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Filed pursuant to Rule 424(b)(5)
File No. 333-51727
PANAVISION INC.
PROXY STATEMENT/PROSPECTUS
COMBINED ANNUAL AND SPECIAL
MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 1998
------------------------
This Proxy Statement/Prospectus (the 'Proxy Statement') is being furnished
to stockholders of Panavision Inc., a Delaware corporation (together with its
subsidiaries, except where the context otherwise requires, 'Panavision' or the
'Company'), in connection with the solicitation of proxies by the Board of
Directors of the Company (the 'Board of Directors' or the 'Board') for use at a
combined Annual and Special Meeting of Stockholders, which will be held at The
Chase Manhattan Bank, 270 Park Avenue, 11th Floor, New York, New York, on
June 4, 1998 at 10:00 a.m. (the 'Meeting').
At the Meeting, the Panavision stockholders will be asked to consider and
vote on a proposal to approve and adopt the Agreement of Recapitalization and
Merger, dated as of December 18, 1997 (the 'Recapitalization Agreement'), by and
among PX Holding Corporation, a Delaware corporation ('PX Holding'), PX Merger
Corporation, a Delaware corporation ('Merger Sub') and wholly owned subsidiary
of PX Holding, and Panavision. The Recapitalization Agreement provides, among
other things, for the merger of Merger Sub with and into Panavision (the
'Merger') pursuant to which each share of Panavision's common stock, $.01 par
value per share ('Panavision Common Stock'), issued and outstanding immediately
prior to the effective time of the Merger (other than shares of Panavision
Common Stock held by Warburg, Pincus Capital Company, L.P., a Delaware limited
partnership ('Warburg')) will be converted, at the election of the holder, which
election must be received by ChaseMellon Shareholder Services, L.L.C. at one of
the addresses listed on the Form of Election by 5:00 p.m., Eastern time, on June
3, 1998, the day preceding the Meeting, into either (a) the right to receive
$27.00 in cash or (b) the right to retain one share of Panavision Common Stock.
Because at least 745,380 of the shares of Panavision Common Stock held by
stockholders other than Warburg (each such stockholder, a 'Holder'),
representing 12% of such Holders' shares, must be retained by the Holders either
through election or proration, the right to receive $27.00 in cash for each
share of Panavision Common Stock is subject to proration, as set forth in the
Recapitalization Agreement and described in this Proxy Statement. No Holder's
election to retain shares of Panavision Common Stock will be subject to
proration. For a more detailed description of the proration procedures, see 'THE
MERGER--Merger Consideration.'
Pursuant to an Amended and Restated Voting and Stockholders Agreement,
dated as of April 16, 1998 (the 'Stockholders Agreement' and together with the
Recapitalization Agreement, and the transactions contemplated thereby, the
'Panavision Recapitalization'), by and among Warburg, Mafco Holdings Inc., a
Delaware corporation ('Mafco'), and Panavision, Warburg has agreed to exchange
11,190,960, shares of Panavision Common Stock, representing 88% of the
Panavision Common Stock that it owns, for Series A redeemable preferred stock in
the Company (the 'Redeemable Preferred Stock'), that shall be redeemed
immediately upon consummation of the Merger at a price equivalent to $26.50 per
share of Panavision Common Stock. To the extent fewer than 88% of the Holders'
shares of Panavision Common Stock are exchanged for cash, Warburg will increase
the number of shares of Panavision Common Stock it exchanges for Redeemable
Preferred Stock (or will sell such shares to PX Holding), up to the remainder of
its shares of Panavision Common Stock. Copies of
(Cover continued on next page)
SEE 'RISK FACTORS' BEGINNING ON PAGE 22 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS OF PANAVISION COMMON STOCK IN
CONNECTION WITH THEIR CONSIDERATION OF THE MERGER AND WHETHER TO ELECT CASH FOR
THEIR SHARES OF PANAVISION COMMON STOCK OR TO RETAIN SUCH SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement is May 6, 1998.
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(Continued from previous page)
the Recapitalization Agreement and the Stockholders Agreement are attached as
Annex I and Annex II, respectively, hereto and are incorporated herein by
reference.
As a result of the Recapitalization Agreement and the Stockholders
Agreement, PX Holding, a wholly owned subsidiary of Mafco, the sole stockholder
of which is Ronald O. Perelman, will acquire control of the Company. Assuming
Holders of at least 88% of the shares of Panavision Common Stock elect to
receive cash for their shares, PX Holding will own approximately 72% of the
issued and outstanding Panavision Common Stock, Warburg will own approximately
19% of the issued and outstanding Panavision Common Stock and the Holders will
own approximately 9% of the issued and outstanding Panavision Common Stock. In
the event that all Holders, other than the Company's directors, officers, key
employees and a trust established by an officer of the Company, elect to retain
their shares of Panavision Common Stock, PX Holding will own approximately 59.1%
of the issued and outstanding Panavision Common Stock, the Holders will own
approximately 40.9% of the issued and outstanding Panavision Common Stock and
Warburg, after selling 1,741,283 shares of Panavision Common Stock to PX Holding
and after exchanging the remainder of its shares of Panavision Common Stock for
Redeemable Preferred Stock pursuant to the Stockholders Agreement, will not own
any of the issued and outstanding Panavision Common Stock (the 'Significant
Share Retention Alternative'). None of the Company's directors, officers and key
employees and a trust established by an officer of the Company, who hold in the
aggregate 2,199,100 shares of Panavision Common Stock (except that an officer of
the Company has indicated that he may transfer 120,000 of such shares to a
charitable organization), intend to elect to retain any of such shares.
In connection with the Panavision Recapitalization, the Company expects to
(i) enter into a credit agreement with a maximum commitment amount of $340
million, (ii) receive approximately $144 million, already raised in a
transaction exempt from registration under the Securities Act of 1933, as
amended (the 'Securities Act'), pursuant to Rule 144A and Regulation S
thereunder, and assume obligations under notes issued in connection therewith
and (iii) receive an equity contribution from PX Holding of approximately $154
million (collectively, the 'Recapitalization Financings'). It is currently
anticipated that the Recapitalization Financings will be used to (i) fund the
payment of the cash consideration in the Merger, (ii) repay or repurchase
certain indebtedness of the Company, (iii) make cash payments for unexercised
stock options, (iv) pay the fees and expenses in connection with the Merger and
the Recapitalization Financings and (v) fund working capital requirements. As a
result of the Panavision Recapitalization, the Company on a pro forma basis will
have a substantial stockholders' deficit of approximately $220 million and a
ratio of debt to total capitalization of 1:6.
In addition to the foregoing matter, at the Meeting, the Panavision
stockholders will be asked to consider and vote on proposals to (i) elect eight
members of the Company's Board of Directors to serve until the Company's next
annual meeting and until such directors' successors are duly elected and shall
have qualified, (ii) ratify the selection of Ernst & Young LLP as the Company's
independent auditors for 1998 and (iii) transact such other business as may
properly come before the Meeting or any adjournment thereof.
This Proxy Statement also constitutes a prospectus of the Company with
respect to the at least 12% of the issued and outstanding shares of Panavision
Common Stock to be retained by stockholders in the Merger.
Under the Delaware General Corporation Law (the 'DGCL'), a majority of the
shares of Panavision Common Stock entitled to vote, present in person or
represented by proxy, shall constitute a quorum at the Meeting. The affirmative
vote of the holders of a majority of the Panavision Common Stock outstanding on
April 8, 1998 (the 'Record Date') will be required in order to approve and adopt
the Recapitalization Agreement, the affirmative vote of the holders of a
plurality of Panavision Common Stock present in person or represented by proxy
at the Meeting will be required to elect each of the nominees for election to
the Company's Board of Directors and the affirmative vote of the holders of a
majority of Panavision Common Stock present in person or represented by proxy at
the Meeting will be required to ratify the selection of Ernst & Young LLP as the
Company's independent auditors and other matters as may properly be presented to
holders of Panavision Common Stock at the Meeting. As of the date hereof,
Warburg is the beneficial owner, and has the power to vote and dispose, of
12,717,000 shares of Panavision Common Stock, representing approximately 67.2%
of the issued and outstanding Panavision Common Stock. PURSUANT TO THE
STOCKHOLDERS AGREEMENT, WARBURG HAS AGREED, AMONG OTHER THINGS, TO VOTE ITS
SHARES IN FAVOR OF THE ADOPTION OF THE RECAPITALIZATION AGREEMENT. ACCORDINGLY,
APPROVAL OF THE RECAPITALIZATION AGREEMENT IS ASSURED REGARDLESS OF THE VOTE OF
ANY OTHER STOCKHOLDER OF THE COMPANY.
2
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(Continued from previous page)
THE BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, UNANIMOUSLY APPROVED
THE RECAPITALIZATION AGREEMENT, AND DETERMINED THAT THE RECAPITALIZATION
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST
INTERESTS OF, PANAVISION AND THE STOCKHOLDERS, AND RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE RECAPITALIZATION AGREEMENT. In reaching its
determination, the Board of Directors considered, among other things, the
opinion of Goldman, Sachs & Co. ('Goldman Sachs'), as to the fairness, from a
financial point of view, of the consideration to be received by the Holders of
Panavision Common Stock in the Merger. A copy of Goldman Sachs' opinion is
included as Annex III to this Proxy Statement. YOU ARE URGED TO READ THE OPINION
IN ITS ENTIRETY FOR FURTHER INFORMATION WITH RESPECT TO THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN BY GOLDMAN SACHS.
Panavision Common Stock is listed for trading on The New York Stock
Exchange, Inc. ('NYSE') under the symbol 'PVI.' On December 17, 1997, the last
trading day before public announcement of the execution of the Recapitalization
Agreement, the reported high and low price of Panavision Common Stock on the
NYSE Composite Transactions Tape was $28 1/4 per share and $27 1/8 per share,
respectively. On May 1, 1998, the most recent practicable date prior to the
printing of this Proxy Statement, the reported high and low price of Panavision
Common Stock on the NYSE Composite Transactions Tape was $26 1/4 per share and
$26 1/4 per share, respectively. If the Recapitalization Agreement is approved,
there will be a substantial decrease in the number of outstanding shares of
Panavision Common Stock, and the volume of shares of Panavision Common Stock
traded following the Merger will likely be substantially smaller than the
trading volume of Panavision Common Stock prior to the Merger. However, the
Merger is not expected to cause the Panavision Common Stock to be delisted from
the NYSE. See 'RISK FACTORS--Loss of Liquidity.'
This Proxy Statement, the accompanying form of proxy (the 'Proxy') and
the other enclosed documents are first being mailed to stockholders on or about
May 6, 1998.
3
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................................................... 6
FORWARD LOOKING STATEMENTS................................................................................. 6
SUMMARY.................................................................................................... 7
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............................................................ 19
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA................................................................ 20
PRICE OF PANAVISION COMMON STOCK........................................................................... 21
RISK FACTORS............................................................................................... 22
THE COMPANY................................................................................................ 26
THE MEETING................................................................................................ 26
Matters to Be Considered................................................................................. 26
Required Votes........................................................................................... 27
Voting and Revocation of Proxies......................................................................... 28
Record Date; Stock Entitled to Vote; Quorum.............................................................. 28
Dissenting Stockholder Rights............................................................................ 29
Solicitation of Proxies.................................................................................. 29
Procedure for Election of Consideration in the Merger.................................................... 29
Availability of Independent Accountants.................................................................. 29
THE MERGER................................................................................................. 30
Background of the Merger................................................................................. 30
Recommendation of the Board of Directors; Reasons for the Merger......................................... 31
Opinion of Goldman Sachs................................................................................. 34
Certain Estimates of Future Operations and Other Information............................................. 37
Merger Consideration..................................................................................... 38
Election of Cash or Panavision Common Stock.............................................................. 39
Possible Effects on Proration............................................................................ 39
Election Procedure....................................................................................... 40
Merger Sub Common Stock and PX Holding Stock Purchase.................................................... 40
Effective Time of the Merger............................................................................. 41
Conversion/Retention of Shares; Procedures for Exchange of Certificates.................................. 41
Conduct of Business Pending the Merger................................................................... 42
Conditions to the Consummation of the Merger............................................................. 42
Certain Federal Income Tax Consequences.................................................................. 42
Accounting Treatment..................................................................................... 43
Effect on Stock Options and Employee Benefit Matters..................................................... 43
Interests of Certain Persons in the Merger............................................................... 44
Resale of Panavision Common Stock Following the Merger................................................... 44
Recapitalization Financings.............................................................................. 44
The Solvency Opinion..................................................................................... 47
UNAUDITED PRO FORMA FINANCIAL DATA......................................................................... 49
CERTAIN PROVISIONS OF THE RECAPITALIZATION AGREEMENT....................................................... 54
The Merger............................................................................................... 54
Certificate of Incorporation and By-Laws................................................................. 54
Board of Directors and Officers of the Company Following the Merger...................................... 54
Representations and Warranties........................................................................... 55
Conduct of Business Pending the Merger................................................................... 56
Access to Information.................................................................................... 56
Stock Purchase........................................................................................... 56
Efforts.................................................................................................. 57
Public Announcements..................................................................................... 57
Indemnification; Directors' and Officers' Insurance...................................................... 57
No Solicitation.......................................................................................... 57
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<TABLE>
<S> <C>
Redeemable Preferred Stock............................................................................... 58
Affiliate Letters........................................................................................ 58
Reports.................................................................................................. 58
Stockholder Meeting...................................................................................... 58
Employee Benefit Arrangements............................................................................ 59
Conditions to the Consummation of the Merger............................................................. 59
Termination; Amendments; Waiver.......................................................................... 60
Fees and Expenses........................................................................................ 60
CERTAIN PROVISIONS OF THE STOCKHOLDERS AGREEMENT WITH WARBURG.............................................. 61
Representations and Warranties........................................................................... 61
Options.................................................................................................. 61
Third Party Business Combination; Remedy................................................................. 61
Agreement to Vote; Proxy................................................................................. 62
No Solicitation.......................................................................................... 62
Restriction on Transfer.................................................................................. 62
Redeemable Preferred Stock............................................................................... 62
Purchaser Stock Purchase................................................................................. 62
Tag-Along Rights......................................................................................... 62
Independent Directors.................................................................................... 63
Termination.............................................................................................. 63
Restrictions on Transfer................................................................................. 63
REGULATORY APPROVALS....................................................................................... 63
MERGER SUB, PX HOLDING AND MAFCO........................................................................... 63
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 64
NOMINEES FOR ELECTION AS DIRECTORS OF PANAVISION........................................................... 65
Nominees for Election as Directors....................................................................... 66
Board Committees and Meetings............................................................................ 67
Executive Officers....................................................................................... 67
Executive Compensation................................................................................... 69
Option Grant Table....................................................................................... 69
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values........................ 69
Management Contracts and Change in Control Agreements.................................................... 70
Compensation Committee and Stock Option Committee Report on Executive Compensation....................... 70
Compensation Committee Interlocks and Insider Participation.............................................. 71
COMPARATIVE STOCK PERFORMANCE GRAPH........................................................................ 71
CERTAIN RELATIONSHIPS AND TRANSACTIONS..................................................................... 72
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934....................................... 73
RATIFICATION OF SELECTION OF THE COMPANY'S AUDITORS........................................................ 73
LEGAL OPINIONS............................................................................................. 73
EXPERTS.................................................................................................... 74
INCORPORATION OF DOCUMENTS BY REFERENCE.................................................................... 74
STOCKHOLDER PROPOSALS...................................................................................... 74
INDEX OF DEFINED TERMS..................................................................................... i
ANNEX I--Agreement of Recapitalization and Merger, By and Among PX Holding Corporation, PX Merger
Corporation and Panavision Inc., dated as of December 18, 1997
ANNEX II--Amended and Restated Voting and Stockholders Agreement, By and Among Warburg, Pincus Capital
Company, L.P., Panavision Inc. and Mafco Holdings Inc., dated as of April 16, 1998
ANNEX III--Opinion of Goldman, Sachs & Co., dated as of December 18, 1997
</TABLE>
5
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT IN CONNECTION WITH THE MERGER, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES OFFERED BY THIS
PROXY STATEMENT, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM
ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF
AN OFFER, OR PROXY SOLICITATION, IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROXY STATEMENT NOR THE ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION SET FORTH HEREIN SINCE THE DATE HEREOF OR INCORPORATED BY
REFERENCE HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Panavision is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the 'Commission'). Such reports, proxy
statements and other information filed may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the web site
(http://www.sec.gov) maintained by the Commission, or at its regional offices
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials can be obtained at prescribed rates from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. The Panavision Common Stock is listed on the New York Stock Exchange, and
reports and other information concerning Panavision can be inspected at the
offices of The New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
This Proxy Statement does not contain all the information set forth in the
Registration Statement on Form S-4 and exhibits relating thereto, including any
amendments (the 'Registration Statement'), of which this Proxy Statement is a
part, and which Panavision has filed with the Commission under the Securities
Act of 1933, as amended (the 'Securities Act'). Reference is made to the
Registration Statement and related exhibits for further information with respect
to Panavision and the Panavision Common Stock offered hereby. Statements
contained herein concerning the provisions of documents are necessarily
summaries of such documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission or
attached as an annex hereto.
FORWARD LOOKING STATEMENTS
This Proxy Statement includes 'forward-looking statements' within the
meaning of various provisions of the Securities Act and the Exchange Act,
including, without limitation, statements under 'THE MERGER--Background of the
Merger' and '--Certain Estimates of Future Operations and Other Information.'
All statements, other than statements of historical facts, included in this
Proxy Statement that address activities, events or developments that the Company
expects or anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof), business
strategy and measures to implement strategy, competitive strengths, goals,
expansion and growth of the Company's business and operations, plans, references
to future success and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions and expected future developments as well as other factors it believes
are appropriate in the circumstances. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, including the risk factors
discussed in this Proxy Statement and other factors, many of which are beyond
the control of the Company. See 'RISK FACTORS.'
6
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SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Proxy Statement and the Annexes hereto. This summary
is not intended to be complete and is qualified in its entirety by the more
detailed information contained elsewhere or incorporated by reference in this
Proxy Statement. Panavision stockholders should read carefully this Proxy
Statement in its entirety. Certain capitalized terms used in this summary are
defined elsewhere in this Proxy Statement.
THE MEETING
Time And Place; Record Date
The Meeting will be held at The Chase Manhattan Bank, 270 Park Avenue, 11th
Floor, New York, New York on June 4, 1998 at 10:00 a.m. Stockholders of record
at the close of business on the Record Date will be entitled to notice of, and
to vote at, the Meeting. This Proxy Statement, the Proxy and the other enclosed
documents are first being mailed to the stockholders on or about May 6, 1998. At
the close of business on April 8, 1998, there were 18,928,500 shares of
Panavision Common Stock outstanding and entitled to vote.
Matters To Be Considered
At the Meeting, the Panavision stockholders will consider and vote on (i) a
proposal to approve and adopt the Recapitalization Agreement, including the
Merger, pursuant to which (a) Merger Sub will merge with and into the Company,
(b) the Panavision stockholders will receive the consideration described below
in this Summary under '--The Merger--Effect of the Merger' and (c) PX Holding, a
wholly owned subsidiary of Mafco, the sole stockholder of which is Ronald O.
Perelman, will purchase 5,784,199 newly issued shares of Panavision Common Stock
from the Company (or 4,067,467 shares of newly issued Panavision Common Stock
from the Company and 1,741,283 shares of Panavision Common Stock from Warburg
under the Significant Share Retention Alternative), see 'THE MERGER--Merger
Consideration,' (ii) the election of eight directors to Panavision's Board of
Directors, (iii) the ratification of the selection of Ernst & Young LLP as the
Company's independent auditors for 1998, and (iv) such other business as may
properly come before the Meeting and any adjournment or postponement thereof.
Required Votes
Under the DGCL, a majority of the shares of Panavision Common Stock
entitled to vote, present in person or represented by proxy, shall constitute a
quorum at the Meeting. The affirmative vote of the holders of a majority of the
Panavision Common Stock outstanding on the Record Date will be required in order
to approve and adopt the Recapitalization Agreement, the affirmative vote of the
holders of a plurality of Panavision Common Stock present in person or
represented by proxy at the Meeting will be required to elect each of the
nominees for election to the Company's Board of Directors; and the affirmative
vote of the holders of a majority of Panavision Common Stock present in person
or represented by proxy at the Meeting will be required to ratify the selection
of Ernst & Young LLP as the Company's independent auditors and approve or adopt
other matters as may properly be presented to holders of Panavision Common Stock
at the Meeting. If such approval of these matters is received, the effective
time of the Merger (the 'Effective Time') is expected to occur immediately
following the Meeting.
PURSUANT TO THE STOCKHOLDERS AGREEMENT, WARBURG HAS AGREED, AMONG OTHER
THINGS, TO VOTE ITS SHARES IN FAVOR OF THE ADOPTION OF THE RECAPITALIZATION
AGREEMENT. ACCORDINGLY, APPROVAL OF THE RECAPITALIZATION AGREEMENT IS ASSURED
REGARDLESS OF THE VOTE OF ANY OTHER STOCKHOLDER OF THE COMPANY.
7
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Voting of Proxies
All shares of Panavision Common Stock represented by a properly executed
Proxy received in time for the Meeting will be voted in the manner specified in
the Proxy. Proxies that do not contain any instruction to vote for or against or
to abstain from voting on a particular matter will be voted in accordance with
the recommendation of the Board of Directors. See 'THE MEETING--Voting and
Revocation of Proxies.'
It is not expected that any matter other than those referred to herein will
be brought before the stockholders at the Meeting. If, however, other matters
are properly presented, the persons named as proxies will vote in accordance
with their best judgment with respect to such matters, unless authority to do so
is withheld in the Proxy.
Revocability of Proxies
You may revoke your Proxy at any time prior to its exercise (i) by
attending the Meeting and voting in person (although attendance at the Meeting
will not in and of itself constitute revocation of a Proxy), (ii) by giving
notice of revocation of your Proxy at the Meeting or (iii) by delivering (a) a
written notice of revocation of your Proxy or (b) a duly executed Proxy relating
to the matters to be considered at the Meeting, bearing a date later than the
Proxy previously executed, to the Secretary of Panavision, Inc., 6219 De Soto
Avenue, Woodland Hills, California 91367. Unless revoked in one of the manners
set forth above, Proxies in the form enclosed will be voted at the Meeting in
accordance with your instructions.
Solicitation of Proxies
The cost of soliciting Proxies will be borne by the Company. The Company
may solicit Proxies and the Company's directors, officers and employees may also
solicit Proxies by telephone, telegram or personal interview. Such directors,
officers and employees will not be additionally compensated for any such
solicitation but may be reimbursed for reasonable out-of-pocket expenses in
connection therewith. Arrangements will be made to furnish copies of Proxy
materials to fiduciaries, custodians and brokerage houses for forwarding to
beneficial owners of Panavision Common Stock. Such persons will be paid
reasonable out-of-pocket expenses.
HOLDERS OF PANAVISION COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. STOCKHOLDERS MAKING AN ELECTION SHOULD RETURN THE ENCLOSED
FORM OF ELECTION (TOGETHER, ONLY IN THE CASE OF NON-CASH ELECTION SHARES, WITH
DULY ENDORSED PANAVISION STOCK CERTIFICATES) AS INSTRUCTED IN THE PROXY
STATEMENT. SEE 'THE MERGER--ELECTION.' SHARES HELD BY STOCKHOLDERS WHO FAIL TO
MAKE AN ELECTION WILL BE DEEMED CASH ELECTION SHARES. STOCKHOLDERS ELECTING TO
RECEIVE CASH OR WHO DO NOT MAKE AN ELECTION SHOULD RETAIN THEIR STOCK
CERTIFICATES UNTIL LETTERS OF TRANSMITTAL ARE RECEIVED AFTER THE EFFECTIVE TIME
OF THE MERGER. SEE 'THE MERGER--CONVERSION/RETENTION OF SHARES; PROCEDURES FOR
EXCHANGE OF CERTIFICATES.'
Security Ownership of Management
As of May 1, 1998, directors and executive officers of the Company were
beneficial owners of an aggregate of 14,978,539 shares of Panavision Common
Stock (approximately 79.1% of Panavision Common Stock). The directors and
executive officers of the Company have indicated that they intend to vote their
shares of Panavision Common Stock in favor of the Recapitalization Agreement,
the nominees for election to the Board of Directors and the ratification of
Ernst & Young LLP as the Company's independent auditors. See 'SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.'
8
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THE MERGER
Effect of the Merger
At the Effective Time, Merger Sub will be merged with and into Panavision,
and Panavision will continue as the surviving corporation in the Merger.
Pursuant to the Merger, each share of the Holders of Panavision Common
Stock issued and outstanding immediately prior to the Effective Time will be
converted, at the election of the Holder thereof and subject to the terms
described herein, into either (a) the right to receive $27.00 in cash or (b) the
right to retain one fully paid and nonassessable share of Panavision Common
Stock. Because at least 745,380 shares of Panavision Common Stock, representing
at least 12% of the Holders' shares of Panavision Common Stock, must be retained
by the Holders, the right to receive $27.00 in cash, per share is subject to
proration, as set forth in the Recapitalization Agreement and described herein.
No Holder's election to retain shares of Panavision Common Stock will be subject
to proration. For a more detailed description of the proration procedures, see
'THE MERGER--Merger Consideration.'
Warburg has agreed, pursuant to the Stockholders Agreement, to exchange
11,190,960 shares of Panavision Common Stock, representing 88% of its shares of
Panavision Common Stock for Redeemable Preferred Stock, that shall be redeemed
immediately upon consummation of the Merger at a price equivalent to $26.50 per
share of Panavision Common Stock. To the extent fewer than 88% of the Holders'
shares of Panavision Common Stock are exchanged for cash, Warburg will increase
the number of shares of Panavision Common Stock it exchanges for Redeemable
Preferred Stock (or will sell such shares to PX Holding), up to the remainder of
its shares of Panavision Common Stock. A copy of the Recapitalization Agreement
is attached as Annex I to this Proxy Statement and is incorporated herein by
reference. This Proxy Statement describes the material portions of the
Recapitalization Agreement. The description of the Recapitalization Agreement
set forth herein is subject to, and is qualified in its entirety by reference
to, the text of the Recapitalization Agreement. A copy of the Stockholders
Agreement is included as Annex II to this Proxy Statement and is incorporated
herein by reference. This Proxy Statement describes the material portions of the
Stockholders Agreement. The description of the Stockholders Agreement set forth
herein is subject to, and is qualified in its entirety by reference to, the text
of the Stockholders Agreement.
Approval and adoption of the Recapitalization Agreement requires the
affirmative vote of a majority of the outstanding shares of Panavision Common
Stock held by stockholders of record on April 8, 1998. As of this date, Warburg
is the beneficial owner, and has the power to vote and dispose, of approximately
67.2% of Panavision Common Stock. PURSUANT TO THE STOCKHOLDERS AGREEMENT,
WARBURG HAS AGREED, AMONG OTHER THINGS, TO VOTE ITS SHARES IN FAVOR OF THE
ADOPTION OF THE RECAPITALIZATION AGREEMENT. ACCORDINGLY, APPROVAL OF THE
RECAPITALIZATION AGREEMENT IS ASSURED REGARDLESS OF THE VOTE OF ANY OTHER
STOCKHOLDER OF THE COMPANY.
The Panavision Recapitalization will be accounted for as a recapitalization
as there will be a significant continuation of stockholder ownership.
Accordingly, the transaction will have no impact on the historical basis of the
Company's assets and liabilities.
Recommendation of the Board of Directors
The Board of Directors, after careful consideration, has unanimously
approved the Recapitalization Agreement and has determined that the Merger is
fair to, and in the best interests of, the Company and its stockholders and
recommends that holders of Panavision Common Stock vote FOR approval and
adoption of the Recapitalization Agreement. In the course of reaching its
decision to approve the Recapitalization Agreement and the Merger, the Board of
Directors consulted with the Company's legal and financial advisors and
considered a number of factors including, but not limited to: (i) the fact that
Warburg holds approximately 67.2% of the outstanding shares of Common Stock and
had indicated to the Board it believed that the Recapitalization Agreement and
the consideration to be received in the Merger were fair to, and in the best
interests of the Company and its stockholders and agreed to accept $0.50 per
share less than the consideration to be received by the Holders who elect to
receive Cash Election Shares or make no election; (ii) the terms and conditions
of the Recapitalization Agreement, including, but not limited to, the amount and
form of consideration; (iii) the opinion of Goldman Sachs that the Aggregate
Consideration (as defined herein) to be received by the Holders pursuant to the
Recapitalization Agreement was fair to the Holders, from a financial point of
view; (iv) the ability of the
9
<PAGE>
Board of Directors and Warburg to respond to unsolicited inquiries and proposals
from third parties interested in the possible acquisition of the Company and to
terminate the Recapitalization Agreement for a superior proposal without payment
by the Company of a break-up fee; (v) the fact that the Holders of the Company
will have the right to elect to receive cash, subject to proration, or to retain
Panavision Common Stock; (vi) the fact that given the historical stock trading
analysis and the premium associated with each of the high, low and weighted
average traded market prices of Panavision Common Stock, the cash consideration
was fair to the stockholders of the Company; (vii) the fact that stockholders
may be required to retain shares of Panavision Common Stock as a result of
proration; and (viii) the fact that executive officers and other employees of
the Company have received or will receive certain benefits not available to the
Company's other stockholders. The Board of Directors believed that those factors
supporting its determination to approve the Recapitalization Agreement
substantially outweighed any factors weighing against its decision to approve
the Recapitalization Agreement. See 'THE MERGER--Background of the Merger' and
'--Recommendation of the Board of Directors; Reasons for the Merger.'
Opinion of Goldman, Sachs & Co.
On December 17, 1997, Goldman Sachs delivered to the Board of Directors of
the Company its oral opinion that, as of such date, the Aggregate Consideration
(as defined below) to be received by the Holders pursuant to the
Recapitalization Agreement was fair, from a financial point of view, to such
Holders. Goldman Sachs subsequently confirmed its earlier opinion by delivery of
its written opinion dated as of December 18, 1997. For purposes of its opinion,
Goldman Sachs assumed that the Holders will receive $27.00 per share in cash for
approximately 88% of their Panavision Common Stock and retain the balance of
such Panavision Common Stock (the 'Aggregate Consideration').
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and limitations on the review undertaken by
them in connection with such opinion, is attached hereto as Annex III and is
incorporated herein by reference. The opinion of Goldman Sachs referred to
herein does not constitute a recommendation as to how any Holder should vote
with respect to the Recapitalization Agreement or what election any Holder
should make in connection with the Merger. HOLDERS ARE URGED TO, AND SHOULD,
READ SUCH OPINION IN ITS ENTIRETY. SEE 'THE MERGER--Opinion of Goldman Sachs.'
Election; Proration
Record Holders of shares of Panavision Common Stock will be entitled to
make an unconditional election (an 'Election') on or prior to the Election Date
(as defined below) to retain fully paid and nonassessable shares of Panavision
Common Stock ('Non-Cash Election Shares') or to receive an amount in cash equal
to $27.00 per share ('Cash Election Shares'). Shares held by Holders who fail to
make an Election will be deemed Cash Election Shares. If the number of Cash
Election Shares is greater than the number of shares of Panavision Common Stock
to be converted into the right to receive cash (the 'Cash Election Number'),
then each Holder of a Cash Election Share shall receive $27.00 in cash or shall
retain such share of Panavision Common Stock in the following manner: (i) a
Proration Factor (as defined below) shall be determined by dividing the Cash
Election Number by the total number of Cash Election Shares; (ii) the number of
Cash Election Shares converted into cash shall be determined by multiplying the
Proration Factor by the total number of Cash Election Shares covered by such
election, rounded down to the nearest whole number; and (iii) all Cash Election
Shares, other than those shares that shall receive cash under (ii) above, shall
be deemed to be Non-Cash Election Shares (on a consistent basis among Cash
Election Shares).
Election Procedures
Holders of Panavision Common Stock making an Election must properly
complete and sign the election form (the 'Form of Election') accompanying this
Proxy Statement, and such Form of Election (together, only in the case of
Holders of Non-Cash Election Shares, with all certificates representing shares
of Panavision Common Stock duly endorsed in blank or otherwise in form
acceptable for transfer on the books of the Company (or by appropriate guarantee
of delivery, as set forth in such Form of Election)), must be received by
ChaseMellon Shareholder Services, L.L.C. (the 'Exchange Agent') at one of the
addresses listed on the Form of Election by 5:00 p.m., Eastern time, on June 3,
1998, the day preceding the Meeting (the 'Election Date') and must not be
10
<PAGE>
withdrawn. Shares held by Holders who fail to make an Election will be deemed
Cash Election Shares. See 'THE MERGER--Election Procedure.'
No Solicitation
Pursuant to the Recapitalization Agreement, the Company and its affiliates
will not, and will instruct their respective officers, directors, employees,
agents or other representatives not to: (i) solicit, initiate or encourage or
take any other action to facilitate, any inquiries or to make any proposal which
constitutes a Transaction Proposal (as defined herein) or may reasonably be
expected to lead to a proposal for a Transaction Proposal; or (ii) enter into or
participate in any discussions or negotiations regarding a Transaction Proposal.
The foregoing provision will not prohibit the Company from (a) furnishing
information to any person pursuant to a confidentiality agreement on terms no
less favorable to the Company than the Confidentiality Agreement (as defined
herein) or engaging in discussions or negotiations with a person that makes a
Transaction Proposal, provided, that prior to taking such action, the Board
determines that such proposal is a Superior Proposal (as defined herein) and the
Board notifies PX Holding of its intentions, (b) failing to make or withdrawing
or modifying its recommendation to the Company's stockholders that they approve
the Merger, if after consultation with and based upon the advice of independent
legal counsel, the Board determines in good faith that such action is necessary
for the Board to comply with its fiduciary duties, or (c) disclosing to the
Company's stockholders a position contemplated by certain Exchange Act rules
with respect to any tender offer, or taking any other legally required action.
See 'CERTAIN PROVISIONS OF THE RECAPITALIZATION AGREEMENT--No Solicitation.'
Conditions to the Merger
The obligations of Panavision, PX Holding and Merger Sub to consummate the
Merger are subject to various conditions, including, without limitation, (i) the
Company and PX Holding each having received a solvency letter as to the solvency
of the Company and its subsidiaries on a consolidated basis after giving effect
to the transactions contemplated by the Recapitalization Agreement, (ii)
obtaining requisite Panavision stockholder approval, (iii) the termination or
expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended (the 'HSR Act'), and (iv) the absence of any
injunction or other legal restraint or prohibition preventing the consummation
of the Merger. In addition, the obligations of PX Holding and Merger Sub to
consummate the Merger is subject to the absence of any change in or effect on
the business, financial condition or results of operations of the Company and
its subsidiaries that would be materially adverse to the Company and its
subsidiaries taken as a whole.
Regulatory Approvals
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the 'FTC'), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and to the
Antitrust Division of the Department of Justice (the 'Antitrust Division') and
the applicable waiting period has expired or been terminated. On February 4,
1998, Warburg and Ronald O. Perelman filed Notification and Report Forms under
the HSR Act with the FTC and the Antitrust Division. On February 13, 1998,
Warburg and Mr. Perelman received notice that the requisite waiting period under
the HSR Act was terminated. See 'REGULATORY APPROVALS.'
Certain Federal Income Tax Consequences
The receipt of cash by a stockholder in exchange for Panavision Common
Stock pursuant to the Merger will be a taxable transaction for federal income
tax purposes and may be a taxable transaction for state and local purposes as
well. A stockholder will recognize gain or loss measured by the difference
between the cash received in exchange for such stockholder's shares of
Panavision Common Stock pursuant to the Merger and the adjusted tax basis of
such shares. Such gain or loss will generally be capital gain or loss, and will
be long-term capital gain or loss if the stockholder has held such stock for
more than one year. See 'THE MERGER--Certain Federal Income Tax Consequences.'
11
<PAGE>
Treatment of Company Stock Options
Each stock option held by an employee, consultant or director of the
Company to acquire shares of Panavision Common Stock ('Company Stock Option')
that is outstanding immediately prior to the Merger, whether or not vested or
exercisable, shall, simultaneously with the Merger, be canceled in exchange for
a prompt payment of a single lump sum cash payment equal to the product of (i)
the number of shares of Panavision Common Stock subject to such Company Stock
Option and (ii) the excess, if any, of $27.00 over the exercise price per share
of such Company Stock Option. See 'MERGER--Effect on Stock Options and Employee
Benefit Matters.'
Interests of Certain Persons in the Merger
Certain directors and executive officers of the Company may have interests,
described herein, that present them with potential conflicts of interest in
connection with the Merger. The Board of Directors is aware of the conflicts
described below and considered them in addition to the other matters described
under 'THE MERGER--Recommendation of the Board of Directors; Reasons for the
Merger' and '--Interests of Certain Persons in the Merger.'
Pursuant to the provisions of the Recapitalization Agreement, each holder
of a Company Stock Option, including the executive officers and directors named
under 'Executive Compensation,' shall be entitled to receive the Cash Price less
the exercise price applicable to each Company Stock Option. Accordingly, the
following individuals will receive cash payments in respect of their Company
Stock Options: William C. Scott, $9,453,036; John S. Farrand, $7,909,613;
Jeffrey J. Marcketta, $3,075,915; and Christopher M.R. Phillips, $731,779; and
all directors and all employees (including the officers named above) as a group
(a total of 36 individuals), $29,263,593.
In December 1997, in order to facilitate the payment of taxes related to
the exercise of options issued pursuant to the Panavision Stock Option Plan, the
Company made advances to certain officers and key employees in the form of
notes. Notes were issued by Messrs. Scott, Farrand and Marcketta in the amount
of $2,152,503, $3,698,800 and $924,700, respectively. The notes are recourse
obligations and mature on the earlier of December 24, 2000 or the date of
consummation of the Panavision Recapitalization. Interest on the notes is
compounded semiannually at the applicable federal rate in effect on the date the
notes were issued.
Pursuant to the Recapitalization Agreement, the Company has agreed for six
years after the Effective Time to indemnify all present directors and officers
of the Company and its subsidiaries and will, subject to certain limitations,
maintain for four years a directors' and officers' insurance and indemnification
policy containing terms and conditions which are not less advantageous than any
policy which may be in effect prior to the Effective Time. See 'CERTAIN
PROVISIONS OF THE RECAPITALIZATION AGREEMENT--Indemnification; Directors' and
Officers' Insurance.'
Pursuant to the Stockholders Agreement, Warburg has granted Mafco the
option to purchase the remaining Warburg Shares from Warburg at $30.00 per share
and Mafco has granted Warburg the option (the 'Warburg Option') to sell such
Warburg Shares to Mafco at $25.00 per share. These options are exercisable
during the Option Period (as defined herein). In addition, if the
Recapitalization Agreement is terminated in accordance with the Transaction
Proposal Termination Provision (as defined herein), the Company Board Action
Provision (as defined herein) or the Stockholder Approval Termination Provision
(as defined herein) of the Recapitalization Agreement, or the Recapitalization
Agreement shall have been amended to increase the amount of merger
consideration, and if Warburg receives any consideration in connection with a
Transaction Proposal (as defined herein) or an amended Recapitalization
Agreement, Warburg will pay to Mafco all or a portion thereof. See '--The
Stockholders Agreement with Warburg' and 'CERTAIN PROVISIONS OF THE STOCKHOLDERS
AGREEMENT WITH WARBURG.'
Upon a voluntary termination by Mr. Scott during the six-month period
commencing six months after a change of control, or upon termination of Mr.
Scott's employment by the Company without good cause or by Mr. Scott for good
reason, Mr. Scott is entitled to the greater of (x) $1,600,000 or (y) twice his
annual base salary, and all accrued but previously unpaid salary, bonuses and
unreimbursed expenses through the date of termination. Mr. Scott intends to
terminate such contract prior to the Merger and, accordingly, upon such
termination will not be entitled to any payments thereunder. See 'NOMINEES FOR
ELECTION AS DIRECTORS OF PANAVISION--Management Contracts and Change in Control
Agreements.'
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<PAGE>
Termination of the Recapitalization Agreement
The Recapitalization Agreement may be terminated at any time prior to the
Effective Time, notwithstanding approval thereof by the stockholders of the
Company: (a) by mutual written consent of PX Holding and the Company, by action
of their respective Boards of Directors; (b) by PX Holding or the Company if the
Merger shall not have been consummated on or before the later of (i) April 30,
1998 and (ii) 45 days after the Commission has declared effective this Proxy
Statement (but in no event later than June 30, 1998) (other than due to the
failure of the party seeking to terminate the Recapitalization Agreement to
perform its obligations under the Recapitalization Agreement); (c) by PX Holding
or the Company if any court of competent jurisdiction or other governmental
entity has issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable; (d) by
the Company if, prior to the Closing, any person has made a Transaction
Proposal, provided, that PX Holding receives at least four business days' prior
written notice of such Transaction Proposal, and, during such four-business-day
period, the Company shall, and shall cause its financial and legal advisors to,
consider any adjustment in the terms and conditions of the Recapitalization
Agreement that PX Holding may propose; (e) by PX Holding, if the Board of
Directors of the Company shall have (i) failed to recommend stockholder
approval, (ii) withdrawn or modified in a manner adverse to PX Holding or Merger
Sub its approval or recommendation of the Recapitalization Agreement or the
Merger, (iii) shall have approved or recommended a Transaction Proposal, or (iv)
shall have resolved to effect any of the foregoing; or (f) by PX Holding or the
Company, if Panavision stockholder approval shall not be obtained by reason of
the failure to obtain the required vote upon a vote held at a duly held meeting
of Panavision stockholders or at any adjournment thereof. See 'CERTAIN
PROVISIONS OF THE RECAPITALIZATION AGREEMENT--Termination; Amendment; Waiver'
and '--Fees and Expenses.'
THE STOCKHOLDERS AGREEMENT WITH WARBURG
Pursuant to the Stockholders Agreement:
o Redeemable Preferred Stock. Assuming Holders of at least 88% of the
shares of Panavision Common Stock elect to receive cash for their
shares, Warburg will exchange 11,190,960 shares of its 12,717,000
shares of Panavision Common Stock (88% of its holdings) for
Redeemable Preferred Stock. Such shares of Redeemable Preferred
Stock will be redeemed at the Effective Time of the Merger at the
equivalent of $26.50 in cash per share of Panavision Common Stock.
o Additional Redeemable Preferred Stock. If Holders of fewer than 88%
of the shares of Panavision Common Stock elect to receive cash for
their shares, Warburg will exchange additional shares of Panavision
Common Stock for Redeemeable Preferred Stock, to the extent
necessary to satisfy any such deficiency.
o Purchaser Stock Purchase. Under certain circumstances, PX Holding
will purchase a portion of Warburg's shares of Panavision Common
Stock at $26.50 per share in lieu of Warburg exchanging such shares
for Redeemable Preferred Stock.
o Stock Option. Warburg has granted Mafco an option to purchase at
$30 per share, and Mafco has granted Warburg an option to sell at
$25 per share, any shares of Panavision Common Stock held by Warburg
after consummation of the Merger. Each such option is exercisable
only between the first and second anniversaries of the Effective
Time.
o Agreement to Vote; Proxy; No Solicitation. Warburg will vote its
shares for the Merger; accordingly, approval of the Merger is
assured. Moreover, Warburg will not solicit other Acquisition
Proposals (as defined herein).
o Third Party Business Combination; Remedy. Warburg will pay to Mafco
all or a portion of any increased consideration paid to it by Mafco,
or consideration paid to it by another party, to acquire the
Company.
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<PAGE>
Each of the above items is described in more detail below.
Redeemable Preferred Stock
To the extent that Holders of more than 88% of the shares of Panavision
Common Stock elect to receive cash for their shares, immediately prior to the
consummation of the Merger, Warburg will exchange 88% of its shares of
Panavision Common Stock for Redeemable Preferred Stock, which will be redeemed
immediately upon consummation of the Merger at a price equivalent to $26.50 in
cash per share of Panavision Common Stock. The conversion of Warburg's shares
into Redeemable Preferred Stock simply serves as a mechanism to allow Warburg to
receive as consideration in the Merger $.50 per share less than the Holders.
In this circumstance, Warburg will retain 12% of its shares of Panavision
Common Stock subsequent to the Effective Time of the Merger, and, as a result of
proration, all other Holders will in the aggregate also retain 12% of their
shares of Panavision Common Stock subsequent to the Effective Time of the
Merger.
Additional Redeemable Preferred Stock
To the extent that fewer than 88% of the Holders' shares of Panavision
Common Stock are exchanged for cash, Warburg will increase the number of shares
of Panavision Common Stock it exchanges for Redeemable Preferred Stock, to the
extent necessary to satisfy any such deficiency.
In this circumstance, Warburg will retain fewer than 12% of its shares (as
few as none of its shares) of Panavision Common Stock subsequent to the
Effective Time of the Merger. Since other Holders will have affirmatively
elected to retain in the aggregate more than 12% of their shares of Panavision
Common Stock and no Holder's election to retain shares of Panavision Common
Stock will be subject to proration, all other Holders will in the aggregate
retain more than 12% of their shares of Panavision Common Stock subsequent to
the Effective Time of the Merger.
Purchaser Stock Purchase
In connection with the Panavision Recapitalization, PX Holding intends to
purchase a $154 million equity interest in the Company. Pursuant to the
Recapitalization Agreement, if Holders of more than 2,271,420 shares of
Panavision Common Stock elect to retain such shares, PX Holding will not be able
to purchase a $154 million equity interest in the Company. In this circumstance,
Warburg will sell directly to PX Holding at $26.50 per share, in lieu of
exchanging for Redeemable Preferred Stock, a portion of its shares of Panavision
Common Stock.
In the circumstance in which all Holders other than the Company's
directors, officers, key employees and a trust established by an officer of the
Company, elect to retain their shares of Panavision Common Stock (i) PX Holding
will purchase 4,067,467 shares of newly issued shares of Panavision Common Stock
from the Company at $26.58 per share, resulting in a $108 million equity
investment in the Company and (ii) Warburg will sell to PX Holding 1,741,283
shares of Panavision Common Stock at $26.50 per share in lieu of exchanging such
shares for Redeemable Preferred Stock, thereby increasing PX Holding's equity
investment in the Company by $46 million. Accordingly, PX Holding would make its
intended $154 million investment in the Company and Warburg would not retain any
equity interest in the Company. This scenario is described throughout this Proxy
Statement as the 'Significant Share Retention Alternative.'
In this circumstance, Warburg will retain none of its shares of Panavision
Common Stock subsequent to the Effective Time of the Merger, and, because no
Holder's election to retain shares of Panavision Common Stock will be subject to
proration, all other Holders will in the aggregate retain more than 12% of their
shares of Panavision Common Stock subsequent to the Effective Time of the
Merger.
Stock Option
For a period of one year beginning on the first anniversary of the
Effective Time of the Merger and ending on the second anniversary of the
Effective Time of the Merger (the 'Option Period'), Warburg may exercise its
option to require Mafco to purchase Warburg's remaining shares (the 'Warburg
Option Shares') for $25.00 per share (the 'Warburg Option') and Mafco may
exercise its option to require Warburg to sell its remaining shares to Mafco for
$30.00 per share (the 'Mafco Option'). As a result of proration, other Holders
may be required to retain shares of Panavision Common Stock without being party
to a similar option.
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<PAGE>
In the event that Holders of at least 88% of the shares of Panavision
Common Stock elect to receive cash for their shares, Warburg will exchange 88%
of its shares for Redeemable Preferred Stock and retain its remaining 1,526,040
shares of Panavision Common Stock. All of such remaining shares would be subject
to the Mafco Option and the Warburg Option. Under the Significant Share
Retention Alternative, Warburg will sell all of its shares in the Merger at
$26.50 per share, and, accordingly, no shares would be subject to such options.
Agreement to Vote; Proxy
Warburg has agreed to vote its shares of Panavision Common Stock, among
other things, for the Merger, and also granted to certain officers of Mafco an
irrevocable proxy with respect to such shares. Warburg is the beneficial owner,
and has the power to vote and dispose, of approximately 67.2% of Panavision
Common Stock. Accordingly, approval of the Recapitalization Agreement is assured
regardless of the vote of any other stockholder of the Company.
No Solicitation
Prior to the Termination Date (the earlier of (i) the Effective Time of the
Merger and (ii) the date the Recapitalization Agreement is terminated in
accordance with its terms), Warburg will not, directly or indirectly, solicit or
respond to any inquiries or the making of any proposal of any person or entity
with respect to the Company that constitutes or could reasonably be expected to
lead to an Alternative Transaction (as defined in the Stockholders Agreement);
provided, however, that the foregoing shall not restrict Warburg or any of its
representatives on the Board of Directors from taking actions to the same extent
and in the same circumstances permitted of the Board and the Company under the
Recapitalization Agreement.
Third Party Business Combination; Remedy
If the Recapitalization Agreement is terminated in accordance with the
Transaction Proposal Termination Provision (as defined herein), the Company
Board Action Provision (as defined herein) or the Stockholder Approval
Termination Provision (as defined herein) of the Recapitalization Agreement, or
the Recapitalization Agreement shall have been amended to increase the amount of
merger consideration, and if Warburg receives any consideration in connection
with a Transaction Proposal or an amended Recapitalization Agreement, Warburg
will pay to Mafco all or a portion of such consideration as more fully described
in 'CERTAIN PROVISIONS OF THE STOCKHOLDERS AGREEMENT WITH WARBURG--Third Party
Business Combination; Remedy.'
Restriction on Transfer
Prior to the Termination Date, except pursuant to the terms of the
Recapitalization Agreement and the Stockholders Agreement, Warburg will not
transfer or offer to transfer any of its shares of Panavision Common Stock or
grant any proxies with respect to such shares.
Tag-Along Rights
If, at any time on or prior to December 31, 1999, Mafco intends to sell (a
'Sale'), in a single transaction or a series of related transactions, more than
25% of the shares of Panavision Common Stock it beneficially owns other than (i)
to any of its affiliates who agree to be bound by the Stockholders Agreement,
(ii) pursuant to a public offering pursuant to an effective registration
statement under the Securities Act or (iii) pursuant to a merger or similar
acquisition transaction in which all the shares of Panavision Common Stock are
to be acquired, the other stockholders of the Company shall have the right,
subject to the terms and conditions described herein, to participate in such
transaction on the same basis as Mafco. See 'CERTAIN PROVISIONS OF THE
STOCKHOLDERS AGREEMENT WITH WARBURG--Tag-Along Rights.'
Independent Directors
The Stockholders Agreement provides that from and after the Effective Time
of the Merger until the date on which the Company shall no longer have any
public stockholders, Mafco and the Company shall take all action within their
respective power to include on the Board two directors, each of whom is (i)
considered to be an independent director pursuant to the rules contained in the
NYSE Listed Company Manual and (ii) is not an officer or employee of any company
affiliated with Mafco.
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EFFECT OF PANAVISION RECAPITALIZATION
<TABLE>
<CAPTION>
NON-AFFILIATED
PX HOLDING WARBURG MANAGEMENT(1) HOLDERS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
PRIOR TO PANAVISION RECAPITALIZATION:
Shares of Panavision Common Stock owned... 0 12,717,000 2,199,100 4,012,400
ASSUMING ALL HOLDERS ELECT CASH(2):
Number of shares of Panavision Common
Stock exchanged for the right to receive
cash.................................... -- 11,190,960(3) 1,935,208 3,530,912
Cash consideration received for shares of
Panavision Common Stock exchanged(4).... -- $296,560,440 $52,250,616 $95,334,624
Number of Shares of Panavision Common
Stock retained by existing stockholders
or acquired by PX Holdings.............. 5,784,199 1,526,040 263,892 481,488
Percentage of shares of Panavision Common
Stock represented by retained or
acquired shares......................... 71.8% 18.9% 3.3% 6.0%
Implied Value of shares of Panavision
Common Stock retained by existing
Panavision Stockholders; Purchase Price
of Shares of Panavision Common Stock
acquired by PX Holding(5)............... $154,376,801 $40,058,550 $6,927,165 $12,639,060
Aggregate Consideration to Panavision
Stockholders(6)......................... -- $336,618,990 $59,177,781 $107,973,684
ASSUMING SIGNIFICANT SHARE RETENTION
ALTERNATIVE:
Number of shares of Panavision Common
Stock exchanged for the right to receive
cash.................................... -- 12,717,000(7) 2,199,100 0
Cash consideration received for shares of
Panavision Common Stock exchanged(4).... -- $337,000,500 $59,375,700 0
Number of Shares of Panavision Common
Stock retained by existing stockholders
or acquired by PX Holding............... 5,808,750 0 0 4,012,400
Percentage of shares of Panavision Common
Stock represented by retained or
acquired shares......................... 59.1% 0 0 40.9%
Implied Value of shares of Panavision
Common Stock retained by existing
Panavision Stockholders; Purchase Price
of shares of Panavision Common Stock
acquired by PX Holding(5)............... $154,376,801 $0 $0 $105,325,500
Aggregate Consideration to Panavision
Stockholders(6)......................... -- $337,000,500 $59,375,700 $105,325,500
</TABLE>
- ------------------
(1) The Company's directors, officers and key employees and a trust established
by an officer of the Company, except that an officer of the Company has
indicated that he may transfer 120,000 of such shares to a charitable
organization. Not included in Management's consideration are the cash
payments of $29.3 million in respect of their unexercised Company Stock
Options. See 'THE MERGER--Interests of Certain Persons in the Merger.'
(2) See 'THE MERGER--Election of Cash or Panavision Common Stock' and '--Effects
of Proration' and '--Election Procedures.'
(3) Warburg exchanges shares of Panavision Common Stock for shares of Redeemable
Preferred Stock; the Redeemable Preferred Stock is thereafter redeemed for
cash.
(4) $27.00 per share for Holders other than Warburg; $26.50 per share for
Warburg.
(5) Implied Value is based upon a price of $26.25 per share of Panavision Common
Stock, the closing price of such shares on May 1, 1998, the most recent date
prior to the printing of this Proxy Statement; PX Holding purchase price is
at $26.69, the Designated Per Share Purchase Price (as defined herein),
($26.58 under the Significant Share Alternative) per share.
(6) The sum of 'Consideration received for Shares of Panavision Common Stock
Exchanged' and 'Implied Value of Shares of Panavision Common Stock
Retained.'
(7) Warburg exchanges 10,975,717 shares of Panavision Common Stock for shares of
Redeemable Preferred Stock and sells 1,741,283 shares of Panavision Common
Stock to PX Holding; the Redeemable Preferred Stock is thereafter redeemed
for cash.
16
<PAGE>
MERGER SUB, PX HOLDING AND MAFCO
PX Holding, an indirect wholly owned subsidiary of Mafco, and Merger Sub, a
wholly owned subsidiary of PX Holding, were organized in connection with the
Merger and have not carried on any activities to date other than those incident
to their formation and transactions contemplated by the Recapitalization
Agreement and the Stockholders Agreement, respectively. The principal offices of
PX Holding and Merger Sub are located at 35 East 62nd Street, New York, New York
10021; telephone number (212) 572-8600. See 'MERGER SUB, PX HOLDING AND MAFCO.'
CONVERSION OF MERGER SUB STOCK AND PX HOLDING STOCK PURCHASE
In the Merger, all of the shares of Merger Sub issued and outstanding
immediately prior to the Effective Time will be converted into 10 shares of
Panavision Common Stock. See 'THE MERGER--Conversion of Merger Sub Stock.'
Immediately prior to the consummation of the Merger, PX Holding will purchase
5,784,199 newly issued shares of Panavision Common Stock from the Company (or
4,067,467 newly issued shares of Panavision Common Stock from the Company and
1,741,283 shares of Panavision Common Stock from Warburg, in the event that all
Holders, other than the Company's directors, officers, key employees and a trust
established by an officer of the Company, elect to retain their shares of
Panavision Common Stock (the 'Significant Share Retention Alternative')). See
'THE MERGER--Merger Consideration.'
RISK FACTORS
Holders of Panavision Common Stock should carefully consider the following
factors related to the retention of Panavision Common Stock in connection with
their consideration of the Merger: (i) control by Mafco; (ii) substantial
indebtedness, stockholders' deficit, liquidity and capital reserves; (iii)
fraudulent conveyance risks; (iv) stock options; (v) proration relating to
Panavision Common Stock; (vi) delisting; loss of liquidity; reporting
obligations; (vii) difficulty in executing growth strategy; (viii) adverse
effect of an inability to manage growth; (ix) dependence upon feature film
industry; (x) competition; (xi) technological change; (xii) dependence upon key
personnel; (xiii) dependence upon key suppliers; (xiv) international sales and
foreign exchange risk; and (xv) dependence upon manufacturing facility. See
'RISK FACTORS.'
DISSENTING STOCKHOLDER RIGHTS
Stockholders of the Company are not entitled to appraisal or dissenters'
rights pursuant to Section 262 of the DGCL.
ELECTION OF PANAVISION DIRECTORS
Upon the consummation of the transactions contemplated by the
Recapitalization Agreement, PX Holding will have the right to designate all
members of the Board of Directors. If the Recapitalization Agreement is approved
and adopted by the Panavision stockholders and the Merger is consummated, all of
the nominees, if elected, will become directors of Panavision immediately after
the Effective Time and are expected to serve from such time until the next
succeeding annual meeting of stockholders. If the Recapitalization Agreement is
not approved, the Merger is not consummated or the nominees are not elected at
the Meeting, an annual meeting of stockholders for 1998 will be scheduled in the
near future. Directors of the Company will be elected by a plurality vote of the
outstanding shares of Panavision Common Stock present in person or represented
by proxy at the Meeting. Under applicable Delaware law, in tabulating the votes,
abstentions from voting on the election of Directors (including broker
non-votes) will be disregarded and have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION
OF EACH OF THE NOMINEES LISTED HEREIN FOR DIRECTOR. See 'NOMINEES FOR ELECTION
AS DIRECTORS OF PANAVISION.'
17
<PAGE>
The Panavision Recapitalization(1)
<TABLE>
<S> <C> <C>
- ----------------------- -------------------------------------- ---------------------------------------------------
| Mafco | | Holders | | Warburg Pincus |
| Holdings Inc. | | (other than Warburg) | | Capital Company L.P. |
- ----------------------- -------------------------------------- ---------------------------------------------------
| /|\ | /|\ /|\ |
| | | | | |
| $27.00 per share| 745,380 shares | 11,190,960 | 111,110 | 1,526,040 |
| for 5,466,120 | of Panavision | shares (88% | shares of | shares of |
| shares (88% of | Common Stock | of Warburg's | Redeemable | Panavision |
100% | Holders' shares)| retained (9% | shares) of | Preferred | Common Stock |
Owned | of Panavision | owned upon the | Panavision | Stock | retained (19% |
| Common Stock | Panavision | Common Stock | redeemed for| owned upon the |
| | Recapitalization)| exchanged for | equivalent | Panavision |
| | | 111,110 Shares| of $26.50 | Recapitalization)|
| | | of Redeemable | per share of| |
| | | Preferred | Panavision | |
- ----------------------- | | Stock | Common Stock| |
| PX Holding | | | | | |
| Corporation | | | | | |
- ----------------------- _ | | | | |
| |\ | | | | |
| \ $154 million | | | | |
| \ for purchase of | | | | |
| \ 5,784,199 newly | | | | |
| \ issued shares | | | | |
100% | \ of Panavision | | | | |
Owned | \ Common Stock | | | | |
| \ (72% owned upon | | | | |
| \ the Panavision | | | | |
| \ Recapitalization)| | | | |
| \ | | | | |
| _\| \|/ \|/ \|/ \|/ \|/
- ---------------------- ---------------------------------------------------------------------------------------------
| PX Merger | Merger \ | Panavision Inc. |
| Corporation |-------------- | (to be the Surviving Corporation) |
- ---------------------- / ---------------------------------------------------------------------------------------------
</TABLE>
1) Assumes 88% of the Holders' share of Panavision Common Stock are exchanged
for cash and that 88% of Warburg's shares of Panavision Common Stock, which are
exchanged for Redeemable Preferred Scock, is thereafter redeemed for cash.
18
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data for the Company for each of the fiscal years in the five year period ended
December 31, 1997. The selected historical consolidated financial data for each
of the fiscal years in the five year period ended December 31, 1997 have been
derived from the Company's audited financial statements. See 'AVAILABLE
INFORMATION' and 'INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.'
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995(A) 1996(B) 1997(C)
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue.............................................. $ 66,710 $ 77,100 $ 95,328 $124,638 $176,863
Gross margin......................................... 30,278 36,105 50,959 65,165 85,984
Operating income..................................... 9,131 14,453 19,487 30,167 33,915
Net income........................................... $ 3,305 $ 7,078 $ 5,563 $ 13,271 $ 19,488
Basic earnings per common share...................... $ .24 $ .52 $ .41 $ .94 $ 1.07
Shares used in computation........................... 13,706 13,706 13,706 14,130 18,174
Diluted earnings per common share.................... $ .22 $ .46 $ .36 $ .84 $ 1.03
Shares used in computation........................... 15,277 15,277 15,277 15,733 19,012
BALANCE SHEET DATA (AT PERIOD END):
Total assets......................................... $140,075 $149,707 $165,751 $176,746 $281,937
Total long term debt (including current portion)..... 139,500 131,000 128,952 60,000 125,382
Stockholders' (deficit) equity....................... (6,706) 922 6,456 93,018 109,444
Stockholders' (deficit) equity per common share...... (.49) .07 .47 5.12 5.78
</TABLE>
- ------------------------
(a) Includes operating results of Panavision Canada Corporation, a former agent,
since January 20, 1995, the date
of its acquisition.
(b) Includes operating results of Lee Lighting Limited since July 1, 1996, the
effective date of its acquisition.
(c) Includes operating results of Visual Action Holdings plc's Film Services
Group ('Film Services Group' or 'FSG') since June 5, 1997, the date of its
acquisition (the 'FSG Acquisition').
19
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following table sets forth selected unaudited pro forma financial data
for the Company, as adjusted to give effect to the Transactions (as defined
herein), which have been derived from, and should be read in conjunction with,
the Unaudited Pro Forma Financial Data, including the notes thereto, appearing
elsewhere in this Proxy Statement. See 'UNAUDITED PRO FORMA FINANCIAL DATA.' The
selected pro forma financial data are presented for illustrative purposes only
and are not necessarily indicative of the operating results or financial
position that would have occurred if the Transactions had been consummated on
the dates indicated, nor are they necessarily indicative of future operating
results or financial position.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C>
PRO FORMA STATEMENTS OF OPERATIONS DATA:
Revenues....................................................................................... $ 202,846
Cost of revenues............................................................................... 105,726
-----------------
Gross margin................................................................................... 97,120
Operating costs................................................................................ 63,467
-----------------
Operating income............................................................................... 33,653
Interest expense, net.......................................................................... (39,291)
Other expense (income), net.................................................................... (1,486)
-----------------
Loss before income taxes....................................................................... (4,152)
Income tax provision........................................................................... (2,871)
-----------------
Net loss....................................................................................... $ (7,023)
-----------------
-----------------
Basic and diluted loss per common share........................................................ $ (.87)
Shares used in the computation................................................................. 8,056
PRO FORMA BALANCE SHEET DATA (AT PERIOD END, IN MILLIONS, EXCEPT PER SHARE DATA):
Total assets................................................................................... $ 276.7
Total long term debt........................................................................... 448.9
Stockholders' deficit.......................................................................... (219.7)
Stockholders' deficit per common share......................................................... $ (27.28)
</TABLE>
20
<PAGE>
PRICE OF PANAVISION COMMON STOCK
The Panavision Common Stock is listed and traded on the NYSE under the
symbol 'PVI.' The following table shows, for the fiscal periods indicated, the
high and low sales prices of a share of Panavision Common Stock on the NYSE
Composite Transactions Tape.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1996
Fourth Quarter (November 21, 1996 through December 31, 1996)................ 24 18 5/8
FISCAL 1997
First Quarter (ended March 31, 1997)........................................ 21 3/8 16 3/8
Second Quarter (ended June 30, 1997)........................................ 20 1/2 16
Third Quarter (ended September 30, 1997).................................... 22 1/4 18
Fourth Quarter (ended December 31, 1997).................................... 28 1/4 20 7/8
FISCAL 1998
First Quarter (ended March 31, 1998)........................................ 26 3/4 24 7/8
Second Quarter (through May 1, 1998)........................................ 26 9/16 25 11/16
</TABLE>
On December 17, 1997, the last trading day before public announcement of
the execution of the Recapitalization Agreement, the reported high and low price
of Panavision Common Stock on the NYSE Composite Transactions Tape were $28 1/4
and $27 1/8 per share, respectively. On May 1, 1998, the most recent practicable
date prior to the printing of this Proxy Statement, the reported high and low
price of Panavision Common Stock on the NYSE Composite Transactions Tape were
$26 1/4 per share and $26 1/4 per share, respectively.
PANAVISION STOCKHOLDERS SHOULD OBTAIN CURRENT MARKET PRICES FOR PANAVISION
COMMON STOCK.
Since its initial public offering in 1996, the Company has not paid any
cash dividends on Panavision Common Stock, and it does not have any present
intention to commence payment of any cash dividends. The Company intends to
retain earnings to provide funds for the operation and expansion of the
Company's business and to repay outstanding indebtedness. The Company's debt
agreements contain certain covenants restricting the payment of dividends on, or
repurchases of, Panavision Common Stock.
21
<PAGE>
RISK FACTORS
Holders of Panavision Common Stock should consider carefully all of the
information contained in this Proxy Statement, including the following factors:
CONTROL BY MAFCO
Mafco indirectly owns all of the capital stock of PX Holding. Following the
Panavision Recapitalization, Mafco is expected to own approximately 72% of the
capital stock of Panavision (assuming that an aggregate of 88% of the Holders'
shares of Panavision Common Stock is converted into the right to receive cash).
In the event the Significant Share Retention Alternative occurs, Mafco would
still own 59.1% of the capital stock of Panavision. As a result of the
foregoing, Mafco will be able to direct and control the policies of Panavision,
including mergers, sales of assets and similar transactions.
SUBSTANTIAL INDEBTEDNESS; STOCKHOLDERS' DEFICIT; LIQUIDITY AND CAPITAL RESERVES
In connection with consummating the transactions contemplated by the
Recapitalization Agreement, Panavision will enter into or assume certain
financings in connection with the Merger to (i) fund payment of the cash
consideration in the Merger, (ii) repay or repurchase certain indebtedness of
the Company, (iii) make cash payments for unexercised options, (iv) pay the fees
and expenses incurred in connection with the Merger and the Recapitalization
Financings (as defined herein) and (v) fund working capital requirements.
Although the definitive terms of certain of the Recapitalization Financings have
not been finalized as of the date of this Proxy Statement, the Company expects
that such terms will include significant operating and financial restrictions,
such as limits on the Company's ability to incur indebtedness, create liens,
sell assets, engage in mergers or consolidations, make investments and pay
dividends.
As of December 31, 1997, after giving effect to the Panavision
Recapitalization and the Recapitalization Financings, Panavision would have had
$449.3 million of total indebtedness on a pro forma consolidated basis,
consisting of $150.0 million of 9 5/8% Senior Subordinated Discount Notes due
2006 (the 'Notes') to be assumed by the Company, $298.9 million outstanding
under the New Credit Agreement (as defined herein) and $0.4 million of other
consolidated indebtedness, a stockholders' deficit of $219.7 million and a debt
to total capitalization ratio of 1:6. See'THE MERGER--Recapitalization
Financings' and 'UNAUDITED PRO FORMA FINANCIAL DATA.'
Panavision's level of indebtedness could have important consequences for
Panavision, including the following: (i) the ability of Panavision to obtain
additional financing for working capital, capital expenditures, acquisitions,
debt service requirements or other purposes may be impaired; (ii) a substantial
portion of Panavision's cash flow from operations will be required to pay
Panavision's interest expense and principal repayment obligations and will not
be available for its general corporate needs; and (iii) Panavision's flexibility
to adjust to changing market conditions may be limited, and its ability to
compete against its competitors may be reduced. Additionally, the Company will
be required to pay (i) term loan repayments beginning on June 30, 1999 and (ii)
interest on the Notes beginning on August 1, 2002, each of which will reduce
funds available to the Company for other purposes, including implementing its
growth strategy.
FRAUDULENT CONVEYANCE RISKS
The incurrence by the Company of indebtedness, including indebtedness in
connection with the Recapitalization Financings, and the subsequent transfer of
a portion of the proceeds thereof to the Company's stockholders to pay the Cash
Price, is subject to review under relevant federal and state fraudulent
conveyance statutes in a bankruptcy, reorganization of rehabilitation case or
similar proceeding or in a lawsuit by or on behalf of unpaid creditors of the
Company. Under these fraudulent conveyance statutes, if a court were to find
that, at the time of the Panavision Recapitalization, (i) the Company incurred
the indebtedness and paid the Cash Price with the intent of hindering, delaying
or defrauding current or future creditors or (ii) (a) the Company received less
than reasonably equivalent value or fair consideration in connection with the
Panavision Recapitalization and (b) the Company (1) was insolvent or was
rendered insolvent by reason of the Panavision Recapitalization, including the
incurrence of the indebtedness related thereto, (2) was engaged in a business or
transaction for which its assets constituted unreasonably small capital, (3)
intended to incur, or believed that it would incur obligations beyond its
ability to pay as such obligations matured (as the foregoing terms are defined
in or interpreted under the fraudulent conveyance statutes) or (4) was a
defendant in an action for money damages, or
22
<PAGE>
had a judgment for money damages docketed against it (if, in either case, after
final judgment the judgment is unsatisfied), such court could determine that the
payment of the Cash Price to stockholders of the Company violated applicable
provisions of U.S. Bankruptcy code or applicable state fraudulent conveyance
laws, which determination would permit the bankruptcy trustee or debtor in
possession or unpaid creditors to avoid the payment of the Cash Price and
recover the Cash Price from the Company's stockholders.
In the course of its deliberations concerning the Recapitalization
Agreement, the Board was advised of the fraudulent conveyance risks and the
relevant legal principles set forth above. As a result, in order to protect the
Company and its stockholders, the Recapitalization Agreement contains a
provision requiring that, as a condition to consummation of the Merger, the
Company and the Board receive an opinion from an independent expert as to the
solvency of the Company after giving effect to the Merger and the Panavision
Recapitalization. In this regard, Murray, Devine & Co., Inc. has been retained
to provide its opinion as to certain matters that relate to the solvency of the
Company and its subsidiaries, taken as a whole, immediately after giving effect
to the Panavision Recapitalization. A summary of the form of opinion is set
forth under 'THE MERGER--The Solvency Opinion.' There can be no assurance,
however that a court would not determine that the Company was insolvent at the
Effective Time and after giving effect to the transactions contemplated by the
Recapitalization Agreement and the Stockholders Agreement.
STOCK OPTION
Pursuant to the Stockholders Agreement, for a period of one year beginning
on the first anniversary of the Effective Time of the Merger and ending on the
second anniversary of the Effective Time of the Merger, Warburg may exercise its
option to require Mafco to purchase Warburg's remaining shares for $25.00 per
share and Mafco may exercise its option to require Warburg to sell its remaining
shares to Mafco for $30.00 per share. As a result of proration, other Holders
may be required to retain shares of Panavision Common Stock without being party
to a similar option.
PRORATION RELATING TO PANAVISION COMMON STOCK
Shares of Panavision Common Stock for which a Holder makes an Election to
receive cash or for which no Election is made shall be exchanged for the right
to receive $27.00 per share. However, if the aggregate number of Cash Election
Shares is more than 5,466,120, representing more than 88% of all Holders' shares
of Panavision Common Stock, such electing Holder will be required to retain
shares of Panavision Common Stock for a portion of such Holder's Panavision
Common Stock, not greater than 12%, as to which such Holder had not made an
Election for Non-Cash Election Shares as a result of the proration procedures
described herein under 'THE MERGER.'
Accordingly, if the Merger is consummated, Holders who elect cash will not
necessarily receive the type of consideration specified in their election. If
all Holders elected cash in respect of all of their shares, each Holder would be
required to retain 12% of his or her shares. There can be no assurance as to the
price at which shares of Panavision Common Stock would trade at the Effective
Time of the Merger or at any time thereafter; however, based on a price of
$26 1/4 per share of Panavision Common Stock (the most recent trading price
prior to the printing of this Proxy Statement), if Panavision Stockholders were
required to retain 12% of their shares of Panavision Common Stock as a result of
proration, a stockholder holding 100 shares of Panavision Common Stock would
receive $2,376 in cash and would be required to retain shares with a value of
$315.00, resulting in aggregate consideration of $2,691, or $26.91 per share, as
compared with $27.00 per share if cash had been received for all shares of
Panavision Common Stock. As indicated under '--Delisting; Loss of Liquidity;
Reporting Obligations,' subsequent to the Merger, stockholders may experience
difficulty selling shares of Panavision Common Stock or obtaining prices that
reflect the value thereof.
DELISTING; LOSS OF LIQUIDITY; REPORTING OBLIGATIONS.
The Company believes that neither the Merger nor the Panavision
Recapitalization has a reasonable likelihood or purpose of causing Panavision
Common Stock to cease being listed on the NYSE following the Effective Time of
the Merger. However, although it is currently intended that the shares of
Panavision Common Stock will continue to be listed on the NYSE immediately
following the Effective Time of the Merger, there is no obligation for the
Company to maintain the NYSE listing. In addition, there is a possibility that,
following the Merger, the total number of beneficial holders of Panavision
Common Stock will fall below the 400 beneficial
23
<PAGE>
holders required for Panavision Common Stock to maintatin its NYSE listing.
Accordingly, there can be no assurance that the Company will maintain its NYSE
listing following the Effective Time of the Merger. Notwithstanding the
foregoing, the Company expects that it will satisfy the applicable listing
criteria at the Effective Time of the Merger, based upon the fact that the
Company has approximately 1,200 stockholders and upon the assumption, which the
Company believes to be reasonable, that more than 400 of these stockholders will
retain shares, either through Election or proration. In that connection, the
Company will use its best efforts to maintain its listing on the NYSE. Any
delisting of Panavision Common Stock, together with the substantial decrease in
the number of shares of Panavision Common Stock to be held by holders thereof
other than PX Holding, is expected to result in a substantial decrease in
liquidity of Panavision Common Stock, even if the Company continues to be a
reporting company under the Exchange Act and continues to file the periodic
reports required to be filed thereunder.
Upon any such delisting, shares of Panavision Common Stock may trade only
in the over-the-counter market. Although prices in respect of trades may be
published by the National Association of Securities Dealers, Inc. on its
electronic bulletin board and 'pink sheets,' quotes for such shares would not be
as readily available. As a result, it is anticipated that the shares of
Panavision Common Stock will trade much less frequently relative to the trading
volume of Panavision Common Stock prior to the Merger and stockholders may
experience difficulty selling shares of Panavision Common Stock or obtaining
prices that reflect the value thereof.
The Company expects to continue to be a reporting company under the
Exchange Act and to continue to file periodic reports (including annual and
quarterly reports) following the Merger. The Company will also continue to
provide proxy statements to its stockholders under the Exchange Act, if as a
result of the retention of shares of Common Stock by holders of Panavision
Common Stock with respect to the Merger, the Company has 300 or more holders of
shares of Panavision Common Stock following the Merger. If, however, after one
year following the Merger, there are fewer than 300 holders of shares of
Panavision Common Stock, the Company may cease to be a reporting company under
the Exchange Act. If the Company were to cease to be a reporting company under
the Exchange Act, the information now available to holders of Panavision Common
Stock in the periodic reports would not be available to them as a matter of
right.
DIFFICULTY IN EXECUTING GROWTH STRATEGY
The Company's growth strategy is based on the Company's current and
historical operations and the operations of other companies in the entertainment
industry. After the Panavision Recapitalization, the Company's management may
decide to alter or discontinue certain parts of its business strategy described
herein and may adopt alternative or additional strategies, however, the Company
has no such plans to do so at the present time. In addition, there can be no
assurance that such a strategy, if implemented, will be successful or will
improve operating results. Further, other conditions may exist, such as
increased competition, reduction in demand for filmed entertainment or an
economic downturn, which may offset any improved operating results that are
attributable to such a strategy.
ADVERSE EFFECTS OF AN INABILITY TO MANAGE GROWTH
Following the Merger, the Company intends to grow and expand its business
through internal expansion and acquisitions. If such growth occurs, it will
place demands on the Company's management, employees, operations and physical
and financial resources. To manage its growth, the Company must continue to
implement and improve its operational and financial systems and to expand, train
and manage its employee base, and any inability of the Company to attract and
retain the executive and managerial personnel required by its expanding business
could have a material adverse effect on the results of operations and financial
condition of the Company. If the Company's systems, procedures or controls are
not adequate to support the Company's operations, management may not be able to
achieve the expansion necessary to exploit potential market opportunities for
the Company's products. In addition, any anticipated expansion of the Company's
marketing efforts outside of the United States will expose the Company to the
economic, political and regulatory environments within the countries in which
the Company's new and potential customers are located, which may be more
restrictive or burdensome than those in the United States and with which the
Company may be unfamiliar. The Company intends to use cash from operations to
manufacture additional camera systems and purchase other rental equipment as
well as to use cash provided by financing activities to pursue acquisitions.
24
<PAGE>
DEPENDENCE UPON FEATURE FILM INDUSTRY
The Company's operations are heavily dependent on the production of feature
films, including, in particular, the U.S. market. During the four year period
including 1993 through 1996, the Company benefitted from an increase in the
number of major studio feature films (and especially large-budget action films),
which tend to use larger camera packages than the feature films made by
independent producers. In 1997 in North America, the major studios started
approximately 38 fewer feature films than in 1996, or a reduction of
approximately 31%, while independent producers started approximately 123 more
feature films than in 1996, or an increase of approximately 34%. Significant
declines in the total number of feature films produced in the future including,
in particular, major studio or large-budget action films, could have a material
adverse impact on the Company's operations.
COMPETITION
The market for cinematography equipment is highly competitive, primarily
driven by technology, customer service and, to a lesser extent, price. As a
manufacturer of equipment, the Company has two primary competitors, located in
Europe, who sell their products to rental companies, which then rent the
equipment to the ultimate user. As a renter of equipment, the Company competes
with numerous rental companies, which purchase equipment from other
manufacturers and then rent that equipment to their customers. There can be no
assurance that the Company will be able to continue to develop, manufacture and
market its products successfully against existing or new competitors.
TECHNOLOGICAL CHANGE
The motion picture and television industries are subject to technological
change, evolving industry standards, changing customer requirements and
improvements in and expansion of product offerings. The Company's ability to
anticipate and adapt to changes in technology, industry standards, customer
requirements and product offerings and to develop and introduce new and enhanced
products will be significant factors in the Company's ability to remain a leader
in the manufacturing and rental of cinematography equipment. Although the
Company believes it is well-positioned to meet the changing needs of the motion
picture and television industries, there can be no assurance that products or
technologies developed by others will not render the Company's products or
technologies noncompetitive or obsolete.
DEPENDENCE UPON KEY PERSONNEL
The Company is dependent upon the continued services of certain key
officers and management personnel. The loss of key personnel could have a
material adverse effect on the Company. The Company believes that its future
success also will depend significantly upon its ability to attract, motivate and
retain additional highly skilled managerial, operational, technical and sales
and marketing personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be successful in attracting,
assimilating and retaining the personnel it requires to develop, manufacture and
market its products or expand its operations.
DEPENDENCE UPON KEY SUPPLIERS
The Company uses outside vendors for the manufacture of certain components
used in its products, such as the grinding, manufacture and polishing of certain
camera lens elements. The Company generally does not have supply contracts with
its outside vendors. Although the Company believes that such vendors could be
replaced, the loss of one or more of such vendors could disrupt the Company's
business.
INTERNATIONAL SALES; FOREIGN EXCHANGE RISK
In 1995, 1996 and 1997, approximately 45%, 40% and 54% of the Company's
revenue, respectively, was generated outside of the United States, primarily in
the United Kingdom and Canada. In 1997, as a result of the FSG Acquisition the
Company expanded the scope of its operations outside of the United States and
expects that international operations will continue to account for a significant
and increasing portion of its revenue in future periods. The results of
operations of the Company's foreign subsidiaries are translated from local
currency to United States dollars. Therefore, the Company's results of
operations are affected by fluctuations in exchange rates between such
currencies and the United States dollar. In addition to foreign exchange risk,
international operations are subject to a number of special risks, including
trade barriers, exchange controls, national and
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regional labor strikes, political risks and risks of increases in duties, taxes
and governmental royalties, as well as changes in laws and policies governing
operations of foreign-based companies. In addition, earnings of foreign
subsidiaries and intercompany payments are subject to foreign income tax rules
that may reduce cash flow available to meet required debt service and other
obligations of Panavision.
DEPENDENCE UPON MANUFACTURING FACILITY
The Company's manufacturing facility is located in Woodland Hills,
California. Since the Company is dependent on its manufacturing facility, a
disruption of the Company's manufacturing operations could have a material
adverse effect on the Company's business, financial condition and results of
operations. Such disruption could result from various factors including human
error or a natural disaster such as earthquake, fire or flood. The Company does
not maintain business interruption insurance that would reimburse the Company in
the event of an earthquake.
THE COMPANY
Panavision is a leading designer, manufacturer and supplier of high
precision film camera systems, comprising cameras, lenses and accessories, for
the motion picture and television industries. The Company's camera systems are
not available for sale and are rented exclusively through the Company's domestic
and international owned and operated facilities as well as its network of
independent agents. Panavision is recognized in the motion picture and
television industries as the preeminent brand name for cinematography equipment.
Since the Company was founded, Panavision has received two Oscars(Registered)
and 18 Awards for Scientific and Technical Achievement from the Academy of
Motion Picture Arts. Since 1990, two-thirds of the Academy Award nominees for
Best Cinematography and six of the seven cinematographers who have won the
Oscar(Registered) for Best Cinematography, used Panavision camera systems.
Panavision camera systems were used to film nine of the ten box office
films requiring film cameras in each of 1997 and 1996 including Men in Black,
The Lost World (Jurassic Park II), Liar, Liar, Jerry Maguire, My Best Friend's
Wedding, Mission: Impossible, Independence Day, Ransom, Twister and A Time to
Kill. Panavision camera systems were also used to film the 1998 blockbuster hits
Titanic and Tomorrow Never Dies, the latest James Bond film. In addition to
Panavision's involvement in the motion picture industry, a predominant number of
U.S. prime time episodic, or 'series,' television programs that are shot on film
use Panavision camera systems, including Friends and NYPD Blue.
Panavision is the only supplier of cinematography equipment that
manufactures a complete camera system incorporating its own range of proprietary
prime and zoom lenses, the most critical components of a camera system. In 1997,
the Company manufactured 72 new camera systems, which represented an increase of
more than 100% from the previous year. The Company supplies its cinematography
equipment, such as cameras, lenses and accessories to its customers on a project
by project basis. The Company has a rental inventory of over 1,000 cameras,
5,000 lenses and 3,000 accessories. Panavision rents its equipment through 24
owned and operated rental facilities throughout the world and ten independent
agents located in ten cities.
On June 5, 1997, the Company completed the FSG Acquisition for
approximately $61 million in cash. Film Services Group includes camera rental
operations in the United Kingdom, France, Australia and two U.S. cities, Chicago
and Dallas, as well as smaller rental operations in New Zealand, Malaysia and
Indonesia.
In addition to manufacturing and renting camera systems, the Company also
rents lighting, lighting grip, power generation and related transportation
equipment through Lee Lighting Limited ('Lee Lighting'), the largest lighting
rental company in the United Kingdom, as well as through certain of its owned
and operated facilities. Panavision also manufactures and sells lighting filters
and other color-correction and diffusion filters through Lee Filters.
THE MEETING
MATTERS TO BE CONSIDERED
At the Meeting, the Panavision stockholders will consider and vote on (i) a
proposal to approve and adopt the Recapitalization Agreement, including the
Merger, (ii) the election of eight directors to Panavision's Board of Directors,
(iii) ratification of the selection of Ernst & Young LLP as the Company's
independent auditors for
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1998, and (iv) such other business as may properly come before the Meeting and
any adjournment or postponement thereof.
If the Recapitalization Agreement is approved by the holders of Panavision
Common Stock, Merger Sub will merge with and into Panavision, and, assuming
Holders of at least 88% of the shares of Panavision Common Stock elect to
receive cash for their shares, PX Holding, a wholly owned subsidiary of Mafco,
the sole stockholder of which is Ronald O. Perelman, will own approximately 72%
of the issued and outstanding Panavision Common Stock, Warburg will own
approximately 19% of the issued and outstanding Panavision Common Stock and the
Holders will own approximately 9% of the issued and outstanding Panavision
Common Stock. In the event that all Holders, other than the Company's directors,
officers and key employees and a trust established by an officer of the Company,
elect to retain their shares of Panavision Common Stock, PX Holding will own
approximately 59.1% of the issued and outstanding Panavision Common Stock, the
Holders will own approximately 40.9% of the issued and outstanding Panavision
Common Stock and Warburg, after selling 1,741,283 shares of Panavision Common
Stock to PX Holding and after exchanging the remainder of its shares of
Panavision Common Stock for Redeemable Preferred Stock pursuant to the
Stockholders Agreement, will not own any of the issued and outstanding
Panavision Common Stock (the 'Significant Share Retention Alternative'). None of
the Company's directors, officers and key employees and a trust established by
an officer of the Company, who hold in the aggregate 2,199,100 shares of
Panavision Common Stock (except that an officer of the Company has indicated
that he may transfer 120,000 of such shares to a charitable organization),
intend to elect to retain any of such shares. Such 2,199,100 shares represent
approximately 35.4% of the shares of Panavision Common Stock held by Holders.
Assuming none of such shares will be Non-Cash Election Shares (that is, the
Holders of such shares do not elect to retain them), and since 745,380 shares
must be Non-Cash Election Shares in order for there not to be proration, unless
approximately 18.6% of the 4,012,400 shares of Panavision Common Stock held by
Holders other than the Company's directors, officers and key employees and a
trust established by an officer of the Company are Non-Cash Election Shares, all
Holders (including the Company's directors, officers and key employees and a
trust established by an officer of the Company) will be subject to proration. If
the Recapitalization Agreement is approved, all the Common Stock of Merger Sub
will be converted into approximately 10 shares of Panavision Common Stock.
Immediately prior to the consummation of the Merger, the Company shall sell to
PX Holding (the 'PX Holding Stock Purchase') the Designated Number of Common
Shares (as defined below) for the Designated Per Share Purchase Price (as
defined below).
Immediately after the Effective Time, assuming 88% of the Holders shares of
Panavision Common Stock are exchanged for cash, there will be approximately
8,055,619 shares of Panavision Common Stock issued and outstanding. In the
occurrence of the Significant Share Retention Alternative, there will be
approximately 9,821,150 shares of Panavision Common Stock issued and
outstanding. See 'THE MERGER' and 'CERTAIN PROVISIONS OF THE RECAPITALIZATION
AGREEMENT.'
The Board of Directors has unanimously approved the Recapitalization
Agreement and recommends a vote FOR approval and adoption of the
Recapitalization Agreement. The Board of Directors also recommends a vote FOR
each of the proposed nominees for election to the Board of Directors and FOR
approval of the ratification of Ernst & Young LLP as the Company's independent
auditors.
REQUIRED VOTES
Under the DGCL, a majority of the shares of Panavision Common Stock
entitled to vote, present in person or represented by proxy, shall constitute a
quorum at the Meeting. The affirmative vote of the holders of a majority of the
Panavision Common Stock outstanding on the Record Date will be required in order
to approve and adopt the Recapitalization Agreement. The affirmative vote of the
holders of a plurality of Panavision Common Stock present in person or
represented by proxy at the Meeting will be required to elect each of the
nominees for election to the Company's Board of Directors and the affirmative
vote of the holders of a majority of Panavision Common Stock present in person
or represented by proxy at the Meeting will be required to ratify the selection
of Ernst & Young LLP as the Company's independent auditors and to approve or
adopt other matters as may properly be presented to holders of Panavision Common
Stock at the Meeting. As of this date, Warburg is the beneficial owner, and has
the power to vote and dispose, of 12,717,000 shares of Panavision Common Stock,
representing approximately 67.2% of the issued and outstanding Panavision Common
Stock. PURSUANT TO THE STOCKHOLDERS AGREEMENT, WARBURG HAS AGREED, AMONG OTHER
THINGS, TO VOTE ITS SHARES IN FAVOR OF THE ADOPTION OF THE RECAPITALIZATION
AGREEMENT. ACCORDINGLY, APPROVAL OF THE RECAPITALIZATION
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AGREEMENT IS ASSURED REGARDLESS OF THE VOTE OF ANY OTHER STOCKHOLDER OF THE
COMPANY. A copy of the Stockholders Agreement is attached as Annex II to this
Proxy Statement. As of May 1, 1998, directors and executive officers of the
Company were beneficial owners of an aggregate of 14,978,539 shares
(approximately 79.1%) of the outstanding shares of Panavision Common Stock,
including the shares of Panavision Common Stock held by Warburg. Mr. Lapidus, a
director of the Company and managing director of EMW LLC (as defined herein),
expressly disclaims beneficial ownership of the 12,717,000 shares of Panavision
Common Stock owned by Warburg. The directors and executive officers of the
Company have indicated that they intend to vote their shares of Panavision
Common Stock in favor of the adoption of the Recapitalization Agreement and the
other proposals. See 'SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.'
VOTING AND REVOCATION OF PROXIES
Shares of Panavision Common Stock that are entitled to vote and are
represented by a Proxy properly signed and received at or prior to the Meeting,
unless subsequently properly revoked, will be voted in accordance with the
instructions indicated thereon. If a Proxy is signed and returned without
indicating any voting instructions, shares of Panavision Common Stock
represented by such Proxy will be voted as follows:
FOR the adoption of the Recapitalization Agreement,
FOR the election of each of the eight nominees to the Company's Board of
Directors,
FOR the ratification of the selection of Ernst & Young LLP as the Company's
independent auditors for 1998.
The Board of Directors is not currently aware of any business to be acted upon
at the Meeting other than as described herein. If, however, other matters are
properly brought before the Meeting or any adjournments or postponements
thereof, the persons appointed as proxies will have the discretion to vote or
act thereon in accordance with their best judgment, unless authority to do so is
withheld in the Proxy. The persons appointed as proxies will not exercise their
discretionary voting authority to vote any such Proxy in favor of any
adjournments or postponements of the Meeting if instruction is given to vote
against the approval of the Recapitalization Agreement and the other proposals.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such Proxy are voted at
the Meeting by (i) attending and voting in person at the Meeting, (ii) giving
notice of revocation of the Proxy at the Meeting, or (iii) delivering to the
Secretary of Panavision (a) a written notice of revocation or (b) a duly
executed Proxy relating to the same shares and matters to be considered at the
Meeting, bearing a date later than the Proxy previously executed. Attendance at
the Meeting will not in and of itself constitute a revocation of a Proxy. All
written notices of revocation and other communications with respect to
revocation of proxies should be addressed as follows: Panavision Inc., 6219 De
Soto Avenue, Woodland Hills, California 91367, Attention: Secretary, and must be
received before the taking of the votes at the Meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of Panavision Common Stock at the close of business on April
8, 1998 will be entitled to receive notice of and to vote at the Meeting. At the
close of business on April 8, 1998, the Company had outstanding and entitled to
vote 18,928,500 shares of Panavision Common Stock. Shares of Panavision Common
Stock represented by Proxies which are marked 'abstain' or which are not marked
as to any particular matter or matters will be counted as shares present for
purposes of determining the presence of a quorum on all matters, but will not be
counted as votes cast in favor of the matters brought before the stockholders at
the Meeting. Proxies relating to 'street name' shares that are voted by brokers
will be counted as shares present for purposes of determining the presence of a
quorum on all matters, but will not be treated as shares having voted at the
Meeting as to any proposal as to which authority to vote is withheld by the
broker.
The presence, in person or by proxy, at the Meeting of the holders of at
least a majority of the votes entitled to be cast at the Meeting is necessary to
constitute a quorum for the transaction of business. Because the vote on the
Recapitalization Agreement and the ratification of Ernst & Young LLP requires
the approval of a majority of the votes entitled to be cast by the stockholders
of the outstanding shares of Panavision Common Stock, abstentions will have the
same effect as a negative vote on this proposal. However, abstentions from
voting on the election of directors (including broker non-votes) will have no
effect on the outcome of the vote.
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DISSENTING STOCKHOLDER RIGHTS
Stockholders of the Company are not entitled to appraisal or dissenters'
rights pursuant to Section 262 of the DGCL.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of Proxies and the cost
of printing and mailing this Proxy Statement. In addition to solicitation by
mail, the directors, officers and employees of the Company may solicit Proxies
from stockholders of the Company by telephone, telegram or by personal
interview. Such directors, officers and employees will not be additionally
compensated for any such solicitation but may be reimbursed for reasonable
out-of-pocket expenses in connection therewith. 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 shares held of
record by such persons and the Company will reimburse such custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses in connection
therewith.
PROCEDURE FOR ELECTION OF CONSIDERATION IN THE MERGER
STOCKHOLDERS MAKING AN ELECTION SHOULD RETURN THE ENCLOSED FORM OF ELECTION
(TOGETHER, ONLY IN THE CASE OF NON-CASH ELECTION SHARES, WITH DULY ENDORSED
PANAVISION STOCK CERTIFICATES) AS INSTRUCTED IN THE PROXY STATEMENT. SEE 'THE
MERGER--ELECTION.' SHARES HELD BY STOCKHOLDERS WHO FAIL TO MAKE AN ELECTION WILL
BE DEEMED CASH ELECTION SHARES. STOCKHOLDERS ELECTING TO RECEIVE CASH OR WHO DO
NOT MAKE AN ELECTION SHOULD RETAIN THEIR STOCK CERTIFICATES UNTIL LETTERS OF
TRANSMITTAL ARE RECEIVED AFTER THE EFFECTIVE TIME OF THE MERGER. SEE 'THE
MERGER--CONVERSION/RETENTION OF SHARES; PROCEDURES FOR EXCHANGE OF
CERTIFICATES.'
AVAILABILITY OF INDEPENDENT ACCOUNTANTS
Representatives of Ernst & Young LLP, independent accountants of the
Company, will be present at the Meeting, will have the opportunity to make a
statement should they desire to do so and are expected to be available to
respond to appropriate questions.
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THE MERGER
BACKGROUND OF THE MERGER
In early September 1997, James R. Maher, a representative of Mafco, called
John L. Vogelstein, Vice Chairman of EMW LLC, which manages Warburg, the
Company's 67.2% stockholder, to suggest that they meet to discuss the
possibility of Mafco purchasing the Company. At a subsequent meeting on
September 18, 1997, Mr. Maher indicated to Mr. Vogelstein and Sidney Lapidus, a
managing director of EMW LLC, that Mafco would be willing to pay Warburg a
modest premium above the then current market price of $21 7/8 per share. Mr.
Vogelstein and Mr. Lapidus told Mr. Maher that they would consider Mafco's
proposal.
On September 25, 1997, Mr. Maher and William G. Nesbitt, a representative
of Mafco, met with Mr. Lapidus and Edward Johnson to discuss the Company's
operations, financial condition, strategies and prospects. Thereafter, in early
October 1997, Mr. Maher indicated Mafco's interest in acquiring the Company for
a cash price of $25, or perhaps somewhat in excess of $25, per share, subject to
the satisfactory completion of a due diligence review and the negotiation of a
definitive recapitalization agreement. In response, Mr. Maher was informed that
Mafco would have to increase its offer price before the Company would be willing
to engage in serious discussions regarding a transaction. In that regard, Mr.
Lapidus said that Warburg would be interested in selling all of its Shares to
Mafco, but that the price at which it would be willing to sell could well be in
excess of $30 per Share. Messrs. Maher and Lapidus agreed to have further
discussions regarding the feasibility of Mafco's acquiring the Company, as well
as the price to be paid therefor.
On October 8, 1997, Ronald O. Perelman, Chairman of the Board and Chief
Executive Officer of Mafco, Mr. Maher, Mr. Lapidus and William C. Scott,
Chairman of the Board and Chief Executive Officer of the Company, held
discussions relating to Mafco's interest in acquiring the Company. Mr. Maher
requested that certain due diligence materials be provided to Mafco, which the
Company said it would be willing to do subject to Mafco first executing a
confidentiality agreement upon customary terms. On October 8, 1997, a
confidentiality agreement was entered into with the Company (the
'Confidentiality Agreement'). For the next several weeks, confidential
information was provided and preliminary discussions were held among
representatives of the Company, Warburg and Mafco. On October 21, 1997,
representatives of Mafco visited and were given a tour of the Company's facility
in Woodland Hills, California.
On November 3 and November 4, 1997, representatives of Mafco met with
senior management of the Company and with representatives of Warburg and
submitted a preliminary indication of interest, subject to due diligence and
certain other conditions, under which stockholders of the Company would receive
$27.50 per share for approximately 90% of their shares and Mafco would acquire
an approximately 72% interest in the recapitalized Company. The parties also
discussed certain other terms that Mafco would require as a condition to going
forward, including Warburg's binding commitment to support the transaction and
to grant Mafco an option, exercisable between the first and second anniversaries
following the transaction, to purchase any of its Panavision Common Stock not
sold pursuant to the plan of recapitalization.
At the conclusion of the meetings, the parties agreed that Mafco would
continue its due diligence review of the Company and that the parties would
begin the preparation and negotiation of a recapitalization agreement and a
stockholders agreement. Thereafter, from mid-November 1997 through mid-December
1997, Mafco continued its due diligence review of the Company and its operations
and members of senior management of Mafco and its legal advisors negotiated the
terms of a recapitalization agreement and a stockholders agreement with
representatives of the Company, Warburg and their respective legal advisors.
As a result of information obtained during its due diligence investigation
and the expectation that the Company's earnings for the fourth quarter of 1997
would be below analysts' estimates, on November 21, 1997, Mafco advised Warburg
and the Company that it would be revising its indication of interest to lower
the price per Share to be received by stockholders in the Company's
recapitalization. Mafco stated that although it had not yet determined what
price per share it would propose, it believed that such price could be as much
as 10% below the $27.50 per share previously discussed.
A meeting of the Board of Directors of the Company was held on November 24,
1997. At the meeting the Board of Directors ratified the retention of Goldman
Sachs as financial advisor to the Company and the engagement of Willkie Farr &
Gallagher ('Willkie Farr') as legal counsel to the Company in connection with
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the transaction. During the meeting, representatives of the Company, Warburg,
Goldman Sachs and Willkie Farr reviewed the status of the discussions with
Mafco, the possibility of a recapitalization transaction as opposed to other
alternative transactions, the financial resources available to Mafco in order to
effectuate a transaction and the duties of the directors in connection with the
transaction. The Board of Directors also discussed certain significant matters
on which the parties had not reached agreement, including (i) the timing of the
closing of the transaction and whether the availability of financing would be a
condition to closing, (ii) the termination provisions in any definitive
agreements, (iii) the ability of the Company to respond to unsolicited inquiries
and proposals from third parties interested in the possible acquisition of the
Company and to provide information to, and enter into discussions and
negotiations with, such parties, and (iv) agreements committing Warburg to
support a proposed transaction.
Between November 24, 1997 and early December 1997, representatives of
Mafco, Warburg and the Company had several further meetings to discuss the
possible terms of a transaction which would result in a leveraged
recapitalization of the Company. By mid-December, the parties had agreed in
concept, subject to the completion by Mafco of its due diligence review and the
negotiation of definitive documentation, to a recapitalization of the Company
under which Warburg would receive $26.50 per Share for 88% of the Panavision
Common Stock held by it, the Company's other stockholders would be offered
$27.00 per share for 88% of the Panavision Common Stock held by them and Mafco
would acquire approximately 72% of the shares of Panavision Common Stock of the
recapitalized Company for an aggregate of approximately $154 million, or $26.69
per share.
At a meeting of the Board of Directors of the Company held on December 17,
1997, at which all directors were present and participated, Goldman Sachs
reviewed with the Board the status of the Mafco recapitalization proposal and
its financial and valuation analyses of the proposal. Willkie Farr reviewed the
terms of the proposed definitive recapitalization agreement and related
agreements. Goldman Sachs delivered its oral opinion (subsequently confirmed in
writing) that, subject to the assumptions made, matters considered and limits on
its review stated in its opinion, the Aggregate Consideration to be received by
the Holders was fair from a financial point of view to such Holders. See 'THE
MERGER--Opinion of Goldman Sachs.' The directors then continued their discussion
and consideration of the proposed transactions.
Following discussion, the Board of Directors unanimously approved the
Recapitalization Agreement and the transactions contemplated thereby and
authorized the execution of the Recapitalization Agreement on behalf of the
Company.
The Board of Directors did not appoint a special committee. The Board of
Directors, however, including Ms. Wenig and Mr. Ryckman, neither of whom are
officers or employees of the Company or any of its affiliates, unanimously
approved the Panavision Recapitalization and the transactions contemplated
thereby.
On the morning of December 18, 1997, the Company, PX Holding and Merger Sub
executed the Recapitalization Agreement, the Company, Warburg and Mafco executed
the Stockholders Agreement and a press release was issued.
On April 16, 1998, the Company, Warburg and Mafco executed an amended and
restated Stockholders Agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
The Board of Directors, after careful consideration, has unanimously
approved the Recapitalization Agreement and has determined that the
Recapitalization Agreement and the transaction contemplated thereby are fair to
and in the best interests of the Company and its stockholders and recommends
that holders of Common Stock vote FOR approval and adoption of the
Recapitalization Agreement. Prior to approving the Recapitalization Agreement
and transactions contemplated thereby, the Board of Directors discussed with its
advisors alternatives available to the Company, including the possibility of
alternative purchasers, whether the timing of a transaction such as the
Panavision Recapitalization or another type of transaction was in the best
interests of the Company and its stockholders, and whether the Merger itself was
advisable and in the best interests of the Company and its stockholders. The
Board of Directors believed that there were only a limited number of purchasers
that might be interested in a possible transaction with the Company due to (i)
to the highly specialized nature of the Company's business which the Board of
Directors considered in determining the Company's potential marketability to
purchasers
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outside of the entertainment industry; (ii) the fact that Panavision is the
leader in an otherwise fragmented rental market for cinematography equipment,
thereby making it unlikely that a potential purchaser would emerge from among
the Company's competitors; and (iii) the Company's extensive relationships with,
and knowledge concerning, most of the major companies in the entertainment
industry and its assessment that a transaction between the Company and any of
such companies was highly unlikely. In considering these possibilities, the
Board of Directors determined that none of such alternatives, even if
successfully carried to completion, would likely have resulted in per-share cash
consideration payable to the Holders as high as the consideration payable under
the Recapitalization Agreement. This latter analysis was based on the historical
stock trading prices of the Company, the willingness of Mafco to purchase 88% of
the Panavision Common Stock, the fact that the Company's earnings estimates for
the fourth quarter of 1997 would be below analysts' expectations and the
Company's belief that the disclosure of its earnings estimates would have a
greater negative effect on any new proposed purchaser than on the negotiations
with Mafco. Because of these factors, and the perceived possibility of Mafco
withdrawing its offer if a solicitation process were commenced, the Board of
Directors decided not to instruct Goldman Sachs to engage in a solicitation of
other parties' interests in the Company. In the course of reaching its decision
to approve the Recapitalization Agreement and the Merger, the Board of Directors
consulted with the Company's legal and financial advisors and considered the
following principal factors which were material to the Board's decision:
(1) The fact that Warburg holds approximately 67.2% of the outstanding
shares of Panavision Common Stock and had indicated to the Board that it
believed that the Recapitalization Agreement and the consideration to be
received in the Merger were in the best interests of the Company and its
stockholders and agreed to accept $0.50 per share less than the
consideration to be received by the Holders who elect to receive Cash
Election Shares.
(2) The terms and conditions of the Recapitalization Agreement and
other documents to be executed in connection with the Merger, including the
amount and form of the consideration, the conditions to closing and the
degree of flexibility provided to the Company to conduct its business prior
to the closing.
(3) The opinion of Goldman Sachs delivered to the Board of Directors
to the effect that, as of December 18, 1997, and based upon the assumptions
made, including an assumption that Holders will receive the Aggregate Cash
Consideration, defined as cash for approximately 88% of their shares of
Panavision Common Stock and retention of the balance of such shares,
matters considered and limits of review set forth in such opinion, the
Aggregate Consideration to be received by the Holders in the Merger was
fair to such Holders from a financial point of view, and the presentation
of Goldman Sachs at the December 17, 1997 Board meeting in connection with
its opinion. Since Goldman Sachs considered this Aggregate Consideration
fair from a financial point of view, the Board of Directors believed that
any proration procedures, equitably applied to all Holders to achieve the
Aggregate Consideration, would not have weighed against the fairness of the
transaction. In that regard, the Board of Directors noted that, in its
written opinion, dated December 18, 1997, Goldman Sachs stated that it was
not expressing any view as to the election or proration procedures. See
'THE MERGER--Opinion of Goldman Sachs.'
(4) The fact that the Recapitalization Agreement and the Stockholders
Agreement permit the Board of Directors and Warburg to respond to
unsolicited inquiries and proposals from third parties interested in the
possible acquisition of the Company and to provide information to, and
enter into discussions and negotiations with, such parties; and the fact
that the interests of Warburg are generally aligned with those of the other
stockholders of the Company in the event unsolicited offers from third
parties are received.
(5) The fact that the Recapitalization Agreement permits the Board of
Directors to terminate such agreement for a Superior Proposal without
payment by the Company of a break-up fee. Additionally, upon such
termination of the Recapitalization Agreement, Warburg's obligation under
the Stockholders Agreement to support the Recapitalization Agreement and
the Merger would also terminate.
(6) The fact that the consideration to be offered to stockholders of
the Company in the Merger will consist, in the aggregate, of approximately
88% cash while still affording stockholders who wish to continue to
participate in the ownership of the Company an opportunity to do so and no
stockholder will be compelled to relinquish his or her Panavision Common
Stock for cash.
(7) The fact that the stockholders of the Company will have the right
to elect to receive cash or to retain Common Stock, subject to proration,
which right the Board believed would provide the possibility of some
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flexibility to any of the Company's stockholders who might desire to retain
more Panavision Common Stock after the Merger than would automatically be
retained under a non-election based formula. This election would also
provide the possibility that the Company's stockholders who desire to
receive more cash for their shares than would be provided if the merger
consideration consisted solely of a combination of Panavision Common Stock
and cash would receive such additional cash if other stockholders elect to
retain Non-Cash Election Shares.
(8) The terms of Mafco's proposal provide that the Merger is to be
treated as a recapitalization for accounting purposes and accordingly, the
transactions will have no impact upon the historical basis of the Company's
assets and liabilities. The Board discussed that the financings
contemplated as part of the Panavision Recapitalization may include
operating and financial restrictions.
(9) The volume of shares of Panavision Common Stock traded at specific
prices and the total value of Panavision Common Stock traded as a
percentage of Panavision Common Stock outstanding during the period from
November 21, 1996, the date of the Company's initial public offering, to
December 16, 1997. Goldman Sachs' presentation indicated a weighted average
market price of $19.89 per share of Panavision Common Stock during this
time period. The Board of Directors believed that given this historical
stock trading analysis, the premium of 3.8%, 63.6% and 36% to the high, low
and weighted average traded market price of the Panavision Common Stock
during this period, represented by the $27.00 per share cash consideration,
supported its determination that the Merger was fair to the stockholders of
the Company. In reaching its determination, the Board of Directors was
aware that on December 17, 1997, the last trading day before public
announcement of the execution of the Recapitalization Agreement, the
reported high and low price of Panavision Common Stock on the NYSE
Composite Transactions Tape exceeded $27.00 per share. See '--Opinion of
Goldman Sachs' and 'PRICE OF PANAVISION COMMON STOCK'.
(10) The fact that after the Merger, stockholders may experience
difficulty selling shares of Panavision Common Stock or obtaining prices
that reflect the value thereof. See 'RISK FACTORS--Proration Relating to
Panavision Common Stock.'
(11) The fact that stockholders may be required to retain shares of
Panavision Common Stock as a result of proration. In that regard, the Board
of Directors believed that consideration consisting, in the aggregate, of
88% cash and 12% retained shares of Panavision Common Stock was fair to the
stockholders of Panavision.
(12) The fact that each holder of a Company Stock Option, including
the executive officers and directors named under 'Executive Compensation,'
will be entitled to receive the Cash Price less the exercise price
applicable to each Company Stock Option at the Effective Time of the
Merger, and that the executive officers and other employees of the Company
have received or will receive certain benefits not available to the
Company's other stockholders, as set forth in '--Interests of Certain
Persons in the Merger.' The Board of Directors considered the benefits
executive officers and other employees of the Company have received or will
receive and upon careful reflection, including the opinion of its financial
advisors, the Board of Directors did not believe that such benefits weighed
against the fairness of the transaction, since (i) it is customary for
executive officers and employees of public companies to receive stock
options as part of their compensation in recognition of their role in
increasing stockholder value, (ii) it is customary for these options to be
exercised in mergers and (iii) the other benefits relating to most of the
options resulted from actions taken to create beneficial tax results for
the Company going forward.
(13) The fact that, pursuant to the Warburg Option, Warburg may
require Mafco to purchase the Warburg Option Shares at $25.00 per share,
and pursuant to the Mafco Option, Mafco may require Warburg to sell the
Warburg Option Shares at $30.00 per share, in each case during the period
beginning on the first, and ending on the second, anniversary of the
Effective Time.
The foregoing discussion of the information and factors considered by the
Board of Directors is not intended to be exhaustive. However, the Board of
Directors believed that each of the factors enumerated in items (1) through (8)
supported its decision to approve the Recapitalization Agreement, the factor
enumerated in items (9) and (10), above, weighed against its decision to approve
the Recapitalization Agreement and the factors enumerated in items (11) through
(13) were neutral with respect to its decision to approve the Recapitalization
Agreement. In addition, individual members of the Board of Directors may have
given different weights to
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<PAGE>
different factors. On balance, the Board of Directors believed that those
factors supporting its determination to approve the Recapitalization Agreement
substantially outweighed that factor weighing against its decision to approve
the Recapitalization Agreement. In the course of its deliberations, the Board of
Directors did not establish a range of values for the Company; however, based on
the factors outlined above, the Board of Directors determined that the
Recapitalization Agreement and the Merger are fair to, and in the best interest
of, the Company and its stockholders.
OPINION OF GOLDMAN SACHS
On December 18, 1997, Goldman Sachs delivered its written opinion to the
Board of Directors of the Company that, as of the date of such opinion, the
Aggregate Consideration to be received by the Holders pursuant to the
Recapitalization Agreement was fair from a financial point of view to such
Holders.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED DECEMBER 18,
1997, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
ANNEX III TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE.
STOCKHOLDERS OF THE COMPANY ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Recapitalization Agreement; (ii) the Stockholders Agreement; (iii) the
Annual Report to Stockholders for the year ended December 31, 1996 and the
Annual Report on Form 10-K of the Company for the year ended December 31, 1996;
(iv) certain interim reports to stockholders and Quarterly Reports on Form 10-Q
of the Company; (v) certain other communications from the Company to its
stockholders; and (vi) certain internal financial analyses and forecasts for the
Company prepared by its management without, and after, giving effect to the
Merger. Goldman Sachs also held discussions with members of the senior
management of the Company regarding its past and current business operations,
financial condition and future prospects. In addition, Goldman Sachs reviewed
the reported price and trading activity for the Panavision Common Stock,
reviewed the financial terms of certain recent relevant business combinations
and performed such other studies and analyses as it considered appropriate.
Goldman Sachs has relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and has assumed such accuracy and
completeness for purposes of rendering its opinion. In that regard, Goldman
Sachs has assumed with the Company's consent that the financial forecasts
provided to it and discussed with it with respect to the Company after giving
effect to the Merger, including, without limitation, the Company's capital
structure following the Merger, have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of the Company and that such forecasts will be realized in the
amounts and at the times contemplated thereby. Goldman Sachs has also assumed
with the Company's consent that the Merger will be treated as a recapitalization
in accordance with generally accepted accounting principles. Goldman Sachs has
not made an independent evaluation or appraisal with respect to the assets and
liabilities of the Company or concerning the solvency or fair value of the
Company for any state law or federal bankruptcy law purposes, and Goldman Sachs
has not been furnished with any such evaluation or appraisal. Goldman Sachs was
not requested to solicit, and did not solicit, interest from other parties with
respect to an acquisition of or other business combination with the Company.
Goldman Sachs did not express any opinion on the prices at which the Panavision
Common Stock are likely to trade following the consummation of the Merger, which
may vary depending upon, among other factors, changes in business, market or
general economic conditions, liquidity and other factors that generally
influence the price of securities. Goldman Sachs' advisory services and its
opinion are provided for the information and assistance of the Board of
Directors of the Company in connection with its consideration of the transaction
contemplated by the Recapitalization Agreement and such opinion does not
constitute a recommendation as to how any Holder should vote with respect to
such transaction or what election any Holder should make in connection with the
Merger.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion to the Company's
Board of Directors on December 18, 1997.
(i) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for the Panavision Common Stock. Such
review included Goldman Sachs' presentation of the volume of shares traded
at specific prices and the total volume of Panavision Common Stock traded
as a
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percentage of Panavision Common Stock outstanding during the period from
November 21, 1996 to December 16, 1997. Such presentation indicated a
weighted average market price of $19.89 per share of Panavision Common
Stock based on trading prices for the Panavision Common Stock from November
21, 1996 to December 16, 1997 with the Panavision Common Stock traded in
such period amounting to 52.3% of the total Panavision Common Stock
outstanding. Such review also included Goldman Sachs' analysis of the
indexed historical trading prices of the Panavision Common Stock during the
period from November 21, 1996 to December 16, 1997 (based on closing prices
for the Panavision Common Stock from November 21, 1996 to December 16,
1997) as compared to the Standard & Poor's 500 Index. In addition, Goldman
Sachs analyzed the consideration to be received by Holders pursuant to the
Recapitalization Agreement in relation to the high, low and weighted
average market prices of the Panavision Common Stock (based on trading
prices for the Panavision Common Stock from November 21, 1996 to December
16, 1997). Such analysis indicated that the cash price per share of
Panavision Common Stock to be paid to Holders pursuant to the
Recapitalization Agreement represented a premium of 3.8% based on the high
market price of $26.00 per share of Panavision Common Stock on October 21,
1997, 63.6% based on the low market price of $16.50 per share of Panavision
Common Stock on May 12, 1997 and 36% based on the weighted average traded
market price of $19.89 per share of Panavision Common Stock.
On December 17, 1997, the day Goldman Sachs made its presentation to
the Panavision Board of Directors and the last trading day before public
announcement of the execution of the Recapitalization Agreement, the
reported high and low price of Panavision Common Stock on the NYSE
Composite Transactions Tape exceeded $27.00 per share. See 'PRICE OF
PANAVISION COMMON STOCK.' However, the price of a company's stock on any
particular day is not as relevant as its price over an extended time
period. For that reason, any analysis based on historical trading prices
generally focuses on trading averages over a period, or periods, of time,
and not on a trading price on any one day.
(ii) Discounted Cash Flow Analysis. Goldman Sachs performed a
discounted cash flow analysis using the Company's management's projections.
Goldman Sachs calculated a net present value of free cash flows for the
years 1998 through 2002 using discount rates ranging from 10% to 15% and
calculated terminal values at the end of the year 2002 based on multiples
ranging from 6x earnings before interest, taxes, depreciation and
amortization ('EBITDA') to 9x EBITDA for the year 2002 and using discount
rates ranging from 10% to 15%. After subtracting net debt, the implied per
share equity values ranged from $18.04 to $34.72.
(iii) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to (i) thirteen selected public non-recapitalization
transactions in various industries since March 1996 that have closed or are
still pending involving financial sponsors (the 'Public Transactions') and
(ii) seven private company transactions in various industries since May
1996 that have closed or are still pending involving financial sponsors
(the 'Private Transactions'), in each case to derive estimates of the total
enterprise value as a multiple of latest twelve months ('LTM') EBITDA (the
'LTM EBITDA Multiple') with respect to and as of the date of such
transaction. In the case of the Public Transactions, the LTM EBITDA
Multiple ranged from 5.0x to 18.0x. In the case of the Private
Transactions, the LTM EBITDA Multiple ranged from 7.9x to 10.5x, with a
median of 8.5x and a mean of 8.8x. In addition, Goldman Sachs analyzed
certain information relating to eleven public recapitalization transactions
since April 1995 in various industries that have closed or are still
pending (the 'Recapitalization Transactions'). Such analysis indicated that
for the Recapitalization Transactions (i) the total enterprise value as a
multiple of LTM EBITDA ranged from 5.8x to 15.3x and (ii) the
price/earnings ratios ranged from 4.5x to 23.1x. Based on the Company's
management's projections and assuming the consideration paid is $27.00 per
share of Panavision Common Stock, (i) the total enterprise value as a
multiple of the Company's pro forma estimated EBITDA for the year 1997 is
9.5x, and as a multiple of the Company's estimated EBITDA for the year 1998
is 8.2x and (ii) the 1997 estimated price/earnings ratio is 27.0x and the
1998 estimated price/earnings ratio is 23.0x. For purposes of its opinion,
Goldman Sachs assumed that the Holders will receive $27.00 in cash for
approximately 88% of their Panavision Common Stock and retain the balance
of such Panavision Common Stock. The opinion addressed only the Aggregate
Consideration to be received by the Holders pursuant to the
Recapitalization Agreement. Goldman Sachs did not express any opinion on
the prices at which the Panavision Common Stock are likely to trade
following the consummation of the Merger, which may vary
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<PAGE>
depending upon, among other factors, the Company's ability to achieve its
projections, changes in business, market or general economic conditions,
liquidity and other factors that generally influence the price of
securities.
(iv) Analysis at Various Prices. Goldman Sachs used the Company's
management projections to calculate various multiples over a range of
prices per share for the years 1997 through 1999. At $27.00 per share of
Panavision Common Stock, the Company's (a) total enterprise value as a
multiple of revenues for the years 1997 through 1999 ranged from 2.7x to
3.7x, (b) total enterprise value as a multiple of EBITDA for the years 1997
through 1999 (including, in addition, EBITDA on a pro forma basis for the
year 1997) ranged from 7.3x to 10.5x, (c) total enterprise value as a
multiple of earnings before interest and taxes ('EBIT') for the years 1997
through 1999 ranged from 12.9x to 18.3x and (d) total equity value as a
multiple of net income (excluding pro forma interest expense associated
with the Merger) for the years 1997 through 1999 ranged from 20.3x to
27.0x. The analysis indicated that the Company's total enterprise value as
a multiple of EBITDA on a pro forma basis (giving effect to the acquisition
of the Film Services Group of Visual Action Holdings Plc effective on June
5, 1997) for the year 1997 was 9.5x, compared to a LTM EBITDA Multiple
ranging from 5.0x to 18.0x for the Public Transactions, 7.9x to 10.5x for
the Private Transactions, and 5.8x to 15.3x for the Recapitalization
Transactions.
(v) Leveraged Recapitalization Analysis. Goldman Sachs performed a
leveraged recapitalization analysis of the Company after giving effect to
the Merger using the Company's management's projections and Mafco's assumed
capitalization structure for the Company. The purpose of this analysis was
to demonstrate the effects that the consideration would have on financial
data and ratios in such a leveraged transaction (i.e., interest coverage,
debt repayment and returns on equity). This analysis was meant to provide
the Board of Directors with a way to quantify, in connection with its
determination of the fairness of the Aggregate Consideration, the range of
potential risks and returns of the transaction to Mafco, based on the
information provided to it by the Company and Mafco. Based on certain
financial parameters, the Company's debt as a multiple of its EBITDA for
the years 1998 to 2002 ranged from 3.42x to 5.67x and its EBITDA as a
multiple of cash interest for the years 1998 to 2002 ranged from 3.34x to
8.26x. In addition, based on Mafco's average purchase price of $26.69 per
share of Panavision Common Stock, and (i) based on the Company's total
enterprise value as a multiple of EBITDA for the years 2000 to 2002 ranging
from 6.0x to 10.0x, the return to an investor like Mafco (with an average
purchase price per share of $26.69) for the years 2000 to 2002 ranged from
-13.9% to 39.0% and (ii) based on the Company's price/earnings ratios for
the years 2000 to 2002 ranging from 18.0x to 22.0x, the return to an
investor like Mafco (with an average purchase price per share of $26.69)
for the years 2000 to 2002 ranged from -11.4% to 18.0%. The foregoing
ranges of potential risks and returns, considered in the context of the
ranges derived from the other analyses, were considered by the Board of
Directors to be supportive of its determination with respect to the
fairness of the Aggregate Consideration.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
the Company or the Panavision Recapitalization. The analyses were prepared
solely for purposes of Goldman Sachs' providing its opinion to the Company's
Board of Directors as to the fairness from a financial point of view of the
Aggregate Consideration to be received by the Holders pursuant to the
Recapitalization Agreement and do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Goldman Sachs assumed with the Company's consent that the financial forecasts
provided to it and discussed with it with respect to the Company after giving
effect to the Merger were reasonably prepared on a basis reflecting the best
available estimates and judgments of the management of the Company. However,
analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, none of the Company, Goldman Sachs or
any other person assumes responsibility if future results are materially
different from those forecast. As described above, Goldman Sachs' opinion to the
Board of
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Directors of the Company was one of many factors taken into consideration by the
Company's Board of Directors in making its determination to approve the
Recapitalization Agreement. The foregoing summary does not purport to be a
complete description of the analysis performed by Goldman Sachs and is qualified
by reference to the written opinion of Goldman Sachs set forth in Annex III
hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as managing underwriter of
an initial public offering of the Panavision Common Stock in November 1996, and
having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Recapitalization
Agreement. Goldman Sachs has also provided investment banking services from time
to time to Mafco and its affiliates and may continue to do so in the future.
Pursuant to a letter agreement dated November 7, 1997 (the 'Engagement
Letter'), the Company engaged Goldman Sachs to act as its financial advisor in
connection with the contemplated transaction. Pursuant to the terms of the
Engagement Letter, the Company has agreed to pay Goldman Sachs upon consummation
of the Merger a transaction fee of 0.62% of the aggregate consideration, as
defined in the Engagement Letter, paid in the transaction, which is expected to
be approximately $4 million. The Company has agreed to reimburse Goldman Sachs
for its reasonable out-of-pocket expenses, including attorney's fees, and to
indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws.
CERTAIN ESTIMATES OF FUTURE OPERATIONS AND OTHER INFORMATION
The Company does not as a matter of course make public forecasts as to its
future financial performance. However, in connection with preliminary
discussions concerning the feasibility of the Recapitalization Agreement, the
Stockholders Agreement and the transactions contemplated thereby, the Company
prepared and furnished Mafco with certain financial projections which are not
publicly available. The information provided included projections of the
Company's results of operations through 2001, which included the following
information (in $000's):
<TABLE>
<CAPTION>
1998 1999 2000 2001
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenue.......................................... $220,012 $238,114 $257,853 $279,387
Gross Profit........................................... $109,855 $118,402 $128,259 $139,562
Operating Profit....................................... $ 45,238 $ 50,395 $ 56,684 $ 63,329
Pre-Tax Income......................................... $ 2,251 $ 6,168 $ 11,646 $ 19,035
After-Tax Income....................................... $ 1,576 $ 4,318 $ 8,152 $ 13,324
</TABLE>
The Company assumed in connection with its projections that a
recapitalization of the Company in which significant additional indebtedness was
incurred had been consummated and that interest expense ranging from
approximately $43 million to approximately $46 million would be incurred in each
of the years 1998 through 2001. Accordingly, the Company's projections of
pre-tax and after-tax income set forth above are not comparable to the Company's
pre-tax and after-tax income for any historical period. Furthermore, the 1998
estimates included in the above table do not reflect certain significant one
time charges, currently estimated to be approximately $57 million, which the
Company will recognize in the quarter in which the Panavision Recapitalization
closes. See 'UNAUDITED PRO FORMA FINANCIAL DATA' elsewhere in this document and
'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS' in the Company's Annual Report on Form 10-K. Moreover, due to the
anticipated highly leveraged nature of the Company's capital structure
subsequent to the consummation of the Merger, any change in the actual amount of
interest expense from that assumed would have a significant effect on the
Company's net income. See 'UNAUDITED PRO FORMA FINANCIAL DATA.'
The Company made certain additional assumptions in connection with its
projections. Such assumptions, relating to the projected results of operations
for 1998, included: camera revenue increase of 11.2% over 1997 camera revenue; a
4% increase over 1997 figures in lighting revenue; and no increase or decrease
in sales and other revenue from 1997 to 1998. Additionally, a 6% increase in
operating costs, as compared to 1997, was
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assumed; a $2 million increase from 1997 in depreciation of rental equipment was
assumed; a 4% increase in selling and administrative cost over 1997 costs,
offset by a $1.5 million reduction in 1998 due to certain projected savings, was
assumed; and research and development costs was assumed to increase by 20.6%
from 1997 to 1998.
The Company made additional assumptions in connection with preparing the
financial projections. Such assumptions, concerning the revenue generated by the
Company, included, a growth rate of 10% each year from 1998 through 2001 for
camera rental revenue; a growth rate of 5% each year from 1998 through 2001 for
lighting rental revenue; and a growth rate of 4% each year from 1998 through
2001 for sales and other revenue. In addition, the Company made the following
assumptions relating to certain expenses of the Company: operating costs would
increase by 6% each year from 1998 through 2001; depreciation of rental
equipment would increase by $4.5 million each year from 1998 through 2001;
agent's commissions would increase by 10% per year from 1998 through 2001;
selling, general and administrative costs would increase 5% per year from 1998
through 2001; and research and development costs would increase 7.5% per year
from 1998 through 2001. Other assumptions made by the Company included the
following: other income was assumed to remain constant from 1998 through 2001
and the income tax expense was assumed to be at a 30% provision rate for 1998
and is expected to be closer to the statutory rate beyond 1998 and may be
significantly higher than that depending on, among other factors, the mix of
U.S. and foreign source income.
THE FOREGOING FORECASTS WERE PREPARED SOLELY FOR INTERNAL USE AND NOT FOR
PUBLICATION OR WITH A VIEW TO COMPLYING WITH THE PUBLISHED GUIDELINES OF THE
COMMISSION REGARDING PROJECTIONS OR WITH THE AMERICAN INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS AND ARE
INCLUDED IN THIS PROXY STATEMENT ONLY BECAUSE THEY WERE FURNISHED TO MAFCO. THE
FORECASTS NECESSARILY REFLECT NUMEROUS ASSUMPTIONS WITH RESPECT TO INDUSTRY
PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS AND OTHER MATTERS, MANY OF
WHICH ARE INHERENTLY UNCERTAIN OR BEYOND THE COMPANY'S CONTROL. ONE CANNOT
PREDICT WHETHER THE ASSUMPTIONS MADE IN PREPARING THE FORECASTS WILL BE
ACCURATE, AND ACTUAL RESULTS MAY BE MATERIALLY HIGHER OR LOWER THAN THOSE
CONTAINED IN THE FORECASTS. THE INCLUSION OF THIS INFORMATION SHOULD NOT BE
REGARDED AS AN INDICATION THAT MAFCO, PX HOLDING, THE COMPANY OR ANYONE WHO
RECEIVED THIS INFORMATION CONSIDERED IT A RELIABLE PREDICTOR OF FUTURE EVENTS,
AND THIS INFORMATION SHOULD NOT BE RELIED ON AS SUCH. NONE OF MAFCO, PX HOLDING
OR THE COMPANY ASSUMES ANY RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS,
ACCURACY OR COMPLETENESS OF THE FORECASTS AND THE COMPANY HAS MADE NO
REPRESENTATION TO MAFCO OR PX HOLDING REGARDING THE FORECASTS DESCRIBED ABOVE.
NEITHER THE COMPANY'S AUDITORS NOR ANY OTHER INDEPENDENT ACCOUNTANTS HAVE
COMPILED, EXAMINED OR PERFORMED ANY PROCEDURES WITH RESPECT TO THE COMPANY'S
ESTIMATES, NOR HAVE THEY EXPRESSED ANY OPINION OR ANY OTHER FORM OF ASSURANCE ON
SUCH INFORMATION OR ITS ACHIEVABILITY, AND ASSUME NO RESPONSIBILITY FOR, AND
DISCLAIM ANY ASSOCIATION WITH, THE FOREGOING PROSPECTIVE FINANCIAL INFORMATION.
The Company's projections should be read together with 'RISK FACTORS' and
'UNAUDITED PRO FORMA FINANCIAL STATEMENTS.'
MERGER CONSIDERATION
Panavision Common Stock
Subject to certain provisions as described herein, each Holder's issued and
outstanding share of Panavision Common Stock will be either (i) converted into
the right to receive in cash (a 'Cash Election Share') from the Company
following the Merger an amount equal to $27.00 (the 'Cash Price') or (ii) with
respect to which an election to retain Panavision Common Stock has been made and
not revoked in accordance with the Recapitalization Agreement, converted into
the right to retain one fully paid and nonassessable share of Panavision Common
Stock (a 'Non-Cash Election Share').
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Warburg will exchange 88% of its shares of Panavision Common Stock (subject
to increase to the extent fewer than 88% of the Holders' shares of Panavision
Common Stock are exchanged for cash) for Redeemable Preferred Stock, redeemable
immediately upon consummation of the Merger at a price equivalent to $26.50 in
cash per share of Panavision Common Stock.
ELECTION OF CASH OR PANAVISION COMMON STOCK
Record Holders of shares of Panavision Common Stock will be entitled to
make an Election on or prior to the Election Date to retain Non-Cash Election
Shares or to receive the Cash Price in respect of their Cash Election Shares.
Shares held by Holders who fail to make an Election will be deemed Cash Election
Shares. If the number of Cash Election Shares is greater than the Cash Election
Number, then each Cash Election Share shall receive $27.00 in cash or be
retained as a share of Panavision Common Stock in the following manner: (i) the
Proration Factor shall be determined by dividing the Cash Election Number by the
total number of Cash Election Shares; (ii) the number of Cash Election Shares
converted into cash shall be determined by multiplying the Proration Factor by
the total number of Cash Election Shares covered by such election, rounded down
to the nearest whole number; and (iii) all Cash Election Shares, other than
those shares that shall receive cash under (ii) above, shall be deemed to be
retained shares of Panavision Common Stock (on a consistent basis among Holders
who held shares of Panavision Common Stock as to which they did not make a
Non-Cash Election, pro rata to the number of shares as to which they made such
election).
POSSIBLE EFFECTS OF PRORATION
The following examples illustrate the potential effects of proration. The
following examples are based upon there being outstanding 18,928,500 shares of
Panavision Common Stock as of the Effective Time of the Merger.
HOLDER A OWNS 100 SHARES AND ELECTS TO RECEIVE CASH FOR ALL OF ITS SHARES OF
PANAVISION COMMON STOCK OR FAILS TO MAKE AN ELECTION.
(i) If other Holders of at least 745,380 shares of Panavision Common
Stock, representing at least 12% of such Holders' shares of Panavision
Common Stock, elect to retain shares of Panavision Common Stock, then
Holder A will receive $2,700.00 in cash (100 shares at $27.00 per share).
(ii) If other Holders of less than 745,380 shares of Panavision Common
Stock, representing less than 12% of such Holders' shares of Panavision
Common Stock, elect to retain shares of Panavision Common Stock, then
Holder A will not receive cash for all of its 100 shares of Panavision
Common Stock and will be required to retain some shares. In such a case,
every Holder must retain a small number of shares of Panavision Common
Stock in order to increase the number of retained shares of Panavision
Common Stock to 745,380, representing 12% of such Holders' shares of
Panavision Common Stock. However, even in the case of maximum proration
(i.e., no Holder elects to retain shares of Panavision Common Stock), on a
fully diluted basis, Holder A will still be assured of receiving at least
$2,376.00 in cash (approximately 88% of its shares of Panavision Common
Stock, or 88 shares of Panavision Common Stock at $27.00 per share) and
will retain approximately 12% of its shares of Panavision Common Stock, or
12 shares of Panavision Common Stock.
HOLDER B OWNS 100 SHARES AND ELECTS TO RETAIN ALL ITS SHARES OF PANAVISION
COMMON STOCK.
(i) Regardless of how many Holders (including Holder B) elect to
retain shares of Panavision Common Stock, Holder B will be able to retain
all 100 of its shares of Panavision Common Stock.
HOLDER C OWNS 100 SHARES AND ELECTS TO RETAIN 50 SHARES OF PANAVISION COMMON
STOCK AND ELECTS CASH FOR 50 SHARES OF PANAVISION COMMON STOCK.
(i) Regardless of how many Holders (including Holder C) elect to
retain shares of Panavision Common Stock or elect Cash Election Shares,
Holder C will be able to retain all 50 of its Non-Cash Election Shares of
Panavision Common Stock.
(ii) In the event that Holders (including Holder C) of at least
745,380 shares of Panavision Common Stock, representing at least 12% of
such Holders' shares of Panavision Common Stock, elect to retain shares
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of Panavision Common Stock, then Holder C will be able to retain its 50
shares of Panavision Common Stock and will receive $1,350.00 in cash (50
Shares at $27.00 per share).
(iii) If the Holders (including Holder C) of less than 745,380 shares
of Panavision Common Stock, representing less than 12% of such Holders'
shares of Panavision Common Stock, elect to retain shares of Panavision
Common Stock, then Holder C would be required to retain more than 50 shares
of Panavision Common Stock. For example, if no Holders other than Holder C
elected to retain shares of Panavision Common Stock, then all Holders must
collectively retain an additional 745,330 shares of Panavision Common
Stock. In this example, Holder C would be required to retain an additional
6 shares of Panavision Common Stock (for a total of 56 shares of Panavision
Common Stock) and would receive $1,188.00 in cash (44 shares at $27.00 per
share). The additional shares of Panavision Common Stock are calculated by
multiplying the 50 Cash Election Shares of Holder C by a fraction the
numerator of which is the 745,330 additional shares of Panavision Common
Stock and the denominator of which is 6,211,500, the total number of
Holders' shares outstanding, less the 50 retained shares of Panavision
Common Stock. If the Holders elected to retain more than 50 shares of
Panavision Common Stock in the aggregate, Holder C would receive less
shares than in the example above, but would receive commensurately more
cash.
ELECTION PROCEDURE
The Form of Election is being mailed to holders of record of Panavision
Common Stock together with this Proxy Statement.
FOR A FORM OF ELECTION TO BE EFFECTIVE, HOLDERS OF PANAVISION COMMON STOCK
MUST PROPERLY COMPLETE SUCH FORM OF ELECTION (TOGETHER, ONLY IN THE CASE OF
NON-CASH ELECTION SHARES, WITH CERTIFICATES FOR SHARES OF PANAVISION COMMON
STOCK HELD BY SUCH HOLDER, DULY ENDORSED IN BLANK OR OTHERWISE IN FORM
ACCEPTABLE FOR TRANSFER ON THE BOOKS OF THE COMPANY (OR BY APPROPRIATE GUARANTEE
OF DELIVERY AS SET FORTH IN SUCH FORM OF ELECTION)). SUCH FORM OF ELECTION MUST
BE RECEIVED BY THE EXCHANGE AGENT AT ONE OF ITS ADDRESSES LISTED ON THE FORM OF
ELECTION AND NOT WITHDRAWN, BY 5:00 P.M., EASTERN TIME, ON THE ELECTION DATE.
HOLDERS OF PANAVISION COMMON STOCK WHO MAKE AN ELECTION TO RETAIN LESS THAN ALL
OF THEIR SHARES AS NON-CASH ELECTION SHARES WILL RECEIVE A NEW SHARE CERTIFICATE
FROM THE EXCHANGE AGENT FOR THE REMAINDER OF THE SHARES REPRESENTED BY THE OLD
CERTIFICATE.
SHARES HELD BY STOCKHOLDERS WHO FAIL TO MAKE AN ELECTION WILL BE DEEMED
CASH ELECTION SHARES. STOCKHOLDERS ELECTING TO RECEIVE CASH OR WHO DO NOT MAKE
AN ELECTION SHOULD RETAIN THEIR STOCK CERTIFICATES UNTIL LETTERS OF TRANSMITTAL
ARE RECEIVED AFTER THE EFFECTIVE TIME OF THE MERGER. SEE 'THE
MERGER--CONVERSION/RETENTION OF SHARES; PROCEDURES FOR EXCHANGE OF
CERTIFICATES.'
The determinations of the Exchange Agent as to whether Elections have been
properly made or revoked, and when such Elections or revocations were received,
will be binding.
MERGER SUB COMMON STOCK AND PX HOLDING STOCK PURCHASE
In the Merger, all shares of stock of Merger Sub issued and outstanding
immediately prior to the Effective Time will be converted into ten shares of
Panavision Common Stock. Immediately prior to the consummation of the Merger,
the Company and PX Holding shall consummate the PX Holding Stock Purchase,
pursuant to which the Company shall sell the Designated Number of Common Shares
to PX Holding for the Designated Per Share Purchase Price. As a result of the
Merger, assuming that an aggregate of 88% of the Holders shares of Panavision
Common Stock is converted into the right to receive cash, PX Holding will hold
approximately 5,784,199 newly issued shares of Panavision Common Stock (or
5,808,750 shares of Panavision Common Stock under the Significant Share
Retention Alternative), or approximately 72% of the shares (59.1% of the shares
under the Significant Share Retention Alternative) of Panavision Common Stock
expected to be outstanding immediately after the Merger.
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In accordance with the Recapitalization Agreement, the 'Designated Per
Share Purchase Price' shall mean the number obtained by dividing (x) the sum of
(A) the number Cash Election Shares multiplied by $27.00, (B) the number of
Company Stock Options to be cashed out multiplied by $27.00, and (C) 100 times
the number of shares of Redeemable Preferred Stock, multiplied by $26.50, by (y)
the sum of (A) the number of Cash Election Shares, (B) the number of Company
Stock Options to be cashed out, and (C) 100 times the number of shares of
Redeemable Preferred Stock. 'Designated Number of Common Shares' shall mean such
number of shares of Panavision Common Stock which, when added to the number of
shares of Non-Cash Election Shares and the number of shares of Panavision Common
Stock to be retained by Warburg pursuant to the Stockholders Agreement, results
in a number shares of Panavision Common Stock that when multiplied by the
Designated Per Share Purchase Price, shall equal $215,000,000. Assuming that an
aggregate of 88% of the Holders' shares of Panavision Common Stock is converted
into the right to receive cash, the Designated Per Share Purchase Price will be
$26.69; under the Significant Share Retention Alternative, the Designated Per
Share Purchase Price will be $26.58 per share.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware or such later date
as is specified in such Certificate of Merger. The filing of the Certificate of
Merger will occur as soon as practicable on or after the satisfaction or waiver
of the conditions to the Merger specified in the Recapitalization Agreement
unless another date is agreed to in writing by the Company and Merger Sub.
Subject to certain limitations, the Recapitalization Agreement may be terminated
by either Merger Sub or the Company if, among other reasons, the Merger has not
been consummated on or before the later of (a) April 30, 1998 and (b) 45 days
after the Commission has declared effective the Proxy Statement (but in no event
later than June 30, 1998). See 'CERTAIN PROVISIONS OF THE RECAPITALIZATION
AGREEMENT--Conditions to the Consummation of the Merger' and '--Termination;
Amendments; Waiver.'
CONVERSION/RETENTION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
Panavision Common Stock
The conversion of shares of Panavision Common Stock into Cash Election
Shares or Non-Cash Election Shares following the Merger will occur at the
Effective Time.
As soon as practicable as of or after the Effective Time, the Exchange
Agent will send a letter of transmittal to each holder of Panavision Common
Stock (other than holders of Panavision Common Stock who have made an Election
to retain all of their shares as Non-Cash Election Shares and who have properly
submitted Forms of Election and share certificates to the Exchange Agent) . The
letter of transmittal will contain instructions with respect to the surrender of
certificates representing shares of Panavision Common Stock in exchange for cash
and, under certain circumstances, certificates representing shares of Panavision
Common Stock to be retained in the Merger.
EXCEPT FOR PANAVISION COMMON STOCK CERTIFICATES SURRENDERED WITH A FORM OF
ELECTION BY HOLDERS OF NON-CASH ELECTION SHARES AS DESCRIBED ABOVE UNDER 'THE
MERGER--ELECTION PROCEDURE,' STOCKHOLDERS OF THE COMPANY SHOULD NOT FORWARD
STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED THE LETTER OF
TRANSMITTAL.
As soon as practicable after the Effective Time, each Holder of an
outstanding certificate or certificates at such time which prior thereto
represented shares of Panavision Common Stock shall, upon surrender to the
Exchange Agent of such certificate or certificates and acceptance thereof by the
Exchange Agent, be entitled to the amount of cash, if any, into which the number
of shares of Panavision Common Stock previously represented by such certificate
or certificates surrendered shall have been converted pursuant to the
Recapitalization Agreement and a certificate or certificates representing the
number of full shares of Panavision Common Stock, if any, to be retained by the
Holder thereof as Non-Cash Election Shares pursuant to the Recapitalization
Agreement. The Exchange Agent will accept such certificates upon compliance with
such reasonable terms and conditions as the Exchange Agent may impose to effect
an orderly exchange thereof in accordance with normal
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exchange practices. After the Effective Time, there will be no further transfer
on the records of the Company or its transfer agent of certificates representing
shares of Panavision Common Stock which have been converted, in whole or in
part, pursuant to the Recapitalization Agreement into Cash Election Shares, and
if such certificates are presented to the Company for transfer, they will be
canceled against delivery of cash and, if appropriate, certificates for retained
Panavision Common Stock. Until surrendered as contemplated by the
Recapitalization Agreement, each certificate for shares of Panavision Common
Stock will be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the consideration contemplated by the
Recapitalization Agreement. NO INTEREST WILL BE PAID OR WILL ACCRUE ON ANY CASH
PAYABLE AS CONSIDERATION IN THE MERGER.
No dividends or other distributions with respect to retained Panavision
Common Stock with a record date after the Effective Time will be paid to the
Holder of any unsurrendered certificate for shares of Panavision Common Stock
with respect to the shares of retained Panavision Common Stock represented
thereby until the surrender of such certificate in accordance with the
Recapitalization Agreement. Subject to the effect of applicable laws, following
surrender of any such certificate, there shall be paid to the Holder of the
certificate representing shares of retained Panavision Common Stock issued in
connection therewith, without interest, at the appropriate payment date, the
proportionate amount of dividends or other distributions, if any, with a record
date after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such shares of retained
Panavision Common Stock.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Recapitalization Agreement, the Company has agreed that
prior to the Effective Time its business and that of its subsidiaries will be
conducted only in the ordinary course of business and in compliance with
applicable law. See 'CERTAIN PROVISIONS OF THE RECAPITALIZATION
AGREEMENT--Conduct of Business Pending the Merger.'
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligations of Panavision, PX Holding and Merger Sub to consummate the
Merger are subject to various conditions, including, without limitation, (i)
Panavision and PX Holding each having received a solvency letter as to the
solvency of Panavision and its subsidiaries on a consolidated basis after giving
effect to the transactions contemplated by the Recapitalization Agreement, (ii)
obtaining requisite Panavision stockholder approval, (iii) the termination or
expiration of the relevant waiting period under the HSR Act, and (iv) the
absence of any injunction or other legal restraint or prohibition preventing the
consummation of the Merger. See 'CERTAIN PROVISIONS OF THE RECAPITALIZATION
AGREEMENT--Conditions to the Consummation of the Merger' and 'REGULATORY
APPROVALS.' In addition, the obligation of PX Holding and Merger Sub to
consummate the Merger is subject to the absence of any change in or effect on
the business, financial condition or results of operations of the Company and
its subsidiaries that would be materially adverse to the Company and its
subsidiaries taken as a whole.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Willkie Farr & Gallagher, the following are, under
currently applicable law, the material United States federal income tax
considerations generally applicable to the Merger. The tax treatment described
herein may vary depending upon each stockholder's particular circumstances and
tax position. Certain stockholders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations,
persons who are not citizens or residents of the United States, stockholders who
do not hold their shares as capital assets and stockholders who have acquired
their shares upon the exercise of options or otherwise as compensation) may be
subject to special rules not discussed below. No ruling from the Internal
Revenue Service (the 'IRS') will be requested with respect to the federal income
tax consequences discussed herein. Accordingly, there can be no assurance that
the IRS will agree with the conclusions stated herein. The discussion below is
based upon the provisions of the Internal Revenue Code of 1986, as amended (the
'Code'), and regulations, rulings and judicial decisions thereunder as of the
date hereof. Such authorities are subject to repeal, revocation, and amendment
(in each case, possibly with retroactive effect) which may result in federal
income tax consequences different from those discussed below. In addition, this
discussion does not consider the
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effect of any applicable foreign, state, local or other tax laws. EACH
STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT
OF ANY FOREIGN, STATE, LOCAL OR OTHER TAX LAWS.
Characterization of the Merger for U.S. Federal Income Tax Purposes
For U.S. federal income tax purposes, Merger Sub will be disregarded as a
transitory entity, and the Merger of Merger Sub with and into the Company will
be treated as a sale of a portion of a tendering stockholder's Panavision Common
Stock to Mafco and as a redemption of a portion of such stockholder's Panavision
Common Stock by the Company. The receipt of cash by a stockholder in exchange
for Panavision Common Stock pursuant to the Merger will be a taxable transaction
for federal income tax purposes. A stockholder will recognize gain or loss
measured by the difference between the cash received in exchange for such
stockholder's shares of Panavision Common Stock pursuant to the Merger and the
adjusted tax basis of such shares. Such gain or loss will generally be capital
gain or loss, and will be long-term capital gain or loss if the stockholder has
held such stock for more than one year. Stockholders who are individuals may
benefit from lower capital gains tax rates if the stockholder's holding period
for their shares of Panavision Common Stock exceeds eighteen months.
Stockholders who elect to retain their Panavision Common Stock or who
receive Panavision Common Stock in connection with the Merger will not recognize
gain or loss with respect to the Panavision Common Stock retained or received by
them.
Federal Income Tax Consequences of the Merger for Non-U.S. Stockholders
Generally, cash received by a foreign stockholder with respect to
Panavision Common Stock exchanged in connection with the Merger will not be
subject to U.S. withholding or other U.S. taxes. A 'foreign stockholder' is any
person who is, for U.S. federal income tax purposes, a foreign corporation, a
non-resident alien individual, a foreign partnership or a foreign estate or
trust.
THOUGH THE FOREGOING ARE THE MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS GENERALLY APPLICABLE TO THE MERGER, DUE TO THE INDIVIDUAL NATURE
OF TAX CONSEQUENCES, THE DISCUSSION DOES NOT ADDRESS ALL FEDERAL INCOME TAX
CONSEQUENCES WHICH MAY BE APPLICABLE TO A PARTICULAR STOCKHOLDER. EACH
STOCKHOLDER IS THEREFORE URGED TO AND SHOULD CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO SUCH STOCKHOLDER, IN THE LIGHT OF
HIS OR HER PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OF STOCK PURSUANT TO THE
MERGER.
ACCOUNTING TREATMENT
The Panavision Recapitalization will be accounted for as a recapitalization
as there will be a significant continuation of stockholder ownership.
Accordingly, the transactions will have no impact on the historical basis of the
Company's assets and liabilities.
EFFECT ON STOCK OPTIONS AND EMPLOYEE BENEFIT MATTERS
Each Company Stock Option that is outstanding immediately prior to the
Merger, whether or not vested or exercisable, shall, simultaneously with the
Merger, be canceled in exchange for a prompt payment of a single lump sum cash
payment equal to the product of (i) the number of shares of Panavision Common
Stock subject to such Company Stock Option and (ii) the excess, if any, of the
Cash Price over the exercise price per share of such Company Stock Option.
For a period of at least 18 months following the Effective Time, the
Surviving Corporation (as defined herein) shall provide employee benefit plans,
programs and arrangements, either directly or through a plan of an affiliate
that, in the aggregate, provide benefits not materially less favorable than the
plans currently in effect.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of the Company have interests,
described herein, that present them with conflicts of interest in connection
with the Merger. The Board of Directors is aware of the conflicts described
below and considered them in addition to the other matters described under 'THE
MERGER--Recommendation of the Board of Directors; Reasons for the Merger.'
Pursuant to the provisions of the Recapitalization Agreement, each holder
of a Company Stock Option, including the executive officers and directors named
under 'Executive Compensation,' shall be entitled to receive the Cash Price less
the exercise price applicable to each Company Stock Option. Accordingly, at the
Effective Time the following individuals will receive cash payments in respect
of their Company Stock Options: William C. Scott, $9,453,036; John S. Farrand,
$7,909,613; Jeffrey J. Marcketta, $3,075,915; and Christopher M.R. Phillips,
$731,779; and all directors and all employees (including the officers named
above) as a group (a total of 36 individuals), $29,263,593. See 'SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,' 'NOMINEES FOR ELECTION
AS DIRECTORS OF PANAVISION' and 'CERTAIN RELATIONSHIPS AND TRANSACTIONS' for a
description of Management's interests before and after the Panavision
Recapitalization.
In December 1997, in order to facilitate the payment of taxes related to
the exercise of options issued pursuant to the Panavision Stock Option Plan, the
Company made advances to certain officers and key employees in the form of
notes. Notes were issued by Messrs. Scott, Farrand and Marcketta in the amount
of $2,152,503, $3,698,800 and $924,700, respectively. The notes are recourse
obligations and mature on the earlier of December 24, 2000 or the date of
consummation of the Panavision Recapitalization. Interest on the notes is
compounded semiannually at the applicable federal rate in effect on the date the
notes were issued.
Pursuant to the Recapitalization Agreement, the Company has agreed for six
years after the Effective Time to indemnify all present directors and officers
of the Company and its subsidiaries and will, subject to certain limitations,
maintain for four years a directors' and officers' insurance and indemnification
policy containing terms and conditions which are not less advantageous than any
policy which may be in effect prior to the Effective Time. See 'CERTAIN
PROVISIONS OF THE RECAPITALIZATION AGREEMENT--Indemnification; Directors' and
Officers' Insurance.'
Pursuant to the Stockholders Agreement, Warburg has granted Mafco the
option to purchase the remaining Warburg Shares from Warburg at $30.00 per share
and Mafco has granted Warburg the option (the 'Warburg Option') to sell such
Warburg Shares to Mafco at $25.00 per share. These options are exercisable
during the Option Period. In addition, if the Recapitalization Agreement is
terminated in accordance with the Transaction Proposal Termination Provision (as
defined herein), the Company Board Action Provision (as defined herein) or the
Stockholder Approval Termination Provision (as defined herein) of the
Recapitalization Agreement, or the Recapitalization Agreement shall have been
amended to increase the amount of merger consideration, and if Warburg receives
any consideration in connection with a Transaction Proposal or an amended
Recapitalization Agreement, Warburg will pay to Mafco all or a portion thereof.
See 'CERTAIN PROVISIONS OF THE STOCKHOLDERS AGREEMENT.'
RESALE OF PANAVISION COMMON STOCK FOLLOWING THE MERGER
The Panavision Common Stock to be retained in connection with the Merger
will be freely transferable, except that shares retained by any stockholder who
may be deemed to be an 'affiliate' (as defined under the Securities Act and
generally including, without limitation, directors, certain executive officers
and beneficial owners of 10% or more of a class of capital stock) of the Company
for purposes of Rule 145 under the Securities Act will not be transferable
except in compliance with the Securities Act. This Proxy Statement does not
cover sales of Panavision Common Stock retained by any person who may be deemed
to be an affiliate of the Company.
RECAPITALIZATION FINANCINGS
In connection with the Panavision Recapitalization, the Company expects to
(i) enter into a credit agreement with a maximum commitment amount of $340
million, (ii) assume obligations under notes with an aggregate issue price of
$150 million and (iii) receive an equity contribution from PX Holding of
approximately
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$154 million (collectively, the 'Recapitalization Financings'). It is currently
anticipated that the Recapitalization Financings will be used to (i) fund the
payment of the cash consideration in the Merger, (ii) repay or repurchase
certain indebtedness of the Company, (iii) pay the fees and expenses in
connection with the Merger and the Recapitalization Financings and (iv) provide
for working capital requirements.
9 5/8% Senior Subordinated Discount Notes Due 2006
On February 6, 1998, PX Escrow Corp., a wholly owned subsidiary of PX
Holding ('PX Escrow'), issued 9 5/8% Senior Subordinated Discount Notes Due 2006
(the 'Notes') for gross proceeds of $150 million in an offering to qualified
institutional buyers exempt from registration under the Securities Act pursuant
to Rule 144A and to certain persons in offshore transactions in reliance on
Regulation S thereof (the 'Offering'). The proceeds of the Offering have been
deposited in escrow pending consummation of the transactions contemplated by the
Recapitalization Agreement, at which time the Company will assume (the
'Panavision Assumption') the obligations of PX Escrow under the Notes, the
indenture (the 'Indenture') pursuant to which the Notes were issued and the
escrow agreement governing the escrow. The Company will also assume PX Escrow's
obligations under the purchase agreement relating to the Notes and a
registration rights agreement (the 'Registration Agreement') requiring the
Company to file an exchange offer registration statement or, under certain
circumstances, a shelf registration statement relating to the Notes. As
consideration for its assumption of PX Escrow's obligations under the Notes and
such agreements, the Company will receive approximately $144 million of the
proceeds of the Offering (representing the net proceeds after deducting
discounts and related fees and expenses) together with a portion of the earnings
on the funds deposited in escrow, which funds will be used, in part, to fund the
transactions contemplated by the Recapitalization Agreement.
The Notes are unsecured, subordinated in right of payment to all existing
and future senior debt of the Company and will mature on February 1, 2006. Prior
to February 1, 2002, there will be no periodic cash pay ments of interest on the
Notes, except as described below. The Notes were issued at a substantial
discount from their principal amount at maturity. The accretion of original
issue discount (the difference between the original issue price of the Notes and
their principal amount at maturity) in the period during which the Notes remain
outstanding is calculated on a semi-annual bond equivalent basis using a 360-day
year composed of twelve 30-day months. Such accretion commenced on the date the
Notes were issued and ends on February 1, 2002, at which time the accreted value
of the Notes will equal their aggregate principal amount at maturity of $217.9
million. Thereafter, the Notes will bear interest at a rate equal to 9 5/8% per
annum, payable semiannually commencing August 1, 2002. In addition, if the
Company fails to comply with certain of its obligations under the Registration
Agreement, additional interest will be payable in cash on the Notes.
On and after February 1, 2002, the Company may redeem the Notes in whole at
any time or in part from time to time at the redemption prices specified therein
as a percentage of the then accreted value of the Notes plus accrued and unpaid
interest, if any, to the date of redemption. Prior to February 1, 2002, the
Company may redeem the Notes in whole at a redemption price equal to the then
accreted value of the Notes plus accrued and unpaid interest, if any, to the
date of redemption, plus a specified premium. Prior to February 1, 2001, in
connection with certain public offerings of Panavision Common Stock, the
Company, may, at its option, redeem the Notes at a redemption price equal to
109 5/8% of the then accreted value of the Notes plus accrued and unpaid
interest, if any, to the date of redemption, provided that at least $141.6
million aggregate principal amount at maturity of Notes remains outstanding
after each such redemption.
Upon a change of control of the Company, each holder of the Notes has the
right to require the Company to repurchase all or a portion of such holder's
Notes at a price equal to 101% of the then accreted value of such Notes, plus
accrued and unpaid interest, if any, to the date of repurchase.
The Indenture contains various restrictive covenants, including limitations
on debt, limitations on other senior subordinated debt and secured debt,
limitations on restricted payments, limitations on sales of assets and
subsidiary stock, limitations on transactions with affiliates, limitations on
restrictions on distributions from subsidiaries and limitations on issuances of
guarantees of debt (which, under certain circumstances, may require the Company
to cause certain subsidiaries of the Company to guarantee its obligations under
the Notes).
Events of default under the Indenture include, among other things, (i) a
default continuing for 30 days in the payment of interest when due, (ii) a
default in the payment of any principal when due, (iii) the failure to comply
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with the covenants in the Indenture, subject in certain instances to grace
periods, (iv) failure to pay other indebtedness of the Company or a Significant
Subsidiary (as defined in the Indenture) in excess of $10 million upon final
maturity or as a result of such indebtedness becoming accelerated and such
default continues for a period of 10 days after notice thereof, (v) certain
events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary and (vi) the failure to pay any judgment in excess of $10
million.
New Credit Agreement
In connection with the Panavision Recapitalization, The Chase Manhattan
Bank ('Chase') will structure, arrange and syndicate senior secured credit
facilities (the 'Credit Facilities') that will be available to the Company in an
aggregate amount of up to $340.0 million, pursuant to definitive credit
documentation to be entered into prior to the consummation of the Panavision
Recapitalization (the 'New Credit Agreement'). The Credit Facilities will be
comprised of (x) a term loan facility (the 'Term Facility') in an aggregate
amount of $240.0 million, consisting of two tranches, one of which will be a
6-year facility in an aggregate principal amount equal to $90.0 million (the
'Tranche A Term Facility') and the other of which will be a 7-year facility in
an aggregate principal amount equal to $150.0 million (the 'Tranche B Term
Facility'), and (y) a 6-year revolving credit facility (the 'Revolving
Facility') in an aggregate principal amount of $100.0 million, of which up to
$20.0 million will be available for the issuance of letters of credit.
Borrowings under the Term Facility will be used to finance, in part, the
Panavision Recapitalization, repay existing borrowings under its existing credit
agreement and to pay related fees and expenses. Borrowings under the Revolving
Facility will be used to finance the working capital and general corporate needs
of the Company and its subsidiaries in the ordinary course of business.
The availability of the Credit Facilities is subject to the satisfaction of
various conditions precedent typical for secured bank loans in general and with
respect to the Panavision Recapitalization in particular, including, among
others, the consummation of the Panavision Recapitalization pursuant to
reasonably satisfactory documentation. The full amount of the Term Facility will
be drawn in a single drawing on the closing date of the Credit Facilities (the
'Closing Date') and any amount repaid or prepaid under the Term Facility may not
be reborrowed. Loans and letters of credit under the Revolving Facility will be
available at any time prior to, in the case of loans, the final maturity of the
Revolving Facility and, in the case of letters of credit, the fifth business day
prior to the final maturity of the Revolving Facility. Amounts repaid under the
Revolving Facility may be reborrowed.
The Tranche A Term Facility shall be repayable in quarterly installments in
an aggregate principal amount for each year following the Closing Date
(commencing with the second year following the Closing Date) as follows: $5.0
million; $10.0 million; $20.0 million; $25.0 million; and $30.0 million,
respectively. The Tranche B Term Facility shall be repayable in quarterly
installments in an aggregate principal amount for each year following the
Closing Date (commencing with the second year following the Closing Date) as
follows: $1.0 million for years two through five; $21.0 million for year six;
and $125.0 million for year seven.
Borrowings under the Credit Facility shall bear interest at a rate per
annum equal to the Alternate Base Rate ('ABR Loans') or the Eurodollar Rate
('Eurodollar Loans') plus, in each case, a margin that will be based on the
performance of the Company at levels to be agreed. The initial margin on loans
under the Revolving Facility and loans under the Tranche A Term Facility shall
be 2.25% for Eurodollar Loans and 1.25% for ABR Loans. The initial margin on
loans under the Tranche B Term Facility shall be 2.50% for Eurodollar Loans and
1.50% for ABR Loans. The Company may select interest periods of one, two, three
or six months for Eurodollar Loans. At any time when the Company is in default
in the payment of any amount of principal due under the Credit Facilities, such
amount shall bear interest at 2% above the rate otherwise applicable. Overdue
interest, fees and other amount shall bear interest at 2% above the rate
applicable to ABR Loans.
The Company will be required to prepay the Term Facility and to permanently
reduce the Revolving Facility with: (i) 100% of the net proceeds of any sale or
issuance of equity (subject to certain exceptions to be agreed upon) or
incurrence of certain indebtedness after the Closing Date by the Company or any
of its subsidiaries; (ii) 100% of the net proceeds of any sale or other
disposition (with customary casualty or condemnation reinvestment provisions to
be agreed) by the Company or any of its subsidiaries of any assets (except for
the sale of inventory in the ordinary course of business and certain other
dispositions to be agreed) and (iii) 75% of excess cash flow (definition to be
agreed) for each fiscal year of the Company (commencing with the fiscal year in
46
<PAGE>
which the Closing Date occurs); provided that such percentage shall be 50% if
the leverage ratio (definition to be agreed) at the end of the applicable fiscal
year is equal to or below a level to be agreed upon. All such prepayments shall
be applied, first, to the prepayment of the Term Loans and, second, to the
permanent reduction of the Revolving Facility. Each such prepayment of the Term
Loans shall be applied to the Tranche A Term Loans and the Tranche B Term Loans
ratably and to the installments thereof ratably in accordance with the then
outstanding amounts. If, however, any Tranche A Term Loans are outstanding, each
holder of Tranche B Term Loans shall have the right to refuse all or any portion
of such prepayment allocable to its Tranche B Term Loans, and the amount so
refused will be applied to prepay the Tranche A Term Loans.
Any loans under the Credit Facilities may be prepaid without premium or
penalty (subject to reimbursement of customary breakfunding costs) and
commitments may be reduced by the Company in minimum amounts to be agreed.
Optional prepayments of the Term Loans shall be applied to the Tranche A Term
Loans and the Tranche B Term Loans ratably and to the installments thereof
ratably in accordance with the then outstanding amounts. If, however, any
Tranche A Term Loans are outstanding, each holder of Tranche B Term Loans shall
have the right to refuse all or any portion of such prepayment allocable to its
Tranche B Term Loans, and the amount so refused will be applied to prepay the
Tranche A Term Loans.
The obligations of the Company under the Credit Facilities will be
guaranteed by each of the Company's direct and indirect domestic subsidiaries
(collectively, the 'Guarantors'). The obligations of the Company and the
Guarantors in respect of the Credit Facilities shall be secured by a perfected
first priority security interest in all of such person's tangible and intangible
domestic assets (including, without limitation, intellectual property, real
property, and all of the capital stock of each of the Company's direct and
indirect domestic subsidiaries and 65% of the capital stock of first tier
foreign subsidiaries).
The New Credit Agreement will contain customary representations and
warranties and affirmative and negative covenants. Such documentation will
contain a number of covenants that, among other things, limit indebtedness;
liens; guarantee obligations; mergers; sales of assets; leases; dividends and
other payments in respect of capital stock; capital expenditures; investments;
optional payments and modifications of subordinated and other debt instruments;
transactions with affiliates; sale leasebacks and negative pledge clauses. The
New Credit Agreement will also contain financial covenants including, but not
limited to, minimum interest coverage and maximum leverage.
The New Credit Agreement will contain customary events of default,
including, but not limited to, nonpayment of principal, interest or fees;
material inaccuracy of representations and warranties; violation of covenants;
cross-default; bankruptcy events; material judgments, ERISA; actual or asserted
invalidity of collateral documents; and a change of control of the Company.
Certain fees will be payable with respect to the Credit Facilities,
including (i) a commitment fee equal to the rate of .50% on the average daily
unused portion of the Revolving Facility, payable quarterly in arrears; (ii) a
commission on all outstanding letters of credit at a per annum rate equal to the
margin then in effect with respect to Eurodollar Loans on the face amount of
each such letter of credit; (iii) a fronting fee equal to .25% per annum on the
face amount of each letter of credit, payable quarterly in arrears; (iv) an
annual administration fee and (v) arrangement and other similar fees that will
be paid on or prior to the Closing Date.
THE SOLVENCY OPINION
The following is a summary of an opinion, substantially in the form
expected to be delivered at the Effective Time of the Merger (the 'Solvency
Opinion'), by Murray, Devine & Co., Inc. ('Murray Devine'). In the Solvency
Opinion, Murray Devine will state that, based upon the considerations set forth
therein and on other factors it deemed relevant, it is of the opinion that,
after giving effect to the Panavision Recapitalization:
(1) the fair value of the assets of Panavision and its subsidiaries on
a consolidated basis will exceed their total liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities);
(2) the present fair saleable value of the assets of Panavision and
its subsidiaries on a consolidated basis will be greater than the amount
required to pay their probable liabilities on their existing debts as they
become absolute and matured;
47
<PAGE>
(3) Panavision and its subsidiaries, on a consolidated basis, will
have the ability to pay their debts and liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities) as they mature;
(4) the total consideration used by Panavision and its subsidiaries to
redeem the Redeemable Preferred Stock will not cause an impairment of
capital; and
(5) Panavision and its subsidiaries, on a consolidated basis, will not
have an unreasonably small amount of capital with which to conduct their
business.
In rendering its opinion Murray Devine made certain assumptions, including
the fact that Panavision would be able to renew its revolving credit commitment
when such commitment expires and will be able to effect a refinancing of its
Term Facility at final maturity.
For purposes of its opinion, the following terms have the meanings set
forth below:
'the assets of Panavision and its subsidiaries'--All assets of
Panavision and its subsidiaries, recorded on a consolidated basis. Such
assets shall include all current assets, all fixed assets such as
property, plant and equipment and all intangible assets including
contracts, tradenames, trademarks, backlog, licenses, patents and other
intangible assets including those in the nature of goodwill and going
concern value.
'fair value'--The total amount at which the assets of Panavision and its
subsidiaries, on a consolidated basis, would likely sell as part of a
going concern and for continued use as part of a going concern, within a
commercially reasonable period of time, between one or more willing
buyers and a willing seller with neither party being under any
compulsion to buy or sell and with all parties having reasonable
knowledge of all facts.
'impairment of capital'--The total consideration used by Panavision and
its subsidiaries to redeem the Redeemable Preferred Stock exceeds,
immediately prior to the Panavision Recapitalization, the excess of the
net assets of Panavision and its subsidiaries over the par value of
Panavision's issued and outstanding Panavision Common Stock.
'present fair saleable value'--The price that could be obtained in one
or more arm's length transactions by an independent, willing seller from
an independent willing buyer with reasonable promptness, each having
reasonable knowledge of the relevant facts and neither being under any
compulsion to act and with equity to both.
'liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities)'--The pro forma debts and liabilities of
Panavision and its subsidiaries, recorded on a consolidated basis, as of
the closing date as set forth on the pro forma balance sheet as of
September 30, 1997 as prepared by management of Panavision, including
all fees, expenses, and the principal amount of indebtedness being
incurred in connection with the Panavision Recapitalization through
borrowings under the New Credit Agreement and the Notes plus
Panavision's and its subsidiaries' estimated amount of reasonably
anticipated liabilities that may result from contingencies, including:
a) pending litigation, asserted claims and assessments, guarantees, and
other contingent liabilities including, without limitation, employee
benefit plan liabilities relating to retiree benefits, as well as, b)
contingent liabilities relating to environmental matters.
The full text of the Solvency Opinion, which sets forth assumptions made,
matters considered and the scope of the review undertaken in connection with the
opinion, is included as an exhibit to the Registration Statement on Form S-4
filed with the Commission on May 4, 1998, and this summary is qualified in its
entirety by reference to the text of such opinion.
48
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1997 gives pro forma effect to the
FSG Acquisition, the Panavision Recapitalization and the Recapitalization
Financings (including the Panavision Assumption) as if such transactions had
been consummated on January 1, 1997. The pro forma condensed consolidated
balance sheet as of December 31, 1997 gives pro forma effect to the Panavision
Recapitalization and the Recapitalization Financings (including the Panavision
Assumption) as if such transactions had been consummated on December 31, 1997.
The pro forma financial statements assume that an aggregate of 88% of the
Holders' shares of Panavision Common Stock is converted into the right to
receive cash. The pro forma adjustments are based upon available information and
certain assumptions that management believes are reasonable under the
circumstances. The pro forma financial statements do not purport to represent
the results of operations or the financial position of Panavision and its
subsidiaries that actually would have occurred had the foregoing transactions
(the 'Transactions') been consummated on the aforesaid dates.
The pro forma condensed consolidated statements of operations and other
data exclude the following non-recurring charges which will be reflected in the
Company's statement of operations in connection with the Panavision
Recapitalization and the Recapitalization Financings in the period in which the
transaction closes: (i) $29.3 million relating to the cash settlement of
unexercised stock options; (ii) approximately $17.5 million relating to the
purchase by the Company of shares acquired through the exercise of certain stock
options; (iii) $6.0 million relating to transaction expenses; (iv) $2.3 million
increase in the valuation allowance on deferred tax assets in connection with
the Panavision Recapitalization; and (v) an extraordinary charge of $1.8 million
relating to the write-off of deferred financing costs relating to the repayment
of borrowings under the Company's existing credit agreement.
The Panavision Recapitalization will be accounted for as a recapitalization
as there will be a significant continuation of stockholder ownership.
Accordingly, the transaction will have no impact on the historical basis of the
Company's assets and liabilities.
The FSG Acquisition has been recorded under the purchase method of
accounting, and accordingly, FSG's operating results have been included in the
Company's consolidated financial statements since the acquisition date of June
5, 1997. The purchase price of the FSG Acquisition plus direct
acquisition-related costs have been allocated based on fair values of the
acquired assets and assumed liabilities. The Company has also provided
approximately $6.3 million to cover the estimated transaction costs, lease
cancellation costs and severance related to the acquired businesses. Goodwill of
approximately $9.7 million was recognized as part of the transaction and is
being amortized over 30 years. The amounts for FSG included in the accompanying
unaudited pro forma condensed consolidated financial statements for the period
ended December 31, 1997, are based on unaudited management information compiled
for each FSG operation from January 1, 1997 up to the date of the acquisition,
June 4, 1997. See 'INCORPORATION OF DOCUMENTS BY REFERENCE.' All FSG amounts
have been converted into U.S. dollars at the appropriate exchange rates (after
adjustment for minor differences between U.K. and the U.S. generally accepted
accounting principles).
49
<PAGE>
PANAVISION INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------------------
HISTORICAL
-------------------------------
FSG PRO FORMA ADJUSTMENTS
JANUARY 1, 1997 -------------------------------
TO FSG PANAVISION PANAVISION
PANAVISION JUNE 4, 1997 ACQUISITION RECAPITALIZATION PRO FORMA(I)
----------- ---------------- ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 176,863 $ 27,802 $(1,819)(a) $ -- $202,846
Cost of revenues................... 90,879 16,751 (1,819)(a) 105,726
(85)(b)
----------- ---------------- ----------- ---------------- ------------
Gross margin....................... 85,984 11,051 85 97,120
Operating costs.................... 52,069 10,488 130(c) 1,531(g) 63,467
(500)(d) (251)(g)
----------- ---------------- ----------- ---------------- ------------
Operating income (loss)............ 33,915 563 455 (1,280) 33,653
Interest income.................... 484 484
Interest expense................... (6,869) (280) (1,471)(e) (39,775)(h) (39,775)
8,620(h)
Foreign exchange loss.............. (105) (105)
Other, net......................... 1,315 276 1,591
----------- ---------------- ----------- ---------------- ------------
Income (loss) before income
taxes............................ 28,740 559 (1,016) (32,435) (4,152)
Income tax (provision) benefit..... (9,252) (179) 287(f) 6,273(f) (2,871)
----------- ---------------- ----------- ---------------- ------------
Net income (loss) before
extraordinary item............... $ 19,488 $ 380 $ (729) $(26,162) $ (7,023)
----------- ---------------- ----------- ---------------- ------------
----------- ---------------- ----------- ---------------- ------------
Basic earnings (loss) per common
share............................ $ 1.07 $ (0.87)
Shares used in the computation..... 18,174 8,056
Diluted earnings (loss) per common
share............................ $ 1.03 $ (0.87)
Shares used in the computation .... 19,012 8,056
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations.
50
<PAGE>
PANAVISION INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(a) To eliminate intercompany revenues between the Company and FSG and the
related cost of sales.
(b) To adjust depreciation expense for the revaluation of assets and to conform
estimated useful lives.
(c) To reflect the amortization of goodwill resulting from the FSG Acquisition.
(d) To eliminate management fees paid to Visual Action Holdings, plc.
(e) To reflect higher interest expense due to additional borrowings required for
the FSG Acquisition.
(f) The pro forma provision for income taxes primarily consists of state, local
and foreign taxes. Pro forma tax adjustments reflect a benefit for foreign
taxes related to the FSG Acquisition and the elimination of federal and
state income taxes (other than certain state minimum taxes) as a result of
additional interest expense and amortization of deferred charges related to
the Panavision Recapitalization. The Company has not reflected a federal tax
benefit relating to its losses as it is more likely than not that it will
not be able to realize benefit for such losses in the future.
(g) To reflect the elimination of historical amortization of deferred financing
charges on debt retired and the amortization of deferred financing charges
on the Notes assumed in connection with the Panavision Recapitalization and
the New Credit Agreement.
(h) To reflect interest expense on the Notes, compounded semiannually,
borrowings under the New Credit Agreement and elimination of historical
interest expense:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
INTEREST EXPENSE 1997
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Notes at 9.625%................................................................................... $ 14,784
Revolving Facility at 8.13%....................................................................... 4,788
Tranche A Term Loan at 8.13%...................................................................... 7,317
Tranche B Term Loan at 8.38%...................................................................... 12,570
Other fees........................................................................................ 316
------------
39,775
Interest expense on retired debt.................................................................. 8,620
------------
Net interest adjustment........................................................................... $ 31,155
------------
------------
</TABLE>
A 0.125% change in the interest rate payable on borrowings under the New
Credit Agreement would change annual interest expense as follows:
<TABLE>
<S> <C>
Revolving Facility............................................................................... $ 77
Tranche A Term Facility.......................................................................... 113
Tranche B Term Facility.......................................................................... 187
-------------
$ 377
-------------
-------------
</TABLE>
(i) In the event that all Holders, other than the Company's directors,
officers, key employees and a trust established by an officer of the
Company, elect to retain their shares of Panavision common stock,
interest expense, net loss and basic and diluted loss per share would
be $36,254, $(3,502) and $(.36), respectively. The shares used in
computation for loss per share would be 9,821. See 'Effect of the
Panavision Recapitalization.'
51
<PAGE>
PANAVISION INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------
ACTUAL RECAPITALIZATION PRO FORMA(J)
-------- ---------------- ------------
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents....................................... $ 11,020 $ 144,000(a) $ 6,000
293,896(b)
154,377(c)
(444,145)(d)
(29,264)(e)
(124,999)(f)
(6,000)(g)
7,115(i)
Accounts receivable............................................. 25,645 25,645
Inventories..................................................... 8,540 8,540
Prepaid expenses and other current assets....................... 16,072 (7,115)(i) 8,957
-------- ---------------- ------------
Total current assets.............................................. 61,277 (12,135) 49,142
Property, plant and equipment, net................................ 199,038 199,038
Deferred tax assets............................................... 2,329 (2,329)(h) --
Goodwill.......................................................... 9,859 9,859
Other............................................................. 9,434 6,000(a) 18,612
5,000(b)
(1,822)(f)
-------- ---------------- ------------
$281,937 $ (5,286) $ 276,651
-------- ---------------- ------------
-------- ---------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable................................................ $ 9,819 $ -- $ 9,819
Accrued liabilities............................................. 23,745 23,745
Current maturities of long-term debt............................ 5,383 (5,000)(f) 383
Deferred tax liabilities........................................ 5,387 5,387
-------- ---------------- ------------
Total current liabilities......................................... 44,334 (5,000) 39,334
Long-term debt.................................................... 119,999 (119,999)(f) 448,896
150,000(a)
298,896(b)
Deferred tax liabilities.......................................... 6,217 6,217
Other liabilities................................................. 1,943 1,943
Common stock...................................................... 189 58(c) 81
(166)(d)
Additional paid-in capital........................................ 77,053 154,319(c) --
(231,372)(d)
Retained earnings (accumulated deficit)........................... 34,463 (212,607)(d) (217,559)
(29,264)(e)
(1,822)(f)
(6,000)(g)
(2,329)(h)
Foreign currency translation adjustment........................... (2,261) (2,261)
-------- ---------------- ------------
Total stockholders' equity (deficit).............................. 109,444 (329,183) (219,739)
-------- ---------------- ------------
$281,937 $ (5,286) $ 276,651
-------- ---------------- ------------
-------- ---------------- ------------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet.
52
<PAGE>
PANAVISION INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
(a) Reflects the assumption of the Notes, net of the initial purchasers'
discount and related fees and expenses.
(b) Reflects borrowings of $298,896 under the New Credit Agreement, net of
related fees and expenses.
(c) Reflects the purchase by PX Holding of 5.8 million shares of Company Common
Stock at $26.69 per share. See 'Effect of Panavision Recapitalization' and
'THE MERGER--Merger Sub Common Stock and PX Holding Stock Purchase' for a
description of the basis for using a $26.69 per share purchase price.
(d) Reflects the conversion of 11.2 million shares of Company Common Stock owned
by Warburg into redeemable preferred stock of the Company and the redemption
of such stock at a price equivalent to $26.50 in cash per share of Company
Common Stock and the purchase of 5.5 million shares from the public and
management at a price of $27.00 per share of which $17,547 will be charged
to expense in the Company's statement of operations due to the cash
settlement of shares acquired through the exercise of certain stock options.
(e) Reflects the cash payment made to settle unexercised options in connection
with the Panavision Recapitalization which will be charged to expense in the
Company's statement of operations.
(f) Reflects the payment of existing debt of the Company and the write-off of
related deferred charges of $1,822.
(g) Reflects fees and expenses related to the Panavision Recapitalization which
will be charged to expense in the Company's statement of operations.
(h) Reflects the increase in valuation allowance on deferred tax asset in
connection with the Panavision Recapitalization.
(i) Reflects the repayment of notes due to the Company from officers and key
employees which are due upon completion of the Panavision Recapitalization.
(j) In the event that all Holders, other than the Company's directors, officers,
key employees and a trust established by an officer of the Company, elect to
retain their shares of Panavision Common Stock, total debt and Stockholders'
Deficit would be $403,135 and $173,595, respectively. See 'Effect of
Panavision Recapitalization.'
53
<PAGE>
CERTAIN PROVISIONS OF THE RECAPITALIZATION AGREEMENT
The following description of the Recapitalization Agreement is necessarily
a summary thereof and is therefore qualified in its entirety by reference to the
Recapitalization Agreement, a copy of which is attached to this Proxy Statement
as Annex I and incorporated herein by reference. Panavision stockholders are
urged to read the Recapitalization Agreement in its entirety.
THE MERGER
The Recapitalization Agreement provides that, subject to the satisfaction
or waiver of the other conditions of the Recapitalization Agreement, Merger Sub
shall be merged with and into the Company, whereupon the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation of the Merger (the 'Surviving Corporation').
Subject to the satisfaction or waiver of the conditions set forth in the
Recapitalization Agreement, the Company shall execute and deliver to the
Secretary of State of the State of Delaware a duly executed Certificate of
Merger.
CERTIFICATE OF INCORPORATION AND BY-LAWS
The Amended and Restated Certificate of Incorporation of the Company will
be the Certificate of Incorporation of the Surviving Corporation following the
Merger until thereafter amended in accordance with the provisions thereof and
applicable law, provided that Section 13(b) shall be restated in its entirety
therein to read as follows, '(b) Expenses incurred in defending a civil or
criminal action, suit or proceeding shall (in the case of any action, suit or
proceeding against a director or officer of the Corporation) be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the indemnified person to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Section 13;' and further provided, that a new
Section 16 shall be added thereto to read as follows, 'The Corporation expressly
elects not to be governed by Section 203 of the General Corporation Law of the
State of Delaware.'
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an 'interested stockholder,' which is defined therein as a
person who, together with any affiliates and/or associates of such person,
beneficially owns, directly or indirectly, 15 percent or more of the outstanding
voting shares of a Delaware corporation. This provision prohibits certain
business combinations (defined broadly to include mergers, consolidations, sales
and other dispositions of assets having an aggregate value in excess of 10
percent of the consolidated assets of the corporation, and certain transactions
that would increase the interested stockholder's proportionate share ownership
in the corporation) between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder acquired its
stock unless: (i) the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder is approved by the
corporation's board of directors prior to the date the interested stockholder
acquired shares, (ii) the interested stockholder acquired at least 85 percent of
the voting stock of the corporation in the transaction in which it became an
interested stockholder, or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of two-thirds of
the votes entitled to be cast by disinterested stockholders at an annual or
special meeting.
The By-Laws of Merger Sub will be the By-Laws of the Surviving Corporation
following the Merger until thereafter amended in accordance with the provisions
thereof and applicable law.
BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER
The directors of Merger Sub immediately prior to the Effective Time will be
the initial directors of the Surviving Corporation, until their respective
successors are duly elected and qualified. The officers of the Company
immediately prior to the Effective Time will be the initial officers of the
Surviving Corporation, until their respective successors are duly elected and
qualified.
54
<PAGE>
REPRESENTATIONS AND WARRANTIES
The Recapitalization Agreement contains various representations and
warranties of the Company relating to, among other things, the following matters
(which representations and warranties are subject, in certain cases, to
specified exceptions): (i) the due organization and good standing of the Company
and its significant subsidiaries; (ii) the capitalization of the Company and the
ownership of the capital stock of the Company's significant subsidiaries; (iii)
good and valid title to the Panavision Common Stock to be purchased by PX
Holding and that such shares will be validly issued, fully paid and
nonassessable; (iv) the due authorization of the Company to execute and deliver
the Recapitalization Agreement and related matters; (v) the absence of any
conflicts with the organizational documents or contracts to which the Company
and any of its subsidiaries is a party and the Company's compliance with
applicable law; (vi) the absence of any requirement to receive consent from any
governmental entity in connection with the execution and delivery of the
Recapitalization Agreement by the Company, other than under provisions under the
DGCL and the HSR Act; (vii) due filing of all reports and other documents,
including financial statements, with the Commission and the accuracy of the
information contained therein; (viii) the absence of any report or other
document filed with the Commission that contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; (ix) due preparation of the audited and
unaudited financial statements in accordance with U.S. generally accepted
accounting principles and the fairness of their presentation of the financial
position and results of operations for the periods reported therein; (x) the
absence of undisclosed liabilities; (xi) the absence of pending or, to the
knowledge of the Company, threatened litigation that would have a material
adverse effect on the Company; (xii) the sufficient title to the Company's real
property; (xiii) the insurance policies are in full force and effect and shall
remain in full force and effect through the closing date; (xiv) the accuracy of
information supplied in this Proxy Statement; (xv) the compliance with the terms
of any employee benefit plan and the compliance of such plans with the Employee
Retirement Income Security Act of 1974, as amended ('ERISA') and any other
applicable law or regulation; (xvi) the filing of tax returns, the payment of
taxes and certain other tax matters; (xvii) compliance with all applicable
environmental laws, regulations and requirements, and the absence of any notices
of pending or, to the best knowledge of the Company, threatened proceedings
regarding environmental violations or liability; (xviii) the absence of certain
changes having a material adverse effect on the Company since September 30,
1997; (xix) the absence of broker's fees and expenses other than those of the
investment bankers; (xx) the receipt by the Company of an opinion from its
investment bankers as to fairness, from a financial point of view, of the
consideration to be received by the stockholders of the Company; (xxi) the
determination of the Board of Directors of the advisability of the Merger as in
the best interest of the stockholders of the Company and the recommendation of
the Board of Directors with respect to the Recapitalization Agreement and
related transactions; (xxii) the required vote of the Company's stockholders
being the only vote of stockholders required to approve the Merger; (xxiii) the
ownership and rights to use of its Intellectual Property (as defined in
Recapitalization Agreement); (xxiv) the absence of certain transactions or other
obligations between the Company and directors, officers, partners, affiliates or
associates; and (xxv) compliance with all applicable laws regarding employment
and employment practices and the absence of any notice of pending claims,
actions or violations.
The Recapitalization Agreement also contains various representations and
warranties of PX Holding and Merger Sub relating to, among other things, the
following matters (which representations and warranties are subject, in certain
cases, to specified exceptions): (i) the due organization and good standing of
PX Holding and Merger Sub; (ii) the due authorization, execution and delivery of
the Recapitalization Agreement and related matters; (iii) the absence of any
conflicts with the organizational documents or contracts to which PX Holding or
Merger Sub is a party and PX Holding's or Merger Sub's compliance with
applicable law; (iv) the absence of any requirement to receive consent from any
governmental entity in connection with the execution and delivery of the
Recapitalization Agreement by PX Holding or Merger Sub; (v) the accuracy of
information supplied in the Registration Statement and this Proxy Statement;
(vi) the capitalization of Merger Sub and the ownership of the capital stock of
Merger Sub; (vii) the absence of PX Holding and Merger Sub engaging in any
business or activity other than in connection with the transactions contemplated
by the Recapitalization Agreement; (viii) that PX Holding will acquire the
Panavision Common Stock for its own account and not with a view towards
distribution; and (ix) the absence of broker's fees in connection with this
transaction.
55
<PAGE>
CONDUCT OF BUSINESS PENDING THE MERGER
Prior to the Effective Time of the Merger, unless otherwise agreed to in
writing by PX Holding, the Company and each of its subsidiaries will conduct
their respective businesses, according to its ordinary and usual course of
business consistent with past practice and to use its and their respective
reasonable best efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and preserve
their relationships with customers, suppliers and others having business
dealings with them and to preserve goodwill. Except as expressly provided by the
terms and provisions of the Recapitalization Agreement, the Company will not,
and will cause its subsidiaries not to, without the prior consent of PX Holding:
(i) except for certain limited exceptions and in the ordinary course of business
consistent with past practice, increase the compensation or benefits of any
director, officer or employee of the Company or any of its subsidiaries; (ii)
incur any indebtedness except for indebtedness incurred in the ordinary course
of business and consistent with past practice or indebtedness to a direct or
indirect wholly owned subsidiary to the Company or another direct or indirect
wholly owned subsidiary; (iii) enter into any contract or agreement material to
the business, results of operations, or financial condition of the Company and
its subsidiaries taken as a whole other than in the ordinary course of business,
consistent with past practices; (iv) sell, lease or otherwise dispose of any of
its properties or assets other than immaterial properties or assets except (a)
in the ordinary course of business consistent with past practice or (b) as
otherwise reasonably necessary to comply with the terms of (1) any mortgage
liens encumbering such property, (2) insurance requirements or (3) laws, rules
or regulations or any governmental authority; (v) (a) declare, set aside or pay
any dividends on, or make any other distributions in respect of, its capital
stock, (b) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (c) purchase, redeem or
otherwise acquire shares of its capital stock; (vi) issue, deliver or sell any
shares of its capital stock or any other voting securities or any securities
convertible into any such shares, voting securities or convertible securities or
any other securities (except for issuances upon exercise of Company stock
options); (vii) amend the Certificate of Incorporation, by-laws or equivalent
organizational documents of the Company or any material subsidiary; (viii)
acquire or dispose of any interest in any corporation, partnership, other
business organization or division thereof or any asset, except for acquisition
or disposition of assets consistent with past practices and acquisitions or
dispositions for consideration which is not, individually, in excess of
$2,500,000 and in the aggregate, in excess of $5,000,000; (ix) settle or
compromise any shareholder derivative suit or any other litigation arising from
the transactions contemplated by the Recapitalization Agreement or settle, pay
or compromise any claims not required to be paid, individually in an amount in
excess of $50,000, or in the aggregate in the excess of $250,000; (x) take any
action, other than reasonable and usual actions in the ordinary course of
business and consistent with past practice, with respect to accounting policies
and procedures; (xi) make any tax election or settle or compromise any material
tax liability; (xii) take any action that would result in (a) any of the
representations or warranties of the Company becoming untrue or (b) any of such
representations or warranties becoming untrue in any material respect or (c) any
of the conditions to the Merger not being satisfied; or (xiii) authorize to
enter into any agreement to do any of the above.
ACCESS TO INFORMATION
The Company has agreed in the Recapitalization Agreement that, until the
Effective Time, it will, and will cause its subsidiaries to, give PX Holding and
its respective officers, employees, counsel, advisors, representatives and
representatives of financing sources identified by PX Holding (the
'Representatives') reasonable access to the offices and other facilities and to
the books and records of the Company and its subsidiaries. Such information will
be held in confidence in accordance with the provisions of the Confidentiality
Agreement.
STOCK PURCHASE
Immediately prior to the consummation of the Merger, PX Holding will
purchase (the 'Stock Purchase') from the Company the Designated Number of Common
Shares (as defined below) for the Designated Per Share Purchase Price (as
defined below); provided, that all conditions to the Merger contained in the
Recapitalization Agreement have been either satisfied or waived.
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The Designated Per Share Purchase Price means the number obtained by
dividing (x) the sum of (A) the number of Panavision Common Stock converted by
the public stockholders multiplied by $27.00, (B) the number of Company stock
options cashed out multiplied by $27.00, and (C) 100 times the number of
redeemable preferred shares to be exchanged for cash multiplied by $26.50, by
(y) the sum of (A) the number of Panavision Common Stock converted by the
Holders, (B) the number Company stock options cashed out, and (C) 100 times the
number of redeemable preferred shares to be exchanged for cash.
The Designated Number of Common Shares means such number of Panavision
Common Stock which, when added to the number of shares retained by the public
stockholders and the number of Panavision Common Stock retained by Warburg,
results in a number of Panavision Common Stock which, when multiplied by the
Designated Per Share Purchase Price, equals $215,000,000.
EFFORTS
Each of the Company, PX Holding and Merger Sub have agreed to make all
necessary filings with governmental entities as promptly as practicable to
facilitate prompt consummation of the Merger, and to use its reasonable best
efforts and will cooperate with the other party to obtain all necessary waivers,
consents and approvals from governmental entities and make all necessary
registrations and filings, and take all reasonable steps as may be necessary to
obtain an approval or waivers from, or to avoid an action or proceeding by, any
governmental entity.
PX Holding has agreed to use its reasonable best efforts to conclude any
financing necessary to consummate the transactions contemplated by the
Recapitalization Agreement. The Company has agreed to use its reasonable best
efforts to assist PX Holding in obtaining such financing.
PUBLIC ANNOUNCEMENTS
The Company, on the one hand, and PX Holding and Merger Sub, on the other
hand, have agreed to consult promptly with each other prior to issuing any press
release or otherwise making any public statement with respect to the Merger, the
Stock Purchase and other transactions contemplated by the Recapitalization
Agreement.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
From and after the Effective Time, for a period of six years, PX Holding
shall, and shall cause the Surviving Corporation to, indemnify, defend and hold
harmless the present and former officers, directors, employees and agents of the
Company and its subsidiaries (the 'Indemnified Parties') from and against all
claims or liabilities related to actions or omissions or alleged actions or
omissions occurring at or prior to the Effective Time (i) to the full extent
permitted by Delaware law, and (ii) to the same extent and on the same terms and
conditions provided for in the Company's Amended and Restated Certificate of
Incorporation and By-Laws and agreements in effect at the date of the
Recapitalization Agreement.
In addition, the Recapitalization Agreement provides that the Surviving
Corporation will maintain in effect for not less than four years from the
closing the current policies of the directors' and officers' liability insurance
maintained by the Company; provided that the Surviving Corporation may
substitute therefor other policies of at least the same coverage amounts and
which contain terms and conditions not less advantageous to the beneficiaries of
the current policies and provided that such substitution shall not result in any
gaps or lapses in coverage with respect to matters occurring prior to the
closing; and, provided further, that the Surviving Corporation shall not be
required to pay an annual premium in excess of 200% of the last annual premium
paid by the Company prior to the date of the Recapitalization Agreement and if
the Surviving Corporation is unable to obtain the insurance required by this
clause, it shall obtain as much comparable insurance as possible for an annual
premium equal to such maximum amount.
NO SOLICITATION
Prior to the termination of the Recapitalization Agreement, the Company and
its affiliates will not, and will instruct their respective officers, directors,
employees, agents or other representatives (including without limitation, any
investment banker, attorney or accountant retained by the Company or its
subsidiaries) not to:
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(i) solicit, initiate or encourage (including by way of furnishing non-public
information or assistance), or take any other action to facilitate, any
inquiries or to make any proposal which constitutes a proposal for a transaction
or may reasonably be expected to lead to a proposal for a Transaction Proposal
(as defined below); or (ii) enter into or participate in any discussions or
negotiations regarding a Transaction Proposal. By the terms of the
Recapitalization Agreement, the foregoing provision will not prohibit the
Company from (a) furnishing information to any person pursuant to a
confidentiality agreement on terms no less favorable to the Company than the
Confidentiality Agreement or engaging in discussions or negotiations with a
person that makes a Transaction Proposal, provided, that prior to taking such
action, the Board determines that such proposal is a Superior Proposal (as
defined below) and the Board notifies PX Holding of its intentions, (b) failing
to make or withdrawing or modifying its recommendation to the Company's
stockholders that they approve the Merger, after consultation with and based
upon the advice of independent legal counsel, determines in good faith that such
action is necessary for the Board to comply with its fiduciary duties, and (c)
disclosing to the Company's stockholders a position contemplated by Rules 14d-9
and 14e-2 promulgated under the Exchange Act with respect to any tender offer,
or taking any other legally required action.
'Transaction Proposal' means any bona fide inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or purchase of more
than 50% of the aggregate assets of the Company and its subsidiaries, taken as a
whole, or more than 50% of the voting power of the shares of Panavision Common
Stock then outstanding or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company, other than the transactions contemplated by the Recapitalization
Agreement.
'Superior Proposal' means any proposal determined by the Board of Directors
of the Company in good faith, after consultation with outside counsel, to be a
bona fide proposal and made by a third party to acquire, directly or indirectly,
for consideration consisting of cash, property or securities, more than 50% of
the voting power of the shares of Panavision Common Stock then outstanding or
all or substantially all the assets of the Company and otherwise on terms which
the Board of Directors of the Company determines in its good faith judgment,
after consultation with outside counsel and with a financial advisor of
nationally recognized reputation, to be more favorable to the Company's
stockholders than the Merger (taking into account all factors relating to such
proposal deemed relevant by the Company Board, including, without limitation,
the financing of such proposal and all other conditions to closing).
REDEEMABLE PREFERRED STOCK
Until the closing, the Company will reserve 130,000 shares of Redeemable
Preferred Stock, free and clear of any lien or encumbrance thereon.
AFFILIATE LETTERS
Prior to the closing date, the Company will deliver to PX Holding and
Merger Sub a letter identifying all persons who are, at the time the
Recapitalization Agreement is submitted for approval to the stockholders of the
Company, 'affiliates' of the Company for purposes of Rule 145 under the
Securities Act.
REPORTS
The Company will provide PX Holding with monthly financial statements.
STOCKHOLDER MEETING
The Company, in accordance with applicable law, will (i) call a meeting as
soon as practicable following the execution of the Recapitalization Agreement
and (ii) prepare and file with the Commission a preliminary proxy statement
relating to the Recapitalization Agreement.
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EMPLOYEE BENEFIT ARRANGEMENTS
As of the Effective Time, the Surviving Corporation will honor and satisfy
all obligations and liabilities with respect to the Plans (as defined in the
Recapitalization Agreement). For a period of eighteen months following the
Effective Time, the Surviving Corporation will continue the employee benefit
plans, programs and arrangements which are currently provided by the Company;
provided that notwithstanding anything in the Recapitalization Agreement to the
contrary, the Surviving Corporation shall not be required to maintain any
individual plan or program so long as the benefit plan and agreements maintained
by the Surviving Corporation are, in the aggregate, not materially less
favorable than those provided by the Company immediately prior to the date of
the Recapitalization Agreement.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of PX Holding, Merger Sub and the Company to
consummate the Merger are subject to certain conditions, including the
following: (i) the requisite approval of the stockholders of the Company (the
'Stockholder Approval'); (ii) the Form S-4, of which this Proxy Statement
constitutes a part, shall have been declared effective by the Commission under
the Securities Act and not being the subject of any stop order or proceedings
seeking a stop order, and any material 'blue sky' and other state securities
laws applicable to the registration and qualification of shares of Panavision
Common Stock to be retained in the Merger shall have been complied with; (iii)
the receipt of a letter from an independent evaluation firm as to the solvency
of the Company and its subsidiaries, after giving effect to the transactions
contemplated by the Recapitalization Agreement; (iv) the absence of any order
given by a federal or state court or governmental or regulatory agency, or
preliminary or permanent injunction which would prevent the consummation of the
Merger or the Stock Purchase; (v) the absence of any federal or state rule or
regulation promulgated after the execution of the Recapitalization Agreement
which could result in any of the adverse consequences referred to in (iv) above;
(vi) the expiration or termination of the waiting periods, if any, applicable to
the transactions contemplated by the Recapitalization Agreement under the HSR
Act; and (vii) PX Holding shall have purchased and the Company shall have issued
and sold the shares of Panavision Common Stock as contemplated by the
Recapitalization Agreement.
The obligations of PX Holding and Merger Sub to effect the Merger are
subject to certain additional conditions, including the following: (i) the truth
and correctness of the representations and warranties of the Company (without
giving effect to the materiality, material adverse effect or knowledge
qualifications contained therein) unless the failure of such representations and
warranties, individually or in the aggregate, to be true and correct would
result in a material adverse effect and the receipt by PX Holding of a
certificate from the appropriate officer of the Company to the foregoing effect;
(ii) the performance by the Company in all material respects of all of the
obligations required to be performed by it under the Recapitalization Agreement;
(iii) a lien on the Company's intellectual property granted in connection with a
credit agreement shall have been released; (iv) the absence of a material
adverse effect on the Company; and (v) Warburg shall have exchanged 88% of the
Panavision Common Stock it owned for Redeemable Preferred Stock of the Company;
and (vi) each of William C. Scott, John S. Farrand and Jeffrey J. Marcketta
shall have exercised, prior to January 1, 1998, a number of Company Stock
Options reasonably determined by the Company as the amount necessary such that,
after giving effect to such exercise, no amount paid in respect of such Company
Stock Option upon consummation of the Merger shall be subject to the excise tax
imposed under Section 4999 of the Code.
Furthermore, the obligation of the Company to effect the Merger is subject
to certain additional conditions, including the following: (i) the truth and
correctness of the representations and warranties of PX Holding and Merger Sub
(without giving effect to the materiality, material adverse effect or knowledge
qualifications contained therein) unless the failure of such representations and
warranties, individually or in the aggregate, to be true and correct would
result in a material adverse effect and the receipt by the Company of a
certificate from the appropriate officers of PX Holding and Merger Sub to the
foregoing effect; and (ii) the performance by PX Holding and Merger Sub in all
material respects of all obligations required to be performed by it under the
Recapitalization Agreement.
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TERMINATION; AMENDMENTS; WAIVER
The Recapitalization Agreement and the transactions contemplated thereby
may be terminated at any time prior to the Effective Time, notwithstanding
approval of the stockholders of the Company, by: (i) the mutual written consent
of PX Holding and the Company, by action by their respective Boards of
Directors; (ii) PX Holding or the Company if the Merger shall not have been
consummated on or before the later of (a) April 30, 1998 and (b) 45 days after
the Commission has declared effective the Registration Statement (but in no
event later than June 30, 1998); provided, however, that neither PX Holding nor
the Company may terminate the Recapitalization Agreement if such party's failure
to perform any of its obligations under the Recapitalization Agreement results
in the failure of the transactions contemplated by the Recapitalization
Agreement to be consummated by such time; (iii) PX Holding or the Company if any
court or other governmental entity has issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable; (iv) the Company if, prior to the Closing, any person has
made a Transaction Proposal, provided, that PX Holding receives at least four
business days' prior written notice of such Transaction Proposal, and, during
such four business day period, the Company shall, and shall cause its financial
and legal advisors to, consider any adjustment in the terms and conditions of
the Recapitalization Agreement that PX Holding may propose (the 'Transaction
Proposal Termination Provision'); (v) PX Holding, if the Board of Directors
shall have (a) failed to recommend to the stockholders of the Company the
Stockholder Approval, (b) withdrawn or modified in a manner adverse to PX
Holding or Merger Sub its approval or recommendation of the Recapitalization
Agreement or the transactions contemplated thereby, (c) approved or recommended
a Transaction Proposal, or (d) resolved to effect any of the foregoing
(collectively, the 'Company Board Action Termination Provision'); or (vi) either
PX Holding or the Company, if the Stockholder Approval shall not have been
obtained by reason of the failure to obtain the required vote upon a vote held
at a duly held meeting of stockholders or at any adjournment thereof (the
'Stockholder Approval Termination Provision').
In the event of the termination of the Recapitalization Agreement pursuant
to any of the foregoing, such agreement shall become void and have no effect,
without any liability on the part of any party or its directors, officers or
stockholders, other than the provisions with regard to the confidentiality of
information furnished pursuant to the Merger, termination and fees and expenses,
which shall survive any such termination.
The Recapitalization Agreement may be amended by the Company, PX Holding
and Merger Sub at any time before or after any approval of the Recapitalization
Agreement by the stockholders of the Company but, after any such approval, no
amendment shall be made which decreases the consideration due to the Company's
stockholders pursuant to the Recapitalization Agreement or which adversely
affects the rights of the Company's stockholders thereunder without the approval
of such stockholders. The Recapitalization Agreement may not be amended except
by an instrument in writing signed on behalf of all the parties.
At any time prior to the Effective Time, PX Holding, Merger Sub and the
Company may (i) extend the time for the performance of any of the obligations or
other acts of the other, (ii) waive any inaccuracies in the representations and
warranties contained therein of the other or in any document, certificate or
writing delivered pursuant thereto by the other or (iii) waive compliance by the
other with any of the agreements or conditions. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
FEES AND EXPENSES
The parties shall bear their respective expenses incurred in connection
with the preparation, execution and performance of the Recapitalization
Agreement and the transactions contemplated thereby, whether or not the
transactions contemplated by the Recapitalization Agreement are consummated,
including, without limitation, all fees and expenses of their respective agents.
The prevailing party in any legal action undertaken to enforce the
Recapitalization Agreement or any provision thereof shall be entitled to recover
from the other party the costs and expenses (including attorneys' and expert
witness fees) incurred in connection with such action.
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CERTAIN PROVISIONS OF THE STOCKHOLDERS AGREEMENT WITH WARBURG
The following description of the Stockholders Agreement is necessarily a
summary thereof and is therefore qualified in its entirety by reference to the
Stockholders Agreement, a copy of which is attached to this Proxy Statement as
Annex II and incorporated herein by reference. Stockholders of Panavision are
urged to read the Stockholders Agreement in its entirety.
REPRESENTATIONS AND WARRANTIES
The Stockholders Agreement contains various representations and warranties
of Warburg relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions): (i) the ownership of certain shares of Panavision Common Stock;
(ii) the due authorization of Warburg to execute and deliver the Stockholders
Agreement and related matters; (iii) the absence of any conflicts with
organizational documents or contracts to which Warburg is a party and Warburg's
compliance with applicable law; and (iv) that Warburg currently has, and upon
the exercise of the options set forth below, shall sell, assign, transfer and
deliver to Mafco good, valid and marketable title to the Panavision Common
Stock.
The Stockholders Agreement also contains various representations and
warranties of Mafco relating to, among other things, the following matters
(which representations and warranties are subject, in certain cases, to
specified exceptions): (i) the due organization and good standing of Mafco; (ii)
the due authorization, execution and delivery of the Stockholders Agreement and
related matters; and (iii) the absence of any conflicts with the organizational
documents or contracts to which Mafco is a party and Mafco's compliance with
applicable law.
OPTIONS
Stock Option
For a period of one year beginning on the first anniversary of the
Effective Time of the Merger and ending on the second anniversary of the
Effective Time of the Merger, Warburg may exercise its option to require Mafco
to purchase Warburg's remaining shares for $25.00 per share and Mafco may
exercise its option to require Warburg to sell its remaining shares to Mafco for
$30.00 per share. As a result of proration, other Holders may be required to
retain shares of Panavision Common Stock without being party to a similar
option.
In the event that Holders of at least 88% of the shares of Panavision
Common Stock elect to receive cash for their shares, Warburg will exchange 88%
of its shares for Redeemable Preferred Stock and retain its remaining 1,526,040
shares of Panavision Common Stock. All of such remaining shares would be subject
to the Mafco Option and the Warburg Option. Under the Significant Share
Retention Alternative, Warburg will sell all of its shares in the Merger at
$26.50 per share, and, accordingly, no shares would be subject to such options.
THIRD PARTY BUSINESS COMBINATION; REMEDY
If (i) the Recapitalization Agreement is terminated in accordance with the
Transaction Proposal Termination Provision, the Company Board Action Termination
Provision or the Stockholder Approval Termination Provision thereof, or (ii) the
Recapitalization Agreement shall have been amended to increase the amount of
Merger Consideration, and if Warburg receives any consideration (the
'Alternative Consideration') in connection with (A) a Transaction Proposal or
(B) an amended Recapitalization Agreement, Warburg will pay to Mafco: (x) if
pursuant to the Transaction Proposal Termination Provision, the Company Board
Action Termination Provision or the Stockholder Approval Termination Provision
of the Recapitalization Agreement and the Alternative Consideration is greater
than $26.50, but not greater than $30.00 per share, the excess of such
Alternative Consideration over $26.50 multiplied by the number of shares with
respect to which Warburg received such Alternative Consideration; (y) if
pursuant to the Transaction Proposal Termination Provision, the Company Board
Action Termination Provision or the Stockholder Approval Termination Provision
of the Recapitalization Agreement of the Recapitalization Agreement and the
Alternative Consideration is greater than $30.00 per share, the amounts payable
as described in (x) above plus one half the portion of Alternative Consideration
exceeding $30.00 per share; (z) if pursuant to an amended Recapitalization
Agreement, an amount equal to any and all Alternative Consideration above $26.50
per share.
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AGREEMENT TO VOTE; PROXY
Warburg agreed to vote its shares of Panavision Common Stock, among other
things, for the Merger, and also granted to certain officers of Mafco an
irrevocable proxy with respect to such shares.
NO SOLICITATION
Prior to the Termination Date (the earlier of (i) the Effective Time of the
Merger and (ii) the date the Recapitalization Agreement is terminated in
accordance with its terms), Warburg will not, directly or indirectly, solicit or
respond to any inquiries or the making of any proposal of any person or entity
with respect to the Company that constitutes or could reasonably be expected to
lead to an Alternative Transaction (as defined in the Stockholders Agreement);
provided, however, that the foregoing shall not restrict Warburg or any of its
representatives on the Board of Directors from taking actions to the same extent
and in the same circumstances permitted by the Board of Directors and the
Company under the Recapitalization Agreement. See 'CERTAIN PROVISIONS OF THE
RECAPITALIZATION AGREEMENT--No Solicitation.'
RESTRICTION ON TRANSFER
Prior to the Termination Date, except pursuant to the terms of the
Recapitalization Agreement and the Stockholders Agreement, Warburg will not
transfer or offer to transfer any of its shares of Panavision Common Stock or
grant any proxies with respect to such shares.
REDEEMABLE PREFERRED STOCK
To the extent that Holders of more than 88% of the shares of Panavision
Common Stock elect to receive cash for their shares, immediately prior to the
consummation of the Merger, Warburg will exchange 88% of its shares of
Panavision Common Stock for Redeemable Preferred Stock, which will be redeemed
immediately upon consummation of the Merger at a price equivalent to $26.50 in
cash per share of Panavision Common Stock. The conversion of Warburg's shares
into Redeemable Preferred Stock simply serves as a mechanism to allow Warburg to
receive as consideration in the Merger $.50 per share less than the Holders. To
the extent fewer than 88% of the Holders' shares of Panavision Common Stock are
exchanged for cash, Warburg will increase the number of shares of Panavision
Common Stock it exchanges for Redeemable Preferred Stock, up to the remainder of
its shares of Panavision Common Stock. However, the number of shares of
Panavision Common Stock to be exchanged by Warburg for Redeemable Preferred
Stock will be reduced by the number, if any, of Purchaser Stock Purchase Shares
(as defined below).
PURCHASER STOCK PURCHASE
In connection with the Panavision Recapitalization, PX Holding intends to
purchase a $154 million equity interest in the Company. Pursuant to the
Recapitalization Agreement, if Holders of more than 2,271,420 shares of
Panavision Common Stock elect to retain such shares, PX Holding will not be able
to purchase a $154 million equity interest in the Company. In this circumstance,
Warburg will sell directly to PX Holding at $26.50 per share, in lieu of
exchanging for Redeemable Preferred Stock, a portion of its shares of Panavision
Common Stock (the 'Purchaser Stock Purchase Shares').
TAG-ALONG RIGHTS
If, at any time on or prior to December 31, 1999, Mafco intends to sell, in
a single transaction or a series of related transactions, more than 25% of the
shares of Panavision Common Stock it beneficially owns other than (i) to any of
its affiliates who agree to be bound by the Stockholders Agreement, (ii)
pursuant to a public offering pursuant to an effective registration statement
under the Securities Act or (iii) pursuant to a merger or similar acquisition
transaction, in which all the shares of Panavision Common Stock are to be
acquired, Mafco shall notify all other Company stockholders, in writing, of such
proposed Sale and its terms and conditions. Within twenty business days of the
date of such notice, each such stockholder shall notify Mafco if it elects to
participate in such Sale. Any stockholder that fails to notify Mafco within such
twenty business day period will be deemed to have waived his or her rights. Each
stockholder that so notifies Mafco shall have the right to sell, at the same
price and on the same terms and conditions as Mafco, an amount of Panavision
Common Stock equal to the
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number of Panavision Common Stock the third party actually proposes to purchase
multiplied by a fraction, the numerator of which shall be the number of shares
of Panavision Common Stock owned by such stockholder and the denominator of
which shall be the aggregate number of shares of Panavision Common Stock owned
by Mafco and each stockholder exercising his or her 'tag-along' rights.
INDEPENDENT DIRECTORS
The Stockholders Agreement provides that from and after the Effective Time
of the Merger until the date on which the Company shall no longer have any
public stockholders, Mafco and the Company shall take all action within their
respective power to include on the Board two directors, each of whom is (i)
considered to be an independent director pursuant to the rules of the NYSE and
(ii) is not an officer or employee of any company affiliated with Mafco.
TERMINATION
The Termination Date is the earlier of (i) the Effective Time of the Merger
and (ii) the date the Recapitalization Agreement is terminated in accordance
with its terms.
RESTRICTIONS ON TRANSFER
During the period of time between (i) the Effective Time of the
Recapitalization Agreement and (ii) the expiration of the Option Period, Warburg
will not transfer or offer to transfer any or all of its shares of Panavision
Common Stock, except to certain affiliates.
REGULATORY APPROVALS
The Merger is subject to the expiration or termination of the applicable
waiting period under the HSR Act. Certain aspects of the Merger will require
notification to, and filings with, certain securities and other authorities in
certain states, including jurisdictions where the Company currently operates.
ANTITRUST
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and the
applicable waiting period has expired or been terminated. On February 4, 1998,
Warburg and Mr. Perelman filed Notification and Report Forms under the HSR Act
with the FTC and the Antitrust Division. By Letter dated February 13, 1998, the
FTC notified Warburg and Mr. Perelman that their request for early termination
of the waiting period under the HSR Act was granted effective as of such date.
At any time before or after consummation of the Merger, notwithstanding that
early termination of the waiting period under the HSR Act has been granted, the
Antitrust Division or the FTC could take such action under the antitrust laws as
it deems necessary or desirable in the public interest, including seeking to
enjoin the consummation of the Merger or seeking divestiture of substantial
assets of the Company. At any time before or after the Effective Time, and
notwithstanding that early termination of the waiting period under the HSR Act
has been granted, any state could take such action under the antitrust laws as
it deems necessary or desirable in the public interest. Such action could
include seeking to enjoin the consummation of the Merger or seeking divestiture
of substantial assets of the Company. Private parties may also seek to take
legal action under the antitrust laws under certain circumstances.
Based on information available to them, the Company and Merger Sub believe
that the Merger can be effected in compliance with federal and state antitrust
laws. However, there can be no assurance that a challenge to the consummation of
the Merger on antitrust grounds will not be made or that, if such a challenge
were made, the Company and Merger Sub would prevail or would not be required to
accept certain adverse conditions in order to consummate the Merger.
MERGER SUB, PX HOLDING AND MAFCO
PX Holding, an indirect wholly owned subsidiary of Mafco, and Merger Sub, a
wholly owned subsidiary of PX Holding, were organized in connection with the
Merger and have not carried on any activities to date other than those incident
to their formation and transactions contemplated by the Recapitalization
Agreement and the Stockholders Agreement, respectively. The principal offices of
PX Holding and Merger Sub, are located at 35 East 62nd Street, New York, New
York 10021; telephone number (212) 527-8600.
63
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 1, 1998, certain information
regarding the beneficial ownership of Panavision Common Stock by (i) each of the
Company's executive officers, (ii) each Director of the Company, (iii) each
nominee for election as a Director of the Company, (iv) each person who is known
to the Company to own beneficially more than 5% of the Common Stock and (v) all
officers and Directors of the Company as a group. Such information is based, in
part, upon information provided by certain stockholders of the Company. In the
case of persons other than the officers and Directors of the Company, such
information is based solely on a review of Schedules 13D and 13G filed with the
Commission. As of May 1, 1998 there were 45 holders of record of Panavision
Common Stock.
<TABLE>
<CAPTION>
PRIOR TO MERGER POST-MERGER(1)
---------------------------------- ----------------------------------
PERCENTAGE PERCENTAGE
NUMBER OF OF SHARES NUMBER OF OF SHARES
SHARES BENEFICIALLY BENEFICIALLY SHARES BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(2)(3) OWNED(2)(4) OWNED(2) OWNED(2)
- ------------------------------------------------ ------------------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
Ronald O. Perelman(5)
35 East 62nd Street
New York, New York 10021...................... 12,717,000 67.2% 5,784,199 71.8%
Warburg, Pincus Capital Company, L.P.(6)
466 Lexington Avenue
New York, New York 10017...................... 12,717,000 67.2 1,526,040 18.9
William C. Scott
Panavision Inc.
885 Third Avenue--Suite 3020
New York, New York 10022...................... 1,262,508 6.7 139,332 1.7
The Kaufmann Fund, Inc.
140 East 45th Street--43rd Floor
New York, New York 10017...................... 1,000,000 5.3 120,000 1.5
John S. Farrand................................. 702,600 3.7 84,312 1.0
Jeffrey J. Marcketta............................ 268,430 1.4 30,276 *
Christopher M.R. Phillips....................... 15,601 * 60 *
Sidney Lapidus(7)............................... 12,717,000 67.2 1,526,040 18.9
Martin D. Payson................................ 11,200 * -- --
Willis G. Ryckman............................... 1,200 -- -- --
Joanne R. Wenig................................. -- -- -- --
Howard Gittis................................... -- -- -- --
James R. Maher.................................. -- -- -- --
Joseph P. Page.................................. -- -- -- --
Kenneth Ziffren................................. -- -- -- --
All directors and executive officers as a group 14,978,539 79.1 7,564,219 93.9
(8 persons)...................................
</TABLE>
The foregoing persons have sole voting and investment power, unless
otherwise indicated below.
- ------------------
* Less than 1%.
(1) Assumes 88% of the shares of Panavision Common Stock are exchanged for cash.
(2) Except as otherwise indicated, the persons in this table have sole voting
and investment power with respect to all shares of Panavision Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and subject to the information contained in the footnotes
to this table. Mr. Scott has shared investment power with respect to 6,000
shares of Panavision Common Stock.
(Footnotes continued on next page)
64
<PAGE>
(Footnotes continued from previous page)
(3) Amounts shown for each stockholder include all shares of Panavision Common
Stock subject to stock options for 101,408, 0, 16,130, 15,101, 1,200 and
1,200 shares of Panavision Common Stock granted to Messrs. Scott, Farrand,
Marcketta, Phillips, Payson and Ryckman exercisable within 60 days. Not
included are 265,273, 306,812, 103,184, 27,975, 4,800, 4,800 and 6,000
shares of Panavision Common Stock subject to options granted to Messrs.
Scott, Farrand, Marcketta Phillips, Payson and Ryckman and Ms. Wenig
respectively, that would not be exercisable within 60 days, but for the
consummation of the Merger.
(4) Based upon 18,928,500 shares of Panavision Common Stock outstanding as of
December 31, 1997. Shares not outstanding but deemed beneficially owned by
virtue of the right of a person or group to acquire them within 60 days are
treated as outstanding only for purposes of determining the number of and
percent owned by such person or group.
(5) All of the shares indicated as owned by Mr. Perelman are beneficially owned,
pursuant to the Stockholders Agreement, by Mafco Holdings, a wholly owned
subsidiary of Mr. Perelman, and accordingly, Mr. Perelman may be deemed to
have beneficial ownership of such shares.
(6) The sole general partner of Warburg (together with its wholly owned
subsidiaries, 'Warburg, Pincus') is Warburg, Pincus & Co., a New York
general partnership ('WP'). E.M. Warburg, Pincus & Co., LLC, a New York
limited liability company ('EMW LLC'), manages Warburg. The members of EMW
LLC are substantially the same as the partners of WP. Lionel I. Pincus is
the managing partner of WP and the managing member of EMW LLC and may be
deemed to control both WP and EMW LLC. WP, as the sole general partner of
Warburg, has a 20% interest in the profits of Warburg. Mr. Lapidus, a
director of the Company, is a Managing Director and a member of EMW LLC and
a general partner of WP. As such, Mr. Lapidus may be deemed to have an
indirect pecuniary interest (within the meaning of the Exchange Act) in an
indeterminate portion of the shares beneficially owned by Warburg and WP.
See Note 7 below.
(7) All of the shares indicated as owned by Mr. Lapidus are owned by Warburg,
Pincus and are included because of his affiliation with Warburg, Pincus. Mr.
Lapidus disclaims 'beneficial ownership' of these shares within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934. The address of Mr.
Lapidus is c/o Warburg, Pincus Capital Company, L.P., 466 Lexington Avenue,
New York, NY 10017.
NOMINEES FOR ELECTION AS DIRECTORS OF PANAVISION
Upon the consummation of the transactions contemplated by the
Recapitalization Agreement, PX Holding will have the right to designate all
members of the Company's Board of Directors. If the Recapitalization Agreement
is approved and adopted by the Panavision stockholders and the Merger is
consummated, all of the nominees, if elected, will become the directors of
Panavision immediately after the Effective Time and are expected to serve from
such time until the next succeeding annual meeting of stockholders. If the
Recapitalization Agreement is not approved, the Merger is not consummated or the
nominees are not elected at the Meeting, an annual meeting of stockholders for
1998 will be scheduled in the near future. Directors of the Company will be
elected by a plurality vote of the outstanding shares of Panavision Common Stock
present in person or represented by proxy at the Meeting. Under applicable
Delaware law, in tabulating the votes, abstentions from voting on the election
of Directors (including broker non-votes) will be disregarded and have no effect
on the outcome of the vote.
The Board of Directors has been informed that all persons listed below are
willing to serve as Directors, but if any of them should decline or be unable to
act as a Director, the individuals named in the proxies will vote for the
election of such other person or persons as they, in their discretion, may
choose. The Board of Directors has no reason to believe that any such nominees
will be unable or unwilling to serve.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION
OF EACH OF THE NOMINEES LISTED HEREIN FOR DIRECTOR.
65
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS
The name, age (as of May 1, 1998), principal occupation for the last five
years, selected biographical information and period of service as a Director of
the Company of each of the nominees for Director are set forth hereafter.
Ronald O. Perelman (55) has been Chairman of the Board of Directors and
Chief Executive Officer of Mafco and various affiliates since 1980. Mr. Perelman
also is Chairman of the Executive Committees of the Boards of Directors of
Consolidated Cigar Holdings Inc. ('Cigar Holdings'), M&F Worldwide Corp.
('MFW'), Revlon, Inc. ('Revlon') and Revlon Consumer Products Corporation
('Products Corporation') and Chairman of the Board of Meridian Sports
Incorporated ('Meridian'). Mr. Perelman is a Director of the following
corporations which file reports pursuant to the Exchange Act: California Federal
Bank, A Federal Savings Bank ('California Federal'), Cigar Holdings, First
Nationwide Holdings Inc. ('FN Holdings'), First Nationwide (Parent) Holdings
Inc. ('FN Parent'), MFW, Meridian, Products Corporation, Revlon and REV Holdings
Inc. ('REV Holding'). (On December 27, 1996, Marvel Entertainment Group, Inc.
('Marvel'), Marvel (Parent) Holdings Inc. ('Marvel Parent') and Marvel Holdings
Inc. ('Marvel Holding'), of which Mr. Perelman was a Director, Marvel III
Holdings Inc., of which Mr. Perelman is a director, and several subsidiaries of
Marvel filed voluntary petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code.)
William C. Scott (64) has been the Chairman and Chief Executive Officer of
the Company since 1988. From 1972 until 1987, Mr. Scott was President and Chief
Operating Officer of Western Pacific Industries Inc., a company listed on the
New York Stock Exchange. Prior to 1972, Mr. Scott was a Group Vice President of
Cordura Corporation (a business information company) for three years, a Vice
President of Booz Allen & Hamilton Inc. (management consulting firm) for five
years and an owner/operator of several small businesses for eight years. Mr.
Scott is also a director of Edison Control Corporation.
John S. Farrand (53) has been the President and Chief Operating Officer of
the Company since 1985 and a director of the Company since October 1996. From
1980 to 1985, Mr. Farrand was employed by Warner Communications Inc. in several
senior executive positions. He was President of their Atari Coin-Operated Games
Division and subsequently was appointed President and Chief Operating Officer of
Atari Holdings, Inc. Prior to 1980, Mr. Farrand spent 14 years with Music Hire
Group Limited, a U.K. company specializing in coin-operated music systems (juke
boxes), and from 1973 to 1980 served as Managing Director. Mr. Farrand is a
member of the Academy of Motion Picture Arts and Sciences, a member of the
Society of Motion Picture and Television Engineers and an associate member of
the American Society of Cinematographers.
Howard Gittis (64) has been Vice Chairman of Mafco and various of its
affiliates since 1985. Mr. Gittis is a Director of the following corporations
which file reports pursuant to the Exchange Act: Aames Financial Corporation,
California Federal, Cigar Holdings, FN Holdings, FN Parent, MFW, Products
Corporation, Revlon, REV Holdings, Jones Apparel Group, Inc., Loral Space &
Communications Ltd. and Rutherford-Moran Oil Corporation.
James R. Maher (48) has been President and Chief Executive Officer of Mafco
Consolidated Group, Inc. since 1995. Mr. Maher was Chairman of the Board of
Laboratory Corporation of America Holdings ('Lab Corp.'), a clinical laboratory
company, from 1995 to April 1996 and was President and Chief Executive Officer
of National Health Laboratories Holdings Inc., a clinical laboratory company and
a predecessor to Lab Corp, from 1992 to 1995. Mr. Maher was Vice Chairman of the
First Boston Corporation, an investment bank, from 1990 to 1992 and a Managing
Director of the First Boston Corporation from 1982 to 1990. Mr. Maher is a
Director of First Brands Corporation which files reports pursuant to the
Exchange Act.
Joseph P. Page (44) was Executive Vice President and Chief Financial
Officer of The Coleman Company, Inc. from mid-1997 to March 30, 1998 and was
Executive Vice President and Chief Financial Officer of New World Communications
Group Inc. from 1994 to 1996. Prior to that, Mr. Page was a partner in the
accounting firm of Price Waterhouse for more than five years.
Martin D. Payson (62) has been a director of the Company since November
1996. Mr. Payson has been active in investment and philanthropic activities
since December 1992. From January 1990 to December 1992, he was Vice Chairman of
the Board of Directors of Time Warner, Inc., and from 1970 to December 1990, he
was an
66
<PAGE>
executive officer of Warner Communications Inc. Mr. Payson is a director of
Bestform Group, Inc., Meridian, Delta Financial Corporation and Unapix
Entertainment, Inc.
Kenneth Ziffren (57) has been a partner with the law firm of Ziffren,
Brittenham, Branca & Fischer since 1979. Mr. Ziffren is a director of City
National Corp.
BOARD COMMITTEES AND MEETINGS
Messrs. Scott and Farrand, officers of the Company, and Mr. Lapidus receive
no remuneration for serving on the Board of Directors. Each of the other
independent Directors receive an annual fee of $20,000 and a meeting fee of
$1,000 for each of the Board of Directors or Committee meetings attended. All
directors will be reimbursed for out-of-pocket expenses. Under the Company's
First Amended and Restated Stock Option Plan, the Company may, from time to time
and in the sole discretion of the Board of Directors, grant options to
directors. During 1997, members of the Board of Directors received $69,000 in
directors' fees.
During 1997, the Board of Directors met seven times and took actions by
unanimous written consent on other occasions.
The Company has, as standing committees, an Audit Committee, a Stock Option
Committee and a Compensation Committee. The Company does not have a Nominating
Committee.
The current members of the Audit Committee are Messrs. Payson and Ryckman.
The Audit Committee provides assistance to the Board of Directors with respect
to corporate accounting, reporting practices of the Company and the quality and
integrity of the financial reports of the Company. The Audit Committee
recommends to the Board of Directors the engagement of the independent auditors
of the Company and oversees audits and investigations of the business and
financial affairs of the Company, including, without limitation, any audits or
investigations which may be required by any governmental regulatory authority.
The current members of the Stock Option Committee are Messrs. Payson and
Ryckman. The Stock Option Committee is the committee responsible for
administering the Stock Option Plan and has the authority to grant awards to
individuals pursuant to the Stock Option Plan, to determine the number of awards
to be so granted, the term of such awards, any vesting requirements and any
other administrative determinations required in connection therewith.
The current members of the Compensation Committee are Messrs. Scott and
Lapidus and Ms. Wenig. The Compensation Committee provides assistance to the
Board of Directors to ensure that the Company's officers, key executives and
Directors are compensated in accordance with the Company's total compensation
objectives and executive compensation policies, strategies and pay levels
necessary to support organizational objectives.
In 1997, the Audit Committee, Stock Option Committee and Compensation
Committee met following regularly scheduled meetings of the Board of Directors.
The Stock Option Committee and Audit Committee each took actions by unanimous
written consent.
After the consummation of the Recapitalization, it is expected that the
Company's Board of Directors will act to appoint new members to the Audit, Stock
Option and Compensation committees.
EXECUTIVE OFFICERS
The executive officers serve at the discretion of the Board of Directors.
The following table sets forth certain information concerning the executive
officers of the Company (as of May 1, 1998) who are expected to serve in such
capacity until the consummation of the Recapitalization (none of whom has a
family relationship with another executive officer):
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ---------------------------------------------------------
<S> <C> <C>
William C. Scott............ 64 Chairman of the Board and Chief Executive Officer
John S. Farrand............. 53 President and Chief Operating Officer
Jeffrey J. Marcketta........ 43 Executive Vice President and Chief Financial Officer
Christopher M.R.
Phillips ................... 38 Controller and Secretary
</TABLE>
67
<PAGE>
William C. Scott has been the Chairman and Chief Executive Officer of the
Company since 1988. From 1972 until 1987, Mr. Scott was President and Chief
Operating Officer of Western Pacific Industries Inc., a company listed on the
New York Stock Exchange. Prior to 1972, Mr. Scott was a Group Vice President of
Cordura Corporation (a business information company) for three years, a Vice
President of Booz Allen & Hamilton Inc. (management consulting firm) for five
years and an owner/operator of several small businesses for eight years. Mr.
Scott is also a director of Edison Control Corporation.
John S. Farrand has been the President and Chief Operating Officer of the
Company since 1985. From 1980 to 1985, Mr. Farrand was employed by Warner
Communications Inc. in several senior executive positions. He was President of
their Atari Coin-Operated Games Division and subsequently was appointed
President and Chief Operating Officer of Atari Holdings, Inc. Prior to 1980, Mr.
Farrand spent 14 years with Music Hire Group Limited, a U.K. company
specializing in coin-operated music systems (juke boxes), and from 1973 to 1980
served as Managing Director. Mr. Farrand is a member of the Academy of Motion
Picture Arts and Sciences, a member of the Society of Motion Picture and
Television Engineers and an associate member of the American Society of
Cinematographers.
Jeffrey J. Marcketta has been Executive Vice President and Chief Financial
Officer of the Company since 1993 and Treasurer since 1996. From 1991 to 1993,
Mr. Marcketta served as the President of Panavision Europe Limited, a wholly
owned subsidiary of the Company, and was responsible for the general management
of the Company's European operations. From 1989 until 1991, he was Vice
President of Corporate Development, assisting the Chief Executive Officer in the
restructuring and rationalization of the Company's business operations. Prior to
joining the Company in 1989, he worked for Ernst & Young LLP for almost ten
years, the last three of which were spent in the Mergers and Acquisitions
Consulting Group of the New York office.
Christopher M.R. Phillips has served as Controller of the Company since
1993 and Secretary since 1996. Mr. Phillips was the controller for the domestic
operations of the Company from 1989 to 1993 and the assistant controller for the
domestic operations of the Company from 1986 to 1989.
68
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation paid to
or accrued by all the executive officers of the Company for each of the last
three completed fiscal years. Compensation accrued during one year and paid in
another is recorded under the year of accrual.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -----------------------------
---------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS(#) COMPENSATION(3)
- ---------------------------------- ---- -------- ---------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William C. Scott ................. 1997 $800,000 $ 400,000 $ -- -- $ 7,125
Chairman of the Board and 1996 800,000 400,000 -- 576,681 7,125
Chief Executive Officer 1995 600,000 1,172,000 -- -- 6,930
John S. Farrand .................. 1997 $600,000 $ 300,000 $ -- -- $ 7,125
President and Chief Operating 1996 600,000 359,400 54,163(2) 726,812 7,125
Officer 1995 400,000 785,000 -- -- 6,930
Jeffrey J. Marcketta ............. 1997 $240,423 $ 180,317 -- -- $ 7,125
Executive Vice President, 1996 228,846 201,335 27,081(2) 224,314 7,125
Chief Financial Officer and 1995 218,769 314,000 -- -- 6,930
Treasurer
Christopher M. R. Phillips ....... 1997 $111,058 $ 51,577 $ -- -- $ 7,125
Controller and Secretary 1996 99,615 24,904 -- 43,076 6,504
1995 88,077 45,000 -- 4,842
</TABLE>
- ------------------
(1) Bonuses are paid pursuant to the Company's Executive Incentive Compensation
Plan (the 'Executive Incentive Compensation Plan'), in which the Chairman and
Chief Executive Officer is eligible to participate, as well as any other
employees selected by the Chief Executive Officer. The plan allows participants
to earn bonuses up to a stated percentage of their base salary. The bonuses were
paid in part based on the Company's achievement of operating results, and in
part based on achievement of individual goals established for the participant.
Mr. Farrand's and Mr. Marcketta's 1996 bonus also reflects the issuance of
shares of Panavision Common Stock (the '1996 Recapitalization Stock') at the
time of the Company's 1996 Recapitalization, which shares at such time had a
fair market value of $59,400 and $29,700, respectively.
(2) Consists of tax reimbursement payments relating to the 1996 Recapitalization
Stock.
(3) Consists of matching contributions by the Company under its 401(k) plan.
OPTION GRANT TABLE
No stock options were granted to any named executive officers during the
last fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number of shares as to which options
were exercised by Messrs. Scott, Farrand, Marcketta and Phillips during 1997,
the value realized upon such exercise, and the number and value of options held
by such persons as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) AT FY-END($)(1)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William C. Scott............... 210,000 $ 5,216,925 101,408 265,273 $ 2,617,594 $ 6,847,359
John S. Farrand................ 420,000 $10,533,850 0 306,812 0 7,919,585
Jeffrey J. Marcketta........... 105,000 $ 2,608,463 16,130 103,184 416,356 2,663,437
Christopher M.R. Phillips...... 0 0 15,101 27,975 389,795 722,105
</TABLE>
- ------------------
(1) Based on a closing price of $25.8125 per share of Panavision Common Stock on
December 31, 1997.
69
<PAGE>
MANAGEMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
William C. Scott. Pursuant to an employment agreement with the Company,
William C. Scott serves as Chairman of the Board of Directors and Chief
Executive Officer of the Company at an annual salary of $800,000, subject to
annual increases as determined by the Company. The employment agreement provides
that Mr. Scott shall be granted bonuses pursuant to the Executive Incentive
Compensation Plan and Non-Statutory Options pursuant to the terms of the Stock
Option Plan. The employment agreement expires on June 11, 1999. The Company may
terminate the employment agreement for cause. In the event of Mr. Scott's
voluntary termination (except during the six-month period commencing six months
after a change of control) or termination for cause by the Company, the Company
shall pay Mr. Scott only an amount equal to his annual base salary and all
previously unreimbursed expenses. Upon a voluntary termination by Mr. Scott
during such six-month period commencing six months after a change of control, or
upon termination of Mr. Scott's employment by the Company without good cause or
by Mr. Scott for good reason, Mr. Scott is entitled to the greater of (x)
$1,600,000 or (y) twice his annual base salary, and all accrued but previously
unpaid salary, bonuses and unreimbursed expenses through the date of
termination. Mr. Scott intends to terminate such contract prior to the Merger
and, accordingly, upon such termination will not be entitled to any payments
thereunder. Upon a termination of Mr. Scott by death or disability, the Company
shall make a lump sum payment equal to the greater of $800,000 or Mr. Scott's
base salary currently then in effect, as well as all accrued but previously
unpaid salary, bonuses and unreimbursed, expenses through the date of
termination.
The employment agreement contains a covenant prohibiting the improper
disclosure and use of the Company's confidential information. In addition, the
employment agreement contains a covenant prohibiting Mr. Scott from directly or
indirectly competing with the Company. This covenant expires two years following
Mr. Scott's voluntary termination.
John S. Farrand. The Company has entered into an employment agreement with
Mr. Farrand pursuant to which he is entitled to receive, upon termination of his
employment by the Company (other than for cause or upon his death or
disability), severance payments equal to the greater of (i) $600,000 or (ii) his
annual base salary in effect at the time.
Jeffrey J. Marcketta. The Company has entered into an employment agreement
with Mr. Marcketta pursuant to which he is entitled to receive, upon termination
of his employment by the Company (other than for cause or upon his death or
disability), severance payments equal to the greater of (i) $237,500 or (ii) his
annual base salary in effect at the time.
Messrs. Farrand and Marcketta intend to waive their rights to receive
severance payments upon termination of employment as described above prior to
the Effective Time.
COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
No officer or employee of the Company, other than Messrs. Scott and
Farrand, who serve on the Board of Directors of the Company, participated in the
deliberations of the Board of Directors of the Company concerning executive
compensation.
The Stock Option Committee and the Compensation Committee were formed on
May 8, 1996, upon the consummation of the 1996 Recapitalization. Set forth below
is a description of the policies and practices that the Compensation Committee
will implement with respect to future compensation determinations.
Compensation Philosophy. The Company's compensation program is designed to
attract, reward and retain highly qualified executives and to encourage the
achievement of business objectives and superior corporate performance. The
program ensures the Board of Directors and stockholders that (1) the achievement
of the overall goals and objectives of the Company can be supported by adopting
an appropriate executive compensation policy and implementing it through an
effective total compensation program and (2) the total compensation program and
practices of the Company are designed with full consideration of all accounting,
tax, securities law and other regulatory requirements and are of the highest
quality.
The Company's executive compensation program consists of two key elements:
(1) an annual compensation component composed of base salary and bonus, and (2)
a long-term compensation component composed of equity-based awards pursuant to
the Stock Option Plan.
70
<PAGE>
Annual Compensation. Base salaries will be determined by evaluating the
responsibilities associated with the position being evaluated and the
individual's overall level of experience. In addition, the compensation of the
Chief Executive Officer determined by the Compensation Committee is subject to
the terms of Mr. Scott's existing employment agreement. Annual salary
adjustments will be determined by giving consideration to the Company's
performance and the individual's contribution to that performance.
Bonuses are paid pursuant to the Company's Executive Incentive Compensation
Plan, in which the Chairman and Chief Executive Officer is eligible to
participate, as well as any other employees selected by the Chief Executive
Officer. The plan allows participants to earn bonuses up to a stated percentage
of their base salary. The bonuses are paid in part based on the Company's
achievement of operating results, and in part based on achievement of individual
goals established for the participant.
With the exception of Mr. Phillips, all of the Company's named executive
officers are currently under employment contracts. See 'Management Contracts and
Change in Control Agreements.' The annual compensation for Messrs. Marcketta and
Phillips and the bonus portion of Mr. Scott's annual compensation will be based
upon the considerations noted above. Mr. Scott's base salary is determined
pursuant to his employment agreement.
Long-term Compensation. In order to align stockholder and executive
officer interests, the long-term component of the Company's executive
compensation program utilizes equity-based awards whose value is directly
related to the value of the Panavision Common Stock. These equity-based awards
will be granted by the Stock Option Committee pursuant to the Stock Option Plan.
Individuals to whom equity-based awards are to be granted and the amount of
Panavision Common Stock related to equity-based awards will be determined solely
at the discretion of the Stock Option Committee. Because individual equity-based
award levels will be based on a subjective evaluation of each individual's
overall past and expected future contribution, no specific formula is used to
determine such awards for any executive.
Tax Deductibility of Executive Compensation. Section 162(m) of the Code
limits the tax deductibility of compensation in excess of $1 million paid to
certain members of senior management, unless the payments are made under a
performance-based plan as defined in Section 162(m). The Company's general
policy is to structure its compensation programs to preserve the tax
deductibility of compensation paid to its executive officers and other members
of management. All compensation paid pursuant to the Stock Option Plan is
intended to be exempt from the application of Section 162(m). Although Messrs.
Scott's and Farrand's total annual salary and bonus in 1997 exceeded $1 million,
such amounts were exempt from the application of Section 162(m) because of
certain grandfather provisions and therefore are fully deductible by the
Company. While the Company currently intends to pursue a strategy of maximizing
deductibility of senior management compensation, it also believes it is
important to maintain the flexibility to take actions it considers to be in the
best interests of the Company and its stockholders, which may be based on
considerations in addition to Section 162(m).
COMPENSATION COMMITTEE STOCK OPTION COMMITTEE
- ----------------------- -----------------------
William C. Scott Martin D. Payson
Sidney Lapidus Willis G. Ryckman
Joanne R. Wenig
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last completed fiscal year, Messrs. Scott and Lapidus and Ms.
Wenig served as members of the Compensation Committee. Mr. Scott is Chief
Executive Officer of the Company.
COMPARATIVE STOCK PERFORMANCE GRAPH
The graph below compares the total cumulative return of the Panavision
Common Stock from November 21, 1996 (the date trading of the Panavision Common
Stock commenced) through December 31, 1997, to the Standard & Poor's 500 Index
and the Russell 2000 Index. The graph assumes that dividends were reinvested and
is based on an investment of $100 on November 20, 1996.
71
<PAGE>
[CHART]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------
11/20/96 12/31/96 12/31/97
-------- -------- --------
<S> <C> <C> <C>
Panavision Inc................................. $100 $ 122.06 $ 151.84
Standard & Poor's 500 Index.................... 100 99.57 130.23
Russell 2000................................... 100 104.34 125.75
</TABLE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In May 1996, the Company effected a recapitalization, pursuant to which it
acquired all of the equity interests in PILP it did not previously own and
retired all of PILP's outstanding debt securities for a total of $126.1 million
in cash (the 'PILP Recapitalization'). As part of the PILP Recapitalization:
(i) Warburg, Pincus and Messrs. Scott, Farrand and Marcketta
contributed $11,608,000, $580,400, $165,829 and $82,914, respectively, to
the Company for subordinated demand notes which had an interest rate of
6.83% per annum and ranked pari passu with each other. The notes to Messrs.
Scott, Farrand and Marcketta were issued on May 8, 1996. The notes to
Warburg, Pincus were issued on May 8, July 16, and July 31, 1996. Mr.
Lapidus is a Managing Director of Warburg, Pincus which holds 67.2% of the
shares of Panavision Common Stock;
(ii) Mr. Scott exchanged his interests in PILP for 989,100 shares of
Panavision Common Stock;
(iii) Messrs. Farrand and Marcketta were issued 282,600 and 141,300
shares of Panavision Common Stock, respectively; and
(iv) the Company, Warburg, Pincus and Messrs. Scott, Farrand and
Marcketta entered into an Amended and Restated Stockholders Agreement dated
June 12, 1996 (the 'PILP Stockholder Agreement'), pursuant to which the
parties have agreed to cause the Board of Directors to include (i) three
persons designated by Warburg, Pincus, (ii) William C. Scott or, if he is
not an employee of the Company or is otherwise unavailable, one person
designated by the holders of a majority of the shares of Panavision Common
Stock held by management who are then employed by the Company and (iii)
John S. Farrand or, if he is not an employee of the Company or is otherwise
unavailable, one person designated by the holders of a majority of the
shares of Panavision Common Stock held by management who are then employed
by the Company. The PILP Stockholders Agreement imposes certain
restrictions on the transfer of shares of Panavision Common Stock by the
management stockholders prior to the second anniversary of the initial
public offering. The PILP Stockholders Agreement also provides such
stockholders with certain registration rights. The PILP Stockholders
Agreement terminates on the date when Warburg, Pincus and its affiliates
beneficially own less than 5% of the outstanding shares of Panavision
Common Stock.
72
<PAGE>
Effective July 1, 1996, Warburg, Pincus acquired substantially all of the
assets of Lee Lighting Limited for approximately $8.0 million and contributed
those assets to the Company. The purchase price equaled the book value of the
acquired assets.
Mr. Farrand, an executive officer of the Company, is the obligor in respect
of a promissory demand note issued to the Company in January 1987. The principal
amount of and accrued interest on this note were $540,000 and $38,681,
respectively, as of December 31, 1997. The note accrues interest at a rate of
7.04% per annum, and, as of December 31, 1997, no payments of principal had been
made. This note was originally issued in connection with Mr. Farrand's purchase
of a residence and is secured by a portion of Mr. Farrand's Panavision Common
Stock and options therefor.
In December 1997, in order to facilitate the payment of taxes related to
the exercise of options issued pursuant to the Panavision Stock Option Plan, the
Company made advances to certain officers and key employees in the form of
notes. Notes were issued by Messrs. Scott, Farrand and Marcketta in the amount
of $2,152,503, $3,698,800 and $924,700, respectively. The notes are recourse
obligations and mature on the earlier of December 24, 2000 or the date of
consummation of the Panavision Recapitalization. Interest on the notes is
compounded semiannually at the applicable federal rate in effect on the date the
notes were issued.
Certain executive management services have been provided by the Company to
Lee International, Inc. ('LII'), an indirect, wholly owned subsidiary of
Warburg, Pincus. The amount received by the Company from LII was $996,000,
$854,000, $687,000 and $510,000 for the years ended December 31, 1993, 1994,
1995 and 1996, respectively. The amounts received have been offset against
selling, general and administrative expenses in the Company's consolidated
statement of income. The agreement with LII expired on September 30, 1996.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company's executive officers, directors and ten percent stockholders
are required under Section 16(a) of the Exchange Act, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Commission and
the New York Stock Exchange. Copies of these reports must also be furnished to
the Company. Based solely upon its review of copies of such reports furnished to
the Company through the date hereof, or written representations that no reports
were required to be filed, the Company believes that during the fiscal year
ended December 31, 1997, all filing requirements applicable to its officers,
directors and ten percent stockholders were complied with in a timely manner,
except for Form 4s filed in connection with the exercise of options in December
1997 by Messrs. Scott, Farrand, Marcketta, Harvey, Hezzlewood and Neil, which
were filed 23 days late, and a Form 4 disclosing the sale of 1,100 shares of
Panavision Common Stock by Mr. Hezzlewood, which was filed four months late.
RATIFICATION OF SELECTION OF THE COMPANY'S AUDITORS
The Audit Committee and the Board of Directors of the Company has appointed
Ernst & Young LLP as the Company's independent auditors for the fiscal year
ending December 31, 1998. Although stockholder action on this matter is not
required, this appointment is being recommended to the stockholders for
ratification. Pursuant to applicable Delaware law, the ratification of the
selection of Ernst & Young LLP requires the affirmative vote of the holders of a
majority of the votes cast at the Meeting, in person or by proxy, and entitled
to vote. Abstentions and broker non-votes will be counted and will have the same
effect as a vote against the proposal.
Ernst & Young LLP representatives will be present at the Meeting and will
have an opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE
SELECTION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR 1998.
LEGAL OPINIONS
The legality of Panavision Common Stock being retained in the Merger and
certain federal income tax consequences of the Merger are being passed on by
Willkie Farr & Gallagher, New York, New York, special counsel to the Company.
See 'THE MERGER--Certain Federal Income Tax Consequences.'
73
<PAGE>
EXPERTS
The consolidated financial statements of the Company appearing in its
Annual Report on Form 10-K for the year ended December 31, 1997, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
Representatives of Ernst & Young LLP are expected to be present at the
Meeting, where they will have the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
INCORPORATION OF DOCUMENTS BY REFERENCE
Panavision hereby incorporates by reference into this Proxy Statement the
following documents previously filed with the Commission pursuant to the
Exchange Act:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended by Amendment No. 1 thereto on Form 10-K/A
filed with the Commission on April 28, 1998; and
(2) The Company's Registration Statement on Form 8-A as filed with the
Commission on October 31, 1996, as amended by Amendment No. 1 thereto on
Form 8-A/A-1 filed with the Commission on November 20, 1996.
In addition, all reports and other documents filed by Panavision pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the Panavision Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such reports
and documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein, or in any other subsequently filed document that also is incorporated or
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE FILED BY
PANAVISION WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR
ORAL REQUEST FROM ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY
STATEMENT IS DELIVERED, FROM PANAVISION INC., 6219 DE SOTO AVENUE, WOODLAND
HILLS, CALIFORNIA 91367, ATTENTION: SECRETARY. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MAY 31, 1998.
STOCKHOLDER PROPOSALS
Management of the Company knows of no other matters that may properly be,
or which are likely to be, brought before the Meeting. However, if any other
matters are properly brought before such Meeting, the persons named in the
enclosed Proxy or their substitutes intend to vote the Proxies in accordance
with their judgment with respect to such matters, unless authority to do so is
withheld in the Proxy.
Stockholder proposals intended to be presented at the Company's 1999 Annual
Meeting must be received by the Company not later than November 30, 1998 for
inclusion in the proxy materials for such meeting. Such proposals should be sent
by Certified Mail--Return Receipt Requested to the attention of the Secretary of
the Company, Panavision Inc., 6219 De Soto Avenue, Woodland Hills, California
91367. Under the rules of the Commission, a stockholder submitting a proposal is
required to be a record or beneficial owner of at least 1% or $1,000 in market
value of Panavision Common Stock for at least one year prior to the date of
submission of the proposal, and he or she must continue to own such securities
through the date on which the meeting is held.
74
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
1996 Recapitalization Stock.................................................................................. 69
ABR Loans.................................................................................................... 46
Aggregate Consideration...................................................................................... 10
Alternative Consideration.................................................................................... 61
Antitrust Division........................................................................................... 11
Board........................................................................................................ 1
Board of Directors........................................................................................... 1
California Federal........................................................................................... 66
Cash Election Number......................................................................................... 10
Cash Election Shares......................................................................................... 10
Cash Price................................................................................................... 38
Chase........................................................................................................ 46
Cigar Holdings............................................................................................... 66
Closing Date................................................................................................. 46
Code......................................................................................................... 42
Commission................................................................................................... 6
Company...................................................................................................... 1
Company Board Action Termination Provision................................................................... 60
Company Stock Option......................................................................................... 12
Confidentiality Agreement.................................................................................... 30
Credit Facilities............................................................................................ 46
Designated Number of Common Shares........................................................................... 41
Designated Per Share Purchase Price.......................................................................... 41
DGCL......................................................................................................... 2
EBIT......................................................................................................... 36
EBITDA....................................................................................................... 35
Effective Time............................................................................................... 7
Election..................................................................................................... 10
Election Date................................................................................................ 10
EMW LLC...................................................................................................... 65
Engagement Letter............................................................................................ 37
ERISA........................................................................................................ 55
Eurodollar Loans............................................................................................. 46
Exchange Act................................................................................................. 6
Exchange Agent............................................................................................... 10
Executive Incentive Compensation Plan........................................................................ 69
Film Services Group.......................................................................................... 19
FN Holdings.................................................................................................. 66
FN Parent.................................................................................................... 66
Form of Election............................................................................................. 10
FSG.......................................................................................................... 19
FSG Acquisition.............................................................................................. 19
FTC.......................................................................................................... 11
Goldman Sachs................................................................................................ 3
Guarantors................................................................................................... 47
Holder....................................................................................................... 1
HSR Act...................................................................................................... 11
Indemnified Parties.......................................................................................... 57
Indenture.................................................................................................... 45
</TABLE>
i
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<TABLE>
<S> <C>
IRS.......................................................................................................... 42
Lab Corp..................................................................................................... 66
Lee Lighting................................................................................................. 26
LII.......................................................................................................... 73
LTM.......................................................................................................... 35
LTM EBITDA Multiple.......................................................................................... 35
Mafco........................................................................................................ 1
Mafco Option................................................................................................. 14
Marvel....................................................................................................... 66
Marvel Holding............................................................................................... 66
Marvel Parent................................................................................................ 66
Meeting...................................................................................................... 1
Merger....................................................................................................... 1
Merger Sub................................................................................................... 1
Meridian..................................................................................................... 66
MFW.......................................................................................................... 66
Murray Devine................................................................................................ 47
New Credit Agreement......................................................................................... 46
Non-Cash Election Shares..................................................................................... 10
Notes........................................................................................................ 22
NYSE......................................................................................................... 3
Offering..................................................................................................... 45
Option Period................................................................................................ 14
Panavision................................................................................................... 1
Panavision Assumption........................................................................................ 45
Panavision Common Stock...................................................................................... 1
Panavision Recapitalization.................................................................................. 1
PILP......................................................................................................... 72
PILP Recapitalization........................................................................................ 72
PILP Stockholder Agreement................................................................................... 72
Private Transactions......................................................................................... 35
Products Corporation......................................................................................... 66
Proxy........................................................................................................ 3
Proxy Statement.............................................................................................. 1
Public Transactions.......................................................................................... 35
Purchaser Stock Purchase Shares.............................................................................. 62
PX Escrow.................................................................................................... 45
PX Holding................................................................................................... 1
PX Holding Stock Purchase.................................................................................... 27
Recapitalization Agreement................................................................................... 1
Recapitalization Financings.................................................................................. 2
Recapitalization Transactions................................................................................ 35
Record Date.................................................................................................. 2
Redeemable Preferred Stock................................................................................... 1
Registration Agreement....................................................................................... 45
Registration Statement....................................................................................... 6
Representatives.............................................................................................. 56
REV Holding.................................................................................................. 66
Revlon....................................................................................................... 66
Revolving Facility........................................................................................... 46
Sale......................................................................................................... 15
Securities Act............................................................................................... 2
Significant Share Retention Alternative...................................................................... 2
Solvency Opinion............................................................................................. 47
</TABLE>
ii
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<TABLE>
<S> <C>
Stock Purchase............................................................................................... 56
Stockholder Approval......................................................................................... 59
Stockholder Approval Termination Provision................................................................... 60
Stockholders Agreement....................................................................................... 1
Superior Proposal............................................................................................ 58
Surviving Corporation........................................................................................ 54
Term Facility................................................................................................ 46
Tranche A Term Facility...................................................................................... 46
Tranche B Term Facility...................................................................................... 46
Transactions................................................................................................. 49
Transaction Proposal......................................................................................... 58
Transaction Proposal Termination Provision................................................................... 60
Warburg...................................................................................................... 1
Warburg Option............................................................................................... 12
Warburg Option Shares........................................................................................ 14
Warburg, Pincus.............................................................................................. 65
Willkie Farr................................................................................................. 30
WP........................................................................................................... 65
</TABLE>
iii
<PAGE>
ANNEX I
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT OF RECAPITALIZATION AND MERGER
BY AND AMONG
PX HOLDING CORPORATION,
PX MERGER CORPORATION
AND
PANAVISION INC.
DATED AS OF DECEMBER 18, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
THE MERGER
<S> <C> <C>
SECTION 1.1 The Merger............................................................................... 1
SECTION 1.2 Effective Time........................................................................... 1
SECTION 1.3 Effects of the Merger.................................................................... 1
SECTION 1.4 Certificate of Incorporation and By-Laws of the Surviving Corporation.................... 2
SECTION 1.5 Directors and Officers................................................................... 2
SECTION 1.6 Closing.................................................................................. 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock.................................................................. 2
SECTION 2.2 Proration................................................................................ 3
SECTION 2.3 Election Procedures...................................................................... 3
SECTION 2.4 Options; Stock Plans..................................................................... 4
SECTION 2.5 Exchange and Retention of Common Shares.................................................. 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1 Organization and Qualification; Subsidiaries............................................. 5
SECTION 3.2 Capitalization; Subsidiaries............................................................. 5
SECTION 3.3 The Purchased Shares..................................................................... 6
SECTION 3.4 Authority Relative to this Agreement..................................................... 6
SECTION 3.5 No Violation; Required Filings and Consents.............................................. 6
SECTION 3.6 SEC Reports and Financial Statements..................................................... 7
SECTION 3.7 No Undisclosed Liabilities............................................................... 8
SECTION 3.8 Litigation............................................................................... 8
SECTION 3.9 Properties and Assets; Real Property and Leases.......................................... 8
SECTION 3.10 Insurance................................................................................ 9
SECTION 3.11 Information.............................................................................. 9
SECTION 3.12 Employee Benefit Plans................................................................... 9
SECTION 3.13 Taxes.................................................................................... 10
SECTION 3.14 Environmental Matters.................................................................... 12
SECTION 3.15 Absence of Certain Changes............................................................... 14
SECTION 3.16 Broker................................................................................... 14
SECTION 3.17 Opinion of Investment Banker............................................................. 14
SECTION 3.18 Board Recommendation..................................................................... 14
SECTION 3.19 Required Company Vote.................................................................... 14
SECTION 3.20 Intellectual Property.................................................................... 14
SECTION 3.21 Related Party Transactions............................................................... 16
SECTION 3.22 Labor Relations and Employment........................................................... 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND MERGER SUB
SECTION 4.1 Organization and Qualification........................................................... 17
SECTION 4.2 Authority Relative to this Agreement..................................................... 17
SECTION 4.3 Capitalization of Merger Sub; Interests in the Company................................... 17
SECTION 4.4 No Violation............................................................................. 17
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 4.5 Information.............................................................................. 18
SECTION 4.6 No Prior Business........................................................................ 18
SECTION 4.7 No Distribution.......................................................................... 18
SECTION 4.8 Broker................................................................................... 18
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business of the Company....................................................... 18
SECTION 5.2 Access to Information; Confidentiality................................................... 19
SECTION 5.3 Financing................................................................................ 20
SECTION 5.4 Stock Purchase........................................................................... 20
SECTION 5.5 Efforts.................................................................................. 20
SECTION 5.6 Public Announcements..................................................................... 21
SECTION 5.7 Indemnification; Directors' and Officers' Insurance...................................... 21
SECTION 5.8 Notification of Certain Matters.......................................................... 22
SECTION 5.9 No Solicitation.......................................................................... 22
SECTION 5.10 Redeemable Preferred Stock............................................................... 23
SECTION 5.11 Affiliate Letters........................................................................ 23
SECTION 5.12 Reports.................................................................................. 23
SECTION 5.13 Stockholders Meeting..................................................................... 23
SECTION 5.14 Employee Benefits........................................................................ 24
SECTION 5.15 Other Actions............................................................................ 24
SECTION 5.16 Lisitng of Common Stock.................................................................. 24
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.1 Conditions to the Obligations of Both Parties............................................ 24
SECTION 6.2 Conditions to the Obligations of Purchaser and Merger Sub................................ 25
SECTION 6.3 Conditions to the Obligations of the Company............................................. 26
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
SECTION 7.1 Termination.............................................................................. 26
SECTION 7.2 Effect of Termination.................................................................... 27
SECTION 7.3 Fees and Expenses........................................................................ 27
SECTION 7.4 Amendment................................................................................ 27
SECTION 7.5 Extension; Waiver........................................................................ 27
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Non-Survival of Representations and Warranties........................................... 27
SECTION 8.2 Entire Agreement; Assignment............................................................. 27
SECTION 8.3 Validity................................................................................. 27
SECTION 8.4 Notices.................................................................................. 28
SECTION 8.5 Governing Law............................................................................ 28
SECTION 8.6 Descriptive Headings..................................................................... 28
SECTION 8.7 Counterparts............................................................................. 28
SECTION 8.8 Parties in Interest...................................................................... 28
SECTION 8.9 Certain Definitions...................................................................... 29
SECTION 8.10 Specific Performance..................................................................... 29
</TABLE>
ii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Affiliate.................................................................................................. 29
Agreement.................................................................................................. 1
Amended and Restated Certificate of Incorporation.......................................................... 2
Business................................................................................................... 13
Cash Consideration......................................................................................... 2
Cash Election Number....................................................................................... 3
Cash Election Shares....................................................................................... 2
Cashed Shares.............................................................................................. 4
Certificates............................................................................................... 4
Closing.................................................................................................... 2
Closing Date............................................................................................... 2
Code....................................................................................................... 9
Common Shares.............................................................................................. 1
Company.................................................................................................... 1
Company Board.............................................................................................. 1
Company Financial Statements............................................................................... 7
Company SEC Reports........................................................................................ 7
Company Stock Option....................................................................................... 4
Company Stockholder Approval............................................................................... 1
Confidentiality Agreement.................................................................................. 20
Contract................................................................................................... 7
DGCL....................................................................................................... 1
Effective Time............................................................................................. 1
Election Date.............................................................................................. 3
Environmental Laws......................................................................................... 13
Environmental Liabilities and Costs........................................................................ 13
Environmental Permits...................................................................................... 13
ERISA...................................................................................................... 9
ERISA Affiliate............................................................................................ 9
Exchange Act............................................................................................... 7
Exchange Agent............................................................................................. 3
Exchange Fund.............................................................................................. 4
Form of Election........................................................................................... 3
Governmental Entity........................................................................................ 7
Hazardous Substances....................................................................................... 13
HSR Act.................................................................................................... 7
Indemnified Parties........................................................................................ 21
Intellectual Property...................................................................................... 15
Laws....................................................................................................... 13
License Agreements......................................................................................... 16
Liens...................................................................................................... 8
Losses..................................................................................................... 13
Material Adverse Effect on Purchaser or Merger Sub......................................................... 17
Material Adverse Effect on the Company..................................................................... 5
Merger..................................................................................................... 1
Merger Consideration....................................................................................... 3
Merger Sub................................................................................................. 1
Merger Sub Common Stock.................................................................................... 2
NYSE....................................................................................................... 3
Other Filings.............................................................................................. 9
Patents.................................................................................................... 15
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Permitted Liens............................................................................................ 8
Person..................................................................................................... 29
Plans...................................................................................................... 9
Preferred Stock............................................................................................ 5
Proration Factor........................................................................................... 3
Proxy Statement............................................................................................ 9
Purchaser.................................................................................................. 1
Release.................................................................................................... 13
Remedial Action............................................................................................ 14
Representatives............................................................................................ 19
Retained Common Shares..................................................................................... 3
SEC........................................................................................................ 3
Securities Act............................................................................................. 7
Software................................................................................................... 16
Special Meeting............................................................................................ 9
Stock Purchase............................................................................................. 1
Stockholder................................................................................................ 3
Stockholder Approval....................................................................................... 24
Subsidiaries............................................................................................... 29
Subsidiary................................................................................................. 29
Surviving Corporation...................................................................................... 1
Tax Return................................................................................................. 12
Taxes...................................................................................................... 12
Technology................................................................................................. 16
Trademarks................................................................................................. 15
TSCA....................................................................................................... 13
U.S. GAAP.................................................................................................. 7
Voting Debt................................................................................................ 5
WARN....................................................................................................... 16
</TABLE>
iv
<PAGE>
AGREEMENT OF RECAPITALIZATION AND MERGER
AGREEMENT OF RECAPITALIZATION AND MERGER (collectively, this 'Agreement'),
dated as of December 18, 1997, by and among PX Holding Corporation, a Delaware
corporation ('Purchaser'), PX Merger Corporation, a Delaware corporation, a
wholly owned subsidiary of Purchaser ('Merger Sub'), and Panavision Inc., a
Delaware corporation (the 'Company').
WHEREAS, the Merger (as hereinafter defined) and this Agreement require the
vote of a majority of the issued and outstanding Common Shares (as hereinafter
defined) for the approval thereof (the 'Company Stockholder Approval');
WHEREAS, the respective Boards of Directors of Merger Sub and the Company
have approved the merger of Merger Sub with and into the Company, as set forth
below (the 'Merger'), in accordance with the General Corporation Law of the
State of Delaware (the 'DGCL') and upon the terms and subject to the conditions
set forth in this Agreement, holders of shares of common stock, par value $.01
per share, of the Company (the 'Common Shares') issued and outstanding
immediately prior to the Effective Time (as defined below) will be entitled,
subject to the terms hereof and other than as set forth herein, to either (A)
receive the Cash Consideration (as hereinafter defined) or (B) retain the
Retained Common Shares(as hereinafter defined), in each case pursuant to the
Merger;
WHEREAS, the Board of Directors of the Company (the 'Company Board') has,
in light of and subject to the terms and conditions set forth herein, (i)
determined that the Merger is in the best interests of the Company and its
stockholders, and (ii) resolved to approve and adopt this Agreement and the
transactions contemplated hereby and to recommend approval and adoption of this
Agreement by the stockholders of the Company;
WHEREAS, Purchaser desires to purchase and the Company desires to issue and
sell to Purchaser a certain number of Common Shares pursuant to the terms and
conditions set forth in this Agreement (the 'Stock Purchase');
WHEREAS, Purchaser, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and the Stock Purchase, and also to set forth various conditions to the
Merger and the Stock Purchase; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein,
Purchaser, Merger Sub and the Company agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the satisfaction or
waiver of the conditions hereof, and in accordance with the applicable
provisions of this Agreement and the DGCL, at the Effective Time (as hereinafter
defined) Merger Sub shall be merged with and into the Company. Following the
Merger, the separate corporate existence of Merger Sub shall cease and the
Company shall continue as the surviving corporation (the 'Surviving
Corporation').
SECTION 1.2 Effective Time. As soon as practicable after the satisfaction
or waiver of the conditions set forth in Article VI, the Company shall execute,
in the manner required by the DGCL, and deliver to the Secretary of State of the
State of Delaware Certificate of Merger duly executed and verified by the
appropriate parties hereto, and the parties shall take such other and further
actions as may be required by law to make the Merger effective. The time the
Merger becomes effective in accordance with applicable law is referred to herein
as the 'Effective Time.'
SECTION 1.3 Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the DGCL and as set forth herein. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the properties, rights, privileges, powers and franchises of the
Company and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1
<PAGE>
SECTION 1.4 Certificate of Incorporation and By-Laws of the Surviving
Corporation.
(a) The Amended and Restated Certificate of Incorporation of the Company
dated as of July 12, 1996 (the 'Amended and Restated Certificate of
Incorporation'), 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 the provisions thereof and hereof and applicable law,
or as otherwise contemplated hereby; and, provided that Section 13(b) shall be
restated in its entirety therein to read as follows, '(b) Expenses incurred in
defending a civil or criminal action, suit or proceeding shall (in the case of
any action, suit or proceeding against a director or officer of the Corporation)
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the indemnified person to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Section 13.'; and further provided, that a new
Section 16 shall be added thereto to read as follows, 'The Corporation expressly
elects not to be governed by Section 203 of the General Corporation Law of the
State of Delaware.'
(b) The By-Laws of Merger Sub in effect at the Effective Time shall be the
By-Laws of the Surviving Corporation until thereafter amended, in accordance
with the provisions thereof, hereof and applicable law.
SECTION 1.5 Directors and Officers. Subject to applicable law,
immediately prior to the Effective Time, the directors of Merger Sub and the
officers of the Company shall be the initial directors and the initial officers,
respectively, of the Surviving Corporation and shall hold office until their
respective successors are duly elected and qualified, or their earlier death,
resignation or removal.
SECTION 1.6 Closing. The closing of the Merger (the 'Closing') shall take
place at 10:00 a.m. on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction or waiver of all of the
conditions set forth in Article VI hereof (the 'Closing Date'), at the offices
of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New
York 10022-3897, unless another date or place is agreed to in writing by the
parties hereto.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
SECTION 2.1 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 Common
Shares or any shares of capital stock of Merger Sub:
(a) Common Stock of Merger Sub. All of the shares of common stock, par
value $1.00 per share, of Merger Sub (the 'Merger Sub Common Stock'),
issued and outstanding immediately prior to the Effective Time shall be
converted into 10 (ten) Common Shares.
(b) Cancellation of Treasury Stock. Each Common Share that is owned by
the Company or by any wholly owned subsidiary of the Company shall
automatically be canceled and retired and shall cease to exist, and no cash
or other consideration shall be delivered or deliverable in exchange
therefore.
(c) Retention or Exchange of Common Shares. Except as otherwise
provided herein and subject to Sections 2.2 and 2.3, each Common Share
issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger, be treated as follows:
(i) for each Common Share with respect to which an election to
receive an amount in cash equal to $27.00 (the 'Cash Consideration')
has been made and not revoked in accordance with Section 2.3 and for
each Common Share for which no election has been made (the 'Cash
Election Shares'), the right to receive the Cash Consideration. All
Common Shares so exchanged for the Cash Consideration shall no longer
be outstanding, shall automatically be canceled and retired and shall
cease to exist, and each holder of a Certificate representing any
such Common Shares shall, to the extent such Certificate represents
such shares, cease to have any rights with respect thereto, except
the right to receive the applicable Merger Consideration, upon
surrender of such Certificate in accordance with Section 2.5.
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(ii) for each Common Share with respect to which an election to
retain Common Shares has been made and not revoked in accordance with
Section 2.3, the right to retain such fully paid and non-assessable
Common Share (the 'Retained Common Shares' and, collectively with the
Cash Consideration, the 'Merger Consideration').
SECTION 2.2 Proration.
(a) Notwithstanding anything in this Agreement to the contrary, the number
of Common Shares (the 'Cash Election Number') to be converted into the right to
receive the Cash Consideration shall be equal to not more than 88% of the number
of Common Shares issued and outstanding immediately prior to the Stock Purchase
and held of record or beneficially by stockholders of the Company other than
Warburg, Pincus Capital Company, L.P. ('Stockholder').
(b) If the number of Cash Election Shares is greater than the Cash Election
Number, then each Cash Election Share shall (i) receive the Cash Consideration
in accordance with the terms of Section 2.1(c)(i) or (ii) be retained as a
Retained Common Share in accordance with the terms of Section 2.1(c)(ii) in the
following manner:
(i) A proration factor (the 'Proration Factor') shall be determined by
dividing the Cash Election Number by the total number of Cash Election
Shares.
(ii) The number of Cash Election Shares converted into cash in
accordance with the terms of Section 2.1(c)(i) shall be determined by
multiplying the Proration Factor by the total number of Cash Election
Shares covered by such election, rounded down to the nearest whole number.
(iii) All Cash Election Shares, other than those shares that shall
receive cash in accordance with Section 2.3(b)(ii), shall be deemed to be
Retained Common Shares (on a consistent basis among stockholders who made
the election referred to in Section 2.3(a), pro rata to the number of
shares as to which they made such election).
SECTION 2.3 Election Procedures.
(a) Each person who, on or prior to the Election Date (as defined in
Section 2.3(b) below), is a record holder of Common Shares will be entitled,
subject to Section 2.2 hereof, to make an unconditional election on or prior to
such Election Date specifying the number of Common Shares which he desires (i)
to have converted into the right to receive the Cash Consideration or (ii) to
retain as a Retained Common Share.
(b) Subject to any required clearance by the Securities and Exchange
Commission (the 'SEC'), the Purchaser shall prepare a form of election (the
'Form of Election'), which form shall be subject to the reasonable approval of
the Company, to be mailed by the Company with the Proxy Statement to the record
holders of Common Shares as of the record date for the Special Meeting (as
hereinafter defined), which Form of Election shall be used by each record holder
of Common Shares who elects to specify the number of Common Shares which he
desires to have converted into the right to receive the Cash Consideration in
the Merger, subject to the provisions of Section 2.2 hereof. The Company will
use its reasonable best efforts to make the Form of Election available to all
persons who become holders of Common Shares during the period between such
record date and the Election Date, with a copy of the Proxy Statement. Any such
holder's election shall have been properly made only if such bank or trust
company as shall be mutually acceptable to Purchaser and the Company, acting as
exchange agent (the 'Exchange Agent') shall have received at its designated
office, by 5:00 p.m., New York City time on the business day prior to the date
of the Special Meeting (the 'Election Date'), a Form of Election properly
completed and signed and accompanied by Certificates (as hereinafter defined)
for the Common Shares to which such Form of Election relates, duly endorsed in
blank or otherwise in a form acceptable for transfer on the books of the Company
(or by an appropriate guarantee if delivery of such certificates as set forth in
such Form of Election from a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States, provided such certificates are in fact delivered to the Exchange
Agent within three New York Stock Exchange ('NYSE') trading days after the date
of execution of such guarantee of delivery).
(c) Any Form of Election may be revoked by the holder submitting it to the
Exchange Agent only by written notice received by the Exchange Agent (i) prior
to 5:00 p.m., New York City time on the Election Date or
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(ii) after the Election Date, if the Company and Purchaser determine, on or
prior to the Election Date, that the Closing is not likely to occur within three
business days following the Election Date, in which case any Form of Election
shall remain revocable until a subsequent date which shall be a date prior to
the Closing determined by the Company and the Purchaser. In addition, all Forms
of Election shall automatically be revoked if the Exchange Agent is notified in
writing by Merger Sub and the Company that the Merger has been abandoned. If a
Form of Election is revoked, the Certificate or Certificates (or guarantees of
delivery, as appropriate) for the Common Shares to which such Form of Election
relates shall be promptly returned to the stockholder submitting the same to the
Exchange Agent.
(d) The determination of the Exchange Agent shall be binding with respect
to whether or not elections have been properly made or revoked pursuant to this
Section 2.3 and when elections and revocations were received by it. If the
Exchange Agent determines that any election was not properly made, such shares
shall be treated by the Exchange Agent as Retained Common Shares. The Exchange
Agent shall also make all computations as to the allocation and the proration
contemplated by Section 2.2, and any such computation shall be conclusive and
binding on the holders of Common Shares. The Exchange Agent may, with the mutual
agreement of Merger Sub and the Company, make such rules as are consistent with
this Section 2.3 for the implementation of the elections provided for herein as
shall be necessary or desirable fully to effect such elections.
SECTION 2.4 Options; Stock Plans. Each option held by an employee,
consultant or director of the Company to acquire Common Shares ('Company Stock
Option') that is outstanding immediately prior to the Merger, whether or not
then vested or exercisable, shall, simultaneously with the Merger, be cancelled
in exchange for a prompt payment of a single lump sum cash payment equal to the
product of (1) the number of Common Shares subject to such Company Stock Option
and (2) the excess, if any, of the Cash Consideration over the exercise price
per share of such Company Stock Option.
SECTION 2.5 Exchange and Retention of Common Shares.
(a) From time to time prior to the Effective Time, Purchaser shall take all
steps necessary to cause to be deposited on a timely basis with the Exchange
Agent in an account (the 'Exchange Fund') the Cash Consideration to which
holders of Common Shares shall be entitled at the Effective Time pursuant to
Section 2.1(c)(i).
(b) Promptly after the Effective Time, Purchaser shall cause the Exchange
Agent to mail to each record holder of certificates (the 'Certificates') that
immediately prior to the Effective Time represented Common Shares a form of
letter of transmittal which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent and instructions for use in
surrendering such Certificates and receiving the Merger Consideration in respect
thereof.
(c) In effecting the payment of the Cash Consideration in respect of Common
Shares represented by Certificates entitled to payment of the Cash Consideration
pursuant to Section 2.1(c)(i) and Section 2.2(b) (the 'Cashed Shares'), upon the
surrender of each such Certificate, the Exchange Agent at the time of such
surrender shall pay the holder of such Certificate the Cash Consideration
multiplied by the number of Cashed Shares, in consideration therefor. Upon such
payment, such Certificate shall forthwith be cancelled.
(d) Until surrendered in accordance with paragraph (c) above, each such
Certificate (other than Certificates representing Common Shares held by any
affiliate of Merger Sub, in the treasury of the Company or by any wholly owned
subsidiary of the Company) shall represent solely the right to receive the
aggregate Cash Consideration relating thereto. No interest shall be paid or
accrued on the Cash Consideration. If the Cash Consideration (or any portion
thereof) is to be delivered to any person other than the person in whose name
the Certificate formerly representing Common Shares surrendered therefor is
registered, it shall be a condition to such right to receive such Cash
Consideration that the Certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person surrendering such
Common Shares shall pay to the Exchange Agent any transfer or other taxes
required by reason of the payment of the Cash Consideration to a person other
than the registered holder of the Certificate surrendered, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
(e) Promptly following the date which is six months after the Effective
Time, the Exchange Agent shall deliver to the Surviving Corporation, all cash
and other documents in its possession relating to the transactions
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described in this Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a Certificate formerly representing a Common Share
electing the Cash Consideration may surrender such Certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat and similar
laws) receive in consideration therefor the applicable aggregate Cash
Consideration relating thereto, without any interest thereon.
(f) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any Common Shares which were
outstanding immediately prior to the Effective Time and which were surrendered
for exchange for the Cash Consideration. If, after the Effective Time,
Certificates formerly representing Common Shares are presented to the Surviving
Corporation or the Exchange Agent for exchange for the Cash Consideration, they
shall be surrendered and cancelled in return for the payment of the applicable
aggregate Cash Consideration relating thereto, as provided in this Article II.
(g) No Liability. None of Merger Sub, Purchaser, the Company or the
Exchange Agent shall be liable to any person in respect of any Cash
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificates shall not have
been surrendered prior to seven years after the Effective Time (or immediately
prior to such earlier date on which the Cash Consideration would otherwise
escheat to or become the property of any Governmental Entity) any such
distributions or cash in respect of such Certificate shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation,
free and clear of all claims or interest of any person previously entitled
thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser and Merger Sub as follows:
SECTION 3.1 Organization and Qualification; Subsidiaries. The Company and
each of its Subsidiaries, is an entity duly organized, validly existing and in
good standing under the laws of its state or jurisdiction of organization and
has all requisite power and authority to own, lease and operate its properties
and to carry on its business as now being conducted and is in good standing as a
foreign entity in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification and where
failure to be in good standing or to so qualify would have a Material Adverse
Effect on the Company. The term 'Material Adverse Effect on the Company,' as
used in this Agreement, means any change in or effect on the business, financial
condition, results of operations of the Company or any of its Subsidiaries that
would be materially adverse to the Company and its Subsidiaries taken as a
whole. Neither (i) seasonal variations in operating income, to the extent
reasonably consistent with prior periods, nor (ii) the existence of a labor
strike, in and of itself (that is, unless such labor strike has caused a
Material Adverse Effect on the Company), shall be deemed a Material Adverse
Effect on the Company. The Company has heretofore made available to Purchaser a
complete and correct copy of its Amended and Restated Certificate of
Incorporation and By-Laws.
SECTION 3.2 Capitalization; Subsidiaries.
(a) The authorized capital stock of the Company consists of 50,000,000
Common Shares and 2,000,000 shares of preferred stock, par value $.01 per share
('Preferred Stock'). As of the close of business on December 12, 1997,
18,155,000 Common Shares were issued and outstanding, all of which are entitled
to vote, and no Common Shares were held in the Company's treasury. The Company
has no shares of Preferred Stock issued or outstanding. The Company intends to
authorize the issuance, prior to the Effective Time, of up to 130,000 shares of
Series A Redeemable Preferred Stock of the Company, as contemplated by Section
5.10 of this Agreement. As of December 12, 1997,(i) there were 865,950 Common
Shares reserved for issuance pursuant to outstanding Options and rights granted
under the Stock Plans, and (ii) options to acquire an aggregate of 2,134,050
Common Shares have been issued pursuant to Company Stock Options. All the
outstanding shares of the Company's capital stock are duly authorized, validly
issued, fully paid and non-assessable. There are no bonds, debentures, notes or
other indebtedness having voting rights (or convertible into securities having
such rights) ('Voting Debt') of the Company or any of its Subsidiaries issued
and outstanding.
(b) Except as set forth above, as set forth on Section 3.2 of the Company
Disclosure Schedule, and for the
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transactions contemplated by this Agreement, (i) there are no shares of capital
stock of the Company authorized, issued or outstanding and (ii) there are no
existing options, warrants, calls, pre-emptive rights, subscriptions or other
rights, convertible securities, agreements, arrangements or commitments of any
character, relating to the issued or unissued capital stock of the Company or
any of its Subsidiaries, obligating the Company or any of its Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, the Company or any
of its Subsidiaries or securities convertible into or exchangeable for such
shares or equity interests or obligations of the Company or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
subscription or other right, convertible security, agreement, arrangement or
commitment.
(c) Except as set forth in Section 3.2 of the Company Disclosure Schedule,
there are no outstanding contractual obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any Shares of the
capital stock of the Company or any Subsidiary or affiliate of the Company or to
provide funds to make any investment (in the form of a loan, capital
contribution or otherwise) in any Subsidiary or any other entity. Except as set
forth in Section 3.2 of the Company Disclosure Schedule, and as permitted by
this Agreement, following the Merger, neither the Company nor any of its
Subsidiaries will have any obligation to issue, transfer or sell any shares of
its capital stock other than pursuant to employee benefit plans.
SECTION 3.3 The Purchased Shares. Upon delivery to Purchaser at the
Closing of certificates representing the Stock Purchase Common Shares, and upon
receipt of the Company of the payment in full therefor, (i) good and valid title
to the Stock Purchase Common Shares shall pass to the Purchaser, free and clear
of all liens and restrictions of any kind, except those pursuant to applicable
securities laws, and (ii) the Stock Purchase Common Shares shall be validly
issued, fully paid and nonassessable. Other than as provided for in this
Agreement, the Stock Purchase Common Shares are not, and upon their issuance
will not be, subject to any voting trust agreement or other contract, agreement,
commitment or understanding restricting or otherwise relating to the voting,
dividend rights or other disposition of the Stock Purchase Common Shares. The
Company has reserved 7,000,000 Common Shares for issuance pursuant to the Stock
Purchase.
SECTION 3.4 Authority Relative to this Agreement.
(a) The Company has the requisite corporate power and authority to execute
and deliver this Agreement and, except for the approval of this Agreement by the
stockholders of the Company, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby have been duly and
validly authorized by the Company Board and no other corporate proceedings on
the part of the Company are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than the approval of this
Agreement by the stockholders of the Company). This Agreement has been duly and
validly executed and delivered by the Company, and, assuming this Agreement
constitutes a valid and binding obligation of the Purchaser and Merger Sub,
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms.
(b) The Company Board has taken any and all necessary and appropriate
action to render inapplicable to the Merger and the transactions contemplated by
this Agreement, including the Voting and Stockholders Agreement, dated as of
December 18, 1997, by and between Stockholder and Mafco Holdings Inc. (the
'Stockholders Agreement'), the provisions of Section 203 of the DGCL.
SECTION 3.5 No Violation; Required Filings and Consents.
(a) Except as set forth in Section 3.5 of the Company Disclosure Schedule,
the execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of consent, termination, purchase, cancellation or acceleration of any
obligation or to loss of any property, rights or benefits under, or result in
the imposition of any additional obligation under, or result in the creation of
any Lien (as hereinafter defined) upon any of the properties or assets of the
Company or any of its Subsidiaries under, (i) the organizational documents of
the Company or any of its Subsidiaries, (ii) any contract, instrument, permit,
concession, franchise, license, loan or credit agreement, note, bond, mortgage,
indenture, lease or other property agreement, partnership or joint venture
agreement or other
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legally binding agreement, whether oral or written (a 'Contract'), applicable to
the Company or any of its Subsidiaries or their respective properties or assets
or (iii) subject to the governmental filings and other matters referred to in
the following paragraph, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Company or any of its Subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such violations, defaults, rights or Liens that individually or in
the aggregate would not have a Material Adverse Effect on the Company.
(b) Other than in connection with, or in compliance with, the provisions of
the DGCL with respect to the transactions contemplated hereby, the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), the Securities Act of
1933 (the 'Securities Act'), the securities laws of the various states and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the 'HSR
Act'), no authorization, consent or approval of, or filing with, any
Governmental Entity (as hereinafter defined) is necessary for the consummation
by the Company of the transactions contemplated by this Agreement other than
authorizations, consents and approvals the failure to obtain, or filings the
failure to make, which would not, in the aggregate, have a Material Adverse
Effect on the Company. As used in this Agreement, the term 'Governmental Entity'
means any government or subdivision thereof, domestic, foreign or supranational
or any administrative, governmental or regulatory authority, agency, commission,
tribunal or body, domestic, foreign or supranational.
SECTION 3.6 SEC Reports and Financial Statements.
(a) The Company has filed all forms, reports and documents required to be
filed by it with the SEC since November 20, 1996 (collectively, the 'Company SEC
Reports'). The Company SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
(ii) did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. No Subsidiary is
required to file any form, report or other document with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Company SEC Reports (the 'Company Financial
Statements') (i) was prepared from the books of account and other financial
records of the Company and its Subsidiaries, (ii) was prepared in accordance
with United States generally accepted accounting principles ('U.S. GAAP')
applied on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto) and (iii) presented fairly the consolidated
financial position of the Company and its consolidated Subsidiaries as at the
respective dates thereof and the results of their operations and their cash
flows for the respective periods indicated therein except as otherwise noted
therein (subject, in the case of unaudited statements, to the omission of
footnotes and normal and recurring year-end adjustments which were not and are
not expected, individually or in the aggregate, to have a Material Adverse
Effect on the Company).
(c) The Company Financial Statements were prepared from the books of
account and other financial records of the Company and its Subsidiaries: (i) to
reflect all items of income and expense and all assets and liabilities required
to be reflected therein in accordance with U.S. GAAP applied on a basis
consistent with the past practices of the Company, (ii) are in all material
respects complete and correct, and do not contain or reflect any material
inaccuracies or discrepancies and (iii) have been maintained in accordance with
good business and accounting practices.
(d) Except for liabilities and obligations reflected on the September 30,
1997 consolidated balance sheet of the Company (including the notes thereto),
liabilities and obligations disclosed in Company SEC Reports filed prior to the
date of this Agreement and other liabilities and obligations incurred in the
ordinary course of business consistent with past practice since September 30,
1997, neither the Company nor any Subsidiary has any liabilities or obligation
of any nature (whether accrued, absolute, contingent or otherwise) which,
individually or in the aggregate, are or are reasonably likely to be material to
the Company and its Subsidiaries taken as a whole.
(e) The Company has heretofore furnished to Purchaser complete and correct
copies of (i) all agreements, documents and other instruments not yet filed by
the Company with the SEC but that are currently in effect and that the Company
expects to file with the SEC after the date of this Agreement and (ii) all
amendments and modifications that have not been filed by the Company with SEC to
all agreements, documents and other
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instruments that previously had been filed by the Company with the SEC and are
currently in effect.
SECTION 3.7 No Undisclosed Liabilities. Except (a) to the extent
disclosed (1) in the Company SEC Documents filed prior to the date of this
Agreement or (2) set forth on Section 3.7 of the Company Disclosure Schedule and
(b) for liabilities and obligations incurred since September 30, 1997 in the
ordinary course of business consistent with past practice or pursuant to the
terms of this Agreement, neither the Company nor any of its Subsidiaries has
incurred any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that have, or would be reasonably likely to have, a
Material Adverse Effect on the Company. Section 3.7 of the Company Disclosure
Schedule sets forth each instrument evidencing indebtedness of the Company and
its Subsidiaries which will accelerate or become due or payable, or result in a
right of redemption or repurchase on the part of the holder of such
indebtedness, or with respect to which any other payment or amount will become
due or payable, in any such case with or without due notice or lapse of time, as
a result of this Agreement, the Merger or the other transactions contemplated
hereby.
SECTION 3.8 Litigation. Except as set forth on Section 3.8 of the Company
Disclosure Schedule, there is no litigation, suit, claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened, against
or affecting the Company or any of its Subsidiaries, which individually or in
the aggregate, would have a Material Adverse Effect on the Company or could
prevent the consummation of the transactions contemplated by this Agreement.
Except as disclosed in the SEC Reports filed prior to the date of this
Agreement, neither the Company nor any of its Subsidiaries is subject to any
outstanding order, writ, injunction or decree which, individually or in the
aggregate, would have a Material Adverse Effect on the Company or could prevent
the consummation of the transactions contemplated hereby.
SECTION 3.9 Properties and Assets; Real Property and Leases.
(a) With respect to the real property owned by the Company or its
Subsidiaries (the 'Owned Property') the Company or its Subsidiaries have
sufficient title to all such property and assets to conduct their respective
businesses as currently conducted, with only such exceptions as set forth in
this Section 3.9 or which, individually or in the aggregate, would not have a
Material Adverse Effect on the Company.
(b) Set forth on Company Disclosure Schedule 3.9(b) is a true, correct and
complete list (including a general description of the uses for such real
property) of all real property owned or leased by the Company and each of its
Subsidiaries.
(c) Except as would not have a Material Adverse Effect on the Company, each
parcel of real property owned by the Company or any Subsidiary (i) is owned free
and clear of all mortgages, pledges, liens, security interests, conditional and
installment sale agreements, encumbrances, charges or other claims of third
parties of any kind (collectively, 'Liens'), other than (A) those items set
forth on the Company Disclosure Schedule 3.9(c), (B) Liens for current taxes and
assessments not yet past due and payable, or if due and payable, which are being
contested in good faith, (C) inchoate mechanics' and materialman's Liens of
construction in progress, (D) workmen's, repairmen's, warehousemen's and
carriers' Liens arising in the ordinary course of business of the Company or
such Subsidiary, (E) all liens, easements and other matters of record, Liens and
other imperfections of title and encumbrances which, individually or in the
aggregate, would not materially and adversely affect the use of the property for
its intended purpose (F) any condition that may be shown by a current survey,
title report or physical inspection, and (G) zoning, building and other similar
restrictions (Liens described in clauses (A) through (G) being referred to
herein as 'Permitted Liens'), and (ii) except as set forth on the Company
Disclosure Schedule 3.9(c), with respect to any Owned Property, the Company has
not received written notice that such Owned Property is subject to any
governmental decree or order to be sold or is being condemned or otherwise taken
by any public authority with or without payment of compensation therefor, and,
to the best knowledge of the Company, no such condemnation or taking has been
proposed.
(d) All leases of real property leased for the use or benefit of the
Company or any Subsidiary to which the Company or any Subsidiary is a party or
by which the Company or any Subsidiary is bound, and all amendments and
modifications thereto are in full force and effect and, except as set forth on
the Company Disclosure Schedule 3.9(d) have not been modified or amended, and,
except as set forth on the Company Disclosure Schedule 3.9(d), the Company has
not received notice of any default under any such lease by the Company or any
Subsidiary, or to the knowledge of the Company, no other party thereto is in
default thereunder, nor to the
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knowledge of the Company has any event which with notice or lapse of time or
both would constitute a default thereunder by the Company or any Subsidiary or,
to the knowledge of the Company, any other party thereto, occurred, except as,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
SECTION 3.10 Insurance. Set forth in Section 3.10 of the Company
Disclosure Schedule is a complete and accurate list of all primary, excess and
umbrella policies, bonds and other forms of insurance currently owned or held by
or on behalf of or providing insurance coverage to the Company or any
Subsidiary, their respective businesses, properties and assets (or their
directors, officers, salespersons, agents or employees). All policies set forth
in Section 3.10 of the Company Disclosure Schedule are in full force and effect
and shall remain in full force and effect through the Closing Date, except to
the extent replaced by substantially similar insurance coverage, and with
respect to all policies, all premiums currently payable or previously due have
been paid, and, to the best knowledge of the Company, no notice of cancellation
or termination has been received by the Company or any Subsidiary with respect
to any such policy, except for statutory notices. All such policies are
sufficient for compliance with all requirements of law and of all Contracts and
agreements to which the Company or any Subsidiary is a party or otherwise bound
and are valid, outstanding, collectible and enforceable policies and provide
insurance coverage which is adequate and customary for a business of the size
and type of the Company or any Subsidiary, as the case may be.
SECTION 3.11 Information. None of the information to be supplied by the
Company in writing specifically for inclusion or incorporation by reference in
(i) the definitive proxy statement to be used in connection with a meeting (the
'Special Meeting') of the Company's stockholders at which this Agreement and the
matters contemplated hereby will be considered and voted upon and the Form S-4
of which such proxy statement will form a part (collectively, the 'Proxy
Statement') or (ii) any other document to be filed with the SEC or any other
Governmental Entity in connection with the transactions contemplated by this
Agreement (the 'Other Filings') will, at the respective times filed with the SEC
or other Governmental Entity and, in addition, in the case of the Proxy
Statement, at the date it or any amendment or supplement thereto is mailed to
stockholders, at the time of the Special Meeting 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
made therein, in light of the circumstances under which they were made, not
misleading. The Company further represents that the Proxy Statement will comply
in all material respects with the provisions of applicable federal securities
laws.
SECTION 3.12 Employee Benefit Plans.
(a) Schedule 3.12(a) of the Company Disclosure Schedule contains a true and
complete list of each deferred compensation and each incentive compensation,
equity compensation plan, 'welfare' plan, fund or program (within the meaning of
section 3(1) of the Employee Retirement Income Security Act of 1974, as amended
('ERISA')); 'pension' plan, fund or program (within the meaning of section 3(2)
of ERISA); each employment, termination or severance agreement; and each other
employee benefit plan, fund, program, agreement or arrangement, in each case,
that is sponsored, maintained or contributed to or required to be contributed to
by the Company or by any trade or business, whether or not incorporated (an
'ERISA Affiliate'), that together with the Company would be deemed a 'single
employer' within the meaning of section 4001(b) of ERISA, or to which the
Company or an ERISA Affiliate is party for the benefit of any employee or former
employee of the Company or any Subsidiary (the 'Plans').
(b) With respect to each Plan, the Company has made available to Purchaser
true and complete copies of the Plan and any amendments thereto (or if the Plan
is not a written Plan, a description thereof), any related trust or other
funding vehicle, any reports or summaries required under ERISA or the Code and
the most recent determination letter received from the Internal Revenue Service
with respect to each Plan intended to qualify under section 401 of the Internal
Revenue Code of 1986, as amended (the 'Code').
(c) No liability under Title IV or section 302 of ERISA has been incurred
by the Company or any ERISA Affiliate that has not been satisfied in full, and
no condition exists that presents a material risk to the Company or any ERISA
Affiliate of incurring any such liability, other than liability for premiums due
the Pension Benefit Guaranty Corporation (which premiums have been paid when
due).
(d) No Plan is subject to Title IV of ERISA. Each Plan has been operated
and administered in all material
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respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code, except whether failure to do so would not
reasonably be expected to have a Material Adverse Effect on the Company.
(e) Each Plan intended to be 'qualified' within the meaning of section
401(a) of the Code is so qualified and the trusts maintained thereunder are
exempt from taxation under section 501(a) of the Code.
(f) Except as set forth in the Company Disclosure Schedule 3.12(a), no Plan
provides medical, surgical, hospitalization, death or similar benefits (whether
or not insured) for employees or former employees of the Company or any
Subsidiary for periods extending beyond their retirement or other termination of
service, other than (i) coverage mandated by applicable law, (ii) death benefits
under any 'pension plan,' or (iii) benefits the full cost of which is borne by
the current or former employee (or his beneficiary).
(g) There are no pending, threatened or anticipated claims by or on behalf
of any Plan, by any employee or beneficiary covered under any such Plan, or
other- wise involving any such Plan (other than routine claims for benefits),
except to the extent that such claims would not reasonably be expected to result
in a Material Adverse Effect on the Company.
SECTION 3.13 Taxes.
(a) Except as set forth in Schedule 3.13(a) of the Company Disclosure
Schedule, all Tax Returns (as hereinafter defined) by or on behalf of the
Company or any Subsidiary or any affiliated, combined or unitary group of which
the Company or any Subsidiary is or was a member, which if not filed would
result in a Material Adverse Effect, have been duly and timely filed with the
appropriate taxing authorities and were, in all material respects, true,
complete and correct.
(b) Except as set forth in Schedule 3.13(b) of the Company Disclosure
Schedule, the Company and each Subsidiary has paid or will have had paid to the
appropriate taxing authority on its behalf, within the time and in the manner
prescribed by law, all Taxes (as hereinafter defined) for which it is liable and
which if not paid would result in a Material Adverse Effect.
(c) The Company and each Subsidiary has established on its books and
records adequate reserves for the payment of all Taxes for which it is liable
which are not yet due and payable, and with respect to any such Taxes which have
been proposed, assessed or asserted against them and which, in each case, the
failure to establish adequate reserves for such Taxes would result in a Material
Adverse Effect.
(d) The Company and each Subsidiary has complied in all respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes for which it is liable (including, without limitation, withholding of
such Taxes pursuant to sections 1441 and 1442 of the Code or similar provisions
under any state, local or foreign laws, and has, within the time and in the
manner prescribed by law, withheld and paid over to the appropriate taxing
authorities all amounts required to be so withheld and paid over under all
applicable domestic and foreign laws, in each case in which the failure to so
comply and so withhold would result in a Material Adverse Effect.
(e) Except as set forth in Schedule 3.13(e) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary has requested any extension of
time within which to file any Tax Return in respect of any taxable year, which
Tax Return has not since been filed.
(f) Except as set forth in Schedule 3.13(f) of the Company Disclosure
Schedule, there are no outstanding waivers or comparable consents that have been
given by the Company or any Subsidiary or with respect to any Tax Return of the
Company or any Subsidiary regarding the application of any statute of
limitations with respect to any Taxes or Tax Returns of the Company or any such
Subsidiary.
(g) Except as set forth in Schedule 3.13(g) of the Company Disclosure
Schedule (which shall set forth the nature of the proceeding, the type of
return, the deficiencies claimed, asserted, proposed or assessed and the amount
thereof, and the taxable year in question), no United States federal, state,
local or foreign audits or other administrative proceedings or court proceedings
are presently pending against the Company or any Subsidiary with regard to any
Taxes or Tax Returns of the Company or any Subsidiary the liability for which
would result in a Material Adverse Effect on the Company and no notification has
been received by the Company or any Subsidiary that such an audit or other
proceeding is pending or threatened.
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(h) Neither the Company nor any Subsidiary has participated in or
cooperated with an international boycott within the meaning of section 999 of
the Code.
(i) Neither the Company nor any Subsidiary has filed a consent pursuant to
section 341(f) of the Code (or any predecessor provision) or agreed to have
section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in section 341(f)(4) of the Code) owned by either the
Company or any Subsidiary.
(j) No property of the Company or any Subsidiary is property that the
Subsidiary or any party to this transaction is or will be required to treat as
being owned by another person pursuant to the provisions of section 168(f)(8) of
the Internal Revenue Code of 1954, as amended, as in effect prior to the
enactment of the Tax Reform Act of 1986.
(k) Panavision Inc., Panavision Remote Systems Inc., Victor Duncan Inc.,
Keepco I Inc. and Keepco II Inc. are members of an affiliated group of
corporations within the meaning of section 1504(a) of the Code that includes the
Company; and such affiliated group filed a consolidated return with respect to
United States federal income taxes.
(l) Except as set forth in Schedule 3.13(l) of the Company Disclosure
Schedule, there are no encumbrances for taxes upon the assets or properties of
the Company or any Subsidiary except for statutory encumbrances for Taxes not
yet due and payable.
(m) Except as set forth in Schedule 3.13(m) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary has an obligation under any Tax
sharing agreement, Tax indemnification agreement or similar contract or
arrangement (including any agreement, contract or arrangement providing for the
sharing or ceding of credits or losses) or has a potential liability or
obligation to any person as a result of or pursuant to any such agreement,
contract, arrangement or commitment.
(n) Except as set forth in Schedule 3.13(n) of the Company Disclosure
Schedule, no closing agreement pursuant to section 7121 of the Code (or any
predecessor provision) or any similar provision of any state, local or foreign
law has been entered into by or on behalf of the Company or any Subsidiary.
(o) Except as set forth in Schedule 3.13(o) of the Company Disclosure
Schedule, to the best knowledge of the Company and its Subsidiaries no
jurisdiction where the Company or any Subsidiary has not filed a Tax Return has
made a claim that the Company or such Subsidiary is required to file a Tax
Return in such jurisdiction.
(p) All material elections with respect to Taxes of the Company or any
Subsidiary are set forth in Schedule 3.13(p) of the Company Disclosure Schedule.
(q) The Company has previously delivered or made available to Purchaser
complete and accurate copies of each of (i) all audit reports, letter rulings
and technical advice memoranda relating to United States federal, state, local
or foreign Taxes due with respect to the income or business of the Company or
Panavision International, L.P., (ii) all income Tax Returns filed with any
taxing authority (or the relevant portions of any combined, consolidated, or
unitary Tax Return filed in any jurisdiction of which the Company or Panavision
International, L.P. is a member, including, without limitation, information
relating to the computation of taxable income) filed by or on behalf of the
Company or Panavision International, L.P. in the last three years, (iii) any
closing agreement, settlement agreement or similar agreement or arrangement
entered into by or on behalf of the Company or Panavision International, L.P.
with any taxing authority, and (iv) any Tax sharing agreement, Tax
indemnification agreement or similar contract or arrangement entered into by or
on behalf of the Company or Panavision International, L.P.
(r) The net operating losses, capital losses, charitable contributions,
foreign tax credits, general business credits and minimum tax credits for United
States federal, state, foreign and all other purposes, as applicable, of each of
the Company and any Subsidiary and the dates on which such net operating losses
and such other tax attributes will expire are set forth in Schedule 3.13(r) of
the Company Disclosure Schedule.
(s) Except as set forth in Schedule 3.13(s) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary has an overall foreign loss (as
defined in section 904 of the Code and allocated under Treasury
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Regulation section 1.1502-9) as of the taxable year ending December 31, 1996.
For all periods subsequent to the taxable year ending December 31, 1996, through
the Closing, the Company and its Affiliates (including any Subsidiary) have not
and will not take any action or engage in any transaction including, without
limitation, causing the Company or any Subsidiary to incur additional
liabilities and/or additional expenses (other than (i) any actions or
transaction made in the ordinary course of business, (ii) any transactions
contemplated by this Agreement or (iii) the acquisition by the Company of the
film services group of Visual Action Holdings Plc) that would create an overall
foreign loss allocable to the Company or any Subsidiary under Treasury
Regulation section 1.1502-9.
(t) Except as set forth in Schedule 3.13(t) of the Company Disclosure
Schedule, no QEF elections (as defined in section 1295 of the Code) have been
filed by or on behalf of the Company or any Subsidiary.
(u) For purposes of this Agreement, 'Taxes' shall mean all taxes, charges,
fees, levies or other assessments, including, without limitation, all net
income, gross income, gross receipts, sales, use, ad valorem, goods and
services, capital, transfer, franchise, profits, license, withholding, payroll,
employment, employer health, excise, severance, stamp, occupation, real and
personal property, social security, estimated, recording, gift, value assessed,
windfall profits or other taxes, customs duties, fees, assessments or charges of
any kind whatsoever, whether computed on a separate, consolidated, unitary,
combined or other basis, together with any interest, fines, penalties, additions
to tax or other additional amounts imposed by any taxing authority (domestic or
foreign). For purposes of this Agreement, 'Tax Return' shall mean any return,
declaration, report, estimate, information or other document (including any
documents, statements or schedules attached thereto) required to be filed with
any federal, state, local or foreign tax authority with respect to Taxes.
SECTION 3.14 Environmental Matters.
(a) Except as set forth on Section 3.14 of the Company Disclosure Schedule:
(i) the Company and its Subsidiaries have been and are in compliance
with all applicable Environmental Laws as in effect on the date hereof,
except for such non-compliance violations and defaults as would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company;
(ii) the Company and its Subsidiaries possess all Environmental
Permits required for the operation of the Business pursuant to
Environmental Laws as in effect on the date hereof, all such Environmental
Permits are in effect, there are no pending or, to the best knowledge of
the Company, threatened proceedings to revoke such Environmental Permits
and the Company and its Subsidiaries are, to the best knowledge of the
Company, in compliance with all terms and conditions thereof, except for
such failures to possess or comply with Environmental Permits as would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company;
(iii) except for matters which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company, neither the
Company nor any Subsidiary has received any written notification that the
Company or any Subsidiary, as a result of any of the current or past
operations of the Business, or any property currently or formerly owned or
leased in connection with the Business, is or may be the subject of any
proceeding, investigation, claim, lawsuit or order by any Governmental
Entity or other person as to whether (x) any Remedial Action is or may be
needed to respond to a Release or threat of Release into the environment of
Hazardous Substances as defined under Environmental Laws as in effect on or
prior to the date hereof; (y) any Environmental Liabilities and Costs
imposed by, under or pursuant to Environmental Laws as in effect on or
prior to the date hereof shall be sought, or proceeding commenced, related
to or arising from the current or past operations of the Business; or (z)
the Company or any subsidiary is or may be a 'potentially responsible
party' for a Remedial Action, pursuant to any Environmental Law as in
effect on or prior to the date hereof, for the costs of investigating or
remediating Releases or threatened Releases into the environment of
Hazardous Substances, whether or not such Release or threatened Release has
occurred or is occurring at properties currently or formerly owned, leased
or operated by the Company and its Subsidiaries;
(iv) except for Environmental Permits, none of the Company and its
Subsidiaries has entered into any written agreement with any Governmental
Entity by which the Company or any Subsidiary has assumed responsibility,
either directly or as a guarantor or surety, for the remediation of any
condition arising from or
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relating to a Release of Hazardous Substances as defined under
Environmental Laws as in effect on or prior to the date hereof into the
environment in connection with the Business, including for cost recovery
with respect to such Releases or threatened Releases;
(v) there is not now and has not been at any time in the past, a
Release in connection with the current or former conduct of the Business of
Hazardous Substances as regulated under Environmental Laws as in effect on
or prior to the date hereof for which the Company or any Subsidiary is
required or is reasonably likely to be required to perform a Remedial
Action pursuant to Environmental Laws as currently in effect, or will incur
Environmental Liabilities and Costs that would, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(b) For purposes of this Section:
(i) 'Business' means the current and former businesses of the Company
and its Subsidiaries including, but not limited to, businesses or
Subsidiaries that have been previously sold by the Company, its
Subsidiaries or any predecessors thereto.
(ii) 'Environmental Laws' means all Laws relating to the protection of
the environment, or to any emission, discharge, generation, processing,
storage, holding, abatement, existence, Release, threatened Release or
transportation of any Hazardous Substances, including, but not limited to,
(i) CERCLA, the Resource Conservation and Recovery Act, the Clean Water
Act, the Clean Air Act, the Toxic Substances Control Act, as amended (the
'TSCA'), property transfer statutes or requirements and (ii) all other
requirements pertaining to reporting, licensing, permitting, investigation
or remediation of emissions, discharges, Releases or threatened Releases of
Hazardous Substances into the air, surface water, groundwater or land, or
relating to the manufacture, processing, distribution, use, sale,
treatment, receipt, storage, disposal, transport or handling of Hazardous
Substances.
(iii) 'Environmental Liabilities and Costs' means all damages, natural
resource damages, claims, losses, expenses, costs, obligations, and
liabilities (collectively, 'Losses'), whether direct or indirect, known or
unknown, current or potential, past, present or future, imposed by, under
or pursuant to Environmental Laws, including, but not limited to, all
Losses related to Remedial Actions, and all fees, capital costs,
disbursements, penalties, fines and expenses of counsel, experts,
contractors, personnel and consultants based on, arising out of or
otherwise in respect of (i) the Company, any Subsidiary (including
predecessors and former Subsidiaries) or property owned, used or leased by
the Company or any Subsidiary in respect of the Business at any time; (ii)
conditions existing on, under, around, above or migrating from any such
property; and (iii) expenditures necessary to cause any such property or
the Company or any Subsidiary to be in compliance with requirements of
Environmental Laws.
(iv) 'Environmental Permits' means any federal, state, foreign,
provincial or local permit, license, registration, consent, order,
administrative consent order, certificate, approval or other authorization
necessary for the conduct of the Business as currently conducted under any
Environmental Law.
(v) 'Hazardous Substances' means any substance that (a) is defined,
listed or identified or otherwise regulated as a 'hazardous waste,'
'hazardous material' or 'hazardous substance,' 'toxic substance,'
'hazardous air pollution,' 'polluted,' or 'contaminated' or words of
similar meaning and regulatory effect under CERCLA, TSCA or the Resource
Conservation and Recovery Act or any other Environmental Law or analogous
state or foreign law (including, without limitation, radioactive
substances, asbestos, polycholorinated biphenyls, petroleum and petroleum
derivatives and products) or (b) requires investigation, removal or
remediation under applicable Environmental Law.
(vi) 'Laws' means all (A) constitutions, treaties, statutes, laws
(including, but not limited to, the common law), rules, regulations,
ordinances or codes of any Governmental Entity, (B) Environmental Permits,
and (C) orders, decisions, injunctions, judgments, awards and decrees of
any Governmental Entity.
(vii) 'Release' means as defined in CERCLA or the Resource
Conservation and Recovery Act, without limiting its application to
violations or alleged violations of those statutes, but not including any
discharge, spill or emission that is the subject of, and in compliance
with, an Environmental Permit.
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(viii) 'Remedial Action' means all actions required by Governmental
Entity pursuant to Environmental Law or otherwise taken as necessary to
comply with Environmental Law to (i) clean up, remove, treat or in any
other way remediate any Hazardous Substances; (ii) prevent the release of
Hazardous Substances so that they do not migrate or endanger or threaten to
endanger public health or welfare or the environment; or (iii) perform
studies, investigations or monitoring in respect of any such matter.
SECTION 3.15 Absence of Certain Changes. Since September 30, 1997, except
as contemplated by this Agreement or as disclosed in Company SEC Reports filed
prior to the date of this Agreement, the Company and its Subsidiaries have
conducted their business only in the ordinary course and in a manner consistent
with past practice and, since such date, there has not been (a) any Material
Adverse Effect on the Company, (b) any material change by the Company in its
accounting methods, principles or practices, except as may be required by GAAP,
(c) any damage, destruction or loss (whether or not covered by insurance) with
respect to properties or assets of the Company or any Subsidiary that,
individually or in the aggregate, is material to the Company and its
Subsidiaries taken as a whole, (d) any declaration, setting aside or payment of
any dividend or distribution in respect of Common Shares or any redemption,
purchase or other acquisition of any of its securities, (e) any revaluation by
the Company and its Subsidiaries of any asset (including, without limitation,
any writing down of the value of inventory or writing off of notes or accounts
receivable), other than in the ordinary course of business consistent with past
practice, (f) any entry by the Company or any Subsidiary into any commitment or
transaction material to the Company and its Subsidiaries taken as a whole,
except in the ordinary course of business consistent with past practice, (g) any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any officers or key employees of the Company or any
Subsidiary, except in the ordinary course of business consistent with past
practice, (h) any acquisition or disposition by the Company of any material
asset, except in the ordinary course of business except consistent with past
practice, (i) any incurrence, assumption or guarantee of any indebtedness or
obligation relating to any lending or borrowing except current liabilities and
commitments incurred in the ordinary course of business consistent with past
practice, or (j) any amendment, modification or termination of any existing, or
entering into any new, material contract, or any material plan, lease, license,
permit or franchise, except in the ordinary course of business consistent with
past practice.
SECTION 3.16 Broker. Except for the engagement of Goldman, Sachs & Co.,
none of the Company, any of its Subsidiaries, or any of their respective
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated by this Agreement.
SECTION 3.17 Opinion of Investment Banker. The Company has received the
opinion of Goldman, Sachs & Co. to the effect that, as of December 17, 1997, the
Merger Consideration is fair to the Company's stockholders from a financial
point of view.
SECTION 3.18 Board Recommendation. The Company Board, at a meeting duly
called and held, has (a) determined that this Agreement and the transactions
contemplated hereby, taken together, are advisable and in the best interests of
the Company and its stockholders, and (b) subject to the other provisions
hereof, resolved to recommend that the holders of the Common Shares approve this
Agreement and the transactions contemplated hereby, including the Merger.
SECTION 3.19 Required Company Vote. The Company Stockholder Approval,
being the affirmative vote of a majority of the Common Shares, is the only vote
of the holders of any class or series of the Company's securities necessary to
approve this Agreement, the Merger and the other transactions contemplated
hereby.
SECTION 3.20 Intellectual Property.
(a) Section 3.20 of the Company Disclosure Schedule sets forth a list of
all material domestic and foreign Intellectual Property (as hereinafter
defined). Except as set forth on Section 3.20 of the Company Disclosure
Schedule;
(b) To the Company's knowledge, the Company or a Subsidiary is the sole and
exclusive owner of the Intellectual Property set forth on Section 3.20 of the
Company Disclosure Schedule and has the sole and
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exclusive right to use, sell, license, or bring actions for the infringement of
its rights thereto, free and clear of all Liens which would have a Material
Adverse Effect on the Company;
(c) To the Company's knowledge, there are no royalties, fees or other
payments payable by the Company or any of its Subsidiaries to any person by
reason of ownership, use, license or sale of any of the Intellectual Property or
the conduct of the Company or its Subsidiaries' business which would have a
Material Adverse Effect on the Company;
(d) To the Company's knowledge, neither the Company nor its Subsidiaries
has entered into or is otherwise bound by any consent, forebearance to sue,
settlement agreement or other agreement which limits the Company's or its
Subsidiaries' rights to use, sell or license any of the Intellectual Property
except as would not have a Material Adverse Effect on the Company;
(e) All patent, trademark, service mark, copyright and other registrations
and applications set forth on Section 3.20 of the Company Disclosure Schedule
(x) are standing in the name of the Company or a Subsidiary, (y) are, with
respect to domestic registrations and applications, valid and subsisting, and
(z) to the Company's knowledge, are not subject to any pending, actual or
threatened interference, opposition, cancellation or other proceeding before any
court or registration authority which individually or in the aggregate would
have a Material Adverse Effect on the Company;
(f) To the Company's knowledge, neither the Company nor its Subsidiaries
is, in any material respect, in breach, violation or default of the License
Agreements (and the Company is not aware of any event which has occurred which
with the giving of notice or the passage of time or both would constitute such a
breach, violation or default or give rise to any right of termination,
amendment, renegotiation, cancellation or acceleration under any such
agreement), and to the Company's knowledge, no other party to any such agreement
is in breach, violation or default thereof except as would not have a Material
Adverse Effect on the Company;
(g) To the Company's knowledge, neither the manufacture, use, sale,
offering for sale, marketing or importation under, or the license of any of the
Intellectual Property set forth in Section 3.20 of the Company Disclosure
Schedule, nor the conduct of the Company's or its Subsidiaries' businesses in
the manner currently conducted or proposed to be conducted, violates, in any
material respect, any License Agreement, or conflicts with or infringes on the
rights of any person; no allegation of such an infringement has been made within
three (3) years preceding the date of this Agreement, and the Company is not
aware of any basis for such a claim; and, to the Company's knowledge, there is
no pending or threatened claim or litigation challenging or questioning the
validity of, or the Company's or its Subsidiaries' ownership or right to use,
sell, license, or bring actions for the infringement of its rights to the
Intellectual Property set forth in Schedule 3.20 of the Company Disclosure
Schedule which individually or in the aggregate would have a Materially Adverse
Effect on the Company, and the Company is not aware of any basis for such a
claim;
(h) To the Company's knowledge, no person has infringed, misappropriated,
or misused any of the Intellectual Property, except as would not have a Material
Adverse Effect on the Company, and neither the Company nor any of its
subsidiaries has asserted any claim of infringement, misappropriation, or misuse
against any person within the past three (3) years;
(i) To the Company's knowledge, the Company and its Subsidiaries have taken
all reasonably necessary steps to maintain and protect the Intellectual Property
set forth on Schedule 3.20 of the Company Disclosure Schedule; and
(j) Except as would not have a Material Adverse Effect on the Company, the
Company is not aware of any facts or circumstances that exist which could render
any of the Intellectual Property invalid or unenforceable.
(k) As employed herein, the term 'Intellectual Property' shall mean: (i)
any and all registered and unregistered trademarks, service marks, slogans,
trade names, logos and trade dress, both domestic and foreign, which are owned
by the Company or a Subsidiary (collectively, and together with the good will
associated with each, 'Trademarks'); (ii) any and all domestic and foreign
patents, patent applications, invention registrations and invention disclosures
which are owned by the Company or a Subsidiary (collectively, 'Patents'); (iii)
any and all registered and unregistered copyrights, both domestic and foreign,
which are owned by the Company or a Subsidiary, including, but not limited to,
programs and databases which are owned by the Company or a
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Subsidiary (together, 'Software'); (iv) any and all unpatented or unpatentable
methods, devices, technology, trade secrets, proprietary information and
know-how which are owned by the Company or a Subsidiary (collectively,
'Technology'); and (v) any and all licenses, contracts or other agreements which
involve the development, acquisition, use, sale or license of intellectual
property rights and to which the Company or a Subsidiary is a party
(collectively, 'License Agreements).'
SECTION 3.21 Related Party Transactions. Except as set forth in Section
3.21 of the Company Disclosure Schedule hereto or as disclosed in SEC Reports
filed prior to the date of this Agreement, there are no contracts, agreements,
arrangements or understandings of any kind between any affiliate (other than any
Subsidiary) of the Company, on the one hand, and the Company or any Subsidiary,
on the other hand.
SECTION 3.22 Labor Relations and Employment.
(a) Except as set forth on Section 3.22(a) of the Company Disclosure
Schedule and except to the extent that such matters would not result in a
Material Adverse Effect on the Company, (i) there is no labor strike, dispute,
slowdown, stoppage or lockout actually pending, or, to the best knowledge of the
Company, threatened against the Company or any of its Subsidiaries, and during
the past three years there has not been any such action; (ii) to the best
knowledge of the Company, there are no union claims to represent the employees
of the Company or any of its Subsidiaries; (iii) neither the Company nor any of
its Subsidiaries is a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to with
any labor organization or employee association applicable to employees of the
Company or any of its Subsidiaries; (iv) none of the employees of the Company or
any of its Subsidiaries is represented by any labor organization and the Company
does not have any knowledge of any current union organizing activities among the
employees of the Company or any of its Subsidiaries, nor does any question
concerning representation exist concerning such employees; (v) the Company and
its Subsidiaries are, and have at all times been, in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, and are not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other applicable law, ordinance or regulation;
(vi) there is no unfair labor practice charge or complaint against the Company
or any of its Subsidiaries pending or, to the best knowledge of the Company,
threatened before the National Labor Relations Board or any similar state or
foreign agency; (vii) there is no grievance arising out of any collective
bargaining agreement or other grievance procedure; (viii) no charges with
respect to or relating to the Company or any of its Subsidiaries are pending
before the Equal Employment Opportunity Commission or any other agency
responsible for the prevention of unlawful employment practices; (ix) neither
the Company nor any of its Subsidiaries has received notice of the intent of any
federal, state, local or foreign agency responsible for the enforcement of labor
or employment laws to conduct an investigation with respect to or relating to
the Company or any of its Subsidiaries and no such investigation is in progress;
(x) there are no complaints, lawsuits or other proceedings pending or, to the
best knowledge of the Company, threatened in any forum by or on behalf of any
present or former employee of the Company or any of its Subsidiaries alleging
breach of any express or implied contract of employment, any law or regulation
governing employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with the employment relationship; and
(xi) to the best knowledge of the Company, since the enactment of the Worker
Adjustment and Retraining Notification ('WARN') Act, there has not been (i) a
'plant closing' (as defined in the WARN Act) affecting any site of employment or
one or more facilities or operating units within any site of employment or
facility of the Company or any of its Subsidiaries, or (ii) a 'mass layoff' (as
defined in the WARN Act) affecting any site of employment or facility of the
Company or any of its Subsidiaries; nor has the Company or any of its
Subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state or local law.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND MERGER SUB
Purchaser and Merger Sub represent and warrant to the Company as follows:
SECTION 4.1 Organization and Qualification. Each of Purchaser and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of Delaware and is not required to be qualified as a foreign
corporation under the laws of any jurisdiction.
SECTION 4.2 Authority Relative to this Agreement. Each of Purchaser and
Merger Sub has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by each of Purchaser and Merger Sub and the
consummation by each of Purchaser and Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by their respective
Board of Directors and sole stockholder of each of Purchaser and Merger Sub and
no other corporate proceedings on the part of either Purchaser or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
each of Purchaser and Merger Sub and, assuming this Agreement constitutes a
valid and binding obligation of the Company, constitutes a valid and binding
agreement of each of Purchaser and Merger Sub, enforceable against each of
Purchaser and Merger Sub in accordance with its terms.
SECTION 4.3 Capitalization of Merger Sub; Interests in the Company. The
authorized capital stock of Merger Sub consists of the Merger Sub Common Stock.
As of the close of business on December 17, 1997, 10 shares of Merger Sub Common
Stock were issued and outstanding, all of which are entitled to vote, and no
shares of Merger Sub Common Stock were held in the Merger Sub's treasury. All
the outstanding shares of the Merger Sub's capital stock are duly authorized,
validly issued, fully paid and non-assessable. As of the date hereof, the
Purchaser and Merger Sub do not beneficially hold any Common Shares.
SECTION 4.4 No Violation.
(a) Neither the execution nor delivery of this Agreement by either
Purchaser or Merger Sub nor the consummation by either Purchaser or Merger
Sub of the transactions contemplated hereby shall (i) constitute a breach
or violation of any provision of the Certificate of Incorporation or
By-Laws of either Purchaser or Merger Sub or (ii) constitute a breach,
violation or default (or any event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in the creation of any
lien or encumbrance upon any of the properties or assets of either
Purchaser or Merger Sub under, any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other Contract to which either
Purchaser or Merger Sub is a party or by which it or any of its properties
or assets are bound or (iii) subject to the governmental filings and other
matters referred to in the following paragraph, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to either
Purchaser or Merger Sub or its properties or assets, other than, in the
case of clauses (ii) and (iii), any such conflicts, violations, defaults,
rights or Lien that individually or in the aggregate would not have a
Material Adverse Effect on Purchaser or Merger Sub.
(b) Other than in connection with, or in compliance with, the
provisions of the DGCL with respect to the transactions contemplated
hereby, the Exchange Act, the Securities Act, the securities laws of the
various states and the HSR Act, no authorization, consent or approval of,
or filing with, any Governmental Entity is necessary for the consummation
by the Company of the transactions contemplated by this Agreement other
than authorizations, consents and approvals the failure to obtain, or
filings the failure to make, which would not, in the aggregate, have a
Material Adverse Effect on Purchaser or Merger Sub. The term 'Material
Adverse Effect on Purchaser or Merger Sub', as used in this Agreement,
means any change in or effect on the business, financial condition, results
of operations or prospects of Purchaser or Merger Sub that would be
materially adverse to Purchaser or Merger Sub, respectively.
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SECTION 4.5 Information. None of the information to be supplied by either
Purchaser or Merger Sub in writing specifically for inclusion or incorporation
by reference in (i) the Proxy Statement or (ii) the Other Filings will, at the
respective times filed with the SEC or other Governmental Entity and, in
addition, in the case of the Proxy Statement, at the date it or any amendment or
supplement is mailed to stockholders, at the time of the Special Meeting 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 made therein, in light of the circumstances under which they
were made, not misleading.
SECTION 4.6 No Prior Business. Neither Purchaser nor Merger Sub has
engaged in any business or activity of any kind or entered into any agreement or
arrangement with any Person or incurred, directly or indirectly, any material
liabilities or obligations, other than in connection with the transactions
contemplated by this Agreement.
SECTION 4.7 No Distribution. Purchaser shall acquire any Common Shares
purchased pursuant to this Agreement for its own account and not with a view to
or for sale in connection with any distribution thereof, and Purchaser shall not
sell or otherwise dispose of any Common Shares, except in each case in
compliance with the Securities Act and the rules and regulations thereunder.
SECTION 4.8 Broker. Neither the Purchaser nor Merger Sub, or any of their
affiliates, has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finder's fees in connection with the transactions
contemplated by this Agreement.
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business of the Company. Except as contemplated by
this Agreement or as expressly agreed to in writing by Purchaser, during the
period from the date of this Agreement to the Effective Time, the Company will,
and will cause each of its Subsidiaries to, conduct its operations according to
its ordinary and usual course of business and consistent with past practice and
use its and their respective reasonable best efforts to preserve intact their
current business organizations, keep available the services of their current
officers and employees and preserve their relationships with customers,
suppliers, licensors, licensees, advertisers, distributors and others having
business dealings with them and to preserve goodwill. Without limiting the
generality of the foregoing, and except as (x) otherwise expressly provided in
or contemplated by this Agreement, (y) required by law, or (z) set forth on
Section 5.1 of the Company Disclosure Schedule, prior to the Effective Time, the
Company will not, and will cause its Subsidiaries not to, without the consent of
Purchaser:
(a) except with respect to annual bonuses made in the ordinary course
of business consistent with past practice, adopt or amend in any material
respect any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, pension, retirement, employment or
other employee benefit agreement, trust, plan or other arrangement for the
benefit or welfare of any director, officer or employee of the Company or
any of its Subsidiaries or increase in any manner the compensation or
fringe benefits of any director, officer or employee of the Company or any
of its Subsidiaries or pay any benefit not required by any existing
agreement or place any assets in any trust for the benefit of any director,
officer or employee of the Company or any of its Subsidiaries (in each
case, except with respect to employees and directors in the ordinary course
of business consistent with past practice);
(b) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any Person, or
make any loans or advances, except for (A) indebtedness incurred in the
ordinary course of business and consistent with past practice, (B)
indebtedness of the Company to a direct or indirect wholly owned Subsidiary
to the Company or another direct or indirect wholly owned Subsidiary and
(C) other indebtedness with a maturity of not more than one year incurred
in the ordinary course of business consistent with past practice;
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(c) enter into any contract or agreement material to the business,
results of operations, or financial condition of the Company and its
Subsidiaries taken as a whole other than in the ordinary course of
business, consistent with past practice;
(d) sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any of its properties or assets other than
immaterial properties or assets (or immaterial portions of properties or
assets), (i) except in the ordinary course of business consistent with past
practice or (ii) as otherwise reasonably necessary to comply with the terms
of any (a) mortgage liens encumbering such Property, (b) insurance
requirement or (c) laws, rules or regulations or any governmental
authority;
(e) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (ii) split, combine
or reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock or (iii) purchase, redeem or otherwise acquire
any shares of capital stock of the Company or any of its Subsidiaries or
any other securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
(f) authorize for issuance, issue, deliver, sell or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise), pledge or otherwise encumber any shares of its capital stock or
the capital stock of any of its Subsidiaries, any other voting securities
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities or
any other securities or equity equivalents (including without limitation
stock appreciation rights) (other than issuances upon exercise of options
or pursuant to Company Stock Options);
(g) amend its Amended and Restated Certificate of Incorporation,
By-Laws or equivalent organizational documents or alter through merger,
liquidation, reorganization, restructuring or in any other fashion the
corporate structure or ownership of the Company or of any material
Subsidiary of the Company;
(h) acquire or dispose of (including, without limitation, by merger,
consolidation, or acquisition or disposition or stock or assets) any
interest in any corporation, partnership, other business organization or
any division thereof or any assets, other than the acquisition or
disposition of assets in the ordinary course of business consistent with
past practice and any other acquisitions or dispositions for consideration
which is not, individually, in excess of $2,500,000, and in the aggregate,
in excess of $5,000,000;
(i) settle or compromise any stockholder derivative suits arising out
of the transactions contemplated hereby or any other litigation (whether or
not commenced prior to the date of this Agreement) or settle, pay or
compromise any claims not required to be paid, individually in an amount in
excess of $50,000, or in the aggregate in excess of $250,000, other than in
consultation and cooperation with Purchaser, and, with respect to any such
settlement, with the prior written consent of Purchaser;
(j) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect
to accounting policies or procedures (including, without limitation,
procedures with respect to the payment of accounts payable and collection
of accounts receivable);
(k) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability;
(l) take any action that would result in (i) any of the
representations or warranties of the Company set forth in this Agreement
that are qualified as to materiality becoming untrue, (ii) any of such
representations or warranties that are not so qualified becoming untrue in
any material respect or (iii) any of the conditions to the Merger set forth
in Article VI not being satisfied; and
(m) authorize or enter into any agreement to do anything prohibited by
Sections 5.1(a) through (m).
SECTION 5.2 Access to Information; Confidentiality.
(a) To the fullest extent possible, consistent with applicable Law, the
Company shall afford to Purchaser and its officers, employees, accountants,
counsel, financial advisors and other representatives ('Representatives')
reasonable access during normal business hours during the period prior to
Effective Time to all the officers,
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employees, agents, properties, books, contracts, commitments and records of the
Company and its Subsidiaries, and shall cooperate in furnishing, and cause its
officers, employees and agents to furnish, promptly to Purchaser and its
representatives all information concerning the business, properties and
personnel of the Company and its Subsidiaries as Purchaser may reasonable
request.
(b) Until the Effective Time, Purchaser, Merger Sub and the Company shall
be bound by, and will hold any information received pursuant to this Agreement
in confidence in accordance with the terms of, the confidentiality agreement by
and between the Company and Mafco Consolidated Group, Inc., dated October 8,
1997 (the 'Confidentiality Agreement').
(c) No investigation by either the Company or Merger Sub shall affect the
representations and warranties of the other.
SECTION 5.3 Financing. Purchaser shall use its reasonable best efforts to
conclude any financing necessary to consummate the transactions contemplated by
this Agreement on or before the Closing Date. The Company shall use, and shall
cause William C. Scott, Chairman of the Board and Chief Executive Officer, John
S. Farrand, President and Chief Operating Officer and Jeffrey J. Marcketta,
Executive Vice President, Chief Financial Officer and Treasurer to use, their
respective reasonable best efforts (consistent with the Company's obligations
pursuant to Section 5.1 of this Agreement) to assist the Purchaser in obtaining
any financing pursuant to this Section 5.3.
SECTION 5.4 Stock Purchase.
(a) Immediately prior to the consummation of the Merger, the Company shall
sell, transfer, assign and deliver the Designated Number of Common Shares (as
hereinafter defined) to the Purchaser, and the Purchaser shall purchase the
Designated Number of Common Shares from the Company for the Designated Per Share
Purchase Price (as hereinafter defined), payable by wire transfer of same day
funds; provided, that all conditions to the Merger contained in this Agreement
have been either satisfied or waived.
(b) For purposes hereof:
(i) 'Designated Per Share Purchase Price' shall mean the number
obtained by dividing (x) the sum of (A) the number of Cashed Shares
multiplied by $27.00, (B) the number Company Stock Options to be cashed
out pursuant to Section 2.4 of this Agreement multiplied by $27.00, and
(C) 100 times the number of redeemable preferred shares to be exchanged
for cash pursuant to Section 7.3 of the Stockholders Agreement,
multiplied by $26.50, by (y) the sum of (A) the number of Cashed Shares,
(B) the number Company Stock Options to be cashed out pursuant to
Section 2.4 of this Agreement, and (C) 100 times the number of
redeemable preferred shares to be exchanged for cash pursuant to Section
7.3 of the Stockholders Agreement; and
(ii) 'Designated Number of Common Shares' shall mean such number of
Common Shares which, when added to the number of Retained Shares and the
number of Common Shares to be retained by the Stockholder pursuant to
Section 7.3 of the Stockholders Agreement, results in a number of Common
Shares which, when multiplied by the Designated Per Share Purchase
Price, shall equal $215,000,000.
SECTION 5.5 Efforts.
(a) Upon the terms and subject to the conditions of this Agreement, each of
the parties hereto agrees to use its reasonable best efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement as promptly as
practicable including, but not limited to, (i) the preparation and filing of all
forms, registrations and notices required to be filed to consummate the
transactions contemplated by this Agreement, including, (x) the prompt
preparation and filing with the SEC of the Proxy Statement, as well as any other
registration statement that may be required in connection with the financing of
the transactions contemplated by this Agreement, and (y) such actions as may be
required to have the Proxy Statement, and such other registration statements, if
any, declared effective under the Securities Act and the Proxy Statement cleared
by the SEC, in each case, as promptly as practicable, including by consulting
with each other as to and responding promptly to, any SEC comments with respect
thereto, and the taking of such actions as
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are necessary to obtain any requisite approvals, consents, orders, exemptions or
waivers by any third party or Governmental Entity, and (ii) causing the
satisfaction of all conditions to the Closing.
(b) Each party shall promptly consult with the other with respect to,
provide any necessary information that is not subject to legal privilege with
respect to, and provide the other (or its counsel) copies of, all filings made
by such party with any Governmental Entity or any other information supplied by
such party to a Governmental Entity in connection with this Agreement and the
transactions contemplated by this Agreement. Each party hereto shall promptly
inform the other of any communication from any Governmental Entity regarding any
of the transactions contemplated by this Agreement. If either party receives a
request for additional information or documentary material from any such
Governmental Entity with respect to the transactions contemplated by this
Agreement, then such party will endeavor in good faith to make, or cause to be
made, as soon as reasonably practicable and after consultation with the other
party, an appropriate response in compliance with such request.
SECTION 5.6 Public Announcements. The Company, on the one hand, and
Purchaser and Merger Sub, on the other hand, shall consult promptly with each
other prior to issuing any press release or otherwise making any public
statement with respect to the Merger, the Stock Purchase and the other
transactions contemplated hereby, shall provide to the other party for review a
copy of any such press release or statement, and shall not issue any such press
release or make any such public statement prior to such consultation and review,
unless required by applicable law or any listing agreement with a securities
exchange.
SECTION 5.7 Indemnification; Directors' and Officers' Insurance.
(a) From and after the Effective Time, Purchaser shall, and shall cause the
Surviving Corporation to, indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of the Company and its
Subsidiaries (the 'Indemnified Parties') from and against all losses, claims,
damages, expenses or liabilities arising out of or related to actions or
omissions or alleged actions or omissions occurring at or prior to the Effective
Time to the same extent and on the same terms and conditions (including with
respect to advancement of expenses) provided for in the Company's Amended and
Restated Certificate of Incorporation and By-Laws and agreements in effect at
the date hereof (to the extent consistent with applicable law), which provisions
will survive the Merger and continue in full force and effect for six years
after the Effective Time. It is further understood and agreed that the Company
shall, to the fullest extent permitted under the DGCL and regardless of whether
the Merger becomes effective, indemnify, defend and hold harmless, and after the
Effective Time, the Surviving Corporation shall, to the fullest extent permitted
under the DGCL, indemnify, defend and hold harmless, each Indemnified Party
against any costs or expenses (including reasonable attorneys' fees),
judgements, fines, losses, claims, damages, liabilities and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation, and in the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) the
Company or the Surviving Corporation shall pay the reasonable fees and expenses
of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to the Company or the Surviving Corporation, promptly as
statements therefor are received, and (ii) the Company and the Surviving
Corporation shall cooperate in the defense of any such matter; provided,
however, that neither the Company nor the Surviving Corporation shall be liable
for any settlement effected without its written consent (which consent shall not
be unreasonably withheld); and further, provided, that neither the Company nor
the Surviving Corporation shall be obliged pursuant to this Section 5.7 to pay
the fees and disbursements of more than one counsel for all Indemnified Parties
in any single action except to the extent that, in the opinion of counsel for
the Indemnified Parties, two or more of such Parties have conflicting interests
in the outcome of such action. Without limiting the foregoing, Purchaser shall,
and shall cause the Surviving Corporation to, advance expenses, including
reasonable attorney's fees and expenses, as incurred by an Indemnified Party
with respect to the foregoing to the fullest extent permitted under the DGCL,
provided that the Indemnified Party to whom expenses are advanced provides the
undertaking to repay such advances contemplated by Section 145(e) of the DGCL.
(b) The Surviving Corporation shall cause to be maintained in effect for
not less than four years from the Effective Time the current policies of the
directors' and officers' liability insurance maintained by the Company; provided
that the Surviving Corporation may substitute therefor other policies of at
least the same coverage amounts and which contain terms and conditions not less
advantageous to the beneficiaries of the current policies and provided that such
substitution shall not result in any gaps or lapses in coverage with respect to
matters
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occurring prior to the Effective Time; and provided, further, that the Surviving
Corporation shall not be required to pay an annual premium in excess of 200% of
the last premium paid by the Company prior to the date hereof and if the
Surviving Corporation is unable to obtain the insurance required by this Section
5.7(b) for such maximum amount then it shall obtain as much comparable insurance
as possible for an annual premium equal to such maximum amount.
(c) This Section 5.7 shall survive the consummation of the Merger, is
intended to benefit the Company, the Surviving Corporation and the Indemnified
Parties, and shall be binding on all successors and assigns of Purchaser, and
the Surviving Corporation.
SECTION 5.8 Notification of Certain Matters. Purchaser and the Company
shall promptly notify each other of (i) the occurrence or non-occurrence of any
fact or event which would be reasonably likely (A) to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Effective Time or (B)
to cause any covenant, condition or agreement under this Agreement not to be
complied with or satisfied and (ii) any failure of the Company, Purchaser or
Merger Sub, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that no such notification shall affect the representations or
warranties of either party or the conditions to the obligations of either party
hereunder. Each of the Company, Purchaser and Merger Sub shall give prompt
notice to the other of any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement.
SECTION 5.9 No Solicitation.
(a) The Company and its Subsidiaries shall, and the Company shall direct
and use its reasonable best efforts to cause the officers, directors, employees,
representatives, agents and affiliates of the Company and its Subsidiaries to,
immediately cease any discussions or negotiations with any parties that may be
ongoing with respect to any Transaction Proposal (as hereinafter defined). The
Company shall not, nor shall it permit any of its Subsidiaries to, nor shall it
authorize or permit any of its officers, directors, or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly,
(i) solicit, initiate or encourage (including by way of furnishing
information or assistance) any inquiries or the making of any proposal which
constitutes, or may be reasonably expected to lead to, any Transaction Proposal
or
(ii) enter into or participate in any discussions or negotiations regarding
any Transaction Proposal;
provided, however, that at any time prior to the receipt of the vote of the
Company's stockholders approving this Agreement and the transactions
contemplated hereby (the 'Required Vote') the Company may, in response to a
Transaction Proposal which the Board of Directors reasonably believes may
constitute, or result in the making of, a Superior Proposal (as hereinafter
defined) which was not solicited subsequent to the date hereof (x) furnish
information with respect to the Company to any Person pursuant to a
confidentiality agreement on terms no less favorable to the Company than the
Confidentiality Agreement; and (y) enter into or participate in discussions,
investigations or negotiations regarding such Transaction Proposal. The Company
shall promptly give written notice to Purchaser of the names of the person or
persons with respect to which it takes any action pursuant to subclauses (x) and
(y) of the preceding sentence and a general description of the actions taken.
(b) Except as set forth in this Section 5.9, the Board of Directors of the
Company shall not (i) withdraw or modify, or propose publicly to withdraw or
modify, in a manner adverse to the Purchaser, the approval or recommendation by
such Board of Directors of the Merger or this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any Transaction Proposal
or (iii) cause the Company to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement related to any
Transaction Proposal. Notwithstanding the foregoing, if the Board of Directors
of the Company determines in good faith that it has received a Superior Proposal
(as defined below), the Board of Directors of the Company may, prior to the
receipt of the Required Vote, withdraw or modify its approval or recommendation
of the Merger and this Agreement, approve or recommend a Superior Proposal or
terminate this Agreement, but in each case, only at a time that is at least four
business days after Purchaser's receipt of written notice advising Purchaser
that
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the Board of Directors of the Company has received a Transaction Proposal that
may constitute a Superior Proposal, specifying the material terms and conditions
of such Superior Proposal and the names of the person or persons making such
Superior Proposal.
(c) Nothing contained in this Section 5.9 shall prohibit the Company from
taking and disclosing to its shareholders a position contemplated by Rules 14d-9
and 14e-2 promulgated under the Exchange Act or from making any disclosure to
the Company's shareholders if, in the good faith judgement of the Board of
Directors of the Company, after consultation with outside counsel, such
disclosure is necessary in order to comply with its fiduciary duties to the
Company's shareholders under applicable law or is otherwise required under
applicable law.
(d) (i) For purposes of this Agreement, 'Transaction Proposal' means any
bona fide inquiry, proposal or offer from any person relating to any direct or
indirect acquisition or purchase of more than 50% of the aggregate assets of the
Company and its subsidiaries, taken as a whole, or more than 50% of the voting
power of the shares of Common Stock then outstanding or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving the Company, other than the transactions
contemplated by this Agreement.
(ii) For purposes of this Agreement, a 'Superior Proposal' means any
proposal determined by the Board of Directors of the Company in good faith,
after consultation with outside counsel, to be a bona fide proposal and made by
a third party to acquire, directly or indirectly, for consideration consisting
of cash, property and/or securities, more than 50% of the voting power of the
shares of Common Stock then outstanding or all or substantially all the assets
of the Company and otherwise on terms which the Board of Directors of the
Company determines in its good faith judgment, after consultation with outside
counsel and with a financial advisor of nationally recognized reputation, to be
more favorable to the Company's shareholders than the Merger (taking into
account all factors relating to such proposal deemed relevant by the Company
Board, including, without limitation, the financing of such proposal and all
other conditions to closing).
SECTION 5.10 Redeemable Preferred Stock. The Company shall from the date
of this Agreement and until the Closing reserve 130,000 shares of Series A
Redeemable Preferred Stock of the Company, free and clear of any lien or
encumbrance thereon, for issuance pursuant to Section 7.3 of the Stockholders
Agreement.
SECTION 5.11 Affiliate Letters. Prior to the Closing Date, the Company
shall deliver to Purchaser and Merger Sub a letter identifying all persons who
are, at the time this Agreement is submitted for approval to the stockholders of
the Company, 'affiliates' of the Company for purposes of Rule 145 under the
Securities Act. The Company shall use its reasonable best efforts to cause each
such person who makes or is deemed to have Retained Common Shares to deliver to
Purchaser on or prior to the Closing Date a written agreement in a form
reasonably satisfactory to Purchaser and the Company.
SECTION 5.12 Reports. The Company shall provide Purchaser with monthly
financial statements, prepared in accordance with past practice, as soon as
reasonably practicable following delivery of such reports to the Chief Executive
Officer of the Company.
SECTION 5.13 Stockholders Meeting.
(a) The Company, acting through the Company Board, shall, in accordance
with applicable law:
(i) duly call, give notice of, convene and hold the meeting as soon
as practicable following the execution of this Agreement;
(ii) prepare and file with the SEC a preliminary proxy statement
relating to this Agreement, and use its best efforts (A) to obtain and
furnish the information required to be included by the SEC in the Proxy
Statement and, after consultation with Purchaser, to respond promptly to
any comments made by the SEC with respect to the preliminary proxy
statement and cause the Proxy Statement to be mailed to its stockholders
and (B) to obtain the necessary approvals of the Merger and this
Agreement by its stockholders; and
(iii) subject to Section 5.9, include in the Proxy Statement the
recommendation of the Company Board that stockholders of the Company
vote in favor of the approval of this Agreement.
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(b) The Company and Purchaser, shall promptly correct any information
provided by it for use in the Proxy Statement if and to the extent that it shall
have become false or misleading, and the Company shall further take all steps
necessary to cause the Proxy Statement as so corrected to be filed with the SEC
and to be disseminated to the holders of Common Shares, in each case, as and to
the extent required by applicable federal securities laws.
SECTION 5.14 Employee Benefits. As of the Effective Time, the Surviving
Corporation shall honor and satisfy all obligations and liabilities with respect
to the Plans. Notwithstanding the foregoing, the Surviving Corporation shall not
be required to continue any particular Plan after the Effective Time, and any
Plan may be amended or terminated subject to, and in accordance with, its terms
and applicable law. For a period of at least 18 months following the Effective
Time, the Surviving Corporation shall provide employee benefit plans, programs
and arrangements, either directly or through a plan of an affiliate ('Purchaser
Plans') that, in the aggregate, provide benefits not materially less favorable
than the Plans as currently in effect, provided that (i) each employee of the
Company shall receive full credit for years of service with the Company or any
of its subsidiaries prior to the Merger for all purposes for which such service
was recognized under applicable Plans, including, but not limited to,
recognition of service for eligibility, vesting (including acceleration thereof
pursuant to the terms of the applicable Plans) and, to the extent not
duplicative of benefits received under such Plans, the amount of benefits, (ii)
each employee of the Company shall participate in the Purchaser Plans on terms
no less favorable than those applicable to similarly situated employees in such
Purchaser Plans, and (iii) any and all pre-existing condition limitations (to
the extent such limitations did not apply to a pre-existing condition under the
Plans) and eligibility waiting periods under any group health plans shall be
waived with respect to such participants and their eligible dependents.
SECTION 5.15 Other Actions. With respect to each employee (the
'Individuals') of the Company who is a 'disqualified individual' (within the
meaning of section 280G of the Code) the Company shall (i) pay to each such
individual, prior to January 1, 1998, the amount determined by the Company to
have been earned by such individual in respect of the current fiscal year of the
Company under the Company's Executive Incentive Compensation Plan, (ii) take all
such reasonable actions (including, but not limited to, accelerating the
exercisability of Company Stock Options held by the Individuals) as shall be
necessary to permit each Individual to exercise, prior to January 1, 1998, a
sufficient number of Company Stock Options so as to permit the condition set
forth in Section 6.2(f) hereto to be satisfied and (iii) use its commercially
reasonable best efforts to loan to each Individual, on commercially reasonable
terms, the amount (the 'Withholding Amount') required to be withheld by the
Company under federal, state and local tax laws in respect of any exercise of a
Company Stock Option after the date hereof to the extent such exercise is
intended by the Individual to satisfy the condition set forth in Section 6.2(f)
hereof. To the extent that the Company is unable to lend all or part of the
Withholding Amount to one or more of the Individuals, Purchaser shall, or shall
cause one of its affiliates to, lend to each Individual an amount equal to the
excess, if any, of the Withholding Amount with respect to such Individual over
the amount loaned to such Individual by the Company pursuant to the preceding
sentence; provided, however, that the Purchaser's obligations under this
sentence shall be conditioned upon (1) the receipt by the Purchaser or such
affiliate of a first priority perfected security interest in all of the shares
of Common Shares acquired upon the exercise of such Company Stock Options and
(2) the making of arrangements satisfactory to the Purchaser for the
continuation of such first priority perfected security interest in all proceeds
of such Common Shares.
SECTION 5.16 Listing of Common Stock. The Company shall use its
reasonable best efforts to cause the Common Shares to be issued pursuant to the
Stock Purchase to be authorized for listing on the NYSE, subject to official
notice of issuance.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.1 Conditions to the Obligations of Both Parties. The respective
obligations of Purchaser, Merger Sub and the Company to consummate the Merger
are subject to the satisfaction, at or before the Effective Time, of each of the
following conditions:
(a) Stockholder Approval. The stockholders of the Company shall have
duly approved the transactions contemplated by this Agreement (the
'Stockholder Approval').
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(b) Form S-4. The Form S-4 of which the Proxy Statement constitutes
a part shall have become effective under the Securities Act and shall not
be the subject of any stop order or proceedings seeking a stop order, and
any material 'blue sky' and other state securities laws applicable to the
registration and qualification of Common Shares shall have been complied
with.
(c) Solvency Letters. The Company and Purchaser shall each have
received a solvency letter, in form and substance and from an independent
evaluation firm reasonably satisfactory to both parties, as to the solvency
of the Company and its Subsidiaries on a consolidated basis after giving
effect to the transactions contemplated by this Agreement.
(d) Orders and Injunctions. No Governmental Entity or court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any Law, rule, regulation, executive order or Order which is then
in effect and has the effect of restraining or making the Merger or the
Stock Purchase illegal or otherwise prohibiting consummation of the Merger
or the Stock Purchase.
(e) HSR Act. Any waiting period (and any extension thereof) under
the HSR Act applicable to the Merger and the Stock Purchase shall have
expired or been terminated.
(f) The Stock Purchase. Purchaser shall have purchased and the
Company shall have issued and sold the Stock Purchase Shares pursuant to
Section 5.4 of this Agreement.
SECTION 6.2 Conditions to the Obligations of Purchaser and Merger
Sub. The obligations of Purchaser and Merger Sub to effect the Merger are
further subject to the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of the Company contained herein (without giving effect to
the materiality, Material Adverse Effect or knowledge qualifications
contained therein) shall be true and correct when made and shall be true
and correct as of the Closing Date as though made on and as of the Closing
Date (except to the extent that any such representation and warranty had by
its terms been made as of a specific date, in which case such
representation and warranty shall have been true and correct as of such
specific date), except, in all instances, where the failure to be so true
and correct shall not result, individually or in the aggregate, in a
Material Adverse Effect; and Purchaser shall have received a certificate
signed on behalf of the Company by the chief executive office and the chief
financial officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall
have performed the obligations required to be performed by it under this
Agreement at or prior to the Closing Date, except for such failures to
perform as have not had or would not, individually or in the aggregate,
have a Material Adverse Effect on the Company or materially adversely
affect the ability of the Company to consummate the transactions
contemplated hereby.
(c) Release of Lien. The lien referred to in Schedule 3.20(b) of the
Company Disclosure Schedule shall have been released.
(d) Material Adverse Effect. There shall not have been a Material
Adverse Effect on the Company.
(e) Exchange of Common Shares. Stockholder shall have exchanged not
less than 88% of the Common Shares it owns, either of record or
beneficially, for redeemable preferred common stock of the Company in
accordance with Section 7.3 of the Stockholders Agreement.
(f) Option Exercises. Each of William C. Scott, John S. Farrand and
Jeffery J. Marcketta shall have exercised, prior to January 1, 1998, a
number of Company Stock Options reasonably determined by the Company (based
upon the most recently available information and after taking into account
the actions contemplated by Section 5.15 hereof) as the amount necessary
such that, after giving effect to such exercise, no amount paid in respect
of such Company Stock Options shall be subject to the excise tax imposed
under section 4999 of the Code; it being understood that the foregoing
shall not constitute a representation by the Company or any of Messrs.
Scott, Farrand, or Marcketta that no such excise tax will in fact be
imposed in respect of such payments. With respect to Individuals other than
Messrs. Scott, Farrand, and Marcketta, the Company shall use reasonable
efforts to cause such Individuals to exercise Company Stock Options as and
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<PAGE>
to the extent described in the preceding sentence, it being understood that
no such Individual shall be obligated to so exercise such Company Stock
Options.
SECTION 6.3 Conditions to the Obligations of the Company. The obligation
of the Company to effect the Merger is further subject to the following
conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of Purchaser and Merger Sub contained herein (without giving
effect to the materiality, Material Adverse Effect or knowledge
qualifications contained therein) shall be true and correct when made and
shall be true and correct as of the Closing Date as though made on and as
of the Closing Date (except to the extent that any such representation and
warranty had by its terms been made as of a specific date, in which case
such representation and warranty shall have been true and correct as of
such specific date), except, in all instances, where the failure to be so
true and correct shall not result, individually or in the aggregate, in a
Material Adverse Effect on Purchaser and Merger Sub; and the Company shall
have received a certificate signed on behalf of Purchaser by the chief
executive officer and the chief financial officer of Purchaser to such
effect.
(b) Performance of Obligations of Purchaser and Merger
Sub. Purchaser and Merger Sub shall each have performed their respective
obligations required to be performed by it under this Agreement at or prior
to the Closing Date, except for such failures to perform as have not had or
would not, individually or in the aggregate, have a Material Adverse Effect
on Purchaser and Merger Sub or materially adversely affect the ability of
Purchaser and Merger Sub to consummate the transactions contemplated
hereby.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
SECTION 7.1 Termination. This Agreement may be terminated and the Merger
and the Stock Purchase contemplated hereby may be abandoned at any time prior to
the Effective Time, notwithstanding approval thereof by the stockholders of the
Company:
(a) by the mutual written consent of Purchaser and the Company, by
action of their respective Boards of Directors;
(b) by Purchaser or the Company if the Merger and the Stock Purchase
shall not have been consummated on or before the later (i) of April 30,
1998 and (ii) 45 days after the SEC has declared effective the Proxy
Statement (but in no event later than June 30, 1998); provided, however,
that the right to terminate this Agreement pursuant to this Section 7.1(b)
shall not be available to any party whose failure to perform any of its
obligations under this Agreement results in the failure of the Merger or
the Stock Purchase to be consummated by such time;
(c) by Purchaser or the Company if any court of competent jurisdiction
or other Governmental Entity has issued an order, decree or ruling or taken
any other action restraining, enjoining or otherwise prohibiting the Merger
and such order, decree, ruling or other action shall have become final and
nonappealable;
(d) by the Company, prior to the receipt of the Required Vote, in
accordance with Section 5.9; provided, that the Purchaser receives at least
the four business days' prior written notice specified in Section 5.9(b)
and, during such four business day period, the Company shall, and shall
cause its financial and legal advisors to, consider any adjustment in the
terms and conditions of this Agreement that the Purchaser may propose;
(e) by Purchaser, if the Company Board shall have (i) failed to
recommend Stockholder Approval, (ii) withdrawn or modified in a manner
adverse to Purchaser or Merger Sub its approval or recommendation of this
Agreement, the Merger or the Stock Purchase, (iii) shall have approved or
recommended a Transaction Proposal, or (iv) shall have resolved to effect
any of the foregoing; or
(f) by Purchaser or the Company, if Stockholder Approval shall not
have been obtained by reason of the failure to obtain the required vote
upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof.
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SECTION 7.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 7.1, this Agreement shall forthwith become
void and have no effect, without any liability on the part of any party or its
directors, officers or stockholders, except for the provisions of this Section
7.2 and Section 7.3, which shall survive any such termination. Nothing contained
in this Section 7.2 shall relieve any party from liability for any breach of
this Agreement.
SECTION 7.3 Fees and Expenses.
(a) The parties to this Agreement shall, except as otherwise specifically
provided herein, bear their respective expenses incurred in connection with the
preparation, execution and performance of this Agreement and the transactions
contemplated hereby, whether or not the Merger or the Stock Purchase is
consummated, including, without limitation, all fees and expenses of their
respective agents.
(b) The prevailing party in any legal action undertaken to enforce this
Agreement or any provision hereof shall be entitled to recover from the other
party the costs and expenses (including attorneys' and expert witness fees)
incurred in connection with such action.
SECTION 7.4 Amendment. This Agreement may be amended by the Company,
Purchaser and Merger Sub at any time before or after any approval of this
Agreement by the stockholders of the Company but, after any such approval, no
amendment shall be made which decreases the Merger Consideration or which
adversely affects the rights of the Company's stockholders hereunder without the
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
SECTION 7.5 Extension; Waiver. At any time prior to the Effective Time,
Merger Sub, Purchaser and the Company may (i) extend the time for the
performance of any of the obligations or other acts of the other, (ii) waive any
inaccuracies in the representations and warranties contained herein of the other
or in any document, certificate or writing delivered pursuant hereto by the
other or (iii) waive compliance by the other with any of the agreements or
conditions. Any agreement on the part of either party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Non-Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall not survive beyond
the Effective Time. Notwithstanding the foregoing, the agreements set forth in
Section 2.5, Section 5.6 and Section 5.7 shall survive the Effective Time
indefinitely (except to the extent a shorter period of time is explicitly
specified therein).
SECTION 8.2 Entire Agreement; Assignment.
(a) This Agreement (including the documents and the instruments referred to
herein) and the Confidentiality Agreement constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder may be assigned by either of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other party
(except that Purchaser and Merger Sub may assign its rights, interest and
obligations to any of its affiliates without the consent of the Company provided
that no such assignment shall relieve Purchaser or Merger Sub of any liability
for any breach by such assignee). Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
SECTION 8.3 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
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SECTION 8.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or telecopier to the
respective parties as follows:
If to Purchaser or Merger Sub:
PX Holding Corporation 625
Madison Avenue New York,
New York, 10021
Attention: General Counsel
Telecopier Number: (212) 572-5056
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue
New York, New York 10022
Attention: Alan C. Myers, Esq.
Telecopier Number: (212) 735-2000
If to the Company:
Panavision Inc.
6219 De Soto Avenue
Woodland Hills, California 91367
Attention: Jeffrey J. Marcketta
Telecopier Number: (818) 316-1110
and
Panavision Inc.
85 Third Avenue, Suite 3020
New York, New York 10022
Attention: William C. Scott
Telecopier Number: (212) 688-4748
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
New York, New York 10022-4669
Attention: Christopher E. Manno, Esq.
Telecopier Number: (212) 821-8111
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
provided, that notice of any change of address shall be effective only upon
receipt thereof.
SECTION 8.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 8.6 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 8.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 8.8 Parties in Interest. Except with respect to Sections 2.4 and
5.7 (which are intended to be for the benefit of the persons identified therein,
and may be enforced by such persons), this Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or
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implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
SECTION 8.9 Certain Definitions. As used in this Agreement:
(a) the term 'affiliate', as applied to any person, shall mean any
other person directly or indirectly controlling, controlled by, or under
common control with, that person. For the purposes of the definition,
'control' (including, with correlative meanings, the terms 'controlling,'
'controlled by' and 'under common control with'), as applied to any person,
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that person, whether
through the ownership of voting securities, by contract or otherwise;
(b) the term 'Person' or 'person' shall include individuals,
corporations, partnerships, trusts, other entities and groups (which term
shall include a 'group' as such term is defined in Section 13(d)(3) of the
Exchange Act); and
(c) the term 'Subsidiary' or 'Subsidiaries', with respect to any
person, means any corporation, partnership, joint venture or other legal
entity of which such person (either alone or through or together with any
other subsidiary), owns, directly or indirectly, stock or other equity
interests the holders of which are generally entitled to more than 50% of
the vote for the election of the board of directors or other governing body
of such corporation or other legal entity.
SECTION 8.10 Specific Performance. Irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached; accordingly,
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officer hereunto duly authorized, all
as of the day and year first above written.
PANAVISION INC.
By: /s/ W.C. SCOTT
-----------------------------------
Name: W.C. Scott
Title: Chairman and CEO
PX MERGER CORPORATION
By: /s/ HOWARD GITTIS
-----------------------------------
Name: Howard Gittis
Title: Vice Chairman
PX HOLDING CORPORATION
By: /s/ HOWARD GITTIS
-----------------------------------
Name: Howard Gittis
Title: Vice Chairman
GUARANTEE
Mafco Holdings Inc. hereby unconditionally and irrevocably agrees to
guarantee due and punctual performance of all obligations of PX Merger
Corporation and PX Holding Corporation hereunder.
MAFCO HOLDINGS INC.,
a Delaware corporation
By: /s/ HOWARD GITTIS
-----------------------------------
Name: Howard Gittis
Title: Vice Chairman
30
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ANNEX II
<PAGE>
AMENDED AND RESTATED VOTING AND STOCKHOLDERS AGREEMENT
Amended and Restated Voting and Stockholders Agreement, dated as of April
16, 1998 (this 'Agreement'), by and among Warburg, Pincus Capital Company, L.P.,
a Delaware limited partnership ('Warburg'), Panavision Inc., a Delaware
corporation (the 'Company'), and Mafco Holdings Inc., a Delaware corporation
('Purchaser'). Capitalized terms used but not defined herein shall have the
meanings set forth in the Merger Agreement (as defined below).
RECITALS
WHEREAS, the Company, Purchaser and Warburg, have previously entered into a
Voting and Stockholders Agreement, dated as of December 18, 1997, as amended by
the First Amendment dated as of March 16, 1998 (collectively, the 'First
Stockholders Agreement') and now wish to restate the First Stockholders
Agreement in its entirety; and
WHEREAS, PX Holding Corporation, a Delaware corporation ('Holdings'), PX
Merger Corporation, a Delaware corporation and a wholly owned subsidiary of
Holdings ('Merger Sub'), and the Company have previously entered into an
Agreement of Recapitalization and Merger, dated as of December 18, 1997 (as such
agreement may hereafter be amended from time to time, the 'Merger Agreement'),
pursuant to which Merger Sub shall be merged with and into the Company (the
'Merger'); and
WHEREAS, as an inducement and a condition to the Company and the
Purchaser's subsidiaries entering into the Merger Agreement and incurring the
obligations set forth therein, each of the Company, the Purchaser and Warburg
required the other parties hereto to enter into the First Stockholders
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements contained herein and in
the Merger Agreement, the parties hereto, intending to be legally bound hereby,
agree to amend and restate the First Stockholders Agreement as follows:
1. REPRESENTATIONS AND WARRANTIES OF WARBURG. Warburg hereby represents and
warrants as follows:
1.1 Ownership of Shares. Warburg is the beneficial owner, and has
sole power to vote and dispose, of 12,717,000 shares of Common Stock, par
value $.01 per share ('Company Common Stock'), of the Company (such shares
shall constitute the 'Shares'). On the date hereof, the Shares constitute
all of the outstanding shares of Company Common Stock owned of record or
beneficially by Warburg.
1.2 Authorization; Validity of Agreement; Necessary Action. Warburg
has all necessary power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution,
delivery and performance by Warburg of this Agreement and the consummation
by Warburg of the transactions contemplated hereby have been duly and
validly authorized. This Agreement has been duly executed and delivered by
Warburg, and constitutes a valid and binding obligation of Warburg,
enforceable against it in accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
1.3 No Violations. (a) Except for filings, authorizations, consents
and approvals as may be required under, and other applicable requirements
of, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the 'HSR Act') and the Securities Exchange Act of 1934, as amended (the
'Exchange Act') (A) no filing with, and no permit, authoriza tion, consent
or approval of, any state or federal public body or authority is necessary
for the execution of this Agreement by Warburg and the consummation by
Warburg of the transactions contemplated hereby and (B) neither the
execution and delivery of this Agreement by Warburg nor the consummation by
Warburg of the transactions contemplated hereby nor compliance by Warburg
with any of the provisions hereof shall (x) conflict with or result in any
breach of any applicable partnership agreement or other agreements or
organizational documents applicable to Warburg, (y) result in a violation
or breach of, or constitute (with or without notice or lapse of time or
both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
<PAGE>
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or
other instrument or obligation of any kind to which Warburg is a party or
by which Warburg or any of its properties or assets may be bound or (z)
violate any order, writ, injunction, decree, judgment, statute, rule or
regulation applicable to Warburg or any of its properties or assets.
(b) The Shares and the certificates representing such Shares are held
by Warburg, or by a nominee or custodian for the benefit of Warburg, free
and clear of all liens, claims, security interests, proxies, voting trusts
or agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising hereunder.
Warburg currently has, and upon the exercise of the options set forth in
Sections 3 and 4 hereof shall sell, assign, transfer and deliver to the
Purchaser at the Closing, and the Purchaser shall receive at the Closing,
good, valid and marketable title to the Company Common Stock.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to Warburg and the Company as follows:
2.1 Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware.
2.2 Authorization; Validity of Agreement; Necessary Action. The
Purchaser has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Purchaser of this Agreement and
the consummation by the Purchaser of the transactions contemplated hereby
have been duly and validly authorized. This Agreement has been duly
executed and delivered by the Purchaser, and constitutes a valid and
binding obligation of the Purchaser, enforceable against it in accordance
with its terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency or other similar laws, now or hereafter
in effect, affecting creditors rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
2.3 No Violations. Except for filings, authorizations, consents and
approvals as may be required under, and other applicable requirements of,
the HSR Act and the Exchange Act (A) no filing with, and no permit,
authorization, consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by the Purchaser
and the consummation by it of the transactions contemplated hereby and (B)
neither the execution and delivery of this Agreement by it nor the
consummation by it of the transactions contemplated hereby nor compliance
by it with any of the provisions hereof shall (x) conflict with or result
in any breach of any organizational documents of the Purchaser, (y) result
in a violation or breach of, or constitute (with or without notice or lapse
of time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which the
Purchaser is a party or by which the Purchaser or any of its properties or
assets may be bound or (z) violate any order, writ, injunction, decree,
judgment, statute, rule or regulation applicable to the Purchaser or any of
its properties or assets.
3. OPTION GRANTED TO THE PURCHASER. (a) Warburg hereby grants to the
Purchaser an irrevocable option to purchase, in whole and not in part, the
Shares held by Warburg during the Option Period (as defined below), on the terms
and subject to the conditions set forth herein (the 'Purchaser Option').
(b) The Purchaser Option may be exercised by the Purchaser during the
period commencing at 9:00 a.m., New York time on the day following the first
anniversary of the Effective Time of the Merger and ending at 5:00 p.m., New
York time on the second anniversary of the Effective Time of the Merger (the
'Option Period').
(c) If the Purchaser wishes to exercise the Purchaser Option, the Purchaser
shall send a written notice to Warburg of its irrevocable election to exercise
the Purchaser option, specifying the place, and, if then known, the time and the
date (the 'Purchaser Option Closing Date') of the closing (the 'Purchaser Option
Closing') of the purchase. The Purchaser Option Closing Date shall occur on the
fifth business day (or such longer period as may
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be required by applicable law or regulation) after the later of (i) the date on
which such notice is delivered and (ii) the satisfaction of the conditions set
forth in Section 3(f) hereof.
(d) At the Purchaser Option Closing, Warburg shall deliver to the Purchaser
(or its designee) all of the Shares by delivery of a certificate or cer
tificates evidencing such Shares, duly endorsed to the Purchaser or accompanied
by stock powers duly executed in favor of the Purchaser, with all neces sary
stock transfer stamps affixed.
(e) At the Purchaser Option Closing, the Purchaser shall pay to Warburg, by
wire transfer in immediately available funds to the account of Warburg specified
in writing no less than one day prior to the Purchaser Option Closing, an amount
equal to the product of $30.00 and the number of Shares (such number being
subject to adjustment for stock splits, recapitalizations and other similar
events, as set forth in Section 13.11 hereof) purchased pursuant to the exercise
of the Purchaser Option (the 'Purchaser Option Purchase Price').
(f) The Purchaser Option Closing shall be subject to the satisfaction of
each of the following conditions:
(i) no court, arbitrator or governmental body, agency or official
shall have issued any order, decree or ruling (which has not been stayed or
suspended pending appeal) and there shall not be any effective statute,
rule or regulation, restraining, enjoining or prohibiting the consummation
of the purchase and sale of the Shares pursuant to the exercise of the
Purchaser Option;
(ii) any waiting period applicable to the consummation of the purchase
and sale of the Shares pursuant to the exercise of the Purchaser Option
under the HSR Act shall have expired or been terminated; and
(iii) all actions by or in respect of, and any filing with, any
governmental body, agency, official, or authority required to permit the
consummation of the purchase and sale of the Shares pursuant to the
exercise of the Purchaser Option shall have been obtained or made and shall
be in full force and effect.
4. OPTION GRANTED TO WARBURG. (a) The Purchaser hereby grants to Warburg an
irrevocable option to sell to the Purchaser, in whole and not in part, the
Shares held by Warburg, on the terms and subject to the conditions set forth
herein (the 'Warburg Option').
(b) The Warburg Option may be exercised by Warburg during the Option
Period.
(c) If Warburg wishes to exercise the Warburg Option, Warburg shall send a
written notice to the Purchaser of its irrevocable election to exercise the
Warburg Option, specifying the place, and, if then known, the time and the date
(the 'Warburg Option Closing Date') of the closing (the 'Warburg Option
Closing') of the purchase. The Warburg Option Closing Date shall occur on the
fifth business day (or such longer period as may be required by applicable law
or regulation) after the later of (i) the date on which such notice is delivered
and
(ii) the satisfaction of the conditions set forth in Section 4(f)
hereof.
(d) At the Warburg Option Closing, Warburg shall deliver to the Purchaser
(or its designee) all of the Shares by delivery of a certificate or certificates
evidencing such Shares, duly endorsed to the Purchaser or accompanied by stock
powers duly executed in favor of the Purchaser, with all necessary stock
transfer stamps affixed.
(e) At the Warburg option Closing, the Purchaser shall pay to Warburg, by
wire transfer in immediately available funds to the account of Warburg specified
in writing no less than one day prior to the Warburg Option Closing, an amount
equal to the product of $25.00 and the number of Shares (such number being
subject to adjustment for stock splits, recapitalizations and other similar
events, as set forth in Section 13.11 hereof) purchased pursuant to the exercise
of the Warburg Option (the 'Warburg Option Purchase Price').
(f) The Warburg option Closing shall be sub ject to the satisfaction of
each of the following conditions:
(i) no court, arbitrator or governmental body, agency or official
shall have issued any order, decree or ruling (which has not been stayed or
suspended pending appeal) and there shall not be any effective statute,
rule or regulation, restraining, enjoining or prohibiting the consummation
of the purchase and sale of the Shares pursuant to the exercise of the
Warburg Option;
(ii) any waiting period applicable to the consummation of the purchase
and sale of the Shares pursuant to the exercise of the Warburg Option under
the HSR Act shall have expired or been terminated; and
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(iii) all actions by or in respect of, and any filing with, any
governmental body, agency, official, or authority required to permit the
consummation of the purchase and sale of the Shares pursuant to the
exercise of the Warburg Option shall have been obtained or made and shall
be in full force and effect.
5. THIRD PARTY BUSINESS COMBINATION; REMEDY. (a) If (i) the Merger
Agreement is terminated in accordance with Section 7.1(d), (e) or (f) of the
Merger Agreement, or (ii) the Merger Agreement shall have been amended to
increase the amount of the Merger Consideration in effect on the date hereof,
and, upon or following any such termination or any such amended Merger
Agreement, Warburg receives any cash or non-cash consideration (the 'Alternative
Consideration') in respect of all or any portion of the Shares in connection
with (A) a Transaction Proposal for which definitive documentation has been
executed by all the parties to such transaction (the 'Alternative Transaction')
during the period commencing on the date hereof and ending nine months from the
date the Merger Agreement is terminated, or (B) an amended Merger Agreement,
Warburg shall promptly upon receipt of the Alternative Consideration pay to the
Purchaser or its designee on demand in cash, by wire transfer of same day funds
to an account designated by the Purchaser:
(x) in the case of termination of the Merger Agreement in accordance
with the above-referenced sections of the Merger Agreement, if the
Alternative Consideration is greater than $26.50, but not greater than $30
per Share, the excess of (x) such Alternative Consideration over $26.50
multiplied by (y) the number of shares with respect to which Warburg
received such Alternative Consideration; provided that (i) if the
Alternative Consideration received by Warburg shall be securities listed on
a national securities exchange or traded on the Nasdaq National Market
('Nasdaq'), the per share value of such consideration shall be equal to the
average closing price per share listed on such national securities exchange
or Nasdaq on the five trading days prior to the date such transaction is
consum mated and (ii) if the consideration received by Warburg shall be in
a form other than such listed securities, the per share value shall be
determined in good faith as of the date such transaction is consummated by
the Purchaser or its designee and Warburg, or, if the Purchaser or its
designee and Warburg cannot reach agreement, by a nationally recognized
investment banking firm reasonably ac ceptable to the parties; and
(y) in the case of termination of the Merger Agreement in accordance
with the above-referenced sections of the Merger Agreement, if the
Alternative Consideration is greater than $30 per Share, the sum of (I) for
the portion of such consideration not greater than $30 per Share, the
amounts payable pursuant to subparagraph (a) hereof and (II) for the
portion of such consideration exceeding $30 per Share, one half of such
Alternative Consideration; provided that (i) if the Alternative
Consideration received by Warburg shall be securities listed on a national
securities exchange or traded on the Nasdaq, the per share value of such
consideration shall be equal to the average closing price per share listed
on such national securities exchange or Nasdaq on the five trading days
prior to the date such transaction is consummated and (ii) if the
consideration received by Warburg shall be in a form other than such listed
securities, the per share value shall be determined in good faith as of the
date such transaction is consummated by the Purchaser or its designee and
Warburg, or, if the Purchaser or its designee and Warburg cannot reach
agreement, by a nationally recognized investment banking firm reasonably
acceptable to the parties;
(z) in the case of an amended Merger Agreement, an amount equal to any
and all Alternative Consideration above $26.50 per Share.
(b) In connection with an Alternative Transaction, the Alternative
Consideration per Share to be received by the stockholders of the Company other
than Warburg shall not exceed by more than $.50 per share the Alternative
Consideration to be received by Warburg. Warburg shall not enter into any
agreement, arrangement or understanding with any Person the effect of which
would be inconsistent or violative of the provisions and agreement contained in
this Section 5(b).
6. AGREEMENT TO VOTE; PROXY.
(a) Voting. Warburg hereby agrees that, until the Termination Date (as
defined in Section 11), at any meeting of the stockholders of the Company or in
connection with any written consent of the stockholders of the Company, Warburg
shall vote (or cause to be voted) the Shares held of record or beneficially by
Warburg (i) in favor of the Merger, and each of the other actions contemplated
by the Merger Agreement and this Agreement and any actions required in
furtherance hereof and thereof; (ii) against any action or agreement that would
result
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in a breach of any covenant, representation or warranty or any other obligation
or agreement of the Company under the Merger Agreement or this Agreement; and
(iii) except as specifically requested in writing by the Purchaser in advance,
against the following actions (other than the Merger and the transactions
contemplated by the Merger Agreement): (1) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or its subsidiaries; (2) a sale, lease or transfer of a
material amount of assets of the Company or its subsidiaries or a
reorganization, recapitalization, dissolution or liquidation of the Company or
its subsidiaries; (3) any material change in the present capitalization of the
company including any proposal to sell any equity interest in the Company or any
of its subsidiaries or any amendment of the Articles of Incorporation of the
Company; or (4) any material change in the Company's corporate structure or
business; or (d) any other action which is intended, or could reasonably be
expected, to impede, interfere with, delay, postpone, discourage or materially
adversely affect the Merger or the transactions contemplated by the Merger
Agreement or this Agreement. Warburg shall not enter into any agreement,
arrangement or understanding with any Person the effect of which would be
inconsistent or violative of the provisions and agreement contained in this
Section 6(a).
(b) Proxy. WARBURG HEREBY GRANTS TO, AND APPOINTS, BARRY F. SCHWARTZ AND
JORAM C. SALIG IN THEIR RESPECTIVE CAPACITIES AS OFFICERS OF THE PURCHASER, AND
ANY INDIVIDUAL WHO SHALL HEREAFTER SUCCEED TO ANY SUCH OFFICE OF THE PURCHASER,
AND ANY OTHER DESIGNEE OF THE PURCHASER, EACH OF THEM INDIVIDUALLY, WARBURG'S
IRREVOCABLE (UNTIL THE TERMINATION DATE) PROXY AND ATTORNEY-IN-FACT (WITH FULL
POWER OF SUBSTITUTION) TO VOTE THE SHARES AS INDICATED IN SECTION 6(a) ABOVE.
WARBURG INTENDS THIS PROXY TO BE IRREVOCABLE (UNTIL THE TERMINATION DATE) AND
COUPLED WITH AN INTEREST AND WILL TAKE SUCH FURTHER ACTION AND EXECUTE SUCH
OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND
HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY WARBURG WITH RESPECT TO WARBURG'S
SHARES.
7. CERTAIN COVENANTS OF WARBURG. Except in accordance with the terms of
this Agreement, Warburg hereby covenants and agrees as follows:
7.1 No Solicitation. Prior to the Termination Date, Warburg shall
not, directly or indirectly (including through advisors, agents or other
intermediaries), solicit (including by way of furnishing information) or
respond to any inquiries or the making of any proposal by any person or
entity with respect to the Company that constitutes or could reasonably be
expected to lead to an Alternative Transaction; and shall use its
reasonable best efforts to cause any such party in possession of
confidential information about the Company that was furnished by or on
behalf of Warburg to return or destroy all such information in the
possession of any such party (other than the Purchaser) or in the
possession of any Representative of any such party, provided, however, that
the foregoing shall not restrict Warburg or any of its representatives on
the Board of Directors of the Company from taking actions to the same
extent and in the same circumstances permitted for the Board and the
Company by Section 5.9 of the Merger Agreement.
7.2 Restriction on Transfer, Proxies and Noninterference; Restriction
on Withdrawal. Prior to the Termination Date, Warburg shall not, directly
or indirectly (i) except pursuant to the terms of the Merger Agreement and
to the Purchaser pursuant to this Agreement, offer for sale, sell,
transfer, tender, pledge, encumber, assign or otherwise dis pose of,
enforce or permit the execution of the provisions of any redemption
agreement with the Company or enter into any contract, option or other
arrangement or understanding with respect to or consent to the offer for
sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, or exercise any discretionary powers to distribute, any or
all of the Shares or any interest therein, including any trust income or
principal, except in each case to a transferee who is or agrees to become
bound by this Agreement, (ii) except as contemplated hereby, grant any
proxies or powers of attorney with respect to any Shares, deposit any
Shares into a voting trust or enter into a voting agreement with respect to
any Shares or (iii) take any action that would make any representation or
warranty of Warburg contained herein untrue or incorrect or would result in
a breach by Warburg of its obligations under this Agreement or a breach by
the Company of its obligations under the Merger Agreement.
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<PAGE>
7.3 Redeemable Preferred Stock. Immediately prior to the consummation
of the Merger, Warburg shall exchange 88% of the Company Common Stock it
beneficially owns for redeemable preferred stock of the Company (the
'Redeemable Preferred Stock'), on the basis of 100 shares of Company Common
Stock for each share of Redeemable Preferred Stock, redeemable at the
option of the holder at $2,650 per share of Redeemable Preferred Stock, and
shall surrender such Redeemable Preferred Stock for redemption immediately
upon the consummation of the Merger; provided, however, that in the event
the number of Cash Election Shares is less than the Cash Election Number
(as each such term is defined in the Merger Agreement), immediately prior
to the consummation of the Merger, Warburg shall also exchange for
Redeemable Preferred Stock upon the same terms and conditions a number of
shares of additional Company Common Stock (to the extent of Company Common
Stock beneficially owned by it) equal to such deficiency; provided,
further, that the number of Shares to be exchanged for Redeemable Preferred
Stock, pursuant to the foregoing provisions of this Section 7.3, shall be
reduced by the number, if any, of Purchaser Stock Purchase Shares (as
defined below), rounded down to the nearest 100 Shares. Warburg shall elect
to retain, in accordance with the terms of the Merger Agreement, the
Company Common Stock not (i) exchanged for Redeemable Preferred Stock
pursuant to this Section 7.3 or (ii) sold pursuant to Section 7.5.
7.4 Proprietary Information. Except as required by law or as
contemplated by this Agreement, Warburg shall not, directly or indirectly,
make use of or divulge or otherwise disclose to any Person other than the
Purchaser, any trade secret, confidential information or other proprietary
information or data (including any financial data, mailing lists, customer
lists or employee data or records) concerning the business or policies of
the Company or its subsidiaries that Warburg may have learned, directly or
indirectly, as a stockholder, employee, officer or director of the Company
or any of its subsidiaries.
7.5 Purchaser Stock Purchase
(a) Immediately prior to the consummation of the Merger, Warburg shall
sell, transfer, assign and deliver the Purchaser Stock Purchase Shares, if
any, to Purchaser or its designee, and Purchaser or its designee shall
purchase the Purchaser Stock Purchase Shares, if any, from Warburg for
$26.50 per Share, payable by wire transfer of same day funds; provided,
that all conditions to the Merger contained in the Merger Agreement have
been either satisfied or waived.
(b) In the event that the Designated Number of Common Shares
multiplied by the Designated Per Share Purchase Price (as each such term is
defined in the Merger Agreement) shall equal less than $154,000,000, a
number of Shares calculated by dividing such deficiency by $26.50 (rounded
up to the nearest whole number) shall constitute the 'Purchaser Stock
Purchase Shares'.
8. CERTAIN COVENANTS OF THE PURCHASER AND THE COMPANY. Except in accordance
with the terms of this Agreement, the Purchaser and the Company hereby severally
and not jointly covenant and agree as follows:
8.1 Tag-Along Rights. If, at any time on or prior to December 31,
1999, the Purchaser intends to sell ('Sale'), in a single transaction or a
series of related transactions, more than 25% of shares of Company Common
Stock it beneficially owns other than (i) to any of its Affiliates who
agree to be bound by this Merger Agreement, (ii) pursuant to a public
offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the 'Securities Act') or (iii) pursuant
to a merger or similar acquisition transaction, in which all the Company
Common Stock is acquired, the Purchaser shall notify all other stockholders
of the Company (the 'Public Stockholders'), in writing, of such proposed
Sale and its terms and conditions. Within twenty (20) business days of the
date of such notice, each Public Stockholder shall notify the Purchaser if
it elects to participate in such Sale. Any Public Stockholder that fails to
notify the Purchaser within such twenty (20) business day period will be
deemed to have waived its rights hereunder. Each Public Stockholder that so
notifies the Purchaser shall have the right to sell, at the same price and
on the same terms and conditions as the Purchaser, an amount of shares of
Company Common Stock equal to the number of shares of Company Common Stock
the third party actually proposes to purchase multiplied by a fraction, the
numerator of which shall be the number of shares of Company Common Stock
issued and owned by such Public Stockholder and the denominator of which
shall be the aggregate number of shares of Company Common Stock issued and
owned by the Purchaser and each
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Public Stockholder exercising its rights under this Section 8.1.
Notwithstanding anything contained in this Section 8.1, in the event that
all or a portion of the purchase price consists of securities and the sale
of such securities to the Public Stockholders would require either a
registration under the Securities Act, or the preparation of a disclosure
document pursuant to Regulation D under the Securities Act (or any
successor regulation) or a similar provision of any state securities law,
then, at the option of the Purchaser, any one or more of the Public
Stockholders may receive, in lieu of such securities, the fair market value
of such securities in cash, as determined in good faith by unanimous vote
of the Board of Directors of the Company.
8.2 Independent Directors. From and after the Effective Time of the
Merger until the date on which the Company shall no longer have any Public
Stockholders, the Purchaser and the Company shall take all action within
their respective power to include on the Board of Directors of the Company
two directors, each of whom is (i) considered to be an independent director
pursuant to the rules contained in the NYSE Listed Company Manual and (ii)
is not an officer or employee of any company affiliated with the Purchaser.
9. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further action as may be necessary or
desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
10. STOP TRANSFER. Warburg agrees with, and covenants to, the Purchaser
that Warburg shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of Warburg's Shares, unless such transfer is made in compliance
with this Agreement.
11. TERMINATION. The obligations under Sections 6 and 7 hereof shall
terminate upon the first to occur of (i) the Effective Time of the Merger and
(ii) the date the Merger Agreement is terminated in accordance with its terms
(the 'Termination Date'). Except as set forth in this Section 11, all other
agreements and obligations of the parties hereto shall survive the Effective
Time of the Merger and/or the Termination Date, as applicable, and in the case
of Section 5 hereof, to the extent set forth in such section.
12. RESTRICTIONS ON TRANSFER.
12.1 Transfer of Shares. (a) During the period of time between (i)
the Effective Time of the Merger Agreement and (ii) the expiration of the
Option Period, Warburg shall not offer for sale, sell, transfer, tender,
pledge, encumber, assign or otherwise dispose of, place in trust (voting or
otherwise), enforce or permit the execution of the provisions of any
redemption agreement with the Company or enter into any contract, option or
other arrangement or understanding with respect to or consent to the offer
for sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, or exercise any discretionary powers to distribute, any or
all of Warburg's Shares, except for transfers made both in compliance with
all federal and state securities laws and pursuant to the terms hereof.
12.2 Permitted Transfers. Notwithstanding any provision in this
Section to the contrary, the Shares may be transferred (a) to an Affiliate
of Warburg who agrees to be bound by this Agreement or (b) to any partner
of (i) Warburg or (ii) an Affiliate of Warburg, who, in each case, agrees
to be bound by this Agreement.
13. MISCELLANEOUS.
13.1 Entire Agreement; Assignment. This Agreement (i) constitutes
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof and (ii) shall not be assigned by operation of law or otherwise
without the prior written consent of the other party.
13.2 Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a
written agreement executed by the parties hereto.
13.3 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 received if so given) by hand delivery,
telegram, telex or telecopy, or by mail (registered or certified mail,
postage prepaid, return receipt requested)
7
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or by any courier service, such as Federal Express, providing proof of
delivery. All communications hereunder shall be delivered to the respective
parties at the following addresses:
If to the Company: Panavision Inc.
885 Third Avenue
Suite 3020
New York, New York 10022
Attn: William C. Scott
Telecopier: (212) 688-6373
If to Warburg: Warburg, Pincus Capital Company, L.P.
c/o E.M. Warburg, Pincus & Co., LLC
466 Lexington Avenue
New York, New York 10019
Attn: Sidney Lapidus
Telecopier: (212) 878-6162
copy to: Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4669
Attention: Christopher E.
Manno, Esq.
Telecopier Number: (212) 821-8111
If to the Purchaser: Mafco Holdings Inc.
625 Madison Avenue
New York, New York 10021
Attention:
Telecopier Number: (212) 867-5428
copy to: Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Alan C. Myers, Esq.
Telecopier Number: (212) 735-2000
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
13.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of laws thereof.
13.5 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement.
13.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but both of
which shall constitute one and the same Agreement.
13.7 Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
13.8 Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect
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under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or
portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never
been contained herein.
13.9 Definitions; Construction. For purposes of this Agreement:
(a) 'beneficially own' or 'beneficial ownership' with respect to any
securities shall mean having 'beneficial ownership' of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act), including
pursuant to any agreement, arrangement or understanding, whether or not in
writing. Without duplicative counting of the same securities by the same
holder, securities Beneficially owned by a Person shall include securities
Beneficially owned by all other Persons with whom such Person would
constitute a 'group' as described in Section 13(d)(3) of the Exchange Act.
(b) 'Person' shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
(c) In the event of a stock dividend or distribution, or any change in
the Company Common Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, the term
'Shares' shall be deemed to refer to and include the Shares as well as all
such stock dividends and distributions and any shares into which or for
which any or all of the Shares may be changed or exchanged.
13.10 Stockholder Capacity. Notwithstanding anything herein to the
contrary, nothing set forth herein shall in any way restrict any director
in the exercise of his or her fiduciary duties as a director of the
Company.
13.11 Adjustment Upon Changes in Capitalization. In the event of any
change in the Common Stock by reason of any stock dividend, extraordinary
dividend or distribution, split-up, recapitalization, combination, exchange
of shares or the like, the number of Shares subject to Sections 3 and 4
hereof, and the purchase prices therefor, shall be appropriately adjusted.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PANAVISION INC.
By: /s/ WILLIAM C. SCOTT
-----------------------------------
Name: W.C. Scott
Title: Chairman of the Board
and Chief Executive
Officer
MAFCO HOLDINGS INC.
By: /s/ HOWARD GITTIS
-----------------------------------
Name: Howard Gittis
Title: Vice Chairman
WARBURG, PINCUS CAPITAL COMPANY, L.P.
By: WARBURG, PINCUS & CO., ITS
GENERAL PARTNER
By: /s/ SIDNEY LAPIDUS
-----------------------------------
Name: Sidney Lapidus
Title: Partner
9
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ANNEX III
<PAGE>
PERSONAL AND CONFIDENTIAL
December 18, 1997
Board of Directors
Panavision Inc.
885 3rd Avenue, Suite 3020
New York, NY 10022
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value $.0l
per share (the 'Shares'), of Panavision Inc. (the 'Company') other than Warburg,
Pincus Capital Company, L.P. ('Warburg') and Mafco Holdings Inc. ('Mafco') (such
holders, excluding Warburg and Mafco, the 'Holders') of the aggregate
consideration to be received by the Holders pursuant to the Agreement of
Recapitalization and Merger, dated as of December 18, 1997 (the 'Agreement'),
among PX Holding Corporation ('Purchaser'), a newly formed corporation organized
at the direction of Mafco, PX Merger Corporation ('Newco'), a wholly owned
subsidiary of Purchaser, and the Company. The obligations of Newco and the
Purchaser under the Agreement are guaranteed by Mafco. The Agreement provides
for the merger (the 'Merger') of Newco with and into the Company pursuant to
which each Holder of a Share shall be entitled either (i) to retain such Share
or (ii) to receive $27.00 in cash for such Share, subject to certain election
and proration procedures set forth in the Agreement, as to which we express no
view. For purposes of this opinion we have assumed that the Holders will receive
cash for approximately 88% of their Shares and retain the balance of such Shares
(the 'Aggregate Consideration').
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as managing underwriter of
an initial public offering of the Shares in November 1996, and having acted as
its financial advisor in connection with, and having participated in certain of
the negotiations leading to, the Agreement. We have also provided investment
banking services from time to time to Mafco and its affiliates and may continue
to do so in the future.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Voting and Stockholders Agreement, dated December 18, 1997 (the
'Stockholders Agreement') entered into by the Company, Mafco and Warburg (the
largest stockholder of the Company); the Annual Report to Stockholders for the
year ended December 31, 1996 and the Annual Report on Form 10-K of the Company
for the three years ended December 31, 1996; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company; certain other
communications from the Company to its stockholders; and certain internal
financial analyses and forecasts for the Company prepared by its management
without, and after, giving effect to the Merger. We also have held discussions
with members of the senior management of the Company regarding its past and
current business operations, financial condition and future prospects. In
addition, we have reviewed the reported price and trading activity for the
Shares, reviewed the financial terms of certain recent relevant business
combinations and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed with your consent that the financial forecasts provided to us and
discussed with us with respect to the Company after giving effect to the Merger,
including, without limitation, the Company's capital structure following the
Merger, have been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of the Company and that such
forecasts will be realized in the amounts and at the times contemplated thereby.
We have also assumed with your consent that the Merger will be treated as a
recapitalization in accordance with generally accepted accounting principles. We
have not made an independent evaluation or appraisal with respect to the assets
and liabilities of the Company or concerning the solvency or fair value of the
Company for any state law or federal bankruptcy law purposes, and we have not
been furnished with
<PAGE>
any such evaluation or appraisal. We were not requested to solicit, and did not
solicit, interest from other parties with respect to an acquisition of or other
business combination with the Company. We are not expressing any opinion herein
on the prices at which the Shares are likely to trade following the consummation
of the Merger, which may vary depending upon, among other factors, changes in
business, market or general economic conditions, liquidity and other factors
that generally influence the price of securities. Our advisory services and the
opinion expressed herein are provided for the information and assistance of the
Board of Directors of the Company in connection with its consideration of the
transaction contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any Holder should vote with respect to such transaction
or what election any Holder should make in connection with the Merger.
The Stockholders Agreement contains, among other things, certain agreements
of Mafco and Warburg with respect to (a) put and call options that could result
in purchases and sales of Shares between those parties following the Merger, (b)
the allocation between those parties of any consideration received by Warburg in
alternative transactions and (c) participation by other shareholders in future
dispositions of Shares by Mafco. The Stockholders Agreement also contains
agreements by Warburg to vote its Shares in favor of the Merger and not to
dispose of any Shares during the two years after the effective time of the
Merger, subject to certain exceptions contained therein.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Aggregate Consideration to be received by the Holders pursuant to the Agreement
is fair from a financial point of view to such Holders.
Very truly yours,
GOLDMAN, SACHS & CO.
