<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
(Amendment No. 4)
---------------
TRANSCO ENERGY COMPANY
(Name of Subject Company)
TRANSCO ENERGY COMPANY
(Name of Person(s) Filing Statement)
Common Stock, Par Value $.50 Per Share
(and Associated Common Stock Purchase Rights)
(Title of Class of Securities)
89353210
(CUSIP Number of Class of Securities)
David E. Varner, Esq.
Senior Vice President, General Counsel and Secretary
Transco Energy Company
P.O. Box 1396
2800 Post Oak Blvd.
Houston, Texas 77251
(713) 439-2388
(Name, Address and Telephone Number of Person Authorized to Receive
Notice and Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
Eric S. Robinson, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
(212) 403-1000
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<PAGE>
This Amendment No. 4 amends and supplements the
Solicitation/Recommendation Statement on Schedule 14D-9 of Transco Energy
Company, a Delaware corporation (the "Company"), filed with the Securities and
Exchange Commission on December 16, 1994, as amended, relating to the tender
offer made by The Williams Companies, Inc., a Delaware corporation, disclosed in
a Tender Offer Statement on Schedule 14D-1 dated December 16, 1994, as amended,
to purchase up to 24,600,000 shares of the Company's common stock, par value
$.50 per share, and the associated common stock purchase rights.
1. Item 8(e) is hereby amended by adding the following:
A Stipulation and Agreement of Compromise, Settlement and Release with
respect to In re Transco Energy Company Shareholders Litigation, (Del.
----------------------------------------------------
Ch.)(C.A. No. 13918) and Diovanni v. DesBarres, et al., (Del. Ch.)
----------------------------
(C.A. No. 13941) (the "Stipulation") was executed on January 9, 1995. The
Stipulation reflects an agreement in principle among all parties in such
actions to settle all litigation which has been brought in the Delaware
Court of Chancery concerning the Offer and the Merger. As a result of such
settlement, which is subject to the approval of the Court of Chancery and
other conditions, the hearing scheduled for January 13, 1995 on the
Plaintiff's Motion for a Preliminary Injunction is expected to be
cancelled. A copy of the Stipulation is attached hereto as Exhibit 34 and
is incorporated herein by reference.
In connection with the proposed settlement and pursuant to the
Stipulation, Merrill Lynch has delivered to the Company a written opinion
dated January 9, 1995, which states that as of such date, the consideration
to be received by the stockholders of the Company (other than the Purchaser
and its affiliates) pursuant to the Offer and the Merger, taken as a whole,
is fair to such stockholders from a financial point of view. A copy of such
opinion, setting forth the assumptions made, the matters considered, and
the limitations on the review undertaken, is attached hereto as Exhibit 36
and is incorporated herein by reference. Also in connection with the
proposed settlement and pursuant to the Stipulation, Williams has agreed to
reduce the maximum amount of out-of-pocket expenses for which it would be
entitled to reimbursement from the Company under certain circumstance, as
provided in the Merger Agreement, from $15,000,000 to $12,000,000. The
Stipulation further provides that the defendants will be released from the
claims covered in the settlement, as described in the Stipulation, and that
the claims against the defendants will be dismissed with prejudice and that
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Williams and the Company will not object to payment by them of plaintiffs'
attorneys fees and expenses of up to $125,000 provided that the Court
approves the payment of such fees and expenses and the Offer is
consummated.
2. Item 9 is hereby amended and supplemented by adding the following exhibits:
(34) Stipulation and Agreement of Compromise, Settlement and Release,
dated January 9, 1995, with respect to In re Transco Energy
--------------------
Company Shareholders Litigation, (Del. Ch.)(C.A. No. 13918) and
-------------------------------
Diovanni v. DesBarres, et al., (Del. Ch.)(C.A. No. 13941).
-----------------------------
(35) Press Release, dated January 10, 1995, issued by The Williams
Companies, Inc.
(36) Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
dated January 9, 1995.
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<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
TRANSCO ENERGY COMPANY
By: /s/ David E. Varner
-----------------------------
Name: David E. Varner
Title: Senior Vice President,
General Counsel and Secretary
Date: January 10, 1995
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<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
IN RE TRANSCO ENERGY COMPANY : Consolidated
SHAREHOLDERS LITIGATION : C.A. NO. 13918
STIPULATION AND AGREEMENT OF
COMPROMISE, SETTLEMENT AND RELEASE
----------------------------------
The parties to the above-captioned consolidated action (the "Action"),
and C.A. No. 13941 (together, the "Actions") by and through their respective
attorneys, have entered into the following Stipulation and Agreement of
Compromise, Settlement and Release (the "Stipulation" or the "Settlement"),
subject to the approval of the Court of Chancery (the "Court"):
WHEREAS:
A. Plaintiffs are owners of shares of common stock of Transco Energy
Company ("Transco"). The plaintiffs instituted separate actions entitled:
Miller v. DesBarres, et al., Del. Ch., C.A. No. 13922; Weiss v. DesBarres, et
- --------------------------- ----------------------
al., Del. Ch., C.A. No, 13923; Alpern v. Transco Energy Co., et al., Del. Ch.,
- --- ------------------------------------
C.A. No. 13918; Steiner v. DesBarres, et al., Del. Ch., C.A. No. 13920; Rand v.
---------------------------- -------
DesBarres, et al., Del. Ch., C.A. No. 13925; DeCasare v. DesBarres, et al., Del.
- ----------------- -----------------------------
Ch., C.A. No. 13926 and Diovanni v. DesBarres et al., Del. Ch., C.A. No. 13941.
----------------------------
Each action was brought as a class action pursuant to Rule 23 of the
<PAGE>
Rules of the Delaware Court of Chancery. By order of the Court entered on
December 21, 1994, all of the actions, with the exception of C.A. No. 13941,
which was filed after the Court's entry of the order of consolidation, were
consolidated under the caption: In re Transco Energy Company Shareholders
-----------------------------------------
Litigation, Consolidated Civil Action No, 13918.
- ----------
B. The defendants in the Actions are: John P. DesBarres, William H.
Luers, Frederick H. Schultz, Gordon F. Ahalt, Benjamin F. Bailar, Robert W. Fri,
J. David Grissom, Patricia L. Higgins, all of whom were directors of Transco at
the time of the Agreement and Plan of Merger described below, Transco/1/ and The
Williams Companies, Inc. ("Williams").
C. On December 12, 1994, Williams, Transco and WC Acquisition Corp., a
wholly-owned subsidiary of Williams, entered into an agreement and plan of
merger (the "Merger Agreement") providing for the merger of WC Acquisition Corp.
with and into Transco with Transco surviving as a subsidiary of Williams. The
Merger Agreement provides that in furtherance of the Merger Agreement, Williams
will make a cash tender offer (the "Offer") to acquire up to 24,600,000 shares
of Transco's common stock (representing approximately 60 percent of the
outstanding common stock of Transco), par value $.50 per share,
- ---------------------
/1/ The Transco directors and Transco are collectively referred to as the
"Transco Defendants."
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<PAGE>
together with attached rights, for $17.50 per share. The Merger Agreement
provides for, among other things, reimbursement of Williams' expenses, under
certain circumstances, in an amount in cash (not to exceed $15,000,000) (the
"Reimbursement Fee Cap") equal to the aggregate amount of Williams' documented
out-of-pocket expenses incurred in connection with pursuing the transactions
contemplated by the Merger Agreement./2/
D. As a condition to the willingness of Williams to enter into the Merger
Agreement, Williams required that Transco agree, and in order to induce Williams
to enter into the Merger Agreement, Transco entered into, concurrently with the
execution of the Merger Agreement, a Stock Option Agreement (the "Stock Option
Agreement") providing for a grant of an option to Williams to purchase, at a per
share price of $17.50 per share, and conditions provided for therein, up to
7,500,000 shares of Transco common stock. The Merger Agreement, together with
the Stock Option Agreement and any agreements incident thereto, including but
not limited to Transco's executive compensation agreements and/or arrangements
referred to in Transco's
- ----------------------
/2/ For a more detailed description of the circumstances and developments
leading to the Merger Agreement, see the Schedule 14D-1 dated December 16, 1994
(the "Schedule 14D-1") filed by Williams and the Schedule 14D-9 filed by
Transco. The summary information set forth herein is qualified in its entirety
by the more detailed information presented in the Schedule 14D-1 and the
Schedule 14D-9.
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Schedule 14D-9 dated December 16, 1994, are referred to collectively herein as
the "Challenged Transactions."
E. On December 12, 1994, Williams announced its offer and on December 16,
1994, Williams commenced its Offer. The Offer is presently scheduled to expire
on January 17, 1995.
F. Following the announcement of the Offer, the various class action
complaints were filed in the Court of Chancery of the State of Delaware in and
for New Castle County.
G. The Actions allege, among other things, that the Transco directors
breached their fiduciary duties in connection with the Challenged Transactions
and that Williams aided and abetted the breaches of fiduciary duty by the
Transco Defendants. The plaintiffs sought and obtained expedited discovery in
anticipation of filing a motion to enjoin the Challenged Transactions.
H. Plaintiffs, through their counsel, have made a thorough investigation
of the facts and circumstances relevant to the Actions, and have conducted
extensive discovery and investigation during the prosecution of the Actions,
including, inter alia, (i) serving document requests upon all defendants, (ii)
----- ----
examining thousands of pages of documents obtained during discovery and from
Plaintiffs' investigation, (iii) deposing certain of the defendants as well as
third parties known to
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<PAGE>
possess information relevant to the Actions, and (iv) researching the facts and
law pertaining to the claims asserted in the Actions.
I. While Plaintiffs believe that the claims asserted in the Actions have
merit, they also believe that the settlement provided for herein will provide
substantial benefits to the Class, when weighed against the continued risk of
litigation. In addition to the substantial benefits provided by the settlement
to the Class, Plaintiffs and their counsel have considered the expense and
length of time necessary to prosecute the action through trial, the defenses
asserted by and available to defendants, the uncertainties of the outcome of the
Actions and the fact that resolution of the Actions, if favorable to Plaintiffs,
would likely be submitted for appellate review. In light of these
considerations, Plaintiffs, through their counsel, have engaged in arms-length
negotiations with counsel for Defendants in an attempt to achieve a certainty of
a positive outcome of the Actions and have determined that it is in the best
interests of the Class to settle the Actions on the terms set forth herein.
J. The Defendants, and each of them, have at all times denied, and
continue to deny, that they have committed, or have threatened to commit, any
wrongful act or violation of law of any nature whatsoever in connection with (a)
any of the matters
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<PAGE>
alleged, or which could have been alleged in the Actions and (b) any matter
relating to the Challenged Transactions. The Defendants entered into the
Settlement because it will (a) halt the substantial expense, inconvenience and
distraction of continued litigation of the plaintiffs' claims, (b) finally put
to rest those claims and (c) dispel any uncertainty that may exist as a result
of the Actions.
NOW, THEREFORE, IT IS STIPULATED AND AGREED, subject to the approval
of the Court, pursuant to Chancery Court Rule 23, that any and all claims,
rights, causes of action, suits, matters and issues, known or unknown,
liquidated or non-liquidated, contingent or absolute, state or federal, that
have been, could have been, or in the future could be asserted, either directly,
individually, representatively, derivatively or in any other capacity, by the
Plaintiffs, any member of the Class (as defined below), or by any of their
present or former directors, officers, agents, employees, attorneys,
representatives, advisers, investment bankers, commercial bankers, trustees,
parents, affiliates, subsidiaries, general or limited partners, shareholders,
heirs, executors, administrators, successors and assigns, against the
Defendants, or any of their respective present or former directors, officers,
agents, employees, attorneys, accountants, representatives, advisers, investment
bankers, commercial bankers, trustees, parents,
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<PAGE>
affiliates, subsidiaries, general or limited partners, shareholders, heirs,
executors, administrators, successors and assigns, or anyone else (the "Released
Parties"), or against any of the present or former directors, officers, agents,
employees, attorneys, representatives, advisers, investment bankers, commercial
bankers, trustees, parents, affiliates, subsidiaries, general or limited
partners, shareholders, heirs, executors, administrators, successors and assigns
of the Released Parties, in connection with, or that arise out of or relate to,
the subject matter of the Actions, the Challenged Transactions and any related
transactions, the negotiation, consideration and approval thereof, the fiduciary
or disclosure obligations of any of the Defendants in connection with the
foregoing, or any of the acts, facts, transactions, occurrences, representations
or omissions alleged in any pleading or proposed pleading filed by any party in
the Actions, or which is or could have been asserted against the Released
Parties in connection with the Actions (the "Settled Claims"), except purported
claims, if any, to enforce the terms or conditions of this Stipulation, shall be
compromised, settled, released, discharged and dismissed with prejudice, upon
the subject to the following terms and conditions:
1. For settlement purposes only, these Actions shall be
consolidated, maintained and proceed as a class action, pursuant to Rules 23(a)
and 23(b)(2) (with no opt-out
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<PAGE>
rights), on behalf of a class consisting of all persons and entities who were
holders of common stock of Transco on or after December 11, 1994 and their
successors in interest, transferees and assigns, immediate and remote, except
the Defendants and any person, firm, trust, corporation, or other entity,
corporation, or other entity related to or affiliated with any of the Defendants
(the "Class").
2. In settlement of the Actions, the Transco Defendants agree to
provide a fairness opinion by Merrill Lynch, Pierce, Fenner, & Smith
Incorporated ("Merrill Lynch") which updates, through January 9, 1995, the
opinion given by Merrill Lynch to the Transco Board of Directors on December 11,
1994.
3. Also in settlement of the Actions, the Defendants agree to reduce
the Reimbursement Fee Cap from $15,000,000 to $12,000,000. Williams will
publicly announce the terms of the settlement as soon as practicable.
4. Joint Application for Court Order. As soon as practicable after
---------------------------------
the Stipulation has been executed, the parties shall jointly move the Court to
enter an order (the "Hearing Order"), in substantially the form to be agreed to
by the parties (using their reasonable best efforts) in connection with this
Stipulation, (i) temporarily certifying the Actions, for purposes of the
Settlement only, as class actions, pursuant to Chancery Court Rules 23(a) and
23(b)(2) (with no opt-out
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<PAGE>
rights) with each of the named plaintiffs in each of the Actions as the
representatives of the Class, (ii) defining the Class as provided in paragraph 1
above, (iii) approving the form of notice (the "Notice"), and the procedure for
providing notice to the Class, (iv) setting a hearing date for consideration of
the Settlement and specifying certain procedures with respect thereto, (v)
enjoining all members of the Class from instituting, commencing, prosecuting or
continuing, directly, representatively, individually, derivatively, on behalf of
the Class, or in any other capacity, any action or other proceeding asserting
any claim that is a Settled Claim as defined herein, and (vi) providing that,
while the Settlement is pending, all discovery and other pretrial proceedings in
the Actions be stayed.
5. Defendants will pay the cost of providing the Notice of the
Settlement to the members of the Class in connection with the settlement of the
Actions and the settlement hearing.
6. If the Settlement provided for herein shall be approved by the
Court following a hearing, the parties hereto shall jointly move the Court for
the entry of the Order and Final Judgment (or orders, if the Court determines
the matters specified below in more than one order) (the "Final Judgment") in
substantially the form to be agreed to by the parties (using
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<PAGE>
their reasonable best efforts) in connection with this Stipulation:
(a) certifying the Class for purposes of the Settlement only;
(b) approving the Settlement as fair, reasonable and adequate and
directing consummation of the Settlement in accordance with the terms and
conditions of this Stipulation;
(c) dismissing the Actions with prejudice on the merits, without
costs except as herein provided, and releasing the Settled Claims as provided
herein, such dismissal and release to be subject only to compliance by the
parties with the terms and conditions of this Stipulation and any order of the
Court with reference to the Settlement;
(d) awarding Plaintiffs' Counsel such fees and expenses as the Court
deems appropriate or reserving jurisdiction over any application for fees and
expenses; and
(e) reserving jurisdiction over all matters relating to the
administration and consummation of the Settlement provided for herein.
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<PAGE>
7. If the Settlement is approved by the Court, Plaintiffs' Counsel
intend to apply to the Court for a collective award of attorneys' fees and
expenses not to exceed a total of $125,000. Defendants will not oppose such
application (not to exceed such amounts) and will pay to Plaintiffs' Counsel the
fees and disbursements awarded by the Court, together with interest accrued on
such amount at the then current U.S. Treasury Bill rate from, but not including
the date on which the order approving payment of such fees and disbursements is
entered. However, the Defendants' obligation to pay any fees and expenses is
contingent upon the shares being purchased in the Offer. Defendants reserve the
right to oppose any other application for an award of attorneys' fees and
disbursements made to the Court or to any other court by, or on behalf of,
Plaintiffs' Counsel, any member of the Class or any other person.
8. If the Final Judgment approving the Settlement is entered and
becomes final by lapse of time or otherwise, then, within 10 days thereafter,
Defendants will make the payment to Plaintiffs' Counsel specified in paragraph 7
above, subject to the contingency referred to in paragraph 7.
9. If (a) the Court declines, in any respect, to enter the Final
Judgment referred to in paragraph 6 above and any of the parties fails to
consent to the entry of another
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<PAGE>
form of order in lieu thereof; or (b) the Court disapproves the Settlement
proposed herein, including any amendments thereto agreed upon by all of the
parties; or (c) the Court approves the Settlement proposed herein, including any
amendment thereto approved by all the parties, but such approval is reversed on
appeal or petition for writ of certiorari and such reversal becomes final by a
lapse of time or otherwise; or (d) the release of claims is successfully
challenged in a collateral attack on the Settlement pending on the date the
Final Judgment becomes final; then, in any such event, this Stipulation,
including any amendment thereof, shall be of no further force or effect and this
Stipulation and any amendment thereof and the Settlement proposed herein shall
be null and void without prejudice to any party hereto and may not be introduced
as evidence or referred to in any proceedings, and each party shall be restored
to his, her or its respective position as it existed prior to the execution of
this Stipulation, except that Defendants shall not be entitled to reimbursement
of costs of providing the Notice pursuant to paragraph 5 above.
10. The administration of the Settlement and final decision as to all
disputed questions of law and fact with respect thereto and this Stipulation
shall be under the jurisdiction of the Court.
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<PAGE>
11. This Stipulation and all negotiations, statements, proceedings and
documents related to it are not, and shall not be construed to be, an admission
by any of the parties respecting the validity or the invalidity of any of the
claims asserted in the Actions, or of the liability of any party with respect to
any such claims or any alleged wrongdoing whatsoever, and shall not be offered
by any party or person for any evidentiary purpose, including as an admission of
any such liability or wrongdoing or for the validity or invalidity of any of the
claims in the Actions or any other action.
12. The fairness, reasonableness and adequacy of the Settlement may be
considered and ruled upon by the Court independently of any award of fees or
expenses requested by Plaintiffs' Counsel.
13. The undersigned co-liaison counsel for plaintiffs in the Actions
represent and warrant (i) their authority to bind each of the originally named
plaintiffs in the Actions, and each of the counsel listed in the Order of
Consolidation and in C.A. No. 13941 and (ii) that to the best of their knowledge
no other actions, other than the Actions, are currently pending concerning the
subject matter of the Actions.
14. This Stipulation shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
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<PAGE>
15. This Stipulation shall be interpreted according to Delaware law,
without reference to Delaware's principles of conflicts of laws.
16. The parties hereto and their attorneys agree to cooperate fully with
one another and to use their reasonable best efforts in seeking Court approval
of this Stipulation and the Settlement.
17. Without further order of the Court, the parties may agree to
reasonable extensions of time to carry out any of the provisions of this
Stipulation.
18. This Stipulation, and the form of the Hearing Order, the Notice and
the Final Judgment to be agreed to by the parties (using their reasonable best
efforts) in connection with the Settlement, constitutes the entire agreement of
the parties with respect to the subject matter hereof and may not be amended, or
any of its provisions waived, except by a writing executed by all of the parties
hereto.
19. This Stipulation may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when such counterparts have been signed by counsel for each of the parties and
delivered to counsel for the other parties.
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<PAGE>
DATED: January 9, 1995
/s/ Joseph A. Rosenthal
---------------------------------
Joseph A. Rosenthal
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
First Federal Plaza
Suite 214
P.O. Box 1070
Wilmington, Delaware 19899-1070
(302) 656-4433
Attorneys for Plaintiffs in
Civil Action Nos. 13920,
13922, 13923, 13925, 13926
and 13941
/s/ Carolyn D. Mack
---------------------------------
Pamela S. Tikellis
Carolyn D. Mack
CHIMICLES, JACOBSEN & TIKELLIS
One Rodney Square
P.O. Box 1035
Wilmington, DE 19894
Attorneys for Plaintiffs in
Civil Action No. 13918
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<PAGE>
/s/ Karen L. Valihura
---------------------------------
Steven J. Rothschild
Karen L. Valihura
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
Attorneys for The Williams
Companies, Inc.
/s/ Lisa A. Schmidt
---------------------------------
Jesse A. Finkelstein
Lisa A. Schmidt
Catherine G. Wagner
RICHARDS, LAYTON & FINGER
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19801
(302) 651-7754
Attorneys for the Transco
Defendants
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NEWS
[LETTERHEAD OF THE WILLIAMS COMPANIES, INC. APPEARS HERE}
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For release: Jan. 10, 1995
For more information contact: Jim Gipson (918) 588-2111 (Media)
Linda Lawson (918) 588-2087 (Investors)
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Williams announces settlement of litigation in tender offer for Transco Energy
TULSA -- The Williams Companies, Inc. announced today an agreement has been
reached to settle all the litigation that has been brought in the Delaware Court
of Chancery concerning Williams' pending cash tender offer to acquire up to 24.6
million, or approximately 60 percent, of Transco Energy Company's common stock.
As a result of the agreement, which is subject to the approval of the Court
of Chancery, a preliminary injunction hearing set for Friday is expected to be
canceled.
Pursuant to the settlement agreement:
. Williams has agreed to a reduction of the expense reimbursement cap
provided for in its merger agreement with Transco from $15 million to $12
million.
. Transco has obtained from its financial advisor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an updated opinion confirming that, as of the date
of the updated opinion, the consideration to be received by the stockholders of
Transco (other than Williams or its affiliates) pursuant to the tender offer and
merger, taken as a whole, is fair to such stockholders from a financial point of
view.
. All claims against the defendants will be dismissed with prejudice, and
Williams and Transco will not object to payment by them of attorneys' fees and
expenses of up to $125,000 provided that the court approves the payment of such
fees and expenses and the tender offer is consummated.
The cash tender offer runs through midnight, Eastern time, on January 17,
unless extended by Williams. The tender offer remains subject to various
conditions, including, among other things, the valid tender and non-withdrawal
at the expiration of the offer of at least 20.9 million shares, or
approximately 51 percent, of Transco's common stock.
Williams, listed on the New York Stock Exchange under the symbol WMB, owns
and operates three interstate pipeline systems, major natural gas gathering and
processing facilities, telecommunications companies that specialize in serving
businesses and broadcasters, and other companies that provide a variety of
services to the energy industry.
<PAGE>
[Letterhead of Merrill Lynch, Pierce, Fenner & Smith Incorporated]
January 9, 1995
Board of Directors
Transco Energy Company
2800 Post Oak Blvd., 21st Floor
Houston, Texas 77056
Ladies and Gentlemen:
Transco Energy Company (the "Company"), The Williams Companies, Inc. (the
"Acquiror") and WC Acquisition Corp., a wholly owned subsidiary of the Acquiror
(the "Acquisition Sub"), have entered into an Agreement and Plan of Merger dated
as of December 12, 1994 (the "Agreement") pursuant to which the Acquiror has
commenced a tender offer (the "Offer") for up to 60% of the outstanding shares
of the Company's common stock, par value $0.50 per share (the "Shares"), and
attached Company Rights, at $17.50 per Share (and attached Company Right), net
to the seller in cash, subject to certain conditions, including the Minimum
Condition that at least 51% of the outstanding Shares have been validly tendered
and not withdrawn. The Offer was commenced on December 16, 1994 and is expected
to expire on January 17, 1995. The Agreement also provides that, following
consummation of the Offer, Acquisition Sub will be merged with and into the
Company in a transaction (the "Merger") in which (i) each remaining Share will
be converted into the right to receive the Conversion Number of shares of common
stock, $1.00 par value, of the Acquiror (the "Acquiror Shares"), together with
one-half of the Conversion Number of an attached Parent Right, and cash, if any,
in the amount of the Per Share Cash Amount, (ii) each outstanding share of
Cumulative Convertible Preferred Stock, $4.75 Series, of the Company (the
"Company $4.75 Preferred Stock") will be converted into one share of $4.75
Series Cumulative Convertible Preferred Stock of Acquiror (the "Acquiror $4.75
Preferred Stock") initially convertible into 0.5588 of an Acquiror Share and
(iii) each outstanding share of Cumulative Convertible Preferred Stock, $3.50
Series, of the Company (the "Company $3.50 Preferred Stock" and, together with
the Company $4.75 Preferred Stock, the "Company Preferred Stock") will be
converted into one share of $3.50 Series Cumulative Convertible Preferred Stock
of Acquiror (the "Acquiror $3.50 Preferred Stock") initially convertible into
1.5625 Acquiror Shares. In connection with the Offer and the Merger, the Company
has also entered into a Stock Option Agreement dated as of December 12, 1994
(the "Stock Option Agreement") with the Acquiror pursuant to which the Company
has granted the Acquiror an option to purchase up to 7,500,000 Shares at an
exercise price of $ 17.50 per Share, representing approximately 15.5% of the
total Shares outstanding (assuming issuance of such 7,500,000 Shares), with
respect to which the
<PAGE>
Company may, upon exercise thereof, elect to cancel the option in lieu of
delivering Shares by making a cash payment to the Acquiror in an amount not to
exceed $2.00 per option Share. Capitalized terms used herein without definition
are defined in the Agreement and are used herein with the meanings ascribed to
such terms in the Agreement.
You have asked us whether, in our opinion, the consideration to be received
by the holders of the Shares and the Company Preferred Stock other than the
Acquiror and its affiliates in the Offer and the Merger, taken as a whole, is
fair to such stockholders from a financial point of view as of the date hereof.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31,
1993, the Company's Forms 10-Q and the related unaudited financial
information for the quarterly periods ending March 31, 1994, June 30,
1994 and September 30, 1994, and the Company's Forms 8-K dated
September 23, 1992, July 6, 1993, July 14, 1993, October 25, 1993 and
April 7, 1994;
(2) Reviewed the Acquiror's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31,
1993, the Acquiror's Forms 10-Q and the related unaudited financial
information for the quarterly periods ending March 31, 1994, June 30,
1994 and September 30, 1994, and the Acquiror's Form 8-K dated August
22, 1994;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Company and the Acquiror, furnished to us by the Company and the
Acquiror, respectively;
(4) Conducted discussions with members of senior management of the Company
and the Acquiror concerning their respective businesses, assets,
liabilities and prospects;
(5) Reviewed the historical market prices and trading activity for the
Shares and compared them with that of certain publicly traded
companies which we deemed to be reasonably similar to the Company, and
reviewed certain market prices and trading activity for the Company
Preferred Stock;
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(6) Reviewed the historical market prices and trading activity for the
Acquiror Shares and compared them with that of certain publicly traded
companies which we deemed to be reasonably similar to the Acquiror,
and reviewed the Acquiror's stock repurchase program and its effect on
the historical market prices and trading activity for the Acquiror
Shares;
(7) Compared the results of operations of the Company and the Acquiror
with that of certain companies which we deemed to be reasonably
similar to the Company and the Acquiror, respectively;
(8) Compared the financial terms of the transactions contemplated by the
Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(9) Reviewed the Agreement, including the forms of Certificate of
Designation, Preferences and Rights of the Acquiror $4.75 Preferred
Stock and the Acquiror $3.50 Preferred Stock attached as exhibits
thereto;
(10) Reviewed the Stock Option Agreement; and
(11) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company and
the Acquiror, and we have not independently verified such information or
undertaken an independent appraisal of the assets of the Company or the
Acquiror. With respect to the financial forecasts furnished by the Company and
the Acquiror, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of the Company's or
the Acquiror's management as to the expected future financial performance of the
Company or the Acquiror, as the case may be.
In connection with the transactions contemplated by the Agreement, we have
not been requested by the Company or the Board of Directors to solicit, nor have
we solicited, third-party indications of interest for the acquisition of all or
any part of the Company.
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We have, in the past, provided financial advisory and financing services to
the Company and have received fees for the rendering of such services. In the
ordinary course of business, we engage in trading the securities of the Company
and the Acquiror for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
On the basis of, and subject to, the foregoing, we are of the opinion that,
as of the date hereof, the consideration to be received by the holders of the
Shares and the Company Preferred Stock other than the Acquiror and its
affiliates pursuant to the Offer and the Merger, taken as a whole, is fair to
such stockholders from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/Richard K. Gordon
--------------------------------
Richard K. Gordon
Vice Chairman
Investment Banking Group
Merrill Lynch & Co.
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