================================================================================
SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
AMENDMENT NO. 3
TO
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14 OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/x/ Preliminary Proxy Statement
/ / Confidential, for the use of the Commission
only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-12
INTERNATIONAL SPECIALTY PRODUCTS INC.
------------------------------------------------
(Name of Registrant As Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/x/ Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock, par value $0.01 per share of International
Specialty Products Inc.
(2) Aggregate number of securities to which transaction applies:
12,810,336 Shares of International Specialty Products Inc. Common
Stock, options to purchase 1,700,156 shares of Common Stock
(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):
The transaction valuation was based upon the sum of (i) the
product of 12,810,336 shares of International Specialty
Products Inc. Common Stock at a price of $10.30 per share in cash
and (ii) a cash-out of 1,700,156 shares of Common Stock covered
by outstanding options at an aggregate cost of $2,414,103.
(4) Proposed maximum aggregate value of transaction:
$134,360,564
(5) Total fee paid:
$26,873:
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
(1) Amount previously paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing party: N/A
(4) Date filed: N/A
[LOGO] ISP
International Specialty Products Inc.
1361 Alps Road
Wayne, New Jersey
07470
Fellow Stockholder:
You are cordially invited to attend a special meeting of stockholders of
International Specialty Products Inc. ("ISP"), to be held on February___, 2003,
at _ _.m., local time, at the offices of Simpson Thacher & Bartlett, 425
Lexington Avenue, New York, New York.
At the special meeting, you will be asked to consider and vote upon a
proposal to adopt the Agreement and Plan of Merger, dated as of November 8,
2002, between ISP and International Specialty Products Holdings Inc. ("ISPH").
Samuel J. Heyman, our Chairman, formed ISPH for purposes of entering into this
transaction and is currently the sole "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of all of ISPH's common stock
and approximately 81% of ISP's common stock. Under the merger agreement, ISPH
will be merged with and into ISP, with ISP as the surviving corporation.
Pursuant to the merger, you will be entitled to receive $10.30 per share in
cash, without interest, for each share of ISP common stock that you own. This
price represents a 30% premium over the closing price per share of $7.95 on July
8, 2002, the last trading day before Mr. Heyman's public proposal to acquire the
shares of ISP that he does not already beneficially own. No merger consideration
will be paid for shares Mr. Heyman beneficially owns at the time of the merger,
except shares held by qualified charitable organizations (which will be entitled
to receive the $10.30 per share merger consideration). SINCE YOU WILL ONLY HAVE
THE RIGHT TO RECEIVE CASH PURSUANT TO THE MERGER, AFTER THE MERGER OCCURS, YOU
WILL NO LONGER BE A STOCKHOLDER OF ISP AND MR. HEYMAN WILL BE THE SOLE
BENEFICIAL OWNER OF ISP.
Based on the number of our outstanding shares of common stock and options
to purchase common stock, the aggregate cash consideration to be paid in
connection with the merger is approximately $134.4 million.
Details of the merger and the merger agreement are discussed in the
accompanying proxy statement. A copy of the merger agreement is attached as
Exhibit A to the proxy statement. We encourage you to read the proxy statement
and the merger agreement carefully.
The receipt of cash in exchange for your shares of common stock in the
merger will constitute a taxable transaction for U.S. federal income tax
purposes. Please read the accompanying proxy statement carefully regarding the
tax consequences of the merger.
Our board of directors formed a special committee of independent directors
who are not officers or employees of ISP and who are otherwise independent of
Mr. Heyman to review and evaluate the merger and the merger agreement. The
special committee unanimously recommended to our board of directors that the
merger agreement be approved. In connection with its evaluation of the merger,
the special committee engaged Lehman Brothers Inc. as its financial advisor.
Lehman Brothers has rendered its opinion that, as of the date of that opinion
and, based upon and subject to the assumptions, limitations and qualifications
set forth in that opinion, the $10.30 per share cash merger consideration is
fair, from a financial point of view, to the unaffiliated stockholders of ISP.
The written opinion of Lehman Brothers is attached as Annex B to the
accompanying proxy statement, and you should read it carefully for a discussion
of the assumptions made, procedures followed, factors considered and limitations
upon the review undertaken by Lehman Brothers in rendering its opinion.
Our board of directors, based on the unanimous recommendation of the
special committee, has approved and declared the advisability of the merger
agreement. The board of directors and special committee believe that the terms
of the merger are fair to, and in the best interests of, ISP's unaffiliated
stockholders. Our board of directors recommends that the stockholders of ISP
vote "FOR" the adoption of the merger agreement. When you consider the
recommendation of our board of directors to adopt the merger agreement, you
should be aware that some of our directors and executive officers have interests
in the merger that may be different than the interests of our stockholders
generally.
Your vote is very important. We cannot complete the merger unless the
merger agreement is adopted by the affirmative vote of a majority of the
outstanding shares of ISP common stock. As of the record date for the special
meeting, Mr. Heyman and our directors and officers beneficially owned a total of
54,331,518 shares, which is approximately 83.3% of all outstanding shares. Mr.
Heyman has agreed to vote all of the shares of common stock beneficially owned
by him at the time of the special meeting (but excluding shares held by
qualified charitable organizations) in favor of the merger, and we also expect
our directors and executive officers to vote for the transaction. If that
occurs, we will have obtained the requisite vote under the General Corporation
Law of the State of Delaware. In addition, while not required by the General
Corporation Law of the State of Delaware or ISP's amended and restated
certificate of incorporation or by-laws, the merger also is conditioned upon the
affirmative vote of a majority of shares of common stock voting on the merger at
the special meeting that are not owned beneficially or of record by Mr. Heyman
or any other officer or director of ISP or ISPH.
Please complete and sign the enclosed proxy card and return it as soon as
possible in the enclosed postage paid envelope. This will ensure that your
shares are represented at the special meeting.
Sincerely,
/s/ Sunil Kumar
---------------
Sunil Kumar
PRESIDENT AND CHIEF EXECUTIVE OFFICER
This proxy statement is dated February _, 2003, and is first being mailed
to stockholders of ISP on or about February _, 2003.
--------------------------------------------------------------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. NEITHER THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
[LOGO] ISP
INTERNATIONAL SPECIALTY PRODUCTS INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A special meeting of stockholders of International Specialty Products Inc.
will be held at __ _.m., local time, February ___, 2003 at the offices of
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, for the
following purposes:
o To vote on a proposal to adopt the Agreement and Plan of Merger, dated
as of November 8, 2002, by and between ISP and International Specialty
Products Holdings Inc.; and
o To consider any other matters that are properly brought before the
special meeting or any adjournments or postponements of the special
meeting.
Our board of directors has fixed the close of business on January 10, 2003
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the special meeting and any adjournments or postponements of the
special meeting.
The accompanying proxy statement forms a part of this notice. We urge you
to read it carefully.
Under the General Corporation Law of the State of Delaware, holders of our
common stock who do not vote in favor of the adoption of the merger agreement
will have the right to seek appraisal of the fair value of their shares as
determined by the Court of Chancery of the State of Delaware if the merger is
completed, but only if they submit a written demand for such an appraisal prior
to the vote on the merger agreement and they comply with the other procedures
required by the General Corporation Law of the State of Delaware. See "The
Merger--Appraisal Rights" in the accompanying proxy statement and Annex D to the
proxy statement for more information concerning appraisal rights under Delaware
law.
By Order of the Board of Directors,
/s/ Richard A. Weinberg
-----------------------
Richard A. Weinberg
SECRETARY
Wayne, New Jersey
Dated February ___, 2003
Return of your signed proxy is the only way your shares can be counted
unless you personally cast a ballot at the meeting.
--------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL
MEETING, PLEASE COMPLETE THE ENCLOSED PROXY CARD AND SIGN, DATE AND RETURN IT IN
THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
--------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
SUMMARY TERM SHEET ..............................................................................1
The Merger ...................................................................................1
What You Will Be Entitled to Receive in the Merger ...........................................1
Recommendations of the Special Committee and our Board of Directors ..........................1
Opinion of Lehman Brothers Inc. ..............................................................1
Our Position as to the Fairness of the Merger ................................................2
Mr. Heyman and ISPH's Position as to the Fairness of the Merger ..............................2
Interests of Directors and Executive Officers in the Merger ..................................2
Material U.S. Federal Income Tax Consequences ................................................3
Appraisal Rights .............................................................................3
The Special Meeting ..........................................................................3
Accounting Treatment .........................................................................5
The Merger Agreement .........................................................................5
Information About ISP, Mr. Heyman and ISPH ...................................................6
Selected Consolidated Financial Data of ISP ..................................................6
Trading Market and Price; Dividends ..........................................................7
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS ...............................................8
SPECIAL FACTORS .................................................................................9
Background of the Merger .....................................................................9
Recommendations of the Special Committee ....................................................16
Recommendations of our Board of Directors ...................................................17
Special Committee's Position as to Fairness of the Merger ...................................17
Board of Directors' Position as to the Fairness of the Merger ...............................19
Mr. Heyman and ISPH's Positions as to the Fairness of the Merger ............................20
Opinion of Lehman Brothers ..................................................................21
ISP's Forecasts .............................................................................28
Reasons for the Merger; Purpose and Structure of the Merger .................................30
Effects of the Merger; Plans or Proposals After the Merger ..................................31
Interests of Directors and Executive Officers in the Merger .................................32
Material U.S. Federal Income Tax Consequences of the Merger to our Stockholders .............33
Litigation ..................................................................................34
THE SPECIAL MEETING ............................................................................36
Date, Time and Place of the Special Meeting .................................................36
Proposal to be Considered at the Special Meeting ............................................36
Record Date .................................................................................36
Voting Rights; Vote Required for Approval ...................................................36
Voting and Revocation of Proxies ............................................................37
Solicitation of Proxies .....................................................................37
i
PAGE
THE MERGER .....................................................................................37
Effective Time of Merger ....................................................................38
Payment of Merger Consideration and Surrender of Stock Certificates .........................38
Accounting Treatment ........................................................................38
Fees and Expenses of the Merger .............................................................39
Financing of the Merger .....................................................................39
Appraisal Rights ............................................................................39
Regulatory Approvals and Other Consents .....................................................42
The Merger Agreement ........................................................................42
OTHER MATTERS ..................................................................................47
Security Ownership of Specified Beneficial Owners and Management ............................47
Transactions in Capital Stock by Certain Persons ............................................48
Certain Transactions ........................................................................49
Future Stockholder Proposals ................................................................50
Independent Auditors ........................................................................50
WHERE YOU CAN FIND MORE INFORMATION ............................................................51
Annex A--Agreement and Plan of Merger ......................................................A-1
Annex B--Opinion of Lehman Brothers Inc.. ..................................................B-1
Annex C--Stockholder Voting Agreement ......................................................C-1
Annex D--Section 262 of the DGCL ...........................................................D-1
ii
--------------------------------------------------------------------------------
SUMMARY TERM SHEET
This summary term sheet highlights important information in this proxy
statement and does not contain all of the information that is important to you.
You should carefully read this entire proxy statement and the other documents we
refer you to for a more complete understanding of the matters being considered
at the special meeting. In addition, we incorporate by reference important
business and financial information about International Specialty Products Inc.,
or ISP, into this proxy statement. You may obtain the information incorporated
by reference into this proxy statement without charge by following the
instructions in the section entitled "Where You Can Find More Information."
THE MERGER (SEE PAGE 37)
In the merger, International Specialty Products Holdings Inc., or ISPH,
will merge into ISP, with ISP as the surviving corporation in the merger.
As a result of the merger, we will cease to be a publicly held company and
will become a private corporation. Our Chairman and major stockholder, Samuel J.
Heyman, will beneficially own all of our stock after the merger.
WHAT YOU WILL BE ENTITLED TO RECEIVE IN THE MERGER (SEE PAGE 38)
If we complete the merger, holders of our common stock, other than holders
of common stock beneficially owned by Mr. Heyman and other than stockholders
that validly exercise appraisal rights under the General Corporation Law of the
State of Delaware, or DGCL, will be entitled to receive $10.30 in cash for each
share of common stock that they own. Shares beneficially owned by Mr. Heyman,
other than 525,000 shares held by a qualified charitable organization, will be
canceled in the merger, and the shares of ISPH, all of which are beneficially
owned by Mr. heyman, will be converted into shares of ISP in the merger. The
525,000 shares held by the qualified charitable organization are deemed to be
beneficially owned by Mr. Heyman because he is a director and the president of
the organization. In accordance with the merger agreement, the qualified
charitable organization will receive $10.30 in cash for each of these shares.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND OUR BOARD OF DIRECTORS (SEE PAGE
16)
Because Mr. Heyman is our majority stockholder and proposed the merger and
because Mr. Heyman and Sunil Kumar, ISP's President and Chief Executive Officer,
are both directors of ISP and ISPH, our board of directors established a special
committee to consider and evaluate the proposed merger. The special committee
consists of three of our directors who are not members of our management or
affiliated with Mr. Heyman. After careful consideration, the special committee
unanimously:
o determined that the merger agreement is advisable, fair to, and in the
best interests of, the unaffiliated holders of our common stock, and
o recommended to our board of directors that it
- approve the merger agreement,
- declare its advisability and
- recommend that our stockholders vote to adopt the merger agreement.
Based on this unanimous recommendation, our board of directors determined
the merger agreement to be advisable and the terms and conditions of the merger
to be fair to, and in the best interests of, the unaffiliated holders of our
common stock, and approved the merger agreement. ACCORDINGLY, OUR BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO ADOPT THE MERGER
AGREEMENT.
For a discussion of the material factors considered by the special
committee and our board of directors in reaching their conclusions and the
reasons why the special committee and the board of directors determined that the
merger is fair, see "Special Factors--Recommendations of the Special Committee"
and "Special Factors--Recommendations of our Board of Directors."
OPINION OF LEHMAN BROTHERS INC. (SEE PAGE 21)
In connection with the merger, the special committee and our board of
directors considered the opinion of Lehman Brothers Inc., the special
committee's financial advisor. Lehman Brothers delivered its written opinion to
the special committee on November 8, 2002 to the effect that, as of that date,
the $10.30 per share cash merger consideration is fair, from a financial
--------------------------------------------------------------------------------
1
--------------------------------------------------------------------------------
point of view, to the unaffiliated holders of ISP's common stock. You should be
aware, however, that the opinion was based on and subject to important
assumptions, limitations and qualifications. The full text of this opinion is
attached as Annex B to this proxy statement. We urge you to read that opinion in
its entirety for a description of the assumptions made, procedures followed,
factors considered and limitations on the review undertaken.
OUR POSITION AS TO THE FAIRNESS OF THE MERGER (SEE PAGE 19)
We believe the merger is fair to the unaffiliated holders of our common
stock. Many facts support this conclusion, including:
o the proposed merger would entitle each stockholder of ISP, other than
holders of common stock beneficially owned by Mr. Heyman (except
525,000 shares held by a qualified charitable organizations that will
be converted into the $10.30 per share cash merger consideration), to
the right to receive $10.30 in cash;
o the opinion of Lehman Brothers to the effect that, as of the date of
the opinion, and based upon and subject to the assumptions, limitations
and qualifications set forth in its written opinion, the $10.30 per
share cash merger consideration is fair, from a financial view, to the
unaffiliated holders of our common stock;
o the fact that the terms and conditions of the proposed merger were
determined through negotiations between Mr. Heyman and his
representatives and the special committee and its advisors, none of
whom were affiliated with Mr. Heyman; and
o the merger is conditioned upon the affirmative vote of a majority of
shares of common stock voting on the merger at the special meeting that
are not owned beneficially or of record by Mr. Heyman or any other
officer or director of ISP or ISPH. We refer to this approval
requirement as the majority of the minority condition.
MR. HEYMAN AND ISPH'S POSITION AS TO THE FAIRNESS OF THE MERGER (SEE PAGE 20)
Although neither Mr. Heyman nor ISPH has performed, or engaged a financial
advisor to perform, any valuation analysis for the purposes of assessing the
fairness of the merger to the unaffiliated holders of ISP common stock, both
believe that the merger is substantively and procedurally fair to those holders.
Mr. Heyman and ISPH believe this conclusion is supported by the factors
described above and by other factors, including:
o the merger consideration of $10.30 per share represents a 30% premium
over our common stock's $7.95 closing price on the New York Stock
Exchange on July 8, 2002, the last trading day before Mr. Heyman
announced his initial merger proposal, and a 49% premium over the
average closing price for the 30 days prior to that announcement;
o the S&P 500 Index and the S&P Midcap Specialty Chemicals Index declined
5.5% and 9.3%, respectively, between July 8, 2002 and November 6, 2002
(the date the special committee agreed to recommend the merger
agreement), indicating that the premium represented by the $10.30
merger consideration might have been even greater had ISP's common
stock performed consistently with the broader market and its industry
peers in absence of the pending merger proposal;
o the merger was approved and recommended by the special committee and
the board of directors; and
o stockholders who do not vote in favor of the merger would be entitled,
subject to compliance with certain procedures described under "The
Merger--Appraisal Rights", to exercise Delaware statutory appraisal
rights in the merger, which allow stockholders to have the fair value
of their shares determined by the Court of Chancery of the State of
Delaware and paid to them in cash.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER (SEE PAGE 32)
In considering the recommendation of our board of directors that ISP's
stockholders vote to adopt the merger agreement so that the merger can occur,
you should be aware that our executive officers and directors have interests in
the merger that may conflict with the interests of our stockholders generally.
These interests include:
o Mr. Heyman is the Chairman of our board of directors and, as a result
of the merger, will increase his beneficial ownership of our common
stock from approximately 81% to 100%;
o Mr. Heyman and Mr. Kumar are members of both ISP and ISPH's board of
directors;
--------------------------------------------------------------------------------
2
--------------------------------------------------------------------------------
o each of ISPH's officers, consisting of Mr. Kumar (President and Chief
Executive Officer), Richard A. Weinberg (Executive Vice President,
General Counsel and Secretary) and Susan B. Yoss (Executive Vice
President--Finance and Treasurer), is also an officer of ISP;
o some of our officers and directors will receive cash payments in
connection with the merger in exchange for their holdings of our common
stock or stock options, as described under "Special Factors--Interests
of Directors and Executive Officers in the Merger";
o in addition, officers and directors holding restricted ISP common stock
have agreed to forfeit the stock in connection with the merger in
exchange for a cash payment equal to the number of shares that were
forfeited, multiplied by the merger consideration, payable subject to
the vesting restrictions applicable to the underlying restricted
shares; and
o after the merger, ISP will continue indemnification arrangements and
directors' and officers' liability insurance for our present and former
directors and officers.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 33)
The receipt of $10.30 in cash for each share of our common stock pursuant
to the merger will be a taxable transaction for U.S. federal income tax
purposes. For U.S. federal income tax purposes, each of our stockholders
generally will realize taxable gain or loss as a result of the merger measured
by the difference, if any, between $10.30 per share and the adjusted tax basis
in that share owned by the stockholder. For additional information regarding
material U.S. federal income tax consequences of the merger to our stockholders,
see "Special Factors--Material U.S. Federal Income Tax Consequences of the
Merger to our Stockholders."
APPRAISAL RIGHTS (SEE PAGE 39)
Stockholders who do not wish to accept the $10.30 per share cash
consideration payable pursuant to the merger may seek, under the DGCL, judicial
appraisal of the fair value of their shares by the Court of Chancery of the
State of Delaware. This value could be more or less than or the same as the
merger consideration of $10.30 in cash per share. This "right of appraisal" is
subject to a number of restrictions and technical requirements. Generally, in
order to exercise appraisal rights, among other things:
o you must NOT vote in favor of the merger agreement;
o you must make a written demand for appraisal in compliance with the
DGCL before the vote on the merger agreement; and
o you must continuously hold your shares from the date of making the
demand through the effectiveness of the merger. A stockholder who is
the record holder of shares of common stock on the date the written
demand for appraisal is made, but who thereafter transfers those shares
prior to the effectiveness of the merger will lose any right to
appraisal in respect of those shares.
Merely voting against the merger agreement will not preserve your right of
appraisal under the DGCL. Also, since a submitted proxy not marked "against" or
"abstain" will be voted for the adoption of the merger agreement, the submission
of a proxy not so marked will result in the waiver of appraisal rights. If you
hold shares in the name of a broker or other nominee, you must instruct your
nominee to take the steps necessary to exercise your appraisal right. If you or
your nominee fails to follow all of the steps required by Section 262 of the
DGCL, you will lose your right of appraisal.
Annex D to this proxy statement contains Section 262 of the DGCL relating
to your right of appraisal.
THE SPECIAL MEETING (SEE PAGE 36)
DATE, TIME, PLACE AND MATTERS TO BE CONSIDERED (SEE PAGE 36).
Our special meeting will be held at the offices of Simpson Thacher &
Bartlett, 425 Lexington Avenue, New York, New York, on February ___, 2003 at _,
local time. At the special meeting, you will be asked to vote on the adoption of
the merger agreement. A copy of the merger agreement is attached as Annex A to
this proxy statement.
--------------------------------------------------------------------------------
3
--------------------------------------------------------------------------------
RECORD DATE FOR VOTING (SEE PAGE 36).
You may vote at the special meeting if you owned shares of our common stock
at the close of business on January 10, 2003. On that date, there were
65,210,670 shares of our common stock outstanding and Mr. Heyman beneficially
owned 52,567,240 shares of our common stock. Each share of common stock entitles
the holder to cast one vote at the special meeting.
PROCEDURES RELATING TO YOUR VOTE AT THE SPECIAL MEETING (SEE PAGE 36).
o In order to have a quorum at the special meeting, a majority of all
outstanding shares of common stock as of the record date must be
present, in person or by proxy. Mr. Heyman has agreed, pursuant to a
voting agreement, to cause all of the shares beneficially owned by him
at the time of the meeting (but excluding shares held by qualified
charitable organizations) to be represented in person or by proxy at
the meeting. Accordingly, a quorum at the meeting is assured. A copy of
the voting agreement is attached as Annex C to this proxy statement.
o In order to adopt the merger agreement under the DGCL, we must obtain
the affirmative vote of the holders of a majority of the shares of
common stock outstanding and entitled to vote at the special meeting.
As of the record date for the special meeting, Mr. Heyman and our
directors and officers beneficially owned a total of 54,331,518 shares,
which is approximately 83.3% of all outstanding shares. Mr. Heyman has
agreed in a voting agreement to cause all of the shares beneficially
owned by him at the time of the special meeting (but excluding shares
held by qualified charitable organizations) to vote "FOR" the adoption
of the merger agreement, which will assure adoption of the merger
agreement under the DGCL. We also expect our other directors and
executive officers to vote to adopt the merger agreement.
o In addition, although not required under Delaware law or the amended
and restated certificate of incorporation or by-laws of ISP, the merger
agreement requires that the majority of the minority condition must be
satisfied before we can complete the merger.
o After carefully reading and considering the information contained in
this proxy statement, you should complete, date and sign your proxy
card and mail it in the enclosed return envelope as soon as possible so
that your shares are represented at the special meeting, even if you
plan to attend the meeting in person. Unless you specify to the
contrary, all of your shares represented by valid proxies will be voted
"FOR" the adoption of the merger agreement. Abstentions, failures to
vote and broker non-votes will have the same effect as a vote against
the adoption of the merger agreement for purposes of obtaining a
majority of all shares of ISP common stock. However, abstentions,
failures to vote and broker non-votes will not affect satisfaction of
the majority of the minority condition.
o If your shares are held in "street name" by your broker, your broker
will vote your shares, but only if you provide written instructions to
your broker on how to vote. You should follow the procedures provided
by your broker regarding how to instruct it to vote your shares.
Without instructions, your shares will not be voted by your broker.
o Until exercised at the special meeting, you can revoke your proxy and
change your vote in any of the following ways:
o by delivering written notification of revocation to our Secretary
at our executive offices at 1361 Alps Road, Wayne, New Jersey
07470,
o by delivering a proxy of a later date,
o by attending the special meeting and voting in person. Your
attendance at the special meeting will not, by itself, revoke any
proxy previously delivered by you; you must vote in person at the
meeting, or
o if you have instructed a broker to vote your shares, by following
the directions received from your broker to change those
instructions.
For additional information regarding the procedure for delivering your
proxy see "The Special Meeting--Voting and Revocation of Proxies" and "The
Special Meeting--Solicitation of Proxies."
If you have more questions about the merger or how to submit your proxy, or
if you need additional copies of this proxy statement or the enclosed proxy card
or voting instructions, you should contact Georgeson Shareholder Communications
Inc., 17 State Street - 10th Floor, New York, NY 10004, (212) 440-9800.
--------------------------------------------------------------------------------
4
--------------------------------------------------------------------------------
ACCOUNTING TREATMENT (SEE PAGE 38)
We will account for the merger under the purchase method of accounting. See
"The Merger--Accounting Treatment."
THE MERGER AGREEMENT (SEE PAGE 42)
CONDITIONS TO THE MERGER (SEE PAGE 46).
The completion of the merger depends on the satisfaction or waiver of a
number of conditions, including the following:
o we must obtain the affirmative vote of the holders of a majority of the
outstanding shares of ISP common stock;
o the majority of the minority condition must be satisfied;
o no injunction or similar prohibition to completion of the merger may be
in effect and no proceeding by a governmental authority may have been
commenced seeking to impose such an injunction or prohibition;
o our and ISPH's respective representations and warranties in the merger
agreement must be true and correct, subject to exceptions that would
not have a material adverse effect on the party making the
representations or warranties or the consummation of the merger; and
o we and ISPH must each be in compliance in all material respects with
our respective covenants in the merger agreement.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 46).
We (with the approval of the special committee) and ISPH may agree to
terminate the merger agreement at any time before the completion of the merger.
ISPH may terminate the merger agreement without our consent if our board of
directors or the special committee withdraws, qualifies or modifies its approval
of the merger agreement or its recommendation to ISP's stockholders to adopt the
merger agreement, or publicly proposes to do so, or takes any other action or
makes any other statement inconsistent with that recommendation. However, if
ISPH chooses not to terminate the merger agreement in such an event, we will not
be entitled to terminate the merger agreement and will be required to submit the
merger agreement to our stockholders for consideration at the special meeting.
In addition, we (with the approval of the special committee) or ISPH may
terminate the merger agreement by written notice to the other if:
o any governmental entity issues a final nonappealable injunction or
other governmental order permanently enjoining or otherwise prohibiting
the merger;
o the merger is not completed on or before May 31, 2003, unless the
failure to complete the merger is due to the failure of the party
seeking to terminate the merger agreement to fulfill its obligations
under the merger agreement;
o the other party materially breaches a representation, warranty or
covenant in the merger agreement and the breach is not cured within 30
days after notice of the breach or cannot be cured prior to May 31,
2003; or
o at the special meeting, the merger agreement is not adopted by the
required votes of the holders of ISP common stock; except that this
right to terminate will not be available to ISPH if Mr. Heyman has
failed to cause the shares beneficially owned by him at the time of the
special meeting (but excluding shares held by qualified charitable
organizations) to vote in favor of the adoption of the merger
agreement.
EFFECT OF TERMINATION (SEE PAGE 47).
If the merger agreement is terminated by either ISP or ISPH, there will be
no liability on the part of ISP, ISPH or any of their affiliates, directors,
officers, employees or stockholders. However, no party will be relieved from
liability for willful breaches of the merger agreement.
--------------------------------------------------------------------------------
5
--------------------------------------------------------------------------------
INFORMATION ABOUT ISP, MR. HEYMAN AND ISPH
o ISP. ISP, formerly known as ISP Holdings Inc., is a leading
multinational manufacturer of specialty chemicals and mineral products.
We are a Delaware corporation incorporated in 1996. We operate our
business exclusively through direct and indirect subsidiaries. The
address and telephone number of our principal executive offices are
1361 Alps Road, Wayne, New Jersey 07470 (800) 526-5315.
o SAMUEL J. HEYMAN. Mr. Heyman has been a director and Chairman of the
Board of Directors of ISP since its formation. Mr. Heyman beneficially
owns approximately 81% of ISP's common stock. The address and telephone
number for Mr. Heyman are 1361 Alps Road, Wayne, New Jersey 07470 (800)
526-5315.
o ISPH. ISPH is a Delaware corporation, all of the common stock of which
is beneficially owned by Mr. Heyman. ISPH was formed for the purpose of
facilitating a transaction with ISP and has not engaged in any business
except in furtherance of the merger. The address and telephone number
of ISPH's principal executive offices are 2711 Centerville Road, Suite
400, Wilmington, Delaware 19808 (302) 636-5400.
SELECTED CONSOLIDATED FINANCIAL DATA OF ISP
Set forth below are our selected consolidated financial data. The selected
financial data were derived from the historical financial statements and related
notes of ISP. On July 15, 1998, International Specialty Products Inc. merged
with and into ISP Holdings Inc., which changed its name to International
Specialty Products Inc. The financial data for periods prior to the merger
represent the results of the former ISP Holdings Inc. Interim unaudited data for
the nine months ended September 29, 2002 and September 30, 2001 reflect, in the
opinion of our management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of that data. Results for the
nine months ended September 29, 2002 do not necessarily indicate results that
may be obtained for any other interim period or for the year as a whole.
NINE MONTHS ENDED
------------------------
SEPTEMBER SEPTEMBER YEAR ENDED DECEMBER 31,
29, 2002 30, 2001 ------------------------------------------------------
(UNAUDITED) (UNAUDITED) 2001 2000 1999 1998 1997
------------ ----------- ------- ------- ------- ------- -------
($ in thousands, except per share and ratio data)
OPERATING DATA:
Net Sales .......................... $642,211 $595,124 $787,216 $783,941 $787,356 $784,616 $708,971
Gross Profit ....................... 226,074 224,633 286,379 269,054 304,959 321,105 295,199
Operating Income ................... 110,650 92,004 112,589 81,353 145,978 66,177 137,689
Interest Expense ................... 64,604 62,780 86,198 81,166 78,552 75,564 73,612
Income from Continuing
Operations Before
Extraordinary Item and
Cumulative Effect of Change
in Accounting Principle .......... 43,545 21,178 607 94,106 49,632 2,779 51,702
Net Income (Loss) .................. (116,580) 20,738 167 94,106 74,930 4,812 54,005
OTHER DATA:
Depreciation ....................... $ 42,503 $ 39,542 $ 53,120 $ 51,293 $ 48,590 $ 49,272 $ 41,236
Amortization of Goodwill and
Intangibles ...................... 680 12,144 17,229 16,192 16,344 15,025 13,294
Capital Expenditures and
Acquisitions ..................... 42,551 58,716 101,375 58,382 108,955 163,850 67,674
Ratio of Earnings to
Fixed Charges(1) ................. 1.95x 1.48x 1.01x 2.64x 1.88x 1.32x 2.39x
COMMON STOCK DATA, PER SHARE:
Income from Continuing
Operations:
Basic ............................ $.67 $.32 $.01 $1.38 $.72 $.05 $.96
Diluted .......................... .67 .32 .01 1.38 .72 .05 .96
Book Value(2) ...................... $8.14 $9.01 $9.33 $10.41 $8.54 $7.29 $4.86
--------------------------------------------------------------------------------
6
SEPTEMBER SEPTEMBER DECEMBER 31,
29, 2002 30, 2001 ------------------------------------------------------
(UNAUDITED) (UNAUDITED) 2001 2000 1999 1998 1997
----------- ---------- ------- ------- ------- ------- -------
($ in thousands)
BALANCE SHEET DATA:
Total Working Capital ............ $ 602,184 $ 462,447 $ 564,516 $ 339,751 $ 438,083 $ 406,654 $ 322,080
Total Assets ..................... 1,846,705 2,134,468 2,172,568 1,960,284 1,835,308 1,763,870 1,483,977
Long-Term Debt Less
Current Maturities ............. 834,332 912,540 919,557 524,780 820,141 896,095 798,762
Stockholders' Equity ............. 529,621 588,122 604,057 691,335 587,261 501,723 261,841
-------------
(1) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" consist of income from continuing operations before income
taxes, plus fixed charges. Fixed charges consist of interest expense
(including amortization of debt issuance costs), plus capitalized interest
and that portion of lease rental expense representative of interest
(estimated to be one-third of lease rental expense).
(2) Book value per share of common stock outstanding is calculated as total
common stockholders' equity divided by the number of shares of common stock
outstanding at the end of the period.
TRADING MARKET AND PRICE; DIVIDENDS
Our common stock is traded on the New York Stock Exchange under the symbol
"ISP." We have set forth below our quarterly per share data:
SALES PRICE
-----------
HIGH LOW
------- -------
2003
First Quarter (through
January 22, 2003) ................. $10.26 $10.18
2002
Fourth Quarter ...................... $10.26 $8.90
Third Quarter ....................... 10.80 7.48
Second Quarter ...................... 10.20 5.45
First Quarter ....................... 9.83 8.20
2001
Fourth Quarter ...................... $ 9.60 $7.85
Third Quarter ....................... 11.25 7.95
Second Quarter ...................... 11.25 7.80
First Quarter ....................... 8.74 6.63
2000
Fourth Quarter ...................... $ 7.00 $5.00
Third Quarter ....................... 6.19 5.31
Second Quarter ...................... 6.50 5.19
First Quarter ....................... 9.31 5.75
During the time periods set forth above, ISP has paid no cash dividends to
holders of ISP common stock. On July 8, 2002, the last full trading day prior to
the initial announcement of the merger proposal, the last reported sale price
per share was $7.95. On January 30, 2003, the most recent practicable trading
day prior to the date of this proxy statement, the last reported sales price per
share was $10.25. Stockholders should obtain current market price quotations for
the common stock in connection with voting their shares.
The merger agreement provides that neither our board of directors nor any
committee of our board of directors will declare or pay any dividend until the
closing of the merger, except with the consent of ISPH. Several of our
significant subsidiaries are subject to financial and operating covenants,
including limitations on the payment of cash dividends, under the credit
agreement and indentures to which the subsidiaries are party.
We have not provided any pro forma data giving effect to the proposed
merger. We do not believe that information is material to our stockholders in
evaluating the merger agreement because the proposed merger is all cash and, if
completed, our common stock would cease to be publicly traded.
We also have not provided any separate financial information for ISPH since
it is a special purpose entity formed in connection with the proposed merger and
has no independent operations.
--------------------------------------------------------------------------------
7
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This proxy statement
contains "forward-looking statements." These statements may be made directly in
this proxy statement referring to us, and they may also be made a part of this
proxy statement by reference to other documents filed by us with the Securities
and Exchange Commission, which is known as "incorporation by reference." Any
reference to forward-looking statements is not covered by the Private Securities
Litigation Reform Act of 1995 and is not covered by the safe harbor provisions
of that act. No part of that act is incorporated into, nor is it applicable to,
this proxy statement.
Words such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "believe," "target," "objective," "goal" and words and terms of similar
substance used in connection with any discussion of future operating or
financial performance, or the consummation of the merger identify
forward-looking statements. Our forward-looking statements are based on
management's current views about future events and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. The following risks
related to our business, among others, could cause or contribute to actual
results differing materially from those described in the forward-looking
statements:
o general economic, capital market and business conditions,
o risks arising from litigation or similar proceedings,
o risks and uncertainties inherent in the satisfaction of the closing
conditions to the merger and the consummation of the merger, and
o the risks and uncertainties disclosed in filings by ISP and its
subsidiaries with the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
We caution you not to place undue reliance on our forward-looking
statements, which speak only as of the date of this proxy statement or the date
of the document incorporated by reference in this proxy statement. We are under
no obligation, and expressly disclaim any obligation, to update or alter any
forward-looking statements, whether as a result of new information, future
events or otherwise.
For additional information about factors that could cause actual results to
differ materially from those described in the forward-looking statements, please
see the quarterly reports on Form 10-Q and the annual report on Form 10-K that
ISP and its subsidiaries have filed with the Securities and Exchange Commission
as described under "Where You Can Find More Information."
All forward-looking statements attributable to us or any person acting on
our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section.
8
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Throughout ISP's existence as a public company, the market value and
liquidity of ISP's common stock has been negatively impacted generally by the
inherent difficulty of attracting analyst and investor interest to a company
with a majority stockholder and a small public float and, more recently, the
general stock market downturn. As a result, the liquidity of the market for
ISP's common stock has remained consistently limited, with an average daily
trading volume of only 21,850 shares during the 360 days prior to July 8, 2002.
ISP has from time to time taken steps to attempt to improve the liquidity and
trading value of its common stock. In particular, in 1998, ISP explored the
possibility of publicly offering additional shares of its common stock in order
to increase the liquidity of the public trading market for ISP's common stock.
At that time, ISP filed a "shelf" registration statement on Form S-3 with the
Securities and Exchange Commission. However, in light of market conditions, and
the reluctance of institutional investors to purchase stock of a company with a
small public float, ISP concluded that such a public offering would not be
feasible on terms that were economically attractive and withdrew the
registration statement. Upon concluding that its common stock was undervalued in
the market, ISP from time to time engaged in share repurchases in an effort to
enhance stockholder value. These repurchases, however, further limited the
liquidity of the trading market for ISP's common stock.
In light of the failure of the foregoing actions to significantly improve
the market performance of ISP's common stock, and for the reasons further
described below under "Reasons for the Merger; Purpose and Structure of the
Merger", in March 2002, Mr. Heyman began to explore preliminarily the
possibility of pursuing a going private transaction. Mr. Heyman's decision to
begin considering such a transaction at that time was influenced by the
combination of the factors described above and Mr. Heyman's belief that the
recent stock market downturn, together with ISP's relatively small public float,
would have a further long-term negative impact on ISP's efforts to increase
investor interest and enhance the market performance of ISP's common stock. As a
result, Mr. Heyman began to believe that a transaction that would provide ISP's
stockholders with a near-term cash premium for their shares while eliminating
the costs and other burdens of maintaining ISP as a public company might benefit
all of ISP's stockholders. During that period, he conducted an analysis as more
fully described under "--Position of Mr. Heyman Regarding Fairness of the
Merger." Based on that analysis, Mr. Heyman determined preliminarily that it
might be advisable to seek to effect a transaction in which the holders of
common stock of ISP (other than shares beneficially owned by Mr. Heyman) would
each receive a cash payment in exchange for their shares. In April 2002, Mr.
Heyman retained Simpson Thacher & Bartlett as legal counsel to provide advice
regarding a possible transaction.
Mr. Heyman considered several transaction structures, including making a
direct offer to ISP's stockholders through a cash tender offer or negotiating
with an independent special committee of ISP's board of directors to effect a
merger with ISP. During May and early June 2002, Mr. Heyman, with the assistance
of certain members of ISP's management, explored financing alternatives for a
tender offer for the public shares of ISP and held numerous discussions with
potential lenders to determine the viability of such a transaction. Mr. Heyman
ultimately concluded that a merger structure would be preferable to a tender
offer because a merger would (1) enable ISP's independent directors to negotiate
directly for a price they believed to be fair and to reject any proposal they
concluded was not in the best interests of ISP's public stockholders and (2)
eliminate the need for third party tender offer financing. During the remainder
of June and through July 8, 2002, Mr. Heyman continued to explore the
desirability of pursuing such a going private transaction by means of a merger.
On July 8, 2002, Mr. Heyman decided to proceed with the going private
proposal and delivered a letter to the board of directors of ISP proposing a
transaction that would result in Mr. Heyman acquiring beneficial ownership of
all of the common stock of ISP not beneficially owned by him for a cash purchase
price of $10 per share. The closing price for ISP's common stock on the New York
Stock Exchange on July 8, 2002 was $7.95. Thus, the price proposed by Mr. Heyman
represented a 26% premium over this closing price on the day before the proposal
was announced.
9
The letter delivered to the board of directors of ISP is set forth below:
July 8, 2002
International Specialty Products Inc.
Board of Directors
1361 Alps Road
Wayne, NJ 07470
Gentlemen:
The focus of our interest at ISP has always been to increase shareholder
value for all ISP shareholders. Nonetheless, our efforts have been hampered, at
least in part, by the following: first, attracting analyst coverage and public
investors to a Company with a majority shareholder and a small public float is
inherently difficult and has been made more so by the general stock market
downturn; and, second, I believe that investors have not given us sufficient
credit for the not insubstantial earnings which have in the past been generated
by the Company's investment portfolio, notwithstanding our outstanding
investment performance over the years.
As you know, we have sought to take steps in the past to address some of
these issues. For example, on several occasions, ISP has explored the
possibility of offering additional common shares to increase stock market
liquidity, but concluded that such offering would not make economic sense.
Alternatively, believing that our common stock was undervalued in the market,
ISP has from time to time engaged in share repurchases in order to enhance
shareholder value. While these repurchases had a compelling economic rationale,
they inevitably had the adverse effect of further limiting the liquidity of the
trading market for ISP stock.
As a result, ISP has been unable to realize many of the benefits normally
associated with public ownership. The following are just two examples: (1) ISP
has not been able to utilize its common stock as currency for acquisitions; and
(2) the lack of liquidity with respect to the Company's stock has impaired its
ability to use stock options or equity-based incentives as a meaningful way to
attract and retain employees.
Accordingly, I am proposing that the Company be taken private in a
transaction in which the shareholders, other than my affiliates and myself,
would receive $10 per share in cash. This price represents an almost 45% premium
over the average price for the prior 30 days.
I expect that the Board will form a committee of independent Board members
to evaluate my proposal, and wish to assure you that I am most interested, as
I'm sure you are, in providing for the utmost of procedural fairness in the
interests of ISP's minority shareholders. In this connection, we propose that
approval of any transaction require the vote of a majority of the minority
shareholders. I am willing to meet with you promptly in order to discuss this
proposal, and I would hope that we could move forward expeditiously to consider
this proposed transaction.
Sincerely,
/s/ Samuel J. Heyman
ISP issued a press release shortly after its board of directors received
the letter announcing the proposal and the price suggested by Mr. Heyman.
Shortly after ISP issued the press release, six purported class action
suits were filed in the Court of Chancery of the State of Delaware against ISP
and members of its board of directors. These six suits have been consolidated.
On July 12, 2002, a purported class action suit was also filed in the United
States District Court, District of New Jersey, against ISP and members of its
board. The New Jersey claim was subsequently amended to assert derivative claims
as well. The Delaware and New Jersey complaints allege, among other things, that
the defendants have breached fiduciary and other duties in connection with the
proposed transaction. These complaints variously seek a court order enjoining
the proposed transaction, an award of unspecified damages and attorneys' fees,
the unwinding of any transaction and other unspecified equitable relief.
10
After receiving the proposal letter from Mr. Heyman, the independent
members of ISP's board of directors (Robert Englander, Sanford Kaplan, Burt
Manning and Alan M. Meckler) met to discuss an appropriate response to the
proposal. The independent directors decided to investigate and interview
potential financial and legal advisors.
During the remainder of July and early August, ISP's independent directors
held several conversations with each other and with ISP's other directors and
management concerning the foregoing matters. In addition, the independent
directors also discussed the possible composition of a special committee and
discussed with the other directors and ISP's general counsel, the possible
compensation and indemnification arrangements that might apply to the members of
such a special committee. During that period, the independent directors also
determined that Willkie Farr & Gallagher should be retained as counsel to the
special committee. Among the factors considered by the independent directors in
making this determination was the fact that Willkie Farr & Gallagher had not
previously acted as counsel to ISP or, during the past approximately 20 years,
Mr. Heyman. The independent directors met on August 1, 2002 to interview and
discuss several investment banking firms as potential financial advisors.
On August 7, 2002, the board of directors of ISP held a telephonic meeting
for the purpose of appointing a special committee to evaluate the merger
proposal. In addition to ISP's directors, attending the meeting were ISP's
general counsel, representatives of Willkie Farr & Gallagher and representatives
of Simpson Thacher & Bartlett, counsel to Mr. Heyman and ISPH. During the
meeting, Mr. Heyman confirmed his continuing interest in acquiring beneficial
ownership of 100% of ISP, briefly summarized his merger proposal and
acknowledged the appropriateness of the appointment of a special committee of
directors who are not members of management or affiliated with Mr. Heyman to
negotiate on behalf of ISP's minority stockholders. Mr. Heyman also informed the
board of directors that he had no present intention to cause the shares of ISP
common stock beneficially owned by him to be sold. The board of directors then
voted to form a special committee composed of three independent directors,
Robert Englander, Burt Manning and Alan M. Meckler. The board authorized the
special committee to:
o review and evaluate the merger proposal;
o negotiate to the extent it deemed appropriate with Mr. Heyman with
respect to the proposal;
o determine, on behalf of the board of directors, whether the proposed
transaction was fair to, and in the best interests of, ISP and the
unaffiliated holders of ISP's common stock;
o recommend what action, if any, should be taken with respect to the
merger proposal; and
o otherwise exercise the power of the board of directors in connection
with the merger proposal.
The board also determined not to authorize or recommend the merger proposal in
absence of a favorable recommendation by the special committee.
Because Mr. Heyman informed ISP's board of directors that he was not
interested in having the shares he beneficially owns in ISP sold, the board did
not authorize the special committee, and the special committee did not seek
authority, to solicit the interest of third-parties in a potential sale of ISP.
In addition, the board determined that each member of the special committee
would receive $18,000 for his services and reimbursement of expenses related to
the special committee's activities, which compensation and reimbursement would
be payable whether or not the special committee recommended the merger proposal
and whether or not any proposed transaction was consummated. The board also
authorized ISP to enter into indemnity agreements with the members of the
special committee and formally authorized the committee to engage independent
legal, financial and other advisors selected by the special committee.
Pursuant to indemnity agreements dated August 7, 2002, ISP agreed to
indemnify Messrs. Englander, Manning and Meckler for any expenses, liabilities
and losses relating to their service as members of the special committee and/or
the board of directors in connection with the transaction. These indemnity
agreements are in addition to the indemnity available to the special committee
members pursuant to ISP's amended and restated certificate of incorporation and
by-laws.
Following the board meeting on August 7, 2002, the special committee met
with Willkie Farr & Gallagher to further discuss potential financial advisors
and to review the terms of the draft merger agreement received from Simpson
Thacher & Bartlett. The special committee authorized Willkie Farr & Gallagher to
commence negotiations with Mr. Heyman and his representatives regarding the
terms of the merger agreement. The special committee also authorized Willkie
Farr & Gallagher to commence negotiations with Lehman Brothers concerning the
terms of its possible engagement as financial advisor to the special
11
committee. Among the factors considered by the special committee in its
selection of Lehman Brothers was its consideration of past relationships between
Lehman Brothers and ISP and Mr. Heyman and its determination that Lehman
Brothers had not had a material relationship with, nor had it acted as financial
advisor to, ISP, ISPH or Mr. Heyman within the past two years.
In August 2002, Simpson Thacher & Bartlett and Willkie Farr & Gallagher
held preliminary discussions regarding the terms of the merger agreement, other
than the price per share to be paid pursuant to the merger agreement.
On August 29, 2002, the special committee entered into an engagement letter
with Lehman Brothers to act as the committee's financial advisor and, on
September 4, 2002, ISP issued a press release announcing the engagement.
Over the course of mid- to late-August, 2002, Lehman Brothers reviewed
financial and other information provided by ISP, including ISP's business plan
and other materials. On September 3, 2002, members of ISP's senior management
met with representatives of Lehman Brothers and Willkie Farr & Gallagher in
connection with Lehman Brothers' due diligence review of ISP. ISP's management
made a formal presentation regarding the financial condition and results of
operations of ISP's chemical business (which is conducted by ISP's subsidiary,
ISP Chemco Inc.) and also reviewed copies of ISP's capitalization structure and
sales and five-year projections through 2006 of ISP's chemical business (the
"Five-Year Plan"), which had been prepared by ISP's management in December 2001
and presented to ISP's board of directors in April 2002.
ISP's management summarized ISP's earnings forecasts for the various
business segments reflected in the Five-Year Plan and also provided a comparison
of the financial performance of those businesses for the first half of 2002 with
its planned first half financial performance as reflected in the Five-Year Plan.
ISP's management informed Lehman Brothers that operating income of $63.0 million
for the first six months of 2002 for the chemicals businesses (excluding the
investment activities of ISP's investment subsidiary) was $1.4 million higher
than projected. They also reported that better-than-expected results in the fine
chemical business ($4.9 million above projections), the industrial segment ($4.0
million above projections) and the minerals segment ($4.6 million above
projections) had been mostly offset by substantially-lower-than-projected
results in ISP's core chemicals business ($12.1 million below projections). See
"--ISP's Forecasts" below. ISP's management explained to Lehman Brothers that
much of the better-than-expected operating income for the industrial, fine
chemicals and minerals segments resulted from non-recurring events, including
(1) in the case of the industrial segment, a significant delay in the opening of
a competing plant by a major competitor of ISP, (2) in the case of the fine
chemicals segment, resolution of a contractual obligation of a major customer
that filed bankruptcy and (3) in the case of the minerals segment, a significant
increase in granules sales to the roofing industry driven by the strong housing
market in the first half of 2002. ISP's management also informed Lehman Brothers
that ISP's core chemicals business was facing substantially greater pricing
pressure than management had anticipated when it had prepared its Five-Year
Plan.
Based on the first-half results, ISP's management revised its 2002
full-year budget from the Five-Year Plan and presented the revised full-year
2002 projections to Lehman Brothers during the September 3, 2002 meeting. The
revised current-year projections were prepared consistent with ISP's normal
financial planning and reporting practices, pursuant to which ISP management
updates its current-year internal forecasts from time to time during the course
of the year to take into account actual results achieved during the year. The
revised full-year 2002 projections and the original projections reflected in the
Five-Year Plan prepared in December 2001 are set forth under "--ISP's Forecasts"
below.
ISP's management informed Lehman Brothers that, since the time of the
preparation of the Five-Year Plan in December 2001, ISP's management had not
revised any of its projections for any period after calendar year 2002 because
while, as noted above, ISP updates its current-year forecasts throughout the
year as part of its ongoing financial planning process, projections for later
years and the Five-Year Plan as a whole would ordinarily be reviewed and updated
in the fourth quarter of each year in connection with ISP's normal annual
budgeting process. Accordingly, the effects of the revisions and trends observed
in 2002 with respect to individual business segments were not taken into account
in the projections contained in the Five-Year Plan for calendar years 2003
through 2006. In addition, management noted that the weakened performance in the
core chemicals segment, which resulted from substantial pricing pressure from
competitors and from price discounts demanded by customers, was expected to
continue into 2003 and potentially beyond.
On September 18, 2002, Lehman Brothers presented the special committee with
a preliminary financial review of the proposed transaction based on information
it had received or reviewed to date, including a review of ISP's business
segments, competitors, financial forecasts from the Five-Year Plan and a review
of various valuation methodologies that it would perform. Although it had not
yet finalized its due diligence, Lehman Brothers also presented a preliminary
valuation of ISP based on the forecasts from the Five-Year Plan and using a
comparable trading analysis, an industry transaction analysis, a discounted cash
flow analysis and a transactions premia paid analysis. Lehman Brothers noted
that it had not discussed its preliminary financial analysis with
12
ISP management. Based on these points, the special committee instructed Lehman
Brothers to undertake further steps as it deemed necessary to complete its
analyses, including scheduling additional meetings with ISP's management to
share its approach to value and obtain any further information management
believed relevant to Lehman Brothers' evaluation.
On September 20, 2002, Lehman Brothers met again with members of ISP's
senior management team to discuss its preliminary financial analyses (excluding
any preliminary valuation ranges derived from those analyses). Also present at
that meeting were representatives of Willkie Farr & Gallagher and Simpson
Thacher & Bartlett. During the course of the September 20, 2002 meeting, Susan
B. Yoss, ISP's Executive Vice President, Finance and Treasurer, Neal E. Murphy,
ISP's Senior Vice President and Chief Financial Officer, and Richard A.
Weinberg, ISP's Executive Vice President, General Counsel and Secretary,
indicated their disagreement with a number of the assumptions and other
parameters reflected in Lehman Brothers' preliminary analysis. Ms. Yoss and Mr.
Weinberg are also officers of ISPH. In light of the fact that ISPH and Mr.
Heyman had not engaged a separate financial advisor, Ms. Yoss and Mr. Weinberg
were present at this meeting as representatives of ISPH and Mr. Heyman in order
to review the methodology and analysis of Lehman Brothers. Mr. Murphy, who is
not an officer of ISPH, was acting as a representative of ISP management during
these meetings primarily in order to address factual matters relating to the
financial information and projections underlying Lehman Brothers' analysis.
ISP's board of directors recognized that members of senior management, including
Ms. Yoss and Mr. Weinberg, would continue to work for ISP after the consummation
of any possible merger and have a potential conflict of interest with respect to
pricing issues. The board of directors, therefore, established the special
committee to negotiate on behalf of ISP and engaged Lehman Brothers and Willkie
Farr & Gallagher to assist the special committee in representing the interests
of ISP and its unaffiliated stockholders during negotiations. Notwithstanding
these potential conflicts of interest, Lehman Brothers' representatives agreed
to listen to the views of Ms. Yoss and Mr. Weinberg and accorded their opinions
the same consideration customarily given to those of a separate financial
advisor representing an acquiror. In addition, Lehman Brothers' representatives
solicited the views of Mr. Murphy, as a representative of ISP management.
During the September 20, 2002 discussions, Ms. Yoss and Mr. Weinberg
expressed their belief that certain of the companies included by Lehman Brothers
in ISP's peer group were not comparable to ISP because of the companies'
differing product offerings, core businesses and size. In addition, Ms. Yoss and
Mr. Weinberg noted their belief that the universe of precedent transactions
chosen for purposes of Lehman Brothers' comparative analyses was not
sufficiently comprehensive. They expressed their belief that the analysis should
have included (1) additional transactions from a broader time range so as to
include acquisitions that took place during periods of weak economic growth and
stock market performance (and not just those effected during a period of
unusually strong economic growth) and (2) only transactions involving companies
with a controlling stockholder and a proportionately small public float.
Finally, Ms. Yoss stated her opinion that the discount factor and perpetuity
growth rates used by Lehman Brothers in its discounted cash flow analysis did
not adequately reflect ISP's cost of capital and historical operating
performance and, therefore, resulted in a higher than appropriate discounted
cash flow valuation. In addition, Ms. Yoss and Mr. Weinberg noted their belief
that the substantial decline in the performance of the stock market generally
and of the S&P Midcap Specialty Chemicals Index, in particular, was not
adequately factored into Lehman Brothers' analysis of ISP's trading price. Ms.
Yoss and Mr. Weinberg believed that ISP's stock price would likely be
substantially lower than the closing price immediately prior to Mr. Heyman's
merger proposal. Finally, Mr. Weinberg and Ms. Yoss expressed their belief that
ISP's ability to achieve the results reflected in the Five-Year Plan was
uncertain and that there were greater downside risks than upside opportunities
in the plan. Specifically, they expressed their view that, based on their
preliminary review of developments and operating results since December 2001,
there was approximately $5 million to $10 million in risk to operating profit
relative to the Five-Year Plan in 2003, with the risk growing in line with sales
through 2006. The Lehman Brothers representatives indicated that while they
would consider the input received at the meeting, they were bound to rely on the
written projections of ISP's management for purposes of their financial
analysis. Accordingly, Lehman Brothers noted that if ISP management believed the
projections in the Five-Year Plan were no longer up to date, ISP management
should provide more current projections.
At a special committee meeting later that day, Lehman Brothers reviewed the
perspectives conveyed by Ms. Yoss and Mr. Weinberg regarding Lehman Brothers'
valuation methodology. Lehman Brothers also discussed the views of ISP
management, as described by Mr. Murphy, regarding the projections previously
provided to Lehman Brothers. Lehman Brothers did not provide a valuation
analysis to the special committee at this meeting.
On September 27, 2002, the special committee met to discuss the proposed
transaction and to hear a supplemental presentation from Lehman Brothers. The
supplemental presentation was substantially similar to Lehman Brothers'
presentation on September 18, 2002, except that Lehman Brothers updated its
written materials to provide revised valuations based on recent market activity
and certain additional expenses of ISP that ISP management had identified at the
meeting on September 20,
13
2002 as having been omitted from Lehman Brothers' September 18, 2002 analysis.
In addition, in response to discussions with Ms. Yoss and Mr. Weinberg on
September 20, 2002, Lehman Brothers supplemented its earlier presentations to
provide the special committee with additional information suggested by Ms. Yoss
and Mr. Weinberg regarding additional comparable companies, additional industry
transactions and an analysis of the "unaffected" trading price of ISP. Although
Lehman Brothers considered the additional information, such information did not
change its conclusion as to the fairness of the merger consideration from a
financial point of view. Following that meeting, representatives of Willkie Farr
& Gallagher communicated the special committee's view that, based on Lehman
Brothers' preliminary financial analysis to date and discussions with Lehman
Brothers on the methods of valuations utilized, the performance of ISP's stock
in the marketplace, the projections of ISP's management provided to Lehman
Brothers on September 3, 2002, and the special committee's belief that, if
requested by the special committee, Lehman Brothers would be unable to issue a
fairness opinion at that time, the special committee was not then prepared to
recommend the $10 merger proposal.
On October 3, 2002, representatives of Lehman Brothers met again with Mr.
Weinberg and Ms. Yoss to further discuss their respective views on the
appropriate assumptions and methodologies for conducting a financial analysis of
ISP and the pending merger proposal. Also present at that meeting were
representatives of Willkie Farr & Gallagher and Simpson Thacher & Bartlett. Ms.
Yoss and Mr. Weinberg once again expressed their views regarding the assumptions
and methodologies underlying Lehman Brothers' valuation analyses. They
reiterated their belief that ISP's ability to achieve the results reflected in
the Five-Year Plan was highly uncertain and again summarized the trends in ISP's
various business segments that lead to that uncertainty. Furthermore, Mr.
Weinberg noted that Mr. Heyman had indicated that, in light of the severe market
downturn since the date of the merger proposal, Mr. Heyman was finding it
increasingly difficult to sustain a merger proposal at the $10 per share price.
Following that meeting, in light of the continued belief by ISP management that
the analyses performed by Lehman Brothers did not adequately reflect the
uncertainty inherent in ISP's financial outlook and diminished prospects for the
company since the preparation of the Five-Year Plan, ISP's management agreed to
provide Lehman Brothers with more current projections that would more fully
reflect the impact of business developments -- primarily substantially greater
than anticipated pricing pressures in ISP's core chemicals and minerals
businesses -- that had occurred subsequent to the preparation of the Five-Year
Plan in December 2001.
On October 10, 2002, Lehman Brothers met with ISP's management team and
other ISP personnel at ISP, at which time ISP's management presented updated
five-year projections (the "Updated Projections") to Lehman Brothers, including
those set forth under "--ISP's Forecasts" below. The discussions highlighted
certain differences between the original Five-Year Projections and the Updated
Projections. ISP's management provided a detailed presentation regarding the
manner in which the Updated Projections were prepared and the factors and
developments leading to the differences between the Updated Projections and the
projections reflected in the Five-Year Plan and answered questions regarding the
Updated Projections. In particular, ISP's management explained that, while the
revised 2002 projections presented on September 3, 2002 were substantially
accurate, the projections for the subsequent four years had not been updated for
developments in the business of ISP, the specialty chemicals industry and the
economy generally since December 2001. ISP's management advised Lehman Brothers
that as a result of these changes, the Updated Projections replaced the
Five-Year Plan as management's best currently available estimates and judgments
as to the future financial performance of ISP. The Updated Projections were
based on several changed factors, including pricing pressures in the personal
care and specialty chemicals segments, softness of demand in growth markets such
as Asia and contemplated changes in the pricing terms of a major supply
contract.
On October 21, 2002, the special committee met with members of ISP's senior
management and Mr. Heyman to discuss, among other things, the Updated
Projections and to continue its discussions regarding the merger proposal. Also
present at that meeting were representatives from Willkie Farr & Gallagher,
Simpson Thacher & Bartlett and Lehman Brothers. After presenting information
concerning the Updated Projections to the special committee, ISP's management
and Mr. Heyman answered questions posed by the special committee members and
representatives from Lehman Brothers.
After ISP's management, Mr. Heyman and representatives from Simpson Thacher
& Bartlett left the meeting, Lehman Brothers gave a presentation to the special
committee highlighting certain differences between the original Five-Year Plan
and the Updated Projections, as well as a preliminary valuation using the
Updating Projections based on the same methodologies that had previously been
presented to the special committee. After considerable discussion regarding the
Updated Projections, the special committee concluded that, based on the
performance of ISP's stock in the marketplace, the projections of ISP's
management, consideration of Lehman Brothers' methods of valuation and
preliminary financial analysis to date, as well as the special committee's
belief that $10 per share did not represent the highest price available to ISP's
stockholders, the special committee would not recommend the merger proposal at
$10 per share. Following the October 21, 2002 meeting, the special
14
committee's legal advisor and Mr. Heyman's legal advisor had numerous
conversations regarding the parties' respective views concerning the appropriate
per share price in the merger. Although the special committee had not identified
a specific price or range of prices that would be an acceptable alternative to
Mr. Heyman's $10 merger proposal, the special committee's legal advisor
indicated to Mr. Heyman's legal advisors that the special committee was not
prepared to recommend the merger at the $10 per share price because it did not
believe that the offer represented the highest price available to ISP's
stockholders, and, accordingly, sought to negotiate a higher price per share.
Mr. Heyman continued to believe the proposed merger consideration was fair
and, accordingly, instructed his legal advisors that, while he was willing to
explore non-price contractual changes to the merger agreement and a possible
settlement of the pending stockholder litigation referred to above, Mr. Heyman
would not authorize an increase in the merger consideration. Furthermore, Mr.
Heyman's representatives informed the special committee's legal advisors that
Mr. Heyman continued to be concerned about the advisability of sustaining the
merger proposal in light of the deterioration in market conditions and that Mr.
Heyman might consider withdrawing the merger proposal if the special committee
concluded it could not recommend the proposed transaction at $10 per share. On
October 25, 2002, counsel for Mr. Heyman met with plaintiffs' counsel in the
stockholder litigation in Delaware to discuss a potential settlement of the
litigation. Counsel for Mr. Heyman also attempted to include plaintiffs' counsel
in the stockholder litigation pending in New Jersey in the settlement
discussions. In light of the firm position of the special committee that it
would not recommend a transaction at $10 per share, on October 30, 2002, Mr.
Heyman concluded that exploring an increase in the merger consideration would be
preferable to abandoning the proposed transaction and authorized his legal
advisors to explore with the special committee's legal advisors a possible
increase in the per share merger consideration to $10.25, subject to the prompt
negotiation of a mutually acceptable merger agreement, approval of the agreement
by the entire special committee and settlement of the stockholder litigation.
On October 30, 2002, in a meeting of the special committee, representatives
of Willkie Farr & Gallagher reported that Mr. Heyman's representatives had
advised them that Mr. Heyman would be willing to increase the per share merger
consideration to $10.25. The special committee discussed whether to accept
$10.25 per share but, in an effort to increase the per share merger
consideration and achieve the best possible price for ISP's stockholders,
instructed Willkie Farr & Gallagher to advise Mr. Heyman's representatives that
the special committee was not in a position to recommend the proposed
transaction at $10.25 at that time, and further instructed Willkie Farr &
Gallagher to propose an offer price of $10.50 per share.
On October 31, 2002, the special committee's legal advisors conveyed the
special committee's views to Mr. Heyman's legal advisors. In response, Mr.
Heyman's representatives advised the special committee's legal advisors that Mr.
Heyman would not increase the merger consideration to $10.50 and that if prompt
agreement could not be reached by the parties at a merger price of $10.25 per
share, Mr. Heyman would consider withdrawing his offer.
On November 1, 2002, the special committee met, along with representatives
of Willkie Farr & Gallagher and Lehman Brothers to further discuss the proposed
transaction.
On November 4, 2002, Mr. Heyman authorized his legal advisors to indicate
his potential willingness to increase the per share merger consideration to
$10.30 per share. In a meeting on that day, the special committee discussed the
fairness of the proposal to ISP's unaffiliated stockholders and agreed to reject
the proposal of $10.30 per share, but, in an effort to maximize value for ISP's
stockholders, to inform Mr. Heyman's representative that, while it was not in a
position to recommend the proposed transaction at $10.30 per share at that time,
it would consider recommending the proposal at $10.35 per share. Mr. Heyman's
representative stated that Mr. Heyman would not accept that share price, and
that if the special committee could not recommend the proposed transaction at
$10.30 per share that Mr. Heyman would withdraw the offer.
The special committee evaluated the possibility of turning down the
proposed merger consideration and remaining a public company, but was concerned
that such decision might result in the minority stockholders losing the
opportunity to receive $10.30 per share. If Mr. Heyman were to withdraw the
offer, the price of ISP's publicly-traded stock would likely fall significantly
from its closing price of $9.40 on November 1, 2002. The special committee noted
that the market in general or the specialty chemical sector could deteriorate
further, lowering the market price of the shares. The special committee also
considered each of Lehman Brothers' preliminary financial analyses presented to
it on October 21, 2002, the implied valuations resulting from each of those
analyses and that Lehman Brothers would most likely be in a position to issue a
fairness opinion with respect to a proposal of $10.30 per share. The special
committee further considered that the proposed price was within the comparable
trading, premiums paid in going private transactions with less than a 50%
minority ownership, premiums paid in going private transactions with less than a
20% minority ownership, premiums paid in unaffected going private transactions,
premiums paid in full acquisitions and discounted cash flow valuation ranges
analyzed in Lehman Brothers' presentations. The special committee further noted
that if the special committee rejected the proposed merger consideration and Mr.
Heyman withdrew his offer, the
15
stockholders would lose the opportunity to vote on the proposed merger, which
would likely prove to be the best option available to the stockholders. For
further discussion of valuation methods and ranges that the special committee
considered, see "--Opinion of Lehman Brothers" below. Finally, the special
committee noted that it was unlikely that a third party would attempt to
purchase ISP stock held by minority stockholders due to Mr. Heyman's substantial
beneficial ownership interest in ISP.
Between November 4 and November 6, the parties' legal advisors completed
negotiations of the open contractual terms in the merger agreement and voting
agreement.
Settlement discussions between counsel for Mr. Heyman and plaintiffs'
counsel in the pending stockholder litigation in Delaware and New Jersey also
continued during this period.
On November 6, 2002, the special committee met to discuss Mr. Heyman's
response to the special committee's attempts to increase the offer price of
$10.30 per share. Lehman Brothers presented a financial analysis of the offer
and orally delivered its opinion, which it committed to deliver later in
writing, that, as of that date and based upon and subject to the assumptions,
limitations and qualifications set forth in the Lehman Brothers' written
opinion, the proposed transaction at $10.30 per share was fair, from a financial
point of view, to ISP's unaffiliated stockholders. Ultimately, the special
committee concluded that the proposed merger was substantively and procedurally
fair to ISP's unaffiliated stockholders and that the opportunity to receive
$10.30 cash per share should be presented to ISP's stockholders. In reaching
that conclusion, the special committee noted that the adoption of the merger
agreement at that price would be subject to acceptance by a majority of the
minority stockholders voting at the special meeting to consider approval of the
merger. After further discussion and deliberation and taking into account all of
the factors noted above, the special committee unanimously (1) concluded that
the proposed transaction was advisable, fair to, and in the best interests of,
the unaffiliated stockholders of ISP, and (2) agreed to recommend that our board
approve the terms of the proposed transaction. Later that day, Willkie Farr &
Gallagher reported the special committee's decision to ISP.
On November 7, the parties announced that Mr. Heyman and the special
committee had reached an agreement with respect to the merger at a price of
$10.30 per share in cash, subject to approval by ISP's board of directors.
On November 8, 2002, the special committee met to approve the proposed
resolutions, which (1) concluded that the proposed transaction at $10.30 per
share was advisable, fair to, and in the best interests of, the unaffiliated
stockholders of ISP, and (2) recommended that the full board approve the terms
of the proposed transaction.
Later that day, our board of directors met to consider approval of the
merger agreement. At the meeting, Lehman Brothers once again presented a
financial analysis of the transaction that was substantially identical to the
analysis presented to the special committee on November 6, 2002 in connection
with Lehman Brothers' rendering of its oral opinion. The board also reviewed the
terms of the merger agreement. Thereafter, based on the unanimous recommendation
of the special committee, the board determined that the proposed merger was
advisable, fair to, and in the best interests of, ISP's unaffiliated
stockholders. Each director (other than Mr. Heyman and Sunil Kumar, who
abstained) voted to approve the merger and voting agreements and recommend that
ISP's stockholders vote to adopt the merger agreement.
Following settlement discussions between counsel for Mr. Heyman and counsel
for plaintiffs in the Delaware and New Jersey litigations, the parties to the
stockholder litigation pending in Delaware agreed on and, on November 19, 2002,
executed a memorandum of understanding to reflect a proposed settlement of the
Delaware litigation. The parties also agreed, subject to various conditions, to
enter into a settlement agreement, cooperate in public disclosures related to
the settlement and use best efforts to gain approval of the settlement by the
Delaware courts. Without any admission of fault by the defendants, the
memorandum of understanding contemplates a dismissal of all claims with
prejudice and a release in favor of all defendants of any and all claims related
to the merger that have been or could have been asserted by the plaintiffs or
any members of the purported class (including the pending claims in the New
Jersey litigation). The settlement is subject to, among other factors,
completion of confirmatory discovery, execution of a settlement agreement and
final approval of the settlement by the Court of Chancery of the State of
Delaware and completion of the merger.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE
The special committee has unanimously determined that the merger agreement
is advisable, fair to and in the best interests of the unaffiliated stockholders
of ISP, and unanimously determined to recommend to our board of directors that
the board of directors:
o approve the merger agreement and the voting agreement;
16
o declare the advisability of the merger agreement; and
o recommend that the stockholders of ISP vote to adopt the merger
agreement.
RECOMMENDATIONS OF OUR BOARD OF DIRECTORS
The board of directors of ISP consists of six directors, three of whom
served on the special committee and two of whom are also directors of ISPH and,
therefore, abstained from voting with regard to the merger. At the November 8,
2002 meeting of the board of directors, the special committee, with its legal
and financial advisors participating, reported to the other members of the board
of directors on the course of its negotiations with Mr. Heyman and ISPH and
their legal counsel, its review of the merger agreement and the factors it took
into account in reaching its determination that the merger agreement is
advisable, fair to and in the best interests of the unaffiliated stockholders of
ISP.
Based on the unanimous recommendation of the special committee, our board
of directors has:
o approved the merger agreement and the voting agreement;
o determined that the merger and the merger agreement are substantively
and procedurally fair to the unaffiliated stockholders of ISP; and
o recommended that the stockholders of ISP vote to adopt the merger
agreement.
SPECIAL COMMITTEE'S POSITION AS TO FAIRNESS OF THE MERGER
In reaching the conclusions described above, the special committee
considered a number of factors, including the following factors, each of which,
in the special committee's judgment supported its conclusion as to substantive
fairness:
o the proposed merger in which the stockholders of ISP, other than
holders of common stock beneficially owned by Mr. Heyman, except shares
held by qualified charitable organizations (which will be converted
into the $10.30 per share merger consideration), would be entitled to
receive $10.30 cash per share as merger consideration, a price the
special committee viewed as attractive in light of ISP's historical and
current financial performance and in light of general economic and
stock market conditions;
o the written opinion of Lehman Brothers to the special committee dated
November 8, 2002, which was adopted by the special committee, a copy of
which is attached to this proxy statement as Annex B, that, as of the
date of the opinion and based upon and subject to the assumptions,
limitations and qualifications set forth in that opinion, the merger
consideration is fair, from a financial point of view, to the
unaffiliated stockholders of ISP;
o the special committee's belief, based on, among other things, the
detailed financial and valuation advice provided to the special
committee by its financial advisor, that the $10.30 per share merger
consideration:
o represented an attractive multiple of historical and projected
earnings per share and cash flow per share;
o was within the range of implied per share valuations based on
comparable trading for non-controlled companies that Lehman
Brothers, the special committee's financial advisor, deemed
comparable to ISP;
o compared favorably to an implied per share value based on the
hypothetical performance of ISP stock assuming the announcement of
Mr. Heyman's proposal, dated July 8, 2002 had not been made by
applying the return of the Lehman Brothers Specialty Chemical Index
from July 8, 2002 through November 4, 2002 to ISP's stock price of
$7.95 the day prior to the announcement of the July 8, 2002 proposal
letter;
o was within the range of implied per share valuations based on recent
full acquisitions as well as going-private transactions with a
remaining minority interest of less than 50% and a remaining
minority interest of less than 20%; and
o was within the ranges of value produced by the discounted cash flow
analysis based on ISP's Updated Projections;
o the historical market prices of ISP's common stock and recent trading
activity, including the substantial premiums implied by the $10.30 per
share merger consideration of 29.6% and 48.8%, respectively, over ISP's
stock prices one day and one month prior to the initial announcement of
Mr. Heyman's proposal on July 8, 2002;
17
o that the increase in the market price of ISP's common stock following
the initial proposal by Mr. Heyman may have reflected, in part,
anticipation of a possible merger, rather than a higher intrinsic value
for ISP common stock;
o the presentations of Lehman Brothers regarding its financial analyses
of the proposed merger. See "--Background of the Merger" above and
"--Opinion of Lehman Brothers" below;
o that the terms and conditions of the proposed merger were determined
through lengthy negotiations between Mr. Heyman and his representatives
and the special committee and its advisors, all of whom are
unaffiliated with Mr. Heyman;
o Mr. Heyman's controlling beneficial ownership interest in ISP and his
unwillingness to cause ISP or his beneficial interest in ISP to be sold
to a possible third party buyer, which suggested to the special
committee that the proposed merger was an attractive alternative to the
minority stockholders;
o the availability of capital necessary to fund the merger consideration
payable pursuant to the merger;
o current difficult economic, industry and market conditions affecting
ISP; and
o that stockholders who do not waive their appraisal rights will have the
opportunity in connection with the merger to demand appraisal of the
fair value of their shares under Section 262 of the DGCL.
The special committee also considered the following adverse factors
associated with the merger:
o that Lehman Brothers' analysis of industry transactions described in
detail under "Opinion of Lehman Brothers" on page 24 had produced a
range per share of $13.24 to $13.39. The special committee determined
that this valuation depended to a considerable extent on the fact that
the transactions analyzed each involved a full change of control,
whereas the merger does not involve a change of control. Furthermore,
each of the transactions analyzed had meaningful distinctions to the
business, operations and financial conditions of ISP;
o that because Mr. Heyman desired to retain his approximate 81% ownership
interest in ISP and had indicated no intent to cause any portion of his
beneficial interest in ISP to be offered for sale to a third party,
public stockholders were not afforded an opportunity to participate in
any control premium that might have been generated by the sale of the
entire company to a third party;
o that the public stockholders of ISP would have no ongoing equity
participation in the surviving corporation following the merger,
meaning that the public stockholders would cease to participate in
ISP's future earnings or growth, if any, or to benefit from increases,
if any, in the value of their ISP stock.
o that there exists known and possible conflicts of interest of certain
directors and executive officers of ISP discussed below in "--Interests
of Directors and Executive Officers in the Merger."
After considering each of the factors outlined above, the special committee
concluded that the positive factors relating to the merger outweighed the
negative factors. Because of the variety of factors considered, the special
committee did not find it practicable to quantify or otherwise assign relative
weights to, and did not make specific assessments of, the specific factors
considered in reaching its determination. However, individual members of the
special committee may have assigned different weights to various factors. The
determination of the special committee was made after consideration of all of
the factors together.
The special committee also determined that the merger is procedurally fair
because among other things:
o the special committee consisted of directors that are not affiliated
with Mr. Heyman and are not executive officers of ISP;
o the special committee retained and was advised by independent legal
counsel experienced in advising on similar transactions;
o the special committee retained and was advised by Lehman Brothers Inc.,
an independent financial advisor, to assist in evaluating the proposed
merger;
o Lehman Brothers rendered an opinion concerning the fairness, from a
financial point of view, of the consideration to be received by the
unaffiliated holders of ISP common stock, which was adopted by the
special committee;
18
o the proposed merger terms and conditions (including the majority of the
minority condition), which were determined through lengthy negotiations
between Mr. Heyman and his representatives and the special committee
and its advisors, all of whom are unaffiliated with Mr. Heyman;
o the nature and duration of the deliberations pursuant to which the
special committee evaluated the proposed merger and alternatives the
proposed merger; and
o that the special committee is a mechanism well-established under
Delaware law in transactions of this type.
In its evaluation, the special committee did not ask Lehman Brothers to
consider the liquidation or book values of ISP because it believed that those
measures of asset value would be considerably less than the proposed merger
consideration of $10.30 per share and ISP's going concern value. The special
committee's belief regarding liquidation value was based upon the committee
members knowledge of the specialty chemical industry and their belief that
liquidation sales generally result in proceeds substantially less than the sale
of a going concern business. While the special committee reviewed with Lehman
Brothers its various financial analyses and ISP's historical and projected
results, the special committee did not independently generate its own separate
financial analysis of the merger.
The special committee did not evaluate as alternatives to the proposed
merger the possibility of a sale to a potential third party bidder due to Mr.
Heyman's indicated unwillingness to cause his beneficial interest in ISP to be
sold. Finally, the special committee believed that the merger consideration of
$10.30 per share in cash was fair in relation to the going concern value per
share based upon Lehman Brothers' financial analysis referred to in "--Opinion
of Lehman Brothers" below.
In reaching its determination, the special committee did not consider
purchases by Mr. Heyman or ISPH of ISP stock during the past two years because,
to the knowledge of the special committee, there were no purchases by Mr. Heyman
or ISPH during that time. There were no firm offers made that the special
committee is aware of by any unaffiliated person during the past two years for
the merger, sale of a substantial portion of the assets of, or transaction
resulting in the change of control of ISP.
BOARD OF DIRECTORS' POSITION AS TO THE FAIRNESS OF THE MERGER
In reaching the conclusions described above, the board of directors
considered a number of factors, including the following factors, which, in the
board's judgment, supported its conclusions as to substantive fairness:
o the conclusions and recommendations of the special committee; and
o the factors referred to above as having been taken into account by the
special committee as to substantive fairness, including the receipt by
the special committee of the opinion of Lehman Brothers that, as of the
date of the opinion and based upon and subject to the assumptions,
limitations and qualifications set forth in that opinion, the merger
consideration is fair, from a financial point of view, to the
unaffiliated stockholders of ISP.
The board of directors also considered the adverse factors described above under
"--Special Committee's Position as to Fairness of the Merger," including the
fact that public stockholders were not afforded the opportunity to participate
in a control premium because Mr. Heyman had no desire to cause any portion of
his beneficial interest in ISP to be sold to a third party. The board of
directors also considered the conflicts of interest of certain directors and
executive officers of ISP discussed below in "--Interests of Directors and
Executive Officers in the Merger."
In concluding that the merger is procedurally fair, the board of directors
considered a number of factors, including the following factors, which, in the
board's judgment, supported its conclusions as to procedural fairness:
o the conclusions and recommendations of the special committee;
o the fact that the special committee unanimously determined that the
merger agreement is advisable, fair to and in the best interest of the
unaffiliated stockholders of ISP;
o the engagement by the special committee of independent legal and
financial advisors; and
o the fact that the merger agreement contains the majority of the
minority condition.
In considering the conclusions and the recommendations of the special committee,
the board of directors believed that the analysis of the special committee was
reasonable and adopted the special committee's analysis underlying the special
committee's conclusions.
19
MR. HEYMAN AND ISPH'S POSITIONS AS TO THE FAIRNESS OF THE MERGER
The rules of the Securities and Exchange Commission require Mr. Heyman and
ISPH to express their belief as to the fairness of the merger to the
unaffiliated holders of ISP common stock. Mr. Heyman and ISPH believe that the
merger is substantively and procedurally fair to the unaffiliated holders of ISP
common stock. However, neither Mr. Heyman nor ISPH has performed, or engaged a
financial advisor to perform, any valuation analysis for the purposes of
assessing the fairness of the merger to the unaffiliated holders of ISP common
stock. Moreover, neither Mr. Heyman nor ISPH participated in the deliberations
of the special committee or received advice from the special committee's
financial advisor.
Mr. Heyman and ISPH's belief that the merger is substantively fair to the
unaffiliated holders of ISP common stock is based on the following factors:
o the fact that the special committee concluded that the merger is
advisable, fair to, and in the best interests of the unaffiliated
holders of ISP's common stock (although Mr. Heyman and ISPH did not
rely upon the special committee's analysis);
o the fact that the special committee received a written opinion from
Lehman Brothers dated November 8, 2002 as to the fairness, from a
financial point of view, of the $10.30 per share cash merger
consideration;
o the consideration to be paid in the merger represents a nearly 30%
premium over the reported closing price of ISP common stock on the New
York Stock Exchange on the last trading day prior to the announcement
of Mr. Heyman's proposal on July 8, 2002, and nearly a 49% premium over
the average closing price for the 30 days prior to the announcement of
the proposal;
o the S&P 500 Index and the S&P Midcap Specialty Chemicals Index declined
5.5% and 9.3%, respectively, during the period from July 8, 2002
through November 6, 2002, the date on which the special committee
agreed to recommend the merger agreement, thereby indicating that the
premium of the merger consideration over the unaffected share price of
ISP (i.e., the market price that would likely be in effect in absence
of the merger proposal) would likely have been higher than the premium
referred to above;
o Mr. Heyman and ISPH's belief that the merger consideration is fair in
relation to the going concern value per share of ISP (although they did
not calculate a specific going concern value per share, Mr. Heyman and
ISPH believe that the merger consideration is fair in relation to the
going concern value per share based upon (1) their knowledge of ISP's
business and prospects, (2) the projections contained in this proxy
statement, including the assumptions contained therein, (3) ISP's
historical results of operations and (4) their general knowledge of the
specialty chemical industry;
o the merger will provide consideration to ISP's stockholders entirely in
cash and is not subject to any financing condition; and
o the merger would shift the risk of the future financial performance of
ISP from the public stockholders, who do not have the power to control
decisions made as to ISP's business, entirely to Mr. Heyman, who has
the power to control ISP's business.
20
Mr. Heyman and ISPH considered each of the foregoing factors to support
their determinations as to the fairness of the merger. Mr. Heyman and ISPH did
not consider any other material factors in evaluating the substantive fairness
of the merger to the unaffiliated holders of ISP common stock. In light of the
fact that Mr. Heyman was unwilling to cause his beneficial interest in ISP to be
sold, Mr. Heyman and ISPH did not consider a possible sale to a third party as
an alternative to the proposed merger. As a result, Mr. Heyman and ISPH did not
evaluate the prices potentially attainable in other transactions in which he
would sell control of ISP. Neither Mr. Heyman nor ISPH found it practicable to
assign, nor did they assign, relative weights to the individual factors
considered in reaching their conclusion as to fairness. Mr. Heyman and ISPH did
not consider whether the merger consideration constitutes fair value in relation
to the liquidation value of ISP and gave little consideration to the book value
of ISP, because they believed that those measures of asset value were not
relevant to the market value of ISP's business and that liquidation valuations
result in lower valuations of leveraged manufacturing companies. In addition,
the liquidation of ISP's assets was not considered to be a viable course of
action because substantial value results from continuing ISP as a going-concern
and any liquidation would destroy that value. Therefore, no appraisal of
liquidation value was sought for purposes of valuing the shares of ISP common
stock. Also, Mr. Heyman and ISPH believe that book value is a valuation
methodology more typically used in the banking, utilities, real estate and
financial services industries. Nonetheless, Mr. Heyman and ISPH note that the
net book value per share of ISP, as of June 30, 2002, was $7.85 and the net book
value per share of ISP, as of September 30, 2002 was $8.14. The merger
consideration represents a premium of nearly 31% over the June 30, 2002 net book
value per share and 27% over the September 30, 2002 net book value per share.
Mr. Heyman and ISPH's belief that the merger is procedurally fair to the
unaffiliated holders of ISP common stock is based on the following factors:
o the merger and the terms and conditions of the merger agreement were
the result of good faith negotiations between the special committee and
Mr. Heyman and their respective advisors and representatives;
o the special committee retained Lehman Brothers, which is not affiliated
with Mr. Heyman or ISPH management, to serve as its independent
financial advisor, and the special committee received an opinion from
Lehman Brothers on November 6, 2002 (subsequently confirmed in writing
on November 8, 2002) to the effect that as of such date and, based upon
and subject to, the assumptions, limitations and qualifications set
forth in its written opinion, the $10.30 in cash per share merger
consideration was fair from a financial point of view to ISP's
unaffiliated stockholders;
o the merger was approved by each member of ISP's board of directors,
other than Mr. Heyman and Mr. Kumar (each of whom abstained because
they are also directors of ISPH); and
o the fact that stockholders who do not vote to adopt the merger
agreement would be entitled, subject to compliance with certain
statutorily required procedures to exercise appraisal rights pursuant
to Section 262 of the DGCL, which allows stockholders to have the fair
value of their shares determined by the Court of Chancery of the State
of Delaware and paid to them in cash.
Neither Mr. Heyman nor ISPH made any purchases of ISP common stock during
the last two years and, therefore, did not compare the merger consideration to
any recent prices paid by them for ISP common stock. In addition, neither Mr.
Heyman nor ISPH is aware of any offer made during the last two years to acquire
ISP, thus no comparison of the merger consideration could be made to any other
comparable offer.
The foregoing discussion of the information and factors considered and
given weight by Mr. Heyman and ISPH is not intended to be exhaustive, but is
believed to include all material factors considered by Mr. Heyman and ISPH. The
view of Mr. Heyman and ISPH as to the fairness of the merger is not a
recommendation to any stockholder as to how that stockholder should vote on the
merger.
OPINION OF LEHMAN BROTHERS
In August 2002, the special committee engaged Lehman Brothers to act as its
financial advisor with respect to Mr. Heyman's July 8, 2002 proposal to acquire
the remaining shares of ISP not already beneficially owned by him and his
affiliates. On November 6, 2002, Lehman Brothers rendered its oral opinion
(subsequently confirmed in writing on November 8, 2002) to the special committee
that as of that date and based upon and subject to the assumptions, limitations
and qualifications set forth in that opinion, the consideration offered in the
merger to the unaffiliated stockholders of ISP is fair, from a financial point
of view, to those stockholders.
21
THE FULL TEXT OF LEHMAN BROTHERS' WRITTEN OPINION DATED NOVEMBER 8, 2002 IS
ATTACHED AS ANNEX B TO THIS PROXY STATEMENT. STOCKHOLDERS SHOULD READ THAT
OPINION FOR A DISCUSSION OF THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, FACTORS
CONSIDERED AND LIMITATIONS UPON THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN
RENDERING ITS OPINION. THE FOLLOWING IS A SUMMARY OF THAT OPINION AND THE
METHODOLOGY THAT LEHMAN BROTHERS USED TO RENDER ITS FAIRNESS OPINION.
Lehman Brothers' advisory services and Lehman Brothers' opinion were
provided for the information and assistance of the special committee in
connection with its consideration of the merger agreement and the merger. Lehman
Brothers' opinion is not intended to be and does not constitute a recommendation
to any stockholder of ISP as to how such stockholder should vote with respect to
the merger. Lehman Brothers was not requested to opine as to, and its opinion
does not address, ISP's underlying business decision to proceed with or effect
the merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
o the merger agreement and the specific terms of the merger;
o publicly available information concerning ISP that Lehman Brothers
believed to be relevant to its analysis, including ISP's annual report
on Form 10-K for the fiscal year ended December 31, 2001, ISP's
quarterly reports on Form 10-Q for the quarters ended March 31 and June
30, 2002, and the amended Schedule 13D filed by Mr. Heyman on July 9,
2002;
o financial and operating information with respect to the business,
operations and prospects of ISP furnished to Lehman Brothers by ISP,
including, without limitation, the Five-Year Plan provided to Lehman
Brothers on September 3, 2002 and the Updated Projections provided to
Lehman Brothers and the special committee on October 21, 2002, which
were updated and lower projections of future financial performance of
ISP prepared by management of ISP;
o a trading history of ISP's common stock from June 25, 1991 to November
4, 2002 and a comparison of that trading history with those of other
companies that Lehman Brothers deemed relevant;
o a comparison of the historical financial results and present financial
condition of ISP with those of other companies that Lehman Brothers
deemed relevant; and
o a comparison of the financial terms of the merger with the financial
terms of certain other recent transactions that Lehman Brothers deemed
relevant.
In addition, Lehman Brothers had discussions with the management of ISP
concerning its business, operations, assets, financial condition and prospects
and undertook such other studies, analyses and investigations as Lehman Brothers
deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by Lehman
Brothers without assuming any responsibility for independent verification of
that information and further relied upon the assurances of management of ISP
that they were not aware of any facts or circumstances that would make that
information inaccurate or misleading. With respect to the financial projections
of ISP, Lehman Brothers was advised by ISP that the Updated Projections were
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the management of ISP as to the future financial performance of
ISP and, accordingly, Lehman Brothers assumed that ISP would perform
substantially in accordance with those projections. Furthermore, Lehman Brothers
discussed the Updated Projections with the management of ISP and the special
committee, and it was agreed that the Updated Projections were the appropriate
projections to use in performing Lehman Brothers' analysis.
In arriving at its opinion, Lehman Brothers did not conduct a physical
inspection of the properties and facilities of ISP and did not make or obtain
any evaluations or appraisals of the assets or liabilities of ISP. In addition,
the special committee did not authorize Lehman Brothers to solicit, and Lehman
Brothers did not solicit, any indications of interest from any third party with
respect to the purchase of all or a part of ISP's business. Furthermore, based
on advice of the management of ISP, Lehman Brothers understood that Mr. Heyman
does not currently intend to cause his beneficial interest in ISP to be sold
(other than as permitted pursuant to the terms of the voting agreement between
Mr. Heyman and ISP) or to solicit or entertain any proposals from third parties
for the acquisition of ISP as, or substantially as, an entirety. Lehman
Brothers' opinion was necessarily based upon market, economic and other
conditions as they existed on, and could be evaluated as of, the date of the
opinion.
In connection with rendering its opinion, Lehman Brothers performed certain
financial, comparative and other analyses as described below. The preparation of
a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial and comparative analysis and the application
of those methods to the particular circumstances, and therefore, is not readily
susceptible to summary description. Furthermore, in arriving at its opinion,
Lehman Brothers considered
22
the results of all of its analyses and did not attribute any particular weight
to any analysis or factor considered by it. Accordingly, Lehman Brothers
believes that its analyses must be considered as a whole and that considering
any portion of those analyses and factors, without considering all analyses and
factors as a whole, could create a misleading or incomplete view of the process
underlying its opinion.
In its analyses, Lehman Brothers made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of ISP. None of ISP, Lehman
Brothers or any other person assumes responsibility if future results are
materially different from those discussed. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than as set
forth in the estimates. In addition, analyses relating to the value of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold.
The following is a summary of the material financial analyses used by
Lehman Brothers in connection with providing its opinion to the special
committee. In arriving at its opinion, Lehman Brothers did not ascribe a
specific range of value to ISP, but rather made its determination as to the
fairness, from a financial point of view, to the unaffiliated stockholders of
ISP of the consideration offered to such stockholders in the merger on the basis
of the financial and comparative analyses described below. Certain of the
summaries of financial analyses include information presented in tabular format.
In order to fully understand the financial analyses used by Lehman Brothers, the
tables must be read together with the text of each summary. The tables alone do
not constitute a complete description of the financial analyses. Accordingly,
the analyses listed in the tables and described below must be considered as a
whole. Considering any portion of those analyses and of the factors considered,
without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying Lehman Brothers' opinion.
STOCK TRADING HISTORY
Lehman Brothers considered historical data with regard to the trading
prices of ISP common stock for the period from June 25, 1991 to November 4, 2002
and the relative stock price performances during this same period for ISP, the
Lehman Brothers Specialty Chemicals Index, or LBSCI, and the Standard & Poor's
500 Index. During the year prior to announcement of Mr. Heyman's July 8, 2002
cash proposal of $10.00 per share, the closing stock price of ISP ranged from
$5.60 to $11.11 per share. Over this approximate one-year period, ISP stock
provided a negative return of 25.4%, while the LBSCI provided a negative return
of 18.5% and the S&P 500 Index provided a return of 11.5%. As such, ISP
underperformed the LBSCI over this period by 6.9% and underperformed the S&P 500
Index over this period by 36.9%. During the year prior to November 4, 2002, the
closing stock price of ISP ranged from $5.60 to $10.45 per share. The following
table summarizes the historical prices one year prior to November 4, 2002 and
one year prior to the announcement, as well as the corresponding premium of the
merger consideration to each of these price statistics:
PRIOR TO NOVEMBER 4, 2002 PRIOR TO JULY 8, 2002 ANNOUNCEMENT(1)
---------------------------------- -------------------------------------
ISP PRICE % PREMIUM ISP PRICE % PREMIUM
--------- --------- --------- ---------
Merger Consideration $10.30 NA $10.30 NA
1 Day 9.20 12.0% 7.95 29.6%
7 Days Avg. 9.16 12.5% 7.82 31.7%
30 Days Avg. 9.26 11.2% 6.92 48.8%
60 Days Avg. 9.44 9.2% 7.70 33.7%
90 Days Avg. 9.59 7.4% 8.32 23.8%
180 Days Avg. 9.03 14.0% 8.61 19.7%
1 Year Avg. 8.98 14.7% 8.85 16.4%
1 Year Median 9.17 12.3% 8.80 17.0%
1 Year High 10.45 (1.4%) 11.11 (7.3%)
1 Year Low 5.60 83.9% 5.60 83.9%
-----------------
(1) The "1 Day" trading date prior to announcement was July 8, 2002.
23
COMPARABLE TRADING ANALYSIS
In order to assess how the public market values shares of non-controlled,
fully distributed publicly traded companies with similar operating
characteristics as ISP, Lehman Brothers reviewed and compared specific financial
and operating data relating to ISP with selected companies that Lehman Brothers
deemed comparable to ISP. Lehman Brothers chose the companies used in the
comparable trading analysis based on their similarity to ISP in the mix and
characteristics of their businesses, growth, returns and margins. These
companies consisted of:
o Albemarle Corp.,
o Arch Chemicals Inc.,
o Cambrex Corp.,
o Croda International PLC,
o Cytec Industries Inc.,
o Great Lakes Chemical Corp.,
o International Flavors & Fragrances Inc.,
o Penford Corp., and
o Sensient Technologies Corp.
Using publicly available information, Lehman Brothers calculated and
analyzed each company's enterprise value relative to certain historical and
projected financial criteria such as sales, earnings before interest, taxes,
depreciation and amortization (EBITDA) and earnings before interest and taxes
(EBIT). The enterprise value of each company was obtained by adding its
short-term and long-term debt to the sum of the market value of its common
equity, the value of any preferred stock (at liquidation value) and the book
value of any minority interest, and subtracting its cash and cash equivalents.
The analysis indicated the following multiples as of November 4, 2002:
COMPARABLE COMPANIES
----------------------------------------------------- ISP AT
HIGH MEAN LOW TRANSACTION
--------- --------- --------- -----------
Enterprise Value as a Multiple of:
LTM(1) Sales 2.36x 1.38x 0.66x 1.38x
2002E Sales 2.37x 1.35x 0.85x 1.35x
2003E Sales 2.31x 1.27x 0.85x 1.35x
LTM EBITDA 12.8x 7.6x 5.6x 6.8x
2002E EBITDA 10.2x 7.3x 5.4x 6.7x
2003E EBITDA 9.4x 6.8x 5.2x 6.9x
LTM EBIT 43.6x 12.1x 10.3x 10.2x
2002E EBIT 14.7x 11.7x 10.8x 10.1x
2003E EBIT 12.0x 10.5x 10.2x 10.6x
--------------
(1) LTM means the latest twelve months ending June 30, 2002 for ISP and for
other comparable companies except as of May 31, 2002 for Penford Corp. and
as of December 31, 2001 for Croda International PLC.
Due to the inherent differences between the business, operations and
prospects of ISP and the business, operations and prospects of the companies
included in the comparable companies, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the comparable trading analysis and accordingly also made qualitative
judgments concerning differences between the financial and operating
characteristics and prospects of ISP and the companies included in the
comparable trading analysis that would affect the public trading values of each.
Accordingly, using the mean multiples as a general guide, Lehman Brothers
selected certain multiples that it believed reflected the theoretical trading
multiples for ISP on a non-controlled, fully distributed basis. Based on those
multiples, this analysis indicated a range of equity values per share of $10.07
to $12.67. Lehman Brothers noted that the merger consideration of $10.30 per
share falls within this range.
24
INDUSTRY TRANSACTION ANALYSIS
Using publicly available information, Lehman Brothers reviewed and compared
the purchase prices and multiples paid in 11 acquisitions of companies that
Lehman Brothers deemed relevant to arriving at its opinion. Lehman Brothers
chose the transactions used in the industry transaction analysis, based on the
similarity of the target companies in the transactions to ISP in the mix and
characteristics of their businesses, growth, returns and margins.
o Acquisition of Roche Vitamins and Fine Chemicals by DSM NV,
o Acquisition of Haarmann & Reimer (Bayer AG) by EQT Northern Europe
Private Equity Fund,
o Acquisition of Cognis BV (Henkel KGaA) by an Investor Group,
o Acquisition of Ascot PLC by Dow Chemical Co.,
o Acquisition of Laporte PLC by Degussa AG,
o Acquisition of BF Goodrich Performance Materials by AEA Investors,
o Acquisition of Catalytica Pharmaceuticals (Catalytica Inc.) by DSM NV,
o Acquisition of Hickson International PLC by Arch Chemicals Inc.,
o Acquisition of Witco Corp. by Crompton & Knowles Corp.,
o Acquisition of Zeneca Specialties (Astra Zeneca PLC) by Cinven and
Investcorp, and
o Acquisition of Bio Whittaker Inc. by Cambrex Corp.
Lehman Brothers considered the transaction values as multiples of LTM
sales, EBITDA and EBIT for the four fiscal quarters immediately preceding the
announcement of each applicable transaction. The analysis indicated the
following multiples:
COMPARABLE TRANSACTIONS
------------------------------------------------ ISP AT
HIGH MEAN LOW TRANSACTION
--------- --------- --------- -----------
Transaction Value as a Multiple of:
LTM Sales 2.64x 1.57x 0.59x 1.38x
LTM EBITDA 10.5x 8.6x 6.4x 6.8x
LTM EBIT 17.4x 14.0x 10.3x 10.2x
Because the reasons for and the circumstances surrounding each of the
transactions analyzed were so diverse and because of the inherent differences in
the businesses, operations, financial conditions and prospects of ISP, and the
businesses, operations, and financial conditions of the companies included in
the industry transactions group, Lehman Brothers believed that a purely
quantitative comparable transaction analysis would not be particularly
meaningful in the context of the merger. Lehman Brothers believed that the
appropriate use of an industry transaction analysis in this instance involves
qualitative judgments concerning the differences between the characteristics of
these transactions and the merger which would affect the acquisition values of
the acquired companies and ISP. Lehman Brothers also noted that the industry
transactions all involved a full change of control whereas the merger does not
involve a change of control. Using the mean multiples as a general guide, Lehman
Brothers selected certain multiples that it believed reflected the theoretical
transaction multiples for ISP on a full change in control basis. Based on those
multiples, this analysis indicated a range of equity values per share of $13.24
to $13.39.
PURCHASE PRICE RATIO ANALYSIS
Lehman Brothers reviewed for the special committee its purchase price ratio
analysis. The purchase price ratio analysis provides enterprise value multiples
of key operating statistics for the implied transaction valuations based on (i)
the $7.95 closing price of ISP common stock on July 8, 2002 (the day prior to
the announcement of Mr. Heyman's proposal), (ii) the original $10.00 per share
proposal and (iii) the revised $10.30 per share proposal. Based on each of these
stock prices, Lehman Brothers calculated the ratio of ISP's enterprise value to
its forecasted annual EBITDA and EBIT. Lehman Brothers calculated enterprise
value by adding ISP's short and long-term debt and certain non-operating
liabilities to the equity value implied by the specified share prices, and then
subtracted the amount of ISP's cash and cash equivalents and the net value of
its investment portfolio.
25
The original $10.00 and revised $10.30 per share proposals represented
premiums to the pre-announcement share price of $7.95 of 25.8% and 29.6%,
respectively. ISP's implied enterprise value, based on the original $10.00
proposal, represented multiples of 6.6x and 9.9x over estimated 2002 EBITDA and
2002 EBIT, respectively, and 6.8x and 10.5x over estimated 2003 EBITDA and 2003
EBIT, respectively. The corresponding multiples based on the $10.30 per share
proposal were 6.7x and 10.1x for 2002 and 6.9x and 10.6x for 2003. In
calculating the multiples, Lehman Brothers used the Updated Projections.
The purchase price ratio analysis enabled Lehman Brothers to compare the
multiples implied by the merger consideration with (i) the pre-announcement
trading level of ISP common stock, (ii) the current trading levels of companies
that Lehman Brothers deemed comparable to ISP, as described in "--Comparable
Company Analysis," and (iii) the multiples of those metrics paid in similar
transactions, as detailed in "--Industry Transaction Analysis."
TRANSACTION PREMIA ANALYSIS
Lehman Brothers reviewed the premia paid for 30 selected going private
transactions since 1998, where (i) cash was used as consideration, (ii) the
remaining minority interest was less than 50%, and (iii) the transaction value
was greater than $100 million. Lehman Brothers calculated the premium per share
paid by the acquiror for each respective deal, as compared to the average share
price of the target company's common stock one day, 7 calendar days, 30 calendar
days and 90 calendar days prior to the public announcement of each selected
transaction. The analysis produced the following premia ranges:
PREMIA PAID OVER AVERAGE PRICE FOR:
----------------------------------------------------------------------
1 DAY 7 DAYS 30 DAYS 90 DAYS
--------- --------- --------- -----------
Low: 9.9% 13.2% 13.1% 13.5%
High: 140.0% 136.9% 113.3% 116.0%
Mean: 46.4% 47.7% 49.2% 42.2%
Median: 42.6% 43.4% 48.6% 36.2%
Company Share Price Data: $7.95 $7.82 $6.92 $8.32
Merger Consideration ($10.30): 29.6% 31.7% 48.8% 23.8%
Based on the median and mean data, this analysis indicated a range of
equity values per share of $10.29 to $11.34 and $10.33 to $11.83, respectively.
Lehman Brothers noted that the merger consideration of $10.30 falls within the
range based on the median data and below the range based on the mean data.
Lehman Brothers also reviewed the premia paid for 19 selected going private
transactions since 1992, where (i) cash was used as consideration, (ii) the
remaining minority interest was less than 20%, and (iii) the transaction value
was greater than $100 million. Lehman Brothers calculated the premium per share
paid by the acquiror for each respective deal, as compared to the average share
price of the target company's common stock one day, 7 calendar days, 30 calendar
days and 90 calendar days prior to the announcement of each selected
transaction. The analysis produced the following premia ranges:
PREMIA PAID OVER AVERAGE PRICE FOR:
----------------------------------------------------------------------
1 DAY 7 DAYS 30 DAYS 90 DAYS
--------- --------- --------- -----------
Low: 9.9% 13.2% 13.1% 9.0%
High: 140.0% 122.7% 95.7% 73.4%
Mean: 40.8% 40.8% 44.3% 40.0%
Median: 43.5% 41.2% 42.9% 39.9%
Company Share Price Data: $7.95 $7.82 $6.92 $8.32
Merger Consideration ($10.30): 29.6% 31.7% 48.8% 23.8%
Based upon the median and mean data, this analysis indicated a range of
equity values per share of $9.89 to $11.64 and $9.99 to $11.65, respectively.
Lehman Brothers noted that the merger consideration of $10.30 falls within both
of these ranges.
Lehman Brothers also reviewed the hypothetical performance of ISP stock had
the announcement of the proposal letter, dated July 8, 2002, from Mr. Heyman not
been made on July 8, 2002 by applying the return of the LBSCI from July 8, 2002
through November 4, 2002 to ISP's stock price of $7.95 the day prior to the
announcement of the July 8, 2002 proposal letter. Over this period, the LBSCI
provided a negative return of 11.0%, implying a hypothetical "unaffected" price
of $7.07 per share of ISP on November 4, 2002 had the announcement not been
made. Lehman Brothers then applied the mean and
26
median 1-day premia of the two data sets described above to the hypothetical
"unaffected" ISP stock price at November 4, 2002. This analysis indicated a
range of equity values per share of $9.96 to $10.35. Lehman Brothers noted that
the merger consideration of $10.30 falls within this range.
Additionally, Lehman Brothers reviewed the premia paid for 60 selected full
acquisitions since 2000 that did not constitute going private transactions,
where (i) cash was used as consideration, (ii) the target company was not
classified as a financial services or technology company, and (iii) the
transaction value was greater than $100 million. Lehman Brothers calculated the
premium per share paid by the acquiror for each respective deal, as compared to
the average share price of the target company's common stock one day, 7 calendar
days, 30 calendar days and 90 calendar days prior to the announcement of each
selected transaction. The analysis produced the following premia ranges:
PREMIA PAID OVER AVERAGE PRICE FOR:
------------------------------------------------------------------
1 DAY 7 DAYS 30 DAYS 90 DAYS
--------- --------- --------- -----------
Low: (7.8%) (7.4%) (3.4%) (9.1%)
High: 540.0% 519.4% 411.7% 267.7%
Mean: 44.1% 45.6% 48.1% 51.7%
Median: 28.8% 31.7% 33.5% 37.6%
Company Share Price Data: $7.95 $7.82 $6.92 $8.32
Merger Consideration ($10.30): 29.6% 31.7% 48.8% 23.8%
Based upon the median and mean data, this analysis indicated a range of
equity values per share of $9.24 to $11.45 and $10.26 to $12.62, respectively.
Lehman Brothers noted that the merger consideration of $10.30 falls within both
of these ranges.
DISCOUNTED CASH FLOW ANALYSIS
Lehman Brothers performed a discounted cash flow analysis on the projected
financial information of ISP for the fiscal years 2003 through 2007 based upon
the Updated Projections through 2006 and extrapolated financial results for 2007
based upon operating and financial assumptions, forecasts and other information
provided to Lehman Brothers by the management of ISP. Using this information,
Lehman Brothers discounted to present (December 31, 2002) value the projected
stream of unlevered net income (earnings before interest and after taxes) for
the fiscal years 2003 to 2007 as adjusted for (1) certain projected non-cash
items (such as depreciation and amortization); (2) forecasted capital
expenditures; and (3) forecasted working capital adjustments. To estimate the
residual value of ISP at the end of the forecast period ("Terminal Value")
Lehman Brothers applied a range of 3.0% to 5.0% perpetuity growth rates to
projected fiscal 2007 free cash flow. Lehman Brothers also estimated the
Terminal Value by applying a range of 6.7x to 8.0x multiples to projected fiscal
2007 EBITDA. Lehman Brothers used after tax discount rates of 9% to 11%.
Based on these discount rates and a selected range of terminal values,
Lehman Brothers calculated the implied equity value per share at approximately
$8.11 to $14.02. Lehman Brothers noted that the merger consideration of $10.30
falls within this range.
Lehman Brothers performed a similar discounted cash flow analysis with
regard to the projected financial information for ISP based on the Five-Year
Plan. This analysis resulted in an implied equity value per share of
approximately $10.90 to $18.03.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The special committee selected
Lehman Brothers because of its expertise, reputation and familiarity with ISP
and the chemicals industry generally, and because its investment banking
professionals have substantial experience in transactions comparable to the
merger.
As compensation for its services in connection with the merger, ISP paid
Lehman Brothers $1.4 million, which was not contingent upon either the execution
of the merger agreement or consummation of the merger. In addition, ISP has
agreed to reimburse Lehman Brothers for reasonable out-of-pocket expenses
incurred in connection with its engagement and to indemnify Lehman Brothers and
related persons for certain liabilities that may arise out of its engagement by
the special committee and the rendering of its fairness opinion.
27
IN THE ORDINARY COURSE OF ITS BUSINESS, LEHMAN BROTHERS MAY ACTIVELY TRADE
IN THE DEBT OR EQUITY SECURITIES OF ISP AND ITS SUBSIDIARIES FOR ITS OWN ACCOUNT
AND FOR THE ACCOUNTS OF ITS CUSTOMERS AND, ACCORDINGLY, MAY AT ANY TIME HOLD A
LONG OR SHORT POSITION IN SUCH SECURITIES.
ISP'S FORECASTS
ISP does not, as a matter of course, publicly disclose forecasts as to
future revenues or earnings. However, ISP management did prepare forecasts which
were provided to Mr. Heyman in his capacity as Chairman of ISP's board of
directors and Lehman Brothers in connection with its financial analysis of ISP
and the merger proposal. The forecasts are included in this proxy statement only
because ISP provided that information to Lehman Brothers and Lehman Brothers
used the data in connection with its fairness opinion and related presentation
to the special committee and because Mr. Heyman had access to that data. See
"--Opinion of Lehman Brothers."
ISP's forecasts were not prepared with a view to public disclosure. ISP
expects actual and forecasted results to differ, and actual results may be
materially different than those set forth below. ISP did not prepare the
forecasts with a view to complying with the published guidelines of the
Securities and Exchange Commission regarding forecasts, and ISP did not prepare
the forecasts in accordance with the guidelines established by the American
Institute of Certified Public Accountants for preparation and presentation of
financial forecasts. The projected financial information set forth below has
been prepared by and is the responsibility of ISP's management. Moreover, ISP's
independent auditors have not examined, compiled, or applied any procedures to,
the forecasts in accordance with standards established by the American Institute
of Certified Public Accountants and express no opinion or any assurance on their
reasonableness, accuracy or achievability.
The projected financial data set forth below constitute forward-looking
statements. It is not possible to predict whether the assumptions made in
preparing the forecasts will be valid, and ISP cautions stockholders that any
such forward-looking statements are not guarantees of future performance. ISP
cannot assure you that these forecasts will be realized, and actual results may
be materially more or less favorable than those contained in the forecasts set
forth below. Investors should consider the risks and uncertainties in our
business that may affect future performance and that are discussed under
"Special Note Regarding Forward-Looking Statements" and in the documents
incorporated by reference in this proxy statement.
ISP's inclusion of the forecasts should not be regarded as an indication
that ISP, the special committee, the board of directors, Mr. Heyman, ISPH or
Lehman Brothers considered or consider the forecasts to be a reliable prediction
of future events, and the forecasts should not be relied upon as such. To the
extent that these forecasts represent ISP management's best estimate of possible
future performance, this estimate is made only as of the date of the forecasts
and not as of any later date. In particular, the projections for 2003-2006
included in the Five-Year Plan were prepared in December 2001 and have been
superseded by the Updated Projections. ISP does not intend to update, revise or
correct these forecasts if they become inaccurate. Stockholders should take this
into account when evaluating any factors or analyses based on ISP's forecasts.
28
As discussed above, on September 3, 2002 ISP's management provided Lehman
Brothers with the Five-Year Plan. The Five-Year Plan was prepared in December
2001 for presentation to ISP's board of directors in April 2002. Prior to
delivering the Five-Year Plan to Lehman Brothers, management reviewed ISP's
financial performance (excluding ISP's investment activities) for the first six
months of 2002 and revised the 2002 full-year projections contained in the
Five-Year Plan, but did not undertake to update or confirm the projections for
years 2003-2006. Therefore, the projections in the Five-Year Plan for the 2002
year were made as of September 3, 2002, but the 2003-2006 projections in the
Five-Year Plan were made as of December 2001. The projections of net sales and
operating income contained in the Five-Year Plan (as adjusted) are set forth
below:
FIVE-YEAR PLAN
---------------------------------------------------------------------
FISCAL YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
2002 (1) 2003 2004 2005 2006
---------- --------- --------- --------- ---------
($ in millions)
NET SALES:
Personal Care......................... $207.7 $218.5 $227.8 $237.3 $248.2
Pharmaceutical, Food and
Beverage........................... 247.3 254.8 270.4 286.7 305.0
Performance Chemicals, Fine
Chemicals and Industrial........... 304.1 275.5 284.4 292.5 301.4
--------- -------- -------- -------- --------
Total Specialty Chemicals.......... 759.1 748.8 782.6 816.5 854.6
Mineral Products...................... 92.9 93.5 98.0 100.0 102.4
--------- -------- -------- -------- --------
Total.............................. $852.1 $842.3 $880.6 $916.5 $957.0
========= ======== ======== ======== ========
OPERATING INCOME:(2)
Personal Care......................... $ 33.1 $ 47.0 $ 49.6 $ 52.3 $ 54.2
Pharmaceutical, Food and
Beverage........................... 59.6 62.3 66.8 71.6 75.4
Performance Chemicals, Fine
Chemicals and Industrial........... 8.4 1.1 4.6 8.5 11.9
--------- -------- -------- -------- --------
Total Specialty Chemicals.......... 101.1 110.4 121.0 132.4 141.5
Mineral Products...................... 19.8 19.3 20.0 20.5 20.6
--------- -------- -------- -------- --------
Total.............................. $120.9 $129.7 $141.0 $152.9 $162.1
========= ======== ======== ======== ========
-------------
(1) Updated September 3, 2002
The forecasts from the original Five-Year Plan prepared December 2001
projected net sales for 2002 of $821.4 million and operating income for
2002 of $120.7 million. These forecasts included $209.9 million net sales
and $44.8 million operating income for the personal care segment; $239.6
million and $57.9 million for the pharmaceutical, food and beverage
segment; $288.7 million and $1.6 million for the performance chemicals,
fine chemicals and industrial; and $83.2 million and $16.4 million for the
minerals segment.
(2) Excludes investment income and loss.
29
For the reasons described under "--Background of the Merger," in October
2002, ISP's management updated the projections reflected in the Five-Year Plan
for developments occurring after December 2001 and provided those Updated
Projections to Lehman Brothers on October 10, 2002 and again to Lehman Brothers
and the special committee on October 21, 2002. The Updated Projections took into
account changes in circumstances -- primarily substantially greater than
anticipated pricing pressures in ISP's core chemicals and minerals businesses --
since the preparation in the Five-Year Plan and represented ISP management's
estimates of future financial performance (excluding ISP's investment
activities) for the years 2002 through 2006, as of October 10, 2002 and October
21, 2002. The projections of net sales and operating income, as reflected in the
Updated Projections, are set forth below:
UPDATED PROJECTIONS
----------------------------------------------------------------------
FISCAL YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
2002 2003 2004 2005 2006
---------- --------- --------- --------- ----------
($ in millions)
NET SALES:
Personal Care......................... $207.7 $215.0 $220.0 $230.0 $240.0
Pharmaceutical, Food and
Beverage........................... 247.3 267.0 275.0 283.0 290.0
Performance Chemicals, Fine
Chemicals and Industrial........... 304.1 283.0 291.0 298.0 309.0
--------- -------- -------- -------- --------
Total Specialty Chemicals.......... 759.1 765.0 786.0 811.0 839.0
Mineral Products...................... 92.9 87.0 89.0 91.0 93.0
--------- -------- -------- -------- --------
Total.............................. $852.1 $852.0 $875.0 $902.0 $932.0
========= ======== ======== ======== ========
UPDATED PROJECTIONS
----------------------------------------------------------------------
FISCAL YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
2002 2003 2004 2005 2006
---------- --------- --------- --------- ----------
($ in millions)
OPERATING INCOME:(1)
Personal Care......................... $ 33.1 $ 34.5 $ 36.5 $ 39.5 $ 42.0
Pharmaceutical, Food and
Beverage........................... 59.6 66.0 69.5 72.5 74.5
Performance Chemicals, Fine
Chemicals and Industrial........... 8.4 3.5 7.0 9.5 11.0
--------- -------- -------- -------- ---------
Total Specialty Chemicals.......... 101.1 104.0 113.0 121.5 127.5
Mineral Products...................... 19.8 14.0 14.5 15.0 15.5
--------- -------- -------- -------- --------
Total.............................. 120.9 118.0 127.5 136.5 143.0
Contingency Provision................. -- (3.0) (4.5) (4.5) (4.5)
--------- -------- -------- -------- --------
Forecast Operating Income.......... $120.9 $115.0 $123.0 $132.0 $138.5
========= ======== ======== ========= ========
(1) Excludes investment income and loss.
REASONS FOR THE MERGER; PURPOSE AND STRUCTURE OF THE MERGER
The purpose of the merger is to permit holders of ISP's common stock to
realize a significant cash premium to ISP's historical market prices for their
shares and for Mr. Heyman to increase his equity ownership interest in ISP from
approximately 81% to 100%. Mr. Heyman decided to pursue the merger at this time
for a number of reasons. First, Mr. Heyman believes that ISP has been unable to
realize some of the primary anticipated benefits of having publicly traded
equity securities. For example, as a result of ISP's small public float, ISP has
been unable to utilize the ISP common stock as a currency for acquisitions. In
addition, the lack of appreciation of the ISP common stock has impaired ISP's
ability to use stock options and other equity-based incentives as a meaningful
tool to attract and retain employees.
Moreover, Mr. Heyman believes that the near- and medium-term prospects of
increasing ISP stockholder value are unfavorable for a number of reasons.
Attracting public investors to a company with a majority stockholder and a small
public float is inherently difficult and has been made more difficult by the
general stock market downturn. In addition, Mr. Heyman believes that the
volatility of ISP's earnings as a result of its substantial portfolio of
investment securities has negatively impacted and will likely continue to
negatively impact ISP's stock performance in the public market.
30
Mr. Heyman seeks to improve ISP's operating performance by increasing
management's flexibility to take actions without the constraints imposed by the
public market. Mr. Heyman believes that without the constraints of the public
market, and in particular the market's emphasis on quarterly earnings, ISP's
management will have greater flexibility to effectively manage ISP's assets and
to make decisions that may negatively impact quarterly earnings, but that may
increase the value of ISP's assets or earnings over the long term. In a public
company setting, decisions that negatively affect quarterly earnings could
significantly reduce ISP's share price.
Mr. Heyman also seeks to permit ISP to eliminate the costs and
administrative burdens of being a public company. Finally, following the merger,
ISP will no longer be subject to the reporting requirements of the Securities
Exchange Act of 1934, which will allow ISP to eliminate the costs of preparing,
printing and mailing certain corporate reports and proxy statements. In
addition, "going private" will allow ISP to eliminate certain other costs and
functions associated with being a public company, including certain legal and
accounting costs, the costs of maintaining a transfer agent and the costs of
investor relations activities. The elimination of the foregoing requirements
will also eliminate the time devoted by employees and members of ISP's
management to those activities, thereby providing more freedom to focus on ISP's
business and operations.
Mr. Heyman has considered certain alternatives to the merger, including
having ISP remain public without acquiring additional shares or pursuing a
public offering to increase the liquidity of the public trading market for the
ISP common stock. However, in light of capital market conditions and the
reluctance of institutional investors to purchase stock of a company with a
small public float, ISP concluded that such an offering could not be effected on
terms that were economically attractive. In addition, as noted in "--Background
of the Merger," Mr. Heyman considered the possibility of pursuing a going
private transaction by means of a tender offer rather than a merger, but
ultimately concluded that the merger constituted a preferable means of effecting
the proposed transaction.
As discussed in "--Background of the Merger," the special committee and the
board of directors considered the proposed merger and decided to recommend the
transaction because they believed that the opportunity to receive the $10.30 per
share cash merger consideration was an attractive option to present to the
stockholders of ISP, other than Mr. Heyman and his affiliates, in light of ISP's
historical and current financial and trading performance and difficult general
economic and stock market conditions. The special committee and the board of
directors also considered the offer to be attractive for other reasons,
including difficulties in remaining a publicly traded company with ISP's small
public float and Mr. Heyman's unwillingness to cause ISP or his beneficial
interest in ISP to be sold to a third party.
EFFECTS OF THE MERGER; PLANS OR PROPOSALS AFTER THE MERGER
After the effective time of the merger, holders of our common stock, other
than Mr. Heyman and his affiliates, will cease to have ownership interests in
ISP or rights as our stockholders, and instead will only be entitled to receive
$10.30 in cash for each of their shares of our common stock. As a result of the
merger, Mr. Heyman's interest in our net book value and net earnings will
increase from approximately 81% to 100%, or by approximately $100.6 million in
the case of book value. ISP reported a loss for the twelve months ending
September 30, 2002, so Mr. Heyman is increasing his attributable share of ISP's
recent net loss. As a result of the merger, Mr. Heyman will be the sole
beneficiary of our future earnings and growth, if any. Similarly, Mr. Heyman
will also bear the risk of any losses generated by our operations and any
decrease in our value after the merger. As a result of the merger, ISPH will be
merged with and into ISP and will cease to be a separate legal entity.
None of Mr. Heyman, ISPH and ISP will recognize gain or loss for United
States federal income tax purposes as a result of the merger.
Following the merger, our common stock will no longer be traded on the New
York Stock Exchange. In addition, the registration of our common stock under the
Securities Exchange Act of 1934 will be terminated. Due to this termination, the
periodic reporting requirements under that Act, certain provisions of Section
16(b) of that Act, and requirements that we furnish a proxy or information
statement in connection with stockholders' meetings will no longer apply to us.
After the effective time of the merger, there will be no publicly traded ISP
common stock outstanding and we would no longer be required to file periodic
reports with the Securities and Exchange Commission. Several of our
subsidiaries, however, would continue to file periodic reports in respect of the
outstanding debt securities of those entities. Specifically, our subsidiary
International Specialty Holdings Inc. is currently required to file periodic
reports pursuant to the Exchange Act and our primary operating subsidiary ISP
Chemco Inc. and certain of its subsidiaries have agreed to file periodic reports
with the Commission pursuant to an indenture for so long as ISP Chemco has
indebtedness outstanding under that indenture.
31
From and after the effective time of the merger, our current directors
(other than Mr. Sanford Kaplan and the members of the special committee) and
officers will remain the directors and officers of ISP, until their successors
are duly elected or appointed and qualified.
Mr. Heyman expects that following completion of the merger, ISP's business
operations will be conducted substantially as they are currently being
conducted. Mr. Heyman has no other current plans or proposals or negotiations
which relate to or would result in an extraordinary corporate transaction
involving our corporate structure, business or management, such as a merger,
reorganization, liquidation, relocation of any operations, or sale or transfer
of a material amount of assets. Nevertheless, Mr. Heyman may initiate from time
to time reviews of us and our assets, corporate structure, capitalization,
operations, properties, management and personnel to determine what changes, if
any, would be desirable following the merger in order best to organize ISP's
activities. Mr. Heyman expressly reserves the right to make any changes that he
deems necessary or appropriate in light of his review or in light of future
developments.
In addition, Mr. Heyman may also consider material changes in the present
dividend rate and policy, indebtedness, capitalization and management and
employee incentive plans and may consider pursuing acquisition opportunities
through ISP.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
ISP's board of directors and executive officers have various interests in
the merger described in this section that are in addition to, or different from,
the interests of ISP's stockholders generally. ISP stockholders should keep this
in mind when considering the recommendation of ISP's board of directors that the
stockholders vote to adopt the merger agreement.
POSITIONS AFTER THE MERGER
After the merger, Mr. Heyman and Mr. Kumar are expected to be the sole
remaining directors of ISP. In addition, each current executive officer of ISP
is expected to remain an executive officer of ISP after the merger. Mr. Heyman
and ISP retain the right to name additional or different directors and executive
officers after the merger, but currently have no intention to do so. There is no
current plan or arrangement for materially increasing the compensation of any
director or executive officer of ISP after the merger (although ISP expressly
reserves the right to make any changes it deems necessary or appropriate in the
future). For additional information regarding the compensation of our directors
and executive officers, please see the annual report on Form 10-K that ISP and
its subsidiaries have filed with the Securities and Exchange Commission.
STOCK OPTIONS; RESTRICTED SHARES
The merger agreement provides that as of the effective time, all
outstanding and unexercised employee stock options on ISP common stock granted
pursuant to the 1991 Incentive Plan for Key Employees and Directors and the 2000
Stock Option Plan for Non-Employee Directors will be canceled. The merger
agreement provides that, in consideration for that cancellation, the holders of
the options will have the right to receive a cash payment. The amount of this
payment will equal the excess, if any, of the merger consideration of $10.30 in
cash per share of ISP common stock over the per share exercise price of the
options, multiplied by the number of shares of ISP common stock subject to those
options, reduced by applicable withholding taxes.
In addition, the merger agreement provides that each share of restricted
ISP common stock will be canceled in consideration for the right to receive an
amount in cash equal to $10.30, as reduced by applicable withholding taxes,
subject to the vesting restrictions that were applicable to the underlying
restricted shares.
Our executive officers and directors currently hold a total of
approximately 1,072,500 options. Approximately 496,000 of these options have an
exercise price below the $10.30 merger consideration and all but 18,666 of those
"in-the-money" options are vested. The aggregate payment that our executive
officers and directors would be entitled to receive for all of their options as
of the date of this proxy statement is approximately $1.58 million. In addition,
our executive officers and directors hold approximately 500,000 restricted
shares of ISP common stock.
The table below sets forth the number of shares of ISPcommon stock subject
to vested and unvested "in-the-money" stock options held, and shares of ISP
common stock beneficially owned, by each of our executive officers and directors
and the aggregate payment that each executive officer and director would be
entitled to receive in connection with the merger as a result of such holdings.
32
"IN-THE-MONEY" OPTIONS:
-------------------------------
NAME VESTED UNVESTED SHARES TOTAL PAYMENTS
---------- --------- --------- ---------------
Samuel J. Heyman........................... 150,000 0 52,328,040(1) $5,902,500(1)
Sunil Kumar................................ 100,000 0 616,526 6,902,118(2)
Richard A. Weinberg........................ 95,140 0 79,055 1,090,573
Susan B. Yoss.............................. 37,700 0 160,000 1,677,752(3)
Roger J. Cope.............................. 55,605 0 60,228 696,471
Robert Englander........................... 1,667 6,333 0 3,434
Lawrence Grenner........................... 11,000 0 0 26,953
Sanford Kaplan............................. 14,000 3,000 5,000 85,985
Burt Manning............................... 14,000 3,000 7,000 106,585
Alan M. Meckler............................ 1,667 6,333 0 3,434
Stephen R. Olsen........................... 0 0 101,100 1,041,330(4)
Neal E. Murphy............................. 0 0 0 0
Steven E. Post............................. 0 0 0 0
All directors and executive
officers as a group (13 persons)........... 480,779 18,666 53,356,949(1) $18,032,135(1)
-------------
(1) Pursuant to the merger agreement, Mr. Heyman will not receive any payment
in exchange for shares of ISP common stock beneficially owned by him,
except that (i) Mr. Heyman is entitled to receive $495,000 in exchange for
cancellation of his stock options and (ii) the 525,000 shares owned by the
qualified charitable organization referred to below that Mr. Heyman is
deemed to beneficially own will be canceled in exchange for the merger
consideration per share.
The Annette Heyman Foundation, Inc., a charitable organization recognized
as tax-exempt pursuant to Section 501(c)(3) of the Internal Revenue Code,
holds 525,000 shares of ISP common stock. The Annette Heyman Foundation
will be entitled to receive the merger consideration per share for each of
these shares, or approximately $5,400,000. Mr. Heyman is deemed the
beneficial owner of these shares because he is a director and the president
of the foundation. These shares constitute less than 1% of the shares of
ISPcommon stock beneficially owned by Mr. Heyman.
Mr. Heyman expects to cause the sale of 114,336 shares of ISPcommon stock
beneficially owned by him prior to the merger to non-affiliated persons in
one or more sales pursuant to Rule 144 under the Securities Act of 1933.
These shares were originally acquired in open market purchases from
unaffiliated third parties for an average price per share of approximately
$7.08 and represent less than 0.25% of the shares beneficially owned by Mr.
Heyman. While the sale price for these shares cannot be determined at this
time, it is likely that the sale price will be no more than $10.30 per
share. Accordingly, Mr. Heyman anticipates that the sale proceeds will not
exceed $1,177,661. The shares are being sold for personal tax and financial
planning purposes.
(2) Includes $2,575,000 to be paid, subject to vesting restrictions, in
exchange for surrendering 250,000 restricted shares of ISP's common stock.
(3) Includes $1,545,000 to be paid, subject to vesting restrictions, in
exchange for surrendering 150,000 restricted shares of ISP's common stock.
(4) Includes $1,030,000 to be paid, subject to vesting restrictions, in
exchange for surrendering 100,000 restricted shares of ISP's common stock.
INDEMNIFICATION AND INSURANCE
Following the completion of the merger, ISP is required to indemnify,
defend and hold harmless, to the full extent permitted by law, all current
officers and directors of ISP against all losses, claims, damages, costs,
expenses or liabilities or in connection with any claim, action, suit,
proceeding or investigation arising out of the fact that the person is an
officer or director of ISP (or out of any action taken by any such person on
behalf of ISP), pertaining to any matter existing or occurring on or prior to
the effective time of the merger (including the transactions contemplated by the
merger agreement), whether asserted or claimed prior to, or on or after, the
effective time of the merger. In addition, ISP is required to maintain its
directors and officers' liability insurance policies in effect for six years
after the effective time of the merger, except that ISP will not be required to
pay annual insurance premiums in excess of 200% of the premiums it currently
pays.
On August 7, 2002, ISP entered into indemnity agreements with each member
of the special committee. Pursuant to the indemnity agreements, ISP agreed to
indemnify Messrs. Englander, Manning and Meckler for any expenses, liabilities
and losses relating to their service as members of the special committee and/or
the board of directors in connection with the transaction. These indemnity
agreements are in addition to the indemnity available to the special committee
members pursuant to ISP's amended and restated certificate of incorporation.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO OUR STOCKHOLDERS
The following is a summary of United States federal income tax consequences
of the merger to stockholders whose shares of ISP common stock are converted
into the right to receive cash pursuant to the merger. The discussion does not
purport to consider all aspects of United States federal income taxation that
might be relevant to our stockholders. The discussion is based
33
on current law which is subject to change possibly with retroactive effect. The
discussion applies only to stockholders who hold shares of our common stock as
capital assets, and may not apply to shares of our common stock received in
connection with the exercise of employee stock options or otherwise as
compensation, or to certain types of stockholders (such as insurance companies,
tax-exempt organizations, financial institutions and broker-dealers) who may be
subject to special rules. This discussion does not discuss the tax consequences
to any of our stockholders who, for United States federal income tax purposes,
is a non-resident alien individual, foreign corporation, foreign partnership or
foreign estate or trust, and does not address any aspect of state, local or
foreign tax laws.
The receipt of cash for shares of our common stock pursuant to the merger
will be a taxable transaction for United States federal income tax purposes. In
general, a stockholder who surrenders shares of our common stock for cash
pursuant to the merger will recognize capital gain or loss for United States
federal income tax purposes equal to the difference, if any, between the amount
of cash received and the stockholder's adjusted tax basis in the shares of ISP
common stock surrendered. Gain or loss will be determined separately for each
block of shares (i.e., shares acquired at the same cost in a single transaction)
surrendered for cash pursuant to the merger. Such gain or loss will be long-term
capital gain or loss provided that a stockholder's holding period for such
shares is more than 12 months at the time of the consummation of the merger.
Long-term capital gains of individuals are eligible for reduced rates of
taxation. There are limitations on the deductibility of capital losses.
In general, cash received by stockholders who exercise statutory appraisal
rights under Section 262 of the DGCL in respect of such appraisal rights will
result in the recognition of gain or loss to such stockholders. Any stockholder
who is considering exercising statutory appraisal rights should consult with its
own tax advisor for a full understanding of the tax consequences of the receipt
of cash in respect of appraisal rights pursuant to the merger.
Under the U.S. federal backup withholding tax rules, unless an exemption
applies, the paying agent will be required to withhold, and will withhold, 30%
of all cash payments to which a holder of shares is entitled pursuant to the
merger agreement, unless the stockholder provides a tax identification number
(social security number, in the case of an individual, or employer
identification number, in the case of other stockholders), certifies that such
number is correct, and otherwise complies with such backup withholding tax
rules. Each of our stockholders 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 tax, unless an exemption applies and is established in a
manner satisfactory to the paying agent.
THE U.S. FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE NOT INTENDED
TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE
MERGER. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER SHOULD
CONSULT THE STOCKHOLDER'S TAX ADVISOR REGARDING THE APPLICABILITY OF THE RULES
DISCUSSED ABOVE TO THE STOCKHOLDER AND THE PARTICULAR TAX EFFECTS TO THE
STOCKHOLDER OF THE MERGER, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN
TAX LAWS.
LITIGATION
In July of 2002, six purported class action suits were filed on behalf of
ISP stockholders in the Court of Chancery of the State of Delaware against ISP
and members of its board of directors. These six suits have been consolidated.
On July 12, 2002, a seventh ISP stockholder filed a purported class action suit
in the United States District Court, District of New Jersey, against ISP and
members of its board of directors. The New Jersey claim was subsequently amended
to assert derivative claims as well. The plaintiffs in the Delaware and New
Jersey litigations seek to represent the same class of ISP stockholders. The
Delaware and New Jersey complaints allege, among other things, that the
defendants have breached fiduciary and other duties in connection with Mr.
Heyman's proposal to acquire beneficial ownership of all shares of ISP common
stock that he does not already beneficially own. These complaints variously seek
a court order enjoining the proposed transaction, an award of unspecified
damages and attorneys' fees, the unwinding of any transaction and other
unspecified equitable relief.
Following settlement discussions between counsel for Mr. Heyman and counsel
for plaintiffs in the Delaware and New Jersey litigations, on November 19, 2002,
the parties to the stockholder litigation pending in Delaware agreed on and
executed a memorandum of understanding to reflect a proposed settlement of the
Delaware litigation. The parties to the Delaware litigation also agreed, subject
to the conditions described below, to enter into a settlement agreement,
cooperate in public disclosures related to the settlement and use best efforts
to gain approval of the settlement by the Delaware courts. Without any admission
of fault by the defendants, the memorandum of understanding for the proposed
settlement of the Delaware litigation contemplates a dismissal of all claims
with prejudice and a release in favor of all defendants of any and all claims
related to the proposed transaction (including the claims in the New Jersey
litigation) that have been or could have been asserted by the plaintiffs and all
members of a plaintiff class consisting of all record and beneficial holders of
ISP common stock from July 7, 2002 through the completion of the merger. These
dismissed claims are referred to in this proxy statement as the settled claims.
34
The proposed settlement of the Delaware litigation is subject to numerous
conditions, including the completion of confirmatory discovery, execution of a
settlement agreement containing a provision permitting defendants to terminate
the settlement if, prior to final court approval, any action other than the New
Jersey litigation is pending in any state or federal court which raises any
settled claims, a determination by defendants prior to final court approval that
the dismissal of the litigation in accordance with the settlement agreement will
result in the release with prejudice of the settled claims, final approval of
the settlement by the Delaware courts, and completion of the merger. Because the
proposed settlement is subject to consummation of the merger and the other
conditions described above, any settlement will not be final at the time you
will be asked to vote on the merger. If the parties to the Delaware litigation
do not proceed with the proposed settlement, or in the event the proposed
settlement ultimately is not approved by the Delaware courts, the Delaware and
New Jersey litigations could proceed and the plaintiffs could seek the relief
sought in their complaints, including rescission of the merger or an award of
damages in favor of the ISP stockholders in any plaintiff class that might be
certified.
If the proposed settlement of the Delaware litigation becomes final, the
defendants believe that any and all settled claims against the defendants in the
New Jersey litigation will be released and the defendants intend to move for a
dismissal of the New Jersey litigation based on the final order in the Delaware
litigation.
35
THE SPECIAL MEETING
This proxy statement is furnished in connection with the solicitation of
proxies by our board of directors in connection with a special meeting of our
stockholders.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting is scheduled to be held as follows:
DATE: February ___, 2003
TIME:_____________
PLACE: Offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New
York, New York
PROPOSAL TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, you will be asked to consider and vote upon a
proposal to adopt an agreement and plan of merger, dated as of November 8, 2002,
between ISP and ISPH, a corporation 100% beneficially owned by Mr. Heyman and to
consider such other business as may properly come before the meeting and all
adjournments or postponements thereof.
RECORD DATE
The board of directors has fixed the close of business on January 10, 2003
as the record date for the special meeting and only holders of common stock on
the record date are entitled to notice of and to vote at the special meeting. On
that date, there were approximately 170 holders of record of ISP common stock,
and 65,210,670 shares of common stock outstanding. On the record date, Mr.
Heyman beneficially owned 52,567,240 outstanding shares of ISP common stock,
representing approximately 80.6% of the total voting power of ISP.
VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
Each share of ISP common stock entitles its holder to one vote on all
matters properly coming before the special meeting. A majority of the total
number of all outstanding shares of common stock entitled to vote, represented
in person or by proxy, will constitute a quorum at the special meeting. Mr.
Heyman has agreed, pursuant to a voting agreement, to cause all of the shares
beneficially owned by him at the time of the meeting (but excluding shares held
by qualified charitable organizations) to be represented in person or by proxy
at the meeting. Accordingly, a quorum at the meeting is assured.
If you hold your shares in an account with a broker or bank, you must
instruct the broker or bank on how to vote your shares. If an executed proxy
card returned by a broker or bank holding shares indicates that the broker or
bank does not have discretionary authority to vote on the adoption of the merger
agreement, the shares will be considered present at the meeting for purposes of
determining the presence of a quorum, but will not be voted on the proposal to
adopt the merger agreement. This is called a broker non-vote. Your broker or
bank will vote your shares only if you provide instructions on how to vote by
following the instructions provided to you by your broker or bank.
Under Delaware law, the merger agreement must be adopted by the affirmative
vote of the holders of a majority of the shares of common stock outstanding and
entitled to vote at the special meeting. Mr. Heyman has agreed in the voting
agreement to cause all of the shares beneficially owned by him at the time of
the meeting (but excluding shares held by qualified charitable organizations) to
vote "FOR" the merger agreement, which will assure adoption of the merger
agreement under Delaware law.
In addition, although not required under the Delaware General Corporation
Law or the amended and restated certificate of incorporation or by-laws of ISP,
the merger agreement requires that the majority of the minority condition be
satisfied.
Abstentions, failures to vote and broker non-votes will have the same
effect as a vote against the adoption of the merger agreement for purposes of
obtaining a majority of all shares of ISP common stock. However, abstentions,
failures to vote and broker non-votes will not affect satisfaction of the
majority of the minority condition.
Each of our directors and executive officers has indicated that he or she
intends to vote his or her own shares in favor of adoption of the merger
agreement. If Mr. Heyman and each of our directors and officers vote as we
expect, 83% of the outstanding shares of ISP common stock will have voted for
adoption of the merger agreement.
36
VOTING AND REVOCATION OF PROXIES
Stockholders should mark, date, sign and return the proxy card and mail it
in the enclosed envelope as soon as possible so that your shares are represented
at the special meeting, even if you plan to attend the meeting in person.
Proxies received at any time before the special meeting, and not revoked or
superseded before being voted, will be voted at the special meeting. Where a
specification is indicated by the proxy, it will be voted in accordance with the
specification. Where no specification is indicated, the proxy will be voted
"FOR" the proposal to adopt the merger agreement and in the discretion of the
persons named in the proxy with respect to any other business which may properly
come before the meeting or any adjournment of the meeting and which is not known
a reasonable time before the meeting. However, the proxies do not grant
authority to vote on any proposal to adjourn or postpone the special meeting for
the purpose of soliciting further proxies in favor of adoption of the merger
agreement. Our board of directors is not currently aware of any business to be
brought before the special meeting other than that described in this proxy
statement.
Until your proxy is exercised at the special meeting, you can revoke your
proxy and change your vote in any of the following ways:
o by delivering written notification of revocation to our Secretary at
our executive offices at 1361 Alps Road, Wayne, New Jersey 07470,
o by delivering a proxy of a later date,
o by attending the special meeting and voting in person. Your attendance
at the special meeting will not, by itself, revoke any proxy previously
delivered by you; you must vote in person at the meeting, or
o if you have instructed a broker to vote your shares, by following the
directions received from your broker to change those instructions.
Votes will be tabulated by our transfer agent, The Bank of New York.
SOLICITATION OF PROXIES
We will bear the expenses in connection with the solicitation of proxies.
Arrangements will also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of common stock held of record by such persons, and we may
reimburse them for their reasonable transaction and clerical expenses.
Solicitation of proxies will be made principally by mail. Proxies may also be
solicited in person, or by telephone or facsimile by our officers and regular
employees. These people will receive no additional compensation for these
services, but will be reimbursed for any transaction expenses incurred by them
in connection with these services.
We have also retained Georgeson Shareholder Communications Inc., a proxy
solicitation firm, for a fee of $7,500 plus transaction expenses, to assist in
the solicitation of proxies from stockholders, including brokerage houses and
other custodians, nominees and fiduciaries.
THE MERGER
This section of the proxy statement describes material aspects of the
proposed merger, including the merger agreement, which is incorporated by
reference to this proxy statement and is attached hereto as Annex A. While we
believe that the description covers the material terms of the merger, this
summary is qualified in its entirety by reference to the complete text of the
merger agreement and may not contain all of the information that is important to
you. You should carefully read this entire proxy statement, the merger agreement
and the other documents we refer you to for a more complete understanding of the
merger.
In the merger, ISPH will merge into ISP with ISP as the surviving
corporation in the merger.
As a result of the merger, ISP will cease to be a publicly held company and
will become a private corporation, all of the stock of which will be
beneficially owned by Mr. Heyman.
37
EFFECTIVE TIME OF MERGER
If the merger agreement is adopted by the requisite votes of stockholders
and the other conditions to the merger are satisfied or waived to the extent
permitted, the merger will be consummated and become effective at the time a
certificate of merger is filed with the Secretary of State of the State of
Delaware or any later time as ISP and ISPH agree upon and specify in the
certificate of merger. The filing is expected to occur as soon as practicable
after adoption of the merger agreement by ISP stockholders at the special
meeting and satisfaction or waiver of the other conditions to the merger set
forth in the merger agreement. Upon the completion of the merger, ISPH will
cease to exist and ISP will continue as the surviving corporation. If our
stockholders vote to adopt the merger agreement, we expect to complete the
merger during the first quarter of 2003.
PAYMENT OF MERGER CONSIDERATION AND SURRENDER OF STOCK CERTIFICATES
If we complete the merger, our common stockholders (other than holders of
common stock beneficially owned by Mr. Heyman and holders who perfected their
appraisal rights under Delaware law) will be entitled to receive $10.30 in cash
for each share of ISP common stock that they own. In addition, charitable
organizations that own common stock will be entitled to receive $10.30 in cash
for each share of ISP common stock that they own, even if the shares are
beneficially owned by Mr. Heyman. A qualified charitable organization holds
525,000 shares of ISP common stock that are deemed to be beneficially owned by
Mr. Heyman. The qualified charitable organization will receive $10.30 in cash
for each of these shares, as described under "Special Factors--Interests of
Directors and Executive Officers in the Merger."
We will designate a paying agent to make the cash payments contemplated by
the merger agreement. From time to time after the effective time of the merger,
ISP will deposit in trust with the paying agent funds sufficient to pay the
merger consideration to stockholders. The paying agent will deliver your merger
consideration to you according to the procedure summarized below.
After the effective time of the merger we will not transfer shares of
common stock that were outstanding immediately prior to the effective time on
our stock transfer books. If you present common stock certificates to us or our
paying agent after the effective time of the merger, we will cancel them in
exchange for cash as described in this section.
As soon as practicable after the effective time of the merger, we will send
you, or cause to be sent to you, a letter of transmittal and instructions
advising you how to surrender your certificates in exchange for the merger
consideration.
The paying agent will pay your merger consideration, together with any
dividends to which you are entitled, to you after you have surrendered your
certificates to the paying agent.
Interest will not be paid or accrue in respect of cash payments of merger
consideration. We will reduce the amount of any merger consideration paid to you
by any applicable withholding taxes.
If the paying agent is to pay some or all of your merger consideration to a
person other than you, you must have your certificates properly endorsed or
otherwise in proper form for transfer, and you must pay any transfer or other
taxes payable by reason of the transfer or establish to ISP's satisfaction that
the taxes have been paid or are not required to be paid.
YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING AGENT WITHOUT
A LETTER OF TRANSMITTAL, AND YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES WITH
THE ENCLOSED PROXY.
The transmittal instructions will tell you what to do if you have lost your
certificate, or it has been stolen or destroyed. You will have to provide an
affidavit to that fact and, if required by our paying agent or ISP, post a bond
in an amount that the paying agent or ISP, as the case may be, reasonably
directs as indemnity against any claim that may be made against those parties in
respect of the certificate.
At the effective time of and after the merger, subject to the exceptions in
the next sentence, you will cease to have any rights as our stockholder. The
exceptions include the right to receive dividends or other distributions with
respect to your shares with a record date before the effective time and the
right to surrender your certificates in exchange for payment of the merger
consideration.
ACCOUNTING TREATMENT
For U.S. accounting and financial reporting purposes, the acquisition of
shares in the merger will be accounted for under the purchase method of
accounting.
38
FEES AND EXPENSES OF THE MERGER
All fees and expenses in connection with the merger will be paid by the
party incurring those fees and expenses, except that we will pay the expenses
related to the preparation, printing and mailing of this proxy statement and all
filing and other fees paid to the Securities and Exchange Commission in
connection with the merger. The total fees and expenses in connection with the
merger are estimated to be approximately $3.2 million. This amount consists of
the following estimated fees:
Legal and Other Professional Fees(1) $2,750,000
Printing, Proxy Solicitation and Mailing Costs 100,000
Special Committee Fees 60,000
Filing Fees (SEC) 26,873
Miscellaneous 250,000
------------- -----------
Total $ 3,186,873
--------------
(1) Includes fees paid to Lehman Brothers Inc.
FINANCING OF THE MERGER
We and Mr. Heyman estimate that approximately $134.4 million will be
required to complete the purchase of shares of our common stock, restricted
stock and options pursuant to the merger (excluding the fees and expenses
referred to above). Mr. Heyman and ISP expect this amount to be paid out of
available funds of ISP at the effective time of the merger. We currently
anticipate that ISP will obtain those funds by entering into an intercompany
borrowing arrangement immediately prior to the closing of the merger with its
indirect wholly owned subsidiary, ISP Investco LLC, pursuant to which ISP
Investco LLC will lend ISP unrestricted funds sufficient to pay the costs and
expenses of the merger, including the merger consideration. ISP Investco
currently has sufficient capital to cover the cost of funding the merger
consideration. The merger is not conditioned on any financing arrangements.
APPRAISAL RIGHTS
Under Section 262 of the DGCL, if you do not wish to accept $10.30 per
share in cash for your shares of common stock, you may elect to have the fair
value of your shares of common stock judicially determined and paid to you in
cash, together with a fair rate of interest, if any. The valuation will exclude
any element of value arising from the accomplishment or expectation of the
merger. You may only exercise these rights if you comply with the provisions of
Section 262. The following discussion is not a complete statement of the law
pertaining to appraisal rights under the DGCL, and is qualified in its entirety
by the full text of Section 262 set forth in Annex D.
Under Section 262 of the DGCL, where a proposed merger is to be submitted
for approval at a meeting of stockholders, as in the case of our special
meeting, the corporation, not less than 20 days prior to the meeting, must
notify each of its stockholders entitled to appraisal rights that these
appraisal rights are available and include in that notice a copy of Section 262.
This proxy statement will constitute this notice to the holders of common stock
and the applicable statutory provisions of the DGCL are attached to this proxy
statement as Annex D. Any stockholder who wishes to exercise those appraisal
rights or who wishes to preserve the right to do so should review carefully the
following discussion and Annex D to this proxy statement. FAILURE TO COMPLY WITH
THE PROCEDURES SPECIFIED IN SECTION 262 OF THE DGCL TIMELY AND PROPERLY WILL
RESULT IN THE LOSS OF APPRAISAL RIGHTS. Moreover, because of the complexity of
the procedures for exercising the right to seek appraisal of the common stock,
we believe that stockholders who consider exercising those rights should seek
the advice of counsel.
All references in Section 262 of the DGCL and in this summary to a
"stockholder" are to the record holder of the shares of common stock as to which
appraisal rights are asserted. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES
OF COMMON STOCK HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER
OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW PROPERLY THE
STEPS SUMMARIZED BELOW AND IN A TIMELY MANNER TO PERFECT APPRAISAL RIGHTS.
39
Any holder of common stock wishing to exercise the right to demand
appraisal under Section 262 of the DGCL must satisfy each of the following
conditions:
o the holder must deliver to us a written demand for appraisal of its
shares before the vote on the adoption of the merger agreement at the
special meeting. This demand will be sufficient if it reasonably
informs us of the identity of the stockholder and that the stockholder
intends by that writing to demand the appraisal of its shares;
o the holder must not vote its shares of common stock in favor of the
adoption of the merger agreement. A proxy which does not contain voting
instructions will, unless revoked, be voted in favor of the adoption of
the merger agreement. Therefore, a stockholder who votes by proxy and
who wishes to exercise appraisal rights must vote against the adoption
of the merger agreement or abstain from voting on the merger agreement;
and
o the holder must continuously hold its shares from the date of making
the demand through the effectiveness of the merger. A stockholder who
is the record holder of shares of common stock on the date the written
demand for appraisal is made but who thereafter transfers those shares
prior to the effectiveness of the merger will lose any right to
appraisal in respect of those shares.
Voting against, abstaining from voting on or failing to vote on the
proposal to adopt the merger agreement will not constitute a written demand for
appraisal within the meaning of Section 262 of the DGCL. The written demand for
appraisal must be in addition to, and separate from, any proxy you deliver or
vote you cast in person.
Only a holder of record of shares of common stock is entitled to assert
appraisal rights for those shares registered in that holder's name. A demand for
appraisal should:
(1) be executed by or on behalf of the stockholder of record, fully and
correctly, as its name appears on those stock certificates, and
(2) specify the following:
o the stockholder's name and mailing address,
o the number of shares of common stock owned by the stockholder, and
o that the stockholder intends thereby to demand appraisal of its
common stock.
If the shares are owned of record by a person in a fiduciary capacity, such
as a trustee, guardian or custodian, the demand should be executed in that
capacity. If the shares are owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all owners. An authorized agent, including one or more joint owners,
may execute a demand for appraisal on behalf of a stockholder; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is acting as agent for such owner or
owners. A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more beneficial owners while not exercising these rights with respect
to the shares held for one or more other beneficial owners. In this case, the
written demand should set forth the number of shares as to which appraisal is
sought, and where no number of shares is expressly mentioned the demand will be
presumed to cover all shares held in the name of the record owner. STOCKHOLDERS
WHO HOLD THEIR SHARES IN BROKERAGE ACCOUNTS OR OTHER NOMINEE FORMS AND WHO WISH
TO EXERCISE APPRAISAL RIGHTS ARE URGED TO CONSULT WITH THEIR BROKERS TO
DETERMINE APPROPRIATE PROCEDURES FOR THE MAKING OF A DEMAND FOR APPRAISAL BY
SUCH NOMINEE.
A stockholder who elects to exercise appraisal rights pursuant to Section
262 of the DGCL should mail or deliver a written demand to: International
Specialty Products Inc., 1361 Alps Road, Wayne, New Jersey 07470, Attention:
Secretary.
Within ten days after the effective time of the merger, ISP, as the
surviving corporation, must notify each holder of our common stock who has
complied with Section 262 of the DGCLand who has not voted in favor of the
adoption of the merger agreement of the date that the merger became effective.
Within 120 days after the effective time of the merger, but not after that date,
either ISP or any stockholder who has complied with the requirements of Section
262 may file a petition in the Court of Chancery of the State of Delaware
demanding a determination of the value of the shares of common stock held by all
stockholders demanding appraisal of their shares. We are under no obligation to,
and have no present intent to, file a petition for appraisal, and stockholders
seeking to exercise appraisal rights should not assume that we will file a
petition with respect to the fair value of the shares. Accordingly, stockholders
who desire to have their shares appraised should initiate all necessary
40
action for the perfection of their appraisal rights within the time periods and
in the manner prescribed in Section 262. Since we have no obligation to file a
petition, your failure to do so within the period specified could nullify your
previous written demand for appraisal.
Under the merger agreement, we have agreed to give ISPH prompt notice of
any demands for appraisal we receive prior to the effective time. Prior to the
effective time, ISPH has the right to participate in and direct all negotiations
and proceedings with respect to demands for appraisal under the DGCL. Prior to
the effective time, we will not, except with the prior written consent of ISPH,
make any payment with respect to any demands for appraisal, or offer to settle,
or settle or otherwise negotiate, any demands.
Within 120 days after the effectiveness of the merger, any stockholder that
complies with the provisions of Section 262 of the DGCLto that point in time
will be entitled to receive from us, upon written request, a statement setting
forth the aggregate number of shares not voted in favor of the adoption of the
merger agreement and with respect to which we have received demands for
appraisal and the aggregate number of holders of those shares. We must mail this
statement to the stockholder by the later of 10 days after receipt of a request
or 10 days after expiration of the period for delivery of demands for appraisals
under Section 262.
A stockholder who timely files a petition for appraisal with the Court of
Chancery of the State of Delaware must serve a copy upon ISP. ISP must then
within 20 days file with the Register in Chancery of the State of Delaware a
duly verified list containing the names and addresses of all stockholders who
have demanded appraisal of their shares and who have not reached agreements with
us as to the value of their shares. After notice to stockholders as may be
ordered by the Court of Chancery of the State of Delaware, the Court of Chancery
of the State of Delaware is empowered to conduct a hearing on the petition to
determine which stockholders are entitled to appraisal rights. The Court of
Chancery of the State of Delaware may require stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates to the Register in Chancery for notation on the
certificates of the pendency of the appraisal proceedings, and if any
stockholder fails to comply with the requirement, the Court of Chancery of the
State of Delaware may dismiss the proceedings as to that stockholder.
After determining which stockholders are entitled to an appraisal, the
Court of Chancery of the State of Delaware will appraise the "fair value" of
their shares. This value will exclude any element of value arising from the
accomplishment or expectation of the merger, but will include a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
The costs of the action may be determined by the Court of Chancery of the State
of Delaware and taxed upon the parties as the Court of Chancery of the State of
Delaware deems equitable. Upon application of a stockholder, the Court of
Chancery of the State of Delaware may also order that all or a portion of the
expenses incurred by any stockholder in connection with the appraisal proceeding
be charged pro rata against the value of all of the shares entitled to
appraisal. These expenses may include, without limitation, reasonable attorneys'
fees and the fees and expenses of experts. STOCKHOLDERS CONSIDERING SEEKING
APPRAISAL SHOULD BE AWARE THAT THE FAIR VALUE OF THEIR SHARES AS DETERMINED
UNDER SECTION 262 OF THE DGCL COULD BE MORE THAN, THE SAME AS OR LESS THAN THE
MERGER CONSIDERATION THEY WOULD BE ENTITLED TO RECEIVE PURSUANT TO THE MERGER
AGREEMENT IF THEY DID NOT SEEK APPRAISAL OF THEIR SHARES. STOCKHOLDERS SHOULD
ALSO BE AWARE THAT INVESTMENT BANKING OPINIONS AS TO FAIRNESS FROM A FINANCIAL
POINT OF VIEW ARE NOT NECESSARILY OPINIONS AS TO FAIR VALUE UNDER SECTION 262.
In determining fair value and, if applicable, a fair rate of interest, the
Court of Chancery of the State of Delaware is to take into account all relevant
factors. In WEINBERGER V. UOP, INC., the Supreme Court of the State of Delaware
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
that 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."
In WEINBERGER, the Supreme Court of the State of Delaware 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 of the DGCLprovides, however,
that fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 of the DGCLwill not, after the effectiveness of the merger, be
entitled to vote the shares subject to that demand for any purpose or be
entitled to the payment of dividends or other distributions on those shares.
However, stockholders will be entitled to dividends or other distributions
payable to holders of record of shares as of a record date prior to the
effective time of the merger.
41
If any stockholder who demands appraisal of its shares of common stock
under Section 262 of the DGCLfails to perfect, or effectively withdraws or
loses, that holder's right to appraisal, the shares of common stock of that
stockholder will be deemed to have been converted at the effective time into the
right to receive the merger consideration. A stockholder will fail to perfect,
or effectively lose or withdraw, its right to appraisal if no petition for
appraisal is filed within 120 days after the effective time of the merger, or if
the stockholder delivers to ISP, as the surviving corporation, a written
withdrawal of its demand for appraisal and an acceptance of the merger, except
that any attempt to withdraw made more than 60 days after the effective time of
the merger will require the written approval of ISP, as the surviving
corporation, and, once a petition for appraisal is filed, the appraisal
proceeding may not be dismissed as to any holder absent court approval.
If we do not approve a stockholder's request to withdraw a demand for
appraisal when the approval is required or if the Court of Chancery of the State
of Delaware does not approve the dismissal of an appraisal proceeding, the
stockholder would be entitled to receive only the appraised value determined in
any such appraisal proceeding. This value could be higher or lower than, or the
same as, the value of the merger consideration.
Failure to comply strictly with all of the procedures set forth in Section
262 of the DGCL will result in the loss of a stockholder's statutory appraisal
rights. Consequently, any stockholder wishing to exercise appraisal rights is
urged to consult legal counsel before attempting to exercise those rights.
Mr. Heyman and his affiliates, as the holders of ISP common stock, may also
elect to have the fair value of their common stock judicially determined by
following the procedures described above. However, Mr. Heyman has agreed to
vote, or cause to be voted, all of the shares of ISP common stock beneficially
owned by him, at the time of the stockholder meeting, in favor of adoption of
the merger agreement and has advised us that he has no intention of exercising
appraisal rights with respect to any of its shares.
REGULATORY APPROVALS AND OTHER CONSENTS
We believe that there are no significant regulatory approvals or other
consents required to complete the merger.
THE MERGER AGREEMENT
CERTIFICATE OF INCORPORATION, BY-LAWS AND DIRECTORS AND OFFICERS OF ISP AS
THE SURVIVING CORPORATION
When the merger is completed:
o the amended and restated certificate of incorporation of ISP as in
effect immediately prior to the effective time of the merger will
be the amended and restated certificate of incorporation of ISP as
the surviving corporation;
o the by-laws of ISPH in effect immediately prior to the effective
time will be the by-laws of ISP as the surviving corporation;
o the directors of ISP immediately prior to the effective time
(other than Sanford Kaplan and those directors on the special
committee) will be the directors of ISP as the surviving
corporation; and
o the officers of ISP immediately prior to the effective time will
be officers of ISP as the surviving corporation.
CONVERSION OF COMMON STOCK
At the effective time of the merger, each outstanding share of ISP common
stock will automatically be converted into the right to receive $10.30 in cash,
without interest, except for:
o shares of ISP common stock beneficially owned by Mr. Heyman, which
will be canceled without any payment, except shares held by
charitable organizations, which will be converted into the right
to receive $10.30 in cash, without interest;
o shares of ISP common stock that are held in the treasury of ISP or
by any subsidiary of ISP, which will be canceled without any
payment; and
o shares held by stockholders validly perfecting appraisal rights
in accordance with the DGCL.
At the effective time, each outstanding share of ISPH stock issued and
outstanding prior to the effective time will be converted into one share of
common stock of ISP as the surviving corporation.
42
TREATMENT OF STOCK OPTIONS AND RESTRICTED SHARES
Each outstanding option granted under ISP's stock option plans will be
canceled at the effective time of the merger, and in consideration for such
cancellation, ISP as the surviving corporation shall pay in cash after the
effective time to each option holder the excess, if any, of the merger
consideration over the option's exercise price multiplied by the number of
shares of ISP common stock subject to the option immediately prior to the
effective time of the merger. ISP will cause each holder of a share of
restricted ISP common stock to surrender, immediately prior to the effective
time of the merger, the restricted shares in exchange for a cash payment in an
amount equal to the merger consideration, provided that the cash payment will
only be payable at the time when the vesting restrictions on the restricted
stock would have lapsed if the merger had not occurred. Cash payments made in
exchange for stock options or restricted stock will be made without interest and
will be reduced by any applicable withholding taxes.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties made
by ISP to ISPH, subject to various qualifications and limitations, including
representations and warranties relating to:
o ISP's due organization, valid existence, good standing and
necessary corporate power and authority of ISP and its
subsidiaries to carry on its business;
o the capitalization of ISP;
o the accuracy of information concerning ISP's subsidiaries in ISP's
Securities and Exchange Commission filings and the capitalization
of these subsidiaries;
o the authorization, execution, delivery and enforceability of the
merger agreement;
o the absence of any required governmental consents, approvals,
authorization, or permits, except those specified in the merger
agreement;
o the absence of any conflicts between the merger agreement and
ISP's amended and restated certificate of incorporation or
by-laws, or a material conflict with any applicable laws and any
other material contracts or documents;
o the accuracy and adequacy of information concerning ISP in this
proxy statement, any other document to be filed with the
Securities and Exchange Commission in connection with the merger
and all other filings made by ISP with the Securities and Exchange
Commission;
o the compliance of ISP with applicable laws;
o the absence of any litigation or claims against ISP or any of its
subsidiaries;
o the qualification of each of ISP's employee benefit plans and
other agreements with its employees under Section 401 of the
Internal Revenue Code, and the absence of any payments that would
be required as a result of the merger;
o the absence of any fees owed to brokers or investment bankers
(other than Lehman Brothers) in connection with the merger;
o the absence of any material changes to ISP's business, earnings,
assets, liabilities, financial or other condition or results of
operations from December 31, 2001 until the effective time of the
merger, except for changes disclosed in ISP's filings with the
Securities and Exchange Commission;
o the absence of material liabilities or obligations, except as
disclosed in ISP's filings with the Securities and Exchange
Commission;
o the accuracy of information in ISP's financial reports concerning
the real property owned or leased by ISP;
o good and marketable title to all the properties and assets
reflected on ISP's balance sheet as being owned by ISP or one of
our subsidiaries or acquired after the date of the merger
agreement and which are material to our business; and
o the receipt by the special committee of an opinion from the
special committee's financial advisors that the merger
consideration is fair, from a financial point of view, to ISP's
stockholders (other than Mr. Heyman).
43
The merger agreement contains various representations and warranties made
by ISPH to ISP, subject to various qualifications and limitations, including
representations and warranties relating to:
o the due organization, valid existence, good standing and necessary
corporate power and authority of ISPH to carry on its business;
o the capitalization of ISPH;
o the authorization, execution, delivery and enforceability of the
merger agreement;
o the absence of any required governmental consents, approvals,
authorization or permits, except those specified in the merger
agreement;
o the absence of any conflicts between the merger agreement and
ISPH's certificate of incorporation or by-laws, any applicable
laws and any other material contracts or documents;
o the accuracy and adequacy of information provided by ISPH in
connection with this proxy statement and the related filings with
the Securities and Exchange Commission;
o the absence of any knowledge of any current intention of Mr.
Heyman to sell ISP as of the date of the merger agreement; and
o the absence of any knowledge of any breaches or inaccuracies of
ISP's representations and warranties contained in the merger
agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
ISP has agreed that, prior to the effective time of the merger, except as
consented to by ISPH, neither our board of directors nor any board committee
will approve any action that would cause ISP or any of its subsidiaries to:
o split, combine or reclassify any capital stock;
o make, declare or pay dividends;
o repurchase, redeem or otherwise acquire any shares of ISP's
capital stock;
o grant any additional options, warrants or restricted shares, or
any capital stock or other equity interests;
o enter into any voting agreement or arrangement regarding its
capital stock;
o incur any indebtedness for borrowed money or assume or guarantee
indebtedness of any other person, other than in the ordinary
course of business, consistent with past practice, or incur other
capital expenditures, obligations or liabilities, other than those
budgeted as of the date of the merger agreement or in the ordinary
course of business, consistent with past practice;
o dispose of any material properties or assets or cancel or release
any material indebtedness;
o make any material investment in any entity, other than in ISP's
wholly owned subsidiaries or in the ordinary course of business,
consistent with past practice;
o enter into, terminate or make any material change to any material
lease, contract or agreement, other than renewals in the ordinary
course of business, consistent with past practice;
o increase compensation or benefits of current or former employees,
consultants or directors, other than in the ordinary course of
business, consistent with past practice, or as required by law or
contracts in effect as of the date of the merger agreement;
o settle any material claim, action or proceeding;
o change accounting methods or methods of reporting for tax
purposes, except as required by changes in GAAP or changes in
applicable law;
o amend any certificate of incorporation, by-laws or plan of
consolidation, merger or reorganization;
o take any intentional actions that would result, or might
reasonably be expected to result, in any of the representations or
warranties of ISP not being true, or in any conditions to the
merger not being satisfied; or
44
o agree to, commit to, or take any action described above.
PROXY STATEMENT
ISP and ISPH agreed to cooperate in preparing and ISP agreed to file as
soon as practicable, this proxy statement and a transaction statement on
Schedule 13E-3 along with any other filing required by the Securities and
Exchange Commission or other regulatory authority in connection with the merger.
ISP agreed to use its reasonable best efforts to reply to any Securities and
Exchange Commission comments and promptly mail copies of this proxy statement
and transaction statement on Schedule 13E-3 to its shareholders after responding
to such comments. ISP and ISPH agreed to promptly notify one another of receipt
of any Securities and Exchange Commission comments or requests for amendments or
information and supply one another with copies of all correspondence between its
representatives and the Securities and Exchange Commission regarding such
filings. If an event occurs prior to the special meeting of stockholders that
would require an amendment to this proxy statement or the transaction statement
on Schedule 13E-3, we agreed to prepare and mail such an amendment to our
stockholders, provided that no such amendment will be made without providing
ISPH an opportunity to comment on the amendment.
SPECIAL MEETING; ISP'S BOARD OF DIRECTORS' COVENANT TO RECOMMEND
ISP agreed to, consistent with applicable law, call and hold a meeting of
our stockholders as soon as practicable following the date of the merger
agreement for the purpose of voting on the adoption of the merger agreement. ISP
also agreed to include in this proxy statement and in the transaction statement
on Schedule 13E-3 the recommendation of our board of directors (acting upon the
recommendation of the special committee) that our stockholders (other than Mr.
Heyman) vote to adopt the merger agreement.
Neither the board of directors of ISP nor any of its committees
(including the special committee) may withdraw, qualify or modify, or
propose publicly to withdraw, qualify or modify its approval or
recommendation of the approval of the merger agreement and the transactions
it contemplates, or take any other action or make any other statement in
connection with the special meeting inconsistent with its recommendation.
However, in the event that prior to the receipt of the necessary approvals
by ISP's stockholders, the special committee determines in good faith,
after receipt of advice from outside counsel, that the failure to do so
would more likely than not constitute a breach of its fiduciary duties to
the stockholders of ISP (other than Mr. Heyman) under applicable law, then
the board of directors (acting upon the recommendation of the special
committee) or the special committee may withdraw, qualify or modify, or
propose publicly to withdraw, qualify or modify its approval or
recommendation of the approval of the merger agreement and the transactions
it contemplates. Nonetheless, the merger agreement shall still be submitted
to the stockholders of ISP for adoption at the special meeting.
REASONABLE EFFORTS
Subject to the terms and conditions provided in the merger agreement, both
ISP and ISPH agreed to use reasonable efforts to make, or cause to be made, all
filings necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the merger
agreement. Both ISP and ISPH agreed to use their reasonable best efforts to
furnish each other with all information required for any filings in connection
with the merger agreement. If, at any time after the effective time of the
merger, any further action is necessary or desirable to carry out the purposes
of the merger agreement, including the execution of additional instruments, the
proper officers and directors of each party to the merger agreement agreed to
take all such necessary action.
ACCESS TO INFORMATION
ISP has agreed that from the date of the merger agreement until the
effective time of the merger, we will (i) provide to the officers, stockholders,
attorneys, financial advisors, accountants, and other representatives of ISPH,
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 ISP and our subsidiaries, (ii) furnish to ISPH
and its stockholders, counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
persons may reasonably request and
45
(iii) instruct the employees, counsel and financial advisors of ISP and our
subsidiaries to cooperate with ISPH in its investigation of the business of ISP
and our subsidiaries.
CONDITIONS TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATION. The obligations of ISP and ISPH to
complete the merger are subject to the satisfaction or waiver on or prior to the
effective time of the merger of the following conditions:
o the merger and the merger agreement shall have been adopted by the
affirmative vote of (i) the holders of a majority of the outstanding
shares of ISP common stock, and (ii) the holders of a majority of the
shares of ISP common stock cast either for or against the adoption of
the merger agreement (excluding shares that are owned beneficially or
of record by any officer or director of ISP or ISPH); and
o the absence of any injunction or order or any statute, rule or
regulation that would prevent the completion of the merger and the
absence of any action brought by any governmental authority seeking to
obtain an injunction to prevent, materially delay, restructure or
otherwise question the transactions contemplated by the merger
agreement;
CONDITIONS TO ISPH'S OBLIGATION. The obligations of ISPH to complete the merger
are subject to the satisfaction or waiver, on or prior to the effective time of
the merger, of the following conditions:
o the representations and warranties made by ISP in the merger
agreement must be true and correct as of the date of the merger
agreement and as of the effective time, except such failures at
the effective time that, in the aggregate, would not reasonably be
expected to have a material adverse effect on ISP or consummation
of the merger; and
o ISP must have performed in all material respects all obligations
under the merger agreement required to be performed at or prior to
the effective time.
CONDITIONS TO ISP'S OBLIGATION. The obligations of ISP to complete the
merger are subject to the satisfaction or waiver, on or prior to the effective
time of the merger, of the following conditions:
o the representations and warranties made by ISPH in the merger
agreement must be true and correct as of the date of the merger
agreement and as of the effective time (except with respect to
representations and warranties that speak as of another date),
except such failures at the effective time that, in the aggregate,
would not reasonably be expected to have a material adverse effect
on the consummation of the merger; and
o ISPH must have performed in all material respects all obligations
under the merger agreement required to be performed at or prior to
the effective time.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time of the merger:
o by mutual written consent of ISP (provided that such termination
has been approved by the special committee) and ISPH;
o by either ISP (provided that such termination has been approved by
the special committee) or ISPH if a governmental entity of
competent jurisdiction issues a final nonappealable injunction or
other ruling permanently enjoining or otherwise prohibiting the
merger;
o by either ISP (provided that such termination has been approved by
the special committee) or ISPH if the merger is not completed on
or before May 31, 2003, unless the failure to complete the merger
is due to the failure of the party seeking to terminate the merger
agreement to fulfill its obligations under the merger agreement;
o by either ISP (provided that such termination has been approved by
the special committee) or ISPH if there is a breach of the
representations, warranties or covenants as set forth in the
merger agreement on the part of ISP (in the case of termination by
ISPH) or ISPH (in the case of termination by ISP), and that breach
is not cured in the 30-day period following written notice to the
party committing such a breach or cannot be cured prior to May 31,
2003, provided that such breach would constitute, individually or
in the aggregate with other breaches, the failure of the
conditions to the obligations set forth above;
46
o by either ISP (provided that such termination has been approved by
the special committee) or ISPH if the special meeting is held and
the stockholders fail to adopt the merger agreement by the
requisite votes described above, provided that ISPH shall not have
the right to terminate under this section if Mr. Heyman has failed
to cause the shares beneficially owned by him at the time of the
meeting to be voted in favor of the merger; or
o by ISPH if the ISP board of directors or the special committee
withdraws, qualifies or modifies its recommendation to ISP's
stockholders to adopt the merger agreement, or publicly proposes
to do so, or takes any other action or makes any other statement
inconsistent with that recommendation.
EFFECT OF TERMINATION
If the merger agreement is terminated by either ISP or ISPH, as provided
above, there will be no liability on the part of ISP, ISPH or any of their
affiliates, directors, officers, employers or stockholders. However, no party
will be relieved from liability for willful breaches of the merger agreement.
AMENDMENTS
The merger agreement may be amended by ISP (acting upon approval of the
special committee) and ISPH at any time before or after any required approval of
matters presented in connection with the merger by the stockholders; provided,
however, that after any such approval, no amendment may be made that by law
requires further approval by such stockholders without such approval (including
the majority of the minority condition).
OTHER MATTERS
SECURITY OWNERSHIP OF SPECIFIED BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of ISP as of January 30, 2003 by (1) all those known to ISP to be
beneficial owners of more than 5% of our common stock, (2) each executive
officer and director of ISP and ISPH and (3) all executive officers and
directors of ISP and ISPH as a group. ISPH currently does not beneficially own
any ISP common stock. Unless otherwise indicated, the address for each of the
stockholders listed below is c/o International Specialty Products Inc., 1361
Alps Road, Wayne, New Jersey 07470.
NUMBER OF SHARES
NAME BENEFICIALLY OWNED %
---- ------------------ ---
Samuel J. Heyman................................................. 52,567,240(1)(2)(3) 80.6%(1)(2)(3)
Sunil Kumar...................................................... 716,526(2)(4) 1.1%(2)(4)
Richard A. Weinberg.............................................. 510,405(2) *
Susan B. Yoss.................................................... 229,350(2)(5) *
Roger J. Cope.................................................... 137,563(2) *
Robert Englander................................................. 1,667(2) *
Lawrence Grenner................................................. 11,000(2) *
Sanford Kaplan................................................... 26,500(2) *
Burt Manning..................................................... 28,500(2) *
Alan M. Meckler.................................................. 1,667(2) *
Stephen R. Olsen................................................. 101,100(6) *
Neal E. Murphy................................................... 0 *
Steven E. Post................................................... 0 *
All directors and executive officers as a group (13 persons)..... 54,331,518(1)(2)(3) 83.3%(1)(2)(3)
-----------------
* Less than 1%
(1) Mr. Heyman may be deemed to beneficially own, and has sole voting and
investment power in respect of, 51,803,040 of these shares through a
limited partnership and two limited liability companies. Mr. Heyman
disclaims any pecuniary interest in these shares in excess of his interests
in such entities. Mr. Heyman also may be deemed to beneficially own 525,000
of these shares in his capacity as director and the president of The
Annette Heyman Foundation, Inc., a charitable organization recognized as
tax-exempt pursuant to Section 501(c)(3) of the Internal Revenue Code. Mr.
Heyman disclaims any pecuniary interest in these shares.
47
(2) Includes with respect to Mr. Heyman, 239,200 shares, Mr. Kumar, 100,000
shares, Mr. Weinberg, 431,350 shares, Ms. Yoss, 69,350 shares, Mr. Cope,
77,335 shares, Mr. Englander, 1,667 shares, Mr. Grenner, 11,000 shares, Mr.
Kaplan, 21,500 shares, Mr. Manning, 21,500 shares and Mr. Meckler, 1,667
shares and all executive officers and directors, 974,569 shares subject to
options granted under the 1991 Incentive Plan for Key Employees and
Directors, as amended, of ISP and the 2000 Stock Option Plan for
Non-Employee Directors of ISP that are currently exercisable or will become
exercisable within the next 60 days.
(3) Mr. Heyman expects to cause 114,336 shares of ISP common stock beneficially
owned by him to be sold prior to the merger to non-affiliated persons in
public sales. These shares represent less than 0.25% of the shares
beneficially owned by Mr. Heyman.
(4) Includes with respect to Mr. Kumar, a grant of 250,000 shares of restricted
common stock of ISP, 21,927 shares held in ISP's 401(k) plan as of December
31, 2002, 11,000 shares held by Mr. Kumar's spouse, 5,000 shares held by
Mr. Kumar's daughter and 100,000 shares in the aggregate gifted by Mr.
Kumar to his children, as to which Mr. Kumar disclaims beneficial
ownership.
(5) Includes with respect to Ms. Yoss, a grant of 150,000 shares of restricted
common stock of ISP. (6) Includes, with respect to Mr. Olsen, grants of
100,000 shares in the aggregate of restricted common stock of ISP.
TRANSACTIONS IN CAPITAL STOCK BY CERTAIN PERSONS
PURCHASES BY ISP
The table below sets forth information, by fiscal quarters, regarding
purchases by ISP of its common stock for the past two years, including the
number of shares purchased on a quarterly basis, and the high, low and average
price paid.
PRICE PER SHARE
NUMBER OF ---------------------------------------------------
SHARES LOW HIGH AVERAGE
----------- ----------- ----------- -----------
2003
First Quarter (through
January 30, 2003) ................ 0 -- -- --
2002
Fourth Quarter ................... 0 -- -- --
Third Quarter .................... 0 -- -- --
Second Quarter ................... 0 -- -- --
First Quarter .................... 177,600 $7.84 $9.00 $8.42
2001
Fourth Quarter ................... 640,900 7.99 8.35 8.29
Third Quarter .................... 822,500 8.07 10.75 9.83
Second Quarter ................... 312,900 8.00 10.32 9.23
First Quarter .................... 161,500 6.75 8.25 7.50
2000
Fourth Quarter ................... 1,273,000 5.13 6.38 5.32
PURCHASES BY MR. HEYMAN AND HIS AFFILIATES AND ISPH AND ITS DIRECTORS AND
EXECUTIVE OFFICERS
Except for the purchases referred to above, none of Mr. Heyman and his
affiliates and ISPH and its directors and executive officers has purchased any
shares of ISP common stock during the past two years.
RECENT TRANSACTIONS
There have been no transactions in shares of ISP common stock during the
past 60 days by ISP, any of its directors or executive officers, ISPH, any of
its directors or executive officers, or Mr. Heyman, except the following:
o In accordance with the merger agreement, each of Mr. Kumar, Mr.
Olsen and Ms. Yoss have entered into an agreement with ISP
providing that immediately prior to the effective time of the
merger, their shares of restricted stock will be surrendered in
exchange for the right to receive the cash merger consideration
per share, subject to the vesting restrictions currently
applicable to their restricted shares.
o Mr. Cope (1) exercised stock options to acquire 1,219 shares of
our common stock on September 29, 2002, (2) exercised stock
options to acquire 3,375 shares of our common stock on November
20, 2002, and (3) sold 3,375 shares of our common stock at an
average price of $9.998 per share on November 20, 2002.
48
o On December 5, 2002, 525,000 shares beneficially owned by Mr.
Heyman were donated to The Annette Heyman Foundation, Inc., a
charitable organization recognized as tax-exempt pursuant to
Section 501(c)(3) of the Internal Revenue Code. Mr. Heyman is a
director and the president of the foundation and, therefore,
continues to be deemed a beneficial owner of these shares. These
shares constitute less than 1% of the shares of ISP common stock
beneficially owned by Mr. Heyman.
PLANNED TRANSACTIONS
Mr. Heyman expects to cause 114,336 shares of ISP common stock beneficially
owned by him to be sold prior to the special meeting to non-affiliated persons
in one or more sales pursuant to Rule 144 under the Securities Act of 1933.
These shares were originally acquired in open market purchases from unaffiliated
third parties for an average price per share of approximately $7.08 and
represent less than 0.25% of the shares beneficially owned by Mr. Heyman. While
the sale price for these shares cannot be determined at this time, it is likely
that the sale price will be no more than $10.30 per share. Accordingly, Mr.
Heyman anticipates that the sale proceeds will not exceed $1,177,660.80. Mr.
Heyman reserves the right not to sell these shares. The shares are being sold
for personal tax and financial planning purposes.
If the merger is approved by the required votes at the special meeting,
then Mr. Heyman expects to cause legal ownership of all of the shares of ISP
common stock beneficially owned by him at that time to be transferred to ISPH.
The transfer will take place shortly before the merger and will have no economic
or other effect on the holders of shares not beneficially owned by Mr. Heyman.
Mr. Heyman reserves the right not to transfer these shares.
CERTAIN TRANSACTIONS
STOCKHOLDER VOTING AGREEMENT
On November 8, 2002, Mr. Heyman and ISP entered into a stockholder voting
agreement, a copy of which is included as Annex C to this proxy statement.
Pursuant to the stockholder voting agreement, Mr. Heyman agreed, subject to the
terms, conditions and exceptions in that agreement, to cause the shares of
common stock of ISP then beneficially owned by him at the time of the special
meeting (but excluding shares owned by charitable organizations) to be voted in
favor of adoption of the merger agreement and to refrain from transferring
shares of ISP common stock pending the merger, except with regard to the
disposition of up to 114,336 shares of ISP common stock owned by Heyman Joint
Venture II LLC.
INVESTMENT MANAGEMENT ACTIVITIES
We conduct our investments business through ISP Investco and its
subsidiaries. We invest primarily in international and domestic arbitrage and
securities of companies involved in acquisition or reorganization transactions.
Those investments include common stock short positions which are offset against
long positions in securities which are expected, under specific circumstances,
to be exchanged or converted into the short positions. We generally make these
investments at the same time and price that certain investment partnerships
controlled by Mr. Heyman and his family are making similar investments.
Management of this investment activity is provided by personnel of investment
partnerships controlled by Mr. Heyman and his family, assisted by certain of our
personnel, at no cost or charge to either party.
MANAGEMENT AGREEMENT
Pursuant to a management agreement, ISP, through a subsidiary, provides
certain general management, administrative, legal, telecommunications,
information and facilities services to Building Materials Corporation of
America, or BMCA, an affiliate of ISP. The management agreement charges consist
of management fees and other reimbursable expenses attributable to, or incurred
by ISP for the benefit of BMCA and are based on an estimate of the costs ISP
incurs to provide those services. ISP and BMCA also allocate a portion of the
management fees payable by BMCA under the management agreement to separate lease
payments for the use of BMCA's headquarters. Based on the services provided by
ISP in 2002 under the management agreement, the aggregate amount payable to ISP
under the management agreement for 2003, net of the lease payments to a
subsidiary of G-I Holdings, is expected to be approximately $6.0 million.
49
Some of the executive officers of ISP perform services for affiliates of
ISP pursuant to the management agreement, and ISP is indirectly reimbursed for
those services by virtue of the management fees and other reimbursable expenses
payable under the management agreement. In this regard, Mr. Weinberg and Ms.
Yoss received $500,000 and $300,000, respectively, of additional compensation in
connection with services performed by them for BMCA in 2001. BMCA reimbursed ISP
for these payments pursuant to the management agreement.
Although, due to the unique nature of the services provided under the
management agreement, comparisons with third party arrangements are difficult,
ISP believes that the terms of the management agreement, taken as a whole, are
no less favorable to ISP than could be obtained from an unaffiliated third
party.
CERTAIN OTHER TRANSACTIONS
In connection with becoming President and Chief Executive Officer of ISP in
June 1999, Mr. Kumar was granted the right to purchase, and did purchase,
318,599 shares of ISP common stock for an aggregate purchase price of
$3,046,762. Under the purchase agreement, ISP extended a loan to Mr. Kumar the
funds to purchase the shares, which was evidenced by a recourse promissory note
in the principal amount of $3,046,762. The loan was converted to a demand note
and bears interest at the lowest applicable federal rate for short-term
instruments. The principal amount of the loan is payable, unless ISP has
previously declared the loan to be due and payable, in four installments on each
June 11 of the years 2001, 2002 and 2003 and on January 11, 2004, the first
three of which are in the amount of $761,691 each and the last of which is for
the balance of the then outstanding principal amount. If, however, Mr. Kumar
remains continuously employed by ISP or any of its subsidiaries through each
installment payment date, the principal amount due on such installment payment
date will be forgiven. In addition, upon the occurrence of certain events,
including a change of control of ISP, the principal amount of the loan then
outstanding shall be immediately forgiven. If Mr. Kumar's employment with ISP is
otherwise terminated for any reason whatsoever, the entire principal balance
outstanding, together with all interest accrued, will be immediately due and
payable at ISP's election.
In January 2001, July 2001, January 2002 and July 2002, we made loans to
Ms. Yoss in the principal amounts of $44,282, $78,855, $71,349 and $57,461,
respectively, to enable her to satisfy certain withholding tax obligations in
connection with her award of 150,000 shares of restricted common stock of ISP,
18,750 shares of which vested on each of January 1, 2001, July 1, 2001, January
1, 2002 and July 1, 2002. The remainder of those shares vest in 12.5% increments
every six months thereafter until full vesting on January 1, 2004, subject to
specified terms and conditions. Each loan bears interest at the lowest
applicable federal rate, as it may be adjusted from time to time. Each loan is
due and payable in full, together with accrued interest, on demand and, in any
event, not later than April 15, 2003.
FUTURE STOCKHOLDER PROPOSALS
Due to the contemplated consummation of the merger, ISP does not currently
expect to hold a public 2003 annual meeting of stockholders because, following
the merger, ISP will not be a publicly held company. If the merger is not
consummated for any reason, proposals of stockholders intended to be considered
for inclusion in the proxy statement for presentation at the 2003 Annual Meeting
of Stockholders must have been received by ISP in writing at its principal
executive offices on or before December 13, 2002 (or, if the date of the annual
meeting is changed by more than 30 days from May 16, 2003, a reasonable time
before ISP begins to print and mail its proxy materials). All proposals received
will be subject to the applicable rules of the Securities and Exchange
Commission. With regard to stockholders who intend to present a proposal at the
2003 Annual Meeting of Stockholders without including the proposal in ISP's
proxy statement and fail to submit the proposal on or before February 26, 2003
(or, if the date of the annual meeting is changed by more than 30 days from May
16, 2003, a reasonable time before ISP mails its proxy materials), then the
persons named as proxies in ISP's proxy card accompanying the proxy statement
for the 2003 Annual Meeting of Stockholders will be allowed to use their
discretionary voting authority when the proposal is raised at the meeting,
without any discussion of the matter in ISP's proxy statement for the 2003
Annual Meeting of Stockholders.
INDEPENDENT AUDITORS
The consolidated financial statements of ISP incorporated in this proxy
statement by reference to ISP's Annual Report on Form 10-K for the year ended
December 31, 2001, have been incorporated in reliance on the report of Arthur
Andersen LLP, independent accountants.
On June 20, 2002, the Board of Directors of ISP, upon the recommendation of
its audit committee, decided not to renew the engagement of its independent
auditors, Arthur Andersen, and selected KPMG LLP as its independent auditors for
the fiscal year ending December 31, 2002. The change in auditors became
effective June 21, 2002. It is not anticipated that a representative of KPMG
will attend the special meeting.
50
WHERE YOU CAN FIND MORE INFORMATION
ISP files annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. Stockholders may read
and copy any document ISP files at the Securities and Exchange Commission's
public reference room in Washington, D.C. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the public
reference rooms. ISP's filings with the Securities and Exchange Commission are
also available to the public at the Securities and Exchange Commission's website
at http://www.sec.gov. Copies of documents filed by ISP with the Securities and
Exchange Commission are also available at the offices of The New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
ISP and ISPH have filed a transaction statement on Schedule 13E-3 with the
Securities and Exchange Commission with respect to the merger. As permitted by
the Securities and Exchange Commission, this proxy statement omits certain
information contained in the transaction statement on Schedule 13E-3. The
transaction statement on Schedule 13E-3, including any amendments and exhibits
filed or incorporated by reference as a part of it, is available for inspection
or copying as set forth above. Statements contained in this proxy statement or
in any document incorporated in this proxy statement by reference regarding the
contents of any contract or other document are not necessarily complete and each
such statement is qualified in its entirety by reference to such contract or
other document filed as an exhibit with the Securities and Exchange Commission.
The Securities and Exchange Commission allows ISP to incorporate by
reference into this proxy statement documents ISP files with the Securities and
Exchange Commission. This means that ISP can disclose important information by
referring to those documents. The information incorporated by reference is
considered to be a part of this proxy statement, and later information that ISP
files with the Securities and Exchange Commission will update and supersede that
information. ISP incorporates by reference the documents listed below and any
documents filed by ISP pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this proxy statement and before the date of the
special meeting:
o ISP's Annual Report on Form 10-K for the year ended December 31, 2001;
o ISP's Quarterly Reports on Form 10-Q for the quarters ended March 30,
2002, June 30, 2002 and September 29, 2002; and
o ISP's Current Reports on Form 8-K dated June 20, 2002, November 7,
2002 and November 12, 2002.
ISP stockholders may request a copy of the documents incorporated by
reference into this proxy statement by writing to or telephoning ISP.
Requests for documents should be directed to:
Stockholder Relations Department
International Specialty Products Inc.
1361 Alps Road
Wayne, New Jersey 07470
Telephone: (800) 526-5315
If you would like to request documents from ISP, please do so at least five
business days before the date of the special meeting in order to receive timely
delivery of those documents prior to the special meeting.
This proxy statement does not constitute the solicitation of a proxy in any
jurisdiction to or from any person to whom or from whom it is unlawful to make a
proxy solicitation in that jurisdiction. ISP stockholders should rely only on
the information contained or incorporated by reference in this proxy statement
to vote their shares at the special meeting. ISP has not authorized anyone to
provide stockholders with information that is different from what is contained
in this proxy statement. This proxy statement is dated February ___ , 2003.
Stockholders should not assume that the information contained in this proxy
statement is accurate as of any date other than that date, and the mailing of
this proxy statement to stockholders does not create any implication to the
contrary.
51
ANNEX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
INTERNATIONAL SPECIALTY
PRODUCTS INC.
AND
INTERNATIONAL SPECIALTY
PRODUCTS HOLDINGS INC.
NOVEMBER 8, 2002
TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER
SECTION 1.01 The Merger ................................................... A-1
SECTION 1.02 Effective Time; Closing ...................................... A-1
SECTION 1.03 Effect of the Merger ......................................... A-2
SECTION 1.04 Certificate of Incorporation; Bylaws ......................... A-2
SECTION 1.05 Directors and Officers. ...................................... A-2
ARTICLE II
CONVERSION OF SECURITIES;
EXCHANGE OF CERTIFICATES; DEPOSIT;
DISCLOSURE SCHEDULES
SECTION 2.01 Effect on Capital Stock ...................................... A-2
SECTION 2.02 Payment Procedures ........................................... A-3
SECTION 2.03 Company Stock Options; Company Restricted Stock Plans ........ A-3
SECTION 2.04 Shares of Dissenting Stockholders ............................ A-4
SECTION 2.05 Adjustment of Merger Consideration ........................... A-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01 Organization ................................................. A-4
SECTION 3.02 Capitalization .............................................. A-5
SECTION 3.03 Subsidiaries ................................................. A-5
SECTION 3.04 Authority Relative to This Agreement ......................... A-5
SECTION 3.05 Consents and Approvals; No Violation ......................... A-5
SECTION 3.06 Proxy Statement; Transaction Statement ....................... A-5
SECTION 3.07 SEC Documents ................................................ A-6
SECTION 3.08 Compliance with Laws ......................................... A-6
SECTION 3.09 Litigation and Claims ........................................ A-6
SECTION 3.10 Employees and Employee Plans ................................. A-6
SECTION 3.11 No Brokers ................................................... A-6
SECTION 3.12 Absence of Certain Changes ................................... A-7
SECTION 3.13 Absence of Undisclosed Liabilities ........................... A-7
SECTION 3.14 Title to Properties and Related Matters ...................... A-7
SECTION 3.15 Fairness Opinion ............................................. A-7
i
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ISPH
SECTION 4.01 Organization ................................................. A-7
SECTION 4.02 Capitalization ............................................... A-7
SECTION 4.03 Authority Relative to this Agreement ......................... A-7
SECTION 4.04 Consents and Approvals; No Violation ......................... A-7
SECTION 4.05 Proxy Statement .............................................. A-8
SECTION 4.06 No Current Intention to Sell Company ......................... A-8
SECTION 4.07 No Knowledge of Breach or Inaccuracy ......................... A-8
ARTICLE V
COVENANTS
SECTION 5.01 Certain Actions Pending Merger ............................... A-8
SECTION 5.02 Proxy Statement .............................................. A-9
SECTION 5.03 Stockholders' Meeting ........................................ A-10
SECTION 5.04 Reasonable Efforts ........................................... A-10
SECTION 5.05 Inspection of Records ........................................ A-10
SECTION 5.06 Notification of Certain Matters .............................. A-11
SECTION 5.07 Public Announcements ......................................... A-11
SECTION 5.08 Indemnification by Surviving Corporation ..................... A-11
ARTICLE VI
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
SECTION 6.01 Stockholder Approval of Agreement ............................ A-12
SECTION 6.02 Certain Proceedings .......................................... A-12
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF ISPH
SECTION 7.01 Representations and Warranties True .......................... A-12
SECTION 7.02 Performance of Obligations ................................... A-12
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE COMPANY
SECTION 8.01 Representations and Warranties True .......................... A-13
SECTION 8.02 Performance of Obligations ................................... A-13
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 Termination .................................................. A-13
SECTION 9.02 Effect of Termination ........................................ A-13
SECTION 9.03 Amendment .................................................... A-14
SECTION 9.04 Extension; Waiver ............................................ A-14
ii
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 Non-Survival of Representations, Warranties and Agreements ... A-14
SECTION 10.02 Expenses ..................................................... A-14
SECTION 10.03 Notices ...................................................... A-14
SECTION 10.04 Definitions and Usage ........................................ A-15
SECTION 10.05 Accounting Terms ............................................. A-16
SECTION 10.06 Disclosure Schedules ......................................... A-16
SECTION 10.07 Severability ................................................. A-16
SECTION 10.08 Entire Agreement; Assignment ................................. A-16
SECTION 10.09 Parties in Interest .......................................... A-16
SECTION 10.10 Specific Performance ......................................... A-16
SECTION 10.11 Governing Law ................................................ A-17
SECTION 10.12 Headings ..................................................... A-17
SECTION 10.13 Counterparts ................................................. A-17
SECTION 10.14 Construction ................................................. A-17
SECTION 10.15 No Pecuniary Interest ........................................ A-17
iii
INDEX OF DEFINED TERMS
Adverse Company Board GAAP ........................................ 6
Recommendation ........................ 10 Governmental Entity ......................... 6
Agreement ................................ 1 including ................................... 15
Balance Sheet ............................ 6 ISPH ........................................ 1
beneficial owner ......................... 15 ISPH Stock .................................. 1
business day ............................. 15 Knowledge ................................... 16
Cap ...................................... 11 Liens ....................................... 5
Certificate .............................. 2 Majority Stockholder ........................ 1
Certificate of Merger .................... 1 Majority Stockholder Shares ................. 1
Charitable Organization .................. 15 Majority-of-Minority Condition .............. 12
Closing .................................. 1 Material Adverse Effect ..................... 15
Closing Date ............................. 1 Merger ...................................... 1
Code ..................................... 15 Merger Consideration ........................ 2
Company .................................. 1 Option ...................................... 3
Company Common Stock ..................... 1 Option Spread ............................... 3
Company Disclosure Schedules ............. 16 Options ..................................... 3
Company Equity Plans ..................... 4 Paying Agent ................................ 3
Company Meeting .......................... 10 person ...................................... 16
Company Plans ............................ 6 Proxy Statement ............................. 9
Company Preferred Stock .................. 1 Restricted Share ............................ 4
Company Reports .......................... 6 SEC ......................................... 6
Company Stock Option Plans ............... 3 Securities Act .............................. 6
Company Stock Plans ...................... 4 Significant Subsidiary ...................... 16
DGCL ..................................... 1 Special Committee ........................... 1
Dissenting Shares ........................ 4 Special Committee Financial Advisor ......... 6
Effective Time ........................... 1 Subsidiary .................................. 16
ERISA .................................... 6 Surviving Corporation ....................... 1
Exchange Act ............................. 5 Transaction Statement ....................... 9
Exchange Fund ............................ 3 Voting Agreement ............................ 1
iv
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of November 8, 2002 (this
"AGREEMENT"), is by and between International Specialty Products Inc., a
Delaware corporation (the "COMPANY") and International Specialty Products
Holdings Inc., a Delaware corporation ("ISPH").
RECITALS
WHEREAS, the Company has authority to issue (i) 300,000,000 shares of
Common Stock, par value $0.01 per share (the "COMPANY COMMON STOCK"), 65,105,602
of which were outstanding as of November 6, 2002, and (ii) 20,000,000 shares of
Preferred Stock (the "COMPANY PREFERRED STOCK"), none of which are outstanding;
WHEREAS, Samuel J. Heyman, an individual (the "MAJORITY STOCKHOLDER"), is
the "beneficial owner" (as defined in Section 10.04) of 52,328,040 shares of
Company Common Stock, representing approximately 80.4% of the Company Common
Stock (the "MAJORITY STOCKHOLDER SHARES"), and all of the 3,000 outstanding
shares of common stock, par value $0.001 per share (the "ISPH STOCK"), of ISPH;
WHEREAS, ISPH is a Delaware corporation formed for the purpose of entering
into this Agreement and consummating the transactions contemplated hereby;
WHEREAS, the Majority Stockholder has proposed to the Board of Directors of
the Company that ISPH be merged into the Company in a transaction in which
shares of the Company beneficially owned by persons other than the Majority
Stockholder at the time of the merger will be converted into the right to
receive $10.30 per share in cash;
WHEREAS, a special committee (the "SPECIAL COMMITTEE") of the Board of
Directors of the Company and the Board of Directors of the Company (with the
Majority Stockholder and Sunil Kumar abstaining) each has determined that it is
fair to, and in the best interests of, the Company and the holders of Company
Common Stock to consummate the merger (the "MERGER") of ISPH with and into the
Company upon the terms and subject to the conditions set forth in this Agreement
and in accordance with the Delaware General Corporation Law (the "DGCL");
WHEREAS, the Board of Directors of ISPH has approved and declared advisable
this Agreement and the Merger and the other transactions contemplated hereby
upon the terms and subject to the conditions set forth in this Agreement and in
accordance with the DGCL;
WHEREAS, the Majority Stockholder has agreed, pursuant to a Voting
Agreement (the "VOTING AGREEMENT") dated as of the date hereof, to vote or cause
to be voted all shares of Company Common Stock then beneficially owned by the
Majority Stockholder in favor of the adoption of the Agreement at any meeting of
stockholders of the Company at which the Agreement shall be submitted for
adoption and at all adjournments or postponements thereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained and intending to be legally bound hereby, the
parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER. Upon the terms and subject to the conditions set
forth in Articles VI, VII and VIII, and in accordance with the provisions of the
DGCL, at the Effective Time (as defined in Section 1.02), ISPH shall be merged
with and into the Company. As a result of the Merger, the separate existence of
ISPH shall cease, and the Company shall continue as the surviving corporation
(the "Surviving Corporation").
SECTION 1.02 EFFECTIVE TIME; CLOSING. The closing of the Merger (the
"Closing") shall take place (i) at the offices of Simpson Thacher & Bartlett,
425 Lexington Avenue, New York, New York at 9:00 a.m. New York City time on the
next business day after all of the conditions set forth in Articles VI, VII and
VIII have been satisfied or, subject to applicable law, waived (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the satisfaction or waiver of those conditions) in accordance with this
Agreement or (ii) at such other place and time and/or on such other date as ISPH
and the Company may agree in writing (the "Closing Date"). Subject to the
provisions of this Agreement, as soon as practicable on the Closing Date, the
parties hereto shall file a certificate of merger (the "Certificate of Merger")
with the Secretary of State of the State of Delaware, in such form as is
required by, and executed in accordance with, the DGCL. The term "Effective
A-1
Time" means the date and time that the Merger shall become effective, which
shall be the date and time of the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware (or such later time as may be agreed
by the parties hereto and specified in the Certificate of Merger).
SECTION 1.03 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, without further act or deed, all the property, rights, privileges, powers
and franchises of the Company and ISPH shall vest in the Surviving Corporation
and all debts, liabilities and duties of each of the Company and ISPH shall
become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.04 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) CERTIFICATE OF INCORPORATION. At the Effective Time, the Certificate of
Incorporation of the Company as in effect immediately prior to the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended in accordance with its terms and as provided by the
DGCL.
(b) BYLAWS. At the Effective Time, the Bylaws of ISPH as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation until thereafter amended in accordance with their terms and as
provided by the DGCL and the Certificate of Incorporation of the Surviving
Corporation.
SECTION 1.05 DIRECTORS AND OFFICERS.
(a) DIRECTORS. From and after the Effective Time, the directors of the
Company immediately prior to the Effective Time (other than Sanford Kaplan and
those directors on the Special Committee) shall be the directors of the
Surviving Corporation until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as the case may be,
in accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation, the DGCL and this Agreement.
(b) OFFICERS. From and after the Effective Time, the officers of the
Company immediately prior to the Effective Time shall be the officers of the
Surviving Corporation and shall hold office until the earlier of their
resignation or removal or until their respective successors are duly appointed
and qualified, as the case may be, in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, the DGCL and this
Agreement.
ARTICLE II
CONVERSION OF SECURITIES;
EXCHANGE OF CERTIFICATES; DEPOSIT;
DISCLOSURE SCHEDULES
SECTION 2.01 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any Company
Common Stock or any shares of ISPH Stock:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than (i)
Dissenting Shares (as defined in Section 2.04), (ii) shares of Company Common
Stock that are held in the treasury of the Company or by any Subsidiary of the
Company and (iii) shares of Company Common Stock then beneficially owned by the
Majority Stockholder (collectively, the "EXCLUDED SHARES")) shall be converted
into the right to receive from the Surviving Corporation $10.30 in cash (the
"MERGER CONSIDERATION") without interest thereon upon surrender of the
certificate previously representing such share of Company Common Stock as
provided in Section 2.02(c). As of the Effective Time, all shares of Company
Common Stock shall cease to be outstanding and shall automatically be canceled
and shall cease to exist, and each certificate (a "CERTIFICATE") which
immediately prior to the Effective Time represented any such share of Company
Common Stock (except Excluded Shares) shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration and any
dividends or other distributions to which holders become entitled in accordance
with this Article II upon the surrender of such Certificate.
(b) CANCELLATION OF EXCLUDED SHARES. The Excluded Shares issued and
outstanding immediately prior to the Effective Time shall be canceled and
retired and shall cease to exist without any consideration payable therefor
(subject, in the case of any Dissenting Shares, to such rights as exist pursuant
to the DGCL and Section 2.04).
(c) CONVERSION OF ISPH STOCK. Each share of ISPH Stock (or a fraction
thereof) issued and outstanding immediately prior to the Effective Time shall be
converted into one share of Common Stock, par value $0.001 per share (or a
fraction thereof), of the Surviving Corporation.
A-2
SECTION 2.02 PAYMENT PROCEDURES. At and after the Effective Time, each
Certificate formerly representing shares of Company Common Stock (other than
Excluded Shares) shall represent only the right to receive the Merger
Consideration, without interest.
(b) From time to time after the Effective Time, the Surviving Corporation
shall deposit, or cause to be deposited, with a bank or trust company (the
"PAYING AGENT"), for the benefit of the holders of the Certificates, funds in
such amounts as are necessary to make the payments required pursuant to this
Article II in exchange for shares of Company Common Stock (other than Excluded
Shares). Any cash deposited with the Paying Agent shall hereinafter be referred
to as the "EXCHANGE FUND."
(c) As promptly as practicable after the Effective Time, the Surviving
Corporation shall send or cause to be sent to each holder of record of shares of
Company Common Stock (other than Excluded Shares) transmittal materials for use
in exchanging Certificates for the Merger Consideration. The Surviving
Corporation shall cause any check in respect of the Merger Consideration
(together with any dividends or other distributions to which holders become
entitled in accordance with this Article II upon surrender of such Certificate)
which such person shall be entitled to receive to be delivered to such person
upon delivery to the Paying Agent of Certificates formerly representing such
shares of Company Common Stock owned by such person. In the event of a transfer
of ownership of the shares of Company Common Stock that is not registered in the
transfer records of the Company, payment may be made to a person other than the
person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of such Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. No interest will
be paid on any such cash to be paid pursuant to this Article II upon such
delivery. The Surviving Corporation shall be entitled to deduct and withhold
from the Merger Consideration otherwise payable to any holder of Certificates
such amounts (if any) as the Surviving Corporation determines are required to be
deducted or withheld under the Code, or any provision of United States, state or
local tax law or any foreign tax law applicable as a result of the residence,
location, domicile or other facts relating to such holder. To the extent that
amounts are so withheld by the Surviving Corporation, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of such Certificates.
(d) Subject to Section 2.04, at the Effective Time, holders of Company
Common Stock shall cease to be, and shall have no rights as, stockholders of the
Company, other than to receive any dividend or other distribution with respect
to the Company Common Stock with a record date occurring prior to the Effective
Time and payment of the Merger Consideration. From and after the Effective Time,
there shall be no transfers on the stock transfer records of the Company of any
shares of the Company Common Stock that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation or the Paying Agent for transfer, they shall be
canceled and exchanged for the Merger Consideration deliverable in respect
thereof pursuant to this Agreement in accordance with the procedures set forth
in this Section 2.02 together with any dividends or other distributions to which
the holder becomes entitled in accordance with this Article II upon the
surrender of such Certificates.
(e) In the event 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 Paying Agent
or the Surviving Corporation, the posting by such person of a bond in such
amount as the Paying Agent or the Surviving Corporation may reasonably direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Paying Agent or the Surviving Corporation, as the case may be,
shall issue in exchange for such lost, stolen or destroyed Certificate the
applicable Merger Consideration deliverable in respect thereof pursuant to this
Agreement and any dividends or other distributions to which holders become
entitled in accordance with this Article II upon the surrender of such
Certificate.
SECTION 2.03 COMPANY STOCK OPTIONS; COMPANY RESTRICTED STOCK PLANS. (a)
STOCK OPTIONS. The Company shall take all actions necessary to provide that, at
the Effective Time, each option to purchase a share of Company Common Stock (an
"OPTION" and, collectively, the "OPTIONS") outstanding and unexercised as of the
Effective Time granted pursuant to the 1991 Incentive Plan for Key Employees and
Directors, the 2000 Stock Option Plan for Non-Employee Directors and any other
equity-based plans or agreements of or with the Company or any of its
Subsidiaries providing for the granting of Options (collectively, the "COMPANY
STOCK OPTION PLANS") is canceled, whether or not then exercisable or vested, and
in consideration of such cancellation, the Surviving Corporation shall pay to
the holder of any such Option the excess (rounded to the nearest $0.01), if any,
of the Merger Consideration over such Option's exercise price (the "OPTION
SPREAD") multiplied by the number of shares of Company Common Stock subject to
such Option immediately prior to the Effective Time. All payments made pursuant
to this Section 2.03(a) shall be made as soon as commercially practicable
following the Effective Time, as reduced by any applicable withholding taxes and
other similar charges.
A-3
(b) RESTRICTED SHARES. The Company shall take any action necessary to cause
each holder of a share of restricted Company Common Stock (a "RESTRICTED SHARE")
outstanding immediately prior to the Effective Time issued pursuant to a Company
Stock Option Plan or any other equity-based plans or agreements of or with the
Company or any of its Subsidiaries providing for the granting of Restricted
Shares (collectively, the "COMPANY EQUITY PLANS" and together with the Company
Stock Option Plans, the "COMPANY STOCK PLANS") to surrender, immediately prior
to the Effective Time, each such Restricted Share in exchange for the right to
receive an amount in cash equal to the Merger Consideration, as reduced by any
applicable withholding taxes and other similar charges; PROVIDED that any such
cash amount shall only be payable to such holder at such time as (and to the
extent that) the vesting restrictions that were applicable to the corresponding
Restricted Share would have lapsed if not for the Merger.
(c) As of the Effective Time, the Company shall use its reasonable best
efforts, in consultation with ISPH, to remove, or cause to be removed from each
and every plan, program, agreement or arrangement any right of any participant
thereunder to invest in, or receive a distribution in, Company Common Stock.
SECTION 2.04 SHARES OF DISSENTING STOCKHOLDERS. (a) Notwithstanding
anything in this Agreement to the contrary, any shares of Company Common Stock
that are issued and outstanding as of the Effective Time and that are held by a
holder who has not voted in favor of the Merger or consented thereto in writing
and who properly demands appraisal of such shares pursuant to, and who complies
in all respects with, Section 262 of the DGCL (the "DISSENTING SHARES"), shall
not be converted into the right to receive the Merger Consideration as provided
in Section 2.01(a), unless and until such holder shall have failed to perfect,
or shall have effectively withdrawn or lost, his or her right to appraisal under
the DGCL and instead shall be entitled to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to and
subject to the requirements of Section 262 of the DGCL. If, after the Effective
Time, any such holder shall have failed to perfect or shall have effectively
withdrawn or lost such right, each share of such holder's Company Common Stock
shall thereupon be deemed to have been converted into and to have become, as of
the Effective Time, the right to receive, without interest, the Merger
Consideration, in accordance with Section 2.01(a) (together with any dividends
or other distributions to which holders of Certificates become entitled in
accordance with this Article II upon the surrender of such Certificates).
(b) Prior to the Effective Time, the Company shall give ISPH (i) prompt
notice of any notices or demands (or withdrawals of notices or demands) for
appraisal or payment for shares of Company Common Stock received by the Company
and (ii) the opportunity to participate in and direct all negotiations and
proceedings with respect to any such demands or notices. Prior to the Effective
Time, the Company shall not, without prior written consent of ISPH, make any
payments, or settle, offer to settle or otherwise negotiate, with respect to any
such demands.
(c) Dissenting Shares, if any, after payments of fair value in respect
thereof have been made to the holders thereof pursuant to the DGCL, shall, to
the extent not canceled at the Effective Time, be canceled.
SECTION 2.05 ADJUSTMENT OF MERGER CONSIDERATION. In the event that,
subsequent to the date of this Agreement but prior to the Effective Time, the
outstanding shares of Company Common Stock shall have been changed into a
different number of shares of a different class as a result of a stock split,
reverse stock split, stock dividend, subdivision, reclassification, split,
combination, exchange, recapitalization or other similar transaction, the Merger
Consideration and any other number or amount which is based upon the number of
shares of Company Common Stock shall be appropriately adjusted.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to ISPH, except as set forth in
the Company Reports, as follows:
SECTION 3.01 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and, except where such failure would not reasonably be expected to, either
individually or in the aggregate, have a Material Adverse Effect, has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of the Company's
Subsidiaries is a legal entity duly organized or formed, validly existing and in
good standing under the laws of its jurisdiction, and, except where such failure
would not reasonably be expected to, either individually or in the aggregate,
have a Material Adverse Effect, has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted.
A-4
SECTION 3.02 CAPITALIZATION. The capitalization of the Company appearing in
the recitals of this Agreement is true and correct as of the date hereof. All
the issued and outstanding shares of Company Common Stock are validly issued,
fully paid and nonassessable and free from preemptive rights. Except for the
Options and Restricted Shares set forth in Schedule 3.02, (i) there are no
subscriptions, options, warrants, calls, rights, contracts, commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
transfer or voting of any equity security of the Company, including any rights
of conversion or exchange under any outstanding securities or other instruments
and (ii) there are not any outstanding obligations of the Company to repurchase,
redeem or otherwise acquire any share of Company Common Stock or make any
material investment (in the form of a loan, capital contribution or otherwise)
in any person. Schedule 3.02 sets forth the aggregate number of shares of
Company Common Stock reserved for issuance pursuant to the Options and
Restricted Shares.
SECTION 3.03 SUBSIDIARIES. The Company Reports include a list of all
persons deemed to be a material Subsidiary of the Company or of any of its
Subsidiaries together with each such entity's jurisdiction of organization. All
of the outstanding shares of capital stock or other securities evidencing
ownership of the Company's Subsidiaries are validly issued, fully paid and
nonassessable and are owned by the Company or its wholly-owned Subsidiaries free
and clear of all pledges, claims, liens, charges, options, encumbrances,
mortgages, pledges or security interests of any kind or nature whatsoever
(collectively, "LIENS") with respect thereto, except such Liens that are
described in the Company Reports.
SECTION 3.04 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has the
requisite corporate power to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of the Company and the Special Committee and, except
for the approval of this Agreement in accordance with the DGCL by the
stockholders of the Company, no other corporate proceeding on the part of the
Company is necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company
enforceable against it in accordance with its terms, subject to (i) approval in
accordance with the DGCL of the stockholders of the Company and (ii) applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
SECTION 3.05 CONSENTS AND APPROVALS; NO VIOLATION. Except for (a)
applicable requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (b) filings with various state blue sky authorities and (c)
filing and recordation of appropriate merger documents as required by the DGCL
and the corporate law of the other states in which the Company and ISPH are
qualified to do business, no filing with or notice to, and no permit,
authorization, consent or approval of, any public body or Governmental Entity or
any other person, the absence of which would reasonably be expected to, either
individually or in the aggregate, have a Material Adverse Effect on the Company,
is necessary for the execution and delivery by the Company of this Agreement or
the consummation by the Company of the transactions contemplated by this
Agreement. Except as set forth in Schedule 3.05, none of the execution, delivery
and performance by the Company of this Agreement nor the consummation by the
Company of the transactions contemplated hereby nor compliance by the Company
with any of the provisions hereof will (i) conflict with or result in any breach
of any provision of the Certificate of Incorporation or Bylaws of the Company or
similar governance or organizational documents of any of the Company's
Subsidiaries, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
lease agreement or other instrument or obligation to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its Subsidiaries
or any of their respective properties or assets may be bound or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
the Company or any of its Subsidiaries or any of their respective properties or
assets, except with respect to clauses (ii) and (iii), such violations, breaches
or defaults which would not reasonably be expected to, either individually or in
the aggregate, have a Material Adverse Effect.
SECTION 3.06 PROXY STATEMENT; TRANSACTION STATEMENT. None of the
information supplied by the Company for inclusion or incorporation by reference
in (i) the Proxy Statement (as defined in Section 5.02), (ii) the Transaction
Statement (as defined in Section 5.02) or (iii) any other document required to
be filed with the SEC or any other regulatory authority in connection with the
transactions contemplated by this Agreement will, at the respective times filed
with the SEC or any other regulatory authority and, in addition, in the case of
the Proxy Statement, the mailing of the Proxy Statement or any amendment or
supplement thereto, at the time of the meeting of the stockholders to which the
Proxy Statement relates and at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein
A-5
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement,
the Transaction Statement and any other SEC filing in connection with the Merger
will comply (except with respect to ISPH) in all material respects, as to form,
with the applicable requirements of the Exchange Act and the rules and
regulations thereunder.
SECTION 3.07 SEC DOCUMENTS. Each of the Company and its Subsidiaries has
filed all forms, reports, registration statements, proxy statements, schedules
and documents required to be filed by it with the Securities and Exchange
Commission ("SEC") since July 31, 2001 through the date hereof (collectively,
the "COMPANY REPORTS"). As of their respective dates, the Company Reports (i)
complied as to form in all material respects with the applicable requirements of
the Securities Act of 1933, as amended (the "SECURITIES ACT"), the Exchange Act
and the rules and regulations thereunder and (ii) did not contain any untrue
statement of material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading. The most recent consolidated balance sheet (the "BALANCE
SHEET") of the Company and its consolidated Subsidiaries included in or
incorporated by reference into the Company Reports (including the related notes
and schedules) fairly presents the consolidated financial position of the
Company and its consolidated Subsidiaries as of its date, and each of the
consolidated statements of income, retained earnings and cash flows of the
Company and its consolidated Subsidiaries included in or incorporated by
reference into the Company Reports (including any related notes and schedules)
fairly presents the consolidated results of operations, retained earnings or
cash flows, as the case may be, of the Company and its consolidated Subsidiaries
for the periods set forth therein, in each case in accordance with generally
accepted accounting principles ("GAAP") consistently applied during the periods
involved, except as may be noted therein (subject, in the case of unaudited
interim statements, to normal and recurring year-end adjustments and exceptions
permitted by Form 10-Q).
SECTION 3.08 COMPLIANCE WITH LAWS. Each of the Company and its Subsidiaries
has complied and is in compliance with all applicable statutes, regulations,
rules, orders, ordinances, judgments, decrees, permits, franchises, licenses and
other laws of the United States of America, all state, local and foreign
governments and other governmental bodies and authorities, and agencies of any
of the foregoing ("GOVERNMENTAL ENTITY") to which it is subject, except to the
extent noncompliance would not reasonably be expected to, either individually or
in the aggregate, have a Material Adverse Effect.
SECTION 3.09 LITIGATION AND CLAIMS. None of the Company and its
Subsidiaries is subject to any continuing order of, or written agreement or
memorandum of understanding with, or continuing material investigation by any
Governmental Entity or any judgment, order, writ, injunction, decree, or award
of any Governmental Entity or any court or arbitrator, and there is no claim,
action, suit, litigation, proceeding, arbitration, investigation or controversy
affecting the Company or its Subsidiaries or, to the Knowledge (as defined in
Section 10.04) of the Company, threatened, nor is there any valid basis known to
the Company or its Subsidiaries for any such claim, action, suit, litigation,
proceeding, arbitration, investigation or controversy except for matters which
would not reasonably be expected to, either individually or in the aggregate,
have a Material Adverse Effect.
SECTION 3.10 EMPLOYEES AND EMPLOYEE PLANS. (a) Each "employee benefit plan"
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), and all severance, change in control or
employment plans, programs or agreements, and vacation, incentive, bonus, stock
option, stock purchase, and restricted stock plans, programs or policies and all
other employee benefit plans, agreements, programs or other arrangements
sponsored or maintained by any of the Company and its Subsidiaries, in which
present or former employees thereof participate or any of the Company and its
Subsidiaries has any present or future liability (collectively, the "COMPANY
PLANS") that is intended to be qualified within the meaning of Section 401 of
the Code has received a favorable determination letter as to its qualification,
and nothing has occurred that could reasonably be expected to affect such
qualification.
(b) Except as provided on Schedule 3.10, no Company Plan exists that could
result in the payment to any present or former employee of any of the Company
and its Subsidiaries of any money or other property or accelerate or provide any
other rights or benefits to any present or former employee of any of the Company
and its Subsidiaries as a result of the transaction contemplated by this
Agreement.
SECTION 3.11 NO BROKERS. Except pursuant to the engagement letter (a copy
of which has been delivered to ISPH) between the Special Committee and Lehman
Brothers Inc., financial advisor to the Special Committee (the "SPECIAL
COMMITTEE FINANCIAL ADVISOR"), no broker, finder or investment banker is
entitled to any brokerage, finder's or other similar fee or commission in
connection with the Merger based upon arrangements made by or on behalf of any
of the Company and its Subsidiaries.
A-6
SECTION 3.12 ABSENCE OF CERTAIN CHANGES. Since December 31, 2001, except as
disclosed in the Company Reports, each of the Company and its Subsidiaries has
conducted its business only in the ordinary course of such business, and there
has not been any change in or effect on the business, earnings, assets,
liabilities, financial or other condition or results of operations of any of the
Company and its Subsidiaries that has had or would reasonably be expected to,
either individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.13 ABSENCE OF UNDISCLOSED LIABILITIES. None of the Company and
its Subsidiaries has any liabilities or obligations of any nature, whether or
not accrued, contingent or otherwise, whether due or to become due, except (a)
liabilities or obligations reflected or reserved against or disclosed in the
Company Reports filed prior to the date hereof and (b) liabilities or
obligations which would not reasonably be expected to, either individually or in
the aggregate, have a Material Adverse Effect.
SECTION 3.14 TITLE TO PROPERTIES AND RELATED MATTERS. The Company or one of
its Subsidiaries (i) has good and marketable title to all the properties and
assets reflected in the Balance Sheet as being owned by the Company or one of
its Subsidiaries or acquired after the date thereof which are material to the
Company's business on a consolidated basis (except properties sold or otherwise
disposed of since the date thereof in the ordinary course of business), free and
clear of all Liens, except (A) statutory Liens securing payments not yet due,
(B) such imperfections or irregularities of title and Liens as do not materially
affect the use of the properties or assets subject thereto or affected thereby
or otherwise materially impair business operations at such properties and (C)
such Liens that are described in the Company Reports, and (ii) is the lessee of
all leasehold estates reflected in the Company Reports or acquired after the
date thereof which are material to the Company's business on a consolidated
basis (except for leases that have expired by their terms since the date
thereof) and is in possession of the properties purported to be leased
thereunder, and each such lease is valid without default thereunder by the
lessee or, to the Knowledge of the Company, the lessor, except in the case of
clauses (i) and (ii) above as would not reasonably be expected to, either
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.15 FAIRNESS OPINION. The Special Committee has received an
opinion of the Special Committee Financial Advisor that the Merger Consideration
is fair, from a financial point of view, to the Company's stockholders (other
than the Majority Stockholder).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ISPH
ISPH hereby represents and warrants to the Company as follows:
SECTION 4.01 ORGANIZATION. ISPH is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted.
SECTION 4.02 CAPITALIZATION. The capitalization of ISPH appearing in the
recitals to this Agreement is true and correct as of the date hereof. All of the
issued and outstanding shares of ISPH Stock are validly issued, fully paid and
non-assessable and free from preemptive rights and all of the outstanding shares
of ISPH Stock are beneficially owned by Majority Stockholder.
SECTION 4.03 AUTHORITY RELATIVE TO THIS AGREEMENT. ISPH has the requisite
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of ISPH and, except for the approval of this Agreement in accordance
with the DGCL by the stockholders of ISPH, no other corporate proceeding on the
part of ISPH is necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by ISPH
and constitutes a valid and binding obligation of ISPH enforceable against it in
accordance with its terms, subject to (i) approval in accordance with the DGCL
of the stockholders of ISPH and (ii) applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
SECTION 4.04 CONSENTS AND APPROVALS; NO VIOLATION. Except for (a)
applicable requirements of the Exchange Act, (b) filings with various state blue
sky authorities and (c) filing and recordation of appropriate merger documents
as required by the DGCL and the corporate law of the other states in which the
Company and ISPH are qualified to do business, no fil-
A-7
ing with or notice to, and no permit, authorization, consent or approval of, any
public body or Governmental Entity, the absence of which would be reasonably
expected to, either individually or in the aggregate, have a Material Adverse
Effect on ISPH is necessary for the execution and delivery by ISPH of this
Agreement or the consummation by ISPH of the transactions contemplated by this
Agreement. None of the execution, delivery and performance by ISPH of this
Agreement nor consummation by ISPH of the transactions contemplated hereby nor
compliance by ISPH with any of the provisions hereof will (i) conflict with or
result in any breach of any provision of the Certificate of Incorporation or
Bylaws of ISPH, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
lease agreement or other instrument or obligation to which ISPH is a party or by
which ISPH or any of its properties or assets may be bound or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to ISPH
or any of its properties or assets, except with respect to clauses (ii) and
(iii), such violations, breaches or defaults which, either individually or in
the aggregate, would not be reasonably expected to have a Material Adverse
Effect on ISPH.
SECTION 4.05 PROXY STATEMENT. None of the information supplied or to be
supplied by ISPH for inclusion in (i) the Proxy Statement, (ii) the Transaction
Statement or (iii) any other document required to be filed with the SEC or any
other regulatory authority in connection with the transactions contemplated by
this Agreement, will at the respective times filed with the SEC or any other
regulatory authority and, in addition, in the case of the Proxy Statement, at
the time of the mailing of the Proxy Statement or any amendment or supplement
thereto, at the time of the meeting of the stockholders to which the Proxy
Statement relates and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement,
the Transaction Statement and any other SEC filing in connection with the Merger
will comply (with respect to ISPH and/or Majority Stockholder) in all material
respects, as to form, with the applicable requirements of the Exchange Act, and
the rules and regulations thereunder.
SECTION 4.06 NO CURRENT INTENTION TO SELL COMPANY. As of the date of this
Agreement and to ISPH's Knowledge, the Majority Stockholder has no intention to
(i) sell, transfer or otherwise dispose of the shares of the capital stock of
Surviving Corporation; (ii) sell, lease, assign, transfer or otherwise dispose
of all or a major portion of its assets; or (iii) consolidate with or merge into
another corporation or permit one or more other corporations to consolidate with
or merge into it or permit one or more other such corporations to consolidate
with or merge into it, except pursuant to this Agreement; but there can be no
assurance that the Majority Stockholder or the Surviving Corporation will not
determine to cause such events in the future.
SECTION 4.07 NO KNOWLEDGE OF BREACH OR INACCURACY. Neither ISPH nor any
director, officer, shareholder, employee or agent of ISPH has Knowledge of any
breach of, or inaccuracy in, any of the representations or warranties of the
Company contained in this Agreement, except such breaches and inaccuracies as
would not reasonably be expected to, either individually or in the aggregate,
have a Material Adverse Effect.
ARTICLE V
COVENANTS
SECTION 5.01 CERTAIN ACTIONS PENDING MERGER. Prior to the Effective Time,
neither the Board of Directors of the Company nor any committee thereof shall
approve any action that would result in the Company or any of its Subsidiaries
taking any of the following actions, except with the consent of ISPH:
(a) a split, combination or reclassification of the outstanding shares of
Company Common Stock or a declaration, set-aside or payment of any dividend
payable in cash, stock or property or any distribution with respect to the
outstanding shares of Company Common Stock or, a redemption, purchase or other
acquisition (or agreement to redeem, purchase or otherwise acquire), directly or
indirectly, any shares of Company Common Stock;
(b) an issuance, grant or agreement to issue or grant any additional
capital stock of the Company or any of its Subsidiaries or any options, warrants
or rights of any kind to acquire any shares of any such capital stock or any
securities convertible into or exchangeable for such capital stock or any right
or security the value of which is based on the value of any such capital stock;
(c) the entering into any agreement, understanding or arrangement with
respect to the voting of its capital stock;
(d) the incurrence of (i) any indebtedness for borrowed money or the
assumption, guarantee, endorsement or any other accommodation to become
responsible for the long-term indebtedness of any other person (other than
deposits and similar liabilities, indebtedness of the Company's Subsidiaries to
the Company or any of its wholly owned Subsidiaries and indebt-
A-8
edness under existing lines of credit and renewals or extensions thereof), other
than in the ordinary course of business consistent with past practice, or (ii)
any capital expenditures, obligations or liabilities, other than those budgeted
as of the date hereof or in the ordinary course of business consistent with past
practice;
(e) the sale, transfer, mortgage, encumbrance or other disposition of any
of its material properties or assets, including capital stock in any Significant
Subsidiaries (as defined in Section 10.04) of the Company, to any person other
than a direct or indirect wholly owned Subsidiary, or the cancellation or
release of any indebtedness to any such person or any claims held by any such
person, except (i) sales of inventory or immaterial assets in the ordinary
course of business consistent with past practice or (ii) pursuant to contracts
or agreements in force at the date of this Agreement;
(f) except for transactions in the ordinary course of business consistent
with past practice, the making of any material investment either by purchase of
stock or securities, contributions to capital, property transfers, or purchase
of any property or assets of any other person other than a wholly owned
Subsidiary;
(g) except for transactions in the ordinary course of business consistent
with past practice, the entering into, or termination of, any material lease,
contract or agreement, or making of any material change in any of its material
leases, contracts or agreements, other than renewals of leases, contracts or
agreements without material changes of terms;
(h) other than in the ordinary course of business consistent with past
practice or as required by law or contracts in effect as of the date hereof set
forth in Section 3.10 or Schedule 5.01, an increase in any manner of the wages,
salaries, compensation, pension or other fringe benefits or perquisites of any
current or former employees, consultants or directors of the Company or any of
its Subsidiaries, or the vesting, funding or payment of any pension or
retirement allowance other than as required by any existing Company Plans to any
such current or former employees, consultants or directors or the entering into,
amendment, termination or commitment to any pension, retirement, profit-sharing
or welfare benefit plan or agreement or employment, severance, consulting,
retention, change in control, termination, deferred compensation or incentive
pay agreement with or for the benefit of any current or former employee,
consultant or director or, except as expressly contemplated by this Agreement,
the acceleration of the vesting, funding or payment of any compensation payment
or benefit;
(i) the settlement of any material claim, action or proceeding involving
money damages or a waiver or release of any material rights or claims;
(j) the change in its methods of accounting in effect at December 31, 2001,
except as required by changes in GAAP, or a change in any of its methods of
reporting material items of income and deductions for tax purposes from those
employed in the preparation of the tax returns of the Company for the taxable
years ending December 31, 2001 and 2000, except as required by changes in law or
regulation or as set forth in the Company Disclosure Schedules;
(k) the adoption or implementation of any amendment to its articles or
certificate of incorporation, articles of association, by-laws (or similar
documents) or any plan of consolidation, merger or reorganization;
(l) the taking of any action that would, or would be reasonably likely to,
result in any of the representations or warranties of the Company set forth in
this Agreement not being true in all material respects or in any of the
conditions to the Merger set forth in Articles VI, VII and VIII not being
satisfied, except, in every case, as may be required by applicable law; or
(m) the entering into any agreement to, or the making of any commitment to,
take any of the actions prohibited by this Section 5.01.
SECTION 5.02 PROXY STATEMENT. ISPH and the Company shall cooperate in
preparing and the Company shall, as soon as practicable, file with the SEC
(after providing ISPH with a reasonable opportunity to review and comment
thereon) (i) preliminary proxy materials relating to the Company Meeting (as
defined in Section 5.03) (together with any amendments thereof or supplements
thereto, the "PROXY STATEMENT"), (ii) the transaction statement on Schedule
13E-3 required by the Exchange Act (together with any amendments thereof or
supplements thereto, the "TRANSACTION STATEMENT") and (iii) any other document
required to be filed with the SEC or any other regulatory authority in
connection with the transaction contemplated by this Agreement and shall use its
reasonable best efforts to respond to any comments of the SEC (after providing
ISPH with a reasonable opportunity to review and comment thereon) and to cause
the Proxy Statement and the Transaction Statement to be mailed to the Company's
stockholders as promptly as practicable after responding to all such comments to
the satisfaction of the SEC staff. The Company and ISPH shall promptly notify
one another of the receipt of any comments from the SEC and of any request by
the SEC for amendments or supplements to the Proxy Statement or the Transaction
Statement or for additional information and shall supply one another with copies
of all correspondence between it and any of its representatives, on the one
hand, and the SEC on the other hand, with respect to the Proxy Statement, the
Transaction Statement or the trans-
A-9
actions contemplated hereby. If at any time prior to the Company Meeting there
shall occur any event that should be set forth in an amendment or supplement to
the Proxy Statement or the Transaction Statement, the Company shall promptly
prepare and (if appropriate) mail to its stockholders such an amendment or
supplement; provided that no such amendment or supplement will be made by the
Company without providing ISPH a reasonable opportunity to review and comment
thereon.
(b) Except under the circumstances described in Section 5.03(b), the
Company shall include in the Proxy Statement and the Transaction Statement the
recommendation of the Company's Board of Directors (acting upon the
recommendation of the Special Committee) that the stockholders of the Company
(other than the Majority Stockholder) adopt this Agreement.
SECTION 5.03 STOCKHOLDERS' MEETING. The Company shall, consistent with
applicable law, call and hold a meeting of its stockholders (the "COMPANY
MEETING") as promptly as practicable following the date hereof for the purpose
of voting upon the adoption of this Agreement. The Company, through its Board of
Directors (acting upon the recommendation of the Special Committee), shall
recommend to its stockholders (other than the Majority Stockholder) adoption of
this Agreement, which recommendation shall, except under the circumstances
described in Section 5.03(b), be contained in the Proxy Statement and the
Transaction Statement.
(b) Neither the Board of Directors of the Company nor any committee thereof
(including the Special Committee) shall, except as expressly permitted by this
Section 5.03(b), (i) withdraw, qualify or modify, or propose publicly to
withdraw, qualify or modify its approval or recommendation of the approval of
this Agreement and the transactions contemplated hereby or (ii) take any other
action or make any other statement in connection with the Company Meeting
inconsistent with such recommendation (collectively, an "ADVERSE COMPANY BOARD
RECOMMENDATION"). Notwithstanding the foregoing, in the event that prior to the
satisfaction of the conditions set forth in Section 6.01, the Special Committee
determines in good faith, after receipt of advice from outside counsel, that the
failure to do so would more likely than not constitute a breach of its fiduciary
duties to stockholders of the Company (other than the Majority Stockholder)
under applicable law, then the Board of Directors of the Company (acting upon
the recommendation of the Special Committee) or the Special Committee may make
an Adverse Company Board Recommendation.
(c) Notwithstanding any Adverse Company Board Recommendation, this
Agreement shall be submitted to the stockholders of the Company at the Company
Meeting for the purpose of adopting this Agreement and nothing contained herein
shall be deemed to relieve the Company of such obligation.
SECTION 5.04 REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to (i) use its reasonable efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations or
required to be taken by any Governmental Entity or otherwise to consummate and
make effective the transactions contemplated by this Agreement as promptly as
practicable, (ii) obtain from any Governmental Entity any consents, licenses,
permits, waivers, approvals, authorizations or orders required to be obtained or
made by ISPH, the Company or any of the Company's Subsidiaries in connection
with the authorization, execution and delivery of this Agreement and the
consummation of the Merger, and (iii) as promptly as practicable, make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under (A) the Exchange Act,
and any other applicable federal or state securities laws, and (B) any other
applicable law; PROVIDED that ISPH and the Company shall cooperate with each
other in connection with the making of all such filings, including providing
copies of all such documents to the non-filing party and its advisors prior to
filing and, if requested, to accept all reasonable additions, deletions or
changes suggested in connection therewith. The Company and ISPH shall use
reasonable best efforts to furnish to each other all information required for
any application or other filing to be made pursuant to the rules and regulations
of any applicable law (including all information required to be included in the
Proxy Statement and the Transaction Statement) in connection with the
transactions contemplated by this Agreement. In case at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each
corporation party to this Agreement shall take all such necessary or desirable
action.
SECTION 5.05 INSPECTION OF RECORDS. From the date hereof to the Effective
Time, the Company shall (i) allow all designated officers, stockholders,
attorneys, financial advisors, accountants and other representatives of ISPH
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 and its Subsidiaries, (ii) furnish
to ISPH and its stockholders, counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information as such persons may reasonably request and (iii) instruct the
employees, counsel and financial advisors of the Company and its Subsidiaries to
cooperate with ISPH in its investiga-
A-10
tion of the business of the Company and its Subsidiaries. No investigation by
any party, whether prior to the execution of this Agreement or pursuant to this
Section 5.05, shall affect any representation or warranty in this Agreement of
any party hereto or any condition to the obligations of the parties hereto.
SECTION 5.06 NOTIFICATION OF CERTAIN MATTERS. From and after the date of
this Agreement until the Effective Time, each party hereto shall promptly notify
the other parties hereto of:
(a) any change or event, or series of changes or events, having, or which
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on it or would be reasonably likely to cause any of the
conditions in Articles VI, VII and VIII not to be satisfied or to cause the
satisfaction thereof to be materially delayed;
(b) the receipt of any material notice or other material communication from
any person alleging that the consent of such person is or may be required in
connection with the transactions contemplated hereby;
(c) the receipt of any material notice or other material communication from
any Governmental Entity in connection with the transactions contemplated hereby;
and
(d) any actions, suits, claims, investigations or proceedings commenced or,
to the Knowledge of the party, threatened against ISPH or the Company which
seeks to prohibit or prevent consummation of the transactions contemplated
hereby;
in each case, to the extent such event or circumstance is or becomes known to
the party required to give such notice; PROVIDED, HOWEVER, that the delivery of
any notice pursuant to this Section 5.06 shall not be deemed to be an amendment
of this Agreement or any of the Company Disclosure Schedules, as the case may
be, and shall not cure any breach of any representation or warranty requiring
disclosure of such matter prior to the date of this Agreement.
SECTION 5.07 PUBLIC ANNOUNCEMENTS. ISPH and the Company shall use their
reasonable efforts to consult with each other before issuing any press release
or otherwise making any public statements with respect to this Agreement or any
of the transactions contemplated hereby. Prior to the Closing, ISPH and the
Company shall not issue any such press release or make any such public statement
without the prior consent of the other parties (which consent shall not be
unreasonably withheld or delayed), except as may be required by law or
regulation or any listing agreement with the New York Stock Exchange or any
other securities exchange to which the Company is a party and, in such case,
shall use their reasonable efforts to consult with all the parties hereto prior
to such release or statement being issued. The parties shall agree on the text
of a joint press release by which the parties will announce the execution of
this Agreement.
SECTION 5.08 INDEMNIFICATION BY SURVIVING CORPORATION. (a) From and after
the Effective Time, the Surviving Corporation shall indemnify, defend and hold
harmless each person who is now an officer or director of the Company against
all losses, claims, damages, costs, expenses or liabilities or in connection
with any claim, action, suit, proceeding or investigation arising out of the
fact that such person is an officer or director of the Company (or out of any
action taken by any such person on behalf of the Company), pertaining to any
matter existing or occurring on or prior to the Effective Time (including the
transactions contemplated by this Agreement), whether asserted or claimed prior
to, or on or after, the Effective Time. In each case such indemnification shall
be to the full extent permitted under applicable law (and the Surviving
Corporation will pay expenses in advance of the final disposition of any such
action or proceeding to each such director or officer of the Company seeking
indemnification hereunder to the full extent permitted by law).
(b) For a period of six years after the Effective Time, the Surviving
Corporation shall maintain officers' and directors' liability insurance for all
persons currently covered under the Company's officers' and directors' liability
insurance policies, in their capacities as officers and directors, on terms
substantially no less advantageous to the covered persons than such existing
insurance, pertaining to any matter existing or occurring on or prior to the
Effective Time (including the transactions contemplated by this Agreement),
whether asserted or claimed prior to, or on or after the Effective Time;
provided, however, that the Surviving Corporation shall not be required to
maintain or procure such coverage to pay an annual premium in excess of 200% of
the current annual premium paid by the Company for its existing coverage (the
"Cap"); and provided, further, that if equivalent coverage cannot be obtained,
or can be obtained only by paying an annual premium in excess of 200% of the
Cap, the Surviving Corporation shall only be required to obtain as much coverage
as can be obtained by paying an annual premium equal to 200% of the Cap.
A-11
(c) The Indemnity Agreements dated August 7, 2002 among the Company and
each of the members of the Special Committee (the "Indemnification
Arrangements") shall not in any way be limited by or be affected by the rights
and obligations of the Company or of the directors and officers under this
Agreement except as expressly provided herein, and the execution and delivery of
this Agreement shall not in any way limit or affect the rights and obligations
of the Company or the other party or parties thereto under any such
Indemnification Arrangement.
(d) This Section 5.08 shall survive the consummation of the Merger. The
provisions of this Section 5.08 are intended to be for the benefit of, and shall
be enforceable by the present directors or officers of the Company, as the case
may be. The rights provided under this Section 5.08 shall be in addition to, and
not in lieu of, any rights to indemnity which any party may have under the
Certificate of Incorporation or Bylaws of the Company or the Surviving
Corporation or any other agreements. If the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other corporation
or entity and is not the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties or assets to any individual, corporation or any other entity, in each
such case, proper provision shall be made so that the successors and assigns of
the Surviving Corporation shall assume the obligations set forth in this Section
5.08.
(e) In the event that any action, suit, proceeding or investigation
relating thereto or to the transactions contemplated by this Agreement is
commenced, whether before or after the Effective Time, the parties hereto agree
to cooperate and use their respective reasonable efforts to vigorously defend
against and respond thereto.
ARTICLE VI
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment on or prior to the Effective Time of the following
conditions:
SECTION 6.01 STOCKHOLDER APPROVAL OF AGREEMENT. This Agreement and the
transactions contemplated hereby shall have been adopted by (a) the affirmative
vote of the holders of at least a majority of the outstanding shares of Company
Common Stock and (b) the affirmative vote of at least majority of the shares of
Company Common Stock cast either for or against the adoption of this Agreement
(excluding the Majority Stockholder Shares and any shares of Company Common
Stock held beneficially or of record by any officers or directors of ISPH or the
Company) (the affirmative vote described in this clause (b), the
"MAJORITY-OF-MINORITY CONDITION").
SECTION 6.02 CERTAIN PROCEEDINGS. No preliminary or permanent injunction or
restraining order or other order, decree or ruling issued by any court of
competent jurisdiction nor any statute, rule, regulation or order entered,
promulgated or enacted by any Governmental Entity shall be in effect which would
prevent the consummation of the Merger or the other transactions contemplated by
this Agreement (each party agreeing to use its reasonable efforts (as set forth
in Section 5.04) to have any such injunction or restraining order or other
order, decree or ruling lifted) and no action, suit, claim or proceeding by a
Governmental Entity before any domestic court, governmental commission or
administrative or regulatory authority shall have been commenced and be pending
which seeks to restrain, prevent or materially delay or restructure the
transactions contemplated by this Agreement or which otherwise questions the
validity or legality of any such transaction, other than actions, suits, claims
and proceedings which, in the reasonable opinion of counsel to the relevant
party, are unlikely to result in an adverse judgment.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF ISPH
The obligation of ISPH to effect the Merger shall be subject to the
satisfaction or waiver, on or before the Closing Date, of the following
conditions:
SECTION 7.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Company contained herein shall be true and correct as of the
date of this Agreement and, without giving effect to any materiality
qualifications or limitations therein, on and as of the Closing Date as though
made on and as of the Closing Date (except to the extent such representations
and warranties expressly speak as of a specified earlier date, in which case
such representations and warranties shall be true and correct as of such earlier
date), except such failures to be true and correct that in the aggregate would
not reasonably be expected to have a Material Adverse Effect; and ISPH shall
have received a certificate signed on behalf of the Company by the chief
executive officer of the Company to such effect.
SECTION 7.02 PERFORMANCE OF OBLIGATIONS. The Company shall have performed
in all material respects its agreements contained in this Agreement required to
be performed by it on or prior to the Closing Date, and ISPH shall have received
a certificate signed on behalf of the Company by the chief executive officer of
the Company to such effect.
A-12
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligation of the Company under this Agreement to effect the Merger
shall be subject to the satisfaction or waiver, on or before the Closing Date,
of the following conditions:
SECTION 8.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of ISPH contained herein shall be true and correct as of the date of
this Agreement and, without giving effect to any materiality qualifications or
limitations therein, on and as of the Closing Date as though made on and as of
the Closing Date (except to the extent such representations and warranties
expressly speak as of a specified earlier date, in which case such
representations and warranties shall be true and correct as of such earlier
date), except such failures to be true and correct that in the aggregate would
not reasonably be expected to have a Material Adverse Effect; and the Company
shall have received a certificate signed on behalf of ISPH by the chief
executive officer of ISPH to such effect.
SECTION 8.02 PERFORMANCE OF OBLIGATIONS. ISPH shall have performed in all
material respects its agreements contained in this Agreement required to be
performed by it on or prior to the Closing Date, and the Company shall have
received a certificate signed on behalf of ISPH by the chief executive officer
of ISPH to such effect.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite adoption of this Agreement by the stockholders of the Company:
(a) by mutual written consent of the Company (provided that such
termination has been approved by the Special Committee) and ISPH;
(b) by either the Company (provided that such termination has been approved
by the Special Committee) or ISPH if any Governmental Entity of competent
jurisdiction shall have issued a final nonappealable injunction, order, decree,
judgment or ruling, permanently enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement;
(c) by either the Company (provided that such termination has been approved
by the Special Committee) or ISPH if the Merger shall not have been consummated
on or before May 31, 2003, unless the failure of the Closing to occur by such
date shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe the covenants and agreements of such party set
forth herein;
(d) by either the Company (provided that such termination has been approved
by the Special Committee) or ISPH if there shall have been a material breach of
any of the covenants or agreements or any of the representations or warranties
set forth in this Agreement on the part of the Company (in the case of a
termination by ISPH) or ISPH (in the case of a termination by the Company),
which breach is not cured within 30 days following written notice to the party
committing such breach, or which breach, by its nature or timing, cannot be
cured prior to the date referred to in Section 9.01(c); PROVIDED that such
breach, if occurring or continuing on the Closing Date, would constitute,
individually or in the aggregate with other such breaches occurring prior to
such time and then continuing, the failure of the conditions set forth in
Sections 7.01, 7.02, 8.01 or 8.02, as applicable;
(e) by either the Company (provided that such termination has been approved
by the Special Committee) or ISPH, if the Company Meeting shall have been held
and the holders of Company Common Stock shall have failed to adopt this
Agreement by the vote specified in Section 6.01(a) and 6.01(b) at such meeting
(including any adjournment or postponement thereof in accordance with applicable
law); PROVIDED that ISPH shall not have the right to terminate this Agreement
under this Section 9.01(e) if Majority Stockholder has failed to comply with its
obligation to vote in favor of the Merger pursuant to the Voting Agreement
delivered by it in connection with the execution and delivery of this Agreement;
or
(f) by ISPH if the Special Committee or the Board of Directors of the
Company (acting upon the recommendation of the Special Committee) shall have
made an Adverse Company Board Recommendation.
SECTION 9.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either ISPH or the Company as provided in Section 9.01, this
Agreement shall forthwith become void and have no effect, and none of Majority
Stockholder, ISPH, the Company, any of their respective Subsidiaries or any of
the officers or directors of any of them, as the case may be, shall have any
liability of any nature whatsoever hereunder, or in connection with the
transactions contemplated hereby, except that Sections 9.02, 9.04 and Article X
shall survive any termination of this Agreement, and notwithstanding anything
A-13
to the contrary contained in this Agreement, none of Majority Stockholder, ISPH
or the Company shall be relieved or released from any liabilities or damages
arising out of its willful breach of any provision of this Agreement; PROVIDED
that in no event shall any party hereto be liable for any punitive damages.
SECTION 9.03 AMENDMENT. Subject to compliance with applicable law, this
Agreement may be amended by ISPH and the Company (acting upon approval by the
Special Committee) at any time before or after adoption of this Agreement by the
stockholders of the Company; PROVIDED, HOWEVER, that after any adoption of this
Agreement by the stockholders of the Company, no amendment shall be made which
by law requires further approval by such stockholders without such further
approval (including the Majority-of-Minority Condition). This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
SECTION 9.04 EXTENSION; WAIVER. At any time prior to the Effective Time,
subject to compliance with applicable law, ISPH and the Company (acting upon
approval by the Special Committee) 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 for its benefit, (b) waive any inaccuracies in the
representations and warranties of the other parties for its benefit contained
herein or in any document delivered pursuant hereto, (c) waive any rights
contained herein for the waiving party's benefit and (d) waive compliance with
any of the agreements or conditions contained herein for the waiving party's
benefit. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party, but such extension or waiver or failure to insist on strict
compliance with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
The representations, warranties and agreements in this Agreement and any
certificate delivered pursuant hereto by any person shall terminate at the
Effective Time or upon the termination of this Agreement pursuant to Section
9.01, as the case may be, except that the agreements set forth in Articles I and
II and Section 5.08 shall survive the Effective Time indefinitely, and those set
forth in Section 9.02 and 9.04 and this Article X shall survive termination
indefinitely.
SECTION 10.02 EXPENSES. Except as otherwise provided in this Section 10.02,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expense. The cost of preparing, printing and mailing the Proxy Statement and the
Transaction Statement shall be borne by the Company.
SECTION 10.03 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by facsimile
or by registered or certified mail (postage prepaid, return receipt requested)
or by a nationally recognized overnight courier service to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 10.03):
if to ISPH:
c/o International Specialty Products Holdings Inc.
1361 Alps Road
Wayne, NJ 07470
Telecopy: (973) 628-3229
Attention: Samuel J. Heyman
A-14
with copies to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopy: (212) 455-2502
Attention: Maripat Alpuche, Esq.
if to the Company:
c/o International Specialty Products Inc.
1361 Alps Road
Wayne, NJ 07470
Telecopy: (973) 628-3229
Attention: Richard A. Weinberg, Esq.
Special Committee Members:
Robert Englander
Burt Manning
Alan Meckler
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
Telecopy: (212) 728-2000
Attention: William J. Grant, Jr.
Michael A. Schwartz
SECTION 10.04 DEFINITIONS AND USAGE. (a) For purposes of this Agreement,
the term:
(i) "BENEFICIAL OWNER" with respect to any shares means a person who shall
be deemed to be the beneficial owner of such shares, as determined pursuant to
Rule 13d-3 under the Exchange Act, except that, for purposes of this Agreement
and the Voting Agreement, the term shall exclude (x) shares which are held by,
or for the account of, a Charitable Organization and (y) shares which are deemed
beneficially owned pursuant to Rule 13d-3 solely because of the operation of
Rule 13d-3(d)(1)(i)(A);
(ii) "BUSINESS DAY" means any day other than a Saturday, Sunday or one on
which banks are authorized by law to close in New York, New York;
(iii) "CHARITABLE ORGANIZATION" means a person that is recognized as tax
exempt pursuant to Section 501(c)(3) of the Code;
(iv) "CODE" means the Internal Revenue Code of 1986, as amended. All
citations to provisions of the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments thereto and any substitute or successor
provisions thereto;
(v) "INCLUDING" means including, without limitation;
(vi) "MATERIAL ADVERSE EFFECT" means,
(A) with respect to the Company, any changes or effects that
individually or in the aggregate (1) are or could reasonably be expected to
be material and adverse to the condition (financial or otherwise),
business, assets, liabilities or results of operations of the Company and
its Subsidiaries, taken as a whole, or (2) could reasonably be expected to
prevent or materially impair the ability of the Company to perform its
obligations under this Agreement or to consummate the transactions
contemplated hereby; and
(B) with respect to ISPH, any effect that would prevent or materially
impair or delay the ability of ISPH to perform its obligations under this
Agreement or to consummate the transactions contemplated hereby;
PROVIDED, HOWEVER, that Material Adverse Effect shall not be deemed to
include the impact of changes in general economic conditions, or the
occurrence of other events or developments affecting the specialty chemical
manufacturing business generally except to the extent that such changes,
events or developments have an adverse effect on the Company and its
Subsidiaries taken as a whole that is materially greater than the adverse
effect on comparable entities;
A-15
(vii) "PERSON" means an individual, corporation, limited liability company,
partnership, limited partnership, syndicate, person (including a "person" as
defined in Section 13(d)(3) of the Exchange Act), trust, association or entity
or government, political subdivision, agency or instrumentality of a government;
(viii) "SUBSIDIARY" and "SIGNIFICANT SUBSIDIARY" shall have the meanings
ascribed to them in Rule 1-02 of Regulation S-X of the SEC. Notwithstanding the
foregoing, for purposes of this Agreement, the Company shall not be deemed a
Subsidiary or a Significant Subsidiary of Majority Stockholder.
A reference in this Agreement to any statute shall be to such statute as
amended from time to time, and to the rules and regulations promulgated
thereunder.
(b) A fact, event, circumstance or occurrence shall be within a person's
"KNOWLEDGE" if, with respect to the Company or any of its Subsidiaries, such
fact, event, circumstance or occurrence is or was actually known by any of the
Company's or the relevant Subsidiary's executive officers or directors, or, with
respect to ISPH, such fact, event or circumstance or occurrence is or was
actually known by any of ISPH's executive officers or directors.
(c) The symbol "$" and the word "dollar" or "dollars" shall refer to the
lawful currency of the United States of America.
SECTION 10.05 ACCOUNTING TERMS. All accounting terms used herein which are
not expressly defined in this Agreement shall have the respective meanings given
to them in accordance with GAAP.
SECTION 10.06 DISCLOSURE SCHEDULES. Prior to the execution and delivery of
this Agreement, the Company has delivered to ISPH schedules (the "COMPANY
DISCLOSURE SCHEDULES") setting forth, among other things, in each case with
respect to specified sections of this Agreement, items the disclosure of which
is necessary or appropriate either in response to an express disclosure
requirement contained in a provision hereof or as an exception to one or more of
the Company's representations or warranties contained in Article III or to one
or more of the Company's covenants contained in Sections 5.01; PROVIDED,
HOWEVER, that notwithstanding anything in this Agreement to the contrary, the
mere inclusion of an item in the Company Disclosure Schedules as an exception to
a representation or warranty shall not be deemed an admission by a party that
such item represents a material exception or material fact, event or
circumstance or that such item has had or would reasonably be expected to have a
Material Adverse Effect with respect to the Company. Matters disclosed in any
particular section of the Company Disclosure Schedules shall be deemed to have
been disclosed in any other section with respect to which such matter is
relevant so long as the relevance of such disclosure is readily apparent.
SECTION 10.07 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the major economic or
legal substance of the Merger is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the Merger be consummated as originally contemplated to the fullest
extent possible.
SECTION 10.08 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (including the
Company Disclosure Schedules, which are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein) constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by operation of law or otherwise without the
prior written consent of the other parties, which shall not be unreasonably
withheld, except that ISPH may assign all or any of its rights and obligations
hereunder to any wholly-owned Subsidiary of ISPH or entity wholly-owned by
Majority Stockholder.
SECTION 10.09 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than the provisions of Article II and Section 5.08 (which are
intended to be for the benefit of the persons covered thereby and may be
enforced by such persons).
SECTION 10.10 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to specific performance of the terms hereof, in addition to any other remedy
at law or in equity.
A-16
SECTION 10.11 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed entirely in such State. Each of the parties
irrevocably and unconditionally waives, to the fullest extent permitted by
applicable law, any and all rights to trial by jury in connection with any
litigation arising out of or relating to this Agreement or the transactions
contemplated hereby.
SECTION 10.12 HEADINGS. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 10.13 COUNTERPARTS. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 10.14 CONSTRUCTION. This Agreement and any documents or instruments
delivered pursuant hereto or in connection herewith shall be construed without
regard to the identity of the person who drafted the various provisions of the
same. Each and every provision of this Agreement and such other documents and
instruments shall be construed as though all of the parties participated equally
in the drafting of the same. Consequently, the parties acknowledge and agree
that any rule of construction that a document is to be construed against the
drafting party shall not be applicable either to this Agreement or such other
documents and instruments.
SECTION 10.15 NO PECUNIARY INTEREST. The parties hereto acknowledge that
the Majority Stockholder has disclaimed any pecuniary interest in the Company
Common Stock in excess of his interests in certain limited partnership and
limited liability company entities that own shares of Company Common Stock.
* * * * *
(remainder of page intentionally left blank)
A-17
IN WITNESS WHEREOF, the Company and ISPH have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
INTERNATIONAL SPECIALTY
PRODUCTS INC.
By: /s/ RICHARD A. WEINBERG
------------------------------------
Name: Richard A. Weinberg
Title: Executive Vice
President and General Counsel
INTERNATIONAL SPECIALTY
PRODUCTS HOLDINGS INC.
By: /s/ SUNIL KUMAR
------------------------------------
Name: Sunil Kumar
Title: President and Chief
Executive Officer
A-18
ANNEX B
LEHMAN BROTHERS
November 8, 2002
Special Committee of the Board of Directors
International Specialty Products Inc.
1361 Alps Road
Wayne, NJ 07470
Members of the Special Committee of the Board:
We understand that International Specialty Products Inc. (the "Company")
intends to enter into an agreement with International Specialty Products
Holdings Inc. ("ISPH") pursuant to which ISPH will be merged with and into the
Company (the "Proposed Transaction" or the "Merger"). We also understand that
Samuel J. Heyman, the Chairman of the Board of Directors of the Company, is the
beneficial owner of approximately 80.9% of the shares of the Company's common
stock, par value $0.01 per share (the "Company Common Stock") and is the
beneficial owner of 100% of the shares of common stock of ISPH. We further
understand that, upon effectiveness of the Merger, each share of Company Common
Stock issued and outstanding immediately prior to the effective time of the
Merger (other than (i) shares of Company Common Stock beneficially owned by
Samuel J. Heyman, (ii) shares of Company Common Stock that are held in the
treasury of the Company or by any subsidiary of the Company, and (iii) shares of
Company Common Stock that are held by holders who have properly demanded
appraisal of such shares in accordance with the Delaware General Corporation
Law) will be converted into the right to receive $10.30 in cash. Based on advice
of the management of the Company, we further understand that Mr. Heyman does not
currently intend to sell his interest in the Company (other than as permitted
pursuant to the terms of the Voting Agreement to be entered into between Mr.
Heyman and the Company) or to solicit or entertain any proposals from third
parties for the acquisition of the Company as, or substantially as, an entirety.
The terms and conditions of the Proposed Transaction are set forth in more
detail in the Agreement and Plan of Merger, dated as of November 8, 2002 (the
"Agreement"), between the Company and ISPH.
We have been requested by the Special Committee of the Board of Directors
of the Company to render our opinion with respect to the fairness, from a
financial point of view, to the Company's shareholders (other than Mr. Heyman
and his affiliates) of the consideration offered to such shareholders in the
Proposed Transaction. We have not been requested to opine as to, and our opinion
does not in any manner address, the Company's underlying business decision to
proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction; (2) publicly available
information concerning the Company that we believe to be relevant to our
analysis, including the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31 and June 30, 2002, and the amended Schedule 13D filed by
Mr. Heyman on July 9, 2002; (3) financial and operating information with respect
to the business, operations and prospects of the Company furnished to us by the
Company, including, without limitation, (i) certain projections of future
financial performance of the Company prepared by management of the Company and
provided to us on September 3, 2002 and (ii) certain updated and lower
projections of future financial performance of the Company prepared by
management of the Company and presented to us and the Special Committee on
October 21, 2002 (the "Updated Projections"); (4) a trading history of the
Company Common Stock from June 25, 1991 to the present and a comparison of that
trading history with those of other companies that we deemed relevant; (5) a
comparison of the historical financial results and present financial condition
of the Company with those of other companies that we deemed relevant; and (6) a
comparison of the financial terms of the Proposed Transaction with the financial
terms of certain other recent transactions that we deemed relevant. In addition,
we have had discussions with the management of the Company concerning the
businesses, operations, assets, financial condition and prospects of the Company
and have undertaken such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company that they
are not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the financial projections of the
Company, we have been advised by the Company that the Updated Projections have
been reasonably prepared on a basis reflecting the best currently avail-
B-1
able estimates and judgments of the management of the Company as to the future
financial performance of the Company and, accordingly, have assumed that the
Company will perform substantially in accordance with such projections.
Furthermore, we have discussed the Updated Projections with the management of
the Company and the Special Committee, and it has been agreed that the Updated
Projections are the appropriate projections to use in performing our analysis.
In arriving at our opinion, we have not conducted a physical inspection of the
properties and facilities of the Company and have not made or obtained any
evaluations or appraisals of the assets or liabilities of the Company. In
addition, you have not authorized us to solicit, and we have not solicited, any
indications of interest from any third party with respect to the purchase of all
or a part of the Company's business. Our opinion necessarily is based upon
market, economic and other conditions as they exist on, and can be evaluated as
of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration offered to
the Company's shareholders in the Proposed Transaction is fair to such
shareholders (other than Mr. Heyman and his affiliates).
We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company in connection with the Proposed Transaction and will
receive a fee for our services. In addition, the Company has agreed to indemnify
us for certain liabilities that may arise out of the rendering of this opinion.
In the ordinary course of our business, we may actively trade in the debt and
equity securities of the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Special Committee of the
Board of Directors of the Company and is rendered to the Special Committee of
the Board of Directors in connection with its consideration of the Proposed
Transaction. This opinion is not intended to be and does not constitute a
recommendation to any shareholder of the Company as to how such shareholder
should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
B-2
ANNEX C
STOCKHOLDER VOTING AGREEMENT
THIS STOCKHOLDER VOTING AGREEMENT (this "AGREEMENT"), dated as of November
8, 2002, by and among INTERNATIONAL SPECIALTY PRODUCTS INC., a Delaware
corporation (the "COMPANY") and SAMUEL J. HEYMAN (the "STOCKHOLDER").
W I T N E S S E T H:
WHEREAS, concurrently herewith, International Specialty Products Holdings
Inc., a Delaware corporation (the "MERGER SUB"), and the Company are entering
into an Agreement and Plan of Merger (as such agreement may hereafter be amended
from time to time, the "MERGER AGREEMENT");
WHEREAS, as of the date hereof, the Stockholder is the beneficial owner (as
such term is defined in the Merger Agreement) of (x) 52,328,040 shares of
Company Common Stock, representing approximately 80.9% of all outstanding shares
of Company Common Stock, and (y) all of the capital stock of Merger Sub;
WHEREAS, approval of the Merger Agreement by the Company's stockholders is
required in order to consummate the Merger;
WHEREAS, the board of directors of the Company (acting on the
recommendation of a special committee) has, prior to the execution of this
Agreement, duly and validly approved and adopted the Merger Agreement and has
resolved to recommend that its stockholders approve the Merger Agreement, and
such approval, adoption and resolution have not been withdrawn; and
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, respective covenants and agreements of the parties
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINED TERMS. Terms used in this Agreement and not otherwise
defined herein shall have the respective meanings ascribed to such terms in the
Merger Agreement.
ARTICLE II
VOTING AGREEMENT
Section 2.1 AGREEMENT TO VOTE. Upon the terms and subject to the conditions
hereof, the Stockholder irrevocably and unconditionally agrees that, until this
Agreement is terminated pursuant to Section 5.1 hereof, at any meeting (whether
annual or special, and whether or not an adjourned or postponed meeting) of the
Company's stockholders, however called, or in connection with any written
consent of the Company's stockholders, the Stockholder shall vote, or cause to
be voted (including by written consent, if applicable) all shares of Company
Common Stock then beneficially owned by the Majority Stockholder (i) in favor of
the adoption of the Merger Agreement and (ii) against any action that may
reasonably be expected to result in the conditions set forth in Articles VI, VII
and VIII of the Merger Agreement not being fulfilled. The Stockholder agrees not
to enter into any agreement or commitment with any person, the effect of which
would be inconsistent with or violative of the provisions and agreements
contained in this Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER.The Stockholder
represents and warrants to the Company that the following statements are, as of
the date of this Agreement, true and correct:
(a) The Stockholder is the beneficial owner of the Majority Stockholder
Shares. The Stockholder has the sole power to vote (or cause to be voted) such
Majority Stockholder Shares.
C-1
(b) This Agreement has been duly executed and delivered by the Stockholder.
(c) This Agreement constitutes the valid and binding agreement of the
Stockholder, enforceable against the Stockholder in accordance with its terms.
(d) The execution and delivery of this Agreement by the Stockholder does
not violate or breach, except as will not materially impair the ability of the
Stockholder to effectuate, carry out or comply with all of the terms of this
Agreement, (i) any applicable law, governmental approval or contract to which
the Stockholder is a party or by which the Stockholder's assets may be bound or
(ii) require any consent or approval of, or filing with, any Governmental
Entity.
Section 3.2 REPRESENTATIONS AND WARRANTIES OF COMPANY. The Company
represents and warrants to the Stockholder that the following statements are, as
of the date of this Agreement, true and correct:
(a) This Agreement has been duly executed and delivered by a duly
authorized officer of the Company.
(b) This Agreement constitutes the valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms.
(c) The execution and delivery of this Agreement by the Company does not
violate or breach, and will not give rise to any violation or breach, of (i) the
Company's certificate of incorporation and by-laws or (ii) except as will not
materially impair its ability to effectuate, carry out or comply with all of the
terms of this Agreement, (A) any applicable law, governmental approval or
contract to which the Company or its Subsidiaries are a party or by which their
respective assets or properties may be bound or (B) require any consent or
approval of, or filing with, any Governmental Entity.
ARTICLE IV
COVENANTS
Section 4.1 COVENANTS OF THE STOCKHOLDER. The Stockholder covenants and
agrees with the Company that, during the period commencing on the date hereof
and ending on the date this Agreement is terminated under Article V hereof:
(a) The Stockholder shall not, directly or indirectly, sell, transfer,
pledge, hypothecate, encumber, assign or dispose of any Majority Stockholder
Shares (or the beneficial ownership thereof) or offer to make such a sale,
transfer or other disposition (collectively, "TRANSFER") to any person, except
(i) a Transfer to a Charitable Organization or (ii) Transfers of up to 114,336
Majority Stockholder Shares currently held by Heyman Joint Venture II LLC, so
long as, in each case, after giving effect to such Transfer, the Stockholder
remains a beneficial owner of at least seventy-five percent (75%) of the issued
and outstanding Company Common Stock.
(b) The Stockholder shall execute and deliver such other documents and
instruments and take such further actions as are necessary in order to ensure
that the Company receives the benefit of this Agreement.
ARTICLE V
TERMINATION
Section 5.1 TERMINATION. This Agreement shall terminate and be of no
further force or effect upon the earlier to occur of (i) the mutual consent of
the Company (with the approval of the Special Committee) and the Stockholder,
(ii) the Effective Time, (iii) the termination of the Merger Agreement, (iv)
written notice of termination by either party hereto if there has been a breach
by the other party of any representation, warranty or agreement contained in
this Agreement or (v) the making of an Adverse Company Board Recommendation.
Section 5.2 EFFECT OF TERMINATION. In the event of any termination of this
Agreement, this Agreement (other than Sections 6.1 through 6.13, inclusive)
shall become void and of no effect with no liability on the part of any party
hereto; PROVIDED that no such termination shall relieve any party hereto from
liability for any breach of this Agreement prior to termination thereof.
ARTICLE VI
GENERAL
Section 6.1 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) on the date of delivery if delivered personally, (b) on the first
Business Day following the date of dispatch if delivered by a nationally
recognized next-day courier service, (c) on the fifth Business Day following the
date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid or (d) if
C-2
sent by facsimile transmission, with a copy mailed on the same day in the manner
provided in (a) or (b) above, when transmitted and receipt is confirmed by
telephone; provided that any notice received by facsimile or otherwise at the
addressee's location on any Business Day after 5:00 p.m. (addressee's local
time) shall be deemed to have been received at 9:00 a.m. (addressee's local
time) on the next Business Day. Any party to this Agreement may notify any other
party of any changes to the address or any of the other details specified in
this paragraph, provided that such notification shall only be effective on the
date specified in such notice or five (5) Business Days after the notice is
given, whichever is later. Rejection or other refusal to accept or the inability
to deliver because of changed address of which no notice was given shall be
deemed to be receipt of the notice as of the date of such rejection, refusal or
inability to deliver. All notices hereunder shall be delivered to the parties as
set forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
if to the Company, to it at:
c/o International Specialty Products Inc.
1361 Alps Road
Wayne, NJ 07470
Attention: Richard A. Weinberg, Esq.
Robert Englander
Burt Manning
Alan Meckler
Telephone: 973-628-4000
Fax: 973-628-3229
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
Attention: William J. Grant, Jr.
Michael A. Schwartz
Telephone: 212-728-8000
Fax: 212-728-8111
if to the Stockholder, to it at:
Samuel J. Heyman
1361 Alps Road
Wayne, NJ 07470
Telephone: 973-628-4000
Fax: 973-628-3229
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Maripat Alpuche
Telephone: 212-455-2000
Fax: 212-455-2502
Section 6.2 NO THIRD-PARTY BENEFICIARIES. This Agreement is not intended to
confer third party beneficiary rights upon any person.
Section 6.3 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed entirely in such State. Each of the parties
irrevocably and unconditionally waives, to the fullest extent permitted by
applicable law, any and all rights to trial by jury in connection with any
litigation arising out of or relating to this Agreement or the transactions
contemplated hereby.
C-3
Section 6.4 SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held to be invalid, illegal or unenforceable in any respect for any reason under
any present or future law, public policy or order, (i) such provision shall be
fully severable and (ii) this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part
hereof. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties shall negotiate in good
faith with a view to the substitution therefor of a suitable and equitable
solution in order to carry out to the maximum extent possible, so far as may be
valid, legal and enforceable, the intent and purpose of such invalid provision;
PROVIDED that the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions contained herein shall not
be in any way impaired thereby, it being intended that all of the rights and
privileges of the parties hereto shall be enforceable to the fullest extent
permitted by law.
Section 6.5 ASSIGNMENT. Neither this Agreement nor the rights or the
obligations of either party hereto are assignable in whole or in part (whether
by operation of law or otherwise), without the written consent of the other
parties and the Company and any attempt to do so in contravention of this
Section 6.5 shall be void.
Section 6.6 SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns.
Section 6.7 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include," "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." The words "hereof," "herein" and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement or instrument defined or
referred to herein or in any agreement or instrument that is referred to herein
means such agreement or instrument as from time to time amended, modified or
supplemented and attachments thereto and instruments incorporated therein.
References to a person are also to its successors and permitted assigns. The
parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any of the provisions of this Agreement.
Any reference to any federal, state, local or foreign statute or law shall be
deemed to also to refer to any amendments thereto and all rules and regulations
promulgated thereunder, unless the context requires otherwise.
Section 6.8 AMENDMENTS. This Agreement may not be amended, modified or
waived except by written agreement signed by the Stockholder and the Company
(upon the approval of the Special Committee).
Section 6.9 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations, representations
and warranties, and discussions, whether oral or written, among the parties
hereto, with respect to the subject matter hereof.
Section 6.10 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
Section 6.11 EXECUTION. This Agreement may be executed by facsimile
signatures by any party and such signature shall be deemed binding for all
purposes hereof, without delivery of an original signature being thereafter
required.
Section 6.12 SPECIFIC PERFORMANCE. The parties hereto acknowledge that
irreparable damage would result if this Agreement were not specifically
enforced, and agree that the rights and obligations of the parties under this
Agreement may be enforced by a decree of specific performance issued by a court
of competent jurisdiction to the extent that specific performance is available
under applicable law. Such remedy shall, however, not be exclusive and shall be
in addition to any other remedies which any party may have under this Agreement
or otherwise.
Section 6.13 ACTION IN BENEFICIAL STOCKHOLDER CAPACITY ONLY. The
Stockholder does not make any agreement or understanding herein in any capacity
other than as a beneficial owner of stock of the Company. The Stockholder hereby
disclaims any pecuniary interest in the Company Common Stock in excess of his
interests in certain limited partnership and limited liability company entities
that own shares of Company Common Stock.
C-4
IN WITNESS WHEREOF, the parties have duly executed this Stockholder Voting
Agreement as of the date first above written.
INTERNATIONAL SPECIALTY
PRODUCTS INC.
By: /s/ RICHARD A. WEINBERG
---------------------------------
Name: Richard A. Weinberg
Title: Executive Vice
President and General Counsel
SAMUEL J. HEYMAN
/s/ SAMUEL J. HEYMAN
---------------------------------
C-5
ANNEX D
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
SECTION 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 ss. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of
this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of ss. 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 ss.ss.
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 in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 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-1
(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 such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
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 ss.228 or
ss.253 of this title, then, either a constituent corporation before the
effective date of the merger or consolidation, or the surviving or
resulting corporation within ten days thereafter, shall notify each of the
holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall,
also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's 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.
D-2
(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
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded 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 such stockholder's
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.
D-3
INTERNATIONAL SPECIALTY PRODUCTS INC.
Proxy for the Special Meeting of Stockholders
to be held at 10:00 a.m., Eastern Standard time,
on __________ day, ____________ _____, 2003, at
Simpson Thacher & Bartlett, 425 Lexington Avenue,
New York, New York
The undersigned stockholder hereby appoints Kenneth E. McHugh and Andrew J.
Diamond, and each of them, with full power of substitution, the proxies and
attorneys-in-fact of the undersigned to attend the Special Meeting of
Stockholders of INTERNATIONAL SPECIALTY PRODUCTS INC. (ISP) to be held on
_________, 2003 and any adjournments or postponements thereof, and to vote at
said meeting and any adjournments or postponements thereof all shares of stock
of ISP standing in the name of the undersigned stockholder.
This proxy is solicited on behalf of the board of directors. This proxy, when
properly executed, will be voted in the manner directed herein by the
undersigned stockholder. If no direction is made, the proxy will be voted FOR
proposal 1 and in the judgment of the persons named herein on any other matter
that may properly come before the meeting or any adjournments or postponements
of the special meeting. However, this proxy does not grant authority to vote on
any proposal to adjourn or postpone the special meeting for the purpose of
soliciting further proxies in favor of the adoption of the merger agreement.
(Continued and To Be Dated and Signed On The Other Side)
-------------------------------------------------------------------------------
Change of Address
------------------------------------ INTERNATIONAL SPECIALTY PRODUCTS INC.
------------------------------------ P.O. Box 11222
------------------------------------ New York, N.Y. 10203-0222
2
Please Sign, Date and Return the Proxy Card Promptly Using the Enclosed
Envelope.
[X] Votes must be indicated (X) in black or blue ink.
The board of directors of ISP recommends a vote FOR adoption of the Agreement
and Plan of Merger.
--------------------------------------------------------------------------------
1. Proposal to adopt the Agreement and Plan of FOR AGAINST ABSTAIN
Merger, dated as of November 8, 2002, by and between
International Specialty Products Inc. and
International Specialty Products Holdings Inc. (as the
merger agreement may be amended from time to time)
pursuant to which holders of ISP common stock will be
entitled to receive $10.30 per share in cash for each
share of ISP common stock owned (except as otherwise [_] [_] [_]
provided in the merger agreement).
--------------------------------------------------------------------------------
NOTE: Stockholder(s) should sign above exactly as name(s) appear(s) hereon, but
minor discrepancies in such signatures will not invalidate this proxy. If more
than one stockholder, all should sign.
To change your address, please mark the box. [_]
--------- ------------------------------- --------------------------------
Date Share Owner sign here Co-Owner sign here