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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
THE INTERLAKE CORPORATION
(NAME OF SUBJECT COMPANY)
THE INTERLAKE CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE (INCLUDING THE ASSOCIATED COMMON STOCK
PURCHASE RIGHTS)
AND
SERIES A CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASSES OF SECURITIES)
458702 10 7 (COMMON STOCK)
(CUSIP NUMBER OF CLASS OF SECURITIES)
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STEPHEN R. SMITH
VICE PRESIDENT, SECRETARY
AND GENERAL COUNSEL
THE INTERLAKE CORPORATION
550 WARRENVILLE ROAD
LISLE, ILLINOIS 60532-4387
(630) 852-8800
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
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WITH A COPY TO:
JAMES M. REUM, ESQ.
WINSTON & STRAWN
35 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601
(312) 558-5644
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is The Interlake Corporation, a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 550 Warrenville Road, Lisle, Illinois 60532-4387. The title of
the classes of equity securities to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (this "Schedule 14D-9") relates are (a) the shares
of Common Stock, par value $1.00 per share, of the Company (the "Common
Shares"), including the associated Common Stock purchase rights (the "Rights")
issued pursuant to that certain Rights Agreement dated as of January 26, 1989
between the Company and The First National Bank of Chicago, as Rights Agent, as
amended, and (b) the shares of Series A Convertible Exchangeable Preferred
Stock, par value $1.00 per share, of the Company (the "Series A Shares").
References herein to the "Shares" means the Common Shares (including the Rights
unless the context otherwise requires) and the Series A Shares.
ITEM 2. TENDER OFFER OF THE BIDDER
This Schedule 14D-9 relates to the tender offer by GKN North America
Manufacturing Inc., a Delaware corporation (the "Purchaser") and a wholly-owned
subsidiary of GKN North America Incorporated, a Delaware corporation ("Parent"),
disclosed in a Tender Offer Statement on Schedule 14D-1 dated December 10, 1998
(the "Schedule 14D-1"), to purchase all the outstanding Common Shares at a price
of $7.25 per share (the "Common Share Offer Price") and all the outstanding
Series A Shares at a price of $1,980.87 per share (the "Series A Share Offer
Price"), net to the seller in cash, without interest, upon the terms and subject
to the conditions set forth in the Offer to Purchase dated December 10, 1998
(the "Offer to Purchase") and the related Letter of Transmittal (which, together
with any amendments or supplements thereto, collectively constitute the
"Offer"), copies of which are filed as Exhibits(a)(1) and (a)(2) hereto,
respectively, and incorporated herein by reference.
The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of December 5, 1998 (the "Merger Agreement") among Parent, the Purchaser and
the Company, which provides for the making of the Offer by the Purchaser,
subject to the conditions and upon the terms of the Merger Agreement, and for
the subsequent merger of the Purchaser with and into the Company (the "Merger").
The obligations of Parent and the Purchaser under the Merger Agreement are
unconditionally guaranteed by GKN plc, a company publicly traded in the United
Kingdom and incorporated in England. In the Merger, each Share and each share of
non-voting common stock, par value $1.00 per share, of the Company (the
"Non-Voting Common Shares") outstanding at the Effective Time (as defined in the
Merger Agreement) (other than Shares and Non-Voting Common Shares then held by
Parent, the Purchaser, any wholly-owned subsidiary of Parent or the Purchaser,
in the treasury of the Company or by any wholly-owned subsidiary of the Company,
and other than Shares and Non-Voting Common Shares held by stockholders validly
exercising appraisal rights pursuant to the General Corporation Law of the State
of Delaware) will, by virtue of the Merger and without any action by the holder
thereof, be converted into the right to receive, without interest, an amount
equal to the Common Share Offer Price, in the case of the Common Shares and the
Non-Voting Common Shares, and the Series A Share Offer Price, in the case of the
Series A Shares (the "Merger Consideration").
The Merger Agreement, a copy of which is filed as Exhibit(c)(1) hereto, is
summarized in Section 10 of the Offer to Purchase and is incorporated herein by
reference.
The Schedule 14D-1 states that the principal executive offices of the
Purchaser and Parent are located at 3300 University Drive, Auburn Hills,
Michigan 48326-2362.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above, which information is
incorporated herein by reference.
(b)(1) General. The information summarizing the Merger Agreement under the
caption "Merger Agreement" contained in Section 10 of the Offer to Purchase is
incorporated herein by reference. Certain contracts, agreements, arrangements
and understandings between the Company and certain of its executive
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officers are described in the Information Statement dated December 10, 1998
included as Annex I to this Schedule 14D-9 and incorporated herein by reference.
The Information Statement will be furnished to the Company's stockholders
pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14f-1 issued under the Exchange Act, in
connection with Parent's right (after consummation of the Offer) to designate
persons to be appointed to the Board of Directors of the Company (the "Board")
other than at a meeting of the stockholders of the Company.
(2) Certain Executive Compensation and Other Employee-Related Matters in
Connection with the Merger.
Severance Agreements. Prior to the execution of the Merger Agreement, the
Company and W. Robert Reum, Stephen Gregory and Stephen R. Smith (collectively,
the "Senior Executives") were parties to severance agreements which provided
for, among other things, the payment of severance amounts and benefits upon
certain terminations of employment. The Merger Agreement provides that, at the
Effective Time of the Merger, the employment of each of the Senior Executives
with the Company will be deemed to be terminated following a change in control
under circumstances that will entitle them to the cash and other severance
benefits provided under their respective agreements in such circumstances. The
amount payable to the three Senior Executives under their respective agreements
(excluding any outstanding stock options which are to be cashed out) is expected
to be approximately $7.0 million in the aggregate.
At the time of the adoption of the Merger Agreement, the Board authorized
$7.5 million of funding for an existing "rabbi trust" relating to the above
severance benefits payable to the Senior Executives and $1.6 million of funding
for an existing "rabbi trust" relating to the benefits payable under the
Company's Directors' Post-Retirement Income Plan.
Effect of the Merger on Stock and Employee Benefit Plans. The Merger
Agreement contemplates that certain actions will be taken in respect of stock
and employee benefit plans in which executive officers of the Company are
eligible to participate. In accordance with the Merger Agreement, Parent and the
Company will take all necessary actions so that each outstanding option to
purchase Common Shares (whether or not then exercisable or vested) will be
surrendered and cancelled immediately prior to the consummation of the Offer for
a cash payment equal to the product of (i) the number of shares subject to the
option and (ii) the difference between the Common Share Offer Price and the per
share exercise price of the option.
The transactions contemplated by the Merger Agreement will constitute a
"change in control" for purposes of certain compensation and benefit programs of
the Company, including options which vest by their terms upon a "change in
control" (as such term is defined therein). Senior Executives hold such options
relating to an aggregate of 715,000 Common Shares.
The Merger Agreement provides that Parent will cause the Company after the
Effective Time to honor all employee benefit arrangements to which the Company
or any of its subsidiaries is presently a party; provided, however, that any
such arrangement may be amended or terminated to the extent permitted under the
applicable terms of such arrangement.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendations of the Board of Directors. At a meeting held on
December 4, 1998, the Board unanimously (i) approved the Offer and the Merger
Agreement, (ii) determined that the terms of the Offer and the Merger are fair
to, and in the best interests of, the stockholders of the Company, and (iii)
recommended that the stockholders of the Company accept the Offer and tender
their Shares pursuant to the Offer. Accordingly, the Board unanimously
recommends that the stockholders of the Company tender their Shares pursuant to
the Offer. Copies of the press release of the Company announcing the Merger
Agreement and the transactions contemplated thereby and a letter to the
stockholders of the Company communicating the Board's recommendation are filed
as Exhibits(a)(3) and (a)(4) hereto, respectively, and are incorporated herein
by reference.
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(b)(1) Background.
Having spent the first half of the 1990's addressing the consequences of a
1989 leveraged recapitalization followed by an economic recession, the Company
in 1996 implemented a four-pronged strategy: improving its businesses to drive
higher EBIT levels; lowering the Company's tax rate; effectively resolving its
legacy tax and environmental liabilities; and selling businesses not integral to
its higher-growth powdered metal and aerospace businesses. Consistent with this
strategy, the Company sold its packaging businesses in 1996 and completed the
sale of its non-U.S. material handling business (Dexion) in December 1997,
thereby eliminating its tax-inefficient foreign operations.
In the wake of the Dexion sale, the Board and Company management undertook
further consideration of the corporation's strategic alternatives. A broad array
of alternatives was reviewed at the February 22, 1998 Board meeting and two
alternatives were identified as preferred alternatives at the April 23, 1998
Board meeting. The primary course was to continue along the path of growing the
Company's powdered metal and aerospace businesses, successfully resolving legacy
liabilities, and thereby, together with eventual refinancing transactions,
improving net income and shareholder value.
The second alternative identified at the April 23rd Board meeting was a
business combination with a strategic partner. The most likely strategic partner
appeared to be Hoganas AB, a Swedish producer of powdered metals which owns 20%
of the Company's powdered metal subsidiary, Hoeganaes Corporation. Hoganas AB
owned all of Hoeganaes Corporation until 1968, when it sold two-thirds of the
corporation to the Company. (The Company increased its ownership to 80% in
1971.) Prior to 1998, representatives of Hoganas AB had from time to time
indicated to Company management Hoganas AB's interest in once again combining
the Hoganas and Hoeganaes businesses. However, Company management believed that
Hoganas AB did not have an interest in owning all of the Company. For this
reason, as discussed with the Board, Company management decided to approach
Hoganas AB regarding the possibility of a merger of the two companies, but only
following a spin-off of the Company's other businesses.
Just as Company management was preparing to approach Hoganas AB following
the April 23rd Board meeting, Hoganas AB sent Company management a letter dated
April 28, 1998 which proposed a negotiated cash merger -- but only after the
Company agreed to sell its remaining businesses and somehow resolve all of its
contingent liabilities. The letter was transmitted by McFarland Dewey & Co., an
investment banking firm which previously represented the Company in connection
with a 1992 financing, but now appeared to be representing Hoganas AB. While the
letter stated that such a transaction might produce a value of approximately
$6.50 per share for the Company's common stockholders, the letter made clear
that ultimate pricing would be based on paying an amount which represented a
value of only $240 million for the Company's 80% interest in Hoeganaes
Corporation. Company management concluded that such a valuation for Hoeganaes
Corporation, together with the after-tax proceeds from the sale of the Company's
other businesses, reduced by net indebtedness and the costs of resolving its
legacy liabilities, would produce little, if any, value for the Company's common
stockholders.
In response to the letter from Hoganas AB, Company management suggested
that a meeting be held in Helsingborg, Sweden at which the Company would present
a concept for a "merger of equals" that had been discussed with the Board on
April 23rd. At this meeting held on May 9, 1998, Company management made a
proposal under which the Company's stockholders would ultimately own
approximately 25% of the combined company based on the relative earnings of
Hoganas AB and Hoeganaes Corporation, adjusted for the larger amount of
indebtedness the Company would bring to the transaction. Representatives of
Hoganas AB indicated that they did not believe the two company's earnings should
be valued comparably, and the meeting ended without any agreement.
In subsequent telephone calls between W. Robert Reum, Chief Executive
Officer of the Company, and Ulf Linden, Chairman of Hoganas AB, it was agreed
that representatives of the Company and representatives of Hoganas AB would meet
in New York on June 8, 1998 to explore further how the concept of a spin-off of
the other Company businesses, together with an assumption of the legacy
liabilities by the spun-off entity, would be structured. At the end of this
meeting, Alan McFarland of McFarland Dewey & Co. indicated that
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Hoganas AB might be receptive to the Company's proposed structure, but that
Hoganas AB did not want to assume any portion of the Company's indebtedness.
During the ensuing two weeks, representatives of the Company, Hoganas AB
and McFarland Dewey & Co. had further discussions regarding ways in which a
merged entity might avoid higher debt levels as well as ways in which valuation
discussions might be moved forward. Company management was prepared to report to
the Board on these developments at a Board meeting on June 25, 1998. Immediately
prior to the commencement of that meeting, Hoganas AB delivered a letter to the
Company in which Hoganas AB indicated that its desire to own all of Hoeganaes
Corporation could be attained by purchasing all of the outstanding stock of the
Company. The proposal was subject to material due diligence and the commitment
of the Company's preferred stockholders to vote in favor of the transaction. The
Board discussed the letter and decided that the Company should retain financial
and legal advisors.
At a special meeting on July 23, 1998, the Board, in light of the June 25th
letter from Hoganas AB, decided to explore the possibility of a sale of the
entire Company and retained Morgan Stanley & Co. Incorporated ("Morgan Stanley")
as financial advisor for this purpose.
On July 24, 1998, Seifi Ghasemi, President and Chief Executive Officer of
GKN Sinter Metals, Hoeganaes Corporation's largest customer, met with Mr. Reum
at the Company's headquarters in Lisle, Illinois to discuss certain matters
arising out of the customer relationship between Sinter Metals and the Company
(which meeting had been scheduled prior to the July 23rd Board meeting). At this
meeting, Mr. Ghasemi discussed the growth plans of the GKN group and its
possible interest in acquiring a producer of powdered metal.
Following the July 23rd Board meeting, Morgan Stanley identified 22
potential strategic purchasers, out of over 100 companies it had internally
considered, who might be potential purchasers of the entire Company. Eight
potential purchasers were contacted. Four requested the Company's confidential
descriptive memorandum, which was distributed to such parties after each
executed a confidentiality agreement with the Company. Of those four parties,
only GKN plc and Hoganas AB expressed a serious level of interest.
By letter dated September 22, 1998, GKN submitted a preliminary and
non-binding indication of interest in acquiring 100% of the equity of the
Company. In the letter, GKN proposed to enter into exclusive arrangements for a
defined period during which it would complete its due diligence and confirm its
offer. The Company subsequently declined to enter into any such arrangement.
The next phase of the sale exploration process consisted of management
presentations by the Senior Executives in London to GKN plc on October 14, 1998
and to Hoganas AB on October 16, 1998, which was followed by further discussions
with both parties. On October 30, 1998, Morgan Stanley advised both parties that
bids for the purchase of the Company would be due on November 30, 1998, and
copies of the Company's proposed form of merger agreement were made available to
both parties the week of November 2, 1998.
On November 3, 1998, GKN plc commenced formal due diligence in a data room
in Lisle, Illinois. Hoganas AB began its formal due diligence the following
week, visiting the data room beginning on November 11, 1998. During the course
of each party's due diligence, its representatives were advised that a meeting
of the Board would be held on December 4, 1998 to consider any and all bids for
the purchase of the Company.
During the week of November 16, 1998, GKN plc requested that the bid date
be accelerated to earlier in November, as it had substantially completed its due
diligence. On November 23, 1998, McFarland Dewey & Co. asked whether the bid
period could be extended for Hoganas AB until December 7, 1998. In each case,
the Company's representatives responded that the November 30th date would not be
changed in order to maintain the fairness of the process.
On November 30, 1998, GKN plc submitted its bid to acquire the Company at a
price of $7.25 per Common Share, together with its proposed form of merger
agreement. Also on such date, a member of McFarland Dewey & Co. representing
Hoganas AB informed Morgan Stanley that Hoganas AB would not be
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submitting a bid. Over the week of November 30th, representatives of the Company
and GKN plc continued to negotiate the proposed terms and conditions of a merger
agreement.
A meeting of the Board was held on December 4, 1998 to consider the
proposed transaction, following earlier receipt by the directors of detailed
background materials relating to the proposed transaction several days prior
thereto. At this meeting, at which all directors were in attendance, the members
of the Board received detailed presentations from Company management and its
financial and legal advisors. Morgan Stanley delivered its oral opinion
(subsequently delivered in writing) that the proposed transaction, as of such
date, was fair from a financial point of view to the holders of Common Shares.
The Board unanimously approved the Offer and the Merger Agreement, determined
that the terms of the Offer and the Merger are fair to, and in the best
interests of, the stockholders of the Company, and recommended that the
stockholders of the Company accept the Offer and tender their Shares pursuant to
the Offer.
On December 4, 1998 and December 5, 1998, representatives of Parent, the
Purchaser, GKN plc and the Company finalized the terms of the Merger Agreement.
Thereafter, on December 5, 1998, the Merger Agreement was executed and delivered
by the parties. The execution of the Merger Agreement was announced prior to the
opening of the U.S. financial markets on Monday, December 7, 1998.
(2) Reasons for Recommendation.
In making the determinations and recommendation set forth in
subparagraph(a) above, the Board considered a number of factors, including,
without limitation, the following:
(i) the amount of consideration to be received by the Company's
stockholders in the Offer and the Merger, which represents a premium of
approximately 107% over the $3.50 closing sale price for the Common Shares
on the New York Stock Exchange on December 4, 1998, the last trading day
prior to the public announcement of the execution of the Merger Agreement;
(ii) information with regard to (x) the financial condition, results
of operations, business and prospects of the Company, including the
prospects of the Company if the Company were to remain independent, and (y)
the strategic alternatives available to the Company, the range of possible
benefits to the Company's stockholders of such alternatives, and the timing
and likelihood of accomplishing the goal of any of such alternatives;
(iii) the results of the process designed and executed by the Company
and Morgan Stanley to identify and solicit proposals from third parties to
enter into a strategic transaction with the Company; the views expressed by
Company management and Morgan Stanley that there appeared to be a limited
number of parties with which the Company would be a good strategic fit and
that there was only one formal bid; and the Board's conclusion that it was
not likely that any other party would propose a transaction that was more
favorable to the Company and its stockholders;
(iv) the financial analysis, oral and written presentations, and
opinion of Morgan Stanley delivered at the December 4, 1998 Board meeting
to the effect that, as of the date of such opinion, and subject to the
assumptions made, matters considered and limitations contained in such
opinion, the cash consideration to be received by the holders of the Common
Shares in the Offer and the Merger was fair, from a financial point of
view, to such holders. A copy of the opinion of Morgan Stanley which sets
forth the assumptions made, matters considered and limitations on the
review undertaken is attached hereto as Annex II to this Schedule 14D-9 and
is incorporated herein by reference. Stockholders are urged to read the
opinion of Morgan Stanley carefully and in its entirety;
(v) the business reputation and capabilities of GKN plc and its
management, and GKN plc's financial strength and commitments, including its
ability to finance the Offer and the Merger;
(vi) the fact that the transactions contemplated by the Merger
Agreement provide for an all cash payment to stockholders, with no
financing condition; there appeared to be no significant regulatory
impediments to consummation of the Offer and the Merger, and accordingly,
the Offer and the Merger could be promptly completed with a high degree of
certainty;
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(vii) the provisions of the Merger Agreement which permit the Board to
consider an unsolicited Alternative Proposal in order to comply with the
Board's fiduciary duties to the Company's stockholders and to terminate the
Merger Agreement upon payment to Parent of a termination fee of $10 million
and reimbursement of up to $2 million of Parent's reasonable aggregate
expenses; and
(viii) as required by the Company's certificate of incorporation,
other relevant factors, including the social, legal, environmental and
economic effects of the contemplated transaction on the Company's
employees, customers, suppliers or other affected persons, firms and
corporations, and on the communities and geographical areas in which the
Company and its subsidiaries operate or are located and on the businesses
and properties of the Company and its subsidiaries.
The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation and approval of
the Merger Agreement and the transactions contemplated thereby, the Board did
not find it practicable to, and did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual Board members may have given different weights to different
factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Morgan Stanley has been retained by the Company to act as its financial
advisor with respect to an acquisition transaction, such as the Offer, the
Merger and matters arising in connection therewith. Pursuant to a letter
agreement dated July 1, 1998 between the Company and Morgan Stanley, the Company
agreed to pay Morgan Stanley (i) an advisory fee, estimated at $150,000 to
$250,000, payable in the event no transaction was announced, (ii) an exposure
fee of $650,000, payable upon announcement of Morgan Stanley's involvement in
connection with the execution of the Merger Agreement (against which any
advisory fee paid would be credited) and (iii) a transaction fee estimated at
$3.6 million, payable upon consummation of the Tender Offer (against which any
advisory or exposure fees paid would be credited). The Company also has agreed
to reimburse Morgan Stanley for its reasonable expenses, including fees of its
outside counsel, and to indemnify Morgan Stanley for liabilities and expenses
arising out of the engagement and the transactions in connection therewith,
including liabilities under the Federal securities laws.
In the ordinary course of its business, Morgan Stanley may from time to
time effect transactions and hold positions in securities of both the Company
and GKN plc.
Except as disclosed herein, neither the Company nor any person acting on
its behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) During the past 60 days, neither the Company nor any subsidiary of the
Company, nor to the best of the Company's knowledge, any executive officer,
director or affiliate of the Company, has effected a transaction in Shares.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, its executive officers,
directors and affiliates currently intend to tender their Shares to the
Purchaser pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth herein, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in: (i) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company; (iii)
a tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company.
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(b) Except as set forth herein, there are no transactions, Board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred to
in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The Information Statement attached as Annex I hereto is being furnished in
connection with the possible designation by the Purchaser under the Merger
Agreement of certain persons to be appointed to the Board other than at a
meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
*+(a)(1) Offer to Purchase dated December 10, 1998.
*+(a)(2) Letter of Transmittal.
**(a)(3) Text of press release issued by the Company dated December
7, 1998.
*(a)(4) Letter to stockholders of the Company dated December 10,
1998.
+(a)(5) Form of Summary Advertisement dated December 10, 1998.
*(a)(6) Opinion of Morgan Stanley dated December 4, 1998 (included
as Annex II hereto).
(b) Not applicable.
+(c)(1) Agreement and Plan of Merger dated as of December 5, 1998
among Parent, the Purchaser and the Company.
+(c)(2) Confidentiality Agreement dated as of August 26, 1998
between the Company and GKN plc.
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* Included in the materials delivered to the stockholders of the Company.
+ Filed as an exhibit to the Purchaser's Tender Offer Statement on Schedule
14D-1 dated December 10, 1998, and incorporated herein by reference.
** Filed as an exhibit to the Company's Current Report on Form 8-K dated
December 7, 1998, and incorporated herein by reference.
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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
accurate.
THE INTERLAKE CORPORATION
By: /s/ W. ROBERT REUM
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W. Robert Reum
Chairman of the Board, President and
Chief Executive Officer
Date: December 10, 1998
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ANNEX I
THE INTERLAKE CORPORATION
550 WARRENVILLE ROAD
LISLE, ILLINOIS 60532-4387
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INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
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NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND YOU ARE REQUESTED
NOT TO SEND THE COMPANY A PROXY.
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This Information Statement is being mailed on or about December 10, 1998 as
a part of the Solicitation/ Recommendation Statement on Schedule 14D-9 dated
December 10, 1998 (the "Schedule 14D-9") of The Interlake Corporation (the
"Company" or "Interlake") to the holders of record of shares of Common Stock,
par value $1.00 per share, of the Company (including the associated common share
purchase rights, the "Common Shares"). You are receiving this Information
Statement in connection with the possible election of persons designated by the
Purchaser (as defined below) to a majority of seats on the Board of Directors of
the Company (the "Board"). Capitalized terms used herein and not otherwise
defined herein shall have the meaning set forth in the Schedule 14D-9.
On December 5, 1998, GKN North America Incorporated, a Delaware corporation
("Parent"), GKN North America Manufacturing Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent (the "Purchaser"), and the Company entered
into an Agreement and Plan of Merger (the "Merger Agreement") setting forth the
terms and conditions on which the Purchaser commenced the Offer. The Offer is
scheduled to expire at 12:00 Midnight, New York City time, on January 8, 1999,
unless the Offer is extended.
The Merger Agreement requires the Company to use reasonable best efforts to
cause the directors designated by the Purchaser (the "Purchaser Designees") to
be elected to the Board under the circumstances described therein following
consummation of the Offer.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You are
not, however, required to take any action at this time.
The information contained in this Information Statement (including
information incorporated by reference) concerning Parent and the Purchaser and
the Purchaser Designees has been furnished to the Company by Parent and the
Purchaser, and the Company assumes no responsibility for the accuracy or
completeness of such information.
GENERAL INFORMATION CONCERNING THE COMPANY
The Common Shares are the only class of voting securities of the Company
outstanding. Each Common Share has one vote. As of December 5, 1998, there were
23,175,142 Common Shares outstanding. The Board currently consists of three
classes with eight members. At each annual meeting of stockholders, directors of
the class with the expiring term are elected for new three-year terms. Each
director holds office until his successor is elected and qualified or until his
earlier death, resignation or removal.
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INFORMATION WITH RESPECT TO PURCHASER DESIGNEES
The Merger Agreement provides that, promptly upon the payment by the
Purchaser for Shares pursuant to the Offer which fulfills the Minimum Condition,
and from time to time thereafter, the Purchaser shall be entitled to designate
such number of directors (rounded up to the next whole number) on the Board
which gives the Purchaser representation on the Board that equals the product of
(i) the total number of directors on the Board (giving effect to the election of
any additional directors pursuant to the Merger Agreement) and (ii) the
percentage that the aggregate number of Common Shares and Series A Shares (after
giving effect to the conversion of all such Series A Shares to Common Shares)
beneficially owned by the Purchaser or its affiliates following such purchase
bears to the total number of fully diluted Common Shares then outstanding. The
Company shall be obligated to promptly take all actions necessary to cause the
Purchaser Designees to be so elected, including increasing the size of the Board
or securing the resignations of incumbent directors, or both, subject to
compliance with Section 14(f) of the Exchange Act. The Merger Agreement also
provides that the Company will use its reasonable best efforts to cause persons
designated by the Purchaser to constitute the same percentage as the number of
Purchaser Designees to the Board to the total number of directors on the Board
of (i) each committee of the Board, (ii) each board of directors of each
domestic subsidiary of the Company (other than Hoeganaes Corporation), (iii)
each committee of each such board, and (iv) the directors that the Company is
entitled to nominate to the board of directors of Hoeganaes Corporation pursuant
to its stockholders agreement with the minority stockholder of Hoeganaes
Corporation.
Following the election or appointment of the Purchaser Designees and prior
to the Effective Time, an amendment or termination of the Merger Agreement by
the Company, any extension by the Company of the time for performance of any
obligations or other acts of Parent or the Purchaser, or any waiver of any of
the Company's rights thereunder shall require the concurrence of a majority of
the directors of the Company then in office who are not Purchaser Designees or
employees of the Company.
The Purchaser has informed the Company that it will choose the Purchaser
Designees from the persons listed below. The Purchaser has informed the Company
that each of the persons listed below has consented to act as a director, if so
designated. Biographical information concerning each of the Purchaser Designees
is presented below.
PRESENT PRINCIPAL
OCCUPATION AND PRINCIPAL
BUSINESS ADDRESS AT WHICH MATERIAL OCCUPATIONS
NAME AGE SUCH OCCUPATION IS CONDUCTED WITHIN THE PAST FIVE YEARS CITIZENSHIP
- ---- --- ---------------------------- ------------------------------- -----------
Marcus Beresford 56 Managing Director, Mr. Beresford joined GKN plc as U.K.
Industrial Services an executive director on August
GKN plc 1, 1992 and on November 1, 1992
7 Cleveland Row was appointed Managing
London SW1A 1DB Director, GKN Industrial
England Services. He is a non-
executive director of Aggregate
Industries plc.
Richard W. Etches 53 Human Resources Director, Mr. Etches joined GKN plc on U.K.
GKN plc appointment to the Board on
7 Cleveland Row October 1, 1997. Between
London SW1A 1DB October 1991 and November 1996,
England Mr. Etches was Senior Vice
President of Human Resources of
Grand Metropolitan PLC's USA
Food Sector.
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12
PRESENT PRINCIPAL
OCCUPATION AND PRINCIPAL
BUSINESS ADDRESS AT WHICH MATERIAL OCCUPATIONS
NAME AGE SUCH OCCUPATION IS CONDUCTED WITHIN THE PAST FIVE YEARS CITIZENSHIP
- ---- --- ---------------------------- ------------------------------- -----------
Seifollah Ghasemi 54 Director and Vice President, In February 1998, Mr. Ghasemi U.S.
GKN North America became Chief Executive Officer
Manufacturing Inc. of GKN Sinter Metals. Mr.
3300 University Drive Ghasemi was President of BOC
Auburn Hills, MI 48326-2362 Gases Americas from 1993 to
1998.
Chief Executive Officer and
President,
GKN Sinter Metals
3300 University Drive
Auburn Hills, MI 48326-2362
Chris Gustar 53 Chief Executive Officer, Mr. Gustar has been Chief U.K.
GKN Westland Aerospace Executive Officer of GKN
Castle Street Westland Aerospace for the past
East Cowes five years.
Isle of Wight PO326RH
Nigel M. Stein 43 Vice President Finance and Between March 1994 and January U.K.
Chief Financial Officer, 1998, Mr. Stein was Director
GKN Sinter Metals Division and Controller of GKN Sankey
3300 University Drive Ltd. He was appointed Vice
Auburn Hills, MI 48326-2362 President -- Finance and Chief
Financial Officer of GKN Sinter
Metals Division in January
1998.
David J. Turner 53 Finance Director, Mr. Turner joined GKN plc in U.K.
GKN plc November 1993 on appointment to
7 Cleveland Row the Board as Finance Director.
London SW1A 1DB He is a director of the Iron
England Trades Insurance Group.
The Purchaser has advised the Company that each of the Purchaser Designees
has consented to act as a director. The Purchaser has also advised the Company
that none of the Purchaser Designees (i) has during the last five years been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors) or was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was, or is, subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, Federal or state securities
laws or finding any violation of such laws, (ii) is currently a director of, or
holds any position with, the Company, (iii) beneficially owns any securities (or
rights to acquire any securities) of the Company, or (iv) has been involved in
any transaction with the Company or any of its directors, executive officers or
affiliates which is required to be disclosed pursuant to the rules and
regulations of the Securities and Exchange Commission, except as may be
disclosed herein or in the Schedule 14D-9.
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CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Biographical information concerning each of the Company's current directors
and executive officers as of December 1, 1998 is as follows:
NAME AGE POSITION(S)
---- --- -----------
W. Robert Reum....................... 56 Chairman of the Board, President and Chief Executive
Officer
John A. Canning, Jr.................. 54 Director
James C. Cotting..................... 65 Director
John E. Jones........................ 64 Director
Frederick C. Langenberg.............. 71 Director
Quentin C. McKenna................... 72 Director
William G. Mitchell.................. 67 Director
Erwin E. Schulze..................... 73 Director
Stephen Gregory...................... 49 Vice President-Finance and Chief Financial Officer
Stephen R. Smith..................... 41 Vice President, Secretary and General Counsel
Donn A. York......................... 39 Treasurer
Robert J. Fulton..................... 55 President, Hoeganaes Corporation
James Legler......................... 50 President, Chem-tronics, Inc.
Daniel P. Wilson..................... 54 President, Interlake Material Handling, Inc.
Directors
W. ROBERT REUM, Chairman of the Board, President and Chief Executive
Officer of Interlake since 1991. Director of Amsted Industries Incorporated.
Interlake director since 1987.
JOHN A. CANNING, JR., President, Madison Dearborn Partners, Inc., a manager
of private equity investment funds, since January 1993. Formerly President of
First Chicago Venture Capital from 1980 to 1993 and Executive Vice President of
The First National Bank of Chicago from 1987 to 1993. Director of Milwaukee
Brewers Baseball Club, Inc., Norfolk Tides Baseball Club, Northwestern Memorial
Corporation and Northwestern Memorial Management Corporation; member of the
Board of Trustees of Northwestern University; member of the Board of Visitors of
Duke University School of Law. Interlake director since 1993. Board Committees:
Management Development and Compensation, and Finance.
JAMES C. COTTING, retired in 1995 as Chairman and Chief Executive Officer
of Navistar International Corporation, a manufacturer of medium and heavy duty
trucks. Director of Asarco Incorporated and USG Corporation. Member of the Board
of Governors of the Chicago Stock Exchange. Director of Junior Achievement of
Chicago and a trustee of the Adler Planetarium. Interlake director since 1989.
Board Committees: Audit Review, and Finance.
JOHN E. JONES, retired in January 1996 as the Chairman of the Board,
President, Chief Executive Officer and a Director of CBI Industries, Inc., a
manufacturer of industrial gases, provider of construction services and investor
in oil transport and storage businesses. Executive officer and Director of CBI
since 1976. Director of Allied Products Corporation, Amsted Industries
Incorporated, NICOR Inc., Valmont Industries, Inc. and BWAY Corp. Interlake
director since 1988. Board Committees: Management Development and Compensation,
Finance, and Board Development.
FREDERICK C. LANGENBERG, retired in 1991 as Chairman of the Board and Chief
Executive Officer of Interlake. Interlake director since 1979. Board Committees:
Audit Review, Finance, and Board Development.
QUENTIN C. MCKENNA, retired in 1996 as Chairman of the Board and a
Director, and in 1991 as Chief Executive Officer, of Kennametal, Inc., a
manufacturer of metal cutting tools, machining systems, and materials for
applications requiring wear resistance. Past Director of PNC Financial Corp.
WILLIAM G. MITCHELL, retired as Vice Chairman and Director of Centel
Corporation, a communications and electric services company, in 1987. Director
of The Northern Trust Company, The Sherwin-Williams
13
14
Company, and Peoples Energy Corporation. Interlake director since 1984. Board
Committees: Audit Review, and Management Development and Compensation.
ERWIN E. SCHULZE, Chairman Emeritus of the Board of Governors of the
Chicago Stock Exchange. Retired as Chairman of the Board, President and Chief
Executive Officer, and Director of The Ceco Corporation, a manufacturer of
building products and provider of concrete forming services for the construction
industry, in 1990. Director of AAR Corporation. Interlake director since 1981.
Board Committees: Management Development and Compensation, and Finance.
Executive Officers
STEPHEN GREGORY, Vice President-Finance and Chief Financial Officer since
August 1995; Vice President-Finance, Treasurer and Chief Financial Officer from
December 1994 to August 1995; Vice President from August 1994 to December 1994;
President of the Material Handling Division of The Interlake Companies, Inc.
from June 1989 to August 1994.
STEPHEN R. SMITH, Vice President, Secretary and General Counsel since
January 1993; Vice President and General Counsel from January through December
1992.
DONN A. YORK, Treasurer since August 1995; Director of Treasury Operations
from April 1993 to August 1995; Director-Operation Control from May 1991 to
April 1993.
ROBERT J. FULTON, President, Hoeganaes Corporation since July 1994; Chief
Executive Officer of Micafil, Inc. and consultant to Sterling Stainless Tube-ITT
Automotive from 1992 to 1994; Executive Vice President and Chief Operating
Officer of Doehler-Jarvis from 1990 to 1992.
JAMES LEGLER, President, Chem-tronics, Inc. since 1988.
DANIEL P. WILSON, President, Interlake Material Handling, Inc. since
January 1994; Vice President-Sales, Material Handling Division, from 1988 to
1993.
All officers serve at the discretion of the Board. There are no family
relationships between directors or executive officers of the Company.
GENERAL INFORMATION ABOUT THE BOARD
There were nine meetings of the Board in 1997. Each director attended at
least 75% of the aggregate of the total number of meetings of the Board held
during the period during which he was a director and the total number of
meetings held by all committees of the Board on which he served during the
period that he was a committee member.
COMMITTEES OF THE BOARD
The Audit Review Committee recommends to the Board the appointment of
independent accountants; meets periodically with Interlake's management,
internal audit management and independent accountants and reviews internal
accounting controls, the internal audit program and accounting practices;
reviews consolidated financial statements; and reviews Interlake's non-financial
auditing practices. The Audit Review Committee met two times in 1997.
The Management Development and Compensation Committee provides for
evaluation of the Chief Executive Officer; reviews and makes recommendations to
the Board regarding key employee compensation policies, plans and programs,
including recommending to the Board the salaries of all executive officers; and
administers certain compensation programs. The Management Development and
Compensation Committee met six times in 1997.
The Board Development Committee's primary responsibility is to seek out,
evaluate and recommend to the Board qualified nominees for election as
directors; and to implement systems for evaluation of the Board. The Board
Development Committee met once in 1997.
14
15
The Finance Committee consults with management upon request and makes
recommendations to the Board as to major debt and equity financing transactions,
financial aspects of major acquisitions or dispositions, and allocation of
resources for capital expenditures; and reviews the general administration of
the retirement plans of the Company. The Finance Committee met once in 1997.
COMPENSATION OF OUTSIDE DIRECTORS
For the 1997-98 year, each outside director was paid a retainer $30,000,
with no additional amounts paid for attendance at meetings or service as
committee chairpersons. Interlake provides accidental death and dismemberment
insurance for its directors, and non-employee directors are reimbursed their
expenses of attendance at meetings of the Board or committees of the Board.
As of January 23, 1997, each non-employee director was granted options for
10,000 Common Shares, vesting in virtually equal amounts at the start of the
annual meetings of stockholders occurring in 1998, 1999 and 2000. In addition,
as of January 22, 1998, each non-employee director was granted options for
10,000 Common Shares, vesting in virtually equal amounts at the start of the
annual meetings of stockholders occurring in 1999, 2000 and 2001. All of the
options will vest in full upon completion of certain of the events contemplated
in the Merger Agreement.
Under the Directors' Post-Retirement Income Plan, each outside director
with four years' service as a director prior to April 1, 1997 is entitled to
annual post-retirement income beginning at age 65 or retirement from the Board,
whichever is later, and continuing for the lifetime of the retired director. The
annual benefit upon the retirement of any current director who qualifies will be
$30,000, reduced 10 percent for each full year that his service as a
non-employee director of Interlake is less than 10 years.
In 1988, Interlake established a trust for the payment of post-retirement
income to outside directors and provided the trustee with funds to purchase
annuities for retired directors covered by the plan and for incumbent directors
having more than four years' service. Should Interlake become insolvent, the
assets of the trust would be subject to the claims of Interlake's creditors.
The Directors' Post-Retirement Income Plan provides that Interlake will pay
the legal expenses of a participant if he has to take legal action to enforce
his rights under the plan.
VOTING SECURITIES AND SECURITY OWNERSHIP BY CERTAIN
PERSONS AND MANAGEMENT
On December 5, 1998, officers, directors and employees of Interlake and its
subsidiaries had voting rights with respect to approximately 2,211,101 shares,
or 9.5% of the shares of Common Stock then outstanding, exclusive of shares
owned outright by employees who are not executive officers. Such voting rights
arise from shares owned outright (in the case of directors and officers), shares
as to which the individual holder's beneficial interest is limited to voting
rights, and shares owned by various employee benefit plans under which the plan
trustee receives voting instructions from plan participants.
SECURITY OWNERSHIP BY CERTAIN PERSONS AND MANAGEMENT
This section of the Information Statement relates to beneficial ownership
of Interlake's Common Stock based on information available to the Company as of
December 5, 1998. For purposes of this section, a person is deemed to be a
beneficial owner if such person has or shares voting power or investment power
in respect of such shares or has the right to acquire beneficial ownership
within 60 days.
15
16
The following table shows beneficial ownership of Interlake's Common Stock
by each person who has advised the Company that such person beneficially owns
more than five percent of Interlake's Common Stock.
NUMBER OF
SHARES PERCENT(1)
--------- ----------
FIRST CHICAGO NBD CORPORATION
and FIRST CHICAGO EQUITY CORPORATION
One First National Plaza
Chicago, Illinois 60670..................................... 8,246,073(2) 26.2%
TINICUM INVESTORS
SETH M. HENDON
ROBERT J. KELLY
EDWARD R. CIVELLO
JOSEPH A. MARINO
JOHN F. KEANE
PUTNAM L. CRAFTS, JR
990 Stewart Avenue
Garden City, NY 11530(3).................................... 3,255,200 14.046%
J O HAMBRO CAPITAL MANAGEMENT LIMITED
J O HAMBRO & COMPANY LIMITED
J O HAMBRO ASSET MANAGEMENT LIMITED
GROWTH FINANCIAL SERVICES LIMITED
NORTH ATLANTIC SMALLER COMPANIES
INVESTMENT TRUST PLC
AMERICAN OPPORTUNITY TRUST PLC
CHRISTOPHER HARWOOD BERNARD MILLS
ORYX INTERNATIONAL GROWTH FUND LIMITED
CONSULTA (CHANNEL ISLANDS) LIMITED(4)
c/o J O Hambro & Company Limited
10 Park Place
London, SW1A 1LP
England..................................................... 2,796,000 12.06%
- ---------------
(1) Percentages are percentages of Interlake's Common Stock computed as provided
in Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended.
This means that, in the case of any holder of Series A Shares, that holder's
Series A Shares are treated as being converted into Common Shares, but no
other Series A Shares are treated as converted. In the case of all other
holders, no Series A Shares are treated as converted; computations are based
solely upon outstanding Common Shares.
(2) First Chicago Equity Corporation ("FCEC") is the beneficial owner of 31,500
shares of Interlake's Series A2 Convertible Exchangeable Preferred Stock
("Series A2 Shares"). First Chicago NBD Corporation is the parent company of
FCEC. As of the date hereof, the Series A2 Shares of FCEC are convertible
into 8,246,073 (26.2%) Non-Voting Common Shares at any time, and into the
same number of Common Shares in certain limited circumstances. (The number
of Common Shares into which the Series A2 Shares are convertible increases
on each June 30th and December 31st if preferential cash dividends accruing
at the rate of nine percent per annum are not paid.) Series A2 Shares may be
converted into Series A1 Shares, which in turn are convertible at any time
into shares of Common Shares, by any holder who can certify that by virtue
of such conversion it would not have a regulatory problem under certain laws
or regulations applicable to banks, bank holding companies, small business
investment companies or their affiliates.
(3) In the most recent Schedule 13D filed with the Securities and Exchange
Commission, Tinicum Investors indicated that it had sole voting and
dispositive power over 2,869,830 (12.382%) shares of Common Stock, and that
Messrs. Hendon, Kelly, Civello, Marino, Keane and Crafts, who had sole
voting and dispositive power over 28,000 (0.121%) shares, 19,000 (0.082%)
shares, 10,000 (0.043%) shares, 5,000 (0.022%) shares, 4,500 (0.0191%)
shares and 318,870 (1.376%) shares respectively, may be deemed together with
Tinicum Investors to beneficially own such shares as a group.
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(4) In the most recent Schedule 13G filed with the Securities and Exchange
Commission, J O Hambro & Company Limited, J O Hambro Asset Management, J O
Hambro Capital Management and Christopher H B Mills indicated that they are
the beneficial owner of 2,332,500 (10.1%) shares of Common Stock, over all
of which they had shared power to vote and sole or shared power to dispose;
and related entities held shared power to vote and sole or shared power to
dispose over the following numbers of shares: American Opportunity Trust,
430,000 (1.9%); Growth Financial Services Limited and North Atlantic Smaller
Companies Investment Trust plc, 930,000 (4.0%); and Oryx International
Growth Fund Limited and Consulta (Channel Islands) Limited, 268,200 (1.2%).
J O Hambro subsequently has informed the Company that the aggregate
ownership of the aforementioned persons totals 2,796,000 shares (12.06%).
The following table shows the beneficial ownership of Interlake's Common
Stock by directors, nominees, named executive officers, and incumbent directors
and incumbent executive officers as a group, including an immaterial number of
shares held in joint tenancy with close family members. The table includes
options exercisable within 60 days held by Messrs. Langenberg, Reum, Fulton,
Gregory and Smith and incumbent executive officers as a group to purchase
20,000, 555,000, 240,000, 165,000, 143,000 and 1,421,000 shares, respectively.
For purposes of the immediately preceding sentence and the table, any options
which vest upon a change-in-control are treated as exercisable within 60 days.
The percentage of outstanding shares beneficially owned is computed in
accordance with Rule 13d-3(d)(1) under the Exchange Act. This means that, in the
case of any holder or group of holders of options exercisable within 60 days,
that holder's or group's options are treated as exercised, but no other options
are treated as exercised.
NUMBER OF
NAME SHARES PERCENT
---- --------- -------
John A. Canning, Jr.(1)..................................... 71,200 0.3
James C. Cotting............................................ 23,200 0.1
Robert J. Fulton............................................ 353,793 1.5
Stephen Gregory............................................. 258,026 1.1
John E. Jones............................................... 23,200 0.1
Frederick C. Langenberg..................................... 139,721 0.6
Quentin C. McKenna.......................................... 23,200 0.1
William G. Mitchell......................................... 26,800 0.1
W. Robert Reum.............................................. 841,480 3.5
Erwin E. Schulze............................................ 52,200 0.2
Stephen R. Smith............................................ 225,250 1.0
All Directors and Executive Officers........................ 2,490,733 10.7
- ---------------
(1) Mr. Canning is President of Madison Dearborn Partners, Inc., a private
equity investment fund. Madison Dearborn Partners VIII, of which Mr. Canning
is a partner, owns 4,600 of the outstanding shares of Interlake's Series A
Convertible Exchangeable Preferred Stock, which shares are in certain
circumstances convertible into Common Shares. Mr. Canning disclaims
beneficial ownership of the Series A Convertible Exchangeable Preferred
Stock and the Common Shares into which it is convertible.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of Forms 3 and 4 received, the Company is not aware of
any director, officer or other person that failed to file on a timely basis with
respect to Interlake reports required by Section 16(a) during the most recent
fiscal year.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table which follows shows the compensation paid to or earned by the
Company's Chief Executive Officer and the four executive officers who, in 1997,
were the next most highly compensated.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------- -----------------------------------------
AWARDS
-------------
SECURITIES PAYOUTS
UNDERLYING ---------- ALL OTHER
SALARY BONUS OPTIONS/SAR'S LTP PAYOUT COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) (#) ($)(2) ($)(3)(4)
--------------------------- ---- -------- -------- ------------- ---------- ------------
W. ROBERT REUM............... 1997 $480,000 $273,349 480,000 $584,220 $149,416
Chairman of the Board, 1996 455,004 416,454 0 0 146,599
President and Chief 1995 455,004 373,085 0 0 145,171
Executive Officer
ROBERT J. FULTON............. 1997 $250,008 $255,191 200,000 $241,375 $ 9,667
President -- Hoeganaes 1996 240,000 92,322 0 0 137,023
Corporation 1995 230,004 200,000 40,000 0 170,357
STEPHEN GREGORY.............. 1997 $225,000 $ 97,346 125,000 $203,300 $ 58,250
Vice President -- Finance 1996 210,000 163,197 0 0 49,334
and Chief Financial 1995 190,008 109,059 0 0 62,952
Officer
STEPHEN R. SMITH............. 1997 $203,004 $ 84,575 110,000 $168,280 $ 49,560
Vice President, Secretary 1996 195,000 129,584 0 0 42,686
and General Counsel 1995 185,004 91,018 0 0 38,674
CRAIG A. GRANT............... 1997 $186,000 $ 74,507 90,000 $103,040 $424,873
Vice President -- Human 1996 176,004 94,862 0 0 37,284
Resources 1995 161,004 79,211 0 0 32,578
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(1) Approximately 30% of the bonus for 1997 was paid in stock, including 11,729
shares to Mr. Reum, 12,650 shares to Mr. Fulton, 4,102 shares to Mr.
Gregory, 3,530 shares to Mr. Smith and 3,263 shares to Mr. Grant.
(2) Includes 131,040 shares awarded to Mr. Reum, 51,000 shares to Mr. Fulton,
45,600 shares to Mr. Gregory, and 37,760 shares to Mr. Smith, which became
non-forfeitable in 1997, valued at the fair market value on the date of
grant.
(3) Includes contributions to defined contribution retirement plans plus, for
Messrs. Reum, Gregory, Smith and Grant, tax-adjusted amounts paid or payable
in cash which would have been payable as contributions pursuant to such
plans had contributions not been statutorily limited. Mr. Fulton's 1995 and
1996 totals and Mr. Gregory's 1995 total also include relocation expenses.
Mr. Grant's 1997 total includes severance benefits and accrued vacation pay
received by Mr. Grant upon his resignation effective December 31, 1997.
(4) Under the Corporation's Key Executive Retention Program, Mr. Reum held
196,560 shares of restricted stock, of which the fair market value as of
December 28, 1997 was $945,945; Mr. Fulton, 76,500 shares ($368,156); Mr.
Gregory, 68,400 shares ($329,175); Mr. Smith, 56,640 shares ($272,580) and
Mr. Grant, 46,368 shares ($223,146).
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OPTIONS GRANTED IN 1997
The following table shows the numbers, certain terms of, and the grant date
values of the options granted during fiscal year 1997 to the named executive.
OPTIONS GRANTED IN 1997 FISCAL YEAR(1)
PERCENT OF
TOTAL OPTIONS MARKET
OPTIONS GRANTED TO EXERCISE PRICE ON GRANT DATE
GRANTED(2) EMPLOYEES IN PRICE GRANT EXPIRATION VALUES
NAME (#) FISCAL YEAR ($/SHARE) DATE(3) DATE ($)(4)(5)
- ---- ---------- ------------- --------- -------- ---------- ----------
W. Robert Reum............. 480,000 37% $3.4375 $3.4375 4/24/07 $1,094,400
Robert J. Fulton........... 200,000 16% $3.4375 $3.4375 4/24/07 $ 456,000
Stephen Gregory............ 125,000 10% $3.4375 $3.4375 4/24/07 $ 285,000
Stephen R. Smith........... 110,000 9% $3.4375 $3.4375 4/24/07 $ 250,800
Craig A. Grant............. 90,000 7% $3.4375 $3.4375 4/24/07 $ 205,200
- ---------------
(1) No stock appreciation rights (SARs) were granted in 1997.
(2) All options listed are not exercisable until April 21, 1999, at which time
the options become exercisable in full.
(3) Computed as the average of the high and low on April 24, 1997.
(4) Determined using the Black-Scholes option pricing model and utilizing
expected volatility of 56% based on Interlake's historical data from
December 30, 1990.
(5) Mr. Grant's options were cancelled as of December 31, 1997 upon his
resignation.
AGGREGATED OPTION/SAR EXERCISES IN LAST YEAR AND FISCAL YEAR-END OPTION/SAR
VALUES
Information on stock option exercises during fiscal year 1997 and the
number of unexercised options at fiscal year end for each of the named executive
officers is set forth in the table which follows.
OPTIONS OUTSTANDING AT 1997 FISCAL YEAR-END
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
SHARES OPTIONS/SARS AT
ACQUIRED VALUE FISCAL YEAR END (#)
ON REALIZED ----------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- -------------
W. Robert Reum.................................. 129,522 480,000
Robert J. Fulton................................ 40,000 200,000
Stephen Gregory................................. 40,000 125,000
Stephen R. Smith................................ 33,000 110,000
Craig A. Grant.................................. 15,000 $30,000 13,000 90,000
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DEFINED BENEFIT PLANS
Mr. Fulton participates in the Hoeganaes Corporation Pension Plan for
Exempt Employees. The following table shows estimated annual benefits payable
for life, upon retirement, including benefit amounts which would have been
payable under the pension plan had such payments not been statutorily limited.
YEARS OF SERVICE
-----------------------------------------------
REMUNERATION 10 15 20 25 30
- ------------ ------- ------- ------- ------- -------
150,000 $17,422 $26,133 $34,845 $43,556 $52,267
175,000 20,663 30,995 41,326 51,658 61,989
200,000 23,904 35,856 47,808 59,760 71,712
225,000 27,145 40,717 54,290 67,862 81,435
250,000 30,386 45,579 60,772 75,965 91,158
300,000 36,868 55,302 73,736 92,170 110,604
350,000 43,350 65,024 86,699 108,374 130,049
400,000 49,831 74,747 99,663 124,579 149,494
500,000 62,795 94,193 125,590 156,988 188,385
600,000 75,759 113,639 151,518 189,398 227,277
The Plan gives credit for the salary and bonus amounts reflected in the
Summary Compensation Table, averaged for the final five years of employment. Mr.
Fulton has approximately three years of credited service. Benefits are not
subject to deduction for social security or other offset amounts. Benefits are
calculated for an employee who retires in 1998 at age 65.
KEY EXECUTIVE SEVERANCE PAY AGREEMENTS
The Company has entered into Key Executive Severance Pay Agreements (the
"Severance Pay Agreements") with Messrs. Reum, Fulton, Gregory, Smith and Grant
and the other incumbent executive officers of Interlake (as designated for
purposes of the Exchange Act). (As Mr. Grant resigned effective December 31,
1997, his severance pay agreement is no longer in effect.)
Under the Severance Pay Agreements, an executive officer is entitled to
severance benefits if there is a termination of his or her employment without
cause and other than due to death or disability at any time within a severance
period of three years, subject to extension for an additional year each year
unless written notice is given to the contrary (or, if less than the term of
such severance period, within the period ending at the participant's attainment
of age 65, death or permanent disability) after a change in control as defined
in the agreements. In addition, following a change in control, a participant may
elect to terminate his employment without loss of severance benefits in certain
specified circumstances.
For purposes of the Severance Pay Agreements, a change in control is deemed
to have occurred if (i) Interlake is merged or reorganized into or with, or
sells all or substantially all of its assets to, another company in a
transaction in which former Interlake stockholders own less than 75 percent of
the outstanding securities of the surviving or acquiring company after the
transaction, (ii) a filing is made with the Securities and Exchange Commission
disclosing the beneficial ownership by any person or group of 25 percent or more
of the voting power of Interlake, subject to certain limited exceptions, (iii)
during any period of two consecutive years individuals who were directors at the
beginning of such period cease to constitute a majority of the Board without the
approval of two-thirds of the remaining Board members, or (iv) the Corporation
files a report or proxy statement with the Securities and Exchange Commission
disclosing that a change in control has occurred or will occur in the future.
In the event of a change in control, any executive officer who is
terminated or terminates his employment with rights to severance compensation
will be entitled to receive a lump sum payment equal to, in the case of Messrs.
Reum, Fulton, Gregory and Smith, three times the sum of his highest base pay in
effect for any period prior to the termination, plus the target bonus
established for either the fiscal year in which the change in
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control occurs or the fiscal year in which the termination occurs, whichever is
higher. In addition, such executive will be entitled to certain benefits for a
three year period following the termination.
In addition, the Severance Pay Agreements provide that, in the case of a
termination other than for cause or upon death or permanent disability, and
other than upon termination during a change in control severance period, the
executive is entitled to a lump sum amount equal to one year's base pay at the
rate in effect at the time of the termination, plus the executive's target bonus
for the year of termination. In addition, such executive will be entitled to
certain benefits for a one year period after the termination.
The Severance Pay Agreements provide that Interlake will pay for the legal
expenses of an executive if he has to enforce his rights under the agreement
following a change in control. A letter of credit has been obtained for the
purpose of securing the payment of such expenses. The terms of the Severance Pay
Agreements presently run through February 28, 1999, subject to automatic
one-year extensions absent notice to the contrary.
REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION
The Management Development and Compensation Committee of the Board (the
"Committee") is composed entirely of non-employee directors. The Committee makes
recommendations to the full Board as to the salaries of key Board-elected
officers (other than assistant officers) and heads of certain key operating
units, and as to the terms of payments under Interlake's incentive compensation
plans for key executives of Interlake and certain operating units. In addition,
any stock options or stock awards are granted to executives upon the
authorization of the Committee.
Compensation Philosophy and Strategy
The Company's compensation philosophy and strategy has been designed to
produce median level compensation upon achievement of improved financial
performance. In 1997, this philosophy and strategy was implemented through a
combination of annual compensation and the granting of a long-term incentive.
Annual compensation. The Company's 1997 Senior Executive Incentive
Compensation ("SEIC") program was designed to provide an opportunity for
incentive awards which, if earned, when combined with base salaries, would
result in median overall compensation levels, consistent with the Corporation's
compensation philosophy. The financial measures against which executives were
measured were EBIT, average controllable working capital as a percentage of
sales, and revenue growth for their respective operating units or, in the case
of Interlake executives, Interlake as a whole. In addition, a portion of
operating unit executives' opportunities was tied to overall corporate
performance on a consolidated basis against the same performance measures, and a
portion (ten percent or less) of some executives' opportunities was dependent
upon their individual performance against certain key competencies which have
been identified as being essential to driving success at Interlake. All amounts
paid for 1997 under the SEIC program were due to meeting the performance levels
stipulated in the plan, with the exception of amounts paid with respect to
performance related to the key competencies. Thirty percent of payouts under the
SEIC program were made in shares of common stock, valued at the market price at
the beginning of the plan year.
Long term incentives. In February 1995, in the face of substantial
impending indebtedness maturities and the need to successfully refinance them,
the Company put in place the Key Executive Retention Program (the "KERP"). The
KERP was intended to drive improved EBIT levels as well as promote the retention
of key executives. Based on the Company's EBIT levels for the 1995-96 period,
payments and stock awards became fully vested and non-forfeitable to KERP
participants, in part in January 1997, and in part in January-February 1998,
thereby completing the KERP. In retrospect, the Committee believes that the KERP
met its goals during a challenging period for the Company: Interlake achieved
consistent and significant EBIT improvement during the period; the Company
successfully refinanced and implemented a strategy to drive stockholder value
through enhanced EBIT levels, appropriate asset sales, and successful resolution
of historical environmental and tax issues; key executives became owners of a
material number of shares of stock, aligning their interests with stockholders;
a core of key executives was retained; and common stockholder value doubled
during the KERP period.
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With the KERP completed, the Committee in 1997 established a new long term
incentive for management through the 1997 Stock Incentive Program. The Committee
felt a share-price based incentive was appropriate to drive management's
continued implementation of Interlake's strategy. Stock options at the April
1997 market price were awarded to the key executive team. The numbers of options
awarded were set at levels meant to deliver, if shareholder value appreciated
significantly, two years of long-term incentive value that, together with annual
compensation, would enable key executives to achieve median levels of total
compensation.
Limitations on Deductibility
In 1997, the Company had non-deductible compensation expense by virtue of
Section 162(m) of the Internal Revenue Code which resulted in a current cost to
the Company for the 1997 tax year of approximately $165,000. Although the KERP
and the 1997 SEIC program were performance-based programs, they did not meet the
tests for performance-based compensation under Section 162(m). The stock options
issued to key executives in 1997 were designed to qualify as performance-based
compensation under Section 162(m).
CEO Compensation
With respect to Mr. Reum, the Committee's strategy is to keep his base pay
at below median levels, but to give him the opportunity through annual and
long-term incentives to achieve median level compensation. Consistent with this
strategy, Mr. Reum received modest or no salary increases in recent years. His
annual incentive award under the 1997 SEIC program was based on the Company's
achievement of threshold or higher levels of EBIT, average controllable working
capital as a percentage of sales, and revenue growth, all specified at the
beginning of the plan year. Mr. Reum's annual incentive payout was less than the
prior two years; despite strong EBIT growth at the Company's Hoeganaes and
Chem-tronics businesses in 1997, a difficult year at North American Material
Handing adversely affected consolidated EBIT. As for long-term incentives, in
1997 the first portion of the KERP covering the 1995-96 performance period
became fully vested and non-forfeitable to Mr. Reum, and he received a
market-value option grant designed to provide two years of long-term incentive
value (for the 1997-98 performance period) resulting in an overall median level
of compensation if Interlake achieves significant stock price appreciation.
The Management Development and
Compensation Committee
John A. Canning, Jr., John E. Jones,
William G. Mitchell, Erwin E. Schulze
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PERFORMANCE GRAPH
The following graph compares the yearly percentage change in Interlake's
cumulative stockholder return on its Common Stock with that of the Standard &
Poor's 500 Stock Index and that of the Standard & Poor's Manufacturing Index
(Diversified Industrials) over the period of Interlake's last five fiscal years.
The graph assumes an investment of $100 on December 27, 1992. Interlake has not
paid any dividends since 1989, when it paid a special dividend of $45 per share,
incurring $535 million of indebtedness to do so.
[GRAPH]
- --------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------------------------
The Interlake Corporation
% increase (decrease) during
fiscal year 100.00 75.86 48.28 68.97 96.55 132.69
(24%) (36%) 43% 40% 37%
- --------------------------------------------------------------------------------------------------
S&P 500 Index
% increase (decrease) during
fiscal year 100.00 109.25 110.53 149.84 188.21 245.60
9% 1% 36% 26% 30%
- --------------------------------------------------------------------------------------------------
S&P Manufacturing Index
% increase (decrease) during
fiscal year 100.00 119.02 124.01 173.13 243.49 284.19
19% 4% 40% 41% 17%
- --------------------------------------------------------------------------------------------------
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ANNEX II
MORGAN STANLEY DEAN WITTER
One Financial Place
440 South LaSalle Street
Chicago, Illinois 60605
(312) 706-4000
December 4, 1998
Board of Directors
The Interlake Corporation
550 Warrenville Road
Lisle, IL 60532-4387
Members of the Board:
We understand that The Interlake Corporation ("Interlake"), GKN North
America Incorporated ("GKN") and GKN North America Manufacturing Inc., a
wholly-owned subsidiary of GKN ("Acquisition Sub"), propose to enter into an
Agreement and Plan of Merger, substantially in the form of the draft presented
to the meeting of the Board on the date hereof (the "Merger Agreement"), which
provides, among other things, for (a) the commencement by Acquisition Sub of a
tender offer (the "Tender Offer") for all outstanding shares of (i) common
stock, par value $1.00 per share, of Interlake (the "Interlake Common Stock")
for $7.25 per share net to the seller in cash, and (ii) Series A Convertible
Exchangeable Preferred Stock, par value $1.00 per share, of Interlake, which is
convertible into shares of Interlake Common Stock, and (b) the subsequent merger
(the "Merger") of Acquisition Sub with and into Interlake. Pursuant to the
Merger, Interlake will become a wholly-owned subsidiary of GKN and each issued
and outstanding share of Interlake Common Stock (other than shares held by GKN,
Acquisition Sub, any wholly-owned subsidiary of GKN or Acquisition Sub, or held
in the Interlake treasury or by any wholly-owned subsidiary of Interlake, or as
to which dissenter's rights have been perfected) will be converted into the
right to receive $7.25 per share in cash. The terms and conditions of the Tender
Offer and Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of the Interlake Common Stock pursuant to the
Merger Agreement is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Interlake;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning Interlake prepared by the
management of Interlake;
(iii) analyzed certain financial projections prepared by the
management of Interlake;
(iv) discussed the past and current operations and financial condition
and the prospects of Interlake with senior executives of Interlake;
(v) reviewed the reported prices and trading activity for the
Interlake Common Stock;
(vi) compared the financial performance of Interlake and the prices
and trading activity of the Interlake Common Stock with that of certain
other comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among
representatives of Interlake and GKN and their financial and legal
advisors;
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(ix) reviewed the draft Merger Agreement and certain related
documents; and
(x) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of
Interlake. We have not made any independent valuation or appraisal of the assets
or liabilities of Interlake, nor have we been furnished with any such
appraisals. In addition, we have assumed that the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement. Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof.
We have acted as financial advisor to Interlake in connection with this
transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Board of
Directors of Interlake, except that this opinion may be included in its entirety
in any filing made by Interlake in respect of the Tender Offer and Merger with
the Securities and Exchange Commission. In addition, Morgan Stanley expresses no
opinion or recommendation as to whether the shareholders of Interlake should
accept the Tender Offer.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of the Interlake
Common Stock pursuant to the Merger Agreement is fair from a financial point of
view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
/S/ William H. Strong
William H. Strong
Managing Director
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EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER PAGE NUMBER
------- -----------
*+99(a)(1) Offer to Purchase dated December 11, 1998.
*+99(a)(2) Letter of Transmittal.
**99(a)(3) Text of press release issued by the Company dated December
7, 1998.
*99(a)(4) Letter to stockholders of the Company dated December 10,
1998.
+99(a)(5) Form of Summary Advertisement dated December 10, 1998.
*99(a)(6) Opinion of Morgan Stanley dated December 4, 1998 (included
as Annex II hereto).
99(b) Not applicable.
+99(c)(1) Agreement and Plan of Merger dated as of December 5, 1998
among Parent, the Purchaser and the Company.
+99(c)(2) Confidentiality Agreement dated as of August 26, 1998
between the Company and GKN plc.
- ---------------
* Included in the materials delivered to the stockholders of the Company.
+ Filed as an exhibit to the Purchaser's Tender Offer Statement on Schedule
14D-1 dated December 10, 1998, and incorporated herein by reference.
** Filed as an exhibit to the Company's Current Report on Form 8-K dated
December 7, 1998, and incorporated herein by reference.
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