased $462,000
or 3.4% to $14.0 million in 1996, compared with $13.6 million in 1995,
primarily as a result of a 124.2% increase in the volume of solid waste fuels
utilized, partially offset by lower liquid fuels pricing. Liquid fuel volumes
increased 3.8%; however, average liquid fuel pricing decreased 16.1% in 1996
compared with 1995.
Improved shipping volumes and cement pricing resulted in a $5.1 million or
18.5% increase in gross profit from $27.3 million in 1995 to $32.4 million in
1996. Giant's gross margin percentage increased from 27.3% in 1995 to 29.4% in
1996. The total cost of sales and services increased $4.9 million to $77.8
million primarily as a result of higher shipping volumes and increased
depreciation expense. Cement costs per ton increased less than one percent in
1996. Clinker and cement manufactured increased 1.5% and 2.5%, respectively,
compared with 1995, as a result of capital and operating improvements made in
1995 and 1996. Both of Giant's plants operated at effective capacity throughout
1996.
Selling, general and administrative expenses increased $294,000 to $7.8
million, but decreased to 7.1% of operating revenues as a result of higher
revenues. The increase related primarily to higher selling and promotional
expenses.
Operating income improved $4.8 million or 24.1% to $24.5 million in 1996,
compared with $19.8 million in 1995, primarily as the result of the increase in
operating revenues. Operating income margins improved from 19.7% in 1995 to
22.3% in 1996, as a result of higher cement selling prices with only minimal
per unit cost increases.
Interest expense increased $1.0 million as a result of higher average
borrowings outstanding and the capitalization of $733,000 of interest cost in
1995.
Federal and state income tax expenses resulted in an effective tax rate of
35.0% in 1995 and 34.9% in 1996. Giant's effective tax rate of 34.9% in 1996 is
not expected to change materially under current tax law.
Net income increased $2.7 million or 21.3% to $15.4 million in 1996,
compared with $12.7 million in 1995. Net income as a percentage of net sales
increased from 12.7% in 1995 to 14.0% in 1996.
53
<PAGE>
1995 Versus 1994
Total operating revenues increased $9.4 million or 10.3% to $100.2 million
in 1995 as compared with $90.8 million in 1994. Product sales increased $8.8
million or 11.2%, to $86.6 million in 1995, compared with $77.9 million in
1994. The increase resulted primarily from an 11.3% increase in the average
selling price of cement as cement shipping volumes increased 1.1% from 1994.
Resource recovery revenues increased $631,000, or 4.9%, to $13.6 million in
1995, compared with $12.9 million in 1994, primarily as a result of higher
volumes of liquid and solid waste fuels utilized. Giant experienced a decline
in resource recovery revenues in the fourth quarter of 1995 as a result of
lower prices realized for liquid fuels processed.
Improved cement pricing resulted in a $6.9 million, or 33.6%, increase in
gross profit from $20.4 million in 1994 to $27.3 million in 1995. Giant's gross
margin percentage increased from 22.5% in 1994 to 27.3% in 1995. The total cost
of sales and services increased $2.5 million to $72.9 million in 1995, compared
with $70.4 million in 1994, primarily as a result of Giant importing $2.5
million of cement clinker to supplement its own production at Giant Cement.
Cement costs per ton increased 2.9% in 1995, primarily as a result of the
aforementioned clinker purchase and higher raw material costs versus 1994.
Selling, general and administrative expenses increased $856,000 to $7.5
million, but remained at 7.5% of operating revenues as a result of higher
revenues. The increase related primarily to higher corporate overhead costs
associated with Giant's Common Stock being publicly traded for the full year of
1995.
Operating income improved $6.0 million, or 43.7%, to $19.8 million in
1995, compared with $13.8 million in 1994, primarily as the result of the
increase in operating revenues. Operating income margins improved from 15.1% in
1994 to 19.7% in 1995, which represented a 30% improvement.
Interest expense decreased $580,000 as a result of the capitalization of
$733,000 of interest costs associated with the construction of the 4400
horsepower finish mill at Keystone.
Federal and state income tax expenses resulted in effective rates of 35.0%
in 1995 and 28.0% in 1994. Giant incurred a lower effective tax rate in 1994 as
a result of the greater utilization of net operating loss carryforwards.
Net income increased $3.5 million, or 38.3%, to $12.7 million in 1995,
compared with $9.2 million in 1994. Net income as a percentage of net sales
improved to 12.7% in 1995, compared with 10.1% in 1994.
Liquidity and Capital Resources
Giant's liquidity requirements arise primarily from the funding of capital
expenditures, debt service obligations and working capital needs. Giant has
historically met these needs through internal generation of cash and borrowings
on revolving credit facilities. Giant's borrowings have historically increased
during the first half of the year because of the seasonality of its business
and the annual plant maintenance performed primarily in the first quarter.
Cash and cash equivalents totaled $1.0 million at June 30, 1997 compared
to $10.4 million at December 31, 1996. At June 30, 1997, and December 31, 1996
Giant had net working capital of $23.4 million, and $26.7 million, with current
ratios of 2.4 and 2.5, respectively. Accounts receivable increased $5.1 million
or 34.5% to $20.0 million at June 30, 1997, compared with December 31, 1996, as
a result of higher cement and resource recovery revenues in June 1997 compared
with December 1996. Inventories decreased $1.0 million, or 5.5%, to $16.7
million at June 30, 1997. Total current liabilities decreased $1.8 million, or
9.6%, to $16.6 million at June 30, 1997, primarily as a result of decreased
amounts payable to vendors for capital projects compared with December 31,
1996.
Cash provided by operations for the six-month period ended June 30, 1997
was $6.8 million compared with $5.1 million for the comparable 1996 period. The
increase in cash provided by operations was primarily the result of increased
net income and depreciation compared with the 1996 period. Net cash used by
investing activities increased from $4.5 million in the first half of 1996 to
$11.7 million in the 1997 period as a result of increased capital expenditures.
The $11.7 million of capital expenditures in 1997, as reflected in the
Condensed Consolidated Statements of Cash Flows, include $1.6 million of
accounts payable at December 31, 1996, for 1996 capital expenditures that were
paid in 1997. Net cash used by financing activities decreased by $1.4 million
in 1997 as a result of decreased debt payments, partially offset by repurchases
of Giant's Common Stock which have increased by $2.7 million in the 1997
period. Through June 30, 1997, Giant had expended $8.6 million of the $10.0
million approved by the Giant Board for stock repurchases. Giant utilized a
total of $9.4 million in cash in the first half
54
<PAGE>
of 1997 versus $5.3 million in the comparable 1996 period, primarily as a
result of increased capital spending and common stock repurchases.
Giant has executed a commitment letter increasing the limit of its $32
million Credit Facility to $44 million and intends to refinance approximately
$20 million of Solite's existing indebtedness with the proceeds from this
facility. Giant believes that its bank term loan and credit facility, together
with internally generated funds, will be sufficient to meet its needs for the
foreseeable future.
Environmental Matters
Giant's operations and properties are subject to extensive and changing
federal, state and local laws (including common law), regulations and
ordinances relating to noise and dust suppression, air and water quality, as
well as to the handling, treatment, storage and disposal of wastes
("Environmental Laws"). In connection with Giant's quarry sites and utilization
of hazardous waste-derived fuel, Environmental Laws require certain permits and
other authorizations mandating procedures under which Giant shall operate.
Environmental Laws also provide significant penalties for violators, as well as
liabilities and costs of cleaning up releases of hazardous wastes into the
environment. Violations of the permit conditions or of the regulations, even if
immaterial or unintentional, may result in fines, shutdowns, remedial actions
or revocation of the permits, the loss of any one of which could have a
material adverse effect on Giant's financial condition or results of
operations. In 1996, resource recovery services revenues totaled $14.0 million
or 12.7% of consolidated revenues.
While Giant endeavors to maintain full compliance with the environmental
laws and regulations at all times, violations have occurred in the past and
there is no assurance violations will not occur in the future, due to the
inherent complexity and differing interpretations of the laws and regulations.
Giant maintains environmental liability insurance with limits of $5.0 million
per occurrence and $10.0 million annual aggregate at each of its cement
manufacturing facilities. These policies cover certain off-site environmental
damage. The policies do not cover liabilities arising under CERCLA, fines or
penalties, and thus Giant has no claims for recovery of these items.
In September 1995, Pennsylvania Environmental Enforcement Project, Inc.
("PEEP") filed suit against Keystone Cement Company in the United States
District Court for the Eastern District of Pennsylvania. In August 1996, the
PEEP suit was dismissed with no financial or operating impact on Giant.
In December 1994, Keystone settled all charges relating to alleged
violations of certain environmental statutes from 1989 to early 1992. As a
result of the settlement, Keystone will pay fines and other costs totaling
$840,000 in installments over a six-year period. The charges relating to this
matter were fully accrued at December 31, 1994.
55
<PAGE>
SOLITE SELECTED HISTORICAL FINANCIAL INFORMATION
(in thousands, except per share data)
The following consolidated selected financial data with respect to
Solite's financial position and its results of operations for each of the two
years in the period ended March 31, 1997 set forth below has been derived from
Solite's audited consolidated financial statements, which are included herein.
The selected financial data as of and for the three months ended June 30, 1997
and 1996 have been derived from unaudited financial statements also included
herein. The consolidated selected financial data presented below should be read
in conjunction with such audited consolidated financial statements and related
notes and the other information set forth in this Proxy Statement/Prospectus.
See "SOLITE MANAGEMENT'S DISCUSSION AND ANLAYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
<TABLE>
<CAPTION>
Three Months Ended Years Ended March 31,
--------------------------------- ------------------------
June 30, 1997 June 30, 1996 1997 1996
--------------- --------------- ---------- -----------
<S> <C> <C> <C> <C>
Statement of Operations Data: (Unaudited)
Total revenues .................................... $ 13,540 $14,488 $52,613 $ 49,443
Cost of sales .................................... 9,318 9,512 38,329 33,735
--------- ------- -------- ---------
Gross Profit ....................................... 4,222 4,976 14,284 15,708
Selling, general and administrative expenses ...... 2,759 2,993 10,808 11,349
--------- ------- -------- ---------
Operating income ................................. 1,463 1,983 3,476 4,359
Interest expense ................................. (499) (440) (1,732) (1,835)
Other, net ....................................... 82 39 313 263
--------- ------- -------- ---------
Income before taxes .............................. 1,046 1,582 2,057 2,787
Provision for income taxes ........................ 366 554 710 975
--------- ------- -------- ---------
Net income ....................................... $ 680 $ 1,028 $ 1,347 $ 1,812
========= ======= ======== =========
Balance Sheet Data (at period end):
Working capital .................................... (10,746) (9,883) (10,658)
Total assets ....................................... 32,237 33,588 33,592
Total debt ....................................... 18,101 17,038 18,526
Shareholders' equity .............................. 5,905 7,108 7,411
</TABLE>
56
<PAGE>
SOLITE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three month period ended June 30, 1997 versus three month period ended June 30,
1996
For the three months ended June 30, 1997 revenues were $13.5 million, as
compared to $14.5 million in the comparable 1996 period, which represents a
decrease of $1.0 million or 6.5%. The decline was primarily due to a 14%
decrease in the average price realized for waste fuels processed and slight
decreases in the volume of lightweight aggregate and masonry block shipped,
partially offset by a 5% increase in the volume of waste fuels processed.
Gross profit declined to $4.2 million or 31.2% of revenue for the three
months ended June 30, 1997 from $5.0 million or 34.3% of revenue for the three
months ended June 30, 1996. The decrease, totaling $754,000, is due primarily
to the aforementioned revenue decline and increased costs in the resource
recovery operations compared with last year.
Selling, general & administrative costs, which include costs for the
delivery of masonry block, decreased $234,000 or 7.8% to $2.8 million for the
three months ended June 30, 1997 from $3.0 million through June 30, 1996 as a
result of various cost cutting measures in the corporate overhead department.
These savings partially resulted from lower professional and legal costs
compared to the same period in the prior year. Selling, general and
administrative costs as a percentage of revenues were 20.4% compared to 20.7%
in the comparable prior year period.
Solite's net interest expense increased $59,000 due to higher average
interest rates.
Solite's net income of $680,000 through June 30, 1997, declined $348,000
or 33.9%, compared with $1.0 million during the same period of last year,
primarily as a result of reduced revenues and increased operating costs in its
resource recovery operations.
Fiscal year ended March 31, 1997 versus Fiscal year ended March 31, 1996
Operating revenue increased 6.4% to $52.6 million in fiscal year ended
March 31, 1997 compared to $49.4 million in fiscal year ended March 31, 1996.
Revenues from the lightweight aggregate operations increased $1.0 million
compared to the prior year as a result of higher average selling prices.
Masonry Block operating revenue increased $1.4 million, or 10.7% due to higher
average selling prices combined with a 7% increase in sales units. The resource
recovery operating revenue increased 3% over the prior year as a result of
higher average prices.
Higher operating costs in the lightweight aggregate and resource recovery
operations resulted in a decline in the gross profit from $15.7 million to
$14.3 million, a decrease of 9.1%. The gross margin percentage declined from
32% to 27% primarily as a result of higher operating and repair costs in 1997
in the lightweight aggregate operations, and increased waste disposal costs.
Selling, general and administrative costs declined $541,000 to $10.8
million from $11.3 million in the prior year, a decrease of 5% primarily due to
reductions in permit acquisition costs in the lightweight aggregate operations
and a decline in health insurance costs of $181,000.
Operating income decreased to $3.5 million from $4.4 million as a result
of higher operating costs as discussed above. As a percentage of revenues,
operating margins declined to 6.6% in 1997 from 8.8% in 1996.
Interest expense declined by $103,000 due to lower overall debt balances.
Federal and state income tax expenses resulted in an effective tax rate of
34.5% in 1997 and 35% in 1996. Net income declined by $465,000 or 26% to $1.3
million in 1997 from $1.8 million in 1996. Net income as a percentage of net
sales decreased to 2.6% in 1997 from 3.7% in 1996.
Liquidity and Capital Resources
Solite's lightweight aggregate and block operations are directly related
to the construction industry. Sales of construction related products have
historically been highly cyclical, experiencing peaks and valleys in demand
corresponding to regional and national construction cycles. Additionally, the
demand for Solite's construction related products is seasonal because
construction activity diminishes in the winter months.
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Solite's liquidity requirements arise primarily from the funding of
capital expenditures, debt service obligations and working capital needs. In
1990, 1992 and 1993 Solite increased its debt for general working capital needs
as well as for capital expenditures, particularly for improved emission control
and monitoring equipment. Losses incurred over the past several years,
primarily in the non-core businesses to be included in the Spin-Off, combined
with increased debt service requirements, have negatively affected Solite's
liquidity and resulted in repeated events of default due to failure to meet
several lender financial covenants requirements. Solite has received waivers
and amendments to cure these events of default and has received several
extensions of final debt maturities. As a result of the defaults and extensions
all revolving credit lines, lines of credit and senior notes have been
classified as current at each balance sheet date. For the past five years,
Solite has met its capital needs through sales of assets, borrowing and the
sales of preferred stock
Cash and cash equivalents totaled $563,000 at June 30, 1997 compared with
$1.4 million at March 31, 1997. At June 30, 1997 and March 31, 1997, Solite had
a deficit in working capital of $10.7 million and $9.9 million, respectively,
with current ratios of 0.59 and 0.63, respectively. Inventories decreased
$120,000 or 1.6% to $7.6 million at June 30, 1997. Accounts payable decreased
$1.1 million or 16.8%, from $6.6 million at March 31, 1997 to $5.5 million at
June 30, 1997. Current maturities of debt increased $1.1 million to $18.1
million at June 30, 1997 as compared with $17.0 million at March 31, 1997, as a
result of additional borrowing. Total current liabilities decreased $148,000,
or .6% to $26.3 million at June 30, 1997, as compared with $26.5 million at
March 31, 1997.
Cash provided by operations for the three month period ended June 30, 1997
was $227,000 compared with $1.1 million for the three months ended June 30,
1996. The decrease in cash provided by operations was primarily due to lower
profits and a reduction of accrued expenses and other current liabilities in
the three months ended June 30, 1997, compared with an increase in the
comparable 1996 period, partially offset by a lesser increase in accounts
receivable in the 1997 period as a result of reduced sales. Net cash used by
investing activities decreased to $293,000 in the three months ended June 30,
1997 from $562,000 in the three months ended June 30, 1996. Net Cash used by
financing activities increased to $812,000 for the 1997 period compared with
net cash usage of $670,000 for the three months ended June 30, 1996. Solite
repaid $307,000 of its debt in the 1997 period as compared with $500,000 in the
1996 period.
Solite has had recurring operating losses on a consolidated basis,
primarily as a result of losses in the non-core businesses to be spun off prior
to the Merger. The consolidated net loss for the fiscal year ended March 31,
1997 was $3.2 million. As a result of the continuing losses, Solite is
dependent on external financing or asset sales to continue as a going concern.
Solite has repeatedly defaulted on various terms of its financing arrangements,
all of which defaults have been waived by Solite's lenders. The maturity dates
of Solite's debt have been extended numerous times over the past five years,
most recently to between October 31, 1997 and December 31, 1997 in
contemplation of the merger of Solite and Giant. Subsequent to June 30, 1997,
Solite sold substantially all of the assets of its Sand and Gravel division.
The proceeds from the sale were used primarily to retire debt. Solite has
entered into a definitive agreement to merge with Giant as discussed in Note 1
of the Notes to Financial Statements. Solite's ability to continue its
operations as a going concern are dependent upon its plans to merge with Giant
or upon its lenders for continued financing. There can be no assurance that
Solite's lenders will continue to grant waivers of defaults, extensions of
maturity dates or allow Solite to borrow additional funds.
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TERMS OF THE MERGER AGREEMENT
The following description of certain provisions of the Merger Agreement is
only a summary and does not purport to be complete. This discussion is
qualified in its entirety by reference to the complete text of the Merger
Agreement, which is attached to this Proxy Statement/Prospectus as Annex IV and
incorporated by reference herein.
The Merger; Exchange and Conversion of Shares
Pursuant to and subject to the terms and conditions of the Merger
Agreement, at the Effective Time, Merger Sub will be merged with and into
Solite. Solite will be the surviving corporation in the Merger. At the Effective
Time, each outstanding share of Solite Common Stock, other than shares as to
which the holders have perfected their appraisal rights under the VSCA, will be
converted into the right to receive the number of shares of Giant Common Stock
equal to the quotient derived by dividing (1) 450,000 shares of Giant Common
Stock by (ii) the total number of shares of Solite Common Stock outstanding as
of the Effective Time, including all shares of Solite Common Stock issuable upon
conversion of the Solite Preferred Stock.
The holders of shares of Solite Stock as to which dissenter's rights shall
have been duly demanded under applicable law shall be entitled to payment by
Solite only of the fair value of such shares plus accrued interest to the
extent permitted by and in accordance with the provisions of applicable law;
provided, however, that if any holder fails to establish such holder's
entitlement to rights to payment as provided under applicable law, such holder
or holders (as the case may be) shall forfeit such right to payment for such
shares and such shares shall thereupon be deemed to have been converted into
Giant Common Stock as of the Effective Time. See "THE MERGER-- Dissenters'
Rights."
No fractional shares of Giant Common Stock will be issued in connection
with the Merger. If a holder of shares of Solite Common Stock would otherwise
be entitled at the Effective Time to a fraction of a share of Giant Common
Stock, such holder will be entitled to receive from Giant an amount in cash in
lieu of such fractional share of Solite Common Stock, determined by multiplying
(i) the fractional interest to which such holder would otherwise be entitled
and (ii) the average of the closing on the Nasdaq National Market for the
twenty trading days immediately preceding the Closing. The payment of cash in
lieu of fractional shares is solely for the purpose of avoiding the expense and
inconvenience to Giant of issuing fractional shares and does not represent
separately bargained-for consideration.
Shares of Giant Common Stock to be Held in Escrow
Pursuant to the Merger Agreement, an additional 200,000 shares of Giant
Common Stock will be placed in escrow upon consummation of the Merger.
100,000 of such shares would be returned to Giant and cancelled if, as of
the Effective Time, the consolidated net book value (as defined in the Merger
Agreement) of Solite is $3.1 million or less or the net current assets (as
defined in the Merger Agreement) of Solite are $4.1 million or less. If such
consolidated net book value is more than $5 million and such net current assets
are more than $6 million, all such 100,000 shares would be distributed to the
persons who were holders of Solite Common Stock immediately prior to the Merger
(including holders of Solite Preferred Stock that were converted into Solite
Common Stock) on the basis of each such share of Solite Common Stock entitling
such former holder to the number of shares of Giant Common Stock equal to the
quotient derived by dividing 100,000 by the total number of shares of Solite
Common Stock outstanding as of the Effective Time. If such consolidated net
book value is more than $3.1 million but less than $5 million, or such net
current assets are more than $4.1 million but less than $6 million, the shares
of Giant Common Stock held pursuant to such escrow shall be returned, in part,
to Giant for cancellation and distributed, in part, to such holders of Solite
common stock on a formula basis with the Giant Common Stock returned valued at
$19 per share.
The other 100,000 shares of Giant Common Stock shall be held in escrow and
shall be available to satisfy the indemnification claims, if any, of Giant
under the Merger Agreement. Unless a claim or claims by Giant are then pending
in amounts in excess of the then value of 50,000 shares of Giant Common Stock,
50,000 shares of Giant Common Stock held in escrow shall be released on the
second anniversary of the Effective Time, and unless any claim or claims by
Giant are then pending, the balance of the shares of Giant Common Stock held in
escrow shall be released on the third anniversary of the Effective Time.
Upon release of the Giant Common Stock from escrow, Solite shareholders
will be entitled to receive for each share of Solite Common Stock held by them
at the Effective Time the number of shares of Giant Common Stock equal to the
quotient derived by dividing (i) the number of shares of Giant Common Stock
released from escrow by (ii) the total number of shares of Solite Common Stock
outstanding as of the Effective Time, including all shares of Solite Common
Stock outstanding as a result of the Conversion.
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Exchange of Share Certificates
At the Effective Time, certificates representing shares of Solite Common
Stock ("Solite Certificates") will be deemed to represent solely the right to
receive the number of shares of Giant Common Stock, and the amount of cash, if
any, in lieu of any fractional shares of Giant Common Stock, determined as
described above. Until shares of Solite Common Stock are converted into shares
of Giant Common Stock, such shares of Solite Common Stock will have no voting
rights with respect to matters considered by Giant's shareholders.
Effective Time
The Effective Time of the Merger, at which time the Merger will become
effective, will be the time a Certificate of Merger is issued by the Virginia
SCC or such later time as specified in the Articles of Merger. This filing will
occur as soon as practicable following the closing of the transactions
contemplated by the Merger Agreement. The Effective Time is currently expected
to take place on or about October 31, 1997. See "--Termination Rights" and
"--Conditions to the Merger."
Termination Rights
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the approval by the shareholders of Solite:
(a) by mutual consent of Giant and Solite; or
(b) by either Giant or Solite, if (i) the Merger shall not have been
consummated on or before October 30, 1997 (unless, in the case of any
such termination, the failure to so consummate the Merger by such
date shall have been caused by the action or failure to act of the
party (or its Subsidiaries) seeking to terminate the Merger
Agreement, which action or failure to act constitutes a breach of the
Merger Agreement); provided, however, that if (x) on or prior to
September 12, 1997, all required filings under the HSR Act have been
made by the parties hereto and (y) on or prior to October 3, 1997,
the Registration Statement shall have been filed with the Commission,
then the reference to "October, 30 1997" in this clause (i) shall be
deemed, for all purposes, to be November 30, 1997; provided, further,
that if the conditions for the extension of the termination date to
November 30, 1997 have been met and the SEC provides Giant with
comments on the Registration Statement or the FTC or Department of
Justice requests additional information in connection with the filing
under the HSR Act, then the reference to "October 31, 1997" in this
clause (i) shall be deemed, for all purposes, to be December 31,
1997; or (ii) the shareholders of Solite vote not to approve and
adopt the Merger Agreement, the Merger and related transactions; or
(c) by Giant, if (i) there has been a breach in any material respect of
any representations or warranties of Solite, (ii) there has been a
breach in any material respect of any of the covenants or agreements
set forth in the Merger Agreement on the part of Solite, which breach
is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by Giant to Solite, (iii) the
Board of Directors of Solite (x) withdraws or amends or modifies in a
manner adverse to Giant or Merger Sub its recommendation or approval
in respect of the Merger Agreement or the Merger, (y) makes any
recommendation with respect to an Acquisition Transaction (including
making no recommendation or stating an inability to make a
recommendation), other than a recommendation to reject such
Acquisition Transaction, or (z) breaches the No Solicitation
Agreement in any material respect, (iv) any Acquiring Person other
than John W. Roberts, any member of Mr. Roberts' family, any trust
for the benefit of Mr. Roberts and/or any member or members of his
family, any legal representatives of any of the foregoing, Giant, or
any affiliate or Subsidiary of Giant, shall have become the
beneficial owner of 331/3% or more of the outstanding voting equity
of Solite (either on a primary or a fully diluted basis), or (v) any
other Acquisition Transaction shall have occurred with any Acquiring
Person other than the Giant, or any affiliate or Subsidiary of Giant;
or
(d) by Solite, if (i) there has been a breach in any material respect of
any representations or warranties of Giant or the Merger Sub, (ii)
there has been a breach in any material respect of any of the
covenants or agreements set forth in the Merger Agreement on the part
of Giant or Merger Sub, which breach is not curable or, if curable,
is not cured within 30 days after written notice of such breach is
given by Solite to Giant, or (iii) such termination is necessary to
allow Solite to enter into an Acquisition
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Transaction (provided that such termination shall not be effective
unless and until Solite shall have paid to Giant in full the
termination fee).
Upon termination, the Merger Agreement shall become void and have no
effect, and there shall be no liability thereunder on the part of Giant, Merger
Sub or Solite, except as provided below:
(a) the provisions governing costs and expenses shall survive any
termination of the Merger Agreement; and
(b) If (x) Giant shall have terminated this Agreement under the
circumstances described in paragraph 1(c)(iii),(iv) or (v) or (y)
either (1) Solite shall have terminated the Merger Agreement under
the circumstances described in paragraphs 1(b) or (2) Giant shall
have terminated the Merger Agreement under the circumstances
described in paragraph 1(c)(i) or (ii) and, prior to or within six
(6) months after any termination described in this clause (y), Solite
(or any of its Subsidiaries) shall have directly or indirectly
entered into a definitive agreement for, or shall have consummated,
an Acquisition Transaction, or (z) Solite shall have terminated the
Merger Agreement under the circumstances described in paragraph 1(f),
then, in any of such cases, Solite shall pay Giant a termination fee
of one million seven hundred fifty thousand dollars ($1,750,000).
Certain Fees and Expenses
Except as provided in "Termination Rights" above, whether or not the
Merger is consummated, all costs and expenses incurred in connection with the
Merger Agreement (including the exhibits and schedules thereto) and the
transactions contemplated thereby shall be paid by the party incurring such
expenses, except that all costs and expenses incurred in connection with the
Spin-Off shall be paid by Northeast Solite.
Conditions to the Merger
The parties' obligations to effect the Merger are subject to the
satisfaction or waiver at or prior to the Effective Time of various conditions,
including: (i) approval of the Merger Agreement, the Merger and related
transactions by the requisite holders of the Solite Common Stock in accordance
with applicable law and Solite's articles of incorporation and by-laws; (ii)
the effectiveness of the Registration Statement and the absence of stop order
or proceeding for a stop order; (iii) any waiting period (and any extension
thereof) under the HSR Act applicable to the Merger having expired or been
terminated and any action by the Department of Justice or FTC challenging or
seeking to enjoin the Merger having been withdrawn or terminated; (iv) no
preliminary or permanent injunction, statute, rule, regulation, executive
order, decree, or other order having been issued or enacted by any court or by
any governmental or regulatory agency, body or authority which enjoins,
restrains or prohibits the consummation of the Merger; (v) no opinion from
counsel to Giant, Merger Sub or Solite having been obtained to the effect that
as a result of a change in law the Spin-Off will no longer qualify as a
reorganization within the meaning of Section 368(a) of the Code and (vi) Solite
having obtained a ruling from the Internal Revenue Service, in form and
substance satisfactory to counsel for Solite and Giant, to the effect that the
Spin-Off will qualify as nontaxable to Solite and its shareholders under
Section 368(a)(1)(D) and Section 355 of the Code (except to the extent of any
gain recognized under Section 357(c) of the Code).
Further conditions precedent to the obligations of Giant and Merger Sub to
effect the Merger are: (i) the representations and warranties of Solite being
true and correct in all material respects; (ii) the performance in all material
respects of all obligations of Solite contained in the Merger Agreement to be
performed by it prior to the Effective Time; (iii) all material consents,
waivers, approvals, authorizations required to be obtained, and all filings
required to be made by Solite, having been obtained or made by Solite; (iv) no
action or proceeding by any governmental authority or administrative agency
having been instituted, pending, threatened seeking to limit Giant from
exercising all material rights and privileges pertaining its ownership of the
surviving entity or the ownership or operation by Giant or its Subsidiaries of
all or a portion of the business or assets of Giant or any of its Subsidiaries
as a result of the Merger or the transactions contemplated by the Merger
Agreement; (v) Giant having received the opinion of McGuire Woods Battle &
Boothe LLP; (vi) all persons who are "affiliates" of Solite for purposes of
Rule 145 under the Securities Act having delivered an Affiliate Agreement in
the form attached as an exhibit to the Merger Agreement with respect to Rule
145 of the Securities Act requirements; (vii) Giant having received from the
persons who each hold 1% or more, and who hold at least 70% of the outstanding
shares of Giant Common Stock to be issued in connection with the Merger a Giant
Shareholder Agreement in the form attached as an exhibit
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to the Merger Agreement; (viii) Giant having received from persons who each
hold 1% or more, and who hold in the aggregate at least 50% of the total
outstanding shares of capital stock of Northeast Solite to be issued in
connection with the Spin-Off a Northeast Shareholder Agreement in the form
attached as an exhibit to the Merger Agreement; (ix) Solite and Northeast
Solite having executed and delivered the Escrow Agreement in the form attached
as an exhibit to the Merger Agreement; (x) Solite having executed and delivered
the Indemnity Escrow Agreement in the form attached as an exhibit to the Merger
Agreement; (xi) Giant having received from Northeast Solite the Northeast
Agreement in the form attached as an exhibit to the Merger Agreement; (xii)
there having been no change, circumstance or occurrence in the business,
properties, results of operations or financial condition of the Solite or any
of its Subsidiaries had or is reasonably likely to have a material adverse
effect on the business, properties or results of operations of Solite or its
Subsidiaries, taken as a whole; (xiii) John W. Roberts having entered into the
Market Stand-Off Agreement in the form attached as an exhibit to the Merger
Agreement; (xiv) there having been no Phase II assessment report(s) which
disclose any environmental conditions with respect to Solite's business, assets
or the Real Property that present or is reasonably likely to give rise to any
material Environmental Liabilities not reflected in Solite's March 31, 1997
audited financial statements; (xv) Giant having received from Northeast Solite
a Tax Provisions Agreement in the form attached as an exhibit to the Merger
Agreement; (xvi) Giant having received from Northeast Solite the Indemnity
Agreement in the form attached as an exhibit to the Merger Agreement; (xvii)
Giant having received a letter of resignation and the Noncompetition Agreement
from John W. Roberts in the form attached as an exhibit to the Merger
Agreement; (xviii) Solite having caused the Solite Preferred Stock to be
converted into Solite Common Stock; (xix) Giant having received the statement
that Solite was not a U.S. real property holding corporation during the
previous five years; (xx) there having been no redemption or other acquisition
of Solite capital stock by Solite for cash or other consideration in excess of
$10,000 in the aggregate; (xxi) Northeast Solite having executed and delivered
the Services Agreement in the form attached as an exhibit to the Merger
Agreement; (xxii) Northeast Solite having executed and delivered the
Non-Competition Agreement in the form attached as an exhibit to the Merger
Agreement; and (xxiii) Solite having been released from (x) its guaranty of any
and all obligations of Northeast Solite and/or its Subsidiaries to John W.
Roberts and (y) any and all past or prospective obligations under the Lease
Agreement dated July 1994 between Solite and John W. Roberts for sand and
gravel property, mineral extraction and plant site rent.
Further conditions precedent to the obligations of Solite to effect the
Merger are: (i) the representations and warranties of Giant and Merger Sub
being true and correct in all material respects; (ii) the performance in all
material respects of all obligations of Giant and Merger Sub contained in the
Merger Agreement to be performed or complied with prior to the Effective Time;
(iii) all material consents, waivers, approvals, authorizations required to be
obtained, and all filings required to be made by Giant, having been obtained or
made by Giant; (iv) Solite having received (x) the opinion of CoView Capital to
the effect that consideration to be paid pursuant to the Merger Agreement is
fair, from a financial point of view, to Solite and its Shareholders, and (y)
the opinion of FBW that the conversion of Solite Preferred Stock is fair, from
a financial point of view, to Solite and its Shareholders; (v) Solite having
received the opinions of McGuire Woods Battle & Boothe LLP and Proskauer Rose
LLP to the effect that the Merger qualifies as a reorganization within the
meaning of Section 368(a) of the Code; (vi) Giant having executed and delivered
the License Agreement in the form attached as an exhibit to the Merger
Agreement; (vii) there having been no change, circumstance or occurrence in the
business, results of operations or financial condition of Giant or any of its
Subsidiaries had or is reasonably likely to have a material adverse effect on
the business, properties or results of operations of Giant or its subsidiaries,
taken as a whole; (viii) Solite having received the opinions of Proskauer Rose
LLP and Hunton & Williams; (ix) Northeast Solite having received from Giant the
Tax Provisions Agreement in the form attached as an exhibit to the Merger
Agreement; (x) Giant having executed and delivered the Services Agreement in
the form attached as an exhibit to the Merger Agreement; (xi) Giant having
executed and delivered the Non-Competition Agreement in the form attached as an
exhibit to the Merger Agreement; and (xii) Giant having executed and delivered
the Northeast Agreement in the form attached as an exhibit to the Merger
Agreement.
Representations and Warranties
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (i) each of Solite's and Giant's
organization, capital structure and similar corporate matters, (ii) the
financial statements of each of Solite and Giant, (iii) the authorization of
the Merger Agreement by each of Solite and Giant and related matters, (iv) the
absence of any conflicts under charters or by-laws, receipt of required
consents or approvals, and absence of violations of any instruments or law, (v)
documents filed by Solite and Giant with the
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SEC and the accuracy of information contained therein, (vi) the absence of a
material adverse change in the business, properties, assets, liabilities,
operations, results of operations or condition (financial or otherwise) of
Solite and its subsidiaries taken as a whole and Giant and its subsidiaries
taken as a whole, each since certain specified dates, (vii) in the case of
Solite, Employee Benefit Plans (as defined in the Merger Agreement) and ERISA
matters, (viii) in the case of Solite, certain environmental matters, (x)
litigation, (xi) compliance with law, (xii) in the case of Solite, the
shareholders' vote required and (xiii) broker's or finder's fees. The
representations and warranties in the Merger Agreement shall survive the
Effective Time.
Certain Covenants of Solite
Solite has agreed, among other things, to use its reasonable best efforts
to (i) terminate as of the Effective Time the agreements with each of the
persons specified in a schedule to the Merger Agreement; (ii) cause each
"affiliate" of Solite for purposes of Rule 145 under the Securities Act to
deliver to Giant an Affiliate Agreement in the form attached as an exhibit to
the Merger Agreement; (iii) cause Northeast Solite to deliver to Solite the
Northeast Agreement in the form attached as an exhibit to the Merger Agreement;
and (iv) cause all outstanding shares of Solite Preferred Stock to be converted
into Solite Common Stock.
Certain Covenants of Solite and Giant
Prior to the Effective Time, each of Solite and Giant and their respective
subsidiaries have agreed that they will afford to the other and to the other's
representatives reasonable access to its properties, books and records during
normal business hours. Unless otherwise required by law, each of Solite and
Giant agrees that it (and its respective subsidiaries and representatives)
shall hold in confidence all non-public information so acquired. Giant has the
right to retain an environmental consultant reasonably acceptable to Solite to
undertake further environmental assessment of the Real Property, and Solite's
business and assets, including a Phase II assessment. In addition, both Solite
and Giant have agreed to cooperate in filing the Registration Statement of
which this Proxy Statement/Prospectus is a part and to use their best efforts
to procure its effectiveness.
Indemnity Provisions. The Merger Agreement provides that from and after
the Closing, Northeast Solite and, to the extent solely of shares of Giant
Common Stock deposited in escrow, the Solite shareholders shall indemnify
Giant, Merger Sub and Solite and their respective affiliates, directors,
officers, employees, agents and representatives and all of their successors and
assigns (collectively, the "Claimants") from all Losses (as defined in the
Merger Agreement) asserted against, imposed upon or incurred by the Claimants
resulting from or arising out of (i) any inaccuracy or breach of any
representation or warranty of Solite contained in the Merger Agreement; (ii)
any breach of any covenant or obligation of Solite in the Merger Agreement;
(iii) any breach of any covenant or obligation of Northeast Solite in the
Indemnity Agreement; (iv) certain Losses resulting from the ownership, use,
lease, occupancy or operation of any Real Property (as defined in the Merger
Agreement); (v) any breach of any covenant or obligation of Northeast Solite
contained in the Tax Provisions Agreement; or (vi) any liability or obligation
of Northeast Solite, whether incurred prior to or after the Effective Time. The
indemnity obligation will arise only if the aggregate claims are in excess of
$250,000, and with respect to the first $250,000 of aggregate claims, be
limited to $125,000.
No Solicitation of Other Offers
Prior to the Effective Time, Solite agrees that neither it, any of its
subsidiaries or its affiliates, nor any of the respective directors, officers,
employees, agents or representatives of the foregoing will, directly or
indirectly, solicit, initiate, facilitate or encourage any inquiries or the
making of any proposal with respect to any merger, consolidation or other
business combination involving the Core Business or the acquisition of capital
stock of Solite or any Subsidiary constituting part of the Core Business or all
or any significant assets of the Core Business (an "Acquisition Transaction")
or negotiate, explore or otherwise engage in discussions with any person (other
than Giant and its representatives) with respect to any Acquisition
Transaction, or enter into any agreement, arrangement or understanding with
respect to any such Acquisition Transaction or which would require it to
abandon, terminate or fail to consummate the Merger or any other transaction
contemplated by the Merger Agreement; provided, however, that Solite may, in
response to an unsolicited written proposal from a third party, furnish
information to and engage in discussions with such third party, in each case
only if the Board of Directors of Solite determines in good faith, by majority
vote after consultation with its financial advisor and based upon the advice of
outside counsel, that failing to take such action would result in a breach of
the fiduciary duties of the Board of Directors
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and, prior to taking such action, Solite (x) provides reasonable notice to
Giant to the effect that it is taking such action and (y) receives from such
corporation, partnership, person or other entity or group (and delivers to
Giant) a confidentiality agreement in a customary form.
Solite agrees that it, its Subsidiaries and affiliates, and respective
directors, officers, employees, agents and representatives of the foregoing,
shall immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any third party with respect to any
Acquisition Transaction. Solite will immediately advise Giant in writing of any
inquiries or proposals (or desire to make a proposal) received by, (or
indicated to), any such information requested from, or any such negotiations or
discussions sought to be initiated or continued with, any of it, its
Subsidiaries or affiliates, or any of the respective directors, officers,
employees, agents or representatives of the foregoing, in each case from a
person (other than Giant and its representatives) with respect to an
Acquisition Transaction, and the terms thereof, including the identity of such
third party, and to update on an ongoing basis or upon Giant's request any
actions taken or other developments.
The Solite Board shall not (i) withdraw or modify, or propose to withdraw
or modify, in a manner adverse to Giant or Merger Sub, the approval or
recommendation by the Solite Board of the Merger Agreement, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Transaction, or
(iii) cause Solite to enter into any agreement with respect to any Acquisition
Transaction. Notwithstanding the foregoing, in the event that prior to the
Effective Time the Solite Board determines in its good faith reasonable
judgment, by a majority vote, after consultation with its financial advisors,
that the Acquisition Transaction is more favorable to the shareholders of
Solite than the Merger and, based upon the advice of outside counsel to Solite,
that such action is required by the fiduciary duties of the Solite Board, the
Solite Board may withdraw or modify its approval or recommendation of the
Merger Agreement and the Merger, approve or recommend such Acquisition
Transaction or cause Solite to enter into an agreement with respect to such
Acquisition Transaction, but only if Solite gives Giant at least five business
days' prior written notice thereof, during which time Giant may make, and, in
such event, Solite shall in good faith consider, a counter proposal to such
Acquisition Transaction.
Amendments
At any time prior to the Effective Time, the Merger Agreement may be
amended in writing by the appropriate parties thereto with respect to any of
the terms of the Merger Agreement.
Ancillary Agreements
The obligations of Giant and Merger Sub to effect the Merger are subject
to the satisfaction at or prior to the Effective Time of the following
conditions, among others: (i) the receipt by Giant from all persons who are
"affiliates" of Solite for purposes of Rule 145 under the Securities Act of an
Affiliate Agreement in the form attached as an exhibit to the Merger Agreement;
(ii) the receipt by Giant from the persons who each hold 1% or more, and who
hold in the aggregate at least 50%, of the total outstanding shares of capital
stock of Northeast Solite of a Northeast Shareholder Agreement in the form
attached as an exhibit to the Merger Agreement; (iii) the receipt by Giant from
the persons who each hold in the aggregate at least 70% of the total
outstanding shares of Giant Common Stock to be issued in connection with the
Merger of a Giant Shareholder Agreement in the form attached as an exhibit to
the Merger Agreement; (iv) Solite and Northeast Solite shall have executed and
delivered the Escrow Agreement in the form attached as an exhibit to the Merger
Agreement; (v) Solite and Northeast Solite shall have executed and delivered
the Indemnity Escrow Agreement in the form attached as an exhibit to the Merger
Agreement; (vi) the receipt by Giant from Northeast Solite of the Northeast
Agreement in the form attached as an exhibit to the Merger Agreement; (vii) the
execution by John W. Roberts of the Market Stand-Off Agreement in the form
attached as an exhibit to the Merger Agreement; (viii) the receipt by Giant
from Northeast Solite of the Tax Provisions Agreement in the form attached as
an exhibit to the Merger Agreement; (ix) the receipt by Giant from Northeast
Solite of the Indemnity Agreement in the form attached as an exhibit to the
Merger Agreement; (x) the execution by John W. Roberts of the Non-Competition
Agreement in the form attached as an exhibit to the Merger Agreement; (xi) the
execution and delivery by Northeast Solite of the Services Agreement in the
form attached as an exhibit to the Merger Agreement; and (xii) the execution
and delivery by Northeast Solite of the Non-Competition Agreement in the form
attached as an exhibit to the Merger Agreement. The obligation of Solite to
effect the Merger is subject to the satisfaction at or prior to the Effective
Time of the following conditions among others: (i) the execution and delivery
by Giant of the License Agreement in the form attached as an exhibit to the
Merger Agreement; (ii) the receipt by Northeast Solite from Giant of the Tax
Provisions Agreement in the form
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attached as an exhibit to the Merger Agreement; (iii) the execution and
delivery by Giant of the Services Agreement in the form attached as an exhibit
to the Merger Agreement; (iv) the execution and delivery by Giant of the Non-
Competition Agreement in the form attached as an exhibit to the Merger
Agreement; and (v) the execution and delivery by Giant of the Northeast
Agreement in the form attached as an exhibit to the Merger Agreement.
Escrow Agreement. Contemporaneously with the execution and delivery of the
Escrow Agreement, Giant will deliver to the escrow agent a certificate
representing 100,000 shares of Giant Common Stock. Such shares will be held by
the escrow agent until it receives a written notice from Giant and Northeast
Solite directing the disposition of such shares. Under the terms of the Merger
Agreement, all, part, or none of 100,000 of such 200,000 shares shall be
distributed to the persons who were holders of Solite Common Stock immediately
prior to the Merger (including holders of Solite Preferred Stock which was
converted into Solite Common Stock), depending upon whether, and the extent by
which, as of the effective time, Solite's consolidated net book value exceeds
$3.1 million and its net current assets exceed $4.1 million.
Indemnity Escrow Agreement. Contemporaneously with the execution and
delivery of the Indemnity Escrow Agreement, Giant will deliver to the escrow
agent a certificate representing 100,000 shares of Giant Common Stock. Such
shares will be held by the escrow agent until it receives a written notice from
Giant and Northeast Solite directing the disposition of such shares. Under the
terms of the Merger Agreement, such 100,000 shares are to be available to
satisfy the indemnification claims, if any, of Giant under the Merger
Agreement. Unless a claim or claims are then pending, in amounts in excess of
the then value of 50,000 shares of Giant Common Stock, 50,000 shares of Giant
Common Stock held in escrow shall be released on the second anniversary of the
Closing Date, and unless any claim or claims are then pending, the balance of
the shares of Giant Common Stock held in escrow shall be released on the third
anniversary of the Closing Date.
Affiliate Agreement. Pursuant to the Affiliate Agreement, each affiliate
of Solite that receives Giant Common Stock in the Merger, will agree not to
transfer such Giant Common Stock unless (i) the transfer is made in accordance
with Rule 145 and such affiliate shall have delivered a written notice to Giant
in the form attached as an exhibit to the Merger Agreement; (ii) Giant shall
have been furnished an opinion of counsel that registration under the
Securities Act is not required in respect of such transfer or (iii) a
registration statement covering the shares of Giant Common Stock proposed to be
transferred and the proposed transfer has been filed by Giant with the SEC and
has become effective under the Securities Act.
Northeast Shareholder Agreement. Pursuant to the Northeast Shareholder
Agreement, each holder of 1% or more, and who hold in the aggregate at least
50%, of the total outstanding capital stock of Northeast Solite will agree not
to sell, assign, transfer, pledge or otherwise encumber or dispose of for a
period of one year after the Effective Time (other than transfers to such
holder's estate or gifts) any shares of common stock of Northeast Solite held
by such holder. Any attempted transfer in violation of the terms and conditions
of the Northeast Shareholder Agreement shall be void ab initio.
Giant Shareholder Agreement. Pursuant to the Giant Shareholder Agreement,
each person that becomes the holder of 1% or more, and who hold in the
aggregate at least 70% of the total outstanding shares of Giant Common Stock to
be issued in connection with the Merger (a "One Percent Holder") will agree
that such holder does not and will not have any plan or intention to pledge,
sell, contract to sell, grant an option for the sale of, or otherwise dispose
of any shares of Giant Common Stock that such holder receives in connection
with the Merger. Notwithstanding the foregoing, a One Percent Holder, unless it
is the opinion of counsel for Giant that to do so would adversely affect the
tax-free nature of the Merger, may dispose of (i) during the one year period
after the Effective Time, a number of shares which together with all shares of
Solite Common Stock and Solite Preferred Stock disposed of by such One Percent
Holder prior to the Effective Time equal to not more than 50% of such One
Percent Holder's shares or (ii) before the Effective Time of a number of shares
of Solite Common Stock and/or Solite Preferred Stock, or a combination of the
two, equal in value to not more than 50% of the aggregate value of such One
Percent Holder's shares of Solite Common Stock and Solite Preferred Stock.
Northeast Agreement. Pursuant to the Northeast Agreement, Giant and
Northeast Solite will agree that following the Spin-Off and the Merger they
will not take any action inconsistent with the private letter ruling request
made to the IRS and the private letter ruling issued in response thereto,
including but not limited to, for a period of one year from and after the
Effective Time discontinuing or substantially reducing certain of their
operations. In addition, Giant and Northeast Solite will agree that for a
period of five years from and after the Effective Time,
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it will not, directly or indirectly, solicit any employee, or induce or attempt
to induce any employee to leave his or her employment with the other.
Market Stand-Off Agreement. Pursuant to the Market Stand-Off Agreement,
John W. Roberts will agree for a period of five years from the Effective Time
not to (i) make, or in any way participate in, directly or indirectly, any
solicitation of proxies to vote or consents; (ii) initiate or support, directly
or indirectly, any shareholder's proposal with respect to Giant; and (iii)
directly or indirectly make any public announcement with respect to, or submit
a proposal for any extraordinary transactions involving Giant or its securities
or assets. In addition, Mr. Roberts will agree to grant Giant a right of first
refusal while he is a director of Giant with respect to any sale of any shares
of Giant Common Stock held by Mr. Roberts.
Tax Provisions Agreement. The Tax Provisions Agreement provides for the
allocation of the responsibility for the payment of taxes of Solite and all of
its subsidiaries for the periods prior to and after the Merger.
Indemnity Agreement. The Indemnity Agreement provides that from and after
the Closing, Northeast shall indemnify Giant, Merger Sub and Solite and their
respective affiliates, directors, officers, employees, agents and
representatives and all of their successors and assigns (collectively, the
"Claimants") from all Losses (as defined in the Merger Agreement) asserted
against, imposed upon or incurred by the Claimants resulting from or arising
out of (i) any inaccuracy or breach of any representation or warranty of Solite
contained in the Merger Agreement; (ii) any breach of any covenant or
obligation of Solite in the Merger Agreement; (iii) any breach of any covenant
or obligation of Northeast in the Indemnity Agreement; (iv) certain Losses
resulting from the ownership, use, lease, occupancy or operation of any Real
Property (as defined in the Merger Agreement); (v) any breach of any covenant
or obligation of Northeast contained in the Tax Provisions Agreement; or (vi)
any liability or obligation of Northeast, whether incurred prior to or after
the Effective Time. In addition, from and after the Closiniates, directors,
officers, employees, agents and representatives, successors and assigns
(collectively, "Northeast Claimants") from and against any Losses asserted
against, imposed upon or incurred by Northeast Claimants resulting from or
arising out of any liability or obligation of Solite, whether incurred prior to
or after the Effective Time, provided any such Loss does not relate to any
matter as to which the Claimants may assert a claim. The liability of Northeast
will (i) arise only if the aggregate claims are in excess of $250,000, and with
respect to the first $250,000 of aggregate claims, be limited to $125,000 and
(ii) be limited to the amount of Claimants' Losses in excess of the value of
the shares of Giant Common Stock then held pursuant to the Escrow Agreement and
the Indemnity Escrow Account. The Indemnity Agreement will terminate with
respect to any claims not asserted prior to the fifth anniversary of the
Effective Time.
Roberts' Non-Competition Agreement. The Non-Competition Agreement provides
that John W. Roberts, for a period of five years from the Effective Time, will
not (i) compete with Giant in, or otherwise participate in, the lightweight
aggregate or lightweight block business in the states of Maryland, Virginia,
North Carolina, South Carolina, Georgia or Florida, (ii) directly or
indirectly, induce or attempt to induce, any employee to leave his or her
employment with Giant and (iii) solicit, divert, take away or attempt to take
away any of Giant's customers or suppliers or the business or patronage of any
such customers or suppliers or in any way interfere with Giant's relationships
with its customers and suppliers. The Non-Competition Agreement will not
restrict Northeast Solite or restrict Mr. Roberts from acting in his capacity
as a director or officer of Northeast Solite.
License Agreement. Pursuant to the License Agreement, Solite will grant
Northeast Solite the royalty-free right to use certain names and marks owned by
Solite in connection with the businesses of Northeast Solite and its sale of
certain products manufactured at Northeast Solite's New York and Kentucky
plants. The License Agreement shall continue for a term of 99 years unless
sooner terminated in accordance with its provisions.
Services Agreement. Pursuant to the Services Agreement, Solite will agree
to provide Northeast Solite with certain services and Northeast Solite will
agree to provide Solite with certain services. The services to be provided have
terms varying in length from six months to three years, six months.
Non-Competition Agreement. The Non-Competition Agreement provides that for
a period of five years (i) Giant and Solite will not sell lightweight aggregate
in inventory or manufactured at Solite's existing lightweight aggregate plants
within certain specified areas (generally, portions of New Jersey, Pennsylvania
and New York, all of the New England States, the Chicago primary metropolitan
statistical area, and within a 250 mile radius of Northeast Solite's Kentucky
plant (except where such radius conflicts with the states specified in clause
(ii)) and (ii) Northeast Solite will not sell lightweight aggregate in
inventory or manufactured at Northeast Solite's New York and Kentucky plants
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within the states of Maryland, Virginia, West Virginia, North Carolina, South
Carolina, Georgia, Florida and the District of Columbia. The Noncompetition
Agreement does not restrict competition outside the specified territories or
within the specified territories for products manufactured at facilities other
than the existing Solite or Northeast Solite lightweight aggregate plants.
Requirements Contract. In connection with the Merger, Giant and a
subsidiary of Northeast Solite expect to enter into a Requirements Contract
pursuant to which for a period of five years Solite will supply, at competitive
prices, the requirements for specified lightweight aggregate for Northeast
Solite's masonry block plant in Chesapeake, Virginia.
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CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS OF
SOLITE, GIANT AND NORTHEAST SOLITE
Solite is incorporated under the laws of the Commonwealth of Virginia and
the rights of Solite shareholders are governed by the VSCA, the Solite Articles
of Incorporation ("Solite Articles") and the Solite Bylaws. Giant is
incorporated under the laws of the State of Delaware and the rights of Giant
shareholders are governed by the Delaware General Corporation Law ("DGCL"), the
Giant Certificate of Incorporation ("Giant Certificate") and the Giant Bylaws.
Upon consummation of the Merger, Solite shareholders will become Giant
shareholders and their rights will be governed by the DGCL, the Giant
Certificate and the Giant Bylaws. As a result of the Spin-off, Solite
shareholders will also become shareholders of Northeast Solite, which is
incorporated under the laws of the State of New York, and their rights will be
governed by the New York Business Corporation Law ("NYBCL"), the Northeast
Solite Certificate of Incorporation ("Northeast Solite Certificate") and the
Northeast Solite Bylaws. However, Northeast Solite expects to propose to
redomesticate to Virginia shortly after the Spin-Off in which event the rights
of Northeast Solite shareholders would be governed by the VSCA, and Northeast
Solite's articles and bylaws as a Virginia corporation. The following is a
briefsummary of certain differences between the rights of Solite shareholders,
the rights of Giant shareholders, and the rights of Northeast Solite
shareholders. This summary is qualified in its entirety by reference to the
relevant portions of the VSCA, the DGCL, the NYBCL, the Solite Articles and the
Solite Bylaws, the Giant Certificate and the Giant Bylaws, and the Northeast
Solite Certificate and the Northeast Solite Bylaws.
Authorized Capital Stock
The authorized capital stock of Solite consists of 1,000,000 shares of
Solite Common Stock, par value $2.00 per share, and 100,000 shares of Solite
Preferred Stock. With respect to the Solite Preferred Stock, the Solite Board
is authorized, without shareholder approval, to designate classes or series of
such shares and to determine the relative rights, preferences and limitations
of any such class or series. As of the date of this Proxy Statement/Prospectus,
the Solite Board has designated 25,000 shares as Solite Series A Preferred
Stock, 16,300 shares as Solite Series B Preferred Stock, and 16,807 shares as
Solite Series C Preferred Stock.
The authorized capital stock of Giant consists of 20,000,000 shares of
Giant Common Stock and 2,000,000 shares of Giant Preferred Stock, par value
$.01 per share ("Giant Preferred Stock"). With respect to the Giant Preferred
Stock, the Giant Board is authorized, without shareholder approval, to
designate classes or series of such shares and to determine the relative
rights, preferences and limitations of any such class or series. As of the date
of this Proxy Statement/Prospectus, no shares of Giant Preferred Stock have
been designated.
The authorized capital stock of Northeast Solite consists of 5,000,000
shares of Northeast Solite Common Stock and 100,000 shares of Northeast Solite
Preferred Stock, par value $.01 per share ("Northeast Solite Preferred Stock").
With respect to the Northeast Solite Preferred Stock, the Northeast Solite
Board is authorized, without shareholder approval, to designate classes or
series of such shares and to determine the relative rights, preferences and
limitations of any such class or series.
Shareholder Voting Requirements
The VSCA generally requires approval of certain mergers, consolidations,
dissolutions or sales of all or substantially all of a corporation's assets by
a vote of two-thirds of the outstanding shares entitled to vote on such a
matter unless the articles of incorporation provide for a greater or lesser
vote, which vote may not be less than a majority of the outstanding shares
entitled to vote on such a matter. As of the date of this Proxy Statement-
Prospectus, the Solite Articles do not provide for a greater or lesser vote.
The DGCL generally requires approval of certain mergers, consolidations,
dissolutions or sales of all or substantially all of a corporation's assets by
a vote of a majority of the outstanding shares entitled to vote thereon.
The NYBCL requires the vote of two-thirds of all outstanding shares
entitled to vote thereon for a plan of merger or consolidation adopted by the
board of directors, a guarantee given by a New York corporation not in
furtherance of its corporate purposes, a disposition of substantially all of a
corporation's assets if not made in the usual course of business, or a
dissolution.
Shareholder Action Without a Meeting
In accordance with the VSCA, the Solite Bylaws provide that any action may
be taken by the shareholders without a meeting if a consent in writing, setting
forth the action to be taken, is signed by all the shareholders entitled to
vote thereon.
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Under the DGCL, unless the corporation's certificate of incorporation
provides otherwise, any action that could be taken at an annual or special
meeting of shareholders may be taken without prior notice and without a vote if
a consent in writing setting forth the action to be taken is signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. The Giant
Certificate contains no provision for shareholder action without a meeting.
The Northeast Solite Bylaws, as permitted by the NYBCL, provide that any
action by shareholders may be taken without a meeting with the written consent
of all shareholders that would be entitled to vote at a meeting held for such
purpose.
Dissenters' Rights
Under the VSCA, a shareholder is entitled to dissent from (1) the
consummation of a plan of merger if shareholder approval is required for the
merger, the articles of incorporation entitle the shareholder to vote on the
merger, or the corporation is a subsidiary that is merged with its parent, (2)
the consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan, and (3) the consummation of a sale or exchange of
all, or substantially all, of the property of the corporation if the
shareholder was entitled to vote on the sale or exchange. However, with respect
to a plan of merger or share exchange or a sale or exchange of property, the
VSCA does not provide dissenters' rights to the holders of shares which are
listed on a national securities exchange or Nasdaq or held by at least 2,000
record shareholders unless the articles of incorporation provide otherwise or,
in the case of a plan of merger or share exchange, the holders of the class or
series are required under the plan of merger or share exchange to accept for
such shares anything except: (a) cash, (b) shares or membership interests of
the surviving or acquiring corporation, or any other corporation listed on a
national securities exchange or Nasdaq or held of record by at least 2,000
record shareholder or members, or (c) a combination of cash and such shares.
Under the DGCL, a shareholder of a corporation who does not vote in favor
of certain merger transactions and who demands appraisal of his shares in
connection therewith may be entitled to dissenters' rights under varying
circumstances. Unless the corporation's certificate of incorporation provides
otherwise, such appraisal rights are not available in certain circumstances,
including without limitation (1) the sale, lease, or exchange of all or
substantially all of ther or consolidation by a corporation, the shares of
which are either listed on a national securities exchange or the Nasdaq or are
held of record by more than 2,000 holders if such shareholders receive only
shares of the surviving corporation or shares of any other corporation which
are either listed on a national securities exchange or the Nasdaq or held of
record by more than 2,000 holders, plus cash in lieu of fractional shares or
(2) to shareholders of a corporation surviving a merger if no vote of the
shareholders of the surviving corporation is required to approve the merger
because certain conditions are met.
The NYBCL provides dissenters' rights to holders entitled to vote on (1)
certain mergers and consolidations, (2) dispositions of assets requiring
shareholder approval, and (3) certain amendments to the certificate of
incorporation which adversely affect the rights of such shareholders.
Amendment of the Certificate or Articles of Incorporation
Generally, the VSCA requires that amendments to the articles of
incorporation be approved by a shareholder vote of more than two-thirds of all
votes entitled to be cast.
Under the DGCL and NYBCL, the affirmative vote of a majority of the
outstanding shares entitled to vote is required to amend the certificate of
incorporation.
Amendment of Bylaws
The VSCA provides that a corporation's board of directors may adopt,
amend, or repeal bylaws, unless the corporation's articles of incorporation
reserve such powers exclusively to the shareholders. The Solite Articles do not
reserve such powers exclusively to the Solite shareholders. Instead, the Solite
Bylaws provide for bylaw amendments by either the Solite Board or the Solite
shareholders. In addition, the shareholders may specify that a
shareholder-adopted bylaw may not be amended or repealed by the Solite Board.
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Under the DGCL, the power to adopt, amend, or repeal bylaws is vested
exclusively in the shareholders entitled to vote, unless the corporation's
certificate of incorporation confers such power on the board of directors as
well. The Giant Certificate does confer such power on the Giant Board and
authorizes the Giant Board to make, alter or repeal bylaws by a majority of the
whole board of directors.
The NYBCL provides that the bylaws may be adopted, amended, or repealed by
vote of the holders of the shares at the time entitled to vote in the election
of any directors. Under the NYBCL, bylaws may also be adopted, amended, or
repealed by the board when so provided in the certificate of incorporation or a
bylaw adopted by the shareholders. The Northeast Solite Bylaws authorize the
Northeast Solite Board to adopt, amend or repeal the Northeast Bylaws.
Directors
Number and Election. The Solite Bylaws currently provide for a board of
not less than eight nor more than ten directors.
The Giant Certificate and Giant Bylaws provide for a board of directors of
not less than two nor more than eleven. The exact number of directors is set by
resolution of the Giant Board, which currently provides for a five-member board
of directors.
Under the NYBCL, the number of directors may not be less than three, and
any higher number may be fixed by the bylaws or by action of the shareholders
or of the board of directors under the specific provisions of the bylaws
adopted by the shareholders.
The VSCA, the DGCL, and the NYBCL permit a board of directors to be
classified if provided for in the corporation's charter or bylaws. The Solite
Articles do not provide for a classified board of directors, and each Solite
Board member is elected annually. The Giant Certificate provides for directors
to be elected annually. The Northeast Solite Certificate does not provide for a
classified board of directors.
Removal. Directors of Solite may be removed by the shareholders with or
without cause. Giant shareholders may remove members of the Giant Board with or
without cause. Directors of Northeast Solite may be removed by the shareholders
with or without cause.
Limitations on Director Liability
Under the VSCA, the damages assessed against an officer and director may
be eliminated or limited in any proceeding brought by or in the right of a
corporation, or by or on behalf of shareholders, if specified in the articles
of incorporation or in the bylaws. As of the date of this Proxy
Statement/Prospectus, neither the Solite Articles nor the Solite Bylaws limit
the liability of directors. Therefore, Solite is subject to the VSCA which
limits the liability of an officer or director for damages arising out of a
single transaction or occurrence to the greater of $100,000 or the amount of
cash compensation received by the officer or director from the corporation
during the twelve months immediately preceding the act or omission for which
liability was imposed.
The Giant Certificate contains a provision, permitted by the DGCL, that
eliminates the personal liability of a director to the corporation or its
shareholders for monetary damages for breach of fiduciary duties as a director,
except for liability of a director (1) for breach of the duty of loyalty, (2)
for actions or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (3) for payment of improper dividends
or redemptions, or (4) for any transaction from which the director derived an
improper personal benefit.
Under the NYBCL, a corporation may adopt a provision in its certificate of
incorporation which eliminates or limits the liability of a director to the
corporation or its shareholders for monetary damages for breach of duty as a
director except for (1) acts or omissions in bad faith or involving intentional
misconduct or a knowing violation of law, (2) transactions from which the
director gained an illegal financial profit or other advantage, or (3)
violations of the law. As of the date of this Proxy Statement-Prospectus,
neither the Northeast Solite Certificate nor the Northeast Solite Bylaws limit
the liability of directors for breach of duty as a director.
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Indemnification
Under the VSCA, a corporation may indemnify an individual made a party to
a proceeding because he is or was a director against liability incurred in the
proceeding if he conducted himself in good faith and believed, in the case of
conduct in his official capacity with the corporation that his conduct was in
its best interests and, in all other cases, that his conduct was at least not
opposed to its best interests and further, in the case of any criminal
proceeding, that he had no reasonable cause to believe that his conduct was
unlawful. The Solite Articles make such indemnification mandatory for directors
and officers and permits the corporation to indemnify other individuals to the
same extent.
The Giant Certificate contains provisions under which Giant will
indemnify, to the fullest extent permitted by law, individuals who are made a
party to an action or proceeding by virtue of the fact that such individual is
or was a director, officer, employee or agent of Giant or, at Giant's request,
of another corporation. The DGCL generally permits such indemnification to the
extent that the individual acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal proceeding, had reasonable cause
to believe his conduct was lawful.
The NYBCL authorizes a New York corporation to indemnify any person who
is, or is threatened to be made, a party in any civil or criminal proceeding by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another entity, against judgments,
fines, amounts paid in settlement and reasonable expenses (including attorneys'
fees) actually and necessarily incurred by such person as a result of such
action or proceeding or any appeal therein. To be entitled to indemnification,
a person must have acted in good faith, foed to be in, or in the case of
service for another organization, not opposed to, the best interests of the
corporation and, with respect to any criminal action on proceeding, in
addition, had no reasonable cause to believe his conduct was unlawful.
Indemnification against expenses actually and reasonably incurred is required
to the extent that the person has been successful on the merits or otherwise.
The Northeast Solite Certificate makes such indemnification mandatory for
directors and officers and permits the corporation to indemnify other
individuals to the same extent.
Business Combination Statutes
The VSCA does not contain a business combination statute. Instead, the
VSCA contains "control share acquisition" provisions which regulate the process
by which a person may acquire control of certain Virginia corporations without
the consent or cooperation of the corporation's board of directors. The control
share acquisition provisions do not apply to the Merger or the Spin-off.
Giant is subject to Section 203 of the DGCL, which provides that any
person who has acquired 15% or more of a corporation's voting stock (thereby
becoming an "interested shareholder") may not engage in certain "business
combinations" with the corporation for a period of three years following the
date the person became an interested shareholder unless (1) the board of
directors has approved, prior to the date that person became an interested
shareholder, either the business combination or the transaction that resulted
in the person becoming an interested shareholder, (2) upon consummation of the
transaction that resulted in the person becoming an interested shareholder,
that person owns at least 85% of the corporation's voting stock outstanding at
the time the transaction is commenced (excluding shares owned by persons who
are both directors and officers and shares owned by employee stock plans in
which participants do not have the right to determine whether shares will be
tendered in a tender or exchange offer) or (3) the business combination is
approved by the board of directors and authorized by the affirmative vote of at
least two-thirds of the outstanding voting stock not owned by the interested
shareholder.
The NYBCL prohibits any business combination between a domestic
corporation and an interested shareholder (any person who beneficially owns,
directly or indirectly, 20% or more of the outstanding voting shares of the
corporation) for five years after the date the person became an interested
shareholder unless prior to that date the board of directors of the domestic
corporation approved the business combination or the transaction that resulted
in the person becoming an interested shareholder. After five years, such a
business combination is permitted only if (1) it is approved by a majority of
the shares not owned by, or by an affiliate of, the interested shareholder, or
(2) certain statutory fair price requirements are met.
71
<PAGE>
EXPERTS
The consolidated financial statements included in Giant's Annual Report on
Form 10-K for the year ended December 31, 1996, which are incorporated by
reference in this Proxy Statement/Prospectus, have been audited by Coopers &
Lybrand L.L.P., independent certified public accountants, as of and for the
periods indicated in their report with respect thereto and are incorporated
herein in reliance upon such report given the authority of said firm as experts
in accounting and auditing.
The financial statements of Solite Corporation included herein for the
fiscal years ended March 31, 1997 and 1996 have been audited by Coopers &
Lybrand L.L.P., independent certified public accountants, as of and for the
periods indicated in their report with respect thereto and are incorporated
herein in reliance upon such report given the authority of said firm as experts
in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Giant Common Stock to be issued pursuant to
this Proxy Statement/Prospectus will be passed upon for Giant by Proskauer Rose
LLP, counsel to Giant. Certain U.S. tax matters will be passed upon for Solite
by McGuire Woods Battle & Boothe LLP, counsel to Solite.
72
<PAGE>
FINANCIAL STATEMENTS (UNAUDITED) OF
SOLITE CORPORATION
for the interim periods ended June 30, 1997 and 1996
F-1
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Pages
---------
<S> <C>
Financial Statements (unaudited):
Condensed Balance Sheets--June 30, 1997 and 1996 .................................... F-2
Condensed Statements of Operations--Three Month Periods Ended June 30, 1997 and 1996 F-3
Condensed Statement of Shareholders' Equity--Three Months Ended June 30, 1997 ...... F-4
Condensed Statements of Cash Flows--Three Month Periods Ended June 30, 1997 and 1996 F-5
Notes to Condensed Financial Statements ............................................. F-6--F-8
</TABLE>
F-2
<PAGE>
SOLITE CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
---------- ---------
(In thousands, except
share data)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ........................ $ 563 $ 210
Accounts receivable, less allowances of $343 in 1997
and $328 in 1996, respectively ..................... 6,327 6,314
Inventories ....................................... 7,587 7,956
Deferred income taxes .............................. 521 457
Other current assets .............................. 588 510
------- --------
Total current assets ........................... 15,586 15,447
Property, plant and equipment, net .................. 14,165 14,947
Deferred income taxes .............................. 1,026 888
Other assets ....................................... 1,460 2,180
------- --------
$32,237 $33,462
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of debt (Note 6) ............... $18,101 $18,195
Accounts payable ................................. 5,520 4,649
Accrued expenses and other ........................ 2,711 2,519
------- --------
Total current liabilites ..................... 26,332 25,363
------- --------
Commitments and contingencies (Notes 2 and 4) ......
Shareholders' equity:
Preferred stock, $50 par value; redeemable at $60 per
share (cumulative dividend of $4 per share);
100,000 shares authorized:
Series A preferred, issued 8,700 shares ......... 435 435
Series B preferred, issued 14,093 shares ......... 704 704
Preferred stock, series C, $200 par value; redeemable
at $240 per share (cumulative dividend of $21.50
per share); 16,807 shares authorized; issued 15,429
shares ............................................. 3,086 3,086
Common stock, $2 par value; authorized 1,000,000
shares; issued 530,950 shares in 1997 and 530,050
shares in 1996 .................................... 1,062 1,062
Capital in excess of par value ..................... 822 822
Retained earnings (accumulated deficit) ............ (204) 1,990
------- --------
5,905 8,099
------- --------
$32,237 $33,462
======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
SOLITE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
for the three month periods ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
--------- -----------
(In thousands)
<S> <C> <C>
Sales $13,540 $14,488
Costs and expenses:
Costs of sales and services ............... 9,318 9,512
Selling, general and administrative ...... 2,759 2,993
------- -------
Operating income ........................ 1,463 1,983
Other income (expenses):
Interest expense ........................ (499) (440)
Other, net .............................. 82 39
------- -------
Income before income taxes ............ 1,046 1,582
Provision for income taxes .................. 366 554
------- -------
Net income .............................. $ 680 $ 1,028
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
SOLITE CORPORATION
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
for the three months ended June 30, 1997
<TABLE>
<CAPTION>
Preferred Stock
------------------------------------ Retained
Capital in Earnings
Common Excess of (Accumulated
Series A Series B Series C Stock Par Value Deficit) Total
---------- ---------- ---------- -------- ------------ ------------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1997 ...... $435 $704 $3,086 $1,062 $822 $ 999 $ 7,108
Net income ..................... 680 680
Distributions to non-core
businesses, net ............... (1,883) (1,883)
-------- --------
Balances, June 30, 1997 ...... $435 $704 $3,086 $1,062 $822 $ (204) $ 5,905
===== ===== ======= ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
SOLITE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
for the three months ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- ----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 680 $ 1,028
Depreciation, depletion and amortization ............... 630 644
Gain on disposition of assets ........................... (5) (28)
Deferred tax benefit .................................... 397 418
Changes in operating assets and liabilities:
Receivables .......................................... (3) (737)
Inventories .......................................... 120 394
Other current assets ................................. (381) (148)
Accounts payable ....................................... (1,111) (961)
Accrued expenses and other current liabilities ......... (100) 475
-------- ---------
Net cash provided by operating activities ......... 227 1,085
-------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment ............... (344) (299)
Proceeds from sale of assets ........................... 55 30
Cost of environmental permits ........................... (4) (293)
-------- ---------
Net cash used by investing activities ............ (293) (562)
-------- ---------
Cash flows from financing activities:
Principal payments on notes payable ..................... (307) (500)
Distributions to non-core businesses ..................... (505) (170)
-------- ---------
Net cash used by financing activities ............ (812) (670)
-------- ---------
Decrease in cash and cash equivalents ............ (878) (147)
Cash and cash equivalents:
Beginning of period .................................... 1,441 357
-------- ---------
End of period .......................................... $ 563 $ 210
======== =========
Supplemental information, cash paid for interest ............ $ 795 $ 658
Noncash investing and financing activities:
Assumption by Company of non-core businesses' debt ...... $ 1,378 $ 170
Common stock issued as employee bonuses .................. $ -- $ 26
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
SOLITE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
The accompanying condensed financial statements of Solite Corporation (the
"Company") have been prepared in accordance with the requirements for interim
financial statements and, accordingly, they are condensed and omit disclosures
which would substantially duplicate those contained in the audited financial
statements for the years ended March 31, 1997 and 1996, located elsewhere
herein. The financial statements as of June 30, 1997 and 1996, and for the
interim periods ended June 30, 1997 and 1996, are unaudited and, in the opinion
of management, include all necessary adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation. Due to the
seasonal nature of the Company's business, operating results for the interim
periods are not necessarily indicative of the results that may be expected for
the full year.
2. ORGANIZATION:
These financial statements of the Company consist of the following
businesses owned by Solite Corporation: Solite Corporation (excluding Sand and
Gravel Division); Carolina Solite Corporation (excluding the Florida Solite
Company); Solite Lightweight Transportation, Inc.; Lightweight Block Company,
Incorporated; Boston Concrete Products, Incorporated; Lightweight Block--Eden
Corporation; Lightweight Block--Lexington Corporation; Charlotte Block, Inc.;
Oldover Corporation (excluding the Green Cove Springs facilities); M&M Chemical
and Equipment Co., Inc. and Eden Machine and Design Corporation. Significant
intercompany transactions and balances have been eliminated. Non-core businesses
consist of the following entities which are excluded from these financial
statements: Northeast Solite Corporation; Florida Solite Company; Kentucky
Solite Corporation; Sand & Gravel Division of Solite Corporation; Southern
Materials Corporation; Solite Masonry Units Corporation; JTN Land Corporation;
Terry Glenn Coal Company; Environmental Conservation Systems, Inc.; Industrial
Environmental Systems, Inc.; Standard Minerals Corporation; RR, Incorporated;
Massey Concrete Corporation; Rockville Nurseries Corporation; Stoneridge Farms,
Inc.; Rappahannock Farm Enterprises, Inc.; Big Ugly Coal Corporation; Princess
Anne Coal Corporation; JTN Leasing Company; Lightweight Block Company, Inc. (a
North Carolina corporation) and Lightweight Block - Wilmington Corporation.
References to "non-core businesses" relate to the businesses owned by Solite
Corporation which will not be acquired pursuant to the definitive agreement,
described below.
On September 10, 1997, Giant Cement Holding, Inc. ("Giant") signed a
definitive agreement with the Company to purchase certain assets and assume
certain liabilities of the Company. These financial statements present the
assets, liabilities and results of operations of the businesses to be acquired
pursuant to the agreement as of and for the periods indicated. The sale is
subject to certain conditions. These financial statements do not include any
adjustments to the carrying value of the Company's net assets that might result
from this proposed transaction.
The Company is involved in the manufacture and sale of masonry blocks and
lightweight aggregate construction materials. The Company is also involved in
waste recycling and resource recovery, utilizing industrial waste as fuel in
its kilns. The Company sells primarily to customers in the eastern United
States.
3. INVENTORIES (in thousands):
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
---------- ---------
<S> <C> <C>
Finished goods ........................ $2,832 $3,755
In process ........................... 3,651 3,137
Raw materials ........................ 218 139
Supplies, repair parts and fuel ...... 886 925
------- -------
$7,587 $7,956
======= =======
</TABLE>
F-7
<PAGE>
SOLITE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
(Unaudited)
4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (in thousands):
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
---------- ---------
<S> <C> <C>
Accrued payroll and benefits ..................... $ 629 $ 585
Accrued health and casualty claims insurance ...... 863 948
Other ............................................. 1,219 986
------- -------
$2,711 $2,519
======= =======
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
The Company's policy is to partially self-insure group medical benefits
for its employees and the employees of its subsidiaries. The Company is
self-insured to certain maximum limits. At June 30, 1997 and 1996,
approximately $282,000 and $484,000, respectively, in medical claims were
accrued. In addition, the Company is self-insured to certain maximum limits for
general liability, business auto and workmen's compensation benefits. At June
30, 1997 and 1996, approximately $581,000 and $464,000, respectively, in claims
were accrued.
The Company and the non-core businesses have posted letters of credit
pursuant to environmental regulations. At June 30, 1997, these letters of
credit total $2,942,000. The Company would be obligated together with the non-
core businesses for repayment of any commitments under these letters of credit.
The Company guarantees the payment of certain debt owed by another entity
owned by the non-core businesses. This debt is owed to the president of the
Company. The balance of the debt at June 30, 1997 totaled $1,500,000.
6. ENVIRONMENTAL:
The Company has entered into an administrative order on consent with the
North Carolina Division of Solid Waste Management at its North Carolina
lightweight aggregate plant. This "Corrective Action" order requires the
Company to investigate areas of the plant site where activities took place that
could be associated with environmental contamination. If contaminated areas are
identified, the Company could be required to undertake remedial action.
Although a loss is probable, it is not possible at this time to reasonably
estimate the amount of any obligation for remediation at these locations that
may be material to the Company's financial statements because the extent of
environmental impact, remediation alternatives (which could involve no or
minimal action), and concurrence of the regulatory authorities have not yet
advanced to the stage where a reasonable estimate of any loss can be made.
However, at June 30, 1997, the Company has accrued $55,000, which represents
amounts the Company expects to incur to prepare reports to the Division of
Solid Waste Management which would then be used to determine the need for
further investigative or remedial activities.
F-8
<PAGE>
REPORT ON AUDITS OF FINANCIAL STATEMENTS OF
SOLITE CORPORATION
for the years ended March 31, 1997 and 1996
F-9
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Report of Independent Accountants ...... F-11
Balance Sheets ........................... F-12
Statements of Operations ............... F-13
Statements of Shareholders' Equity ...... F-14
Statements of Cash Flows ............... F-15
Notes to Financial Statements ............ F-16-F-22
</TABLE>
F-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Giant Cement Holding, Inc. and Solite Corporation:
We have audited the accompanying balance sheets of Solite Corporation (the
"Company") as of March 31, 1997 and 1996, and the related statements of
operations, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 1 to the accompanying financial statements, on September
10, 1997, Giant Cement Holding, Inc. signed an agreement to purchase
substantially all of the assets and assume certain liabilities of Solite
Corporation. These financial statements do not include any adjustments arising
from the sale transaction.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Solite Corporation as of March
31, 1997 and 1996, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
As more fully discussed in Notes 1, 6 and 13, the Company was in default under
certain provisions of its loan agreements, which have been waived and their
maturity dates have been extended to between October 31, 1997 and December 31,
1997, and non-core businesses (as defined in Note 1) have suffered recurring
losses from operations that raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in this regard are also
discussed in Note 13. These financial statements do not include any adjustments
that might result from this uncertainty.
Charlotte, North Carolina
August 11, 1997, except as to the information presented in the second
paragraph of Note 1, for which the date is September 10, 1997
and Note 6 with respect to the extensions of maturity
dates, for which the date is September 24, 1997
F-11
<PAGE>
SOLITE CORPORATION
BALANCE SHEETS
March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 1,441,339 $ 357,046
Accounts receivable, less allowances of $343,000 in 1997 and
$328,000 in 1996 ................................................ 6,323,448 5,576,998
Inventories ................................................... 7,706,450 8,351,244
Deferred income taxes .......................................... 918,000 875,000
Other current assets .......................................... 207,287 362,174
------------ ------------
Total current assets ....................................... 16,596,524 15,522,462
Property, plant and equipment, net .............................. 14,436,188 15,184,880
Deferred income taxes .......................................... 1,026,000 888,000
Other assets ................................................... 1,529,058 1,996,533
------------ ------------
$33,587,770 $33,591,875
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of debt (Note 6) ........................... $17,038,223 $18,525,735
Accounts payable ................................................ 6,630,566 5,610,243
Accrued payroll and benefits .................................... 611,702 555,976
Accrued health and casualty insurance claims .................. 1,015,194 789,239
Other current liabilities ....................................... 1,183,883 699,426
------------ ------------
Total current liabilities ................................. 26,479,568 26,180,619
------------ ------------
Commitments and contingencies (Notes 1, 8, 10 and 13)
Shareholders' equity:
Preferred stock, $50 par value; redeemable at $60 per share
(cumulative dividend of $4 per share); 100,000 shares
authorized:
Series A preferred, issued 8,700 shares ........................ 435,000 435,000
Series B preferred, issued 14,093 shares ..................... 704,650 704,650
Preferred stock, series C, $200 par value; redeemable at $240
per share (cumulative dividend of $21.50 per share); 16,807
shares authorized; issued 15,429 shares ........................ 3,085,800 3,085,800
Common stock, $2 par value; authorized 1,000,000 shares;
issued 530,950 shares in 1997 and 530,050 shares in 1996 ...... 1,061,900 1,060,100
Capital in excess of par value ................................. 821,897 789,734
Retained earnings ............................................. 998,955 1,335,972
------------ ------------
7,108,202 7,411,256
------------ ------------
$33,587,770 $33,591,875
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-12
<PAGE>
SOLITE CORPORATION
STATEMENTS OF OPERATIONS
for the years March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
<S> <C> <C>
Sales $ 52,612,860 $ 49,442,632
Costs and expenses:
Cost of sales and services ............... 38,329,081 33,734,747
Selling, general and administrative ...... 10,807,766 11,348,958
------------ ------------
Operating income ..................... 3,476,013 4,358,927
Other income (expenses):
Interest expense ........................ (1,731,735) (1,835,441)
Other, net .............................. 312,593 263,612
------------ ------------
Income before income taxes ............ 2,056,871 2,787,098
------------ ------------
Provision for income taxes (benefit):
Current ................................. 891,000 1,551,000
Deferred ................................. (181,000) (576,000)
------------ ------------
710,000 975,000
------------ ------------
Net income ........................... $ 1,346,871 $ 1,812,098
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-13
<PAGE>
SOLITE CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Preferred Stock
---------------------------------- Capital in
Common Excess of Retained
Series A Series B Series C Stock Par Value Earnings Total
---------- ---------- ------------ ------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1995 ...... $435,000 $704,650 $ -- $1,062,730 $1,178,892 $ 7,853,508 $ 11,234,780
Stock issued as employee
bonuses, 700 shares ......... 1,400 29,620 31,020
Stock repurchased from
employees, 2,015 shares ...... (4,030) (87,055) (91,085)
Series C preferred stock
issued to officer, 15,429
shares ..................... 3,085,800 (331,723) 2,754,077
Net income ..................... 1,812,098 1,812,098
Distributions to non-core
businesses, net ............... (8,329,634) (8,329,634)
------------ ------------
Balances, March 31, 1996 ...... 435,000 704,650 3,085,800 1,060,100 789,734 1,335,972 7,411,256
Stock issued as employee
bonuses, 1,000 shares ......... 2,000 36,095 38,095
Stock repurchased from
employees, 3,000 shares ...... (6,000) (109,212) (115,212)
Stock sold to Solite Corp.
Salaried Pension Plan,
2,900 shares .................. 5,800 105,280 111,080
Net income ..................... 1,346,871 1,346,871
Distributions to non-core
businesses, net ............... (1,683,888) (1,683,888)
------------ ------------
Balances, March 31, 1997 ...... $435,000 $704,650 $3,085,800 $1,061,900 $ 821,897 $ 998,955 $ 7,108,202
========= ========= =========== ========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-14
<PAGE>
SOLITE CORPORATION
STATEMENTS OF CASH FLOWS
for the years ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 1,346,871 $ 1,812,098
Depreciation, depletion and amortization ........................ 2,751,890 2,900,902
Gain on disposition of assets ................................. (203,913) (255,031)
Deferred tax benefit .......................................... (181,000) (576,000)
Reimbursement of deposits held by insurance administrator ...... 536,030 --
Changes in operating assets and liabilities:
Receivables ................................................... (746,450) (555,530)
Inventories ................................................... 644,794 624,105
Other current assets .......................................... 154,887 3,035,079
Other assets ................................................ (90,431) (60,460)
Accounts payable ............................................. 1,020,323 1,227,547
Accrued payroll and benefits ................................. 55,726 11,057
Accrued health and casualty claims insurance .................. 225,955 146,786
Other operating liabilities ................................. 484,457 258,662
------------ ------------
Net cash provided by operating activities .................. 5,999,139 8,569,215
------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment ..................... (1,298,390) (465,193)
Proceeds from sale of assets .................................... 228,628 273,573
Cost of environmental permits ................................. (314,981) (425,623)
------------ ------------
Net cash used by investing activities ..................... (1,384,743) (617,243)
------------ ------------
Cash flows from financing activities:
Proceeds from short-term borrowings ........................... -- 800,000
Principal payments on notes payable ........................... (2,380,156) (6,013,718)
Proceeds from issuance of preferred stock ..................... -- 2,754,077
Proceeds from issuance of common stock ........................ 111,080 --
Purchases of common stock ....................................... (115,212) (91,085)
Distributions to non-core businesses ........................... (1,145,815) (5,610,307)
------------ ------------
Net cash used by financing activities ..................... (3,530,103) (8,161,033)
------------ ------------
Increase (decrease) in cash and cash equivalents ............ 1,084,293 (209,061)
Cash and cash equivalents:
Beginning of period ............................................. 357,046 566,107
------------ ------------
End of period ................................................... $ 1,441,339 $ 357,046
============ ============
Supplemental information, cash paid for interest (net of
$42,454 capitalized in 1997) .................................... $ 1,940,904 $ 2,004,626
Noncash investing and financing activities:
Assets financed by notes payable .............................. $ 128,452 --
Property, plant and equipment contributed by non-core
businesses ................................................... $ 264,214 $ 851,424
Assumption by Company of non-core businesses' debt ............ $ 764,192 $ 3,539,731
Common stock issued as employee bonuses ........................ $ 38,095 $ 31,020
</TABLE>
The accompanying notes are an integral part of the financial statements
F-15
<PAGE>
SOLITE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
These financial statements of Solite Corporation (the "Company") consist of
the following businesses owned by Solite Corporation: Solite Corporation
(excluding Sand and Gravel Division); Carolina Solite Corporation (excluding the
Florida Solite Company); Solite Lightweight Transportation, Inc.; Lightweight
Block Company, Incorporated; Boston Concrete Products, Incorporated; Lightweight
Block-Eden Corporation; Lightweight Block--Lexington Corporation; Charlotte
Block, Inc.; Oldover Corporation (excluding the Green Cove Springs facilities);
M&M Chemical and Equipment Co., Inc. and Eden Machine and Design Corporation.
Significant intercompany transactions and balances have been eliminated.
Non-core businesses consist of the following entities which are excluded from
these financial statements: Northeast Solite Corporation; Florida Solite
Company; Kentucky Solite Corporation; Sand & Gravel Division of Solite
Corporation; Southern Materials Corporation; Solite Masonry Units Corporation;
JTN Land Corporation; Terry Glenn Coal Company; Environmental Conservation
Systems, Inc.; Industrial Environmental Systems, Inc.; Standard Minerals
Corporation; RR, Incorporated; Massey Concrete Corporation; Rockville Nurseries
Corporation; Stoneridge Farms, Inc.; Rappahannock Farm Enterprises, Inc.; Big
Ugly Coal Corporation; Princess Anne Coal Corporation; JTN Leasing Company;
Lightweight Block Company, Inc. (a North Carolina corporation) and Lightweight
Block - Wilmington Corporation. References to "non-core businesses" relate to
the businesses owned by Solite Corporation which will not be acquired pursuant
to the definitive agreement, described below.
On September 10, 1997, Giant Cement Holding, Inc. ("Giant") signed a
definitive agreement with the Company to purchase certain assets and assume
certain liabilities of the Company. These financial statements present the
assets, liabilities and results of operations of the businesses to be acquired
pursuant to the agreement as of and for the periods indicated. The sale is
subject to certain conditions. These financial statements do not include any
adjustments to the carrying value of the Company's net assets that might result
from this proposed transaction.
The Company is involved in the manufacture and sale of masonry blocks and
lightweight aggregate construction materials. The Company is also involved in
waste recycling and resource recovery, utilizing industrial waste as fuel in
its kilns. The Company sells primarily to customers in the eastern United
States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
INVENTORIES--Inventories are carried at the lower of first-in, first-out
cost or market.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. The Company records depreciation over the estimated useful lives of the
related assets, ranging from five to thirty-three years. The Company records
depreciation principally on the straight-line method. Depletion of quarry
property is computed on a units extracted basis based on estimated total units
available. When property, plant and equipment is sold or retired. the related
cost and accumulated depreciation is removed from the accounts and any gain or
loss is included in income.
OTHER ASSETS--Other assets include certain costs incurred to obtain
multi-year operating permits upon certification of compliance with
environmental regulations. Deferred permit certification costs are amortized
over the estimated period benefited, presently two to five years.
ENVIRONMENTAL LIABILITIES--The Company evaluates environmental
contingencies and, if appropriate, accrues the estimated cost by charging
income for the gross liability for all matters where a future loss is probable
and reasonably estimable. If it is probable that the Company will be
indemnified and/or recover all or a portion of a probable loss, and the amount
of such recovery is reasonably estimable, the Company accrues the related asset
on a gross basis. The Company utilizes all of the information available to it
to estimate the range or amount of loss and the timing of loss payments.
REVENUE RECOGNITION--The Company derives revenue from product sales and
resource recovery services. Revenue for product sales is recognized in the
period in which the product is shipped to customers. Revenue for resource
F-16
<PAGE>
SOLITE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued):
recovery services is recognized in the period in which the service is provided.
Inventories of waste-derived fuel are immaterial.
INCOME TAXES--The Company is included in a consolidated tax return which
includes the non-core businesses. The Company provides for income taxes as if
the Company filed a separate return. Deferred tax liabilities and assets are
recorded for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance if, based on available evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
CONCENTRATION OF CREDIT RISK--Accounts receivable are principally from
customers dependent upon the construction industry. However, concentrations of
credit risk with respect to trade receivables are partially mitigated due to
the large number of customers comprising the Company's customer base and their
geographic dispersion. Trade receivables are short-term, and probable bad debt
losses are considered in establishing the allowance for doubtful accounts. The
Company generally does not require collateral for receivables. Substantially
all of the Company's cash is maintained in one financial institution, and
balances are in excess of federal government insurance limits.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates relate to raw material and in process inventory
quantities, valuation allowances and self- insurance reserves.
3. INVENTORIES:
Inventories at March 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Finished goods ........................ $3,488,353 $4,931,252
In process ........................... 3,140,330 2,145,480
Raw materials ........................ 115,527 168,809
Supplies, repair parts and fuel ...... 962,240 1,105,703
----------- -----------
$7,706,450 $8,351,244
=========== ===========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at March 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Land and mineral resources ........................ $ 1,167,844 $ 1,188,184
Buildings and improvements ........................ 3,305,296 3,276,125
Furniture and fixtures ........................... 946,482 937,487
Equipment ....................................... 24,587,093 23,094,733
Automotive equipment .............................. 2,628,286 2,543,289
Construction in process ........................... 1,101,462 978,044
------------ ------------
33,736,463 32,017,862
Less accumulated depreciation and depletion ...... 19,300,275 16,832,982
------------ ------------
$14,436,188 $15,184,880
============ ============
</TABLE>
F-17
<PAGE>
SOLITE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
5. INCOME TAXES:
The provision (benefit) for income taxes at March 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------- --------------
<S> <C> <C>
Current:
Federal ...... $ 567,000 $1,404,000
State ......... 324,000 147,000
Deferred:
Federal ...... (154,000) (478,000)
State ......... (27,000) (98,000)
---------- ----------
$ 710,000 $ 975,000
========== ==========
</TABLE>
The following is a reconciliation between the federal income tax rate and
the Company's effective income tax rate:
<TABLE>
<CAPTION>
1997 1996
------- ---------
<S> <C> <C>
Statutory tax rate .............................. 34.0% 34.0%
State income taxes, net of federal benefit ...... 4.1 4.4
Excess depletion for tax purposes ............... (2.3) (2.7)
Other .......................................... (1.3) (.7)
----- -----
34.5% 35.0%
===== =====
</TABLE>
Cumulative gross deferred tax assets and liabilities relate to the
following at March 31:
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
<S> <C> <C>
Net operating loss carryforwards .................. $ 3,789,000 $ 2,756,000
Alternative minimum tax credit carryforwards ...... 717,000 717,000
Pension benefits ................................. 170,000 138,000
Inventory .......................................... 113,000 328,000
Self-insurance accruals ........................... 302,000 193,000
Other ............................................. 333,000 216,000
------------ ------------
5,424,000 4,348,000
Valuation allowance .............................. (1,134,000) (30,000)
------------ ------------
Net deferred tax assets ........................ 4,290,000 4,318,000
Depreciation ....................................... (2,346,000) (2,555,000)
------------ ------------
Net deferred tax asset ......................... 1,944,000 1,763,000
Current deferred tax asset ......................... 918,000 875,000
------------ ------------
Non-current deferred tax asset .................. $ 1,026,000 $ 888,000
============ ============
</TABLE>
Net operating loss carryforwards begin expiring in 2011.
F-18
<PAGE>
SOLITE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
6. FINANCING:
Debt consists of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
------------- --------------------
<S> <C> <C>
Revolving credit line with a bank, interest payable monthly at prime
plus 1.00% (prime equals 8.50% at March 31, 1997) .................. $10,224,729 $ 11,255,625(A)
Revolving credit line with a bank, interest payable monthly at prime
plus 1.00% ......................................................... 6,019,859 6,291,995(B)
Two lines of credit with banks, interest payable monthly at prime plus
1.50% ............................................................ 2,000,000 2,000,000(C)
Five senior notes payable to insurance companies, interest payable
monthly at rates up to 12.32% .................................... 7,441,827 8,505,662(D)
Seven notes payable for automobiles, interest and principal payable
monthly at rates up to 10.25% .................................... 115,163 --
------------ ---------------
25,801,578 28,053,282
Less amounts allocated to non-core business ........................ 8,763,355 9,527,547(E)
------------ ---------------
$17,038,223 $ 18,525,735
============ ===============
</TABLE>
The revolving credit lines, lines of credit, senior notes and notes
payable for automobiles are recorded by the Company. However, all covenants in
the debt agreements apply to both the Company and non-core businesses. The
Company and non-core businesses are in default of certain covenants as of March
31, 1997 and have obtained waivers of these violations. However, all debt
allocated to the Company has been classified as current based on the maturity
dates expiring within the next year.
(A) The total amount available (including outstanding borrowings) under
the agreement at March 31, 1997 is $18,500,000, which decreases to $10,500,000
upon the occurrence of certain trigger events, as defined in the credit
agreement. Subsequent to year-end, the bank amended the credit agreement to
change the maturity date to December 31, 1997.
(B) The total amount available (including outstanding borrowings) under
the agreement at March 31, 1997 is $10,000,000, which decreases to $6,000,000
upon the occurrence of certain trigger events, as defined in the credit
agreement. Subsequent to year-end, the bank amended the credit agreement to
change the maturity date to December 31, 1997.
(C) The total amount available (including outstanding borrowings) under
the lines of credit at March 31, 1997 is $2,000,000. Subsequent to year-end,
the banks amended the credit agreements to change the maturity dates to
December 31, 1997.
(D) Subsequent to year-end, the insurance companies amended the debt
agreements to change the maturity dates to October 31, 1997.
(E) For purposes of the Company's financial statements, a portion of the
debt has been allocated to non-core businesses based on the ratio of the
non-core businesses' overhead expenses to the total overhead expenses of the
Company and non-core businesses.
The Company and non-core businesses have pledged substantially all of
their assets as collateral under the revolving credit lines, lines of credit,
senior notes and notes payable for automobiles.
7. PENSION PLAN:
The Company has two noncontributory defined benefit pension plans covering
substantially all employees not covered by union sponsored plans. The Company's
funding policy for these plans is to fund pension cost as determined by its
actuaries. Plan assets consist primarily of mutual funds. At December 31, 1996
and 1995, plan assets included 7,800 and 4,900 shares of the parent company's
stock valued at $289,000 and $212,000, respectively.
F-19
<PAGE>
SOLITE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
7. PENSION PLAN, (continued):
The actuarial valuation performed for the Company's plans was performed
for the Company and the non- core businesses. For purposes of these financial
statements, a portion of the pension liability, pension expense and pension
disclosure balances for the funded status and pension expense was allocated to
the Company in the ratio of the Company's employee headcount to the total
Company and non-core businesses' employee headcount.
The following table sets forth the plan's funded status as of January 1
and amounts recognized in the Company's balance sheet at March 31:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation .................................... $ 8,532,132 $ 8,062,812
Nonvested ................................................... 134,995 188,880
------------- -------------
Accumulated benefit obligation ................................. 8,667,127 8,251,692
Effect of future compensation increases ........................ 1,411,111 1,557,930
------------- -------------
Project benefit obligation ....................................... 10,078,238 9,809,622
Plan assets at fair value ....................................... (12,116,109) (11,380,416)
------------- -------------
Plan assets in excess of projected benefit obligation ............ (2,037,871) (1,570,794)
Unrecognized net gain .......................................... 2,200,651 1,568,713
Unrecognized prior service cost ................................. (218,926) (251,680)
Unrecognized net transition asset .............................. 493,622 610,882
------------- -------------
Accrued pension cost included in other current liabilities ...... $ 437,476 $ 357,121
============= =============
</TABLE>
The assumed discount rates for 1997 and 1996 were 7.5% and 7.0%,
respectively. The long-term rates of return on assets and rates of increase for
future compensation were 8.0% and 5.0%, respectively, in 1997 and 1996.
Pension expense for the plans includes the following:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Service cost, benefits earned during the year ...... $ 412,811 $ 334,935
Interest cost on projected benefit obligation ...... 656,257 638,217
Actual return on assets ........................... (1,413,053) (2,231,956)
Net amortization and deferral ..................... 431,376 1,384,948
------------ ------------
Total .......................................... $ 87,391 $ 126,144
============ ============
</TABLE>
8. COMMITMENTS AND CONTINGENCIES:
The Company's policy is to partially self-insure group medical benefits
for its employees and the employees of its subsidiaries. The Company is
self-insured to certain maximum limits. At March 31, 1997 and 1996,
approximately $225,000 and $285,000, respectively, in medical claims were
accrued. In addition, the Company is self-insured to certain maximum limits for
general liability, business auto and workmen's compensation benefits. At March
31, 1997 and 1996, approximately $790,000 and $504,000, respectively, in claims
were accrued.
The Company and the non-core businesses have posted letters of credit
pursuant to environmental regulations. At March 31, 1997, these letters of
credit total $2,942,000. The Company would be obligated together with the
non-core businesses for repayment of any commitments under these letters of
credit.
The Company guarantees the payment of certain debt owed by another entity
owned by the non-core businesses. This debt is owed to the president of the
Company. The balance of the debt at March 31, 1997 totaled $1,200,000.
F-20
<PAGE>
SOLITE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
8. COMMITMENTS AND CONTINGENCIES, (continued):
The Company's operations and properties are subject to extensive and
changing federal, state and local laws (including common law), regulations and
ordinances relating to noise and dust suppression, air and water quality, as
well as to the handling, treatment, storage and disposal of wastes
("Environmental Laws"). In connection with the Company's quarry sites and
utilization of hazardous waste-derived fuel, Environmental Laws also provide
significant penalties for violators, as well as liabilities and costs of
cleaning up releases of hazardous wastes into the environment. Violation of
mandated procedures under operating permits, even if immaterial or
unintentional, may result in fines, shutdowns, remedial actions or revocation
of such permits.
The Company and non-core businesses are involved in various administrative
matters or litigation. While the final resolution of any matter may have an
impact on the Company's financial results for a particular reporting period,
management believes that the ultimate disposition of these matters will not
have a materially adverse effect upon the financial position of the Company.
9. OPERATING LEASES:
The Company leases various equipment and surface rights to mineral land
under operating leases with remaining terms of up to sixteen years. Certain
vehicle leases include provisions for additional rent payments based on miles
driven. Rent expense totaled $3,725,000 and $3,728,000 in 1997 and 1996,
respectively.
Minimum future rental commitments under all noncancelable operating leases
at March 31, 1997 for the next five years are as follows:
<TABLE>
<S> <C>
1998 ...... $1,626,000
1999 ...... 1,127,000
2000 ...... 574,000
2001 ...... 295,000
2002 ...... 159,000
</TABLE>
10. ENVIRONMENTAL:
The Company has entered into an administrative order on consent with the
North Carolina Division of Solid Waste Management at its North Carolina
lightweight aggregate plant. This "Corrective Action" order requires the
Company to investigate areas of the plant site where activities took place that
could be associated with environmental contamination. If contaminated areas are
identified, the Company could be required to undertake remedial action.
Although a loss is probable, it is not possible at this time to reasonably
estimate the amount of any obligation for remediation at these locations that
may be material to the Company's financial statements because the extent of
environmental impact, remediation alternatives (which could involve no or
minimal action) and concurrence of the regulatory authorities have not yet
advanced to the stage where a reasonable estimate of any loss can be made.
However, at March 31, 1997, the Company has accrued $55,000, which represents
amounts the Company expects to incur to prepare reports to the Division of
Solid Waste Management which would then be used to determine the need for
further investigative or remedial activities.
As part of a consent order executed in September 1996 with the Alabama
Department of Environmental Management, the Company agreed to pay a $150,000
settlement and strengthen its controls over the tracking of shipments of
hazardous waste. This amount was accrued as of March 31, 1996.
11. RELATED PARTY:
During 1997 and 1996, the Company's sales included $2,423,000 and
$1,997,000 of sales to non-core businesses. At March 31, 1997 and 1996, the
Company had approximately $193,000 of receivables due from non-core businesses.
F-21
<PAGE>
SOLITE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
11. RELATED PARTY, (continued):
The Company provides certain administrative functions to the non-core
businesses including senior executive management services, accounting, legal
and human resources services. The cost of these functions has been allocated to
the non-core businesses by a formula based on the level of revenue, headcount
and projects. Administrative costs allocated to non-core businesses were
approximately $1,868,000 and $1,925,000 in 1997 and 1996, respectively.
12. PREFERRED STOCK:
The Company has three series of outstanding preferred stock. Series A and
Series B preferred stock have a $50 par value and do not accrue dividends for
the first year following their issuance. Thereafter, dividends are cumulative
and, if and when declared, accrue at $4 per share payable annually. Each of
these shares is entitled to one-quarter of one vote for all purposes for which
the holders of common shares are entitled to vote. They are redeemable for cash
at any time at the option of the Company, in whole or in part, at $60 per share
plus accrued dividends, for an aggregate amount of $609,000 and $973,000 for
Series A and Series B, respectively, at March 31, 1997, except that the
preferred shareholder has the option of converting the redeemed shares into
common stock at a rate of one common share for four preferred shares. Series A
and Series B preferred shares have a liquidation value of $50 per share plus
accrued dividends for an aggregate amount of $522,000 and $832,000,
respectively, at March 31, 1997.
Series C preferred stock has a $200 par value and does not accrue
dividends for the first year following issuance. Thereafter, dividends are
cumulative and, if and when declare, accrue at $21.50 per share payable
annually. Each share is entitled to one vote for all purposes for which the
holders of common shares are entitled to vote. They are redeemable for cash at
any time at the option of the Company, in whole or in part, at $240 per share
plus accrued dividends, for an aggregate amount of $3,786,000 at March 31, 1997
except that the preferred shareholder has the option of converting the redeemed
shares into common stock at a rate of one common share for one preferred share.
This series of preferred stock has a liquidation value of $200 per share plus
accrued dividends for an aggregate amount of $3,169,000 at March 31, 1997. In
1996, the Company sold 15,429 shares of Series C preferred stock to an
officer/shareholder for $178.50 per share.
At March 31, 1997, dividends in arrears which have not been paid, declared
or accrued are $87,000 for Series A preferred stock, $127,000 for Series B
preferred stock and $83,000 for Series C preferred stock.
13. MANAGEMENT PLANS:
The Company and the non-core businesses have had recurring operating
losses and incurred a consolidated net loss in 1997 of approximately
$3,174,000. Additionally, as noted in Note 6, the Company and the non- core
businesses were in default of their financing agreements, which have been
waived, and their maturity dates have been extended to between October 31, 1997
and December 31, 1997, and the Company and the non-core businesses are
dependent upon continued financing from their lenders. The Company and non-core
businesses have entered into plans to sell substantially all of their assets,
including the assets of the Company (as defined in Note 1). The ability of the
Company to continue as a going concern and address their financial concerns is
dependent on the success of the plans for asset sales and the continued
financing from their lenders. These financial statements do not include any
adjustments that might result from this uncertainty.
F-22
<PAGE>
Annex I
Preferred Stock Conversion Schedule
The conversion ratios for Solite Preferred Stock in the Conversion and
Solite Common Stock in the Merger will be the conversion ratio for such class
shown under the price per share of Giant Common Stock equal to the average of
the closing bid and asked prices per share of Giant Common Stock for the 20
trading days immediately before the Effective Time, rounded to the nearest
eighth (the "Giant Conversion Price"). The Common Exchange Ratio shows the
exchange ratio for the 450,000 shares of Giant Common Stock to be issued at the
Effective Time. The Escrow Exchange Ratio shows the exchange ratio for the
200,000 shares of Giant Common Stock to be placed in escrow pursuant to the
Merger and assumes the release of all 200,000 shares from escrow. No fractional
shares will be issued in the Conversion or the Merger.
Each holder of shares of Solite Preferred Stock who would otherwise be
entitled to receive a fraction of a share of Solite Common Stock will receive,
in lieu thereof, cash (without interest) in an amount determined by multiplying
the fractional interest to which such holder would otherwise be entitled by the
quotient derived by dividing (i) the amount shown on the Equity Value of
Northeast Solite and Solite Combined for the Giant Conversion Price by (ii) the
Total Shares of Solite Common Stock issuable upon the basis of such Giant
Conversion Price.
Each holder of shares of Solite Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of Giant Common Stock (after taking into account all Solite Certificates
delivered by such holder) will receive, in lieu thereof, cash (without
interest) in an amount determined by multiplying (i) the fractional interest to
which such holder would otherwise be entitled and (ii) the average of the
closing bid and asked prices per share for Giant Common Stock on the Nasdaq
National Market for the twenty trading days immediately preceding the Effective
Time.
I-1
<PAGE>
GIANT CONVERSION PRICE
$15
<TABLE>
<CAPTION>
$15.000 $15.125 $15.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 14,508,150 14,589,400 14,670,650
Preferred Conversion Ratio:
Series A ........................ 2.5893 2.5690 2.5490
Series B ........................ 2.5911 2.5708 2.5508
Series C ........................ 10.3622 10.2810 10.2010
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 22,527 22,350 22,177
Series B ........................ 36,516 36,230 35,948
Series C ........................ 159,879 158,625 157,391
----------- ----------- -----------
Total Shares .................. 751,672 749,956 748,266
Common Exchange Ratio ............ 0.5987 0.6000 0.6014
Escrow Exchange Ratio ............ 0.2661 0.2667 0.2673
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.8647 0.8667 0.8687
<CAPTION>
$15.375 $15.500 $15.625 $15.750 $15.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 14,751,900 14,833,150 14,914,400 14,995,650 15,076,900
Preferred Conversion Ratio:
Series A ........................ 2.5294 2.5100 2.4909 2.4721 2.4536
Series B ........................ 2.5311 2.5117 2.4926 2.4738 2.4553
Series C ........................ 10.1223 10.0447 9.9684 9.8932 9.8191
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 22,005 21,837 21,671 21,507 21,346
Series B ........................ 35,671 35,397 35,128 34,863 34,602
Series C ........................ 156,177 154,980 153,802 152,642 151,499
----------- ----------- ----------- ----------- -----------
Total Shares .................. 746,603 744,965 743,351 741,763 740,198
Common Exchange Ratio ............ 0.6027 0.6041 0.6054 0.6067 0.6079
Escrow Exchange Ratio ............ 0.2679 0.2685 0.2691 0.2696 0.2702
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.8706 0.8725 0.8744 0.8763 0.8781
</TABLE>
$16
<TABLE>
<CAPTION>
$16.000 $16.125 $16.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 15,158,150 15,239,400 15,320,650
Preferred Conversion Ratio:
Series A ........................ 2.4354 2.4174 2.3997
Series B ........................ 2.4370 2.4191 2.4013
Series C ........................ 9.7461 9.6742 9.6034
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 21,188 21,031 20,877
Series B ........................ 34,345 34,092 33,842
Series C ........................ 150,373 149,264 148,171
----------- ----------- -----------
Total Shares .................. 738,656 737,137 735,640
Common Exchange Ratio ............ 0.6092 0.6105 0.6117
Escrow Exchange Ratio ............ 0.2708 0.2713 0.2719
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.8800 0.8818 0.8836
<CAPTION>
$16.375 $16.500 $16.625 $16.750 $16.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 15,401,900 15,483,150 15,564,400 15,645,650 15,726,900
Preferred Conversion Ratio:
Series A ........................ 2.3823 2.3651 2.3481 2.3314 2.3149
Series B ........................ 2.3839 2.3667 2.3497 2.3330 2.3165
Series C ........................ 9.5336 9.4648 9.3970 9.3301 9.2642
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 20,726 20,576 20,429 20,283 20,140
Series B ........................ 33,596 33,354 33,115 32,879 32,647
Series C ........................ 147,094 146,032 144,986 143,954 142,937
----------- ----------- ----------- ----------- -----------
Total Shares .................. 734,165 732,712 731,279 729,866 728,474
Common Exchange Ratio ............ 0.6129 0.6142 0.6154 0.6166 0.6177
Escrow Exchange Ratio ............ 0.2724 0.2730 0.2735 0.2740 0.2745
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.8854 0.8871 0.8889 0.8906 0.8923
</TABLE>
$17
<TABLE>
<CAPTION>
$17.000 $17.125 $17.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 15,808,150 15,889,400 15,970,650
Preferred Conversion Ratio:
Series A ........................ 2.2987 2.2827 2.2669
Series B ........................ 2.3003 2.2842 2.2684
Series C ........................ 9.1992 9.1351 9.0719
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 19,999 19,859 19,722
Series B ........................ 32,418 32,192 31,969
Series C ........................ 141,934 140,946 139,971
----------- ----------- -----------
Total Shares .................. 727,101 725,747 724,412
Common Exchange Ratio ............ 0.6189 0.6201 0.6212
Escrow Exchange Ratio ............ 0.2751 0.2756 0.2761
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.8940 0.8956 0.8973
<CAPTION>
$17.375 $17.500 $17.625 $17.750 $17.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 16,051,900 16,133,150 16,214,400 16,295,650 16,376,900
Preferred Conversion Ratio:
Series A ........................ 2.2513 2.2360 2.2208 2.2059 2.1911
Series B ........................ 2.2529 2.2375 2.2223 2.2074 2.1926
Series C ........................ 9.0096 8.9481 8.8875 8.8277 8.7686
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 19,587 19,453 19,321 19,191 19,063
Series B ........................ 31,750 31,533 31,319 31,108 30,900
Series C ........................ 139,009 138,061 137,125 136,202 135,291
----------- ----------- ----------- ----------- -----------
Total Shares .................. 723,095 721,796 720,515 719,251 718,004
Common Exchange Ratio ............ 0.6223 0.6234 0.6246 0.6257 0.6267
Escrow Exchange Ratio ............ 0.2766 0.2771 0.2776 0.2781 0.2785
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.8989 0.9005 0.9021 0.9037 0.9053
</TABLE>
I-2
<PAGE>
GIANT CONVERSION PRICE
$18
<TABLE>
<CAPTION>
$18.000 $18.125 $18.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 16,458,150 16,539,400 16,620,650
Preferred Conversion Ratio:
Series A ........................ 2.1766 2.1622 2.1480
Series B ........................ 2.1780 2.1637 2.1495
Series C ........................ 8.7104 8.6529 8.5962
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 18,936 18,811 18,688
Series B ........................ 30,695 30,493 30,293
Series C ........................ 134,393 133,506 132,631
----------- ----------- -----------
Total Shares .................. 716,774 715,560 714,361
Common Exchange Ratio ............ 0.6278 0.6289 0.6299
Escrow Exchange Ratio ............ 0.2790 0.2795 0.2800
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9068 0.9084 0.9099
<CAPTION>
$18.375 $18.500 $18.625 $18.750 $18.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 16,701,900 16,783,150 16,864,400 16,945,650 17,026,900
Preferred Conversion Ratio:
Series A ........................ 2.1340 2.1202 2.1066 2.0931 2.0799
Series B ........................ 2.1355 2.1217 2.1080 2.0946 2.0813
Series C ........................ 8.5402 8.4850 8.4304 8.3766 8.3234
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 18,566 18,446 18,327 18,210 18,095
Series B ........................ 30,095 29,901 29,709 29,519 29,331
Series C ........................ 131,767 130,914 130,073 129,242 128,422
----------- ----------- ----------- ----------- -----------
Total Shares .................. 713,179 712,011 710,859 709,721 708,598
Common Exchange Ratio ............ 0.6310 0.6320 0.6330 0.6341 0.6351
Escrow Exchange Ratio ............ 0.2804 0.2809 0.2813 0.2818 0.2822
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9114 0.9129 0.9144 0.9159 0.9173
</TABLE>
$19
<TABLE>
<CAPTION>
$19.000 $19.125 $19.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 17,108,150 17,189,400 17,270,650
Preferred Conversion Ratio:
Series A ........................ 2.0667 2.0538 2.0410
Series B ........................ 2.0682 2.0552 2.0424
Series C ........................ 8.2709 8.2191 8.1679
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 17,981 17,868 17,757
Series B ........................ 29,146 28,964 28,783
Series C ........................ 127,612 126,812 126,022
----------- ----------- -----------
Total Shares .................. 707,489 706,394 705,312
Common Exchange Ratio ............ 0.6361 0.6370 0.6380
Escrow Exchange Ratio ............ 0.2827 0.2831 0.2836
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9187 0.9202 0.9216
<CAPTION>
$19.375 $19.500 $19.625 $19.750 $19.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 17,351,900 17,433,150 17,514,400 17,595,650 17,676,900
Preferred Conversion Ratio:
Series A ........................ 2.0284 2.0159 2.0036 1.9914 1.9794
Series B ........................ 2.0297 2.0173 2.0049 1.9927 1.9807
Series C ........................ 8.1173 8.0674 8.0181 7.9693 7.9212
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 17,647 17,538 17,431 17,325 17,220
Series B ........................ 28,605 28,429 28,255 28,084 27,914
Series C ........................ 125,242 124,472 123,711 122,959 122,216
----------- ----------- ----------- ----------- -----------
Total Shares .................. 704,244 703,189 702,147 701,118 700,101
Common Exchange Ratio ............ 0.6390 0.6399 0.6409 0.6418 0.6428
Escrow Exchange Ratio ............ 0.2840 0.2844 0.2848 0.2853 0.2857
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9230 0.9244 0.9257 0.9271 0.9284
</TABLE>
$20
<TABLE>
<CAPTION>
$20.000 $20.125 $20.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 17,758,150 17,839,400 17,920,650
Preferred Conversion Ratio:
Series A ........................ 1.9675 1.9557 1.9441
Series B ........................ 1.9688 1.9571 1.9455
Series C ........................ 7.8736 7.8266 7.7802
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 17,117 17,015 16,914
Series B ........................ 27,746 27,581 27,417
Series C ........................ 121,482 120,757 120,041
----------- ----------- -----------
Total Shares .................. 699,096 698,103 697,122
Common Exchange Ratio ............ 0.6437 0.6446 0.6455
Escrow Exchange Ratio ............ 0.2861 0.2865 0.2869
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9298 0.9311 0.9324
<CAPTION>
$20.375 $20.500 $20.625 $20.750 $20.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 18,001,900 18,083,150 18,164,400 18,245,650 18,326,900
Preferred Conversion Ratio:
Series A ........................ 1.9327 1.9213 1.9101 1.8991 1.8881
Series B ........................ 1.9340 1.9226 1.9114 1.9004 1.8894
Series C ........................ 7.7343 7.6890 7.6442 7.5999 7.5561
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 16,814 16,716 16,618 16,522 16,427
Series B ........................ 27,256 27,096 26,938 26,782 26,627
Series C ........................ 119,333 118,633 117,942 117,258 116,583
----------- ----------- ----------- ----------- -----------
Total Shares .................. 696,153 695,195 694,248 693,312 692,387
Common Exchange Ratio ............ 0.6464 0.6473 0.6482 0.6491 0.6499
Escrow Exchange Ratio ............ 0.2873 0.2877 0.2881 0.2885 0.2889
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9337 0.9350 0.9363 0.9375 0.9388
</TABLE>
I-3
<PAGE>
GIANT CONVERSION PRICE
$21
<TABLE>
<CAPTION>
$21.000 $21.125 $21.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 18,408,150 18,489,400 18,570,650
Preferred Conversion Ratio:
Series A ........................ 1.8773 1.8666 1.8560
Series B ........................ 1.8786 1.8679 1.8573
Series C ........................ 7.5128 7.4700 7.4277
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 16,333 16,239 16,147
Series B ........................ 26,475 26,324 26,175
Series C ........................ 115,915 115,255 114,602
----------- ----------- -----------
Total Shares .................. 691,472 690,568 689,674
Common Exchange Ratio ............ 0.6508 0.6516 0.6525
Escrow Exchange Ratio ............ 0.2892 0.2896 0.2900
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9400 0.9413 0.9425
<CAPTION>
$21.375 $21.500 $21.625 $21.750 $21.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 18,651,900 18,733,150 18,814,400 18,895,650 18,976,900
Preferred Conversion Ratio:
Series A ........................ 1.8456 1.8352 1.8250 1.8149 1.8049
Series B ........................ 1.8468 1.8365 1.8263 1.8162 1.8062
Series C ........................ 7.3858 7.3445 7.3036 7.2631 7.2231
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 16,057 15,967 15,878 15,790 15,703
Series B ........................ 26,028 25,882 25,738 25,595 25,454
Series C ........................ 113,956 113,318 112,687 112,063 111,446
----------- ----------- ----------- ----------- -----------
Total Shares .................. 688,790 687,916 687,052 686,198 685,353
Common Exchange Ratio ............ 0.6533 0.6541 0.6550 0.6558 0.6566
Escrow Exchange Ratio ............ 0.2904 0.2907 0.2911 0.2915 0.2918
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9437 0.9449 0.9461 0.9472 0.9484
</TABLE>
$22
<TABLE>
<CAPTION>
$22.000 $22.125 $22.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Independent and
Merged Combined .................. 19,058,150 19,139,400 19,220,650
Preferred Conversion Ratio:
Series A ........................ 1.7950 1.7853 1.7756
Series B ........................ 1.7963 1.7865 1.7768
Series C ........................ 7.1836 7.1444 7.1057
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 15,617 15,532 15,448
Series B ........................ 25,315 25,177 25,040
Series C ........................ 110,835 110,231 109,634
----------- ----------- -----------
Total Shares .................. 684,517 683,690 682,872
Common Exchange Ratio ............ 0.6574 0.6582 0.6590
Escrow Exchange Ratio ............ 0.2922 0.2925 0.2929
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9496 0.9507 0.9519
<CAPTION>
$22.375 $22.500 $22.625 $22.750 $22.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Independent and
Merged Combined .................. 19,301,900 19,383,150 19,464,400 19,545,650 19,626,900
Preferred Conversion Ratio:
Series A ........................ 1.7660 1.7565 1.7472 1.7379 1.7287
Series B ........................ 1.7672 1.7577 1.7484 1.7391 1.7299
Series C ........................ 7.0674 7.0295 6.9921 6.9550 6.9183
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 15,364 15,282 15,200 15,120 15,040
Series B ........................ 24,905 24,772 24,640 24,509 24,380
Series C ........................ 109,043 108,459 107,880 107,308 106,742
----------- ----------- ----------- ----------- -----------
Total Shares .................. 682,063 681,263 680,471 679,687 678,912
Common Exchange Ratio ............ 0.6598 0.6605 0.6613 0.6621 0.6628
Escrow Exchange Ratio ............ 0.2932 0.2936 0.2939 0.2943 0.2946
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9530 0.9541 0.9552 0.9563 0.9574
</TABLE>
$23
<TABLE>
<CAPTION>
$23.000 $23.125 $23.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Independent and
Merged Combined .................. 19,708,150 19,789,400 19,870,650
Preferred Conversion Ratio:
Series A ........................ 1.7197 1.7107 1.7018
Series B ........................ 1.7208 1.7119 1.7030
Series C ........................ 6.8820 6.8461 6.8105
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 14,961 14,883 14,806
Series B ........................ 24,252 24,125 24,000
Series C ........................ 106,182 105,628 105,079
----------- ----------- -----------
Total Shares .................. 678,145 677,386 676,635
Common Exchange Ratio ............ 0.6636 0.6643 0.6651
Escrow Exchange Ratio ............ 0.2949 0.2953 0.2956
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9585 0.9596 0.9606
<CAPTION>
$23.375 $23.500 $23.625 $23.750 $23.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Independent and
Merged Combined .................. 19,951,900 20,033,150 20,114,400 20,195,650 20,276,900
Preferred Conversion Ratio:
Series A ........................ 1.6930 1.6843 1.6757 1.6672 1.6587
Series B ........................ 1.6942 1.6855 1.6768 1.6683 1.6599
Series C ........................ 6.7753 6.7405 6.7060 6.6719 6.6381
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 14,729 14,654 14,579 14,504 14,431
Series B ........................ 23,876 23,753 23,632 23,512 23,393
Series C ........................ 104,536 103,999 103,467 102,941 102,420
----------- ----------- ----------- ----------- -----------
Total Shares .................. 675,892 675,156 674,428 673,707 672,993
Common Exchange Ratio ............ 0.6658 0.6665 0.6672 0.6679 0.6687
Escrow Exchange Ratio ............ 0.2959 0.2962 0.2965 0.2969 0.2972
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9617 0.9627 0.9638 0.9648 0.9658
</TABLE>
I-4
<PAGE>
GIANT CONVERSION PRICE
$24
<TABLE>
<CAPTION>
$24.000 $24.125 $24.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 20,358,150 20,439,400 20,520,650
Preferred Conversion Ratio:
Series A ........................ 1.6504 1.6421 1.6339
Series B ........................ 1.6515 1.6432 1.6350
Series C ........................ 6.6047 6.5716 6.5388
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 14,358 14,286 14,215
Series B ........................ 23,275 23,158 23,043
Series C ........................ 101,904 101,393 100,888
----------- ----------- -----------
Total Shares .................. 672,287 671,588 670,895
Common Exchange Ratio ............ 0.6694 0.6701 0.6707
Escrow Exchange Ratio ............ 0.2975 0.2978 0.2981
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9668 0.9679 0.9689
<CAPTION>
$24.375 $24.500 $24.625 $24.750 $24.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 20,601,900 20,683,150 20,764,400 20,845,650 20,926,900
Preferred Conversion Ratio:
Series A ........................ 1.6258 1.6178 1.6098 1.6020 1.5942
Series B ........................ 1.6269 1.6189 1.6109 1.6031 1.5953
Series C ........................ 6.5064 6.4743 6.4425 6.4110 6.3798
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 14,145 14,075 14,006 13,937 13,869
Series B ........................ 22,928 22,815 22,703 22,592 22,482
Series C ........................ 100,387 99,892 99,401 98,915 98,434
----------- ----------- ----------- ----------- -----------
Total Shares .................. 670,210 669,531 668,860 668,194 667,535
Common Exchange Ratio ............ 0.6714 0.6721 0.6728 0.6735 0.6741
Escrow Exchange Ratio ............ 0.2984 0.2987 0.2990 0.2993 0.2996
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9698 0.9708 0.9718 0.9728 0.9737
</TABLE>
$25
<TABLE>
<CAPTION>
$25.000 $25.125 $25.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 21,008,150 21,089,400 21,170,650
Preferred Conversion Ratio:
Series A ........................ 1.5865 1.5788 1.5713
Series B ........................ 1.5875 1.5799 1.5723
Series C ........................ 6.3489 6.3183 6.2880
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 13,802 13,736 13,670
Series B ........................ 22,373 22,266 22,159
Series C ........................ 97,957 97,485 97,018
----------- ----------- -----------
Total Shares .................. 666,883 666,236 665,596
Common Exchange Ratio ............ 0.6748 0.6754 0.6761
Escrow Exchange Ratio ............ 0.2999 0.3002 0.3005
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9747 0.9756 0.9766
<CAPTION>
$25.375 $25.500 $25.625 $25.750 $25.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 21,251,900 21,333,150 21,414,400 21,495,650 21,576,900
Preferred Conversion Ratio:
Series A ........................ 1.5638 1.5563 1.5490 1.5417 1.5345
Series B ........................ 1.5648 1.5574 1.5500 1.5427 1.5355
Series C ........................ 6.2580 6.2283 6.1988 6.1697 6.1408
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 13,605 13,540 13,476 13,413 13,350
Series B ........................ 22,053 21,948 21,845 21,742 21,640
Series C ........................ 96,555 96,096 95,642 95,192 94,746
----------- ----------- ----------- ----------- -----------
Total Shares .................. 664,962 664,335 663,713 663,096 662,486
Common Exchange Ratio ............ 0.6767 0.6774 0.6780 0.6786 0.6793
Escrow Exchange Ratio ............ 0.3008 0.3011 0.3013 0.3016 0.3019
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9775 0.9784 0.9793 0.9802 0.9812
</TABLE>
$26
<TABLE>
<CAPTION>
$26.000 $26.125 $26.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 21,658,150 21,739,400 21,820,650
Preferred Conversion Ratio:
Series A ........................ 1.5273 1.5202 1.5132
Series B ........................ 1.5284 1.5213 1.5142
Series C ........................ 6.1122 6.0838 6.0557
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 13,288 13,226 13,165
Series B ........................ 21,539 21,439 21,340
Series C ........................ 94,305 93,867 93,434
----------- ----------- -----------
Total Shares .................. 661,881 661,282 660,689
Common Exchange Ratio ............ 0.6799 0.6805 0.6811
Escrow Exchange Ratio ............ 0.3022 0.3024 0.3027
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9820 0.9829 0.9838
<CAPTION>
$26.375 $26.500 $26.625 $26.750 $26.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 21,901,900 21,983,150 22,064,400 22,145,650 22,226,900
Preferred Conversion Ratio:
Series A ........................ 1.5063 1.4994 1.4925 1.4858 1.4791
Series B ........................ 1.5073 1.5004 1.4935 1.4868 1.4801
Series C ........................ 6.0279 6.0003 5.9730 5.9459 5.9191
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 13,104 13,044 12,985 12,926 12,868
Series B ........................ 21,242 21,145 21,049 20,953 20,859
Series C ........................ 93,004 92,579 92,157 91,739 91,325
----------- ----------- ----------- ----------- -----------
Total Shares .................. 660,101 659,518 658,941 658,368 657,802
Common Exchange Ratio ............ 0.6817 0.6823 0.6829 0.6835 0.6841
Escrow Exchange Ratio ............ 0.3030 0.3033 0.3035 0.3038 0.3040
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9847 0.9856 0.9864 0.9873 0.9881
</TABLE>
I-5
<PAGE>
GIANT CONVERSION PRICE
$27
<TABLE>
<CAPTION>
$27.000 $27.125 $27.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 22,308,150 22,389,400 22,470,650
Preferred Conversion Ratio:
Series A ........................ 1.4724 1.4658 1.4593
Series B ........................ 1.4734 1.4668 1.4603
Series C ........................ 5.8925 5.8661 5.8400
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 12,810 12,753 12,696
Series B ........................ 20,765 20,672 20,580
Series C ........................ 90,915 90,508 90,105
----------- ----------- -----------
Total Shares .................. 657,240 656,683 656,131
Common Exchange Ratio ............ 0.6847 0.6853 0.6858
Escrow Exchange Ratio ............ 0.3043 0.3046 0.3048
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9890 0.9898 0.9907
<CAPTION>
$27.375 $27.500 $27.625 $27.750 $27.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 22,551,900 22,633,150 22,714,400 22,795,650 22,876,900
Preferred Conversion Ratio:
Series A ........................ 1.4528 1.4464 1.4401 1.4338 1.4275
Series B ........................ 1.4538 1.4474 1.4410 1.4347 1.4285
Series C ........................ 5.8141 5.7884 5.7630 5.7378 5.7128
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 12,640 12,584 12,529 12,474 12,419
Series B ........................ 20,489 20,398 20,309 20,220 20,132
Series C ........................ 89,706 89,310 88,917 88,528 88,142
----------- ----------- ----------- ----------- -----------
Total Shares .................. 655,584 655,042 654,504 653,972 653,443
Common Exchange Ratio ............ 0.6864 0.6870 0.6875 0.6881 0.6887
Escrow Exchange Ratio ............ 0.3051 0.3053 0.3056 0.3058 0.3061
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9915 0.9923 0.9931 0.9939 0.9947
</TABLE>
$28
<TABLE>
<CAPTION>
$28.000 $28.125 $28.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 22,958,150 23,039,400 23,120,650
Preferred Conversion Ratio:
Series A ........................ 1.4213 1.4152 1.4091
Series B ........................ 1.4223 1.4161 1.4101
Series C ........................ 5.6880 5.6634 5.6391
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 12,365 12,312 12,259
Series B ........................ 20,044 19,958 19,872
Series C ........................ 87,760 87,381 87,005
----------- ----------- -----------
Total Shares .................. 652,920 652,401 651,887
Common Exchange Ratio ............ 0.6892 0.6898 0.6903
Escrow Exchange Ratio ............ 0.3063 0.3066 0.3068
----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9955 0.9963 0.9971
<CAPTION>
$28.375 $28.500 $28.625 $28.750 $28.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 23,201,900 23,283,150 23,364,400 23,445,650 23,526,900
Preferred Conversion Ratio:
Series A ........................ 1.4031 1.3971 1.3912 1.3853 1.3794
Series B ........................ 1.4040 1.3980 1.3921 1.3862 1.3804
Series C ........................ 5.6149 5.5910 5.5673 5.5437 5.5204
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 12,207 12,155 12,103 12,052 12,001
Series B ........................ 19,787 19,703 19,619 19,536 19,454
Series C ........................ 86,633 86,264 85,897 85,534 85,174
----------- ----------- ----------- ----------- -----------
Total Shares .................. 651,376 650,871 650,369 649,872 649,379
Common Exchange Ratio ............ 0.6908 0.6914 0.6919 0.6924 0.6930
Escrow Exchange Ratio ............ 0.3070 0.3073 0.3075 0.3078 0.3080
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 0.9979 0.9987 0.9994 1.0002 1.0010
</TABLE>
$29
<TABLE>
<CAPTION>
$29.000 $29.125 $29.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 23,608,150 23,689,400 23,770,650
Preferred Conversion Ratio:
Series A ........................ 1.3737 1.3679 1.3622
Series B ........................ 1.3746 1.3689 1.3632
Series C ........................ 5.4973 5.4743 5.4515
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 11,951 11,901 11,851
Series B ........................ 19,372 19,291 19,211
Series C ........................ 84,817 84,463 84,112
----------- ----------- -----------
Total Shares .................. 648,890 648,405 647,924
Common Exchange Ratio ............ 0.6935 0.6940 0.6945
Escrow Exchange Ratio ............ 0.3082 0.3084 0.3087
----------- ----------- -----------
Aggregate Exchange Ratio ...... 1.0017 1.0025 1.0032
<CAPTION>
$29.375 $29.500 $29.625 $29.750 $29.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 23,851,900 23,933,150 24,014,400 24,095,650 24,176,900
Preferred Conversion Ratio:
Series A ........................ 1.3566 1.3510 1.3455 1.3400 1.3345
Series B ........................ 1.3575 1.3519 1.3464 1.3409 1.3354
Series C ........................ 5.4290 5.4066 5.3844 5.3624 5.3405
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 11,802 11,754 11,705 11,658 11,610
Series B ........................ 19,132 19,053 18,974 18,897 18,820
Series C ........................ 83,764 83,418 83,076 82,736 82,399
----------- ----------- ----------- ----------- -----------
Total Shares .................. 647,448 646,975 646,506 646,041 645,579
Common Exchange Ratio ............ 0.6950 0.6955 0.6960 0.6966 0.6970
Escrow Exchange Ratio ............ 0.3089 0.3091 0.3094 0.3096 0.3098
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 1.0039 1.0047 1.0054 1.0061 1.0068
</TABLE>
I-6
<PAGE>
GIANT CONVERSION PRICE
$30
<TABLE>
<CAPTION>
$30.000 $30.125 $30.250
------------ ------------ ------------
<S> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 24,258,150 24,339,400 24,420,650
Preferred Conversion Ratio:
Series A ........................ 1.3291 1.3237 1.3184
Series B ........................ 1.3300 1.3246 1.3193
Series C ........................ 5.3189 5.2974 5.2761
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 11,563 11,516 11,470
Series B ........................ 18,744 18,668 18,593
Series C ........................ 82,065 81,734 81,405
----------- ----------- -----------
Total Shares .................. 645,122 644,668 644,218
Common Exchange Ratio ............ 0.6975 0.6980 0.6985
Escrow Exchange Ratio ............ 0.3100 0.3102 0.3105
----------- ----------- -----------
Aggregate Exchange Ratio ...... 1.0076 1.0083 1.0090
<CAPTION>
$30.375 $30.500 $30.625 $30.750 $30.875
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Equity Value of Northeast Solite
and Solite Combined ............ 24,501,900 24,583,150 24,664,400 24,745,650 24,826,900
Preferred Conversion Ratio:
Series A ........................ 1.3131 1.3079 1.3027 1.2975 1.2924
Series B ........................ 1.3140 1.3088 1.3036 1.2984 1.2933
Series C ........................ 5.2549 5.2340 5.2132 5.1925 5.1720
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 11,424 11,378 11,333 11,288 11,244
Series B ........................ 18,518 18,444 18,371 18,298 18,226
Series C ........................ 81,079 80,755 80,434 80,115 79,799
----------- ----------- ----------- ----------- -----------
Total Shares .................. 643,771 643,328 642,888 642,452 642,019
Common Exchange Ratio ............ 0.6990 0.6995 0.7000 0.7004 0.7009
Escrow Exchange Ratio ............ 0.3107 0.3109 0.3111 0.3113 0.3115
----------- ----------- ----------- ----------- -----------
Aggregate Exchange Ratio ...... 1.0097 1.0104 1.0111 1.0117 1.0124
</TABLE>
I-7
<PAGE>
Annex II
Articles VIII, IX and X of the Solite Articles of Incorporation, which
designate the Solite Series A Preferred Stock, Solite Series B Preferred Stock
and Solite Series C Preferred Stock will be deleted in their entirety and the
following substituted, in lieu thereof:
ARTICLE VIII
CONVERSION OF PREVIOUSLY ISSUED
PREFERRED SHARES INTO COMMON SHARES
8.1 Prior Designation of Preferred Shares Series. Pursuant to Article III
of these Articles of Incorporation, the corporation has the authority to issue
in series 100,000 Preferred Shares, of which, the corporation has previously
designated 25,000 shares as Series A Preferred Shares, 16,300 shares as Series
B Preferred Shares, and 16,807 shares as Series C Preferred Shares.
8.2 Effective Time. The "Effective Time" shall mean date and time of day
that the State Corporation Commission of Virginia issues a certificate of
amendment (the "Certificate of Amendment") evidencing the adoption of the
articles of amendment which set forth this Article VIII.
8.3 Conversion of Preferred Shares; Fractional Shares. At the Effective
Time, without any action on the part of the holders of the Preferred Shares,
each Preferred Share issued and outstanding immediately prior to the Effective
Time shall be converted into Common Shares (the "Conversion") according to the
following ratios (the "Preferred Shares Conversion Ratios"):
(i) Each Series A Preferred Share shall be converted into ___* Common
Shares.
(ii) Each Series B Preferred Share shall be converted into ___* Common
Shares.
(iii) Each Series C Preferred Share shall be converted into ___* Common
Shares.
(b) Notwithstanding the foregoing, the former holders of Preferred Shares
shall not have the right to receive any fractional Common Shares as the result
of the Conversion. In lieu of any such fractional Common Shares, each former
holder of Preferred Shares, who otherwise would be entitled to receive a
fractional Common Share, shall be entitled to receive from the corporation an
amount of cash, without interest thereon, determined by multiplying (i) the
fractional Common Share interest to which such former holder would otherwise be
entitled by (ii) $ ** (such amount of cash hereinafter referred to as the
"Fractional Share Cash Amount").
(c) After the Conversion, each certificate evidencing ownership of Series
A Preferred Shares, Series B Preferred Shares or Series C Preferred Shares
shall evidence the ownership of the number of Common Shares determined in
accordance with the Preferred Shares Conversion Ratios, excluding any
fractional Common Share, and (ii) the right to receive from the corporation the
Fractional Share Cash Amount payable in lieu of such excluded fractional Common
Share.
- ------------
* The conversion ratio to be inserted will be the conversion ratio for such
class shown on Annex I under the price per share of Giant Common Stock equal to
the average of the closing bid and asked prices per share of Giant Common Stock
for the 20 trading dates immediately preceding the Effective Time, rounded to
the nearest eighth (the "Giant Conversion Price").
** The amount to be inserted will equal the quotient derived by dividing (i)
the amount shown on Annex I for the Equity Value of Northeast Solite and Solite
Combined for the Giant Conversion Price by (ii) the Total Shares of Solite
Common Stock issuable upon the basis of such Giant Conversion Price.
II-1
<PAGE>
Annex III
September 23, 1997
Board of Directors
Solite Corporation
P.O. Box 27211
Richmond, Virginia 23261
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, that the consideration to be delivered to the holders of Series A, B
and C Convertible Redeemable Preferred Stock (collectively the "Preferred") in
the form of a portion of the Merger Consideration, as defined below, is fair to
the holders of Preferred and common shareholders of the Company. It is our
understanding that Solite Corporation (the "Company") has accepted and signed
an Agreement and Plan of Merger of the Company with and into a wholly owned
subsidiary of Giant Cement Holding, Inc. ("GCHI") upon terms enumerated therein
(the "Transaction") and in consideration for 650,000 shares of common stock of
GCHI (the "Merger Consideration"). The Transaction is described in the
Agreement and Plan of Merger by and among Giant Cement Holding, Inc., GCHI
Acquisition Corp., and Solite Corporation, dated September 10, 1997 (the
"Agreement"). We were retained by the Board of Directors of the Company and
commenced our investigation on January 20, 1997.
Pursuant to the Agreement, all shares of Preferred will convert into
shares of common stock prior to the consummation of the Transaction. After
conversion of the Preferred and also prior to the consummation of the
Transaction, the Company will spin- off certain assets ("Independent Assets"),
which, pursuant to the Agreement, are not to be among the assets of the Company
at the time the Transaction is consummated. Independent Assets will be spun-off
in a tax-free transaction (the "Spin-Off") to a corporation which is an
existing subsidiary of the Company ("Independent"). All of the equity of
Independent will be owned beneficially by the common shareholders of the
Company in the same percentages as they beneficially owned the Company at the
time that the Spin-Off is consummated.
At the closing of the Transaction, the Company, and therefore all the
remaining assets, will be merged with and into GCHI Acquisition Corp.
("Merged"), and shareholders of the Company will exchange their common shares
for 450,000 shares of the Merger Consideration. At closing, 200,000 shares of
the Merger Consideration will be deposited in escrow accounts as follows: (i)
100,000 shares to the "Escrow Account" (as defined in the Agreement), and (ii)
100,000 shares to the "Indemnity Escrow Account" (also defined in the
Agreement). Each common shareholder will have the right to receive the Merger
Consideration equal to his percentage ownership in the Company, post Preferred
conversion. For the purpose of determining the conversion ratio, the value of
the GCHI shares constituting the Merger Consideration at closing will be equal
to the average of the closing bid and asked prices per share for GCHI stock for
the twenty trading days immediately preceding closing.
Company shareholders will receive the 100,000 shares of the Merger
Consideration that were deposited in the Escrow Account within 90 days if the
closing balance sheet of the Company reflects a consolidated net book value
greater than $5.0 million and net current assets greater than $6.0 million.
Company shareholders will also receive 50,000 shares on the second and third
anniversaries of the closing date if liability claims against Merged are below
negotiated levels as specified in the Agreement. The release of shares from
each of these escrow accounts is dependent upon there being no pending claims
under the indemnification provisions of the Agreement at the time such shares
would otherwise be released pursuant to the terms of the Agreement. Company
shareholders will receive shares held in the Escrow Account and the Indemnity
Escrow Account equal to their percentage ownership in the Company, post
Preferred conversion.
In connection with the opinion, we have reviewed, among other things, (i)
the financial structure of the proposed Transaction, (ii) the Agreement dated
September 10, 1997, (iii) internally prepared, unaudited, historical operating
results of the Company's operations that will constitute Independent upon
consummation of the Spin-Off, (iv) internally prepared projections for
Independent, (v) the Series B Preferred Shares Offering Memorandum, (vi) draft
of Request for Ruling under Section 355 to the Internal Revenue Service, (vii)
Asset Purchase Agreement between Solite Corporation, Southern Materials
Corporation, Rappahannock Farm Enterprises, Inc., Rockville Nurseries
Corporation, John W. Roberts, and Mid-Atlantic Materials, Inc., dated August
29, 1997, (viii) third party
III-1
<PAGE>
appraisals for certain Kentucky and Florida operations, dated August 31, 1992,
which have not been independently updated to the present, and (ix) Golder
Associates, Inc. Preliminary Remediation Cost Evaluation for the Florida Solite
Company Facility in Green Cove Springs, Florida, dated April 23, 1997. We have
held discussions with the members of the management of the Company regarding
its past and current business operations, financial condition and future
prospects. We have also held discussions with the Company's accountants and
performed such other investigations as we deemed necessary to render the
fairness opinion contained herein.
Ferris, Baker Watts, Inc. has no current investment banking relationship
with the Company except for our review of the fairness to the holders of
Preferred and common shareholders of the Company of the consideration to be
delivered to the holders of Preferred in the form of the Merger Consideration.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information reviewed by us for the
purposes of this opinion whether publicly available or provided to us by the
Company, and we have not assumed any responsibility for independent
verification of such information. We express no opinion as to the consideration
to be received by holders of Preferred or common stock who may perfect
dissenters' statutory fair appraisal remedies. Based upon the foregoing and
based upon other such matters that we consider relevant, it is our opinion
that, as of the date of this letter, the consideration to be received by the
holders of Preferred in the form of a portion of the Merger Consideration as
outlined in Exhibit A and common stock in Independent is fair to the holders of
Preferred and common shareholders of the Company from a financial point of
view. Our opinion is based on economic, market and other considerations as in
effect on, and the information made available to us as of, the date of this
letter. Our opinion is directed to the Board of Directors of the Company and
does not constitute a recommendation as to how a shareholder should vote on
matters associated with the Preferred. Subsequent events may affect the
conclusions reached in this opinion, and we neither have nor do we assume any
obligation to update, revise or reaffirm this opinion which speaks solely as of
this date and with respect to matters contained herein.
Very truly yours,
FERRIS, BAKER WATTS, INC.
III-2
<PAGE>
Exhibit A
Solite Conversion Matrix
Average Closing Bid/Asked Price for GCHI
$15
<TABLE>
<CAPTION>
$15.000 $15.125 $15.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 9,750,000 9,831,250 9,912,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 14,508,150 14,589,400 14,670,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 29.12% 28.96% 28.80%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 22,527 22,350 22,177
Series B ........................ 36,516 36,230 35,948
Series C ........................ 159,879 158,625 157,391
----------- ----------- -----------
Total Shares .................. 751,672 749,956 748,266
Percentage of Ownership:
Current Common .................. 70.88% 71.04% 71.20%
Series A ........................ 3.00% 2.98% 2.96%
Series B ........................ 4.86% 4.83% 4.80%
Series C ........................ 21.27% 21.15% 21.03%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 2.5893 2.5690 2.5490
Series B ........................ 2.5911 2.5708 2.5508
Series C ........................ 10.3622 10.2810 10.2010
<CAPTION>
$15.375 $15.500 $15.625 $15.750 $15.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 9,993,750 10,075,000 10,156,250 10,237,500 10,318,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 14,751,900 14,833,150 14,914,400 14,995,650 15,076,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 28.64% 28.49% 28.33% 28.18% 28.03%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 22,005 21,837 21,671 21,507 21,346
Series B ........................ 35,671 35,397 35,128 34,863 34,602
Series C ........................ 156,177 154,980 153,802 152,642 151,499
----------- ----------- ----------- ----------- -----------
Total Shares .................. 746,603 744,965 743,351 741,763 740,198
Percentage of Ownership:
Current Common .................. 71.36% 71.51% 71.67% 71.82% 71.97%
Series A ........................ 2.95% 2.93% 2.92% 2.90% 2.88%
Series B ........................ 4.78% 4.75% 4.73% 4.70% 4.67%
Series C ........................ 20.92% 20.80% 20.69% 20.58% 20.47%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 2.5294 2.5100 2.4909 2.4721 2.4536
Series B ........................ 2.5311 2.5117 2.4926 2.4738 2.4553
Series C ........................ 10.1223 10.0447 9.9684 9.8932 9.8191
</TABLE>
$16
<TABLE>
<CAPTION>
$16.000 $16.125 $16.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 10,400,000 10,481,250 10,562,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 15,158,150 15,239,400 15,320,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 27.88% 27.73% 27.58%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 21,188 21,031 20,877
Series B ........................ 34,345 34,092 33,842
Series C ........................ 150,373 149,264 148,171
----------- ----------- -----------
Total Shares .................. 738,656 737,137 735,640
Percentage of Ownership:
Current Common .................. 72.12% 72.27% 72.42%
Series A ........................ 2.87% 2.85% 2.84%
Series B ........................ 4.65% 4.62% 4.60%
Series C ........................ 20.36% 20.25% 20.14%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 2.4354 2.4174 2.3997
Series B ........................ 2.4370 2.4191 2.4013
Series C ........................ 9.7461 9.6742 9.6034
<CAPTION>
$16.375 $16.500 $16.625 $16.750 $16.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 10,643,750 10,725,000 10,806,250 10,887,500 10,968,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 15,401,900 15,483,150 15,564,400 15,645,650 15,726,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 27.43% 27.29% 27.15% 27.01% 26.87%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 20,726 20,576 20,429 20,283 20,140
Series B ........................ 33,596 33,354 33,115 32,879 32,647
Series C ........................ 147,094 146,032 144,986 143,954 142,937
----------- ----------- ----------- ----------- -----------
Total Shares .................. 734,165 732,712 731,279 729,866 728,474
Percentage of Ownership:
Current Common .................. 72.57% 72.71% 72.85% 72.99% 73.13%
Series A ........................ 2.82% 2.81% 2.79% 2.78% 2.76%
Series B ........................ 4.58% 4.55% 4.53% 4.50% 4.48%
Series C ........................ 20.04% 19.93% 19.83% 19.72% 19.62%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 2.3823 2.3651 2.3481 2.3314 2.3149
Series B ........................ 2.3839 2.3667 2.3497 2.3330 2.3165
Series C ........................ 9.5336 9.4648 9.3970 9.3301 9.2642
</TABLE>
III-3
<PAGE>
Solite Conversion Matrix
Average Closing Bid/Asked Price for GCHI
$17
<TABLE>
<CAPTION>
$17.000 $17.125 $17.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 11,050,000 11,131,250 11,212,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 15,808,150 15,889,400 15,970,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 26.73% 26.59% 26.46%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 19,999 19,859 19,722
Series B ........................ 32,418 32,192 31,969
Series C ........................ 141,934 140,946 139,971
----------- ----------- -----------
Total Shares .................. 727,101 725,747 724,412
Percentage of Ownership:
Current Common .................. 73.27% 73.41% 73.54%
Series A ........................ 2.75% 2.74% 2.72%
Series B ........................ 4.46% 4.44% 4.41%
Series C ........................ 19.52% 19.42% 19.32%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 2.2987 2.2827 2.2669
Series B ........................ 2.3003 2.2842 2.2684
Series C ........................ 9.1992 9.1351 9.0719
<CAPTION>
$17.375 $17.500 $17.625 $17.750 $17.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 11,293,750 11,375,000 11,456,250 11,537,500 11,618,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 16,051,900 16,133,150 16,214,400 16,295,650 16,376,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 26.32% 26.19% 26.06% 25.93% 25.80%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 19,587 19,453 19,321 19,191 19,063
Series B ........................ 31,750 31,533 31,319 31,108 30,900
Series C ........................ 139,009 138,061 137,125 136,202 135,291
----------- ----------- ----------- ----------- -----------
Total Shares .................. 723,095 721,796 720,515 719,251 718,004
Percentage of Ownership:
Current Common .................. 73.68% 73.81% 73.94% 74.07% 74.20%
Series A ........................ 2.71% 2.70% 2.68% 2.67% 2.65%
Series B ........................ 4.39% 4.37% 4.35% 4.33% 4.30%
Series C ........................ 19.22% 19.13% 19.03% 18.94% 18.84%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 2.2513 2.2360 2.2208 2.2059 2.1911
Series B ........................ 2.2529 2.2375 2.2223 2.2074 2.1926
Series C ........................ 9.0096 8.9481 8.8875 8.8277 8.7686
</TABLE>
$18
<TABLE>
<CAPTION>
$18.000 $18.125 $18.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 11,700,000 11,781,250 11,862,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 16,458,150 16,539,400 16,620,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 25.67% 25.55% 25.42%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 18,936 18,811 18,688
Series B ........................ 30,695 30,493 30,293
Series C ........................ 134,393 133,506 132,631
----------- ----------- -----------
Total Shares .................. 716,774 715,560 714,361
Percentage of Ownership:
Current Common .................. 74.33% 74.45% 74.58%
Series A ........................ 2.64% 2.63% 2.62%
Series B ........................ 4.28% 4.26% 4.24%
Series C ........................ 18.75% 18.66% 18.57%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 2.1766 2.1622 2.1480
Series B ........................ 2.1780 2.1637 2.1495
Series C ........................ 8.7104 8.6529 8.5962
<CAPTION>
$18.375 $18.500 $18.625 $18.750 $18.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 11,943,750 12,025,000 12,106,250 12,187,500 12,268,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 16,701,900 16,783,150 16,864,400 16,945,650 17,026,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 25.30% 25.18% 25.06% 24.94% 24.82%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 18,566 18,446 18,327 18,210 18,095
Series B ........................ 30,095 29,901 29,709 29,519 29,331
Series C ........................ 131,767 130,914 130,073 129,242 128,422
----------- ----------- ----------- ----------- -----------
Total Shares .................. 713,179 712,011 710,859 709,721 708,598
Percentage of Ownership:
Current Common .................. 74.70% 74.82% 74.94% 75.06% 75.18%
Series A ........................ 2.60% 2.59% 2.58% 2.57% 2.55%
Series B ........................ 4.22% 4.20% 4.18% 4.16% 4.14%
Series C ........................ 18.48% 18.39% 18.30% 18.21% 18.12%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 2.1340 2.1202 2.1066 2.0931 2.0799
Series B ........................ 2.1355 2.1217 2.1080 2.0946 2.0813
Series C ........................ 8.5402 8.4850 8.4304 8.3766 8.3234
</TABLE>
III-4
<PAGE>
Solite Conversion Matrix
Average Closing Bid/Asked Price for GCHI
$19
<TABLE>
<CAPTION>
$19.000 $19.125 $19.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 12,350,000 12,431,250 12,512,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 17,108,150 17,189,400 17,270,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 24.70% 24.58% 24.47%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 17,981 17,868 17,757
Series B ........................ 29,146 28,964 28,783
Series C ........................ 127,612 126,812 126,022
----------- ----------- -----------
Total Shares .................. 707,489 706,394 705,312
Percentage of Ownership:
Current Common .................. 75.30% 75.42% 75.53%
Series A ........................ 2.54% 2.53% 2.52%
Series B ........................ 4.12% 4.10% 4.08%
Series C ........................ 18.04% 17.95% 17.87%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 2.0667 2.0538 2.0410
Series B ........................ 2.0682 2.0552 2.0424
Series C ........................ 8.2709 8.2191 8.1679
<CAPTION>
$19.375 $19.500 $19.625 $19.750 $19.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 12,593,750 12,675,000 12,756,250 12,837,500 12,918,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 17,351,900 17,433,150 17,514,400 17,595,650 17,676,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 24.35% 24.24% 24.13% 24.01% 23.90%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 17,647 17,538 17,431 17,325 17,220
Series B ........................ 28,605 28,429 28,255 28,084 27,914
Series C ........................ 125,242 124,472 123,711 122,959 122,216
----------- ----------- ----------- ----------- -----------
Total Shares .................. 704,244 703,189 702,147 701,118 700,101
Percentage of Ownership:
Current Common .................. 75.65% 75.76% 75.87% 75.99% 76.10%
Series A ........................ 2.51% 2.49% 2.48% 2.47% 2.46%
Series B ........................ 4.06% 4.04% 4.02% 4.01% 3.99%
Series C ........................ 17.78% 17.70% 17.62% 17.54% 17.46%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 2.0284 2.0159 2.0036 1.9914 1.9794
Series B ........................ 2.0297 2.0173 2.0049 1.9927 1.9807
Series C ........................ 8.1173 8.0674 8.0181 7.9693 7.9212
</TABLE>
$20
<TABLE>
<CAPTION>
$20.000 $20.125 $20.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 13,000,000 13,081,250 13,162,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 17,758,150 17,839,400 17,920,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 23.79% 23.69% 23.58%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 17,117 17,015 16,914
Series B ........................ 27,746 27,581 27,417
Series C ........................ 121,482 120,757 120,041
----------- ----------- -----------
Total Shares .................. 699,096 698,103 697,122
Percentage of Ownership:
Current Common .................. 76.21% 76.31% 76.42%
Series A ........................ 2.45% 2.44% 2.43%
Series B ........................ 3.97% 3.95% 3.93%
Series C ........................ 17.38% 17.30% 17.22%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.9675 1.9557 1.9441
Series B ........................ 1.9688 1.9571 1.9455
Series C ........................ 7.8736 7.8266 7.7802
<CAPTION>
$20.375 $20.500 $20.625 $20.750 $20.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 13,243,750 13,325,000 13,406,250 13,487,500 13,568,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 18,001,900 18,083,150 18,164,400 18,245,650 18,326,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 23.47% 23.37% 23.26% 23.16% 23.06%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 16,814 16,716 16,618 16,522 16,427
Series B ........................ 27,256 27,096 26,938 26,782 26,627
Series C ........................ 119,333 118,633 117,942 117,258 116,583
----------- ----------- ----------- ----------- -----------
Total Shares .................. 696,153 695,195 694,248 693,312 692,387
Percentage of Ownership:
Current Common .................. 76.53% 76.63% 76.74% 76.84% 76.94%
Series A ........................ 2.42% 2.40% 2.39% 2.38% 2.37%
Series B ........................ 3.92% 3.90% 3.88% 3.86% 3.85%
Series C ........................ 17.14% 17.06% 16.99% 16.91% 16.84%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.9327 1.9213 1.9101 1.8991 1.8881
Series B ........................ 1.9340 1.9226 1.9114 1.9004 1.8894
Series C ........................ 7.7343 7.6890 7.6442 7.5999 7.5561
</TABLE>
III-5
<PAGE>
Solite Conversion Matrix
Average Closing Bid/Asked Price for GCHI
$21
<TABLE>
<CAPTION>
$21.000 $21.125 $21.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 13,650,000 13,731,250 13,812,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 18,408,150 18,489,400 18,570,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 22.95% 22.85% 22.75%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 16,333 16,239 16,147
Series B ........................ 26,475 26,324 26,175
Series C ........................ 115,915 115,255 114,602
----------- ----------- -----------
Total Shares .................. 691,472 690,568 689,674
Percentage of Ownership:
Current Common .................. 77.05% 77.15% 77.25%
Series A ........................ 2.36% 2.35% 2.34%
Series B ........................ 3.83% 3.81% 3.80%
Series C ........................ 16.76% 16.69% 16.62%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.8773 1.8666 1.8560
Series B ........................ 1.8786 1.8679 1.8573
Series C ........................ 7.5128 7.4700 7.4277
<CAPTION>
$21.375 $21.500 $21.625 $21.750 $21.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 13,893,750 13,975,000 14,056,250 14,137,500 14,218,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 18,651,900 18,733,150 18,814,400 18,895,650 18,976,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 22.65% 22.56% 22.46% 22.36% 22.27%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 16,057 15,967 15,878 15,790 15,703
Series B ........................ 26,028 25,882 25,738 25,595 25,454
Series C ........................ 113,956 113,318 112,687 112,063 111,446
----------- ----------- ----------- ----------- -----------
Total Shares .................. 688,790 687,916 687,052 686,198 685,353
Percentage of Ownership:
Current Common .................. 77.35% 77.44% 77.54% 77.64% 77.73%
Series A ........................ 2.33% 2.32% 2.31% 2.30% 2.29%
Series B ........................ 3.78% 3.76% 3.75% 3.73% 3.71%
Series C ........................ 16.54% 16.47% 16.40% 16.33% 16.26%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.8456 1.8352 1.8250 1.8149 1.8049
Series B ........................ 1.8468 1.8365 1.8263 1.8162 1.8062
Series C ........................ 7.3858 7.3445 7.3036 7.2631 7.2231
</TABLE>
$22
<TABLE>
<CAPTION>
$22.000 $22.125 $22.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 14,300,000 14,381,250 14,462,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 19,058,150 19,139,400 19,220,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 22.17% 22.08% 21.98%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 15,617 15,532 15,448
Series B ........................ 25,315 25,177 25,040
Series C ........................ 110,835 110,231 109,634
----------- ----------- -----------
Total Shares .................. 684,517 683,690 682,872
Percentage of Ownership:
Current Common .................. 77.83% 77.92% 78.02%
Series A ........................ 2.28% 2.27% 2.26%
Series B ........................ 3.70% 3.68% 3.67%
Series C ........................ 16.19% 16.12% 16.05%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.7950 1.7853 1.7756
Series B ........................ 1.7963 1.7865 1.7768
Series C ........................ 7.1836 7.1444 7.1057
<CAPTION>
$22.375 $22.500 $22.625 $22.750 $22.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 14,543,750 14,625,000 14,706,250 14,787,500 14,868,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 19,301,900 19,383,150 19,464,400 19,545,650 19,626,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 21.89% 21.80% 21.71% 21.62% 21.53%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 15,364 15,282 15,200 15,120 15,040
Series B ........................ 24,905 24,772 24,640 24,509 24,380
Series C ........................ 109,043 108,459 107,880 107,308 106,742
----------- ----------- ----------- ----------- -----------
Total Shares .................. 682,063 681,263 680,471 679,687 678,912
Percentage of Ownership:
Current Common .................. 78.11% 78.20% 78.29% 78.38% 78.47%
Series A ........................ 2.25% 2.24% 2.23% 2.22% 2.22%
Series B ........................ 3.65% 3.64% 3.62% 3.61% 3.59%
Series C ........................ 15.99% 15.92% 15.85% 15.79% 15.72%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.7660 1.7565 1.7472 1.7379 1.7287
Series B ........................ 1.7672 1.7577 1.7484 1.7391 1.7299
Series C ........................ 7.0674 7.0295 6.9921 6.9550 6.9183
</TABLE>
III-6
<PAGE>
Solite Conversion Matrix
Average Closing Bid/Asked Price for GCHI
$23
<TABLE>
<CAPTION>
$23.000 $23.125 $23.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 14,950,000 15,031,250 15,112,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 19,708,150 19,789,400 19,870,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 21.44% 21.35% 21.26%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 14,961 14,883 14,806
Series B ........................ 24,252 24,125 24,000
Series C ........................ 106,182 105,628 105,079
----------- ----------- -----------
Total Shares .................. 678,145 677,386 676,635
Percentage of Ownership:
Current Common .................. 78.56% 78.65% 78.74%
Series A ........................ 2.21% 2.20% 2.19%
Series B ........................ 3.58% 3.56% 3.55%
Series C ........................ 15.66% 15.59% 15.53%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.7197 1.7107 1.7018
Series B ........................ 1.7208 1.7119 1.7030
Series C ........................ 6.8820 6.8461 6.8105
<CAPTION>
$23.375 $23.500 $23.625 $23.750 $23.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 15,193,750 15,275,000 15,356,250 15,437,500 15,518,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 19,951,900 20,033,150 20,114,400 20,195,650 20,276,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 21.18% 21.09% 21.01% 20.92% 20.84%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 14,729 14,654 14,579 14,504 14,431
Series B ........................ 23,876 23,753 23,632 23,512 23,393
Series C ........................ 104,536 103,999 103,467 102,941 102,420
----------- ----------- ----------- ----------- -----------
Total Shares .................. 675,892 675,156 674,428 673,707 672,993
Percentage of Ownership:
Current Common .................. 78.82% 78.91% 78.99% 79.08% 79.16%
Series A ........................ 2.18% 2.17% 2.16% 2.15% 2.14%
Series B ........................ 3.53% 3.52% 3.50% 3.49% 3.48%
Series C ........................ 15.47% 15.40% 15.34% 15.28% 15.22%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.6930 1.6843 1.6757 1.6672 1.6587
Series B ........................ 1.6942 1.6855 1.6768 1.6683 1.6599
Series C ........................ 6.7753 6.7405 6.7060 6.6719 6.6381
</TABLE>
$24
<TABLE>
<CAPTION>
$24.000 $24.125 $24.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 15,600,000 15,681,250 15,762,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 20,358,150 20,439,400 20,520,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 20.76% 20.67% 20.59%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 14,358 14,286 14,215
Series B ........................ 23,275 23,158 23,043
Series C ........................ 101,904 101,393 100,888
----------- ----------- -----------
Total Shares .................. 672,287 671,588 670,895
Percentage of Ownership:
Current Common .................. 79.24% 79.33% 79.41%
Series A ........................ 2.14% 2.13% 2.12%
Series B ........................ 3.46% 3.45% 3.43%
Series C ........................ 15.16% 15.10% 15.04%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.6504 1.6421 1.6339
Series B ........................ 1.6515 1.6432 1.6350
Series C ........................ 6.6047 6.5716 6.5388
<CAPTION>
$24.375 $24.500 $24.625 $24.750 $24.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 15,843,750 15,925,000 16,006,250 16,087,500 16,168,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 20,601,900 20,683,150 20,764,400 20,845,650 20,926,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 20.51% 20.43% 20.35% 20.27% 20.19%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 14,145 14,075 14,006 13,937 13,869
Series B ........................ 22,928 22,815 22,703 22,592 22,482
Series C ........................ 100,387 99,892 99,401 98,915 98,434
----------- ----------- ----------- ----------- -----------
Total Shares .................. 670,210 669,531 668,860 668,194 667,535
Percentage of Ownership:
Current Common .................. 79.49% 79.57% 79.65% 79.73% 79.81%
Series A ........................ 2.11% 2.10% 2.09% 2.09% 2.08%
Series B ........................ 3.42% 3.41% 3.39% 3.38% 3.37%
Series C ........................ 14.98% 14.92% 14.86% 14.80% 14.75%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.6258 1.6178 1.6098 1.6020 1.5942
Series B ........................ 1.6269 1.6189 1.6109 1.6031 1.5953
Series C ........................ 6.5064 6.4743 6.4425 6.4110 6.3798
</TABLE>
III-7
<PAGE>
Solite Conversion Matrix
Average Closing Bid/Asked Price for GCHI
$25
<TABLE>
<CAPTION>
$25.000 $25.125 $25.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 16,250,000 16,331,250 16,412,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 21,008,150 21,089,400 21,170,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 20.11% 20.04% 19.96%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 13,802 13,736 13,670
Series B ........................ 22,373 22,266 22,159
Series C ........................ 97,957 97,485 97,018
----------- ----------- -----------
Total Shares .................. 666,883 666,236 665,596
Percentage of Ownership:
Current Common .................. 79.89% 79.96% 80.04%
Series A ........................ 2.07% 2.06% 2.05%
Series B ........................ 3.35% 3.34% 3.33%
Series C ........................ 14.69% 14.63% 14.58%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.5865 1.5788 1.5713
Series B ........................ 1.5875 1.5799 1.5723
Series C ........................ 6.3489 6.3183 6.2880
<CAPTION>
$25.375 $25.500 $25.625 $25.750 $25.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 16,493,750 16,575,000 16,656,250 16,737,500 16,818,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 21,251,900 21,333,150 21,414,400 21,495,650 21,576,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 19.88% 19.81% 19.73% 19.66% 19.58%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 13,605 13,540 13,476 13,413 13,350
Series B ........................ 22,053 21,948 21,845 21,742 21,640
Series C ........................ 96,555 96,096 95,642 95,192 94,746
----------- ----------- ----------- ----------- -----------
Total Shares .................. 664,962 664,335 663,713 663,096 662,486
Percentage of Ownership:
Current Common .................. 80.12% 80.19% 80.27% 80.34% 80.42%
Series A ........................ 2.05% 2.04% 2.03% 2.02% 2.02%
Series B ........................ 3.32% 3.30% 3.29% 3.28% 3.27%
Series C ........................ 14.52% 14.47% 14.41% 14.36% 14.30%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.5638 1.5563 1.5490 1.5417 1.5345
Series B ........................ 1.5648 1.5574 1.5500 1.5427 1.5355
Series C ........................ 6.2580 6.2283 6.1988 6.1697 6.1408
</TABLE>
$26
<TABLE>
<CAPTION>
$26.000 $26.125 $26.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 16,900,000 16,981,250 17,062,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 21,658,150 21,739,400 21,820,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 19.51% 19.44% 19.36%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 13,288 13,226 13,165
Series B ........................ 21,539 21,439 21,340
Series C ........................ 94,305 93,867 93,434
----------- ----------- -----------
Total Shares .................. 661,881 661,282 660,689
Percentage of Ownership:
Current Common .................. 80.49% 80.56% 80.64%
Series A ........................ 2.01% 2.00% 1.99%
Series B ........................ 3.25% 3.24% 3.23%
Series C ........................ 14.25% 14.19% 14.14%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.5273 1.5202 1.5132
Series B ........................ 1.5284 1.5213 1.5142
Series C ........................ 6.1122 6.0838 6.0557
<CAPTION>
$26.375 $26.500 $26.625 $26.750 $26.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 17,143,750 17,225,000 17,306,250 17,387,500 17,468,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 21,901,900 21,983,150 22,064,400 22,145,650 22,226,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 19.29% 19.22% 19.15% 19.08% 19.01%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 13,104 13,044 12,985 12,926 12,868
Series B ........................ 21,242 21,145 21,049 20,953 20,859
Series C ........................ 93,004 92,579 92,157 91,739 91,325
----------- ----------- ----------- ----------- -----------
Total Shares .................. 660,101 659,518 658,941 658,368 657,802
Percentage of Ownership:
Current Common .................. 80.71% 80.78% 80.85% 80.92% 80.99%
Series A ........................ 1.99% 1.98% 1.97% 1.96% 1.96%
Series B ........................ 3.22% 3.21% 3.19% 3.18% 3.17%
Series C ........................ 14.09% 14.04% 13.99% 13.93% 13.88%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.5063 1.4994 1.4925 1.4858 1.4791
Series B ........................ 1.5073 1.5004 1.4935 1.4868 1.4801
Series C ........................ 6.0279 6.0003 5.9730 5.9459 5.9191
</TABLE>
III-8
<PAGE>
Solite Conversion Matrix
Average Closing Bid/Asked Price for GCHI
$27
<TABLE>
<CAPTION>
$27.000 $27.125 $27.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 17,550,000 17,631,250 17,712,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 22,308,150 22,389,400 22,470,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 18.94% 18.87% 18.80%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 12,810 12,753 12,696
Series B ........................ 20,765 20,672 20,580
Series C ........................ 90,915 90,508 90,105
----------- ----------- -----------
Total Shares .................. 657,240 656,683 656,131
Percentage of Ownership:
Current Common .................. 81.06% 81.13% 81.20%
Series A ........................ 1.95% 1.94% 1.93%
Series B ........................ 3.16% 3.15% 3.14%
Series C ........................ 13.83% 13.78% 13.73%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.4724 1.4658 1.4593
Series B ........................ 1.4734 1.4668 1.4603
Series C ........................ 5.8925 5.8661 5.8400
<CAPTION>
$27.375 $27.500 $27.625 $27.750 $27.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 17,793,750 17,875,000 17,956,250 18,037,500 18,118,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 22,551,900 22,633,150 22,714,400 22,795,650 22,876,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 18.74% 18.67% 18.60% 18.54% 18.47%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 12,640 12,584 12,529 12,474 12,419
Series B ........................ 20,489 20,398 20,309 20,220 20,132
Series C ........................ 89,706 89,310 88,917 88,528 88,142
----------- ----------- ----------- ----------- -----------
Total Shares .................. 655,584 655,042 654,504 653,972 653,443
Percentage of Ownership:
Current Common .................. 81.26% 81.33% 81.40% 81.46% 81.53%
Series A ........................ 1.93% 1.92% 1.91% 1.91% 1.90%
Series B ........................ 3.13% 3.11% 3.10% 3.09% 3.08%
Series C ........................ 13.68% 13.63% 13.59% 13.54% 13.49%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.4528 1.4464 1.4401 1.4338 1.4275
Series B ........................ 1.4538 1.4474 1.4410 1.4347 1.4285
Series C ........................ 5.8141 5.7884 5.7630 5.7378 5.7128
</TABLE>
$28
<TABLE>
<CAPTION>
$28.000 $28.125 $28.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 18,200,000 18,281,250 18,362,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 22,958,150 23,039,400 23,120,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 18.41% 18.34% 18.28%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 12,365 12,312 12,259
Series B ........................ 20,044 19,958 19,872
Series C ........................ 87,760 87,381 87,005
----------- ----------- -----------
Total Shares .................. 652,920 652,401 651,887
Percentage of Ownership:
Current Common .................. 81.59% 81.66% 81.72%
Series A ........................ 1.89% 1.89% 1.88%
Series B ........................ 3.07% 3.06% 3.05%
Series C ........................ 13.44% 13.39% 13.35%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.4213 1.4152 1.4091
Series B ........................ 1.4223 1.4161 1.4101
Series C ........................ 5.6880 5.6634 5.6391
<CAPTION>
$28.375 $28.500 $28.625 $28.750 $28.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 18,443,750 18,525,000 18,606,250 18,687,500 18,768,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 23,201,900 23,283,150 23,364,400 23,445,650 23,526,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 18.21% 18.15% 18.08% 18.02% 17.96%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 12,207 12,155 12,103 12,052 12,001
Series B ........................ 19,787 19,703 19,619 19,536 19,454
Series C ........................ 86,633 86,264 85,897 85,534 85,174
----------- ----------- ----------- ----------- -----------
Total Shares .................. 651,376 650,871 650,369 649,872 649,379
Percentage of Ownership:
Current Common .................. 81.79% 81.85% 81.92% 81.98% 82.04%
Series A ........................ 1.87% 1.87% 1.86% 1.85% 1.85%
Series B ........................ 3.04% 3.03% 3.02% 3.01% 3.00%
Series C ........................ 13.30% 13.25% 13.21% 13.16% 13.12%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.4031 1.3971 1.3912 1.3853 1.3794
Series B ........................ 1.4040 1.3980 1.3921 1.3862 1.3804
Series C ........................ 5.6149 5.5910 5.5673 5.5437 5.5204
</TABLE>
III-9
<PAGE>
Solite Conversion Matrix
Average Closing Bid/Asked Price for GCHI
$29
<TABLE>
<CAPTION>
$29.000 $29.125 $29.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 18,850,000 18,931,250 19,012,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 23,608,150 23,689,400 23,770,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 17.90% 17.84% 17.78%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 11,951 11,901 11,851
Series B ........................ 19,372 19,291 19,211
Series C ........................ 84,817 84,463 84,112
----------- ----------- -----------
Total Shares .................. 648,890 648,405 647,924
Percentage of Ownership:
Current Common .................. 82.10% 82.16% 82.22%
Series A ........................ 1.84% 1.84% 1.83%
Series B ........................ 2.99% 2.98% 2.97%
Series C ........................ 13.07% 13.03% 12.98%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.3737 1.3679 1.3622
Series B ........................ 1.3746 1.3689 1.3632
Series C ........................ 5.4973 5.4743 5.4515
<CAPTION>
$29.375 $29.500 $29.625 $29.750 $29.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 19,093,750 19,175,000 19,256,250 19,337,500 19,418,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 23,851,900 23,933,150 24,014,400 24,095,650 24,176,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 17.72% 17.66% 17.60% 17.54% 17.48%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 11,802 11,754 11,705 11,658 11,610
Series B ........................ 19,132 19,053 18,974 18,897 18,820
Series C ........................ 83,764 83,418 83,076 82,736 82,399
----------- ----------- ----------- ----------- -----------
Total Shares .................. 647,448 646,975 646,506 646,041 645,579
Percentage of Ownership:
Current Common .................. 82.28% 82.34% 82.40% 82.46% 82.52%
Series A ........................ 1.82% 1.82% 1.81% 1.80% 1.80%
Series B ........................ 2.95% 2.94% 2.93% 2.93% 2.92%
Series C ........................ 12.94% 12.89% 12.85% 12.81% 12.76%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.3566 1.3510 1.3455 1.3400 1.3345
Series B ........................ 1.3575 1.3519 1.3464 1.3409 1.3354
Series C ........................ 5.4290 5.4066 5.3844 5.3624 5.3405
</TABLE>
$30
<TABLE>
<CAPTION>
$30.000 $30.125 $30.250
--------------- --------------- ---------------
<S> <C> <C> <C>
Equity Value of Merged ............ 19,500,000 19,581,250 19,662,500
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150
----------- ----------- -----------
Total Equity Value ............ 24,258,150 24,339,400 24,420,650
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 17.42% 17.36% 17.30%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750
Series A ........................ 11,563 11,516 11,470
Series B ........................ 18,744 18,668 18,593
Series C ........................ 82,065 81,734 81,405
----------- ----------- -----------
Total Shares .................. 645,122 644,668 644,218
Percentage of Ownership:
Current Common .................. 82.58% 82.64% 82.70%
Series A ........................ 1.79% 1.79% 1.78%
Series B ........................ 2.91% 2.90% 2.89%
Series C ........................ 12.72% 12.68% 12.64%
----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.3291 1.3237 1.3184
Series B ........................ 1.3300 1.3246 1.3193
Series C ........................ 5.3189 5.2974 5.2761
<CAPTION>
$30.375 $30.500 $30.625 $30.750 $30.875
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity Value of Merged ............ 19,743,750 19,825,000 19,906,250 19,987,500 20,068,750
Equity Value of Independent ...... 4,758,150 4,758,150 4,758,150 4,758,150 4,758,150
----------- ----------- ----------- ----------- -----------
Total Equity Value ............ 24,501,900 24,583,150 24,664,400 24,745,650 24,826,900
Par Value of Preferred Stock ...... 4,225,450 4,225,450 4,225,450 4,225,450 4,225,450
Ownership Upon Conversion ......... 17.25% 17.19% 17.13% 17.08% 17.02%
Shares Owned Upon Conversion:
Current Common .................. 532,750 532,750 532,750 532,750 532,750
Series A ........................ 11,424 11,378 11,333 11,288 11,244
Series B ........................ 18,518 18,444 18,371 18,298 18,226
Series C ........................ 81,079 80,755 80,434 80,115 79,799
----------- ----------- ----------- ----------- -----------
Total Shares .................. 643,771 643,328 642,888 642,452 642,019
Percentage of Ownership:
Current Common .................. 82.75% 82.81% 82.87% 82.92% 82.98%
Series A ........................ 1.77% 1.77% 1.76% 1.76% 1.75%
Series B ........................ 2.88% 2.87% 2.86% 2.85% 2.84%
Series C ........................ 12.59% 12.55% 12.51% 12.47% 12.43%
----------- ----------- ----------- ----------- -----------
Total ........................... 100.00% 100.00% 100.00% 100.00% 100.00%
Conversion Ratio:
Series A ........................ 1.3131 1.3079 1.3027 1.2975 1.2924
Series B ........................ 1.3140 1.3088 1.3036 1.2984 1.2933
Series C ........................ 5.2549 5.2340 5.2132 5.1925 5.1720
</TABLE>
III-10
<PAGE>
ANNEX IV
AGREEMENT AND PLAN OF MERGER
by and among
GIANT CEMENT HOLDING, INC.
GCHI ACQUISITION CORP.
and
SOLITE CORPORATION
Dated as of September 10, 1997, as amended
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
ARTICLE I
THE MERGER; THE SURVIVING ENTITY ......................................... 1
Section 1.1 The Merger ................................................... 1
Section 1.2 Effective Time of the Merger ................................. 2
Section 1.3 Closing ...................................................... 2
Section 1.4 Articles of Organization ....................................... 2
Section 1.5 Operating Agreement .......................................... 2
ARTICLE II
CONVERSION OF SHARES ..................................................... 2
Section 2.1 Exchange Ratio ................................................ 2
Section 2.2 Exchange of Company Common Stock .............................. 4
Section 2.3 No Fractional Securities .................................... 5
Section 2.4 Adjustment to Consideration ................................. 5
Section 2.5 Right to Set-Of ................................................ 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY ............................. 7
Section 3.1 Organization ................................................... 7
Section 3.2 Capitalization ................................................ 7
Section 3.3 Company Subsidiaries .......................................... 8
Section 3.4 Authority Relative to this Agreement ........................... 8
Section 3.5 Articles of Incorporation and By-laws ........................ 9
Section 3.6 Consents and Approvals; No Violations ........................ 9
Section 3.7 Financial Statements .......................................... 10
Section 3.8 Absence of Certain Changes or Events; Material Contracts ...... 10
Section 3.9 Litigation ................................................... 10
Section 3.10 Absence of Undisclosed Liabilities ........................... 10
Section 3.11 No Default ................................................... 11
Section 3.12 Taxes ......................................................... 11
Section 3.13 Title to Properties; Encumbrances .............................. 12
Section 3.14 Intellectual Property .......................................... 13
Section 3.15 Compliance with Applicable Law ................................. 13
Section 3.16 Employee Benefit Plans; ERISA ................................. 14
Section 3.17 Labor Matters ................................................ 16
Section 3.18 Environmental Laws and Regulations ........................... 17
Section 3.19 Restrictions on Business Activities ........................... 19
Section 3.20 Vote Required ................................................ 19
Section 3.21 Registration Statement; Proxy Statement ........................ 20
Section 3.22 Affiliate Transactions ....................................... 20
Section 3.23 Opinion of Financial Advisor ................................. 20
Section 3.24 Brokers ...................................................... 20
Section 3.25 Ruling Request ................................................ 21
Section 3.26 Full Disclosure ................................................ 21
</TABLE>
IV-i
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE ACQUISITION SUB ........................ 21
Section 4.1 Organization ........................................................................ 21
Section 4.2 Capitalization ..................................................................... 21
Section 4.3 Authority Relative to this Agreement ............................................. 22
Section 4.4 Certificate of Incorporation and By-laws .......................................... 22
Section 4.5 Consents and Approvals; No Violations ............................................. 22
Section 4.6 Reports and Financial Statements ................................................... 23
Section 4.7 Restrictions on Business Activities ................................................ 23
Section 4.8 No Stockholder Vote ............................................................... 23
Section 4.9 Registration Statement; Proxy Statement ............................................. 24
Section 4.10 Absence of Certain Changes or Events ................................................ 24
Section 4.11 Ruling Request ..................................................................... 24
Section 4.12 Brokers ........................................................................... 24
Section 4.13 Full Disclosure ..................................................................... 24
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER ...................................................... 25
Section 5.1 Conduct of Business by the Company Pending the Merger .............................. 25
Section 5.2 Conduct of Business by the Parent Pending the Merger .............................. 26
Section 5.3 Conduct of Business of the Acquisition Sub ....................................... 26
ARTICLE VI
ADDITIONAL AGREEMENTS ........................................................................ 27
Section 6.1 Registration Statement; Proxy Statement ............................................. 27
Section 6.2 Company Stockholder Approval; Recommendation ....................................... 27
Section 6.3 Agreements with Employee Shareholders ............................................. 28
Section 6.4 Access and Information ............................................................ 28
Section 6.5 No Solicitation ..................................................................... 28
Section 6.6 Reasonable Best Efforts ............................................................ 29
Section 6.7 Consents; Approvals ............................................................... 30
Section 6.8 Board of Directors .................................................................. 30
Section 6.9 Expenses ........................................................................... 30
Section 6.10 Public Announcements ............................................................... 30
Section 6.11 Supplemental Disclosure ............................................................ 30
Section 6.12 Agreements of Affiliates ............................................................ 31
Section 6.13 Agreements of Shareholders of Northeast ............................................. 31
Section 6.14 Agreements of Shareholders of the Company .......................................... 31
Section 6.15 Agreement of Spin-Off Entity ...................................................... 31
Section 6.16 Ruling Request ..................................................................... 31
Section 6.17 Conversion of Company Preferred Stock ............................................. 31
Section 6.18 Proxy Agreement ..................................................................... 32
Section 6.19 Opinion of Financial Advisor ...................................................... 32
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER ...................................................... 32
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger ........................ 32
Section 7.2 Conditions to Obligations of the Parent and the Acquisition Sub to Effect the Merger 33
</TABLE>
IV-ii
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
Section 7.3 Conditions to Obligation of the Company to Effect the Merger ...... 36
ARTICLE VIII
TERMINATION .................................................................. 37
Section 8.1 Termination ...................................................... 37
Section 8.2 Effect of Termination ............................................. 39
ARTICLE IX
INDEMNIFICATION ............................................................... 39
Section 9.1 Survival of Representations and Warranties ........................ 39
Section 9.2 Indemnification of Parent Claimants .............................. 40
Section 9.3 Indemnification Procedures ....................................... 40
Section 9.4 Release of Shares of Parent Common Stock ........................ 41
Section 9.5 Limitations on Indemnity .......................................... 42
ARTICLE X
GENERAL PROVISIONS ............................................................ 43
Section 10.1 Amendment and Modification ....................................... 43
Section 10.2 Waiver ............................................................ 43
Section 10.3 Survivability; Investigations .................................... 43
Section 10.4 Notices ............................................................ 43
Section 10.5 Descriptive Headings; Interpretation .............................. 44
Section 10.6 Entire Agreement; Assignment ....................................... 44
Section 10.7 Governing Law ...................................................... 45
Section 10.8 Severability ...................................................... 45
Section 10.9 Counterparts ...................................................... 45
Section 10.10 Tax Treatment ...................................................... 45
</TABLE>
IV-iii
<PAGE>
SCHEDULES
Schedule A
Schedule B-1
Schedule B-2
Schedule 3.2(b)
Schedule 3.3
Schedule 3.3(a)
Schedule 3.6
Schedule 3.7
Schedule 3.8
Schedule 3.9
Schedule 3.10
Schedule 3.11
Schedule 3.12
Schedule 3.13
Schedule 3.14(a)
Schedule 3.15
Schedule 3.16(a)
Schedule 3.16(b)
Schedule 3.17
Schedule 3.18(e)
Schedule 3.18(f)
Schedule 3.18(i)
Schedule 3.19
Schedule 3.22
Schedule 4.5
Schedule 5.1(b)
Schedule 5.1(d)
Schedule 6.12
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Proxy Agreement
Exhibit B Form of Escrow Agreement
Exhibit C Form of Indemnity Escrow Agreement
Exhibit D Form of Affiliate Agreement
Exhibit E Form of Northeast Shareholder Agreement
Exhibit F Form of Giant Shareholder Agreement
Exhibit G Form of Northeast Agreement
Exhibit H Form of Opinion of McGuire Woods Battle and Boothe, L.L.P.
Exhibit I Form of Market Stand-Off Agreement with John Roberts
Exhibit J Form of Tax Provisions Agreement
Exhibit K Form of Indemnity Agreement
Exhibit L Form of Non-Competition with John Roberts
Exhibit M Form of License Agreement
Exhibit N Form of Services Agreement
Exhibit O Form of Non-Competition Agreement
Exhibit P Form of Opinion of Proskauer Rose LLP
</TABLE>
IV-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of September 10, 1997, among GIANT
CEMENT HOLDING, INC., a Delaware corporation (the "Parent"), GCHI ACQUISITION
CORP., a Virginia corporation wholly-owned by Parent (the "Acquisition Sub"),
and SOLITE CORPORATION, a Virginia corporation (the "Company").
The Parent, the Acquisition Sub , and the Company desire that the Parent
acquire all of the outstanding capital stock of the Company, which will own (a)
three lightweight aggregate facilities and the associated resource recovery
operations facilities, (b) five concrete block plants, (c) the M&M Chemical
hazardous waste treatment and blending facility, (d) the transportation
operations associated with the foregoing, and (e) other assets associated with
the foregoing (the "Core Business"), and which will be subject to certain
liabilities including, but not limited to, up to $20 million of long and short
term debt of the Company pursuant to the merger (the "Merger") of the
Acquisition Sub with and into the Company in accordance with the terms of this
Agreement, and the Virginia Stock Corporation Act (the "VSCA").
Prior to the Closing (as defined below) the Company intends to
distribute an interest in all assets and businesses of the Company other than
the Core Business (the "Noncore Business") to the shareholders of the Company
in a transaction that is intended to qualify as nontaxable to the Company and
its shareholders under Section 368(a)(1)(D) and Section 355 of the Internal
Revenue Code of 1986, as amended (the "Code") (the "Spin-Off"). The Spin-Off is
more fully described on Schedule A.
Contemporaneously with the execution and delivery of this Agreement, the
shareholders of the Company listed on Schedule B-1 have executed and delivered
to the Parent an agreement in the form of Exhibit A hereto, pursuant to which
such shareholders have granted to the Parent an irrevocable proxy to vote their
shares in favor of the Merger.
For federal income tax purposes, it is intended that the Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Code.
The parties hereto agree as follows:
ARTICLE I
THE MERGER; THE SURVIVING ENTITY
Section 1.1 The Merger. In accordance with the provisions of this
Agreement, the VSCA, at the Effective Time (as defined in Section 1.2), the
Acquisition Sub shall be merged with and into the Company (the "Merger"), the
separate existence of the Acquisition Sub shall thereupon cease, and the
Company shall be the surviving entity in the Merger (the "Surviving Entity")
and shall continue its corporate existence under the laws of the Commonwealth
of Virginia. The Merger shall have the effects set forth in Section 13.1-721 of
the VSCA. The plan of merger included in this Agreement is separately stated in
the Plan of Merger (the "Plan of Merger") attached hereto as Schedule A-1. The
parties agree that subject to the provisions of this Agreement, including the
approval of the Plan of Merger by the requisite vote of stockholders of the
Company, the Plan of Merger shall be incorporated into the articles of merger
to be filed with the State Corporation Commission of Virginia.
Section 1.2 Effective Time of the Merger. The Merger shall become
effective at the time a certificate of merger is issued by the State
Corporation Commission of Virginia (the "SCC") or at such later time specified
in, properly executed Articles of Merger, in the form required by and executed
in accordance with the VSCA, filed with the SCC, in accordance with the
provisions of Section 13.1-720 of the VSCA. Such filing shall be made as soon
as practicable after the Closing (as defined in Section 1.3). When used in this
Agreement, the term "Effective Time" shall mean the date and time at which the
Merger shall become effective.
Section 1.3 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Proskauer
Rose LLP, 1585 Broadway, New York, New York 10036, at 10:00 a.m., local time,
on the fifth business day after the day on which all of the conditions set
forth in Article VII are satisfied or waived or on such other date and at such
other time and place as the Parent and the Company shall agree (the "Closing
Date").
Section 1.4 Articles of Organization. The articles of incorporation of
the Company in effect at the Effective Time shall be the articles of
incorporation of the Surviving Entity until amended in accordance with
applicable law.
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Section 1.5 Operating Agreement. The by-laws of the Company in effect at
the Effective Time shall be the by-laws of the Surviving Entity until amended
or revoked in accordance with applicable law.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Exchange Ratio. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof:
(a) Each share of common stock, par value $2 per share of the
Company (the "Company Common Stock"), issued and outstanding
immediately prior to the Effective Time shall be converted
into the right to receive:
(i) a number of shares of the voting common stock, par value
$.01 per share (the "Parent Common Stock"), of the Parent,
payable upon the surrender of the certificate formerly
representing such share of Company Common Stock, equal to
the quotient derived by dividing (A) 650,000 minus the
number of shares to be placed in the Escrow Account and
the Indemnity Escrow Account described below, by (B) the
number of outstanding shares of Company Common Stock at
the Closing (hereinafter referred to collectively, as the
"Outstanding Stock"); and
(ii) if any shares of Parent Common Stock are made available
for distribution pursuant to Section 2.4(c) or (d), a
number of such shares of Parent Common Stock equal to the
quotient derived by dividing (A) the total number of
shares of Parent Common Stock so available pursuant to
Section 2.4(c) or (d) by (B) the Outstanding Stock.
(b) Each share of Acquisition Sub Common Stock outstanding on the
Effective Date shall, without any action on the part of the
holder thereof, be converted into one share of Company Common
Stock, which shall upon such conversion be validly issued and
outstanding, fully paid and nonassessable, and shall
constitute all of the issued and outstanding capital stock of
the Company immediately following the Merger.
(c) The amount of Parent Common Stock to be received pursuant to
Section 2.1(a), shall be adjusted to reflect fully the effect
of any stock split or reverse split or stock dividend
(including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common
Stock), the record date for which shall occur after the date
hereof and prior to the Effective Time.
(d) If any certificate for shares of Parent Common Stock is to be
issued to a person other than the registered holder of the
Company Common Stock represented by the certificate or
certificates surrendered with respect thereto, it shall be a
condition to such issuance that the certificate or
certificates so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person
requesting such exchange will have paid to the Parent or any
person designated by the Parent any transfer or other taxes
required as a result of such issuance to a person other than
the holder of such Company Common Stock, or established to
the satisfaction of the Parent or any agent designated by the
Parent that such tax has been paid or is not payable.
(e) At the Effective Time, the stock transfer books of the
Company shall be closed, and there shall be no further
registration of transfers of Company Common Stock and Company
Preferred Stock thereafter on the records of the Company.
(f) Neither the Parent, the Acquisition Sub nor the Company shall
be liable to any holder of Company Common Stock or Company
Preferred Stock for any securities delivered or any amount
paid to a public official pursuant to applicable abandoned
property laws.
(g) No dividends or other distributions declared or made after
the Effective Time with respect to Parent Common Stock with a
record date after the Effective Time shall be paid to the
holder of any unsurrendered certificates representing Company
Common Stock until such certificates are surrendered pursuant
to Section 2.1. Subject to applicable law, upon such
surrender, there shall be paid to the record holder
certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, at the time of
such surrender, the amount of dividends or other
distributions with a record date after the Effective Time
theretofore paid with respect to the shares of Parent Common
Stock.
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(h) In the event any certificates representing Company Common
Stock shall have been lost, stolen or destroyed, the Parent
(as defined in Section 2.2) shall issue in exchange for such
lost, stolen or destroyed certificates, upon the making of an
affidavit of that fact by the holder thereof, the
consideration referred to in Section 2.1(a); provided,
however, that the Parent may, in its discretion and as a
condition precedent to the issuance and delivery thereof,
require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be
made against the Parent or the Escrow Agent with respect to
the certificates alleged to have been lost, stolen or
destroyed.
(i) The holders of shares of Company Common Stock as to which
dissenter's rights shall have been duly demanded under
applicable law ("Dissenting Shares"), if any, shall be
entitled to payment by the Surviving Entity only of the fair
value of such shares plus accrued interest to the extent
permitted by and in accordance with the provisions of
applicable law; provided, however, that (i) if any holder of
the Dissenting Shares shall, under the circumstances
permitted by applicable law, subsequently deliver a written
withdrawal of such holder's demand or (ii) if any holder
fails to establish such holder's entitlement to rights to
payment as provided under applicable law, such holder or
holders (as the case may be) shall forfeit such right to
payment for such shares and such shares shall thereupon be
deemed to have been converted into Parent Common Stock
pursuant to Section 2.1(a) as of the Effective Time. The
Surviving Entity shall be solely responsible for, and shall
pay out of its own funds, any amounts which become due and
payable to holders of Dissenting Shares, and such amounts
shall not be paid directly or indirectly by the Parent.
Section 2.2 Exchange of Company Common Stock.
(a) Promptly after the Effective Time, each shareholder shall
present to the Parent for cancellation a certificate or certificates which
immediately prior to the Effective Time represented Outstanding Stock (the
"Certificates") that were converted pursuant to Section 2.1, and the Parent
shall upon presentation thereof deliver to such shareholder in exchange
therefor (x) a certificate representing that number of whole shares of Parent
Common Stock which such shareholder has the right to receive pursuant to the
provisions of Section 2.1(a)(i), and (y) cash in lieu of any fractional shares
of Parent Common Stock to which such shareholder is entitled pursuant to
Section 2.3, after giving effect to any required tax withholdings.
(b) Promptly after the Effective Time, the Parent shall (i)
deliver to the escrow agent (the "Escrow Agent") under the escrow agreement
dated the Effective Date, substantially in the form attached hereto as Exhibit
B, a certificate representing 100,000 shares of Parent Common Stock (the
"Escrow Account") to be held pursuant to such escrow agreement for
dissemination pursuant to Section 2.4(c), and (iii) deliver to the escrow agent
(the "Indemnity Escrow Agent") under the escrow agreement dated the Effective
Time, substantially in the form of Exhibit C, a certificate representing
100,000 shares of Parent Common Stock (the "Indemnity Escrow Account") to be
held pursuant to the provisions of Section 9.4. The shares of Parent Common
Stock shall be deemed to have been issued at the Effective Time.
(c) Promptly after the Closing Balance Sheet, as that term is
defined in Section 2.4, becomes the Final Closing Balance Sheet, as that term
is defined in Section 2.4, Parent shall determine if the holders of the
Outstanding Stock at the Effective Time are entitled to any shares from the
Escrow Account pursuant to Section 2.4(c). Subject to Section 2.5, upon a
determination that such holders are entitled to any shares from the Escrow
Account pursuant to Section 2.4(c), Parent shall thereupon direct the Escrow
Agent to deliver to each such holder (a) a certificate representing that number
of whole shares of Parent Common Stock which such holder has the right to
receive pursuant to the provisions of Section 2.4(c), and (b) cash in lieu of
any fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 2.3, after giving effect to any required tax withholdings.
Section 2.3 No Fractional Securities. No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of certificates representing Company Common Stock, and
such fractional interests shall not entitle the owner thereof to vote or to any
rights of a security holder. In lieu of any such fractional securities, each
holder of Company Common Stock who would otherwise have been entitled to a
fraction of a share of Parent Common Stock upon surrender of such holder's
certificates will be entitled to receive, and the Parent will timely make a
cash payment (without interest) determined by multiplying (i) the fractional
interest to which such holder would otherwise be entitled (after taking into
account all shares of Outstanding Stock then held of record by such holder) and
(ii) the average of the closing bid and asked prices per share of Parent Common
Stock as quoted on The NASDAQ Stock Market, Inc. ("NASDAQ") for the twenty
trading days immediately preceding the Closing.
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Section 2.4 Adjustment to Consideration.
(a) As soon as practicable after the Closing, and in any event
not later than 90 days after the Closing, the Parent shall prepare, or cause to
be prepared, and shall furnish to Northeast Solite Corporation, a New York
corporation (the "Spin-Off Entity") a consolidated balance sheet for the
Company as of the Closing Date, after giving effect to the Spin-Off (the
"Closing Balance Sheet"), but before giving effect to the MZerger and any
adjustments related thereto. The Closing Balance Sheet shall be prepared in
accordance with generally accepted accounting principles ("GAAP"), on a basis
consistent with the Report On Audits of Divisional Financial Statements of
Solite Corporation for the years ended March 31, 1997 and 1996, prepared by
Coopers & Lybrand LLP, including the writedown of clinker inventories by
approximately $3.6 million to net realizable value not previously recorded by
the Company. If the Spin-Off Entity disagrees with any aspect of the Closing
Balance Sheet, it may object to the Closing Balance Sheet in writing, detailing
its disagreement (the "Dispute Notice"). If no Dispute Notice is given to the
Parent by the Spin-Off Entity within 30 days after the Closing Balance Sheet is
furnished to the Spin-Off Entity, the Closing Balance Sheet shall be deemed
final and binding for all purposes under this Agreement.
(b) If the Parent and the Spin-Off Entity are unable to resolve
any matter which is the subject of a Dispute Notice within 30 days after such
Dispute Notice is given to the Parent by the Spin-Off Entity, such matter shall
be submitted for resolution to an independent accounting firm selected jointly
by the Parent and the Spin-Off Entity. If the Parent and the Spin-Off Entity
are unable to agree upon such accounting firm within 15 days after the end of
the 30-day period referred to in the preceding sentence, then such matter shall
be submitted for resolution to the independent accounting firm of KPMG Peat
Marwick. KPMG Peat Marwick or the independent accounting firm to whom such
matter is submitted for resolution is hereinafter referred to as the
"Accounting Firm." The determinations of the Accounting firm shall be final and
binding for all purposes under this Agreement. The Closing Balance Sheet, as it
shall be deemed final and binding pursuant to the last sentence of Section
2.4(a), as it shall be agreed upon by Parent and the Spin-Off Entity, or as it
shall be determined by the Accounting Firm pursuant to this Section 2.4(b) is
hereinafter referred to as the "Final Closing Balance Sheet." The Parent and
the Spin-Off Entity will share responsibility for fees and expenses of the
Accounting Firm as follows: (i) if the Accounting Firm resolves all of the
matters subject to the Dispute Notice in favor of the Parent, the Spin-Off
Entity will be responsible for all the fees and expenses of the Accounting
Firm; (ii) if the Accounting Firm resolves all of the matters subject to a
Dispute Notice in favor of the Spin-Off Entity, the Parent will be responsible
for all the fees and expenses of the Accounting Firm; and if the Accounting
Firm resolves some of the matters subject to the Dispute Notice in favor of the
Parent and the rest of such matters in favor of the Spin-Off Entity, the
Spin-Off Entity will be responsible for the fraction of the fees and expenses
of the Accounting Firm equal to (A) the difference between the amount in
dispute and the amount of the adjustments to the Closing Balance Sheet over (B)
the amount in dispute, and the Parent will be responsible for the remainder of
the fees and expenses.
(c) If the consolidated net book value of the Company reflected
in the Final Closing Balance Sheet is less than $5.0 million, then (i) the
Parent shall be entitled to receive from the Escrow Account and to cancel the
number of whole shares of Parent Common Stock as shall equal the quotient
derived by dividing (A) the amount by which $5.0 million exceeds the
consolidated net book value of the Company reflected in the Final Closing
Balance Sheet by (B) $19 per share of Parent Common Stock, and (ii) subject to
Section 2.4(d), the balance of the shares of Parent Common Stock in the Escrow
Account shall be available immediately for distribution pursuant to Section
2.1(a)(ii). If the consolidated net book value of the Company reflected in the
Final Closing Balance Sheet is more than $5.0 million, then, subject to Section
2.4(d), all the shares of Parent Common Stock in the Escrow Account shall be
available immediately for distribution pursuant to Section 2.1(a)(ii). For
purposes of calculating net book value, no effect will be given to up to
$1,000,000 of valuation allowance recorded against the net deferred tax assets
of the Company.
(d) If the net current assets of the Company reflected in the
Final Closing Balance Sheet is less than $6.0 million, then (i) the Parent
shall be entitled to receive from the Escrow Account and to cancel the number
of whole shares of Parent Common Stock as shall equal the quotient derived by
dividing (A) the amount by which $6.0 million exceeds the net current assets of
the Company reflected in the Final Closing Balance Sheet by (B) $19 per share
of Parent Common Stock, and (ii) subject to Section 2.4(c), the balance of the
shares of Parent Common Stock in the Escrow Account shall be available
immediately for distribution pursuant to Section 2.1(a)(ii). If the net current
assets of the Company reflected in the Final Closing Balance Sheet is more than
$6.0 million, then, subject to Section 2.4(c), all the shares of Parent Common
Stock in the Escrow Account shall be available immediately for distribution
pursuant to Section 2.1(a)(ii). For purposes of calculating net current assets
no effect
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will be given to current installments to indebtedness for borrowed money in an
aggregate amount not exceeding $20 million. For the purposes hereof, net
current assets shall be equal to (x) the sum of cash, accounts receivable less
than 60 days past due and inventories less (y) the sum of accounts payable,
accrued expenses and other current liabilities.
Section 2.5 Right to Set-Off. Notwithstanding anything to the contrary
contained in this Agreement, Parent shall have the right to set-off against the
shares of Parent Common Stock in the Escrow Account and in the Indemnity Escrow
Account the amount of its Losses, as that term is hereinafter defined, for
which it is entitled to indemnification pursuant to Article IX; provided,
however, that no shares of Parent Common Stock that are otherwise required,
pursuant to Section 2.4, to be distributed pursuant to Section 2.1(a)(ii) shall
be retained in the Escrow Account unless the aggregate Losses (as defined in
Section 9.2 hereof) as to which there are then pending claims asserted by a
Parent Claimant exceed $1,000,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the Acquisition Sub as
follows:
Section 3.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Virginia and has the corporate power to carry on its business as it is now
being conducted or presently proposed to be conducted. The Company is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary,
except where failure to qualify does not and cannot reasonably be expected to
have a material adverse effect, individually or in the aggregate, on the
financial condition, results of operations, business, assets, liabilities, or
properties of the Core Business taken as a whole, or the ability of the Company
to consummate the Merger and the other transactions contemplated by this
Agreement (a "Company Material Adverse Effect").
Section 3.2 Capitalization.
(a) The authorized capital stock of the Company consists of
1,000,000 shares of Company Common Stock, 100,000 shares of Preferred Stock
issuable in series, of which the Company has designated 25,000 shares as Series
A Preferred Stock, par value $50 per share of the Company (the "Company Series
A Preferred Stock"), 16,300 shares as Series B Preferred Stock, par value $50
per share of the Company (the "Company Series B Preferred Stock") and 16,807
shares as Series C Preferred Stock, par value $200 per share of the Company
(the "Company Series C Preferred Stock" and collectively with the Company
Series A Preferred Stock and the Company Series B Preferred Stock, the "Company
Preferred Stock"). As of the date hereof (i) 532,750 shares of Company Common
Stock were issued and outstanding, all of which were validly issued and are
fully paid and nonassessable, (ii) 8,700 shares of Company Series A Preferred
Stock were issued and outstanding, all of which were validly issued and are
fully paid and nonassessable, (iii) 14,093 shares of Company Series B Preferred
Stock were issued and outstanding, all of which were validly issued and are
fully paid and nonassessable and (iv) 15,429 shares of Company Series C
Preferred Stock were issued and outstanding, all of which were validly issued
and are fully paid and nonassessable.
(b) Except as disclosed in this Section 3.2 or as set forth on
Schedule 3.2(b), (i) there is no outstanding right, subscription, warrant,
call, option or other agreement or arrangement of any kind to purchase or
otherwise to receive from the Company or any of its Subsidiaries any of the
outstanding authorized but unissued shares of the capital stock or any other
security of the Company or any of its Subsidiaries, (ii) there is no
outstanding security of any kind convertible into or exchangeable for such
capital stock and (iii) there is no voting trust or other agreement or
understanding to which the Company or any of its Subsidiaries is a party or is
bound with respect to the voting of the capital stock of the Company or any of
its Subsidiaries.
Section 3.3 Company Subsidiaries. Schedule 3.3 contains a complete and
accurate list of all Subsidiaries or affiliates of the Company. As used in this
Agreement, the term "Subsidiary" means, with respect to the Company, any
corporation or other organization, whether incorporated or unincorporated, of
which at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the board of directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party and/or
one or more of its Subsidiaries and is part of the
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Core Business. Each Subsidiary of the Company is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Each Subsidiary of the Company has the corporate power to carry
on its business as it is now being conducted or presently proposed to be
conducted. Each Subsidiary of the Company is duly qualified as a foreign
corporation authorized to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to qualify does not and cannot reasonably be expected to have a
Company Material Adverse Effect. All of the outstanding shares of capital stock
of the Subsidiaries of the Company that are corporations are validly issued,
fully paid and nonassessable. Except as set forth on Schedule 3.3(a), all of
the outstanding shares of capital stock of each Subsidiary of the Company are
owned by the Company or a Subsidiary of the Company free and clear of any
liens, pledges, security interests, claims, charges or other encumbrances of
any kind whatsoever ("Liens").
Section 3.4 Authority Relative to this Agreement. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
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 transactions contemplated on its part hereby (other than the ratio for
the conversion of Company Preferred Stock to Company Common Stock) have been
duly authorized by the Company's Board of Directors and, except for (A) the
approval of the Merger and approval of the conversion of Company Preferred
Stock to Company Common Stock by (i) the affirmative vote of more than
two-thirds of the votes that holders of the outstanding Company Common Stock
and Company Preferred Stock are entitled to cast and (ii) the affirmative vote
of more than two-thirds of the votes that the holders of the outstanding
Company Common Stock, Company Series A Preferred Stock, Company Series B
Preferred Stock and Company Series C Preferred Stock, each voting as a separate
voting group, are entitled to cast and (B) approval of the conversion of
Company Preferred Stock to Company Common Stock by the affirmative vote of a
majority of the votes that holders of outstanding Company Common Stock and
Company Preferred Stock, other than John W. Roberts and his family, are
entitled to cast no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or for the Company to consummate the
transactions contemplated hereby. The Company's Board of Directors has
determined that it is advisable and in the best interests of the Company's
shareholders for the Company to enter into a business combination with Parent
upon the terms and subject to the conditions of this Agreement. This Agreement
has been duly and validly executed and delivered by the Company and constitutes
a valid and binding agreement of the Company, enforceable against the Company
in accordance with its terms.
Section 3.5 Articles of Incorporation and By-laws. The Company has
heretofore furnished to the Parent a complete and correct copy of the articles
of incorporation and by-laws, as amended to date of the Company and of each of
its Subsidiaries. All such articles of incorporation and by-laws are in full
force and effect. The Company is not in violation of any of the provisions of
its articles of incorporation or by-laws and none of the Company's Subsidiaries
is in violation of its articles of incorporation or by-laws.
Section 3.6 Consents and Approvals; No Violations. Neither the
execution, delivery and performance of this Agreement by the Company, nor the
consummation by the Company of the transactions contemplated hereby, will (i)
conflict with or result in any breach of any provisions of the articles of
incorporation, by-laws or other organizational documents of the Company or any
of its Subsidiaries, (ii) require a filing with, or a permit, authorization,
consent or approval of, any federal, state, local or foreign court, arbitral
tribunal, administrative agency or commission or other governmental or other
regulatory authority or administrative agency or commission (a "Governmental
Entity"), except in connection with or in order to comply with the applicable
provisions of the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the filing of Articles of Merger as required by the VSCA, and the filing
of an amendment to the Company's articles of incorporation to effect the
Conversion (as defined), (iii) except as set forth on Schedule 3.6, result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, or result in the creation of a Lien on any property or
asset of the Company or any of its Subsidiaries pursuant to, any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture,
license, contract, agreement or other instrument or permit or obligation (each,
a "Contract") to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound or (iv)
violate any law, order, writ, injunction, decree, statute, rule or regulation
of any Governmental Entity applicable to the Company, any of its Subsidiaries
or any of their properties or assets.
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Section 3.7 Financial Statements. The Company has delivered to the
Parent (a) the audited consolidated financial statements of the Company and its
Subsidiaries and the unaudited financial statements of the Subsidiaries
included in the Core Business, in each case, for the years ended March 31,
1995, 1996 and 1997, and (b) the interim unaudited financial statements of the
Company and the Subsidiaries of the Company included in the Core Business for
the three months ended June 30, 1997 (collectively, the "Financial
Statements"). Except as disclosed on Schedule 3.7, the Financial Statements of
the Company have been prepared in accordance with GAAP consistently applied
throughout the periods indicated. The Financial Statements fairly present
(subject, in the case of unaudited statements, to normal, recurring year-end
adjustments and any other adjustments described therein) the consolidated
financial position of the Company and its consolidated Subsidiaries as at the
dates thereof and the consolidated results of operations and cash flows of the
Company and its consolidated Subsidiaries for the periods then ended. Since
June 30, 1997 (the "Balance Sheet Date"), there has been no change in any of
the significant financial accounting policies, practices or procedures of the
Company or any of its consolidated Subsidiaries.
Section 3.8 Absence of Certain Changes or Events; Material
Contracts. Except for the Spin-Off which is described on Schedule A and such
other matters as are set forth on Schedule 3.8, since April 1, 1997, (i)
neither the Company nor any of its Subsidiaries with respect to the Core
Business has conducted its business and operations other than in the ordinary
course of business and consistent with past practices or taken any actions
that, if this Agreement had been in effect, would have violated or been
inconsistent with the provisions of Section 5.1 and (ii) there has not been any
fact, event, circumstance or other change affecting or relating to the Company
or any of its Subsidiaries which has had or is reasonably likely to have a
Company Material Adverse Effect. Except as set forth on Schedule 3.8, the
transactions contemplated by this Agreement will not constitute a change of
control under or require the consent from or the giving of notice to a third
party pursuant to the terms, conditions or provisions of any material Contract
to which the Company or any of its Subsidiaries is a party.
Section 3.9 Litigation. Except for routine litigation that individually
and in the aggregate if determined adversely to the Company would not result in
the Company paying net of insurance in excess of $100,000 and except as set
forth on Schedule 3.9, there is no suit, action, proceeding or investigation
pending or, to the best knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries, the outcome of which, in the
reasonable judgment of the Company, is likely to have a Company Material
Adverse Effect; nor is there any judgment, decree, injunction, ruling or order
of any Governmental Entity outstanding against the Company or any of its
Subsidiaries having, or which is reasonably likely to have, a Company Material
Adverse Effect.
Section 3.10 Absence of Undisclosed Liabilities. Except for liabilities
or obligations which are accrued or reserved against in the Financial
Statements (or reflected in the notes thereto) or which were incurred after the
Balance Sheet Date in the ordinary course of business and consistent with past
practice, and except as set forth on Schedule 3.10, none of the Company and its
Subsidiaries has any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of a nature required by GAAP to be reflected in a
consolidated balance sheet (or reflected in the notes thereto) or which would
have a Company Material Adverse Effect.
Section 3.11 No Default. Except as set forth on Schedule 3.11, neither
the Company nor any Subsidiary of the Company is in default or violation (and
no event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of any
material Contract to which the Company or any of its Subsidiaries is a party or
by which they or any of their properties or assets may be bound.
Section 3.12 Taxes.
(a) The Company has heretofore delivered or will make available
to Parent true, correct and complete copies of the consolidated federal, state,
local and foreign income, franchise sales and other Tax Returns (as hereinafter
defined) filed by the Company and the Company Subsidiaries for each of the
Company's years ended March 31, 1997, 1996 and 1995 inclusive. Except as set
forth on Schedule 3.12, the Company has duly filed, and each Subsidiary has
duly filed, all material federal, state, local and foreign income, franchise,
sales and other Tax Returns required to be filed by the Company or any of its
Subsidiaries. All such Tax Returns are true, correct and complete, and the
Company and its Subsidiaries have duly paid all Taxes (as hereinafter defined)
shown on such Tax Returns and the Company has made adequate provision for
payment of all accrued but unpaid Taxes anticipated
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in respect of all periods since the periods covered by such Tax Returns. Except
as set forth on Schedule 3.12, all deficiencies assessed as a result of any
examination of Tax Returns of the Company or any of its Subsidiaries by
federal, state, local or foreign tax authorities have been paid or reserved on
the financial statements of the Company in accordance with GAAP consistently
applied. The Company has heretofore delivered or will make available to Parent
true, correct and complete copies of all written tax-sharing agreements and
written descriptions of all such unwritten agreement or arrangements to which
the Company or any of its Subsidiaries is a party. Except as set forth in
Schedule 3.12, no issue has been raised in writing addressed to the Company, or
to the best knowledge of the Company's president, chief financial officer, or
tax manager, orally, during the past five years by any federal, state, local or
foreign taxing authority which, if properly raised with regard to any period
other than the period then beginning examined, could reasonably be expected to
result in a material deficiency for such other period and no examination by any
such tax authority during such five year period has culminated in the
determination of a material tax deficiency or in any other adjustment. Except
as disclosed in Schedule 3.12 hereof, neither the Company nor any of its
Subsidiaries has granted any extension or waiver of the statutory period of
limitations applicable to any claim for any material Taxes. Except as set forth
in Schedule 3.12, (i) neither the Company nor any of its Subsidiaries is a
party to any agreement, contract or arrangement that would result, separately
or in the aggregate, in the payment of any "excess parachute payments" within
the meaning of Section 280G of the Code; (ii) no consent has been filed under
Section 341(f) of the Code with respect to any of the Company or its
Subsidiaries; (iii) neither the Company nor any of its Subsidiaries has
participated in, or cooperated with, an international boycott within the
meaning of Section 999 of the Code; (iv) neither the Company nor any of its
Subsidiaries has issued or assumed any corporate acquisition indebtedness, as
defined in Section 279(b) of the Code; (v) neither the Company nor any of its
subsidiaries has changed a method of accounting or taken any other action
requiring any adjustment under section 481 of the Code or any other provision
of law or regulation in any year subsequent to the year of the change of
accounting method or other action; (vi) neither the Company nor any of its
subsidiaries has entered into a closing agreement or other agreement with the
Internal Revenue Service or any other taxing authority having any effect on any
tax period subsequent to the tax period that was under examination, (vii)
neither the Company nor any of its subsidiaries holds any receivable that is
subject to the installment method of accounting for tax purposes and (viii) the
Company has not been a United States real property holding corporation, as
defined in Section 897(c)(2) of the Code, during the previous five years. The
Company and each of its Subsidiaries have complied (and until the Effective
Time will comply) in all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes (including,
without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of
the Code or similar provisions under any foreign laws) and have, within the
time and in the manner prescribed by law, withheld from employee wages and paid
over to the proper governmental authorities all amounts required to be so
withheld and paid over under all applicable laws.
(b) For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, fees, levies, duties, imposts or other assessments,
including, without limitation, income, gross receipts, excise, property, sales,
use, value added, transfer, gains, license, payroll, wage, unemployment
compensation, social security, occupation, severance, disability, withholding,
capital stock, stamps, registration, franchise, premium, windfall profits,
environmental (including taxes under Section 59A of the Code), alternative or
add-on minimum, estimated or other tax of any kind whatsoever (whether disputed
or not) imposed by the United States, or any state, local or foreign government
or subdivision or agency thereof, including any related charges, fees,
interest, penalties or additions thereto or other assessments. For purposes of
this Agreement, the term "Tax Return" shall mean any report, return or other
information or document required to be supplied to a taxing authority in
connection with Taxes.
Section 3.13 Title to Properties; Encumbrances. Except as described in
the following sentence or set forth on Schedule 3.13, each of the Company and
its Subsidiaries has good, valid and marketable title to, or a valid leasehold
interest in, all of its material properties and assets (real, personal and
mixed, tangible and intangible), including, without limitation, all the
properties and assets reflected in the consolidated balance sheet of the
Company and its Subsidiaries as of March 31, 1997 (except for properties and
assets disposed of in the ordinary course of business and consistent with past
practices since March 31, 1997 and pursuant to the Spin-Off). None of such
properties or assets are subject to any Liens (whether absolute, accrued,
contingent or otherwise), except minor imperfections of title and encumbrances,
if any, which are not substantial in amount, do not materially detract from the
value of the property or assets subject thereto and do not impair the
operations of any of the Company and its Subsidiaries.
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Section 3.14 Intellectual Property.
(a) The Company and/or its Subsidiaries are the sole and
exclusive owners of, or have the right to use, all material patents, patent
applications, patent rights, trademarks, trademark rights, trade names, trade
name rights, copyrights, service marks, trade secrets, registrations for and
applications for registration of trademarks, service marks and copyrights,
technology and know-how, rights in computer software and other proprietary
rights and information and all technical and user manuals and documentation
made or used in connection with any of the foregoing, used or held for use in
connection with the businesses of the Company or any of its Subsidiaries as
currently conducted (collectively, the "Intellectual Property"). Any and all
material licenses covering any such Intellectual Property are listed on
Schedule 3.14(a) hereto. The Intellectual Property owned by the Company and/or
its Subsidiaries is free and clear of all Liens except as set forth on Schedule
3.14(a) and except minor imperfections of title and encumbrances, if any, which
are not substantial in amount, do not materially detract from the value of the
Intellectual Property subject thereto and do not impair the operations of any
of the Company and its Subsidiaries.
(b) All grants, registrations and applications for Intellectual
Property that are used in and are material to the conduct of the Business (as
hereinafter defined) (i) are valid, subsisting, in proper form and enforceable,
and have been duly maintained, including the submission of all necessary
filings and fees in accordance with the legal and administrative requirements
of the appropriate jurisdictions and (ii) have not lapsed, expired or been
abandoned, and no registration therefor is the subject of any legal or
governmental proceeding before any registration authority in any jurisdiction.
(c) Each of the Company and its Subsidiaries owns or has the
right to use all of the material Intellectual Property used by it or held for
use by it in connection with its business. To the Company's and Subsidiaries'
knowledge, there are no conflicts with or infringements of any Intellectual
Property by any third party. The conduct of the businesses of the Company and
its Subsidiaries as currently conducted (collectively, the "Business") does not
conflict with or infringe in any way any proprietary right of any third party,
and there is no claim, suit, action or proceeding pending or threatened against
the Company or any of its Subsidiaries (i) alleging any such conflict or
infringement with any third party's proprietary rights, or (ii) challenging the
ownership, use, validity or enforceability of the Intellectual Property.
Section 3.15 Compliance with Applicable Law. Except as set forth on
Schedule 3.15, (i) the Company and its Subsidiaries hold, and are in
substantial compliance with the terms of, all material permits, licenses,
exemptions, orders and approvals of all Governmental Entities necessary for the
current and proposed conduct of their respective businesses ("Company
Permits"), (ii) no fact exists or event has occurred, and no action or
proceeding is pending or, to the Company's knowledge, threatened, that has a
reasonable possibility of resulting in a revocation, nonrenewal, termination,
suspension or other material impairment of any material Company Permits, (iii)
the businesses of the Company and its Subsidiaries are being conducted in
substantial compliance with all material applicable statutes, laws, ordinances,
rules, regulations, judgments, decrees, injunctions or orders of any
Governmental Entity ("Applicable Law"), (iv) no investigation or review by any
Governmental Entity with respect to the Core Business (other than routine
investigations or reviews to which the Core Business is subject in the ordinary
course of business) is pending, or to the Company's knowledge, threatened, and
(v) no Governmental Entity has indicated an intention to conduct such an
investigation or review.
Section 3.16 Employee Benefit Plans; ERISA.
(a) Schedule 3.16(a) contains a list of all "employee benefit
plans," within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and any other bonus, profit
sharing, pension, severance, deferred compensation, fringe benefit, insurance,
welfare, post-retirement, health, life, stock option, stock purchase,
restricted stock, tuition refund, service award, company car, scholarship,
relocation, disability, accident, sick, vacation, holiday, termination,
unemployment, individual employment, consulting, executive compensation,
incentive, commission, payroll practices, retention, change in control,
noncompetition, or other plan, agreement, policy, trust fund, or arrangement
(whether written or unwritten, insured or self-insured) (i) established,
maintained, sponsored, or contributed to (or with respect to which any
obligation to contribute has been undertaken) within the last six years by the
Company or any entity that would be deemed a "single employer" with the Company
under Section 414(b), (c), (m), or (o) of the Internal Revenue Code of 1986, as
amended (the "Code") or Section 4001 of ERISA (an "ERISA Affiliate") on behalf
of any employee, director, shareholder, or partner of the Company (whether
current, former, or retired) or their beneficiaries or (ii) with respect to
which the Company or any ERISA Affiliate has or has had within the past six
years any obligation on behalf of any such
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employee, director, shareholder or partner of the Company, or their
beneficiaries (each a "Plan" and, collectively, the "Plans"). With respect to
each Plan, true and complete copies, if applicable, of the documents embodying
or relating to the Plan, including, without limitation, each material
communication received by or furnished to the Company or any ERISA Affiliate
from the Internal Revenue Service ("IRS"), the Pension Benefit Guaranty
Corporation ("PBGC"), U.S. Department of Labor ("DOL"), or any other
governmental authority including, without limitation, the most recent
determination letter received from the IRS, have been made available to Buyer.
(b) Except as disclosed on Schedule 3.16(b), none of the Company,
any ERISA Affiliate, or any of their respective predecessors has ever
contributed to, contributes to, has ever been required to contribute to, or
otherwise participated in or participates in or in any way, directly or
indirectly, has any liability with respect to any plan subject to Section 412
of the Code, Section 302 of ERISA or Title IV of ERISA, including, without
limitation any, "multiemployer plan" (within the meaning of Sections (3)(37) or
4001(a)(3) of ERISA or Section 414(f) of the Code), or any single employer
pension plan (within the meaning of Section 4001(a)(15) of ERISA). The Company
has no liability and is not expected to incur any liability under Section 302
or Title IV of ERISA or Section 412 of the Code including, without limitation,
any liability for a reportable event under Section 4043(b) of ERISA, withdrawal
liability for a complete withdrawal (under Section 4203 of ERISA) or a partial
withdrawal (under Section 4205 of ERISA or an accumulated funding deficiency
(under Section 302 of ERISA or Section 412 of the Code), whether or not waived.
All premiums due to the Pension Benefit Guaranty Corporation by the Company and
any ERISA Affiliates have been paid on a timely basis. With respect to any
Plan, the present value of all benefit liabilities, whether or not vested,
under Section 4001(a)(16) of ERISA does not exceed the current fair market
value of assets of such Plan based on the most recent Plan actuarial valuation
using the methodology to calculate the projected benefit obligation under
Financial Accounting Standard Board SFAS No. 87 and no amendments or other
modifications have been made to such Plan or its actuarial assumptions since
the date of such Plan's most recent actuarial report.
(c) The Company, each ERISA Affiliate, each Plan, and each "plan
sponsor" (within the meaning of Section 3(16) of ERISA) of each "welfare
benefit plan" (within the meaning of Section 3(1) of ERISA) has complied in all
material respects with the requirements of Section 4980B of the Code and Title
I, Subtitle B, Part 6 of ERISA.
(d) With respect to each of the Plans identified on Schedule
3.16(a), except as described on such Schedule:
(i) each Plan intended to qualify under Section 401(a) of the
Code has been qualified since its inception and has received a determination
letter from the IRS that the Plan is qualified under Section 401 of the Code
and any trust maintained pursuant thereto is exempt from federal income
taxation under Section 501 of the Code and the Company is not aware of any
circumstances that have occurred or are likely to occur through the date of the
Closing that caused or could cause the loss of such qualification or exemption
or the imposition of any penalty or tax liability;
(ii) all payments required by any Plan, any collective
bargaining agreement or other agreement, or by law (including, without
limitation, all contributions, insurance premiums, or intercompany charges)
with respect to all periods through the date of the Closing shall have been
made prior to the Closing (on a pro rata basis where such payments are
otherwise discretionary at year end) or provided for by the Company as
applicable, by full accruals as if all targets required by such Plan had been
or will be met at maximum levels) on its financial statements;
(iii) no claim, lawsuit, arbitration or other action has been
threatened, asserted, instituted, or anticipated against the Plans (other than
non-material routine claims for benefits, and appeals of such claims), any
trustee or fiduciaries thereof, the Company, any ERISA Affiliate, any director,
officer, or employee thereof, or any of the assets of any trust of the Plans;
(iv) the Plan complies and has been maintained and operated in
all material respects in accordance with its terms and applicable law,
including, without limitation, ERISA and the Code;
(v) no "prohibited transaction," within the meaning of Section
4975 of the Code and Section 406 of ERISA, has occurred or is expected to occur
with respect to the Plan (and the consummation of the transactions contemplated
by this Agreement will not constitute or directly or indirectly result in such
a "prohibited transaction");
(vi) no Plan is or expected to be under audit or investigation
by the IRS, DOL, or any other governmental authority and no such completed
audit, if any, has resulted in the imposition of any tax or penalty;
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(vii) each Plan intended to meet requirements for tax-favored
treatment under any provision of the Code, including, without limitation,
Sections 79, 105, 106, 117, 120, 125, 127, 129, 132, 162(m), 404, 404A, 419,
419A, or 501(c)(9) of the Code satisfies the applicable requirements under the
Code in all material respects; and
(viii) with respect to each Plan that is funded mostly or
partially through an insurance policy, the Company has no liability in the
nature of retroactive rate adjustment, loss sharing arrangement or other actual
or contingent liability arising wholly or partially out of events occurring on
or before the Closing.
(e) The consummation of the transactions contemplated by this
Agreement will not give rise to any liability, including, without limitation,
liability for severance pay, unemployment compensation, termination pay, or
withdrawal liability, or accelerate the time of payment or vesting or increase
the amount of compensation or benefits due to any employee, director,
shareholder, or partner of the Company (whether current, former, or retired) or
their beneficiaries solely by reason of such transactions. No amounts payable
under any Plan will fail to be deductible for federal income tax purposes by
virtue of Sections 280G or 162(m) of the Code.
(f) The Company does not maintain, contribute to, or in any way
provide for any benefits of any kind whatsoever (other than under Section 4980B
of the Code, the Federal Social Security Act, or a plan qualified under Section
401(a) of the Code) to any current or future retiree or terminee.
(g) Neither the Company nor any officer or employee thereof, has
made any promises or commitments, whether legally binding or not, to create any
additional plan, agreement, or arrangement, or to modify or change any existing
Plan.
(h) No event, condition, or circumstance exists that could result
in an increase of the benefits provided under any Plan or the expense of
maintaining any Plan from the level of benefits or expense incurred for the
most recent fiscal year ended before the Closing.
(i) The Company has no unfunded liabilities pursuant to any Plan
that is not intended to be qualified under Section 401(a) of the Code.
(j) No event, condition, or circumstance exists that would
prevent the amendment or termination of any Plan.
Section 3.17 Labor Matters. (i) There are no controversies pending or,
to the knowledge of the Company or any of its Subsidiaries, threatened, between
the Company or any of its Subsidiaries and any of their respective employees
with respect to the Core Business; (ii) except as set forth on Schedule 3.17,
neither the Company nor any of its Subsidiaries is a party to, or bound by, any
collective bargaining agreement, contract or other understanding with a labor
union or labor organization with respect to the Core Business and, to the
knowledge of the Company, there is no activity involving any employees of the
Company or its Subsidiaries with respect to the Core Business seeking to
certify a collective bargaining unit or engaging in any other organizational
activity; and (iii) neither the Company nor any of its Subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of the Company and any of its
Subsidiaries with respect to the Core Business.
Section 3.18 Environmental Laws and Regulations.
(a) All references in this Section 3.18 to the Company or to the
Core Business shall include the Company's Subsidiaries, and all predecessors
thereto, and any person or entity the liabilities of which, pursuant to
applicable federal, state, local or common law, rule, regulation, ordinance,
code, order or judgment (including any judicial or administrative
interpretations, guidances, directives, policy statements or opinions) relating
to the injury to, or the pollution or protection of human health and safety or
the Environment ("Environmental Laws"), contractually, by common law, by
operation of law or otherwise, the Company or the Core Business may have
succeeded to.
(b) All of the current and past operations of the Company and the
Real Property, including any operations at or from any Real Property presently
or formerly owned, used, leased, occupied, managed or operated by the Company,
(collectively, the "Real Property"), substantially comply and have at all times
substantially complied with all applicable Environmental Laws, except for past
noncompliance that has been cured and does not result in the imposition of any
present or future liability or obligation. The Company has not engaged in,
authorized, allowed or suffered any operations or activities upon any of the
Real Property for the purpose of or in any way
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involving the release, discharge, spilling, emission, dumping or disposal of
any petroleum, petroleum products, petroleum-derived substances, radioactive
materials, hazardous wastes, polychlorinated biphenyls, lead based paint,
radon, urea formaldehyde, asbestos or any materials containing asbestos, and
any materials or substances regulated or defined as or included in the
definition of "hazardous substances," "hazardous materials," "hazardous
constituents," "toxic substances," "pollutants," "contaminants" or any similar
denomination intended to classify or regulate substances by reason of toxicity,
carcinogenicity, ignitability, corrosivity or reactivity under any
Environmental Law ("Hazardous Substances") at, on, under or from the Real
Property, in violation of any applicable Environmental Laws, except for
releases, discharges, spills, emissions, dumpings or disposal which have been
cleaned up in compliance with the requirements of the Environmental Laws.
(c) Neither the Company's assets nor the Real Property contain
any Hazardous Substances in, on, over, under or at it, in concentrations which
would presently violate any applicable Environmental Laws or would be
reasonably likely to result in the imposition of liability or obligations on
the present or former owner, manager, or operator of the Real Property under
any applicable Environmental Laws, including any liability or obligations for
the investigation, corrective action, remediation or monitoring of Hazardous
Substances in, on, over, under or at the Real Property, except as set forth on
Schedule 3.18(f) hereto.
(d) None of the Real Property is listed or proposed for listing
on the National Priorities List pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. [0015] 9601 et
seq., or any similar inventory of sites requiring investigation or remediation
maintained by any state or locality as a site requiring future investigation or
remediation. The Company has not received any notice, whether oral or written,
from any governmental entity or third party of any actual or threatened claims,
judgments, damages (including punitive damages), losses, penalties, fines,
liabilities, encumbrances, liens, violations, costs and expenses (including
attorneys' and consultants' fees) of investigation, remediation, monitoring or
defense of any matter relating to human health, safety or any surface or
subsurface physical medium or natural resource, including, air, land, soil,
surface waters, ground waters, stream and river sediments, biota and any indoor
area, surface or physical medium (the "Environment") of whatever kind or nature
by any party, entity or authority, (i) which have been incurred as a result of
(x) the existence of a release of Hazardous Substances in, on, under, at or
emanating from any Real Property, (y) the offsite transportation, treatment,
storage or disposal of Hazardous Substances generated by the Company (z) the
violation of any Environmental Laws, except as set forth on Schedule 3.15 and
Schedule 3.18(f) hereto or (ii) which arise under the Environmental Laws
("Environmental Liabilities") with respect to the Company's business, assets or
Real Property.
(e) There are no underground storage tanks, asbestos or asbestos
containing materials, polychlorinated biphenyls, urea formaldehyde, or other
Hazardous Substances (other than small quantities of Hazardous Substances and
permitted waste fuels for use in the ordinary course of the business of the
Company, which are stored and maintained in accordance and in full compliance
with all applicable Environmental Laws) in, on, over, under or at any Real
Property in forms or quantities requiring investigation or remediation under
the Environmental Laws, except as set forth on Schedule 3.18(e) and Schedule
3.18(f) hereto.
(f) There are no conditions existing at any Real Property or with
respect to the assets or business of the Core Business that require, or which
with the giving of notice or the passage of time or both will reasonably likely
require remedial or corrective action, removal, monitoring or closure pursuant
to the Environmental Laws, except as set forth on Schedule 3.18(f). There are
no conditions associated with the Spin-Off Entity or the Noncore Business which
are reasonably likely to result in the imposition of liability or obligation in
excess of $100,000, individually or in the aggregate or that exceed the levels
of financial assurance currently required to be maintained pursuant to the
Environmental Laws or which will be required to be maintained by the Spin-Off
Entity, except for the corrective action obligations of Florida Solite Company,
concerning which the Company has disclosed all significant information to the
Parent and which is solely the obligation of the Spin-Off Entity.
(g) The Core Business has all the permits, licenses,
authorizations and approvals necessary for the conduct of its Business and for
the operations on, in or at the Real Property (the "Environmental Permits"),
which are required under applicable Environmental Laws. The Core Business is in
substantial compliance with the terms and conditions of all such Environmental
Permits, and, to the best knowledge of the Company, no reason exists why Parent
would not be capable of continued operation of the Core Business in substantial
compliance with the Environmental Permits and the applicable Environmental
Laws.
(h) The Company has provided or made available to and which have
been reviewed by Parent all environmental assessments, audits, studies and
investigations created or performed within the five years prior to
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the date of this Agreement and current Environmental Permits and has provided
reasonable access to all environmental data, reports and other written
environmental information in its custody, possession or control concerning the
assets or business of the Core Business and the Real Property.
(i) The Company has not contractually, by operation of law, by
the Environmental Laws, by common law or otherwise assumed or succeeded to any
Environmental Liabilities of any predecessors or any other person or entity,
except as set forth on Schedule 3.18(i).
(j) None of the items listed on Schedules 3.15, 3.18(e), (f) or
(i) has, or is reasonably likely to have a Company Material Adverse Effect.
Section 3.19 Restrictions on Business Activities. Except for this
Agreement and as set forth on Schedule 3.19, there is no material agreement,
judgement, injunction, order or decree binding upon the Core Business which has
or could reasonably be expected to have (after giving effect to the
consummation of the Spin-Off and the Merger) the effect of prohibiting or
materially impairing the business practice of the Company or any of its
Subsidiaries with respect to the Core Business, acquisition of property by the
Company or any of its Subsidiaries with respect to the Core Business or the
conduct of the Core Business as currently conducted or as proposed to be
conducted by the Company.
Section 3.20 Vote Required. The approval of the Merger and approval of
the conversion of Company Preferred Stock to Company Common Stock by (i) the
affirmative vote of more than two-thirds of the votes that holders of the
outstanding Company Common Stock and Company Preferred Stock are entitled to
cast and (ii) the affirmative vote of more than two-thirds of the votes that
the holders of the outstanding Company Common Stock, Company Series A Preferred
Stock, Company Series B Preferred Stock and Company Series C Preferred Stock,
each voting as a separate voting group, are entitled to cast, and the approval
of the conversion of Company Preferred Stock to Company Common Stock by the
affirmative vote of a majority of the votes that holders of outstanding Company
Common Stock and Company Preferred Stock, other than John W. Roberts and his
family, are entitled to cast are the only votes of the holders of any class or
series of the Company's capital stock necessary to approve the Spin-Off, the
Merger and the other transactions contemplated hereby.
Section 3.21 Registration Statement; Proxy Statement. The information
provided and to be provided by the Company for use in the Proxy Statement
relating to the meeting of the Company's shareholders to be held in connection
with the Merger (the "Proxy Statement"), on the date it is first mailed to the
Company's shareholders and on the date of the Special Meeting (as defined), and
in the Registration Statement on Form S-4 pursuant to which the Parent Common
Stock will be issued in the Merger (the "Registration Statement") and the
related Prospectus (such Prospectus, in the form filed by Parent pursuant to
Rule 424(b) under the Securities Act, or, if no filing is made pursuant to Rule
424(b) under the Securities Act, in the form contained in the Registration
Statement declared effective by the Securities and Exchange Commission (the
"Commission"), being herein called the "Prospectus"), on the date the
Registration Statement is declared effective shall not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Company shall notify the Parent promptly of
the receipt of any comments by the Commission and of any request by the
Commission for amendments or supplements to the Proxy Statement or the
Registration Statement or for additional information, and shall supply the
Parent with copies of all correspondence with the Commission with respect to
any of the foregoing. If at any time prior to the Special Meeting, any event
should occur relating to the Company, its Subsidiaries or any of their
respective affiliates, directors or officers which should be described in an
amendment or supplement to the Proxy Statement or Registration Statement, the
Company shall promptly inform the Parent. Whenever any event occurs which
should be described in an amendment or supplement to the Proxy Statement or
Registration Statement, the Company shall upon learning of such event,
cooperate with the Parent to promptly file and clear with the Commission and,
if applicable, mail such amendment or supplement to the shareholders of the
Company.
Section 3.22 Affiliate Transactions. Except as set forth in Schedule
3.22, there are no material Contracts or other transactions between the Company
or any of its Subsidiaries, on the one hand, and any (i) officer, director or
shareholder of the Company or any of its Subsidiaries or (ii) affiliate (as
such term is defined in Regulation 12b-2 promulgated under the Exchange Act) of
any such officer, director or shareholder, on the other hand.
Section 3.23 Opinion of Financial Advisor. The Company has been orally
advised by its financial advisor, Co-View Capital, Inc., that in its opinion,
as of the date hereof, the consideration to be received by holders of the
Company Common Stock in the Merger is fair from a financial point of view to
such holders.
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Section 3.24 Brokers. No broker, finder or financial advisor (other than
Co-View Capital, Inc. and Ferris, Baker Watts Incorporated) is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Company. The Company has previously furnished to the Parent
a complete and correct copy of all agreements between the Company and Co-View
Capital, Inc. and Ferris, Baker Watts Incorporated pursuant to which such firm
would be entitled to any payment relating to the transactions contemplated
hereunder.
Section 3.25 Ruling Request. The information (other than that relating
to the Parent and Acquisition Sub) set forth in the request for private letter
ruling with regard to the Spin-Off ("PLR") that has been filed with the
Internal Revenue Service (the "Service") on behalf of the Company, and all
information (other than that relating to the Parent and the Acquisition Sub)
subsequently submitted to the Service in support of the request for that PLR,
includes all the relevant facts relating to the request and such facts are
true, correct and complete.
Section 3.26 Full Disclosure. No statement contained in any certificate
or schedule furnished or to be furnished by the Company or its Subsidiaries to
the Parent or the Acquisition Sub in, or pursuant to the provisions of, this
Agreement contains or shall contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in the light of the
circumstances under which it is made, to make the statements herein or therein
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT
AND THE ACQUISITION SUB
The Parent and the Acquisition Sub represent and warrant to the Company
as follows:
Section 4.1 Organization. The Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power to carry on its business as it is now being
conducted or presently proposed to be conducted. The Parent is duly qualified
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities make such qualification necessary, except where
the failure to be so qualified will not have a material adverse effect
individually or in the aggregate, on the financial condition, results of
operations, business, assets, liabilities, or properties of the Parent and its
Subsidiaries taken as a whole or on the ability of the Parent to consummate the
Merger and the other transactions contemplated by this Agreement (a "Parent
Material Adverse Effect"). The Acquisition Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Acquisition Sub has not engaged in any business (and will not engage in any
business) (other than in connection with this Agreement and the transactions
contemplated hereby) since the date of its formation.
Section 4.2 Capitalization.
(a) The authorized capital stock of the Parent consists of
20,000,000 shares of Parent Common Stock and 2,000,000 shares of preferred
stock, par value $0.01 per share ("Parent Preferred Stock"). As of the date
hereof, (i) 9,421,082 shares of the Parent Common Stock were issued and
outstanding and (ii) options to acquire 477,375 shares of Parent Common Stock
were outstanding under all stock option plans of the Parent. As of the date
hereof, no shares of the Parent Preferred Stock were issued and outstanding.
All of the outstanding shares of the Parent Common Stock are, and the shares of
Parent Common Stock issuable in exchange for shares of Company Common Stock at
the Effective Time in accordance with this Agreement will be, when so issued,
duly authorized, validly issued, fully paid and nonassessable.
(b) All of the outstanding capital stock of the Acquisition Sub
is owned by the Parent, and are validly issued, fully paid and nonassessable.
(c) Except for options to purchase 472,000 shares of Parent
Common Stock, (i) there is no outstanding right, subscription, warrant, call,
option or other agreement or arrangement of any kind to purchase or otherwise
to receive from the Parent or any of its subsidiaries any of the outstanding
authorized but unissued or treasury shares of the capital stock or any other
security of the Parent or any of its subsidiaries, (ii) there is no outstanding
security of any kind convertible into or exchangeable for such capital stock
and (iii) there is no voting trust or other agreement or understanding to which
the Parent or any of its subsidiaries is a party or is bound with respect to
the voting of the capital stock of the Parent of any of its subsidiaries.
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Section 4.3 Authority Relative to this Agreement. Each of the Parent and
the Acquisition Sub has the requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by each of the Parent and
the Acquisition Sub and the consummation by the Parent and the Acquisition Sub
of the transactions contemplated on its part hereby has been duly authorized by
the Board of Directors of the Parent and the Acquisition Sub, respectively, and
no other corporate proceedings on the part of the Parent or the Acquisition Sub
are necessary to authorize this Agreement or for the Parent and the Acquisition
Sub to consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by each of the Parent and the
Acquisition Sub and constitutes a valid and binding agreement of each of the
Parent and the Acquisition Sub, enforceable against the Parent and the
Acquisition Sub in accordance with its terms.
Section 4.4 Certificate of Incorporation and By-laws. The Parent has
heretofore furnished to the Company a complete and correct copy of its
certificate of incorporation and by-laws, as amended to date. Such certificate
of incorporation and by-laws are in full force and effect. The Parent is not in
violation of any of the provisions of its certificate of incorporation or
by-laws. The Acquisition Sub has heretofore furnished the Company a complete
and correct copy of its certificate of incorporation and by-laws, as amended to
date. Such certificate of incorporation and by-laws are in full force and
effect. The Acquisition Sub is not in violation of any of the provisions of its
certificate of incorporation or by-laws.
Section 4.5 Consents and Approvals; No Violations. Neither the
execution, delivery and performance of this Agreement by the Parent or the
Acquisition Sub, nor the consummation by the Parent or the Acquisition Sub of
the transactions contemplated hereby will (i) conflict with or result in any
breach of any provisions of the certificate of incorporation or by-laws of the
Parent or the Acquisition Sub, (ii) require a filing with, or a permit,
authorization, consent or approval of, any Governmental Entity except in
connection with or in order to comply with the applicable provisions of the HSR
Act, the Securities Act, the Exchange Act, state securities or "blue sky" laws,
the By-Laws of the National Association of Securities Dealers, and the filing
of Articles of Merger as required by the VSCA, (iii) except as set forth on
Schedule 4.5, result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, or result in the
creation of a Lien on any property or asset of the Parent or any of its
subsidiaries pursuant to, any of the terms, conditions or provisions of any
material Contract to which the Parent or the Acquisition Sub is a party or by
which either of them or any of their properties or assets may be bound or (iv)
violate any law, order, writ, injunction, decree, statute, rule or regulation
of any Governmental Entity applicable to the Parent, the Acquisition Sub or any
of their properties or assets.
Section 4.6 Reports and Financial Statements. The Parent has timely
filed all reports required to be filed with the Commission pursuant to the
Exchange Act or the Securities Act (collectively, the "Parent SEC Reports"),
and has previously made available to the Company true and complete copies of
all such Parent SEC Reports. Such Parent SEC Reports, as of their respective
dates, complied in all material respects with the applicable requirements of
the Securities Act and the Exchange Act, as the case may be, and none of such
Parent SEC Reports contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Parent included in the Parent
SEC Reports have been prepared in accordance with GAAP consistently applied
throughout the periods indicated (except as otherwise noted therein or, in the
case of unaudited statements, as permitted by applicable law) and fairly
present (subject, in the case of unaudited statements, to normal, recurring
year-end adjustments and any other adjustments described therein) the
consolidated financial position of the Parent and its consolidated subsidiaries
as of the dates thereof and the consolidated results of operations and cash
flows of the Parent and its consolidated subsidiaries for the periods then
ended.
Section 4.7 Restrictions on Business Activities. Except for this
Agreement, there is no material agreement, judgement, injunction, order or
decree binding upon the Parent or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially
impairing the business practice of the Parent or any of its subsidiaries,
acquisition of property by the Parent or any of its subsidiaries or the conduct
of business by the Parent or any of its subsidiaries as currently conducted or
as proposed to be conducted by the Parent.
Section 4.8 No Stockholder Vote. No vote of the shareholders of the
Parent is necessary to approve the Merger or the issuance of Parent Common
Stock therein.
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Section 4.9 Registration Statement; Proxy Statement. The information
provided and to be provided by the Parent and the Acquisition Sub for use in
the Proxy Statement, on the date the preliminary Proxy Statement is filed with
the Commission, on the date it is first mailed to the Company's shareholders
and on the date of the Special Meeting (as defined), and in the Registration
Statement and the related Prospectus, on the date the Registration Statement is
declared effective shall not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made not
misleading. The Parent and the Acquisition Sub shall notify the Company
promptly of the receipt of any comments by the Commission and of any request by
the Commission for amendments or supplements to the Proxy Statement or the
Registration Statement or for additional information, and shall supply the
Company with copies of all correspondence with the Commission with respect to
any of the foregoing. If at any time prior to the Special Meeting, any event
should occur relating to the Parent or the Acquisition Sub or their respective
affiliates, directors or members, as the case may be, or officers which should
be described in an amendment or supplement to the Proxy Statement or
Registration Statement, the Parent shall promptly inform the Company. Whenever
any event occurs which should be described in an amendment or supplement to the
Proxy Statement or Registration Statement, the Parent shall upon learning of
such event, cooperate with the Company to promptly file and clear with the
Commission and, if applicable, mail such amendment or supplement to the
shareholders of the Company.
Section 4.10 Absence of Certain Changes or Events. Since June 30, 1997,
there has not been any fact, event, circumstance or other changes affecting or
relating to the Parent or any of its subsidiaries which has had or is
reasonably likely to have a Parent Material Adverse Effect.
Section 4.11 Ruling Request. The information set forth in the PLR with
regard to the Spin-Off relating to the Parent or the Acquisition Sub or the
Merger that has been filed with the Service, and all information relating to
the Parent or the Acquisition Sub or the Merger subsequently submitted to the
Service in support of the request for the PLR, includes all such relevant facts
and such facts are true, correct and complete.
Section 4.12 Brokers. No broker, finder or financial advisor is entitled
to any brokerage finder's or other fee or commission in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or the Acquisition Sub.
Section 4.13 Full Disclosure. No statement contained in any certificate
or schedule furnished or to be furnished by the Parent or the Acquisition Sub
to the Company in, or pursuant to the provisions of, this Agreement contains or
shall contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary, in the light of the circumstances under
which it is made, to make the statements herein or therein not misleading.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1 Conduct of Business by the Company Pending the Merger. After
the date of this Agreement and prior to the Effective Time, unless the Parent
shall otherwise agree in writing, or as otherwise expressly contemplated by
this Agreement:
(a) Except in connection with the Spin-Off, the Company shall
conduct, and cause each of its Subsidiaries to conduct, its business only in
the ordinary and usual course consistent with past practice, and the Company
shall use, and cause each of its Subsidiaries to use, its reasonable efforts to
preserve intact the present business organization, keep available the services
of its present officers and key employees, and preserve the goodwill of those
having business relationships with it;
(b) except in connection with the recapitalization involving the
exchange of the Company Preferred Stock for the Company Common Stock (the
"Conversion") and the Spin-Off, the Company shall not, nor shall it permit any
of its Subsidiaries to, (i) amend its articles of incorporation, bylaws or
other organizational documents, (ii) split, combine or reclassify any shares of
its outstanding capital stock, (iii) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property (other than as required
in order to accomplish the Spin-Off), or (iv) except as otherwise required by
the existing agreements with certain stockholders, which agreements and
stockholders are listed on Schedule 5.1(b) hereto, directly or indirectly
redeem or otherwise acquire any shares of
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its capital stock or shares of the capital stock of any of its Subsidiaries
other than as described in the request for the PLR;
(c) the Company shall not, nor shall it permit any of its
Subsidiaries to, (i) except in connection with the Conversion, the Spin-Off and
the Noncore Business, authorize for issuance, issue or sell or agree to issue
or sell any shares of, or Rights to acquire or convertible into any shares of,
its capital stock or shares of the capital stock of any of its Subsidiaries
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise); (ii) except in connection with
the Spin-Off and the Noncore Business, merge or consolidate with another
entity; (iii) except in connection with the Spin-Off and the Noncore Business,
acquire or purchase an equity interest in or a substantial portion of the
assets of another corporation, partnership or other business organization or
otherwise acquire any assets outside the ordinary and usual course of business
and consistent with past practice or otherwise enter into any material
contract, commitment or transaction outside the ordinary and usual course of
business consistent with past practice; (iv) except in connection with the
Spin-Off and the Noncore Business, sell, lease, license, waive, release,
transfer, encumber or otherwise dispose of any of its assets outside the
ordinary and usual course of business and consistent with past practice; (v)
incur, assume or prepay any material indebtedness or any other material
liabilities other than in the ordinary course of business and consistent with
past practice; (vi) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations
of any other person; (vii) make any loans, advances or capital contributions
to, or investments in, any other person, other than to Subsidiaries of the
Company; (viii) authorize or make capital expenditures in excess of the amounts
currently budgeted therefor; (ix) permit any insurance policy naming the
Company or any Subsidiary of the Company as a beneficiary or a loss payee to be
canceled or terminated other than in the ordinary course of business; or (x)
except in connection with the Conversion, the Spin-Off and the Noncore
Business, enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing;
(d) the Company shall not, nor shall it permit its Subsidiaries
to, (i) adopt, enter into, terminate or amend (except as may be required by
Applicable Law) any Company Plan or other arrangement for the current or future
benefit or welfare of any director, officer or current or former employee, (ii)
except as set forth on Schedule 5.1(d), increase in any manner the compensation
or fringe benefits of, or pay any bonus to, any director, officer or employee
(except for normal increases in salaried compensation in the ordinary course of
business consistent with past practice), or (iii) take any action to fund or in
any other way secure, or to accelerate or otherwise remove restrictions with
respect to, the payment of compensation or benefits under any employee plan,
agreement, contract, arrangement or other Company Plan;
(e) the Company shall not, nor shall it permit its Subsidiaries
to, take any action with respect to, or make any material change in, its
accounting or tax policies or procedures, except as required by law or to
comply with GAAP;
(f) the Company shall not, nor shall it permit its Subsidiaries
to, take any action, other than as required by GAAP, to change accounting
policies or procedures or cash maintenance policies or procedures (including,
without limitation, procedures with respect to revenue recognition,
capitalization of development costs, payments of accounts payable and
collection of accounts receivable;
(g) the Company shall not, nor shall it permit its Subsidiaries
to, pay, discharge, settle, or satisfy any lawsuits, 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 asserted against in the financial statements of the Company or incurred in
the ordinary course of business and consistent with past practice;
Section 5.2 Conduct of Business by the Parent Pending the Merger. Prior
to the Effective Time, unless the Company shall otherwise first agree in
writing, or as otherwise expressly contemplated by this Agreement, neither the
Parent nor the Acquisition Sub shall knowingly take any action or fail to take
any action that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code or the
qualification of the Spin-Off under Section 368(a)(1)(D) and Section 355 of the
Code.
Section 5.3 Conduct of Business of the Acquisition Sub. During the
period from the date of this Agreement to the Effective Time, the Acquisition
Sub shall not engage in any activities of any nature except as provided in or
contemplated by this Agreement. It is understood that the Acquisition Sub was
formed by the Parent
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solely for the purpose of effecting the Merger, and that the Acquisition Sub
will have no material assets and no material liabilities prior to the Merger.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Registration Statement; Proxy Statement.
(a) As promptly as practicable after the execution of this
Agreement, the Company and the Parent shall prepare and file with the
Commission the Registration Statement, which shall include a preliminary
Prospectus with respect to the Parent Common Stock to be issued in connection
with the Merger. As promptly as practicable after comments are received from
the Commission with respect to the Registration Statement and after the
furnishing by the Company and the Parent of all information required to be
contained therein (including, without limitation, financial statements and
supporting schedules and certificates and reports of independent public
accountants), the Parent and the Company shall use their best efforts to cause
the Registration Statement to become effective as soon thereafter as
practicable. The definitive Proxy Statement shall contain the opinion of
Co-View Capital, Inc. referred to in Section 6.19; provided, that such opinion
shall be brought down to and dated a date not more than two business days prior
to the date of the Proxy Statement.
(b) The Company shall cause the Proxy Statement to be mailed to
the shareholders of the Company and, if necessary, after the Proxy Statement
shall have been mailed, promptly circulate amended, supplemental or
supplemented proxy materials and, if required in connection therewith,
resolicit proxies.
(c) The Parent and the Company shall make all necessary filings
with respect to the Merger under the Securities Act and the Exchange Act and
the rules and regulations thereunder and under applicable blue sky or similar
laws and shall use their best efforts to obtain required approvals and
clearances with respect thereto.
Section 6.2 Company Stockholder Approval; Recommendation. The Company,
acting through its Board of Directors, shall (i) call a special meeting of the
shareholders of the Company for the purpose of voting upon this Agreement and
the Merger (the "Special Meeting") and (ii) include in the Proxy Statement the
recommendation of its Board of Directors that shareholders of the Company
approve and adopt this Agreement and approve the Merger.
Section 6.3 Agreements with Employee Shareholders. The Company shall use
its reasonable best efforts to terminate as of the Effective Time the agreement
with each of the persons listed on Schedule 5.1(b) hereto, the form of which
agreement is attached to such Schedule.
Section 6.4 Access and Information.
(a) Each of the Company and the Parent shall (and shall cause its
Subsidiaries and its and their respective officers, directors, employees,
auditors and agents to) permit the other and the other's officers, employees,
financial advisors, legal counsel, accountants, consultants and other
representatives to conduct an investigation and evaluation of such party (other
than the Noncore Business (except to the extent reasonably necessary to confirm
that all Core Business assets have been transferred with the Core Business and
that all liabilities of the Noncore Business have been transferred in the
Spin-Off)), will provide such assistance in connection therewith as is
reasonably requested and will give access at reasonable times throughout the
period prior to the Effective Time to the relevant books, records, properties,
facilities, employees and business of such party, provided that no
investigation pursuant to this Section 6.4 shall affect any representations or
warranties made herein or the conditions to the obligations of the respective
parties to consummate the Merger. Unless otherwise required by law, each party
agrees that it (and its Subsidiaries and its and their respective
representatives) shall hold in confidence all non-public information so
acquired.
(b) The Parent shall have the right to retain an environmental
consultant reasonably acceptable to the Company to undertake further
environmental assessment of the Real Property, the Company's business and
assets, including a Phase II assessment. The Phase II assessment may involve,
among other things, intrusive sampling and testing of the soil and groundwater,
integrity testing of any underground storage tanks, an asbestos survey, and
radon testing. The Company shall provide complete and unfettered access to its
business, assets and the Real Property, for the conduct of the environmental
assessments, and shall provide to the environmental consultant all known and
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available information and documentation concerning any environmental matters
pertaining to the Company's business, assets and the Real Property.
Section 6.5 No Solicitation.
(a) Prior to the Effective Time, the Company agrees that neither
it, any of its Subsidiaries or its affiliates, nor any of the respective
directors, officers, employees, agents or representatives of the foregoing
will, directly or indirectly, solicit, initiate, facilitate or encourage
(including by way of furnishing or disclosing non-public information) any
inquiries or the making of any proposal with respect to any merger,
consolidation or other business combination involving the Core Business or the
acquisition of capital stock of the Company or any Subsidiary constituting part
of the Core Business or all or any significant assets of the Core Business (an
"Acquisition Transaction") or negotiate, explore or otherwise engage in
discussions with any person (other than the Parent and its representatives)
with respect to any Acquisition Transaction or enter into any agreement,
arrangement or understanding with respect to any such Acquisition Transaction
or which would require it to abandon, terminate or fail to consummate the
Merger or any other transaction contemplated by this Agreement provided,
however, that the Company may, in response to an unsolicited written proposal
from a third party with respect to an Acquisition Transaction, furnish
information to and engage in discussions with such third party, in each case
only if the Board of Directors of the Company determines in good faith by a
majority vote, after consultation with its financial advisors and based upon
the advice of outside counsel to the Company, that failing to take such action
would result in a breach of the fiduciary duties of the Board of Directors and,
prior to taking such action, the Company (i) provides reasonable notice to
Parent to the effect that it is taking such action and (ii) receives from such
corporation, partnership, person or other entity or group (and delivers to
Parent) an executed confidentiality agreement in reasonably customary form. The
Company agrees that as of the date hereof, it, its Subsidiaries and affiliates,
and the respective directors, officers, employees, agents and representatives
of the foregoing, shall immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any person (other than
the Parent and its representatives) conducted heretofore with respect to any
Acquisition Transaction. The Company agrees to immediately advise Parent in
writing of any inquiries or proposals (or desire to make a proposal) received
by (or indicated to), any such information requested from, or any such
negotiations or discussions sought to be initiated or continued with, any of
it, its Subsidiaries or affiliates, or any of the respective directors,
officers, employees, agents or representatives of the foregoing, in each case
from a person (other than the Parent and its representatives) with respect to
an Acquisition Transaction, and the terms thereof, including the identity of
such third party, and to update on an ongoing basis or upon the Parent's
request, the status thereof, as well as any actions taken or other developments
pursuant to this Section 6.5.
(b) Except as set forth in this Section 6.5(b), the Board of
Directors of the Company shall not (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to the Parent or the Sub, the approval
or recommendation by the Board of Directors of this Agreement or the Merger,
(ii) approve or recommend, or propose to approve or recommend, any Acquisition
Transaction or (iii) cause the Company to enter into any agreement with respect
to any Acquisition Transaction. Notwithstanding the foregoing, in the event
that prior to the Effective Time the Board of Directors of the Company
determines in its good faith reasonable judgment, by a majority vote, after
consultation with its financial advisors, that the Acquisition Transaction is
more favorable to the stockholders of the Company than the Merger and, based
upon the advice of outside counsel to the Company, that such action is required
by the fiduciary duties of the Board of Directors, the Board of Directors of
the Company may withdraw or modify its approval or recommendation of this
Agreement and the Merger, approve or recommend such Acquisition Transaction or
(subject to Section 8.2(b)) cause the Company to enter into an agreement with
respect to such Acquisition Transaction, but only if the Company gives Parent
at least five business days' prior written notice thereof, during which time
Parent may make, and, in such event, the Company shall in good faith consider,
a counter proposal to such Acquisition Transaction.
Section 6.6 Reasonable Best Efforts. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including, without limitation, obtaining of all necessary
waivers, consents and approvals and the effecting of all necessary
registrations and filings. Without limiting the generality of the foregoing, as
promptly as practicable, the Company, the Parent and the Acquisition Sub shall
make all filings and submissions under the HSR Act as may be reasonably
required to be made in connection with this Agreement and the transactions
contemplated hereby. The Company will furnish to the Parent and the Acquisition
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Sub, and the Parent and the Acquisition Sub will furnish to the Company, such
information and assistance as the other may reasonably request in connection
with the preparation of any such filings or submissions.
Section 6.7 Consents; Approvals. The Company and the Parent shall each
use their best efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all United States and
foreign governmental and regulatory approvals), and the Company and the Parent
shall make all filings (including, without limitation, all filings with United
States or foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the Company
and the Parent and the consummation by them of the transactions contemplated
hereby.
Section 6.8 Board of Directors. At the Closing, the Parent shall cause
John W. Roberts to be elected a director of the Parent. Mr. Roberts's sole
compensation from the Parent will be the Parent's standard directors' fees as
specified in the Parent's Proxy Statement.
Section 6.9 Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement (including the
Exhibits and Schedules hereto) and the transactions contemplated hereby (and
thereby) shall be paid by the party incurring such expenses. Notwithstanding
the foregoing, all costs and expenses incurred in connection with the Spin-Off
shall be paid by the Spin-Off Entity.
Section 6.10 Public Announcements. Each of the Parent, the Acquisition
Sub, and the Company agrees that it will not issue any press release or
otherwise make any public statement with respect to this Agreement (including
the Exhibits and Schedules hereto) or the transactions contemplated hereby (or
thereby) without the prior consent of the other party, which consent shall not
be unreasonably withheld or delayed; provided, however, that such disclosure
can be made without obtaining such prior consent if (i) the disclosure is
required by law or by obligations imposed pursuant to any listing agreement
with any national securities exchange and (ii) the party making such disclosure
has first used its reasonable best efforts to consult with (but not obtain the
consent of) the other party about the form and substance of such disclosure.
Section 6.11 Supplemental Disclosure. The Company shall give prompt
notice to the Parent, and the Parent shall give prompt notice to the Company,
of (i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause (x) any representation or
warranty contained in this Agreement to be untrue or inaccurate or (y) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied and (ii) any failure of the Company or the Parent, as the
case may be, 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 6.11 shall not have any effect
for the purpose of determining the satisfaction of the conditions set forth in
Article VII of this Agreement or otherwise limit or affect the remedies
available hereunder to any party.
Section 6.12 Agreements of Affiliates. Schedule 6.12 delivered by the
Company to the Parent identifies "Affiliates" of the Company for purposes of
Rule 145 under the Securities Act. The Company shall use its best efforts to
cause each such Affiliate to deliver to the Parent prior to the Closing Date a
written agreement substantially in the form of Exhibit D hereto.
Section 6.13 Agreements of Shareholders of Northeast. The Company shall
use its reasonable best efforts to cause each of the holders of at least 1.0%
of the total outstanding shares of capital stock of the Spin-Off Entity to be
issued in connection with the Spin-Off to deliver to the Parent prior to the
Closing Date a written agreement substantially in the form of Exhibit E hereto.
Section 6.14 Agreements of Shareholders of the Company. The Company
shall use its reasonable best efforts to cause each of the holders of at least
1.0% of the total outstanding shares of Parent Common Stock to be issued in
connection with the Merger to deliver to the Parent prior to the Closing Date a
written agreement substantially in the form of Exhibit F hereto.
Section 6.15 Agreement of Spin-Off Entity. The Company shall cause the
Spin-Off Entity to deliver to the Parent prior to the Closing Date a written
agreement substantially in the form of Exhibit G hereto pursuant to which the
Spin-Off Entity will (i) agree not to take any action inconsistent with the PLR
request made to the Service and the PLR issued in response thereto, including
but not limited to, for a period of one year from and after the Effective Time
discontinuing or substantially reducing its level of operation at its
lightweight aggregate
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plant located in New York, and (ii) agree not to solicit or otherwise interfere
with the employment relationship between the Company and its employees.
Section 6.16 Ruling Request. The Parent and the Company shall use their
best efforts to cause additional information requested by the Service in
connection with the PLR to be submitted promptly to the Service and to cause
the requested PLR to be issued. The Company shall permit counsel for the Parent
to participate in the preparation of all additional submissions to the Service
in support of the PLR and to participate fully in all proceedings before the
Service with respect to the PLR and cause such counsel to be promptly provided
with copies of all correspondence from the Service with respect to the PLR and
of the PLR.
Section 6.17 Conversion of Company Preferred Stock. Immediately prior to
the Effective Time, the Company shall use its reasonable best efforts to cause
all outstanding shares of the Company Preferred Stock to be converted into
Company Common Stock and following that conversion the former holders of the
Company Preferred Stock shall have no rights against the Company with respect
to that stock.
Section 6.18 Proxy Agreement. The Company shall use its reasonable best
efforts to cause the shareholders of the Company listed on Schedule B-2 to
execute and deliver to the Parent an agreement in the form of Exhibit A within
10 days of the date of this Agreement.
Section 6.19 Opinion of Financial Advisor. The Company shall use its
reasonable best efforts to cause its financial advisor, Co-View Capital, Inc.,
to deliver a written copy of its opinion that the consideration to be received
by the holders of the Company's Common Stock in the Merger is fair from a
financial point of view to such holders, to the Parent within 10 days of the
date of this Agreement.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Approval of Shareholders. This Agreement, the Merger and related
transactions shall have been approved and adopted by the requisite vote or
consent of the shareholders of the Company in accordance with applicable
law and the Company's articles of incorporation and by-laws.
(b) Effectiveness of Registration Statement. The Registration Statement
shall have become effective in accordance with the provisions of the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(c) HSR Approval. Any waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated, and no
action shall have been instituted by the Department of Justice or Federal
Trade Commission challenging or seeking to enjoin the consummation of this
transaction, which action shall have not been withdrawn or terminated.
(d) No Order. No Governmental Entity (including a federal or state
court) of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which materially restricts, prevents or
prohibits consummation of the Merger or any transaction contemplated by
this Agreement; provided, however, that the parties shall use their
reasonable best efforts to cause any such decree, judgment, injunction or
other order to be vacated or lifted.
(e) Opinion of Counsel. The Parent, the Acquisition Sub or the Company
shall not have obtained an opinion from counsel to the effect that as a
result of a change in law the Spin-Off will no longer qualify as a
reorganization within the meaning of Section 368(a) of the Code.
(f) IRS Ruling. The Company shall have obtained a ruling from the
Service, in form and substance satisfactory to counsel for the Company and
the Parent, to the effect that the Spin-Off will qualify as nontaxable to
the Company and its shareholders under Section 368(a)(1)(D) and Section
355 of the Code (except to the extent of any gain recognized under Section
357(c) of the Code).
Section 7.2 Conditions to Obligations of the Parent and the Acquisition
Sub to Effect the Merger. The obligations of the Parent and the Acquisition Sub
to effect the Merger shall be subject to the
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satisfaction at or prior to the Effective Time of the following additional
conditions, unless waived in writing by the Parent:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct in
all material respects, as of the date hereof, and, except to the extent
such representations and warranties speak as of an earlier date, as of the
Effective Time as though made at and as of the Effective Time, and the
Parent shall have received a certificate signed on behalf of the Company
by the chief executive officer or the chief financial officer of the
Company to such effect.
(b) Performance of Obligations of the Company and the Shareholders. The
Company shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the
Effective Time, and the Parent shall have received a certificate signed on
behalf of the Company by the chief executive officer or the chief
financial officer of the Company to such effect.
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by the Company for the authorization, execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby shall have been obtained and made by the Company.
(d) Governmental Actions. There shall not have been instituted, pending
or threatened any action or proceeding (or investigation or other inquiry
that might result in such an action or proceeding) by any governmental
authority or administrative agency before any governmental authority,
administrative agency or court of competent jurisdiction, nor shall there
be in effect any judgment, decree or order of any governmental authority,
administrative agency or court of competent jurisdiction, in either case,
seeking to prohibit or limit the Parent from exercising all material
rights and privileges pertaining to its ownership of the Surviving Entity
or the ownership or operation by the Parent or any of its subsidiaries of
all or a portion of the business or assets of the Parent or any of its
subsidiaries, or seeking to compel the Parent or any of its subsidiaries
to dispose of or hold separate all or a material portion of the business
or assets of the Parent or any of its subsidiaries, as a result of the
Merger or the transactions contemplated by this Agreement.
(e) Opinion of Counsel. The Parent shall have received the opinion of
McGuire Woods Battle & Boothe LLP, as counsel to the Company,
substantially in the form of Exhibit H.
(f) Affiliate Agreements. The Parent shall have received from each
person identified in Schedule 6.12 an Affiliate Agreement, and each such
Affiliate Agreement shall be in full force and effect.
(g) Northeast Shareholder Agreement. The Parent shall have received from
the persons who each hold 1% or more, and who hold in the aggregate at
least 50%, of the total outstanding shares of capital stock of the
Spin-Off Entity to be issued in connection with the Spin-Off a Northeast
Shareholder Agreement, and each such Northeast Shareholder Agreement shall
be in full force and effect.
(h) Giant Shareholder Agreement (Company). The Parent shall have
received from the persons who each hold 1% or more, and who hold in the
aggregate at least 70%, of the total outstanding shares of Parent Common
Stock to be issued in connection with the Merger a Giant Shareholder
Agreement, and each such Giant Shareholder Agreement shall be in full
force and effect.
(i) Escrow Agreement. The Company and the Spin-Off Entity shall have
executed and delivered the Escrow Agreement in substantially the form of
Exhibit B hereto.
(j) Indemnity Escrow Agreement. The Company shall have executed and
delivered the Indemnity Escrow Agreement in substantially the form of
Exhibit C hereto.
(k) Agreement of Spin-Off Entity. The Parent shall have received from
the Spin-Off Entity an Agreement in substantially the form of Exhibit G
hereto and such Agreement shall be in full force and effect.
(l) Material Adverse Change. Since the date of this Agreement, there has
been no change, circumstance or occurrence in the business, results of
operations or financial condition of the Company or any of its
Subsidiaries having or reasonably likely to have a material adverse effect
on the business, properties or results of operations of the Company and
its Subsidiaries, taken as a whole.
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(m) Market Stand-Off Agreement. John W. Roberts shall have entered into
a market stand-off agreement in the form annexed hereto as Exhibit I.
(n) Environmental Reports. The Parent shall not have received, from any
environmental consultant retained by it, a Phase II assessment report(s),
which report(s) disclose any environmental conditions with respect to the
Company's business, assets or the Real Property that present, or would be
reasonably likely to give rise to, any material Environmental Liabilities
not reflected in the Company's March 31, 1997 audited financial
statements, and which reports are satisfactory to the Parent in form and
content. The Parent shall provide the Company with copies of any such
reports as soon as practicable following the Parent's receipt thereof.
(o) Tax Agreement. Parent shall have received from the Spin-Off Entity a
Tax Provisions Agreement in substantially the form of Exhibit J hereto and
such Tax Provisions Agreement shall be in full force and effect.
(p) Indemnity Agreement. Parent shall have received from the Spin-Off
Entity an Indemnity Agreement in substantially the form of Exhibit K
hereto and such Indemnity Agreement shall be in full force and effect.
(q) Resignation and Noncompetition. John W. Roberts shall have resigned
as Chairman of the Board, President and Chief Executive Officer of Solite
Corporation and all affiliated entities, including the Surviving Entity,
and shall have entered into a Noncompetition Agreement in the form annexed
hereto as Exhibit L.
(r) Conversion of Company Preferred Stock. Immediately prior to the
Effective Time, the Company shall have caused the Company Preferred Stock
to be converted into Company Common Stock.
(s) FIRPTA Statement. The Parent shall have received (i) the statement
provided in Treasury Regulations Section 1.899-2(h)(i) and 1.445-2(c)(3)
that the Company was not a U.S. real property holding corporation during
the previous five years and (ii) a certificate that notice of the issuance
of that statement was given to the Service pursuant to Section
1.899-2(h)(2).
(t) Stock Redemptions. The Company shall not have directly or indirectly
redeemed or otherwise acquired any shares of its capital stock or shares
of the capital stock of any of its Subsidiaries pursuant to the agreements
listed on Schedule 5.1(b) hereto for cash or other consideration in excess
of $10,000 in the aggregate.
(u) Services Agreement. The Spin-Off Entity shall have executed and
delivered the Services Agreement in substantially the form of Exhibit N
hereto.
(v) Non-Competition Agreement. The Spin-Off Entity shall have executed
and delivered the Non-Competition Agreement in substantially the form of
Exhibit O hereto.
(w) Release of Obligations. The Company shall have been released from
(i) its guaranty of any and all obligations of the Spin-Off Entity and/or
its Subsidiaries to John W. Roberts, including, without limitation, the
obligation of Northeast Solite Corporation under the August 7, 1987 Note
payable to Mr. Roberts; and (ii) any and all past or prospective
obligations under the Lease Agreement dated July 1994 between John W.
Roberts and the Company for sand and gravel property, mineral extraction
and plant site rent.
Section 7.3 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following additional
conditions:
(a) Representations and Warranties. The representations and warranties
of the Parent and the Acquisition Sub set forth in this Agreement shall be
true and correct in all material respects as of the date hereof, and,
except to the extent such representations and warranties speak as of an
earlier date, as of the Effective Time as though made on and as of the
Effective Time, and the Company shall have received a certificate signed
on behalf of the Parent by the chief executive officer or the chief
financial officer of the Parent to such effect.
(b) Performance of Obligations of Parent and the Acquisition Sub. Each
of the Parent and the Acquisition Sub shall have performed in all material
respects all obligations required to be performed by it
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under this Agreement at or prior to the Effective Time, and the Company
shall have received a certificate signed on behalf of the Parent by the
chief executive officer or the chief financial officer of the Parent to
such effect.
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by the Company for the authorization, execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby shall have been obtained and made by the Company.
(d) Fairness Opinion. The Company shall have received (i) the opinion of
Co-View Capital, Inc., to the effect that the consideration to be paid
pursuant to the Agreement is fair, from a financial point of view, to the
Company and its shareholders, and (ii) on or prior to filing the
Registration Statement the opinion of Ferris, Baker Watts Incorporated
that the conversion of Company Preferred Stock referred to in Section 6.17
is fair, from a financial point of view, to the Company and its
shareholders. Such opinions shall have been confirmed in writing at the
Effective Time.
(e) Tax Opinion. The Company shall have received the opinions of McGuire
Woods Battle & Boothe LLP and Proskauer Rose LLP at or prior to the
Effective Time, to the effect that the Merger qualifies as a
reorganization within the meaning of Section 368(a) of the Code.
(f) License Agreement. The Parent shall have executed and delivered a
License Agreement, substantially in the form of Exhibit M.
(g) Material Adverse Change. Since the date of this Agreement, there has
been no change, circumstance or occurrence in the business, results of
operations or financial condition of the Parent or any of its subsidiaries
having or reasonably likely to have a material adverse effect on the
business, properties or results of operations of the Parent and its
subsidiaries, taken as a whole.
(h) Opinions of Counsel. The Company shall have received the opinions of
Proskauer Rose LLP and Hunton & Williams as counsel to the Parent,
substantially in the form of Exhibit P hereto.
(i) Tax Agreement. The Spin-Off Entity shall have received from the
Parent a Tax Provisions Agreement in substantially the form of Exhibit J
hereto and such Tax Provisions Agreement shall be in full force and
effect.
(j) Services Agreement. The Parent shall have executed and delivered the
Services Agreement in substantially the form of Exhibit N hereto.
(k) Non-Competition Agreement. The Parent shall have executed and
delivered the Non-Competition Agreement in substantially the form of
Exhibit O hereto.
(l) Agreement of Spin-Off Entity. The Parent shall have executed and
delivered the Spin-Off Entity Agreement in substantially the form of
Exhibit G hereto.
ARTICLE VIII
TERMINATION
Section 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
shareholders of the Parent or the Company:
(a) by mutual consent of the Parent and the Company;
(b) by either the Parent or the Company, if (i) the Merger shall not have
been consummated before October 30, 1997 (unless, in the case of any such
termination pursuant to this Section 8.1(b), the failure to so consummate
the Merger by such date shall have been caused by the action or failure to
act of the party (or its Subsidiaries) seeking to terminate this Agreement,
which action or failure to act constitutes a breach of this Agreement);
provided, however, that if (x) on or prior to September 12, 1997, all
required filings under the HSR Act have been made by the parties hereto and
(y) on or prior to October 3, 1997, the Registration Statement shall have
been filed with the Commission, then the reference to "October, 30 1997" in
this clause (i) shall be deemed, for all purposes, to be November 30, 1997;
provided, further, that if the conditions for the extension of the
termination date to November 30, 1997 have been met and the Commission
provides the Parent with comments on the Registration Statement or the
Federal Trade Commission or Department of Justice
IV-24
<PAGE>
requests additional information in connection with the filing under the HSR
Act, then the reference to "October 31, 1997" in this clause (i) shall be
deemed, for all purposes, to be December 31, 1997; or (ii) the shareholders
of the Company vote not to approve and adopt this Agreement, the Merger and
related transactions;
(c) by the Parent, if (i) there has been a breach in any material respect
of any representations or warranties of the Company, (ii) there has been a
breach in any material respect of any of the covenants or agreements set
forth in this Agreement on the part of the Company, which breach is not
curable or, if curable, is not cured within 30 days after written notice of
such breach is given by the Parent to the Company, (iii) the Board of
Directors of the Company (x) withdraws or amends or modifies in a manner
adverse to Parent or Sub its recommendation or approval in respect of this
Agreement or the Merger, (y) makes any recommendation with respect to an
Acquisition Transaction (including making no recommendation or stating an
inability to make a recommendation), other than a recommendation to reject
such Acquisition Transaction, or (z) breaches Section 6.5, in any material
respect, (iv) any corporation, partnership, person or other entity or group
(as defined in Section 13(d)(3) of the Exchange Act) ("Acquiring Person")
other than John W. Roberts, any member of Mr. Roberts' family, any trust for
the benefit of Mr. Roberts and/or any member or members of his family, any
legal representatives of any of the foregoing, Parent, or any affiliate or
Subsidiary of the Parent, shall have become the beneficial owner of 33 % or
more of the outstanding voting equity of the Company (either on a primary or
a fully diluted basis), or (v) any other Acquisition Transaction shall have
occurred with any Acquiring Person other than the Parent, or any affiliate
or Subsidiary of Parent;
(d) by the Parent, if the Company shall have failed to cause the
shareholders of the Company listed on Schedule B-2 to execute and deliver to
the Parent an agreement in the form of Exhibit A within 10 days of the date
of this Agreement; provided, however, that the Parent shall have no right to
terminate this Agreement pursuant to this Section 8.1(d) if the Company
shall have caused other shareholders of the Company to execute and deliver
to the Parent an agreement in the form of Exhibit A within 10 days of this
Agreement so that the Parent shall have received proxies from shareholders
holding in excess of two-thirds of the outstanding Company Common Stock;
(e) by the Parent, if the Company shall have failed to cause its
financial advisor, Co-View Capital, Inc. to deliver the opinion referred to
in Section 6.19 within 10 days of the date of this Agreement; and
(f) by the Company, if (i) there has been a breach in any material
respect of any representations or warranties of Parent or the Acquisition
Sub, (ii) there has been a breach in any material respect of any of the
covenants or agreements set forth in this Agreement on the part of the
Parent or the Acquisition Sub, which breach is not curable or, if curable,
is not cured within 30 days after written notice of such breach is given by
the Company to the Parent, or (iii) such termination is necessary to allow
the Company to enter into an Acquisition Transaction in accordance with the
last sentence of Section 6.5(b) (provided that the termination described in
this clause (iii) shall not be effective unless and until the Company shall
have paid to Parent in full the fee described in Section 8.2(b) hereof.
Section 8.2 Effect of Termination.
(a) In the event of termination of this Agreement pursuant to
this Article VIII, the Merger shall be deemed abandoned and this Agreement
shall forthwith become void, without liability on the part of any party hereto,
except as provided in this Section 8.2 and Section 6.9, and except that nothing
herein shall relieve any party from liability for any breach of this Agreement.
(b) If (x) Parent shall have terminated this Agreement pursuant
to Sections 8.1(c)(iii),(iv) or (v) or (y) either (1) the Company shall have
terminated this Agreement pursuant to Section 8.1(b) or (2) Parent shall have
terminated this Agreement pursuant to Section 8.1(c)(i) or (ii) and, prior to
or within six (6) months after any termination described in this clause (y),
the Company (or any of its Subsidiaries) shall have directly or indirectly
entered into a definitive agreement for, or shall have consummated, an
Acquisition Transaction, or (z) the Company shall have terminated this
Agreement pursuant to Section 8.1(f), then, in any of such cases, the Company
shall pay Parent a termination fee of one million seven hundred fifty thousand
dollars ($1,750,000). Any fees payable under this Section 8.2(b) shall be paid
in same day funds no later than: (i) five business days after a termination
described in clause (x) of this Section 8.2(b); (ii) concurrently with or prior
to the entering into of the definitive agreement for, or the consummation of,
such Acquisition Transaction, in the case of a termination described in clause
(y) of this Section 8.2(b); or (iii) concurrently with or prior to a
termination described in clause (z) of this Section 8.2(b).
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ARTICLE IX
INDEMNIFICATION
Section 9.1 Survival of Representations and Warranties. All
representations and warranties contained in Article III and the additional
agreements of the Company contained in Article VI of this Agreement shall
survive the Closing and shall not terminate until the third anniversary of the
Closing at which time they shall lapse; provided, however, that the
representations and warranties set forth in Sections 3.9, 3.10, 3.12, 3.13,
3.15, 3.16 and 3.18 shall not lapse until the fifth anniversary of the Closing.
Notwithstanding the provisions of the preceding sentence, any representation or
warranty in respect of which indemnification may be sought shall survive the
applicable termination date if written notice, given in good faith, of a
specific breach thereof is given to Northeast prior to such applicable
termination date, whether or not liability has been actually incurred or
definitively determined. No investigation by Giant, heretofore or hereafter
made, shall affect the survival of any representation and warranty contained
herein.
Section 9.2 Indemnification of Parent Claimants. From and after the
Closing, the Spin-Off Entity, and to the extent solely of the shares deposited
in the Escrow Account and the Indemnity Escrow Account, the shareholders of the
Company, shall indemnify and save the Parent, Acquisition Sub and their
respective affiliates, directors, officers, employees, agents and
representatives and all of their successors and assigns (collectively "Parent
Claimants" and individually "Parent Claimant") harmless from and defend each of
them from and against any and all demands, claims, actions, liabilities,
losses, costs, damages or expenses whatsoever (including any reasonable
attorneys', accountants' and consultants' fees) (collectively, "Losses")
asserted against, imposed upon or incurred by the Parent Claimants resulting
from or arising out of (a) any inaccuracy or breach of any representation or
warranty of the Company contained herein; (b) any breach of any covenant or
obligation of the Company contained herein; (c) any breach of any covenant or
obligation of the Spin-Off Entity contained in the Indemnity Agreement; (d) to
the extent they arise from the ownership, use, lease, occupancy or operation of
any Real Property: (i) any violation of or noncompliance with the Environmental
Laws or any permit, license, approval, authorization or registration issued
under the Environmental Laws prior to the Effective Time; (ii) the disposal,
discharge or release of solid wastes or Hazardous Substances prior to the
Effective Time whether in compliance with Environmental Laws or not; (iii) the
ownership, operation or use of any landfill, wastewater treatment facility, air
pollution control equipment, storage lagoon, impoundment, or other waste
management or pollution control facility or equipment prior to the Effective
Time whether in compliance with the Environmental Laws or not; (iv) exposure to
any Hazardous Substances, noises, odors or vibrations, excluding single
unrelated individual workers' compensation claims in the ordinary course of
business, prior to the Effective Time; (e) any liability or obligation of
Northeast, its Subsidiaries or the Noncore Business, whether incurred prior to
or after the Effective Time; or (f) any breach of any covenant or obligation of
the Spin-Off Entity contained in the Tax Provisions Agreement, the form of
which is attached hereto as Exhibit J.
Section 9.3 Indemnification Procedures.
(a) The rights and obligations of each party claiming a right to
indemnification hereunder ("Indemnitee") from the other party ("Indemnitor")
shall be governed by the following rules:
(i) The Indemnitee shall give prompt written notice to the
Indemnitor of any state of facts which Indemnitee determines will give rise to
a claim by the Indemnitee against the Indemnitor based on the indemnity
agreements contained herein, stating the nature and basis of said claims and
the amount thereof, to the extent known. No failure to give such notice shall
affect the indemnification obligations of Indemnitor hereunder, except to the
extent such failure materially prejudices such Indemnitor's ability
successfully to defend the matter giving rise to the indemnification claim.
(ii) In the event any action, suit or proceeding is brought
against the Indemnitee, with respect to which the Indemnitor may have liability
under the indemnity agreements contained herein, then upon the written
acknowledgment by the Indemnitor within thirty days of the bringing of such
action, suit or proceeding that it is undertaking and will prosecute the
defense of the claim under such indemnity agreements and confirming that the
claim is one with respect to which the Indemnitor is obligated to indemnify and
that it will be able to pay the full amount of potential liability in
connection with any such claim, the action, suit or proceeding (including all
proceedings on appeal or for review which counsel for the Indemnitee shall deem
appropriate) may be defended by the Indemnitor. However, in the event the
Indemnitor shall not offer reasonable assurances as to its financial
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capacity to satisfy any final judgment or settlement, the Indemnitee may assume
the defense and dispose of the claim, after 30 days' prior written notice to
the Indemnitor. The Indemnitee shall have the right to employ its own counsel
in any such case, but the fees and expenses of such counsel shall be at the
Indemnitee's own expense unless (a) the employment of such counsel and the
payment of such fees and expenses both shall have been specifically authorized
by the Indemnitor in connection with the defense of such action, suit or
proceeding or (b) the Indemnitee shall have reasonably concluded and
specifically notified the Indemnitor that there may be specific defenses
available to it which are different from or additional to those available to
the Indemnitor, if a judgment against Indemnitees in such action, suit or
proceeding will, in the good faith opinion of Indemnitee, establish a custom or
precedent which will be adverse to the best interest of its continuing
business.
(iii) In addition, in any event specified in clause (b) of the
second sentence of subparagraph (ii) above, the Indemnitor, to the extent made
necessary by such different or additional defenses, shall not have the right to
direct the defense of such action, suit or proceeding on behalf of the
Indemnitee. If Indemnitor and Indemnitee cannot agree on a mechanism to
separate the defense of matters extending beyond the scope of indemnification,
such matters shall be defended on the basis of joint consultation.
(iv) The Indemnitee shall be kept fully informed by the
Indemnitor of such action, suit or proceeding at all stages thereof, whether or
not it is represented by counsel. The Indemnitor shall, at the Indemnitor's
expense, make available to the Indemnitee and its attorneys and accountants all
books and records of the Indemnitor relating to such proceedings or litigation,
and the parties hereto agree to render to each other such assistance as they
may reasonably require of each other in order to ensure the proper and adequate
defense of any such action, suit or proceeding.
(b) The Indemnitor shall make no settlement of any claims which
Indemnitor has undertaken to defend, without Indemnitee's consent, unless the
Indemnitor fully indemnifies the Indemnitee for all losses, there is no finding
or admission of violation of law by, or effect on any other claims that may be
made against, the Indemnitee and the relief granted in connection therewith
requires no action on the part of and has no effect on the Indemnitee.
Section 9.4 Release of Shares of Parent Common Stock. The shares of
Parent Common Stock held in the Escrow Account and the Indemnity Escrow Account
shall be available to satisfy the indemnification claims of Parent Claimants
pursuant to this Section 9. The shares of Parent Common Stock in the Escrow
Account shall be available to satisfy the indemnification claims of Parent
Claimants to the extent such shares of Parent Common Stock have not been
released pursuant to Section 2.4. Unless a claim or claims by Parent Claimants
are then pending, in amounts in excess of the then value of 50,000 shares of
Parent Common Stock, 50,000 shares of Parent Common Stock held in the Indemnity
Escrow Account shall be released on the second anniversary of the Closing Date,
and unless any claim or claims by Parent Claimants are then pending, the
balance of the shares of Parent Common Stock held in the Indemnity Escrow
Account shall be released on the third anniversary of the Closing Date. For the
purposes of this Section 9.4, the value of Parent Common Stock shall be the
average of the closing bid and asked prices per share of Parent Common Stock as
quoted on NASDAQ for the twenty trading days immediately preceding any release
of Parent Common Stock. Any dispute relating to or in respect of the rights of
any Indemnitee to receive shares of Parent Common Stock from the Escrow Account
or the Indemnity Escrow Account in satisfaction of an indemnification claim
pursuant to 9.2 hereof (an "Indemnification Dispute") shall be submitted to,
and resolved exclusively pursuant to arbitration in accordance with the
commercial arbitration rules of the American Arbitration Association. Such
arbitration shall take place in Richmond, Virginia and shall be subject to the
substantive law of the State of Virginia. Decisions pursuant to such
arbitration shall be final, conclusive and binding upon the parties. Upon the
conclusion of arbitration, the parties may apply to any court of competent
jurisdiction to enforce the decision pursuant to such arbitration. The parties
hereto waive and shall not seek jury trial in any lawsuit, proceeding, claim,
counterclaim, defense or other litigation or dispute relating to or in respect
of an Indemnification Dispute. Neither party shall submit a dispute to
arbitration before that party has sought to resolve the dispute through direct
negotiation with the other party. If the dispute is not resolved within three
weeks after a demand for direct negotiation, the parties shall attempt to
resolve the dispute through mediation. If the parties do not promptly agree on
a mediator, either party may request the then senior judge of the civil
division of the Circuit Court for the City of Richmond, Virginia to appoint a
mediator. If the mediator is unable to facilitate a settlement of the dispute
within a reasonable period of time, as determined by the mediator, the mediator
shall issue a written statement to the parties to that effect and either party
may then submit the dispute to arbitration as provided herein. The fees and
expenses of the mediator shall be shared equally by the parties. If the dispute
is submitted to arbitration, the arbitrator shall
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award the prevailing or substantially prevailing party its expenses and costs,
including costs of arbitration and reasonable attorney's fees.
Section 9.5 Limitations on Indemnity. Notwithstanding anything to the
contrary herein, (a) the obligations of the Spin-Off Entity and the
shareholders of the Company pursuant to Section 9.2(a) through (d) hereof shall
(i) arise only with respect to individual claims in excess of $25,000, (ii)
arise with respect to claims related to conditions subject to Corrective Action
disclosed on Schedule 3.18(f) hereto, to the extent that Losses relative to
disclosed conditions exceed $125,000 per lightweight aggregate manufacturing
site (including Oldover facilities), (iii) arise only if the aggregate claims
are in excess of $250,000, and (iv) with respect to the first $250,000 of
aggregate claims, be limited to $125,000, and (b) the liability of the Spin-Off
Entity pursuant to Section 9.2 hereof shall (i) be limited to the amount of
Parent Claimants' Losses in excess of the value of the shares of Parent Common
Stock then held in the Escrow Account and the Indemnity Escrow Account, and
(ii) terminate with respect to any claims not asserted prior to the fifth
anniversary of the Effective Time.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Amendment and Modification. At any time prior to the
Effective Time, this Agreement may be amended, modified or supplemented only by
written agreement (referring specifically to this Agreement) of the Parent, the
Acquisition Sub and the Company with respect to any of the terms contained
herein.
Section 10.2 Waiver. At any time prior to the Effective Time, the Parent
and the Acquisition Sub, on the one hand, and the Company, on the other hand,
may (i) extend the time for the performance of any of the obligations or other
acts of the other, (ii) waive any inaccuracies in the representations and
warranties of the other contained herein or in any documents delivered pursuant
hereto and (iii) waive compliance by the other with any of the agreements or
conditions contained herein which may legally be waived. Any such extension or
waiver shall be valid only if set forth in an instrument in writing
specifically referring to this Agreement and signed on behalf of such party.
Section 10.3 Survivability; Investigations. The respective
representations and warranties of the Parent, the Acquisition Sub and the
Company contained herein or in any certificates or other documents delivered
prior to or as of the Effective Time (i) shall not be deemed waived or
otherwise affected by any investigation made by any party hereto and (ii) shall
survive beyond the Effective Time. The covenants and agreements of the parties
hereto (including the Surviving Entity after the Merger) shall survive the
Effective Time without limitation (except for those which, by their terms,
contemplate a shorter survival period).
Section 10.4 Notices. All notices and other communications hereunder
shall be in writing and shall be delivered personally or by next-day courier or
telecopied with confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified by
like notice; provided that notices of a change of address shall be effective
only upon receipt thereof. Any such notice shall be effective upon receipt, if
personally delivered or telecopied, or one day after delivery to a courier for
next-day delivery.
(a) If to the Parent or the Acquisition Sub, to:
Giant Cement Holding, Inc.
320-D Midland Parkway
Summerville, SC 29485
Attention: Mr. Terry L. Kinder
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Robert A. Cantone, Esq.
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(b) if to the Company, to:
Solite Corporation
2508 Chamberlayne Avenue
Richmond, VA 23222
Attention: Mr. John W. Roberts
with a copy to:
McGuire Woods Battle & Boothe LLP
One James Center
901 East Cary Street
Richmond, VA 23219
Attention: Thomas L. Newton, Jr.
Section 10.5 Descriptive Headings; Interpretation. 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. References
in this Agreement to Sections, Schedules, Exhibits or Articles mean a Section,
Schedule, Exhibit or Article of this Agreement unless otherwise indicated.
References to this Agreement shall be deemed to include the Exhibits and
Schedules hereto, unless the context otherwise requires. The term "person"
shall mean and include an individual, a partnership, a joint venture, a
corporation, a trust, a Governmental Entity or an unincorporated organization.
Section 10.6 Entire Agreement; Assignment. This Agreement (including the
Schedules and other documents and instruments referred to herein) and the
Confidentiality Agreement effective May 14, 1996 among the Parent and the
Company constitutes the entire agreement and supersede all other prior
agreements and understandings, both written and oral, among the parties or any
of them, with respect to the subject matter hereof. This Agreement is not
intended to confer upon any person not a party hereto any rights or remedies
hereunder. This Agreement shall not be assigned by operation of law or
otherwise; provided that Parent or the Acquisition Sub may assign its rights
and obligations hereunder to a direct or indirect subsidiary of the Parent, but
no such assignment shall relieve the Parent or the Acquisition Sub, as the case
may be, of its obligations hereunder.
Section 10.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia without
giving effect to the provisions thereof relating to conflicts of law.
Section 10.8 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect against a party hereto, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby and such invalidity, illegality or unenforceability shall only
apply as to such party in the specific jurisdiction where such judgment shall
be made.
Section 10.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
Section 10.10 Tax Treatment. The Parent agrees that the Spin-Off shall
be treated by the Parent as nontaxable to the Company and its shareholders
under Section 355 and 368(a)(1)(D) of the Code (except to the extent of any
gain recognized under Section 357(c) of the Code) and the Merger shall be
treated by the Parent as a reorganization within the meaning of Section 368(a)
of the Code and that the positions, elections and methods taken or reflected in
all Federal, state or local tax returns in respect of the Spin-Off and the
Merger shall reflect or be consistent with the foregoing. The Parent agrees not
to take any action that would cause the Spin-Off or the Merger to fail to so
qualify.
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IN WITNESS WHEREOF, each of the Parent, the Acquisition Sub and the
Company has caused this Agreement to be executed on its behalf by its officers
thereunto duly authorized, all as of the date first above written.
GIANT CEMENT HOLDING, INC.
By: /s/ Terry L. Kinder
Name: Terry L. Kinder
Title:
GCHI ACQUISITION CORP.
By: /s/ Terry L. Kinder
Name: Terry L. Kinder
Title:
SOLITE CORPORATION
By: /s/ John W. Roberts
Name: John W. Roberts
Title:
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<PAGE>
Schedule A-1 to
the Agreement and
Plan of Merger
PLAN OF MERGER
PLAN OF MERGER (this "Plan") of Solite Corporation (the "Company"), a
Virginia corporation, and GCHI Acquisition Corp. (the "Acquisition Sub"), a
Virginia corporation wholly-owned by Giant Cement Holding, Inc., a Delaware
corporation (the "Parent").
ARTICLE I
Terms of the Merger
1.1 The Merger. The names of the corporations to be merged are Solite
Corporation and GCHI Acquisition Corp. At the Effective Time, GCHI shall merge
with and into the Company (the "Merger"), the separate corporate existence of
GCHI shall cease and the Company shall survive and continue to exist as a
Virginia corporation (Solite, as the surviving corporation in the Merger,
sometimes being referred to herein as the "Surviving Corporation").
1.2 Effect of the Merger. The Merger shall become effective at the time
a certificate of merger is issued by the State Corporation Commission of
Virginia (the "SCC") or at such later time specified in properly executed
Articles of Merger, in the form required by and executed in accordance with the
Virginia Stock Corporation Act ("VSCA"), filed with the SCC, in accordance with
the provisions of Section 13.1-720 of the VSCA. The Merger shall have the
effects prescribed in the VSCA. When used in this Plan, the term "Effective
Time" shall mean the date and time at which the Merger shall become effective.
1.3 Articles of Incorporation and By-Laws. The articles of incorporation
and bylaws of the Company in effect at the Effective Time shall be the articles
of incorporation of the Surviving Corporation until amended in accordance with
applicable law.
ARTICLE II
Manner and Basis of Converting Shares
2.1 Exchange Ratio. At the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof:
(a) Each share of common stock, par value $2 per share of the Company
(the "Company Common Stock"), issued and outstanding immediately prior to
the Effective Time shall be converted into the right to receive:
(i) a number of shares of the voting common stock, par value $.01 per
share of the Parent (the "Parent Common Stock"), payable upon the
surrender of the certificate formerly representing such share of Company
Common Stock, equal to the quotient derived by dividing (A) 650,000 minus
the number of shares to be placed in the Escrow Account and the Indemnity
Escrow Account described below, by (B) the number of outstanding shares
of Company Common Stock at the Closing (hereinafter referred to
collectively, as the "Outstanding Stock"); and
(ii) if any shares of Parent Common Stock are made available for
distribution pursuant to Section 2.4(c) or (d), a number of such shares
of Parent Common Stock equal to the quotient derived by dividing (A) the
total number of shares of Parent Common Stock so available pursuant to
Section 2.4(c) or (d) by (B) the Outstanding Stock.
(b) Each share of Acquisition Sub Common Stock outstanding on the
Effective Date shall, without any action on the part of the holder thereof,
be converted into one share of Company Common Stock, which shall upon such
conversion be validly issued and outstanding, fully paid and nonassessable,
and shall constitute all of the issued and outstanding capital stock of the
Company immediately following the Merger.
(c) The amount of Parent Common Stock to be received pursuant to Section
2.1(a), shall be adjusted to reflect fully the effect of any stock split or
reverse split or stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock or Company Common Stock),
the record date for which shall occur after the date hereof and prior to the
Effective Time.
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<PAGE>
(d) If any certificate for shares of Parent Common Stock is to be issued
to a person other than the registered holder of the Company Common Stock
represented by the certificate or certificates surrendered with respect
thereto, it shall be a condition to such issuance that the certificate or
certificates so surrendered shall be properly endorsed or otherwise be in
proper form for transfer and that the person requesting such exchange will
have paid to the Parent or any person designated by the Parent any transfer
or other taxes required as a result of such issuance to a person other than
the holder of such Company Common Stock, or established to the satisfaction
of the Parent or any agent designated by the Parent that such tax has been
paid or is not payable.
(e) At the Effective Time, the stock transfer books of the Company shall
be closed, and there shall be no further registration of transfers of
Company Common Stock and Company Preferred Stock thereafter on the records
of the Company.
(f) Neither the Parent, the Acquisition Sub nor the Company shall be
liable to any holder of Company Common Stock or Company Preferred Stock for
any securities delivered or any amount paid to a public official pursuant to
applicable abandoned property laws.
(g) No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered
certificates representing Company Common Stock until such certificates are
surrendered pursuant to Section 2.1. Subject to applicable law, upon such
surrender, there shall be paid to the record holder certificates
representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to the shares of Parent Common Stock.
(h) In the event any certificates representing Company Common Stock shall
have been lost, stolen or destroyed, the Parent (as defined in Section 2.2)
shall issue in exchange for such lost, stolen or destroyed certificates,
upon the making of an affidavit of that fact by the holder thereof, the
consideration referred to in Section 2.1(a); provided, however, that the
Parent may, in its discretion and as a condition precedent to the issuance
and delivery thereof, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against the Parent or the
Escrow Agent with respect to the certificates alleged to have been lost,
stolen or destroyed.
(i) The holders of shares of Company Common Stock as to which dissenter's
rights shall have been duly demanded under applicable law ("Dissenting
Shares"), if any, shall be entitled to payment by the Surviving Entity only
of the fair value of such shares plus accrued interest to the extent
permitted by and in accordance with the provisions of applicable law;
provided, however, that (i) if any holder of the Dissenting Shares shall,
under the circumstances permitted by applicable law, subsequently deliver a
written withdrawal of such holder's demand or (ii) if any holder fails to
establish such holder's entitlement to rights to payment as provided under
applicable law, such holder or holders (as the case may be) shall forfeit
such right to payment for such shares and such shares shall thereupon be
deemed to have been converted into Parent Common Stock pursuant to Section
2.1(a) as of the Effective Time. The Surviving Entity shall be solely
responsible for, and shall pay out of its own funds, any amounts which
become due and payable to holders of Dissenting Shares, and such amounts
shall not be paid directly or indirectly by the Parent.
2.2 Exchange of Company Common Stock.
(a) Promptly after the Effective Time, each shareholder shall present to
the Parent for cancellation a certificate or certificates which immediately
prior to the Effective Time represented Outstanding Stock (the "Certificates")
that were converted pursuant to Section 2.1, and the Parent shall upon
presentation thereof deliver to such shareholder in exchange therefor (x) a
certificate representing that number of whole shares of Parent Common Stock
which such shareholder has the right to receive pursuant to the provisions of
Section 2.1(a)(i), and (y) cash in lieu of any fractional shares of Parent
Common Stock to which such shareholder is entitled pursuant to Section 2.3,
after giving effect to any required tax withholdings.
(b) Promptly after the Effective Time, the Parent shall (i) deliver to
the escrow agent (the "Escrow Agent") under the escrow agreement dated the
Effective Date, a certificate representing 100,000 shares of Parent Common Stock
(the "Escrow Account") to be held pursuant to such escrow agreement for
dissemination pursuant
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<PAGE>
to Section 2.4(c), and (iii) deliver to the escrow agent (the "Indemnity Escrow
Agent") under the escrow agreement dated the Effective Time, a certificate
representing 100,000 shares of Parent Common Stock (the "Indemnity Escrow
Account") to be held pursuant to the provisions of Section 9.4 of the Agreement
and Plan of Merger, dated September 10, 1997, as amended, among Parent,
Acquisition Sub, and the Company. The shares of Parent Common Stock shall be
deemed to have been issued at the Effective Time.
(c) Promptly after the Closing Balance Sheet, as that term is defined in
Section 2.4, becomes the Final Closing Balance Sheet, as that term is defined in
Section 2.4, Parent shall determine if the holders of the Outstanding Stock at
the Effective Time are entitled to any shares from the Escrow Account pursuant
to Section 2.4(c). Subject to Section 2.5, upon a determination that such
holders are entitled to any shares from the Escrow Account pursuant to Section
2.4(c), Parent shall thereupon direct the Escrow Agent to deliver to each such
holder (a) a certificate representing that number of whole shares of Parent
Common Stock which such holder has the right to receive pursuant to the
provisions of Section 2.4(c), and (b) cash in lieu of any fractional shares of
Parent Common Stock to which such holder is entitled pursuant to Section 2.3,
after giving effect to any required tax withholdings.
2.3 No Fractional Securities. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of certificates representing Company Common Stock, and such fractional
interests shall not entitle the owner thereof to vote or to any rights of a
security holder. In lieu of any such fractional securities, each holder of
Company Common Stock who would otherwise have been entitled to a fraction of a
share of Parent Common Stock upon surrender of such holder's certificates will
be entitled to receive, and the Parent will timely make a cash payment (without
interest) determined by multiplying (i) the fractional interest to which such
holder would otherwise be entitled (after taking into account all shares of
Outstanding Stock then held of record by such holder) and (ii) the average of
the closing bid and asked prices per share of Parent Common Stock as quoted on
The NASDAQ Stock Market, Inc. ("NASDAQ") for the twenty trading days
immediately preceding the Closing.
2.4 Adjustment to Consideration.
(a) As soon as practicable after the Closing, and in any event not later
than 90 days after the Closing, the Parent shall prepare, or cause to be
prepared, and shall furnish to Northeast Solite Corporation, a New York
corporation (the "Spin-Off Entity") a consolidated balance sheet for the Company
as of the Closing Date, after giving effect to the Spin-Off (the "Closing
Balance Sheet"), but before giving effect to the Merger and any adjustments
related thereto. The Closing Balance Sheet shall be prepared in accordance with
generally accepted accounting principles ("GAAP"), on a basis consistent with
the Report On Audits of Divisional Financial Statements of Solite Corporation
for the years ended March 31, 1997 and 1996, prepared by Coopers & Lybrand LLP,
including the writedown of clinker inventories by approximately $3.6 million to
net realizable value not previously recorded by the Company. If the Spin-Off
Entity disagrees with any aspect of the Closing Balance Sheet, it may object to
the Closing Balance Sheet in writing, detailing its disagreement (the "Dispute
Notice"). If no Dispute Notice is given to the Parent by the Spin-Off Entity
within 30 days after the Closing Balance Sheet is furnished to the Spin-Off
Entity, the Closing Balance Sheet shall be deemed final and binding for all
purposes under this Agreement.
(b) If the Parent and the Spin-Off Entity are unable to resolve any
matter which is the subject of a Dispute Notice within 30 days after such
Dispute Notice is given to the Parent by the Spin-Off Entity, such matter shall
be submitted for resolution to an independent accounting firm selected jointly
by the Parent and the Spin-Off Entity. If the Parent and the Spin-Off Entity are
unable to agree upon such accounting firm within 15 days after the end of the
30-day period referred to in the preceding sentence, then such matter shall be
submitted for resolution to the independent accounting firm of KPMG Peat
Marwick. KPMG Peat Marwick or the independent accounting firm to whom such
matter is submitted for resolution is hereinafter referred to as the "Accounting
Firm." The determinations of the Accounting firm shall be final and binding for
all purposes under this Agreement. The Closing Balance Sheet, as it shall be
deemed final and binding pursuant to the last sentence of Section 2.4(a), as it
shall be agreed upon by Parent and the Spin-Off Entity, or as it shall be
determined by the Accounting Firm pursuant to this Section 2.4(b) is hereinafter
referred to as the "Final Closing Balance Sheet." The Parent and the Spin-Off
Entity will share responsibility for fees and expenses of the Accounting Firm as
follows: (i) if the Accounting Firm resolves all of the matters subject to the
Dispute Notice in favor of the Parent, the Spin-Off Entity will be responsible
for all the fees and expenses of the Accounting Firm; (ii) if the Accounting
Firm resolves all of the matters subject to a Dispute Notice in favor of the
Spin-Off Entity, the Parent will be responsible for all the fees and expenses of
the Accounting Firm; and if the Accounting Firm resolves some of the matters
subject to the Dispute Notice
IV-33
<PAGE>
in favor of the Parent and the rest of such matters in favor of the Spin-Off
Entity, the Spin-Off Entity will be responsible for the fraction of the fees
and expenses of the Accounting Firm equal to (A) the difference between the
amount in dispute and the amount of the adjustments to the Closing Balance
Sheet over (B) the amount in dispute, and the Parent will be responsible for
the remainder of the fees and expenses.
(c) If the consolidated net book value of the Company reflected in the
Final Closing Balance Sheet is less than $5.0 million, then (i) the Parent shall
be entitled to receive from the Escrow Account and to cancel the number of whole
shares of Parent Common Stock as shall equal the quotient derived by dividing
(A) the amount by which $5.0 million exceeds the consolidated net book value of
the Company reflected in the Final Closing Balance Sheet by (B) $19 per share of
Parent Common Stock, and (ii) subject to Section 2.4(d), the balance of the
shares of Parent Common Stock in the Escrow Account shall be available
immediately for distribution pursuant to Section 2.1(a)(ii). If the consolidated
net book value of the Company reflected in the Final Closing Balance Sheet is
more than $5.0 million, then, subject to Section 2.4(d), all the shares of
Parent Common Stock in the Escrow Account shall be available immediately for
distribution pursuant to Section 2.1(a)(ii). For purposes of calculating net
book value, no effect will be given to up to $1,000,000 of valuation allowance
recorded against the net deferred tax assets of the Company.
(d) If the net current assets of the Company reflected in the Final
Closing Balance Sheet is less than $6.0 million, then (i) the Parent shall be
entitled to receive from the Escrow Account and to cancel the number of whole
shares of Parent Common Stock as shall equal the quotient derived by dividing
(A) the amount by which $6.0 million exceeds the net current assets of the
Company reflected in the Final Closing Balance Sheet by (B) $19 per share of
Parent Common Stock, and (ii) subject to Section 2.4(c), the balance of the
shares of Parent Common Stock in the Escrow Account shall be available
immediately for distribution pursuant to Section 2.1(a)(ii). If the net current
assets of the Company reflected in the Final Closing Balance Sheet is more than
$6.0 million, then, subject to Section 2.4(c), all the shares of Parent Common
Stock in the Escrow Account shall be available immediately for distribution
pursuant to Section 2.1(a)(ii). For purposes of calculating net current assets
no effect will be given to current installments to indebtedness for borrowed
money in an aggregate amount not exceeding $20 million. For the purposes hereof,
net current assets shall be equal to (x) the sum of cash, accounts receivable
less than 60 days past due and inventories less (y) the sum of accounts payable,
accrued expenses and other current liabilities.
2.5 Termination. The Boards of Directors of the Company and the
Acquisition Sub may terminate and abandon the Merger at any time prior to the
issuance of the Certificate of Merger, subject to any contractual rights,
without further shareholder action, in such manner as shall be agreed upon by
such Boards of Directors.
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<PAGE>
Opinion of CoView Capital, Inc. Annex V
September 30, 1997
Board of Directors
Solite Corporation
2508-10 Chamberlayne Avenue
Richmond, VA 23222
Gentlemen:
Giant Cement Holding, Inc., GCHI Acquisition Corp. (collectively, "Giant")
and Solite Corporation ("Solite" or the "Company") have entered into an
Agreement and Plan of Merger (the "Plan") dated September 10, 1997. Pursuant to
the Plan, among other things, Giant will acquire by way of a merger (the
"Merger") all of the outstanding shares of capital stock of the Company in
exchange for 450,000 shares of Giant Common Stock; an additional 200,000 shares
of Giant Common Stock will be placed in escrow upon consummation of the Merger.
Of these additional shares, 100,000 shall be distributed to holders of Solite
common stock, depending upon the extent by which Solite meets certain financial
tests at closing. The other 100,000 shares shall be held in escrow to satisfy
the indemnification claims, if any, of Giant under the Plan. Giant will also
assume up to $20 million of Solite's debt. Prior to the Merger, Solite will
contribute certain stock and assets to a subsidiary which will then be spun off
to the shareholders of Solite (the "Spin-Off"). The Merger terms and conditions
are more fully set forth in the Plan.
CoView Capital has been asked to render an opinion (the "Opinion") as to
the fairness of the Merger, from a financial point of view, to the stockholders
of Solite.
CoView is an investment banking firm and a member of the National
Association of Securities Dealers (NASD), and is regularly engaged as financial
advisor to companies in the divestiture and sale of businesses and in the
valuation of companies in connection with mergers and acquisitions and private
placements. CoView is currently acting as financial advisor to Solite in
connection with the Merger and will receive a fee upon consummation of the
Merger for acting as financial advisor to the Company and for rendering the
Opinion. In addition, Solite has agreed to indemnify CoView for certain
liabilities arising from the delivery of the Opinion.
In our capacity as financial advisor and in rendering our Opinion, we have
reviewed and analyzed, among other things, the following:
[bullet] trends in the building, aggregate, cement and hazardous waste
management and treatment industries;
[bullet] developments in the Company's and Giant's markets;
[bullet] publicly available information with respect to certain of Solite's
and Giant's competitors;
[bullet] historical Company and Giant financial statements;
[bullet] internal financial statements and other financial and operating
data provided by Solite's and Giant's managements, including historical
and pro forma statements excluding the Spin-Off assets;
[bullet] Company projections for the fiscal years 1998 through 2000;
[bullet] Giant projections for the fiscal years 1997 through 2000;
[bullet] securities research analysts' reports regarding Giant;
[bullet] information and market valuations pertaining to publicly-traded
companies which are engaged in activities relatively similar and
comparable to those of the Company;
[bullet] publicly-available information pertaining to the financial terms
of comparable acquisition transactions;
[bullet] the Agreement and Plan of Merger dated as of September 10, 1997;
[bullet] the draft Proxy Statement/Prospectus dated as of September 25,
1997;
In addition, we:
[bullet] participated in discussions with the representatives of Solite and
Giant;
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<PAGE>
[bullet] discussed with the managements of Solite and of Giant the
strategic logic for the Merger;
[bullet] performed a Discounted Cash Flow (DCF) analysis on future Company
projections using various discount rates to determine the Company's net
present value;
[bullet] discussed with Solite's and Giant's senior management their
respective financial statements, operations, future prospects, and
financial projections, as well as the pro forma impact of the Merger.
CoView has relied upon, without independent verification or investigation,
the accuracy and completeness of all financial and other information provided
by Solite and Giant and certain publicly available information. All internal
financial statements, projections, operating data and estimates reviewed by
CoView for the purposes of this Opinion have been assumed to have been prepared
to reflect the best available estimates and judgements. We have not made or
obtained any independent evaluations or appraisals of any of the Company's or
Giant's assets, properties, liabilities or securities. We have relied upon the
reasonableness and accuracy of all internal financial projections, forecasts,
estimates, and analyses, including, without limitation, those forecasts,
estimates and analyses relating to future cash flows (collectively the
"Projections"). We have not independently verified the reasonableness and
accuracy of data and information used in preparing the Projections.
CoView has assumed that the Merger will be treated as a tax-free
reorganization and will be consummated according to the terms of the Plan.
It is understood that this letter is solely for the information of the
Board of Directors of Solite and may not be used for any other purpose without
our prior written consent, other than for inclusion in the Proxy Statement
relating to the meeting of Solite's shareholders to be held in connection with
the Merger. It is further understood that CoView's opinion in no way addresses
the market price at which Giant shares will trade at any particular future
time, nor does the opinion represent a recommendation as to how Solite
shareholders should vote on the Merger.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Merger, taken as a whole, is fair, from a financial point of
view, to the stockholders of Solite.
/s/ CoView Capital, Inc.
- ---------------------------
CoView Capital, Inc.
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<PAGE>
Annex VI
CODE OF VIRGINIA TITLE 13.1. CORPORATIONS.
CHAPTER 9. VIRGINIA STOCK CORPORATION ACT.
ARTICLE 15. DISSENTERS' RIGHTS.
s. 13.1-729 Definitions.
In this article:
"Corporation" means the issuer of the shares held by a dissenter before
the corporate action, except that (i) with respect to a merger, "corporation"
means the surviving domestic or foreign corporation or limited liability
company by merger of that issuer, and (ii) with respect to a share exchange,
"corporation" means the acquiring corporation by share exchange, rather than
the issuer, if the plan of share exchange places the responsibility for
dissenters' rights on the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from corporate
action under s. 13.1-730 and who exercises that right when and in the manner
required by ss. 13.1-732 through 13.1-739.
"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
"Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation.
"Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial shareholder.
s. 13.1-730 Right to dissent.
A. A shareholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:
1. Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by s. 13.1-718 or the
articles of incorporation and the shareholder is entitled to vote on the merger
or (ii) if the corporation is a subsidiary that is merged with its parent under
s. 13.1-719;
2. Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation if the shareholder was entitled to vote on the sale
or exchange or if the sale or exchange was in furtherance of a dissolution on
which the shareholder was entitled to vote, provided that such dissenter's
rights shall not apply in the case of (i) a sale or exchange pursuant to court
order, or (ii) a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one year after the date of sale;
4. Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. Notwithstanding any other provision of this article, with respect to a
plan of merger or share exchange or a sale or exchange of property there shall
be no right of dissent in favor of holders of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting
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at which the plan of merger or share exchange or the sale or exchange of
property is to be acted on, were (i) listed on a national securities exchange
or on the National Association of Securities Dealers Automated Quotation System
(NASDAQ) or (ii) held by at least 2,000 record shareholders, unless in either
case:
1. The articles of incorporation of the corporation issuing such shares
provide otherwise;
2. In the case of a plan of merger or share exchange, the holders of the
class or series are required under the plan of merger or share exchange to
accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or membership interests and
cash in lieu of fractional shares (i) of the surviving or acquiring corporation
or limited liability company or (ii) of any other corporation or limited
liability company which, at the record date fixed to determine the shareholders
entitled to receive notice of and to vote at the meeting at which the plan of
merger or share exchange is to be acted on, were either listed subject to
notice of issuance on a national securities exchange or held of record by at
least 2,000 record shareholders or members; or
c. A combination of cash and shares or membership interests as set forth
in subdivisions 2 a and 2 b of this subsection; or
3. The transaction to be voted on is an "affiliated transaction" and is
not approved by a majority of "disinterested directors" as such terms are
defined in s. 13.1-725.
D. The right of a dissenting shareholder to obtain payment of the fair
value of his shares shall terminate upon the occurrence of any one of the
following events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
3. His demand for payment is withdrawn with the written consent of the
corporation.
s. 13.1-731 Dissent by nominees and beneficial owners.
A. A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
1. He submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
2. He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
s. 13.1-732 Notice of dissenters' rights.
A. If proposed corporate action creating dissenters' rights under
s. 13.1-730 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by a copy of this
article.
B. If corporate action creating dissenters' rights under s. 13.1-730 is
taken without a vote of shareholders, the corporation, during the ten-day
period after the effectuation of such corporate action, shall notify in writing
all record shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in s. 13.1-734.
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<PAGE>
s. 13.1-733 Notice of intent to demand payment.
A. If proposed corporate action creating dissenters' rights under
s. 13.1-730 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights (i) shall deliver to the corporation
before the vote is taken written notice of his intent to demand payment for his
shares if the proposed action is effectuated and (ii) shall not vote such
shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of
this section is not entitled to payment for his shares under this article.
s. 13.1-734 Dissenters' notice.
A. If proposed corporate action creating dissenters' rights under
s. 13.1-730 is authorized at a shareholders' meeting, the corporation,
during the ten-day period after the effectuation of such corporate action,
shall deliver a dissenters' notice in writing to all shareholders who satisfied
the requirements of s. 13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before or
after that date;
4. Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the date
of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article.
s. 13.1-735 Duty to demand payment.
A. A shareholder sent a dissenters' notice described in s. 13.1-734
shall demand payment, certify that he acquired beneficial ownership of the
shares before or after the date required to be set forth in the dissenters'
notice pursuant to subdivision 3 of subsection B of s. 13.1-734, and, in the
case of certificated shares, deposit his certificates in accordance with the
terms of the notice.
B. The shareholder who deposits his shares pursuant to subsection A of
this section retains all other rights of a shareholder except to the extent
that these rights are canceled or modified by the taking of the proposed
corporate action.
C. A shareholder who does not demand payment and deposits his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
s. 13.1-736 Share restrictions.
A. The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder except to the
extent that these rights are canceled or modified by the taking of the proposed
corporate action.
s. 13.1-737 Payment.
A. Except as provided in s. 13.1-738, within thirty days after receipt
of a payment demand made pursuant to s. 13.1-735, the corporation shall pay
the dissenter the amount the corporation estimates to be the fair value of his
shares, plus accrued interest. The obligation of the corporation under this
paragraph may be enforced (i) by the circuit court in the city or county where
the corporation's principal office is located, or, if none in this
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<PAGE>
Commonwealth, where its registered office is located or (ii) at the election of
any dissenter residing or having its principal office in the Commonwealth, by
the circuit court in the city or county where the dissenter resides or has its
principal office. The court shall dispose of the complaint on an expedited
basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the effective date of the corporate action
creating dissenters' rights, an income statement for that year, a statement of
changes in shareholders' equity for that year, and the latest available interim
financial statements, if any;
2. An explanation of how the corporation estimated the fair value of the
shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment under
s. 13.1-739; and
4. A copy of this article.
s. 13.1-738 After-acquired shares.
A. A corporation may elect to withhold payment required by s. 13.1-737
from a dissenter unless he was the beneficial owner of the shares on the date
of the first publication by news media or the first announcement to
shareholders generally, whichever is earlier, of the terms of the proposed
corporate action, as set forth in the dissenters' notice.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under s. 13.1-739.
s. 13.1-739 Procedure if shareholder dissatisfied with payment or offer.
A. A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate (less any payment under s. 13.1-737), or reject the
corporation's offer under s. 13.1-738 and demand payment of the fair value
of his shares and interest due, if the dissenter believes that the amount paid
under s. 13.1-737 or offered under s. 13.1-738 is less than the fair
value of his shares or that the interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection A
of this section within thirty days after the corporation made or offered
payment for his shares.
s. 13.1-740 Court action.
A. If a demand for payment under s. 13.1-739 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the circuit court in the city or county described
in subsection B of this section to determine the fair value of the shares and
accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
B. The corporation shall commence the proceeding in the city or county
where its principal office is located, or, if none in this Commonwealth, where
its registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not residents of
this Commonwealth, whose demands remain unsettled parties to the proceeding as
in an action against their shares and all parties shall be served with a copy
of the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
VI-4
<PAGE>
D. The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this article. If the court
determines that such shareholder has not complied with the provisions of this
article, he shall be dismissed as a party.
E. The jurisdiction of the court in which the proceeding is commenced
under subsection B of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
F. Each dissenter made a party to the proceeding is entitled to judgment
(i) for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation or (ii) for
the fair value, plus accrued interest, of his after-acquired shares for which
the corporation elected to withhold payment under s. 13.1-738.
s. 13.1-741 Court costs and counsel fees.
A. The court in an appraisal proceeding commenced under s. 13.1-740
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess
costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds the dissenters did not act in good
faith in demanding payment under s. 13.1-739.
B. The court may also assess the reasonable fees and expenses of experts,
excluding those of counsel, for the respective parties, in amounts the court
finds equitable:
1. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of ss. 13.1-732 through 13.1-739; or
2. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed did not act in good faith with respect to the rights provided by this
article.
C. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded
the dissenters who were benefited.
D. In a proceeding commenced under subsection A of s. 13.1-737 the
court shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
VI-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article TENTH of Giant's Certificate of Incorporation provides that Giant
shall indemnify and hold harmless, to the fullest extent authorized by the
Delaware General Corporation Law, its officers and directors against all
expenses, liability and loss actually and reasonably incurred in connection
with any civil, criminal, administrative or investigative action, suit or
proceeding. The Amended and Restated Certificate of Incorporation also extends
indemnification to those serving at the request of Giant as directors,
officers, employees or agents of other enterprises.
In addition, Article NINTH of Giant's Certificate of Incorporation
provides that no director shall be personally liable for any breach of
fiduciary duty. Article NINTH does not eliminate a director's liability (i) for
a breach of his or her duty of loyalty to Giant or its shareholders, (ii) for
acts of intentional misconduct, (iii) under Section 174 of the Delaware General
Corporation Law for unlawful declarations of dividends or unlawful stock
purchases or redemptions, or (iv) for any transactions from which the director
derived an improper personal benefit.
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify its directors and officers against expenses (including attorney's
fees), judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties, if such directors or officers acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reason to believe their conduct was unlawful. In a derivative action, i.e.,
one by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors and officers in
connectionly with respect to a matter as to which they shall have acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification shall be made
if such person shall have been adjudged liable to the corporation, unless and
only to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant officers or directors are
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.
Section 102(b)(7) of the Delaware General Corporation Law provides that a
corporation may eliminate or limit the personal liability of a director to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit. No such provision shall eliminate or limit the liability of a director
for any act or omission occurring prior to the date when such provision becomes
effective.
Item 21. Exhibits and Financial Statements
(a) Exhibits
The exhibits required by Item 601 of Regulation S-K and filed herewith are
listed in the Exhibit Index immediately preceding the exhibits.
(b) Financial Statement Schedules
All schedules are omitted as the required information is presented in the
consolidated financial statements or related notes incorporated by reference in
the Proxy Statement/Prospectus or are not applicable.
(c) Reports, Opinions or Appraisals
Opinion of CoView Capital, Inc. (filed as Annex V to the Proxy
Statement/Prospectus constituting part of this Registration Statement and
incorporated herein by reference).
II-1
<PAGE>
Item 22. Undertakings
(1) The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the undersigned registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(3) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and Giant
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Bath, State of
Pennsylvania on September 30, 1997.
GIANT CEMENT HOLDING, INC.
By: /s/ Gary L. Pechota
-------------------
Gary L. Pechota
Chairman, President, Chief
Executive
Officer and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary L. Pechota and Terry L. Kinder, and each of
them, such person's true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for such persons and in such person's name,
place and stead, in any and all capacities, to sign any and all Amendments
(including pre-effective and post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the United States Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, and both of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents, or either
of them, or his substitute or substitutes, may lawfully do or cause to be done
by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------------------------- ---------------------------------------------- -------------------
<S> <C> <C>
/s/ Gary L. Pechota Chairman, President, Chief Executive Officer September 30, 1997
- ------------------------- and Director (principal executive officer)
Gary L. Pechota
/s/ Terry L. Kinder Vice President, Chief Financial Officer, September 30, 1997
- ------------------------- Secretary, Treasurer and Director
Terry L. Kinder (principal financial and accounting officer)
/s/ Dean M. Boylan Director September 30, 1997
- -------------------------
Dean M. Boylan
/s/ Edward Brodsky Director September 30, 1997
- -------------------------
Edward Brodsky
/s/ Robert L. Jones Director September 30, 1997
- -------------------------
Robert L. Jones
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
Unless otherwise indicated, exhibits are incorporated by reference to the
correspondingly numbered exhibits in the Giant Cement Holding, Inc.'s
Registration Statement on Form S-1 (Registration No. 33-78260)
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ------------- ---------------------------------------------------------------------------------- ---------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of September 10, 1997, by and among
Giant Cement Holding, Inc., GCHI Acquisition Corp and Solite Corporation
(filed as Annex I to the Proxy Statement/Prospectus included in this Registration
Statement)
3.1 Certificate of Incorporation
3.2 Bylaws
5.1* Opinion of Proskauer Rose LLP regarding legality
8.1* Opinion of Proskauer Rose LLP re tax matters
8.2* Opinion of McGuire Woods Battle & Boothe LLP re tax matters
10.1 1994 Employee Stock Option Plan
10.2 1994 Outside Director Stock Option Plan
10.3 Form of Employment Agreement between the Company and Gary L. Pechota, as
amended
10.4 Form of Employment Agreement between the Company and Terry L. Kinder, as
amended
10.5 Loan and Security Agreement, dated November 23, 1993, between Giant and The
CIT Group/Equipment Financing, Inc.("CIT")
10.6 Secured Promissory Note, date November 23, 1993, from Giant to CIT
10.7 South Carolina Mortgage and Security Agreement, dated November 23, 1993,
between Giant and CIT
10.8 Continuing Guarantee Agreement, dated November 23, 1993, between Giant and
CIT
10.9 Collateral Value Maintenance Agreement, dated November 23,1993, between
Giant and CIT
10.10 Form of First Amendment to Loan and Security Agreement between Giant and
CIT
10.11 Form of Continuing Guaranty Agreement by the Company in favor of CIT
10.12 Form of Second Amendment to Loan and Security Agreement between Giant and
CIT
10.13 Secured Promissory Note, dated August 31, 1995, from Giant to CIT
10.14 Form of Release and Indemnification Agreement between GROUP, KCC
Delaware Company, and the Company
10.15 Tax Sharing Agreement, dated November 23, 1993, between the Company and
GROUP
10.16 Form of Tax Sharing and Indemnification Agreement between the Company and
GROUP
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.17 Credit Agreement, dated December 20, 1996, between GCHI, Giant, Keystone,
GRR, GCHI Investments and Giant NC and SouthTrust Bank of Alabama.
(incorporated by reference to Giant's Annual Report on Form 10-K for the year
ended December 31, 1996)
21.1 List of Subsidiaries of the Registrant (incorporated by reference to Giant's
Annual Report on Form 10-K for the year ended December 31, 1996)
23.1* Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Coopers & Lybrand L.L.P.
23.3* Consent of Proskauer Rose LLP (included in exhibit 5.1)
24.1 Powers of Attorney (included in Part II of the Registration Statement)
</TABLE>
- --------
* Filed herewith.
II-5
EXHIBIT 5.1
September 30, 1997
Giant Cement Holding, Inc.
320-D Midland Parkway
Summerville, SC 29484
Ladies and Gentlemen:
You have requested our opinion in connection with the filing by Giant
Cement Holding, Inc., a Delaware corporation (the "Company"), with the
Securities and Exchange Commission of a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act") with respect to 650,000 shares of common stock, par value $.01 per share,
of the Company (the "Shares").
We have examined such records, documents and other instruments as we have
deemed relevant and necessary as a basis for the opinions hereinafter set
forth. We have also assumed without investigation the authenticity of any
document submitted to us as an original, the conformity to originals of any
document submitted to us as a copy, the authenticity of the originals of such
latter documents, the genuineness of all signatures and the legal capacity of
natural persons signing such documents.
Based on the foregoing, and in reliance thereon, we are of the opinion
that the Shares (to the extent issued and sold by the Company) have been duly
authorized and, when issued and delivered as described in the Registration
Statement, will be legally issued, fully paid and non-assessable.
We are admitted to the bar of the State of New York, and we express no
opinion as to the laws of any jurisdiction other than the laws of the State of
New York, the General Corporation Law of the State of Delaware, and the laws of
the United States of America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Proxy Statement/Prospectus contained in the Registration
Statement. In so doing, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ PROSKAUER ROSE LLP
[LETTERHEAD OF PROSKAUER ROSE LLP]
September 30, 1997
Giant Cement Holding, Inc.
320-D Midland Parkway
Summerville, SC 29484
Solite Corporation
2508 Chamberlayne Avenue
Richmond, VA 23222
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax consequences to
Giant Cement Holding, Inc. ("Giant"), a Delaware corporation, Solite Corporation
("Solite"), a Virginia corporation, and the shareholders of Solite, resulting
from the acquisition by Giant of all of the stock of Solite in exchange for
voting common stock of Giant, which will be accomplished by the merger (the
"Merger") of GHCI Acquisition Corp. ("Sub"), a Virginia corporation and a
wholly-owned subsidiary of Giant that was organized and will be used solely for
purposes of the Merger, with and into Solite pursuant to the Agreement and Plan
of Merger dated as of September 10, 1997 (the "Merger Agreement") among Giant,
Sub and Solite.
Descriptions of (i) the Merger, (ii) (A) the conversion (the "Conversion") of
the preferred stock of Solite into common stock of Solite and (B) the
distribution (the "Spin-Off") by Solite to the Solite shareholders of stock of
Northeast Solite Corporation ("Northeast Solite"), a New York corporation that
is a wholly-owned subsidiary of Solite, which will precede the Merger, and (iii)
the private letter ruling with respect to the federal income tax consequences of
the Spin-Off received by Solite from the Internal Revenue Service, are set forth
in the Statement/Prospectus forming part of Giant's Registration Statement on
Form S-4 dated September 30, 1997 (the "Proxy Statement/Prospectus").
Our opinion as stated herein is based upon and subject to (i) the Merger, the
Conversion, and the Spin Off and related transactions being effected in the
manner described in the Proxy.
<PAGE>
Giant Cement Holding, Inc.
Solite Corporation
September 30, 1997
Page 2
Statement/Prospectus and in accordance with the provisions of the Merger
Agreement, (ii) the accuracy of the representations made to us by Giant, Solite
and Northeast Solite in their respective officer's certificates dated the date
of this opinion (the "Officer's Certificates"), (iii) the accuracy of the
representations, and compliance with the covenants, contained in the Merger
Agreement, insofar as they relate to or affect the tax treatment of the Merger,
the Conversion and the Spin-Off, and (iv) none of the consideration being
received by any holder of Solite common stock for that stock being other than
Giant common stock (except for cash paid for fractional share interests).
In rendering our opinion, we have considered the applicable provisions of the
Code, Treasury Regulations, pertinent judicial authorities, rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant. Any subsequent change therein may adversely affect the conclusions
reached in this opinion.
Subject to the limitations set forth herein, we are of the opinion that the
discussion of the material federal income tax consequences of the Merger set
forth on page 31 of the Proxy Statement/Prospectus is correct.
This opinion is being furnished only to Giant and Solite, on its own behalf and
on behalf of its shareholders, in connection with the Merger, in accordance with
section 7.3(e) of the Merger Agreement, and may not be used or relied upon for
any other purpose. This opinion may be included as an exhibit to Giant's
Registration Statement on Form S-4 dated September 30, 1997, and in that
connection, we hereby consent to the references to our firm in the Proxy
Statement/Prospectus included in the Registration Statement. In giving this
consent, we do not admit that we come within the category of persons who consent
is required under Section 7 of the Securities Act or the rules and regulations
of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Proskauer Rose LLP
Exhibit 8.2
September 30, 1997
Giant Cement Holding, Inc.
320-D Midland Parkway
Summerville, SC 29484
Solite Corporation
2508 Chamberlayne Avenue
Richmond, VA 23222
Ladies and Gentlemen
You have requested our opinion as to certain federal income tax consequences to
Giant Cement Holding, Inc. ("Giant"), a Delaware corporation, Solite Corporation
("Solite"), a Virginia corporation, and the shareholders of Solite, resulting
from the acquisition by Giant of all of the stock of Solite in exchange for
voting common stock of Giant, which will be accomplished by the merger (the
"Merger") of GHCI Acquisition Corp. ("Sub"), a Virginia corporation and a
wholly-owned subsidiary of Giant that was organized and will be used solely for
purposes of the Merger, with and into Solite pursuant to the Agreement and Plan
of Merger dated as of September 10, 1997 (the "Merger Agreement") among Giant,
Sub and Solite.
Descriptions of (i) the Merger, (ii) (A) the conversion (the "Conversion") of
the preferred stock of Solite into common stock of Solite and (B) the
distribution (the "Spin-Off") by Solite to the Solite to the Solite shareholders
of the stock of Northeast Solite Corporation ("Northeast Solite"), a New York
corporation that is a wholly-owned subsidiary of Solite, which will precede the
Merger, and (iii) the private letter ruling with respect to the federal income
tax consequences of the Spin-Off received by Solite from the Internal Revenue
Service, are set forth in the Proxy Statement/Prospectus forming part of Giant's
Registration Statement on Form S-4 dated September 30, 1997 (the "Proxy
Statement/Prospectus").
Our opinion is as stated herein is based upon and suject to (i) the Merger, the
Conversion, and the Spin-Off and related transactions being effected in the
manner described in the Proxy
<PAGE>
Giant Cement Holding, Inc.
Solite Corporation
September 30, 1997
Page 2
Statement/Prospectus and in accordance with the provisions of the Merger
Agreement, (ii) the accuracy of the representations made to us by Giant, Solite
and Northeast Solite in their respective officer's certificated dated the date
of this opinion (the "Officer's Certificates"), (iii) the accuracy of the
representations, and compliane with the convenants, contained in the Merger
Agreement, insofar as they relate to or affect the tax treatment of the Merger,
the Conversion and the Spin-Off, and (iv) none of the consideration being
received by any holder of Solite common stock for that stock being other than
Giant common stock (except for cash paid for fractional share interest).
In rendering our opinion, we have considered the applicable provisions of the
Code, Treasury Regulations, pertinent judicial authorities, rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant. Any subsequent change therein may adversely affect the conclusions
reached in this opinion.
Subject to the limitations set forth herein, we are of the opinion that the
discussion of the material federal income tax consequences of the Merger set
forth on page 31 of the Proxy Statement/Prospectus is correct.
This opinion is being furnished only to Giant and Solite, on its own behalf and
on behalf of its shareholders, in connection with the Merger, in accordance with
section 7.3(e) of the Merger Agreement, and may not be used or relied upon for
any other purpose. This opinion may be included as an exhibit to Giant's
Registration Statement on Form S-4 dated September 30, 1997, and, in that
connection, we hereby consent to the references to our firm in the Proxy
Statement/Prospectus included in the Registration Statement. In giving this
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ McGuire Woods Battle & Boothe LLP
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Proxy
Statement/Prospectus constituting a part of this Registration Statement on Form
S-4 of our report dated February 7, 1997, on our audit of the consolidated
financial statements and schedule of Giant Cement Holding, Inc. ("Giant") as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996. We also consent to the references to our firm under the
captions "Background Of The Spin-Off And The Merger" and "Experts" in the Proxy
Statement/Prospectus.
Charlotte, North Carolina
September 30, 1997
/s/ Coopers & Lybrand L.L.P.
-------------------------
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this Proxy Statement/Prospectus
constituting a part of the registration statement on Form S-4 of our report,
which includes an explanatory paragraph related to the Company's ability to
continue as a going concern, dated August 11, 1997, except as to the
information in the second paragraph of Note 1, for which the date is September
10, 1997, and Note 6 with respect to the extensions of maturity dates, for
which the date is September 24, 1997, on our audit of the financial statements
of Solite Corporation as of March 31, 1997 and 1996, and for the years then
ended.
Charlotte, North Carolina
September 30, 1997
/s/ Coopers & Lybrand L.L.P.
