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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. N/A)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PORTAGE INDUSTRIES CORPORATION
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(Name of Registrant as Specified in its Charter)
PORTAGE INDUSTRIES CORPORATION
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(Name of person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value per share
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(2) Aggregate number of securities to which transaction applies:
2,406,600 shares outstanding, plus an additional 125,217 option shares
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11: (Set forth the amount on which the filing fee is
calculated and state how it was determined):
$6.60 per share
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(4) Proposed maximum aggregate value of transaction:
$16,384,295.08
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(5) Total fee paid:
$3,276.86 ($3,153.11 paid previously with preliminary materials)
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/ / Fee paid previously with preliminary materials
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/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PORTAGE INDUSTRIES CORPORATION
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1325 Adams Street
Portage, WI 53901
(608) 742-7123
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DEAR STOCKHOLDER:
You are cordially invited to attend a Special Meeting of the Stockholders (the
"Special Meeting") of Portage Industries Corporation (the "Company"), to be held
at the Ridge Motor Inn, Portage, Wisconsin on Thursday, May 9, 1996 at 10:00
a.m. local time. A notice of the Special Meeting, a proxy statement and related
information about the Company and a proxy card are enclosed. All holders of the
Company's outstanding shares of common stock, par value $.01 per share ("Common
Stock") as of Monday, April 1, 1996 (the "Record Date") will be entitled to
notice of and to vote at the Special Meeting.
At the Special Meeting, you will be asked to consider and to vote upon a
proposal to approve and adopt an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of February 22, 1996, by and among the Company, Spartech
Corporation ("Spartech") and Spartech Plastics, Inc., a wholly-owned subsidiary
of Spartech ("Mergeco") and the transactions contemplated thereby. Pursuant to
the Merger Agreement, Mergeco will be merged with and into the Company and the
Company will be the surviving corporation (the "Merger"). If the Merger
Agreement is approved and the Merger becomes effective, each outstanding share
of Common Stock of the Company (other than dissenting shares and Common Stock
owned by the Company, Mergeco, Spartech or its subsidiaries) will automatically
be converted into the right to receive $6.60 in cash, without interest and each
outstanding share of Mergeco will automatically be converted into and become one
share of the Company. Approval of the Merger requires the affirmative vote of
the holders of a majority of all outstanding shares of Common Stock voting as a
group. To the Company's knowledge after reasonable inquiry, each of the
Company's executive officers and directors, holding in the aggregate 33,786
shares of Common Stock (approximately 1.5% of the outstanding shares of Common
Stock), currently intends to vote all shares of Common Stock held of record or
beneficially owned by such person for approval and adoption of the Merger
Agreement. Pursuant to certain agreements dated January 26, 1996, between
Spartech and each of Allstate Insurance Company and Madison Allen Self, (the
"Stock Option Agreements"), stockholders holding approximately 35% of the
outstanding shares of Common Stock have each granted Spartech an irrevocable
option to purchase such shares for 120 days at a purchase price of $6.60 per
share and have each agreed to deliver to Spartech in connection with any such
purchase, at its request, an irrevocable proxy to vote such shares in its sole
discretion at any meeting of the stockholders of the Company. The Company
believes that as a result of the Stock Option Agreements, stockholders holding
approximately 35% (in addition to the approximately 1.5% owned by officers and
directors) of the outstanding shares of Common Stock will vote in favor of the
Merger.
Details of the proposed Merger and other important information are set forth in
the accompanying Notice of Special Meeting and Proxy Statement, each of which
you are urged to read carefully.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND HAS DETERMINED
THAT THE MERGER AGREEMENT IS FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY
AND ITS STOCKHOLDERS, AND RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT.
Your vote is important. Whether or not you plan to attend the Special Meeting,
please complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. Failure to return a properly executed proxy card or
to vote at the Special Meeting will have the same effect as a vote against the
Merger. If you attend the Special Meeting, you may revoke such proxy and vote in
person if you wish, even if you have previously returned your proxy card. PLEASE
DO NOT SEND US YOUR STOCK CERTIFICATES AT THIS TIME. If the merger is
consummated, you will receive a transmittal form and instructions for the
surrender of your shares and payment with respect thereto.
Very truly yours,
/s/ Anthony J. Lisauskas
Anthony J. Lisauskas
President & Chief Executive Officer
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PORTAGE INDUSTRIES CORPORATION
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NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD MAY 9, 1996
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TO STOCKHOLDERS OF PORTAGE INDUSTRIES CORPORATION:
A special meeting of the stockholders of Portage Industries Corporation (the
"Company"), will be held at the Ridge Motor Inn, Portage, Wisconsin on Thursday,
May 9, 1996 at 10:00 a.m., local time (the "Special Meeting"), to consider and
act upon the following matters:
1. To consider and vote upon a proposal to approve and adopt an Agreement and
Plan of Merger (the "Merger Agreement"), dated as of February 22, 1996, by
and among the Company, Spartech Corporation ("Spartech") and Spartech
Plastics, Inc., a wholly-owned subsidiary of Spartech ("Mergeco") and the
transactions contemplated by the Merger Agreement. As more fully described in
the accompanying Proxy Statement, the Merger Agreement provides that (i)
Mergeco will be merged with and into the Company (the "Merger"), with the
Company continuing as the surviving corporation; (ii) the Company will
therefore become a wholly-owned subsidiary of Spartech; (iii) each
outstanding share of common stock, par value $.01 per share, of the Company
(other than dissenting shares and shares owned by the Company, Mergeco,
Spartech or its subsidiaries), will be converted into the right to receive
$6.60 in cash; and (iv) each outstanding stock option to acquire Common Stock
will be converted into the right to receive cash in an amount equal to the
difference between $6.60 and the exercise price of such option, without
interest. A copy of the Merger Agreement is attached as Exhibit A to the
Proxy Statement accompanying this notice.
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournment or adjournments thereof.
The Merger Agreement and the Merger have been approved and adopted by the Board
of Directors of the Company (the "Board"). The Board has carefully reviewed and
considered the terms and conditions of the proposed Merger and the Merger
Agreement and the Board believes the Merger and the Merger Agreement are fair to
and in the best interests of the Company and its stockholders. Following the
Merger, the former holders of the Common Stock will no longer have an
opportunity to continue their interests in the Company and therefore will not
share in its future earnings and potential growth. THE BOARD UNANIMOUSLY
RECOMMENDS A VOTE FOR THE ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.
Under the Delaware General Corporation Law (the "DGCL") and the Company's
Certificate of Incorporation and Bylaws, the affirmative vote of the holders of
a majority of the outstanding shares of Common Stock entitled to vote thereon is
required to approve and adopt the Merger Agreement and the Merger. Pursuant to
certain agreements dated January 26, 1996, between Spartech and Allstate
Insurance Company and Madison Allen Self, respectively, (the "Stock Option
Agreements"), stockholders holding approximately 35% of the outstanding shares
of Common Stock have each granted Spartech an irrevocable option to purchase
such shares for 120 days at a purchase price of $6.60 per share and have each
agreed to deliver to Spartech in connection with any such purchase, at its
request, an irrevocable proxy to vote such shares in its sole discretion at any
meeting of the stockholders of the Company. Copies of the Stock Option
Agreements are attached as Exhibits C & D to the Proxy Statement that
accompanies this Notice.
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Only stockholders of the Company of record at the close of business on Monday,
April 1, 1996 shall be entitled to notice of and to vote at the Special Meeting
and any adjournment thereof.
If the Merger is consummated, any stockholder of the Company who does not vote
in favor of adoption and approval of the Merger Agreement and the Merger and who
complies with the requirements of Section 262 of the DGCL shall be entitled to
an appraisal of the fair value of their shares of Common Stock. See "RIGHTS OF
DISSENTING STOCKHOLDERS" in the accompanying Proxy Statement for a statement of
the appraisal rights of stockholders and a description of the procedures
required to be followed by them to obtain appraisal of their shares of Common
Stock.
Whether or not you plan to attend the Special Meeting, please read the attached
Proxy Statement carefully. Please complete, sign and mail the enclosed proxy in
the accompanying postage prepaid envelope. If you later desire to revoke or
change your proxy for any reason, you may do so at any time before the voting by
delivering to the Company a written notice of revocation or a duly executed
proxy bearing a later date or by attending the Special Meeting and voting in
person.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR COMMON STOCK AT THIS TIME. You will
receive instructions regarding the surrender of your stock certificate(s) and
receive a payment for your shares of Common Stock after the Merger is effective.
By Order of the Board of Directors
/s/ Mark E. Showers
Mark E. Showers, Secretary
Portage, Wisconsin
April 16, 1996
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PORTAGE INDUSTRIES CORPORATION
1325 ADAMS STREET
PORTAGE, WISCONSIN 53901
PROXY STATEMENT
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This Proxy Statement is being furnished to the stockholders of Portage
Industries Corporation (the "Company") in connection with the solicitation of
proxies by the Company's Board of Directors (the "Board of Directors") for a
Special Meeting of Stockholders to be held on Thursday, May 9, 1996 at 10:00
a.m., local time, at the Ridge Motor Inn, Portage, Wisconsin (the "Special
Meeting"). At the Special Meeting, the stockholders of the Company will consider
and vote upon a proposal to approve and adopt an Agreement and Plan of Merger
dated February 22, 1996, (the "Merger Agreement"), among the Company, Spartech
Corporation ("Spartech") and Spartech Plastics, Inc. ("Mergeco"). If the Merger
is consummated, Mergeco will be merged into the Company, with the Company being
the surviving corporation. Pursuant to the Merger Agreement, each outstanding
share of the Company's common stock, $.01 par value per share (the "Common
Stock"), (other than dissenting shares and shares owned by the Company, Mergeco,
Spartech or its subsidiaries) will be converted into the right to receive $6.60
per share in cash, without interest. Each outstanding share of Mergeco common
stock will be converted into one share of the Company's common stock and the
Company will become a wholly-owned subsidiary of Spartech.
As a result of the Merger, the Company's stockholders will not have an
opportunity to continue their equity interest in the Company as an ongoing
corporation and, therefore, will not share in the future earnings and potential
growth of the Company, if any.
The consummation of the Merger is subject to approval by the holders of a
majority of the outstanding shares of Common Stock and to certain other
conditions, all as more fully described in this Proxy Statement. See "THE
MERGER" and "THE MERGER AGREEMENT".
The Board of Directors has unanimously approved the Merger Agreement, has
determined that the Merger Agreement is fair to and in the best interests of the
Company and its stockholders and recommends that you vote FOR approval and
adoption of the Merger Agreement.
It is not expected that any matter other than the approval and adoption of the
Merger Agreement will be brought before the Special Meeting. If, however, any
other matters are properly presented at the Special Meeting, the persons named
in the enclosed form of proxy and acting thereunder will have discretion to vote
on such matters in accordance with their best judgment.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OTHER PERSON.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This Proxy Statement was first mailed to Stockholders on April 16, 1996.
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TABLE OF CONTENTS
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PAGE
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SUMMARY.............................................................................. 4
THE SPECIAL MEETING................................................................ 4
Date, Time and Place............................................................ 4
Purpose of the Special Meeting.................................................. 4
Quorum; Required Vote; Record Date................................................. 4
THE PARTIES........................................................................ 4
THE MERGER......................................................................... 5
Certain Effects of the Merger................................................... 5
Background of the Merger........................................................ 5
Recommendation of the Board of Directors........................................ 5
Accounting Treatment............................................................ 6
THE MERGER AGREEMENT............................................................... 6
Effective Time.................................................................. 6
Procedures for Exchange of Certificates......................................... 6
Conditions to Consummation of the Merger........................................ 6
Termination of the Merger Agreement............................................. 6
Amendments to the Merger Agreement.............................................. 7
DISSENTERS' RIGHTS................................................................. 7
STOCK OPTION AGREEMENTS............................................................ 7
INTERESTS OF CERTAIN PERSONS IN THE MERGER......................................... 7
FEDERAL INCOME TAX CONSEQUENCES.................................................... 7
COMPARATIVE MARKET PRICE DATA........................................................ 8
SELECTED FINANCIAL DATA OF THE COMPANY............................................... 9
INTRODUCTION......................................................................... 11
General............................................................................ 11
Proposal to be Considered at Special Meeting....................................... 11
Voting Rights; Vote Required for Approval.......................................... 11
Proxies............................................................................ 12
THE MERGER........................................................................... 13
General............................................................................ 13
Effects of the Merger.............................................................. 13
Background; Reasons for the Merger; Recommendation of the Board of Directors....... 14
Accounting Treatment............................................................... 19
Source and Amount of Funds......................................................... 19
THE MERGER AGREEMENT................................................................. 19
General............................................................................ 19
Effective Time..................................................................... 20
Consideration to be Received by Stockholders....................................... 20
Representations and Warranties..................................................... 21
Covenants.......................................................................... 21
Conditions to Consummation of the Merger........................................... 22
Termination........................................................................ 22
Termination Fee.................................................................... 22
Amendments and Waivers............................................................. 23
Expenses........................................................................... 23
RIGHTS OF DISSENTING STOCKHOLDERS.................................................... 23
REGULATORY APPROVALS................................................................. 26
STOCK OPTION AGREEMENTS.............................................................. 26
INTERESTS OF CERTAIN PERSONS IN THE MERGER........................................... 26
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PAGE
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STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS.......................... 27
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THE COMPANY'S
STOCKHOLDERS....................................................................... 28
OTHER MATTERS........................................................................ 29
PROPOSALS BY HOLDERS OF COMMON STOCK................................................. 29
EXPENSES OF SOLICITATION............................................................. 29
INDEPENDENT PUBLIC ACCOUNTANTS....................................................... 30
AVAILABLE INFORMATION................................................................ 30
INFORMATION INCORPORATED BY REFERENCE................................................ 30
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SUMMARY
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The following is a summary of certain information contained elsewhere in this
Proxy Statement. The following summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed information
contained in this Proxy Statement, in the materials accompanying this Proxy
Statement and in the Exhibits hereto. Stockholders are urged to review the
entire Proxy Statement and accompanying materials carefully and in their
entirety.
THE SPECIAL MEETING
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Date, Time and Place. The Special Meeting will be held on Thursday, May 9, 1996
at 10:00 a.m., local time, at the Ridge Motor Inn, Portage, Wisconsin.
Purpose of the Special Meeting. At the Special Meeting, stockholders will
consider and vote upon a proposal to approve and adopt the Merger Agreement, a
copy of which is attached as Exhibit A to this Proxy Statement. The Merger
Agreement provides for the merger of Mergeco into the Company (the "Merger"),
such that the Company, as the surviving corporation (the "Surviving
Corporation"), would become a wholly-owned subsidiary of Spartech Corporation.
The Company's stockholders will also consider any other business that may
properly come before the Special Meeting. See "INTRODUCTION -- Proposal to be
Considered at Special Meeting".
Quorum; Required Vote; Record Date. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock at the Special
Meeting is necessary to constitute a quorum at the Special Meeting. Pursuant to
the Delaware General Corporation Law ("DGCL") and the Company's By-laws,
approval of the Merger Agreement requires the affirmative vote of the holders of
a majority of the outstanding shares of Common Stock. The close of business on
Monday, April 1, 1996 (the "Record Date") has been fixed as the record date for
determining holders of shares entitled to vote at the Special Meeting. Only
holders of Common Stock on the Record Date will be entitled to notice of and to
vote at the Special Meeting. On the Record Date, there were 2,269,100
outstanding shares of Common Stock, with each share entitled to cast one vote at
the Special Meeting. See "INTRODUCTION -- Voting Rights; Vote Required for
Approval".
THE PARTIES
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SPARTECH CORPORATION. Spartech Corporation, a Delaware corporation ("Spartech"),
which pursuant to the Merger will become the parent of the Company, is engaged
primarily in two lines of the plastics processing business: (i) the sale of
extruded sheet and rollstock to various manufacturers which use the plastic
components in a variety of products such as vehicle interiors, signs, spas and
showers, food packaging, burial vault liners, boats and private watercraft, and
refrigerators; and (ii) the sale of specialty alloys, compounds and color
concentrates principally to manufacturers of specialized footwear, shutters,
loose-leaf binders, cosmetic packaging products, and numerous other custom
plastic applications. For the fiscal year ended October 28, 1995, Spartech had
net sales of $352.3 million and total net earnings of $14.5 million. Spartech's
common stock is traded on the New York Stock Exchange under the symbol "SEH".
The principal executive offices of Spartech are located at 7733 Forsyth, Suite
1450, Clayton, Missouri, 63105-1817 and its telephone number is (314) 721-4242.
All information contained in this Proxy Statement with respect to Spartech and
its subsidiaries, including Mergeco, has been supplied by Spartech for inclusion
herein and has not been independently verified by the Company.
SPARTECH PLASTICS, INC. Spartech Plastics, Inc., a Delaware corporation
("Mergeco") is a wholly-owned subsidiary of Spartech, formed solely for the
purpose of the Merger. Mergeco has not engaged in any business activity
unrelated to the Merger. The principal executive offices of Mergeco are located
at the offices of Spartech and the telephone number is the same.
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PORTAGE INDUSTRIES CORPORATION. Portage Industries Corporation, a Delaware
Corporation (the "Company") is engaged in the business of manufacturing and
marketing extruded and barrier coextruded plastic sheet/rollstock which is sold
to customers for use in the manufacture of a wide range of products, including
packaging for food and dairy products, parts for automotive and recreational
vehicles, farm equipment components, environmental products, lawn and garden
products, agricultural products, home improvement products and medical devices
and pharmaceuticals. The Common Stock is traded on the American Stock Exchange
under the symbol "PTG". The principal executive offices of the Company are
located at 1325 Adams Street, Portage, Wisconsin, 53901, and the telephone
number is (608) 742-7123.
THE MERGER
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Upon the terms and subject to the conditions of the Merger Agreement, Mergeco
will merge with and into the Company, with the Company being the Surviving
Corporation. Mergeco will cease to exist and the Surviving Corporation will
become a wholly-owned subsidiary of Spartech. If the Merger is consummated, each
outstanding share of Common Stock other than shares (collectively, "Excluded
Shares") (i) owned directly or indirectly by Spartech, Mergeco or any direct or
indirect wholly-owned subsidiary of Spartech; (ii) held by the Company as
treasury shares; and (iii) held by stockholders who comply with the provisions
of the DGCL regarding the right of stockholders to dissent from the Merger
("Dissenting Shares") will be converted into the right to receive from Spartech
$6.60 in cash, without interest (the "Merger Consideration"). Spartech intends
to fund payment of the Merger Consideration through borrowings from Spartech's
existing bank facility. All Excluded Shares other than Dissenting Shares will be
canceled without consideration. Each outstanding share of Mergeco's common stock
will be converted into one share of common stock of the Surviving Corporation.
See "INTRODUCTION -- Proposal to be Considered at Special Meeting" and "THE
MERGER -- Effects of the Merger". Holders of Dissenting Shares will be entitled
to receive from the Surviving Corporation a cash payment in the amount of the
"fair value", of such shares, determined in the manner provided in Section 262
of the DGCL. See "RIGHTS OF DISSENTING STOCKHOLDERS".
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Certain Effects Of The Merger
As a result of the Merger, Spartech will acquire the entire equity interest in
the Company. Therefore, following the Merger the present holders of the Common
Stock will no longer have an equity interest in the Company and will no longer
share in future earnings and growth of the Company, if any, the risks associated
with achieving such earnings and growth, or the potential to realize greater
value for their Common Stock through divestitures, strategic acquisitions or
other corporate opportunities that may be pursued by the Company in the future.
Instead, each holder of Common Stock (other than holders of Excluded Shares) at
the Effective Time (as hereinafter defined) will have the right to receive the
Merger Consideration, and each holder of Dissenting Shares will have the right
to receive the statutorily determined "fair value" for each Common Stock. The
Common Stock will no longer be listed or traded on the American Stock Exchange
and the registration of the Common Stock under the Securities Exchange Act of
1934 (the "Exchange Act") will be terminated. See "THE MERGER -- Effects of the
Merger".
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Background Of The Merger
For a discussion of events leading to the execution of the Merger Agreement, see
"THE MERGER -- Background; Reasons for the Merger; Recommendation of the Board
of Directors".
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Recommendation Of The Board Of Directors
The Board of Directors has determined that the Merger and the Merger
Consideration are fair to, and in the best interests of, the Company's
stockholders. The Board of Directors has approved the Merger
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RECOMMENDATION OF THE BOARD OF DIRECTORS (Continued)
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Agreement and recommends that stockholders vote FOR the proposal to approve and
adopt the Merger Agreement. See "THE MERGER -- Background; Reasons for the
Merger; Recommendation of the Board of Directors".
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Accounting Treatment
The Merger will be accounted for under the purchase method of accounting by
Spartech. See "THE MERGER -- Accounting Treatment".
THE MERGER AGREEMENT
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Effective Time
The Merger will become effective upon the filing of a Certificate of Merger with
the Secretary of State of Delaware or at such later date specified in the
Certificate of Merger. (the "Effective Time") The filing will occur as promptly
as practicable (but not later than the first business day) after all conditions
to the Merger contained in the Merger Agreement have been satisfied or waived.
The Company, Spartech and Mergeco anticipate that the Merger will be consummated
promptly following the Special Meeting. See "THE MERGER AGREEMENT -- General"
AND "-- Effective Time".
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Procedures For Exchange Of Certificates
As soon as reasonably practicable after the Effective Time, a letter of
transmittal and instructions for surrendering stock certificates evidencing
shares of Common Stock (other than Excluded Shares) will be mailed to each
holder of Common Stock for use in exchanging such holder's stock certificates
for the Merger Consideration to which such holder is entitled as a result of the
Merger. STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. See "THE MERGER AGREEMENT -- Consideration to be Received by
Stockholders".
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Conditions To Consummation Of The Merger
The respective obligations of the Company, Spartech and Mergeco to effect the
Merger are subject to the satisfaction or waiver at or prior to the Effective
Time of various closing conditions. Such conditions include, among others, the
approval and adoption of the Merger Agreement by the holders of a majority of
the outstanding shares of Common Stock, the receipt of all necessary government
approvals and the correctness in all material respects of each of the
representations and warranties of the parties to the Merger Agreement. In
addition, Spartech is not obligated to consummate the Merger if the Stock Option
Agreements (as hereinafter defined) do not remain in full force and effect
through the Effective Time. See "THE MERGER AGREEMENT -- Conditions to
Consummation of the Merger".
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Termination Of The Merger Agreement
The Merger Agreement may, under specified circumstances, be terminated and the
Merger abandoned at any time prior to the Effective Time, notwithstanding
approval of the Merger Agreement by the stockholders of the Company. Subject to
certain limited exceptions, the Merger Agreement requires the Company to pay
Spartech a termination fee of $250,000 if the Merger Agreement is terminated
after an alternative proposal by a third party to acquire the Company. See "THE
MERGER AGREEMENT -- Termination" and "-- Termination Fee".
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Amendments To The Merger Agreement
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties. After approval of the Merger Agreement
by the stockholders of the Company and without the further approval of such
stockholders, no amendment will be approved by the Company which by law requires
the approval of stockholders. See "THE MERGER AGREEMENT -- Amendments and
Waivers."
DISSENTERS' RIGHTS
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Under certain conditions and by complying with the specific procedures required
by Section 262 of the DGCL, a copy of which has been attached hereto as Exhibit
B, the Company's stockholders will have the right to dissent from the Merger, in
which event they may be entitled to receive in cash the judicially determined
"fair value" of their shares of Common Stock in lieu of the Merger
Consideration. See "RIGHTS OF DISSENTING STOCKHOLDERS".
STOCK OPTION AGREEMENTS
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Each of Allstate Insurance Company and Madison Allen Self, the owners of
approximately 20.3% and 14.3%, respectively, of the outstanding shares of Common
Stock, have each granted Spartech an irrevocable option to purchase such shares
for 120 days at a purchase price of $6.60 per share and have each agreed to
deliver to Spartech in connection with any such purchase, at its request, an
irrevocable proxy to vote such shares in its sole discretion at any meeting of
the stockholders of the Company. Copies of the Stock Option Agreements are
attached as Exhibits C and D hereto and are incorporated herein by reference.
See "STOCK OPTION AGREEMENTS".
INTERESTS OF CERTAIN PERSONS IN THE MERGER
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In considering the recommendation of the Board of Directors with respect to the
Merger Agreement and the transactions contemplated thereby, stockholders should
be aware that certain members of management of the Company and the Board of
Directors have certain interests in the Merger that are in addition to the
interests of stockholders of the Company generally. See "INTERESTS OF CERTAIN
PERSONS IN THE MERGER".
FEDERAL INCOME TAX CONSEQUENCES
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The receipt of $6.60 in cash for each outstanding share of Common Stock (other
than Excluded Shares) pursuant to the Merger will be a taxable transaction for
federal income tax purposes under the Internal Revenue Code of 1986, as amended,
and also may be a taxable transaction under applicable state, local, foreign and
other tax laws. For federal income tax purposes, a stockholder of the Company
will realize taxable gain or loss as a result of the Merger measured by the
difference, if any, between the per share tax basis of such stockholder's Common
Stock and $6.60. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO
THE COMPANY'S STOCKHOLDERS".
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COMPARATIVE MARKET PRICE DATA
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The Common Stock is traded on the American Stock Exchange under the symbol
"PTG". The following table sets forth the high and low sales price per share of
the Common Stock on the American Stock Exchange for the periods indicated.
HIGH LOW
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1993
First Quarter.............................................................. 1 7/8 1 1/2
Second Quarter............................................................. 1 7/8 1 1/2
Third Quarter.............................................................. 2 5/8 1 3/4
Fourth Quarter............................................................. 4 1/8 2
1994
First Quarter.............................................................. 4 3/4 3 3/8
Second Quarter............................................................. 4 1/8 3 3/8
Third Quarter.............................................................. 3 7/16 2 7/8
Fourth Quarter............................................................. 2 13/16 2 5/16
1995
First Quarter.............................................................. 3 1/4 2 9/16
Second Quarter............................................................. 3 2 5/8
Third Quarter.............................................................. 2 5/16 2 11/16
Fourth Quarter............................................................. 4 1/4 2 1/4
1996
First Quarter.............................................................. 6 1/2 3 9/16
Second Quarter (through April 12, 1996).................................... 6 1/2 6 5/16
On January 22, 1996, the last full day of trading prior to the announcement by
the Company and Spartech of the Merger, the reported high and low sales prices
per share of Common Stock were $4.625 and $4.25, respectively. On April 12,
1996, the last full day of trading prior to the printing of this Proxy
Statement, there were no reported trades of Common Stock. On April 11, 1996, the
only reported trades were at $6.375.
No dividends have been declared or paid on the Common Stock in 1996, and no
dividends were declared or paid on the Common Stock in 1993, 1994 or 1995.
8
13
SELECTED FINANCIAL DATA OF THE COMPANY
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Set forth below is a summary of certain selected financial data with respect to
the Company excerpted or derived from the information contained in the Company's
Annual Reports on Form 10-K for the fiscal years ended December 31, 1995, 1994
and 1993. More comprehensive financial information is included in such reports
and other documents filed by the Company with the Securities and Exchange
Commission (the "Commission"), and the following summary is qualified in its
entirety by reference to such reports and other documents and all of the
financial information (including any related notes) contained therein. Such
reports and other documents may be inspected and copies may be obtained from the
offices of the Commission. See "AVAILABLE INFORMATION". In addition, certain
detailed financial information concerning the Company is contained in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, as amended, a copy of which accompanies each copy of this Proxy Statement
being provided to stockholders.
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SELECTED FINANCIAL DATA OF THE COMPANY
(In thousands, except per share data)
For the Year Ended
December 31,
---------------------------------------------------
1995 1994 1993 1992 1991
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STATEMENT OF OPERATIONS DATA
Net sales..................................... $35,569 $31,973 $30,617 $24,623 $24,059
Cost of sales................................. 31,525 27,770 26,840 22,901 21,586
Gross profit.................................. 4,044 4,203 3,777 1,722 2,473
Selling and administrative expenses........... 2,979 2,613 2,543 2,337 2,619
Interest Expense -- net....................... 220 287 492 573 680
Other (Income) Expense -- net................. 24 190 (225) 42 15
Income before income taxes.................... 821 1,113 967 (1,230) (841)
Income tax provision.......................... 340 449 406 (396) (229)
Cumulative effect of change in accounting
principle................................... -- -- -- 514 --
Net income (loss)............................. 481 664 561 (320) (612)
Net income per common share................... .21 .29 .25 (.14) (.27)
Weighted average shares outstanding........... 2,269 2,267 2,261 2,250 2,247
9
14
SELECTED FINANCIAL DATA OF THE COMPANY (Continued)
- ----------------------------------------------------------------
1995 1994
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SUMMARY BALANCE SHEET DATA
ASSETS
Current assets Cash and cash equivalents...... $ 186 $ 137
Accounts receivable, net...................... 3,065 3,026
Inventories................................... 3,456 3,359
Other current assets.......................... 329 282
Total current assets.......................... 7,036 6,804
Property, plant and equipment................. 13,186 12,352
Less accumulated depreciation................. 7,897 6,793
Net property, plant and equipment............. 5,289 5,559
Goodwill...................................... 4,134 4,134
Less accumulated amortization................. 1,309 1,205
Net goodwill.................................. 2,825 2,929
Other assets.................................. 86 109
Total assets.................................. 15,236 15,401
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities Notes payable............. 500 800
Current portion of long-term debt............. 550 550
Accounts payable.............................. 4,221 3,906
Accrued expenses: Compensation................ 181 304
Other......................................... 222 161
Deferred Income Taxes......................... 158 203
Total current liabilities..................... 5,832 5,924
Long-term debt................................ 1,700 2,250
Deferred income taxes......................... 206 215
Total liabilities............................. 7,738 8,389
STOCKHOLDERS' EQUITY
Preferred stock, $.25 par value, 1,000,000
shares authorized, none issued Common stock,
$.01 par value, 10,000,000 shares
authorized; 2,269,100 and 2,266,725 issued
and outstanding for 1995 and 1994,
respectively................................ 23 23
Additional paid-in capital.................... 7,894 7,889
Accumulated deficit........................... (419) (900)
Total stockholders' equity.................... 7,498 7,012
Total liabilities and stockholders' equity.... 15,236 15,401
Book Value per Common Share................... 3.30 3.09
10
15
INTRODUCTION
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General
This Proxy Statement is furnished to the holders of outstanding shares of Common
Stock in connection with the solicitation of proxies by the Board of Directors
of the Company for the Special Meeting to be held on Thursday, May 9, 1996 at
10:00 a.m. local time at the Ridge Motor Inn, Portage, Wisconsin. Shares of
Common Stock represented by properly executed proxies received by the Company
will be voted at the Special Meeting or any adjournment thereof in accordance
with the terms of such proxies, unless revoked. Proxies may be revoked at any
time prior to the voting thereof by delivering to the Company a written notice
of revocation or a duly executed proxy bearing a later date or by attending the
Special Meeting and voting in person.
- --------------------------------------------------------------------------------
Proposal To Be Considered At The Special Meeting
At the Special Meeting, the stockholders of the Company will consider and vote
upon a proposal to approve and adopt the Merger Agreement.
The Merger Agreement provides for the merger (the "Merger") of Mergeco into the
Company, with the Company being the surviving corporation (the "Surviving
Corporation"). Mergeco will then cease to exist and the Surviving Corporation
will become a wholly-owned subsidiary of Spartech. If the Merger is consummated,
(i) each outstanding share of Common Stock other than Excluded Shares will be
converted into the right to receive from Spartech $6.60 in cash, without
interest (the "Merger Consideration"); (ii) all Common Stock held by the Company
as treasury shares and all Common Stock owned by Mergeco and Spartech or its
subsidiaries will be canceled without consideration; (iii) each outstanding
stock option to acquire Common Stock will be converted into the right to receive
cash in an amount equal to the difference between $6.60 and the exercise price
of such option, without interest; and (iv) each outstanding share of Mergeco
common stock will be converted into one share of common stock of the Surviving
Corporation. Holders of Dissenting Shares will be entitled to receive from the
Surviving Corporation in lieu of the Merger Consideration a cash payment in the
amount of the "fair value" of such shares, determined in the manner provided in
Section 262 of the DGCL, but after the Effective Time (as hereinafter defined)
such shares will not represent any interest in the Surviving Corporation other
than the right to receive such cash payment. See "RIGHTS OF DISSENTING
STOCKHOLDERS".
A copy of the complete text of the Merger Agreement is attached as Exhibit A to
this Proxy Statement and is incorporated herein by reference. For a description
of the terms of the Merger Agreement, see "THE MERGER AGREEMENT".
- --------------------------------------------------------------------------------
Voting Rights; Vote Required For Approval
The close of business on Monday, April 1, 1996 (the "Record Date") has been
fixed as the record date for determining holders of shares entitled to vote at
the Special Meeting. Only holders of Common Stock on the Record Date will be
entitled to notice of and to vote at the Special Meeting. On the Record Date,
there were 2,269,100 outstanding shares of Common Stock, with each share
entitled to cast one vote at the Special Meeting. Each share of Common Stock
entitles its holder to one vote concerning all matters properly coming before
the Special Meeting. Any stockholder entitled to vote may vote either in person
or by duly authorized proxy. A majority of the shares entitled to vote,
represented in person or by proxy, will constitute a quorum. Abstentions and
broker non-votes (i.e., shares held by brokers in street name, voting on certain
matters due to discretionary authority or instructions from the beneficial owner
but not voting on other matters due to lack of authority to vote on such matters
without instructions from the beneficial owner) are counted for the purpose of
establishing a quorum. Under the DGCL and the Company's By-laws, the Merger
Agreement must be approved by the holders
11
16
VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL (Continued)
- --------------------------------------------------------------------------------
of at least a majority of the outstanding shares of Common Stock. Abstentions
and broker non-votes have the same effect as a vote "AGAINST" the approval of
the Merger. Votes will be tabulated by the Company's transfer agent, Firstar
Trust Company.
To the Company's knowledge after reasonable inquiry, each of the Company's
executive officers and directors, holding in the aggregate 33,786 shares of
Common Stock (approximately 1.5% of the outstanding shares of Common Stock),
currently intends to vote all shares of Common Stock held of record or
beneficially owned by such person for approval and adoption of the Merger
Agreement. See "STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS". In
addition, both Allstate Insurance Company and Madison Allen Self, the owners of
approximately 20.3% and 14.3%, respectively, of the outstanding shares of Common
Stock, have approved the terms of the Merger and have each granted Spartech an
irrevocable option to purchase such shares for 120 days at a purchase price of
$6.60 per share and have each agreed to deliver to Spartech in connection with
any such purchase, at its request, an irrevocable proxy to vote such shares in
its sole discretion at any meeting of the stockholders of the Company. See
"STOCK OPTION AGREEMENTS". Except for the recommendation of the Board of
Directors contained in this Proxy Statement, to the Company's knowledge after
reasonable inquiry, no executive officer or director of the Company has made a
recommendation to stockholders of the Company in support of or in opposition to
the approval and adoption of the Merger Agreement.
- --------------------------------------------------------------------------------
Proxies
All Common Stock represented by properly executed proxies received prior to or
at the Special Meeting and not revoked will be voted in accordance with the
instructions indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH
PROXIES WILL BE VOTED FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT
AND, IN THE DISCRETION OF THE PERSONS NAMED IN THE PROXY, ON SUCH OTHER MATTERS
AS MAY PROPERLY BE PRESENTED AT THE SPECIAL MEETING.
A stockholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of the Company a signed notice of revocation or a
later dated and signed proxy or by attending the Special Meeting and voting in
person. Attendance at the Special Meeting will not in itself constitute the
revocation of a proxy. Common Stock represented by a properly completed, signed,
dated and returned proxy will be treated as present at the meeting for purposes
of determining a quorum, without regard to whether the proxy is marked as
casting a vote or abstaining. ANY PROPERLY EXECUTED PROXY MARKED "ABSTAIN" OR
ANY ABSTENTION FROM THE SPECIAL MEETING WILL HAVE THE PRACTICAL EFFECT OF A VOTE
AGAINST APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
IF THE MERGER AGREEMENT IS APPROVED AND ADOPTED, DETAILED INSTRUCTIONS WITH
REGARD TO THE SURRENDER OF CERTIFICATES, TOGETHER WITH A LETTER OF TRANSMITTAL,
WILL BE FORWARDED TO FORMER STOCKHOLDERS OF THE COMPANY BY FIRSTAR TRUST COMPANY
(THE "PAYING AGENT") PROMPTLY FOLLOWING THE EFFECTIVE TIME. STOCKHOLDERS SHOULD
NOT SUBMIT THEIR CERTIFICATES TO THE PAYING AGENT UNTIL THEY HAVE RECEIVED THESE
MATERIALS. PAYMENT OF THE MERGER CONSIDERATION WILL BE MADE TO THE FORMER
STOCKHOLDERS OF THE COMPANY ENTITLED THERETO AS PROMPTLY AS PRACTICABLE
FOLLOWING RECEIPT BY THE PAYING AGENT OF THEIR CERTIFICATES AND OTHER REQUIRED
DOCUMENTS.
It is not expected that any matter other than the approval and adoption of the
Merger Agreement will be brought before the Special Meeting. If, however, any
other matters are properly presented at the Special
12
17
PROXIES (Continued)
- --------------------------------------------------------------------------------
Meeting, including, among other things, consideration of a motion to adjourn the
Special Meeting to another time or place, the persons named in the enclosed form
of proxy and acting thereunder will have discretion to vote on such matters in
accordance with their best judgment.
Proxies are being solicited by and on behalf of the Board of Directors. Expenses
in connection with the solicitation of proxies will be borne by the Company.
Upon request, the Company will reimburse brokers, dealers and banks, or their
nominees, for reasonable expenses incurred in forwarding copies of the proxy
material to the beneficial owners of Common Stock which such persons hold of
record. Solicitation of proxies will be made principally by mail. Proxies may
also be solicited in person, or by telephone or telegraph, by directors,
officers and regular employees of the Company.
This proxy material is first being mailed to stockholders on or about April 16,
1996.
THE MERGER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
General
The following information describes certain material aspects of the Merger. This
description does not purport to be complete and is qualified in its entirety by
reference to the exhibits hereto, including the Merger Agreement, which is
attached to this Proxy Statement as Exhibit A and is incorporated herein by
reference. All stockholders are urged to read Exhibit A in its entirety. See
also "THE MERGER AGREEMENT".
- --------------------------------------------------------------------------------
Effects Of The Merger
Upon consummation of the Merger, (i) Mergeco will merge with and into the
Company, Mergeco will cease to exist and the Company will be the Surviving
Corporation; (ii) the Company will become a wholly-owned subsidiary of Spartech;
(iii) each share of Common Stock outstanding immediately prior to the Effective
Time (other than Excluded Shares) will be converted, in a taxable transaction,
into the right to receive $6.60 in cash, without interest; and (iv) each
outstanding stock option to acquire Common Stock will be converted into the
right to receive cash in an amount equal to the difference between $6.60 and the
exercise price of such option, without interest. Therefore, following the Merger
the present holders of the Common Stock will no longer have an equity interest
in the Company and will no longer share in future earnings and growth of the
Company, if any, the risks associated with achieving such earnings and growth,
or the potential to realize greater value for their Common Stock through
divestitures, strategic acquisitions or other corporate opportunities that may
be pursued by the Company in the future.
As of the Record Date, there were 2,269,100 outstanding shares of Common Stock,
125,217 currently outstanding options to purchase Common Stock and one
outstanding warrant to purchase 137,500 shares of Common Stock. Subsequent to
the Record Date, the holder of the one outstanding warrant to purchase 137,500
shares of Common Stock exercised such warrant and the Company issued 137,500
shares of Common Stock in satisfaction thereof, which shares will not be
entitled to notice of, or to vote at, the Special Meeting. The issuance of such
shares resulted in a total of 2,406,600 shares of Common Stock being outstanding
on April 15, 1996. Assuming that no additional Common Stock or stock options are
outstanding at the Effective Time, then, upon consummation of the Merger,
holders of Common Stock and stock options would be entitled to receive, in the
aggregate, approximately $16.4 million.
Each certificate previously representing Common Stock (other than Excluded
Shares) will thereafter represent only the right to receive the Merger
Consideration (in the case of Dissenting Shares, the certificate will represent
only the right to receive the statutorily determined "fair value" of such
shares).
13
18
EFFECTS OF THE MERGER (Continued)
- --------------------------------------------------------------------------------
Certificates previously representing Common Stock may be exchanged for the
Merger Consideration as provided below, without interest. All Excluded Shares
(other than Dissenting Shares) will be canceled and no payment will be made with
respect thereto.
The "fair value" of Dissenting Shares will be determined and paid as described
in "RIGHTS OF DISSENTING STOCKHOLDERS".
As soon as practicable after the Effective Time, the Common Stock will be
delisted, and will no longer be traded on, the American Stock Exchange and the
registration of the Common Stock under the Exchange Act will be terminated.
For a description of the procedures for exchanging certificates representing
shares of Common Stock, see "THE MERGER AGREEMENT -- Consideration to be
Received by Stockholders".
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Background; Reasons For The Merger; Recommendation Of The Board Of Directors
For the past several years the Board of Directors has from time to time
considered the Company's various strategic alternatives as part of its ongoing
effort to enhance stockholder value. Among the alternatives explored were (i)
continuing to operate the Company, with ongoing efforts to improve operating
performance; (ii) growth of the Company's existing business or change in the mix
of the Company's core business, either through internal growth and/or
acquisition; and (iii) merging with a strategic or financial buyer.
As part of the Company's exploration of strategies to maximize stockholder
value, directors of the Company have had discussions from time to time with
other companies believed to be potentially interested in a business combination
or similar transaction with the Company, although in the two years prior to
1995, no such discussions advanced beyond the preliminary stage.
In late 1994, Spartech contacted the Company and proposed a meeting between the
two companies to discuss the possibility of a business combination or other
transaction. The parties ultimately decided not to proceed at that time and no
meeting was held.
In March 1995 a potential acquiror contacted the Company and asked to meet with
the Board of Directors regarding a possible acquisition or business combination.
On April 1, 1995 the Board of Directors met with the potential acquiror who
presented to the Board an outline of terms regarding a potential transaction,
whereby the outstanding stock of the Company would be acquired for cash at a
price range of $4.00-$5.00 per share. The discussions continued for a few hours,
and the potential acquiror then left the meeting. The Board of Directors
discussed the terms that had been presented and unanimously agreed that the
price range that was proposed was inadequate and that the terms that had been
proposed did not constitute a formal offer and, accordingly, determined not to
proceed further with the potential acquiror.
Within the next few weeks, representatives of the potential acquiror contacted
representatives of the Company to determine whether the Company had an interest
in further discussions. The Company responded that, among other things, the
price proposed was too low and, absent a significant increase in the price being
offered, the Company had no interest in pursuing further discussions. The
potential acquiror did not increase the price for the proposed acquisition and,
although subsequent telephone conversations occurred between representatives of
the two companies, no further formal discussions were held between the two
companies until December 1995.
In May 1995 members of the Board of Directors had preliminary discussions with
two financial advisors for the purpose of considering whether to retain a
financial advisor to assist the company in exploring alternatives for maximizing
stockholder value. Neither of the financial advisors was retained by the
Company.
14
19
BACKGROUND; REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
(Continued)
- --------------------------------------------------------------------------------
Also in May 1995, the Company contacted Spartech to discuss the possibility of a
merger or other business combination between the two companies. Representatives
of the Company met with a representative of Spartech, but no agreements were
reached and no further discussions were held until December 1995.
In September 1995, the Board of Directors determined that a financial advisor
should be retained to assist in the review of strategic alternatives.
The Board considered a number of candidates to serve as its financial advisor,
and in October 1995, the Company retained Mesirow Financial, Inc. ("Mesirow") to
assist the Company in exploring alternatives to maximize stockholder value.
Mesirow is a nationally recognized investment banking firm and is regularly
engaged in acquisitions and dispositions of businesses, the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. Mesirow has not previously provided investment banking and financial
advisory services to the Company.
Mesirow prepared a strategic alternative analysis (the "Analysis") presented to
the Board of Directors on December 1, 1995, to assist the Board in further
considering corporate finance issues and alternatives available to the Company.
The Analysis was a preliminary presentation of the results of discussion among
Mesirow and the management and board of directors of the Company as well as
Mesirow's preliminary financial analysis of the alternatives available to the
Company. The Analysis was based, to a significant degree, on estimates and
assumptions about circumstances and events which had not yet taken place.
Accordingly, as the Analysis stated, it was inherently subject to uncertainty
and variation depending on evolving events. Mesirow did not give assurance to
the Board that the predicted results in the Analysis and the related
recommendations would be successful. The Analysis did not include the Company's
financial results for the year ended December 31, 1995 nor the results of the
subsequent decision by the Board to actively solicit offers for the purchase of
the Company.
The Analysis presented certain strategic alternatives available to the Company;
growth through acquisitions, sale of the Company, employee stock ownership plan,
common stock offering, management buyout and conservative growth. For purposes
of comparing the strategic alternatives, Mesirow determined that valuation based
on operating cash flow was the most appropriate methodology.
Mesirow concluded that the Company's size, financial condition and performance
history did not make the employee stock ownership and common stock offering
alternatives viable options and recommended against pursuing them further. In
addition, the Analysis considered the sale of the extrusion division to a third
party, with a subsequent management buyout of the light gauge thermoforming
operations. The Analysis focused on three of the remaining alternatives
presented, growth through acquisitions, conservative growth and sale of the
Company.
The conservative growth alternative was intended to demonstrate the course the
Company would likely take as a stand-alone company assuming no dramatic actions
(such as acquisitions) were taken and the Company's historical revenue growth
and margins remained the same for the immediate future. Assumptions used in the
conservative growth alternative included the following: (i) income statement
estimates for the year ended December 31, 1995 were calculated by annualizing
the September 30, 1995 year-to-date performance numbers; (ii) balance sheet
working capital ratios were assumed to remain at 1994 levels; (iii) capital
expenditures and depreciation numbers were annualized; (iv) extrusion business
sales growth was assumed to be 5% per year; (v) light gauge thermoforming
business sales growth was assumed to be 45% in 1996, 20% in 1997 and 1998 and
15% in 1999; (vi) gross margins were held constant; and (vii) selling and
general and administrative expenses remained at the same percentage of sales.
Mesirow applied a discounted cash flow analysis to determine the value if the
Company were to grow based on the foregoing assumptions. Mesirow applied a
weighted average cost of capital assuming
15
20
BACKGROUND; REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
(Continued)
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50% debt and 50% equity. The cost of debt (after tax) was assumed to be 6.0%,
the cost of equity was assumed to be 18%. Using these assumptions and applying
the discounted cash flow analysis, Mesirow calculated a value of $3.20 per
share.
The alternative of growth through acquisitions was based on a plan put forth by
management. Management's plan assumed that the Company would establish a new
thermoforming facility, acquire a privately held light gauge thermoforming
company with approximately $5 million in revenues in 1997, and acquire a second
privately held light gauge thermoforming company with approximately $7 million
in revenues in 1999. Management also provided assumptions relating to capital
expenditures, acquisition debt and leases. Mesirow noted that the acquisition
growth plan had significant risk inasmuch as there was no assurance that
acceptable targets could be located or would be willing to sell at a reasonable
price. Additionally, if acquisitions were successfully completed, the chances
that the target companies could be successfully integrated were uncertain. Most
acquisition candidates would be less substantial than the Company in terms of
size, market share, management expertise and financial position, and, thus,
would be risky. For purposes of determining the value of the alternative of
growth through acquisitions, the Analysis assumed that the income statement for
the year ended December 31, 1995 would be calculated by annualizing the
September 30, 1995 year-to-date performance, balance sheet working capital
ratios would remain at 1994 levels, and capital expenditures (not relating to
acquisitions) and depreciation numbers were annualized. Mesirow performed a
discounted cash flow analysis to determine the value that would be created if
management's assumptions were fulfilled. Other assumptions used by Mesirow were
the same as the assumptions used in calculating value in the conservative growth
alternative, except that, given the significant risk entailed, the cost of
equity capital was assumed to be 30.0% and the cost of debt (after tax) was
assumed to be 6.6%. Using these assumptions and discounted cash flow analysis,
Mesirow calculated a value of $6.00 per share.
The third strategic alternative considered by Mesirow was a sale of the Company.
Mesirow's research indicated that there was a significant amount of acquisition
activity by larger plastics processors seeking to spread costs over a larger run
of sizes or to broaden product lines. In addition, Mesirow noted that selling
the Company was the most feasible method for current stockholders to obtain
substantial liquidity for their investment in light of the illiquid market for
the Company's stock. Mesirow observed that larger U.S. competitors were the most
likely suitors. Mesirow applied cash flow multiples to the Company's 1994
operating cash flows based upon the valuation Mesirow concluded a financial
buyer would utilize. Multiples of 5.0x and 7.0x were applied to operating cash
flows, less debt, resulting in a preliminary value of $4.36 to $6.71,
respectively, per share, if the Company were to be sold. Mesirow noted that a
strategic buyer such as a competitor might pay a premium to the multiples used
in the analysis.
Based on the strategic and financial analysis of the Company's current
operations, Mesirow recommended that the Board of Directors solicit offers for
the sale of the Company. Mesirow noted, among other things, that the Company
competes primarily in a commodity business under severe price pressure in which
competitors are able to produce product at a lower cost due to greater economies
of scale which consist primarily of purchasing power for raw materials. In
addition, the capital expenditures level required to remain competitive in the
Company's business is significant, and the Company's competitors have superior
financial resources. Mesirow noted that the alternative of growth through
acquisitions was currently undefined and held a high risk level. On a
risk-adjusted basis, Mesirow concluded the potential return to stockholders from
the acquisition growth plan was insufficient.
During December 1995 Mesirow identified and contacted numerous potential
acquirors. In addition to the potential purchasers identified by Mesirow, three
other potential acquirors, including Spartech, and the potential acquiror that
had met with the Board in April 1995 contacted the Company in December 1995.
Each of these potential acquirors also executed a confidentiality agreement with
the Company and received certain public information about the Company and its
operations.
16
21
BACKGROUND; REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
(Continued)
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On December 20, 1995, Spartech management visited the Company's facilities in
Portage and met with management to discuss preliminarily the terms of an offer
by Spartech to acquire the Company.
On January 12, 1996, Spartech management met again with Company representatives
at the Company's facilities and discussed further terms of an offer by Spartech
to acquire the Company.
The Company advised each potential acquiror that had executed a confidentiality
agreement that all bids must be submitted on or before January 22, 1996. On
January 19, 1996 the Board of Directors met to discuss, among other things, the
status of the bidding process. During that meeting, Spartech delivered to the
Board a draft letter of intent for the acquisition by Spartech of all of the
issued and outstanding Company Stock for a price of $6.60 per share (the
"Spartech Offer"). The Board discussed the Spartech Offer at length and approved
in principle its terms, subject to review of the Offer by Company counsel.
On January 19, 1996 the Board also received an offer to purchase substantially
all of the Company's machinery, equipment and inventory for a purchase price of
approximately $9 million. The offer would have left the Company with the
remaining assets, including real estate, and all of its liabilities and no
continuing operations. The Board concluded that to sell or liquidate the
remaining assets would be a time consuming transaction with uncertain results.
After review of the terms and conditions of that offer, the Board concluded that
the value to stockholders was substantially less than the Spartech Offer and
informed the potential purchaser that the Company was not interested in further
negotiations. During the time Company counsel was reviewing the Spartech Offer,
the Company received another offer to purchase all of the outstanding Common
Stock at a price range below the Spartech Offer. The Board considered the
proposal and concluded that it was less favorable than the Spartech Offer and
further negotiations were not warranted. Following review of the Spartech Offer
by Company counsel and consideration of the other offers mentioned above, the
Company executed a revised letter of intent with Spartech on January 22, 1996
providing for the acquisition by Spartech through a newly formed subsidiary of
all of the issued and outstanding Common Stock for $6.60 per share in cash.
Thereafter representatives of the Company, along with Mesirow and the Company's
legal advisers, proceeded to negotiate with Spartech a definitive merger
agreement.
The Board did not obtain an independent valuation of the fairness of the
consideration offered by Spartech to the Company's stockholders. The Board's
decision not to obtain a fairness opinion was based on the following factors:
(i) as described above, Company representatives had been in contact with a
number of potential acquirors some of which, as previously described, made
offers for all or a portion of Portage but none of which offered a purchase
price or other consideration equal to that offered by Spartech. The Board
believes that this process, which took place over a period of several months,
also provided the Board a strong indication of market interest in and for the
Company; (ii) the Board had gathered, both independently and with the assistance
of Mesirow, information regarding the value of the Company; and (iii) Mesirow's
conclusion that a sale of the Company was the alternative most likely to
maximize stockholder value. The Board concluded, in light of these factors, that
(i) a fairness opinion would not provide significant additional information not
already available to the Board; and (ii) the likely benefits of a fairness
opinion to the Company's stockholders did not justify the cost to the Company
and its stockholders of obtaining such an opinion.
On January 26, 1996, Allstate Insurance Corporation and Madison Allen Self, the
owners of approximately 20.3% and 14.3%, respectively, of the outstanding shares
of Common Stock, each granted Spartech an irrevocable option to purchase such
shares for 120 days at a purchase price of $6.60 per share and each agreed to
deliver to Spartech in connection with any such purchase, at its request, an
irrevocable proxy to vote such shares in its sole discretion at any meeting of
the stockholders of the Company. On February 22, 1996, the Board of Directors
unanimously approved the Merger Agreement and it was executed by the Company and
Spartech on that date.
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BACKGROUND; REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
(Continued)
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The Board of Directors has unanimously determined that the Merger is in the best
interests of the Company's stockholders, unanimously approved the Merger
Agreement and the transactions contemplated thereby and recommends that the
Company's stockholders vote for the adoption of the Merger Agreement.
In reaching its conclusion to enter into the Merger Agreement and recommend
adoption of the Merger Agreement by the Company's stockholders, the Board of
Directors considered a number of factors, including without limitation, the
following:
(i) The Analysis provided by Mesirow, which is summarized above;
(ii) The consideration to be received by the stockholders in the Merger,
including the facts (a) that the Merger Consideration involves all cash
consideration without financing contingencies, (b) that the Merger
Consideration represents a substantial premium over the market price of
the Common Stock preceding announcement of the proposed Merger, and (c)
that the Merger Consideration represents the high end of the valuation
provided by Mesirow for sale of the Company;
(iii) Current market conditions and the relatively low recent historical
market prices of the Common Stock;
(iv) Knowledge of the business, operations, properties, assets, financial
condition and operating results of the Company, as well as the fact
that the Company's prospects for future growth without additional
sources of capital are limited, as summarized from the Analysis;
(v) The fact that the Company contacted several prospective purchasers
over a period of several months, none of which prospective purchasers
offered an aggregate purchase price competitive to the Spartech offer;
(vi) The fact that the Company competes primarily in a commodity business
under severe price pressures in which competitors are able to produce
a product at lower cost due to greater economies of scale; and the fact
that capital expenditures required to remain competitive in the
Company's business are significant and most if not all of the Company's
competitors have greater financial resources.
(vii) The terms and conditions of the Merger and the Merger Agreement,
including the amount and form of the consideration described above as
well as the parties' mutual representations, warranties and covenants,
and the conditions to their respective obligations.
The Board also considered the possibility of a conflict of interest presented by
the possibility of having a number of the executive officers and one of the
directors being offered employment with the Surviving Corporation following the
Merger and the fact that the Merger would deprive current stockholders of the
Company of the opportunity to participate in the future potential growth of the
Company. The Board believes that, by its use of separate legal counsel from
Spartech in negotiating the terms of the Merger and by its hiring an independent
financial advisor to advise it regarding the alternatives available to maximize
stockholder value, it has addressed this potential conflict of interest in a
manner designed to protect the best interests of the Company and its
stockholders. The Board also recognized that three of the four directors of the
Company had not been and would not be offered the possibility of employment with
the Company or Spartech following the Merger.
The foregoing discussion of the information and factors considered by the Board
of Directors is not meant to be exhaustive but is believed to include the
material factors considered by the Board. In view of the wide variety of factors
considered in connection with its evaluation of the terms of the Merger, the
Board of Directors did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors considered
in reaching its conclusions. Based on the factors described above, the Board of
Directors determined that the Merger is in the best interests of the Company's
stockholders and preferable to the other alternatives considered, approved the
Merger
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BACKGROUND; REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
(Continued)
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Agreement and the transactions contemplated by the Merger Agreement and certain
related agreements and recommends that the stockholders of the Company vote for
adoption of the Merger Agreement. Accordingly, THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
The Board believes that all of the above factors support the Board's conclusion
that the transaction is fair to the stockholders of the Company. In addition,
the facts that (i) the consideration to be received by the stockholders of the
Company represents the high end of the valuation provided by Mesirow for the
sale of the Company; (ii) that the Company actively sought purchasers for all or
a portion of the Company over a period of several months and the Spartech offer
was greater than any other offer received by the Company; and (iii) that the
uncertainty surrounding the ability of the Company to grow without additional
sources of capital in such a way that would increase the value to stockholders,
all support the Board's conclusion that the Merger is in the best interests of
the Stockholders.
In the event that the Merger is not approved by the requisite vote of the
Company's stockholders, the Company will continue its current operations and the
Board will continue to consider the various strategic alternatives available to
the Company as discussed above in an attempt to maximize stockholder value.
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Accounting Treatment
The Merger will be accounted for under the purchase method of accounting under
which the total consideration paid in the Merger will be allocated among the
Surviving Corporation's assets and liabilities based on the fair values of the
assets acquired and liabilities assumed. At the Effective Time, the Company will
become a wholly-owned subsidiary of Spartech.
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Source And Amount Of Funds
Spartech intends to fund payment of the Merger Consideration through use of
borrowings from Spartech's existing bank facility. The aggregate cost to
Spartech of acquiring all of the Common Stock in the Merger, making required
payments to holders of stock options (see "INTERESTS OF CERTAIN PERSONS IN THE
MERGER") and payment of its fees and expenses will be approximately $16.6
million.
THE MERGER AGREEMENT
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The following discussion of the Merger Agreement is qualified in its entirety by
reference to the complete text of the Merger Agreement, which is included in
this Proxy Statement as Exhibit A (exclusive of all exhibits and schedules) and
is incorporated herein by reference.
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General
The Merger Agreement provides for the merger of Mergeco into the Company. The
Company will be the Surviving Corporation of the Merger, and, as a result of the
Merger, Spartech will own all of the Surviving Corporation's common stock. In
the Merger, holders of Common Stock other than Excluded Shares will receive the
Merger Consideration described below. The Company, Spartech & Mergeco anticipate
that the Merger will be consummated as soon as practicable after the Special
Meeting.
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Effective Time
If the Merger Agreement is adopted by the requisite vote of the Company's
stockholders and the other conditions to the Merger are satisfied (or waived to
the extent permitted), the Merger will be consummated and become effective upon
the filing of the Certificate of Merger with the Secretary of State of Delaware
or at such later date as is specified in the Certificate of Merger (the
"Effective Time"). It is anticipated that such Certificate of Merger will be
filed as soon as reasonably practicable (but not later than the first business
day) after the satisfaction of waiver of the conditions to the Merger contained
in the Merger Agreement.
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Consideration To Be Received By Stockholders
In connection with the Merger, each outstanding share of Common Stock at the
Effective Time (other than Excluded Shares) will be converted into the right to
receive $6.60 in cash, without interest. All Excluded Shares other than
Dissenting Shares will be canceled without consideration. Dissenting Shares will
be converted to cash in the manner described in "RIGHTS OF DISSENTING
STOCKHOLDERS".
As soon as reasonably practicable after the Effective Time, Spartech will
instruct the Paying Agent to mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Common Stock other than Excluded Shares (the
"Certificates") (i) a letter of transmittal in customary form (which will
specify that delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon proper delivery of the Certificates to the
Paying Agent); and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent together with a letter of
transmittal, duly executed, and any other documents as may be required pursuant
to such instructions, the holder of a Certificate will be entitled to receive in
exchange therefor the Merger Consideration and the Paying Agent will, as soon as
practicable, pay the Merger Consideration to such stockholder by check or draft.
In the event of a transfer of ownership of Common Stock which is not registered
in the stock transfer records of the Company, it shall be a condition to such
exchange that a Certificate representing the proper number of shares of Common
Stock be presented by a transferee to the Paying Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon surrender the Merger Consideration.
The Company, Spartech and Mergeco will not be liable to any holder of Common
Stock for Merger Consideration delivered to a public official pursuant to any
abandoned property, escheat or similar law.
At the Effective Time each of the outstanding shares of Mergeco will
automatically be converted into one share of common stock, par value $.01 per
share, of the Surviving Corporation.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES FOR COMMON STOCK WITH THE
ENCLOSED PROXY CARD AND SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO THE
PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL.
After the Effective Time, the holder of a certificate formerly representing
Common Stock will cease to have any rights as a stockholder of the Company, and
such stockholder's sole right will be to receive the Merger Consideration with
respect to such shares (or, in the case of Dissenting Shares, the statutorily
determined "fair value"). If payment is to be made to a person other than the
person in whose name the surrendered certificate is registered, it will be a
condition of payment that the certificates so surrendered be properly endorsed
or otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of such payment
or establish to the satisfaction of the Surviving Corporation that such taxes
have been paid or are not applicable. No
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CONSIDERATION TO BE RECEIVED BY STOCKHOLDERS (Continued)
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transfer of shares outstanding immediately prior to the Effective Time will be
made on the stock transfer books of the Surviving Corporation after the
Effective Time. Certificates formerly representing Common Stock presented to the
Surviving Corporation after the Effective Time will be canceled in exchange for
the Merger Consideration.
In no event will holders of Common Stock be entitled to receive payment of any
interest on the Merger Consideration to be distributed to them in connection
with the Merger.
- --------------------------------------------------------------------------------
Representations And Warranties
The Merger Agreement contains various representations and warranties of the
Company relating to, among other things, (a) corporate organization, existence,
good standing and the power and authority of the Company to own and operate its
properties and carry on its business; (b) the capital structure of the Company;
(c) corporate power and authority to enter into, and the due, valid and binding
execution and delivery of, the Merger Agreement; (d) consents and approvals of
public bodies; (e) the proper filing by the Company with the Commission of all
required documents and the accuracy of the information contained in such
documents; (f) the absence of certain changes concerning the Company; (g) the
absence of litigation concerning the Company; (h) the employee relations and
employee benefits of the Company; (i) the condition of the Company's assets; and
(j) certain matters pertaining to federal, state and local taxes.
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Covenants
Pursuant to the Merger Agreement, the Company has agreed that, except as
expressly contemplated by the Merger Agreement or consented to in writing by
Spartech, from the date of the Merger Agreement until the Effective Time, the
Company shall (among other things):
(a) not solicit or initiate or encourage any inquiries, proposals or offers
from or participate in any discussions or negotiations with, or furnish any
information to any potential buyer (other than Spartech) relating to the
sale of the assets or securities of the Company; provided however, in
certain circumstances, the Board of Directors may furnish information or
enter into discussions or negotiations with any person or entity which
makes an unsolicited bona fide "Alternative Proposal" (as hereinafter
defined) or delivers an unsolicited, bona fide written expression of
interest that could reasonably be expected to lead to an Alternative
Proposal;
(b) conduct its operations in the ordinary course of business and use
reasonable efforts to preserve goodwill, keep available its employees and
maintain satisfactory relationships with those persons having business
relationships with it;
(c) not effect any change in its capitalization, issue any stock, options,
warrants or rights, purchase any outstanding stock, declare or pay any
dividend or other distribution, or increase certain compensation or adopt
any new employee benefit plan;
(d) not dispose of any of its assets outside the ordinary course of
business and not subject any of its assets to any lien or encumbrance; or
(e) not make certain accounting changes, tax elections or compromise any
material tax liability.
The Company has also agreed to take all necessary action to convene a meeting of
its stockholders to consider and vote upon the Merger Agreement and to make to
use its best efforts to take all such action as may be necessary or appropriate
to effectuate the Merger, including cooperation in the preparation and filing of
this Proxy Statement, expiration or termination of governmental filings and
waiting period requirements, and execution of any additional instruments
reasonably necessary to effect the transactions contemplated by the Merger
Agreement.
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- --------------------------------------------------------------------------------
Conditions To Consummation Of The Merger
The obligations of the parties to effect the Merger are subject to the
satisfaction or waiver at or prior to the Effective Time of a number of
conditions typical in acquisition transactions, including accuracy of
representations and warranties; performance of all covenants; receipt of all
necessary legal approvals, consents and clearances; and approval by holders of
the necessary majority of the Company's outstanding shares. In addition,
Spartech's obligation to close is conditioned upon:
(a) the absence of any material adverse change in the condition of the
Company;
(b) the Stock Option Agreements remaining in full force and effect through
the Effective Time;
(c) certain employees of the Company entering into employment agreements
with the Company; and
(d) receipt by Spartech of a "comfort letter" from Coopers & Lybrand, the
Company's independent accounting firm, in form and substance satisfactory
to Spartech.
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Termination
The Merger Agreement may be terminated by either party, and the Merger abandoned
at any time before the Effective Time, notwithstanding approval of the Merger
Agreement by the stockholders of the Company: in the event that (i) the Merger
is not consummated by June 30, 1996; (ii) the approval of the Company's
stockholders is not obtained; (iii) any order, decree or ruling is issued by any
court of competent jurisdiction which prohibits the transactions actions
contemplated by the Merger Agreement.
The Merger Agreement may be terminated by the parties indicated below, and the
Merger abandoned at any time before the Effective Time, notwithstanding approval
of the Merger Agreement by the stockholders of the Company:
(a) by mutual consent of the Company and Spartech;
(b) by the Company, in the event that the Company receives an alternative
proposal, not subject to any financing restrictions, which the Board of
Directors (in the exercise of its fiduciary duties) determines to represent
a financially superior transaction for the stockholders of the Company as
compared to the Merger ("Alternative Proposal"), or in the event of certain
non-performance or breach by Spartech; or
(c) by Spartech, in the event that the Board of Directors withdraws or
modifies its recommendation to stockholders regarding the Merger or accepts
an Alternative Proposal, or in the event of a non-performance or breach by
the Company of its obligations contained in the Merger Agreement.
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Termination Fee
In the event that the Company receives an Alternative Proposal and (i) the
Merger Agreement is terminated pursuant to paragraph (b) or (c) above, or (ii)
the Merger Agreement is terminated for any other reason (other than a breach of
the Merger Agreement by Spartech) and the transaction contemplated by such
Alternative Proposal is consummated on or before July 20, 1996, the Merger
Agreement requires the Company to pay Spartech a termination fee of $250,000
(the "Termination Fee"). The Termination Fee, together with the reimbursement by
the Company of 50% of the filing fees required under the HSR Act (as hereinafter
defined) is the sole and exclusive remedy of Spartech upon any such termination
of the Merger Agreement.
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Amendments And Waivers
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of the Company and Spartech. At any time prior to the Effective
Time, any party to the Merger Agreement may (a) extend the time for performance
of any of the obligations or other acts of the other parties thereto, (b) waive
inaccuracies in representations and warranties made to such party, or (c) waive
compliance with covenants and agreements for the benefit of such party. After
approval of the Merger Agreement by the stockholders of the Company, the Board
of Directors will not, without first obtaining the further approval of the
stockholders, approve any amendment which would require the approval of the
Company's stockholders.
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Expenses
The Merger Agreement provides that, whether or not the Merger is consummated,
all costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expenses; except that all fees in connection with filings required under the HSR
Act (as hereinafter defined) shall be borne by Spartech (with half of such fees
to be reimbursed by the Company if the Merger Agreement is terminated for any
reason).
RIGHTS OF DISSENTING STOCKHOLDERS
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If the Merger is consummated, holders of shares are entitled to appraisal rights
under Section 262 of the DGCL, provided that they comply with the conditions
established by Section 262.
SECTION 262 OF THE DGCL IS REPRINTED IN ITS ENTIRETY AS EXHIBIT B TO THIS PROXY
STATEMENT. THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SECTION 262 OF THE DGCL ATTACHED AS EXHIBIT B. THIS DISCUSSION AND EXHIBIT B
SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY
APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO, AS FAILURE TO
COMPLY WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT IN THE LOSS
OF APPRAISAL RIGHTS.
A record holder of Common Stock who makes the demand described below with
respect to such Common Stock, who continuously is the record holder of such
Common Stock through the Effective Time, who otherwise complies with the
statutory requirements of Section 262 and who neither votes in favor of the
approval and adoption of the Merger Agreement nor consents thereto in writing
will be entitled to receive from the Company the fair value of such holder's
Common Stock as determined in an appraisal proceeding conducted by the Delaware
Court of Chancery (the "Delaware Court"). Except as set forth herein,
stockholders of the Company will not be entitled to appraisal rights in
connection with the Merger.
Under Section 262, if a merger is to be submitted for approval at a meeting of
stockholders, as in the Special Meeting, not less than 20 days prior to the
meeting, a constituent corporation must notify each of the holders of its stock
for which appraisal rights are available that such appraisal rights are
available and include in each such notice a copy of Section 262. This Proxy
Statement constitutes such notice to the record holders of the Common Stock.
Holders of Common Stock who desire to exercise appraisal rights must not vote in
favor of approval and adoption of the Merger Agreement and must deliver a
separate written demand for appraisal to the Company BEFORE the vote by the
stockholders of the Company on the Merger Agreement. A stockholder who signs and
returns a proxy without expressly directing by checking the applicable boxes on
the reverse side of the proxy card enclosed herewith that his or her Common
Stock be voted against
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the proposal or that an abstention be registered with respect to his or her
Common Stock in connection with the proposal will have thereby effectively
waived his or her appraisal rights because, in the absence of express contrary
instructions, such Common Stock will be voted in favor of the proposal.
Accordingly, a stockholder who desires to perfect appraisal rights must either
(i) refrain from executing and returning the enclosed proxy card and from voting
in person in favor of the proposal to approve the Merger Agreement or (ii) check
either the "Against" or the "Abstain" box next to the proposal on such card or
attend the Special Meeting and either affirmatively vote in person against the
proposal or abstain from voting thereon. A demand for appraisal must be executed
by or on behalf of the stockholder of record and must reasonably inform the
Company of the identity of the stockholder of record and that such record
stockholder intends thereby to demand appraisal of the Common Stock. A person
having a beneficial interest in Common Stock that is held of record in the name
of another person, such as a broker, fiduciary or other nominee, must act
promptly to cause the record holder to follow the steps summarized herein
properly and in a timely manner to perfect whatever appraisal rights are
available. If the Common Stock is owned of record by a person other than the
beneficial owner, including a broker, fiduciary (such as a trustee, guardian or
custodian) or other nominee, such demand must be executed by or for the record
owner. If the shares are owned of record by more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by or for all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for appraisal for the stockholder of record; however, the
agent must identify the record owner and expressly disclose the fact that, in
exercising the demand, such person is acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds Common
Stock as a nominee for others, may exercise appraisal rights with respect to the
Common Stock held for all or less than all beneficial owners of shares as to
which such person is the record owner. In such case, the written demand must set
forth the number of shares of Common Stock covered by such demand. Where the
number of shares of Common Stock is not expressly stated, the demand will be
presumed to cover all shares outstanding in the name of such record owner.
A stockholder who elects to exercise appraisal rights should mail or deliver his
or her written demand to Portage Industries Corporation, 1325 Adams Street,
Portage, Wisconsin, 53901, Attention: Mark E. Showers, Secretary/Treasurer.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Common Stock owned, and that the
stockholder is thereby demanding appraisal of his or her Common Stock. A proxy
or vote against the approval and adoption of the Merger Agreement will not by
itself constitute such a demand. Within ten days after the Effective Time, the
Surviving Corporation must provide notice of the Effective Time to all
stockholders who have complied with Section 262.
Within 120 days after the Effective Time, either the Surviving Corporation or
any stockholder who has complied with the required conditions of Section 262 may
file a petition in the Delaware Court, with a copy served on the Surviving
Corporation in the case of a petition filed by a stockholder, demanding a
determination of the fair value of the Common Stock of all dissenting
stockholders. There is no present intent on the part of the Surviving
Corporation to file an appraisal petition and stockholders seeking to exercise
appraisal rights should not assume that the Surviving Corporation will file such
a petition or that the Surviving Corporation will initiate any petitions with
respect to the fair value of such Common Stock. Accordingly, stockholders who
desire to have their Common Stock appraised should initiate any petitions
necessary for the perfection of their appraisal rights within the time periods
and in the manner prescribed in Section 262. Within 120 days after the Effective
Time, any stockholder who has theretofore complied with the applicable
provisions of Section 262 will be entitled, upon written request, to receive
from the Surviving Corporation a statement setting forth the aggregate number of
shares of Common Stock not voted in favor of the approval and adoption of the
Merger Agreement and with respect to which demands for appraisal were received
by the Company and the number of holders of such Common Stock. Such statement
must be mailed within 10 days after the written request therefor has been
received by the Surviving Corporation.
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If a petition for an appraisal is timely filed, at the hearing on such petition
the Delaware Court will determine which stockholders are entitled to appraisal
rights. The Delaware Court may require the stockholders who have demanded an
appraisal for their Common Stock and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; if any stockholder fails
to comply with such direction, the Delaware Court may dismiss the proceedings as
to such stockholder. Where proceedings are not dismissed, the Delaware Court
will appraise the Common Stock owned by such stockholders, determining the fair
value of such Common Stock exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value. In
determining fair value, under current case law, the Delaware Court is required
to take into account all relevant factors. In WEINBERGER V. UOP INC., the
Delaware Supreme Court discussed the factors that could be considered in
determining fair value in an appraisal proceeding, stating that "proof of value
by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered, and
that "fair price obviously requires consideration of all relevant factors
involving the value of a company". The Delaware Supreme Court stated that in
making this determination of fair value, the court must consider market value,
asset value, dividends, earnings prospects, the nature of the enterprise and any
other facts which would be ascertained as of the date of the merger which throw
light on future prospects of the merged corporation. In WEINBERGER, the Delaware
Supreme Court stated that "elements of future value, including the nature of the
enterprise, which are known or susceptible of proof as of the date of the merger
and not the product of speculation, may be considered". Section 262, however,
provides that fair value is to be "exclusive of any element of value arising
from the accomplishment or expectation of the merger".
Holders of Common Stock considering seeking appraisal should recognize that the
fair value of their Common Stock determined under Section 262 could be more
than, the same as or less than the consideration they are entitled to receive
pursuant to the Merger Agreement if they do not seek appraisal of their Common
Stock. The cost of the appraisal proceeding may be determined by the Delaware
Court and charged against the parties as the Delaware Court deems equitable in
the circumstances. Upon application of a dissenting stockholder of the Company,
the Delaware Court may order that all or a portion of the expenses incurred by
any dissenting stockholder in connection with the appraisal proceeding,
including without limitation, reasonable attorneys' fees and the fees and
expenses of experts, be charged pro rata against the value of all Common Stock
entitled to appraisal.
Any holder of Common Stock who has duly demanded appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote for any
purpose any Common Stock subject to such demand or to receive payment of
dividends or other distributions on such Common Stock, except for dividends or
distributions payable to stockholders of record at a date prior to the Effective
Time.
At any time within 60 days after the Effective Time, any stockholder electing to
demand an appraisal of his Common Stock under Section 262 of the DGCL will have
the right to withdraw such demand for appraisal and to accept the terms offered
in the Merger; after this period, the stockholder may withdraw such demand for
appraisal only with the consent of the Surviving Corporation. If no petition for
appraisal is filed with the Delaware Court within 120 days after the Effective
Time, stockholders' rights to appraisal will cease, and all holders of Common
Stock will be entitled to receive the consideration offered pursuant to the
Merger Agreement. Inasmuch as the Surviving Corporation has no obligation and no
present intention to file such a petition, any holder of Common Stock who
desires such a petition to be filed is advised to file it on a timely basis. Any
stockholder may withdraw such stockholder's demand for appraisal and accept the
Merger Consideration, except that (i) any such attempt to withdraw made more
than 60 days after the Effective Time will require written approval of the
Surviving Corporation and (ii) no appraisal proceeding in the Delaware Court
will be dismissed as to any stockholder without the approval of the Delaware
Court, and such approval may be conditioned upon such terms as the Delaware
Court deems just.
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REGULATORY APPROVALS
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Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act")
and the rules promulgated thereunder by the Federal Trade Commission (the
"FTC"), certain acquisition transactions may not be consummated unless notice
has been given and certain information has been furnished to the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and the FTC and certain waiting period requirements have been satisfied. The
Merger is subject to these requirements.
The Company and Spartech each filed with the Antitrust Division and the FTC a
Notification and Report Form with respect to the Merger on March 4, 1996. Under
the HSR Act, the Merger may not be consummated until the expiration of a waiting
period of at least 30 days following the receipt of each filing, unless the
waiting period is earlier terminated by the FTC and the Antitrust Division. The
waiting period expired on April 3, 1996. State Attorneys General and private
parties also may bring legal actions under the federal or state antitrust laws
under certain circumstances. There can be no assurance that a challenge to the
proposed Merger on antitrust grounds will not be made or of the result if such a
challenge is made.
THE STOCK OPTION AGREEMENTS
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On January 26, 1996, Spartech and Allstate Insurance Company ("Allstate") and
Madison Allen Self ("MAS"), respectively, entered into Shareholder Option
Agreements (the "Stock Option Agreements"). Under the terms of the Stock Option
Agreements, Allstate and MAS have each agreed:
(a) to grant Spartech an irrevocable option for 120 days to purchase shares
owned by Allstate and MAS at a purchase price of $6.60 per share;
(b) to not sell, transfer, pledge, assign, grant any proxy or otherwise
dispose of their respective shares or enter into any agreement or
understanding regarding any of the foregoing; and
(c) to not solicit or encourage any party other than Spartech to acquire or
offer to acquire Portage, its stock or any material portion of its
business.
Performance by Allstate and MAS of all of their respective obligations under the
Stock Option Agreements are each conditions to Spartech's obligation to
consummate the Merger. In addition, Allstate (which owns approximately 459,660
shares (or 20.3%) of the Common Stock) and MAS (who owns approximately 324,500
shares (or 14.3%) of the Common Stock) each agreed to deliver to Spartech in
connection with any purchase of any such shares by Spartech, at its request, an
irrevocable proxy to vote their shares of common stock of the Company at any
meeting of stockholders of the Company. The Stock Option Agreements are attached
hereto as Exhibits C and D and are incorporated by reference herein.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
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In considering the recommendation of the Board of Directors with respect to the
Merger Agreement and the transactions contemplated thereby, stockholders should
be aware that certain executive officers and certain members of the Board of
Directors have certain interests in the Merger in addition to the interests of
stockholders of the Company generally.
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Stock Options
Pursuant to the Merger Agreement, each of the outstanding stock options of the
Company issued to certain directors, executive officers and key employees of the
Company under the Company's 1986 and 1990 Corporate Stock Option Plans and
pursuant to discretionary grants of options by the Board of Directors will be
converted into the right to receive a cash payment equal in amount to the
difference between $6.60 and the exercise price of such option (the "Spread").
At the date of this Proxy
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STOCK OPTIONS (Continued)
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Statement, stock options covering a total of 125,217 shares of Common Stock with
exercise prices ranging from $1.875 to $3.75 per share were outstanding. The
aggregate Spread on all stock options payable pursuant to the Merger is
$500,735.08. The Company and Spartech have agreed that, with respect to all
stock options outstanding at the Closing, the Surviving Corporation will pay out
within 30 days after the Effective Time the Spread on each stock option
outstanding at the Closing. See "STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS".
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Employment Agreements
It is currently anticipated that the Spartech and Anthony J. Lisauskas,
President and Chief Operating Officer of the Company, will enter into a two-year
employment agreement as of the Effective Time, with salary and other benefits
similar to Mr. Lisauskas' current Employment Agreement with the Company. During
the fiscal years ended 1995, 1994 and 1993, Mr. Lisauskas received salary of
$151,923, $145,000 and $145,000, respectively, and other compensation (including
annuity payments and other bonuses) of $12,500, $43,500 and $41,250,
respectively.
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Change Of Control Payments
The Company will pay, in the aggregate, $499,050 in discretionary bonuses to
certain outside directors, executive officers and key employees of the Company
in connection with services performed by such persons on behalf of the Company
in connection with the Merger. All such bonuses will be paid by the Surviving
Corporation at or after the Effective Time.
The bonuses will be paid to the following persons and in the following amounts:
Robert L. Lestina, Jr., director, $45,000; Robert C. Hazzard, director, $30,000;
Paul N. Erickson, director, $25,000; Anthony J. Lisauskas, director, President
and Chief Executive Officer, $155,200; and certain other officers and employees
in the aggregate, $243,850.
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Insurance And Indemnification
Spartech has agreed that, from the Effective Time and for a period of two years
thereafter, Spartech will indemnify and defend each person insured under the
Company's directors' and officers' liability insurance policy as in effect at
the Effective Time as if such policy had remained in effect after the Effective
Time.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
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The following table sets forth information, as of January 31, 1996, regarding
beneficial ownership of Common Stock by each Director and the Chief Executive
Officer (no other Executive Officer had compensation in 1995 which exceeded
$100,000), all of the Directors and Executive Officers as a group and each
person known to be the beneficial owner of 5% or more of the outstanding Common
Stock.
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Except as otherwise indicated in the footnotes, all of the persons listed below
have sole voting and investment power over the shares of Common Stock identified
as beneficially owned.
Amount and Nature of Percent of
Current Beneficial Shares
Name of Beneficial Owner Ownership(1) Outstanding
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Robert L. Lestina, Jr................................. 8,000 *
Robert C. Hazzard..................................... 18,667 *
Anthony J. Lisauskas.................................. 65,000 2.8%
Paul N. Erickson...................................... 9,000 *
All Officers and Directors as a Group................. 127,828 5.6%(2)
Allstate Insurance Company............................ 459,660 20.3%
Allstate Plaza South, Ste. G5B
Northbrook, Illinois 60062
Madison Allen Self.................................... 324,500 14.3%
1440 Huntington Drive
Calumet City, Illinois 60409
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* Less than one percent.
(1) Includes shares subject to exercisable stock options as follows: Robert L.
Lestina, Jr., 8,000; Robert C. Hazzard, 18,667; Anthony S. Lisauskas,
50,000; and Paul N. Erickson, 7,000.
(2) Includes 33,786 issued and outstanding shares of Common Stock and 94,042
shares subject to exercisable stock options.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER TO THE COMPANY'S STOCKHOLDERS
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Set forth below is a description of certain federal income tax aspects of the
Merger to holders of Common Stock disposed of in the Merger under current law
and regulations. The discussion is based on the Internal Revenue Code of 1986,
as amended. The Company will not seek any rulings from the Internal Revenue
Service ("IRS") or an opinion of counsel with respect to the transactions
contemplated hereby.
The following discussion is limited to the material federal income tax aspects
of the Merger for a holder of Common Stock who is a citizen or resident of the
United States, and who, on the date of disposition of such holder's Common
Stock, holds such shares as capital assets. All holders are urged to consult
their own tax advisors regarding the federal, foreign, state and local tax
consequences of the disposition of Common Stock in the Merger. The following
discussion does not address potential foreign, state, local and other tax
consequences, nor does it address taxpayers subject to special treatment under
the federal income tax laws, such as life insurance companies, tax-exempt
organizations, "S" corporations and taxpayers subject to the alternative minimum
tax.
A holder of Common Stock will realize gain or loss upon the surrender of such
holder's Common Stock pursuant to the Merger in an amount equal to the
difference, if any, between the amount of cash received and such holder's
aggregate adjusted tax basis in the Common Stock surrendered therefor.
In general, any gain or loss recognized by a stockholder in the Merger will be
eligible for capital gain or loss treatment. Any capital gain or loss recognized
by stockholders will be long-term capital gain or loss if the Common Stock
giving rise to such recognized gain or loss have been held for more than one
year; otherwise such capital gain or loss will be short term. An individual's
long-term capital gain is subject to federal income tax at a maximum rate of 28%
while any capital loss can be offset only against other capital gains plus
$3,000 of other income in any tax year. Any unutilized capital loss will carry
over as a capital loss to succeeding years for an unlimited time until the loss
is exhausted.
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For corporations, a capital gain is subject to federal income tax at a maximum
rate of 35% while any capital loss can be offset only against other capital
gains. Any unutilized capital loss can be carried back three years and forward
five years to be offset against net capital gains generated in such years.
Under the federal income tax backup withholding rules, unless an exemption
applies, the Paying Agent will be required to withhold, and will withhold, 31%
of all cash payments to which a holder of Common Stock or other payee is
entitled pursuant to the Merger Agreement, unless the stockholder or other payee
provides a tax identification number (social security number, in the case of an
individual, or employer identification number, in the case of other Company
stockholders) and certifies that such number is correct. Each Company
stockholder, and, if applicable, each other payee, should complete and sign the
Substitute Form W-9 included as part of the letter of transmittal to be returned
to the Paying Agent in order to provide the information and certification
necessary to avoid backup withholding, unless an applicable exemption exists and
is proved in a manner satisfactory to the Paying Agent.
Legislative proposals have been under consideration that would reduce the rate
of federal income taxation of certain capital gains. Such legislation, if
enacted, might apply only to gain realized on sales occurring after a date
specified in the legislation. It cannot be predicted whether any such
legislation ultimately will be enacted and, if enacted, what its effective date
will be.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR GENERAL INFORMATION
ONLY. EACH HOLDER OF COMMON STOCK IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER
(INCLUDING THE APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX
LAWS).
OTHER MATTERS
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The Board of Directors is not aware of any matters to be presented for action at
the Special Meeting other than those described herein and does not intend to
bring any other matters before the Special Meeting. However, if other matters
should come before the Special Meeting, it is intended that the holders of
proxies solicited hereby will vote thereon in their discretion, unless such
authority is withheld.
PROPOSALS BY HOLDERS OF COMMON STOCK
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As described in the Company's Proxy Statement relating to its 1995 Annual
Meeting, proposals of stockholders intended to be presented at the 1996 annual
meeting of stockholders must have been received by the Company at its principal
executive offices not later than January 8, 1996, for inclusion in the Company's
Proxy Statement and form of proxy relating to that meeting. In the event the
Merger is not consummated for any reason, Stockholders may submit proposals for
consideration at the Company's 1997 annual meeting. In order to be included in
the Company's 1997 Proxy Statement, such proposals must be in writing and must
be received on or before January 8, 1997 at the offices of the Company and
should be directed to: Secretary, Portage Industries Corporation, 1325 Adams
Street, Portage, WI 53901. In addition, a stockholder who intends to present
business at any annual meeting must comply with the notice requirements set
forth in the Company's By-laws. Stockholders should mail any proposals by
certified mail-return receipt requested.
EXPENSES OF SOLICITATION
- --------------------------------------------------------------------------------
The expenses in connection with solicitation of the enclosed form of proxy will
be paid by the Company. In addition to solicitation by mail, officers or regular
employees of the Company, who will receive no compensation for such services
other than their regular salaries, may solicit proxies personally or by
telephone or facsimile. Arrangements will be made with brokerage houses,
nominees, participants in central certificate depository systems and other
custodians and fiduciaries to supply them with solicitation material for
forwarding to their principals, and arrangements may be made with such persons
to obtain
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authority to sign proxies. The Company may reimburse such persons for reasonable
out-of-pocket expenses incurred by them in connection therewith.
INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
The financial statements of the Company as of December 31, 1995 and 1994,
incorporated by reference herein, have been audited by Coopers & Lybrand,
independent public accountants, as stated in their report.
A representative of Coopers & Lybrand will be at the Special Meeting to answer
questions by stockholders and will have the opportunity to make a statement if
so desired.
AVAILABLE INFORMATION
- --------------------------------------------------------------------------------
The Company is subject to the informational reporting requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copies made at the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's regional offices at 7 World Trade Center, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of Commission at its Washington address at prescribed rates.
INFORMATION INCORPORATED BY REFERENCE
- --------------------------------------------------------------------------------
The following documents filed by the Company with the Commission (Commission
File No. I-9403) are included herewith and hereby incorporated by reference into
this Proxy Statement:
1. The Company's Annual Report, as amended, on Form 10-K for the year ended
December 31, 1995.
2. An Amendment to the Company's Annual Report on Form 10/K-A for the year
ended December 31, 1995.
All documents filed by the Company pursuant to sections 13(a), 13(c), 14 or
15(d) or the Exchange Act after the date of this Proxy Statement and prior to
the date of the Special Meeting shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Copies
of the documents (without exhibits) incorporated by reference in this Proxy
Statement are available without charge upon written or oral request from Mark E.
Showers, Secretary/Treasurer, Portage Industries Corporation, 1325 Adams Street,
Portage, Wisconsin 53901, telephone (608) 742-7123.
By order of the Board of Directors
/s/ MARK E. SHOWERS
Mark E. Showers
Secretary/Treasurer
Portage, Wisconsin
April 16, 1996
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of February 22, 1996,
between SPARTECH CORPORATION, a Delaware corporation (the "Purchaser"), SPARTECH
PLASTICS, INC., a Delaware corporation formed as a wholly-owned subsidiary of
the Purchaser to effect the Merger (as later defined) ("Mergeco"), and PORTAGE
INDUSTRIES CORPORATION, a Delaware corporation (the "Company").
RECITALS
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A. The Boards of Directors of the Purchaser and the Company have approved, and
deem it advisable and in the best interests of their respective companies and
stockholders to consummate, the acquisition of the Company by the Purchaser by
means of a merger (the "Merger") of Mergeco, with and into the Company, wherein
each issued and outstanding share of Common Stock, par value $0.01 per share, of
the Company (the "Common Stock") not owned directly or indirectly by Purchaser,
Mergeco, the Company or any direct or indirect wholly-owned subsidiary of
Purchaser, except shares of Common Stock held by holders who comply with the
provisions of Delaware law regarding the right of stockholders to dissent from
the Merger and require appraisal of their shares of Common Stock, will be
converted into the right to receive $6.60 per share, in cash, without interest.
B. Prior to the execution hereof, in order to induce the Purchaser to enter into
this Agreement, the Purchaser has entered into Shareholder Option Agreements
(the "Stock Option Agreements") with certain holders of Common Stock providing
for an option of Purchaser to acquire in certain circumstances, and certain
voting and other restrictions with respect to, the shares of Common Stock owned
beneficially or of record by such holders, upon the terms and conditions
specified therein.
C. The Purchaser, Mergeco and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing, and of the representations,
warranties, covenants and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE 1
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THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof, and in
accordance with the General Corporation Law of the State of Delaware, as amended
(the "DGCL"), Mergeco shall be merged with and into the Company at the Effective
Time (as hereinafter defined). Following the Merger, the separate corporate
existence of Mergeco shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of Mergeco in accordance with the DGCL.
1.2 Effective Time. The Merger shall become effective when a certificate of
merger (the "Certificate of Merger"), executed in accordance with the relevant
provisions of the DGCL, is accepted for filing by the Secretary of State of the
State of Delaware (the "Secretary of State"). When used in this Agreement, the
term "Effective Time" shall mean the later of the date and time at which the
Certificate of Merger is accepted for filing by the Secretary of State or such
later time established by the Certificate of Merger. The filing of the
Certificate of Merger shall be made as soon as reasonably practicable (but not
later than the first business day) after the satisfaction or waiver of the
conditions to the Merger set forth herein.
1.3 Effects of the Merger. The Merger shall have the effects set forth in the
DGCL.
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THE MERGER (Continued)
- --------------------------------------------------------------------------------
1.4 Certificate of Incorporation and Bylaws; Directors and Officers.
1.4.1 The Certificate of Incorporation and Bylaws of Mergeco, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation and the Bylaws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
1.4.2 The directors of Mergeco at the Effective Time shall, from and after
the Effective Time, be the initial directors of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal, in accordance with the
Surviving Corporation's Certificate of Incorporation and Bylaws.
1.4.3 The officers of Mergeco at the Effective Time and such other persons
as designated by Purchaser shall, from and after the Effective Time, be the
initial officers of the Surviving Corporation until their successors have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal, in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
1.5 The Closing. Subject to the terms and conditions of this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place (a) at the offices of Armstrong, Teasdale, Schlafly & Davis, St.
Louis, Missouri, at 10:00 a.m., local time, on the first business day following
the day on which the last to be fulfilled or waived of the conditions set forth
in ARTICLE 6 shall be fulfilled or waived in accordance herewith or (b) at such
other time, date or place as the Purchaser and the Company may agree. The date
on which the Closing occurs is hereinafter referred to as the "Closing Date."
ARTICLE 2
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- --------------------------------------------------------------------------------
EFFECT OF THE MERGER ON SECURITIES OF THE COMPANY AND MERGECO
2.1 Mergeco Stock. At the Effective Time, each share of the common stock of
Mergeco outstanding immediately prior to the Effective Time shall be converted
into and become one share of common stock, par value $.01 per share, of the
Surviving Corporation, and each certificate theretofore representing any such
shares shall, without any action on the part of the holder thereof, be deemed to
represent the same number of shares of the Surviving Corporation.
2.2 Conversion of Common Stock.
2.2.1 Subject to SECTIONS 2.2.2 and 2.2.3, at the Effective Time, each
issued and outstanding share of Common Stock shall be converted into the
right to receive $6.60, in cash, without interest (the "Merger
Consideration"). All such shares of Common Stock, when so converted, shall
cease to be outstanding and shall be canceled and retired and shall cease
to exist, and each holder of a certificate or certificates (the
"Certificates") representing any such shares of Common Stock shall
thereafter cease to have any rights with respect thereto, except the right
to receive the Merger Consideration.
2.2.2 Notwithstanding anything contained in this SECTION 2.2 to the
contrary, each share of Common Stock held of record by the Purchaser,
Mergeco or any direct or indirect wholly-owned Subsidiary (as defined in
SECTION 3.1) of the Purchaser and each share of Common Stock issued and
held in the Company's treasury immediately prior to the Effective Time
shall, by virtue of the Merger, cease to be outstanding and shall be
canceled and retired without payment of any consideration therefor.
2.2.3 Notwithstanding any provision of this Agreement to the contrary, if
required by the DGCL, but only to the extent required thereby, shares of
Common Stock which are issued and outstanding
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EFFECT OF THE MERGER ON SECURITIES OF THE COMPANY AND MERGECO (Continued)
- --------------------------------------------------------------------------------
immediately prior to the Effective Time and which are held by holders of such
shares of Common Stock who have properly exercised appraisal rights with respect
thereto in accordance with Section 262 of the DGCL (the "Dissenting Shares")
will not be exchangeable for the right to receive the Merger Consideration, and
holders of such shares of Common Stock will be entitled to receive payment of
the appraised value of such shares of Common Stock in accordance with the
provisions of such Section 262 unless and until such holders shall fail to
perfect or shall effectively withdraw or shall have lost their rights to
appraisal and payment under the DGCL. If, after the Effective Time, any such
holder fails to perfect or effectively withdraws or loses such right, such
shares of Common Stock will thereupon be treated as if they had been converted
into and have become exchangeable for, at the Effective Time, the right to
receive the Merger Consideration, without any interest thereon. The Company will
give the Purchaser prompt notice of any demands received by the Company for
appraisals of shares of Common Stock. The Company shall not, except with the
prior written consent of Purchaser, make any payment with respect to any demands
for appraisal or offer to settle or settle any such demands.
2.2.4 At or prior to the Effective Time, the Company shall have made
arrangements, the effect of which shall be that no shares of Common Stock
or other capital stock of the Surviving Corporation shall be issuable
pursuant to options or warrants to purchase shares, or securities
convertible into shares, of Common Stock ("Company Options"). The Company
shall (i) cause each Stock Plan (as defined in SECTION 3.2) to terminate as
of the Effective Time and (ii) grant no additional Company Options after
the date of this Agreement. The Company shall take all such actions under
the Stock Plans necessary so that each holder of a Company Option shall be
entitled to receive immediately after the Effective Time, in cancellation
and settlement of such Company Option, for each share of Common Stock
subject to such Company Option an amount in cash equal to the Merger
Consideration minus the per share exercise, purchase or conversion price of
such Company Option as of the date hereof (the "Option Consideration").
Payment of the Option Consideration with respect to each Company Option
shall be contingent upon consummation of the Merger and shall be subject to
applicable withholding of income and other taxes. Payment of the Option
Consideration shall be made by the Surviving Corporation to the holders of
the Company Options at or as promptly as practicable (but in no event later
than 30 days) after the Effective Time, without interest. Prior to
consummation of the Merger and as a condition thereof, the Company shall
furnish Purchaser evidence satisfactory to Purchaser of the Company's
compliance with its obligations under this SECTION 2.2.4.
2.3 Exchange of Certificates.
2.3.1 Prior to the Effective Time, Purchaser shall appoint a bank or trust
company to act as paying agent hereunder, which shall be FIRSTAR TRUST CO.,
MILWAUKEE, WISCONSIN, or such other entity as Purchaser and the Company may
mutually select (the "Paying Agent") for the payment of the Merger
Consideration upon surrender of Certificates. All of the fees and expenses
of the Paying Agent shall be borne by Purchaser.
2.3.2 Purchaser shall cause the Surviving Corporation to provide the Paying
Agent with cash in amounts necessary to pay the Merger Consideration, when
and as such amounts are needed by the Paying Agent.
2.3.3 As soon as reasonably practicable after the Effective Time, the
Paying Agent shall mail to each holder of record of Common Stock
immediately prior to the Effective Time (excluding any shares of Common
Stock which will be canceled pursuant to SECTION 2.2.2 and any Dissenting
Shares) (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of such Certificates to the Paying Agent and shall
be in such form and have such other provisions as Purchaser shall specify)
and (ii) instructions for the use thereof in effecting the surrender of the
Certificates in exchange for the Merger Consideration.
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EFFECT OF THE MERGER ON SECURITIES OF THE COMPANY AND MERGECO (Continued)
- --------------------------------------------------------------------------------
Upon surrender of a Certificate for cancellation to the Paying Agent or to such
other agent or agents as may be appointed by the Surviving Corporation, together
with such letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Paying Agent, the holder of such Certificate shall
be entitled to receive in exchange therefor a bank check in the amount of cash
into which the shares of Common Stock theretofore represented by such
Certificate shall have been converted pursuant to SECTION 2.2, and the
Certificates so surrendered shall forthwith be canceled. No interest will be
paid or will accrue on the cash payable upon the surrender of any Certificate.
If payment is to be made to a person other than the person in whose name the
Certificate so surrendered is registered, it shall be a condition of payment
that such Certificate shall be properly endorsed or otherwise in proper form for
transfer and that the person requesting such payment shall pay any transfer or
other taxes required by reason of the transfer of such Certificate or establish
to the satisfaction of the Surviving Corporation that such tax has been paid or
is not applicable. Until surrendered as contemplated by this SECTION 2.3, each
Certificate (other than Certificates representing Dissenting Shares and
Certificates representing any shares of Common Stock to be canceled as set forth
in SECTION 2.2.2) shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the amount of cash,
without interest, into which the shares of Common Stock theretofore represented
by such Certificate shall have been converted pursuant to SECTION 2.2.
2.3.4 Purchaser shall have the right to make additional rules, not
inconsistent with the terms of this Agreement, governing the payment of
cash for shares of Common Stock converted into the right to receive the
Merger Consideration.
2.3.5 None of the Purchaser, the Company, Mergeco, the Surviving
Corporation, the Paying Agent or any other person shall be liable to any
former holder of shares of Common Stock for any amount properly delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
2.3.6 In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Purchaser, the posting by such person of a bond in such reasonable
amount as the Purchaser may direct as indemnity against any claim that may
be made against it with respect to such Certificate, the Paying Agent will
issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration, deliverable in respect thereof pursuant to this Agreement.
2.4 Closing of Transfer Books. At or after the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the shares of Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation,
they shall be canceled and exchanged for the consideration deliverable in
respect thereof pursuant to this Agreement in accordance with the procedures set
forth in this ARTICLE 2.
2.5 No Further Ownership Rights in Common Stock. From and after the Effective
Time, the holders of shares of Common Stock which were outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
shares of Common Stock except as otherwise provided in this Agreement or by
applicable law. All cash paid upon the surrender of Certificates in accordance
with the terms hereof shall be deemed to have been issued in full satisfaction
of all rights pertaining to the shares of Common Stock.
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ARTICLE 3
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- --------------------------------------------------------------------------------
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser that, except as set forth in
schedules hereto specifically referring to the Sections hereof intended to be so
qualified (the "Schedules"):
3.1 Organization, Standing and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as now being conducted. The Company is
duly qualified to do business, and is in good standing, in each jurisdiction
where the character of its properties owned or held under lease or the nature of
its activities makes such qualification necessary, except where the failure to
be so qualified and in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. For purposes of this
Agreement, (a) "Material Adverse Change" or "Material Adverse Effect" means,
when used with respect to Purchaser or the Company, as the case may be, any
change or effect, either individually or in the aggregate, that is materially
adverse to the business, assets, financial condition or results of operations of
Purchaser and its Subsidiaries taken as a whole, or the Company taken as a
whole, as the case may be, and (b) "Subsidiary" means any corporation,
partnership, joint venture or other legal entity of which Purchaser or the
Company (either alone or through or together with any other Subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests, the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
3.2 Capital Structure. The authorized capital stock of the Company consists of
10,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock, par
value $.25 per share ("Preferred Stock"). At the close of business on February
22, 1996, there were (i) 2,269,100 shares of Common Stock issued and
outstanding, (ii) Company Options outstanding under the 1986 and 1990 Portage
Industries Corporate Stock Option Plans and Company Options granted to
directors, officers and key employees to acquire 125,217 shares of Company
Common Stock, (iii) a warrant exercisable for a total of 137,500 shares of
Company Common Stock, and (iv) no shares of Common Stock held by the Company in
its treasury. The foregoing stock option plans of the Company are herein called
the "Stock Plans." As of the date hereof there are no shares of Preferred Stock
outstanding. All outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except for such Company Options, there are no options, warrants, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of the Company. SCHEDULE 3.2 sets forth
the name of each holder of a Company Option, the number of shares of Common
Stock for which such Company Option is exercisable and the exercise price per
share of Common Stock subject to such Company Option. Since February 22, 1996,
no shares of the Company's capital stock have been issued other than pursuant to
the exercise of Company Options already in existence on such date and the
Company has not granted any stock options for any capital stock or other voting
securities of the Company.
3.3 Subsidiaries. There are no Subsidiaries of the Company.
3.4 Other Interests. The Company does not own, directly or indirectly, any
equity interest or equity investment in, nor is the Company subject to any
obligation or requirement to provide for or to make any equity investment in,
any corporation, limited liability company, partnership, joint venture,
business, trust or entity.
3.5 Authority; Non-Contravention.
3.5.1 The Board of Directors of the Company has approved this Agreement and
determined that the Merger is fair and in the best interests of the Company
and its stockholders, and the Company has all requisite corporate power and
authority to enter into this Agreement and, subject to approval of the
Merger by the stockholders of the Company, to consummate the transactions
contemplated
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40
REPRESENTATIONS AND WARRANTIES OF THE COMPANY (Continued)
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hereby. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject to such approval of the Merger by the stockholders of the Company. This
Agreement has been duly executed and delivered by the Company and (assuming the
valid authorization, execution and delivery of this Agreement by the Purchaser)
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms. Except as otherwise disclosed in
SCHEDULE 3.5, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation,
contractually require any offer to purchase or any prepayment of any debt,
contractually require the payment of (or result in the vesting of) any
severance, golden parachute, change of control or similar type of payment, or
give rise to the loss of a material benefit under, or result in the creation of
any lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any provision of:
(i) the Certificate of Incorporation or Bylaws of the Company (true and
complete copies of which as of the date hereof have been delivered to
Purchaser),
(ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, concession, franchise or license
(any of the foregoing, an "Instrument") applicable to the Company (other
than Instruments involving aggregate payments by or to the Company of
$100,000 or less), or
(iii) subject to the governmental filings and other matters referred to
in SECTION 3.5.2 and approval of this Agreement by the Company's
stockholders, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to, or Company Permit (as defined in SECTION
3.9) of, or relating to, the Company or any of its properties or assets.
SCHEDULE 3.5 lists the amounts payable or that will or may become payable to
directors, officers or employees or former directors, officers or employees of
the Company as a result of the execution and delivery by the Company of this
Agreement or the consummation of the transactions contemplated hereby.
3.5.2 No filing or registration with, or authorization, consent or approval
of, any domestic (federal and state), foreign or supranational court,
commission, governmental body, regulatory or administrative agency,
authority or tribunal (a "Governmental Entity") is required by or with
respect to the Company in connection with the execution and delivery of
this Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except for (i) in connection or in
compliance with the provisions of the Securities Exchange Act of 1934, as
amended (including the rules and regulations promulgated thereunder, the
"Exchange Act"), (ii) the filing of the Certificate of Merger with the
Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do
business, (iii) such filings and approvals as may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and (iv) such filings and approvals as may be required by any
applicable state securities or "blue sky" laws or state takeover laws.
3.6 SEC Documents.
3.6.1 Since December 31, 1992, the Company has filed all documents with the
Securities and Exchange Commission ("SEC") required to be filed under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended (such documents filed with the SEC on or before February 22,
1996 being the "Company SEC Documents"). As of their respective dates,
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY (Continued)
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(i) the Company SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
(ii) none of the Company SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company has
delivered to the Purchaser its audited consolidated balance sheets and
statements of income, changes in stockholders' equity and cash flow, and notes
thereto as of and for the year ended December 31, 1995 (the "1995 Year End
Financial Statements"). The financial statements of the Company included in the
Company SEC Documents and the 1995 Year End Financial Statements comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements contained in Quarterly Reports on Form 10-Q of
the Company, as permitted by the Exchange Act) applied on a consistent basis
during the periods involved (except as may be indicated therein or in the notes
thereto) and fairly present the consolidated financial position of the Company
as at the dates thereof and the consolidated results of its operations and
changes in stockholders' equity and cash flow for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein). The Form 10-K of
the Company as of and for the year ended December 31, 1995 to be filed by the
Company with the SEC will comply with (ii) above and the financial statements
therein will be consistent with, and not show results or financial condition
differing in such a way as to constitute a Material Adverse Change from, the
1995 Year End Financial Statements.
3.6.2 Except as set forth in (a) the Company SEC Documents, (b) the 1995
Year End Financial Statements, or (c) SCHEDULE 3.6.2, the Company does not
have any liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise) which would be required to be reflected on a
balance sheet, or in the notes thereto, prepared in accordance with
generally accepted accounting principles, except for liabilities and
obligations incurred in the ordinary course of business consistent with
past practice since December 31, 1995 which would not, individually or in
the aggregate, have a Material Adverse Effect on the Company.
3.6.3 To the extent there are such, the Company has heretofore made
available to Purchaser a complete and correct copy of any amendments or
modifications which have not yet been filed with the SEC to agreements,
documents or other instruments which previously have been filed with the
SEC pursuant to the Exchange Act.
3.7 Absence of Certain Events. Since December 31, 1994, the Company has operated
its business only in the ordinary course consistent with past practice and,
except as contemplated by this Agreement or disclosed in the Company SEC
Documents or the 1995 Year End Financial Statements, there has not occurred (i)
any Material Adverse Change in the Company; (ii) any change by the Company in
its accounting methods, principles or practices; (iii) any amendments or changes
in the Certificate of Incorporation or Bylaws of the Company; (iv) any
revaluation by the Company of any of its assets, including, without limitation,
write-offs of accounts receivable or write-offs or write-downs of inventory,
other than in the ordinary course of the Company's business consistent with past
practices; (v) any damage, destruction or loss with respect to property or
assets of the Company having a book value, individually or in the aggregate, of
in excess of $100,000; (vi) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
the Company, or any repurchase, redemption or other acquisition by the Company
of any outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company; (vii) any grant of any severance or
termination pay to any director, officer or key employee of the Company, except
as required under any change-in-control and other severance agreements disclosed
in SCHEDULE 3.5; (viii) any entry into any employment, deferred compensation or
other similar agreement (or any amendment to any such existing
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY (Continued)
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agreement) with any director, officer or key employee of the Company; (ix) any
increase in benefits payable under any existing severance or termination pay
policies or employment agreements with any director, officer or key employee of
the Company except in the ordinary course of business consistent with past
practice; or (x) any increase in compensation, bonus or other benefits payable
to directors, officers or key employees of the Company except in the ordinary
course of business consistent with past practice and except those director
option grants disclosed in SCHEDULE 3.5.
3.8 Litigation. Except as set forth in the Company SEC Documents or the 1995
Year End Financial Statements, there are no actions, suits, proceedings,
investigations or reviews pending against the Company or, to the knowledge of
the Company, threatened against the Company, at law or in equity, or before or
by any federal or state commission, board, bureau, agency, regulatory or
administrative instrumentality or other Governmental Entity or any arbitrator or
arbitration tribunal.
3.9 Compliance with Applicable Law. The Company holds all permits, licenses,
variances, exceptions, orders and approvals of all Governmental Entities
necessary for the lawful conduct of its business (the "Company Permits"), except
where the failure to hold any such Company Permit does not materially affect the
lawful conduct of the Company's business. The Company is conducting its business
in compliance with the terms of the Company Permits. The business of the Company
is not, and has not been, conducted in violation in any material respect of any
law (including without limitation laws relating to advertising and promotional
activities by the Company), Company Permit, ordinance or regulation of any
Governmental Entity.
3.10 Employee Plans.
3.10.1 SCHEDULE 3.10.1 to this Agreement sets forth a list of each of the
Company Benefit Plans (as defined below). The Company and each ERISA
Affiliate (as defined below) has complied with and performed in all
material respects all contractual obligations and all obligations under
applicable federal, state and local laws, rules and regulations required to
be performed by it under or with respect to any of the Company Benefit
Plans or any related trust agreement or insurance contract. All
contributions and other payments required to be made by the Company and
each ERISA Affiliate to any Company Benefit Plan prior to the date hereof
have been made, all accruals required to be made under any Company Benefit
Plan have been made, and there are no unfunded benefit obligations with
respect to any Company Benefit Plan which have not been accounted for by
reserves or otherwise properly footnoted in accordance with generally
accepted accounting principles in the 1995 Year End Financial Statements
and the financial statements included in the Company SEC Documents. There
is no claim, dispute, grievance, charge, complaint, restraining or
injunctive order, litigation or proceeding pending, or, to the best
knowledge of the Company and each ERISA Affiliate, threatened or
anticipated (other than routine claims for benefits) against or relating to
any Company Benefit Plan or against the assets of any Company Benefit Plan.
The Company and each ERISA Affiliate has not communicated generally to
employees or specifically to any employee regarding any future increase of
benefit levels (or future creations of new benefits) with respect to any
Company Benefit Plan beyond those reflected in the Company Benefit Plans.
3.10.2 With respect to each Company Benefit Plan subject to Title IV of
ERISA, (i) no termination of any Company Benefit Plan has occurred pursuant
to which all liabilities have not been satisfied in full, and no event has
occurred and no condition exists that could reasonably be expected to
result in the Company or an ERISA Affiliate incurring a liability under
Title IV of ERISA or which could constitute grounds for terminating any
pension plan of the Company or an ERISA Affiliate ("Pension Plan"); (ii)
each such Company Benefit Plan which is subject to Part 3 of Subtitle B of
Title I of ERISA or Section 412 of the Internal Revenue Code of 1986, as
amended (the "Code") has been maintained in compliance with the minimum
funding standards of ERISA and the Code and no such Company Benefit Plan
has incurred any "accumulated funding deficiency," as defined in Section
412 of the Code and Section 302 of Title I of ERISA, whether or not waived;
(iii) neither
8
43
REPRESENTATIONS AND WARRANTIES OF THE COMPANY (Continued)
- --------------------------------------------------------------------------------
the Company nor an ERISA Affiliate has sought or received a waiver of its
funding requirements with respect to any Company Benefit Plan and all
contributions payable with respect to each Plan have been timely made; (iv) no
reportable event, within the meaning of Section 4043 of Title IV of ERISA, and
no event described in Section 4062 or 4063 of Title IV of ERISA, has occurred
with respect to any Company Benefit Plan; and (v) the aggregate of accumulated
benefit obligations of each Company Benefit Plan subject to Title IV of ERISA
(as of the date of the most recent actuarial valuation prepared for such Company
Benefit Plan) does not exceed the fair market value of the assets of such
Company Benefit Plan (as of the date of such valuation).
3.10.3 Neither the Company nor an ERISA Affiliate has incurred, nor has any
event occurred which has imposed or is reasonably likely to impose upon the
Company or any ERISA Affiliate, any withdrawal liability (complete or
partial within the meanings of sections 4203 or 4205 of Title IV of ERISA,
respectively) in respect of any multiemployer plan (within the meaning of
sections 3(37) or 4001(a)(3) of Title IV of ERISA) (a "Multiemployer
Plan"), which withdrawal liability has not been satisfied or discharged in
full. Neither the Company nor an ERISA Affiliate has received notice to the
effect that any Multiemployer Plan has any unfunded vested benefits within
the meaning of Section 4213(c) of Title IV of ERISA. Neither the Company
nor an ERISA Affiliate has been notified of any reorganization or
insolvency under and within the meaning of sections 4241 or 4245 of Title
IV of ERISA. There are no Multiemployer Plans to which the Company or an
ERISA Affiliate has ever had an obligation to contribute.
3.10.4 The execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby will not result in the
imposition of any federal excise tax under section 4975 of the Code with
respect to any Company Benefit Plan.
3.10.5 Neither the Company nor an ERISA Affiliate maintains or contributes
to (or has maintained or contributed to) any Company Benefit Plan which
provides, or has a liability to provide, life insurance, medical,
severance, or other employee welfare benefit to any employee upon his
retirement or termination of employment, except as may be required by
Section 4980B of the Code. No Company Benefit Plan is or has been a
"Multiple Employer Welfare Plan" as defined in Section 3(40)(A) of Title I
of ERISA.
3.10.6 There are no Company Benefit Plans with respect to which benefits
will be accelerated, vested, increased or paid as a result of the
transactions contemplated by this Agreement.
3.10.7 The Company Benefit Plans which are Plans described in section 3(2)
of Title I of ERISA and which are qualified under section 401(a) of the
Code comply in all material respects with the applicable requirements of
ERISA, meet the requirements of "qualified plans" under section 401(a) of
the Code and each such Plan has received a favorable determination letter
from the Internal Revenue Service to this effect. Such Plans have been
timely amended and filed with the Internal Revenue Service with respect to
changes required by the Tax Reform Act of 1986, as amended. All required
reports and descriptions (including Form 5500 Annual Reports, summary
annual reports and summary plan descriptions) have been appropriately and
timely filed and distributed with respect to the Company Benefit Plans. The
Company and each ERISA Affiliate have complied with all the requirements of
Part 6 of Subtitle B of Title I of ERISA and section 4980B of the Code, and
any proposed or final regulations promulgated thereunder, with respect to
Company Benefit Plans. No Company Benefit Plan can give rise to a payment
which is not deductible under Section 280G. There have been no prohibited
transactions as defined in 406 of Title I of ERISA or section 4975 of the
Code with respect to the Company Benefit Plans. Neither the Company nor an
ERISA Affiliate nor any of their officers, employees or any other
"fiduciary", as such term is defined in Section 3(21) of ERISA, has any
liability for failure to comply with ERISA, the Code or any other law for
any action or failure to act in connection with the administration or
investment of any Company Benefit Plan. Each Company Benefit Plan which is
a welfare plan as described in 3(1) of
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44
REPRESENTATIONS AND WARRANTIES OF THE COMPANY (Continued)
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Title I of ERISA may be terminated after closing of this Agreement to eliminate
the liability for claims incurred after such closing. Any contribution made or
accrued with respect to any Company Benefit Plan is fully deductible for Federal
income tax purposes. No employee of the Company or an ERISA Affiliate will be
entitled to any retirement, severance or similar benefit or enhanced benefit
solely as a result of the transaction contemplated herein.
3.10.8 With respect to each Company Benefit Plan, the Company has furnished
to the Purchaser true and complete copies of (i) the Plan documents, (ii)
the most recent determination letters received from the Internal Revenue
Service, (iii) Form 5500 Annual Reports (including all schedules) for the
three most recent plan years, (iv) the actuarial and audited financial
reports for the three most recent plan years, (v) all related trust
agreements, insurance contracts or other funding agreements and (vi) a copy
of each and any general explanation or communication which was required or
otherwise provided to participants in such Plan which describes all or any
relevant aspect of each Plan, including any summary plan description,
summary annual report and/or summary of material modifications, (vii) a
description of any unwritten Plan as maintained by the Company or an ERISA
Affiliate to the closing or to which the Company or an ERISA Affiliate
contributes, including a description of eligibility or other relevant
aspects of the obligation, and (viii) a copy of any and all rulings or
notices, other than Internal Revenue Service determination letters, issued
by any government agency with respect to the Plans.
3.10.9 Except as disclosed on SCHEDULE 3.10.9, no amendment or modification
will be made to any Company Benefit Plan during the period commencing on
the date of this Agreement and ending on the closing date and no new
Company Benefit Plan will be adopted during such period.
3.10.10 (i) "Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock
option, stock ownership, stock appreciation rights, phantom stock, leave of
absence, layoff, vacation, day or dependent care, legal services,
cafeteria, life, health, accident, disability, workers' compensation,
scholarship, company car, sick pay, tuition reimbursement, relocation,
fringe benefit or other insurance, severance, separation or other employee
benefit plan, practice, policy or arrangement of any kind, including, but
not limited to, any "employee benefit plan" within the meaning of section
3(3) of Title I of ERISA and (ii) "Company Benefit Plan" means any employee
pension benefit plan and any Plan, other than a Multiemployer Plan,
established by the Company or an ERISA Affiliate or to which the Company or
an ERISA Affiliate contributes or has contributed or has or may have
liability (including any such Plans not now maintained by the Company or an
ERISA Affiliate or to which the Company or an ERISA Affiliate does not now
contribute, but with respect to which the Company or ERISA Affiliate has or
may have any liability). "ERISA Affiliate" means any corporation, entity or
individual which has ever been: (i) a member of the same controlled group
(within the meaning of sections 414(b) or 4001 of Title IV of ERISA) as the
Company, (ii) under common control (within the meaning of sections 414(c)
with the Company, (iii) a member of an affiliated service group (within the
meaning of section 414(m) of the Code with the Company, or (iv) required to
be aggregated with the Company pursuant to section 414(o) of the Code or
regulations promulgated thereunder.
3.11 Employment Relations and Agreements.
3.11.1 (i) The Company is in compliance with all federal, state or other
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours; (ii) there is no labor
strike, dispute, slowdown or stoppage pending or, to the best knowledge of
the Company, threatened against or involving the Company; (iii) the Company
is not a party to any collective bargaining agreement, and no collective
bargaining agreement is being negotiated as of the date of this Agreement
by the Company; and (iv) except as disclosed on SCHEDULE 3.11.1, the
Company has not experienced any material labor difficulty during the last
three years.
10
45
REPRESENTATIONS AND WARRANTIES OF THE COMPANY (Continued)
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3.11.2 All written, and to the knowledge of the Company, all binding oral,
employment, bonus, severance, "change of control", collective bargaining or
similar agreements ("Employment Agreements") are listed on SCHEDULE 3.11.2
and copies of all Employment Agreements and all amendments thereto have
been previously furnished to the Purchaser.
3.11.3 The insurance policies maintained by the Company with respect to
workers compensation and medical claims are described in SCHEDULE 3.11.3.
All such insurance policies are in full force and effect; all premiums due
and payable thereunder have been paid and the Company is otherwise in full
compliance with the terms thereof; the Company does not know of any
threatened termination of, or any proposed material premium increase with
respect to any such policy; no claim or claims by the Company in an
aggregate amount greater than $100,000 have been questioned, denied or
disputed by the underwriter of such policy; and the reserves maintained by
the Company for the uninsured portion of such claims are sufficient to
cover the full liability of the Company for all claims that have been
incurred and are not covered (in whole or in part, including the deductible
thereon) by insurance.
3.12 Limitation on Business Conduct. Except as disclosed on SCHEDULE 3.12, the
Company is not a party to, and has no obligation under, any contract or
agreement, written or oral, which contains any covenants currently or
prospectively limiting the freedom of the Company to engage in any line of
business or to compete with any entity.
3.13 Title to, and Sufficiency and Condition of, Assets.
3.13.1 The Company has good and marketable title, or a valid leasehold
interest in, all of its assets and properties, whether real or personal,
tangible or intangible, and including without limitation all assets and
properties reflected on the balance sheet and the notes thereto (other than
as covered by SECTION 3.15 hereof), included in the 1995 Year End Financial
Statements and the notes thereto (the "Balance Sheet") or acquired after
the date of the Balance Sheet (except for assets and properties sold since
such date in the ordinary course of business), free and clear of any Liens
except:
3.13.1.1 Liens disclosed in the Balance Sheet;
3.13.1.2 Liens for taxes not yet due or being contested in good faith
(and for which adequate reserves are reflected on the Balance Sheet);
3.13.1.3 Liens arising under financing agreements of the Company
identified in the Balance Sheet;
3.13.1.4 Statutory or common law Liens relating to obligations of the
Company that are not delinquent or are being contested in good faith;
3.13.1.5 Purchase money Liens of the Company that are not delinquent for
the purchase of goods in the ordinary course of business consistent with
past practice; or
3.13.1.6 Liens which do not materially detract from the value of such
property or assets as now used, or materially interfere with any present
or intended use of such property or assets.
The assets so owned or leased by the Company constitute all of the material
assets, properties and rights of any type used in or necessary for the
conduct of its business.
3.13.2 The plants, structures, facilities, machinery, equipment,
automobiles, trucks, tools and other properties and assets owned or leased
by the Company which are material to the business of the Company are in
good operating condition and repair, subject to normal wear and use, and
useable in a manner consistent with their current use. All improvements on
real property owned or leased by the Company conform in all material
respects to applicable state and local zoning and other land use ordinances
and building codes.
11
46
REPRESENTATIONS AND WARRANTIES OF THE COMPANY (Continued)
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3.14 Environmental Laws and Regulations.
3.14.1 To the best knowledge of the Company, its officers and directors,
the Company is and has at all times been in compliance with all applicable
Environmental Laws. The term "Environmental Laws" means any federal, state,
local or foreign statute, ordinance, rule, regulation, policy, permit,
consent, approval, license, judgment, order, decree, injunction or other
authorization, relating to: (i) pollution or protection of human health or
safety, health or safety of employees, sanitation, or the environment
(including, without limitation, ambient air, surface water, ground water,
land surface or subsurface strata), (ii) Releases (as defined in 42 U.S.C.
Section 9601(22)) or threatened Releases of Hazardous Material (as
hereinafter defined) into the environment or (iii) the generation,
treatment, storage, disposal, use, handling, manufacturing, transportation
or shipment of Hazardous Material.
3.14.2 To the best knowledge of the Company, its officers and directors,
during the period of ownership or operation by the Company of any of its
current or previously owned or leased properties, there have been no
Releases of Hazardous Material in, on, under or affecting such properties
or any surrounding site, and the Company has not disposed of any Hazardous
Material or any other substance in a manner that has led, or could
reasonably be anticipated to lead, to a Release. The Company has not
received any notice or claim that it is a "potentially responsible party"
under the Comprehensive Environmental Response, Compensation, and Liability
Act, 42 U.S.C. Section 9601, et seq., as amended, or similar, applicable
state or local laws. To the best knowledge of the Company, its officers and
directors, there is not currently pending any notice, summons, complaint,
lawsuit, citation, directive, order, notice letter, or legal or
administrative action from any party or Governmental Entity with respect to
alleged liabilities arising under Environmental Laws. The term "Hazardous
Material" means any pollutants, contaminants, hazardous substances,
hazardous chemicals, toxic substances, hazardous wastes, infectious and
medical wastes, radioactive materials, petroleum (including crude oil or
any fraction thereof), natural gas, synthetic gas and mixtures thereof,
PCBs or materials containing PCBs, asbestos and/or asbestos-containing
materials or solid wastes, including but not limited to those defined in
any Environmental Law and all regulations promulgated under each and all
amendments thereto, or any other federal, state or local environmental law,
ordinance, regulations, rule or order.
3.14.3 To the best knowledge of the Company, its officers and directors,
there are no underground storage tanks in or on the owned or leased
properties of the Company.
3.14.4 To the best knowledge of the Company, its officers and directors,
there is no friable asbestos or asbestos-containing materials at, on, or in
the owned or leased properties of the Company, except that which has been
encapsulated or otherwise managed in place and in good repair. The Company
has made available to the Purchaser records concerning the presence,
location and quantity of asbestos-containing materials and
presumed-asbestos containing materials in such properties to the extent
called for in 29 CFR Section 1910.1001(j).
3.15 Patents, Trademarks, Copyrights. The Company owns or possesses adequate
licenses or other valid rights to use all material patents, patent rights,
trademarks, trademark rights, trade names, trade name rights, copyrights,
know-how and other proprietary information used or held for use in connection
with the business of the Company as currently being conducted and, to the
knowledge of the Company, there are no assertions or claims challenging the
validity of any of the foregoing.
3.16 Takeover Statutes. The Board of Directors of the Company has taken all
appropriate action so that neither Purchaser nor Mergeco will be an "interested
stockholder" within the meaning of Section 203 of the DGCL by virtue of
Purchaser's entry into this Agreement, the entry into the Stock Option Agreement
by the parties thereto and the consummation of the transactions contemplated
hereunder and thereunder.
12
47
REPRESENTATIONS AND WARRANTIES OF THE COMPANY (Continued)
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3.17 Taxes. (i) The Company has filed all material Tax Returns required to have
been filed on or before the date hereof, which returns are true and complete in
all material respects and all Taxes shown due thereon have been paid; (ii) no
issues that have been raised by the relevant taxing authority in connection with
the examination of the Tax Returns referred to in clause (i) are currently
pending; (iii) all deficiencies asserted or assessments made as a result of any
examination of the Tax Returns referred to in clause (i) by a taxing authority
have been paid in full or are being contested in good faith by the Company; and
(iv) a reserve which the Company reasonably believes to be adequate has been set
up for the payment of all such Taxes anticipated to be payable in respect of
periods through the date hereof. The Company has disclosed on its federal income
Tax returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Sec. 6662. The
Company is not a party to any Tax allocation or sharing agreement. The Company
(a) has not been a member of an affiliated group filing a consolidated federal
income Tax return (other than a group the common parent of which was the Company
or a Subsidiary of the Company) or (b) has no liability for the Taxes of any
person (other than the Company) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise. The Company will not be obligated to make
a payment to an individual that would be a "parachute payment" to a
"disqualified individual," as those terms are defined in Section 280G of the
Code, without regard to whether such payment is to be made in the future. For
purposes of this Agreement, (a) "Tax" (and, with correlative meaning, "Taxes"
and "Taxable") means any federal, state, local or foreign income, gross
receipts, property, sales, use, license, excise, franchise, employment, payroll,
premium, withholding, alternative or added minimum, ad valorem, transfer or
excise tax, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, imposed by any governmental authority, and (b) "Tax Return" means any
return, report or similar statement required to be filed with respect to any Tax
(including any attached schedules), including, without limitation, any
information return, claim for refund, amended return or declaration of estimated
Tax.
3.18 Brokers. No broker, investment banker or other person, other than MESIROW
FINANCIAL, the fees and expenses of which will be paid by the Company, is
entitled to any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. A copy of the engagement
letter between MESIROW FINANCIAL and the Company setting forth the fees and
expenses to be paid by the Company in connection with the transactions
contemplated by this Agreement has been provided to Purchaser.
ARTICLE 4
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REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND MERGECO
The Purchaser and Mergeco jointly and severally represent and warrant to the
Company as follows:
4.1 Organization, Standing and Power. Each of Mergeco and the Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
carry on its business as now being conducted.
4.2 Authority; Non-Contravention.
4.2.1 Each of Mergeco and the Purchaser has all requisite corporate power
and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by Mergeco and the Purchaser and the consummation by them of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on their part. This Agreement has been duly executed and
delivered by Mergeco and the Purchaser and
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REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND MERGECO (Continued)
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(assuming the valid authorization, execution and delivery of this Agreement by
the Company) constitutes a valid and binding obligation of Mergeco and the
Purchaser enforceable against the Purchaser in accordance with its terms. The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation to the loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of the Purchaser under any provision of:
4.2.1.1 the Certificate of Incorporation or Bylaws of the Purchaser,
4.2.1.2 any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or
license applicable to the Purchaser or
4.2.1.3 subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Purchaser or any of its
properties or assets, other than, in the case of SECTIONS 4.2.1.2 or
4.2.1.3, any such conflicts, violations, defaults, rights, offers,
prepayments, payments, losses or Liens, that, individually or in the
aggregate, would not have a Material Adverse Effect on either of the
Purchaser or Mergeco, materially impair the ability of the Purchaser or
Mergeco to perform its obligations hereunder or prevent the consummation
of any of the transactions contemplated hereby.
4.2.2 No filing or registration with, or authorization, consent or approval
of, any Governmental Entity is required by or with respect to the Purchaser
in connection with the execution and delivery of this Agreement by the
Purchaser or Mergeco or the consummation by the Purchaser or Mergeco of the
transactions contemplated hereby, except for (i) compliance with the
provisions of the Exchange Act, (ii) the filing of the Certificate of
Merger with the Delaware Secretary of State and appropriate documents with
the relevant authorities of other states in which the Purchaser or Mergeco
is qualified to do business, (iii) such filings and approvals as may be
required under the HSR Act, (iv) such filings and approvals as may be
required by any applicable state securities or "blue sky" laws or state
takeover laws, and (v) such other consents, orders, authorizations,
registrations, approvals, declarations and filings the failure of which to
be obtained or made would not, individually or in the aggregate, have a
Material Adverse Effect on the Purchaser, materially impair the ability of
Purchaser or Mergeco to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
4.3 Brokers. No broker, investment banker or other person, other than FIRST
ANALYSIS SECURITIES CORPORATION, the fees and expenses of which will be paid by
the Purchaser, is entitled to any broker's, finder's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Purchaser or Mergeco.
ARTICLE 5
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COVENANTS
5.1 Alternative Proposals. Prior to the Effective Time, the Company agrees that
it will not, directly or indirectly, through any officer, director, agent or
otherwise, (i) solicit or initiate, directly or indirectly, or encourage
submission of inquiries, proposals or offers from any potential buyer (other
than the Purchaser) relating to the disposition of the assets or securities of
the Company, or any part thereof (other than sales of inventory in the ordinary
course) or (ii) participate in any discussions or negotiations regarding, or
furnish any person with information with respect to, the disposition of the
assets or any securities of the Company or any part thereof (any such proposal
or offer being hereinafter
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COVENANTS (Continued)
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referred to as an "Alternative Proposal"); provided, however, that nothing
contained in this SECTION 5.1 shall prohibit the Board of Directors of the
Company from (i) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited, bona fide
Alternative Proposal or delivers an unsolicited, bona fide, written expression
of interest that could reasonably be expected to lead to an Alternative
Proposal, which is not subject to the arrangement of financing (other than
securities of an acquiror to be issued to holders of shares of Common Stock in
an acquisition thereof by merger or consolidation) and that the Board of
Directors of the Company in good faith determines (in consultation with its
financial advisors) represents a financially superior transaction for the
stockholders of the Company as compared to the Merger, if, and only to the
extent that, (A) the Board of Directors of the Company, based upon the advice of
outside counsel, determines in good faith that such action is required for the
Board of Directors to comply with its fiduciary duties to stockholders imposed
by law, (B) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, the Company provides
written notice to the Purchaser to the effect that it is furnishing information
to, or entering into discussions or negotiations with, such person or entity,
and (C) subject to the same fiduciary standards as in the preceding clause (A),
the Company keeps the Purchaser informed of the status and all material
information with respect to any such discussions or negotiations; and (ii) to
the extent applicable, complying with Rule 14e-2 promulgated under the Exchange
Act with regard to an Alternative Proposal. Nothing in this SECTION 5.1 shall
(A) permit the Company to terminate this Agreement (except as specifically
provided in ARTICLE 7 hereof), (B) permit the Company to enter into any
agreement with respect to an Alternative Proposal for as long as this Agreement
remains in effect (it being agreed that for as long as this Agreement remains in
effect, the Company shall not enter into any agreement with any person that
provides for, or in any way facilitates, an Alternative Proposal (other than a
confidentiality agreement in customary form)), or (C) affect any other
obligation of the Company under this Agreement.
5.2 Interim Operations of the Company. (a) From and after the date of this
Agreement until the Effective Time, except as set forth in SCHEDULE 5.2 to this
Agreement or as contemplated by any other provision of this Agreement, unless
the Purchaser has consented in writing thereto, the Company:
5.2.1 Shall conduct its operations according to its usual, regular and
ordinary course in substantially the same manner as heretofore conducted;
5.2.2 Shall use its reasonable efforts to preserve intact its respective
business organizations and goodwill, keep available the services of their
respective officers and employees and maintain satisfactory relationships
with those persons having business relationships with it;
5.2.3 Shall not amend its Certificate of Incorporation or Bylaws or
comparable governing instruments;
5.2.4 Shall promptly notify the Purchaser of any breach of any
representation or warranty contained herein or any Material Adverse Effect
with respect to the Company;
5.2.5 Shall promptly deliver to the Purchaser true and correct copies of
any report, statement or schedule filed with the SEC subsequent to the date
of this Agreement;
5.2.6 (A) Shall not, except pursuant to the exercise of options, warrants,
conversion rights and other contractual rights existing on the date hereof
and disclosed pursuant to this Agreement, issue any shares of its capital
stock, effect any stock split or otherwise change its capitalization as it
existed on the date hereof and (B) shall not (x) grant, confer or award any
option, warrant, conversion right or other right not existing on the date
hereof to acquire any shares of its capital stock or grant, confer or award
any bonuses or other forms of cash incentives to any officer, director or
key employee, (y) increase any compensation with any present or future
officers, directors or key employees, grant any severance or termination
pay to, or enter into any employment or severance agreement with any
officer, director or key employee or amend any such existing agreement in
any
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COVENANTS (Continued)
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material respect, or (z) adopt any new employee benefit plan (including any
stock option, stock benefit or stock purchase plan) or amend any existing
employee benefit plan in any material respect;
5.2.7 Shall not (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital
stock or other ownership interests or (ii) directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock, or make any
commitment for any such action;
5.2.8 Shall not sell, lease, abandon or otherwise dispose of any of its
assets or acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of or equity in, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire any assets, except
for purchases and sales of inventory in the ordinary course of business
consistent with past practice;
5.2.9 Shall not incur or guarantee any indebtedness for borrowed money or
make any loans, advances or capital contributions to, or investments in,
any other person, or issue or sell any debt securities, other than to the
Company and other than borrowings under existing lines of credit in the
ordinary course of business and other borrowings not exceeding $100,000 in
the aggregate;
5.2.10 Shall not mortgage or otherwise encumber or subject to any lien any
of its properties or assets;
5.2.11 Shall not make any change to its accounting (including tax
accounting) methods, principles or practices, except as may be required by
generally accepted accounting principles and except, in the case of tax
accounting methods, principles or practices, in the ordinary course of
business of the Company;
5.2.12 Shall not make any commitment or enter into any contract or
agreement or make any capital expenditure except for (x) customer purchase
orders and purchases of raw materials used in the business of the Company
agreed to or made in the ordinary course of business consistent with past
practice, (y) any other commitment, contract and agreement involving
aggregate payments to or by the Company not in excess of $100,000,
providing for termination without notice by the Company on 90 or fewer
days' notice, and made by the Company in the ordinary course of business
consistent with past practice or (z) capital expenditures that individually
or in the aggregate do not exceed $100,000;
5.2.13 Shall not alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or ownership
of the Company;
5.2.14 Shall not revalue any of its assets, including, without limitation,
writing down the value of its inventory or writing off notes or accounts
receivable, other than in the ordinary course of business;
5.2.15 Shall not make any tax election or settle or compromise any material
income tax liability;
5.2.16 Shall not settle or compromise any pending or threatened suit,
action or claim relating to the transactions contemplated hereby;
5.2.17 Shall not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved against
in, or contemplated by, the 1995 Year End Financial Statements (or the
notes thereto) of the Company or incurred in the ordinary course of
business consistent with past practice;
5.2.18 Shall not, except in connection with the exercise of its fiduciary
duties by the Board of Directors of the Company as set forth in SECTION
5.1, waive, amend or allow to lapse any term or condition of any
confidentiality or "standstill" agreement to which the Company is a party;
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COVENANTS (Continued)
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5.2.19 Shall not extend or renew its directors' and officers' liability
insurance policy past the schedule expiration date of April 1, 1996, or
purchase any new directors' and officers' liability insurance;
5.2.20 Shall not extend credit at any time to ARISTECH CHEMICAL CORP. (a)
on terms of more than thirty (30) days or (b) of more than two hundred
twenty five thousand dollars ($225,000.00) in the aggregate in excess of
the dollar value of work in progress as of the date of this Agreement,
which amount is set forth in SCHEDULE 5.2.20 to this Agreement;
5.2.21 Shall not expend or commit to expend any Company funds to purchase a
fairness opinion with respect to the consideration to be paid in the
Merger; and
5.2.22 Shall not agree or otherwise commit to take any of the foregoing
actions or take, or agree to take, any action which would result in a
failure of the condition to Closing set forth in SECTION 6.3.1.
5.3 Meeting of the Company's Stockholders. The Company will take all action
necessary in accordance with applicable law and its Certificate of Incorporation
and Bylaws to convene a meeting of its stockholders as promptly as practicable
to consider and vote upon the approval of this Agreement and the Merger. The
Board of Directors of the Company shall recommend such approval and the
Purchaser and the Company shall each take all lawful action to solicit such
approval, including, without limitation, timely mailing the Proxy Statement (as
defined in SECTION 5.7); provided, however, that such recommendation or
solicitation is subject to any action (including any withdrawal or change of its
recommendation) taken by, or upon authority of, the Board of Directors of the
Company in the exercise of its good faith judgment based upon the advice of
outside counsel as to its fiduciary duties to its stockholders imposed by law.
5.4 Filings, Other Action. Subject to the terms and conditions herein provided,
the Company and the Purchaser shall: (a) promptly make their respective filings
and thereafter make any other required submissions under the HSR Act; (b) use
all reasonable efforts to cooperate with one another in (i) determining which
filings are required to be made prior to the Effective Time with, and which
consents, approvals, permits or authorizations are required to be obtained prior
to the Effective Time from, governmental or regulatory authorities of the United
States, the several states and foreign jurisdictions in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and (ii) timely making all such filings and
timely seeking all such consents, approvals, permits or authorizations; and (c)
use all reasonable efforts to take, or cause to be taken, all other action and
do, or cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and
directors of the Purchaser and the Company shall take all such necessary action.
5.5 Inspection of Records. From the date hereof to the Effective Time, the
Company shall (i) allow all designated officers, attorneys, accountants and
other representatives of the Purchaser reasonable access at all reasonable times
to the offices, records and files, correspondence, audits and properties, as
well as to all information relating to commitments, contracts, titles and
financial position, or otherwise pertaining to the business and affairs, of the
Company, (ii) furnish to the Purchaser's counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and other
information as such persons may reasonably request, (iii) instruct its
employees, counsel and financial advisors to cooperate with the Purchaser in the
Purchaser's investigation of the business of the Company, and (iv) make its
management personnel available for discussions with representatives of the
Purchaser.
5.6 Publicity. The initial press release relating to this Agreement shall be a
joint press release and thereafter the Company and the Purchaser shall not,
subject to their respective legal obligations (including requirements of stock
exchanges and other similar regulatory bodies), issue any press release
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COVENANTS (Continued)
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or otherwise make any public statement with respect to the transactions
contemplated hereby without the advance approval of the other party as to
substance and timing. The parties will cooperate with each other to coordinate
all such public statements and releases either party may make with respect to
the transactions contemplated hereby.
5.7 Proxy Statement.
5.7.1 The Company shall prepare and file with the SEC as soon as
practicable a preliminary form of the proxy statement (the "Proxy
Statement") to be mailed to the holders of Common Stock in connection with
the meeting of such holders in connection with the Merger. The Company will
cause the Proxy Statement to comply as to form in all material respects
with the applicable provisions of the Exchange Act. The Company will use
its reasonable best efforts to respond to any comments of the SEC or its
staff and to cause the Proxy Statement to be cleared by the SEC. The
Company will notify the Purchaser of the receipt of any comments from the
SEC or its staff and of any request by the SEC or its staff for amendments
or supplements to the Proxy Statement or for additional information and
will supply the Purchaser with copies of all correspondence between the
Company or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Proxy Statement prior to its
being filed with the SEC and shall give the Purchaser and its counsel the
opportunity to review all amendments and supplement to the Proxy Statement
and all responses to requests for additional information and replies to
comments prior to their being filed with, or sent to, the SEC. Each of the
Company and the Purchaser agrees to use its reasonable best efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC. As promptly as practicable after the
Proxy Statement has been cleared by the SEC, the Company shall mail the
Proxy Statement to the stockholders of the Company. If at any time prior to
the approval of this Agreement by the Company's stockholders there shall
occur any event that should be set forth in an amendment or supplement to
the Proxy Statement, the Company will prepare and mail to its stockholders
such an amendment or supplement.
5.7.2 The Company agrees that the Proxy Statement and each amendment or
supplement thereto at the time of mailing thereof and at the time of the
meeting of stockholders of the Company will not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing shall not apply to the extent that any such
untrue statement of a material fact or omission to state a material fact
was made by the Company in reliance upon and in conformity with written
information concerning the Purchaser furnished to the Company by the
Purchaser specifically for use in the Proxy Statement. The Purchaser agrees
that the information concerning the Purchaser provided by it in writing for
inclusion in the Proxy Statement and each amendment or supplement thereto,
at the time of mailing thereof and at the time of the meeting of
stockholders of the Company will not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5.8 Further Action. Each party hereto shall, subject to the fulfillment at or
before the Effective Time of each of the conditions of performance set forth
herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger.
5.9 Expenses. Whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses except as expressly
provided herein.
5.10 Takeover Statute. If any "fair price", "moratorium", "control share
acquisition" or other form of antitakeover statute or regulation shall become
applicable to the transactions contemplated hereby or the
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COVENANTS (Continued)
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transactions contemplated by the Stock Option Agreements, the Company and the
members of the Board of Directors of the Company shall grant such approvals and
take such actions as are reasonably necessary so that the transactions
contemplated hereby and the transactions contemplated by the Stock Option
Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and thereby and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated hereby
and thereby.
5.11 Conduct of Business by Mergeco Pending the Merger. Prior to the Effective
Time and subject to any applicable regulatory approvals, the Purchaser shall
cause Mergeco to (a) perform its respective obligations under this Agreement in
accordance with the terms hereof and thereof and take all other actions
necessary or appropriate for the consummation of the transactions contemplated
hereby and (b) not engage directly or indirectly in any business or activities
of any type or kind whatsoever and not enter into any agreements or arrangements
with any person or entity, or be subject to or be bound by any obligation or
undertaking which is not contemplated by this Agreement.
5.12 Conveyance Taxes. The Company and the Purchaser shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time.
5.13 Directors' and Officers' Liability Coverage. For a period of two (2) years
from and after the Effective Time, the Purchaser shall indemnify and defend each
person insured under the Company's directors' and officers' liability insurance
policy as in effect on the date hereof in such circumstances and in such manner
as is provided by such directors' and officers' liability insurance policy, as
if such policy had remained in effect up to, and for a period of two years
after, the Effective Time.
ARTICLE 6
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CONDITIONS TO MERGER
6.1 Conditions to Each Party's Obligation to Effect the Merger. The respective
obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
6.1.1 This Agreement and the transactions contemplated hereby shall have
been approved, in the manner required by applicable law or by the
applicable regulations of any stock exchange or other regulatory body, as
the case may be, by the holders of the issued and outstanding shares of
capital stock of the Company.
6.1.2 The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
6.1.3 Neither of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement. In the
event any such order or injunction shall have been issued, each party
agrees to use its reasonable efforts to have any such injunction lifted.
6.1.4 All consents, authorizations, orders and approvals of (or filings or
registrations with) any Governmental Entity required in connection with the
execution, delivery and performance of this Agreement shall have been
obtained or made, except for filings in connection with the Merger and any
other documents required to be filed after the Effective Time and except
where the failure to
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CONDITIONS TO MERGER (Continued)
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have obtained or made any such consent, authorization, order, approval, filing
or registration would not have a Material Adverse Effect on the Purchaser or the
Company following the Effective Time.
6.2 Conditions to Obligation of Company to Effect the Merger. The obligation of
the Company to effect the Merger shall be subject to the fulfillment at or prior
to the Closing Date of the conditions that:
6.2.1 There shall have been no intentional or willful non-performance, in
any material respect, by the Purchaser of its agreements contained in this
Agreement required to be performed on or prior to the Closing Date nor
shall there have been, in any material respect, any willfully or
intentionally untrue representation or warranty of the Purchaser contained
in this Agreement or in any document delivered in connection herewith.
6.2.2 The Purchaser shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date, and the
representations and warranties of the Purchaser contained in this Agreement
and in any document delivered in connection herewith shall be true and
correct as of the Closing Date, except (i) for changes specifically
permitted by this Agreement (ii) for non-performance or breaches which,
separately or in the aggregate, would not have a Material Adverse Effect on
the Company or on the ability of the parties to consummate the transactions
contemplated by this Agreement and (iii) that those representations and
warranties which address matters only as of a particular date shall remain
true and correct, in all material respects, as of such date, and
6.2.3 The Company shall have received a certificate of the President or a
Vice President of the Purchaser, dated the Closing Date, certifying to the
effect of the preceding SECTIONS 6.2.1 and 6.2.2.
6.3 Conditions to Obligation of Purchaser to Effect the Merger. The obligation
of the Purchaser to effect the Merger shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions:
6.3.1 (i) There shall have been no intentional or willful non-performance,
in any material respect, by the Company of its agreements contained in this
Agreement required to be performed on or prior to the Closing Date nor
shall there have been any willfully or intentionally untrue representation
or warranty of the Company contained in this Agreement or in any document
delivered in connection herewith, (ii) the Company shall have performed its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date, and the representations and warranties of the Company
contained in this Agreement and in any document delivered in connection
herewith shall be true and correct as of the Closing Date, except (A) for
changes specifically permitted by this Agreement, (B) for non-performance
or breaches which, separately or in the aggregate, would not have a
Material Adverse Effect on the Company or the Purchaser or on the ability
of the parties to consummate the transactions contemplated by this
Agreement and (C) that those representations and warranties which address
matters only as of a particular date shall remain true and correct, in all
material respects, as of such date, and (iii) the Purchaser shall have
received a certificate of the President or a Vice President of the Company,
dated the Closing Date, certifying to the effect of the preceding clauses
(i) and (ii).
6.3.2 From the date of this Agreement through the Effective Time, there
shall not have occurred any Material Adverse Change with respect to the
Company, provided, however, that the loss of ARISTECH CHEMICAL CORP. as a
customer of the Company as a result of the enforcement of restrictions
contained in SECTION 5.2.20 shall not constitute a Material Adverse Change
with respect to the Company.
6.3.3 The Stock Option Agreements shall have remained in full force and
effect through the Effective Time.
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CONDITIONS TO MERGER (Continued)
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6.3.4 After the Effective Time, no person shall have any right under any
Company Option, or any Stock Plan or other plan, program or arrangement to
acquire any equity securities of the Company.
6.3.5 There shall not have been any action taken, or any statute, rule,
regulation, order, judgment or decree proposed, enacted, promulgated,
entered, issued, or enforced by any foreign or United States federal, state
or local Governmental Entity, and there shall be no action, suit or
proceeding pending which (i) makes this Agreement, the Merger, or any of
the other transactions contemplated by this Agreement illegal or imposes or
may impose material damages or penalties in connection therewith, (ii)
requires the divestiture of a material portion of the business of the
Purchaser and its Subsidiaries taken as a whole, or of the Company taken as
a whole or of the Surviving Corporation and its Subsidiaries taken as a
whole, (iii) imposes material limitations on the ability of the Purchaser
effectively to exercise full rights of ownership of shares of capital stock
of the Surviving Corporation (including the right to vote such shares on
all matters properly presented to the stockholders of the Surviving
Corporation) or makes the holding by the Purchaser of any such shares
illegal or subject to any materially burdensome requirement or condition,
(iv) requires the Purchaser, the Company, the Surviving Corporation or any
of their respective material Subsidiaries or affiliates to cease or refrain
from engaging in any material business, or (v) otherwise prohibits,
restricts, or delays consummation of the Merger or any of the other
transactions contemplated by this Agreement in any material respect or
increases or may increase in any material respect the liabilities or
obligations of the Purchaser or the Surviving Corporation arising out of
this Agreement, the Merger, or any of the other transactions contemplated
by this Agreement.
6.3.6 The Company shall (i) have received the consents and approvals listed
in SCHEDULE 6.3.6.1 in form and substance satisfactory to Purchaser and
duly executed by the person or entity granting such consent or approval and
(ii) have terminated on terms satisfactory to Purchaser the contracts,
agreements and other arrangements set forth on SCHEDULE 6.3.6.2.
6.3.7 The Company shall have provided the Purchaser with comfort letters
from the Company's independent accountants, dated the mailing date of the
Proxy Statement and the Effective Time of the Merger, in form and
substances satisfactory to Purchaser.
6.3.8 The Company shall have entered into employment and non-competition
contracts with such key employees of the Company, in such durations and in
such compensatory amounts as are shown on SCHEDULE 6.3.8, in form and
substance satisfactory to Purchaser.
6.3.9 The Company shall have provided the Purchaser with such certificates
of the secretary of the Company, certified copies of notices of meetings
and resolutions authorizing the Merger, bylaws and incumbency certificates
as the Purchaser shall reasonably require.
6.3.10 The Purchaser shall have obtained the consent to the Merger from
Bank of America National Trust and Savings Association ("Bank of America")
pursuant to that Credit Agreement by and among Spartech Corporation, Bank
of America and the other financial institutions named therein dated as of
August 15, 1995.
6.3.11 The Purchaser shall be satisfied, in its sole and absolute
discretion, with the results of its investigation and/or review of (a) the
compliance by the Company with all applicable Environmental Laws, (b) any
Releases of Hazardous Materials on owned or leased properties of the
Company or in, on or affecting such properties or any surrounding site, and
any notices or claims received by the Company under any Environmental Laws,
(c) underground storage tanks located on any owned or leased properties of
the Company, and (d) friable asbestos or asbestos-containing materials at,
on or in the owned or leased properties of the Company.
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ARTICLE 7
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TERMINATION
7.1 Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval of this Agreement by the stockholders of the Company, by the mutual
consent of the Purchaser and the Company.
7.2 Termination by Either Purchaser or Company. This Agreement may be terminated
and the Merger may be abandoned by action of the Board of Directors of either
the Purchaser or the Company if (a) the Merger shall not have been consummated
by June 30, 1996, (b) the approval of the Company's stockholders required by
SECTION 6.1.1 shall not have been obtained at a meeting duly convened therefor
or at any adjournment thereof, or (c) a United States federal or state court of
competent jurisdiction or United States federal or state governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable; provided, that the party seeking to terminate this Agreement
pursuant to this clause (c) shall have used all reasonable efforts to remove
such injunction, order or decree; and provided, in the case of a termination
pursuant to clause (a) above, that the terminating party shall not have breached
in any material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the failure to consummate the Merger by
June 30, 1996.
7.3 Termination by Company. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, before or after the
adoption and approval by the stockholders of the Company referred to in SECTION
6.1.1, by action of the Board of Directors of the Company, if (a) there is an
Alternative Proposal which is not subject to the arrangement of financing (other
than securities of an acquiror to be issued to holders of shares of Common Stock
in an acquisition thereof by merger or consolidation) and that the Board of
Directors of the Company in good faith determines (in consultation with its
financial advisors) represents a financially superior transaction for the
stockholders of the Company as compared to the Merger and in the exercise of its
good faith judgment as to its fiduciary duties to its stockholders imposed by
law, as advised by outside counsel, the Board of Directors of the Company
determines that such termination is required by reason of such Alternative
Proposal being made; provided that the Company shall notify the Purchaser
promptly of its intention to terminate this Agreement or enter into a definitive
agreement with respect to any Alternative Proposal (which notice shall describe
the material terms of such definitive agreement), but in no event shall such
notice be given less than 48 hours prior to the public announcement of the
Company's termination of this Agreement; and provided further that the right to
terminate this Agreement pursuant to this clause shall not be available if there
has been a non-performance or breach by the Company which has or would
reasonably be expected to have resulted in a failure of condition under SECTION
6.3.1 hereof, or (b) there has been a non-performance or breach by the Purchaser
which has or would reasonably be expected to have resulted in a failure of
condition under SECTION 6.2. Notwithstanding the foregoing, the Company's
ability to terminate this Agreement pursuant to SECTION 7.2 or this SECTION 7.3
is conditioned upon the prior payment by the Company of any amounts owed by it
pursuant to SECTIONS 7.5.1 AND 7.6 to the extent owed thereunder.
7.4 Termination by Purchaser. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, before or after the
approval by the stockholders of the Company referred to in SECTION 6.1.1, by
action of the Board of Directors of the Purchaser, if (a) the Board of Directors
of the Company shall have withdrawn or modified in a manner materially adverse
to the Purchaser its approval or recommendation of this Agreement or the Merger
or shall have recommended an Alternative Proposal to the Company's stockholders,
(b) there has been a non-performance or breach by the Company which has or would
reasonably be expected to have resulted in a failure of condition under SECTION
6.3.
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TERMINATION (Continued)
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7.5 Effect of Termination and Abandonment.
7.5.1 In the event that any person shall have made an Alternative Proposal
for the Company and (i) thereafter this Agreement is terminated pursuant to
SECTION 7.3 or SECTION 7.4 or (ii) this Agreement is terminated for any
other reason (other than the breach of this Agreement by the Purchaser)
and, in the case of this clause (ii) only, a transaction contemplated by
such Alternative Proposal is consummated on or before July 20, 1996 (either
of the foregoing events being called a "Payment Event"), then the Company
shall pay the Purchaser a fee of $250,000, which amount shall be payable by
wire transfer of same day funds either on the date contemplated in the last
sentence of SECTION 7.2 if applicable or, otherwise, within two business
days after such amount becomes due. The Company acknowledges that the
agreements contained in this SECTION 7.5.1 AND 7.6 are an integral part of
the transactions contemplated in this Agreement, and that, without these
agreements, the Purchaser would not enter into this Agreement. If the
Company fails to promptly pay the amount due pursuant to this SECTION 7.5.1
AND 7.6, and, in order to obtain such payment, the Purchaser commences a
suit which results in a judgment against the Company for the fees set forth
in this SECTION 7.5.1 AND 7.6, the Company shall pay to the Purchaser its
costs and expenses (including attorneys' fees) in connection with such
suit, together with interest on the amount of the fee at the rate of 12%
per annum.
7.5.2 In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this ARTICLE 7, all obligations of the parties
hereto shall terminate, except the obligations of the parties pursuant to
this SECTION 7.5 AND 7.6 and except for the provisions of SECTIONS 5.9,
8.3, 8.4, 8.6, 8.8, 8.9, 8.10, 8.12 and 8.13. Moreover, in the event of
termination of this Agreement pursuant to SECTIONS 7.2, 7.3 or 7.4 (other
than any termination in which a fee is paid by the Company to the Purchaser
in accordance with SECTION 7.5.1, in which case the termination fee
provided therein and the reimbursement required under SECTION 7.6 shall be
the Purchaser's sole and exclusive remedy), nothing herein shall prejudice
the ability of the non-breaching party from seeking damages from any other
party for any willful breach of any material provision of this Agreement,
including without limitation, attorneys' fees and the right to pursue any
remedy at law or in equity.
7.6 Purchaser shall pay all filing fees in connection with the filing required
under the HSR Act, provided, however, that if this Agreement is terminated for
any reason, the Company will reimburse Purchaser for 50% of such fees.
7.7 Extension, Waiver. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE 8
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GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall be deemed to the extent
expressly provided herein to be conditions to the Merger and shall not survive
the Merger, provided, however, that the agreements contained in ARTICLE 2 and
this ARTICLE 8 shall survive the Merger and SECTIONS 7.5 AND 7.6 shall survive
termination.
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GENERAL PROVISIONS (Continued)
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8.2 Notices. Any notice required to be given hereunder shall be sufficient if in
writing, and sent by facsimile transmission and by courier service (with proof
of service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to the Purchaser:
Spartech Corporation
7733 Forsyth, Suite 1450
Clayton, Missouri 63105
Attn: David B. Mueller
Facsimile: 314-721-1447
If to the Company:
Portage Industries Corporation
1325 Adams Street
Portage, Wisconsin 53901
Attn: Anthony J. Lisauskas
Facsimile: 608-742-5707
With copies to:
Armstrong, Teasdale, Schlafly & Davis
One Metropolitan Square, Suite 2600
St. Louis, Missouri 63102
Attn: Albert F. Bender, III
Facsimile: 314-621-5065
With copies to:
Michael Best & Friedrich
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attn: Jerome H. Kringel
Facsimile: 414-277-0656
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
8.3 Assignment; Binding Effect. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Notwithstanding anything contained in
this Agreement to the contrary, nothing in this Agreement, expressed or implied,
is intended to confer on any person other than the parties hereto or their
respective heirs, successors, executors, administrators and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
8.4 Entire Agreement. This Agreement, the Exhibits, the Schedules, the letter
agreement dated December 14, 1995, between the Purchaser and Mesirow Financial,
and any documents delivered by the parties in connection herewith constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto. No addition to or modification of any provision of this Agreement shall
be binding upon any party hereto unless made in writing and signed by all
parties hereto.
8.5 Amendment. This Agreement may be amended by the parties hereto, by action
taken by their respective Boards of Directors, at any time before or after
approval of matters presented in connection with the Merger by the stockholders
of the Company, but after any such stockholder approval, no amendment shall be
made which by law requires the further approval of stockholders without
obtaining such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
8.6 Governing Law. Except to the extent that Delaware law is mandatorily
applicable to the Merger and the rights of the stockholders of the Company and
the Purchaser, this Agreement shall be governed by, and construed in accordance
with the laws of the State of Missouri applicable to contracts executed and to
be performed entirely within that state without regard to the conflicts of laws
principles thereof.
8.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
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59
8.8 Headings. Headings of the Articles and Sections of this Agreement are for
the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
8.9 Interpretation. In this Agreement, unless the context otherwise requires,
words describing the singular number shall include the plural and vice versa,
and words denoting any gender shall include all genders and words denoting
natural persons shall include corporations and partnerships and vice versa.
8.10 Waivers. Except as provided in this Agreement, no action taken pursuant to
this Agreement, including, without limitation, any investigation by or on behalf
of any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.11 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
attached hereto and referred to herein are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
8.12 Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
8.13 Enforcement of Agreement. The parties hereto agree that irreparable damage
would occur in the event any provision of this Agreement was not performed in
accordance with its specific terms or was otherwise breached. It is accordingly
agreed that the parties shall be entitled to obtain an injunction or injunctions
to prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof. The parties hereto irrevocably consent to service of process
in the manner described in SECTION 8.2 hereof, AND EACH PARTY HERETO IRREVOCABLY
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY SUIT OR PROCEEDING BROUGHT TO ENFORCE
OR INTERPRET THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same
to be duly delivered on their behalf on the day and year first written above.
"Purchaser" SPARTECH CORPORATION
By:
------------------------------------------
"Mergeco" SPARTECH PLASTICS, INC.
By:
------------------------------------------
"Company" PORTAGE INDUSTRIES CORPORATION
By:
------------------------------------------
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EXHIBIT B
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
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SEC. 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to Section 251, Section 252, Section 254, Section 257, Section 258,
Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsections (f) or (g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to Section
Section 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
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sec. 262 APPRAISAL RIGHTS. (Continued)
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or
253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders
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sec. 262 APPRAISAL RIGHTS. (Continued)
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of such shares. Such written statement shall be mailed to the stockholder within
10 days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding,
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sec. 262 APPRAISAL RIGHTS. (Continued)
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including, without limitation, reasonable attorney's fees and the fees and
expenses of experts, to be charged pro rata against the value of all the shares
entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
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EXHIBIT C
SHAREHOLDER OPTION AGREEMENT
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This Shareholder Option Agreement (the "Agreement") is entered into this 26th
day of January, 1996 by and between ALLSTATE INSURANCE COMPANY ("Shareholder")
and SPARTECH CORPORATION, a Delaware corporation ("Optionee").
WITNESSETH:
WHEREAS, Optionee has entered into a letter of intent dated January 22, 1996
(the "Letter of Intent") with Portage Industries Corporation, a Delaware
corporation ("Portage"), providing for the purchase by Optionee of all
outstanding Portage Common Stock at a price of $6.60 per share; and
WHEREAS, the transaction is expected to be structured as a cash merger (the
"Merger"); and
WHEREAS, Shareholder owns 459,660 shares of Portage Common Stock (the "Optioned
Shares"); and
WHEREAS, Shareholder desires to induce Optionee to proceed with the Merger.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and in consideration of $1.00 and such other valuable consideration
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Grant and Exercise of Option. Shareholder hereby grants Optionee an
irrevocable option (the "Option") to purchase all of its Optioned Shares during
the Exercise Period (as defined below) at a price in cash of $6.60 per share, or
such higher price as may be offered by Optionee pursuant to the Merger. On the
terms and subject to the conditions of this Agreement, Optionee may exercise the
Option in whole, but not in part, at any time during the Exercise Period. To
exercise the Option, Optionee shall give written notice to Shareholder
specifying a place and date for the closing which date shall not be later than
ten business days from the date of such notice and may be one day after the
delivery of such notice or earlier if reasonably practicable. The giving of such
notice shall create a binding obligation of Optionee to buy and of Shareholder
to sell the Optioned Shares on the closing date. For the purposes of this
Agreement, the "Exercise Period" shall mean the period commencing on the date
hereof and extending for a period of 120 days thereafter.
2. Closing. At the closing (the "Closing") of the purchase of Optioned Shares:
(a) against delivery of Shareholder's Optioned Shares, Optionee shall pay
to Shareholder the aggregate purchase price for such Optioned Shares by
bank cashier's check or by wire transfer to a bank designated by
Shareholder; and
(b) Shareholder shall deliver to Optionee a duly-executed certificate or
certificates representing all of the Optioned Shares, together with stock
powers endorsed in blank, relating to such certificates and, if requested
by Optionee, an irrevocable proxy, duly executed by Shareholder,
authorizing such persons as Optionee shall designate to act for Shareholder
as its lawful agent, attorney and proxy, with full power of substitution,
to vote in such manner as such agent, attorney and proxy or its substitute
shall in its sole discretion deem proper, and otherwise act with respect to
the Optioned Shares which Shareholder is entitled to vote at any meeting
(whether annual or special and whether or not an adjourned meeting) of
Portage's Shareholder or otherwise, and revoking any prior proxies granted
by Shareholder with respect to the Optioned Shares.
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3. Covenants of Shareholder. During the period from the date of this Agreement
until the termination of the Option, except in accordance with the provisions of
this Agreement, Shareholder agrees that it will not:
(a) sell, transfer, pledge, assign or otherwise dispose of, or enter into
any contract, option or other arrangement or understanding with respect to
the sale, transfer, pledge, assignment or other disposition of any Optioned
Shares;
(b) grant any proxies, deposit any Optioned Shares into a voting trust or
enter into a voting agreement with respect to any Optioned Shares; or
(c) solicit or encourage any party, other than Optionee, to acquire or
offer to acquire Portage, any of its stock or a material portion of the
Portage's assets or business;
4. Representations and Warranties of Shareholder. Shareholder represents and
warrants to Optionee as follows:
(a) Shareholder owns the number of Optioned Shares specified in the
recitals of this Agreement and has the right, power and authority to
execute and deliver this Agreement and to sell the Optioned Shares; such
execution, delivery and sale will not violate or breach any outstanding
agreement or instrument to which Shareholder is a party; and this Agreement
constitutes a valid and binding agreement on the part of Shareholder,
enforceable in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws or equitable principles relating to or limiting creditor's rights
generally;
(b) the Optioned Shares will at the Closing be held by Shareholder, or by a
custodian for the account of the Shareholder, free and clear of all liens,
claims, encumbrances and security interests with respect to the ownership
or voting of the Optioned Shares or otherwise, other than pursuant to this
Agreement;
(c) upon purchase of the Optioned Shares, Optionee shall receive good and
marketable title to the Optioned Shares, free and clear of all liens,
claims, encumbrances and security interests.
5. Representations and Warranties of Optionee. Optionee represents and warrants
to Shareholder that it has the right, power and authority to execute and deliver
this Agreement and to purchase the Optioned Shares; such execution and delivery,
and such purchase, if any, will not violate or breach any outstanding agreement
or instrument to which Optionee is a party; and this Agreement constitutes the
valid and binding agreement on the part of Optionee, enforceable in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating to
or limiting creditor's rights generally.
6. Permitted Sale. If Optionee or any of its affiliates commences a tender or
exchange offer for shares of Portage, Shareholder may tender or sell its
Optioned Shares pursuant thereto, notwithstanding any provision of this
Agreement to the contrary. Upon the purchase of such Optioned Shares, pursuant
to such tender or exchange offer, Shareholder's obligations under this Agreement
with respect to such purchased shares shall terminate.
7. Termination. In the event that Optionee determines not to proceed with the
Merger or to otherwise acquire all of the outstanding shares of Portage Common
Stock, and communicates the same to Portage pursuant to the terms of the Letter
of Intent or the definitive merger agreement, this Agreement shall immediately
terminate without liability to either party, except that the obligations
contained in Article 14 shall survive.
8. Adjustments. In the event of any increase or decrease or other change in the
stock of Portage by reason of stock dividends, split-up, recapitalizations,
combinations, exchanges of shares or the like, the number of Portage shares
subject to the Option and the exercise price per Optioned Share shall be
adjusted appropriately.
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9. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Missouri.
10. Further Assurances. Each party hereto shall perform such further acts and
execute such further documents as may reasonably be required to carry out the
provisions of this Agreement, including instruments necessary or desirable to
complete the transfer, sale and assignment of the Optioned Shares.
11. Assignment. This Agreement may not be assigned by any party hereto, except
that Optionee may assign to one or more of its affiliates any and all of the
rights and obligations of Optionee under this Agreement, including, without
limitation, the right to substitute in its place such affiliates as the Optionee
may designate.
12. Remedies. The parties agree that the Optioned Shares are unique and that
legal remedies for breach of this Agreement will be inadequate and that this
Agreement may be enforced by injunctive or other equitable relief.
13. Notices. All notices or other communications required or permitted hereunder
shall be in writing and shall be deemed duly given if delivered in person, by
cable, telex, telecopy or telegram or by registered or certified mail, postage
prepaid addressed as follows:
To Optionee: Spartech Corporation
7733 Forsyth, Suite 1450
Clayton, Missouri 63105-1817
Attention: David B. Mueller
With copies to: Armstrong, Teasdale, Schlafly & Davis
One Metropolitan Square, Suite 2700
St. Louis, Missouri 63102-2740
Attention: Albert F. Bender, III, Esq.
To Shareholder: Allstate Insurance Company
Allstate Plaza South, Ste. G5B
Northbrook, Illinois 60062
Attn: Venture Capital Division,
D. O'Connell
14. Effect of Invalidity. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
15. Counterparts. This Agreement may be executed in counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same agreement.
16. Entire Agreement; Binding Effect; Benefits. This Agreement contains the
entire agreement between the parties with respect to the transactions
contemplated hereunder and supersedes all prior arrangements or understandings
with respect thereto, written or oral. No supplement, modification, or amendment
of this Agreement shall be binding unless executed in writing by both parties.
This Agreement shall inure to the benefit of and shall be binding upon the
parties hereto and their respective heirs, legal representatives, successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is intended
to or shall confer on any person other than the parties hereto and their
respective heirs, legal representatives and successors and permitted assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
17. Expenses. Each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder.
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IN WITNESS WHEREOF, the parties have entered into this Agreement as of the day
and year first above written.
Optionee:
SPARTECH CORPORATION
By:
------------------------------------------
Title:
------------------------------------------
Shareholder:
ALLSTATE INSURANCE COMPANY
By:
------------------------------------------
Title: Authorized Signatory
By:
------------------------------------------
Title: Authorized Signatory
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EXHIBIT D
SHAREHOLDER OPTION AGREEMENT
- --------------------------------------------------------------------------------
This Shareholder Option Agreement (the "Agreement") is entered into this 26th
day of January, 1996 by and between MADISON ALLEN SELF ("Shareholder") and
SPARTECH CORPORATION, a Delaware corporation ("Optionee").
WITNESSETH:
WHEREAS, Optionee has entered into a letter of intent dated January 22, 1996
(the "Letter of Intent") with Portage Industries Corporation, a Delaware
corporation ("Portage"), providing for the purchase by Optionee of all
outstanding Portage Common Stock at a price of $6.60 per share; and
WHEREAS, the transaction is expected to be structured as a cash merger (the
"Merger"); and
WHEREAS, Shareholder owns 324,500 shares of Portage Common Stock (the "Optioned
Shares"); and
WHEREAS, Shareholder desires to induce Optionee to proceed with the Merger.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and in consideration of $1.00 and such other valuable consideration
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Grant and Exercise of Option. Shareholder hereby grants Optionee an
irrevocable option (the "Option") to purchase all of his Optioned Shares during
the Exercise Period (as defined below) at a price in cash of $6.60 per share, or
such higher price as may be offered by Optionee pursuant to the Merger. On the
terms and subject to the conditions of this Agreement, Optionee may exercise the
Option in whole, but not in part, at any time during the Exercise Period. To
exercise the Option, Optionee shall give written notice to Shareholder
specifying a place and date for the closing which date shall not be later than
ten business days from the date of such notice and may be one day after the
delivery of such notice or earlier if reasonably practicable. The giving of such
notice shall create a binding obligation of Optionee to buy and of Shareholder
to sell the Optioned Shares on the closing date. For the purposes of this
Agreement, the "Exercise Period" shall mean the period commencing on the date
hereof and extending for a period of 120 days thereafter.
2. Closing. At the closing (the "Closing") of the purchase of Optioned Shares:
(a) against delivery of Shareholder's Optioned Shares, Optionee shall pay
to Shareholder the aggregate purchase price for such Optioned Shares by
bank cashier's check or by wire transfer to a bank designated by
Shareholder; and
(b) Shareholder shall cause to be delivered to Optionee a duly executed
certificate or certificates representing all of the Optioned Shares,
together with stock powers endorsed in blank, relating to such certificates
(or at Optionee's request the shares which are currently held in street
name, may be delivered as instructed by Optionee through the facilities of
the Depository Trust Company) and, if requested by Optionee, an irrevocable
proxy, duly executed by Shareholder, authorizing such persons as Optionee
shall designate to act for Shareholder as his lawful agent, attorney and
proxy, with full power of substitution, to vote in such manner as such
agent, attorney and proxy or its substitute shall in its sole discretion
deem proper, and otherwise act with respect to the Optioned Shares which
Shareholder is entitled to vote at any meeting (whether annual or special
and whether or not an adjourned meeting) of Portage's Shareholder or
otherwise, and revoking any prior proxies granted by Shareholder with
respect to the Optioned Shares.
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3. Covenants of Shareholder. During the period from the date of this Agreement
until the termination of the Option, except in accordance with the provisions of
this Agreement, Shareholder agrees that he will not:
(a) sell, transfer, pledge, assign or otherwise dispose of, or enter into
any contract, option or other arrangement or understanding with respect to
the sale, transfer, pledge, assignment or other disposition of any Optioned
Shares;
(b) grant any proxies, deposit any Optioned Shares into a voting trust or
enter into a voting agreement with respect to any Optioned Shares; or
(c) solicit or encourage any party, other than Optionee, to acquire or
offer to acquire Portage, any of his stock or a material portion of the
Portage's assets or business;
4. Representations and Warranties of Shareholder. Shareholder represents and
warrants to Optionee as follows:
(a) Shareholder owns the number of Optioned Shares specified in the
recitals of this Agreement and has the right, power and authority to
execute and deliver this Agreement and to sell the Optioned Shares; such
execution, delivery and sale will not violate or breach any outstanding
agreement or instrument to which Shareholder is a party; and this Agreement
constitutes a valid and binding agreement on the part of Shareholder,
enforceable in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws or equitable principles relating to or limiting creditor's rights
generally;
(b) the Optioned Shares will at the Closing be held by Shareholder, or by a
custodian for the account of the Shareholder, free and clear of all liens,
claims, encumbrances and security interests with respect to the ownership
or voting of the Optioned Shares or otherwise, other than pursuant to this
Agreement;
(c) upon purchase of the Optioned Shares, Optionee shall receive good and
marketable title to the Optioned Shares, free and clear of all liens,
claims, encumbrances and security interests.
5. Representations and Warranties of Optionee. Optionee represents and warrants
to Shareholder that it has the right, power and authority to execute and deliver
this Agreement and to purchase the Optioned Shares; such execution and delivery,
and such purchase, if any, will not violate or breach any outstanding agreement
or instrument to which Optionee is a party; and this Agreement constitutes the
valid and binding agreement on the part of Optionee, enforceable in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating to
or limiting creditor's rights generally.
6. Permitted Sale. If Optionee or any of its affiliates commences a tender or
exchange offer for shares of Portage, Shareholder may tender or sell his
Optioned Shares pursuant thereto, notwithstanding any provision of this
Agreement to the contrary. Upon the purchase of such Optioned Shares, pursuant
to such tender or exchange offer, Shareholder's obligations under this Agreement
with respect to such purchased shares shall terminate.
7. Termination. In the event that Optionee determines not to proceed with the
Merger or to otherwise acquire all of the outstanding shares of Portage Common
Stock, and communicates the same to Portage pursuant to the terms of the Letter
of Intent or the definitive merger agreement, this Agreement shall immediately
terminate without liability to either party, except that the obligations
contained in Article 14 shall survive.
8. Adjustments. In the event of any increase or decrease or other change in the
stock of Portage by reason of stock dividends, split-up, recapitalizations,
combinations, exchanges of shares or the like, the number of Portage shares
subject to the Option and the exercise price per Optioned Share shall be
adjusted appropriately.
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9. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Missouri.
10. Further Assurances. Each party hereto shall perform such further acts and
execute such further documents as may reasonably be required to carry out the
provisions of this Agreement, including instruments necessary or desirable to
complete the transfer, sale and assignment of the Optioned Shares.
11. Assignment. This Agreement may not be assigned by any party hereto, except
that Optionee may assign to one or more of its affiliates any and all of the
rights and obligations of Optionee under this Agreement, including, without
limitation, the right to substitute in its place such affiliates as the Optionee
may designate.
12. Remedies. The parties agree that the Optioned Shares are unique and that
legal remedies for breach of this Agreement will be inadequate and that this
Agreement may be enforced by injunctive or other equitable relief.
13. Notices. All notices or other communications required or permitted hereunder
shall be in writing and shall be deemed duly given if delivered in person, by
cable, telex, telecopy or telegram or by registered or certified mail, postage
prepaid addressed as follows:
To Optionee: Spartech Corporation
7733 Forsyth, Suite 1450
Clayton, Missouri 63105-1817
Attention: David B. Mueller
With copies to: Armstrong, Teasdale, Schlafly & Davis
One Metropolitan Square, Suite 2700
St. Louis, Missouri 63102-2740
Attention: Albert F. Bender, III, Esq.
To Shareholder: Madison Allen Self
Tioga International, Inc.
1440 Huntington Drive
Calumet City, Illinois 60409
With copies to: Stephen A. Tsoris, Esq.
McDermott, Will & Emery
227 West Monroe
Chicago, Illinois 60606
14. Effect of Invalidity. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
15. Counterparts. This Agreement may be executed in counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same agreement.
16. Entire Agreement; Binding Effect; Benefits. This Agreement contains the
entire agreement between the parties with respect to the transactions
contemplated hereunder and supersedes all prior arrangements or understandings
with respect thereto, written or oral. No supplement, modification, or amendment
of this Agreement shall be binding unless executed in writing by both parties.
This Agreement shall inure to the benefit of and shall be binding upon the
parties hereto and their respective heirs, legal representatives, successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is intended
to or shall confer on any person other than the parties hereto and their
respective heirs, legal representatives and successors and permitted assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
17. Expenses. Each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, except that Optionee shall reimburse
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Shareholder for up to $2,000 of the legal fees incurred by Shareholder in
connection with the negotiation of this Agreement.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the day
and year first above written.
Optionee:
SPARTECH CORPORATION
By:
------------------------------------------
Title:
------------------------------------------
Shareholder:
------------------------------------------
Madison Allen Self
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APPENDIX
PORTAGE INDUSTRIES CORPORATION
- --------------------------------------------------------------------------------
1325 Adams Street
Portage, WI 53901
(608) 742-7123
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
The undersigned hereby appoints Robert L. Lestina, Jr. and Anthony J. Lisauskas,
and each of them, as Proxies, each with the power to appoint his substitute; and
hereby authorizes them to represent and to vote, as designated below, all the
shares of Common Stock of Portage Industries Corporation (the "Company") held of
record by the undersigned on April 1, 1996, at the Special Meeting of
Stockholders to be held on May 9, 1996 and at any adjournment thereof.
1. On the proposal to approve the merger ("Merger") of the Company with a
wholly-owned subsidiary of Spartech Corporation pursuant to an Agreement and
Plan of Merger dated February 22, 1996, as described in the accompanying
proxy statement.
/ / FOR the Merger / / AGAINST the Merger / / ABSTAIN
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
(Continued and to be signed on the reverse side)
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE MERGER.
Dated , 1996
------------------------------------------
Signature
------------------------------------------
Signature if held jointly
(Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, personal representative,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
PLEASE COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
2