<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMSCAN HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5110 13-3911462
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
AMSCAN HOLDINGS, INC.
80 GRASSLANDS ROAD
ELMSFORD, NEW YORK 10523
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES M. HARRISON
AMSCAN HOLDINGS, INC.
80 GRASSLANDS ROAD
ELMSFORD, NEW YORK 10523
(914) 345-2020
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
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MILTON G. STROM, ESQ. MITCHELL S. PRESSER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP WACHTELL, LIPTON, ROSEN & KATZ
919 THIRD AVENUE 51 WEST 52ND STREET
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10019
(212) 735-3000 (212) 403-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effective date of this
Registration Statement and upon consummation of the Merger as described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
the General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the effective registration statement for the
same offering. [ ]
CALCULATION OF REGISTRATION FEE
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===============================================================================================================
PROPOSED PROPOSED PROPOSED MAXIMUM
MAXIMUM MAXIMUM AGGREGATE AMOUNT
AMOUNT TO BE OFFERING PRICE OFFERING OF REGISTRATION
TITLE(1) REGISTERED(2) PER SHARE(3) PRICE(3) FEE(4)
- ---------------------------------------------------------------------------------------------------------------
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Common Stock, par value $0.10 per share........ 136 shares $6.7325 $142,046,654 $0
===============================================================================================================
</TABLE>
(1) This Registration Statement relates to the Common Stock of the Registrant to
be issued to the holders of the Registrant's Common Stock in the proposed
merger of Confetti Acquisition, Inc. with and into the Registrant, with the
Registrant continuing as the surviving corporation in the merger (the
"Merger").
(2) Represents an estimate of the maximum number of shares of Registrant's
Common Stock that may be issued in the Merger.
(3) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f)(1). The proposed maximum aggregate offering
price is based upon the product of (i) 21,098,649, the total number of the
Registrant's shares to be received by the Registrant in the Merger, assuming
all stockholders of the Registrant elect the Mixed Consideration in the
Merger, and (ii) the average of the high and low sales prices of a share of
the Registrant's Common Stock on the Nasdaq National Market ($16.0625) on
November 6, 1997 minus $9.33 in cash to be paid by the Registrant to
stockholders for each share of the Registrant's Common Stock.
(4) Pursuant to Rule 457(b), the required fee of $43,045 is reduced by the fee
of $67,912 previously paid on September 12, 1997 pursuant to Section
14(g)(1)(A) of the Securities Exchange Act of 1934, as amended, and Rules
0-11 and 14a-(6)(j) promulgated thereunder, in connection with the filing of
preliminary proxy materials relating to the Merger as described herein, and
has been credited against the registration fee payable in connection with
this Registration Statement. Accordingly, no fee is payable with this
filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
[AMSCAN LOGO]
AMSCAN HOLDINGS, INC.
80 GRASSLANDS ROAD
ELMSFORD, NEW YORK 10523
November 14, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Amscan Holdings, Inc. (the "Company"), which will be held
at the executive offices of the Company, 80 Grasslands Road, Elmsford, New York,
on Wednesday, December 17, 1997, at 10:00 a.m., local time.
At the Special Meeting, stockholders of the Company will be asked to
consider and vote upon a proposal to approve and adopt an Agreement and Plan of
Merger, dated as of August 10, 1997 (the "Merger Agreement"), between the
Company and Confetti Acquisition, Inc., a newly organized Delaware corporation
("Acquisition") affiliated with GS Capital Partners II, L.P. and certain other
private investment funds managed by Goldman, Sachs & Co., and to approve the
transactions contemplated by the Merger Agreement. If stockholders of the
Company approve and adopt the Merger Agreement and the transactions contemplated
thereby, and such transactions are consummated, Acquisition will be merged with
and into the Company (the "Merger"), with the Company as the surviving
corporation, and each share of common stock of the Company ("Company Common
Stock"), with certain exceptions, will be converted, at the election of the
holder thereof, into the right to receive from the Company following the Merger
either $16.50 in cash (the "Cash Consideration"), or $9.33 in cash plus a
retained interest in the Company equal to one share for every 150,000 shares so
elected (the "Mixed Consideration"), with cash to be paid in lieu of fractional
shares of Company Common Stock. Detailed information concerning the proposed
Merger is set forth in the accompanying Proxy Statement/Prospectus, which you
are urged to read carefully. A copy of the Merger Agreement is included as Annex
A to the Proxy Statement/Prospectus.
Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the outstanding shares of Company Common Stock held by
stockholders of record on November 13, 1997 (the "Record Date"). The majority
stockholder of the Company, the estate of John A. Svenningsen, the founder and
former Chairman and Chief Executive Officer of the Company (the "Estate"),
beneficially owned, as of the Record Date, shares of Company Common Stock
representing approximately 71.2% of the outstanding shares of Company Common
Stock entitled to vote at the Special Meeting. Pursuant to a Voting Agreement,
dated as of August 10, 1997 (the "Voting Agreement"), among Acquisition, the
Estate and Christine Svenningsen, the wife of Mr. Svenningsen and executrix of
the Estate, the Estate and Mrs. Svenningsen have, among other things,
irrevocably agreed to vote all the shares held by the Estate in favor of the
approval and adoption of the Merger Agreement and the transactions contemplated
thereby. Accordingly, the requisite vote of stockholders to approve and adopt
the Merger Agreement is assured. Pursuant to the Voting Agreement, the Estate
and Mrs. Svenningsen have also agreed to elect the Mixed Consideration in the
Merger with respect to all of the shares held by the Estate.
Holders of Company Common Stock will be entitled to appraisal rights under
Delaware law in connection with the Merger, as described in the Proxy
Statement/Prospectus.
THE BOARD OF DIRECTORS, UPON THE UNANIMOUS RECOMMENDATION OF ITS
INDEPENDENT DIRECTORS, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
VOTING AGREEMENT AND DETERMINED, BASED ON THE AVAILABILITY OF THE CASH
CONSIDERATION IN THE MERGER TO ANY STOCKHOLDER WHO SO ELECTS, THAT THE MERGER
AGREEMENT, THE VOTING AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE
FAIR TO AND IN THE BEST
<PAGE> 3
INTERESTS OF THE COMPANY'S STOCKHOLDERS (OTHER THAN THE ESTATE), AND RECOMMENDS
THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY. In reaching such determination and
recommendation, the Board's independent directors considered, among other
things, the opinion of Wasserstein Perella & Co., Inc., who served as the
independent directors' financial advisor with respect to such transactions
("Wasserstein Perella"), that the Cash Consideration to be received by the
stockholders of the Company, other than the Estate, pursuant to the Merger
Agreement is fair to such stockholders from a financial point of view.
Wasserstein Perella's opinion is included as Annex C to the Proxy
Statement/Prospectus. 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 Wasserstein Perella. IN MAKING A
DETERMINATION AS TO WHETHER TO ELECT THE CASH CONSIDERATION OR THE MIXED
CONSIDERATION, STOCKHOLDERS SHOULD BE AWARE THAT THE CASH CONSIDERATION HAS A
SIGNIFICANTLY HIGHER CURRENT VALUE THAN THE MIXED CONSIDERATION.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING,
WHETHER OR NOT YOU PLAN TO ATTEND PERSONALLY. TO ENSURE THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING, YOU SHOULD COMPLETE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
NO ACTION IS REQUIRED AT THIS TIME FOR STOCKHOLDERS TO ELECT THE CASH
CONSIDERATION. UNLESS STOCKHOLDERS MAKE AN AFFIRMATIVE ELECTION TO RECEIVE THE
MIXED CONSIDERATION IN ACCORDANCE WITH THE ENCLOSED FORM OF ELECTION, THEY WILL
BE DEEMED TO HAVE ELECTED THE CASH CONSIDERATION. STOCKHOLDERS ELECTING THE CASH
CONSIDERATION SHOULD NOT RETURN THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A
LETTER OF TRANSMITTAL, AND THEN ONLY IN ACCORDANCE WITH THE INSTRUCTIONS
CONTAINED THEREIN. STOCKHOLDERS ELECTING THE MIXED CONSIDERATION SHOULD RETURN
THEIR STOCK CERTIFICATES TOGETHER WITH THE ENCLOSED FORM OF ELECTION PURSUANT TO
THE INSTRUCTIONS CONTAINED IN SUCH FORM OF ELECTION.
Yours very truly,
/s/ Gerald C. Rittenberg
GERALD C. RITTENBERG
President and Acting Chairman of the
Board
<PAGE> 4
[AMSCAN LOGO]
AMSCAN HOLDINGS, INC.
80 GRASSLANDS ROAD
ELMSFORD, NEW YORK 10523
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 17, 1997
------------------------
To the Stockholders of
Amscan Holdings, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (including
any adjournments or postponements thereof, the "Special Meeting") of Amscan
Holdings, Inc., a Delaware corporation (the "Company"), will be held at the
executive offices of the Company, 80 Grasslands Road, Elmsford, New York, on
Wednesday, December 17, 1997, at 10:00 a.m., local time, for the following
purposes, which are more fully described in the accompanying Proxy
Statement/Prospectus:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of August 10, 1997 (the "Merger
Agreement"), between the Company and Confetti Acquisition, Inc., a Delaware
corporation ("Acquisition") affiliated with GS Capital Partners II, L.P.
and certain other private investment funds managed by Goldman, Sachs & Co.,
pursuant to which, among other things, Acquisition will be merged with and
into the Company (the "Merger"), with the Company as the surviving
corporation, and each share of common stock, par value $0.10 per share, of
the Company ("Company Common Stock"), issued and outstanding immediately
prior to the effective time of the Merger (other than shares of Company
Common Stock owned by the Company or any subsidiary of the Company or by
Acquisition or any subsidiary of Acquisition, which will be cancelled and
retired, and other than shares of Company Common Stock subject to appraisal
rights) will be converted, at the election of the holder thereof, into the
right to receive from the Company following the Merger either (a) $16.50 in
cash (the "Cash Consideration"), or (b) $9.33 in cash plus a retained
interest in the Company equal to one share of Company Common Stock for
every 150,000 shares of Company Common Stock so elected (the "Mixed
Consideration"), with cash to be paid in lieu of fractional shares of
Company Common Stock, and to approve the transactions contemplated by the
Merger Agreement, including the Merger; and
2. To transact such other business as may properly come before the
Special Meeting.
Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the outstanding shares of Company Common Stock held by
stockholders of record on November 13, 1997 (the "Record Date"). The majority
stockholder of the Company, the estate of John A. Svenningsen, the founder and
former Chairman and Chief Executive Officer of the Company (the "Estate"),
beneficially owned, as of the Record Date, shares of Company Common Stock
representing approximately 71.2% of the outstanding shares of Company Common
Stock entitled to vote at the Special Meeting. Pursuant to a Voting Agreement,
dated as of August 10, 1997, among Acquisition, the Estate and Christine
Svenningsen, the wife of John A. Svenningsen and executrix of the Estate, the
Estate and Mrs. Svenningsen have, among other things, irrevocably agreed to vote
all of the shares of Company Common Stock held by the Estate in favor of the
approval and adoption of the Merger Agreement and the transactions contemplated
thereby. Accordingly, the requisite vote of stockholders to approve and adopt
the Merger Agreement is assured.
Only stockholders of record at the close of business on the Record Date are
entitled to notice of, and to vote at, the Special Meeting. A complete list of
stockholders entitled to vote at the Special Meeting will be available for
examination, for proper purposes, during regular business hours at the executive
offices of the
<PAGE> 5
Company, 80 Grasslands Road, Elmsford, New York, during the 10 days immediately
prior to the Special Meeting.
Shares of Company Common Stock represented by all properly executed proxies
received in time for the Special Meeting will be voted in the manner specified
in the proxies relating thereto. 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 favor of such matter.
In connection with the proposed Merger, appraisal rights will be available
to those stockholders of the Company who meet and comply with the requirements
of Section 262 of the General Corporation Law of the State of Delaware (the
"DGCL"), a copy of which is included as Annex D to the Proxy
Statement/Prospectus. Reference is made to the section entitled "STOCKHOLDERS'
APPRAISAL RIGHTS" in the Proxy Statement/Prospectus for a discussion of the
procedures to be followed in asserting appraisal rights under Section 262 of the
DGCL in connection with the proposed Merger.
YOUR VOTE IS IMPORTANT REGARDLESS OF HOW MANY SHARES OF COMPANY COMMON
STOCK YOU OWN. REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU
ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR
TO ITS EXERCISE. IF YOU ARE PRESENT AT THE SPECIAL MEETING OR ANY ADJOURNMENTS
OR POSTPONEMENTS THEREOF, YOU MAY REVOKE YOUR PROXY AND VOTE PERSONALLY ON THE
MATTERS PROPERLY BROUGHT BEFORE THE SPECIAL MEETING.
NO ACTION IS REQUIRED AT THIS TIME FOR STOCKHOLDERS TO ELECT THE CASH
CONSIDERATION. UNLESS STOCKHOLDERS MAKE AN AFFIRMATIVE ELECTION TO RECEIVE THE
MIXED CONSIDERATION IN ACCORDANCE WITH THE ENCLOSED FORM OF ELECTION, THEY WILL
BE DEEMED TO HAVE ELECTED THE CASH CONSIDERATION. STOCKHOLDERS ELECTING THE CASH
CONSIDERATION SHOULD NOT RETURN THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A
LETTER OF TRANSMITTAL, AND THEN ONLY IN ACCORDANCE WITH THE INSTRUCTIONS
CONTAINED THEREIN. STOCKHOLDERS ELECTING THE MIXED CONSIDERATION SHOULD RETURN
THEIR STOCK CERTIFICATES TOGETHER WITH THE ENCLOSED FORM OF ELECTION PURSUANT TO
THE INSTRUCTIONS CONTAINED IN SUCH FORM OF ELECTION.
IF YOU HAVE ANY QUESTIONS OR REQUIRE ADDITIONAL MATERIAL, PLEASE CONTACT
DANIEL DEWEEVER AT CHASEMELLON SHAREHOLDER SERVICES, L.L.C. AT 1-888-213-0969
(TOLL FREE) OR 212-273-8293 (COLLECT).
BY ORDER OF THE BOARD OF DIRECTORS
/s/ James M. Harrison
JAMES M. HARRISON
Secretary
Elmsford, New York
November 14, 1997
<PAGE> 6
AMSCAN HOLDINGS, INC.
LOGO
------------------------
PROXY STATEMENT/PROSPECTUS
------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 17, 1997
This Proxy Statement/Prospectus is being furnished to stockholders of
Amscan Holdings, Inc., a Delaware corporation (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 Special Meeting of
Stockholders, which will be held at the executive offices of the Company, 80
Grasslands Road, Elmsford, New York, on Wednesday, December 17, 1997, at 10:00
a.m., local time, and at any adjournments or postponements thereof (the "Special
Meeting"). This Proxy Statement/Prospectus relates to, among other things, the
proposed merger (the "Merger") of Confetti Acquisition, Inc., a Delaware
corporation ("Acquisition") affiliated with GS Capital Partners II, L.P. ("GSCP
II") and certain other private investment funds managed by Goldman, Sachs & Co.
("Goldman Sachs"), with and into the Company pursuant to an Agreement and Plan
of Merger, dated as of August 10, 1997 (the "Merger Agreement"), between the
Company and Acquisition, and the transactions contemplated thereby.
Pursuant to the Merger Agreement, each share of the Company's common stock,
par value $0.10 per share (the "Company Common Stock"), issued and outstanding
immediately prior to the effective time of the Merger (the "Effective Time")
(other than shares of Company Common Stock owned by the Company or any
subsidiary of the Company or by Acquisition or any subsidiary of Acquisition,
which will be cancelled and retired, and other than shares of Company Common
Stock subject to appraisal rights), will be converted, at the election of the
holder thereof, into the right to receive from the Company following the Merger,
either (a) $16.50 in cash (the "Cash Consideration") or (b) $9.33 in cash plus a
retained interest in the Company equal to one fully paid and nonassessable share
of Company Common Stock for every 150,000 shares of Company Common Stock so
elected (the "Mixed Consideration"), with cash being paid in lieu of any
fractional shares. No action is required at this time for stockholders to elect
the Cash Consideration. Unless stockholders make an affirmative election to
receive the Mixed Consideration in accordance with the Form of Election
accompanying this Proxy Statement/Prospectus (the "Form of Election"), they will
be deemed to have elected the Cash Consideration. Holders of shares of Company
Common Stock who elect the Mixed Consideration and who would otherwise have been
entitled to retain a fraction of a share of Company Common Stock will receive,
in lieu thereof (but in addition to the $9.33 in cash to be paid for each share
so elected), cash in an amount equal to $0.50 per share so elected. See "THE
MERGER -- Merger Consideration." A copy of the Merger Agreement is included as
Annex A to this Proxy Statement/Prospectus. The summaries of the Merger
Agreement set forth in this Proxy Statement/Prospectus do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the text of the Merger Agreement.
This Proxy Statement/Prospectus also constitutes a prospectus of the
Company with respect to the 136 shares of Company Common Stock that may be
retained by stockholders in the Merger.
Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the outstanding shares of Company Common Stock held by
stockholders of record on November 13, 1997 (the "Record Date"). The majority
stockholder of the Company, the estate of John A. Svenningsen, the founder and
former Chairman and Chief Executive Officer of the Company (the "Estate"),
beneficially owned, as of the Record Date, shares of Company Common Stock
representing approximately 71.2% of the outstanding shares of Company Common
Stock entitled to vote at the Special Meeting. Pursuant to a Voting Agreement,
dated as of August 10, 1997 (the "Voting Agreement"), among Acquisition, the
Estate and Christine Svenningsen, the wife of John A. Svenningsen and the
executrix of the Estate, the Estate and Mrs. Svenningsen (collectively, the
"Svenningsen Stockholders") have, among other things, irrevocably agreed to vote
all of the shares of Company Common Stock held by the Estate in favor of the
approval and the adoption of the Merger
<PAGE> 7
Agreement and the transactions contemplated thereby. Accordingly, the requisite
vote of the holders of shares of Company Common Stock to approve and adopt the
Merger Agreement is assured. The Svenningsen Stockholders have also agreed to
elect the Mixed Consideration in the Merger with respect to all of the shares of
Company Common Stock held by the Estate.
As a result, and assuming no stockholder of the Company other than the
Estate elects the Mixed Consideration, there will be 1,000 shares of Company
Common Stock outstanding immediately following the Merger, of which GSCP will
own 825 shares, Gerald C. Rittenberg, President and Acting Chairman of the
Board, will own 60 shares, James M. Harrison, Chief Financial Officer and
Secretary, will own 15 shares (all of which will be restricted), and the Estate
will retain ownership of 100 shares. In addition, following consummation of the
Merger, an additional 10 shares will be purchased by certain employees,
including William S. Wilkey, Senior Vice President -- Sales and Marketing, who
will acquire approximately seven shares.
Upon completion of the Merger, GSCP will hold in excess of 80% of the
outstanding shares of Company Common Stock and, therefore, GSCP will control the
Company. The Company has been advised by GSCP that, as of the date of this Proxy
Statement/Prospectus, GSCP has no plan to offer to the public the shares of the
Company Common Stock it will acquire in the Merger.
The Board of Directors, upon the unanimous recommendation of its
independent directors, has unanimously approved the Merger Agreement and the
Voting Agreement and determined, based on the availability of the Cash
Consideration in the Merger to any stockholder who so elects, that the Merger
Agreement, the Voting Agreement and the transactions contemplated thereby are
fair to and in the best interests of the Company's stockholders (other than the
Estate), and recommends that you vote FOR approval and adoption of the Merger
Agreement and the transactions contemplated thereby. In reaching such
determination and recommendation, the independent directors considered, among
other things, the opinion of Wasserstein Perella & Co., Inc., who served as the
independent directors' financial advisor with respect to such transactions
("Wasserstein Perella"), that the Cash Consideration to be received by the
stockholders of the Company, other than the Estate, pursuant to the Merger
Agreement is fair to such stockholders from a financial point of view.
Wasserstein Perella's opinion is included as Annex C to this Proxy
Statement/Prospectus. 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 Wasserstein Perella. In making a
determination as to whether to elect the Cash Consideration or the Mixed
Consideration in the Merger, stockholders should be aware that the Cash
Consideration has a significantly higher current value than the Mixed
Consideration. See "The MERGER -- Recommendation of the Board of Directors;
Reasons for the Merger."
The Company Common Stock is listed for trading on the Nasdaq National
Market ("Nasdaq") under the symbol "AMSN." On August 8, 1997, the last trading
day before public announcement of the execution of the Merger Agreement, the
last sale price of the Company Common Stock as reported on Nasdaq was $12 1/8
per share. On November 13, 1997, the latest practicable trading day prior to the
printing of this Proxy Statement/Prospectus, the last sale price of the Company
Common Stock as reported on Nasdaq was $15 1/16 per share. Stockholders of the
Company should obtain current market quotations for the Company Common Stock. If
the Merger is approved and consummated, the Company anticipates that it will
seek to have the Company Common Stock delisted from Nasdaq. In addition, upon
consummation of the Merger, the Company Common Stock will be eligible for
deregistration under the Exchange Act. See "RISK FACTORS -- Delisting;
Illiquidity of Company Common Stock."
This Proxy Statement/Prospectus, the accompanying form of proxy and the
other enclosed documents are first being mailed to stockholders of the Company
on or about November 17, 1997.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS OF COMPANY COMMON STOCK IN CONNECTION WITH
THEIR CONSIDERATION OF THE MERGER.
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/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is November 14, 1997.
<PAGE> 8
TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................................. 1
FORWARD-LOOKING STATEMENTS............................................................ 2
SUMMARY............................................................................... 3
The Company......................................................................... 3
The Special Meeting................................................................. 3
The Merger.......................................................................... 5
Selected Historical and Merger Pro Forma Consolidated and Combined Financial and
Other Data....................................................................... 12
Market Price Data and Dividends..................................................... 16
RISK FACTORS.......................................................................... 17
Control by GSCP..................................................................... 17
Delisting; Illiquidity of Company Common Stock...................................... 17
Substantial Leverage................................................................ 17
Potential Dilution of Company Stockholders.......................................... 18
Concentration of Customer Sales and Credit Risk..................................... 18
Importance of Identifying Design Trends and Consumer Preferences.................... 18
Competition......................................................................... 19
Impact of Changing Paper Prices..................................................... 19
Risks Associated with Further Expansion Through Acquisitions........................ 19
Seasonality......................................................................... 19
Dependence on Key Personnel......................................................... 20
THE SPECIAL MEETING................................................................... 21
Matters to be Considered............................................................ 21
Required Vote....................................................................... 21
Voting and Revocation of Proxies.................................................... 21
Record Date; Stock Entitled to Vote; Quorum......................................... 22
Stockholders' Appraisal Rights...................................................... 22
Solicitation of Proxies............................................................. 22
THE MERGER............................................................................ 23
Background of the Merger............................................................ 23
Recommendation of the Board of Directors; Reasons for the Merger.................... 26
Opinion of Financial Advisor........................................................ 28
Merger Consideration................................................................ 34
Mixed Election; Mixed Election Procedure............................................ 34
Effective Time of the Merger........................................................ 35
Procedures for Exchange of Certificates............................................. 35
Fractional Shares................................................................... 36
Conduct of Business Pending the Merger.............................................. 36
Conditions to Consummation of the Merger............................................ 37
Federal Income Tax Consequences..................................................... 37
Accounting Treatment................................................................ 40
Effect on Stock and Employee Benefit Matters........................................ 40
Interests of Certain Persons in the Merger.......................................... 41
Nasdaq Delisting; Deregistration.................................................... 47
Resale of Company Common Stock Following the Merger................................. 47
Merger Financings................................................................... 47
Stockholder Litigation.............................................................. 49
STOCKHOLDERS' APPRAISAL RIGHTS........................................................ 50
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i
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THE MERGER AGREEMENT.................................................................. 53
The Merger.......................................................................... 53
Representations and Warranties...................................................... 53
Certain Pre-Closing Covenants....................................................... 53
Limitation on Solicitations......................................................... 55
Board of Directors and Officers of the Company Following the Merger................. 55
Stock and Employee Benefit Plans.................................................... 55
Access to Information............................................................... 56
Cooperation and Reasonable Best Efforts............................................. 56
Indemnification and Insurance....................................................... 56
Conditions to Consummation of the Merger............................................ 57
Termination......................................................................... 58
Amendment and Waiver................................................................ 59
Expenses and Certain Required Payments.............................................. 59
CERTAIN RELATED AGREEMENTS............................................................ 61
Voting Agreement.................................................................... 61
Tax Indemnification Agreement....................................................... 62
Stockholders Agreement.............................................................. 63
MERGER PRO FORMA CONSOLIDATED FINANCIAL DATA.......................................... 64
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 74
General............................................................................. 74
Financial Impact of Organization of the Company..................................... 74
Results of Operations............................................................... 76
Liquidity and Capital Resources..................................................... 82
Recently Issued Accounting Standards................................................ 85
Quarterly Results................................................................... 86
THE COMPANY........................................................................... 87
General............................................................................. 87
Party Goods Industry Overview....................................................... 88
Product Design...................................................................... 89
Manufactured and Purchased Products................................................. 89
The Selling Process................................................................. 89
Distribution and Systems............................................................ 90
Competition......................................................................... 90
Customers........................................................................... 91
Future Acquisitions................................................................. 91
Competitive Strengths............................................................... 92
Operational Review.................................................................. 92
Company Strategy.................................................................... 93
Product Line........................................................................ 93
Intellectual Property and Licenses.................................................. 94
Employees........................................................................... 95
Facilities.......................................................................... 95
Legal Proceedings................................................................... 96
MANAGEMENT............................................................................ 97
Directors and Executive Officers.................................................... 97
Executive Compensation and Related Information...................................... 98
</TABLE>
ii
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Compensation of Directors........................................................... 100
Certain Relationships and Related Transactions...................................... 101
DESCRIPTION OF CAPITAL STOCK.......................................................... 103
General............................................................................. 103
Company Common Stock................................................................ 103
Company Common Stock Following the Merger........................................... 103
Provisions of Delaware Law and the Company's Certificate of Incorporation and
By-laws.......................................................................... 103
Classified Board of Directors....................................................... 104
Special Meetings of Stockholders.................................................... 104
Stockholder Action by Written Consent............................................... 104
Advance Notice Requirements for Stockholder Proposals and Director Nominations...... 105
Liability; Indemnity................................................................ 105
Other Provisions.................................................................... 105
Shares Reserved for Issuance........................................................ 106
Transfer Agent...................................................................... 106
Listing............................................................................. 106
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 107
ACQUISITION AND GSCP.................................................................. 109
REGULATORY APPROVALS.................................................................. 109
Antitrust........................................................................... 110
Other............................................................................... 110
LEGAL MATTERS......................................................................... 110
EXPERTS............................................................................... 110
STOCKHOLDER PROPOSALS................................................................. 110
OTHER MATTERS......................................................................... 111
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
ANNEX A -- AGREEMENT AND PLAN OF MERGER............................................... A-1
ANNEX B -- VOTING AGREEMENT........................................................... B-1
ANNEX C -- OPINION OF WASSERSTEIN PERELLA............................................. C-1
ANNEX D -- SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
RELATING TO THE RIGHTS OF DISSENTING STOCKHOLDERS................................... D-1
</TABLE>
iii
<PAGE> 11
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN AS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, IN
CONNECTION WITH THE MERGER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ACQUISITION. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES TO WHICH IT RELATES IN
ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational 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
Commission. Reports, proxy statements and other information filed by the Company
with the Commission can 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; and may be available for inspection and copying at
the regional offices of the Commission located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
This Proxy Statement/Prospectus constitutes a prospectus of the Company
filed with the Commission as part of a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Proxy Statement/Prospectus omits certain information
contained in the Registration Statement and the exhibits thereto. Reference is
made to the Registration Statement and related exhibits for further information
with respect to the Company and the retention of Company Common Stock. Any
statement herein concerning the provision of any document is not necessarily
complete, and in each instance reference is made to the copy of the document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE,
WITHOUT CHARGE, UPON REQUEST FROM THE CORPORATE SECRETARY OF THE COMPANY, 80
GRASSLANDS ROAD, ELMSFORD, NEW YORK 10523, TELEPHONE: 914-345-2020. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY DECEMBER
1, 1997.
<PAGE> 12
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus includes "forward-looking statements"
within the meaning of various provisions of the Private Securities Litigation
Reform Act of 1995. All statements, other than statements of historical facts,
included in this Proxy Statement/Prospectus that address activities, events or
developments that the Company expects or anticipates will or may occur in the
future, including the financial projections described under "THE
MERGER -- Recommendation of the Board of Directors; Reasons for the Merger,"
future capital expenditures (including the amount and nature thereof), business
strategy and measures to implement strategy, including any changes to
operations, competitive strengths, goals, expansion and growth of the Company's
and its subsidiaries' 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, but not limited to,
(1) the significant considerations discussed in this Proxy Statement/Prospectus,
(2) the concentration of sales by the Company to party goods superstores where
the reduction of purchases by a small number of customers could materially
reduce the Company's sales and profitability, (3) the concentration of the
Company's credit risk in party goods superstores, many of which are privately
held and have expanded rapidly in recent years, (4) the failure by the Company
to anticipate changes in tastes and preferences of party goods retailers and
consumers, (5) the introduction of new products by the Company's competitors,
(6) the inability of the Company to increase prices to recover fully future
increases in raw material prices, especially increases in paper prices, (7) the
loss of key employees, (8) changes in general business conditions, (9) other
factors which might be described from time to time in the Company's filings with
the Commission, and (10) other factors which are beyond the control of the
Company and its subsidiaries. Consequently, all of the forward-looking
statements made in this Proxy Statement/Prospectus are qualified by these
cautionary statements, and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the Company and its subsidiaries or their business or operations. In
addition, although the Company believes that it has the product offerings and
resources needed for continued growth in revenues and margins, future revenue
and margin trends cannot be reliably predicted. Changes in such trends may cause
the Company to adjust its operations in the future. Because of the foregoing and
other factors, recent trends should not be considered reliable indicators of
future financial results.
2
<PAGE> 13
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. The summary does not purport to be complete and
is qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement/Prospectus and the Annexes hereto.
Stockholders of the Company are urged to read this Proxy Statement/Prospectus
and the Annexes hereto in their entirety.
FOR A DISCUSSION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
HOLDERS OF COMPANY COMMON STOCK IN CONNECTION WITH THEIR CONSIDERATION OF THE
MERGER, INCLUDING CERTAIN RISKS RELATED TO CONTINUING TO HOLD COMPANY COMMON
STOCK, SEE "RISK FACTORS."
THE COMPANY
The Company was organized on October 3, 1996 to become the holding company
for the businesses previously conducted by the Company's principal subsidiary,
Amscan Inc., and certain affiliated companies ("Affiliates"). The Company
designs, manufactures and distributes decorative party goods, offering one of
the broadest and deepest product lines in the industry. The Company's products
include paper and plastic tableware (such as plates, napkins, tableware, cups
and cutlery), accessories (such as invitations, thank-you cards, table and wall
decorations and balloons) and novelties (such as games and party favors). The
Company offers over 250 product ensembles, generally containing 30 to 150
coordinated items. The Company's product ensembles are designed to be used in
connection with seasonal holidays and special events such as birthdays,
christenings, first communions, bar and bat mitzvahs, confirmations,
graduations, baby and bridal showers and anniversaries, as well as themed
celebrations such as Hawaiian luaus, Mardi Gras and '50s rock-and-roll parties.
The Company's products are sold to party goods superstores, independent card and
gift retailers, mass merchandisers and other distributors which sell the
Company's products in more than 20,000 retail outlets throughout the world,
including North America, Australia, the United Kingdom, Germany and Sweden. See
"THE COMPANY."
The principal executive offices of the Company are located at 80 Grasslands
Road, Elmsford, New York 10523 and the telephone number at such address is (914)
345-2020.
THE SPECIAL MEETING
TIME AND PLACE; RECORD DATE
The Special Meeting will be held at 10:00 a.m., local time, on Wednesday,
December 17, 1997 at the executive offices of the Company, 80 Grasslands Road,
Elmsford, New York. Stockholders of record of the Company at the close of
business on November 13, 1997 will be entitled to notice of, and to vote at, the
Special Meeting. The date of the first mailing of this Proxy
Statement/Prospectus to stockholders of the Company is on or about November 17,
1997. At the close of business on the Record Date, there were 21,098,785 shares
of Company Common Stock outstanding and entitled to vote.
MATTERS TO BE CONSIDERED
The purpose of the Special Meeting is for the Company's stockholders to
consider and vote upon a proposal to approve and adopt the Merger Agreement and
the transactions contemplated thereby (the "Merger Proposal"), pursuant to which
Acquisition will merge with and into the Company, the stockholders of the
Company will receive the consideration described under "THE MERGER -- Merger
Consideration," and the stockholders of Acquisition, which include GSCP II and
certain affiliates of GSCP II (collectively, "GSCP"), and certain employees of
the Company, will receive 900 shares of Company Common Stock, which, assuming no
stockholders of the Company other than the Estate elect the Mixed Consideration,
will be approximately 90% of the shares of Company Common Stock outstanding
after giving effect to the Merger.
3
<PAGE> 14
In addition, stockholders of the Company will consider and vote upon any
other proposals which are properly brought before the Special Meeting for a vote
thereon.
REQUIRED VOTE; QUORUM
The approval of the Merger Proposal requires the affirmative vote of the
holders of a majority of the shares of Company Common Stock entitled to vote at
the Special Meeting, provided a quorum is present. The Estate, which, as of
August 10, 1997, owned an aggregate of 15,024,616 shares of Company Common
Stock, representing approximately 71.2% of Company Common Stock outstanding on
such date, and Christine Svenningsen, executrix of the Estate, have agreed to
vote all of the shares of Company Common Stock owned by the Estate and all other
shares of Company Common Stock, if any, that the Estate acquires after August
10, 1997 and during the term of the Voting Agreement (collectively, the "Subject
Shares"), in favor of the Merger Proposal. See "THE SPECIAL MEETING -- Required
Vote" and "THE MERGER -- Interests of Certain Persons in the Merger."
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Company Common Stock entitled to vote at the Special
Meeting will constitute a quorum.
VOTING OF PROXY
Shares of Company Common Stock represented by all properly executed proxies
received in time for the Special Meeting will be voted in the manner specified
in the proxies relating thereto. 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 favor of such matter. See "THE SPECIAL MEETING -- Required Vote."
It is not expected that any matter other than the Merger Proposal will be
brought before stockholders at the Special Meeting. If other matters are
properly presented, however, 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.
ADJOURNMENTS; REVOCABILITY OF PROXIES
If the Special Meeting is adjourned, for whatever reason, the approval of
the Merger Proposal shall be considered and voted upon by stockholders at the
subsequent, reconvened meeting, if any.
You may revoke your proxy at any time prior to its exercise (i) by
attending the Special Meeting and voting in person (although attendance at the
Special Meeting will not in and of itself constitute revocation of a proxy),
(ii) by giving notice of revocation of your proxy at the Special Meeting or
(iii) by delivering (a) a written notice of revocation of your proxy or (b) a
duly executed proxy bearing a date later than the proxy previously executed, to
the Secretary of the Company at 80 Grasslands Road, Elmsford, New York 10523.
Unless revoked in one of the manners set forth above, proxies in the form
enclosed will be voted at the Special Meeting in accordance with your
instructions.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company. In addition to
solicitation by mail, the directors, officers and employees of the Company may
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 Company Common Stock. Such persons will be paid reasonable
out-of-pocket expenses.
ChaseMellon Shareholder Services, L.L.C. ("ChaseMellon") will assist in the
solicitation of proxies by the Company for an estimated fee of $3,500, plus
reimbursement of reasonable out-of-pocket expenses. If you have any questions or
require additional material, please call Daniel DeWeever at ChaseMellon at
1-888-213-0969 (toll free) or 212-273-8293 (collect).
4
<PAGE> 15
HOLDERS OF COMPANY COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. SEE "THE MERGER -- PROCEDURE FOR EXCHANGE OF CERTIFICATES,"
"-- MIXED ELECTION; MIXED ELECTION PROCEDURE" AND "-- FRACTIONAL SHARES" FOR
INSTRUCTIONS ON EXCHANGING STOCK CERTIFICATES FOR CASH CONSIDERATION AND
ELECTING THE MIXED CONSIDERATION.
THE MERGER
EFFECT OF THE MERGER
At the Effective Time, Acquisition will be merged with and into the Company
and the Company will continue as the surviving corporation following the Merger.
Each issued and outstanding share of Company Common Stock (other than shares
owned by the Company or any subsidiary of the Company or by Acquisition or any
subsidiary of Acquisition, which will be cancelled and retired, and other than
shares of Company Common Stock subject to appraisal rights (see "STOCKHOLDERS'
APPRAISAL RIGHTS")) will be converted, at the election of the holder thereof,
into the right to receive from the Company following the Merger either (i)
$16.50 in cash (the "Cash Consideration"), or (ii) $9.33 in cash plus a retained
interest in the Company equal to one fully paid and nonassessable share of
Company Common Stock for every 150,000 shares of Company Common Stock so elected
by such holder (the "Mixed Consideration"), with cash to be paid in lieu of
fractional shares of Company Common Stock. No action is required at this time
for stockholders to elect the Cash Consideration. Unless stockholders make an
affirmative election to receive the Mixed Consideration in accordance with the
Form of Election, they will be deemed to have elected the Cash Consideration.
Holders of shares of Company Common Stock who elect the Mixed Consideration and
who would otherwise have been entitled to retain a fraction of a share of
Company Common Stock will receive, in lieu thereof (but in addition to the $9.33
in cash to be paid for each share so elected), cash in an amount equal to $0.50
per share so elected. See "THE MERGER -- Fractional Shares." Each stockholder of
the Company may receive the Cash Consideration with respect to some of the
stockholder's shares of Company Common Stock and the Mixed Consideration with
respect to other shares of Company Common Stock.
In addition, at the Effective Time, each issued and outstanding share of
common stock, par value $0.10 per share, of Acquisition (the "Acquisition Common
Stock") will be converted into a number of shares of Company Common Stock equal
to the quotient of (i) 900 divided by (ii) the number of shares of Acquisition
Common Stock outstanding immediately prior to the Effective Time. It is
anticipated that, immediately prior to the Effective Time, GSCP and certain
members of management of the Company will own approximately 91.7% and 8.3%,
respectively, of the outstanding shares of Acquisition Common Stock. Pursuant to
the Voting Agreement, the Svenningsen Stockholders have agreed, among other
things, to elect the Mixed Consideration with respect to all the Subject Shares.
As a result, and assuming no other stockholder of the Company elects the Mixed
Consideration, GSCP, certain members of management (including Gerald C.
Rittenberg, President and Acting Chairman of the Board, and James M. Harrison,
Chief Financial Officer and Secretary, through their ownership of Acquisition
Common Stock immediately prior to the Merger) and the Estate will own shares of
Company Common Stock immediately following the Merger representing approximately
82.5% and 7.5% and almost 10%, respectively, of the shares of Company Common
Stock outstanding immediately following the Merger. In addition, upon
consummation of the Merger, certain employees will purchase additional shares of
Company Common Stock and/or receive options to purchase shares of Company Common
Stock following the Merger. Such options will vest over a five-year period and
are subject to forfeiture upon the occurrence of certain events. See "THE
MERGER -- Interests of Certain Persons in the Merger."
RECOMMENDATION OF THE BOARD OF DIRECTORS
On August 10, 1997, the Board of Directors, upon the unanimous
recommendation of its independent directors, unanimously (i) determined, based
on the availability of the Cash Consideration in the Merger to any stockholder
who so elects, that the Merger Agreement, the Voting Agreement, the Tax
Indemnification Agreement (as defined below) and the transactions contemplated
thereby are fair to and in the best interests
5
<PAGE> 16
of the Company's stockholders (other than the Estate) and (ii) resolved to
recommend that the Company's stockholders approve and adopt the Merger Agreement
and the transactions contemplated thereby. In reaching such determination and
recommendation, the independent directors considered a number of factors. See
"THE MERGER -- Background of the Merger" and "-- Recommendation of the Board of
Directors; Reasons for the Merger." In view of such factors, the Board of
Directors did not solicit business combination proposals from other parties
before approving the Merger Agreement and the transactions contemplated thereby.
In making a determination as to whether to elect the Cash Consideration or the
Mixed Consideration in the Merger, stockholders should be aware that the Cash
Consideration has a significantly higher current value than the Mixed
Consideration.
OPINION OF FINANCIAL ADVISOR
Wasserstein Perella has acted as the exclusive financial advisor to the
Board's independent directors in connection with the proposed Merger and has
assisted the independent directors in, among other things, their examination of
the fairness from a financial point of view of the Cash Consideration to be
received by the stockholders of the Company, other than the Estate, pursuant to
the Merger Agreement. The Board's independent directors selected Wasserstein
Perella as their financial advisor, after interviewing them and two other
financial advisors, because of Wasserstein Perella's experience and expertise in
transactions similar to the Merger.
On August 10, 1997, Wasserstein Perella delivered its oral opinion (which
was subsequently confirmed in writing) to the independent directors to the
effect that, as of the date of such opinion and based upon and subject to the
procedures followed, assumptions made, matters considered and limitations on the
review undertaken, as set forth therein, the Cash Consideration to be received
in the Merger by the holders of Company Common Stock, other than the Estate, is
fair to such holders from a financial point of view. A copy of Wasserstein
Perella's written opinion, which sets forth the assumptions made, procedures
followed, matters considered, and limitations on and scope of the review by
Wasserstein Perella is included as Annex C to this Proxy Statement/Prospectus.
Stockholders of the Company are encouraged to read such opinion in its entirety.
Wasserstein Perella did not express any views on any other terms of the
transactions contemplated by the Merger Agreement or on the fairness from a
financial point of view of the Mixed Consideration that stockholders of the
Company may elect to receive pursuant to the Merger. See "THE MERGER -- Opinion
of Financial Advisor."
MIXED ELECTION PROCEDURE
Record holders of shares of Company Common Stock will be entitled to make
an unconditional election (a "Mixed Election") on or prior to the Election Date
(as defined below), to retain and receive, as applicable, the Mixed
Consideration with respect to their respective shares so elected. Holders of
Company Common Stock making the Mixed Election and electing the Mixed
Consideration must properly complete and sign the Form of Election, and such
Form of Election, together with all certificates representing shares of Company
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., New York City time, on the business day next
preceding the date of the Special Meeting (the "Election Date") and must not be
withdrawn. See "THE MERGER -- Mixed Election; Mixed Election Procedure."
FRACTIONAL SHARES
Fractional shares of Company Common Stock will not be issued in the Merger.
Holders of Company Common Stock who elect the Mixed Consideration and who would
otherwise have been entitled to retain a fraction of a share of Company Common
Stock will receive, in lieu thereof (but in addition to the $9.33 in cash to be
paid for each share so elected), cash in an amount equal to $0.50 per share so
elected. See "THE MERGER -- Fractional Shares."
6
<PAGE> 17
Stockholders desiring to elect the Mixed Consideration should only do so
with respect to shares of Company Common Stock in whole number multiples of
150,000 shares. A stockholder making such an election for a number of shares
that is not a whole number multiple of 150,000 will receive $9.83 per share in
cash (including $9.33 per share to be paid pursuant to the Mixed Election and
$0.50 per share to be paid in lieu of fractional shares) with respect to the
portion of such election made with respect to a number of shares in excess of a
whole number multiple of 150,000. Such a stockholder would receive a greater
amount of cash in the Merger by electing the Cash Consideration of $16.50 per
share with respect to those shares which are not whole number multiples of
150,000.
CONDITIONS TO THE MERGER
The obligations of the Company and Acquisition to consummate the Merger are
subject to various conditions, including, without limitation, obtaining
requisite stockholder approval, the termination or expiration of the relevant
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), which termination has been granted (see "REGULATORY
APPROVALS"), and the absence of any injunction or other legal restraint or
prohibition preventing the consummation of the Merger.
Acquisition's obligation to effect the Merger is further subject to, among
other things, (i) Acquisition and the Company receiving the proceeds of
financing on the terms and conditions contemplated by the Merger Agreement or
upon terms and conditions which are, in the reasonable judgment of Acquisition,
substantially equivalent to such terms and conditions or such other terms and
conditions which are reasonably satisfactory to Acquisition, (ii) Acquisition
being reasonably satisfied that (A) the Merger will be recorded as a
recapitalization for financial reporting purposes and (B) the New Employment
Arrangements (as defined under "THE MERGER -- Interests of Certain Persons in
the Merger") are in full force and effect, (iii) the Estate having made and not
revoked a Mixed Election with respect to at least 15,024,616 shares of Company
Common Stock, (iv) the Tax Indemnification Agreement being in full force and
effect and (v) there being no suit, action or proceeding by a federal, state,
local or foreign government or any court, arbitral authority, official or
agency, domestic or foreign (a "Governmental Entity") (or any suit, action or
proceeding by any other person which has a reasonable likelihood of success) (A)
challenging or seeking to restrain or prohibit the consummation of the Merger or
any of the other transactions contemplated by the Merger Agreement, or seeking
material damages from Acquisition, the Company or any of their respective
affiliates, (B) seeking to prohibit or limit the ownership or operations by
Acquisition, the Company or any of their subsidiaries of any material portion of
the business or assets of the Company, (C) seeking to limit the exercise of full
rights of ownership of any shares of Company Common Stock, including voting
rights, or (D) seeking to prohibit Acquisition or its affiliates from
effectively controlling in any material respect the business or operations of
the Company or its subsidiaries. See "THE MERGER AGREEMENT -- Conditions to
Consummation of the Merger" and "REGULATORY APPROVALS."
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 the
Antitrust Division of the Department of Justice (the "Antitrust Division"), and
the applicable waiting period has expired or been terminated. On August 22,
1997, GSCP II and certain of its affiliates, the Estate and the Company filed
Notification and Report Forms under the HSR Act with the FTC and the Antitrust
Division. As of September 24, 1997, the waiting period under the HSR Act with
respect all such filings had terminated. See "REGULATORY APPROVALS."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to
the independent directors of the Board, regarding material U.S. federal income
tax consequences of the Merger, is contained in the section entitled "THE
MERGER -- Federal Income Tax Consequences."
7
<PAGE> 18
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING ON THE
PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER, IT IS RECOMMENDED THAT HOLDERS OF
COMPANY COMMON STOCK CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY
STATE, LOCAL AND FOREIGN) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
TREATMENT OF COMPANY STOCK OPTIONS AND ESOP
With certain exceptions, including pursuant to the New Employment
Arrangements, it is anticipated that immediately prior to the Effective Time,
each outstanding Company Stock Option (as defined under "THE MERGER -- Effect on
Stock and Employee Benefit Matters") granted under the Stock Plan (as defined
under "THE MERGER -- Effect on Stock and Employee Benefit Matters"), whether or
not then exercisable, will be cancelled by the Company and each such holder of a
Company Stock Option will be entitled to receive from the Company at the
Effective Time or as soon as practicable thereafter in consideration of such
cancellation an amount in cash equal to the product of (i) the number of shares
of Company Common Stock previously subject to such Company Stock Option and (ii)
the excess, if any, of $16.50 over the exercise price per share of Company
Common Stock previously subject to such Company Stock Option, reduced by the
amount of any withholding or other taxes required by law to be withheld.
It is anticipated that the Stock Plan will terminate as of the Effective
Time, and following the Effective Time, no holder of a Company Stock Option nor
any participant in the Stock Plan will have any right thereunder to acquire
equity securities of the Company pursuant thereto following the Merger and will
be entitled to receive only the amount described in the preceding paragraph. In
addition, effective as of the Effective Time, the Company's Employee Stock
Ownership Plan (the "ESOP") shall be amended in certain respects. See "THE
MERGER -- Effect on Stock 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 has 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 Voting Agreement, the Svenningsen Stockholders have, among
other things, granted Acquisition an irrevocable option (the "Voting Agreement
Option") to purchase the Subject Shares, in whole but not in part, at a cash
price of $9.83 per share subject to certain conditions, exercisable during the
90-day period following a termination of the Merger Agreement (other than a
termination upon mutual consent of the Company and Acquisition and other than a
termination by the Company based on an actual material breach by Acquisition of
its obligations under the Merger Agreement). In the event that Acquisition
purchases the Subject Shares pursuant to the Voting Agreement Option, it will be
required to make a cash tender offer for the remaining shares of Company Common
Stock not held by it at a price of $16.50 per share, subject to certain
conditions set forth in the Voting Agreement. See "CERTAIN RELATED AGREEMENTS --
Voting Agreement."
Upon consummation of the Merger, the Company will enter into a Stockholders
Agreement (the "Stockholders Agreement") with GSCP and the Estate and certain
employees of the Company listed as parties thereto (including the Estate, the
"Non-GSCP Investors"). See "CERTAIN RELATED AGREEMENTS -- Stockholders
Agreement."
Concurrent with the execution of the Merger Agreement and the Voting
Agreement, Acquisition entered into agreements with certain employees of the
Company relating, for certain of such employees, to their employment with the
Company following the Effective Time and relating to their ownership of Company
Common Stock and options to purchase shares of Company Common Stock following
the Merger as more fully described under "THE MERGER -- Interests of Certain
Persons in the Merger" (collectively, the "New Employment Arrangements"). The
effectiveness of each of the New Employment Arrangements is contingent upon the
effectiveness of the Merger and there being no termination of the employee's
current employment agreement, if any. At the Effective Time, certain of the New
Employment Arrangements will replace and supersede current employment agreements
for such employees. Certain of the current employ-
8
<PAGE> 19
ment agreements contain change of control or similar severance provisions which
would have entitled the employees to receive a multiple of salary, bonus and
other benefits upon termination of their employment following the Merger if they
had not entered into the New Employment Arrangements. See
"MANAGEMENT -- Executive Compensation and Related Information."
Certain of the New Employment Arrangements provide for the employee's
position with the Company, compensation and benefits, including bonus, severance
payment, non-compete and other customary provisions. Certain of the New
Employment Arrangements also provide for the granting to the employee, in
connection with the Merger, of restricted stock and/or options to purchase
Company Common Stock and, in certain cases, the rollover and/or cashing out of
existing Company Stock Options and/or contribution to Acquisition of shares of
Company Common Stock owned by the employee in exchange for shares of Acquisition
Common Stock. Pursuant to the New Employment Agreements, Messrs. Rittenberg and
Harrison will each acquire an ownership interest in Acquisition Common Stock
immediately prior to the Merger. For a more detailed summary of each of the New
Employment Arrangements, see "THE MERGER -- Interests of Certain Persons in the
Merger."
Except as described above with respect to shares of Company Common Stock
and Company Stock Options acquired by certain employees of the Company pursuant
to the New Employment Arrangements, and/or as otherwise agreed by the Company,
Acquisition and the holder of such shares of Company Common Stock or Company
Stock Options, shares of Company Common Stock and Company Stock Options held by
officers and directors of the Company will be converted into the right to
receive the same consideration as shares of Company Common Stock held by other
stockholders and Company Stock Options held by other option holders, as the case
may be.
Pursuant to an Agreement, dated October 9, 1996 (the "Stock Agreement"),
among Amscan Inc., John A. Svenningsen and Mr. Rittenberg, as amended by an
agreement entered into between Mr. Rittenberg and the Estate (the "Amendment"),
effective as of August 19, 1997, Mr. Rittenberg has the right to receive from
the Estate and certain trusts of which Mr. Svenningsen was a trustee (the
"Svenningsen Trusts") five percent of the net proceeds of any sale of shares of
Company Common Stock held by the Estate (including any shares of Company Common
Stock retained by the Estate in the Merger with respect to which such right will
continue) and the Svenningsen Trusts (which are not expected to retain shares of
Company Common Stock in the Merger), respectively, for a period of six years
from the closing of the IPO (as defined herein) on December 24, 1996. Pursuant
to the Stock Agreement, in connection with the Merger, Mr. Rittenberg will be
entitled to receive a cash payment, payable within 30 days following the
Effective Time, in an amount equal to approximately $7.1 million from the Estate
and the Svenningsen Trusts. See "THE MERGER -- Interests of Certain Persons in
the Merger."
In addition, pursuant to the Amendment, Mr. Rittenberg will satisfy the
remaining unpaid balance of approximately $3.6 million of certain indebtedness
owed by Mr. Rittenberg to the Estate by (i) instructing the release to Christine
Svenningsen of 224,555 shares of Company Common Stock owned by Mr. Rittenberg
and held in escrow in connection with such indebtedness or (ii) in the event
that the closing of the Merger occurs prior to December 31, 1997, delivering to
Christine Svenningsen cash in an amount equal to the Cash Consideration payable
in respect of the 224,555 shares of Company Common Stock (whereupon the escrow
agent holding such shares will release such shares to Mr. Rittenberg).
Pursuant to the Merger Agreement, the Company has agreed for six years
after the Effective Time to indemnify all present and former directors,
officers, employees and agents of the Company, to the fullest extent currently
provided in the Company's Certificate of Incorporation and By-laws consistent
with applicable law, for acts or omissions occurring prior to the Effective Time
to the extent such acts or omissions are uninsured and will, subject to certain
limitations, maintain for six years its current directors' and officers'
liability insurance. See "THE MERGER AGREEMENT -- Indemnification and
Insurance."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time: (i) by mutual consent of Acquisition and the Company; (ii) by either
Acquisition or the Company (a) if any court of competent jurisdiction,
arbitrator or other Governmental Entity has issued a final order, decree or
ruling or
9
<PAGE> 20
taken any other final action restraining, enjoining or otherwise prohibiting the
consummation of the Merger or any of the transactions contemplated by the Merger
Agreement or the Voting Agreement, or otherwise altering the terms of any of the
foregoing in any significant respect, and such order, decree, ruling or other
action is or has become final and nonappealable, or (b) if the Merger has not
been consummated on or before December 31, 1997, provided that the right to
terminate the Merger Agreement for such cause will not be available to the party
whose action or failure to act caused or resulted in the failure of the Merger
to occur on or before such date and such action or failure to act constituted a
breach of the Merger Agreement, (iii) by Acquisition if the required approval of
the stockholders of the Company has not been obtained at a duly held meeting of
stockholders or at any adjournment thereof or (iv) by the Company if prior to
receipt of the required approval of stockholders of the Company, the Board of
Directors approves an Acquisition Transaction (as defined under "THE MERGER
AGREEMENT -- Termination") on terms which the Board of Directors has determined
in good faith to be more favorable to the Company and its stockholders (other
than the Estate) than the transactions contemplated by the Merger Agreement and
based on the advice of its outside counsel that failing to approve the
Acquisition Transaction and terminate the Merger Agreement would constitute a
breach of the fiduciary duties of the Board of Directors under applicable law,
provided that the Company provides Acquisition with at least three business
days' prior written notice of the Board authorization and intention to effect
such termination, the Company is in compliance with its obligations under the
Merger Agreement in all material respects and a Termination Fee (as defined
herein) of $8 million has been paid to Acquisition at or prior to the time of
such termination (which Termination Fee is required to be returned to the
Company in the event that Acquisition exercises the Voting Agreement Option
pursuant to the Voting Agreement and the Company does not take affirmative
action preventing or restricting Acquisition from acquiring additional shares of
Company Common Stock, including pursuant to the tender offer required thereby).
See "THE MERGER AGREEMENT -- Termination" and "-- Expenses and Certain Required
Payments" and "CERTAIN RELATED AGREEMENTS -- Voting Agreement."
CERTAIN RELATED AGREEMENTS
Voting Agreement. In connection with the Merger, Acquisition has entered
into the Voting Agreement with the Svenningsen Stockholders, pursuant to which
the Svenningsen Stockholders have, among other things, (i) agreed to vote all
the Subject Shares in favor of the Merger and against certain competing
transactions (the "Voting Actions"), and to elect the Mixed Consideration in the
Merger with respect to all such shares, (ii) agreed not to sell or transfer any
of the Subject Shares prior to the Effective Time or termination of the Voting
Agreement, and (iii) granted Acquisition the Voting Agreement Option. See
"CERTAIN RELATED AGREEMENTS -- Voting Agreement." In the event that Acquisition
purchases the Subject Shares pursuant to the Voting Agreement Option, it will be
required to make a cash tender offer for the remaining shares of Company Common
Stock not held by it at a price of $16.50 per share, subject to certain
conditions set forth in the Voting Agreement.
In addition, pursuant to the Voting Agreement, the Svenningsen Stockholders
have granted to Acquisition a proxy to vote the Subject Shares in accordance
with clause (i) of the preceding paragraph with respect to the Voting Actions,
which proxy is irrevocable during the term of the Voting Agreement and coupled
with an interest. The Svenningsen Stockholders have also agreed to waive any
rights of appraisal available in the Merger and to take or refrain from taking
certain other actions.
The covenants and agreements contained in the Voting Agreement with respect
to the Subject Shares will terminate upon the earliest of (a) the Effective Time
of the Merger, (b) the termination of the Merger Agreement based upon mutual
consent of the Company and Acquisition, (c) the termination of the Merger
Agreement by the Company based on an actual material breach by Acquisition of
its obligations under the Merger Agreement, or (d) the 91st day following
another termination of the Merger Agreement pursuant to its terms (after which
termination the Voting Agreement Option becomes exercisable), subject to certain
extensions if the Voting Agreement Option has been exercised but the closing of
such exercise has not occurred. See "CERTAIN RELATED AGREEMENTS -- Voting
Agreement."
10
<PAGE> 21
Tax Indemnification Agreement. Pursuant to the Tax Indemnification
Agreement, and contingent upon the effectiveness of the Merger, the Company, on
the one hand, and the Svenningsen Stockholders, on the other hand, have agreed
to indemnify one another with respect to certain tax liabilities that may arise
as a result of the election by certain subsidiaries of the Company to have been
treated and operated as S corporations under the Internal Revenue Code of 1986,
as amended (the "Code"). See "CERTAIN RELATED AGREEMENTS -- Tax Indemnification
Agreement."
Stockholders Agreement. Upon consummation of the Merger, the Company will
enter into the Stockholders Agreement with GSCP and the Non-GSCP Investors
(including the Estate). The Stockholders Agreement will provide for, among other
things, (i) the right of the Non-GSCP Investors to participate in, and the right
of GSCP to require the Non-GSCP Investors to participate in, certain sales of
Company Common Stock by GSCP, (ii) prior to an initial public offering of the
stock of the Company, certain rights of the Company to purchase, and certain
rights of the Non-GSCP Investors (other than the Estate) to require the Company
to purchase (except in the case of termination of employment by such Non-GSCP
Investors), all, but not less than all, of the shares of the Company Common
Stock owned by a Non-GSCP Investor (other than the Estate) upon the termination
of employment or the death or disability of such Non-GSCP Investor, at prices
determined in accordance with the Stockholders Agreement, (iii) certain rights
of GSCP and the Non-GSCP Investors relating to the registration of Company
Common Stock under the Securities Act and (iv) certain additional restrictions
on the rights of the Non-GSCP Investors to transfer shares of Company Common
Stock. For a more detailed summary of the provisions of the Stockholders
Agreement, see "CERTAIN RELATED AGREEMENTS -- Stockholders Agreement."
ACQUISITION AND GSCP II
Acquisition was formed to effect the transactions contemplated by the
Merger Agreement and the Voting Agreement and has not engaged in any activities
other than those incident to its formation and such transactions. All of the
Acquisition Common Stock is owned by GSCP II and certain other private
investment funds which are affiliated with Goldman Sachs and The Goldman Sachs
Group, L.P.
The principal business address of Acquisition, GSCP II, Goldman Sachs and
The Goldman Sachs Group, L.P. is 85 Broad Street, New York, New York 10004.
STOCKHOLDERS' APPRAISAL RIGHTS
In connection with the Merger, stockholders of the Company will be entitled
to demand appraisal rights in respect of their shares of Company Common Stock
under Section 262 ("Section 262") of the General Corporation Law of the State of
Delaware (the "DGCL"), subject to the satisfaction by such stockholders of the
conditions for appraisal rights pursuant to Section 262, including Section 262's
requirement that the stockholder (i) deliver to the Company, prior to the vote
being taken on the Merger at the Special Meeting, written notice of his or her
intent to demand payment for his or her shares of Company Common Stock if the
Merger is effected and (ii) not vote in favor of the Merger. The full text of
Section 262 is included as Annex D to this Proxy Statement/Prospectus. See
"STOCKHOLDERS' APPRAISAL RIGHTS" and Annex D.
11
<PAGE> 22
SELECTED HISTORICAL AND MERGER PRO FORMA
CONSOLIDATED AND COMBINED FINANCIAL AND OTHER DATA
The following table sets forth selected historical and Merger pro forma
consolidated and combined financial and other data for the Company. The
historical consolidated and combined financial statements for the Company's four
most recent fiscal years have been audited. The selected historical income
statement data for the three years ended December 31, 1996 and balance sheet
data as of December 31, 1996 and 1995 have been derived from, and should be read
in conjunction with, the audited consolidated and combined financial statements
of the Company and the related notes thereto appearing elsewhere in this Proxy
Statement/Prospectus. The selected historical data presented below as of
December 31, 1992, and for the year then ended, are derived from unaudited
combined financial statements of Amscan Inc. and Affiliates. The selected
historical unaudited financial data for the nine months ended September 30, 1997
and September 30, 1996 have been derived from, and should be read in conjunction
with, the unaudited consolidated and combined financial statements of the
Company and the related notes thereto appearing elsewhere in this Proxy
Statement/Prospectus. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included in the unaudited consolidated and combined
financial statements of the Company. Results for the nine months ended September
30, 1997 are not necessarily indicative of results that can be expected for the
entire 1997 fiscal year. See "INDEX TO FINANCIAL STATEMENTS."
The selected Merger pro forma data is unaudited and intended to present the
effect of certain transactions that have occurred or will occur in connection
with the consummation of the Merger. The selected Merger pro forma consolidated
statement of income data for the periods presented give effect to the Merger and
related transactions as if such transactions were consummated as of January 1,
1996. The selected Merger pro forma consolidated statement of income data for
the year ended December 31, 1996 also includes supplemental pro forma
adjustments to give effect to certain events that occurred in conjunction with
the organization of the Company and its subsidiaries (the "Organization") and
the Company's initial public offering in December 1996 (the "IPO") as if they
had occurred as of January 1, 1996. The selected Merger pro forma consolidated
balance sheet data gives effect to the Merger and related transactions as though
these transactions had occurred on September 30, 1997. The historical and the
Merger pro forma consolidated and combined data should be read in conjunction
with "Unaudited Merger Pro Forma Consolidated Financial Data" and notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial information contained elsewhere in this Proxy
Statement/Prospectus.
12
<PAGE> 23
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------------------- ----------------------------------------------------------------------
MERGER PRO MERGER PRO
FORMA FORMA
1997 1997 1996 1996 1996 1995 1994 1993 1992
---------- ---------- -------- ---------- ---------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Net sales.......... $ 161,286 $ 161,286 $147,008 $ 192,705 $ 192,705 $167,403 $132,029 $108,934 $86,944
Cost of sales...... 103,460 103,460 92,861 123,913 123,913 108,654 86,748 72,656 56,565
--------- ---------- -------- --------- ---------- -------- -------- -------- -------
Gross profit....... 57,826 57,826 54,147 68,792 68,792 58,749 45,281 36,278 30,379
Selling expenses... 9,598 9,598 8,691 11,838 11,838 12,241 11,309 9,780 8,770
General and
administrative
expenses.......... 13,329 13,225 14,113 19,951 19,266 15,002 14,460 11,080 9,316
Art and development
costs............. 3,891 3,891 3,671 5,173 5,173 4,256 2,796 2,596 1,551
Non-recurring
compensation in
connection with
the IPO(a)........ 15,535
Special
bonuses(b)........ 3,300 4,222 2,581 2,200 1,106 850
--------- ---------- -------- --------- ---------- -------- -------- -------- -------
Income from
operations........ 31,008 31,112 24,372 31,830 12,758 24,669 14,516 11,716 9,892
Interest expense,
net............... 16,789 2,654 4,569 22,908 6,691 5,772 3,843 2,304 2,092
Other (income)
expense, net...... (219) (219) (301) 335 335 (309) 82 308 16
--------- ---------- -------- --------- ---------- -------- -------- -------- -------
Income before
income taxes and
minority
interests......... 14,438 28,677 20,104 8,587 5,732 19,206 10,591 9,104 7,784
Income taxes....... 5,860 11,627 767 3,653 1,952 731 464 348 297
Minority
interests......... 149 149 1,242 250 1,653 1,041 160 301 53
--------- ---------- -------- --------- ---------- -------- -------- -------- -------
Net income......... $ 8,429 $ 16,901 $ 18,095 $ 4,684 $ 2,127 $ 17,434 $ 9,967 $ 8,455 $ 7,434
========= ========== ======== ========= ========== ======== ======== ======== =======
Net income per
share............. $8,429.00 $ 0.80 $4,684.00
Weighted average
common shares
outstanding....... 1,000 21,097,133 1,000
PRO FORMA DATA
(RELATING TO
CHANGE IN TAX
STATUS PRIOR TO
ORGANIZATION AND
IPO):
Income before
income taxes...... $ 18,862 $ 4,079 $ 18,165 $ 10,431 $ 8,803 $ 7,731
Pro forma income
taxes(c).......... 7,888 1,827 7,403 4,238 3,566 3,265
-------- ---------- -------- -------- -------- -------
Pro forma net
income(c)......... $ 10,974 $ 2,252 $ 10,762 $ 6,193 $ 5,237 $ 4,466
======== ========== ======== ======== ======== =======
Pro forma net
income used for
pro forma net
income per share
calculation(d).... $ 12,010
Pro forma net
income per
share............. $ 0.60
Pro forma weighted
average common
shares
outstanding(e).... 20,097,116
OTHER FINANCIAL
DATA:
Gross margin....... 35.9 % 35.9% 36.8% 35.7 % 35.7% 35.1% 34.3% 33.3% 34.9%
Capital
expenditures...... $ 6,954 $ 6,954 $ 7,648 $ 11,008 $ 11,008 $ 4,522 $ 8,040 $ 7,669 $ 3,084
Depreciation and
amortization...... $ 4,505 $ 4,505 $ 3,579 $ 5,387 $ 5,137 $ 4,332 $ 3,672 $ 2,628 $ 1,847
Earnings to fixed
charges(f)........ 1.8 x 7.7x 4.3x 1.3 x 1.7x 3.8x 3.2x 3.7x 4.0x
Cash flow from
operating
activities........ $ 8,479 $ 1,562 $ 12,273 $ 4,721 $ 5,119 $ 9,932 $ 5,284
Cash flow from
investing
activities........ $ (6,755) $ (5,574) $ (7,613) $ (4,513) $ (7,294) $ (6,868) $(3,084)
Cash flow from
financing
activities........ $ (2,536) $ 5,019 $ (5,958) $ 147 $ 2,756 $ (1,889) $(3,162)
NON-GAAP FINANCIAL
DATA:
Adjusted
EBITDA(g)......... $ 35,513 $ 35,617 $ 31,251 $ 37,217 $ 37,652 $ 31,582 $ 20,388 $ 15,450 $12,589
Adjusted EBITDA
margin............ 22.0 % 22.1% 21.3% 19.3 % 19.5% 18.9% 15.4% 14.2% 14.5%
Adjusted EBITDA to
interest
expense........... 2.1 x 12.7x 6.5x 1.6 x 5.4x 5.2x 5.1x 5.7x 5.9x
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------
MERGER PRO DECEMBER 31,
FORMA -----------------------------------------------------------
1997 1997 1996 1996 1995 1994 1993 1992
---------- -------- -------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............. $ 96,294 $ 74,872 $ 2,096 $ 45,405 $ 8,383 $ (438) $ 4,730 $ 7,765
Total assets................. $171,694 $162,760 $138,265 $140,274 $114,601 $ 93,884 $ 80,090 $60,652
Short-term obligations(h).... $ 1,785 $ 15,576 $ 86,173 $ 33,262 $ 58,541 $ 50,869 $ 37,271 $25,993
Long-term obligations........ 236,014 24,828 12,412 15,085 12,284 8,800 11,852 11,116
-------- -------- -------- -------- -------- -------- -------- -------
Total obligations............ $237,799 $ 40,404 $ 98,585 $ 48,347 $ 70,825 $ 59,669 $ 49,123 $37,109
======== ======== ======== ======== ======== ======== ======== =======
Stockholders' equity
(deficiency)................ $(95,282) $ 89,002 $ 24,639 $ 67,949 $ 27,205 $ 20,820 $ 18,496 $15,550
</TABLE>
13
<PAGE> 24
NOTES TO SELECTED HISTORICAL AND MERGER PRO FORMA
CONSOLIDATED AND COMBINED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
(a) In conjunction with the IPO, the Company recorded non-recurring compensation
expense of $15,535 in 1996, including stock and cash payments of $12,535 to
certain executives in connection with the termination of prior employment
agreements and $3,000 for the establishment of the ESOP for the benefit of
the employees of Amscan Inc. and the payment of stock bonuses to certain of
such employees.
(b) In each of the five years ended December 31, 1996 and for the nine months
ended September 30, 1996, special bonus arrangements existed with certain
members of management. In connection with the IPO, such special bonus
arrangements were substantially modified and generally replaced by
incentives tied to the value of Company Common Stock.
(c) Prior to the consummation of the IPO, Amscan Inc., Am-Source, Inc., and
certain other subsidiaries of the Company elected to be taxed as S
corporations under the Code. The pro forma net income amounts give effect to
pro forma income tax amounts for each of the periods shown at statutory
rates (40.50%) assuming these subsidiaries had not elected S corporation
status.
(d) Pro forma net income used for the pro forma net income per share calculation
for 1996 is higher than the pro forma net income shown for such period due
to adjustments described in Note (16) of the Notes to Consolidated Financial
Statements. See "Notes to Consolidated Financial Statements -- December 31,
1996."
(e) Represents shares issued and outstanding as of December 31, 1996 in
connection with the exchange of shares in the Organization, the IPO shares,
the ESOP shares and other shares issued in contemplation of the IPO as
described in Note (16) of the Notes to Consolidated Financial Statements.
See "Notes to Consolidated Financial Statements -- December 31, 1996."
(f) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and minority interests plus
fixed charges. Fixed charges consist of interest expense on all obligations,
amortization of deferred financing costs and one-third of the rental expense
on operating leases representing that portion of rental expense deemed by
the Company to be attributable to interest.
(g) "EBITDA" represents earnings before interest, income taxes, depreciation and
amortization. "Adjusted EBITDA" represents EBITDA adjusted for certain items
reflected in the following table. Neither EBITDA nor Adjusted EBITDA is
intended to represent cash flow from operations as defined by generally
accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. EBITDA and Adjusted
EBITDA are presented because they are widely accepted financial indicators
of a leveraged company's ability to service and/or incur indebtedness and
because management believes EBITDA and Adjusted EBITDA are relevant measures
of the Company's ability to generate cash without regard to the Company's
capital structure or working capital needs. EBITDA and Adjusted EBITDA as
presented may not be comparable to similarly titled measures used by other
companies, depending upon the non-cash charges included. When evaluating
EBITDA and Adjusted EBITDA, investors should consider that EBITDA and
Adjusted EBITDA (i) should not be considered in isolation but together with
other factors which may influence operating and investing activities, such
as changes in operating assets and liabilities and purchases of property and
equipment, (ii) are not measures of performance calculated in accordance
with generally accepted accounting principles, (iii) should not be construed
as an alternative or substitute for income from operations, net income or
cash flows from operating activities in analyzing the Company's operating
performance, financial position or cash flows and (iv) should not be used as
an indicator of the Company's operating performance or as a measure of its
liquidity.
14
<PAGE> 25
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
-------------------------------- ----------------------------------------------------------------
MERGER PRO MERGER PRO
FORMA FORMA
1997 1997 1996 1996 1996 1995 1994 1993 1992
---------- ------- ------- ---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA................... $ 35,583 $35,687 $27,010 $ 36,632 $15,907 $28,269 $17,946 $13,735 $11,670
Adjustments -- increase
(decrease):
Special bonuses and
non-recurring
compensation......... 3,300 19,757 2,581 2,200 1,106 850
Other expense (income),
net.................. (219) (219) (301) 335 335 (309) 82 308 16
Minority interests..... 149 149 1,242 250 1,653 1,041 160 301 53
------- ------- ------- ------- ------- ------- ------- ------- -------
Adjusted EBITDA.......... $ 35,513 $35,617 $31,251 $ 37,217 $37,652 $31,582 $20,388 $15,450 $12,589
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(h) Short-term obligations consist primarily of the Company's borrowings under
bank lines of credit, current portions of long-term obligations and debt due
to stockholders.
15
<PAGE> 26
MARKET PRICE DATA AND DIVIDENDS
The Company Common Stock is listed on and trades on Nasdaq under the symbol
"AMSN." The following table shows, for the fiscal periods indicated, the high
and low closing bid quotations per share of Company Common Stock as quoted on
Nasdaq. These market quotations reflect inter-dealer prices, without retail
mark-ups, markdowns or commissions, and may not necessarily represent actual
transactions.
The Company Common Stock commenced trading on Nasdaq on December 19, 1996
following the IPO.
<TABLE>
<CAPTION>
COMMON STOCK
--------------
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1996
Fourth Quarter (from December 19, 1996)...................... $12 5/8 $12
FISCAL YEAR ENDING DECEMBER 31, 1997
First Quarter................................................ 14 11 3/4
Second Quarter............................................... 13 1/2 11
Third Quarter................................................ 16 1/8 11
Fourth Quarter (through November 13, 1997)................... 16 3/16 15 1/16
</TABLE>
On August 8, 1997, the last trading day before public announcement of the
execution of the Merger Agreement, the last reported sale price of the Company
Common Stock on Nasdaq was $12 1/8. On November 13, 1997, the latest practicable
trading day prior to the printing of this Proxy Statement/ Prospectus, the last
reported sale price of the Company Common Stock on Nasdaq was $15 1/16. As of
November 13, 1997, there were approximately 392 holders of record of the Company
Common Stock.
Since its organization on October 3, 1996, the Company has not declared or
paid any cash dividends or distributions on its capital stock. The Company
currently intends to retain earnings of the Company for working capital,
repayment of indebtedness, capital expenditures and general corporate purposes
and does not anticipate paying cash dividends on the Company Common Stock in the
foreseeable future. Company stockholders should obtain current market quotations
for Company Common Stock.
16
<PAGE> 27
RISK FACTORS
Holders of Company Common Stock should carefully consider the following
factors in connection with their consideration of the Merger and their election
of the Cash Consideration or the Mixed Consideration.
CONTROL BY GSCP
Upon completion of the Merger, in excess of 80% of the outstanding shares
of Company Common Stock will be held by GSCP. Accordingly, GSCP will control the
Company and have the power to elect all of its directors, appoint new management
and approve any action requiring the approval of the holders of Company Common
Stock, including adopting amendments to the Company's certificate of
incorporation and approving mergers or sales of all or substantially all of the
Company's assets. The directors elected by GSCP will have the authority to
effect decisions affecting the capital structure of the Company, including the
issuance of additional capital stock, the implementation of stock repurchase
programs and the declaration of dividends. There can be no assurance that the
capital policies of the Company in effect prior to the Merger will continue
after the Merger. The Company's ability to repurchase stock and to pay dividends
will be significantly restricted by its proposed debt financing. See
"-- Substantial Leverage."
In addition, the existence of a controlling stockholder of the Company may
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from seeking to acquire, a majority of the
outstanding Company Common Stock. A third party would be required to negotiate
any such transaction with GSCP and the interests of GSCP may be different from
the interests of other Company stockholders.
DELISTING; ILLIQUIDITY OF COMPANY COMMON STOCK
Following the consummation of the Merger, the Company anticipates that it
will seek to have the Company Common Stock, which currently is traded on Nasdaq,
delisted. In addition, following consummation of the Merger, the Company Common
Stock will be eligible for deregistration under the Exchange Act. Any delisting
of the Company Common Stock, together with the substantial decrease in the
number of shares of the Company Common Stock to be held by holders thereof other
than GSCP, is expected to result in a substantial decrease in the liquidity of
the Company Common Stock, even if the Company continues to be a reporting
company under the Exchange Act and continues to file the periodic reports
(including annual and quarterly reports) required to be filed thereunder.
Upon any such delisting, shares of the Company Common Stock would trade, if
at all, only in the over-the-counter market. As a result, it is expected that
the shares will trade much less frequently relative to the trading volume of the
Company Common Stock prior to the Merger.
SUBSTANTIAL LEVERAGE
In connection with consummating the transactions contemplated by the Merger
Agreement, the Company will enter into the Merger Financings to, among other
things, (i) fund payment of the cash consideration in the Merger, (ii) repay or
repurchase certain indebtedness of the Company, (iii) pay the fees and expenses
incurred in connection with the Merger and the Merger Financings and (iv) raise
funds for general corporate purposes. Although the definitive terms of the
Merger Financings have not been finalized as of the date of this Proxy
Statement/Prospectus, the Company expects that such terms will contain financial
and other restrictive covenants that will limit the ability of the Company to,
among other things, borrow additional funds and dispose of assets, and require
the Company to maintain certain earnings-to-fixed charges and other financial
ratios. Failure by the Company to comply with these covenants could result in an
event of default which, if not cured or waived, could have a material adverse
effect on the Company.
As of September 30, 1997, after giving pro forma effect to the Merger and
the Merger Financings and the application of the net proceeds therefrom, the
Company would have had (i) $237.8 million of consolidated indebtedness and (ii)
because the distribution to stockholders and all of the expenses relating to the
Merger will be charged to earnings and stockholders' equity, $95.3 million of
consolidated stockholders' deficiency. The degree to which the Company will be
leveraged could have important consequences for the Company,
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including the following: (a) the Company's ability to obtain additional
financing for acquisitions, working capital, capital expenditures or other
purposes may be impaired or any such financing, if available, may not be on
terms favorable to the Company; (b) any interest expense or other debt service
may reduce the funds that would otherwise be available to the Company for its
operations and future business opportunities; (c) a substantial decrease in net
operating cash flows or an increase in expenses of the Company could make it
difficult for the Company to meet its debt service requirements or force it to
modify its operations; and (d) high leverage may place the Company at a
competitive disadvantage and may make it vulnerable to a downturn in its
business or the economy generally. See "THE MERGER -- Merger Financings."
In addition, the substantial leverage will have a negative effect on the
Company's net income. Pro forma net income for the nine months ended September
30, 1997 and the fiscal year ended December 31, 1996 giving effect to the Merger
would have been $8,429,000 and $4,684,000, respectively, as compared to
$16,901,000 and $15,918,000 for the same periods on a historical and
supplemental pro forma basis, respectively, and pro forma interest expense, net
for the nine months ended September 30, 1997 and the fiscal year ended December
31, 1996 giving effect to the Merger would have been $16,789,000 and
$22,908,000, respectively, as compared to $2,654,000 and $4,463,000 for the same
periods on a historical and supplemental pro forma basis, respectively.
After the Merger is consummated, the Company's principal sources of
liquidity are expected to be cash flow from operations and borrowings under the
revolving credit portion of a senior secured credit facility consisting of a
revolving credit facility and term loans. It is anticipated that the Company's
principal uses of liquidity will be to provide working capital, meet debt
service requirements and finance the Company's strategic plans. The revolving
credit facility will be available for the Company's working capital needs and a
portion thereof will be available for the issuance of letters of credit. The
term loan portion of the senior secured credit facility will be drawn in full
upon consummation of the Merger. See "THE MERGER -- Merger Financings."
POTENTIAL DILUTION OF COMPANY STOCKHOLDERS
Following the Merger, the Company intends to grant certain employees
options to purchase Company Common Stock and to sell to certain employees shares
of Company Common Stock, the exercise and sale of which, following the Merger,
would dilute the holdings of stockholders of the Company and also dilute the
holdings of GSCP. See "THE MERGER -- Interests of Certain Persons in the
Merger."
CONCENTRATION OF CUSTOMER SALES AND CREDIT RISK
The concentration of sales by the Company to party goods superstore chains
has resulted in a significant concentration of sales and unsecured trade
receivables with such customers. Combined sales to the Company's two largest
customers, Party City Corporation ("Party City") and Party Stores Holdings, Inc.
("Party Stores Holdings"), accounted in the aggregate for approximately 10%, 17%
and 21% of the Company's sales in 1994, 1995 and 1996, respectively. In
addition, at September 30, 1997, these two customers together accounted for
approximately 14% of the Company's accounts receivable.
Although the Company believes its relationships with these customers are
good, should either of them significantly reduce their volume of purchases from
the Company, the Company's financial condition and results of operations could
be adversely affected. Moreover, while the Company believes that adequate
provisions for bad debts have been made in its financial statements, should it
be unable to collect receivables from its party superstore customers to any
significant extent, the Company's financial condition and results of operations
would be adversely affected. From time to time, the Company has provided
additional reserves or restructured accounts receivables because of the credit
condition of certain customers. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Liquidity and Capital
Resources."
IMPORTANCE OF IDENTIFYING DESIGN TRENDS AND CONSUMER PREFERENCES
In manufacturing and distributing party goods, the Company's success
depends in part on its ability to anticipate the tastes and preferences of party
goods retailers and consumers. The Company's strategy has
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depended to a significant extent on the regular introduction of new designs
which are attractive and distinctive. The Company's failure to anticipate,
identify or react appropriately to changes in consumer tastes could, among other
things, lead to excess inventories and significant markdowns or to a shortage of
products and foregone sales, any of which could have an adverse effect on the
Company's financial condition or results of operations.
COMPETITION
The party goods industry is highly competitive. The Company competes with
many other companies, including smaller, independent specialty manufacturers as
well as divisions or subsidiaries of larger companies with greater financial and
other resources than those of the Company. Certain of these competitors control
licenses for widely recognized images, such as cartoon or motion picture
characters, which could provide them with a competitive advantage. The Company
has pursued a strategy of developing its own designs and generally has not
pursued licensing opportunities.
IMPACT OF CHANGING PAPER PRICES
The principal raw material used by the Company in its products is paper,
which historically accounts for approximately 35-40% of the annual cost of
production of the Company's paper plates, cups and napkins. The price of paper
is subject to change due to numerous factors beyond the control of the Company.
Any significant increase in the cost of paper would adversely affect the
Company's raw material costs. Competitive conditions will determine how much of
paper price increases can be passed on by party goods retailers to the ultimate
consumers of the Company's products. If the Company is unable to pass future
paper price increases to the party goods retailers, the Company's financial
condition and results of operations would be adversely affected.
RISKS ASSOCIATED WITH FURTHER EXPANSION THROUGH ACQUISITIONS
The Company has from time to time expanded its product line and further
vertically integrated its operations through strategic acquisitions. The Company
believes that opportunities exist to make acquisitions of complementary
businesses to leverage the Company's existing marketing, distribution and
production capabilities, expand its presence in various retail channels, further
broaden and deepen its product line and penetrate international markets. The
Company receives inquiries from time to time with respect to the possible
acquisition by the Company of other entities, and such inquiries have been
received since the announcement of the Merger. As of the date of this Proxy
Statement/Prospectus, the Company has no agreements to acquire other companies
or businesses; however, the Company intends to pursue acquisition opportunities
aggressively.
There are various risks associated with pursuing an acquisition strategy of
this nature. The risks include problems inherent in integrating new businesses,
including potential loss of customers and key personnel and potential disruption
of operations. There can be no assurance that businesses acquired by the Company
will generate significant revenues or satisfy the Company's strategic
objectives. Moreover, there can be no assurance that suitable acquisition
candidates will be available, that acquisitions can be completed on reasonable
terms, that the Company will successfully integrate the operations of any
acquired entities or that the Company will have access to adequate funds to
effect any desired acquisitions. The amount of debt financing available for
future acquisitions will be limited by restrictions contained in the Company's
indebtedness.
SEASONALITY
Due to the number of holidays falling in the fourth quarter of the calendar
year, the Company's business is somewhat seasonal, and, as a result, the
quarterly results of operations may not be indicative of those for a full year.
Third quarter sales are generally the highest of the year due to a combination
of increased sales to consumers of the Company's products during summer months
as well as initial shipments of seasonal holiday merchandise as retailers build
inventory. Conversely, fourth quarter sales are generally lower as retailers
sell through inventories purchased during the third quarter. The overall growth
rate of the Company's sales in
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recent years has, in part, offset this sales variability. Promotional
activities, including special dating and pricing terms, particularly with
respect to Halloween and Christmas products, result in generally lower margins
and profitability in the fourth quarter, as well as higher accounts receivable
balances and associated higher interest costs to support these balances. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Quarterly Results."
DEPENDENCE ON KEY PERSONNEL
The Company's success will continue to depend to a significant extent on
its executives, managers and other key personnel. Although the Company has
entered into employment agreements with certain employees which provide for such
employees to acquire an equity interest in the Company, there can be no
assurance that the Company will be able to retain such employees or other
executives, managers and key personnel or attract additional qualified
management in the future. The loss of the services of Gerald C. Rittenberg,
President and Acting Chairman of the Board, William S. Wilkey, Senior Vice
President -- Sales and Marketing, or James M. Harrison, Chief Financial Officer
and Secretary, could have an adverse effect on the Company's financial condition
or results of operations. The Company does not maintain key-man life insurance
on any of these executives.
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THE SPECIAL MEETING
MATTERS TO BE CONSIDERED
The purpose of the Special Meeting is to consider and vote upon the Merger
Proposal. If the Merger Agreement and the transactions contemplated thereby are
approved by the stockholders of the Company, Acquisition will merge with and
into the Company and the 5,801,441 shares of Company Common Stock (representing
approximately 27.5% of the shares of Company Common Stock issued and outstanding
as of the Record Date) currently held by stockholders of the Company other than
the Estate (excluding 272,728 shares of Company Common Stock which, as described
under "THE MERGER -- Interests of Certain Persons in the Merger," Gerald C.
Rittenberg has agreed to contribute to Acquisition immediately prior to the
Effective Time), assuming no stockholders other than the Estate make a Mixed
Election, will be converted into the right to receive $16.50 per share in cash.
The 15,024,616 shares of Company Common Stock held by the Estate will be
converted into the right to receive $9.33 per share in cash and the right to
retain 100 shares of Company Common Stock, with cash to be paid in lieu of
fractional shares. The shares which are to be retained by the Estate are
expected to represent almost 10% of the shares of Company Common Stock expected
to be issued and outstanding immediately following the Merger. If the Merger is
approved and consummated, all outstanding shares of Acquisition Common Stock
will be converted into 900 shares of Company Common Stock, which will represent
approximately 90% of the Company Common Stock expected to be issued and
outstanding after the Merger. The Merger Agreement is included as Annex A to
this Proxy Statement/Prospectus. See "THE MERGER" and "THE MERGER AGREEMENT."
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER.
In addition to the Merger Proposal, stockholders will be asked to transact
any other business properly brought before the Special Meeting. The Board of
Directors of the Company is not presently aware of any such other business.
REQUIRED VOTE
The approval of the Merger Proposal will require the affirmative vote of
the holders of a majority of Company Common Stock entitled to vote thereon.
Pursuant to the Voting Agreement, the Svenningsen Stockholders have agreed to
vote all of the Subject Shares in favor of the Merger Proposal. As of the Record
Date, the Estate beneficially owned 15,024,616 shares of Company Common Stock
entitled to vote at the Special Meeting, representing approximately 71.2% of the
Company Common Stock outstanding on such date. Because the Estate owns a
majority of the issued and outstanding shares of Company Common Stock entitled
to vote, the requisite vote of the holders of shares of Company Common Stock to
approve and adopt the Merger Proposal is assured. See "CERTAIN RELATED
AGREEMENTS -- Voting Agreement."
VOTING AND REVOCATION OF PROXIES
Shares of Company Common Stock that are entitled to vote and are
represented by a proxy properly signed and received at or prior to the Special
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 Company Common Stock represented
by such proxy will be voted FOR the Merger Proposal. The Board of Directors is
not currently aware of any business to be acted upon at the Special Meeting
other than as described herein. If, however, other matters are properly brought
before the Special Meeting, 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
may not exercise their discretionary voting authority to vote any such proxy in
favor of any adjournments or postponements of the Special Meeting if instruction
is given to vote against the approval of the Merger Agreement.
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 Special Meeting by (i) attending and voting in person at the Special
Meeting, (ii) giving notice of revocation of the proxy at the Special Meeting or
(iii) delivering to the Secretary of the Company (a) a written notice of
revocation or (b) a duly executed proxy relating to the same shares and matters
to be considered at the Special Meeting, bearing a date later than the proxy
previously executed. Attendance at the Special Meeting will not in and of itself
constitute a revocation of a proxy. All
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written notices of revocation and other communications with respect to
revocation of proxies should be addressed to the Company at 80 Grasslands Road,
Elmsford, New York 10523, Attention: Secretary, and must be received before the
taking of the vote at the Special Meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of Company Common Stock at the close of business on the Record
Date, November 13, 1997, will be entitled to receive notice of and to vote at
the Special Meeting. At the close of business on the Record Date, the Company
had outstanding and entitled to vote 21,098,785 shares of Company Common Stock.
Shares of Company 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 whether a quorum is present but
proxies marked "abstain" will not be counted as votes cast in favor of the
Merger Proposal. Because the vote on the Merger Proposal requires the approval
of a majority of the votes entitled to be cast by the holders of the outstanding
shares of Company Common Stock, abstentions will have the same effect as a
negative vote on this proposal.
Although brokers who hold shares in "street name" have authority to vote on
certain matters when they do not receive instructions from beneficial owners,
brokers will not be entitled to vote on the Merger Proposal absent instructions
from beneficial owners. Shares of Company Common Stock held by brokers who do
not receive instructions but are present, in person or by proxy, will be counted
as present for quorum purposes and will have the same effect as a vote against
the Merger Proposal.
STOCKHOLDERS' APPRAISAL RIGHTS
Each holder of Company Common Stock has a right to dissent from the Merger,
and, if the Merger is consummated, to receive "fair value" for his or her shares
in cash by complying with the provisions of Delaware law, including Section 262
of the DGCL. The dissenting stockholder must deliver to the Company, prior to
the vote being taken on the Merger Agreement at the Special Meeting, written
notice of his or her intent to demand payment for his or her shares if the
Merger is effected and must not vote in favor of the Merger Agreement. The full
text of Section 262 of the DGCL is included as Annex D hereto. See
"STOCKHOLDERS' APPRAISAL RIGHTS" for a further discussion of such rights and the
legal consequences of voting shares of Company Common Stock in favor of the
Merger Proposal.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of proxies and the cost
of printing and mailing this Proxy Statement/Prospectus. 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.
If you have any questions or require additional material, please contact
Daniel DeWeever at ChaseMellon Shareholder Services at 1-888-213-0696 (toll
free) or 212-273-8293 (collect).
HOLDERS OF COMPANY COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS, BUT STOCKHOLDERS ELECTING THE MIXED CONSIDERATION SHOULD
RETURN THE ENCLOSED FORM OF ELECTION TOGETHER WITH DULY ENDORSED CERTIFICATES OF
THE COMPANY COMMON STOCK PURSUANT TO THE INSTRUCTIONS CONTAINED IN THE FORM OF
ELECTION ENCLOSED HEREWITH. SEE "THE MERGER -- PROCEDURE FOR EXCHANGE OF
CERTIFICATES" AND "-- MIXED ELECTION; MIXED ELECTION PROCEDURE."
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THE MERGER
BACKGROUND OF THE MERGER
In February 1997, John A. Svenningsen, then Chairman of the Board and Chief
Executive Officer of the Company and then beneficial owner of approximately
71.8% of the outstanding Company Common Stock, through Gerald C. Rittenberg,
President of the Company, and James M. Harrison, Chief Financial Officer and
Secretary of the Company, contacted Robert Harrison, a Managing Director of
Goldman Sachs, the lead underwriter of the Company's initial public offering in
December 1996, to discuss possible alternatives for Mr. Svenningsen to obtain
liquidity for his interest in the Company in light of his deteriorating health.
On April 14, 1997, Mr. Svenningsen met with Robert Harrison and another
representative of Goldman Sachs and preliminarily discussed several alternative
transactions, including a secondary offering or block trade of Mr. Svenningsen's
shares, a sale of the entire Company to a strategic buyer and an investment in
the Company by Goldman Sachs or one of its affiliates in connection with a
leveraged recapitalization involving management participation. Mr. Svenningsen
indicated that he would consider a leveraged recapitalization transaction if it
(i) valued his holdings in the range of $140-$150 million, (ii) provided the
Company's public stockholders with an acceptable premium to the public market
price and (iii) provided for the continued growth of the Company with its
current management remaining intact. Mr. Svenningsen also indicated that he
would be interested in retaining a stake in the ongoing business. Mr. Harrison
informed Mr. Svenningsen that he believed that GSCP, an affiliate of Goldman
Sachs, would be willing to consider a transaction within the framework
discussed. Mr. Svenningsen then indicated that he was interested in exploring
the possibility of a transaction with GSCP.
Following the April 14th meeting, Robert Harrison and other representatives
of GSCP met with management of the Company to discuss the possibility of such a
transaction and to review the Company's business and operations. In connection
with a potential transaction, GSCP commenced a due diligence review of the
Company's business on April 28, 1997, which review included discussions with
management and employees of the Company. Such review continued until execution
of the Merger Agreement.
On May 16, 1997, at a meeting with Mr. Svenningsen, Terence M. O'Toole, a
Managing Director of Goldman Sachs representing GSCP, and other representatives
of GSCP discussed with Mr. Svenningsen the possibility of GSCP participating in
a leveraged recapitalization of the Company in which Mr. Svenningsen's interest
in the Company Common Stock would be reduced to 10% of the outstanding Company
Common Stock. Mr. O'Toole indicated that, in such a recapitalization, Mr.
Svenningsen would retain an interest in the Company and would receive a cash
payment, together having an aggregate value of $140-$150 million, and the
Company's other stockholders would have the right to receive the same
consideration per share as Mr. Svenningsen or cash for their respective shares
of Company Common Stock at a premium to the then existing market price for
Company Common Stock. Mr. O'Toole indicated that GSCP would not be willing to
participate in an auction process and that any transaction with the Company
would need to be conditioned upon Mr. Svenningsen's agreement to support the
transaction. Mr. Svenningsen indicated that if the parties could agree on
mutually acceptable terms, he would be willing to make such a commitment. Mr.
Svenningsen expressed an interest in further exploring the potential transaction
and agreed that GSCP and the Company should continue to have discussions and
proceed expeditiously.
On May 28, 1997, Mr. Svenningsen died, and his shares of Company Common
Stock became the property of the Estate. Following his death, Mr. Svenningsen's
wife, Christine Svenningsen, was appointed executrix of the Estate in accordance
with the terms of Mr. Svenningsen's will.
On June 5, 1997, Mr. O'Toole and other representatives of GSCP met with
Christine Svenningsen and attorneys from the law firm of Kurzman & Eisenberg,
LLP, counsel to the Estate ("Kurzman & Eisenberg"), to discuss the potential
transaction that had been discussed with Mr. Svenningsen and members of
management prior to Mr. Svenningsen's death. Mrs. Svenningsen expressed an
interest in continuing to explore the potential transaction as discussed at the
May 16th meeting with Mr. Svenningsen. The Estate advised the Company that Mr.
Svenningsen had not been and the Estate was not interested in any of the
alternative transactions discussed at the April 14th meeting because none of
such alternatives met all of Mr.
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Svenningsen's objectives as completely as the leveraged recapitalization
transaction proposed by GSCP and, as a result, both Mr. Svenningsen and the
Estate chose to pursue the leveraged recapitalization transaction proposed by
GSCP.
On July 1, 1997, at a special meeting of the Board, Mr. O'Toole and other
representatives of GSCP made a presentation to the Board regarding Goldman
Sachs' principal investing activities and investment philosophy, reviewed
Goldman Sachs' historical relationship with the Company and outlined the
discussions that had taken place with John and Christine Svenningsen regarding
the possibility of a long-term investment by GSCP in the Company in connection
with a leveraged recapitalization transaction. Mr. O'Toole then presented a
general framework for such a transaction and answered questions from the Board.
Attorneys from Kurzman & Eisenberg present at the meeting indicated that the
Estate was interested in pursuing the transaction with GSCP as outlined by Mr.
O'Toole and was not interested in pursuing alternative transactions. Following
the GSCP presentation, the independent members of the Board (Frank A.
Rosenberry, John Tugwell and Allyn H. Powell) retained Skadden, Arps, Slate,
Meagher & Flom LLP ("Skadden Arps") as special counsel to the independent
directors in connection with the potential transaction, and such special counsel
reviewed with the independent directors, among other things, their fiduciary
duties in considering a significant transaction proposal from GSCP or another
party. The independent directors determined to select a financial advisor to
assist them in evaluating any formal proposal that the Company might receive
from Goldman Sachs or another party in connection with the sale of a significant
equity stake in the Company. In this regard, after interviewing Wasserstein
Perella and two other financial advisors, Wasserstein Perella was selected by
the independent directors as their exclusive financial advisor on July 8, 1997.
The agreement executed by the directors with Wasserstein Perella did not
authorize Wasserstein Perella to solicit alternative transactions.
At a meeting of the independent directors on July 16, 1997, Mr. O'Toole and
representatives of GSCP presented a transaction proposal providing for a
recapitalization of the Company in which a newly formed subsidiary organized by
GSCP would be merged with and into the Company in a cash election merger. The
proposal provided that the Company's stockholders would receive, at their
option, $14.50 per share in cash (the "all cash option") or $9.38 per share in
cash plus a retained interest in the Company equal to one share for every
150,000 shares of Company Common Stock elected (the "mixed consideration
option"). Mr. O'Toole explained that the GSCP proposal was conditioned upon the
Estate agreeing to enter into a voting agreement pursuant to which it would (i)
agree to vote its shares of Company Common Stock in favor of the transaction and
against competing offers, (ii) elect the mixed consideration option in the
merger for its shares of Company Common Stock, and (iii) grant to GSCP an
irrevocable option on its shares of Company Common Stock exercisable in the
event of a termination of the merger agreement and subject, in the event such
option was exercised, to GSCP making a cash tender offer for the remaining
shares of Company Common Stock not owned by it at the price offered under the
all cash option. The independent directors were informed that the Estate
continued to support the GSCP proposal, including the proposed voting agreement,
and was not interested in pursuing alternative transactions.
The GSCP proposal was further conditioned on the Company not being
permitted to (i) solicit or negotiate alternative transactions with third
parties prior to or after signing a definitive merger agreement, (ii) terminate
the definitive merger agreement in the event that competing offers were
received, and (iii) make any public disclosure of the proposed transaction prior
to signing the definitive merger agreement. In addition, the GSCP proposal also
required that the Company agree to reimburse GSCP for its expenses if a
definitive merger agreement was entered into but not consummated. The materials
provided by GSCP to the Board at such meeting included, among other things, a
valuation analysis of the proposal (which included analyses of comparable
acquisitions, comparable companies and the current trading value of their common
equity and discounted cash flows) and an outline of the proposed financing for
the transaction, which included (i) a commitment by a Goldman Sachs affiliate to
provide $180 million in bank credit facilities consisting of senior amortization
extended term loans of up to $130 million and a revolving credit facility of up
to $50 million, (ii) the proposed issuance of $100 million in senior
subordinated notes as to which Goldman Sachs would execute a "highly confident"
letter and (iii) at least $70 million of equity financing (consisting of $58
million in cash to be contributed by GSCP, $7 million in equity to be retained
by the Estate and the remaining $5 million in equity to be acquired by certain
employees of the Company).
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On July 17, 1997, Wachtell, Lipton, Rosen & Katz, special counsel to GSCP
("Wachtell Lipton"), delivered to the Company and Skadden Arps initial drafts of
a merger agreement between the Company and Acquisition, a voting agreement among
Acquisition and the Svenningsen Stockholders, and a tax indemnification
agreement among the Company and the Svenningsen Stockholders.
On July 23, 1997, a meeting of the independent directors was held to
review, together with Wasserstein Perella and Skadden Arps, the GSCP proposal
and the draft agreements. Skadden Arps reviewed various legal issues with the
independent directors and outlined the principal provisions of the draft
agreements. Gerald C. Rittenberg and James M. Harrison joined the meeting and
discussed the Company's past and projected fiscal 1997 and 1998 financial
condition and results of operations, including projections of net sales, gross
margins and EBITDA of $218.9 million, $34.0% and $44.0 million for 1997 and
$246.8 million, 34.9% and $50.7 million for 1998. Wasserstein Perella then
discussed with the independent directors Wasserstein Perella's preliminary
valuation analyses (and the methods and assumptions underlying such analyses).
Following a lengthy discussion by the independent directors of the GSCP
proposal, such directors instructed Wasserstein Perella to negotiate with GSCP
to seek, among other things, a higher price for the Company's public
stockholders. The independent directors also instructed Skadden Arps to discuss
with Wachtell Lipton the independent directors' concerns regarding the
provisions of the draft agreements, including among others the restrictions on
the Company's ability to solicit and enter into alternative transactions with
third parties, its inability to terminate the definitive agreements in the event
that the directors' fiduciary duties so required, and the financing and other
conditions.
From July 23 through August 3, 1997, negotiations among Wasserstein
Perella, Skadden Arps, GSCP and Wachtell Lipton took place at various times,
both telephonically and in person.
On August 4, 1997, the independent directors held a telephonic meeting,
with Skadden Arps and Wasserstein Perella present, to review the status of the
negotiations. After the independent directors were informed that no substantial
progress had been made, they authorized the continuation of negotiations.
On August 6, 1997, Wasserstein Perella received a revised proposal from
GSCP, which was discussed with the independent directors during a telephonic
meeting that day. The revised proposal provided that GSCP would offer the
Company's public stockholders $16.00 per share pursuant to the all cash option
(with the cash portion to be offered to stockholders pursuant to the mixed
consideration option decreasing from $9.38 to $9.37) and would permit the
Company, under certain circumstances, to terminate the merger agreement in the
event that a superior competing proposal was received by the Company which
required the directors, in the exercise of their fiduciary duties and upon the
advice of counsel, to terminate the merger agreement. The revised GSCP proposal
was conditioned upon, among other things, (i) the provisions of the proposed
voting agreement and the Board's approval of the transactions contemplated
thereby surviving termination of the merger agreement, (ii) a no solicitation
covenant in the merger agreement, (iii) GSCP's financing and other conditions
being retained in the merger agreement, and (iv) the Company agreeing to pay
Acquisition a termination fee equal to approximately 2% of the aggregate
consideration in the transaction (including indebtedness assumed) in the event
that the merger agreement was terminated by the Board in the exercise of its
fiduciary duties.
On August 7, 1997, Wasserstein Perella and Skadden Arps met with GSCP and
Wachtell Lipton to further negotiate the terms of the proposed merger, voting
and tax indemnification agreements. Among other things, the parties engaged in
extensive discussions concerning the price to be offered to the Company's public
stockholders, the extent to which the Board would be able to take action in the
exercise of its fiduciary duties, and the circumstances under which the
termination fee would be paid and the option pursuant to the voting agreement
would remain outstanding. During such discussions, GSCP stated that it would
increase the cash price pursuant to the all cash option to $16.25 per share,
noting that the cash portion of the mixed consideration option would decrease to
$9.33 per share. In addition, GSCP agreed that (i) the Board would not be
prohibited from taking any action required by its fiduciary duties to prevent
Acquisition from attempting to acquire shares of Company Common Stock, other
than the shares subject to the option to be granted pursuant to the proposed
voting agreement, provided that the Board would not be able to revoke or amend
its approval of the purchase of the Estate's shares by Acquisition; and (ii) the
termination fee, which
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would be fixed at $8 million and payable in the event of termination by the
Company in the exercise of its fiduciary duties, would be returnable to the
Company if Acquisition exercised the option under the proposed voting agreement,
unless the Board took "affirmative action" (i.e., action other than a Board
recommendation to stockholders not to tender pursuant to the tender offer
required to be made by Acquisition) preventing or restricting Acquisition from
acquiring shares of Company Common Stock, other than the shares subject to the
option under the proposed voting agreement.
Later that day, after further discussions between Wasserstein Perella and
GSCP at the request of the independent directors, GSCP informed Wasserstein
Perella that it would increase the price offered to the Company's public
stockholders under the all cash option to $16.50 per share, provided that the
Company agreed to the other contractual requirements, and also indicated that it
would not further increase its offer.
On August 8, 1997, GSCP received an executed "highly confident" letter from
Goldman Sachs with respect to the placement by Goldman Sachs of $110 million in
newly issued senior subordinated notes of the Company, and an executed
commitment from GS Credit Partners (as defined herein) to provide up to $130
million of senior amortization extended term loans and up to $50 million of a
syndicated revolving credit facility.
On August 10, 1997, the independent directors held a meeting to review,
with Wasserstein Perella and Skadden Arps, the status of negotiations of the
proposed merger, voting and tax indemnification agreements. Skadden Arps
reviewed the proposed changes to the agreements, and Wasserstein Perella
presented its valuation analysis of the revised GSCP proposal. Wasserstein
Perella also rendered its oral opinion (subsequently confirmed in writing) to
the effect that the Cash Consideration to be received by the Company's
stockholders, other than the Estate, pursuant to the Merger Agreement is fair to
such stockholders from a financial point of a view. Following the independent
directors' review of the proposed transaction, Mr. Rittenberg joined the meeting
and, upon the unanimous recommendation of the independent directors, the Board
unanimously approved the Merger Agreement, the Voting Agreement, the Tax
Indemnification Agreement and the transactions contemplated thereby, and such
agreements were executed and delivered.
On August 11, 1997, the Company issued a press release announcing it had
entered into the Merger Agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
The Board, upon the unanimous recommendation of its independent directors,
has unanimously approved the Merger Agreement, Voting Agreement and Tax
Indemnification Agreement and the transactions contemplated thereby, and
determined, based on the availability of the Cash Consideration in the Merger to
any stockholder who so elects, that such agreements and transactions are fair to
and in the best interests of the Company's stockholders (other than the Estate),
and recommends that holders of Company Common Stock vote FOR approval and
adoption of the Merger Agreement and the transactions contemplated thereby. In
making a determination as to whether to elect the Cash Consideration or the
Mixed Consideration in the Merger, stockholders should be aware that the Cash
Consideration has a significantly higher current value than the Mixed
Consideration. In reaching their decision to approve the Merger Agreement and
the transactions contemplated thereby, the independent directors regularly
consulted with Skadden Arps and Wasserstein Perella and considered a number of
factors, including, among others, the following:
(i) the financial presentations of Wasserstein Perella described under
"-- Background of the Merger" and "-- Opinion of Financial Advisor,"
including the opinion of Wasserstein Perella delivered at the August 10,
1997 meeting of the independent directors to the effect that, as of the
date of such opinion and based upon and subject to the procedures followed,
assumptions made, matters considered and limitations on the review
undertaken, as set forth therein, the Cash Consideration to be received by
the holders of Company Common Stock, other than the Estate, pursuant to the
Merger Agreement is fair to such holders from a financial point of view;
and the independent directors' view that the Cash Consideration has a
significantly higher current value than the Mixed Consideration;
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(ii) the Company's business, management, financial performance and
condition, strategic objectives and prospects, including the reports and
opinions of the Company's management, and current industry, economic and
market conditions; in this connection, the independent directors considered
the uncertainties in the paper goods industry, the concentration of the
Company's business within the party goods superstore segment, the effects
of increasing competition within such segment and the potentially negative
long-term effects these factors could have on the Company's business,
financial performance and prospects and that the Merger afforded the
Company's public stockholders an opportunity to receive a substantial
premium to historical and current market prices for the Company Common
Stock, and consequently avoid such risks and uncertainties which may affect
the Company in the future;
(iii) a review of the alternative practicable courses of action
available to the Company, including, among others, a public auction of the
Company, a transaction with a strategic buyer, and continuation as a public
entity, and the likelihood of successfully pursuing such alternatives on
terms and conditions at least as favorable to the Company's stockholders as
the GSCP proposal, based upon the independent directors' expertise and
knowledge of the Company and potential buyers in the paper goods industry,
as well as Wasserstein Perella's presentations with respect thereto (see
"THE MERGER -- Opinion of Financial Advisor");
(iv) the fact that the Estate, the Company's largest stockholder,
which, as of August 10, 1997, held approximately 71.2% of the outstanding
shares of Company Common Stock, supported the GSCP proposal and was willing
to agree to elect the Mixed Consideration for its shares of Company Common
Stock, thereby accepting a substantial discount to the price available to
the Company's public stockholders, and had informed the Board that it was
not willing to consider alternatives to the GSCP proposal;
(v) the fact that all of the Company's public stockholders not making
a Mixed Election will have the right to receive the same cash consideration
per share in the Merger;
(vi) the fact that the Merger is structured to allow the Board to
consider additional bona fide third-party offers to acquire the Company and
that the Merger Agreement permits the Company to provide information to and
negotiate with such parties and to terminate the Merger Agreement if the
Board determines in good faith upon the advice of legal counsel that
failing to take such action would constitute a breach of its fiduciary
duties, and that such proposal is, in the opinion of the Board, more
favorable to the Company's stockholders, other than the Estate, from a
financial point of view than the Merger; and that in such circumstances the
Board would be able to adopt measures to preclude GSCP from acquiring
shares of Company Common Stock after its exercise of the option, including
through the subsequent tender offer required to be made by Acquisition at
$16.50 per share;
(vii) the financing commitments received by GSCP and Acquisition,
including the institutions providing such commitments (see "THE
MERGER -- Merger Financings");
(viii) the terms and conditions of the Merger Agreement, Voting
Agreement and Tax Indemnification Agreement, the parties' respective
representations and warranties, pre- and post-closing covenants and
conditions to their respective obligations, the potential impact of such
terms, including the conditions to Acquisition's obligation to consummate
the Merger, and the independent directors' conclusion that the Company's
compliance with such terms and conditions would not significantly interfere
with the Company's ongoing operations and that such conditions could be
satisfied;
(ix) the fact that the value of the Cash Consideration on a per share
basis represents a substantial premium over the recently and historically
prevailing market prices and initial public offering price of the Company
Common Stock;
(x) the federal income tax consequences of the Merger to the Company's
public stockholders as described under "THE MERGER -- Federal Income Tax
Consequences"; and
(xi) to a limited extent, certain non-financial considerations,
including the desire of the Svenningsen Stockholders to maintain the
Company's status as an independent company and preserve its management
team.
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In addition to the foregoing factors, the Board's independent directors
considered the fact that GSCP's proposal was conditioned upon the Svenningsen
Stockholders entering into the Voting Agreement. The independent directors
concluded that, given the Svenningsen Stockholders' substantial ownership
position, the Voting Agreement would make it unlikely that a third party other
than an entity affiliated with GSCP would make a business combination proposal
for the Company. The independent directors also considered the fact that the
Company had not received nor sought business combination proposals from other
parties and that GSCP had specifically stated that (i) the commitment of the
Svenningsen Stockholders pursuant to the Voting Agreement was a condition to its
entering into the Merger Agreement, (ii) GSCP would not permit its proposal to
be disclosed to other parties for the purpose of determining whether such
parties might consider entering into a business combination transaction with the
Company and (iii) GSCP would not participate in an auction. In that regard, the
independent directors took into account (i) advice from Wasserstein Perella,
including its discussion of an evaluation of strategic alternatives available to
the Company, and that in connection with such discussion, Wasserstein Perella
advised the independent directors that an analysis and pursuit of one or more of
these alternatives might take as long as several months to complete and that
there could be no assurance that an alternative transaction could be developed
or consummated on terms more attractive than those contained in the Merger
Agreement and (ii) the fact that the Estate, which beneficially owns
approximately 71.2% of the outstanding Company Common Stock, and Christine
Svenningsen were willing to enter into the Voting Agreement and Tax
Indemnification Agreement and supported the terms of the Merger Agreement. See
"CERTAIN RELATED AGREEMENTS -- Voting Agreement" and "-- Tax Indemnification
Agreement."
The foregoing discussion of the information and factors considered by the
Board's independent directors is not intended to be exhaustive but is believed
to include all material factors considered by the independent directors. In view
of the variety of factors considered in connection with its evaluation of the
Merger, the independent directors did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weight to the specific factors
considered in reaching its determination. In addition, individual directors may
have given different weights to different factors. In the course of their
deliberations, the independent directors did not establish a range of values for
the Company; however, based on the factors outlined above and on the advice of
its financial advisors (with respect to the fairness from a financial point of
view of the Cash Consideration to be received in the Merger by stockholders of
the Company, other than the Estate), the Board, upon the unanimous
recommendation of its independent directors, unanimously determined, based on
the availability of the Cash Consideration to any stockholder who so elects,
that the Merger Agreement, Voting Agreement and Tax Indemnification Agreement
and the transactions contemplated thereby, are fair to, and in the best
interests of, the Company's stockholders (other than the Estate).
OPINION OF FINANCIAL ADVISOR
Wasserstein Perella delivered its oral opinion to the Board's independent
directors on August 10, 1997 (which oral opinion was subsequently confirmed in
writing) that, as of the date of such opinion, and based on the procedures
followed, assumptions made, matters considered and limitations on the review
undertaken, as set forth in the opinion, the Cash Consideration to be received
in the Merger was fair to the stockholders of the Company, other than the
Estate, from a financial point of view.
A copy of the opinion of Wasserstein Perella, dated August 10, 1997, is
included as Annex C to this Proxy Statement/Prospectus and is incorporated by
reference. Stockholders of the Company are urged to read the Wasserstein Perella
opinion in its entirety for information with respect to the procedures followed,
assumptions made, matters considered and limits of the review undertaken by
Wasserstein Perella in rendering its opinion. References to the Wasserstein
Perella opinion and the summary of the Wasserstein Perella opinion herein are
qualified by reference to the full text of the Wasserstein Perella opinion. The
Wasserstein Perella opinion is directed only to the fairness, from a financial
point of view, to the stockholders of the Company, other than the Estate, of the
Cash Consideration to be received in the Merger pursuant to the Merger
Agreement, and Wasserstein Perella did not express any views on any other terms
of the transactions contemplated by the Merger Agreement or on the fairness,
from a financial point of view, to stockholders of the Mixed Consideration that
the stockholders of the Company may elect to receive pursuant to the Merger.
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Specifically, Wasserstein Perella's opinion does not address the Company's
underlying business decision to effect the transactions contemplated by the
Merger Agreement or constitute a recommendation to any stockholder of the
Company with respect to whether such holder should elect to receive the Cash
Consideration or the Mixed Consideration pursuant to the Merger or as to how
such stockholder of the Company should vote with respect to the Merger.
The letter agreement, dated as of July 8, 1997, pursuant to which
Wasserstein Perella was retained by the Company (the "Letter Agreement"), and
the Wasserstein Perella opinion state that the fairness opinion rendered by
Wasserstein Perella to the Company is solely for the benefit and use of the
Board of Directors of the Company and may not be relied upon by any other
person. It is Wasserstein Perella's position that its duties in connection with
its fairness opinion are solely to the Company, and that it has no legal
responsibility to any other persons, including the Company's stockholders, under
New York state law, the governing law of the Letter Agreement. Wasserstein
Perella intends to assert the substance of the foregoing disclaimer as a defense
to any claims that might be brought against it by stockholders with respect to
its fairness opinion. However, since no New York state court has definitively
ruled on the availability to a financial adviser of an express disclaimer as a
defense to stockholder liability with respect to its fairness opinion, this
issue necessarily would have to be resolved by a court of competent
jurisdiction. In any event, the availability or non-availability of such a
defense will have no effect on Wasserstein Perella's rights and responsibilities
under the federal securities laws, or the rights and responsibilities of the
Board of Directors under governing state law or under the federal securities
laws.
In connection with rendering its opinion, Wasserstein Perella reviewed the
Merger Agreement. Wasserstein Perella also reviewed and analyzed certain
publicly available business and financial information relating to the Company
for recent years and interim periods to the date of such opinion, as well as
certain internal financial and operating information, including financial
forecasts, analyses and projections prepared by or on behalf of the Company and
provided to Wasserstein Perella for purposes of its analysis, and Wasserstein
Perella met with representatives of the senior management of the Company to
review and discuss such information and, among other matters, the Company's
business, operations, assets, financial condition and future prospects.
Wasserstein Perella reviewed and considered certain financial and stock
market data relating to the Company, and compared that data with similar data
for certain other companies the securities of which are publicly traded, that
Wasserstein Perella believed may be relevant or comparable in certain respects
to the Company or one or more of its businesses or assets, and Wasserstein
Perella reviewed and considered the financial terms of certain recent
acquisitions and business combination transactions which Wasserstein Perella
believed to be reasonably comparable to the transactions contemplated by the
Merger Agreement or otherwise relevant to its inquiry. Wasserstein Perella also
performed such other studies, analyses, and investigations and reviewed such
other information as Wasserstein Perella considered appropriate for purposes of
its opinion.
Wasserstein Perella noted that, in its review and analysis and in
formulating its opinion, Wasserstein Perella assumed and relied upon the
accuracy and completeness of all the financial and other information provided to
or discussed with it or publicly available, and did not assume any
responsibility for independent verification of any of such information.
Wasserstein Perella also relied upon the reasonableness and accuracy of the
financial projections, forecasts and analyses provided to Wasserstein Perella
and assumed, with the Company's consent, that such projections, forecasts and
analyses were reasonably prepared in good faith and on bases reflecting the best
currently available judgments and estimates of the Company's management, and
Wasserstein Perella expressed no opinion with respect to such projections,
forecasts and analyses or the assumptions upon which they were based. In
addition, Wasserstein Perella did not review any of the books and records of the
Company, or assume any responsibility for conducting a physical inspection of
the properties or facilities of the Company, and no such independent valuation
or appraisal was provided to Wasserstein Perella. Wasserstein Perella noted that
it assumed that the transactions described in the Merger Agreement will be
consummated on the terms set forth therein, without material waiver or
modification, and noted that its opinion was necessarily based on economic and
market conditions and other circumstances as they existed and could be evaluated
by Wasserstein Perella as of the date of such opinion.
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Wasserstein Perella noted that, in the context of its engagement,
Wasserstein Perella was not authorized to and did not solicit alternative offers
for the Company or its assets, and Wasserstein Perella did not investigate any
other alternative transactions that might have been available to the Company.
Set forth below is a summary of the material financial analyses used by
Wasserstein Perella in connection with providing its opinion to the Board's
independent directors as contained in the presentation by Wasserstein Perella to
the independent directors on August 10, 1997 (the "Wasserstein Perella
Presentation").
Wasserstein Perella Valuation Analysis
Wasserstein Perella prepared summary valuation ranges for the Enterprise
Value, Equity Value and Equity Value per share of the Company. Wasserstein
Perella arrived at its summary valuation ranges by considering, among other
things, (i) comparable company analysis, (ii) discounted cash flow analysis,
(iii) comparable acquisition analysis, (iv) premium analysis and (v) current
trading value of the Company Common Stock. As used in the Wasserstein Perella
analysis: (i) "Enterprise Value" means the sum of the Equity Value of the
transaction or the Company, as the case may be, plus the book value of net debt
(short and long term debt less cash and short term investments) and minority
interest and (ii) "Equity Value" and "Market Value" means the equity value of
the transaction or the Company, based on 21.1 million shares outstanding, as the
case may be.
Comparable Company Analysis. Wasserstein Perella reviewed certain
financial information relating to the Company and compared it to corresponding
publicly available financial information, ratios and public market multiples for
certain publicly traded corporations. Such financial information was used to
calculate multiples, including Market Value to net income, Market Value to book
value, Market Value to net sales, Market Value to earnings before interest,
income taxes, depreciation and amortization ("EBITDA") and Market Value to
earnings before interest and income taxes ("EBIT"). Wasserstein Perella's
comparable company analysis for the Company was prepared both with and without
giving effect to any change-of-control premium that may arise in connection with
a transaction such as the Merger. For the purpose of giving effect to a
change-of-control premium, Wasserstein Perella included a control premium of 30%
of imputed Enterprise Value, Equity Value and Equity Value per share.
Comparable companies for the Company included American Greetings Corp.,
Stanhome Inc., Russ Berrie and Company, Inc., CSS Industries, Inc. and Gibson
Greetings, Inc. (the "Comparable Group"). For the Company and the Comparable
Group, Wasserstein Perella calculated multiples of Market Value to latest twelve
month ("LTM") and next fiscal year ("NFY") net income and book value and
multiples of adjusted Market Value to LTM and NFY net sales, EBITDA and EBIT.
This analysis yielded the following multiples for the Company: Market Value to
LTM net income and book value of 16.5x and 3.1x; adjusted Market Value to LTM
net sales, EBITDA and EBIT of 1.5x, 7.3x and 8.6x; Market Value to NFY net
income and book value of 13.5x and 2.8x; and adjusted Market Value to NFY net
sales, EBITDA and EBIT of 1.4x, 7.0x and 8.2x. For the Comparable Group, this
analysis yielded the following multiple ranges: Market Value to LTM net income
(15.7x to 19.3x) and book value (1.5x to 2.3x); adjusted Market Value to LTM net
sales (0.8x to 2.2x), EBITDA (5.4x to 13.5x) and EBIT (8.6x to 14.8x); Market
Value to NFY net income (14.3x to 16.1x) and book value (1.4x to 1.9x); and
adjusted Market Value to NFY net sales (0.8x to 1.3x), EBITDA (4.9x to 7.9x) and
EBIT (7.5x to 9.6x). Wasserstein Perella reviewed the means and medians of these
multiples relative to corresponding financial and market data for the Company
and, assuming no control premium, derived an implied Enterprise Value range of
$284 million to $348 million, an implied Equity Value range of $243 million to
$306 million and an implied Equity Value per share range of $11.50 to $14.50.
These values resulted in an implied range of multiples of Enterprise Value to
projected 1997 sales (1.3x to 1.6x), EBITDA (6.7x to 8.2x) and EBIT (7.8x to
9.6x) and an implied range of multiples of Equity Value to projected 1997 net
income (12.8x to 16.1x) and book value (2.6x to 3.3x). Assuming a control
premium, the comparable company analysis implied an Enterprise Value range of
$358 million to $443 million, an Equity Value range of $317 million to $401
million and an Equity Value per share range of $15.00 to $19.00. These values
resulted in an implied range of multiples of Enterprise Value to projected 1997
sales (1.7x to 2.1x), EBITDA (8.5x to 10.5x) and EBIT (9.9x to 12.2x) and an
implied range of multiples of Equity Value to projected 1997 net income (16.7x
to 21.1x) and book value (3.4x to 4.3x).
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The Comparable Group was chosen because the companies included in the
Comparable Group are publicly traded with operations that, for purposes of this
analysis, may be considered to be similar to the operations of the Company.
Wasserstein Perella observed that comparable company analysis is subject to
certain limitations, including the fact that no individual company has a
business mix that precisely mirrors that of the Company. Accordingly, an
analysis of the results of Wasserstein Perella's analysis necessarily involves
certain considerations and judgments concerning differences in the financial and
operating characteristics of the Company which could affect the implied public
trading value of the corporations to which it is being compared.
Discounted Cash Flow Analysis. Wasserstein Perella performed a discounted
cash flow analysis on the Company for the years ended December 31, 1997 through
2002. Wasserstein Perella, using forecasts prepared by management of the Company
for the years 1997 through 1998 and extrapolated to 2002, discounted the
unlevered free cash flow of the Company (unlevered net income plus depreciation
and amortization, less changes in working capital and capital expenditures) over
the forecast period using a range of risk-adjusted discount rates (9.5%, 10.5%
and 11.5%). The sum of the present values of such cash flows was then added to
the present value of the Company's terminal value in 2002. The terminal value
was calculated by multiplying the EBITDA for calendar year 2002 by multiples of
5.0x, 6.0x, 7.0x, 8.0x and 9.0x. Wasserstein Perella performed the discounted
cash flow analysis with respect to the Company's unlevered free cash flow on
three bases: (i) a base case; (ii) an upside sensitivity case that assumed,
among other things, accelerated sales growth due to growth in the party supply
superstore industry and further penetration of merchandising channels and
decreased administrative and other costs and expenses; and (iii) a downside
sensitivity case that assumed, among other things, diminishing future growth
opportunities for the Company due to consolidation in the party supply
superstore channel, no decrease in expenses and increased bad debt expenses from
party supply superstores. Wasserstein Perella also performed a discounted cash
flow analysis applying Wasserstein Perella's discount rates and terminal EBITDA
multiples to projections prepared and presented to the Company's Board by
Goldman Sachs. Based on this analysis, Wasserstein Perella calculated (a) for
the base case, an Enterprise Value range of $302 million to $407 million, an
Equity Value range of $253 million to $359 million and an Equity Value per share
range of $12.00 to $17.00; (b) for the upside sensitivity case, an Enterprise
Value range of $333 million to $449 million, an Equity Value range of $285
million to $401 million and an Equity Value per share range of $13.50 to $19.00;
(c) for the downside sensitivity case, an Enterprise Value range of $249 million
to $333 million, an Equity Value range of $201 million to $285 million and an
Equity Value per share range of $9.50 to $13.50 and (d) for the Goldman Sachs
case, an Enterprise Value range of $365 million to $513 million, an Equity Value
range of $317 million to $465 million and an Equity Value per share range of
$15.00 to $22.00.
With respect to the discounted cash flow analysis, Wasserstein Perella
noted that the selection of an appropriate discount rate and an appropriate
multiple for determining terminal value is an inherently subjective process. The
selection of an appropriate discount rate is affected by such factors as the
Company's cost of capital and the uncertainties associated with achieving the
projections provided by management of the Company. The selection of an
appropriate terminal multiple involves a judgment concerning appropriate
multiples of EBITDA prevailing in the market at the time such selection is made
and such multiples may not be obtainable in the future. Wasserstein Perella also
noted that discounted cash flow analysis is a widely used valuation methodology,
but that it relies on numerous assumptions regarding the future performance of a
company and the future economic environment, including earnings growth rates,
unlevered free cash flows, terminal values and discount rates, all of which are
inherently uncertain because they are predicated on future events and
circumstances.
Comparable Acquisitions Analysis. Wasserstein Perella reviewed and
analyzed certain financial information based on selected mergers and
acquisitions in industries considered comparable to that of the Company.
Wasserstein Perella considered (i) the multiples of adjusted purchase price to
net sales, adjusted purchase price to EBITDA and adjusted purchase price to EBIT
and (ii) the multiples of purchase price to net income and purchase price to
book value. Based on an analysis of the transactions, the means and medians of
the foregoing multiples were reviewed relative to corresponding data of the
Company for the 12-month period ended June 30, 1997 to determine implied value
ranges.
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Comparable acquisitions (listed by acquiror/acquiree) for the Company
included Fonda Group, Inc./Heartland Manufacturing Corp.; Fonda Group,
Inc./Astro Valcour, Inc. -- Printed Products Division of Tenneco, Inc.; Hedstrom
Corp./ Ero, Inc.; CSS Industries, Inc./Color-Clings, Inc.; Fonda Group,
Inc./James River -- Specialty Operations; CSS Industries, Inc./Cleo, Inc.; Fonda
Group, Inc./Chesapeake Consumer Products Co.; Thomas Nelson, Inc./C.R. Gibson
Co.; Fonda Group, Inc./Scott Paper Co. -- US Food Service Business; American
Business Products/Discount Labels; and CSS Industries, Inc./ Spearhead
Industries, Inc. (the "Comparable Acquisitions"). For the Comparable
Acquisitions, Wasserstein Perella calculated multiples of adjusted purchase
price to net sales, EBITDA and EBIT and multiples of purchase price to net
income and book value. This analysis yielded the following multiple ranges for
the Comparable Acquisitions: adjusted purchase price to net sales (0.4x to
1.3x), EBITDA (7.3x to 10.2x) and EBIT (8.1x to 14.5x) and purchase price to net
income (13.3x to 20.9x) and book value (0.7x to 6.5x). Wasserstein Perella
reviewed the means and medians of these multiples relative to corresponding
financial and market data for the Company and such analysis implied an
Enterprise Value range of $274 million to $379 million, an Equity Value range of
$232 million to $338 million and an Equity Value per share range of $11.00 to
$16.00. These values resulted in an implied range of multiples of Enterprise
Value to projected 1997 sales (1.3x to 1.8x), EBITDA (6.5x to 9.0x) and EBIT
(7.6x to 10.5x) and an implied range of multiples of Equity Value to projected
1997 net income (12.2x to 17.8x) and book value (2.5x to 3.7x).
Wasserstein Perella observed that comparable acquisitions analysis is
subject to certain limitations, including: the analysis does not incorporate the
time of the transactions, no single transaction is precisely comparable in
business characteristics and market conditions and there is a scarcity of public
disclosure on terms of comparable transactions and the financial performance of
acquirees. Accordingly, an analysis of the results of the foregoing necessarily
involves certain considerations and judgments concerning differences in the
financial and operating characteristics of the Company and certain other
characteristics that could affect the derived value of the transactions to which
the Company is being compared.
Wasserstein Perella Public Acquisition Premium Analysis. Wasserstein
Perella reviewed completed mergers and acquisition transactions (excluding
leveraged buyout transactions and transactions in the financial services
industry) announced between July 15, 1996 and July 15, 1997, with values ranging
from $200 million to $500 million, to derive a range of premiums paid over the
public trading prices per share one day, one week and four weeks prior to the
announcement of such transactions. In addition, Wasserstein Perella reviewed
completed public leveraged buyout transactions announced between January 1, 1995
and July 15, 1997, with values ranging from $100 million to $1 billion, to
derive a range of premiums paid over the public trading prices per share one
day, one week and four weeks prior to the announcement of such transactions.
However, Wasserstein Perella noted that the reasons for, and circumstances
surrounding, each of the transactions analyzed were diverse and the
characteristics of the companies involved were not particularly comparable to
those of the Company and that premiums fluctuate based on perceived growth,
synergies, strategic value and the type of consideration utilized in the
transaction.
The analyses indicated that the medians of premiums paid in the leveraged
buyout transactions over the public per share trading prices one day, one week
and four weeks prior to the announcement of such transactions were 29.3%, 32.6%
and 41.4%, respectively, and that the means of premiums paid in the leveraged
buyout transactions over the public per share trading prices one day, one week
and four weeks prior to the announcement of such transactions were 32.0%, 36.5%
and 43.0%, respectively. The analyses indicated that the medians of premiums
paid in the other merger and acquisition transactions reviewed by Wasserstein
Perella over the public per share trading prices one day, one week and four
weeks prior to the announcement of such transactions were 21.0%, 28.1% and
34.8%, respectively, and that the means of premiums paid in the transactions
over the public per share trading prices one day, one week and four weeks prior
to the announcement of such transactions were 30.6%, 36.1% and 39.3%,
respectively. Assuming a premium of approximately 30% to 40% to the closing
price of $12.13 per share of the Company Common Stock on August 8, 1997, the
analyses would imply an Enterprise Value range of $379 million to $401 million,
an Equity Value range of $338 million to $359 million and an Equity Value per
share range of $16.00 to $17.00.
Termination Fee Analysis. Wasserstein Perella reviewed the amount of
termination fees and termination fees as a percentage of transaction value for
all acquisition transactions announced between January 1,
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1996 and August 5, 1997 with transaction values between $200 million and $500
million. Wasserstein Perella determined that the mean termination fee for such
transactions was $8.8 million and the median fee was $9.0 million. The mean
termination fee as a percentage of transaction value was 2.8% and the median was
2.6%.
Wasserstein Perella Stock Price Analysis. Wasserstein Perella reviewed the
closing price of the Company Common Stock as of August 8, 1997 (the last trading
day prior to the announcement of the Merger), which implied an Enterprise Value
of $298 million, an Equity Value of $256 million and an Equity Value per share
of $12.13.
Equity Stub Analysis. Although not material to Wasserstein Perella's
valuation of the Company as described above, Wasserstein Perella also reviewed
the value of the Mixed Consideration to the Estate. In its analysis, Wasserstein
Perella assumed a $297.2 million purchase price and $16.5 million in transaction
fees as of December 31, 1997. Using projected 2002 EBITDA of $65.2 million and
net debt of $193.1 million, Wasserstein Perella determined that the Mixed
Consideration implied a per share value to the Estate, at a range of
risk-adjusted discount rates (10.0%, 12.0% and 14.0%), of (i) $10.51, $10.42 and
$10.33, respectively, at an assumed exit multiple of 7.0x; (ii) $10.78, $10.66
and $10.56, respectively, at an assumed exit multiple of 8.0x; and (iii) $11.04,
$10.90 and $10.78, respectively, at an assumed exit multiple of 9.0x. Using
projected 2002 net income of $21.3 million and the same range of discount rates
as above, Wasserstein Perella determined that the Mixed Consideration implied a
per share value to the Estate of (a) $10.96, $10.83 and $10.71, respectively, at
an assumed exit multiple of 17.5x, (b) $11.17, $11.02 and $10.89, respectively,
at an assumed exit multiple of 20.0x and (c) $11.39, $11.22 and $11.07,
respectively, at an assumed exit multiple of 22.5x.
The foregoing is a complete summary of the material analyses included in
the Wasserstein Perella Presentation. The preparation of financial analyses and
fairness opinions is a complex process and is not necessarily susceptible to
partial analysis or summary description. Wasserstein Perella believes that its
analyses (and the summary set forth above) must be considered as a whole, and
that selecting portions of such analysis and of the factors considered by
Wasserstein Perella, without considering all of such analyses and factors, could
create an incomplete view of the processes underlying the analyses conducted by
Wasserstein Perella and its opinion. Wasserstein Perella made no attempt to
assign specific weights to particular analyses. Any estimates contained in
Wasserstein Perella's analyses are not necessarily indicative of actual value,
which may be significantly more or less favorable than as set forth therein.
Estimates of values of companies do not purport to be appraisals or necessarily
to reflect the prices at which companies may actually be sold.
Wasserstein Perella was retained to act as the independent directors'
financial advisor in connection with the Merger and related matters based on
Wasserstein Perella's qualifications, expertise, reputation and experience with
respect to transactions similar to those contemplated by the Merger Agreement.
Wasserstein Perella, 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. In the ordinary course
of business, Wasserstein Perella may actively trade the debt and equity
securities of the Company and its affiliates for their own accounts and for the
accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities.
Wasserstein Perella was retained, pursuant to the terms of the Letter
Agreement to provide financial advisory services relating to the review of the
Company's independent directors of potential proposals to acquire or materially
recapitalize the Company (each, an "Acquisition Proposal"). Wasserstein Perella
also agreed to provide, in accordance with its customary practice, an opinion to
the independent directors with respect to the adequacy or fairness, from a
financial point of view, of the consideration to be received, in the
consummation of any Acquisition Proposal. The Company agreed to pay Wasserstein
Perella a fee of $100,000 in cash upon execution of the Letter Agreement, which
fee is to be credited against any other fees earned by Wasserstein Perella
pursuant to the Letter Agreement. The Company has also agreed to pay Wasserstein
Perella a fee, in connection with the consummation of any Acquisition Proposal,
equal to 0.70% of the aggregate value of such consummated Acquisition Proposal,
as determined in accordance with the Letter
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Agreement. The Company has also agreed to reimburse Wasserstein Perella for its
travel and other reasonable out-of-pocket expenses, including the fees,
disbursements and other costs of counsel and of other consultants and advisors
retained by Wasserstein Perella in connection with its activities contemplated
by the Letter Agreement, and to indemnify Wasserstein Perella for certain
liabilities arising out of actions taken under the Letter Agreement.
MERGER CONSIDERATION
Subject to certain provisions as described herein with respect to shares of
Company Common Stock owned by the Company or any subsidiary of the Company or by
Acquisition or any subsidiary of Acquisition, and with respect to shares subject
to appraisal rights, (i) each issued and outstanding share of Company Common
Stock (other than shares with respect to which a Mixed Election is made) will be
converted into the right to receive in cash from the Company following the
Merger an amount equal to the Cash Consideration of $16.50 in cash, and (ii)
each issued and outstanding share of Company Common Stock with respect to which
an election to retain Company Common Stock has been made and not withdrawn in
accordance with the Merger Agreement will be converted into the right to receive
$9.33 in cash plus the right to retain one fully paid and nonassessable share of
Company Common Stock (a "Mixed Election Share") for every 150,000 shares of
Company Common Stock so elected, with cash to be paid in lieu of fractional
shares of Company Common Stock. The Cash Consideration has a significantly
higher current value than the Mixed Consideration. With respect to certain risks
related to retaining Company Common Stock, see "RISK FACTORS" above.
In addition, upon consummation of the Merger each share of Acquisition
Common Stock issued and outstanding immediately prior to the Effective Time will
be converted into (i) a number of shares of Company Common Stock equal to the
quotient of (A) 900 divided by (B) the number of shares of Acquisition Common
Stock outstanding immediately prior to the Effective Time. As a result of the
Merger, the holders of Acquisition Common Stock immediately prior to the Merger
will hold 900 shares, or approximately 90% of the shares, of Company Common
Stock expected to be outstanding after the Merger, assuming that there are no
Mixed Elections other than that made by the Estate.
MIXED ELECTION; MIXED ELECTION PROCEDURE
Record holders of shares of Company Common Stock will be entitled to make a
Mixed Election on or prior to the Election Date to retain shares of Company
Common Stock. If the Estate is the only stockholder of the Company to make a
Mixed Election, 100 shares of Company Common Stock will be retained in the
Merger. If other stockholders make Mixed Elections, up to 36 additional shares
of Company Common Stock will be retained in the Merger. With respect to certain
risks related to retaining Company Common Stock, see "RISK FACTORS."
The Form of Election is being mailed to holders of record of Company Common
Stock together with this Proxy Statement/Prospectus. FOR A MIXED ELECTION TO BE
EFFECTIVE, HOLDERS OF COMPANY COMMON STOCK MUST PROPERLY COMPLETE AND SIGN SUCH
FORM OF ELECTION, AND SUCH FORM OF ELECTION, TOGETHER WITH ALL CERTIFICATES FOR
SHARES OF COMPANY COMMON STOCK TO WHICH SUCH FORM OF ELECTION RELATES, 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 THE EXCHANGE AGENT AND NOT WITHDRAWN AT ONE OF
THE ADDRESSES LISTED ON THE FORM OF ELECTION, BY 5:00 P.M., NEW YORK CITY TIME,
ON THE BUSINESS DAY NEXT PRECEDING THE DATE OF THE SPECIAL MEETING. UNLESS
STOCKHOLDERS MAKE AN AFFIRMATIVE ELECTION TO RECEIVE THE MIXED CONSIDERATION IN
ACCORDANCE WITH THE ENCLOSED FORM OF ELECTION, THEY SHALL BE DEEMED TO HAVE
ELECTED THE CASH CONSIDERATION.
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The determinations of the Exchange Agent as to whether or not Mixed
Elections have been properly made or revoked, and when such election or
revocations were received, will be binding.
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 closing of the Merger
unless another date is agreed to in writing by the Company and Acquisition.
Subject to certain limitations, the Merger Agreement may be terminated by
Acquisition or the Company if, among other reasons, the Merger has not been
consummated on or before December 31, 1997. See "THE MERGER
AGREEMENT -- Conditions to Consummation of the Merger" and "-- Termination."
PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of shares of Company Common Stock (other than shares subject
to appraisal rights) into the right to receive cash or the right to receive cash
and retain shares of Company Common Stock 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 Company Common Stock
(other than holders of Company Common Stock making a Mixed Election 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 Company Common Stock in
exchange for cash.
EXCEPT FOR COMPANY COMMON STOCK CERTIFICATES SURRENDERED WITH A FORM OF
ELECTION AS DESCRIBED ABOVE UNDER "-- MIXED ELECTION; MIXED ELECTION PROCEDURE,"
STOCKHOLDERS OF THE COMPANY SHOULD NOT FORWARD STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL, AND THEN ONLY
IN ACCORDANCE WITH THE TERMS THEREOF.
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 Company 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 Company Common Stock previously represented by such certificate or
certificates surrendered will have been converted pursuant to the Merger
Agreement and if a properly signed and completed Form of Election has been
timely submitted to the Exchange Agent, a certificate or certificates
representing the number of full shares of Company Common Stock, if any, to be
retained by the holder thereof pursuant to the Merger 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 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 Company Common Stock which have
been converted, in whole or in part, pursuant to the Merger Agreement into the
right to receive cash, and if such certificates are presented to the Company for
transfer, they will be cancelled against delivery of cash. Until surrendered as
contemplated by the Merger Agreement, each certificate for shares of Company
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 Merger Agreement. No interest will be paid or will accrue on any cash
payable as consideration in the Merger or in lieu of any fractional shares of
retained Company Common Stock.
No dividends or other distributions with respect to retained Company Common
Stock with a record date after the Effective Time will be paid to the holder of
any unsurrendered certificate for shares of Company Common Stock with respect to
the shares of retained Company Common Stock represented thereby and no cash
payment in lieu of fractional shares will be paid to any such holder pursuant to
the Merger Agreement until the surrender of such certificate in accordance with
the Merger Agreement. Subject to the effect of applicable laws, following
surrender of any such certificate, there will be paid to the holder of the
certificate
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representing whole shares of retained Company Common Stock issued in connection
therewith, without interest, (i) the amount of any cash payable in lieu of a
fractional share of retained Company Common Stock to which such holder is
entitled pursuant to the Merger Agreement and the proportionate amount of
dividends or other distributions, if any, with a record date after the Effective
Time theretofore paid with respect to such whole shares of retained Company
Common Stock, and (ii) 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 whole shares of retained Company Common
Stock.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of retained Company
Common Stock will be issued pursuant to a Mixed Election in connection with the
Merger, and such fractional share interests will not entitle the owner thereof
to vote or to any rights of a stockholder of the Company after the Merger.
Notwithstanding any other provision of the Merger Agreement, each record holder
of shares of Company Common Stock exchanged pursuant to a Mixed Election in
connection with the Merger who would otherwise have been entitled to receive a
fractional share of retained Company Common Stock (after taking into account all
shares of Company Common Stock delivered by such holder) will receive, in lieu
thereof (but in addition to the $9.33 in cash to be paid for each share so
exchanged), a cash payment (without interest) in an amount equal to $0.50 per
share so elected.
Stockholders desiring to elect the Mixed Consideration should only do so
with respect to shares of Company Common Stock in whole number multiples of
150,000 shares. A stockholder making such an election for a number of shares
that is not a whole number multiple of 150,000 will receive $9.83 per share in
cash with respect to the portion of such election made with respect to a number
of shares in excess of a whole number multiple of 150,000. Such a stockholder
would receive a greater amount of cash by electing the Cash Consideration of
$16.50 per share with respect to those shares which are not whole number
multiples of 150,000.
For example, if a stockholder owns 210,000 shares of Company Common Stock
and makes an election to retain and receive the Mixed Consideration for all
210,000 shares, the stockholder would retain one share of Company Common Stock
and would receive (i) cash in the amount of $9.33 per share for all 210,000
shares and (ii) cash in lieu of fractional shares equal to $0.50 per share with
respect to the 60,000 shares in excess of 150,000 shares. Consequently, the
stockholder would retain one share of Company Common Stock and would receive
total cash consideration of $1,989,300, including an aggregate of $9.83 per
share in cash with respect to the 60,000 shares in excess of the whole multiple
of 150,000.
On the other hand, if the same stockholder makes an election to retain and
receive the Mixed Consideration for 150,000 shares and makes an election to
receive the Cash Consideration with respect to the remaining 60,000 shares, the
stockholder would retain one share of Company Common Stock and would receive (i)
cash in the amount of $9.33 per share for the 150,000 shares for which the Mixed
Consideration was elected and (ii) cash in the amount of $16.50 per share for
the remaining 60,000 shares for which the Cash Consideration was elected. By
making the elections in this manner, the stockholder would retain one share of
Company Common Stock and would receive total cash consideration of $2,389,500,
including $16.50 per share in cash with respect to the 60,000 shares in excess
of the whole multiple of 150,000.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger 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 and in
accordance with the restrictions contained in the Merger Agreement. See "THE
MERGER AGREEMENT -- Certain Pre-Closing Covenants."
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CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of the Company and Acquisition to consummate the Merger are
subject to various conditions, including, without limitation, obtaining
requisite stockholder approval, the termination or expiration of the relevant
waiting period under the HSR Act, which occurred as of September 24, 1997 (see
"REGULATORY APPROVALS"), and the absence of any injunction or other legal
restraint or prohibition preventing the consummation of the Merger. See "THE
MERGER AGREEMENT -- Conditions to Consummation of the Merger" and "REGULATORY
APPROVALS."
Acquisition's obligation to effect the Merger is further subject to, among
other things, (i) Acquisition and the Company receiving the proceeds of
financing on the terms and conditions contemplated by the Merger Agreement or
upon terms and conditions which are, in the reasonable judgment of Acquisition,
substantially equivalent to such terms and conditions or such other terms and
conditions which are reasonably satisfactory to Acquisition, (ii) Acquisition
being reasonably satisfied that (A) the Merger will be recorded as a
recapitalization for financial reporting purposes and (B) the New Employment
Arrangements are in full force and effect, (iii) the Estate has made and not
revoked a Mixed Election with respect to at least 15,024,616 shares of Company
Common Stock, (iv) the Tax Indemnification Agreement is in full force and effect
and (v) there is no suit, action or proceeding by a Governmental Entity (or any
suit, action or proceeding by any other person which has a reasonable likelihood
of success) (A) challenging or seeking to restrain or prohibit the consummation
of the Merger or any of the other transactions contemplated by the Merger
Agreement, or seeking material damages from Acquisition, the Company or any of
their respective affiliates, (B) seeking to prohibit or limit the ownership or
operations by Acquisition, the Company or any of their subsidiaries of any
material portion of the business or assets of the Company, (C) seeking to limit
the exercise of full rights of ownership of any shares of Company Common Stock,
including voting rights, or (D) seeking to prohibit Acquisition or its
affiliates from effectively controlling in any material respect the business or
operations of the Company or its subsidiaries. See "THE MERGER
AGREEMENT -- Conditions to Consummation of the Merger."
FEDERAL INCOME TAX CONSEQUENCES
The following discussion sets forth the opinion of Skadden, Arps, Slate,
Meagher & Flom LLP, special counsel to the Board's independent directors, under
currently applicable law, as to the material United States federal income tax
consequences of the Merger generally applicable to the Company and Company
stockholders (other than the Non-GSCP Investors) who are citizens or residents
of the United States ("U.S.") and hold Company Common Stock as capital assets.
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 U.S., stockholders who do not hold their shares as capital assets and
stockholders who have acquired their existing Company Common Stock 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 ("IRS")
will be applied for with respect to the federal income tax consequences
discussed herein and, accordingly, there can be no assurance that the IRS will
agree with the conclusions stated herein. In addition, this discussion does not
consider the effect of any applicable foreign, state, local or other tax laws.
Each stockholder, including the Non-GSCP Investors, 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, any recent changes in applicable tax laws and any proposed
legislation.
Characterization of the Merger for U.S. Federal Income Tax Purposes; Tax
Consequences of the Merger to the Company and Company Stockholders. For U.S.
federal income tax purposes, Acquisition will be disregarded as a transitory
entity, and the Merger of Acquisition with and into the Company will be treated
as a taxable sale of a portion of a tendering stockholder's Company Common Stock
to GSCP and the Non-GSCP Investors and as a taxable redemption of a portion of
the stockholder's Company Common Stock by the Company. Due to the lack of
legislative, judicial or other interpretive authority on this matter, it is
unclear how the allocation of proceeds between the sale and redemption should be
determined. The Company intends to take the position that the percentage of a
stockholder's Company Common Stock disposed of by the
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stockholder pursuant to the Merger which will be treated as sold to GSCP and the
Non-GSCP Investors will be a percentage of such Company Common Stock equal to
(i) the amount contributed to Acquisition by GSCP and the Non-GSCP Investors in
exchange for Acquisition Common Stock divided by (ii) the aggregate amount of
cash paid to stockholders pursuant to the Merger. The remainder of the
stockholder's Company Common Stock disposed of in the Merger will be treated as
redeemed by the Company. The IRS could, however, adopt a different approach in
determining the portion, if any, of a stockholder's Company Common Stock which
is treated as redeemed by the Company. See "-- Stockholders Receiving Cash"
below for a discussion of the consequences of cash being deemed paid in
redemption of Company Common Stock. The Company will not recognize gain or loss
as a result of the Merger.
As discussed in greater detail below, Company stockholders will recognize
capital gain or loss as a result of the Merger in an amount equal to the
difference between the amount of consideration received by the Company
stockholders in the Merger and their tax basis in their Company Common Stock
exchanged therefor, except to the extent all or a portion of the proceeds
received in the Merger that are allocable to the portion of the exchange
characterized as a redemption are treated as a dividend. As discussed in greater
detail below, it is possible (although unlikely) that certain Continuing
Stockholders may, in light of their individual facts and circumstances, be
deemed to recognize ordinary dividend income with respect to a portion of the
proceeds received in the Merger, rather than capital gains. Under the applicable
provisions of the Code (discussed in greater detail below), this determination
is based entirely on an individual Continuing Stockholder's specific factual
situation, and therefore it is not possible to opine as to the amount of
dividend income, if any, that will be recognized by a given Continuing
Stockholder in the Merger.
Stockholders Receiving Cash. As described more fully below, the U.S.
federal income tax consequences of the Merger with respect to a particular
stockholder will depend upon, among other things, (i) the extent to which a
stockholder is deemed to have sold its Company Common Stock to GSCP and the
Non-GSCP Investors or is deemed to have had its Company Common Stock redeemed by
the Company and (ii) whether the redemption of a holder's Company Common Stock
by the Company will qualify as a sale or exchange under Section 302 of the Code.
First, to the extent that a stockholder is considered to have sold Company
Common Stock to GSCP and the Non-GSCP Investors, such stockholder will recognize
either capital gain or loss (assuming the Company Common Stock is held by such
stockholder as a capital asset) equal to the difference between the amount
realized on its deemed sale of Company Common Stock to GSCP and the Non-GSCP
Investors (i.e., the cash proceeds properly allocated to such sale) and the
stockholder's adjusted tax basis in such Company Common Stock. Second, a
stockholder also will recognize either capital gain or loss equal to the
difference between the cash proceeds allocable to the redemption of such
stockholder's Company Common Stock by the Company and the stockholder's adjusted
tax basis in such Company Common Stock, to the extent such redemption is treated
as a sale or exchange under Section 302 of the Code with respect to such
stockholder. Under Section 302 of the Code, a redemption of Company Common Stock
pursuant to the Merger will, as a general rule, be treated as a sale or exchange
if such redemption (a) is "substantially disproportionate" with respect to the
stockholder, (b) results in a "complete redemption" of the stockholder's
interest in the Company or (c) is "not essentially equivalent to a dividend"
with respect to the stockholder. In general, stockholders who elect to receive
the Cash Consideration (or elect to receive the Mixed Consideration but receive
only cash in lieu of fractional shares and retain no Company Common Stock) in
exchange for their shares of Company Common Stock (i.e., stockholders who
surrender all of their Company Common Stock in the Merger) will be accorded sale
or exchange treatment under Section 302 of the Code and will, therefore,
recognize capital gain or loss with respect to all the consideration received in
the Merger. However, because of the fact-intensive nature of the determination
(which will vary based upon the stockholder's individual circumstances) of
whether a redemption will be treated as a sale or exchange, on the one hand, or
a dividend taxable as ordinary income, on the other hand, under Section 302 of
the Code, stockholders who elect to receive Mixed Consideration in exchange for
their shares of Company Common Stock and retain Company Common Stock, and
stockholders who otherwise continue to own Company Common Stock, either
directly, indirectly or by attribution from certain related individuals or
entities under Section 318 of the Code ("Continuing Stockholders"), are urged to
consult their tax advisers as to whether the portion of the proceeds
characterized as a redemption of their Company Common Stock will be treated as
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a dividend or as a sale or exchange under Section 302 of the Code and as to the
effect, if any, of the Merger on their adjusted tax basis in any retained
Company Common Stock.
To the extent a stockholder recognizes capital gain or loss in the Merger,
such capital gain or loss will be (i) short-term capital gain or loss taxable at
ordinary income tax rates if the stockholder has held its Company Common Stock
as a capital asset for one year or less and (ii) long-term capital gain or loss
if the stockholder has held its Company Common Stock as a capital asset for more
than one year. In the case of an individual stockholder, any such long-term
capital gain will be taxed at a maximum federal income tax rate of (i) 28% if
such stockholder has held its Company Common Stock for more than 12 months but
not more than 18 months and (ii) 20% if such stockholder has held its Company
Common Stock for more than 18 months.
To the extent that the receipt of cash by a Continuing Stockholder is
allocable to the redemption of such Continuing Stockholder's Company Common
Stock and such redemption is not deemed to be (a) "substantially
disproportionate" with respect to the Continuing Stockholder, (b) a "complete
redemption" of the Continuing Stockholder's interest in the Company, or (c) "not
essentially equivalent to a dividend" with respect to the Continuing Stockholder
under Section 302 of the Code, and to the extent the Company has sufficient
current and/or accumulated earnings and profits, such Continuing Stockholder
will be treated as having received a distribution taxable under Section 301 of
the Code which will be includible in gross income as a dividend (and treated as
ordinary income) in an amount equal to the cash received (without regard to gain
or loss, if any). To the extent such redemption is treated as a distribution to
which Section 301 of the Code applies and the amount of such distribution is in
excess of the Company's current and accumulated earnings and profits, such
amount will reduce (but not below zero) a Continuing Stockholder's tax basis in
its retained Company Common Stock and, thereafter, will be treated as gain from
the sale or exchange of such Company Common Stock. Subject to certain
limitations, including those imposed under Sections 246, 246A and 1059 of the
Code, an eligible U.S. corporate Continuing Stockholder may be eligible for a
dividends-received deduction with respect to any amounts treated as a dividend
under the rules discussed above.
Stockholders Retaining a Portion of Their Company Common Stock and
Receiving Cash. To the extent that a Continuing Stockholder elects to retain a
portion of its Company Common Stock and exchange a portion of its Company Common
Stock for cash, the tax treatment of the Continuing Stockholder's receipt of
such cash and retention of its Company Common Stock (including the possibility
that a stockholder's retention of Company Common Stock may, under certain
circumstances, cause the cash received by such stockholder pursuant to the
Merger to be treated as a dividend for U.S. federal income tax purposes) will be
the same as set forth above under "-- Stockholders Receiving Cash." A Continuing
Stockholder's holding period in any Company Common Stock retained in the Merger
will be unaffected by the Merger. A Continuing Stockholder's adjusted tax basis
in any Company Common Stock retained in the Merger will equal its adjusted tax
basis in such shares prior to the Merger reduced (i) by the amount of cash
received in the Merger, if any, treated as a distribution under Section 301 of
the Code which is in excess of the Company's current and accumulated earnings
and profits as described in the preceding paragraph, or (ii) as otherwise
required under Section 1059 of the Code in the case of a corporate shareholder
eligible for the dividends received deduction that is deemed to receive an
"extraordinary dividend" as a result of the Merger.
Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each stockholder the amount of dividends paid to such
stockholder and the backup withholding tax, if any, withheld with respect to
such dividends. Copies of these information returns also may be made available
to the tax authorities in the country in which a foreign stockholder resides
under the provisions of an applicable income tax treaty.
Backup withholding (which generally is a withholding tax imposed at the
rate of 31% on certain payments to persons that fail to furnish certain
information under the United States information reporting requirements)
generally will not apply to dividends paid to a foreign stockholder at an
address outside the United States (unless the payor has knowledge that the payee
is a U.S. person).
Payment of the proceeds of a sale of Company Common Stock by or through a
United States office of a broker is subject to both backup withholding and
information reporting unless the beneficial owner certifies under penalties of
perjury that it is a foreign stockholder and the payor does not have actual
knowledge that
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such owner is a U.S. person, or otherwise establishes an exemption. In general,
backup withholding and information reporting will not apply to a payment of the
proceeds of a sale of Company Common Stock by or through a foreign office of a
broker. If, however, such broker is, for U.S. federal income tax purposes, a
U.S. person, a controlled foreign corporation, or a foreign person that derives
50% or more of its gross income for certain periods from the conduct of a trade
or business in the United States, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (1) such broker
has documentary evidence in its records that the beneficial owner is a foreign
holder and certain other conditions are met, or (2) the beneficial owner
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
The backup withholding and information reporting rules are currently under
review by the Treasury Department and their application to the Company Common
Stock could be changed by future regulations.
THOUGH THE FOREGOING ARE THE MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS GENERALLY APPLICABLE TO THE MERGER, THE DISCUSSION DOES NOT
ADDRESS EVERY U.S. FEDERAL INCOME TAX CONCERN WHICH MAY BE APPLICABLE TO A
PARTICULAR STOCKHOLDER. EACH STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S
OWN TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO SUCH STOCKHOLDER, IN THE
LIGHT OF ITS PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OF COMPANY COMMON
STOCK PURSUANT TO THE MERGER.
ACCOUNTING TREATMENT
The Merger will be accounted for as a recapitalization. Accordingly, the
historical basis of the Company's assets and liabilities will not be impacted by
the transaction.
EFFECT ON STOCK AND EMPLOYEE BENEFIT MATTERS
With certain exceptions, including pursuant to the New Employment
Arrangements, immediately prior to the Effective Time, each outstanding stock
option held by any current or former employee or director (a "Company Stock
Option") granted under the 1996 Stock Option Plan for Key Employees (the "Stock
Plan"), whether or not then exercisable, will be cancelled and the holder
thereof will be entitled to receive payment in cash from the Company subject to
any applicable withholding taxes at or as soon as practicable after the
Effective Time equal to the product of (1) the number of shares of Company
Common Stock previously subject to such Company Stock Option and (2) the excess,
if any, of $16.50 over the exercise price per share of Company Common Stock
previously subject to such Company Stock Option.
It is anticipated that the Stock Plan will terminate as of the Effective
Time, and following the Effective Time, no holder of a Company Stock Option nor
any participant in the Stock Plan will have any right thereunder to acquire
equity securities of the Company following the Merger and will be entitled to
receive only the amount described in the preceding paragraph. In addition,
effective as of the Effective Time, the Company's ESOP shall be amended so as to
(i) eliminate the right of participants in the ESOP to receive distributions in
the form of employer securities, (ii) terminate the status of the ESOP as an
employee stock ownership plan, (iii) provide that the consideration received by
the ESOP in the Merger will not be reinvested in employer securities, (iv)
freeze benefit accruals under the ESOP and (v) vest all ESOP participants in
their account balances in the ESOP. It is expected that cash held in the ESOP
upon consummation of the Merger will be transferred to the Company's 401(k)
savings plan.
Acquisition has agreed in the Merger Agreement that, for a period of at
least two years from the Effective Time, subject to applicable law, the Company
and its subsidiaries will provide benefits to their employees as a group (and
not necessarily on an individual-by-individual or group-by-group basis) that
will, in the aggregate, be similar to those currently provided by the Company
and its subsidiaries to their employees.
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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. See "MANAGEMENT -- Certain Relationships and Related
Transactions." The Board 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 Voting Agreement, the Svenningsen Stockholders have, among
other things, granted Acquisition the Voting Agreement Option to purchase the
Subject Shares, in whole but not in part, at a cash price of $9.83 per share,
subject to certain conditions, exercisable during the 90-day period following a
termination of the Merger Agreement (other than a termination upon mutual
consent of the Company and Acquisition and other than a termination by the
Company based on an actual material breach by Acquisition of its obligations
under the Merger Agreement). In the event that Acquisition purchases the Subject
Shares pursuant to the Voting Agreement Option, it will be required to make a
cash tender offer for the remaining shares of Company Common Stock not held by
it at a price of $16.50 per share, subject to certain conditions set forth in
the Voting Agreement. "CERTAIN RELATED AGREEMENTS -- Voting Agreement."
Upon consummation of the Merger, the Company will enter into the
Stockholders Agreement with GSCP and the Non-GSCP Investors. See "CERTAIN
RELATED AGREEMENTS -- Stockholders Agreement."
Concurrent with the execution of the Merger Agreement and the Voting
Agreement, Acquisition entered into the New Employment Arrangements with certain
employees of the Company relating, for certain of such employees, to their
employment with the Company following the Effective Time and relating to their
ownership of Company Common Stock and options to purchase shares of Company
Common Stock following the Merger, as more fully described below. The
effectiveness of each of the New Employment Arrangements is contingent upon the
effectiveness of the Merger and there being no termination of the employee's
current employment agreement, if any. At the Effective Time, certain of the New
Employment Arrangements will replace and supersede current employment agreements
for such employees. See "MANAGEMENT -- Executive Compensation and Related
Information." At the Effective Time, the New Employment Arrangements will become
obligations of the Company, as the surviving company in the Merger.
Employment and Other Agreements with Gerald C. Rittenberg. Under the
Employment Agreement between Acquisition and Gerald C. Rittenberg, dated as of
August 10, 1997 (the "Rittenberg Employment Agreement"), Mr. Rittenberg will
serve as Chief Executive Officer of the Company for a three-year period
commencing at the Effective Time (an "Initial Term"), which term will be
extended automatically for successive additional one-year periods (each an
"Additional Term"), unless either the Company gives Mr. Rittenberg, or Mr.
Rittenberg gives the Company, written notice of the intention not to extend the
term no less than twelve months prior to the end of the Initial Term or
Additional Term, whichever is then in effect. If the Merger is consummated, Mr.
Rittenberg will receive during the Initial Term an annual base salary of
$295,000 which will be increased by 5% at the beginning of each Additional Term.
During Mr. Rittenberg's Initial Term and any Additional Term, Mr. Rittenberg
will be eligible for an annual bonus for each calendar year comprised of (i) a
non-discretionary bonus equal to 50% of his annual base salary if certain
operational and financial targets determined by the Board of Directors in
consultation with Mr. Rittenberg are attained, and (ii) a discretionary bonus
awarded in the sole discretion of the Board of Directors. The Rittenberg
Employment Agreement also provides for other customary benefits including
incentive, savings and retirement plans, paid vacation, health care and life
insurance plans, and expense reimbursement.
Under the Rittenberg Employment Agreement, if Mr. Rittenberg's employment
were to be terminated by the Company other than for Cause (as defined below),
death or Disability (as defined below), the Company would be obligated to pay
Mr. Rittenberg a lump sum cash payment in an amount equal to the sum of (1)
accrued unpaid salary, earned but unpaid bonus for any prior year, any deferred
compensation and accrued but unpaid vacation pay (collectively, "Accrued
Obligations") plus (2) severance pay equal to his annual base salary, provided,
however, that in connection with a termination by the Company other than for
Cause following a Sale Event (as defined below), such severance pay will be
equal to Mr. Rittenberg's annual base
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salary multiplied by the number of years the Company elects as the Restriction
Period (as defined below) in connection with the non-competition provisions.
Upon termination of Mr. Rittenberg's employment by the Company for Cause, death,
Disability or if he terminates his employment, Mr. Rittenberg will be entitled
to his unpaid Accrued Obligations. Additionally, upon termination of Mr.
Rittenberg's employment during his Initial Term or any Additional Term (1) by
the Company other than for Cause or (2) by reason of his death or Disability, or
if the Initial Term or any Additional Term is not renewed at its expiration
(other than for Cause), the Rittenberg Employment Agreement provides for payment
of a prorated portion of the bonus to which Mr. Rittenberg would otherwise have
been entitled.
As used in the Rittenberg Employment Agreement: (a) "Cause" means (1)
conviction of a felony (excluding felonies under the Motor Vehicle Code referred
to therein); (2) any act of intentional fraud against the Company; (3) any act
of gross negligence or wilful misconduct with respect to Mr. Rittenberg's duties
under the Rittenberg Employment Agreement; and (4) any act of wilful
disobedience in violation of specific reasonable directions of the Board of
Directors consistent with Mr. Rittenberg's duties, and (b) "Disability" means
that Mr. Rittenberg has been unable, for a period of (i) 180 consecutive days or
(ii) an aggregate of 210 days in a period of 365 consecutive days, to perform
his duties under the Rittenberg Employment Agreement, as a result of physical or
mental illness or injury.
The Rittenberg Employment Agreement also provides that during his Initial
Term, any Additional Term and during the three-year period following any
termination of his employment (the "Restriction Period"), Mr. Rittenberg shall
not participate in or permit his name to be used or become associated with any
person or entity that is or intends to be engaged in any business which is in
competition with the business of the Company, or any of its subsidiaries or
controlled affiliates, in any country in which the Company or any of its
subsidiaries or controlled affiliates operate, compete or are engaged in such
business or at such time intend to so operate, compete or become engaged in such
business (a "Competitor"), provided, however, that if Mr. Rittenberg's
employment is terminated by the Company other than for Cause following a Sale
Event, the Restriction Period will be instead a one, two or three-year period at
the election of the Company. For purposes of the Rittenberg Employment
Agreement, "Sale Event" means either (1) the acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) that is a Competitor (as defined in the Rittenberg Employment
Agreement), other than GSCP and its affiliates, of a majority of the outstanding
voting stock of the Company or (2) the sale or other disposition (other than by
way of merger or consolidation) of all or substantially all of the assets of the
Company and its subsidiaries taken as a whole to any person or group of persons
that is a Competitor, provided, however, that an underwritten initial public
offering of shares of Company Common Stock pursuant to a registration statement
under the Securities Act will not constitute a Sale Event. The Rittenberg
Employment Agreement also provides for certain other restrictions during the
Restriction Period in connection with (a) the solicitation of persons or
entities with business relationships with the Company and (b) inducing any
employee of the Company to terminate their employment or offering employment to
such persons, in each case subject to certain conditions.
Pursuant to the Rittenberg Employment Agreement, Mr. Rittenberg agreed to
contribute to Acquisition immediately prior to the Effective Time, 272,728
shares of Company Common Stock in exchange for shares of Acquisition Common
Stock having an aggregate value equal to 272,728 times the Cash Consideration of
$16.50 per share, which shares of Acquisition Common Stock will be valued at the
purchase price for which GSCP purchases common shares of Acquisition immediately
prior to the Effective Time (the "New Purchase Price"). At the Effective Time,
such shares of Acquisition Common Stock will be converted into shares of Company
Common Stock as the surviving company in the Merger (as converted, the "Rollover
Stock").
Also pursuant to the Rittenberg Employment Agreement, following the
Effective Time, Mr. Rittenberg will be granted options ("New Options") to
purchase a number of shares of Company Common Stock equal to 1.50% of the total
number of shares of Company Common Stock outstanding immediately after the
Effective Time, calculated in accordance with the terms of the Rittenberg
Employment Agreement. New Options will be granted pursuant to a stock incentive
plan and related option agreement (together, the "Option Documents"), which will
be adopted by the Company at or following the Effective Time. Such New Options
will vest in equal annual installments over a five-year period and will be
subject to forfeiture upon termination
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of Mr. Rittenberg's employment if not vested and exercised within certain time
periods specified in the Option Documents. Unless sooner exercised or forfeited
as provided in the Option Documents, the New Options will expire on the tenth
anniversary of the Effective Time.
Mr. Rittenberg will not be permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, shares of Rollover Stock or shares of
Company Common Stock acquired upon exercise of the New Options, except as
provided in the Stockholders Agreement and the Option Documents, and the shares
of Rollover Stock and shares of Company Common Stock acquired upon exercise of
the New Options will be subject to the terms of the Stockholders Agreement.
At the Effective Time, the Rittenberg Employment Agreement will replace and
supersede Mr. Rittenberg's current employment agreement with the Company.
Pursuant to the Stock Agreement, as amended by the Amendment, Mr.
Rittenberg has the right to receive from the Estate and the Svenningsen Trusts
five percent of the net proceeds of any sale of shares of Company Common Stock
held by the Estate (including any shares of Company Common Stock retained by the
Estate in the Merger with respect to which such right will continue) and the
Svenningsen Trusts (which are not expected to retain shares of Company Common
Stock in the Merger), respectively, for a period of six years from the closing
of the IPO on December 24, 1996. Pursuant to the Stock Agreement, in connection
with the Merger, Mr. Rittenberg will be entitled to receive a cash payment,
payable within 30 days following the Effective Time, in an amount equal to
approximately $7.1 million from the Estate and the Svenningsen Trusts.
In addition, pursuant to the Amendment, Mr. Rittenberg will satisfy the
remaining unpaid balance of approximately $3.6 million of certain indebtedness
owed by Mr. Rittenberg to the Estate by (i) instructing the release to Christine
Svenningsen of 224,555 shares of Company Common Stock owned by Mr. Rittenberg
and held in escrow in connection with such indebtedness or (ii) in the event
that the closing of the Merger occurs prior to December 31, 1997, delivering to
Christine Svenningsen cash in an amount equal to the Cash Consideration payable
in respect of the 224,555 shares of Company Common Stock (whereupon the escrow
agent holding such shares will release such shares to Mr. Rittenberg).
Employment Agreement with James M. Harrison. Under the Employment
Agreement, dated August 10, 1997, by and between Acquisition and James M.
Harrison (the "Harrison Employment Agreement"), Mr. Harrison will serve as
President of the Company for a three-year Initial Term at an annual base salary
of $275,000. The Harrison Employment Agreement contains provisions for
Additional Terms, salary increases during any Additional Term, non-discretionary
and discretionary bonus payments, severance, other benefits, definitions of
Cause and Disability, and provisions for non-competition and non-solicitation
similar to those in the Rittenberg Employment Agreement, with the exception of
the provision for an election by the Company of a one, two or three-year
Restriction Period following a Sale Event; under the Harrison Employment
Agreement, the Restriction Period is fixed at three years and severance pay is
fixed at one year's annual base salary. In addition, the Harrison Employment
Agreement provides that Mr. Harrison's bonus for the 1997 calendar year will be
equal to the bonus that would have been payable to him in accordance with the
relevant terms of his current employment agreement with the Company, without
taking into account any incremental financing or transaction costs attributable
to the Merger as determined in good faith by the Board. The Harrison Employment
Agreement also provides that Mr. Harrison will receive a bonus payment of
$105,000 on March 15, 1998, in addition to any other bonus payable.
Pursuant to the Harrison Employment Agreement, following the Effective
Time, Mr. Harrison will be granted New Options to purchase a number of shares of
Company Common Stock equal to 1.25% of the total number of shares of Company
Common Stock outstanding immediately after the Effective Time, calculated in
accordance with the terms of the Harrison Employment Agreement. Such New Options
will be granted on terms similar to those granted pursuant to the Rittenberg
Employment Agreement.
Additionally, under the Harrison Employment Agreement, Mr. Harrison agreed
to convert, as of the Effective Time, his Company Stock Options to purchase
50,000 shares of Company Common Stock into options ("Rollover Options") to
purchase 0.233% of the shares of Company Common Stock outstanding
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immediately after the Effective Time, calculated in accordance with the terms of
the Harrison Employment Agreement. The Rollover Options will have an exercise
price per share (the "Rollover Exercise Price") equal to 73% of the effective
cost per share of Company Common Stock paid by GSCP based on the New Purchase
Price (the "New Cost Per Share"). The difference between the New Cost Per Share
and the Rollover Exercise Price is referred to as the "New Per Share Spread." To
the extent (x) the New Per Share Spread multiplied by (y) the number of shares
subject to the Rollover Options (the result of multiplying (x) and (y) being
referred to as the "Remaining Spread") is less than $225,000 (the "Prior
Spread"), Mr. Harrison will receive at the Effective Time a cash bonus equal to
the difference resulting from subtracting the Remaining Spread from the Prior
Spread. The Rollover Options will be granted pursuant to the Option Documents
and on the same terms as the New Options.
Pursuant to the Harrison Employment Agreement, Acquisition will grant to
Mr. Harrison immediately prior to the Effective Time, a number of shares of
Acquisition Common Stock (the "Restricted Stock"), having an aggregate value of
$1,125,000, based on the New Purchase Price, which shares will be converted in
the Merger into Company Common Stock on the same basis as all other shares of
Acquisition Common Stock are converted. During the Stock Restricted Period (as
defined below), the Restricted Stock will be forfeitable and may not be sold,
assigned, transferred, pledged or otherwise encumbered by Mr. Harrison. For
purposes of the Harrison Employment Agreement, the "Stock Restricted Period"
means the period beginning on the date of grant of the Restricted Stock and
ending on the earliest of (i) the occurrence of an IPO (as such term is defined
in the Stockholders Agreement); (ii) immediately prior to the consummation of a
transaction or series of transactions, approved by the Board of Directors,
pursuant to which a person, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, other than Goldman Sachs or any of its
affiliates, acquires a majority of the outstanding voting stock of the Company;
and (iii) the termination of Mr. Harrison's employment with the Company, (1)
because of his death, (2) by the Company without Cause, (3) by Mr. Harrison
because of the Company's material breach of its obligations under the Harrison
Employment Agreement, (4) by Mr. Harrison if the Company imposes on him duties
or work conditions materially burdensome to him which are inconsistent with his
prior duties and work conditions or (5) because of Mr. Harrison's Disability;
provided, however, that the Stock Restricted Period will end with respect to 25%
of the shares of Restricted Stock on January 1, 1998 and with respect to the
remaining 75%, in equal installments on January 1 of each of the years 1999
through 2007. Pursuant to the Harrison Employment Agreement, upon the voluntary
or involuntary termination of Mr. Harrison's employment during the Stock
Restricted Period for any reason other than a reason listed in clause (iii) of
the preceding sentence, all shares of Restricted Stock (with respect to which
the Stock Restricted Period has not then ended) will be forfeited and returned
to the Company without payment.
Mr. Harrison will not be permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, Rollover Options, shares of Restricted Stock
or shares of Company Common Stock acquired upon exercise of the New Options or
Rollover Options (in either case, "Option Shares"), except as provided in the
Stockholders Agreement and the Option Documents, and the shares of Restricted
Stock and Option Shares will be subject to the terms of the Stockholders
Agreement.
At the Effective Time, the Harrison Employment Agreement will replace and
supersede Mr. Harrison's current employment agreement with the Company, dated as
of February 1, 1997 (the "Prior Harrison Employment Agreement"). At that time,
in consideration and in full satisfaction, and in lieu of the payment of any
Bonus (other than as set forth above) or Sale Bonus (as such terms are defined
in the Prior Harrison Employment Agreement), the Company will pay to Mr.
Harrison, immediately after the Effective Time, $270,000 in cash. The Harrison
Employment Agreement also provides that none of the Merger or other transactions
and arrangements contemplated by the Merger Agreement, the Stockholders
Agreement, the Voting Agreement and the Harrison Employment Agreement will be or
result in or give rise to any change of control or potential change of control
under or constitute good reason for Mr. Harrison terminating the Prior Harrison
Employment Agreement.
Stock and Option Agreement with William S. Wilkey. Pursuant to a Stock and
Option Agreement, dated as of August 10, 1997, by and between Acquisition and
William S. Wilkey (the "Wilkey Agreement"), Mr. Wilkey agreed to contribute to
the Company immediately after the Effective Time $500,000 in cash in
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exchange for shares of Company Common Stock ("New Stock") valued at the New Cost
Per Share. Mr. Wilkey will make payment to the Company for the New Stock
immediately after the Effective Time and will borrow the funds from the Company
or an affiliate of the Company. Such borrowing shall be evidenced by a personal
full recourse note maturing on March 15, 2001, accruing interest at 6.65%,
compounded annually, and payable in annual payments of principal and interest
equal to one-quarter of any bonus Mr. Wilkey receives from the Company
(provided, that the first such payment will be made from any bonus corresponding
to the 1998 calendar year), with any portion of the note remaining at maturity
payable at maturity. Mr. Wilkey will also enter into a related stock pledge
agreement with the Company.
Also pursuant to the Wilkey Agreement, following the Effective Time, Mr.
Wilkey will be granted New Options to purchase a number of shares of Company
Common Stock equal to 1.05% of the total number of shares of Company Common
Stock outstanding immediately after the Effective Time. Such New Options will be
granted on terms similar to those granted pursuant to the Rittenberg Employment
Agreement.
Additionally, Mr. Wilkey will convert, as of the Effective Time, his
Company Stock Options to purchase 100,000 shares of Company Common Stock into
Rollover Options to purchase 0.465% of the shares of Company Common Stock
outstanding immediately after the Effective Time, calculated in accordance with
the terms of the Wilkey Agreement. The Rollover Options will have a Rollover
Exercise Price equal to 73% of the New Cost Per Share. With respect to Mr.
Wilkey's Rollover Options, to the extent his Remaining Spread is less than Mr.
Wilkey's Prior Spread of $450,000, Mr. Wilkey will receive at the Effective Time
a cash bonus equal to the difference resulting from subtracting his Remaining
Spread from his Prior Spread. The Rollover Options will be granted pursuant to
the Option Documents and on the same terms as the New Options.
Mr. Wilkey will not be permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, Rollover Options, shares of New Stock or
Option Shares, except as provided in the Stockholders Agreement and the Option
Documents, and the shares of New Stock and Option Shares will be subject to the
terms of the Stockholders Agreement.
The Wilkey Agreement is not intended to, and does not, supersede, amend,
modify or replace Mr. Wilkey's employment agreement with the Company, dated as
of October 4, 1996 (the "Wilkey Employment Agreement"), which, except for
certain provisions thereof relating to option grants under the Stock Plan, which
is anticipated to be terminated at the Effective Time (and which provisions will
therefore no longer be operative), will remain in full force and effect.
Employment Agreement with Diane D. Spaar. Under the Employment Agreement,
dated August 10, 1997, by and between Acquisition and Diane D. Spaar (the "Spaar
Employment Agreement"), Ms. Spaar will serve as Senior Vice President of
Creative Development of the Company for a three-year Initial Term at an annual
base salary of $200,000. The Spaar Employment Agreement contains provisions for
Additional Terms, salary increases during any Additional Term, non-discretionary
and discretionary bonus payments, severance, other benefits, definitions of
Cause and Disability, and provisions for non-competition and non-solicitation
similar to those in the Harrison Employment Agreement. In addition, the Spaar
Employment Agreement provides that Ms. Spaar's bonus for the 1997 calendar year
will be equal to the bonus that would have been payable to her in accordance
with the relevant terms of her current employment agreement with the Company,
without taking into account any incremental financing or transaction costs
attributable to the Merger as determined in good faith by the Board.
Pursuant to the Spaar Employment Agreement, Ms. Spaar agreed to contribute
to the Company immediately after the Effective Time $100,000 in cash in exchange
for shares of New Stock valued at the New Cost Per Share. Ms. Spaar will make
payment to the Company for the New Stock immediately after the Effective Time
and will borrow the funds from the Company or an affiliate of the Company. Such
borrowing shall be evidenced by a personal full recourse note maturing in three
years, accruing interest at 6.07%, compounded annually, and payable in 36 equal
monthly installments of principal and interest. Ms. Spaar will also enter into a
related stock pledge agreement with the Company.
Pursuant to the Spaar Employment Agreement, following the Effective Time,
Ms. Spaar will be granted New Options to purchase a number of shares of Company
Common Stock equal to 0.85% of the total number
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of shares of Company Common Stock outstanding immediately after the Effective
Time, calculated in accordance with the terms of the Spaar Employment Agreement.
Such New Options will be granted on terms similar to those granted pursuant to
the Rittenberg Employment Agreement.
Additionally, Ms. Spaar will convert, as of the Effective Time, her Company
Stock Options to purchase 50,000 shares of Company Common Stock into Rollover
Options to purchase 0.233% of the shares of Company Common Stock outstanding
immediately after the Effective Time, calculated in accordance with the terms of
the Spaar Employment Agreement. The Rollover Options will have a Rollover
Exercise Price equal to 80% of the New Cost Per Share. With respect to Ms.
Spaar's Rollover Options, to the extent her Remaining Spread is less than Ms.
Spaar's Prior Spread of $174,375, Ms. Spaar will receive at the Effective Time a
cash bonus equal to the difference resulting from subtracting her Remaining
Spread from her Prior Spread. The Rollover Options will be granted pursuant to
the Option Documents and on the same terms as the New Options.
Ms. Spaar will not be permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, Rollover Options, shares of New Stock or
Option Shares, except as provided in the Stockholders Agreement and the Option
Documents, and the shares of New Stock and Option Shares will be subject to the
terms of the Stockholders Agreement.
At the Effective Time, the Spaar Employment Agreement will replace and
supersede Ms. Spaar's current employment agreement with the Company. The Spaar
Employment Agreement also provides that none of the Merger or other transactions
and arrangements contemplated by the Merger Agreement, the Stockholders
Agreement, the Voting Agreement or the Spaar Employment Agreement will be or
result in or give rise to any change of control under or good reason for Ms.
Spaar terminating her current employment agreement.
Employment Agreement with Katherine A. Kusnierz. Under the Employment
Agreement, dated August 10, 1997, by and between Acquisition and Katherine A.
Kusnierz (the "Kusnierz Employment Agreement"), Ms. Kusnierz will serve as
Senior Vice President of Product Development of the Company for a three-year
Initial Term at an annual base salary of $200,000. The Kusnierz Employment
Agreement contains provisions for Additional Terms, salary increases during any
Additional Term, non-discretionary and discretionary bonus payments, severance,
other benefits, definitions of Cause and Disability, and provisions for
non-competition and non-solicitation similar to those in the Harrison Employment
Agreement.
Pursuant to the Kusnierz Employment Agreement, Ms. Kusnierz agreed to
contribute to the Company immediately after the Effective Time $150,000 in cash
in exchange for shares of New Stock valued at the New Cost Per Share. Ms.
Kusnierz will make payment to the Company for the New Stock immediately after
the Effective Time and will borrow the funds from the Company or an affiliate of
the Company. Such borrowing shall be evidenced by a personal full recourse note
maturing in three years, accruing interest at 6.07%, compounded annually, and
payable in 36 equal monthly installments of principal and interest. Ms. Kusnierz
will also enter into a related stock pledge agreement with the Company.
Pursuant to the Kusnierz Employment Agreement, following the Effective
Time, Ms. Kusnierz will be granted New Options to purchase a number of shares of
Company Common Stock equal to 1.00% of the total number of shares of Company
Common Stock outstanding immediately after the Effective Time, calculated in
accordance with the terms of the Kusnierz Employment Agreement. Such New Options
will be granted on terms similar to those granted pursuant to the Rittenberg
Employment Agreement.
Additionally, Ms. Kusnierz will convert, as of the Effective Time, her
Company Stock Options to purchase 10,000 shares of Company Common Stock into
Rollover Options to purchase 0.046% of the shares of Company Common Stock
outstanding immediately after the Effective Time, calculated in accordance with
the terms of the Kusnierz Employment Agreement. The Rollover Options will have a
Rollover Exercise Price equal to 80% of the New Cost Per Share. With respect to
Ms. Kusnierz's Rollover Options, to the extent her Remaining Spread is less than
Ms. Kusnierz's Prior Spread of $39,375, Ms. Kusnierz will receive at the
Effective Time a cash bonus equal to the difference resulting from subtracting
her Remaining Spread from her Prior Spread. The Rollover Options will be granted
pursuant to the Option Documents and on the same terms as the New Options.
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Ms. Kusnierz will not be permitted to sell, assign, transfer, pledge or
otherwise encumber any New Options, Rollover Options, shares of New Stock or
Option Shares, except as provided in the Stockholders Agreement and the Option
Documents, and the shares of New Stock and Option Shares will be subject to the
terms of the Stockholders Agreement.
Except as described above with respect to shares of Company Common Stock
and Company Stock Options held by certain employees of the Company under the New
Employment Arrangements, and except as otherwise agreed by the Company,
Acquisition and the holder of such shares or Company Stock Options, shares of
Company Common Stock and Company Stock Options held by officers and directors of
the Company will be converted into the right to receive the same consideration
as shares of Company Common Stock held by other stockholders and Company Stock
Options held by other option holders, as the case may be.
Pursuant to the Merger Agreement, the Company has agreed to indemnify all
present and former directors, officers, employees and agents of the Company, to
the fullest extent currently provided in the Company's Certificate of
Incorporation and By-laws consistent with applicable law, for acts or omissions
occurring prior to the Effective Time, for six years after the Effective Time to
the extent that such acts or omissions are uninsured and will, subject to
certain limitations, maintain for six years its current directors' and officers'
liability insurance policy. See "THE MERGER AGREEMENT -- Indemnification and
Insurance."
For a description of current employment agreements with certain executive
officers of the Company, see "MANAGEMENT -- Executive Compensation and Related
Information."
NASDAQ DELISTING; DEREGISTRATION
Following the consummation of the Merger, the Company anticipates that it
will seek to have the Company Common Stock, which is currently traded on Nasdaq,
delisted. See "RISK FACTORS -- Delisting; Illiquidity of Company Common Stock."
In addition, following the consummation of the Merger, the Company Common Stock
will be eligible for deregistration under the Exchange Act.
RESALE OF COMPANY COMMON STOCK FOLLOWING THE MERGER
Although the shares of Company Common Stock being retained in connection
with the Merger are being registered under the Securities Act, it is currently
anticipated that the Company will seek to have the Company Common Stock delisted
from Nasdaq, and, as a result, holders of Company Common Stock following the
Merger will experience a decline in the liquidity of their Company Common Stock.
See "RISK FACTORS -- Delisting; Illiquidity of Company Common Stock." In
addition, shares retained by any stockholder who may be deemed to be an
"affiliate" (as defined under the Securities Act) 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/Prospectus does not cover sales of
Company Common Stock retained by any person who may be deemed to be an affiliate
of the Company.
MERGER FINANCINGS
The Company expects to incur approximately $227.0 million of long-term debt
and receive equity contributions from GSCP and certain of its affiliates and
certain management employees of the Company of approximately $67.5 million
(including contributions of Company Common Stock by certain employees of the
Company and including issuances of restricted stock), which amounts will be used
to (i) fund payment of approximately $235.9 million of the cash consideration in
the Merger, (ii) repay or repurchase all existing indebtedness of the Company of
approximately $29.6 million (which amount excludes approximately $10.8 million
of existing indebtedness which is expected to remain outstanding under certain
capital leases and mortgages on real property owned by the Company in Chester,
New York and Montreal, Canada), (iii) pay the fees and expenses incurred in
connection with the Merger of approximately $19.9 million (including $1.0
million of debt breakage costs and the $1.9 million cost of redeeming Company
Stock Options) and (iv) fund general corporate purposes. It is currently
anticipated that the transactions contemplated by the Merger Agreement will be
funded by approximately $117.0 million in senior amortization extended term
loans
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(the "Term Loan") and $110.0 million in new senior subordinated notes (the
"Senior Subordinated Notes") (collectively, the "Merger Financings"). The
Company also expects to enter into a $50.0 million revolving credit facility
(with a sublimit for letters of credit to be agreed upon) (the "Revolving Credit
Facility") with a group of banks led by Goldman Sachs Credit Partners L.P. ("GS
Credit Partners") to fund the Merger and to provide for the Company's working
capital requirements following the Merger. In connection with the foregoing, on
August 8, 1997, GSCP and Acquisition received an executed commitment from GS
Credit Partners to provide up to $130.0 million under the Term Loan and up to
$50.0 million of the Revolving Credit Facility, which will be syndicated by GS
Credit Partners. The commitment is subject to customary conditions, including
(i) the negotiation, execution and delivery of definitive documentation with
respect to the commitment, (ii) concurrent consummation of the Merger and the
funding of certain equity commitments (including the Estate having made and not
revoked a Mixed Election with respect to no less than 15,024,616 shares of
Company Common Stock), (iii) receipt of satisfactory approvals, collateral
audits and environmental reports, (iv) the absence of any material change in the
business, operations, properties, assets, liabilities, condition (financial or
otherwise) or prospects of the Company and (v) there not having occurred any
material adverse change in the syndication markets for credit facilities similar
in nature to the Term Loan and there not having occurred and be continuing a
material disruption of or material adverse change in the financial, banking and
capital markets that would have an adverse affect on such syndication market, in
each case as determined by Goldman Sachs in its sole discretion. On August 8,
1997, GSCP and Acquisition received a "highly confident" letter from Goldman
Sachs with respect to placement by Goldman Sachs of $110.0 million in Senior
Subordinated Notes. The "highly confident" letter is subject to certain
customary conditions, including (i) the satisfaction of Goldman Sachs with the
definitive terms and conditions of the Merger, (ii) agreement on the terms and
conditions of the Revolving Credit Facility and Term Loan, (iii) execution and
delivery of satisfactory legal documentation with respect to the Merger and the
Merger Financings, (iv) capitalization of the Company consistent with the
representations made by GSCP to Goldman Sachs, (v) satisfaction of Goldman Sachs
with the results of its due diligence investigation, (vi) receipt of a solvency
letter, (vii) the absence of any material adverse change in the business,
condition (financial or otherwise), results of operations, assets, liabilities
or prospects of the Company, as determined by Goldman Sachs in its sole
judgment, and (viii) there not having occurred any disruption of or adverse
change in financial, banking or capital market conditions that, in the sole
judgment of Goldman Sachs, could impair the sale or placement of the Senior
Subordinated Notes.
The Term Loan will mature seven years after funding, will provide for
quarterly amortization of one percent of the principal amount thereof per year
for the first five years and in amounts to be agreed upon in the final two
years. The Term Loan will bear interest, at the option of the Company, at the
lenders' customary base rate plus 1.375% per annum or at the lenders' customary
reserve adjusted Eurodollar rate plus 2.375% per annum.
The Company is obligated to obtain interest rate protection, pursuant to
interest rate swaps, caps or other similar arrangements satisfactory to GS
Credit Partners, with respect to a notional amount of not less than half of the
aggregate amount outstanding under the Term Loan as of the Effective Time to
remain in effect for not less than three years after the Effective Time.
The Revolving Credit Facility will mature five years after its closing and
will bear interest, at the option of the Company, at the lenders' customary base
rate plus 1.25% per annum or at the lenders' customary reserve adjusted
Eurodollar rate plus 2.25% per annum. Interest on balances outstanding under the
Revolving Credit Facility will be subject to adjustment in the future based on
the Company's performance. The Revolving Credit Facility will also be subject to
an agreed upon borrowing base, periodic reduction of outstanding balances and
mandatory prepayments upon the occurrence of certain events.
The Term Loan and the Revolving Credit Facility will be guaranteed by the
Company's wholly owned subsidiaries (with certain exceptions) (the
"Guarantors"). Subject to certain agreed upon exceptions, all extensions of
credit to the Company and all guarantees will be secured by all existing and
after-acquired personal property of the Company and the Guarantors, including,
subject to certain exceptions, a pledge of all of the stock of all subsidiaries
owned by the Company or any of the Guarantors and first priority liens on
existing and after-acquired real property fee and leasehold interests of the
Company and the Guarantors.
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Subject to certain call protection provisions, the Company may prepay, in whole
or in part, borrowings under the Term Loan or the Revolving Credit Facility. In
addition, upon the occurrence of certain events, including certain asset sales
or issuances of equity or debt, and to the extent the Company's cash flow
exceeds certain agreed upon amounts in future years, the Company will be
required, subject to certain exceptions, to repay a portion of the balances
outstanding under the Term Loan and thereafter the Revolving Credit Facility.
The Term Loan and the Revolving Credit Facility will also contain customary
affirmative and negative covenants, including covenants related to business
acquisitions, as well as certain financial covenants, including, but not limited
to, covenants related to fixed charge coverage, EBITDA minimums (as EBITDA will
be defined in definitive documentation) and maximum leverage. The Term Loan and
the Revolving Credit Facility will also contain customary default provisions,
including, but not limited to, failure to make payments when due,
cross-defaults, non-compliance with covenants, breach of representations and
warranties and changes of control (as such term will be defined in definitive
documentation). Following, or during the continuation of, any default, the
relevant interest rates would be increased.
STOCKHOLDER LITIGATION
A purported class action complaint was filed on or about October 29, 1997,
and amended on or about October 31, 1997, in the Delaware Court of Chancery
(Parnes v. Tugwell, Rittenberg, Powell, Rosenberg (sic), Amscan Holdings, Inc.,
Confetti Acquisition, Inc. and GS Capital Partners II, L.P., C.A. No. 16008) by
an alleged stockholder of the Company on behalf of a purported class consisting
of all stockholders of the Company (other than defendants and their affiliates).
Plaintiff alleges, among other things, that, in approving the Merger Agreement
and the Merger, the individual defendants breached their fiduciary duties to the
Company's public stockholders and that the consideration to be received by the
Company's public stockholders in the Merger is unfair and grossly inadequate
because, among other things, (i) the intrinsic value of the Company Common Stock
materially exceeds the amount offered in the Merger, (ii) the Company's Board
approved the Merger without undertaking steps to ascertain the Company's value
through open bidding or a "market check," (iii) the Merger, if consummated,
would deny the Company's public stockholders their right to share in the true
value of the Company's assets, businesses and future growth, (iv) the defendants
have conflicts of interest with the Company's public stockholders, and (v) the
defendants possessed knowledge and information that the public stockholders did
not and defendants used such knowledge and information to induce the public
stockholders to relinquish their shares for unfair consideration. The complaint
seeks various forms of relief, including to enjoin the transaction, recover
unspecified monetary damages, and institute an active auction of the Company.
The Company believes the lawsuit is without merit.
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STOCKHOLDERS' APPRAISAL RIGHTS
Pursuant to Section 262 of the DGCL, any holder of Company Common Stock who
does not wish to accept the consideration to be paid pursuant to the Merger
Agreement may elect to have the fair value of such stockholder's shares (the
"Appraisal Shares") of Company Common Stock (exclusive of any element of value
arising from the accomplishment or expectation of the Merger) judicially
determined and paid to such stockholder in cash, together with a fair rate of
interest, if any, provided that such stockholder complies with the provisions of
Section 262. The following discussion is not a complete statement of the law
pertaining to appraisal rights under Delaware law, and is qualified in its
entirety by the full text of Section 262, which is included in its entirety as
Annex D to this Proxy Statement/ Prospectus. All references in Section 262 and
in this summary to a "stockholder" are to the record holder of the shares of
Company Common Stock as to which appraisal rights are asserted.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, a constituent corporation must notify each of its
stockholders of record who were such as of the record date for such meeting and
for whom appraisal rights are available, not less than 20 days prior to the
meeting, that appraisal rights are available, and must include in such notice a
copy of Section 262. This Proxy Statement/ Prospectus constitutes such notice to
stockholders of the Company. Any stockholder who wishes to exercise such
appraisal rights or who wishes to preserve the right to do so should review
carefully Annex D to this Proxy Statement/Prospectus because failure to comply
with the procedures specified in Section 262 timely and properly will result in
the loss of appraisal rights. Moreover, because of the complexity of the
procedures for exercising the right to seek appraisal of the Company Common
Stock, the Company believes that stockholders who consider exercising such
rights should seek the advice of counsel.
Any holder of Company Common Stock wishing to exercise the right to dissent
from the Merger and demand appraisal under Section 262 of the DGCL must satisfy
each of the following conditions:
(i) Such stockholder must deliver to the Company a written demand for
appraisal of such stockholder's shares before the vote on the Merger
Agreement at the Special Meeting. This written demand for appraisal must be
in addition to and separate from any proxy or vote against the Merger
Agreement; merely voting against, abstaining from voting or failing to vote
in favor of approval and adoption of the Merger Agreement will not
constitute a demand for appraisal within the meaning of Section 262.
(ii) Such stockholder must not vote for approval and adoption of the
Merger Agreement. A failure to vote will satisfy this requirement, but a
vote in favor of the Merger Agreement, by proxy or in person, or the return
of a signed proxy that does not specify a vote against approval and
adoption of the Merger Agreement or a direction to abstain in connection
with the proposal, will constitute a waiver of such stockholder's right of
appraisal and will nullify any previously filed written demand for
appraisal because, in the absence of express contrary instructions, such
shares of Company Common Stock will be voted in favor of the proposal.
Accordingly, a stockholder who desires to perfect appraisal rights with
respect to any of such stockholder's shares of Company Common Stock must,
as one of the procedural steps involved in such perfection, either (i)
refrain from executing and returning the enclosed proxy card and from
voting in person in favor of the proposal to approve the Merger Agreement,
or (ii) check either the "Against" or the "Abstain" box next to the
proposal on such card or affirmatively vote in person against the proposal
or register in person an abstention with respect thereto.
(iii) Such stockholder must continuously hold such shares from the
date of making the demand through the Effective Time. Accordingly, a
stockholder who is the record holder of shares of Company Common Stock on
the date the written demand for appraisal is made but who thereafter
transfers such shares prior to the Effective Time will lose any right to
appraisal in respect of such shares.
A demand for appraisal should be executed by or on behalf of the
stockholder of record, fully and correctly, as such stockholder's name appears
on such stockholder's stock certificates, should specify the stockholder's name
and mailing address, the number of shares of Company Common Stock owned and that
such stockholder intends thereby to demand appraisal of such stockholder's
Company Common Stock. If the
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shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand should be made in that capacity,
and if the shares are owned of record by more than one person as in a joint
tenancy or tenancy in common, the demand should be executed by or on behalf of
all owners. An authorized agent, including one or more joint owners, may execute
a demand for appraisal on behalf of a stockholder; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, the agent is acting as agent for such owner or owners. A
record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more beneficial owners while not exercising such rights with respect
to the shares held for one or more beneficial owners; in such case, the written
demand should set forth the number of shares as to which appraisal is sought,
and where no number of shares is expressly mentioned, the demand will be
presumed to cover all shares held in the name of the record owner. Stockholders
who hold their shares in brokerage accounts or other nominee forms and who wish
to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
such a nominee.
A stockholder who elects to exercise appraisal rights should mail or
deliver a written demand to: Amscan Holdings, Inc., 80 Grasslands Road,
Elmsford, New York 10523, Attention: Corporate Secretary.
Within 10 days after the Effective Time, the Company must give written
notice that the Merger has become effective to each stockholder who has complied
with Section 262. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing such notice, demand in writing from the Company
the appraisal of such stockholder's shares. Within 120 days after the Effective
Time, but not thereafter, either the Company or any stockholder who has complied
with the requirements of Section 262 may file a petition in the Delaware Court
of Chancery demanding a determination of the value of the shares of Company
Common Stock held by all dissenting stockholders. The Company does not presently
intend to file such a petition, and stockholders seeking to exercise appraisal
rights should not assume that the Company will file such a petition or that the
Company will initiate any negotiations with respect to the fair value of such
shares. Accordingly, stockholders who desire to have their shares appraised
should initiate any petitions necessary for the perfection of their appraisal
rights within the time periods and in the manner prescribed in Section 262.
Inasmuch as the Company has no obligation to file such a petition, the failure
of a stockholder to do so within the period specified could nullify such
stockholder's previous written demand for appraisal. In any event, at any time
within 60 days after the Effective Time (or at any time thereafter with the
written consent of the Company), any stockholder who has demanded appraisal has
the right to withdraw the demand and to accept payment of the consideration
provided in the Merger Agreement.
Pursuant to the Merger Agreement, the Company has agreed to give
Acquisition prompt notice of any demands for appraisal received by the Company,
and, prior to the Effective Time, (i) Acquisition shall have the right to
participate in all negotiations and proceedings with respect to such demands and
(ii) the Company will not, except with the prior written consent of Acquisition,
make any payment with respect to or offer to settle, any such demands.
Within 120 days after the Effective Time, any stockholder who has complied
with the provisions of Section 262 to that point in time will be entitled to
receive from the Company, upon written request, a statement setting forth the
aggregate number of shares not voted in favor of the Merger Agreement and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. The Company must mail such statement to the
stockholder within 10 days of receipt of such request.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine which stockholders are
entitled to appraisal rights and will appraise the "fair value" of their shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. The costs of the action may be
determined by the Delaware Chancery Court and taxed upon the parties as the
Delaware Chancery Court deems equitable. Upon application of a dissenting
stockholder, the Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and
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expenses of experts, be charged pro rata against the value of all of the shares
entitled to appraisal. STOCKHOLDERS CONSIDERING SEEKING APPRAISAL SHOULD BE
AWARE THAT THE FAIR VALUE OF THEIR SHARES AS DETERMINED UNDER SECTION 262 COULD
BE MORE THAN, THE SAME AS OR LESS THAN THE CONSIDERATION THEY WOULD RECEIVE
PURSUANT TO THE MERGER AGREEMENT IF THEY DID NOT SEEK APPRAISAL OF THEIR SHARES
AND THAT INVESTMENT BANKING OPINIONS, SUCH AS THE WASSERSTEIN PERELLA OPINION,
ARE NOT OPINIONS AS TO FAIR VALUE UNDER SECTION 262.
In determining fair value, the Delaware Chancery Court is to take into
account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that, in making this determination
of fair value, the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which could
be ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262 provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Cede & Co. v. Technicolor, Inc., the Delaware
Supreme Court stated that such exclusion is a "narrow exclusion [that] does not
encompass known elements of value."
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares (except dividends or other
distributions payable to holders of record of shares as of a record date prior
to the Effective Time).
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal and to accept the terms
offered in the Merger; after this period, the stockholder may withdraw such
demand for appraisal only with the consent of the Company. If no petition for
appraisal is filed with the Delaware Chancery Court within 120 days after the
Effective Time, or if such stockholder has withdrawn such demand for appraisal
as discussed in the preceding sentence, stockholders' rights to appraisal shall
cease, and all holders of shares of Company Common Stock will be entitled to
receive the Merger Consideration. Any stockholder may withdraw such
stockholder's demand for appraisal by delivering to the Company a written
withdrawal of such stockholder's demand for appraisal and acceptance of the
Merger, except that (i) any such attempt to withdraw made more than 60 days
after the Effective Time will require written approval of the Company and (ii)
no appraisal proceeding in the Delaware Chancery Court shall be dismissed as to
any stockholder without the approval of the Delaware Chancery Court, and such
approval may be conditioned upon such terms as the Delaware Chancery Court deems
just. If (i) the Company does not approve a stockholder's request to withdraw a
demand for appraisal when such approval is required or (ii) the Delaware
Chancery Court does not approve the dismissal of an appraisal proceeding, the
stockholder would be entitled to receive only the appraised value determined in
any such appraisal proceeding, which value could be lower than the value of the
Merger consideration.
FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH IN SECTION 262 OF
THE DGCL WILL RESULT IN THE LOSS OF A STOCKHOLDER'S STATUTORY APPRAISAL RIGHTS.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement which is included as Annex A to this Proxy Statement/Prospectus and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Merger Agreement.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger
and the approval and adoption of the Merger Agreement by the vote of a majority
of the shares of Company Common Stock entitled to vote thereon and the
satisfaction or waiver of the other conditions to the Merger, Acquisition will
be merged with and into the Company, and the Company will continue as the
surviving corporation in the Merger.
If the conditions to the Merger are satisfied or waived, the Company and
Acquisition will cause the Merger to be consummated by filing with the Secretary
of State of the State of Delaware a duly executed Certificate of Merger, and the
Merger will become effective upon the filing and acceptance thereof or at such
date thereafter as is provided in the Certificate of Merger.
Each share of Company Common Stock outstanding at the Effective Time (other
than shares of Company Common Stock owned by the Company or any subsidiary of
the Company or by Acquisition or any subsidiary of Acquisition, which will be
cancelled and retired, and other than shares of Company Common Stock subject to
appraisal rights) will be converted into either (i) the Cash Consideration or
(ii) the Mixed Consideration, as more fully described under "THE
MERGER -- Merger Consideration" and "-- Mixed Election; Mixed Election
Procedure." With regard to the treatment of fractional share interests, see "THE
MERGER -- Fractional Shares."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
the Company with respect to the Company and its subsidiaries, relating to, among
other things: (a) organization, standing and similar corporate matters; (b) the
Company's capital structure; (c) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement; (d) the absence of
defaults and conflicts under material contracts and compliance with applicable
laws; (e) documents filed by the Company with the Commission and the accuracy of
information contained therein; (f) the absence of certain changes or events
since the date of the most recent audited financial statements filed with the
Commission, including material adverse changes with respect to the Company and
the absence of undisclosed liabilities; (g) the absence of pending or threatened
material litigation or investigations; (h) real estate related matters; (i) tax,
benefit, employment and labor matters; (j) environmental matters; (k)
intellectual property matters; (l) relationships with customers, suppliers and
the absence of competitive restrictions; (m) the accuracy of information
supplied by the Company in connection with this Proxy Statement/Prospectus; (n)
brokers' fees and expenses; (o) receipt of an opinion of the Company's financial
advisor; and (p) recommendation of the Board with respect to the Merger
Agreement and the transactions contemplated thereby (including the Merger).
The Merger Agreement also contains customary representations and warranties
of Acquisition relating to, among other things, (a) organization, standing and
similar corporate matters; (b) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters; (c)
the absence of defaults and conflicts under material contracts and compliance
with applicable laws; (d) the accuracy of information supplied by Acquisition in
connection with this Proxy Statement/Prospectus; (e) brokers' fees and expenses;
(f) financing commitments obtained in connection with the Merger; (g) Section
203 of the DGCL; and (h) the solvency of the Company following the Merger.
CERTAIN PRE-CLOSING COVENANTS
Pursuant to the Merger Agreement, the Company has agreed that, until the
Effective Time, the businesses of the Company and its subsidiaries will be
conducted only in, and the Company and its
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subsidiaries will not take any action except in, the ordinary course of business
consistent with past practice and in compliance with applicable laws; and the
Company and its subsidiaries will each use its reasonable best efforts to
preserve substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of its present officers, employees
and consultants and to preserve the present relationships of the Company and its
subsidiaries with customers, distributors, licensors, designers and suppliers
and other persons with which the Company or any of its subsidiaries has
significant business relations. The Merger Agreement contains certain
restrictions regarding the following actions by the Company and its subsidiaries
prior to the Effective Time:
(i) amendment or change of the certificate of incorporation or by-laws
or equivalent organizational documents of the Company or any of its
subsidiaries;
(ii) issuance, sale, disposition or encumbrance of (a) any stock,
options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock or any other ownership interest
(including but not limited to stock appreciation rights or phantom stock)
of the Company or any of its subsidiaries (other than pursuant to existing
Company Stock Options) or (b) any assets of the Company or any of its
subsidiaries, other than inventory or other assets in the ordinary course
of business consistent with past practice;
(iii) declaration, setting aside and payment of dividends and
distributions;
(iv) reclassification, combination, splitting, subdivision or
redemption, purchase or other acquisition of any capital stock, or other
ownership interest (including, but not limited to, stock appreciation
rights or phantom stock), of the Company or any of its subsidiaries or any
options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership interest
(including, but not limited to, stock appreciation rights or phantom
stock), other than pursuant to the Company Stock Options;
(v) (a) repurchase, repayment or incurrence of indebtedness, the
guaranty of indebtedness or financial condition of third parties, or the
making of loans to or capital contributions or investments in third
parties, (b) entrance into, termination or modification of any material
contract, license or agreement, other than in the ordinary course of
business consistent with past practice, or (c) subject to certain
exceptions, the making of certain capital expenditures not contemplated by
the Company's capital budget;
(vi) (a) increase of the compensation or fringe benefits of any of its
directors, officers or employees, except for increases in salary or wages
of employees of the Company or its subsidiaries, who are not directors or
officers of the Company, in the ordinary course of business and consistent
in all material respects with the Company's budget, (b) grant of any
severance or termination pay not currently required to be paid under
existing severance plans to, or entrance into or modification in any
material or economic respect of any employment, consulting or severance
agreement or arrangement with, any present or former director, officer or
other employee of the Company or any of its subsidiaries, except for the
grant of severance or termination pay, in the ordinary course of business
consistent with past practice, to nonexecutive employees who are terminated
by the Company after the date hereof, (c) establishment, adoption, entrance
into or amendment or termination of any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any directors, officers or employees or (d) termination of
the existing employment arrangements with certain Company employees or
taking of any action that would constitute a breach of any such
arrangements or taking of any action (other than consummation of the
Merger) which would cause any change-of-control, severance or similar
payment to be payable to any such individual or making any payment of any
bonus or other extraordinary or termination payment which such individual
has agreed to waive, modify or amend in connection with the New Employment
Arrangements;
(vii) except as may be required as a result of a change in law or in
generally accepted accounting principles, change in any material respect of
any of the accounting practices or principles used by it;
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(viii) the making of any material tax election or settlement of or
compromise of any material tax liability or, subject to certain
limitations, any pending or threatened litigation;
(ix) adoption of a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company or any of its subsidiaries (other than
the Merger Agreement and the Merger); or
(x) the taking, or the offering or proposition to take, or agreement
to take any of the actions described above.
LIMITATION ON SOLICITATIONS
The Merger Agreement provides that the Company and its subsidiaries and
their respective officers, directors, employees, representatives, agents and
advisors (the "Representatives") will immediately cease any existing discussions
or negotiations, if any, with any parties conducted prior to August 10, 1997
with respect to any Acquisition Transaction (as defined below). The Merger
Agreement also provides that the Company will not, and will not authorize or
permit any of its subsidiaries or Representatives, directly or indirectly, to,
solicit, initiate, encourage or facilitate, or furnish or disclose non-public
information in furtherance of, any inquiries or the making of any proposal with
respect to any merger, liquidation, recapitalization, consolidation or other
business combination involving the Company or its subsidiaries or acquisition or
exchange of any capital stock or any material portion of the assets (except for
acquisitions of assets in the ordinary course of business consistent with past
practice) of the Company or its subsidiaries, or any combination of the
foregoing (an "Acquisition Transaction"), or negotiate, explore or otherwise
engage in substantive discussions with any person (as defined in the Merger
Agreement) (other than Acquisition) with respect to any Acquisition Transaction
or enter into any agreement, arrangement or understanding requiring it to
abandon, terminate or fail to consummate the Merger or any of the transactions
contemplated by the Merger Agreement, provided that the Company may furnish
information to, and negotiate or otherwise engage in substantive discussions
with, any party who delivers a bona fide written proposal for an Acquisition
Transaction if the Board determines in good faith and upon the advice from its
outside legal counsel that failing to take such action would constitute a breach
of the fiduciary duties of the Board and such a proposal is, in the opinion of
the Board, more favorable to the Company's stockholders (other than the Estate)
from a financial point of view than the transactions contemplated by the Merger
Agreement. In the event of receipt of any inquiries, discussions, negotiations
or proposals relating to an Acquisition Transaction, the Company is required to
immediately advise Acquisition of certain information with respect thereto and
to promptly advise Acquisition of any development relating thereto, including
the results of any discussions or negotiations with respect thereto.
BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER
The Merger Agreement provides that the directors of Acquisition at the
Effective Time will be the directors of the Company following the Merger. The
present directors of Acquisition are Messrs. Terence M. O'Toole, Joseph P.
DiSabato and Sanjeev Mehra. See "ACQUISITION AND GSCP." After the Effective
Time, the Board of Directors of the Company will be subject to change from time
to time.
The Merger Agreement also provides that the officers of the Company at the
Effective Time will be the officers of the Company following the Merger until
such time as may be determined by the Board of Directors of the Company
following the Merger.
STOCK AND EMPLOYEE BENEFIT PLANS
The treatment in the Merger of outstanding Company Stock Options and of the
Company's employee benefit plans (including the ESOP) will be as described in
"THE MERGER -- Effect on Stock and Employee Benefit Matters."
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ACCESS TO INFORMATION
Subject to applicable provisions regarding confidentiality, the Company has
agreed in the Merger Agreement to, and to cause its subsidiaries and
Representatives to, afford Acquisition and its representatives and potential
financing sources reasonable access at all reasonable times to its officers,
employees, agents, properties, offices, warehouses and other facilities and to
all books, contracts and records, and to furnish Acquisition and such financing
sources with all financial, operating and other data and information as
Acquisition, its representatives or such financing sources may from time to time
reasonably request. The Company has also agreed to furnish promptly to
Acquisition copies of certain documents filed pursuant to federal and state
securities laws.
COOPERATION AND REASONABLE BEST EFFORTS
Pursuant to the Merger Agreement and subject to certain conditions and
limitations described therein, the parties have agreed to cooperate with each
other and to use their respective reasonable best efforts to take certain
specified and other actions, including cooperation in the arrangement of
financing and the recording of the Merger as a recapitalization for financial
reporting purposes, so that the transactions contemplated by the Merger
Agreement may be consummated. The Company also agreed not to take any action to
restrict, limit or prohibit Acquisition's ability to exercise all of its rights
and obligations under the Voting Agreement, and, subject to certain limitations,
the Company and the Board have agreed that they have provided and will provide
and maintain all approvals required under Section 203 of the DGCL in order to
permit Acquisition to exercise such rights and obligations. Acquisition agreed
to use its reasonable best efforts, subject to normal conditions, to arrange the
financing contemplated by the Merger Agreement or substantially similar
financing from alternative sources if Acquisition is unable to arrange any
portion of the financing from the sources originally contemplated. Under the
Merger Agreement, the Company and Acquisition will take all actions necessary to
delist the Company Common Stock from Nasdaq, effective after the Effective Time.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that, in addition to complying with certain
existing indemnification agreements, for six years from the Effective Time the
Company will indemnify all present and former directors, officers, employees and
agents of the Company for acts or omissions occurring prior to the Effective
Time to the fullest extent provided in the Company's Certificate of
Incorporation and By-laws as in effect on the date of the Merger Agreement
consistent with applicable law, to the extent such acts or omissions are
uninsured (or not fully insured), and will, in connection with defending against
any action for which indemnification is available under the Merger Agreement,
and subject to certain conditions, reimburse and advance expenses to such
officers, directors, employees and agents, from time to time upon receipt of
reasonably sufficient supporting documentation, for any reasonable costs and
expenses reasonably incurred by such persons in connection therewith.
In addition, the Merger Agreement provides that the Company will maintain
in effect for six years from the Effective Time policies of directors' and
officers' liability insurance containing terms and conditions which are not less
advantageous than those policies maintained by the Company at August 10, 1997,
with respect to matters occurring prior to the Effective Time, to the extent
available, and having the maximum available coverage under the current policies
of directors' and officers' liability insurance; provided that (i) the Company
following the Merger will not be required to spend in excess of a $770,000
annual premium therefor; provided further that if the Company following the
Merger would be required to spend in excess of a $770,000 premium per annum to
obtain insurance having the maximum available coverage under the current
policies, the Company will be required to spend $770,000 to maintain or procure
insurance coverage pursuant to the terms of the Merger Agreement, subject to
availability of such (or similar) coverage and (ii) such policies may in the
sole discretion of the Company be one or more "tail" policies for all or any
portion of the full six year period. The Merger Agreement also provides that,
subject to certain limitations, officers and directors of the Company who are
defendants in all litigation commenced by stockholders of the Company, whether
before or after the date of the Merger Agreement, with respect to (x) the
performance of their duties at or prior to the Effective Time as such officers
and/or directors under federal or state law (including, without limitation,
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litigation under federal and state securities laws) or (y) the Merger Agreement,
the Voting Agreement and the transactions contemplated thereby will be entitled
to be represented, at the reasonable expense of the Company, in such litigation
by counsel.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of the Company and Acquisition to effect the
Merger are subject to various conditions which include the following:
(i) the Merger Agreement and the Merger shall have been adopted and
approved by the requisite vote of holders of outstanding shares of Company
Common Stock;
(ii) the waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired;
(iii) no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
Merger shall be in effect; provided that the Company and Acquisition are
required to use their best efforts to have any such injunction, order,
restraint or prohibition vacated;
(iv) the Registration Statement of which this Proxy
Statement/Prospectus is 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
the retained Company Common Stock following the Merger shall have been
complied with;
(v) the representations and warranties of the other party shall be
true and correct in all material respects and each party shall have
received an officer's certificate from the other to such effect; and
(vi) the other party shall have performed its obligations under the
Merger Agreement.
As of the date of this Proxy Statement/Prospectus, the condition set forth
in clause (ii) above has been satisfied. See "REGULATORY APPROVALS" for a
description of certain required filings with and consents from governmental
entities.
Acquisition's obligation to effect the Merger is further subject to the
following additional conditions:
(i) Acquisition shall have received evidence, in form and substance
reasonably satisfactory to it, that such licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental
entities and other third parties as are necessary in connection with the
transactions contemplated by the Merger Agreement have been obtained,
except, subject to certain limitations, where the failure to obtain such
licenses, permits, consents, approvals, authorizations, qualifications and
orders would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect (as defined in the Merger Agreement) with
respect to the Company;
(ii) there shall not be pending by any Governmental Entity any suit,
action or proceeding (or by any other person any suit, action or proceeding
which has a reasonable likelihood of success) (a) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by the Merger Agreement, or seeking to obtain
from Acquisition, the Company or any of their respective subsidiaries or
affiliates any damages that are material to any such party, (b) seeking to
prohibit or limit the ownership or operation by Acquisition, the Company or
any of its subsidiaries of any material portion of the business or assets
of the Company or any of its subsidiaries, (c) seeking to impose
limitations on the ability of Acquisition (or any designee of Acquisition
pursuant to the Voting Agreement) or any stockholder of Acquisition or the
Company to acquire or hold, or exercise full rights of ownership of, any
shares of Company Common Stock, including, without limitation, the right to
vote the Company Common Stock on all matters properly presented to the
stockholders of the Company or
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(d) seeking to prohibit Acquisition or any of its affiliates from
effectively controlling in any material respect the business or operations
of the Company or its subsidiaries;
(iii) Acquisition shall have received certain agreements from each
person identified by the Company to be an "affiliate" of the Company for
purposes of Rule 145 under the Securities Act;
(iv) Acquisition and the Company shall have received the proceeds of
financing on the terms and conditions contemplated by the Merger Agreement
or upon terms and conditions which are, in the reasonable judgment of
Acquisition, substantially equivalent thereto, and to the extent that any
terms and conditions were not so contemplated, on terms and conditions
reasonably satisfactory to Acquisition;
(v) Acquisition shall be reasonably satisfied that the Merger shall be
recorded as a recapitalization for financial reporting purposes (provided
that if Acquisition is advised that the Commission finally determines that
recapitalization treatment will not be available, Acquisition will advise
the Company within 30 days of receipt of such final determination whether
it intends to waive such condition, and if it advises the Company that it
has determined not to so waive, the Company may terminate the Merger
Agreement as if the date of such advice from Acquisition was deemed to be
December 31, 1997 for purposes of the termination provision under the
Merger Agreement described in clause (ii)(b) under "-- Termination");
(vi) Acquisition shall be reasonably satisfied that the New Employment
Arrangements are in full force and effect and that certain individuals will
be employed by the Company following the Effective Time pursuant to the New
Employment Arrangements and such employees will not have been paid nor have
the right to receive any payment from Acquisition or the Company of any
severance, change-of-control, or similar payments as a result, in whole or
in part, of the consummation of any of the transactions contemplated by the
Merger Agreement, except as expressly provided in the New Employment
Arrangements;
(vii) as of the Effective Time, the Estate shall have made and not
revoked an election to receive the Mixed Consideration with respect to at
least 15,024,616 shares of Company Common Stock owned by the Estate
immediately prior to the Effective Time; and
(viii) the Tax Indemnification Agreement, shall be in full force and
effect and enforceable by the Company following the Effective Time, in
accordance with the terms as in effect on August 10, 1997 and in the form
provided to Acquisition on such date, or as it may be amended with the
consent of Acquisition.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger by the stockholders of the
Company:
(i) by mutual written consent of Acquisition and the Company;
(ii) by either Acquisition or the Company if:
(a) any court of competent jurisdiction, arbitrator or other
Governmental Entity has issued a final order, decree or ruling or taken
any other final action restraining, enjoining or otherwise prohibiting
the consummation of the Merger or any of the transactions contemplated
by the Merger Agreement, or otherwise altering the terms of any of the
foregoing in any significant respect, and such order, decree, ruling or
other action is or has become final and nonappealable;
(b) if the Merger has not been consummated on or before December
31, 1997, provided that the right to terminate the Merger Agreement for
such cause will not be available to the party whose action or failure to
act was the cause of or resulted in the failure of the Merger to occur
on or before such date where such action or failure to act constitutes a
breach of the Merger Agreement;
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(iii) by Acquisition if any required approval of the stockholders of
the Company is not 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; and
(iv) by the Company if, prior to receipt of required approval of the
stockholders of the Company, the Board approves an Acquisition Transaction,
on terms which the Board determined in good faith (i) to be more favorable
to the Company and its stockholders (other than the Estate) than the
transactions contemplated by the Merger Agreement and (ii) based upon the
advice of its outside counsel, that failing to approve such Acquisition
Transaction and terminate the Merger Agreement would have constituted a
breach of the fiduciary duties of the Board under applicable law; provided
that such a termination will not be permissible unless and until the
Company has provided Acquisition prior written notice at least three
business days prior to such termination that the Board has authorized and
intends to effect the termination of the Merger Agreement pursuant to such
provision, the Company is otherwise in compliance in all material respects
with its obligations under the Merger Agreement and on or prior to such
termination the Company has paid to Acquisition the fee described in
"-- Expenses and Certain Required Payments."
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto by action taken
by or on behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided that, after approval of the Merger by the stockholders
of the Company, no amendment that by law would require the further approval by
such stockholders may be made without such approval. At any time prior to the
Effective Time any party to the Merger Agreement may (a) extend the time for the
performance of any of the obligations or other acts of the other parties to the
Merger Agreement, (b) waive any inaccuracies in the representations and
warranties contained in the Merger Agreement or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained therein.
EXPENSES AND CERTAIN REQUIRED PAYMENTS
In the event that the Merger Agreement is terminated by the Company based
on the approval of an Acquisition Transaction (as described above), then the
Company will be required, prior to such termination, to pay Acquisition a
termination fee of $8 million (the "Termination Fee"); provided that if
Acquisition exercises the Voting Agreement Option, promptly upon receipt by
Acquisition of the Subject Shares registered in the name of Acquisition or its
designee, Acquisition will be required to return the Termination Fee to the
Company; provided further that Acquisition will not be required to return the
Termination Fee or, if already returned, the Company will be required to again
pay the Termination Fee to Acquisition, if the Company or the Board takes any
affirmative action preventing or restricting Acquisition or its designee from
acquiring shares of Company Common Stock (including pursuant to the tender offer
contemplated by the Voting Agreement) in addition to the Subject Shares acquired
in accordance with the Voting Agreement Option (provided that recommending not
to tender in a tender offer or not recommending in favor of such tender offer,
alone, will not be deemed such an affirmative action).
The Merger Agreement also provides that in addition to any other amounts
which may be payable or become payable as described in the following paragraph,
the Company will be required (provided that the Company is then in material
breach of its representations, warranties, covenants or other obligations under
the Merger Agreement), promptly following termination of the Merger Agreement
based on the failure of the Merger to have been consummated on or before
December 31, 1997 (as described above), but in no event later than two business
days following a written request by Acquisition therefor, together with related
bills or receipts, to reimburse Acquisition and its affiliates, in an aggregate
amount of up to $3 million, for all reasonable out-of-pocket expenses and fees
(including, without limitation, fees payable to all banks, investment banking
firms and other financial institutions, and their respective agents and counsel,
and all fees of counsel, accountants, financial printers, experts and
consultants to Acquisition and its affiliates), whether incurred prior to, on or
after August 10, 1997, in connection with the Merger and the consummation of all
the
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transactions contemplated by the Merger Agreement and the financing thereof;
provided that the Company will not be required to make payment pursuant to such
provision if it is obligated to pay the Termination Fee.
Except as otherwise specifically provided above, each party will bear its
own expenses in connection with the Merger Agreement and the transactions
contemplated by the Merger Agreement; provided, however, that, if the Merger is
consummated, the Company will pay the fees of Goldman Sachs as financial advisor
to Acquisition referred to in the Merger Agreement.
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CERTAIN RELATED AGREEMENTS
The following is a brief summary of certain provisions of the Voting
Agreement, a copy of which is included as Annex B to this Proxy
Statement/Prospectus; the Tax Indemnification Agreement, a copy of which is
attached to the Voting Agreement as Exhibit A to Annex B; and the Stockholders
Agreement, a form of which is filed as an exhibit to the registration statement
of which this Proxy Statement/Prospectus forms a part. The following summaries
of the Voting Agreement, the Tax Indemnification Agreement and the Stockholders
Agreement are qualified in their entirety by reference to the agreements or
forms thereof, which are each incorporated herein by reference.
VOTING AGREEMENT
Voting
The Svenningsen Stockholders have agreed that at any meeting of
stockholders of the Company called to vote upon the Merger and the Merger
Agreement (including the Special Meeting to which this Proxy
Statement/Prospectus relates) or in any other circumstances upon which a vote or
other approval with respect to the Merger and the Merger Agreement is sought,
the Svenningsen Stockholders will (and Christine Svenningsen will cause the
Estate to) vote the Subject Shares in favor of the Merger, the adoption by the
Company of the Merger Agreement and the approval of the terms thereof and each
of the other transactions contemplated by the Merger Agreement.
In addition, at any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which a vote, consent or
other approval is sought, the Svenningsen Stockholders will (and Christine
Svenningsen will cause the Estate to) vote the Subject Shares against (i) any
action or agreement that would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement or of the Svenningsen Stockholders under the
Voting Agreement and (ii) any action or agreement that would impede, interfere
with, delay, postpone or attempt to discourage the Merger, including (A) the
adoption by the Company of certain third-party proposals to acquire the Company
or to acquire 10% or more of the assets of the Company or the acquisition or
repurchase by a third party or by the Company of 10% or more of the Company
Common Stock and (B) certain amendments to the Company's Certificate of
Incorporation or By-laws, changes in the management or Board or material changes
in the capitalization, dividend policy, corporate structure or business of the
Company.
As security for the obligations of the Svenningsen Stockholders under the
Voting Agreement, the Svenningsen Stockholders have granted to Acquisition a
proxy to vote the Subject Shares as indicated above. The proxy is irrevocable
during the term of the Voting Agreement and is coupled with an interest. The
Svenningsen Stockholders have agreed to take such further action or execute such
other instruments as may be necessary to effectuate the intent of the proxy and
have revoked any proxy previously granted by the Svenningsen Stockholders with
respect to the Subject Shares.
Transfer Restrictions
The Voting Agreement provides that each of Svenningsen Stockholders will
not (i) sell, transfer, pledge, encumber, assign or otherwise dispose of
(including by gift or by contribution or distribution to any trust or similar
instrument or to any beneficiaries of the Estate, pursuant to the terms of John
A. Svenningsen's will or otherwise) (collectively, "Transfer"), or enter into
any contract, option or other arrangement or understanding (including any profit
sharing arrangement) with respect to the Transfer of, any of the Subject Shares
other than pursuant to the terms of the Voting Agreement and the Merger
Agreement, (ii) enter into any voting arrangement or understanding, whether by
proxy, voting agreement or otherwise, or (iii) take any action that would make
any of its representations or warranties contained herein untrue or incorrect or
have the effect of preventing or disabling the Svenningsen Stockholders from
performing their obligations under the Voting Agreement.
Additional Covenants
Pursuant to the Voting Agreement, the Svenningsen Stockholders have further
agreed (i) to waive their appraisal rights, (ii) to make a Mixed Election to
retain Company Common Stock in the Merger with respect
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to all of the Subject Shares, (iii) to accept the terms and conditions of the
Merger Agreement, (iv) to execute and become a party to the Stockholders
Agreement and (v) to provide an affiliate letter to Acquisition.
The Voting Agreement Option
Pursuant to the Voting Agreement, the Svenningsen Stockholders have granted
to Acquisition (or its designee which is an affiliate of the controlling
stockholders of Acquisition), the Voting Agreement Option to purchase all, but
not less than all, of the Subject Shares, for $9.83 per share in cash on the
terms and subject to the conditions set forth in the Voting Agreement. The
Voting Agreement Option is exercisable by Acquisition at any time during the
90-day period commencing on the earliest to occur of a termination of the Merger
Agreement: (a) by either the Company or Acquisition because of the existence of
a final order, decree or ruling or other final action (which has become final
and nonappealable) restraining, enjoining or otherwise prohibiting the
consummation of the Merger or the transactions contemplated by the Merger
Agreement or the Voting Agreement or otherwise altering the terms of any of the
foregoing in any significant respect; (b) by either the Company or Acquisition
because the Merger has not been consummated on or before December 31, 1997
(other than a termination by the Company based on an actual material breach by
Acquisition of its obligations under the Merger Agreement); (c) by Acquisition
based on a failure to obtain the required approval of the stockholders of the
Company; and (d) by the Company based on the Board of Directors approving
certain competing transactions.
In the event that Acquisition were to purchase the Subject Shares pursuant
to the Voting Agreement Option, it has agreed, as promptly as practicable
thereafter, to make a tender offer to the stockholders of the Company for the
remaining shares of Company Common Stock (the closing of which will be subject
only to the condition that no court, arbitrator or governmental body, agency or
official shall have issued any order, decree or ruling and there shall not be
any statute, rule or regulation restraining, enjoining or prohibiting the
consummation of such tender offer) pursuant to which the stockholders of the
Company (other than the Company, its subsidiaries or Acquisition) will receive
$16.50 in cash per share of Company Common Stock.
Termination
Subject to certain exceptions and subject to Acquisition's obligations
pursuant to the Voting Agreement Option, the Voting Agreement will terminate,
and no party will have any rights or obligations thereunder, and the Voting
Agreement will become null and void and have no further effect, upon the
earliest to occur of (a) the Effective Time, (y) the termination of the Merger
Agreement based upon mutual consent of the Company and Acquisition or the
termination by the Company based on an actual material breach by Acquisition of
its obligations under the Merger Agreement, or (z) the 91st day following
another termination of the Merger Agreement pursuant to its terms, subject to
certain extensions if the Voting Agreement Option has been exercised but the
closing of such exercise has not occurred.
TAX INDEMNIFICATION AGREEMENT
Concurrent with entering into the Merger Agreement and the Voting
Agreement, the Company entered into the Tax Indemnification Agreement with the
Svenningsen Stockholders, pursuant to which the parties agreed to indemnify one
another with respect to certain tax liabilities that may arise in connection
with the election by certain subsidiaries of the Company to have been treated
and operated as S corporations under the Code (as "S corporation" is defined
therein). The Tax Indemnification Agreement provides that the Company will
indemnify the Svenningsen Stockholders for any increase in certain tax
liabilities attributable to an understatement of income previously reported by
such subsidiaries to the extent of any actual reduction in taxes on the Company
or its subsidiaries for a taxable year after December 18, 1996, the date of the
Company's initial public offering. The Tax Indemnification Agreement also
provides that the Svenningsen Stockholders will indemnify the Company for
certain tax liabilities arising out of or resulting from a claim by any taxing
authority that any such subsidiary was not an S corporation under the Code at a
time when it took such a position. Any payments made under the Tax
Indemnification Agreement will be reduced by any payments made pursuant to the
Tax Indemnification Agreement (the "Prior Tax Indemnification Agreement"), by
and between John A. Svenningsen and the Company, dated as of December 18, 1996,
which Prior Tax Indemnification Agreement remains a separate valid and binding
agreement. The effectiveness of the Tax Indemnification Agreement is contingent
upon the closing and the effectiveness of the Merger (or upon the exercise by
Acquisition, or its designee, of the Voting Agreement Option).
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STOCKHOLDERS AGREEMENT
Upon consummation of the Merger, the Company will enter into the
Stockholders Agreement with GSCP and the Non-GSCP Investors, including the
Estate. The Stockholders Agreement will provide, among other things, for (i) the
right of the Non-GSCP Investors to participate in, and the right of GSCP to
require the Non-GSCP Investors to participate in, certain sales of Company
Common Stock by GSCP, (ii) prior to an initial public offering of the stock of
the Company (as will be defined in the Stockholders Agreement), certain rights
of the Company to purchase, and certain rights of the Non-GSCP Investors (other
than the Estate) to require the Company to purchase (except in the case of
termination of employment by such Non-GSCP Investors) all, but not less than
all, of the shares of Company Common Stock owned by a Non-GSCP Investor (other
than the Estate) upon the termination of employment or death of such Non-GSCP
Investor, at prices determined in accordance with the Stockholders Agreement and
(iii) certain additional restrictions on the rights of the Non-GSCP Investors to
transfer shares of Company Common Stock. Also under the Stockholders Agreement,
GSCP will be entitled, subject to certain limitations, to require the Company to
register the Company Common Stock, including, at the election of GSCP, in an
underwritten offering. GSCP will be limited, subject to certain exceptions, to
four such demand registrations. In addition, subject to certain limitations, if
the Company proposes to register for sale by the Company under the Securities
Act any of its equity securities or equity securities held by GSCP (except for
certain registrations relating to shares issued in business combinations or
pursuant to employee benefit plans), including pursuant to a demand by GSCP, in
a manner that would permit registration of shares of Company Common Stock for
sale by GSCP or the Non-GSCP Investors to the public under the Securities Act in
an underwritten offering), then the Company will provide GSCP and the Non-GSCP
Investors an opportunity to register their shares of Company Common Stock on the
same terms and conditions (a "Piggyback Registration"). In connection with each
demand registration or Piggyback Registration, the Company will pay all expenses
incident to performance of or compliance with such registration under the
Stockholders Agreement, provided that GSCP and each Non-GSCP Investor will pay
any underwriting discounts and commissions and transfer taxes, if any, relating
to the sale of its registrable securities pursuant to such registration. The
Stockholders Agreement will establish priorities for the number of shares of
Company Common Stock included in a registration as between shares being
registered for sale by the Company and shares being registered upon the request
of GSCP and/or the Non-GSCP Investors. In addition, the Stockholders Agreement
will provide that, in the event of a registration pursuant to the terms of the
Stockholders Agreement, the Company will indemnify the seller (and its
directors, officers, fiduciaries, employees and stockholders, among others) of
any shares of Company Common Stock covered by such registration statement
against certain claims and expenses, including under the Securities Act and
Exchange Act. The Stockholders Agreement will also provide for similar
indemnification by the holders of such shares of the Company (and its directors,
officers, fiduciaries, employees and stockholders, among others). In addition,
the Stockholders Agreement will provide for, on request of the Company (or the
underwriter of the offering, if any), certain limitations on sales of shares of
Company Common Stock (or certain other securities of the Company, including
options) by GSCP and/or the Non-GSCP Investors within 14 days before and 180
days after the effective date of a registration statement filed in connection
with a registration affording GSCP and the Non-GSCP Investors registration
rights pursuant to the Stockholders Agreement. Similar limitations will apply to
the Company on request of the underwriter of any offering in connection with a
registration demanded by GSCP, with certain exceptions. The Stockholders
Agreement will become effective at the Effective Time and will terminate (i)
with respect to the rights and obligations of and restrictions on GSCP and the
Non-GSCP Investors in connection with certain restrictions on the transfer of
shares of Company common stock when GSCP and its affiliates no longer hold at
least 40% of the outstanding shares of Company Common Stock, on a fully diluted
basis; provided that the Stockholders Agreement will terminate in such respect
in any event if the Company enters into certain transactions resulting in GSCP,
its affiliates, the Non-GSCP Investors, and each of their respective permitted
transferees, owning less than a majority of the outstanding voting power of the
entity surviving such transaction; and (ii) with respect to the registration
matters described above, with certain exceptions, on the earlier of (1) the date
on which there are no longer any registrable securities outstanding (as
determined under the Stockholders Agreement) and (2) the twentieth anniversary
of the Stockholders Agreement.
63
<PAGE> 74
MERGER PRO FORMA CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
The following unaudited Merger Pro Forma Consolidated Financial Data have
been derived by the application of pro forma adjustments to the Company's
historical consolidated financial statements appearing elsewhere in this Proxy
Statement/Prospectus giving effect to the proposed Merger of Acquisition with
and into the Company, with the Company as the surviving corporation, pursuant to
which each share of Company Common Stock, with certain exceptions, will be
converted, at the election of the holder thereof, into the right to receive from
the Company following the Merger either $16.50 in cash, or $9.33 in cash plus a
retained interest in the Company equal to one share for every 150,000 shares so
elected, with cash to be paid in lieu of fractional shares. The Merger Pro Forma
Consolidated Statements of Income for the periods presented give effect to the
Merger and related transactions as if such transactions were consummated as of
January 1, 1996. The Merger Pro Forma Consolidated Statement of Income for the
year ended December 31, 1996 includes supplemental pro forma adjustments to give
effect to certain events that occurred in conjunction with the Organization and
the IPO as if such events had occurred as of January 1, 1996. The Merger Pro
Forma Consolidated Balance Sheet gives effect to the Merger and related
transactions as if such transactions had occurred as of September 30, 1997. The
adjustments are described in the accompanying notes. The Merger Pro Forma
Consolidated Financial Statements should not be considered indicative of actual
results that would have been achieved had the Merger and related transactions
been consummated on the date or for the periods indicated and do not purport to
indicate balance sheet data or results of operations as of any future date or
for any future period. The Merger Pro Forma Consolidated Financial Statements
should be read in conjunction with the Company's historical consolidated
financial statements and the related notes thereto appearing elsewhere in this
Proxy Statement/Prospectus. See "INDEX TO FINANCIAL STATEMENTS" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
As a result of the Merger, the Company will incur various costs currently
estimated to range between $27.0 million and $29.5 million (pre-tax) in
connection with consummating the Merger and the transactions contemplated by the
Merger Agreement. These costs consist primarily of professional, advisory and
investment banking fees, registration costs, compensation costs and other
expenses ranging from $21.5 million to $24.0 million and deferred financing
costs of approximately $5.5 million. While the exact timing, nature and amount
of these costs are subject to change, the Company anticipates that a one-time
pre-tax charge of approximately $21.5 million ($17.4 million after tax) will be
recorded in the quarter in which the Merger is consummated. As a result of the
foregoing, the Company expects to record a significant net loss in the quarter
in which the Merger is recorded. Because this loss will result directly from the
one-time charge incurred in connection with the Merger, and this charge will be
funded entirely through the proceeds of the Merger Financings (as defined
herein), the Company does not expect this loss to materially impact its
liquidity, ongoing operations or market position. See "THE MERGER -- Merger
Financings" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
The pro forma adjustments giving effect to the Merger were applied to the
respective historical consolidated financial statements to reflect and account
for the Merger as a recapitalization. Accordingly, the historical basis of the
Company's assets and liabilities has not been impacted by the transaction.
64
<PAGE> 75
MERGER PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS TO MERGER
GIVE EFFECT TO PRO
HISTORICAL THE MERGER FORMA(j)
---------- -------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 684 $ 3,454(a) $ 4,138
Accounts receivable, net............................ 56,276 56,276
Inventories......................................... 48,736 48,736
Deposits and other.................................. 9,680 9,680
--------- ---------
Total current assets........................ 115,376 118,830
Property, plant and equipment, net.................. 37,157 37,157
Intangible assets, net.............................. 7,540 7,540
Deferred financing costs............................ 5,500(b) 5,500
Other assets, net................................... 2,687 (20)(c) 2,667
--------- ---------
Total assets................................ $ 162,760 $ 171,694
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Loans and notes payable............................. $ 10,020 (10,020)(d) $ --
Accounts payable.................................... 11,153 11,153
Accrued expenses.................................... 7,317 7,317
Income taxes payable................................ 6,458 (4,177)(i) 2,281
Current portions of long-term obligations........... 5,556 (3,771)(d) 1,785
--------- ---------
Total current liabilities................... 40,504 22,536
Long-term obligations, excluding current portion.... 24,828 211,186(d) 236,014
Deferred tax liabilities............................ 5,585 5,585
Other............................................... 2,841 2,841
--------- ---------
Total liabilities........................... 73,758 266,976
Stockholders' equity (deficiency):
Common Stock(e)..................................... 2,112 (2,112)(h) --
Additional paid-in capital.......................... 65,985 63,000(f)
7,124(g)
(136,109)(h) --
Unamortized restricted Common Stock award........... (1,125)(f) (1,125)
Retained earnings (deficit)......................... 21,649 (97,985)(h)
(17,367)(i) (93,703)
Foreign currency translation adjustment............. (454) (454)
Treasury stock, at cost............................. (290) 290(h) --
--------- ---------
Total stockholders' equity (deficiency)..... 89,002 (95,282)
--------- ---------
Total liabilities and stockholders' equity
(deficiency).............................. $ 162,760 $ 171,694
========= =========
</TABLE>
See Notes to Merger Pro Forma Consolidated Balance Sheet.
65
<PAGE> 76
NOTES TO MERGER PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
The pro forma financial data giving effect to the Merger have been derived by
the application of pro forma adjustments to the historical consolidated
financial statements for the period noted. The Merger has been accounted for as
a recapitalization, which will have no impact on the Company's historical basis
of assets and liabilities. The Merger Consolidated Balance Sheet assumes that
there are no stockholders exercising appraisal rights in the Merger and assumes
that no stockholders other than the Estate elect the Mixed Consideration in the
Merger.
(a) To increase cash by $3,454 to reflect the following:
<TABLE>
<S> <C>
USES OF FUNDS:
Purchase equity........................................................... $235,916
Redeem Company Stock Options(1)........................................... 1,890
Repay historical debt..................................................... 29,605
Debt breakage costs(2).................................................... 1,010
Estimated transaction fees and expenses, including deferred financing
costs(3)................................................................ 17,000
--------
Total uses................................................................ 285,421
SOURCES OF FUNDS:
New debt.................................................................. 227,000
New equity................................................................ 61,875
--------
Total sources............................................................. 288,875
--------
Net....................................................................... $ 3,454
========
</TABLE>
(b) To reflect the anticipated portion of transaction fees which will be
recorded as deferred financing costs and will be amortized over the life of
the debt to be issued.
(c) To reflect the write-off of deferred financing costs associated with the
historical debt being repaid and the termination of the Company's existing
term loan agreement.
(d) To adjust indebtedness to reflect the following:
<TABLE>
<S> <C>
Repayment of loans and notes payable...................................... $(10,020)
Repayment of current portion of long-term obligations..................... (3,771)
Adjustments to long-term obligations:
Repayment of long-term obligations (excluding current portion of
$3,771)................................................................. (15,814)
Senior Subordinated Notes................................................. 110,000
Term Loan................................................................. 117,000
--------
Net adjustments to long-term obligations............................. 211,186
--------
Total..................................................................... $197,395
========
</TABLE>
(e) At September 30, 1997, the Company's authorized capital stock consisted of
5,000,000 shares of Preferred Stock, $0.10 par value, of which no shares
were issued or outstanding, and 50,000,000 shares of Company Common Stock,
$0.10 par value, of which 21,120,476 shares were issued and 21,098,785
shares were outstanding. Immediately following the Merger, 1,000 shares of
Company Common Stock will be outstanding.
(f) To reflect the equity contribution of GSCP of $61,875 and the issuance of
$1,125 of restricted stock to an officer of the Company.
66
<PAGE> 77
(g) To reflect a one-time compensation charge of approximately $7,124 payable
by the Estate and the Svenningsen Trusts to Mr. Rittenberg under the terms
of the Stock Agreement. Such amount will also be reflected as compensation
expense in the Company's financial statements for the period in which the
Merger is included. The income tax benefit attributable to the compensation
expense is included in the income tax adjustment of $4,177 in (i) below.
(h) To reflect the purchase of 5,801,441 shares of Company Common Stock for the
Cash Consideration of $16.50 per share ($95,724), the cash portion of the
Mixed Consideration paid for the 15,024,616 shares of Company Common Stock
held by the Estate ($140,192) and the retirement of 21,691 shares of
treasury stock ($290).
(i) To adjust retained earnings to reflect the following items as a result of
the Merger and related transactions:
<TABLE>
<S> <C>
Estimated transaction fees and expenses(3)........ $(11,500)
Redemption of Company Stock Options(1)............ (1,890)
Debt breakage costs(2)............................ (1,010)
One-time compensation charge payable by the Estate
(see (g) above)................................. (7,124)
Write-off of deferred financing costs(2).......... (20)
--------
Total estimated expenses(4)....................... (21,544)
Income tax benefit attributable to deductible
costs and expenses.............................. 4,177
--------
Total........................................ $(17,367)
--------
</TABLE>
(j) Although the Company does not expect stockholders other than the Estate to
elect the Mixed Consideration, assuming all other stockholders (excluding
the Company and Acquisition) were to elect the Mixed Consideration, a
maximum of 36 additional shares of Company Common Stock would be retained
by the stockholders and total stockholders' deficiency and total debt would
each decrease by approximately $39,000.
- ---------------
(1) The cost to redeem Company Stock Options is calculated based on the number
of options outstanding and the difference between the weighted average
exercise price of the options and the Cash Consideration of $16.50 per
share.
(2) The costs associated with the early extinguishment of historical debt will
be recognized as an extraordinary loss, net of the related tax benefit, in
the Company's financial statements for the period in which the Merger is
included.
(3) Estimated transaction fees and expenses totalling $11,500 will be recorded
as an expense. Such transaction fees and expenses are anticipated to consist
of (i) professional, advisory and investment banking fees and expenses, (ii)
compensation costs and (iii) miscellaneous fees and expenses, such as
printing and filing fees. The remaining portion of the transaction fees and
costs, totaling $5,500, represents deferred financing costs (see (b) above).
(4) Total expenses are estimated to range between $21,500 and $24,000.
67
<PAGE> 78
MERGER PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA MERGER
ADJUSTMENTS TO GIVE PRO
HISTORICAL EFFECT TO THE MERGER(a) FORMA(h)
---------- ----------------------- ---------
<S> <C> <C> <C>
Net sales........................................ $161,286 $ 161,286
Cost of sales.................................... 103,460 103,460
---------- ---------
Gross profit................................... 57,826 57,826
Operating expenses:
Selling expenses............................... 9,598 9,598
General and administrative expenses............ 13,225 $ 104(b) 13,329
Art and development costs...................... 3,891 3,891
---------- ---------
Income from operations......................... 31,112 31,008
Interest expense, net.......................... 2,654 14,135(c) 16,789
Other income, net.............................. (219) (219)
---------- ---------
Income before income taxes and minority
interests................................... 28,677 14,438
Income taxes..................................... 11,627 (5,767)(d) 5,860
Minority interests............................... 149 149
---------- ---------
Net income..................................... $16,901 $ 8,429
========== =========
Net income per share........................... $0.80 $8,429.00
Weighted average common shares outstanding..... 21,097,133 1,000(e)
OTHER FINANCIAL DATA:
Gross margin..................................... 35.9% 35.9%
Earnings to fixed charges(f)..................... 7.7x 1.8x
NON-GAAP FINANCIAL DATA:
Adjusted EBITDA(g)............................... $ 35,617 $ 35,513
Adjusted EBITDA margin........................... 22.1% 22.0%
Adjusted EBITDA to interest expense.............. 12.7x 2.1x
</TABLE>
See Notes to Merger Pro Forma Consolidated Statement of Income.
68
<PAGE> 79
NOTES TO MERGER PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
The pro forma financial data giving effect to the Merger have been derived by
the application of pro forma adjustments to the Company's historical
consolidated financial statements for the period noted. The adjustments give
effect to certain events that will occur in connection with the Merger, as if
those events had occurred as of January 1, 1996. The Merger has been accounted
for as a recapitalization, which will have no impact on the historical basis of
the Company's assets and liabilities. The pro forma financial data giving effect
to the Merger assume that no stockholders exercise appraisal rights in the
Merger and assume that no stockholders other than the Estate elect the Mixed
Consideration in the Merger.
(a) The pro forma adjustments to the historical Consolidated Statement of Income
exclude the following items, as described in the notes to the Merger Pro
Forma Consolidated Balance Sheet, (i) the write-off of $20 of deferred
financing costs associated with the debt being repaid, (ii) $1,010 of debt
breakage costs, (iii) $7,124 of non-recurring compensation expense to be
paid by the Estate and the Svenningsen Trusts, (iv) $1,890 of non-recurring
compensation expense for the redemption of Company Stock Options, and (v)
$11,500 of the estimated transaction fees and expenses to be incurred in
connection with the Merger. Such amounts represent non-recurring expenses
which the Company anticipates will be reflected in the Consolidated
Statement of Income for the period in which the Merger is included.
(b) To reflect the amortization over a ten-year period of $1,125 of restricted
Company Common Stock issued to an officer of the Company (see "THE
MERGER -- Interests of Certain Persons in the Merger").
(c) To adjust interest expense, net to reflect the following:
<TABLE>
<S> <C>
Interest on historical debt repaid in Merger............................... $(1,852)
Interest expense on the Term Loan (assumed 8.50% rate)..................... 7,459
Interest expense on the Senior Subordinated Notes (assumed 9.75% rate)..... 8,044
Amortization of deferred financing costs (7 - 10 years) on new
indebtedness............................................................. 484
-------
Total adjustment........................................................... $14,135
=======
</TABLE>
For the nine months ended September 30, 1997, a 0.125% increase or decrease
in the assumed interest rate on the Term Loan would change the merger pro
forma interest expense and net income by $110 and $65, respectively.
For the nine months ended September 30, 1997, a 0.125% increase or decrease
in the assumed interest rate on the Senior Subordinated Notes would change
the merger pro forma interest expense and net income by $103 and $61,
respectively.
(d) To reflect the tax effects of the merger pro forma adjustments at a 40.50%
statutory income tax rate.
(e) Merger pro forma weighted average shares outstanding is calculated as if all
stockholders other than the Estate elected the Cash Consideration offered in
the Merger and as if the shares expected to be issued and outstanding after
the Merger had been outstanding from the beginning of the period presented.
Assumed in this calculation is the issuance of 825 shares of Company Common
Stock to GSCP and 75 shares of Company Common Stock to certain officers of
the Company, of which 15 shares are restricted, and the retention of 100
shares of Company Common Stock by the Estate. The merger pro forma weighted
average shares outstanding excludes 10 shares of Company Common Stock to be
issued to certain employees of the Company subsequent to the Merger in
exchange for notes aggregating $750.
(f) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and minority interests plus
fixed charges. Fixed charges consist of interest expense on all obligations,
amortization of deferred financing costs and one-third of the rental expense
on operating leases representing that portion of rental expense deemed by
the Company to be attributable to interest.
69
<PAGE> 80
(g) "Adjusted EBITDA" represents earnings before interest, income taxes,
depreciation and amortization, adjusted for special bonuses, non-recurring
compensation, other expenses (income), net and minority interests. Adjusted
EBITDA is presented because it is a widely accepted financial indicator of a
leveraged company's ability to service and/or incur indebtedness and because
management believes Adjusted EBITDA is a relevant measure of the Company's
ability to generate cash without regard to the Company's capital structure
or working capital needs. Adjusted EBITDA as presented may not be comparable
to similarly titled measures used by other companies, depending upon the
non-cash charges included. When evaluating Adjusted EBITDA, investors should
consider that Adjusted EBITDA (i) should not be considered in isolation but
together with other factors which may influence operating and investing
activities, such as changes in operating assets and liabilities and
purchases of property and equipment, (ii) is not a measure of performance
calculated in accordance with generally accepted accounting principles,
(iii) should not be construed as an alternative or substitute for income
from operations, net income or cash flows from operating activities in
analyzing the Company's operating performance, financial position or cash
flows and (iv) should not be used as an indicator of the Company's operating
performance or as a measure of its liquidity.
(h) Although the Company does not expect stockholders other than the Estate to
elect the Mixed Consideration, assuming all other stockholders (excluding
the Company and Acquisition) were to elect the Mixed Consideration, the
corresponding maximum reduction in debt of approximately $39,000 would
reduce merger pro forma interest expense by approximately $2,600, would
increase net income by approximately $1,500 and would increase net income
per share by approximately $1,100 per share.
70
<PAGE> 81
MERGER PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA AND
SUPPLEMENTAL
PRO FORMA
ADJUSTMENTS
TO GIVE EFFECT PRO FORMA
TO ADJUSTMENTS MERGER
THE ORGANIZATION SUPPLEMENTAL TO GIVE EFFECT PRO
HISTORICAL AND THE IPO PRO FORMA TO THE MERGER(f) FORMA(m)
-------- ---------------- ------------ ---------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales...................... $192,705 $192,705 $ 192,705
Cost of sales.................. 123,913 123,913 123,913
-------- --------- ---------
Gross profit................. 68,792 68,792 68,792
Operating expenses:
Selling expenses............. 11,838 11,838 11,838
General and administrative
expenses.................. 19,266 $ 250(a) 19,516 $ 435(g) 19,951
Art and development costs.... 5,173 5,173 5,173
Non-recurring compensation in
connection with the IPO... 15,535 (15,535)(b) -- --
Special bonuses.............. 4,222 (4,222)(c) -- --
-------- --------- ---------
Income from operations......... 12,758 32,265 31,830
Interest expense, net.......... 6,691 (2,228)(d) 4,463 18,445(h) 22,908
Other expense, net............. 335 335 335
-------- --------- ---------
Income before income taxes
and minority interests.... 5,732 27,467 8,587
Income taxes................... 1,952 9,347(e) 11,299 (7,646)(i) 3,653
Minority interests............. 1,653 (1,403)(a) 250 250
-------- --------- ---------
Net income................... $ 2,127 $ 15,918 $ 4,684
======== ========= =========
Net income per share......... $4,684.00
Weighted average common
shares outstanding........ 1,000(j)
OTHER FINANCIAL DATA:
Gross margin................... 35.7% 35.7%
Earnings to fixed charges(k)... 1.7x 1.3x
NON-GAAP FINANCIAL DATA:
Adjusted EBITDA(l)............. $ 37,652 $ 37,217
Adjusted EBITDA margin......... 19.5% 19.3%
Adjusted EBITDA to interest
expense...................... 5.4x 1.6x
</TABLE>
See Notes to Merger Pro Forma Consolidated Statement of Income.
71
<PAGE> 82
NOTES TO MERGER PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
The pro forma financial data giving effect to the Merger have been derived by
the application of pro forma, supplemental pro forma and merger pro forma
adjustments to the Company's historical consolidated financial statements for
the period noted. The adjustments give effect to certain events that occurred in
conjunction with the Organization and the IPO and to certain events that will
occur in connection with the Merger, as if those events had occurred as of
January 1, 1996, including pro forma adjustments intended to present the
historical results as if certain subsidiaries had terminated their treatment as
S corporations for tax purposes. The Merger has been accounted for as a
recapitalization, which will have no impact on the historical basis of the
Company's assets and liabilities. The pro forma financial data giving effect to
the Merger assume that no stockholders exercise appraisal rights in the Merger
and that no stockholders other than the Estate elect the Mixed Consideration.
(a) To reflect $250 amortization of goodwill per annum over thirty years and the
elimination of $1,403 for minority interest related to the acquisition of an
additional 50% of Am-Source, Inc. as if it were acquired at the beginning of
the period.
(b) To reflect reductions in compensation expense of $15,535, including stock
and cash of $12,535 for payments to certain executives in connection with
the termination of prior employment agreements and $3,000 for the
establishment of an ESOP for the benefit of the employees of Amscan Inc. and
the payment of stock bonuses to certain of such employees.
(c) To reflect the elimination of special bonuses that will not be recurring due
to the termination of certain employment agreements in connection with the
IPO. No adjustments are reflected or are necessary with respect to
performance-based compensation as the provisions in the employment
agreements entered into in connection with the IPO would have resulted in
performance-based compensation materially equivalent to that reflected in
the historical accounts under the prior employment agreements.
(d) To reflect the reduction of actual interest expense assuming a repayment of
$8,100 of bank loans at the actual rate in effect and loans from Mr.
Svenningsen at the actual rate in effect.
(e) To provide for income taxes at a statutory rate of 40.50% on earnings as if
Amscan Inc., Am-Source, Inc., and certain other subsidiaries of the Company
had not been treated as S corporations during the period presented and to
give effect to the tax effect of these adjustments.
(f) The pro forma adjustments to the historical Consolidated Statement of Income
exclude the following items, as described in the notes to the Merger Pro
Forma Consolidated Balance Sheet, (i) the write-off of $20 of deferred
financing costs associated with the debt being repaid, (ii) $1,010 of debt
breakage costs, (iii) $7,124 of non-recurring compensation expense to be
paid by the Estate and the Svenningsen Trusts, (iv) $1,890 of non-recurring
compensation expense for the redemption of Company Stock Options, and (v)
$11,500 of estimated transaction fees and expenses to be incurred in
connection with the Merger. Such amounts represent non-recurring expenses
which the Company anticipates will be reflected in the Consolidated
Statement of Income for the period in which the Merger is included.
(g) To reflect the amortization over a ten-year period of $1,125 of restricted
Company Common Stock issued to an officer of the Company. (See "THE
MERGER -- Interests of Certain Persons in the Merger").
72
<PAGE> 83
(h) To adjust interest expense to reflect the following:
<TABLE>
<S> <C>
Interest on historical debt repaid in Merger............................... $(2,869)
Interest expense on the Term Loan (assumed 8.50% rate)..................... 9,945
Interest expense on the Senior Subordinated Notes (assumed 9.75% rate)..... 10,725
Amortization of deferred financing costs (7 - 10 years) on new
indebtedness............................................................. 644
-------
Total adjustment................................................. $18,445
=======
</TABLE>
For the year ended December 31, 1996, a 0.125% increase or decrease in the
assumed interest rate on the Term Loan would change the merger pro forma
interest expense and net income by $146 and $87, respectively.
For the year ended December 31, 1996, a 0.125% increase or decrease in the
assumed interest rate on the Senior Subordinated Notes would change the
merger pro forma interest expense and net income by $138 and $82,
respectively.
(i) To reflect the tax effects of the merger pro forma adjustments at a 40.50%
statutory income tax rate.
(j) Merger pro forma weighted average common shares outstanding is calculated as
if all stockholders other than the Estate elected the Cash Consideration
offered in the Merger and as if the shares expected to be issued and
outstanding after the Merger had been outstanding from the beginning of the
period presented. Assumed in this calculation is the issuance of 825 shares
of Company Common Stock to GSCP and 75 shares of Company Common Stock to
certain officers of the Company, of which 15 shares are restricted, and the
retention of 75 shares of Company Common Stock by the Estate. The merger pro
forma weighted average shares outstanding excludes 10 shares of Company
Common Stock to be issued to certain employees of the Company subsequent to
the Merger in exchange for notes aggregating $750.
(k) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and minority interests plus
fixed charges. Fixed charges consist of interest expense on all obligations,
amortization of deferred financing costs and one-third of rental expense on
operating leases representing that portion of rental expense deemed by the
Company to be attributable to interest.
(l) "Adjusted EBITDA" represents earnings before interest, income taxes,
depreciation and amortization adjusted for special bonuses, non-recurring
compensation, other expenses (income), net and minority interests. Adjusted
EBITDA is presented because it is a widely accepted financial indicator of a
leveraged company's ability to service and/or incur indebtedness and because
management believes Adjusted EBITDA is a relevant measure of the Company's
ability to generate cash without regard to the Company's capital structure
or working capital needs. Adjusted EBITDA as presented may not be comparable
to similarly titled measures used by other companies, depending upon the
non-cash charges included. When evaluating Adjusted EBITDA, investors should
consider that Adjusted EBITDA (i) should not be considered in isolation but
together with other factors which may influence operating and investing
activities, such as changes in operating assets and liabilities and
purchases of property and equipment, (ii) is not a measure of performance
calculated in accordance with generally accepted accounting principles,
(iii) should not be construed as an alternative or substitute for income
from operations, net income or cash flows from operating activities in
analyzing the Company's operating performance, financial position or cash
flows and (iv) should not be used as an indicator of the Company's operating
performance or as a measure of its liquidity.
(m) Although the Company does not expect stockholders other than the Estate to
elect the Mixed Consideration, assuming all other stockholders (excluding
the Company and Acquisition) were to elect the Mixed Consideration, the
corresponding maximum reduction in debt of approximately $39,000 would
reduce merger pro forma interest expense by approximately $3,400, would
increase net income by approximately $1,500 and would increase net income
per share by approximately $1,800 per share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The party goods industry has experienced significant changes in both
distribution channels and product offerings over the last several years. The
retail distribution of party goods has begun to shift from smaller independent
stores and designated departments within drug, discount or department store
chains to superstores dedicated to retailing party goods. In part due to the
success of the superstore channel, party goods manufacturers broadened their
product lines to support the celebration of a greater number of occasions. The
industry's growth has been directly affected by these changes.
The Company's revenues have increased from $132.0 million in 1994 to $192.7
million in 1996, a compound annual growth rate of approximately 21%. The Company
attributes this growth to its ability to create a broad range of unique and
innovative designs for its products and to work closely with its customers to
market and merchandise its products to consumers. In particular, the Company
experienced significant growth with its party superstore customers. Between 1993
and 1996, sales to party superstore customers increased from $26.8 million to
$85.1 million, a 47% compound annual growth rate.
Revenues are generated from sales of approximately 14,000 stock keeping
units ("SKUs") consisting of paper and plastic tableware, accessories and
novelties for all occasions. Tableware (plates, cups, napkins, tablecovers and
cutlery) is the Company's core product category, generating approximately 59% of
revenues in 1996. Coordinated accessories (e.g., balloons and banners) and
novelties (e.g., party favors) are offered to complement the Company's tableware
products. To serve its customers better, the Company has made significant
additions to its product line. Through increased spending on internal product
development as well as through acquisitions, the Company has had a net increase
of approximately 6,300 SKUs since 1991. Revenue growth primarily has been the
result of increased orders from its party superstore customers (new stores and
increased same-store sales), increased international sales and price increases.
The Company's gross profit is influenced by its product mix and paper
costs. Products manufactured by the Company, primarily tableware, represented
approximately 50% of the Company's 1996 sales. The Company has made significant
additions to its manufacturing capacity which have allowed it to improve gross
margins. The Company believes that its manufacturing capabilities enable it to
lower product cost, ensure product quality and be more responsive to customer
demands. Paper and pulp related products are the Company's principal raw
materials. The Company has historically been able to adjust its prices in
response to changes in paper prices.
FINANCIAL IMPACT OF ORGANIZATION OF THE COMPANY
In connection with the IPO in December 1996 and the Organization, certain
events occurred which affected the financial position and results of the
Company. The following is a discussion of these events and the related financial
impact.
Organization of Founder's Interests
The Company was formed for the purpose of becoming the holding company for
the businesses previously conducted by Amscan Inc., certain affiliated companies
individually owned and independently controlled by Mr. Svenningsen, and certain
affiliated companies less than 100% owned by Mr. Svenningsen, including
Am-Source, Inc., the Company's supplier of plastic plates, cups and bowls. The
transfer of Mr. Svenningsen's ownership in these companies in exchange for
shares of Common Stock of the Company was accounted for in a manner similar to a
pooling of interests and, as such, the historical cost basis of the accounts was
carried over thereby not giving rise to any goodwill.
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<PAGE> 85
Acquisition of Am-Source, Inc.
The Company and the stockholders of Am-Source, Inc., other than Mr.
Svenningsen, entered into an agreement pursuant to which such stockholders
transferred their ownership in Am-Source, Inc. in exchange for shares of Company
Common Stock. The transaction was accounted for as the purchase of the 50%
ownership of Am-Source, Inc. not owned and gave rise to $7.4 million of
goodwill, which is being amortized over 30 years.
Termination of Prior Employment Agreements
Pursuant to an agreement between Amscan Inc. and Mr. Rittenberg, the
Company's President, Mr. Rittenberg entered into a new employment agreement,
effective upon consummation of the IPO for a period of three years at a base
compensation of approximately $220,000 per year to be increased annually by 5%.
Mr. Rittenberg agreed to the termination of his prior employment agreement upon
consummation of the IPO. The agreement which was terminated provided for Mr.
Rittenberg to receive bonuses equal to approximately 10% of the aggregate net
profits of Amscan Inc. and certain affiliates (as defined in the agreement) in
each of the next three years and an amount equal to 5% of the value of Amscan
Inc. in the event of a change in control or an initial public offering. In
exchange for relinquishing these rights, Mr. Rittenberg received a special
one-time payment of $3.5 million in cash and shares of Company Common Stock
equal to approximately 3% of the total shares outstanding (excluding shares
issued upon exercise of the underwriters' overallotment option) immediately
following the IPO. The aggregate value paid to Mr. Rittenberg in cash and stock
was $11.5 million.
During the periods presented, certain other executives also had employment
agreements which entitled them to receive a percentage of the pre-tax profits.
These arrangements for Mr. Rittenberg and such other executives between 1994 and
1996 ranged from 18% to 20% of pre-tax profits in the aggregate. In conjunction
with the IPO, these agreements were substantially modified and these bonus
arrangements replaced by a combination of specific incentive plans and/or cash
payments and stock option grants. The aggregate of the special bonuses to Mr.
Rittenberg and the other executives and senior managers were $4.2 million, $2.6
million and $2.2 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
Establishment of an Employee Stock Ownership Plan and Payment of Stock Bonuses
In conjunction with the IPO, the Company incurred a compensation expense of
$3.0 million for the establishment of the ESOP for the benefit of the employees
of Amscan Inc. and the payment of stock bonuses to certain of such employees. At
the time of the IPO, there was a special one-time contribution of 250,000 shares
of Company Common Stock to the ESOP, subject to reduction as described in the
next sentence, allocated to participant accounts based upon a formula which was
weighted based upon both years of service and compensation. To the extent that
application of this formula resulted in a contribution to the ESOP on behalf of
a participant which exceeded the maximum contribution permitted under applicable
law, the contribution to the ESOP for such participant was reduced to the
maximum permitted and the balance determined under the formula was paid to such
participant in the form of a stock bonus. The ESOP will be amended in certain
respects in connection with the Merger. See "THE MERGER -- Effect on Stock and
Employee Benefit Matters."
Change in Tax Status of Corporations
Prior to the IPO, Amscan Inc., Am-Source, Inc. and certain other
subsidiaries of the Company were operated as S corporations for federal income
and, where available, for state income tax purposes. As a result, these
corporations did not record or pay any federal or state income tax except in
states which do not recognize S corporation status. Following the IPO, the
Company has been taxed as a C corporation under the Code (as "C corporation" is
defined therein) and it is anticipated that the Company will have an effective
income tax rate of approximately 40.50%. The Company has presented pro forma tax
provisions and pro forma net income and per share data. These pro forma amounts
represent the income tax provision and the net income of the
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<PAGE> 86
Company had it been a C corporation and thus subject to income tax for all
periods. See the consolidated financial statements included elsewhere in this
Proxy Statement/Prospectus.
Stockholder Distributions
As S corporations, the accumulated profits of Amscan Inc., Am-Source, Inc.,
and certain other subsidiaries of the Company were distributed to the
stockholders through December 18, 1996, the effective date of the IPO. Net
profits after the consummation of the IPO are added to the retained earnings of
the Company and used to fund the capital requirements of the business.
Additionally, prior to the IPO, Amscan Inc. and certain affiliates declared
dividends representing distributions of accumulated profits and a return of
capital. These amounts were reflected as subordinated debt and nearly all of the
previous balances of subordinated debt were repaid from the net proceeds of the
IPO.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Percentage of Net Sales
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
----- -----
<S> <C> <C>
Net sales.................................................. 100.0% 100.0%
Cost of sales.............................................. 64.1 63.2
----- -----
Gross profit............................................. 35.9 36.8
Operating expenses:
Selling expenses......................................... 6.0 5.9
General and administrative expenses...................... 8.2 9.6
Art and development costs................................ 2.4 2.5
Special bonuses.......................................... -- 2.2
----- -----
Total operating expenses................................... 16.6 20.2
----- -----
Income from operations................................... 19.3 16.6
Interest expense, net...................................... 1.6 3.1
Other income, net.......................................... (0.1) (0.2)
----- -----
Income before income taxes and minority interests........ 17.8 13.7
Income tax expense......................................... 7.2 0.5
Minority interests......................................... 0.1 0.9
----- -----
Net income............................................... 10.5% 12.3%
===== =====
</TABLE>
Net Sales
Net sales for the nine months ended September 30, 1997 were $161.3 million,
an increase of 9.7% over the nine months ended September 30, 1996. Sales to
national accounts totaled $84.2 million, or 22.1% higher than in the
corresponding period in 1996, principally as a result of sales to the party
goods superstore channel. Sales to international customers increased $1.6
million, contributing 11% to sales growth. Also contributing to the increase in
sales was the Company's marketing strategy of continually offering new products,
as well as new designs and themes for existing products. For 1997, the Company
added approximately 600 SKUs to its product line.
Gross Profit
Gross profit for the nine months ended September 30, 1997 was $57.8
million, an increase of $3.7 million over the same period in 1996. As a percent
of sales, gross profit decreased for the first nine months of 1997 to
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<PAGE> 87
35.9% from 36.8% over the corresponding period in 1996 as a result of an
increase in manufacturing capacity and the addition of a new distribution
facility, which created near-term excess capacity.
Selling Expenses
Selling expenses of $9.6 million for the nine months ended September 30,
1997 increased by $0.9 million and as a percentage of net sales to 6.0% as
compared to 5.9% in the corresponding period in 1996, primarily due to the
expansion of foreign operations.
General and Administrative Expenses
General and administrative expenses of $13.2 million for the nine months
ended September 30, 1997 decreased $0.9 million as compared to the corresponding
period in 1996. As a percentage of net sales, general and administrative
expenses decreased to 8.2% from 9.6%. The decrease is primarily attributable to
non-recurring costs incurred in the second quarter of 1996 associated with the
move to new corporate offices and additional personnel costs, including
relocation and recruitment. General cost reduction efforts in 1997 were offset
by increases in bad debt expense.
Art and Development Costs
Art and development costs of $3.9 million for the nine months ended
September 30, 1997 decreased slightly to 2.4% of net sales during the nine
months ended September 30, 1997 from 2.5% for the corresponding period of 1996.
In 1996, the Company significantly expanded its creative and new product
development staff and internal development capabilities. The continued
investment in art and development expenditures in 1997 reflects the Company's
strategy to remain a leader in product quality and development.
Special Bonuses
The employment agreements which gave rise to special bonuses during the
first nine months of 1996 were substantially modified at the time of the IPO in
December 1996 to eliminate future special bonus payments. Such bonuses, which
were based entirely upon the pre-tax income of Amscan Inc. and certain
affiliates, were $3.3 million or 2.2% of net sales for the nine months ended
September 30, 1996.
Interest Expense, Net
Interest expense, net, decreased by $1.9 million to $2.7 million for the
nine months ended September 30, 1997 over the corresponding period in 1996, as
the net proceeds received from the issuance of Common Stock in December 1996 and
January 1997 in connection with the IPO were used to reduce indebtedness under
the Company's line of credit and to repay subordinated debt.
Income Taxes
Income tax expense was $11.6 million for the nine months ended September
30, 1997 determined based upon an estimated consolidated effective income tax
rate of 40.5% for the year ending December 31, 1997. Prior to the IPO, Amscan
Inc., Am-Source, Inc., and certain other subsidiaries of the Company were taxed
as Subchapter S corporations for federal income tax and, where available, for
state income tax purposes. Accordingly, these entities were not subject to
federal and state income taxes, except in states which do not recognize
Subchapter S corporation status. In connection with the IPO, these subsidiaries
became subject to federal and state income taxes. The amounts shown as income
taxes for the nine months ended September 30, 1996 consisted principally of
foreign taxes.
Minority Interests
Minority interests of $0.1 million and $1.2 million for the nine months
ended September 30, 1997 and 1996, respectively, represent the portion of income
of the Company's subsidiaries attributable to equity ownership not held by the
Company. In addition to the minority interests of certain foreign entities, the
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minority interests for the nine months ended September 30, 1996 included a 50%
minority interest in Am-Source, Inc. On December 18, 1996, the Company acquired
the remaining minority interest in Am-Source, Inc.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Percentage of Net Sales
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1996 1995
----- -----
<S> <C> <C>
Net sales.................................................... 100.0% 100.0%
Cost of sales................................................ 64.3 64.9
----- -----
Gross profit............................................... 35.7 35.1
Operating expenses:
Selling expenses........................................... 6.1 7.4
General and administrative expenses........................ 10.0 9.1
Art and development costs.................................. 2.7 2.5
Non-recurring compensation in connection with the IPO...... 8.1
Special bonuses............................................ 2.2 1.5
----- -----
Total operating expenses..................................... 29.1 20.5
----- -----
Income from operations..................................... 6.6 14.6
Interest expense, net........................................ 3.4 3.4
Other expense (income), net.................................. 0.2 (0.2)
----- -----
Income before income taxes and minority interests.......... 3.0 11.4
Income taxes................................................. 1.0 0.4
Minority interests........................................... 0.9 0.6
----- -----
Net income......................................... 1.1% 10.4%
===== =====
</TABLE>
Net Sales
Net sales for the year ended December 31, 1996 were $192.7 million, an
increase of 15.1% over the year ended December 31, 1995 in which net sales were
$167.4 million. Increased sales to national accounts, principally party
superstores, accounted for $21.9 million or 87% of this increase. Also
contributing to this sales increase was the impact of the Company's marketing
strategy of continually offering new products as well as new designs and themes
for existing products. In 1996, the Company's product line included
approximately 14,000 SKUs compared with approximately 13,400 SKUs in 1995.
Selling price increases related to core products (paper plates, napkins, cups
and tablecovers) in response to higher paper costs accounted for approximately 6
percentage points of the 15.1% increase in net sales between the periods.
Increased sales to international customers accounted for $3.3 million of the
increase in net sales.
Gross Profit
Gross profit increased $10.0 million for the year ended December 31, 1996
compared to 1995, and improved as a percentage of sales from 35.1% to 35.7%.
Higher selling prices in response to prior period increases in paper costs as
well as lower product costs resulting from the Company's continued vertical
integration of manufacturing operations, offset in part by the cost of added
distribution facilities, were the primary reasons for this improvement in
margins.
Selling Expenses
Selling expenses were lower by $0.4 million for the year ended December 31,
1996 compared to 1995, and declined as a percentage of net sales from 7.4% to
6.1%. The primary reason for the percentage decline was the
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Company's ability to increase sales to its party superstore customers while not
significantly increasing its sales costs associated with those accounts.
General and Administrative Expenses
General and administrative expenses increased $4.3 million for the year
ended December 31, 1996 compared to 1995. As a percentage of net sales, general
and administrative expenses increased from 9.1% to 10.0%. This increase is
principally attributable to an increase in the provision for bad debts of $1.7
million or 0.9% of net sales related to a significant increase in the Company's
accounts receivable and increased occupancy costs of $0.5 million or 0.3% of net
sales related to the Company's new corporate offices. Also contributing to this
increase are non-recurring costs related to the development of a new business
management computer system of $1.2 million or 0.6% of net sales as well as
one-time costs associated with the move to the new corporate offices of $0.3
million or 0.2% of net sales and additional personnel costs including relocation
and recruitment costs of $0.3 million or 0.2% of net sales.
Art and Development Costs
Art and development costs increased $0.9 million for the year ended
December 31, 1996 compared to 1995. As a percentage of net sales, art and
development costs increased from 2.5% to 2.7%. The Company significantly
expanded its creative and new product development staff and internal development
capabilities in the middle of 1995 which resulted in a substantial increase in
art and development costs which were incurred during all of 1996. The increase
in art and development expenditures reflects the Company's strategy to remain a
leader in product quality and development.
Non-recurring Compensation
In conjunction with the IPO, the Company recorded non-recurring
compensation of $15.5 million in 1996 related to stock and cash payments of
$12.5 million to certain executives in connection with the termination or
modification of employment agreements and $3.0 million for the establishment of
an ESOP for the benefit of the employees of Amscan Inc. and the payment of stock
bonuses to certain of such employees.
Special Bonuses
Special bonuses, which were based entirely upon the Company's pre-tax
income, increased by $1.6 million for the year ended December 31, 1996 compared
to 1995. The employment agreements which gave rise to these bonuses were
substantially modified to eliminate these special bonus payments in the future.
Income from Operations
Due to the non-recurring compensation of $15.5 million and the other
factors discussed above, income from operations decreased $11.9 million to $12.8
million in 1996 from $24.7 million in 1995. As a percentage of net sales, income
from operations decreased from 14.6% in 1995 to 6.6% in 1996.
Interest Expense, net
Interest expense, net increased by $0.9 million to $6.7 million in 1996,
reflecting slightly higher borrowings associated with increased working capital
(primarily inventory and accounts receivable) needed to support the increased
volume of sales, offset in part by a lower effective interest cost associated
with the Company's revised revolving credit agreement, which was entered into in
September 1995.
Income Taxes
Prior to the IPO, Amscan Inc., Am-Source, Inc. and certain other
subsidiaries of the Company were taxed as S corporations for federal income tax
and, where available, for state income tax purposes. Accordingly, these entities
were not subject to federal and state income taxes except in states which do not
recognize S corporation status. In connection with the IPO, these subsidiaries
became subject to federal and state income taxes. The amounts shown as income
taxes in 1996 consist principally of foreign taxes and a one-
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<PAGE> 90
time charge of $0.8 million related to the establishment of deferred taxes in
connection with the change in tax status.
Minority Interests
Minority interests represent the portion of income of the Company's
subsidiaries attributable to equity ownership not held by Amscan Holdings, Inc.
In addition to the minority interests of certain foreign entities, these amounts
include the minority interest of Am-Source, Inc. through December 18, 1996, the
date the Company acquired the 50% not owned by Mr. Svenningsen.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Percentage of Net Sales
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1995 1994
----- -----
<S> <C> <C>
Net sales.................................................... 100.0% 100.0%
Cost of sales................................................ 64.9 65.7
----- -----
Gross profit............................................... 35.1 34.3
Operating expenses:
Selling expenses........................................... 7.4 8.5
General and administrative expenses........................ 9.1 11.0
Art and development costs.................................. 2.5 2.1
Special bonuses............................................ 1.5 1.7
----- -----
Total operating expenses..................................... 20.5 23.3
----- -----
Income from operations..................................... 14.6 11.0
Interest expense, net........................................ 3.4 2.9
Other (income) expense, net.................................. (0.2) 0.1
----- -----
Income before income taxes and minority interests.......... 11.4 8.0
Income taxes................................................. 0.4 0.4
Minority interests........................................... 0.6 0.1
----- -----
Net income................................................. 10.4% 7.5%
===== =====
</TABLE>
Net Sales
Net sales for the year ended December 31, 1995 were $167.4 million, an
increase of 26.8% over 1994 when net sales were $132.0 million. Increased sales
to party superstores accounted for $23.3 million or 66% of this increase. The
number of retail outlets represented by these accounts increased to 886 in 1995
from 720 in 1994. Also contributing to this net sales increase was the impact of
the Company's marketing strategy of continually offering new products as well as
new designs and themes for existing products. In 1995, the Company's product
line included over 13,400 SKUs compared to approximately 11,000 SKUs in 1994.
Selling price increases related to core products (paper plates, napkins,
tablecovers and cups) in response to higher paper costs, accounted for
approximately 5 percentage points of the 26.8% of the year-over-year increase in
net sales. Increased sales to international customers accounted for $4.3 million
of the increase in net sales in 1995 compared to 1994.
Gross Profit
Gross profit increased by $13.5 million from 1994 to 1995, and improved as
a percentage of net sales from 34.3% to 35.1%. The gross profit margin
improvement resulted primarily from the increased vertical integration of the
Company's tableware manufacturing operations. During 1995, the Company added
several new pieces of equipment including two printing presses which enabled it
to expand its manufacturing capacity.
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<PAGE> 91
In addition, gross profit improved as a result of increased leveraging of
existing distribution facilities and improved purchasing of nonmanufactured
products.
Selling Expenses
Selling expenses increased by $0.9 million from 1994 to 1995, but declined
as a percentage of net sales from 8.5% to 7.4%. The primary reason for the
percentage decline was the Company's ability to increase sales to its party
superstore customers, while not significantly increasing its sales costs
associated with these accounts.
General and Administrative Expenses
General and administrative expenses increased by $0.5 million from 1994 to
1995, primarily as a result of modest wage increases partially offset by
decreased provisions for bad debts. During 1994, the Company sustained a larger
amount of write-offs due to two large accounts which filed for bankruptcy. As a
percentage of net sales, general and administrative expenses declined from 11.0%
in 1994 to 9.1% in 1995. The Company was able to leverage its administrative
resources while supporting the increased sales.
Art and Development Costs
Art and development costs increased $1.5 million from 1994 to 1995. As a
percentage of net sales, art and development costs increased from 2.1% in 1994
to 2.5% in 1995. The Company significantly expanded its creative and new product
development staff and internal development capabilities in 1995, which resulted
in a substantial increase in art and development costs in the second half of
1995. The increase in such expenses reflects the Company's strategy of remaining
a leader in product quality and development.
Special Bonuses
Special bonuses, which were based upon the Company's pre-tax income,
increased in 1995 over 1994. The special bonus in 1994 included special one-time
bonuses of approximately $0.8 million associated with the partial acquisition of
Am-Source, Inc. In connection with the IPO, the employment agreements which gave
rise to these bonuses were substantially modified to eliminate the special bonus
payments.
Income from Operations
The factors discussed above contributed to the increase in income from
operations of 69.9% to $24.7 million in 1995 from $14.5 million in 1994. As a
percentage of net sales, income from operations increased from 11.0% in 1994 to
14.6% in 1995.
Interest Expense, Net
Interest expense, net increased by $1.9 million to $5.8 million from 1994
to 1995, reflecting higher borrowings associated with increased working capital
(primarily from inventory and accounts receivable) needed to support the
increased volume of sales, as well as an increase in the Company's average
effective rate for borrowed money from 7.5% to 8.3%.
Income Taxes
Amscan Inc., Am-Source, Inc., and certain other subsidiaries of the Company
and SSY Realty Corp. elected to be taxed as S corporations for federal income
and, where available, for state income tax purposes. Accordingly, these entities
were not subject to federal income taxes prior to the IPO except in states which
do not recognize S corporation status. In connection with the IPO, these
subsidiaries terminated their S corporation status and, accordingly, are subject
to federal and state income taxes. The amounts shown as income taxes consist
principally of foreign taxes.
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Minority Interests
Minority interests represent the portion of income attributable to equity
ownership not held by Mr. Svenningsen. In addition to the minority interests of
certain foreign entities, these amounts include the minority interest of
Am-Source, Inc. prior to its acquisition by the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth since 1994 principally through cash
flow generated from operations, the use of operating leases, increases in its
revolving line of credit borrowings and increases in long-term debt, including
debt owed to Mr. Svenningsen. The net proceeds from the IPO were used to reduce
indebtedness under the Company's line of credit and to repay subordinated debt.
In May 1997, the Company entered into a $15 million term loan arrangement
with a bank and terminated its then existing revolving credit facility, repaying
all amounts outstanding thereunder. The term loan is unsecured and currently
bears interest at LIBOR plus 0.30% (5.9% at September 30, 1997). The interest
rate spread is determined annually, based on the Company's financial position.
Payments of principal and interest under the new loan arrangement are made on a
quarterly basis through June 30, 2002. Additionally, the new arrangement
requires the Company to comply with certain covenants including the maintenance
of financial ratios. At September 30, 1997, the Company was in compliance with
all such covenants. At September 30, 1997, the Company had uncommitted lines of
credit with various banks which provided $40.0 million of additional borrowing
capacity at market rates of interest. At September 30, 1997, $9.6 million was
outstanding under such facilities, bearing interest at 6.2%.
Upon consummation of the Merger, the current term loan arrangement and the
uncommitted lines of credit will be terminated and the Company will enter into
the Merger Financings. As of September 30, 1997, after giving pro forma effect
to the Merger and the Merger Financings and the application of the net proceeds
therefrom, the Company would have had (i) $237.8 million of consolidated
indebtedness and (ii) $95.3 million of consolidated stockholders' deficiency.
The Company's significant debt service obligations following the Merger could,
under certain circumstances, have material consequences to security holders of
the Company. See "THE MERGER -- Merger Financings" and "RISK
FACTORS -- Substantial Leverage."
In order to fund the payment of the cash portion of the Merger
consideration, to refinance certain existing outstanding indebtedness of the
Company, to pay transaction costs incurred in connection with the Merger, and
for general corporate purposes the Company is issuing $110 million of senior
subordinated debt and will enter into a $167 million bank credit agreement,
providing for borrowings in the aggregate principal amount of approximately $117
million under a term loan and revolving loan borrowings of $50 million under a
revolving credit facility. The revolving credit facility will, subject to a
borrowing base, be available to fund the working capital requirements of the
Company.
Based upon the current level of operations and anticipated growth, the
Company anticipates that its operating cash flow, together with available
borrowings under the new credit agreement, will be adequate to meet its
anticipated future requirements for working capital and operating expenses and
to service its debt requirements as they become due. However, the Company's
ability to make scheduled payments of principal of, or to pay interest on, or to
refinance its indebtedness and to satisfy its other obligations will depend upon
its future performance, which, to a certain extent, will be subject to general
economic, financial, competitive, business and other factors beyond its control.
Management believes that additions to plant and equipment during the past 3
years provide adequate capacity to support its operations for at least the next
12 months. As of September 30, 1997 the Company did not have material
commitments for capital expenditures. For a discussion of how the Merger
Financings to be entered into in connection with the Merger may affect the
Company's ability to make capital expenditures following the Merger, see "RISK
FACTORS -- Substantial Leverage."
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Cash Flow Data -- Nine Months Ended September 30, 1997 Compared to Nine Months
Ended September 30, 1996
Net cash provided by operating activities increased by $6.9 million to $8.5
million for the nine months ended September 30, 1997 as compared to the same
period in 1996, primarily as a result of decreased working capital levels. Net
cash used in investing activities increased by $1.2 million to $6.8 million for
the nine months ended September 30, 1997 over the comparable period in 1996, and
consisted primarily of capital expenditures. Net cash used in financing
activities totaled $2.5 million for the nine months ended September 30, 1997 as
repayments of bank and other indebtedness exceeded net proceeds of $4.5 million
received from the sale of Company Common Stock to cover the exercise of the
underwriters' over-allotment option and proceeds under the new loan
arrangements.
Balance Sheet Data -- September 30, 1997 Compared to December 31, 1996
Accounts receivable, net, increased $18.9 million to $56.3 million at
September 30, 1997 from $37.4 million at December 31, 1996. This increase is
principally due to the increased sales and customary extended payment terms
offered on seasonal sales during the third quarter. Third quarter sales are
generally the highest of the year primarily due to the shipment of certain
seasonal holiday merchandise. During September 1997, the Company entered into an
agreement to convert $4.0 million of trade accounts receivable from one of its
two largest customers into an equity interest. The Company subsequently
transferred 50% of this interest to the Estate in full satisfaction of $2.0
million of obligations. The remaining equity interest is included in other
assets at September 30, 1997.
Inventories increased $3.0 million to $48.7 million at September 30, 1997
from $45.7 million at December 31, 1996 due to seasonality of inventory levels.
Deposits and other current assets decreased $1.7 million to $9.7 million at
September 30, 1997 from December 31, 1996, principally due to a reduction in
deposits for the manufacture of equipment to be leased.
Property, plant and equipment, net, increased $2.5 million to $37.2 million
at September 30, 1997 from $34.7 million at December 31, 1996. The increase
represents the acquisition of certain domestic manufacturing and warehouse
equipment, partially offset by depreciation.
Loans and notes payable decreased $19.3 million to $10.0 million at
September 30, 1997 from December 31, 1996, reflecting the repayment of
borrowings under the Company's previous revolving credit line, which was
financed by advances under the Company's uncommitted facilities and the new term
loan.
Income taxes payable increased $5.6 million to $6.5 million at September
30, 1997 from December 31, 1996. This increase is primarily due to the change in
tax status. In connection with the IPO on December 18, 1996, Amscan Inc.,
Am-Source, Inc., and other subsidiaries of the Company terminated their S
corporation status, and accordingly became subject to federal and state income
taxes.
Third-party long-term financings for the nine months ended September 30,
1997 consisted primarily of borrowings under the previously mentioned term loan
and long-term loans secured by real property, machinery and equipment.
Common Stock and additional paid-in capital increased by $4.5 million as a
result of the exercise of the underwriters' over-allotment option.
Cash Flow Data -- Year Ended December 31, 1996 Compared to Year Ended December
31, 1995
Net cash provided by operating activities increased by $7.6 million to
$12.3 million in the year ended December 31, 1996 from $4.7 million in the year
ended December 31, 1995 as a result of the decreased rate of growth in
inventories and other assets, partially offset by increases in deposits paid on
purchased equipment and a decrease in net income before depreciation and
amortization. Net cash used in investing activities of $7.6 million increased by
$3.1 million from 1995 because of increased capital expenditures. Net cash used
in financing activities increased by $6.1 million to $6.0 million in 1996 due to
increases in stockholder distributions, repayment of bank debt and subordinated
debt partially offset by net proceeds from the IPO.
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Third party financings for 1996 consisted primarily of borrowings under
credit and long-term loans secured by machinery and equipment. The Company used
net proceeds from the IPO to repay debt owed to the banks and to Mr. Svenningsen
in 1996. The Company used $8.9 million of the cash in 1996 to fund its working
capital needs, which consisted primarily of increases in accounts receivable and
deposits on machinery and equipment.
In 1996, the Company distributed $23.4 million, compared to $11.0 million
in 1995, to stockholders, of which $1.4 million in 1996 and $4.0 million in 1995
was reinvested in the Company as debt payable to stockholders. The distributions
in 1996 were funded by net proceeds from the IPO and represented accumulated
earnings and the return of previously provided capital.
In 1996 and 1995, the Company acquired $11.0 million and $4.5 million,
respectively, of machinery and equipment, which was financed by long-term debt
and borrowings under the Company's revolving credit facility, and entered into
operating leases for additional machinery and equipment totaling $10.8 million
in 1996 and $7.4 million in 1995.
Balance Sheet Data -- December 31, 1996 Compared to December 31, 1995
Accounts receivable, net increased $5.5 million to $37.4 million at
December 31, 1996 from $31.9 million at December 31, 1995. This increase is due
principally to increased sales.
Deposits and other assets increased $8.4 million to $11.4 million at
December 31, 1996 from December 31, 1995. This increase is due principally to
deposits placed, offset by the related advances received, in connection with
various operating leases for manufacturing and warehouse equipment as well as
office equipment and computer software and to the establishment of a deferred
tax asset resulting from the change in tax status.
Property, plant and equipment, net increased $5.5 million to $34.7 million
at December 31, 1996 from $29.2 million at December 31, 1995. This increase is
primarily due to manufacturing and warehouse equipment acquired, partially
offset by depreciation.
Intangible assets, net increased $7.1 million on December 31, 1996 from
December 31, 1995 primarily due to goodwill recorded in connection with the
acquisition of the remaining 50% of Am-Source, Inc.
Loans and notes payable decreased $8.5 million to $29.3 million at December
31, 1996. Subordinated and other debt due to stockholders decreased $17.1
million to $1.4 million at December 31, 1996. The decreases resulted from the
repayment of bank debt and subordinated debt funded by net proceeds from the
IPO.
Long-term debt, including current installments, increased $3.1 million to
$17.6 million at December 31, 1996 primarily because of loans used to acquire
machinery and equipment.
Common stock increased $1.7 million to $2.1 million at December 31, 1996
due to the exchange of shares issued in 1996. These shares include the shares
issued to Mr. Svenningsen and others in connection with the Organization, the
shares issued in the IPO and the shares issued in connection with the
establishment of the ESOP, the payment of stock bonuses and the acquisition of
the remaining 50% of Am-Source, Inc.
Additional paid-in capital increased $52.4 million to $61.5 million as of
December 31, 1996 primarily due to the net proceeds from the IPO, and other
shares issued in connection with the IPO, partially offset by the return of
previously provided capital and a reduction in additional paid-in capital
resulting from the exchange of shares in the Organization.
Cash Flow Data -- Year Ended December 31, 1995 Compared to Year Ended December
31, 1994
Net cash provided by operating activities decreased by $0.4 million to $4.7
million in 1995 from $5.1 million in 1994. This slight decrease was primarily
attributable to increases in accounts receivable and inventories, offset by
increases in accounts payable and accrued expenses and net income before
depreciation and amortization. Net cash used in investing activities decreased
$2.8 million from $7.3 million to $4.5 million due to reduced capital
expenditures. Net cash provided by financing activities decreased $2.6 million
from
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$2.7 million to $0.1 million due to an increase in stockholder distributions
partially offset by an increase in loans, notes payable and long-term
indebtedness.
The Company generated $10.0 million and $3.9 million from third-party
financings and $1.2 million and $6.3 million from financings with Mr.
Svenningsen in 1995 and 1994, respectively. Financings in 1995 consisted
primarily of long-term loans secured by machinery and equipment and borrowings
under revolving credit facilities, while financings in 1994 consisted primarily
of bankers acceptances and borrowings under revolving credit facilities. The
Company used $18.6 million of cash in 1995 and $11.2 million of cash in 1994 to
fund its working capital needs, which consisted primarily of increases in
accounts receivable and inventory.
In 1995, the Company distributed $11.0 million, compared to $7.5 million in
1994, to stockholders, of which $4.0 million in 1995 and $6.3 million in 1994
was reinvested in the Company as debt payable to stockholders. The remainder of
these distributions was used principally for the payment of the stockholders'
taxes. The increase from 1994 to 1995 was due to increased earnings of those
corporations, taxable to the stockholders.
In 1994, the Company acquired $8.0 million of machinery and equipment which
was financed primarily by borrowings under the Company's revolving credit
facilities and $4.0 million of which was refinanced through long-term loans
early in 1995.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128 -- Earnings
per Share, effective for interim and annual periods ending after December 15,
1997. The Company does not believe that the impact of SFAS No. 128 will have a
significant impact on its earnings per share calculation.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes requirements for disclosure of comprehensive income.
The new standard becomes effective for the Company's fiscal year 1998 and
requires reclassification of earlier financial statements for comparative
purposes.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 establishes standards for
disclosure about operating segments in annual financial statements and requires
disclosure of selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. This statement supersedes
SFAS No. 14, Financial Reporting for Segments of a Business Enterprise. The new
standard becomes effective for the Company's fiscal year 1998 and requires that
comparative information from earlier years be restated to conform to the
requirements of this standard. The Company does not believe any substantial
changes to its disclosures will be made at the time SFAS No. 131 is adopted.
Other pronouncements issued by the FASB or other authoritative accounting
standards groups with future effective dates are either not applicable or not
significant to the financial statements of the Company.
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QUARTERLY RESULTS
As a result of the seasonal nature of certain of the Company's products,
the quarterly results of operations may not be indicative of those for a full
year. Third quarter sales are generally the highest of the year due to a
combination of increased sales to consumers of the Company's products during
summer months as well as initial shipments of seasonal holiday merchandise as
retailers build inventory. Conversely, fourth quarter sales are generally lower
as retailers sell through inventories purchased during the third quarter. The
overall growth rate of the Company's sales in recent years has offset, in part,
this sales variability. Promotional activities, including special dating and
pricing terms, particularly with respect to Halloween and Christmas products,
result in generally lower margins and profitability in the fourth quarter, as
well as higher accounts receivables balances and associated higher interest
costs to support these balances. The following table sets forth the historical
net sales and income (loss) from operations of the Company for 1997, 1996 and
1995 by quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1997
Net sales..................................... $53,176 $49,225 $ 58,885
Income from operations........................ 10,029 9,306 11,777
1996
Net sales..................................... $47,258 $45,714 $ 54,036 $45,697
Income (loss) from operations................. 7,586 7,563 9,223 (11,614)(a)
1995
Net sales..................................... $39,376 $41,046 $ 47,892 $39,089
Income from operations........................ 6,492 6,350 9,120 2,707(b)
</TABLE>
- ---------------
(a) Included in fourth quarter results in 1996 are non-recurring compensation
expenses of $15.5 million, including stock and cash payments of $12.5
million to certain executives in connection with the termination or
modification of prior employment agreements and $3.0 million for the
establishment of an ESOP for the benefit of the employees of Amscan Inc. and
the payment of stock bonuses to certain of such employees.
(b) In addition to the seasonal variability described above, income from
operations for the fourth quarter of 1995 was adversely affected by the
impact of higher paper costs for which selling price adjustments were
implemented in the first quarter of 1996. Income from operations for this
quarter were also adversely affected by additional bad debt reserves
(approximately $0.5 million) and additional computer system expenses
(approximately $0.5 million).
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THE COMPANY
GENERAL
The Company designs, manufactures and distributes decorative party goods,
offering one of the broadest and deepest product lines in the industry. The
Company's products, consisting of approximately 14,000 SKUs, include paper and
plastic tableware (such as plates, napkins, tablecovers, cups and cutlery),
accessories (such as invitations, thank-you cards, table and wall decorations
and balloons) and novelties (such as games and party favors). The Company's
products are sold to party goods superstores, independent card and gift
retailers, mass merchandisers and other distributors which sell the Company's
products in more than 20,000 retail outlets throughout the world, including
North America, Australia, the United Kingdom, Germany and Sweden. The Company
operates in a single industry segment.
The Company, which completed its initial public offering in December 1996,
was organized on October 3, 1996 to become the holding company for the
businesses previously conducted by the Company's principal subsidiary, Amscan
Inc. and certain affiliated companies. These affiliates included Trisar, Inc.,
which manufactures and distributes certain of the Company's products, Amscan
Distributors (Canada) Ltd. and Amscan Svenska AB, each of which distributes the
Company's products, JCS Realty Corp. and SSY Realty Corp., each of which owns
certain real estate leased to the Company, Am-Source, Inc., the Company's
supplier of plastic plates, cups and bowls, and certain companies located in
Great Britain, Australia, Germany and Mexico which distribute the Company's
products. The business of Amscan Inc. was founded by Mr. Svenningsen and his
family in 1947.
The Company designs, manufactures and markets party goods for a wide
variety of occasions including seasonal holidays, special events and themed
celebrations. The Company's seasonal ensembles enliven holiday parties
throughout the year, including New Year's, Valentine's Day, St. Patrick's Day,
Easter, Passover, Fourth of July, Halloween, Thanksgiving, Hanukkah and
Christmas. The Company's special event ensembles include birthdays,
christenings, first communions, bar mitzvahs, confirmations, graduations, bridal
and baby showers and anniversaries, while its theme-oriented ensembles include
Hawaiian luaus, Mardi Gras and '50s rock-and-roll parties. The Company currently
offers over 250 product ensembles, generally containing 30 to 150 coordinated
items. These ensembles comprise a wide variety of products to accessorize a
party including matching invitations, tableware, decorations, party favors and
thank-you cards.
The Company's sales and cash flows have grown substantially over the past
five years. From 1991 to 1996, sales and Adjusted EBITDA (adjusted for
non-recurring items, other expenses (income), net, and minority interests) have
grown at compound annual rates of 20.1% and 27.9%, respectively. During the same
period, Adjusted EBITDA margins increased from approximately 14% to 20%, due in
part to achieving greater economies of scale in manufacturing and distribution
and significantly reducing selling expenses as a percentage of sales. Sales and
Adjusted EBITDA for the twelve months ended September 30, 1997 were $207.0
million and $42.0 million, respectively, representing an Adjusted EBITDA margin
of approximately 20.3%.
In addition to its long-standing relationships with independent card and
gift retailers, the Company is a leading supplier to the rapidly growing party
superstore distribution channel. Party superstores provide consumers with a
one-stop source for all of their party needs, generally at discounted prices.
The retail party goods business has historically been fragmented among
independent stores and drug, discount or department store chains. However,
according to industry analysts, there has been a significant shift of sales
since 1990 to party superstores.
Company sales to superstores represented approximately 44% of total net
sales in 1996. While the number of party superstores that the Company supplies
has grown at a compound annual growth rate ("CAGR") in excess of 20% from 1993
to 1996, the Company's sales to superstores have grown by a 47% CAGR during the
same period. With the Company's products occupying an increasing share of
superstore shelf space in many product categories, the Company believes it is
well positioned to take advantage of continued growth in the party superstore
channel.
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[STRONG REVENUE AND EBITDA GROWTH BAR GRAPHS]
PARTY GOODS INDUSTRY OVERVIEW
According to industry analyst reports, in 1996, the U.S. decorative party
goods industry (including tableware, accessories, and novelties) generated
approximately $3.5 billion in retail sales in 1996 and has grown approximately
10% annually over the past several years. The Company believes this growth is
driven by several factors including favorable demographics and consumer spending
patterns, the emergence of the party superstore channel, and growth in the
number of party events celebrated and party products available to consumers.
The Company believes that demographic trends favor continued growth in
decorative party goods sales. According to the United States Bureau of the
Census ("The Census Bureau"), between 1997 and 2005, population in the 10-19
year old age bracket is expected to increase by approximately 10%, and
population in the 20-24 year old age bracket is expected to increase by
approximately 15%. This suggests an increase in celebrations revolving around
teenagers and young adults including confirmations, bar mitzvahs, graduations
and bridal and baby showers. In addition, the 45-54 year old age bracket is
expected to increase by over 20% by 2005. According to The Census Bureau and the
United States Bureau of Labor Statistics, in 1995, the 45-54 year old age group
enjoyed the highest median household income and spent the most money on
entertainment. The Company believes that this population segment is a key buying
group of party goods for children and grandchildren, as well as products for
adult milestone events including birthdays, anniversaries and retirements.
Another factor contributing to growth in the decorative party goods
industry has been the emergence of party goods superstores which, according to
industry analysts, are poised for expansion as national penetration continues.
The Company believes that superstores are popular among consumers because of the
large variety of merchandise and substantial discounts they offer. Industry
analysts report that, over the past several years, the marketplace has begun to
accept a move toward the party goods superstore merchandising concept, similar
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to earlier merchandising shifts in such product categories as toys, office
supplies, home furnishings and home improvements.
The Company believes that party goods sales volumes have also increased, in
part, as a result of:
- the creation of new product ensembles both in response to consumer demand
and as a means of stimulating customer purchases;
- the broadening of product lines through the addition of new items and new
accessories within ensembles;
- larger retail environments allowing retailers to employ marketing
techniques which result in increased average sales per customer; and
- the celebration of an increased number of party themes and events, such
as Hawaiian luaus, Mardi Gras and '50s rock-and-roll parties.
The Company believes that by introducing products for new types of
celebrations, offering multiple product ensembles for individual celebrations
(such as multiple Halloween or birthday ensembles) and increasing the number of
"add-on" accessories, party goods suppliers have increased the frequency and
volume of consumer purchases of decorative party goods.
PRODUCT DESIGN
The Company's 70-person in-house design staff produces and manages the
Company's party goods. From the designs and concepts developed by the Company's
artists, the Company selects those it believes best to replace approximately
one-third of its designed product ensembles each year. For 1997, the Company
introduced approximately 50 new ensembles.
MANUFACTURED AND PURCHASED PRODUCTS
Items manufactured by the Company accounted for approximately 50% of the
Company's sales in 1996. State-of-the-art printing, forming, folding and
packaging equipment support the Company's manufacturing operations. Company
facilities in New York, Kentucky, Rhode Island and California produce paper and
plastic plates, napkins, cups and other party and novelty items. This
vertically-integrated manufacturing capability for many of its products allows
the Company the opportunity to better control costs and monitor product quality,
manage inventory investment and provide efficiency in order fulfillment.
The Company generally uses its manufacturing equipment on the basis of at
least two shifts per day in order to lower its production costs per item. In
addition, the Company manufactures products for third parties allowing the
Company to maintain a satisfactory level of equipment utilization.
The principal raw material used by the Company in its products is paper.
The Company has historically been able to change its product prices in response
to changes in raw materials costs. While the Company currently purchases such
raw materials from a relatively small number of sources, paper is available from
a number of sources. The Company believes its current suppliers could be
replaced by the Company without adversely affecting its operations in any
material respect.
The Company sources the remainder of its products from independently-owned
manufacturers, many of whom are located in the Far East and with whom the
Company has longstanding relationships. The two largest such suppliers operate
as exclusive suppliers to the Company and represent relationships which have
been in place for more than ten years. The Company believes that the quality and
price of the products manufactured by these suppliers provide a significant
competitive advantage. The Company's business, however, is not dependent upon
any single source of supply for products manufactured for the Company by third
parties.
THE SELLING PROCESS
The Company's principal sales and marketing efforts are conducted through a
domestic direct employee sales force of approximately 60 professionals servicing
over 5,000 retail accounts. These professionals have, on average, been
affiliated with the Company for approximately five years. In addition to this
seasoned sales team, the Company utilizes a select group of manufacturers'
representatives to handle specific account
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situations. International customers are generally serviced by employees of the
Company's foreign subsidiaries. To support its marketing effort, the Company
produces three separate product catalogues annually, two for seasonal products
and one for everyday products.
From 1991 to 1996, the Company significantly reduced selling, general and
administrative expenses as a percentage of sales, largely because of a
proportionate decrease in selling expenses.
[SG&A AS % OF REVENUES GRAPH]
The Company's practice of including party goods retailers in all facets of
the Company's product development is a key element of the Company's sales and
marketing efforts. The Company targets important consumer preferences by
integrating its own market research with the input of party goods retailers in
the creation of its designs and products. In addition, the sales organization
assists customers in the actual setup and layout of displays of the Company's
products, and, from time to time, the Company also provides customers with
promotional displays.
DISTRIBUTION AND SYSTEMS
The Company ships its products from distribution warehouses which employ
computer assisted systems. Nonseasonal products are shipped either from
California or New York to provide fast delivery of goods to party goods
retailers at economical freight costs. In order to better control inventory
investment, seasonal products are shipped out of a central warehouse located in
New York. Products for foreign markets are shipped from the Company's
distribution warehouses in Canada, Mexico, England and Australia.
Many of the Company's sales orders are generated electronically through
hand-held units with which the sales force and many customers are equipped.
Specifically, orders are entered into the hand-held units and then transmitted
over telephone lines to the Company's mainframe computer, where they are
processed for shipment. This electronic order entry expedites the order
processing which in turn improves the Company's ability to fill customer
merchandise needs accurately and quickly.
COMPETITION
The Company competes on the basis of diversity and quality of its product
designs, breadth of product line, product availability, price, reputation and
customer service. The Company has many competitors with respect to one or more
of its products. The Company believes that there are few competitors which
manufacture and distribute products with the complexity of design and breadth of
product offerings that the
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Company does. Furthermore, the Company believes that its design and
manufacturing processes create an efficiency in manufacturing that few of its
competitors achieve in the production of numerous coordinated products in
multiple design types.
Competitors include smaller independent specialty manufacturers, as well as
divisions or subsidiaries of large companies with greater financial and other
resources than those of the Company. Certain of these competitors control
licenses for widely recognized images, such as cartoon or motion picture
characters, which could provide them with a competitive advantage. The Company
has pursued a strategy of developing its own designs and generally has not
pursued licensing opportunities.
CUSTOMERS
The Company's customers are principally party goods superstores,
independent card and party retailers, mass merchandisers and other distributors.
In the aggregate, the Company supplies more than 20,000 retail outlets, both
domestically and internationally. The Company is a leading supplier to the party
superstore channel, which has been experiencing significant growth.
[REVENUE BREAKDOWN PIE CHARTS]
The Company has a diverse customer base. Only one customer, Party City,
accounted for more than 10% of the Company's sales in 1996. Sales to Party City
accounted for 11% and 15% of the Company's sales in 1995 and 1996, respectively.
Although the Company believes its relationship with Party City is good, if it
significantly reduces its volume of purchases from the Company, the Company's
financial condition and results of operations could be adversely affected.
FUTURE ACQUISITIONS
The Company believes that opportunities exist to make acquisitions of
complementary businesses to leverage the Company's existing marketing,
distribution and production capabilities, expand its presence in the various
retail channels, further broaden and deepen its product line and penetrate
international markets. The Company receives inquiries from time to time with
respect to possible the possible acquisition by the Company of other entities
and such inquiries have been received since the announcement of the Merger. As
of the date of this Proxy Statement/Prospectus, the Company has not entered into
any agreements with respect to acquiring other companies or businesses; however,
the Company intends to pursue acquisition opportunities aggressively.
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COMPETITIVE STRENGTHS
Leading Supplier to the High Growth and High Volume Party Goods Superstore
Channel. In addition to its long-standing base of business with independent
card and party retailers, the Company believes that its products account for an
increasing portion of the retail sales by major superstore chains, including
Party City Corporation, Party Stores Holdings, Inc., Big Party Corporation,
Party Factory, Half Off Card, Paper Warehouse and Factory Card Outlet Corp.
Approximately 44% of the Company's sales were generated from superstores last
year, and based on indications from these chains that they intend to continue to
expand nationwide, the Company expects that sales to this segment will continue
to grow significantly.
Single Source Supplier of Decorative Party Goods. The Company provides one
of the most extensive product lines of decorative party goods in the industry,
serving a wide variety of occasions. The Company produces over 250 different
ensembles, generally containing 30 to 150 coordinated SKUs within each ensemble.
With 14,000 SKUs, the Company is a one-stop shopping, single-source supplier to
retailers of decorative party goods. The Company believes this breadth of
product line provides enough variety that competing retailers can each purchase
the Company's products and still differentiate themselves by the product they
market to the end consumer.
Product Design Leadership. The Company believes one of its strengths is
its leadership in creating innovative designs and party items. The Company
believes its product designs have a level of color, complexity and style that
are attractive to consumers and difficult to replicate. The Company offers
coordinated accessories and novelties which, the Company believes, complement
its tableware designs, enhancing the appeal of its tableware products and
encouraging "add on" impulse purchases.
Strong Customer Relationships. The Company has built strong relationships
with its customer base which operates more than 20,000 retail outlets. The
Company strives to provide superior service and, by involving retailers in
product development and marketing, seeks to become a strategic partner to its
customers.
Strong and Committed Management Team. The Company's management team has
built the business into an industry leader with integrated design,
manufacturing, and distribution capabilities. Current management has been
instrumental in building the Company's strong industry position and in the
Company achieving a 28% compound annual growth rate in Adjusted EBITDA since
1991. The management team and other key employees have committed $6.4 million
(including restricted stock grants) to the Merger and the transactions
contemplated thereby.
OPERATIONAL REVIEW
Design. The Company's design staff of approximately 70 people develops and
manages the Company's broad line of party goods for a wide variety of occasions
and keeps the product line contemporary and fresh by introducing new ensembles
each year. For example, the Company introduced approximately 50 new ensembles
for 1997.
Manufactured Products. The Company is a vertically integrated manufacturer
enabling it to better control costs, monitor quality, manage inventory and
respond quickly to customer needs. The Company's state-of-the-art facilities in
New York, Kentucky, Rhode Island and California manufacture products including
paper and plastic plates, napkins and cups. These manufactured products account
for approximately 50% of the Company's sales. Over the past five years, the
Company has purchased or leased new plant and equipment having an aggregate
value of approximately $47 million to support expansion and provide for future
growth. The Company believes it is able to expand production by utilizing its
current facilities.
Purchased Products. The Company sources the remainder of its products from
independently-owned manufacturers, many of whom are located in the Far East and
with whom the Company has long-standing relationships. The two largest such
suppliers operate as exclusive suppliers to the Company and represent
relationships which have been in place for more than ten years. The Company
believes that the quality and price of the products manufactured by these
suppliers provide a significant competitive advantage. The Company's business,
however, is not dependent upon any single source of supply for products
manufactured for the Company by third parties.
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<PAGE> 103
Sales and Distribution. The Company's sales and distribution capabilities
are designed to provide a high level of customer service. A domestic direct
employee sales force of approximately 60 professionals services over 5,000
retail accounts. In addition to this seasoned sales team, the Company utilizes a
select group of manufacturers' representatives to handle specific account
situations. International customers are generally serviced by employees of the
Company's foreign subsidiaries. To support its marketing effort, the Company
produces three catalogues annually, two for seasonal products and one for
everyday products. Products are shipped from the Company's distribution centers
using computer assisted systems that permit the Company to receive and fill
customer orders efficiently and quickly.
COMPANY STRATEGY
The Company seeks to become the primary source for consumers' party goods
requirements. The key elements of the Company's strategy are as follows:
- Strengthen Position as a Leading Provider to Party Superstores. The
Company offers convenient "one-stop shopping" for large superstore buyers
and seeks to increase its proportionate share of sales volume and shelf
space in the superstores.
- Offer the Broadest and Deepest Product Line in the Industry. The Company
strives to offer the broadest and deepest product line in the industry.
The Company helps retailers boost average purchase volume per consumer
through coordinated ensembles that promote "add on" purchases.
- Diversify, Retail Channel, Product Offering and Geographic Presence. The
Company will seek, through internal growth and acquisitions, to expand
its distribution capabilities internationally, increase its presence in
additional retail channels and further broaden and deepen its product
line.
- Provide Superior Customer Service. The Company strives to achieve high
average fill rates in excess of 95% and ensure short turnaround times.
- Maintain Product Design Leadership. The Company will continue investing
in art and design to support a steady supply of fresh ideas and create
complex, unique ensembles that appeal to consumers and are difficult to
replicate.
- Maintain State-of-the-Art Manufacturing and Distribution Technology. The
Company intends to maintain technologically advanced production and
distribution systems in order to enhance product quality, manufacturing
efficiency, cost control and customer satisfaction.
- Pursue Attractive Acquisitions. The Company believes that opportunities
exist to make acquisitions of complementary businesses to leverage the
Company's existing marketing, distribution and production capabilities,
expand its presence in the various retail channels, further broaden and
deepen its product line and penetrate international markets. The Company
receives inquiries from time to time with respect to the possible
acquisition by the Company of other entities and, after completion of the
Merger, the Company intends to pursue acquisition opportunities
aggressively.
PRODUCT LINE
The categories of products which the Company offers are tableware,
accessories and novelties. The percentages of net sales for each product
category for the last three years are set forth in this table:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Tableware.............................. 58% 60% 59%
Accessories............................ 26% 24% 25%
Novelties.............................. 16% 16% 16%
</TABLE>
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This table sets forth the principal products in each of the three
categories:
TABLEWARE
Solid Color
Paper and Plastic Cups
Paper and Plastic Plates
Paper and Plastic
Tablecovers
Plastic Cutlery
Decorated
Paper Cups
Paper Napkins
Paper Plates
Paper Tablecovers
ACCESSORIES
Balloons
Banners
Cascades
Confetti
Crepe
Cutouts
Decorative Tissues
Flags
Gift Bags
Gift Wrap
Guest Towels
Honeycomb Centerpieces
Invitations and Notes
Ribbons and Bows
Signs
NOVELTIES
Buttons
Candles
Cocktail Picks
Games
Mugs
Noise Makers
Party Favors
Party Hats
Pom Poms
T-shirts
Occasions
The Company supplies party goods for the following types of occasions:
SEASONAL
New Year's
Valentine's Day
St. Patrick's Day
Easter
Passover
Fourth of July
Halloween
Thanksgiving
Hanukkah
Christmas
EVERYDAY
Anniversaries
Birthdays
Graduations
Retirements
Showers
Weddings
Bar/Bat Mitzvahs
Christmas
First Communions
Confirmations
THEMES
Fall
Fiesta
Fifties Rock-and-Roll
Hawaiian Luau
Mardi Gras
Patriotic
Religious
Sports
Summer Fun
Tableware
The Company believes that tableware products are the initial focus of
consumers in planning a party, since these items are necessary in connection
with the consumption of food and beverages. To distinguish its tableware from
that of its competitors, the Company seeks to create a broad range of unique
designs for its products. In addition, the Company's tableware products are
priced competitively and affordably, having suggested retail prices (based upon
quantity and product) ranging between $1.70 and $10.00.
Accessories and Novelty Items
The Company believes that consumers are attracted to the Company's
tableware due to the breadth and array of accessory and novelty items. Unified
displays of complete ensembles in retail stores are designed to enhance the
appeal of the Company's tableware and encourage the impulse buying of
accessories and novelties. The Company believes that by offering a broad product
line, it increases the number of products sold per customer transaction.
INTELLECTUAL PROPERTY AND LICENSES
The Company owns copyrights on the designs created by the Company and used
on its products. The Company owns trademarks in the words and designs used on or
in connection with its products. It is the practice of the Company to register
its copyrights with the United States Copyright Office to the extent it
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<PAGE> 105
deems reasonable. The Company does not believe that the loss of copyrights or
trademarks with respect to any particular product or products would have a
material adverse effect on the business of the Company.
The Company does not depend on licenses to any material degree in its
business and, therefore, does not incur any material licensing expenses.
EMPLOYEES
As of September 30, 1997, the Company had approximately 1,100 employees,
none of whom is represented by a labor union. The Company considers its
relationship with its employees to be good.
FACILITIES
The Company maintains its corporate headquarters in Elmsford, New York and
conducts its principal design, manufacturing and distribution operations at the
following facilities:
<TABLE>
<CAPTION>
OWNED OR LEASED
LOCATION PRINCIPAL ACTIVITY SQUARE FEET (WITH EXPIRATION DATE)
- ---------------------- ----------------------------- -------------------- -------------------------
<S> <C> <C> <C>
Elmsford, New York(1) Executive Offices; design and 45,000 square feet Leased (expiration date:
art production of paper party February 28, 2001)
products and decorations
Harriman, New York Manufacture of paper napkins 75,000 square feet Leased (expiration date:
and cups March 31, 1999)
Providence, Rhode Manufacture and distribution 51,000 square feet Leased (expiration date:
Island of plastic plates, cups and June 30, 2008)
bowls
Louisville, Kentucky Manufacture and distribution 183,000 square feet Leased (expiration date:
of paper plates March 31, 1999)
Anaheim, California Manufacture of novelty items 25,000 square feet Leased (expiration date:
February 28, 1999)
Newburgh, New York Manufacture and distribution 167,000 square feet Leased (expiration date:
of party products November 30, 1999)
Temecula, Distribution of party 212,000 square feet Leased (expiration date:
California(2) products and decorations February 28, 2000)
Goshen, New York Distribution of party 130,000 square feet Leased (expiration date:
products and decorations December 31, 1998)
Chester, New York(3) Distribution of party 287,000 square feet Owned
products and decorations
Montreal, Canada(4) Distribution of party 124,000 square feet Owned
products and decorations
Milton Keynes, England Distribution of party 110,000 square feet Leased (expiration date:
products and decorations June 30, 2017)
throughout United Kingdom and
Europe
Melbourne, Australia Distribution of party 10,000 square feet Owned
products and decorations in
Australia and Asia
</TABLE>
- ---------------
(1) Property leased by the Company from a limited liability company which is
79%-owned by a trust established for benefit of Mr. Svenningsen's children,
20%-owned by a trust established for the benefit of Mr. Svenningsen's
sister's children and 1%-owned by a corporation owned by the Estate. In July
1997, such limited liability company entered into a purchase and sale
agreement pursuant to which the Elmsford property will be sold. In
conjunction with such sale, the Company will enter into a new lease, to
commence upon consummation of the sale, on substantially similar terms as
the lease in effect as of the date of this Proxy Statement/Prospectus, with
certain exceptions, including, but not limited to, a term of ten years from
commencement and additional space of approximately 5,000 square feet. See
"MANAGEMENT -- Certain Relationships and Related Transactions."
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<PAGE> 106
(2) Property leased by the Company from the Estate. See "MANAGEMENT -- Certain
Relationships and Related Transactions."
(3) Property subject to a ten-year mortgage made by the Company securing a Loan
in the original principal amount a $5,925,000 bearing interest at a rate of
8.51%. Such mortgage commenced on September 14, 1994. The principal amount
outstanding as of September 30, 1997 was approximately $4,147,500.
(4) Property subject to a mortgage made by the Company securing a loan in the
original principal amount of $2,088,000. Such mortgage bears an interest
rate at the lower of Hong Kong Bank of Canada's Cost of Funds plus 1.6% or
Canadian Prime plus 0.5%. The principal amount outstanding as of September
30, 1997 was approximately $1,924,000.
The Company believes that its properties have been adequately maintained,
are in generally good condition and are suitable for the Company's business as
presently conducted. The Company believes its existing facilities provide
sufficient production capacity for its present needs and for its anticipated
needs in the foreseeable future. To the extent such capacity is not needed for
the manufacture of the Company's products, the Company generally uses such
capacity for the manufacture of products for others pursuant to terminable
contracts. All properties generally are used on a basis of two shifts per day.
The Company also believes that upon the expiration of its current leases, it
either will be able to secure renewal terms or enter into leases for alternative
locations at market terms.
LEGAL PROCEEDINGS
Except as set forth under "THE MERGER -- Stockholder Litigation," neither
the Company nor any of its subsidiaries is a party to any material pending legal
proceedings.
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<PAGE> 107
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their respective
ages and principal positions with the Company are set forth below.
<TABLE>
<CAPTION>
YEAR FIRST YEAR OF
ELECTED A EXPIRATION
DIRECTOR OR OF TERM AS
NAME AGE POSITION OFFICER DIRECTOR
- ------------------------- --- ----------------------------------- ----------- ----------
<S> <C> <C> <C> <C>
Gerald C. Rittenberg..... 45 President, Acting Chairman of the 1996 1998
Board and Director
James M. Harrison........ 45 Chief Financial Officer and 1996 --
Secretary
William S. Wilkey........ 41 Senior Vice President -- Sales and 1996 --
Marketing
Allyn H. Powell.......... 61 Director 1997 1998
Frank A. Rosenberry...... 60 Director 1997 1999
John Tugwell............. 56 Director 1997 2000
</TABLE>
GERALD C. RITTENBERG has served as the President of the Company since
October 1996 and has served as Acting Chairman of the Board since May 1997. Mr.
Rittenberg has also served as President of Amscan Inc. since April 1996. From
1991 to April 1996, he was Executive Vice President -- Product Development of
Amscan Inc. and from 1990 to 1991 he was Vice President -- Product Development
of Amscan Inc. Prior to joining Amscan Inc., Mr. Rittenberg was Senior Vice
President of Different Looks, a division of Berwick Industries, Incorporated
which manufactures and distributes gift wrap and related products and Director
of Operations for the packaging division of Philip Morris Companies Inc.
JAMES M. HARRISON has served as the Chief Financial Officer of Amscan Inc.
since August 1996 and has served as Chief Financial Officer and Secretary of the
Company since February 1997. From 1993 to 1995, Mr. Harrison was the Executive
Vice President, Chief Operating Officer, Secretary, Treasurer and a member of
the Board of Directors of The C.R. Gibson Company, a manufacturer and
distributor of paper gift products. From 1988 to 1993, Mr. Harrison was the
Chief Financial Officer of The C.R. Gibson Company.
WILLIAM S. WILKEY has served as the Senior Vice President -- Sales and
Marketing of Amscan Inc. since 1992 and as Vice President -- Marketing and Field
Sales from 1990 to 1992. From 1988 to 1990, Mr. Wilkey was employed by Paper
Art, a manufacturer and distributer of party goods (currently called Creative
Expressions Group, Inc.), where he served as National Sales Manager.
ALLYN H. POWELL has served as a director of the Company since February
1997. Mr. Powell has been President and Chief Executive Officer of Cuthbertson
Imports, Inc., an importer and distributor of fine china and gifts, for over 22
years.
FRANK A. ROSENBERRY has served as a director of the Company since February
1997. Mr. Rosenberry is currently a consultant to various companies. From 1988
to 1995, Mr. Rosenberry served as President and Chief Executive Officer of The
C.R. Gibson Company, a manufacturer and distributor of paper gift products.
JOHN TUGWELL has served as a director of the Company since February 1997.
From May 1997 to October 1997, Mr. Tugwell was the President and Chief Executive
Officer of The Bank of N.T. Butterfield Limited, an offshore bank headquartered
in Bermuda. Mr. Tugwell was the President and Chief Executive Officer of Fleet
Bank National Association from May 1996 to May 1997. From April 1991 to May
1996, Mr. Tugwell was the Chairman and Chief Executive Officer of National
Westminster Bancorp. Mr. Tugwell currently serves on the boards of several
economic and charitable organizations.
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<PAGE> 108
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Summary Compensation Table
The following table sets forth information concerning the compensation
earned for the past two years for the Company's former and current Chief
Executive Officer and each other executive officer of the Company as of December
31, 1996 whose aggregate salary and bonus for 1996 exceeded $100,000. The
amounts shown include compensation for services in all capacities that were
provided to the Company or its subsidiaries. Unless otherwise indicated, amounts
shown were paid by the Company's principal subsidiary, Amscan Inc.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) COMPENSATION(3)
- ------------------------------- ----- -------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John A. Svenningsen............ 1996 $315,609 $ 0(4) $ 5,939
Former CEO and Chairman 1995 $289,399 0(4) $10,614
Gerald C. Rittenberg........... 1996 $211,000 $2,800,000(5) $21,895
President and Acting Chairman 1995 $200,269 $1,682,000(5) $ 4,317
William S. Wilkey.............. 1996 $181,000 $1,036,000(6) 100,000 $21,679
Senior Vice President -- 1995 $172,500 $ 757,000(6) $ 4,317
Sales and Marketing
James M. Harrison.............. 1996(7) $ 62,500 $ 50,000 50,000 $ 0
Chief Financial Officer
</TABLE>
- ---------------
(1) Represents amounts earned with respect to the years indicated, whether paid
or accrued.
(2) Reflects Company Stock Options granted pursuant to the Stock Plan at an
exercise price equal to the fair market value on the date of grant.
(3) Represents contributions by the Company under the Profit Sharing & Savings
Plan maintained by the Company's principal subsidiary, Amscan Inc., and
under the ESOP, as well as insurance premiums paid by the Company with
respect to term life insurance for the benefit of the named executive
officer.
(4) Prior to the IPO which was consummated in December 1996 certain entities
which are now subsidiaries of the Company elected to be taxed as S
corporations under the Code. Mr. Svenningsen received $11,009,000 and
$15,841,000 from such entities in 1995 and 1996, respectively. Such amounts
represented distributions to him as an S corporation shareholder and, with
respect to 1996, additional distributions of accumulated capital and
previously-taxed earnings in conjunction with the IPO.
(5) Represents bonuses earned by Mr. Rittenberg pursuant to his prior employment
agreement with Amscan Inc. which agreement terminated in December 1996 in
connection with the IPO.
(6) Represents bonuses earned by Mr. Wilkey pursuant to an employment agreement
with Amscan Inc. which expired on December 31, 1996.
(7) Mr. Harrison became an employee and Chief Financial Officer of Amscan Inc.
on August 1, 1996.
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<PAGE> 109
Option Grants Table
The following table sets forth information concerning stock options which
were granted during 1996 to the executive officers named in the Summary
Compensation Table. The options were granted pursuant to the Stock Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED ANNUAL
OPTIONS RATES OF STOCK PRICE
GRANTED TO APPRECIATION FOR OPTION
EMPLOYEES TERM
OPTIONS IN FISCAL EXERCISE EXPIRATION DATE -----------------------
NAME GRANTED(1) YEAR PRICE OF OPTIONS 5% 10%
- -------------------- ---------- ---------- -------- --------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
William S. Wilkey... 100,000 23.5% $ 12 December 19, $754,673 $1,912,491
2006
James M. Harrison... 50,000 11.8% $ 12 December 19, $377,337 $ 956,245
2006
</TABLE>
- ---------------
(1) All Company Stock Options listed in this column are exercisable ratably over
four years beginning one year from the date of the grant, and expire ten
years after the date of the grant. To the extent permitted under the Code,
such options are incentive stock options. For a description of options to be
granted to certain employees of the Company in connection with the Merger,
see "THE MERGER -- Interests of Certain Persons in the Merger."
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
OPTIONS AT YEAR END
(EXERCISABLE/NON-EXERCISABLE)
-----------------------------
<S> <C>
William S. Wilkey................................... 100,000
James M. Harrison................................... 50,000
</TABLE>
At December 31, 1996, the market price of the Company Common Stock was $12
per share, an amount equal to the exercise price of each of the Company Stock
Options granted to Mr. Wilkey and Mr. Harrison. As a result, none of such
Company Stock Options was "in the money" at December 31, 1996. No Company Stock
Options were exercised in the most recent fiscal year.
Set forth below are descriptions of the Company's current employment
agreements with Messrs. Rittenberg, Wilkey and Harrison. In connection with the
Merger, Acquisition has entered into employment and other agreements with
certain of the Company's employees relating to their employment or other matters
by the Company following the Merger. Such agreements, in certain circumstances,
supersede the current employment agreements summarized below. See "THE
MERGER -- Interests of Certain Persons in the Merger."
Gerald C. Rittenberg. Mr. Rittenberg entered into an employment with the
Company for a term of three years commencing on December 24, 1996. Under the
terms of this agreement Mr. Rittenberg is employed as President of the Company
at a base annual salary of $220,000. Mr. Rittenberg's salary will be increased
by 5% each successive year during the term of the agreement. This agreement may
be terminated by the Company upon the death of Mr. Rittenberg or for "cause."
The agreement also provides that, upon termination of employment, Mr. Rittenberg
may not be employed by, or be associated in any manner with, any other business
which is competitive with the Company for a period of three years.
Mr. Rittenberg's agreement was made in conjunction with an agreement among
Amscan Inc., John A. Svenningsen and Mr. Rittenberg whereby Mr. Rittenberg
agreed to terminate his prior employment agreement which provided for Mr.
Rittenberg to receive (a) a bonus in an amount equal to 10% of the aggregate net
profits of Amscan Inc. and certain affiliates (as defined in the agreement), (b)
5% of the net selling price upon the sale of Amscan Inc. or the sale by John A.
Svenningsen of substantially all of his stock in Amscan Inc. and (c) in the
event of an initial public offering of the stock of Amscan Inc., shares of the
stock of Amscan Inc. equal to 5% of the shares of stock of Amscan Inc. issued
and outstanding immediately
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<PAGE> 110
following the consummation of such an initial public offering. In exchange for
the relinquishment of such rights, Mr. Rittenberg received a cash payment of
$3.4 million and a number of shares of stock of Amscan Inc., which shares he
exchanged for 660,000 shares of Company Common Stock representing approximately
3% of the Company Common Stock outstanding after consummation of the IPO. The
Company has granted Mr. Rittenberg certain rights to require the Company to
register the offer and sale of the Company Common Stock owned by Mr. Rittenberg
under the Securities Act. For a description of the Stock Agreement, see "THE
MERGER -- Interests of Certain Persons in the Merger."
James M. Harrison. Pursuant to an agreement dated as of February 1, 1997
which became effective June 1, 1997, Mr. Harrison is employed as the Chief
Financial Officer of the Company for a term of four years. The term will
automatically be extended for successive one-year periods unless either party
gives 12 months notice of an intent not to extend the term. Pursuant to the
agreement, Mr. Harrison will receive an initial base salary of $215,000 for
1997, which will be increased by 5% each successive year during the term of the
agreement. In addition, Mr. Harrison will be entitled to an annual bonus equal
to a percentage of his base salary for the year. The percentage will be equal to
three times the increase in the Company's Net Income (as defined in the
agreement) over its Net Income for the immediately preceding year. Mr.
Harrison's agreement also provides that upon termination of employment he may
not for a period of three years be employed by, or associated in any manner
with, any business which is competitive with the Company. This agreement may be
terminated by the Company upon the death or permanent disability of Mr. Harrison
or for "cause." If the agreement is terminated by the Company for any other
reason, Mr. Harrison is entitled to his base salary for the balance of the term
of the agreement, but in no event less than 12 months base salary and a pro
rated portion of the bonus he would otherwise have been entitled to for the year
in which termination occurs. If the Company terminates Mr. Harrison's employment
following a Potential Change of Control (as defined) other than because of Mr.
Harrison's death or because of Special Cause or Special Disability (as defined),
Mr. Harrison would be entitled to a lump-sum payment (the "Change of Control
Termination Payment") equal to three times the sum of his then base salary and
the average bonus for the three full years prior to termination. In the event of
certain transactions relating to a Change of Control of the Company, Mr.
Harrison would be entitled to a payment (the "Change of Control Payment") based
on a formula. The Change of Control Payment would be equal to $500,000 for each
$1 by which the price per share paid in the Change of Control transaction
exceeds a 90-day average price of the Company Common Stock, subject to certain
minimum and maximum amounts. If Mr. Harrison's employment is terminated
following a Change in Control, Mr. Harrison would be entitled to receive an
amount equal to the excess, if any, of the Change of Control Termination Payment
over the Change of Control Payment.
William S. Wilkey. Mr. Wilkey entered into an employment agreement which
commenced on January 1, 1997. Under the terms of this agreement Mr. Wilkey is
employed as Senior Vice President -- Sales and Marketing of the Company for a
period of five years. Mr. Wilkey will receive an initial base salary of $200,000
for 1997, which will be increased by 5% each successive year during the term of
the agreement. In addition, Mr. Wilkey is entitled to receive an annual bonus
which will be determined by a formula which takes into account the amount by
which sales and profits are increased on a year to year basis. Mr. Wilkey's
agreement also provides that upon termination of employment he may not for a
period of three years be employed by, or associated in any manner with, any
business which is competitive with the Company. This agreement may be terminated
by the Company upon the death or permanent disability of Mr. Wilkey or for
"cause." Mr. Wilkey's previous employment agreement, which expired on December
31, 1996, provided that, in addition to a base salary, he was entitled to
receive an amount equal to 5% of the aggregate net profits of Amscan Inc. and
certain affiliates.
COMPENSATION OF DIRECTORS
Employee directors receive no additional compensation for serving on the
Board of Directors or its committees. The Company compensates directors who are
not employees of the Company in the amount of $1,000 for each meeting of the
Board of Directors attended and $1,000 for each meeting of the Audit Committee
and the Nominating Committee attended. In addition, the Board of Directors has
determined that each director of the Company at or near the end of each year
will receive as additional compensation for
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<PAGE> 111
service as a director during such year, a number of shares of the Company Common
Stock equal to the director's fees paid to such director in cash for meetings
attended during such fiscal year divided by the fair market value of a share of
the Company Common Stock on the date of issuance. As a result of the Merger,
such additional compensation will be paid to the directors in cash. All
directors will be reimbursed for expenses incurred in attending Board of
Directors and committee meetings.
Compensation Committee Interlocks and Insider Participation
During 1996, the Company had no compensation committee. During 1996, Mr.
Svenningsen, then Chairman of the Board and Chief Executive Officer of the
Company, participated in deliberations concerning executive compensation. The
current members of the Compensation Committee are Messrs. Rosenberry and
Tugwell. See "-- Certain Relationships and Related Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the Organization and the IPO, the Company was privately held and
its business was conducted through corporations owned principally by Mr.
Svenningsen. These corporations entered into a variety of transactions and other
arrangements with Mr. Svenningsen and entities under his control, a number of
which have already been terminated. The remaining transactions and arrangements
are described below.
During 1996, the Company leased certain of its facilities from Mr.
Svenningsen or from entities that Mr. Svenningsen either owned directly or in
which he had a direct or indirect beneficial interest. The Company has paid rent
and expenses for those facilities on terms which it believes are at least as
favorable to the Company as the terms which would have been available for leases
negotiated with unaffiliated persons at the inception of each lease.
In March 1996, the Company began leasing approximately 45,000 square feet
for the Company's administrative headquarters in an office building of
approximately 90,000 square feet in Elmsford, New York. The building is owned by
a limited liability company which is 79%-owned by a trust established for the
benefit of Mr. Svenningsen's children, 20%-owned by a trust established for the
benefit of Mr. Svenningsen's sister's children and 1%-owned by a corporation
owned by the Estate. Rent expense relating to this lease was $752,000 for the
year ended December 31, 1996. This lease, as amended, provides for annual rent
of $1,003,000 and a term which expires on February 28, 2001. In July 1997, the
limited liability company that owns the building entered into a purchase and
sale agreement pursuant to which the Elmsford property will be sold. In
conjunction with such sale, the Company will enter into a new lease, to commence
upon consummation of the sale, on substantially similar terms as the lease in
effect as of the date of this Proxy Statement/Prospectus, with certain
exceptions, including, but not limited to, a term of ten years from commencement
and additional space of approximately 5,000 square feet. Prior to March 1996,
the Company's headquarters had been in a facility owned by Mr. Svenningsen. Rent
expense related to that facility was $196,000 for the year ended December 31,
1996.
During 1996, the Company leased a 212,000 square foot warehouse in
Temecula, California from Mr. Svenningsen. Rent expense related to this
warehouse was $1,186,000 for the year ended December 31, 1996. The expiration
date of this lease, as amended, is February 28, 2000; however, the Company has
options to renew at market rental for two additional five-year periods.
During 1996, the aggregate rent paid to Mr. Svenningsen or the entities
owned directly or indirectly by him was $2,134,000. Future minimum lease
payments for 1997, 1998, 1999, 2000 and 2001 are $2,246,000, $2,309,000,
$2,374,000, $1,239,000 and $167,000, respectively.
The Company and Mr. Svenningsen entered into an agreement pursuant to which
the Company agreed to provide Mr. Svenningsen with the right to seek
reimbursement from the Company for any income tax obligation attributable to any
period prior to the organization of the Company in December 1996 (including any
gross-up for additional taxes), but only to the extent that such tax is
attributable to income that was not distributed to Mr. Svenningsen.
Alternatively, in the event that the status of Amscan Inc. and certain other
subsidiaries of the Company, including Am-Source, Inc., JCS Realty Corp. or SSY
Realty Corp. as a
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<PAGE> 112
S corporation is not respected, the Company was provided the right to seek
reimbursement from Mr. Svenningsen, but only to the extent that Mr. Svenningsen
is entitled to a tax refund attributable to amounts he previously included in
income in his capacity as a stockholder of such corporations. In connection with
the Merger, the Company and the Svenningsen Stockholders have entered into the
Tax Indemnification Agreement, pursuant to which the parties have agreed to
indemnify one another with respect to certain tax liabilities that may arise in
connection with the election by certain subsidiaries of the Company to have been
treated and operated as S corporations under the Code. See "CERTAIN RELATED
AGREEMENTS -- Tax Indemnification Agreement."
During September 1997, the Company entered into an agreement to convert
$4.0 million of trade accounts receivable from one of its two largest customers
into an equity interest. The Company subsequently transferred 50% of this
interest to the Estate to satisfy certain debts and future lease obligations to
the Estate.
Ya Otta Pinata, a California corporation which is 100% owned by the Estate
("Ya Otta"), manufactures pinatas which historically had been sold by the
Company's sales force with no commissions charged to Ya Otta. After the
Organization, the Company's sales force continued to sell pinatas manufactured
by Ya Otta and on any sales after the Organization, the Company receives a 5%
sales commission. For the year ended December 31, 1996, sales by Ya Otta were
approximately $3,650,000.
Nupaq-Group, Inc., a California corporation which is 100% owned by the
Estate ("Nupaq"), provides packaging services for the Company's novelty item
manufacturing operations. For the year ended December 31, 1996, the Company paid
Nupaq approximately $260,000 for such services.
During 1996, the Company amended its revolving credit agreement with
several banks, including Fleet Bank N.A. ("Fleet"). At the time such credit
agreement was entered into, Mr. Tugwell was President and Chief Executive
Officer of Fleet. Such revolving credit agreement has since been replaced by a
new credit facility. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
The Company has agreed to indemnify each director pursuant to an
indemnification agreement with such director from and against any and all
expenses, losses, claims, damages and liabilities incurred by such director for
or as a result of actions taken or not taken while such director was acting in
his or her capacity as a director of the Company. In addition, under the Merger
Agreement, the Company has agreed to indemnify for six years after the Effective
Time all present and former directors, officers, employees and agents of the
Company, to the fullest extent currently provided in the Company's Certificate
of Incorporation and By-laws consistent with applicable law, for acts or
omissions occurring prior to the Effective Time to the extent such acts or
omissions are uninsured and will, subject to certain limitations, maintain for
six years its current directors' and officers' liability insurance. See "THE
MERGER AGREEMENT -- Indemnification and Insurance."
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<PAGE> 113
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized by its Certificate of Incorporation to issue an
aggregate of 50 million shares of Company Common Stock and 5 million shares of
preferred stock, par value $0.10 per share (the "Company Preferred Stock"). As
of the date hereof, there are no shares of Company Preferred Stock issued or
outstanding. The following is a summary of certain of the rights and privileges
pertaining to Company Common Stock. For a full description of Company Common
Stock, reference is made to the Company's Certificate of Incorporation as
currently in effect, a copy of which is on file with the Commission, and to the
Company's Certificate of Incorporation as the same shall be in effect after the
Merger, a copy of which is attached to the Merger Agreement as Exhibit A.
COMPANY COMMON STOCK
Holders of Company Common Stock are entitled to one vote per share in the
election of directors and on all other matters on which stockholders are
entitled or permitted to vote, and are not entitled to vote cumulatively for the
election of directors. Holders of Company Common Stock have no redemption,
preference, exchange, conversion, preemptive or other subscription rights. There
are no sinking fund provisions relating to the Company Common Stock. In the
event of the liquidation, dissolution or winding up of the Company, holders of
Company Common Stock are entitled to share ratably in all of the assets of the
Company, if any, remaining after satisfaction of the debts and liabilities of
the Company and the preferential amounts payable to the holders of the Company
Preferred Stock, if any. The outstanding shares of Company Common Stock are, and
following the Merger will be, upon payment therefor as contemplated herein,
validly issued, fully paid and nonassessable.
Holders of Company Common Stock are entitled to receive dividends when and
as declared by the Board of Directors of the Company out of funds legally
available therefor, subject to the rights of the holders of the Company
Preferred Stock, if any. The Company does not anticipate paying any cash
dividends on the Company Common Stock in the foreseeable future.
COMPANY COMMON STOCK FOLLOWING THE MERGER
If the Merger is approved by the requisite vote of the stockholders of
Company Common Stock at the Special Meeting, at the Effective Time the
Certificate of Incorporation of the Company will read in its entirety in the
form set forth as Exhibit A to the Merger Agreement which is included as Annex A
hereto, until thereafter amended as provided therein and under the DGCL.
Following the Merger, the Company will be authorized under its Certificate of
Incorporation to issue 50 million shares of Company Common Stock and no shares
of Company Preferred Stock as compared to 50 million shares of Company Common
Stock and 5 million shares of Company Preferred Stock prior to the Merger.
In addition, the By-laws of Acquisition as in effect at the Effective Time
will become the By-laws of the Company following the Merger until thereafter
changed or amended as provided therein or by applicable law.
PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF INCORPORATION AND
BY-LAWS
The Company is subject to Section 203 of the DGCL, which restricts certain
transactions and "Business Combinations" (as defined below) between a Delaware
corporation and an "Interested Stockholder" (as defined below). Subject to
certain limitations, such section restricts a Delaware corporation from engaging
in various Business Combination transactions with any Interested Stockholder for
a period of three years after the time of the transaction in which the person
became an Interested Stockholder, unless (i) the transaction is approved by the
board of directors prior to the time the Interested Stockholder obtained such
status, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an Interested Stockholder, the Interested Stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding for the purposes of determining the number of
shares outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which
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<PAGE> 114
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer),
or (iii) at or subsequent to such time the Business Combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
two-thirds of the outstanding voting stock which is not owned by the Interested
Stockholder. A Business Combination includes mergers, asset dispositions, stock
transfers and other transactions resulting in financial benefit to a
stockholder. An Interested Stockholder is a person who (a) owns 15 percent or
more of a corporation's voting stock, or (b) is an affiliate or associate of a
corporation's voting stock within the preceding three years. Section 203 could
prohibit or delay mergers or other takeover or change in control with respect to
the Company and, accordingly, may discourage attempts to acquire the Company.
Following the Merger, it is expected that the Company will no longer be
subject to Section 203 of the DGCL.
The Company's Certificate of Incorporation and By-laws contain certain
provisions which may be deemed to have an anti-takeover effect that could delay
or prevent a tender offer or takeover attempt that a stockholder might consider
in its best interest, including those attempts that might result in a premium
over the market price for the shares of Company Common Stock held by
stockholders. These provisions are intended by the Board of Directors to help
assure fair and equitable treatment of the Company's stockholders if a person or
group should seek to gain control of the Company in the future.
CLASSIFIED BOARD OF DIRECTORS
The Certificate of Incorporation and the By-laws provide for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms at such time as there are three or more directors. As a result,
approximately one-third of the Board of Directors will be elected each year.
Moreover, under the DGCL, in the case of a corporation having a classified
board, stockholders may remove a director only for a cause. This provision, when
coupled with the provisions of the By-laws authorizing only the Board of
Directors to fill vacant directorships, will preclude a stockholder from
removing incumbent directors without cause and simultaneously gaining control of
the Board of Directors by filling the vacancies created by such removal with its
own nominees, and will make more difficult, and therefore may discourage, a
proxy contest to change control of the Company. Following the Merger, the
Company Certificate of Incorporation will no longer provide for classes of
directors or staggered terms, and under the Company's By-laws, directors will
serve until their successor shall be elected and qualified. Upon completion of
the Merger, GSCP will have the power to elect all of the Company's directors.
See "RISK FACTORS -- Control by GSCP."
SPECIAL MEETINGS OF STOCKHOLDERS
The By-laws provide that special meetings of stockholders of the Company
may be called only by the Board of Directors, the Chairman of the Board, if any,
or the President. This provisions will make it more difficult for stockholders
to take actions opposed by the Board of Directors. Following the Merger, the
Company's By-laws will provide that special meetings of stockholders may be
called by the Chairman of the Board, the President or the Secretary or by
resolution of the Board of Directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT
The Certificate of Incorporation and the By-laws provide that no action
required or permitted to be taken at any annual or special meeting of the
stockholders of the Company may be taken without a meeting, and the power of
stockholders of the Company to consent in writing, without a meeting, to the
taking of any action is specifically denied. Following the Merger, the Company's
Certificate of Incorporation will contain no such denial, and the Company's
By-laws will provide that any action required or permitted to be taken at any
annual or special meeting of stockholders may be taken by written consent of the
stockholders without a meeting, without prior notice and without a vote on
written consent of holders of shares of Company Common Stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at such a meeting. Upon completion of the Merger, GSCP will have the
power to approve any action
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<PAGE> 115
requiring the approval of the holders of the Company Common Stock. See "RISK
FACTORS -- Control by GSCP."
ADVANCE NOTICE REQUIREMENT FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The By-laws provide that stockholders seeking to bring business before a
meeting of stockholders, including a proposal to nominate candidates for
election as directors at an annual or special meeting of stockholders, must
provide timely notice thereof, as set forth in the By-laws, in writing. These
notice provisions are in addition to any other notice requirements provided by
applicable law or regulation. These provisions may preclude some stockholders
from bringing matters before the stockholders at an annual meeting or special
meeting or from making nominations for directors at an annual or special
meeting. Following the Merger, the Company's By-laws will not contain advance
notice provisions for stockholder proposals or director nominations.
LIABILITY; INDEMNITY
The Company's Certificate of Incorporation contains provisions permitted
under the DGCL relating to the liability of directors. The Certificate of
Incorporation provides that the personal liability of a director to the Company
or any of its stockholders for monetary damages for breach of fiduciary duty by
such director as a director will be limited to the fullest extent permitted by
the DGCL. The By-laws provide that, subject to applicable law, the Company shall
(i) indemnify, to the maximum extent permitted by applicable law, any person who
is or was, or is threatened to be made, a party to any threatened, pending or
completed legal, administrative or investigative action, suit or proceeding, by
reason of the fact such person is or was a director, officer, employee or agent
of the Company (or is or was serving at the request of the Company as a
director, officer, employee or agent of another entity) against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection therewith, and
(ii) pay the expenses incurred by an officer or director in defending such
action, suit or proceeding in advance of its final disposition upon receipt of
an undertaking by such person in the event such person is not entitled to
indemnification by the Company. In addition, the By-laws provide that (i) the
rights to indemnification and payment of expenses are not exclusive of any other
similar right that any person may have or acquire under any statute or otherwise
and (ii) the Company may maintain insurance to protect itself or its directors,
officers, employees or agents against any liability, whether or not it would
have the power to indemnify such person against such liability pursuant to law.
Following the Merger, the Company's By-laws will provide similar indemnification
and expense payment provisions, with certain exceptions.
OTHER PROVISIONS
The Certificate of Incorporation and the By-laws contain various other
provisions, including, but not limited to, the removal of directors only for
cause by a majority vote of stockholders. Following the Merger, the Company's
Certificate of Incorporation and By-laws will alter certain of these provisions,
including, among other things, permitting the removal of directors with or
without cause by the affirmative vote of stockholders holding a majority of the
outstanding voting power, with vacancies thereby created to be filled by the
affirmative vote of such stockholders. Upon completion of the Merger, GSCP will
have the power to elect all of the Company's directors. See "RISK
FACTORS -- Control by GSCP."
In addition to the potential anti-takeover effect, Section 203 and the
provisions of the Company's Certificate of Incorporation and By-laws described
above could have the effect of inhibiting attempts to change the membership of
the Board of Directors of the Company. In addition, the limitation of liability
provisions in the Certificate of Incorporation and the indemnification
provisions in the Certificate of Incorporation and By-laws may discourage
stockholders from bringing a lawsuit against directors for breach of their
fiduciary duty (including breaches resulting from grossly negligent conduct) and
may have the effect of reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise have benefited the Company and its stockholders. Furthermore, a
stockholder's investment in the Company may be adversely affected to the extent
the Company pays the costs of settlement and damage awards against directors and
officers of the Company pursuant to the indemnification provisions in
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<PAGE> 116
the Company's By-laws. The limitation of liability provisions in the Certificate
of Incorporation will not limit the liability of directors under federal
securities laws.
SHARES RESERVED FOR ISSUANCE
The Company has 2,000,000 shares of Company Common Stock reserved for
issuance upon the exercise of options granted or to be granted under the Stock
Plan.
TRANSFER AGENT
The transfer agent and registrar for the Company Common Stock is
ChaseMellon Shareholder Services, L.L.C.
LISTING
The Company Common Stock is listed on Nasdaq under the symbol "AMSN."
106
<PAGE> 117
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 13, 1997, certain
information concerning ownership of shares of Company Common Stock by: (i)
persons who are known by the Company to own beneficially more than 5% of the
outstanding shares of Company Common Stock; (ii) each director and executive
officer of the Company; and (iii) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK PERCENTAGE
BENEFICIALLY OF COMMON STOCK
NAME OF BENEFICIAL OWNER OWNED(1)(2) OUTSTANDING
- ------------------------------------------------------------ ---------------- ---------------
<S> <C> <C>
Estate of John A. Svenningsen............................... 15,024,616(3) 71.2%
c/o Kurzman & Eisenberg LLP
One North Broadway, Suite 1004
White Plains, NY 10601
Confetti Acquisition, Inc. et al.(4)........................ 15,024,616(4) 71.2%
85 Broad Street
New York, NY 10004
William S. Wilkey........................................... 105,000(5) *
James M. Harrison........................................... 55,000(6) *
John Tugwell................................................ 300 *
Gerald C. Rittenberg........................................ 639,970(7) 3.0%
Allyn H. Powell............................................. 1,000 *
Frank A. Rosenberry......................................... 3,500 *
All directors and executive officers of the Company (6
persons).................................................. 804,770 3.8%
</TABLE>
- ---------------
(1) Amounts shown exclude shares issuable upon the exercise of Company Stock
Options to be granted to certain employees of the Company pursuant to the
New Employment Arrangements (see "THE MERGER -- Interests of Certain Persons
in the Merger").
(2) A "beneficial owner" of a security for purposes of Rule 13d-3 under the
Exchange Act includes any person who, directly or indirectly, has or shares
voting power and/or investment power with respect to that security. Unless
otherwise indicated, each person listed has sole voting and investment power
with respect to the shares shown opposite his name.
(3) Excludes 138,461 shares owned by certain trusts for the benefit of Mr.
Svenningsen's children for which Mr. and Mrs. Svenningsen were co-trustees
prior to Mr. Svenningsen's death. Upon consummation of the Merger, the
Estate will own almost 10% of the outstanding shares of Company Common Stock
and GSCP will own approximately 82.5% of the outstanding shares of Company
Common Stock.
(4) Based on information contained in a Statement on Schedule 13D (the "Schedule
13D") filed with the Commission on August 20, 1997 by Acquisition, GSCP, the
general and managing partners of each of the GSCP funds (the "GS Fund
Partners"), Goldman Sachs and The Goldman Sachs Group, L.P. ("GS Group").
According to the Schedule 13D, none of Acquisition, GSCP or the GS Fund
Partners owns any shares of Company Common Stock. However, as of August 10,
1997, under the definition of "beneficial ownership" as set forth in Rule
13d-3 under the Exchange Act, Acquisition may be deemed to beneficially own
the Subject Shares subject to the Voting Agreement. If Acquisition were to
exercise the Voting Agreement Option, Acquisition would have the power to
dispose of all of the Subject Shares. Unless and until Acquisition or its
designee, if any, acquires shares upon exercise of the Voting Agreement
Option, and except as otherwise set forth in the Schedule 13D, neither
Acquisition nor such designee, if any, has any power to dispose of any
shares of Company Common Stock. GSCP, the GS Fund Partners, Goldman Sachs
and GS Group may be deemed to share the power to direct the voting of the
Subject Shares with respect to the Merger and certain related actions, in
accordance with the terms of the Voting Agreement, and, upon exercise of the
Voting Agreement Option, would have the shared power to direct the voting of
and the disposition of such shares. According to the Schedule 13D, Goldman
Sachs and GS Group may also be deemed to beneficially own 7,000 shares of
Company Common Stock
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<PAGE> 118
held as of August 10, 1997 in client accounts with respect to which Goldman
Sachs or employees thereof have voting or investment discretion. Goldman
Sachs and GS Group disclaim beneficial ownership of shares of Company Common
Stock held in such client accounts. In addition, Goldman Sachs beneficially
owned, as of August 10, 1997, an additional 3,909 shares of Company Common
Stock acquired in ordinary course trading activities.
(5) Includes 100,000 shares issuable upon the exercise of Company Stock Options
held by Mr. Wilkey.
(6) Includes 50,000 shares issuable upon the exercise of options held by Mr.
Harrison.
(7) Includes 93,380 shares owned by certain trusts for the benefit of Mr.
Rittenberg's children for which Mr. Rittenberg is a co-trustee. Pursuant to
the Rittenberg Employment Agreement, Mr. Rittenberg has agreed to contribute
to Acquisition immediately prior to the Effective Time 272,728 shares of
Company Common Stock in exchange for shares of Acquisition Common Stock. In
addition, it is anticipated that Mr. Rittenberg will deliver 224,555 shares
of Company Common Stock to an escrow agent in satisfaction of certain
indebtedness owed to the Estate pursuant to an agreement to be entered into
with Christine Svenningsen and such escrow agent. See "THE
MERGER -- Interests of Certain Persons in the Merger."
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<PAGE> 119
ACQUISITION AND GSCP
Acquisition was formed to effect the transactions contemplated by the
Merger Agreement and the Voting Agreement and described in this Proxy
Statement/Prospectus and has not engaged in any activities other than those
incident to its formation and such proposed transactions. All of the Acquisition
Common Stock is owned by GSCP II and certain other affiliates of Goldman Sachs,
each of which was formed for the purpose of investing in equity and
equity-related securities primarily acquired or issued in leveraged
acquisitions, reorganizations and other private equity transactions.
GSCP II and its affiliated investment funds are the primary investment
vehicles of The Goldman Sachs Group, L.P. ("GS Group"), a full-service, global
investment bank, for making privately negotiated equity and equity-related
investments in non-real estate transactions. GSCP II was formed in May 1995 with
total committed capital of $1.750 billion, $300 million of which has been
committed by GS Group, with the remainder committed by institutional and
individual investors.
GSCP's investment program utilizes GS Group's broad range of knowledge,
experience and expertise in structuring, managing and harvesting investments.
This knowledge, experience and expertise has been developed not only through GS
Group's investment banking, financial advisory and corporate finance businesses,
but also through its extensive and successful principal investment experience.
Since 1982, GS Group, directly or through investment partnerships that it
manages, has invested more than $3.7 billion in a diversified portfolio of over
175 long-term principal investments.
GS Group is a holding partnership that (directly or indirectly through
subsidiaries or affiliated companies or both) is a leading investment banking
organization. The other general partner of Goldman Sachs is The Goldman, Sachs &
Co. L.L.C., a Delaware limited liability company ("GS L.L.C."), which is a
wholly owned subsidiary of GS Group and The Goldman Sachs Corporation, a
Delaware corporation ("GS Corp."). GS Corp. is the sole general partner of GS
Group. The principal business address of each of Goldman Sachs, GS Group, GS
Corp., GS L.L.C., GSCP II and Acquisition is 85 Broad Street, New York, New York
10004. The principal business address for GS Capital Partners II Offshore, L.P.,
owner of Acquisition Common Stock, and its sole general partner GS Advisors II
(Cayman), L.P., each a Cayman Islands exempted limited partnership, is c/o
Maples and Calder, P.O. Box 309, Grand Cayman, Cayman Islands. The principal
business address for each of GS Capital Partners II (Germany), C.L.P., a German
civil law partnership, and its sole managing general partner Goldman, Sachs &
Co. oHG, a German general partnership, is MesseTurm Friedrich-Ebert-Anlage 49,
60308 Frankfurt am Main, Germany.
The present directors of Acquisition are Messrs. O'Toole, DiSabato and
Mehra, each of whom has been a director since the formation of Acquisition and
whose business address is 85 Broad Street, New York, New York 10004. Mr. O'Toole
also serves as Chairman of the Board and President of Acquisition, Mr. DiSabato
as Vice President and Treasurer, and Mr. Mehra as Vice President and Secretary.
The present principal occupation of the directors of Acquisition are as follows:
Messrs. O'Toole and Mehra are Managing Directors of Goldman Sachs, and Mr.
DiSabato is an associate of Goldman Sachs.
Goldman Sachs is expected to receive a fee equal to 1% of the aggregate
consideration paid in the Merger plus certain expenses from Acquisition upon
consummation of the Merger. In addition, following the Merger, Goldman Sachs may
from time to time receive customary fees for services rendered to the Company.
REGULATORY APPROVALS
The Merger is subject to the expiration or termination of the applicable
waiting period under the HSR Act, which waiting period has been terminated.
Certain aspects of the Merger will require notification to, and filings with,
certain securities and other authorities in certain states or countries,
including jurisdictions where the Company currently operates.
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<PAGE> 120
ANTITRUST
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notification has 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 August 22, 1997,
the Company and Acquisition filed Notification and Report Forms under the HSR
Act with the FTC and the Antitrust Division. As of September 24, 1997, the
waiting period under the HSR Act with respect to the Merger had terminated. At
any time before or after consummation of the Merger, notwithstanding that the
waiting period under the HSR Act has terminated, 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 the
waiting period under the HSR Act had terminated, 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.
The Company and Acquisition believe that the Merger can be effected in
compliance with federal and state antitrust laws.
OTHER
The obligations of Acquisition under the Merger Agreement are also subject
to the receipt of all necessary licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and other
third parties as are necessary in connection with the transactions contemplated
by the Merger.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered hereby and certain tax matters related to the Merger are being passed
upon for the Company by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York, special counsel to the independent directors of the Company.
EXPERTS
The financial statements and schedule of Amscan Holdings, Inc. as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, have been included in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere in the registration statement, and upon the
authority of said firm as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
In the event that the Merger is consummated, it is anticipated that the
Company Common Stock will be delisted from Nasdaq, and the Company Common Stock
will be eligible for deregistration under the Exchange Act. If the stockholders
of the Company do not approve the Merger Agreement or if the Merger is not
consummated for any other reason and the Company Common Stock continues to be
registered under the Exchange Act, stockholder proposals intended to be
presented at the Company's 1998 Annual Meeting of Stockholders must be received
by the Company not later than December 26, 1997 to be included in the proxy
materials for such meeting.
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<PAGE> 121
OTHER MATTERS
The Board does not intend to bring any other matters before the Special
Meeting and does not know of any matters to be brought before the Special
Meeting by others. If any other matter should come before the Special Meeting,
it is the intention of the persons named in the accompanying proxy to vote the
proxy on behalf of the stockholders they represent in accordance with the best
judgment of such persons.
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<PAGE> 122
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements and Schedule
Report of Independent Auditors...................................................... F-2
Consolidated Balance Sheets -- December 31, 1996 and 1995........................... F-3
Consolidated Statements of Income -- For the Years Ended December 31, 1996, 1995 and
1994............................................................................. F-4
Consolidated Statements of Stockholders' Equity -- For the Years Ended December 31,
1996, 1995 and 1994.............................................................. F-5
Consolidated Statements of Cash Flows -- For the Years Ended December 31, 1996, 1995
and 1994......................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-8
Schedule -- Valuation and Qualifying Accounts....................................... F-21
Unaudited Financial Statements:
Consolidated Balance Sheets -- September 30, 1997 and December 31, 1996............. F-22
Consolidated Statements of Income -- For the Nine Months Ended September 30, 1997
and 1996......................................................................... F-23
Consolidated Statement of Stockholders' Equity -- For the Nine Months Ended
September 30, 1997............................................................... F-24
Consolidated Statements of Cash Flows -- For the Nine Months Ended September 30,
1997 and 1996.................................................................... F-25
Notes to Consolidated Financial Statements.......................................... F-26
</TABLE>
F-1
<PAGE> 123
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Amscan Holdings, Inc.:
We have audited the accompanying consolidated financial statements of
Amscan Holdings, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Amscan
Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
February 14, 1997
Stamford, Connecticut
F-2
<PAGE> 124
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 1,589 $ 2,492
Accounts receivable, net of allowances of $4,138 and $2,505,
respectively...................................................... 37,378 31,880
Inventories.......................................................... 45,693 45,013
Deposits and other................................................... 11,360 2,920
-------- --------
Total current assets......................................... 96,020 82,305
Property, plant and equipment, net..................................... 34,663 29,173
Intangible assets, net................................................. 7,443 350
Other assets, net...................................................... 2,148 2,773
-------- --------
Total assets................................................. $140,274 $114,601
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable.............................................. $ 29,328 $ 37,849
Subordinated debt and other to stockholders.......................... 1,393 18,453
Accounts payable..................................................... 7,128 5,855
Accrued expenses..................................................... 10,225 9,526
Current installments of long-term indebtedness....................... 2,541 2,239
-------- --------
Total current liabilities.................................... 50,615 73,922
Long-term indebtedness, excluding current installments................. 15,085 12,284
Deferred tax liabilities............................................... 5,662
Other.................................................................. 963 1,190
-------- --------
Total liabilities............................................ 72,325 87,396
-------- --------
Stockholders' equity:
Preferred stock......................................................
Common stock......................................................... 2,070 393
Additional paid-in capital........................................... 61,503 9,090
Retained earnings.................................................... 4,748 18,462
Foreign currency translation adjustment.............................. (372) (653)
Treasury stock, at cost.............................................. (87)
-------- --------
Total stockholders' equity................................... 67,949 27,205
-------- --------
Total liabilities and stockholders' equity................... $140,274 $114,601
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 125
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................ $192,705 $167,403 $132,029
Cost of sales............................................ 123,913 108,654 86,748
-------- -------- --------
Gross profit........................................ 68,792 58,749 45,281
-------- -------- --------
Operating expenses:
Selling................................................ 11,838 12,241 11,309
General and administrative............................. 19,266 15,002 14,460
Art and development.................................... 5,173 4,256 2,796
Non-recurring compensation in connection with the
IPO................................................. 15,535
Special bonuses........................................ 4,222 2,581 2,200
-------- -------- --------
Total operating expenses............................ 56,034 34,080 30,765
-------- -------- --------
Income from operations.............................. 12,758 24,669 14,516
Interest expense, net.................................... 6,691 5,772 3,843
Other expense (income), net.............................. 335 (309) 82
-------- -------- --------
Income before income taxes and minority interests........ 5,732 19,206 10,591
Income taxes............................................. 1,952 731 464
Minority interests....................................... 1,653 1,041 160
-------- -------- --------
Net income.......................................... $ 2,127 $ 17,434 $ 9,967
======== ======== ========
Pro forma data (unaudited) (note (16)):
Income before income taxes............................. $ 4,079 $ 18,165 $ 10,431
Pro forma income tax expense........................... 1,827 7,403 4,238
-------- -------- --------
Pro forma net income................................ $ 2,252 $ 10,762 $ 6,193
======== ======== ========
Pro forma net income used for pro forma net income
per share calculation............................. $ 12,010
Pro forma net income per share...................... $ 0.60
Pro forma weighted average common shares
outstanding....................................... 20,097,116
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 126
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
COMMON ADDITIONAL RETAINED TRANSLATION TREASURY
STOCK PAID-IN CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ --------------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1993... $ 393 $ 9,090 $ 9,520 $(420) $(87) $ 18,496
Net income........................ 9,967 9,967
Subchapter S distributions and
other........................... (7,450) (7,450)
Net change in cumulative
translation adjustment.......... (193) (193)
------ ------- -------- ----- ---- --------
Balance as of December 31, 1994... 393 9,090 12,037 (613) (87) 20,820
Net income........................ 17,434 17,434
Subchapter S distributions and
other........................... (11,009) (11,009)
Net change in cumulative
translation adjustment.......... (40) (40)
------ ------- -------- ----- ---- --------
Balance as of December 31, 1995... 393 9,090 18,462 (653) (87) 27,205
Net income........................ 2,127 2,127
Net adjustment for exchange of
shares issued in the
Organization.................... 1,123 (1,210) 87 --
Subchapter S distributions and
other........................... (7,583) (15,841) (23,424)
Net proceeds from IPO............. 400 42,940 43,340
Shares issued to officer.......... 66 7,854 7,920
Shares issued for acquisition..... 63 7,437 7,500
Contribution to ESOP and stock
bonuses......................... 25 2,975 3,000
Net change in cumulative
translation adjustment.......... 281 281
------ ------- -------- ----- ---- --------
Balance as of December 31, 1996... $2,070 $61,503 $ 4,748 $(372) $ -- $ 67,949
====== ======= ======== ===== ==== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 127
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 2,127 $ 17,434 $ 9,967
Adjustments to reconcile net income to net cash provided
by operating activities:
Stock compensation expenses in connection with the
IPO.................................................. 10,920
Depreciation and amortization.......................... 5,137 4,332 3,672
Loss (gain) on disposal of property and equipment...... 660 (5) 35
Provision for doubtful accounts........................ 2,350 1,581 2,676
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................. (7,848) (9,614) (5,041)
Inventories.......................................... (680) (10,548) (5,682)
Deposits and other, net.............................. (3,048) (101) (155)
Other assets......................................... 683 (1,172) (1,265)
Accounts payable and accrued expenses................ 1,972 2,814 912
-------- -------- -------
Net cash provided by operating activities......... 12,273 4,721 5,119
-------- -------- -------
Cash flows from investing activities:
Capital expenditures...................................... (7,613) (4,522) (7,392)
Proceeds from disposal of property and equipment.......... 9 98
-------- -------- -------
Net cash used in investing activities............. (7,613) (4,513) (7,294)
-------- -------- -------
Cash flows from financing activities:
Net proceeds from IPO..................................... 43,340
Proceeds from loans, notes payable and long-term
indebtedness........................................... 3,273 42,311 6,324
Repayment of loans, notes payable and long-term
indebtedness........................................... (11,968) (32,313) (2,434)
Proceeds from loans, notes payable and subordinated
indebtedness to Principal Stockholder.................. 4,000 6,316
Repayment of loans, notes payable and subordinated
indebtedness to Principal Stockholder.................. (17,179) (2,842)
Subchapter S distributions and other...................... (23,424) (11,009) (7,450)
-------- -------- -------
Net cash (used in) provided by financing
activities...................................... (5,958) 147 2,756
-------- -------- -------
Effect of exchange rate changes on cash................... 395 (92) 270
-------- -------- -------
Net increase (decrease) in cash and cash
equivalents..................................... (903) 263 851
Cash and cash equivalents at beginning of year.............. 2,492 2,229 1,378
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 1,589 $ 2,492 $ 2,229
======== ======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.................................................. $ 7,826 $ 4,486 $ 4,025
Taxes..................................................... $ 1,085 $ 601 $ 112
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 128
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Supplemental information on noncash activities:
Capital lease obligations of $3,395 and $648 were incurred in 1996 and
1994 respectively. There were no capital lease obligations incurred in
1995.
In conjunction with the IPO, John A. Svenningsen (the "Principal
Stockholder") and certain affiliates of the Principal Stockholder exchanged
shares in Amscan Inc. and certain affiliated entities for 15,024,616 and
138,461 shares, respectively, in the Company.
In conjunction with the IPO, the Company entered into an agreement to
purchase an additional 50% of Am-Source, Inc. The Am-Source, Inc.
stockholders exchanged all of their outstanding capital stock for 624,999
shares of the Company's stock valued at $7,500.
In conjunction with the IPO, the Company incurred stock compensation
expense of $7,920 for the issuance of stock to an officer and $3,000 for
the establishment of the ESOP for the benefit of the Company's domestic
employees and the payment of stock bonuses to certain of such employees.
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 129
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Amscan Holdings, Inc. ("Amscan Holdings") was incorporated on October 3,
1996 for the purpose of becoming the holding company for Amscan Inc. and certain
affiliated entities in connection with an initial public offering of common
stock ("IPO") involving the sale of 4,000,000 shares of its common stock at
$12.00 per share. The IPO was completed on December 18, 1996 pursuant to which
the Principal Stockholder and certain affiliates of the Principal Stockholder
exchanged shares in Amscan Inc. and certain affiliates for 15,024,616 and
138,461 shares, respectively, in Amscan Holdings (the "Organization") and in the
case of the Principal Stockholder, $133,000 in cash. Prior to the IPO, certain
subsidiaries of Amscan Holdings were operated as Subchapter S corporations for
federal and, where available, for state income tax purposes. In connection with
the IPO, such subsidiaries declared a dividend representing distributions of
accumulated Subchapter S corporation profits and a return of capital. These
amounts were reflected as subordinated debt and repaid from the net proceeds of
the IPO.
Amscan Holdings and its subsidiaries (collectively the "Company") design,
manufacture, contract for manufacture and distribute party and novelty goods
principally in the United States, Canada and Europe.
Basis of Presentation
The consolidated financial statements include the accounts of Amscan
Holdings and its majority-owned subsidiaries (or with respect to less than
majority-owned subsidiaries, on the equity basis). In connection with the IPO,
there was a transfer of ownership between the former stockholders of Amscan Inc.
and certain of its affiliates and Amscan Holdings whereby Amscan Holdings became
the holding company for the business conducted by Amscan Inc. and certain of its
affiliates. Such transfer of ownership was accounted for in a manner similar to
a pooling of interests and resulted in Amscan Inc., Am-Source, Inc., JCS Realty
Corp. and SSY Realty Corp. being taxed as Subchapter C corporations under
federal and certain state income tax requirements. All material intercompany
balances and transactions have been eliminated in consolidation. For periods
prior to December 18, 1996, financial statements are presented on a combined
basis. The name, Amscan Holdings' ownership and a brief description of the
principal business activity of each consolidated subsidiary is presented below.
<TABLE>
<CAPTION>
SUBSIDIARY OWNERSHIP PRINCIPAL ACTIVITY
----------------------------------------- --------- --------------------------------
<S> <C> <C>
Amscan Inc. ............................. 100% Manufacturer -- paper tableware;
and distributor -- worldwide
Am-Source, Inc. ......................... 100% Manufacturer -- plastic products
Trisar, Inc. ............................ 100% Manufacturer -- gift products
Amscan Distributors (Canada) Ltd. ....... 100% Distributor -- Canada
Amscan Holdings Limited.................. 75% Distributor -- United Kingdom
Amscan (Asia-Pacific) Pty. Ltd. ......... 85% Distributor -- Australia and
Asia
Amscan Partyartikel GmbH................. 95% Distributor -- Germany
Amscan Svenska AB........................ 100% Distributor -- Sweden
Amscan de Mexico, S.A. de C.V. .......... 50% Distributor -- Mexico
JCS Realty Corp. ........................ 100% Real estate -- Canada
SSY Realty Corp. ........................ 100% Real estate -- United States
</TABLE>
Acquisitions
In conjunction with the IPO, the Company entered into an agreement to
acquire an additional 50% of Am-Source, Inc. The stockholders of Am-Source, Inc.
exchanged all of their outstanding capital stock for 624,999 shares of the
Company's stock valued at $7,500,000. The acquisition has been accounted for as
a
F-8
<PAGE> 130
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase and the excess purchase price over the fair value of the net assets
acquired of $7,443,000 is being amortized on a straight-line basis over thirty
years.
The results of operations for the acquisition of the 50% balance of
Am-Source, Inc. are included in the accompanying financial statements from the
date of acquisition. The results of operations for this acquisition for the
years ended December 31, 1996, 1995 and 1994 had the acquisition occurred at the
beginning of 1994, are not significant.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
Highly liquid investments with a maturity of three months or less when
purchased are considered to be equivalents.
Inventories
Substantially all inventories of the Company are valued at the lower cost
or market (principally on the first-in, first-out method).
Property, Plant, and Equipment
Property, plant and equipment are stated at cost. Machinery and equipment
under capital leases are stated at the present value of the minimum lease
payments at the inception of the lease.
Depreciation is calculated principally on the straight-line method over the
estimated useful lives of the assets. Machinery and equipment held under capital
leases and leasehold improvements are amortized straight-line over the shorter
of the lease term or estimated useful life of the asset.
Intangible Assets
Intangible assets are comprised of $7,443,000 and $350,000 at December 31,
1996 and 1995 respectively, of goodwill, net of amortization, which represents
the excess of the purchase price of acquired companies over the estimated fair
value of the net assets acquired. Goodwill is being amortized on a straight-line
basis over periods ranging from three years to thirty years. Accumulated
amortization was $1,050,000 and $700,000 as of December 31, 1996 and 1995,
respectively.
The Company adopted Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). Such adoption had no impact on the Company's financial
statements. In accordance with SFAS No. 121, the Company systematically reviews
the recoverability of its intangible and other long-lived assets by comparing
their unamortized carrying value to their related anticipated undiscounted
future cash flows. Any impairment related to long-lived assets is measured by
reference to the assets' fair market value, and any impairment related to
goodwill is measured against discounted cash flows. Impairments are charged to
expense when such determination is made.
Revenue Recognition
The Company recognizes revenue from product sales when the goods are
shipped to the customers. Product returns and warranty costs are immaterial.
Catalogue Costs
The Company expenses costs associated with the production of annual
catalogues when incurred.
F-9
<PAGE> 131
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Art and Development Costs
Art and development costs are primarily internal costs that are not easily
associated with specific designs which may not reach commercial production.
Accordingly, the Company expenses these costs as incurred.
Income Taxes
Prior to the IPO, Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY
Realty Corp. were operated as Subchapter S corporations for federal income and,
where available, for state income tax purposes. As a result, these corporations
did not record or pay any federal or state income taxes except in states which
do not recognize Subchapter S corporation status.
Since December 18, 1996, the Company has been taxed as a Subchapter C
corporation, and as a result, the Company accounts for income taxes in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes ("SFAS 109"). Under the asset and liability
method of SFAS 109, certain income and expense items are reported differently
for financial reporting and income tax purposes. Deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities and operating loss and tax
credit carryforwards applying enacted statutory tax rates in effect for the year
in which the differences are expected to reverse. Deferred tax assets are
reduced by a valuation allowance when, in the judgment of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.
Non-Recurring Compensation Expenses
In conjunction with the IPO, the Company has recorded non-recurring
compensation expenses of $15,535,000 in 1996 related to stock and cash payments
of $12,535,000 to certain executives in connection with the termination of prior
employment agreements and $3,000,000 for the establishment of an ESOP for the
benefit of the Company's domestic employees and the payment of stock bonuses to
certain of such employees.
Stock-Based Compensation
The Company has accounted for the distribution of stock and for the
issuance of stock options under its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25 "Accounting for
Stock Issued to Employees" and related interpretations ("APB 25"). As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows
entities to apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123 (see note (10)).
Foreign Currency Transactions and Translation
Realized foreign currency exchange gains or losses, which result from the
settlement of receivables or payables in currencies other than U.S. dollars, are
credited or charged to operations. Unrealized gains or losses on foreign
currency exchanges are insignificant.
The balance sheets of foreign subsidiaries are translated into U.S. dollars
at the exchange rates in effect on the balance sheet date. The results of
operations of foreign subsidiaries are translated into U.S. dollars at
F-10
<PAGE> 132
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the average exchange rates effective for the periods presented. The differences
from historical exchange rates are reflected as a separate component of
stockholders' equity.
Concentration of Credit Risk
While the Company's customers are geographically disbursed throughout North
America, South America, Europe, Asia and Australia, there is a concentration of
sales made to and accounts receivable from the stores which operate in the party
superstore channel of distribution. At December 31, 1996 and 1995, the Company's
two largest customers, with approximately 185 stores, accounted for 21.7% and
12%, respectively, of consolidated accounts receivable. For the years ended
December 31, 1996, 1995 and 1994, sales to the Company's two largest customers
represented 21.5%, 17% and 10%, respectively, of consolidated net sales. Of such
amount, sales to the Company's largest customer represented 14.5%, 11% and 8%,
respectively. No other group or combination of customers subjected the Company
to a concentration of credit risk.
Reclassifications
In connection with the preparation of the accompanying financial
statements, the Company has classified printing plates purchased from third
party vendors as property, plant and equipment. Previously, the Company
classified such printing plates that are used in the Company's manufacturing
process as other assets. Prior balances of property, plant and equipment and
other assets have been reclassified accordingly.
Certain other amounts in prior financial statements have been reclassified
to conform to the current year presentation.
Use of Estimates
Management has made estimates and assumptions relating to the reporting of
assets and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
(3) INVENTORIES
Inventories at December 31, 1996 and 1995 consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Finished goods........................................... $42,127 $42,125
Raw materials............................................ 3,863 2,277
Work-in process.......................................... 1,388 1,839
------- -------
47,378 46,241
Less: reserve for slow moving and obsolete inventory..... (1,685) (1,228)
------- -------
$45,693 $45,013
======= =======
</TABLE>
F-11
<PAGE> 133
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment at December 31, 1996
and 1995 consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED
1996 1995 USEFUL LIVES
-------- -------- ------------
<S> <C> <C> <C>
Machinery and equipment....................... $ 31,621 $ 25,530 3-15
Buildings..................................... 10,153 9,524 31-40
Data processing equipment..................... 9,259 6,123 5
Leasehold improvements........................ 3,449 4,784 25
Furniture and fixtures........................ 3,071 2,370 10
Land.......................................... 1,917 1,917 --
-------- --------
59,470 50,248
Less: accumulated depreciation and
amortization................................ (24,807) (21,075)
-------- --------
$ 34,663 $ 29,173
======== ========
</TABLE>
Depreciation and amortization expense was $4,787,000, $3,982,000 and
$3,322,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
(5) LOANS AND NOTES PAYABLE
The Company has entered into a revolving credit agreement with several
banks which expires on September 20, 2000. Amounts available for borrowing under
this agreement, subject to asset availability and other restrictions, are as
follows (dollars in thousands):
<TABLE>
<S> <C>
September 20, 1996 - September 19, 1997............................ $55,000
September 20, 1997 - September 20, 2000............................ $60,000
</TABLE>
Such revolving credit agreement is collateralized by a first lien on
certain of the assets of the Company. The revolving credit agreement provides
for interest on the borrowings to be based on either a prime borrowing rate or
LIBOR plus 0.875%, whichever is lower. Additionally, the revolving credit
agreement requires the Company to comply with certain covenants including the
maintenance of financial ratios, as defined. At December 31, 1996, the Company
was in compliance with all such covenants.
Loans and notes payable outstanding at December 31, 1996 and 1995 consisted
of the following (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Revolving credit line with interest at LIBOR plus 0.875%
(6.75% and 6.41%, at December 31, 1996 and 1995,
respectively).......................................... $ 5,000 $35,000
Revolving credit line with interest at the prime rate
(8.25% and 8.5%, at December 31, 1996 and 1995,
respectively).......................................... 23,950 2,060
Revolving credit line denominated in Canadian Dollars
with interest at the Canadian prime rate (4.75% at
December 31, 1996)..................................... 378
Revolving credit line denominated in British Pounds
Sterling with interest at the U.K. Base rate plus 2%
(8.5% at December 31, 1995)............................ 789
------- -------
$29,328 $37,849
======= =======
</TABLE>
F-12
<PAGE> 134
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average interest rates on loans and notes payable outstanding
at December 31, 1996 and 1995 were 7.95% and 6.57%, respectively.
The Company is currently involved in three interest rate swap transactions
covering $25,000,000 of its outstanding obligation under the revolving credit
agreement. The transactions fix the interest rates as indicated below and
entitles the Company to settle with the counterparty on a quarterly basis, the
product of the notional amount times the amount, if any, by which the ninety day
LIBOR exceeds the fixed rate. Net payments to the counterparty under the swap
agreements for the years ended December 31, 1996, 1995 and 1994, which have been
recorded as additional interest expense, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
ADDITIONAL INTEREST
EXPENSE
NOTIONAL ----------------------
DATE OF CONTRACT AMOUNT TERM FIXED RATE 1996 1995 1994
- -------------------------------------- ------- --------- ---------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
September 28, 1994.................... $ 5,000 10 years 7.945% $122 $ 94 $34
May 12, 1995.......................... $10,000 5 years 6.590% 105 42
July 20, 1995......................... $10,000 10 years 6.750% 122 38
---- ---- ---
$349 $174 $34
==== ==== ===
</TABLE>
(6) LONG-TERM INDEBTEDNESS
Long-term indebtedness at December 31, 1996 and 1995 consisted of the
following (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Mortgage obligations(a).................................. $ 6,654 $ 6,956
Term loans(b)............................................ 5,778 5,152
Capital lease obligations(c)............................. 5,194 2,415
------- -------
Total long-term indebtedness........................... 17,626 14,523
Less: current installments............................... (2,541) (2,239)
------- -------
Long-term indebtedness, excluding current installments... $15,085 $12,284
======= =======
</TABLE>
- ---------------
(a) The Company has mortgage obligations payable to financial institutions
relating to certain distribution facilities due through September 13, 2004.
The mortgages are collateralized by specific real estate assets of the
Company and carry interest rates ranging from the Canadian prime rate plus
0.5% (5.25% and 8.0% as of December 31, 1996 and 1995, respectively) to
8.51%. At December 31, 1996 and 1995, $2,100,000 and $1,800,000 of mortgage
obligations, respectively, are denominated in Canadian dollars.
(b) The Company has various term loans payable to financial institutions due
through April 1, 2002. The loans are collateralized by specific assets of
the Company and carry interest rates which range from 8.01% to 9.5%.
(c) The Company has entered into various capital leases for machinery and
equipment with implicit interest rates ranging from 4.71% to prime rate plus
1.0% (9.25% at December 31, 1996) which extend to 2003.
F-13
<PAGE> 135
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, principal maturities of long-term indebtedness
consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
MORTGAGES CAPITAL
AND LOANS LEASE OBLIGATIONS TOTAL
--------- ----------------- -------
<S> <C> <C> <C>
1997........................................ $ 1,682 $ 1,139 $ 2,821
1998........................................ 1,741 1,243 2,984
1999........................................ 1,718 1,176 2,894
2000........................................ 1,682 1,136 2,818
2001........................................ 1,682 1,281 2,963
Thereafter.................................. 3,927 147 4,074
------- ------ -------
12,432 6,122 18,554
Amount representing interest................ (928) (928)
------- ------ -------
Long-term indebtedness...................... $12,432 $ 5,194 $17,626
======= ====== =======
</TABLE>
(7) DUE TO PRINCIPAL STOCKHOLDER
At December 31, 1996 and 1995, the Company owed the Principal Stockholder
$1,274,000 and $16,000,000, respectively, under a subordinated note with
interest payable monthly. This note is subject to a subordination agreement
among the Principal Stockholder, Amscan Inc., and the lenders involved with the
revolving credit agreement as discussed in note (5). Interest is the prime rate
plus 0.5% (8.75% and 9% at December 31, 1996 and 1995, respectively).
Prior to the IPO, certain subsidiaries of the Company declared a dividend
representing distributions of accumulated Subchapter S profits of $15,841,000
and a return of capital of $7,583,000. These amounts and nearly all of the
previous balances of subordinated debt were repaid from the net proceeds of the
IPO. A waiver was obtained from the banks for the repayment of these amounts due
to the Principal Stockholder.
Further, the Company had unsecured current loans payable to the Principal
Stockholder aggregating $2,453,000 at December 31, 1995 at interest rates
ranging from 7% to 12%. The loans had different forms of collateral but were
generally subordinated to the credit facility discussed in note (5). During
1996, these amounts were converted to subordinated debt.
(8) EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company maintain a profit-sharing plan for all
eligible employees providing for annual discretionary contributions to a trust.
As of January 1, 1995, the plan required the subsidiaries to match 25% to 50% of
the first 6% of an employee's annual salary contributed to the plan. Benefit
expense for the years ended December 31, 1996, 1995 and 1994 totaled $731,000,
$558,000 and $548,000, respectively.
In connection with the IPO, the Company established the Employee Stock
Ownership Plan (the "ESOP") for the benefit of its domestic employees and
authorized the payments of stock bonuses to certain of such employees. There was
a special one-time issuance of 250,000 shares of common stock of the Company,
valued at $1,898,000 for the establishment of the ESOP and $1,102,000 for
payment of stock bonuses.
(9) SPECIAL BONUSES
During the periods presented, Amscan Inc. had employment agreements with
certain key executives and senior managers which provided for these individuals
to receive annual bonuses based upon the pre-tax income of Amscan, Inc. and
certain of its affiliates. These bonuses, which amounted to approximately 18% to
20% of pre-tax income, are reflected in the Consolidated Statements of
Operations in the caption "Special Bonuses."
F-14
<PAGE> 136
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These individuals will not receive such special bonuses after 1996. At December
31, 1996 and 1995, respectively, $1,584,000 and $2,581,000 were accrued for such
bonuses and included in accrued expenses.
(10) STOCK OPTION PLAN
In 1996, the Company adopted a stock option plan (the "Plan") pursuant to
which a committee of the Company's Board of Directors may grant stock options to
officers and key employees. The Plan authorizes grants of options to purchase up
to 2,000,000 shares of authorized but unissued common stock. Stock options are
granted with an exercise price no less than the stock's fair market value at the
date of grant. An option may not be exercised within one year of grant and no
option will be exercisable after ten years from the date granted. Participants
may exercise approximately 25% of the total number of shares granted in each
year subsequent to the year of the grant.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized in connection with the
issuance of options under the stock option plan. Had the Company's stock option
plan been determined based on the fair value of the options granted at the grant
date, the compensation cost for 1996 would not have been material.
Options were issued in connection with the IPO totaling 425,000 shares of
common stock at the initial offering price. It has been assumed that the
estimated fair value of the options is amortized on a straight line basis to
compensation expense over the vesting period of the grant, which is
approximately four years. The estimated fair value of each option on the date of
grant is $5.22, using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0%; expected volatility of 25%; risk-free
interest rate of 6.43%; and expected lives of 7 years. All options issued were
outstanding and none was exercisable as of December 31, 1996.
(11) INCOME TAXES
Prior to the consummation of the IPO, Amscan Inc., Am-Source, Inc., JCS
Realty Corp. and SSY Realty Corp. elected to be taxed as Subchapter S
corporations under the Internal Revenue Code. Accordingly, these companies were
not subject to federal and state income taxes, to the extent that states
recognize Subchapter S corporation status. Upon the termination of the
Subchapter S corporation status in connection with the IPO, the aforementioned
companies became subject to federal and state income taxes. The cumulative
effect of such tax status change relating to the recording of deferred taxes as
of December 18, 1996 was $786,000 and has been included in the income tax
expense for the year ended December 31, 1996.
A summary of the domestic and foreign pre-tax income for the years ended
December 31, 1996, 1995 and 1994 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
Domestic....................................... $3,137 $17,750 $10,009
Foreign........................................ $2,595 $ 1,456 $ 582
</TABLE>
F-15
<PAGE> 137
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes consisted of the following (dollars in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
Current:
Foreign........................................... $ 992 $731 $464
State............................................. 212
------ ---- ----
Total current provision................... 1,204 731 464
------ ---- ----
Deferred:
Change in tax status.............................. 786
Foreign........................................... 100
Federal........................................... (113)
State............................................. (25)
------ ---- ----
Total deferred provision.................. 748 -- --
------ ---- ----
Income tax expense.................................. $1,952 $731 $464
====== ==== ====
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1996, the
deferred assets and liabilities consisted of the following (dollars in
thousands):
<TABLE>
<S> <C>
Current deferred tax assets:
Provision for doubtful accounts................................... $1,692
Accrued liabilities............................................... 1,568
Inventories....................................................... 1,438
Other............................................................. 175
------
Current deferred tax assets............................... $4,873
======
Non-current deferred tax liabilities:
Property, plant and equipment..................................... $4,484
Future taxable income resulting from a change in accounting method
for tax purposes............................................... 823
Other............................................................. 355
------
Non-current deferred tax liabilities................................ $5,662
======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical income and projections for future taxable income over the periods in
which the deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences.
F-16
<PAGE> 138
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the Company's effective tax rate and the federal
statutory rate of 35% is reconciled below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Provision at federal statutory rate................. 35.0% 35.0% 35.0%
Effect of Subchapter S income not subject to federal
income taxes...................................... (19.1) (32.3) (33.1)
Change in tax status................................ 13.7
Other............................................... 4.5 1.1 2.5
----- ----- -----
Effective tax rate.................................. 34.1% 3.8% 4.4%
===== ===== =====
</TABLE>
(12) STOCKHOLDERS' EQUITY
Initial Public Offering
On December 18, 1996, the Company completed the IPO in which it sold
4,000,000 shares of its common stock for $12.00 per share. The proceeds, net of
underwriter's discount, fees and expenses, of $43,340,000 were used to repay
subordinated debt outstanding to stockholders and loans payable to banks.
At December 31, 1996, the Company's authorized capital stock consisted of
5,000,000 shares of preferred stock, $0.10 par value, of which no shares were
issued or outstanding, and 50,000,000 shares of common stock, $0.10 par value,
of which 20,698,076 shares were issued and outstanding.
(13) LEASES
The Company is obligated under various capital leases for certain machinery
and equipment which expire on various dates through October 1, 2001 (see also
note (6)). At December 31, 1996 and 1995, the amount of machinery and equipment
and related accumulated amortization recorded under capital leases and included
with property, plant and equipment consisted of the following (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Machinery and equipment................................... $ 6,452 $3,174
Less: accumulated amortization............................ (1,042) (564)
------- ------
$ 5,410 $2,610
======= ======
</TABLE>
Amortization of assets held under capitalized leases is included with
depreciation expense.
The Company has several noncancelable operating leases with unaffiliated
third parties, primarily for office and manufacturing space, showrooms, and
warehouse equipment that expire over the next eight years. These leases
generally contain renewal options and require the Company to pay real estate
taxes, utilities and related insurance.
At December 31, 1996, the Company also had noncancelable operating leases
with the Principal Stockholder and real estate entities owned either directly or
indirectly by the Principal Stockholder ("Unconsolidated Affiliates") for
warehouse and office space that expire over the next five years. Rent due to
Unconsolidated Affiliates represents future commitments associated with property
leased by the Company from the Principal Stockholder or such entities owned
directly or indirectly by the Principal Stockholder.
F-17
<PAGE> 139
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996 future minimum lease payments under all operating
leases consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
UNCONSOLIDATED
THIRD PARTIES AFFILIATES TOTAL
------------- -------------- -------
<S> <C> <C> <C>
1997................................... $ 3,831 $2,246 $ 6,077
1998................................... 3,883 2,309 6,192
1999................................... 2,713 2,374 5,087
2000................................... 1,908 1,239 3,147
2001................................... 1,908 167 2,075
2002 - 2006............................ 6,184 6,184
2007 - 2011............................ 4,631 4,631
2012 - 2016............................ 4,325 4,325
Thereafter............................. 505 505
------- ------ -------
$29,888 $8,335 $38,223
======= ====== =======
</TABLE>
Rent expense for the years ended December 31, 1996, 1995 and 1994 was
$5,300,000, $2,547,000 and $2,245,000, respectively, of which $2,134,000,
$936,000 and $893,000, respectively, related to leases with Unconsolidated
Affiliates.
On April 5, 1996, the Company entered into an operating lease agreement
with a third party whereby the Company may lease up to $11,000,000 of machinery
and equipment. The agreement provides for equal monthly payments over 12 years,
including renewal options. In connection with this agreement, the Company has
entered into commitments for equipment with a fair value of approximately
$10,800,000 as of December 31, 1996. Assuming the entire lease facility is
utilized, future minimum lease payments will be increased as follows (dollars in
thousands):
<TABLE>
<S> <C>
1997........................................... $ 1,305
1998........................................... 1,305
1999........................................... 1,305
2000........................................... 1,305
2001........................................... 1,305
Thereafter..................................... 9,135
-------
$15,660
=======
</TABLE>
(14) SEGMENT INFORMATION
Industry Segments
The Company operates in one industry segment which involves the design,
manufacture, contract for manufacture and distribution of party and novelty
goods.
Geographic Segments
The Company's export sales, other than those intercompany sales reported
below as sales between geographic areas, are not material. Sales between
geographic areas primarily consist of sales of finished goods for distribution
in the foreign markets of Australia, Canada, Germany, Mexico, Sweden, and the
United Kingdom. No one single foreign operation is significant to the Company's
consolidated operations. Intersegment sales between geographic areas are made at
cost plus a share of operating profit.
F-18
<PAGE> 140
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's geographic area data for each of the three fiscal years ended
December 31, 1996, 1995 and 1994 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1996
Sales to unaffiliated customers................. $168,165 $24,540 $192,705
Sales between geographic areas.................. 8,643 116 $ (8,759) --
-------- ------- ------- --------
Net sales....................................... $176,808 $24,656 $ (8,759) $192,705
======== ======= ======= ========
Income from operations.......................... $ 10,643 $ 2,115 $ 12,758
======== =======
Interest expense, net........................... 6,691
Other expense, net.............................. 335
--------
Income before income taxes and minority
interests..................................... $ 5,732
========
Identifiable assets............................. $127,472 $12,802 $140,274
======== ======= ========
1995
Sales to unaffiliated customers................. $146,198 $21,205 $167,403
Sales between geographic areas.................. 8,508 60 $ (8,568) --
-------- ------- ------- --------
Net sales....................................... $154,706 $21,265 $ (8,568) $167,403
======== ======= ======= ========
Income from operations.......................... $ 22,782 $ 1,887 $ 24,669
======== =======
Interest expense, net........................... 5,772
Other income, net............................... (309)
--------
Income before income taxes and minority
interests..................................... $ 19,206
========
Identifiable assets............................. $ 99,123 $15,478 $114,601
======== ======= ========
1994
Sales to unaffiliated customers................. $115,196 $16,833 $132,029
Sales between geographic areas.................. 5,645 89 $ (5,734) --
-------- ------- ------- --------
Net sales....................................... $120,841 $16,922 $ (5,734) $132,029
======== ======= ======= ========
Income from operations.......................... $ 13,468 $ 1,048 $ 14,516
======== =======
Interest expense, net........................... 3,843
Other expense, net.............................. 82
--------
Income before income taxes and minority
interests..................................... $ 10,591
========
Identifiable assets............................. $ 80,117 $13,767 $ 93,884
======== ======= ========
</TABLE>
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, accounts receivables,
deposits and other current assets, loans and notes payable, accounts payable,
accrued expenses (non-derivatives) and other current liabilities approximates
fair value at December 31, 1996 because of the short term maturity of those
instruments or their variable rate of interest.
F-19
<PAGE> 141
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts for long term debt approximates fair value at December
31, 1996. Fair value has been estimated by discounting the future cash flow of
each instrument at rates currently offered for similar debt instruments of
comparable maturity.
The fair value of interest rate swaps is the estimated amount that the bank
would receive or pay to terminate the swap agreements at the reporting date,
taking into account current interest rates and the current creditworthiness of
the swap counterparties. Termination of the swap agreements at December 31, 1996
would require the Company to pay the bank $719,500.
(16) PRO FORMA DATA AND SUPPLEMENTAL PRO FORMA DATA (UNAUDITED)
Pro forma net income for the years ended December 31, 1996, 1995 and 1994
give effect to pro forma income tax provisions at statutory rates (40.5%)
assuming Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had
not elected Subchapter S corporation status for those periods.
For purposes of the pro forma net income per share of $0.60 for the year
ended December 31, 1996, net income has been adjusted to give effect to (i) the
reduction in compensation expenses ($14,173,000) paid to an officer assuming the
officer was a stockholder as of the beginning of the period presented, (ii) the
reduction in interest expense related to bank debt and subordinated indebtedness
due to the Principal Stockholder assuming such debt was repaid from the net
proceeds of the IPO as of the beginning of the period presented ($2,228,000),
and (iii) additional pro forma income taxes calculated at 40.5% assuming Amscan
Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not elected
Subchapter S corporation status ($6,518,000).
In accordance with the provisions of SAB 83, the pro forma weighted average
common shares outstanding represents the historical weighted average common
shares outstanding adjusted for the shares issued in connection with the
exchange of shares in the Organization, the IPO shares, the ESOP shares and
other shares issued in contemplation of the IPO to have been outstanding as if
the transactions occurred at the beginning of the period presented.
(17) SUBSEQUENT EVENT
On January 8, 1997, an additional 422,400 shares of common stock were sold
at $12.00 per share to cover the over-allotments as provided for in the
underwriting agreements between the Company and the underwriters associated with
the IPO. The proceeds, net of underwriter's discount, fees and expenses, of
$4,588,984 were used to repay borrowings outstanding to banks.
F-20
<PAGE> 142
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BEGINNING ENDING
BALANCE WRITE-OFFS ADDITIONS BALANCE
--------- ---------- --------- -------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
For the year ended:
December 31, 1994.............................. $ 1,104 $1,855 $ 2,676 $ 1,925
December 31, 1995.............................. 1,925 1,001 1,581 2,505
December 31, 1996.............................. 2,505 717 2,350 4,138
</TABLE>
<TABLE>
<CAPTION>
BEGINNING ENDING
BALANCE WRITE-OFFS ADDITIONS BALANCE
--------- ---------- --------- -------
<S> <C> <C> <C> <C>
Inventory Reserves
For the year ended:
December 31, 1994.............................. $ 609 $ 375 $ 600 $ 834
December 31, 1995.............................. 834 406 800 1,228
December 31, 1996.............................. 1,228 731 1,188 1,685
</TABLE>
F-21
<PAGE> 143
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
(UNAUDITED) (NOTE)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................................... $ 684 $ 1,589
Accounts receivable, net of allowances............................. 56,276 37,378
Inventories........................................................ 48,736 45,693
Deposits and other current assets.................................. 9,680 11,360
-------- --------
Total current assets.......................................... 115,376 96,020
Property, plant and equipment, net................................. 37,157 34,663
Intangible assets, net............................................. 7,540 7,443
Other assets, net.................................................. 2,687 2,148
-------- --------
Total assets............................................. $ 162,760 $140,274
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Loans and notes payable............................................ $ 10,020 $ 29,328
Subordinated and other indebtedness due to stockholders............ 1,393
Accounts payable................................................... 11,153 7,128
Accrued expenses................................................... 7,317 9,403
Income taxes payable............................................... 6,458 822
Current portion of long-term obligations........................... 5,556 2,541
-------- --------
Total current liabilities..................................... 40,504 50,615
Long-term obligations, excluding current portfolio................. 24,828 15,085
Deferred tax liabilities........................................... 5,585 5,662
Other.............................................................. 2,841 963
-------- --------
Total liabilities........................................ 73,758 72,325
Stockholders' equity:
Preferred Stock ($0.10 par value; 5,000,000 shares authorized;
none issued and outstanding).................................. --
Common stock ($0.10 par value; 50,000,000 shares authorized;
21,120,476 and 20,698,076 shares issued, respectively)........ 2,112 2,070
Additional paid-in-capital....................................... 65,985 61,503
Retained earnings................................................ 21,649 4,748
Foreign currency translation adjustment.......................... (454) (372)
Treasury stock, at cost (21,691 shares).......................... (290) --
-------- --------
Total stockholders' equity.................................... 89,002 67,949
-------- --------
Total liabilities and stockholders' equity............... $ 162,760 $140,274
======== ========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
consolidated financial statements at that date.
See accompanying notes to consolidated financial statements.
F-22
<PAGE> 144
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
-------- ---------
<S> <C> <C>
Net sales............................................................ $161,286 $ 147,008
Cost of sales........................................................ 103,460 92,861
-------- -------
Gross profit....................................................... 57,826 54,147
Operating expenses:
Selling expenses................................................... 9,598 8,691
General and administrative expenses................................ 13,225 14,113
Art and development costs.......................................... 3,891 3,671
Special bonuses.................................................... 3,300
-------- -------
Total operating expenses........................................ 26,714 29,775
-------- -------
Income from operations.......................................... 31,112 24,372
Interest expense, net................................................ 2,654 4,569
Other (income) expense, net.......................................... (219) (301)
-------- -------
Income before income taxes and minority interests............... 28,677 20,104
Income taxes......................................................... 11,627 767
Minority interests................................................... 149 1,242
-------- -------
Net income...................................................... $ 16,901 $ 18,095
======== =======
Net income per common share..................................... $ 0.80
========
Weighted average common and common equivalent shares used in
computation.................................................... 21,097,133
========
Pro forma data (Note (6)):
Income before income taxes...................................... $ 18,862
Pro forma income tax expense.................................... $ 7,888
-------
Pro forma net income............................................ $ 10,974
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 145
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ ---------- -------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1996... $2,070 $ 61,503 $ 4,748 $(372) $67,949
Net income........................ 16,901 16,901
Net proceeds from sale of Common
Stock (Note 3).................. 42 4,482 4,524
Payments to acquire treasury
stock........................... $ (290) (290)
Net change in translation
adjustment...................... (82) (82)
------ ------- ------- ----- ----- -------
Balance as of September 30,
1997............................ $2,112 $ 65,985 $ 21,649 $(454) $ (290) $89,002
====== ======= ======= ===== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 146
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 16,901 $ 18,095
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization..................................... 4,505 3,579
Provision for doubtful accounts................................... 1,423 963
Gain on disposal of equipment..................................... (29)
Changes in operating assets and liabilities:
Increase in accounts receivable................................. (24,310) (20,442)
Increase in inventories......................................... (3,043) (61)
Decrease in deposits and other current assets................... 2,469 262
Increase (decrease) in accounts payable, accrued expenses and
income taxes payable........................................... 7,575 (1,029)
Other, net........................................................ 2,988 195
-------- -------
Net cash provided by operating activities.................... 8,479 1,562
Cash flows from investing activities:
Capital expenditures................................................. (6,895) (5,574)
Proceeds from disposal of equipment.................................. 140
-------- -------
Net cash used in investing activities........................ (6,755) (5,574)
Cash flows from financing activities:
Net proceeds from sale of Common Stock............................... 4,524
Proceeds from loans, notes payable and long-term obligations......... 15,620 10,242
Repayment of loans, notes payable and long-term obligations.......... (22,208) (2,003)
Repayment of subordinated and other indebtedness due to
stockholders...................................................... (182) (3,220)
Payments to acquire treasury stock................................... (290)
-------- -------
Net cash (used in) provided by financing activities.......... (2,536) 5,019
Effect of exchange rate changes on cash and cash equivalents......... (93) 31
-------- -------
Net (decrease) increase in cash and cash equivalents................. (905) 1,038
Cash and cash equivalents at beginning of period..................... 1,589 2,492
-------- -------
Cash and cash equivalents at end of period........................... $ 684 $ 3,530
======== =======
SUPPLEMENTAL DISCLOSURE:
Interest paid..................................................... $ 2,622 $ 4,970
Taxes paid........................................................ $ 6,612 $ 546
</TABLE>
Supplemental information on non-cash activities:
Capital lease obligations of $59 and $2,074 were incurred during the nine months
ended September 30, 1997 and 1996, respectively.
During September 1996, the Company declared the distribution of $7,600 of
previously provided capital and $13,067 of previously undistributed earnings.
Such amounts were included in subordinated and other indebtedness to
stockholders.
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 147
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
NOTE (1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Amscan Holdings, Inc. ("Amscan Holdings") was incorporated on October 3,
1996 for the purpose of becoming the holding company for Amscan Inc. and certain
affiliated entities (the "Affiliated Group"). An initial public offering of
4,000,000 shares of the Company's Common Stock at $12.00 per share (the "IPO")
was completed on December 18, 1996 pursuant to which the principal stockholder
(the "Principal Stockholder") and certain affiliates of the Principal
Stockholder exchanged shares in the Affiliated Group for 15,024,616 and 138,461
shares, respectively, in Amscan Holdings (the "Organization") and in the case of
the Principal Stockholder, $133,000 in cash. Prior to the IPO, certain members
of the Affiliated Group were operated as Subchapter S corporations for federal
and, where available, state income tax purposes. In connection with the IPO,
such members declared dividends representing distributions of accumulated
Subchapter S corporation profits and a return of capital. These amounts were
reflected as subordinated debt and repaid from the net proceeds of the IPO.
Amscan Holdings and its subsidiaries (collectively the "Company") design,
manufacture, contract for manufacture and distribute paper and plastic party
goods, accessories and novelty items principally in the United States, Canada
and Europe.
NOTE (2) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Amscan
Holdings and its majority-owned subsidiaries. Investments in less than
majority-owned subsidiaries are accounted for on an equity basis. As a result of
the transfer of ownership between the former stockholders of the Affiliated
Group and Amscan Holdings, certain members of the Affiliated Group terminated
their Subchapter S election on December 18, 1996 and are being taxed as
Subchapter C corporations under federal and certain state income tax
requirements. Such transfer of ownership was accounted for in a manner similar
to a pooling of interests. For the period prior to December 18, 1996, financial
statements are presented on a combined basis. Certain reclassifications have
been made to conform to the current year's presentation.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. The results of operations may be affected by
seasonal factors such as the timing of holidays or industry factors that may be
specific to a particular period, such as movement in and the general level of
raw material costs. For further information, see the financial statements and
footnotes thereto included in the Amscan Holdings annual report on Form 10-K for
the year ended December 31, 1996.
NOTE (3) COMMON STOCK
On January 8, 1997, an additional 422,400 shares of the Company's Common
Stock were sold at $12.00 per share to cover the over-allotment option as
provided for in the underwriting agreement between the Company and the
underwriters associated with the IPO. The proceeds, net of underwriters'
discount, fees and expenses, of $4,523,984 were used to repay outstanding bank
borrowings.
F-26
<PAGE> 148
AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
NOTE (4) INVENTORIES
Inventories consisted of the following:
<TABLE>
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DECEMBER
SEPTEMBER 30, 31,
1997 1996
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Finished goods..................................... $45,357 $42,127
Raw materials...................................... 3,408 3,863
Work-in-process.................................... 1,708 1,388
------- -------
50,473 47,378
Less: reserve for slow moving and obsolete
inventory........................................ (1,737) (1,685)
------- -------
$48,736 $45,693
======= =======
</TABLE>
Substantially all inventories are valued at the lower of cost, determined on a
first in - first out basis, or market.
NOTE (5) NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income by the
weighted average number of shares of Common Stock outstanding during each
period, including the common stock equivalent of dilutive stock options.
NOTE (6) INCOME TAXES
The consolidated income tax provision for the nine months ended September
30, 1997 was determined based upon an estimate of the Company's consolidated
effective income tax rates for the year ending December 31, 1997. The
differences between the consolidated effective income tax rate and the U.S.
Federal statutory rate are primarily attributable to state income taxes and the
effects of foreign operations.
The amounts shown as income taxes for the nine months ended September 30,
1996 consisted principally of foreign income taxes as most of the members of the
Affiliated Group had elected Subchapter S Corporation status for such period.
Pro forma net income for the nine months ended September 30, 1996 gives effect
to pro forma income tax provisions at an estimated effective tax rate (40.5%)
assuming those members of the Affiliated Group had not elected Subchapter S
corporation status for such period.
NOTE (7) OTHER MATTERS
On July 7, 1997, a customer accounting for approximately 2% of the
Company's consolidated sales for the nine months ended September 30, 1997 and
the year ended December 31, 1996, filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code. According to publicly available
documents, the customer is currently operating as a debtor-in-possession and
plans to reorganize pursuant to the Bankruptcy Code. At September 30, 1997,
amounts receivable from the customer which totaled approximately $1.8 million,
have been substantially provided for in the Company's allowance for doubtful
accounts. The Company does not believe the potential loss of this customer will
have a material adverse effect on the Company's future results of operations or
its financial condition.
On August 10, 1997, Amscan Holdings and Confetti Acquisition, Inc.
("Confetti"), a newly formed Delaware corporation affiliated with GS Capital
Partners II, L.P. ("GSCP") and certain other private investment funds managed by
Goldman, Sachs & Co., entered into an Agreement and Plan of Merger (the "Merger
Agreement") providing for a recapitalization of Amscan Holdings in which
Confetti will be merged with and into Amscan Holdings ("Merger"), with Amscan
Holdings as the surviving corporation. Pursuant to
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AMSCAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
the Merger Agreement, each share of Amscan Holdings' Common Stock will, at the
election of each of Amscan Holdings' public stockholders, be converted into the
right to receive either (i) $16.50 in cash or (ii) $9.33 in cash plus a retained
interest in Amscan Holdings equal to one share of Amscan Holdings Common Stock
for every 150,000 shares elected (the "Mixed Consideration Option"), with
fractional shares paid in cash.
It is expected that following the Merger, GSCP will own approximately 82.5%
of the then outstanding shares of Amscan Holdings Common Stock, certain members
of Amscan Holdings management will own approximately 7.5%, and the Estate of
John A. Svenningsen (the "Estate"), which currently owns approximately 71.2% of
Amscan Holdings, will own almost 10%. The Merger, which is expected to be
consummated in the fourth quarter of 1997, is subject to the approval of Amscan
Holdings stockholders, the availability of contemplated financing, Confetti's
satisfaction that the Merger will be recorded as a recapitalization for
financial reporting purposes, the expiration of antitrust waiting periods and
certain other customary conditions. As of September 24, 1997, the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, had
expired or been terminated with respect to all of the filings made thereunder.
The Merger is expected to be financed with an equity contribution of
approximately $67.5 million (including contributions of Amscan Holdings Common
Stock by certain employee stockholders and including issuances of restricted
stock), $117 million from a senior term loan and $110 million from the issuance
of senior subordinated debt. GSCP has received a commitment from Goldman Sachs
Credit Partners L.P. with respect to the senior term loan and a highly confident
letter from Goldman, Sachs & Co. with respect to the senior subordinated debt.
In connection with the Merger, the Company will enter into a $50 million
revolving credit facility which will, subject to a borrowing base, be available
to fund the working capital requirements of the Company.
In connection with the Merger, Confetti has entered into a Voting Agreement
(the "Voting Agreement") with the Estate and Christine Svenningsen, the wife of
John A. Svenningsen and the Executrix of the Estate, pursuant to which they
have, among other things, (i) agreed to vote all their shares of Amscan Holdings
Common Stock in favor of the Merger and against certain competing transactions,
and to elect the Mixed Consideration Option in the Merger with respect to all
such shares, (ii) agreed not to sell or transfer any of their shares of Amscan
Holdings Common Stock prior to the effective time or termination of the Voting
Agreement, and (iii) granted Confetti an irrevocable option to acquire their
shares at a price of $9.83 per share exercisable within 90 days after
termination of the Merger Agreement (other than a termination upon mutual
consent or a termination by Amscan Holdings based on an actual material breach
by Confetti of its obligations under the Merger Agreement). In the event that
Confetti exercises its option under the Voting Agreement, it will be required to
make a cash tender offer for the remaining shares of Amscan Holdings Common
Stock not held by it at a price of $16.50 per share. At a meeting held on August
10, 1997, the Amscan Holdings Board of Directors approved the Merger Agreement
and the Voting Agreement and approved Confetti becoming an "interested
stockholder" within the meaning of Section 203 of the General Corporation Law of
the State of Delaware.
During September 1997, the Company entered into an agreement to convert
$4.0 million of trade accounts receivable from a customer into an equity
interest. The Company subsequently transferred 50% of this interest to the
Principal Stockholder in full satisfaction of $2.0 million of obligations. The
remaining equity interest is included in other assets.
F-28
<PAGE> 150
ANNEX A
------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
CONFETTI ACQUISITION, INC.
AND
AMSCAN HOLDINGS, INC.
DATED AS OF AUGUST 10, 1997
------------------------------------------------------------
<PAGE> 151
TABLE OF CONTENTS
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ARTICLE 1
THE MERGER
SECTION 1.1 The Merger............................................................ A-1
SECTION 1.2 Closing............................................................... A-2
SECTION 1.3 Effective Time........................................................ A-2
SECTION 1.4 Effects of the Merger................................................. A-2
SECTION 1.5 Certificate of Incorporation; By-Laws................................. A-2
SECTION 1.6 Directors and Officers................................................ A-2
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock............................................... A-2
SECTION 2.2 Dissenting Share...................................................... A-3
SECTION 2.3 Mixed Consideration Elections......................................... A-3
SECTION 2.4 Treatment of Options.................................................. A-4
SECTION 2.5 Surrender of Shares; Transfer Books................................... A-5
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1 Organization and Qualification; Subsidiaries.......................... A-7
SECTION 3.2 Certificates of Incorporation and By-Laws............................. A-7
SECTION 3.3 Capitalization........................................................ A-7
SECTION 3.4 Authority Relative to This Agreement.................................. A-8
SECTION 3.5 No Conflict; Required Filings and Consents............................ A-9
SECTION 3.6 Compliance............................................................ A-10
SECTION 3.7 SEC Filings; Financial Statements..................................... A-10
SECTION 3.8 Absence of Certain Changes or Events.................................. A-10
SECTION 3.9 Absence of Litigation................................................. A-10
SECTION 3.10 Properties............................................................ A-11
SECTION 3.11 Employee Benefit Plans................................................ A-12
SECTION 3.12 Tax Matters........................................................... A-13
SECTION 3.13 Environmental Laws.................................................... A-14
SECTION 3.14 Intellectual Property................................................. A-15
SECTION 3.15 Labor Matters......................................................... A-15
SECTION 3.16 Business Relationships; No Restrictive Agreements..................... A-16
SECTION 3.17 Form S-4; Proxy Statement............................................. A-16
SECTION 3.18 Brokers............................................................... A-16
SECTION 3.19 Opinion of Company Financial Advisor.................................. A-16
SECTION 3.20 Board Recommendation.................................................. A-16
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF NEWCO
SECTION 4.1 Corporate Organization................................................ A-17
SECTION 4.2 Authority Relative to This Agreement.................................. A-17
</TABLE>
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SECTION 4.3.. No Conflict; Required Filings and Consents............................ A-17
SECTION 4.4 Form S-4; Proxy Statement............................................. A-18
SECTION 4.5 Brokers............................................................... A-18
SECTION 4.6 Financing............................................................. A-18
SECTION 4.7 Newco Not an Interested Stockholder................................... A-18
SECTION 4.8 Solvency of the Company Following the Merger.......................... A-18
ARTICLE 5
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business Pending the Merger................................ A-18
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholders Meeting.................................................. A-20
SECTION 6.2 Form S-4 and Proxy Statement.......................................... A-20
SECTION 6.3 Access to Information; Confidentiality................................ A-21
SECTION 6.4 No Solicitation....................................................... A-22
SECTION 6.5 ESOP.................................................................. A-22
SECTION 6.6 Directors' and Officers' Indemnification and Insurance................ A-22
SECTION 6.7 Notification of Certain Matters....................................... A-23
SECTION 6.8 Further Action; Best Efforts.......................................... A-23
SECTION 6.9 Public Announcements.................................................. A-25
SECTION 6.10 Disposition of Litigation............................................. A-25
SECTION 6.11 Affiliates............................................................ A-25
SECTION 6.12 Stop Transfer Order................................................... A-25
SECTION 6.13 Transfer Taxes........................................................ A-25
SECTION 6.14 Employee Plans and Benefits........................................... A-25
ARTICLE 7
CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party to Effect the Merger........... A-26
SECTION 7.2 Conditions to Obligation of Newco..................................... A-26
SECTION 7.3 Conditions to Obligation of the Company............................... A-27
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination........................................................... A-28
SECTION 8.2 Effect of Termination................................................. A-28
SECTION 8.3 Fees and Expenses..................................................... A-28
SECTION 8.4 Amendment............................................................. A-29
SECTION 8.5 Waiver................................................................ A-29
ARTICLE 9
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and Agreements............ A-29
SECTION 9.2 Notices............................................................... A-29
</TABLE>
A-ii
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SECTION 9.3 Certain Definitions................................................... A-30
SECTION 9.4 Severability.......................................................... A-31
SECTION 9.5 Entire Agreement; Assignment.......................................... A-31
SECTION 9.6 Parties in Interest................................................... A-31
SECTION 9.7 Governing Law......................................................... A-31
SECTION 9.8 Headings.............................................................. A-31
SECTION 9.9 Counterparts.......................................................... A-31
Annex A -- Form of Affiliate Letter
Exhibit A -- Certificate of Incorporation of Amscan Holdings, Inc.
</TABLE>
A-iii
<PAGE> 154
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 10, 1997 (the
"Agreement"), between Confetti Acquisition, Inc., a Delaware corporation
("Newco"), and Amscan Holdings, Inc., a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of the Company and Newco have
determined that the merger of Newco with and into the Company (the "Merger"),
upon the terms and subject to the conditions set forth in this Agreement, based
on the availability of the Cash Election Price to any stockholder who so elects,
would be fair to and in the best interests of their respective stockholders, and
such Boards of Directors have approved the Merger, pursuant to which each share
of common stock, par value $.10 per share (the "Company Common Stock"), issued
and outstanding immediately prior to the Effective Time (as defined in Section
1.3) (other than (a) shares of Company Common Stock owned, directly or
indirectly, by the Company or any Subsidiary (as defined in Section 9.3) of the
Company or by Newco or any Subsidiary of Newco and (b) Dissenting Shares (as
defined in Section 2.2)), will be converted into either (A) at the election of
the holder thereof and subject to the terms hereof, the right to retain one-one
hundred fifty thousandth (1/150,000) of each share of their Company Common Stock
and the right to receive $9.33 per share in cash or (B) the right to receive
$16.50 per share in cash;
WHEREAS, the Merger and this Agreement require the affirmative vote by the
holders of a majority of the shares of the Company Common Stock outstanding and
entitled to vote for the adoption and approval thereof (the "Company Stockholder
Approval");
WHEREAS, Newco is a newly formed corporation organized at the direction of
GS Capital Partners II, L.P.;
WHEREAS, as a condition to Newco's willingness to enter into this Agreement
and consummate the transactions contemplated hereby, Newco has required that the
"Stockholder" (as defined in the Voting Agreement (as defined below)) agree,
among other things, to vote all shares of Company Common Stock beneficially
owned by the Stockholder and certain related persons (as defined in Section 9.3)
in accordance with the Voting Agreement and comply with the other provisions of
the Voting Agreement, and to make a Mixed Consideration Election (as defined
herein) with respect to all shares of Company Common Stock owned by the
Stockholder; and in order to induce Newco to enter into this Agreement, the
Stockholder will execute and deliver the Voting Agreement, dated as of the date
hereof, among Newco, the Estate of John A. Svenningsen, and Christine
Svenningsen (the "Voting Agreement");
WHEREAS, in connection with this Agreement, Newco and certain employees of
the Company entered into certain agreements as of the date hereof relating to
their employment with the Company following the Effective Time and relating to
their ownership of the capital stock of Newco (collectively, the "Employment
Arrangements");
WHEREAS, certain terms used herein are defined in Section 9.3;
WHEREAS, Newco and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law of the State
of Delaware (the "DGCL"), at the Effective Time
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<PAGE> 155
(as defined in Section 1.3), Newco shall be merged with and into the Company. As
a result of the Merger, the separate corporate existence of Newco shall cease
and the Company shall survive the Merger.
SECTION 1.2 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 8.1, and subject to the satisfaction or waiver of the conditions set
forth in Article 7, the closing of the Merger (the "Closing") will take place at
10:00 a.m. on the second business day after satisfaction or waiver of the
conditions set forth in Article 7 (the "Closing Date"), at the offices of
Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019,
unless another date, time or place is agreed to in writing by the parties
hereto.
SECTION 1.3 Effective Time. As soon as practicable after the satisfaction
or waiver of the conditions set forth in Article 7, the parties hereto shall
cause the Merger to be consummated by filing this Agreement or a certificate of
merger (the "Certificate of Merger") with the Secretary of State of the State of
Delaware, in such form as required by and executed in accordance with the
relevant provisions of the DGCL (the date and time of the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware (or
such later time as is specified in the Certificate of Merger) being the
"Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the DGCL. Without limiting the generality
of the foregoing and subject thereto, at the Effective Time all the property,
rights, privileges, immunities, powers and franchises of the Company and Newco
shall vest in the Company following the Merger, and all debts, liabilities and
duties of the Company and Newco shall become the debts, liabilities and duties
of the Company following the Merger.
SECTION 1.5 Certificate of Incorporation; By-Laws. (a) At the Effective
Time and without any further action on the part of the Company or Newco or their
respective stockholders, the certificate of incorporation of the Company, as in
effect immediately prior to the Effective Time, shall be amended and restated so
as to read in its entirety in the form set forth as Exhibit A hereto and, as so
amended, until thereafter further amended as provided therein and under the
DGCL, it shall be the certificate of incorporation of the Company following the
Merger.
(b) At the Effective Time and without any further action on the part of the
Company or Newco or their respective stockholders, the by-laws of Newco as in
effect immediately prior to the Effective Time shall be the by-laws of the
Company following the Merger and thereafter may be amended or repealed in
accordance with their terms and the certificate of incorporation of the Company
following the Merger and as provided under the DGCL.
SECTION 1.6 Directors and Officers. The directors of Newco immediately
prior to the Effective Time shall be the initial directors of the Company
following the Merger, each to hold office in accordance with the certificate of
incorporation and by-laws of the Company following the Merger, and the officers
of the Company immediately prior to the Effective Time shall be the initial
officers of the Company following the Merger, in each case until their
respective successors are duly elected or appointed (as the case may be) and
qualified.
ARTICLE 2
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 Company, Newco or any
holder of any shares of Company Common Stock or any shares of capital stock of
Newco:
(a) Common Stock of Newco. Each share of common stock, par value $.10
per share, of Newco ("Newco Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into a number of
fully paid and nonassessable shares of the common stock, par value $.10 per
share, of the Company following the Merger equal to the quotient of (i) 900
divided by (ii) the number of shares of Newco Common Stock outstanding
immediately prior to the Effective Time.
A-2
<PAGE> 156
(b) Cancellation of Treasury Stock and Newco-Owned Company Common
Stock. Each share of Company Common Stock that, immediately prior to the
Effective Time, is owned by the Company or by any Subsidiary of the
Company, and each share of Company Common Stock that, immediately prior to
the Effective Time, is owned by Newco or any Subsidiary of Newco shall
automatically be cancelled and retired and shall cease to exist, and no
cash, Company Common Stock or other consideration shall be delivered or
deliverable in exchange therefor.
(c) Conversion of Company Common Stock. Except as otherwise provided
herein, each issued and outstanding share of Company Common Stock (other
than any such shares to be cancelled pursuant to Section 2.1(b) and any
Dissenting Shares (as defined in Section 2.2)) shall be converted into the
following (the "Merger Consideration"):
(i) for each such share of Company Common Stock with respect to
which an election to retain Company Common Stock has been effectively
made and not revoked or lost, pursuant to Section 2.3 ("Electing
Shares"), the right to retain one-one hundred fifty thousandth
(1/150,000) of a fully paid and nonassessable share of Company Common
Stock and the right to receive in cash from the Company following the
Merger an amount equal to $9.33 (such Company Common Stock and cash,
together, being the "Mixed Consideration"); or
(ii) for each such share of Company Common Stock, other than
Electing Shares, the right to receive in cash from the Company following
the Merger an amount equal to $16.50 (the "Cash Election Price").
(d) Cancellation and Retirement of Company Common Stock. As of the
Effective Time, all shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than those shares issued
pursuant to Section 2.1(a) (the "New Shares") and those shares retained
pursuant to Section 2.1(c)(i) after giving effect to Section 2.5(e) (the
"Retained Shares")) shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Common Stock (other
than New Shares and Retained Shares) shall, to the extent such certificate
represents such shares, cease to have any rights with respect thereto,
except the right to receive cash, including cash in lieu of fractional
shares of Company Common Stock, to be issued or paid in consideration
therefor upon surrender of such certificate in accordance with Section 2.5.
SECTION 2.2 Dissenting Shares. (a) Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock that are issued and
outstanding immediately prior to the Effective Time and which are held by
stockholders who have not voted in favor of or consented to the Merger and who
shall have delivered a written demand for appraisal of such shares in the time
and manner provided in Section 262 of the DGCL and shall not have failed to
perfect or shall not have effectively withdrawn or lost their rights to
appraisal and payment under the DGCL (the "Dissenting Shares") shall not be
converted into the right to receive the Merger Consideration, but shall be
entitled to receive the consideration as shall be determined pursuant to Section
262 of the DGCL; provided, however, that, if any such holder shall have failed
to perfect or shall have effectively withdrawn or lost his, her or its right to
appraisal and payment under the DGCL, such holder's shares of Company Common
Stock shall thereupon be deemed to have been converted, at the Effective Time,
into the right to receive the Merger Consideration set forth in Section
2.1(c)(ii) of this Agreement, without any interest thereon.
(b) The Company shall give Newco (i) prompt notice of any demands for
appraisal pursuant to Section 262 received by the Company, withdrawals of such
demands and any other instruments served pursuant to the DGCL and received by
the Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the DGCL. The Company shall not,
except with the prior written consent of Newco, make any payment with respect to
any such demands for appraisal or offer to settle or settle any such demands.
SECTION 2.3 Mixed Consideration Elections. (a) Each person who, on or
prior to the Election Date referred to in (c) below, is a record holder of
shares of Company Common Stock will be entitled, with respect
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<PAGE> 157
to all or any portion of his shares, to make an unconditional election (a "Mixed
Election") on or prior to such Election Date to retain and receive, as
applicable, Mixed Consideration, on the basis hereinafter set forth.
(b) Prior to the mailing of the Proxy Statement (as defined in Section
3.17), Newco shall appoint a bank or trust company to act as exchange agent (the
"Exchange Agent") for the payment of the Merger Consideration.
(c) Newco shall prepare and mail a form of election, which form shall be
subject to the reasonable approval of the Company (the "Form of Election"), with
the Proxy Statement to the record holders of Company Common Stock as of the
record date for the Stockholders Meeting (as defined in Section 6.1), which Form
of Election shall be used by each record holder of shares of Company Common
Stock who wishes to elect to retain and receive, as applicable, Mixed
Consideration for any or all shares of Company Common Stock held by such holder.
The Company will use its best efforts to make the Form of Election and the Proxy
Statement available to all persons who become holders of Company Common Stock
during the period between such record date and the Election Date referred to
below. Any such holder's election to retain and receive, as applicable, Mixed
Consideration shall have been properly made only if the Exchange Agent shall
have received at its designated office, by 5:00 p.m., New York City time, on the
business day (the "Election Date") next preceding the date of the Stockholders
Meeting, a Form of Election properly completed and signed and accompanied by
certificates for the shares of Company Common Stock to which such Form of
Election relates, duly endorsed in blank or otherwise in form acceptable for
transfer on the books of the Company (or by an appropriate guarantee of 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 NASDAQ
trading days after the date of execution of such guarantee of delivery).
(d) Any Form of Election may be revoked by the stockholder after submitting
it to the Exchange Agent only by written notice received by the Exchange Agent
prior to 5:00 p.m., New York City time, on the Election Date (which shall be the
record date for determination of stockholders entitled to make the Mixed
Election), unless Newco and such stockholder agree otherwise. In addition, all
Forms of Election shall automatically be revoked if the Exchange Agent is
notified in writing by Newco 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 shares of Company Common Stock to which
such Form of Election relates shall be promptly returned to the stockholder
submitting the same to the Exchange Agent.
(e) The good faith determination of the Exchange Agent as to whether or not
elections to retain and receive, as applicable, Mixed Consideration have been
properly made or revoked pursuant to this Section 2.3 with respect to shares of
Company Common Stock, and as to when elections and revocations were received by
it, shall be binding. If the Exchange Agent determines that any election to
retain and receive, as applicable, Mixed Consideration was not properly made
with respect to shares of Company Common Stock, such shares shall be treated by
the Exchange Agent as shares which were not Electing Shares at the Effective
Time, and such shares shall be exchanged in the Merger for cash pursuant to
Section 2.1(c)(ii). The Exchange Agent may, with the mutual agreement of Newco
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 Treatment of Options. (a) Except as otherwise agreed by Newco
and any such holder of an Option (as defined below) prior to the Effective Time,
including pursuant to the Employment Arrangements, immediately prior to the
Effective Time, each outstanding stock option held by any current or former
employee or director (an "Option") granted under the 1996 Stock Option Plan for
Key Employees (the "Stock Plan"), whether or not then exercisable, shall be
cancelled by the Company, and except as otherwise agreed by the Company, Newco
and the holder, the holder thereof shall be entitled to receive at the Effective
Time or as soon as practicable thereafter from the Company in consideration for
such cancellation an amount in cash equal to the product of (a) the number of
shares of Company Common Stock previously subject to such Option and (b) the
excess, if any, of the Cash Election Price over the per share exercise price
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of the shares of Company Common Stock previously subject to such Option, reduced
by the amount of any withholding or other taxes required by law to be withheld
(the "Option Cash-Out Amount").
(b) The Company shall use its reasonable best efforts to take all such
action as is necessary prior to the Effective Time to terminate the Stock Plan
so that on and after the Effective Time no current or former employee or
director shall have any Option to purchase shares of Company Common Stock or any
other equity interest in the Company under the Stock Plan and to provide that
from and after the Effective Time, to the extent any Option has not been
cancelled as contemplated by Section 2.4(a), upon exercise of any such Option,
the holder thereof shall be entitled to receive only the Option Cash-Out Amount.
The Company shall use its reasonable best efforts to obtain any consents
necessary to release the Company from any liability in respect of any Option.
SECTION 2.5 Surrender of Shares; Transfer Books. (a) Exchange
Agent. Following the Effective Time, the Company shall deposit with the
Exchange Agent, for the benefit of the holders of shares of Company Common
Stock, as and when needed, the cash portion of the Merger Consideration for
exchange in accordance with this Article 2. Such funds shall be invested by the
Exchange Agent as directed by the Company, provided that such investments shall
be (i) securities issued or directly and fully guaranteed or insured by the
United Stated government or any agency or instrumentality thereof having
maturities of not more than six months from the date of acquisition, (ii)
certificates of deposit, eurodollar time deposits and bankers' acceptances with
maturities not exceeding six months and overnight bank deposits with any
commercial bank, depository institution or trust company incorporated or doing
business under the laws of the United States of America, any state thereof or
the District of Columbia, provided that such commercial bank, depository
institution or trust company has, at the time of investment, (A) capital and
surplus exceeding $250 million and (B) outstanding short-term debt securities
which are rated at least A-1 by Standard & Poor's Rating Group Division of The
McGraw-Hill Companies, Inc. or at least P-1 by Moody's Investors Service, Inc.
or carry an equivalent rating by a nationally recognized rating agency if both
of the two named rating agencies cease to publish ratings of investments, (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clauses (i) and (ii) above entered into
with any financial institution meeting the qualifications specified in clause
(ii) above, (iv) commercial paper having a rating in the highest rating
categories from Standard & Poor's Rating Group Division of The McGraw-Hill
Companies, Inc. or Moody's Investors Service, Inc. or carrying an equivalent
rating by a nationally recognized rating agency if both of the two named rating
agencies cease to publish ratings of investments and in each case maturing
within six months after the date of acquisition and (v) money market mutual or
similar funds having assets in excess of $1 billion. Any net profit resulting
from, or interest or income produced by, such investments will be payable to the
Company upon the Company's request.
(b) Exchange Procedures for Shares of Company Common Stock. As soon as
practicable after the Effective Time, each holder of an outstanding certificate
or certificates which prior thereto represented shares of Company Common Stock
shall, upon surrender to the Exchange Agent of such certificate or certificates
and acceptance thereof by the Exchange Agent, be entitled to a certificate or
certificates representing the number of full shares of Company Common Stock, if
any, to be retained by the holder thereof pursuant to this Agreement and the
amount of cash, if any, into which the number of shares of Company Common Stock
previously represented by such certificate or certificates surrendered shall
have been converted pursuant to this Agreement. The Exchange Agent shall 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 exchange practices. After the Effective Time, there shall
be no further transfer on the records of the Company or its transfer agent of
certificates representing shares of Company Common Stock which have been
converted, in whole or in part, pursuant to this Agreement into the right to
receive cash, and if such certificates are presented to the Company for
transfer, they shall be cancelled against delivery of cash and, if appropriate,
certificates for retained Company Common Stock. If any certificate for such
Company Common Stock is to be issued in, or if cash is to be remitted to, a name
other than that in which the certificate for Company Common Stock surrendered
for exchange is registered, it shall be a condition of such exchange or payment
that the certificate so surrendered shall be properly endorsed, with signature
guaranteed, or otherwise in proper form for transfer and that the person
requesting such exchange or payment shall pay to the Company or its
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transfer agent any transfer or other taxes required by reason of the issuance of
certificates for Company Common Stock pursuant hereto in a name other than that
of, or payment to a person other than, the registered holder of the certificate
surrendered, or establish to the satisfaction of the Company or its transfer
agent that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.5(b), each certificate for shares of Company
Common Stock shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration as
contemplated by Section 2.1. No interest will be paid or will accrue on any cash
payable as Merger Consideration or in lieu of any fractional shares of Company
Common Stock.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to retained Company Common Stock with a record
date after the Effective Time shall be paid to the holder of any unsurrendered
certificate for shares of Company Common Stock with respect to the shares of
retained Company Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.5(e)
until the surrender of such certificate in accordance with this Article 2.
Subject to the effect of applicable laws, following surrender of any such
certificate, there shall be paid to the holder of the certificate representing
whole shares of retained Company Common Stock issued in connection therewith,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of retained Company Common Stock to which
such holder is entitled pursuant to Section 2.5(e) and the proportionate amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of retained Company Common
Stock, and (ii) at the appropriate payment date, the proportionate amount of
dividends or other distributions 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 whole shares of retained Company Common Stock.
(d) No Further Ownership Rights in Company Common Stock Exchanged. All
cash paid or shares of Company Common Stock retained upon the surrender for
exchange of certificates representing shares of Company Common Stock in
accordance with the terms of this Article 2 (including any cash paid pursuant to
Section 2.5(e)) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of Company Common Stock
theretofore represented by such certificates.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of retained Company Common Stock shall be issued pursuant to a Mixed
Election in connection with the Merger, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a stockholder of the
Company after the Merger. Notwithstanding any other provision of this Agreement,
each record holder of shares of Company Common Stock exchanged pursuant to a
Mixed Election in connection with the Merger who would otherwise have been
entitled to receive a fraction of a share of retained Company Common Stock
(after taking into account all shares of Company Common Stock delivered by such
holder) shall receive, in lieu thereof, a cash payment (without interest) equal
to an amount equal to the same fraction of $75,000 as is equal to the fraction
of one share of Company Common Stock such holder would have been entitled to
otherwise retain.
(f) Termination of Exchange Fund. Any portion of the Merger Consideration
deposited with the Exchange Agent pursuant to this Section 2.5 (the "Exchange
Fund") which remains undistributed to the holders of the certificates
representing shares of Company Common Stock for six months after the Effective
Time shall be delivered to the Company, upon demand, and any holders of shares
of Company Common Stock prior to the Merger who have not theretofore complied
with this Article 2 shall thereafter look only to the Company and only as
general creditors thereof for payment of their claims for cash, if any, retained
Company Common Stock, if any, any cash in lieu of fractional shares of retained
Company Common Stock, or any dividends or distributions with respect to retained
Company Common Stock to which such holders may be entitled.
(g) No Liability. None of Newco, the Company or the Exchange Agent shall
be liable to any person in respect of any shares of retained Company Common
Stock (or dividends or distributions with respect thereto) or cash from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any certificates representing
shares of Company Common Stock shall not have been
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surrendered prior to one year after the Effective Time (or immediately prior to
such earlier date on which any cash, if any, any cash in lieu of fractional
shares of retained Company Common Stock, or any dividends or distributions with
respect to retained Company Common Stock in respect of such certificate would
otherwise escheat to or become the property of any Governmental Entity (as
defined in Section 3.5(b)), any such cash, dividends or distributions in respect
of such certificate shall, to the extent permitted by applicable law, become the
property of the Company, free and clear of all claims or interest of any person
previously entitled thereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Newco that, except as set
forth in the Section of the Disclosure Schedule delivered in connection with
this Agreement as of the date hereof (the "Disclosure Schedule") relating to the
correlative Section of this Article 3:
SECTION 3.1 Organization and Qualification; Subsidiaries. (a) Each of the
Company and each of its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and any
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power, authority
and governmental approval would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect (as defined below).
Each of the Company and each of its Subsidiaries is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. When used in connection with the
Company or any of its Subsidiaries, the term "Material Adverse Effect" means any
change or effect that (a) either individually or in the aggregate with all other
changes or effects, is materially adverse to the business, condition (financial
or otherwise), or results of operations of the Company and its Subsidiaries
taken as a whole or (b) would prevent consummation of, or materially adversely
affect the ability of the parties hereto to consummate, the transactions
contemplated by this Agreement.
(b) The only direct or indirect Subsidiaries of the Company are those
listed in Section 3.1(b) of the Disclosure Schedule. Except as set forth in
Section 3.1(b) of the Disclosure Schedule, all the outstanding shares of capital
stock of and other equity interests in each such Subsidiary have been validly
issued and are fully paid and non-assessable and are owned (of record and
beneficially) by the Company, by another Subsidiary of the Company or by the
Company and another such Subsidiary, free and clear of all pledges, claims,
mortgages, liens, charges, encumbrances and security interests of any kind or
nature whatsoever (collectively, "Liens"). Section 3.1(b) sets forth a list of
any other person that owns capital stock of and other equity interests in any
Subsidiary of the Company, and the amount of such capital stock so owned. Except
for the ownership interests set forth in Section 3.1(b) of the Disclosure
Schedule, the Company does not own, directly or indirectly, any capital stock or
other ownership interest in any other person.
SECTION 3.2 Certificates of Incorporation and By-Laws. The Company has
heretofore furnished to Newco complete and correct copies of the certificate of
incorporation and the by-laws of the Company and each of its Subsidiaries as
currently in effect. Such certificates of incorporation and by-laws are in full
force and effect and no other organizational documents are applicable to or
binding upon the Company or such Subsidiaries. The Company and its Subsidiaries
are not in violation of any of the provisions of their respective certificates
of incorporation or by-laws.
SECTION 3.3 Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Company Common Stock and 5,000,000 shares of
Preferred Stock, $.10 par value per share (the "Company Preferred Stock"). As of
July 31, 1997, (i) 21,098,785 shares of Company Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable and
were issued free of preemptive (or similar) rights, (ii) 21,691 shares of
Company Common Stock were held in the treasury of the
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Company and (iii) an aggregate of 512,000 shares of Company Common Stock were
reserved for issuance and issuable upon or otherwise deliverable in connection
with the exercise of outstanding Options. Other than the shares of Company
Common Stock reserved for issuance as set forth in the preceding clause (iii),
no capital stock or other equity interests in the Company or any of its
Subsidiaries is issuable upon exercise of the Options. As of the date hereof, no
shares of Company Preferred Stock are, and as of the Closing Date no shares of
Preferred Stock will be, issued and outstanding. Since July 31, 1997, the
Company has not issued or reserved for issuance (a) any shares of capital stock
or other voting securities of the Company or any of its Subsidiaries, except as
a result of the exercise of Options outstanding at July 31, 1997 or (b) any
Options, except as described in this Section 3.3. All shares of Company Common
Stock subject to issuance as aforesaid pursuant to Options, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable
and free of preemptive (or similar) rights. To the knowledge of the Company,
other than as provided in the Voting Agreement, there are no irrevocable proxies
with respect to shares of capital stock or other equity interests in the Company
or any Subsidiary of the Company. Except as set forth in Section 3.3 of the
Disclosure Schedule, there are no agreements or arrangements pursuant to which
the Company is or could be required to register shares of Company Common Stock
or other securities under the Securities Act of 1933, as amended (the
"Securities Act"), or other agreements or arrangements with or among any
securityholders of the Company with respect to securities of the Company. There
are no outstanding bonds, debentures, notes or other indebtedness or other
securities of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of the Company may vote. Except for the Options, there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company or any
of its Subsidiaries is a party or by which any of them is bound obligating the
Company or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other equity or
voting securities of the Company or of any of its Subsidiaries, or any
securities exchangeable for or convertible into capital stock or other equity or
voting securities of the Company or any of its Subsidiaries or obligating the
Company or any of its Subsidiaries to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking, and there are not outstanding any equity equivalents, interests
in the ownership or earnings of the Company or any of its Subsidiaries or other
similar rights (collectively, with the Options, "Company Securities") and there
are no other options, calls, warrants or other similar rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of or equity or voting interests in the Company or any of its
Subsidiaries to which the Company or any of its Subsidiaries is a party. Except
as set forth in Section 3.3 of the Disclosure Schedule, there are no outstanding
obligations of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities or any outstanding Company Common Stock
or to provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary or any other entity. As of the
date hereof, the only outstanding indebtedness for borrowed money of the Company
and its Subsidiaries is set forth in Section 3.3 of the Disclosure Schedule (the
"Company Debt"). Except as set forth in Section 3.3 of the Disclosure Schedule,
(i) the loans and other extensions of credit under the Company Debt are each
prepayable on not more than 30 days notice, without additional cost other than
reimbursement of customary breakage costs, and (ii) interest payable with
respect to each of the loans and other extensions of credit under the Company
Debt is calculated on the basis of a floating interest rate.
SECTION 3.4 Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. Assuming the accuracy of Newco's representations contained
in Section 4.7 (without giving effect to the knowledge qualification thereof),
the execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action 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, with
respect to the Merger, the approval of this Agreement by the holders of a
majority of the outstanding shares of Company Common Stock, and the filing and
recordation of appropriate merger documents as required by the DGCL). This
Agreement has been duly
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and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Newco, constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms. The Board of Directors of the Company has approved
this Agreement, the Voting Agreement (including the option contemplated thereby)
and, to the extent necessary, the Employment Arrangements and the transactions
contemplated hereby and thereby (including the Merger) (provided, in the case of
the Voting Agreement and the Employment Arrangements, that such approval is
limited to the forms provided to the Company at the time of execution hereof
without giving effect to any amendments, modifications or waivers thereunder not
approved by the Company) so as to render inapplicable hereto and thereto the
limitation on business combinations contained in Section 203 of the DGCL (or any
similar provision). As a result of the foregoing actions, assuming the accuracy
of Newco's representations contained in Section 4.7 (without giving effect to
the knowledge qualification thereof), the only vote required to authorize the
Merger is the affirmative vote of a majority of the outstanding shares of
Company Common Stock. To the knowledge of the Company, no state takeover statute
or similar statute or regulation, other than Section 203 of the DGCL, applies or
purports to apply to this Agreement, the Merger, the Voting Agreement, the
Employment Arrangements, or any of the other transactions contemplated hereby or
thereby. No provision of the certificate of incorporation, by-laws or other
governing instruments of the Company or any of its Subsidiaries would, directly
or indirectly, restrict or impair the ability of Newco or its affiliates to
vote, or otherwise to exercise the rights of a stockholder with respect to,
securities of the Company and its Subsidiaries that may be acquired or
controlled by Newco or its affiliates or permit any stockholder to acquire
securities of the Company on a basis not available to Newco in the event that
Newco were to acquire securities of the Company, and neither the Company nor any
of its Subsidiaries has any rights plan, preferred stock or similar arrangement
which have any of the aforementioned consequences.
SECTION 3.5 No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby by the Company do not and
will not: (i) conflict with or violate the certificate of incorporation or
by-laws of the Company or the equivalent organizational documents of any of its
Significant Subsidiaries; (ii) assuming that all consents, approvals and
authorizations contemplated by clauses (i) and (ii) of subsection (b) below have
been obtained and all filings described in such clauses have been made, conflict
with or violate any law, rule, regulation, order, ordinance, judgment, arbitral
award or decree applicable to the Company or any of its Subsidiaries or by which
they or any of their respective properties are bound or affected; or (iii)
result in any breach or violation of or constitute a default (or an event which
with notice or lapse of time or both could become a default) or result in the
loss of a material benefit under, or give rise to any right of termination,
amendment, alteration, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of the Company or any of
its Subsidiaries pursuant to, any loan, credit agreement, note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, concession, franchise or
other instrument or obligation to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries or its or any of
their respective properties are bound or affected, except (A) in the case of
clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults
or other occurrences which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect and (B) in the case of
clause (iii), other than as set forth on Section 3.5(a) of the Disclosure
Schedule.
(b) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby by the
Company do not and will not require any consent, approval, authorization, order
or permit of, action by, registration, declaration or filing with or notice or
notification to, any Federal, state, local or foreign government or any court,
arbitral authority, administrative agency or commission or other governmental
authority, official or agency, domestic or foreign (a "Governmental Entity"),
except for (i) the applicable requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder, the Securities Act and the rules and regulations promulgated
thereunder, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and state securities or "Blue Sky" laws, (ii) the filing and
recordation of appropriate merger or other documents as required by the DGCL,
and (iii) such consents, approvals, authorizations, orders, permits, actions,
registrations, declarations, filings, notices or notifications the failure of
which to make
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or obtain would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
SECTION 3.6 Compliance. The conduct of the business of each of the
Company and each of its Subsidiaries complies with all laws, rules, regulations,
orders, ordinances, judgments, arbitral awards and decrees applicable thereto,
except for violations or failures so to comply, if any, that, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is, or has received any
notice or has knowledge that any other party is, in default or violation of any
loan, credit agreement, note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, concession, franchise or other instrument or obligation
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries or its or any of their respective properties
are bound or affected, except for any such conflicts, defaults or violations
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
SECTION 3.7 SEC Filings; Financial Statements. (a) The Company has filed
all forms, reports, statements and documents required to be filed with the
Securities and Exchange Commission (the "SEC") since October 15, 1996
(collectively, including all exhibits and schedules thereto and documents
incorporated therein by reference, the "SEC Reports"), each of which has
complied in all material respects with the applicable requirements of the
Securities Act, and the rules and regulations promulgated thereunder, or the
Exchange Act and the rules and regulations promulgated thereunder, as
applicable, each as in effect on the date so filed. No SEC Report contained,
when filed, any untrue statement of a material fact or omitted to state a
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Except to the extent
revised or superseded by a subsequent filing with the SEC (a copy of which has
been provided to Newco prior to the date hereof), none of the SEC Reports filed
prior to the date hereof contains any untrue statement of a material fact or
omits to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) Each of the audited and unaudited consolidated financial statements of
the Company (including any related notes thereto) included in the SEC Reports,
complies as to form in all material respects with all applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, has been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and fairly presents
the consolidated financial position of the Company and its Subsidiaries at the
respective date thereof and the consolidated results of its operations and
changes in cash flows for the periods indicated.
(c) Except as and to the extent set forth on the consolidated balance sheet
of the Company and its Subsidiaries at December 31, 1996, including the notes
thereto, neither the Company nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
SECTION 3.8 Absence of Certain Changes or Events. Since December 31,
1996, except as contemplated by this Agreement, disclosed in the SEC Reports
filed and publicly available prior to the date of this Agreement or disclosed in
Section 3.8 of the Disclosure Schedule, the Company and its Subsidiaries have
conducted their businesses only in the ordinary course of business consistent
with past practice and, since such date, there has not been (i) any condition,
event or occurrence which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect or (ii) any action which, if it had
been taken after the date hereof, would have required the consent of Newco under
Section 5.1 hereof.
SECTION 3.9 Absence of Litigation. There are no suits, claims, actions,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries, or any
properties or rights of the Company or any of its Subsidiaries, before any
Governmental Entity, that individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect, and, to the knowledge of the
Company, no basis for any such suit, claim, action, proceeding or investigation
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exists. Neither the Company nor any of its Subsidiaries nor any of their
respective properties is or are subject to any order, writ, judgment,
injunction, decree, determination or award having, or which, insofar as can be
reasonably foreseen, in the future would reasonably be expected to have a
Material Adverse Effect. As of the date hereof, no officer or director of the
Company is a defendant in any litigation commenced by stockholders of the
Company with respect to the performance of his or her duties as an officer
and/or director of the Company under any Federal, state, local or foreign law
(including litigation under Federal and state securities laws). Except as set
forth in Section 3.9 of the Disclosure Schedule, to the knowledge of the
Company, there exist no indemnification agreements with any of the directors and
officers of the Company. Each of the director indemnification agreements
referred to in item A.2. of Section 3.9 of the Disclosure Schedule is in the
form included as Exhibit 10(l) to the Company's Form 10-K for the year ended
December 31, 1996.
SECTION 3.10 Properties. (a) The Company or one of its Subsidiaries has
(i) good and marketable fee title to the real property owned in fee by the
Company or any of its Subsidiaries (collectively, the "Owned Properties") and
(ii) good and valid leasehold title or other occupancy right to the real
property leased, subleased or licensed by the Company or any of its Subsidiaries
(collectively, the "Leased Properties") (Owned Properties and Leased Properties
being sometimes referred to herein collectively as the "Company Properties"), in
each case free and clear of all options to purchase or lease (in the case of the
Owned Properties), leases, subleases, rights of first offer, conditions of
limitation, easements, Liens, covenants, rights-of-way and other restrictions
(collectively, "Title Matters"), except for such Title Matters set forth in
Section 3.10(a) of the Disclosure Schedule, which Title Matters, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect. Section 3.10(a) of the Disclosure Schedule sets forth a complete and
accurate list and description of all Owned Properties and all Leased Properties.
(b) Each agreement under which real property is leased, subleased or
licensed to the Company or one of its Subsidiaries (collectively, the "Company
Leases") is in full force and effect in accordance with its respective terms and
the Company or one of its Subsidiaries is the holder of the lessee's or tenant's
interest thereunder and there exists no default under any of the Company Leases
by the Company or any of its Subsidiaries and no circumstance exists which, with
the giving of notice, the passage of time or both could result in such a
default, except for such defaults or other circumstances which, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect. Except as set forth in Section 3.10(b) of the Disclosure Schedule, the
transfer of the shares of Company Common Stock or the consummation of any other
part of the transactions contemplated hereby does not violate the terms of any
of the Company Leases. Except as set forth in Section 3.10(b) of the Disclosure
Schedule, no Company Lease is subject to any pledge, Lien, sublease, assignment,
license or other agreement granting to any third party any interest in such
Company Lease or any right to the use or occupancy of any Leased Property.
Except as set forth in Section 3.10(b) of the Disclosure Schedule, true and
complete copies of the Company Leases have previously been delivered to Newco,
including (without limitation) all amendments or modifications thereof and all
side letters or other instruments affecting the obligations of any party
thereunder. The lessee under each Company Lease is now in possession of the
applicable Leased Property.
(c) Each of the Company and its Subsidiaries has all permits necessary to
own or operate its Owned Real Property and Leased Real Property as currently
owned, and no such permits will be required, as a result of the Merger or the
other transactions contemplated hereby, to be issued after the Closing in order
to permit the Company following the Merger to continue to own or operate such
Company Properties, other than any such permits the absence of which would not
reasonably be expected to have a Material Adverse Effect. Except as set forth in
Section 3.10(c) of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries has received, with respect to any Owned Real Property or Leased
Real Property, any written notice of default or any written notice of
noncompliance with respect to applicable Federal, state, local and foreign laws
and regulations relating to zoning, building, fire, use restriction or safety or
health codes which have not been remedied in all respects which would reasonably
be expected to have a Material Adverse Effect. There is no pending or, to the
knowledge of the Company, threatened condemnation or other governmental taking
of any of the Owned Real Property or Leased Real Property. All buildings,
structures, improvements and fixtures located on, under, over or within the
Company Properties, and all other aspects of each of the Company Properties, (A)
are in good operating condition and repair and are structurally sound and free
of any
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material defects; and (B) are suitable, sufficient and appropriate in all
respects for their current and contemplated uses.
SECTION 3.11 Employee Benefit Plans. (a) Section 3.11(a) of the
Disclosure Schedule contains, to the knowledge of the Company, a true and
complete list of each "employee benefit plan" (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (including without limitation multiemployer plans within the meaning
of ERISA Section 3(37)), stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and all other employee benefit plans, agreements,
programs, policies or other arrangements, whether or not subject to ERISA
(including any funding mechanism therefor now in effect or required in the
future as a result of the transactions contemplated by this Agreement or
otherwise), under which any employee or former employee of the Company or any of
its Subsidiaries has, or could reasonably be expected to have, any present or
future right to benefits or under which the Company or any Subsidiary of the
Company has, or could reasonably be expected to have, any present or future
material liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "Company Plans". Section
3.11(a) of the Disclosure Schedule also contains a true and complete description
of all severance plans of the Company or any of its Subsidiaries. No Company
Plan is a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA
or is an "employee pension plan" within the meaning of Section 3(2) of ERISA
subject to Title IV of ERISA.
(b) With respect to each Company Plan, the Company has delivered or made
available to Newco a current, accurate and complete copy (or, to the extent no
such copy exists, an accurate description) thereof and, to the extent
applicable, (i) any related trust agreement, annuity contract or other funding
instrument; (ii) the most recent determination letter; (iii) any summary plan
description and other written communications (or description of any oral
communication) by the Company or any of its Subsidiaries which modify in any
significant respect the benefits provided under the terms of any Company Plan in
a manner not reflected in any of the documents otherwise described in this
subsection (b); and (iv) for the three most recent years (A) the Form 5500 and
attached schedules; (B) audited financial statements; and (C) actuarial
valuation reports.
(c) With respect to all the Company Plans, except as set forth in the SEC
Reports: (i) all Company Plans are in compliance with all applicable law,
including the Internal Revenue Code of 1986, as amended (the "Code"), and ERISA,
including in compliance with all filing and reporting requirements, except as
would not reasonably be expected to have a Material Adverse Effect; (ii) the
aggregate projected benefit obligations of each pension plan that is subject to
Title IV of ERISA (as of the date of the most recent actuarial valuation
prepared for such Plan) do not exceed the fair market value of the assets of
such pension plan (as of the date of such valuation), and, to the knowledge of
the Company, no material adverse change has occurred with respect to the
financial condition of such plan since such last valuation; (iii) each of the
Company Plans which is intended to be "qualified" within the meaning of Section
401(a) of the Code has been determined by the Internal Revenue Service to be so
qualified and such determination has not been modified, revoked or limited by
failure to satisfy any condition thereof or by a subsequent amendment thereto or
a failure to amend, except that it may be necessary to make additional
amendments retroactively to maintain the "qualified" status of such Company
Plans, and the period for making any such necessary retroactive amendments has
not expired; (iv) no act, omission or transaction (individually or in the
aggregate) has occurred with respect to any Company Plan that has resulted or
could result in any material liability (direct or indirect) of the Company or
any of its Subsidiaries under Sections 409 or 502(c)(i) or (l) of ERISA or
Chapter 43 of Subtitle (A) of the Code; (v) there is no pending or, to the
knowledge of the Company, threatened litigation or administrative agency
proceeding relating to any Company Plan (other than benefit claims in the
ordinary course); (vi) the Company has no obligations under any unfunded
deferred compensation plans; (vii) neither the Company, its Subsidiaries nor any
entity that is treated as a single employer with the Company or its Subsidiaries
under Section 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate") has
incurred or reasonably expects to incur any Lien or liability to the Pension
Benefit Guaranty Corporation, any Pension Plan or otherwise under Sections 3.02
or 6.01 et seq. of Title IV of ERISA (other than the payment of contributions or
premiums, none of which are overdue) or under Sections 412,
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4971 or 4980B of the Code; and (viii) neither the Company nor any of its
Subsidiaries makes any contributions to or has any obligation to create or
contribute to any multiemployer plan (within the meaning of Section 3(37) of
ERISA) or a multiple employer plan (within the meaning of Section 413(c) of the
Code).
(d) Except as specifically contemplated by this Agreement or as disclosed
in Section 3.11(d) of the Disclosure Schedule, the consummation of the Merger
and the other transactions contemplated hereby will not (x) entitle any employee
or director of the Company or any of its Subsidiaries to severance pay, or (y)
accelerate the time of payment or vesting or trigger any payment of compensation
or benefits under, increase the amount payable or trigger any other material
obligation pursuant to, any of the Company Plans.
SECTION 3.12 Tax Matters. For purposes of this Section 3.12 and Section
3.11, any reference to the Company or its Subsidiaries shall include any
corporation that merged or was liquidated with and into the Company or any of
its Subsidiaries. Except as would not individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect:
(a) All Tax Returns required to be filed by or with respect to the
Company and its Subsidiaries have been timely filed. The Company and its
Subsidiaries have (i) timely paid all Taxes that are due, or that have been
asserted in writing by any taxing authority to be due, from or with respect
to it for the periods ending prior to the date hereof or (ii) provided
adequate reserves in its financial statements for any Taxes that have not
been paid, whether or not shown as being due on any Tax Returns.
(b) No claim for unpaid Taxes has become a Lien against the property
of the Company or any of its Subsidiaries or is being asserted against the
Company or any of its Subsidiaries.
(c) The statute of limitations with respect to the Tax Returns of the
Company and its Subsidiaries and of each affiliated group (within the
meaning of the Code) of which the Company and any of its Subsidiaries are
or have been a member for all periods through the respective years
specified in Section 3.12 of the Disclosure Schedule has expired. There are
no outstanding agreements, waivers or arrangements extending the statutory
period of limitation applicable to any claim for, or the period for the
collection or assessment of, Taxes due from or with respect to the Company
or any Subsidiary of the Company for any taxable period, and no power of
attorney granted by or with respect to the Company or any Subsidiary of the
Company relating to Taxes is currently in force.
(d) No audit or other proceeding by any Governmental Entity has
formally commenced and no notification has been given to the Company or any
Subsidiary of the Company that such an audit or other proceeding is pending
or threatened with respect to any Taxes due from or with respect to the
Company or any Subsidiary of the Company or any Tax Return filed by or with
respect to the Company or any Subsidiary of the Company. No assessment of
Tax has been proposed in writing against the Company or any Subsidiary of
the Company or any of their assets or properties.
(e) As of the Effective Time, neither the Company nor any of the
Subsidiaries shall be a party to, be bound by or have any obligation under,
any Tax sharing agreement or similar contract or arrangement.
(f) There is no contract or agreement, plan or arrangement by the
Company or any Subsidiary of the Company covering any person that,
individually or collectively, could give rise to the payment of any amount
that would not be deductible by the Company or its Subsidiaries by reason
of Section 162(m) or Section 280G of the Code or otherwise, as now in
effect or as in effect as of the Effective Time.
(g) As used herein, "Taxes" shall mean all taxes of any kind,
including, without limitation, those on or measured by or referred to as
income, gross receipts, sales, use, ad valorem, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, value added, property or windfall profits taxes,
customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any Governmental Entity. As used herein,
"Tax Return" shall mean any return, declaration, report, claim for refund
or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
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SECTION 3.13 Environmental Laws. (a) Except as could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect: (i)
the Company and its Subsidiaries hold, and, to the knowledge of the Company, are
in compliance with, all Environmental Permits, and the Company and its
Subsidiaries are otherwise in compliance with all applicable Environmental Laws
and there are no circumstances that might prevent or interfere with such
compliance in the future; (ii) none of the Company or any of its Subsidiaries
has received any Environmental Claim, and the Company is not aware of any
threatened Environmental Claim or of any circumstances, conditions or events
that could reasonably be expected to give rise to a Environmental Claim, against
the Company or any of its Subsidiaries; (iii) none of the Company or any of its
Subsidiaries has entered into or agreed to any consent decree, order or
agreement under any Environmental Law, and none of the Company or any of its
Subsidiaries is subject to any judgment, decree, order or other requirement
relating to compliance with any Environmental Law or to investigation, cleanup,
remediation or removal of regulated substances under any Environmental Law; (iv)
to the knowledge of the Company, there are no (A) underground storage tanks, (B)
polychlorinated biphenyls, (C) asbestos or asbestos-containing materials, (D)
urea-formaldehyde insulation, (E) sumps, (F) surface impoundments, (G)
landfills, (H) sewers or septic systems or (I) other Hazardous Materials present
at any facility owned, leased, operated or otherwise used by the Company or any
of its Subsidiaries that could reasonably be expected to give rise to a
liability of the Company or any of its Subsidiaries under any Environmental
Laws; (v) to the knowledge of the Company, there are no past (including, without
limitation, with respect to assets or businesses formerly owned, leased or
operated by the Company or any of its Subsidiaries) or present actions,
activities, events, conditions or circumstances, including without limitation
the release, threatened release, migration, emission, discharge, generation,
treatment, storage or disposal of Hazardous Materials, that could reasonably be
expected to give rise to a material liability of the Company or any of its
Subsidiaries under any Environmental Laws or any contract or agreement; (vi) no
modification, revocation, reissuance, alteration, transfer, or amendment of the
Environmental Permits, or any review by, or approval of, any third party of the
Environmental Permits is required in connection with the execution or delivery
of this Agreement or the consummation of the transactions contemplated hereby or
the continuation of the business of the Company or its Subsidiaries following
such consummation; (vii) to the knowledge of the Company, Hazardous Materials
have not been generated, transported, treated, stored, disposed of, released or
threatened to be released at, on, from or under any of the properties or
facilities currently or formerly owned, leased or otherwise used by the Company
or any of its Subsidiaries, in violation of, or in a manner or to a location
that could give rise to a material liability under, any Environmental Laws; and
(viii) to the knowledge of the Company, the Company and its Subsidiaries have
not assumed, contractually or by operation of law, any liabilities or
obligations under any Environmental Laws.
(b) For purposes of this Agreement, the following terms shall have the
following meanings:
"Environmental Claim" means any written or oral notice, claim, demand,
action, suit, complaint, proceeding or other communication by any person
alleging liability or potential liability (including without limitation
liability or potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resource damages, property damage,
personal injury, fines or penalties) arising out of, relating to, based on
or resulting from (i) the presence, discharge, emission, release or
threatened release of any Hazardous Materials at any location, whether or
not owned, leased or operated by the Company or any of its Subsidiaries,
(ii) circumstances forming the basis of any violation or alleged violation
of any Environmental Law or Environmental Permit or (iii) otherwise
relating to obligations or liabilities under any Environmental Laws.
"Environmental Laws" means all applicable Federal, state, local and
foreign statutes, rules, regulations, ordinances, orders, decrees and
common law relating in any manner to contamination, pollution or protection
of human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act, the
Solid Waste Disposal Act, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Occupational Safety and Health Act, the
Emergency Planning and Community-Right-to-Know Act, the Safe Drinking Water
Act, all as amended, and similar state, local and foreign laws.
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"Environmental Permits" means all permits, licenses, registrations and
other governmental authorizations required under Environmental Laws for the
Company and its Subsidiaries, including without limitation in connection
with the operations of the Company's and its Subsidiaries' facilities and
otherwise to conduct their respective businesses.
"Hazardous Materials" means all hazardous or toxic substances, wastes,
materials or chemicals, petroleum (including crude oil or any fraction
thereof) and petroleum products, asbestos and asbestos containing
materials, pollutants, contaminants and all other materials, substances and
forces, including but not limited to electromagnetic fields, regulated
pursuant to, or that could form the basis of liability under, any
Environmental Law.
SECTION 3.14 Intellectual Property. Except as would not reasonably be
expected to have a Material Adverse Effect: (i) the Company and each of its
Subsidiaries owns, or is licensed or otherwise has the right to use (in each
case, free and clear of any Liens of any kind), all Intellectual Property used
in or necessary for the conduct of its business as currently conducted; (ii) no
claims are pending or, to the knowledge of the Company, threatened, and the
Company and its Subsidiaries have not received any notice or notification
alleging, that the Company or any of its Subsidiaries is infringing on or
otherwise violating the rights of any person with regard to any Intellectual
Property owned by, licensed to and/or used by the Company or its Subsidiaries
and, to the knowledge of the Company, there is no basis therefor; (iii) neither
the Company nor any of its subsidiaries has infringed upon or misappropriated,
or is infringing upon or misappropriating, any U.S. or foreign patents or
copyrights or any U.S., state or foreign trademarks, or other Intellectual
Property rights of any person; (iv) to the knowledge of the Company, no person
is infringing on or otherwise violating any right of the Company or any of its
Subsidiaries with respect to any Intellectual Property owned by and/or licensed
to the Company or its Subsidiaries; and (v) the execution and delivery of this
contemplated hereby do not and will not conflict with or result in any violation
or default (with or without notice or lapse of time or both) or give rise to any
right, license or Lien relating to Intellectual Property, or right of
termination, alteration, amendment, cancellation or acceleration of any
Intellectual Property right or obligation, or the loss or encumbrance of any
Intellectual Property or benefit related thereto, or result in or require the
creation, imposition or extension of any Lien upon any Intellectual Property or
right. For purposes of this Agreement, "Intellectual Property" means all
intellectual property or other proprietary rights of every kind, including,
without limitation, all domestic or foreign patents, patent applications,
inventions (whether or not patentable), processes, products, technologies,
discoveries, copyrightable and copyrighted works, apparatus, trade secrets,
trademarks (registered and unregistered) and trademark applications and
registrations, brand names, certification marks, service marks and service mark
applications and registrations, trade names, trade dress, copyright
registrations, design rights, customer lists, marketing and customer
information, mask works, rights, know-how, licenses, technical information
(whether confidential or otherwise), software, and all documentation thereof.
The items disclosed on Section 3.14 of the Disclosure Schedule do not and will
not, in any material respect, limit the ability of the Company and its
Subsidiaries to conduct their business in the ordinary course of business
consistent with past practice, and do not and will not result in the imposition
of significant additional costs.
SECTION 3.15 Labor Matters. Except as disclosed in Section 3.15 of the
Disclosure Schedule, (i) neither the Company nor any of its Subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization; (ii) to the
knowledge of the Company, neither the Company nor any of its Subsidiaries is the
subject of any proceeding asserting that it or any of its Subsidiaries has
committed an unfair labor practice or seeking to compel it to bargain with any
labor organization as to wages or conditions of employment; (iii) there is no
strike, work stoppage or other labor dispute involving the Company or any of its
Subsidiaries pending or, to the Company's knowledge, threatened; (iv) to the
knowledge of the Company, no action, suit, complaint, charge, arbitration,
inquiry, proceeding or investigation by or before any Governmental Entity
brought by or on behalf of any employee, prospective employee, former employee,
retiree, labor organization or other representative of its employees is pending
or threatened against the Company or any of its Subsidiaries; (v) to the
knowledge of the Company, no grievance is pending or threatened against the
Company or any of its Subsidiaries; and
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(vi) neither the Company nor any of its Subsidiaries is a party to, or otherwise
bound by, any consent decree with, or citation by, any Governmental Entity
relating to employees or employment practices.
SECTION 3.16 Business Relationships; No Restrictive Agreements. (a) The
relationships of the Company and its Subsidiaries with its customers,
distributors, licensors, designers and suppliers are satisfactory in all
material respects and the execution of this Agreement and the consummation of
the Merger and the transactions contemplated hereby will not materially
adversely affect the relationships of the Company and its Subsidiaries with such
customers, distributors, licensors, designers and suppliers.
(b) The Company and its Subsidiaries are not parties to or bound by any
agreement, contract, policy, license, document, instrument, arrangement or
commitment that limits the freedom of the Company or any of its Subsidiaries to
compete in any line of business or with any person or in any geographic area or
which would so limit the freedom of the Company or any of its Subsidiaries or
affiliates after the Effective Time.
SECTION 3.17 Form S-4; Proxy Statement. None of the information supplied
by the Company for inclusion in (i) the registration statement on Form S-4 to be
filed with the SEC by the Company in connection with the retention of Company
Common Stock following the Merger (such Form S-4, as amended or supplemented, is
herein referred to as the "Form S-4") will, at the time the Form S-4 is filed
with the SEC, and at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (ii) the proxy
statement to be sent to the stockholders of the Company in connection with the
Stockholders Meeting (as defined in Section 6.1) (such proxy statement, as
amended or supplemented, is herein referred to as the "Proxy Statement") will,
at the date it is first mailed to the Company's stockholders or at the time of
the Stockholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they are made, not misleading, except that no representation is made by
the Company with respect to statements made or incorporated by reference therein
based on information supplied in writing by Newco specifically for inclusion in
the Proxy Statement. The Form S-4 will, as of its effective date, and the
prospectus contained therein will, as of its date, comply as to form in all
material respects with the requirements of the Securities Act and the rules and
regulations promulgated thereunder. The Proxy Statement will comply as to form
in all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Agreement, the
parties agree that statements made and information in the Form S-4 and the Proxy
Statement relating to the Federal income tax consequences of the transactions
herein contemplated to holders of Company Common Stock shall be deemed to be
supplied by the Company and not by Newco.
SECTION 3.18 Brokers. No broker, finder or investment banker other than
Wasserstein Perella & Co., Inc. (the "Company Financial Advisor") is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of the Company. The Company has heretofore furnished to Newco a
complete and correct copy of all agreements between the Company and the Company
Financial Advisor pursuant to which such firm would be entitled to any payment
relating to the transactions contemplated hereby. Assuming the amount of net
debt reflected in the Company's financial records as of June 30, 1997, as
provided to the Company Financial Advisor, is the same amount at the Closing,
the aggregate fees payable under such agreements would be approximately $2.0
million. Compensation for the Company Financial Advisor's services in connection
with the transactions contemplated by this Agreement will be calculated on the
Closing Date and will be based on the Aggregate Consideration (as such term is
defined in the letter agreement, dated July 8, 1997, between the Company
Financial Advisor and the Company) paid in such transactions.
SECTION 3.19 Opinion of Company Financial Advisor. The Company has
received the opinion of the Company Financial Advisor dated the date of this
Agreement, to the effect that the Cash Election Price to be received in the
Merger by the Company's stockholders, other than the Stockholder, is fair to
such stockholders from a financial point of view.
SECTION 3.20 Board Recommendation. The Board of Directors of the Company,
at a meeting duly called and held, has by unanimous vote of the disinterested
directors present (which directors constituted a
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quorum) (i) determined that this Agreement and the transactions contemplated
hereby, including the Merger, and the Voting Agreement and the transactions
contemplated thereby, taken together, based on the availability of the Cash
Election Price to any stockholder who so elects, are fair to and in the best
interests of the stockholders of the Company (other than the Stockholder), and
(ii) resolved to recommend that the holders of the shares of Company Common
Stock approve this Agreement and the transactions contemplated herein, including
the Merger.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF NEWCO
Newco hereby represents and warrants to the Company that:
SECTION 4.1 Corporate Organization. Newco is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
has the requisite corporate power and authority and any necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority and governmental
approvals would not, individually or in the aggregate, reasonably be expected to
prevent the consummation of the Merger. Newco was formed on June 23, 1997 solely
for the purpose of engaging in the transactions contemplated hereby. Newco has
not (i) incurred, nor will it incur prior to and including the Effective Time,
directly or indirectly, any liabilities or obligations, (ii) engaged in any
business activity or transaction, or (iii) entered into any agreement or
arrangement with any person or entity, except, in any such case, in connection
with its organization or the negotiation of this Agreement, the Voting
Agreement, the Employment Arrangements, the financing of the transactions
contemplated hereby and the performance thereof.
SECTION 4.2 Authority Relative to This Agreement. Newco has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by Newco and
the consummation by Newco of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action and no other corporate
proceedings on the part of Newco are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than, with respect to the
Merger, the filing and recordation of appropriate merger documents as required
by the DGCL). This Agreement has been duly and validly executed and delivered by
Newco and, assuming due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of Newco enforceable against
it in accordance with its terms.
SECTION 4.3 No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance of this Agreement by Newco does not and will
not: (i) conflict with or violate the certificate of incorporation or by-laws of
Newco; (ii) assuming that all consents, approvals and authorizations
contemplated by clauses (i) and (ii) of subsection (b) below have been obtained
and all filings described in such clauses have been made, conflict with or
violate any law, rule, regulation, order, ordinance, judgment, arbitral award or
decree applicable to Newco or by which it or any of its properties are bound or
affected; or (iii) result in any breach or violation of or constitute a default
(or an event which with notice or lapse of time or both could become a default)
or result in the loss of a material benefit under, or give rise to any right of
termination, amendment, alteration, acceleration or cancellation of, or result
in the creation of a Lien on any of the properties or assets of Newco pursuant
to, any loan, credit agreement, note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, concession, franchise or other instrument or
obligation to which Newco is a party or by which Newco or any of its properties
are bound or affected, except, in the case of clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other occurrences which would
not, individually or in the aggregate, reasonably be expected to prevent the
consummation of the Merger.
(b) The execution, delivery and performance of this Agreement by Newco and
the consummation of the transactions contemplated hereby by Newco do not and
will not require any consent, approval, authorization,
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order or permit of, action by, registration, declaration or filing with or
notice or notification to, any Governmental Entity, except for (i) the
applicable requirements, if any, of the Exchange Act and the rules and
regulations promulgated thereunder, the Securities Act and the rules and
regulations promulgated thereunder, the HSR Act, and state securities or "Blue
Sky" laws, (ii) the filing and recordation of appropriate merger or other
documents as required by the DGCL, and (iii) such consents, approvals,
authorizations, orders, permits, actions, registrations, declarations, filings,
notices or notifications the failure of which to make or obtain would not,
individually or in the aggregate, reasonably be expected to prevent the
consummation of the Merger.
SECTION 4.4 Form S-4; Proxy Statement. None of the information supplied
in writing by Newco specifically for inclusion in (i) the Form S-4 will, at the
time the Form S-4 is filed with the SEC, and at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (ii) the Proxy Statement will, at the date it is first mailed
to the Company's stockholders or at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. Notwithstanding the foregoing, Newco makes no representation or
warranty with respect to any information supplied by the Company or any of its
representatives which is contained in or incorporated by reference in any of the
foregoing documents.
SECTION 4.5 Brokers. No broker, finder or investment banker (other than
Goldman, Sachs & Co.) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of Newco. A copy of the fee
arrangement has previously been provided to the Company. Unless the Merger is
consummated, the Company shall not be responsible for the payment of any such
fees to Goldman, Sachs & Co.
SECTION 4.6 Financing. Attached as Annexes A-1 to A-3 of the Disclosure
Schedule are true and complete copies of the letters, dated the date hereof,
issued in connection with the financing of the transactions contemplated by this
Agreement. The terms and conditions of the letters attached as Annexes A-1 to
A-3 of the Disclosure Schedule are satisfactory to Newco. As of the date of this
Agreement, Newco has been advised by its independent accountants that such
accountants believe the Merger will be recorded as a recapitalization for
financial reporting purposes.
SECTION 4.7 Newco Not an Interested Stockholder. As of the date of this
Agreement, to the knowledge of Newco, neither Newco nor any of its affiliates is
an "interested stockholder" as such term is defined in Section 203 of the DGCL.
SECTION 4.8 Solvency of the Company Following the Merger. Newco believes
that, immediately after the Effective Time and after giving effect to the Merger
and the transactions contemplated hereby, the Company will not (i) be insolvent
(either because its financial condition is such that the sum of its debts is
greater than the fair market value of its assets or because the fair saleable
value of its assets is less than the amount required to pay its probable
liability on its existing debts as they mature), (ii) have unreasonably small
capital with which to engage in its business or (iii) have incurred debts beyond
its ability to pay as they become due.
ARTICLE 5.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business Pending the Merger. The Company covenants
and agrees that, during the period from the date hereof to the Effective Time,
unless Newco gives its prior written consent, the businesses of the Company and
its Subsidiaries shall be conducted only in, and the Company and its
Subsidiaries shall not take any action except in, the ordinary course of
business consistent with past practice and in compliance with applicable laws;
and the Company and its Subsidiaries shall each use its reasonable best efforts
(i) to preserve substantially intact the business organization of the Company
and its Subsidiaries,
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(ii) to keep available the services of the present officers, employees and
consultants of the Company and its Subsidiaries and (iii) to preserve the
present relationships of the Company and its Subsidiaries with customers,
distributors, licensors, designers and suppliers and other persons with which
the Company or any of its Subsidiaries has significant business relations.
Except as expressly contemplated by this Agreement, by way of amplification and
not limitation, neither the Company nor any of its Subsidiaries shall, between
the date of this Agreement and the Effective Time, except as set forth in
Section 5.1 of the Disclosure Schedule, directly or indirectly take, or propose
or commit to take, any of the following actions without the prior written
consent of Newco:
(a) amend or otherwise change the certificate of incorporation or
by-laws or equivalent organizational documents of the Company or any of its
Subsidiaries;
(b) issue, deliver, sell, lease, sell and leaseback, pledge, mortgage,
dispose of or encumber or subject to any Lien, or authorize or commit to
the issuance, delivery, sale, lease, sale/leaseback, pledge, mortgage,
disposition or encumbrance of or to the subjection to any Lien, (A) any
shares of capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock or any other ownership interest (including but not limited to stock
appreciation rights or phantom stock) of the Company or any of its
Subsidiaries (except for the issuance and delivery of shares of Company
Common Stock issuable in accordance with the terms of Options outstanding
as of the date hereof, and upon the terms in effect as of the date hereof)
or (B) any assets of the Company or any of its Subsidiaries, other than
inventory or other assets sold, leased or disposed of in the ordinary
course of business consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock, other than dividends or distributions by a
direct or indirect wholly owned Subsidiary of the Company to the Company
and/or other direct or indirect wholly owned Subsidiaries of the Company;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of the capital stock, or any
other ownership interest (including but not limited to stock appreciation
rights or phantom stock), of the Company or any of its Subsidiaries or any
options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership interest
(including but not limited to stock appreciation rights or phantom stock),
other than in connection with the exercise of Options outstanding on the
date hereof pursuant to Section 8.3 of the Stock Plan;
(e) (i) other than with respect to borrowings and repayments in the
ordinary course of business under the lines of credit listed on Schedule
5.1(e)(i) (which borrowings shall not in aggregate amount exceed $18
million in U.S. dollars at any one time outstanding and shall not have
interest rate periods extending beyond the Effective Time), repurchase,
repay, incur or cause or permit to exist 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 enter into any "keep well" or other agreement to maintain
any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, or make any
loans, advances or capital contributions to, or investments in, any person
other than the Company or a direct or indirect wholly owned Subsidiary of
the Company; (ii) enter into, terminate, waive, modify or amend any
material contract, license or agreement, other than in the ordinary course
of business consistent with past practice; or (iii) except as set forth in
the Company's capital budget which is set forth in Section 5.1(e)(iii) of
the Disclosure Schedule, authorize any single expenditure for any capital
or acquisition (including without limitation any acquisition of any
corporation, partnership or other business enterprise or division thereof
by share purchase, merger, consolidation or otherwise) other than capital
expenditures not to exceed $50,000 individually or $200,000 in the
aggregate;
(f) (i) increase the compensation or fringe benefits of any of its
directors, officers or employees, except for increases in salary or wages
of employees of the Company or its Subsidiaries, who are not directors or
officers of the Company, in the ordinary course of business and consistent
in all material
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respects with the Company's budget, (ii) grant any severance or termination
pay not currently required to be paid under existing severance plans to, or
enter into or modify in any material or economic respect any employment,
consulting or severance agreement or arrangement with, any present or
former director, officer or other employee of the Company or any of its
Subsidiaries, except for the granting of severance or termination pay, in
the ordinary course of business consistent with past practice, to
nonexecutive employees who are terminated by the Company after the date
hereof, (iii) establish, adopt, enter into or amend or terminate any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any directors, officers or
employees or (iv) terminate the existing employment arrangements with any
of the individuals listed in Section 5.1(f) of the Disclosure Schedule or
take any action that would constitute a breach of any such arrangements or
take any action (other than consummation of the Merger) which would cause
any change-of-control, severance or similar payment to be payable to any
such individual or make any payment of any bonus or other extraordinary or
termination payment which such individual has agreed to waive, modify or
amend in connection with the Employment Arrangements;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, change in any material respect
any of the accounting practices or principles used by it;
(h) make any material tax election or settle or compromise any
material Federal, state, local or foreign Tax liability;
(i) settle or compromise any pending or threatened suit, action or
claim for in excess of $100,000 per suit, action or claim, and $250,000 in
the aggregate, or which relates to the transactions contemplated hereby;
(j) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its Subsidiaries (other than this
Agreement and the Merger); or
(k) take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 5.1(a) through 5.1(j).
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholders Meeting. The Company, acting through its Board
of Directors, will, as promptly as practicable following the date of
effectiveness of the Form S-4 and in consultation with Newco, (i) duly call,
give notice of, convene and hold a meeting of its stockholders for the purpose
of considering and adopting and approving this Agreement and the transactions
contemplated hereby (the "Stockholders Meeting") and (ii) (A) include in the
Proxy Statement the unanimous recommendation of the Board of Directors that the
stockholders of the Company vote in favor of the approval of this Agreement and
the transactions contemplated hereby and the written opinion of the Company
Financial Advisor that the Cash Election Price to be received by the
stockholders of the Company, other than the Stockholder, pursuant to the Merger,
is fair to such stockholders from a financial point of view, (B) include along
with the Proxy Statement a Form of Election, and (C) use its best efforts to
hold such meeting and obtain the necessary approval of this Agreement and the
transactions contemplated hereby by its stockholders, as soon as practicable
after the date hereof.
SECTION 6.2 Form S-4 and Proxy Statement. Promptly following the date of
this Agreement, the Company shall prepare the Proxy Statement, and the Company
shall prepare and file with the SEC the Form S-4, in which the Proxy Statement
will be included. The Company shall use its best efforts to have the Form S-4
declared effective under the Securities Act as promptly as practicable after
such filing. The Company shall use its best efforts to cause the Proxy Statement
to be mailed to the Company's stockholders as promptly as practicable after the
Form S-4 is declared effective under the Securities Act. The Company
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shall also take any action required to be taken under any applicable state
securities or "Blue Sky" laws in connection with the registration and
qualification in connection with the Merger of capital stock of the Company
following the Merger. The information provided by the Company for use in the
Form S-4, and to be supplied by Newco in writing specifically for use in the
Form S-4, shall, at the time the Form S-4 becomes effective and on the date of
the Stockholders Meeting referred to above, be true and correct in all material
respects and shall not omit to state any material fact required to be stated
therein or necessary in order to make such information not misleading, and the
Company and Newco each agree to correct any information provided by it for use
in the Form S-4 which shall have become false or misleading. The foregoing
notwithstanding, from and after the Effective Time, the Company will have no
obligation to maintain the registration of the Company Common Stock or to make
any further filings under any federal or state securities or "Blue Sky" laws
with respect to the Company Common Stock, except as may then be required by law,
and, to the extent not prohibited by applicable law, may terminate any such
prior registration. Newco and the Company will cooperate with each other in the
preparation of the Proxy Statement and the Form S-4; without limiting the
generality of the foregoing, the Company will immediately notify Newco of the
receipt of any comments from the SEC, the effectiveness of the Form S-4 and any
request by the SEC for any amendment to the Proxy Statement or the Form S-4 or
for additional information. All filings with the SEC, including the Proxy
Statement and the Form S-4 and any amendment thereto, and all mailings to the
Company's stockholders in connection with the Merger, including the Proxy
Statement, shall be subject to the prior review, comment and approval of Newco.
Newco will furnish to the Company the information relating to it required by the
Exchange Act and the rules and regulations promulgated thereunder to be set
forth in the Proxy Statement. The Company agrees to use its reasonable best
efforts, after consultation with Newco, to respond promptly to any comments made
by the SEC with respect to the Proxy Statement (and any preliminary version
thereof filed by it) and the Form S-4.
SECTION 6.3 Access to Information; Confidentiality. (a) From the date
hereof to the Effective Time, the Company shall, and shall cause its
Subsidiaries, officers, directors, employees, auditors, environmental auditors,
counsel, financial advisors and other agents to, afford Newco and its
representatives and potential financing sources, reasonable access at all
reasonable times to its officers, employees, agents, properties, offices,
warehouses and other facilities and to all books, contracts and records, and
shall furnish Newco and such financing sources with all financial, operating and
other data and information as Newco, its representatives or such financing
sources may from time to time reasonably request. During such period, the
Company shall, and shall cause its Subsidiaries, officers, employees and
representatives to, furnish promptly to Newco a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of Federal or state securities or "Blue Sky" laws.
(b) Each of the Company and Newco agrees with respect to all confidential
information relating to the other party (the "Disclosing Party") that is or has
been furnished or disclosed to the first party (the "Receiving Party") on, after
or before the date hereof including, but not limited to, information regarding
the Disclosing Party's organization, personnel, business activities, customers,
policies, assets, finances, costs, sales, revenues, rights, obligations,
liabilities and strategies ("Confidential Information"), that, unless and until
the transactions contemplated by this Agreement shall have been consummated, (1)
such Confidential Information is confidential and/or proprietary to the
Disclosing Party and entitled to and shall receive treatment as such by the
Receiving Party and (2) the Receiving Party will, and will require all of its
directors, officers, employees, representatives, stockholders, agents and
advisors (including attorneys, accountants, consultants, bankers and financial
advisors) who have access to such Confidential Information to, hold in
confidence and not disclose to others nor use (except in respect of the
transactions contemplated by this Agreement or as required by law or in a court,
administrative, or regulatory proceeding) any such Confidential Information;
provided, however, that the Receiving Party shall not have any restrictive
obligation with respect to any Confidential Information which (x) is or becomes
publicly known through no wrongful act or omission of, or violation of the terms
hereof by, the Receiving Party or (y) becomes known to the Receiving Party from
a source which, to the best of the Receiving Party's knowledge, has no
confidentiality obligation with respect to such Confidential Information at the
time of receipt of such Confidential Information. The Receiving Party shall
provide Confidential Information only to its directors, officers, employees,
representatives, stockholders, agents, advisors (including attorneys,
accountants, consultants, bankers and financial advisors) and potential
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financing sources who have a need to know such Confidential Information in
connection with the transactions contemplated by this Agreement.
(c) No investigation pursuant to this Section 6.3 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
SECTION 6.4 No Solicitation. (a) The Company and its Subsidiaries and
their respective officers, directors, employees, representatives, agents and
advisors (including attorneys, accountants, consultants, bankers and financial
advisors) shall immediately cease any existing discussions or negotiations, if
any, with any parties conducted heretofore with respect to any Acquisition
Transaction (as defined below). The Company agrees that, prior to the Effective
Time, it shall not, and shall not authorize or permit any of its Subsidiaries or
any of its or its Subsidiaries' directors, officers, employees, agents,
representatives or advisors (including attorneys, accountants, consultants,
bankers and financial advisors), directly or indirectly, to, solicit, initiate,
encourage or facilitate, or furnish or disclose non-public information in
furtherance of, any inquiries or the making of any proposal with respect to any
merger, liquidation, recapitalization, consolidation or other business
combination involving the Company or its Subsidiaries or acquisition or exchange
of any capital stock or any material portion of the assets (except for
acquisitions of assets in the ordinary course of business consistent with past
practice) of the Company or its Subsidiaries, or any combination of the
foregoing (an "Acquisition Transaction"), or negotiate, explore or otherwise
engage in substantive discussions with any person (other than Newco) with
respect to any Acquisition Transaction or enter into any agreement, arrangement
or understanding requiring it to abandon, terminate or fail to consummate the
Merger or any other transactions contemplated hereby; provided that the Company
may furnish information to, and negotiate or otherwise engage in substantive
discussions with, any party who delivers a bona fide written proposal for an
Acquisition Transaction if the Company's Board of Directors determines in good
faith and upon the advice from its outside legal counsel, that failing to take
such action would constitute a breach of the fiduciary duties of the Company's
Board of Directors and such a proposal is, in the opinion of the Company's Board
of Directors, more favorable to the Company's stockholders (other than the
Stockholder) from a financial point of view than the transactions contemplated
by this Agreement.
(b) From and after the execution of this Agreement, the Company shall
immediately advise Newco in writing of the receipt, directly or indirectly, of
any inquiries, discussions, negotiations or proposals relating to an Acquisition
Transaction, identify the offeror and furnish to Newco a copy of any such
proposal or inquiry, if it is in writing, or a written summary of any such
proposal relating to an Acquisition Transaction if it is not in writing. The
Company shall promptly advise Newco of any development relating to such
proposal, including the results of any discussions or negotiations with respect
thereto.
SECTION 6.5 ESOP. The Company shall cooperate with Newco in taking all
steps necessary or appropriate so that, effective as of the Effective Time, the
Company's Employee Stock Ownership Plan (the "ESOP") shall be amended so as to
(i) eliminate the right of participants in the ESOP to receive distributions in
the form of employer securities, (ii) terminate the status of the ESOP as an
employee stock ownership plan, (iii) provide that the Merger Consideration
received by the ESOP in the Merger shall not be reinvested in employer
securities, (iv) freeze benefit accruals under the ESOP, and (v) vest all
participants in the ESOP in their account balances in the ESOP.
SECTION 6.6 Directors' and Officers' Indemnification and
Insurance. (a) For six years after the Effective Time, the Company shall
indemnify all present and former directors, officers, employees and agents of
the Company for acts or omissions occurring prior to the Effective Time to the
fullest extent now provided in the Company's certificate of incorporation and
by-laws consistent with applicable law, to the extent such acts or omissions are
uninsured (provided, that to the extent that during any such period insurance
does not fully indemnify any person contemplated to be indemnified in accordance
with the terms of this Section 6.6, the Company shall indemnify such person in
accordance with such terms), and shall, in connection with defending against any
action for which indemnification is available hereunder, and subject to Section
6.6(c) hereof, reimburse and advance expenses to such officers, directors,
employees and agents, from time to time upon receipt of reasonably sufficient
supporting documentation, for any reasonable costs and expenses reasonably
incurred by such officers, directors, employees and agents in connection with
such defense;
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provided that such advancement and reimbursement shall be conditioned upon such
officer's, director's, employee's or agent's agreement promptly to return such
amounts to the Company if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and non-appealable,
that indemnification of such officer or director in the manner contemplated
hereby is prohibited by applicable law. In addition to the foregoing, the
Company will comply with its obligations under the indemnification agreements
referred to in item A.2. of Section 3.9 of the Disclosure Schedule, subject to
the terms and provisions thereof.
(b) The Company shall maintain in effect for six years from the Effective
Time policies of directors' and officers' liability insurance containing terms
and conditions which are not less advantageous than those policies maintained by
the Company at the date hereof, with respect to matters occurring prior to the
Effective Time, to the extent available, and having the maximum available
coverage under the current policies of directors' and officers' liability
insurance; provided that (i) the Company following the Merger shall not be
required to spend in excess of a $770,000 annual premium therefor; provided
further that if the Company following the Merger would be required to spend in
excess of a $770,000 premium per annum to obtain insurance having the maximum
available coverage under the current policies, the Company will be required to
spend $770,000 to maintain or procure insurance coverage pursuant hereto,
subject to availability of such (or similar) coverage and (ii) such policies may
in the sole discretion of the Company be one or more "tail" policies for all or
any portion of the full six year period.
(c) In furtherance of and not in limitation of the preceding paragraphs,
Newco agrees that the officers and directors of the Company who are defendants
in all litigation commenced by stockholders of the Company, whether before or
after the date of this Agreement, with respect to (x) the performance of their
duties at or prior to the Effective Time as such officers and/or directors under
Federal or state law (including without limitation litigation under Federal and
state securities laws) or (y) this Agreement, the Voting Agreement and the
transactions contemplated hereby (the "Subject Litigation") shall be entitled to
be represented, at the reasonable expense of the Company, in the Subject
Litigation by one counsel (and one local counsel in each jurisdiction in which a
case is pending), each of which such counsel shall be selected by a plurality of
such officer/director defendants, subject to the approval of the Company, which
approval shall not be unreasonably withheld; provided that neither Newco nor the
Company shall be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld) and that a condition
to any further indemnification payments provided in Section 6.6(a) shall be that
such officer/ director defendant shall not have settled any Subject Litigation
without the consent of Newco and the Company; and provided further that neither
Newco nor the Company shall have any obligation hereunder to any
officer/director defendant when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and
non-appealable, that indemnification of such officer/director defendant in the
manner contemplated hereby is prohibited by applicable law.
SECTION 6.7 Notification of Certain Matters. The Company shall give
prompt notice to Newco, and Newco shall give prompt notice to the Company, of
(i) the occurrence or nonoccurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate and (ii) any failure of
the Company or Newco, 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 the delivery of any notice pursuant to this
Section 6.7 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
SECTION 6.8 Further Action; Best Efforts. (a) Upon the terms and subject
to the conditions hereof, each of the parties hereto shall use its reasonable
best efforts to take, or cause to be taken, all action, and to do or cause to be
done, and to assist and cooperate with the parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement
and the Voting Agreement, including but not limited to (i) cooperation in the
preparation and filing of the Form S-4, the Proxy Statement, any required
filings under the HSR Act and any amendments to any thereof, (ii) determining
whether any filings are required to be made or consents, approvals, waivers,
licenses, permits or authorizations are required to be obtained (or, which if
not obtained, would result in an event of default, termination, amendment,
alteration or acceleration of any agreement or
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any put right under any agreement) under any applicable law or regulation or
from any Governmental Entities or third parties, including parties to loan
agreements or other debt instruments, in connection with the transactions
contemplated by this Agreement, and (iii) promptly making any such filings,
furnishing information required in connection therewith and timely seeking to
obtain any such consents, approvals, permits or authorizations. The Company
shall not take any action to restrict, limit or prohibit Newco's ability to
exercise all of its rights and obligations under the Voting Agreement, and the
Company and its Board of Directors has provided and shall provide and maintain
all approvals required under Section 203 of the DGCL in order to permit such
exercise; provided, however, that the Company and its Board of Directors will
not be prohibited from taking any action required by the Board of Directors'
fiduciary duties it deems reasonably appropriate in response to Newco attempting
to acquire any shares of Company Common Stock other than those subject to the
option under Section 4 of the Voting Agreement (the "Voting Agreement Option"),
except the Company and the Board of Directors will not revoke, amend or restrict
the approvals under Section 203 of the DGCL referred to above, or attempt to
assert that such approvals are not valid or are inapplicable.
(b) Each of the parties agrees to cooperate with each other in taking, or
causing to be taken, all actions necessary to delist the shares of Company
Common Stock from The Nasdaq Stock Market Inc.'s (the "NASDAQ") National Market,
provided that such delisting shall not be effective until after the Effective
Time. The parties also acknowledge that it is Newco's intent that the shares of
retained Company Common Stock following the Merger will not be quoted on the
NASDAQ National Market or listed on any national securities exchange.
(c) The Company agrees to provide, and will cause its Subsidiaries and its
and their respective officers, employees and advisors to provide, all necessary
cooperation in connection with the arrangement of any financing to be
consummated contemporaneous with or at or after the Closing in respect of the
transactions contemplated by this Agreement, including without limitation,
participation in meetings, due diligence sessions, road shows, the preparation
of offering memoranda, private placement memoranda, prospectuses and similar
documents, the execution and delivery of any commitment letters, underwriting or
placement agreements, pledge and security documents, other definitive financing
documents, or other requested certificates or documents, including a certificate
of the chief financial officer of the Company with respect to solvency matters,
comfort letters of accountants and legal opinions as may be requested by Newco
or its sources of financing. The parties acknowledge that the payment of any
fees by the Company in connection with any commitment letters shall be subject
to the occurrence of the Closing. In addition, in conjunction with the obtaining
of any such financing, the Company agrees, at the request of Newco, to call for
prepayment or redemption, or to prepay, redeem and/or renegotiate, as the case
may be, any then existing indebtedness or equipment leases of the Company and
its Subsidiaries; provided that no such prepayment, redemption or renegotiation
shall themselves actually be made effective until contemporaneous with or after
the Effective Time.
(d) The Company shall cooperate with any reasonable requests of Newco or
the SEC related to the recording of the Merger as a recapitalization for
financial reporting purposes, including, without limitation, to assist Newco and
its affiliates and representatives with any presentation to the SEC with regard
to such recording and to include appropriate disclosure with regard to such
recording in all filings with the SEC and all mailings to stockholders made in
connection with the Merger. In furtherance of the foregoing, the Company shall
provide to Newco, and Newco shall provide to the Company, for the prior review
of Newco's and the Company's advisors, any description of the transactions
contemplated by this Agreement which is meant to be disseminated.
(e) (i) Newco hereby agrees to use its reasonable best efforts, subject to
normal conditions, to arrange the financing described in Annexes A-1 and A-2 of
the Disclosure Schedule in respect of the transactions contemplated by this
Agreement, including using its reasonable best efforts (A) to assist the Company
in the negotiation of definitive agreements with respect thereto and (B) to
satisfy all conditions applicable to Newco in such definitive agreements. Newco
will keep the Company informed of the status of its efforts to arrange such
financing, including making reports with respect to significant developments. In
the event Newco is unable to arrange any portion of such financing in the manner
or from the sources originally contemplated,
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Newco will use its reasonable best efforts, subject to normal conditions, to
arrange any such portion from alternative sources on substantially similar terms
to those contemplated in such Annexes A-1 and A-2.
(ii) Subject to the Company having received the proceeds of the
financing described in Section 7.2(f) on terms satisfactory to Newco, Newco
at the Closing will be capitalized with an equity contribution of $67.5
million (including contributions of Company Common Stock by certain
employee stockholders valued at the Cash Election Price per share and
including issuances of restricted stock valued at the purchase price paid
by investors purchasing shares of Newco for cash). Newco will be under no
obligation pursuant to the preceding sentence unless and until the Company
receives the proceeds of the financing described in Section 7.2(f) on terms
satisfactory to Newco. In addition, Newco will be under no obligation under
any circumstances to be capitalized with equity of more than $67.5 million
(calculated as described above).
(f) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall use their
reasonable best efforts to take all such necessary action.
SECTION 6.9 Public Announcements. Prior to the Effective Time, neither
Newco nor the Company will issue any press release or public statement with
respect to the transactions contemplated by this Agreement, including the
Merger, or the Voting Agreement, without the other party's prior consent, except
as may be required by applicable law, court process or by obligations pursuant
to its inclusion in the NASDAQ National Market. In addition to the foregoing,
Newco and the Company will consult with each other before issuing, and provide
each other the opportunity to review and comment upon, any such press release or
other public statements with respect to such transactions. The parties agree
that the initial press release or releases to be issued with respect to the
transactions contemplated by this Agreement shall be mutually agreed upon prior
to the issuance thereof.
SECTION 6.10 Disposition of Litigation. The Company will not voluntarily
cooperate with any third party which has sought or may hereafter seek to
restrain or prohibit or otherwise oppose the Merger and will cooperate with
Newco to resist any such effort to restrain or prohibit or otherwise oppose the
Merger.
SECTION 6.11 Affiliates. Prior to the Closing Date, the Company shall
deliver to Newco 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 a Mixed Election to deliver to Newco on or prior to the Closing Date a
written agreement substantially in the form attached as Annex A hereto.
SECTION 6.12 Stop Transfer Order. The Company shall notify the Company's
transfer agent that there is a stop transfer order with respect to all of the
Subject Shares (as defined in the Voting Agreement) and that the Voting
Agreement places limits on the voting of the Subject Shares.
SECTION 6.13 Transfer Taxes. Newco shall pay when due any and all
transfer, documentary, sales, use, registration and other similar taxes
(including without limitation any applicable stock transfer (except as provided
in Section 2.5(b)) and real property taxes) and related amounts incurred as a
result of the Merger and the transactions contemplated hereby.
SECTION 6.14 Employee Plans and Benefits. (a) Subject to applicable law,
the Company will honor in accordance with their terms all existing employment
agreements and employee benefits plans between the Company or any of its
Subsidiaries and any officer, director or employee of the Company or any of its
Subsidiaries; provided that nothing in this Section 6.14(a) shall prevent the
Company from amending or terminating any such agreements or plans in accordance
with the terms thereof.
(b) Newco agrees that, for at least two years from the Effective Time,
subject to applicable law, the Company and its Subsidiaries will provide
benefits to their employees as a group (and not necessarily on an
individual-by-individual or group-by-group basis) which will, in the aggregate,
be similar to those currently provided by the Company and its Subsidiaries to
their employees; provided that the Company and its Subsidiaries will not be
under any obligation to retain any employee or group of employees.
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ARTICLE 7
CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction or waiver at or prior to the Effective Time of the
following conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval
shall have been obtained.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; provided, however, that
the parties hereto shall use their best efforts to have any such
injunction, order, restraint or prohibition vacated.
(d) Form S-4. To the extent required by applicable law, the Form S-4
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 the retained Company Common Stock
following the Merger shall have been complied with.
SECTION 7.2 Conditions to Obligation of Newco. The obligation of Newco to
effect the Merger is further subject to the satisfaction or waiver at or prior
to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement that are qualified as
to materiality shall be true and correct and any such representations and
warranties of the Company set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing as though made at
and as of the Closing. Newco shall have received a certificate signed on
behalf of the Company by a senior executive officer of the Company to the
effect set forth in this paragraph.
(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 (except for such failures to perform
as, either individually or in the aggregate, have not had or would not
reasonably be expected to have, a Material Adverse Effect).
(c) Consents, Etc. Newco shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits,
consents, approvals, authorizations, qualifications and orders of
Governmental Entities and other third parties as are necessary in
connection with the transactions contemplated hereby have been obtained,
except where the failure to obtain such licenses, permits, consents,
approvals, authorizations, qualifications and orders would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect; provided, however, that in any case, the consents and
amendments set forth in Section 7.2(c) of the Disclosure Schedule shall
have been obtained.
(d) No Material Litigation. There shall not be pending by any
Governmental Entity any suit, action or proceeding (or by any other person
any suit, action or proceeding which has a reasonable likelihood of
success) (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
this Agreement or the Voting Agreement or seeking to obtain from Newco, the
Company or any of their respective Subsidiaries or affiliates any damages
that are material to any such party, (ii) seeking to prohibit or limit the
ownership or operation by Newco, the Company or any of its Subsidiaries of
any material portion of the business or assets of the Company or any of its
Subsidiaries, (iii) seeking to impose limitations on the ability of Newco
(or any designee of
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Newco pursuant to the Voting Agreement) or any stockholder of Newco or the
Company to acquire or hold, or exercise full rights of ownership of, any
shares of Company Common Stock, including, without limitation, the right to
vote the Company Common Stock on all matters properly presented to the
stockholders of the Company or (iv) seeking to prohibit Newco or any of its
affiliates from effectively controlling in any material respect the
business or operations of the Company or its Subsidiaries.
(e) Affiliate Letters. Newco shall have received the agreements
referred to in Section 6.11.
(f) Financing. Newco and the Company shall have received the proceeds
of financing on the terms and conditions set forth in Annexes A-1 through
A-3 of the Disclosure Schedule or upon terms and conditions which are, in
the reasonable judgement of Newco, substantially equivalent thereto, and to
the extent that any terms and conditions are not set forth in Annexes A-1
through A-3 of the Disclosure Schedule, on terms and conditions reasonably
satisfactory to Newco.
(g) Recapitalization Accounting. Newco shall be reasonably satisfied
that the Merger shall be recorded as a recapitalization for financial
reporting purposes (provided that if Newco is advised that the SEC finally
determines that recapitalization treatment will not be available, Newco
will advise the Company within 30 days of receipt of such final
determination whether it intends to waive such condition and if it advises
the Company that it has determined not to so waive, the Company may
terminate this Agreement pursuant to Section 8.1(c) as if the date of such
advice from Newco was deemed to be December 31, 1997 for purposes of
Section 8.1(c)).
(h) Employees. Newco shall be reasonably satisfied that the
Employment Arrangements are in full force and effect and that the
individuals who are listed on Schedule 5.1(f) will be employed by the
Company following the Effective Time pursuant to the Employment
Arrangements and such employees will not have been paid nor have the right
to receive any payment from Newco or the Company of any severance,
change-of-control, or similar payments as a result, in whole or in part, of
the consummation of any of the transactions contemplated hereby, except as
expressly provided in the Employment Arrangements.
(i) Mixed Consideration Election. Effective as of the Effective Time,
the Stockholder shall have made and not revoked a Mixed Election with
respect to at least 15,024,616 shares of Company Common Stock owned by the
Stockholder immediately prior to the Effective Time.
(j) Tax Indemnification Agreement. The Tax Indemnification Agreement,
dated as of the date hereof, among the Company, the Estate of John A.
Svenningsen and Christine Svenningsen shall be in full force and effect and
enforceable by the Company following the Effective Time, in accordance with
the terms as in effect on the date hereof and in the form provided to Newco
on the date hereof, or as it may be amended with the consent of Newco.
SECTION 7.3 Conditions to Obligation of the Company. The obligation of
the Company to effect the Merger is further subject to the satisfaction or
waiver at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Newco set forth in this Agreement that are qualified as to
materiality shall be true and correct and any such representations and
warranties of Newco set forth in this Agreement that are not so qualified
shall be true and correct in all material respects, in each case as of the
date of this Agreement and as of the Closing as though made at and as of
the Closing. The Company shall have received a certificate signed on behalf
of Newco by a senior executive officer of Newco to the effect set forth in
this paragraph.
(b) Performance of Obligations of Newco. Newco shall have performed
the obligations required to be performed by it under this Agreement at or
prior to the Closing (except for such failures to perform as would not,
either individually or in the aggregate, materially adversely affect the
ability of Newco to consummate the transactions herein contemplated or to
perform its obligations hereunder).
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ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company:
(a) by mutual written consent of Newco and the Company;
(b) by either Newco or the Company if any court of competent
jurisdiction, arbitrator or other Governmental Entity shall have issued a
final order, decree or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the consummation of the Merger or any of
the transactions contemplated by this Agreement or the Voting Agreement, or
otherwise altering the terms of any of the foregoing in any significant
respect, and such order, decree, ruling or other action is or shall have
become final and nonappealable;
(c) by either Newco or the Company if the Merger shall not have been
consummated on or before December 31, 1997, provided that the right to
terminate this Agreement under this Section 8.1(c) shall not be available
to the party whose action or failure to act has been the cause of or
resulted in the failure of the Merger to occur on or before such date where
such action or failure to act constitutes a breach of this Agreement;
(d) by Newco if any required approval of the stockholders of the
Company 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; or
(e) by the Company if, prior to receipt of the Company Stockholder
Approval, the Board of Directors of the Company approves an Acquisition
Transaction, on terms which the Board of Directors of the Company has
determined in good faith (i) to be more favorable to the Company and its
stockholders (other than the Stockholder) than the transactions
contemplated by this Agreement and (ii) based upon the advice of its
outside counsel, that failing to approve such Acquisition Transaction and
terminate this Agreement would constitute a breach of the fiduciary duties
of the Board of Directors of the Company under applicable law; provided
that the termination described in this Section 8.1(e) shall not be
permissible unless and until the Company shall have provided Newco prior
written notice at least three business days prior to such termination that
the Board of Directors of the Company has authorized and intends to effect
the termination of this Agreement pursuant to this Section 8.1(e), the
Company shall otherwise be in compliance in all material respects with its
obligations under this Agreement and on or prior to such termination the
Company shall have paid to Newco the fee described in Section 8.3(a).
SECTION 8.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 8.1, this Agreement shall, except as provided
in Section 9.1, forthwith become void and there shall be no liability on the
part of any party hereto except as set forth in Section 8.3 and Section 9.1;
provided, however, that nothing herein shall relieve any party from liability
for any breach hereof.
SECTION 8.3 Fees and Expenses. (a) In the event that this Agreement is
terminated pursuant to Section 8.1(e) hereof, then the Company shall, prior to
such termination, pay Newco a termination fee of $8 million; provided, however,
that if Newco exercises the Voting Agreement Option, promptly upon receipt by
Newco of the shares subject to the Voting Agreement Option registered in the
name of Newco or its designee, Newco shall return such termination fee to the
Company; provided further that Newco shall not be required to return such
termination fee or, if already returned, the Company shall again pay such
termination fee to Newco, if the Company or its Board of Directors takes any
affirmative action preventing or restricting Newco or its designee from
acquiring shares of Company Common Stock (including pursuant to the tender offer
contemplated by the Voting Agreement) in addition to the shares acquired
pursuant to the Voting Agreement Option (provided that recommending not to
tender in a tender offer or not recommending in favor of such tender offer,
alone, shall not be deemed such an affirmative action).
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(b) In addition to any other amounts which may be payable or become
payable pursuant to Section 8.3(c), the Company shall (provided that the
Company is then in material breach of its representations, warranties,
covenants or other obligations under this Agreement), promptly following
termination of this Agreement pursuant to Section 8.1(c), but in no event
later than two business days following a written request by Newco therefor,
together with related bills or receipts, reimburse Newco and its
affiliates, in an aggregate amount of up to $3 million, for all reasonable
out-of-pocket expenses and fees (including, without limitation, fees
payable to all banks, investment banking firms and other financial
institutions, and their respective agents and counsel, and all fees of
counsel, accountants, financial printers, experts and consultants to Newco
and its affiliates), whether incurred prior to, on or after the date
hereof, in connection with the Merger and the consummation of all
transactions contemplated by this Agreement and the financing thereof;
provided that the Company shall not be required to make payment pursuant to
this Section 8.3(b) if it is obligated to make the payment required
pursuant to Section 8.3(a).
(c) Except as otherwise specifically provided herein, each party shall
bear its own expenses in connection with this Agreement and the
transactions contemplated hereby; provided, however, that if the Merger is
consummated, the Company shall pay the expenses of Goldman, Sachs & Co.
referred to in Section 4.5.
SECTION 8.4 Amendment. Subject to the following sentence, this Agreement
may be amended by the parties hereto by action taken by or on behalf of their
respective Boards of Directors at any time prior to the Effective Time;
provided, however, that, after approval of the Merger by the stockholders of the
Company, no amendment that by law would require the further approval by such
stockholders may be made without such approval. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto.
SECTION 8.5 Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby, but such extension or waiver or failure to insist on strict compliance
with an obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE 9
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, as the case may be, except that the agreements set
forth in Articles 1 and 2, Sections 6.5 and 6.6 and Articles 8 and 9 shall
survive the Effective Time and those set forth in Section 6.3(b) and Section
6.8(a) (as it relates to the Voting Agreement) and Articles 8 and 9 shall
survive termination of this Agreement.
SECTION 9.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or by registered or certified mail (postage prepaid, return receipt requested)
to the
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respective parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
if to Newco:
Confetti Acquisition, Inc.
c/o GS Capital Partners II, L.P.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attn.: Mitchell S. Presser
Telecopier No.: (212) 403-2000
if to the Company:
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, NY 10523
Attn.: Corporate Secretary
Telecopier No.: (914) 345-2056
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attn.: Milton G. Strom
Randall H. Doud
Telecopier No.: (212) 735-2000
SECTION 9.3 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person;
(b) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management policies of a person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or otherwise;
(c) "generally accepted accounting principles" shall mean the
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession in the United States, in each case applied on a basis consistent
with the manner in which the audited financial statements for the fiscal
year of the Company ended December 31, 1996 were prepared;
(d) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization, other entity or
group (as defined in Section 13(d)(3) of the Exchange Act);
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(e) "Significant Subsidiary" has the meaning set forth in Section 1-02
of Regulation S-X promulgated by the SEC;
(f) "Subsidiary" or "Subsidiaries" of any person means any other
person in which such first person (either alone or through or together with
any other Subsidiary of such person), owns, directly or indirectly, 50% or
more of the stock or other equity interests or has the right, through
ownership of equity, contractually or otherwise, to elect at least half of
its Board of Directors or other governing body; and
(g) "transactions contemplated hereby," "transactions contemplated by
this Agreement" and other similar references shall include the Merger and
all other actions and transactions contemplated by this Agreement, the
Voting Agreement and the Employment Arrangements.
SECTION 9.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 9.5 Entire Agreement; Assignment. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by operation of law or otherwise, except that
Newco may assign all or any of its rights and obligations hereunder to any
direct or indirect wholly owned subsidiary or subsidiaries of Newco, provided
that no such assignment shall relieve the assigning party of its obligations
hereunder if such assignee does not perform such obligations.
SECTION 9.6 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, with respect to the
provisions of Sections 6.6 and 8.3, shall inure to the benefit of the persons or
entities benefitting from the provisions thereof who are intended to be
third-party beneficiaries thereof. Except as provided in the preceding sentence,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
SECTION 9.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof, except to the extent the laws of the State of Delaware are
required to be applicable under applicable choice of law principles.
SECTION 9.8 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.9 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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[MERGER AGREEMENT SIGNATURE PAGE]
IN WITNESS WHEREOF, Newco and the Company have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
CONFETTI ACQUISITION, INC.
By: /s/ TERENCE M. O'TOOLE
------------------------------------
Title: Chairman of the Board
and President
AMSCAN HOLDINGS, INC.
By: /s/ GERALD C. RITTENBERG
------------------------------------
Title: President
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<PAGE> 186
ANNEX A
TO AGREEMENT AND PLAN OF MERGER
FORM OF AFFILIATE LETTER
Gentlemen:
The undersigned, a holder of shares of common stock, par value $.10 per
share ("Company Stock"), of Amscan Holdings, Inc., a Delaware corporation (the
"Company"), is entitled to retain and receive in connection with the merger (the
"Merger") of the Company with Confetti Acquisition, Inc., a Delaware
corporation, securities (collectively, the "Securities") of the Company. The
undersigned acknowledges that the undersigned may be deemed an "affiliate" of
the Company within the meaning of Rule 145 ("Rule 145") promulgated under the
Securities Act of 1933 (the "Act"), although nothing contained herein should be
construed as an admission of such fact.
If in fact the undersigned were an affiliate under the Act, the
undersigned's ability to sell, assign or transfer the Securities retained by the
undersigned pursuant to the Merger may be restricted unless such transaction is
registered under the Act or an exemption from such registration is available.
The undersigned understands that such exemptions are limited and the undersigned
has obtained advice of counsel as to the nature and conditions of such
exemptions, including information with respect to the applicability to the sale
of such securities of Rules 144 and 145(d) promulgated under the Act.
The undersigned hereby represents to and covenants with the Company that
the undersigned will not sell, assign or transfer any of the Securities retained
by the undersigned pursuant the Merger except (i) pursuant to an effective
registration statement under the Act, (ii) in conformity with the volume and
other limitations of Rule 145 or (iii) in a transaction which, in the opinion of
independent counsel reasonably satisfactory to the Company or as described in a
"no-action" or interpretive letter from the Staff of the Securities and Exchange
Commission (the "SEC"), is not required to be registered under the Act.
In the event of a sale or other disposition by the undersigned of
Securities pursuant to Rule 145, the undersigned will supply the Company with
evidence of compliance with such Rule, in the form of a letter in the form of
Annex I hereto.
The undersigned understands that the Company may instruct its transfer
agent to withhold the transfer of any Securities disposed of by the undersigned,
but that upon receipt of such evidence of compliance the transfer agent shall
effectuate the transfer of the Securities sold as indicated in the letter.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing Securities retained by the undersigned in
the Merger or held by a transferee thereof, which legends will be removed by
delivery of substitute certificates upon receipt of an opinion in form and
substance reasonably satisfactory to the Company from independent counsel
reasonably satisfactory to the Company to the effect that such legends are no
longer required for purposes of the Act.
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Securities and
(ii) the receipt by Newco of this letter is an inducement and a condition to
Newco's obligations to consummate the Merger.
Very truly yours,
Dated:
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<PAGE> 187
ANNEX I
TO ANNEX A
TO AGREEMENT AND PLAN OF MERGER
[Name]
[Date]
On the undersigned sold the securities ("Securities") of
Amscan Holdings, Inc. (the "Company") described below in the space provided for
that purpose (the "Securities"). The Securities were retained by the undersigned
in connection with the merger of Confetti Acquisition, Inc., a Delaware
corporation, with and into the Company.
Based upon the most recent report or statement filed by the Company with
the Securities and Exchange Commission, the Securities sold by the undersigned
were within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
The undersigned hereby represents that the Securities were sold in
"brokers' transactions" within the meaning of Section 4(4) of the Act or in
transactions directly with a "market maker" as that term is defined in Section
3(a)(38) of the Securities Exchange Act of 1934, as amended. The undersigned
further represents that the undersigned has not solicited or arranged for the
solicitation of orders to buy the Securities, and that the undersigned has not
made any payment in connection with the offer or sale of the Securities to any
person other than to the broker who executed the order in respect of such sale.
Very truly yours,
[Space to be provided for description of securities]
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<PAGE> 188
EXHIBIT A
TO AGREEMENT AND PLAN OF MERGER
CERTIFICATE OF INCORPORATION
OF
AMSCAN HOLDINGS, INC.
ARTICLE 1
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
AMSCAN HOLDINGS, INC.
ARTICLE 2
The address of the Corporation's registered office in the State of Delaware
is The Corporation Trust Center, 1209 Orange Street in the City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
ARTICLE 3
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware (the "DGCL").
ARTICLE 4
Section 4.1 The total number of shares of stock which the Corporation is
authorized to issue is 50,000,000 shares of Common Stock, having a par value of
$0.10 per share.
Section 4.2 Except as otherwise provided by law, the Common Stock shall
have the exclusive right to vote for the election of directors and for all other
purposes. Each share of Common Stock shall have one vote, and the Common Stock
shall vote together as a single class.
ARTICLE 5
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors of the Corporation (the "Board"), and
unless and except to the extent that the Bylaws of the Corporation shall so
require, the election of directors of the Corporation need not be by written
ballot.
ARTICLE 6
In furtherance and not in limitation of the powers conferred by law, the
Board is expressly authorized and empowered to make, alter and repeal the Bylaws
of the Corporation by a majority vote at any regular or special meeting of the
Board or by written consent, subject to the power of the stockholders of the
Corporation to alter or repeal any Bylaws made by the Board.
ARTICLE 7
The Corporation reserves the right at any time from time to time to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article.
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<PAGE> 189
ARTICLE 8
Section 8.1 Elimination of Certain Liability of Directors. A director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
If the DGCL is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the corporation shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended.
Any repeal or modification of the foregoing paragraph shall not adversely
affect any right or protection of a director of the Corporation existing
hereunder with respect to any act or omission occurring prior to such repeal or
modification.
Section 8.2 Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
amounts paid or to be paid in settlement, and excise taxes or penalties arising
under the Employee Retirement Income Security Act of 1974) reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in paragraph (b)
hereof, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the DGCL requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, by action of the Board, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct
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which make it permissible under the DGCL for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the DGCL, nor an actual determination by the Corporation
(including its Board, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the DGCL.
* * *
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ANNEX B
VOTING AGREEMENT
VOTING AGREEMENT (this "Agreement") dated as of August 10, 1997, by and
among Confetti Acquisition, Inc., a Delaware corporation ("Newco"), the Estate
of John A. Svenningsen (the "Stockholder") and Christine Svenningsen (the
"Individual").
WHEREAS, Newco and Amscan Holdings, Inc., a Delaware corporation (the
"Company"), have entered into an Agreement and Plan of Merger dated as of the
date hereof (the "Merger Agreement"; capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement; provided that
the terms Merger and Merger Agreement shall not include any amendments or
modifications thereto unless such amendments and modifications have been
approved in writing by the Stockholder and the Individual) providing for the
merger (the "Merger") of Newco with and into the Company, upon the terms and
subject to the conditions set forth in the Merger Agreement; and
WHEREAS, the Stockholder beneficially owns 15,024,616 shares of Company
Common Stock (such shares of Company Common Stock, together with any other
shares of Company Common Stock that the Stockholder acquires beneficial
ownership of after the date hereof and during the term of this Agreement,
whether upon the exercise of options, warrants or rights, the conversion or
exchange of convertible or exchangeable securities, or by means of purchase,
dividend, distribution or otherwise, being collectively referred to herein as
the "Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Newco has requested that the Stockholder and the Individual enter
into this Agreement.
NOW, THEREFORE, to induce Newco to enter into, and in consideration of its
entering into, the Merger Agreement, and in consideration of the premises and
the representations, warranties and agreements contained herein, the parties
hereto agree as follows:
1. Representations and Warranties of the Stockholder and the
Individual. Each of the Stockholder and the Individual hereby represents and
warrants to Newco as of the date hereof as follows:
(a) Authority; No Conflicts. The Stockholder, through its duly
designated representative, the executrix, has the necessary legal capacity,
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated
hereby. The Individual is the duly appointed executrix of the Stockholder
and has the necessary legal capacity, power and authority to execute and
deliver this Agreement (on behalf of herself individually and on behalf of
the Stockholder as executrix of the Stockholder), to perform her individual
obligations and as such executrix to perform the Stockholder's obligations
hereunder and to consummate the transactions contemplated hereby on her
individual behalf and on behalf of the Stockholder as the Stockholder's
executrix. This Agreement has been duly authorized, executed and delivered
by and on behalf of the Stockholder and by the Individual, and, assuming
due authorization, execution and delivery by Newco, constitutes a legal,
valid and binding obligation of the Stockholder and the Individual,
enforceable in accordance with its terms. Except for the filings required
under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended
(the "HSR Act"), (i) no filing with, and no permit, authorization, consent
or approval of, any Governmental Entity or any other person is necessary
for the execution and delivery of this Agreement by and on behalf of the
Stockholder and by the Individual and the consummation by the Stockholder
and the Individual of the transactions contemplated hereby and (ii) none of
the execution and delivery of this Agreement by and on behalf of the
Stockholder and by the Individual, the consummation of the transactions
contemplated hereby and compliance with the terms hereof by the Stockholder
and the Individual will conflict with, or result in any violation of, or
default (with or without notice or lapse of time or both) under any
provision of, any trust agreement, loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license, judgment, order, notice, decree, statute,
law, ordinance, rule or regulation applicable to the Stockholder or the
Individual or to the Stockholder's or the Individual's property or assets.
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(b) The Subject Shares. The Stockholder is the beneficial owner of
the Subject Shares and has, and throughout the term of this Agreement will
have, good and marketable title to the Subject Shares free and clear of all
Liens and, upon delivery thereof to Newco against delivery of the
consideration therefor pursuant to this Agreement, good and marketable
title thereto, free and clear of all Liens (other than any arising as a
result of actions taken or omitted by Newco), will pass to Newco. Each of
the Stockholder and the Individual does not beneficially own any shares of
capital stock of the Company or securities convertible into or exchangeable
for shares of capital stock of the Company, other than the Subject Shares.
The Stockholder (through the Individual as the executrix of the
Stockholder) has the sole right and power to vote and dispose of the
Subject Shares, and none of such Subject Shares is subject to any voting
trust or other agreement, arrangement or restriction with respect to the
voting or transfer (other than the provisions of the Securities Act) of any
of the Subject Shares, except as contemplated by this Agreement.
(c) Tax Indemnity. The Stockholder and the Individual have entered
into a Tax Indemnity Agreement (the "Tax Indemnity") with the Company, a
copy of which is attached as Schedule I hereto. Such agreement is in full
force and effect and is a valid and binding agreement of the Stockholder
and the Individual and enforceable in accordance with its terms against
them and, if applicable, their respective successors, assigns, heirs,
agents, representatives, beneficiaries (including trust beneficiaries),
attorneys, affiliates and associates and all of their respective
predecessors, successors, permitted assigns, heirs, executors and
administrators, including any person to whom the proceeds of the sale of
the Subject Shares may be distributed or contributed and any other person
required to become an additional indemnitor pursuant to Article 4 thereof.
2. Representations and Warranties of Newco. Newco hereby represents and
warrants to the Stockholder and the Individual that Newco is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by and on behalf of Newco and, assuming due
authorization, execution and delivery by the Stockholder and the Individual,
constitutes a legal, valid and binding obligation of Newco enforceable in
accordance with its terms. Except for the filings required under the HSR Act,
(i) no filing with, and no permit, authorization, consent or approval of, any
Governmental Entity or any other person is necessary for the execution of this
Agreement by and on behalf of Newco and the consummation by Newco of the
transactions contemplated hereby and (ii) none of the execution and delivery of
this Agreement by Newco, the consummation of the transactions contemplated
hereby nor the compliance with the terms hereof by Newco will conflict with, or
result in any violation of, or default (with or without notice or lapse of time
or both) under any provision of, the certificate of incorporation or by-laws of
Newco, any trust agreement, loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise,
license, judgment, order, notice, decree, statute, law, ordinance, rule or
regulation applicable to Newco or to Newco's property or assets. If the Option
(as defined herein) is exercised, the Subject Shares will be acquired for
investment for Newco's own account, not as a nominee or agent and not with a
view to the distribution of any part thereof. Newco has no present intention of
selling, granting any participation in or otherwise distributing the same nor
does Newco have any contract, undertaking, agreement or arrangement with any
person with respect to any of the Subject Shares. Newco further understands that
the Subject Shares may not be sold, transferred or otherwise disposed of without
registration under the Securities Act or pursuant to an exemption therefrom.
3. Covenants of the Stockholder and the Individual. Until the termination
of this Agreement in accordance with Section 8 hereof, the Stockholder and the
Individual agree as follows:
(a) Voting of Subject Shares. At any meeting of stockholders of the
Company called to vote upon the Merger and the Merger Agreement or at any
adjournment thereof or in any other circumstances upon which a vote or
other approval with respect to the Merger and the Merger Agreement is
sought, the Stockholder and the Individual shall, and the Individual shall
cause the Stockholder to, vote the Subject Shares in favor of the Merger,
the adoption by the Company of the Merger Agreement and the approval of the
terms thereof and each of the other transactions contemplated by the Merger
Agreement.
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At any meeting of stockholders of the Company or at any adjournment
thereof or in any other circumstances upon which the Stockholder's or the
Individual's vote, consent or other approval is sought, the Stockholder and
the Individual shall, and the Individual shall cause the Stockholder to,
vote the Subject Shares against (i) any action or agreement that would
result in a breach in any material respect of any covenant, representation
or warranty or any other obligation or agreement of the Company under the
Merger Agreement or of the Stockholder and the Individual hereunder and
(ii) any action or agreement that would impede, interfere with, delay,
postpone or attempt to discourage the Merger, including, but not limited
to: (A) the adoption by the Company of a proposal regarding (1) the
acquisition of the Company by merger, tender offer or otherwise by any
person other than Newco or any designee thereof (a "Third Party"); (2) the
acquisition by a Third Party of 10% or more of the assets of the Company
and its Subsidiaries, taken as a whole; (3) the acquisition by a Third
Party of 10% or more of the outstanding shares of Company Common Stock; or
(4) the repurchase by the Company or any of its subsidiaries of 10% or more
of the outstanding shares of Company Common Stock; (B) any amendment of the
Company's certificate of incorporation or by-laws or other proposal or
transaction involving the Company or any of its Subsidiaries, which
amendment or other proposal or transaction would in any manner impede,
frustrate, prevent or nullify the Merger, the Merger Agreement or any of
the other transactions contemplated by the Merger Agreement or change in
any manner the voting rights of any class of the Company's capital stock;
(C) any change in the management or board of directors of the Company; (D)
any material change in the present capitalization or dividend policy of the
Company; or (E) any other material change in the Company's corporate
structure or business. Each of the Stockholder and the Individual further
agrees not to commit or agree to take any action inconsistent with the
foregoing.
(b) Proxies. As security for the agreements of the Stockholder and
the Individual provided for herein, the Stockholder and the Individual
hereby grant to Newco a proxy to vote the Subject Shares as indicated in
Section 3(a) above. The Stockholder and the Individual agree that this
proxy shall be irrevocable during the term of this Agreement and coupled
with an interest and each will take such further action or execute such
other instruments as may be necessary to effectuate the intent of this
proxy and hereby revokes any proxy previously granted by the Stockholder or
the Individual with respect to the Subject Shares.
(c) Transfer Restrictions. Each of the Stockholder and the Individual
agrees not to (i) sell, transfer, pledge, encumber, assign or otherwise
dispose of (including by gift or by contribution or distribution to any
trust or similar instrument or to any beneficiaries of the Stockholder,
pursuant to the terms of Mr. John A. Svenningsen's will or otherwise)
(collectively, "Transfer"), or enter into any contract, option or other
arrangement or understanding (including any profit sharing arrangement)
with respect to the Transfer of, any of the Subject Shares other than
pursuant to the terms hereof and the Merger Agreement, (ii) enter into any
voting arrangement or understanding, whether by proxy, voting agreement or
otherwise, or (iii) take any action that would make any of its
representations or warranties contained herein untrue or incorrect or have
the effect of preventing or disabling the Stockholder and the Individual
from performing their obligations under this Agreement.
(d) Appraisal Rights. Each of the Stockholder and the Individual
hereby irrevocably waives any rights of appraisal with respect to the
Merger or rights to dissent from the Merger that the Stockholder and the
Individual may have.
(e) Election to Retain Company Common Stock. Each of the Stockholder
and the Individual agrees to make a Mixed Election to retain Company Common
Stock and to receive cash in the Merger pursuant to Section 2.1(c)(i) of
the Merger Agreement with respect to all of the Subject Shares and agrees
that the Stockholder and the Individual will request that all such Subject
Shares be issued and registered in the name of "Estate of John A.
Svenningsen." The shares of Company Common Stock which the Stockholder
retains pursuant to Section 2.1(c)(i) of the Merger Agreement are herein
referred to as the "Retained Shares."
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(f) Merger Agreement. Each of the Stockholder and the Individual
accepts the terms and conditions of the Merger Agreement as they apply to
the holders of shares of Company Common Stock.
(g) Stockholders Agreement. The Stockholder agrees to execute and
become a party to the Stockholders Agreement, by and among the Company (as
the surviving company in the Merger) and certain stockholders and
executives of the Company, at or following the Effective Time (as defined
in the Merger Agreement), substantially in the form delivered as of the
date hereof.
(h) Affiliate Letter. The Stockholder shall deliver to Newco on or
prior to the Closing Date (as defined in the Merger Agreement) a written
agreement substantially in the form attached as Annex A to the Merger
Agreement.
4. Option.
(a) The Stockholder and the Individual hereby grant to Newco (or its
designee, provided such designee is an affiliate of the controlling stockholders
of Newco), an irrevocable option to purchase the Subject Shares, on the terms
and subject to the conditions set forth herein (the "Option").
(b) The Option may be exercised by Newco, as a whole and not in part, at
any time during the period commencing upon the occurrence of any of the
following events and ending on the date which is the 90th calendar day following
the first to occur of such events:
(i) the Merger Agreement shall have been terminated by either the
Company or Newco pursuant to Section 8.1(b) or (c) thereof (other than a
termination by the Company pursuant to Section 8.1(c), which was based on
an actual material breach by Newco of its obligations under the Merger
Agreement (a "Newco Breach Termination"));
(ii) the Merger Agreement shall have been terminated by Newco pursuant
to Section 8.1(d) thereof; or
(iii) the Merger Agreement shall have been terminated by the Company
pursuant to Section 8.1(e) thereof.
(c) If Newco wishes to exercise the Option, Newco shall send a written
notice to the Stockholder and the Individual of its intention to exercise the
Option, specifying the place, and, if then known, the time and the date (the
"Option Closing Date") of the closing (the "Option Closing") of the purchase.
The 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).
(d) At the Option Closing, the Stockholder and the Individual shall deliver
to Newco (or its designee) all of the Subject Shares by delivery of a
certificate or certificates evidencing such Subject Shares duly endorsed to
Newco or accompanied by powers duly executed in favor of Newco, with all
necessary stock transfer stamps affixed.
(e) At the Option Closing, Newco shall pay to the Stockholder pursuant to
the exercise of the Option, by wire transfer, cash in immediately available
funds to the account of the Stockholder (such account to be specified in writing
at least two days prior to the Option Closing, an amount equal to the product of
$9.83 and the number of Subject Shares (the "Subject Purchase Price").
(f) The 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 and there shall not be any
statute, rule or regulation, restraining, enjoining or prohibiting the
consummation of the purchase and sale of the Subject Shares pursuant to the
exercise of the Option;
(ii) any waiting period applicable to the consummation of the purchase
and sale of the Subject Shares pursuant to the exercise of the 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 Subject Shares pursuant to the
exercise of the Option shall have been obtained or made and shall be in
full force and effect.
(g) Newco hereby agrees that, in the event that it purchases the Subject
Shares pursuant to the Option, as promptly as practicable thereafter, Newco will
make a tender offer for the remaining shares of Company Common Stock to the
stockholders of the Company (the consummation of which shall be subject only to
the condition that no court, arbitrator or governmental body, agency or official
shall have issued any order, decree or ruling and there shall not be any
statute, rule or regulation, restraining, enjoining or prohibiting the
consummation of such tender offer) pursuant to which the stockholders of the
Company (other than the Company, any direct or indirect subsidiary of the
Company or Newco) will receive an amount of cash consideration per share of
Company Common Stock equal to $16.50, and will take such actions as may be
necessary or appropriate in order to effectuate such tender offer at the
earliest practicable time.
5. Further Assurances. Each of the Stockholder and the Individual will,
from time to time, execute and deliver, or cause to be executed and delivered,
such additional or further consents, proxies, documents and other instruments as
Newco or the Company may reasonably request for the purpose of effectively
carrying out the transactions contemplated by this Agreement.
6. Stop Transfer Order. Each of the Stockholder and the Individual hereby
authorizes and requests the Company's counsel to notify the Company's transfer
agent that there is a stop transfer order with respect to all of the Subject
Shares (and that this Agreement places limits on the voting of the Subject
Shares).
7. Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder, except as expressly provided herein with respect to
Newco's rights under the Option, shall be assigned by any of the parties without
the prior written consent of the other parties, except that Newco may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to any direct or indirect wholly owned subsidiary of Newco. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their permitted assigns and
their respective successors (including the Company as successor to Newco
pursuant to the Merger), heirs, agents, representatives, trust beneficiaries,
attorneys, affiliates and associates and all of their respective predecessors,
successors, permitted assigns, heirs, executors and administrators. The Company
shall be a beneficiary of and be entitled to enforce Newco's obligation under
Section 4(g) hereof.
8. Termination. Except as set forth in Section 4, this Agreement shall
terminate, and no party shall have any rights or obligations hereunder and this
Agreement shall become null and void and have no further effect immediately
following the earliest to occur of (x) the Effective Time, (y) the 91st day
following the termination of the Merger Agreement pursuant to Section 8.1(b),
8.1(c) (other than in the case of a Newco Breach Termination), 8.1(d) or 8.1(e)
thereof or (z) the termination of the Merger Agreement pursuant to Section
8.1(a) thereof or Section 8.1(c) thereof (only in the case of a Newco Breach
Termination). Notwithstanding the foregoing, in the event the Option shall have
been exercised in accordance with Section 4, but the Option Closing shall not
have occurred, the provisions of Sections 1 and 3 shall survive until the Option
Closing. Nothing in this Section 8 shall relieve any party of liability for
breach of this Agreement and the Stockholder and the Individual shall be jointly
and severally liable for any breach of this Agreement by either of them.
9. General Provisions.
(a) Amendments. This Agreement may not be amended except by an instrument
in writing signed by each of the parties hereto.
(b) Notice. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or sent by overnight
courier (providing proof of delivery) to Newco in accordance with Section 9.2 of
the Merger Agreement and to the Stockholder, the Individual or any acknowledging
persons c/o Kurzman & Eisenberg, One North Broadway, White Plains, NY 10601,
Attn: Sam Eisenberg (Telecopier No.: (914) 285-9855) (or at such other address
for a party as shall be specified by like notice).
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(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Wherever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
each party need not sign the same counterpart.
(e) Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof,
except to the extent the laws of the State of Delaware are required to be
applicable under applicable choice of law principles.
10. 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 in any Federal court of the United
States located in the Southern District of the State of New York or in a New
York state court located in Manhattan, this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (i) consents to submit such party to the personal jurisdiction of
any Federal court located in the Southern District of the State of New York or
any New York state court located in Manhattan in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (ii)
agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, (iii)
agrees that such party will not bring any action relating to this Agreement or
the transactions contemplated hereby in any court other than a Federal court
sitting in the Southern District of the State of New York or a New York state
court located in Manhattan and (iv) waives any right to trial by jury with
respect to any claim or proceeding related to or arising out of this Agreement
or any of the transactions contemplated hereby.
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[VOTING AGREEMENT SIGNATURE PAGE]
IN WITNESS WHEREOF, Newco and the Stockholder have each caused this
Agreement to be signed by its signatory thereunto duly authorized, and the
Individual has signed this Agreement, each as of the date first written above.
CONFETTI ACQUISITION, INC.
/s/ TERENCE M. O'TOOLE
--------------------------------------
By: Terence M. O'Toole
Title: Chairman of the Board
and President
THE ESTATE OF JOHN A. SVENNINGSEN
/s/ CHRISTINE SVENNINGSEN
--------------------------------------
By: Christine Svenningsen
Title: Executrix
/s/ CHRISTINE SVENNINGSEN
--------------------------------------
Christine Svenningsen
The following individuals, in their capacities as trustees or other
fiduciaries (whether on the date hereof or at any point in the future) of any
trust or similar instrument created by or at the instruction of, or under the
last will and testament of, John A. Svenningsen or the Stockholder, acknowledge
this Agreement and agree to be bound by the terms hereof in each such capacity,
such agreement being for the benefit of each of the parties hereto, and such
individuals further agree to cause any such trust or similar instrument upon its
formation to become a party to this Agreement with the same obligations as the
Stockholder and the Individual hereunder, and in accordance herewith have agreed
to and acknowledged this Agreement:
By: /s/ CHRISTINE SVENNINGSEN
------------------------------------
Dated: August 10, 1997
Name: Christine Svenningsen
Title: Trustee
By: /s/ FANNY WARREN
------------------------------------
Dated: August 10, 1997
Name: Fanny Warren
Title: Trustee
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SCHEDULE I
TO VOTING AGREEMENT
TAX INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Indemnification Agreement") is made and
entered into as of August 10, 1997 by and between Amscan Holdings, Inc., a
Delaware corporation ("Amscan"), on the one hand, and Christine Svenningsen (the
"Individual") and the Estate of John A. Svenningsen (the "Estate" and together,
jointly and severally, with the Individual, the "Svenningsen Indemnitors"), on
the other.
WHEREAS, effective as of July 31, 1996, Amscan Inc. was the surviving
constituent corporation in the merger of Kookaburra USA, Ltd., Deco Paper
Products, Inc. and Amscan Inc.;
WHEREAS, as of December 18, 1996, Amscan acquired all of the business
operations of Amscan Inc. (including Kookaburra USA, Ltd. and Deco Paper
Products, Inc. which were previously merged into Amscan Inc.), Am-Source, Inc.,
Trisar, Inc., JCS Realty Corp. and SSY Realty Corp. (individually, a "Subject
Company" and, collectively, the "Subject Companies");
WHEREAS, prior to such acquisition, each of the Subject Companies had
elected under Section 1362 of the Internal Revenue Code of 1986, as amended (the
"Code"), to be treated and operated as S corporations (as defined in the Code
and hereinafter referred to as "Subchapter S Corporations");
WHEREAS, John A. Svenningsen ("Svenningsen"), the deceased spouse of the
Individual and the decedent of the Estate was for a number of years the
controlling shareholder of Amscan Inc., Kookaburra USA, Ltd., Deco Paper
Products, Inc., Trisar, Inc., JCS Realty Corp. and SSY Realty Corp. and since
1993 owned a 50% interest in Am-Source, Inc.;
WHEREAS, as of the date hereof, Amscan and Confetti Acquisition, Inc., a
Delaware corporation ("Confetti"), have entered into a Merger Agreement (the
"Merger Agreement") and in connection therewith, Confetti, the Individual and
the Estate have entered into a Voting Agreement (the "Voting Agreement"), in
each case dated as of the date hereof.
NOW, THEREFORE, in consideration of the premises and mutual provisions
hereinafter set forth, the parties hereto hereby agree as follows:
ARTICLE I. AMSCAN INDEMNITY. Amscan will indemnify the Svenningsen
Indemnitors for any increase in Svenningsen's Federal, state or other income tax
liability (together with any penalties and interest thereon), to the extent such
liability is attributable to an understatement of Svenningsen's share (in his
capacity as a shareholder) of a Subject Company's income as previously reported
to Svenningsen by a Subject Company on its Internal Revenue Service Form K-1 (or
any similar state or other form) and for any Federal, state or other income tax
liability of Svenningsen in respect of payments to Svenningsen pursuant to this
Article 1; provided, however, that Amscan's obligation to indemnify the
Svenningsen Indemnitors shall be limited to the actual reduction in taxes to any
of the Subject Companies (whether by reason of deduction, amortization, credit
or otherwise) for a taxable year(s) which end(s) after December 18, 1996, and
shall be reduced by any payments paid by Amscan pursuant to Article 1 of the Tax
Indemnification Agreement, by and between Svenningsen and Amscan, dated as of
December 18, 1996 (the "Svenningsen Indemnity Agreement").
ARTICLE II. INDIVIDUAL AND ESTATE INDEMNITY. The Svenningsen Indemnitors
will indemnify Amscan for Amscan's and its subsidiaries Federal, state or other
income tax liability (together with any interest or penalties thereon) arising
out of or resulting from a claim by any taxing authority that a Subject Company
was not a Subchapter S Corporation for any period in which such Subject Company
filed a tax return on which it claimed that it was a Subchapter S Corporation,
provided, however, that the Svenningsen Indemnitors' obligation to indemnify
Amscan shall be reduced by any payments paid by the Svenningsen Indemnitors
pursuant to Article 2 of the Svenningsen Indemnity Agreement.
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ARTICLE III. PROCEDURES RELATING TO INDEMNIFICATION.
(a) Any party seeking indemnification pursuant to Article 1 or Article 2
hereof (in any case, the "indemnitee") from the other party or parties (the
"indemnifying party or parties"), upon receipt of written notice from any taxing
authority, shall promptly provide the indemnifying party with notice of such
receipt including information of reasonable detail to apprise the indemnifying
party of the nature of the proposed adjustments; provided, however, that failure
to provide such notice promptly shall not relieve the indemnifying party of its
obligations under Article 1 or Article 2 hereof, as applicable, except to the
extent that such failure results in actual prejudice to the indemnifying party's
ability to contest the matter to which such notice relates.
(b) With respect to an audit by any taxing authority, the indemnifying
party shall control all proceedings taken solely in connection with such audit
(including, without limitation, selection of and payment for counsel reasonably
acceptable to indemnitee) and, without limiting the foregoing, may in its sole
discretion pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with any taxing authority with respect thereto, and
may, in its sole discretion, either pay the tax claimed and sue for a refund
where applicable law permits such refund suits or contest the audit adjustments
in any permissible manner; provided, however, that if (i) the results of such
proceedings, suit, contest, claim, hearing, compromise or proposed settlement
could reasonably be expected to have a material adverse effect on the assets,
business, operations or financial condition of Amscan or the Svenningsen
Indemnitors, or their ability to treat any income or losses in a particular
manner for tax calculation purposes for taxable periods ending after December
18, 1996 or (ii) any such proceeding, suit, contest, claim, hearing, compromise
or proposed settlement or procedure involves taxes other than taxes subject to
indemnification, the parties hereto shall consult and mutually agree on a
reasonable good faith basis upon all aspects of the conduct of such matters. The
indemnitee and the indemnifying party shall cooperate in contesting any such
audit, which cooperation shall include, without limitation, the retention and
provision to the indemnifying party of records and information which are
reasonably relevant to such audit and making employees available on a mutually
convenient basis to provide additional information or explanation of any
material provided hereunder or to testify at proceedings relating to such audit.
ARTICLE IV. ADDITIONAL INDEMNITORS. Each of the Svenningsen Indemnitors
agrees that it will not cause or permit the Estate to transfer, whether in one
transfer or a number of transfers to a single transferee or a group of related
transferees, any substantial amount of the property of the Estate, including,
without limitation, (i) any shares of common stock of Amscan (the transfer of
which is prohibited by the terms and conditions of the Voting Agreement prior to
the Merger and thereafter will be subject to certain restrictions), (ii) any
Merger Consideration (as defined in the Merger Agreement) received pursuant to
the Merger (as defined in the Merger Agreement) and (iii) any direct or indirect
proceeds of any of the foregoing or of any subsequent reinvestment thereof,
unless, in each case, the transferee thereof agrees in writing for the benefit
of Amscan to be jointly and severally liable with the Svenningsen Indemnitors
pursuant to this Indemnification Agreement. Each of the Svenningsen Indemnitors
agrees not to take any action (including any transfers of assets) which has the
effect of frustrating or otherwise significantly diminishing any of the
respective rights of, or protections afforded hereunder to, the parties to this
Indemnification Agreement.
ARTICLE V. GOVERNING LAW. This Indemnification Agreement shall be
governed by, and construed in accordance with, the laws of the State of New York
regardless of the laws that might otherwise govern under applicable principles
of conflicts of law thereof.
ARTICLE VI. NOTICES. All notices or other communications provided for
under this Indemnification Agreement shall be given in writing and shall be
delivered personally or sent by first class or overnight
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mail (prepaid postage and return receipt requested) or facsimile transmission to
the other parties at the following addresses or to such other addresses as to
which a party has given notice as provided herein.
If to Amscan:
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, NY 10523
Attention: Corporate Secretary
Facsimile: (914) 345-2056
If to the Estate, the Trustees,
the Trusts or the Individual:
c/o Kurzman & Eisenberg
One North Broadway
White Plains, NY 10601
Attn: Sam Eisenberg
Telecopier No.: (914) 285-9855
If to Confetti:
Confetti Acquisition, Inc.
c/o GS Capital Partners II, L.P.
85 Broad Street
New York, NY 10004
Attention: David J. Greenwald
Facsimile: (212) 357-5505
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Mitchell S. Presser
Facsimile: (212) 403-2000
ARTICLE VII. ASSIGNMENT; SUCCESSORS. Except as otherwise specifically
provided herein, this Indemnification Agreement and any rights and obligations
hereunder may not be assigned by any party hereto without the prior written
approval of the other parties hereto, and any attempted assignment not in
compliance with this Article shall be void and of no effect. This
Indemnification Agreement shall be binding upon the parties hereto and each of
their respective successors, assigns, heirs, agents, representatives,
beneficiaries (including trust beneficiaries), attorneys, affiliates and
associates and all of their respective predecessors, successors, permitted
assigns, heirs, executors and administrators, including any person (as defined
in the Merger Agreement) to whom the proceeds of the sale of the Subject Shares
(as defined in the Voting Agreement) may be distributed or contributed and any
other person required to become an additional indemnitor pursuant to Article 4
hereof.
ARTICLE VIII. COSTS. In any proceeding to enforce any rights under this
Indemnification Agreement by legal proceedings or otherwise, the prevailing
party shall be reimbursed by the defaulting party for all of the costs and
expenses of the prevailing party in pursuing such proceeding, including, without
limitation, reasonable attorneys' or solicitors' fees.
ARTICLE IX. PARTIES NOT PARTNERS. Nothing contained in this
Indemnification Agreement shall constitute a partnership or other agency
agreement between the parties hereto or their respective subsidiaries or any of
them, nor shall anything contained in this Indemnification Agreement give any of
the
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parties hereto or any of the respective subsidiaries the right to bind, or
pledge the credit of, any of the other parties hereto or any of their respective
subsidiaries.
ARTICLE X. ANNUAL REVIEW. This Indemnification Agreement may be amended
by mutual consultation between the parties, evidenced in a writing signed by all
parties, and the parties agree to engage in mutual consultation in good faith
during each annual period from the date hereof at the request of any party to
maintain in this Indemnification Agreement the principles of fairness and
equity, and to amend this Indemnification Agreement accordingly.
ARTICLE XI. SEVERABILITY. If any provision in this Indemnification
Agreement is found by any court or administrative body of competent jurisdiction
to be invalid or unenforceable, the invalidity or unenforceability of such
provision shall not affect the other provisions of this Indemnification
Agreement and all provisions not affected by such invalidity or unenforceability
shall remain in full force and effect unless the severance of the invalid or
unenforceable provision would unreasonably frustrate the commercial purposes of
this Indemnification Agreement. The parties hereby agree to attempt to
substitute for any invalid or unenforceable provision a valid or enforceable
provision which achieves to the greatest extent possible the economic objectives
of the invalid or unenforceable provision.
ARTICLE XII. WAIVER. The waiver by any party of a breach or default of
any of the provisions of this Indemnification Agreement by any other party shall
not be construed as a waiver of any succeeding breach of the same or other
provisions nor shall any delay or omission on the part of any party to exercise
or avail itself of any right, power or privilege that it has or may have
hereunder operate as a waiver of any breach or default by any other party.
Confetti is an intended third party beneficiary of this Indemnification
Agreement, and no waiver, amendment or modification of this Indemnification
Agreement or the rights or obligations of the parties hereto shall be valid
without the prior written consent of Confetti.
ARTICLE XIII. ENTIRE AGREEMENT. This Indemnification Agreement
constitutes the entire and only agreement between the parties hereto relating to
the subject matter hereof and overrides and supersedes any prior arrangements or
oral discussions and shall not be modified except in writing by agreement
between the parties; provided, however, that the Svenningsen Indemnity Agreement
remains a separate valid and binding agreement between the parties thereto
enforceable in accordance with its terms.
ARTICLE XIV. SPECIFIC PERFORMANCE. The parties agree that irreparable
damage would occur in the event that any of the provisions of this
Indemnification 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
Indemnification Agreement and to enforce specifically the terms and provisions
of this Indemnification Agreement in any Federal court of the United States
located in the Southern District of the State of New York or in a New York state
court located in Manhattan, this being in addition to any other remedy to which
they are entitled at law or in equity. In addition, each of the parties hereto
(i) consents to submit such party to the personal jurisdiction of any Federal
court located in the Southern District of the State of New York or any New York
state court located in Manhattan in the event any dispute arises out of this
Indemnification Agreement or any of the transactions contemplated hereby, (ii)
agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, (iii)
agrees that such party will not bring any action relating to this
Indemnification Agreement or the transactions contemplated hereby in any court
other than a Federal court sitting in the Southern District of the State of New
York or a New York state court located in Manhattan and (iv) waives any right to
trial by jury with respect to any claim or proceeding related to or arising out
of this Indemnification Agreement or any of the transactions contemplated
hereby.
ARTICLE XV. EFFECTIVENESS. The effectiveness of this Indemnification
Agreement is contingent upon the Closing and the effectiveness of the Merger (as
such terms are defined in the Merger Agreement) or upon the exercise by Newco or
its designee of the Option (as defined in the Voting Agreement). If the Closing
does not occur and the Merger Agreement is terminated, and if Newco (or its
designee) does not exercise the Option, then this Indemnification Agreement
shall have no effect and shall be void ab initio without any party hereto having
any liability to any other party hereto.
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IN WITNESS WHEREOF, the parties have caused this Indemnification Agreement
to be executed and delivered as of the day and year first above written.
AMSCAN HOLDINGS, INC.
By: /s/ GERALD C. RITTENBERG
------------------------------------
Name: Gerald C. Rittenberg
Title: Acting Chairman of the Board
and President
THE ESTATE OF JOHN A. SVENNINGSEN
By: /s/ CHRISTINE SVENNINGSEN
------------------------------------
Name: Christine Svenningsen
Title: Executrix
/s/ CHRISTINE SVENNINGSEN
--------------------------------------
Christine Svenningsen
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[TAX INDEMNIFICATION AGREEMENT SIGNATURE PAGE]
The following individuals, in their capacities as trustees or other
fiduciaries (whether on the date hereof or at any point in the future) of any
trust or similar instrument created by or at the instruction of, or under the
last will and testament of, John A. Svenningsen or the Estate, acknowledge this
Indemnification Agreement and agree to be bound by the terms hereof in each such
capacity, such agreement being for the benefit of each of the parties hereto,
and such individuals further agree to cause any such trust or similar instrument
upon its formation to become a party to this Indemnification Agreement as an
additional indemnitor pursuant to Article 4 hereof (and as if a Svenningsen
Indemnitor hereunder) and in accordance herewith have agreed to and acknowledged
this Indemnification Agreement:
By: /s/ CHRISTINE SVENNINGSEN
------------------------------------
Dated: August 10, 1997
Name: Christine Svenningsen
Title: Trustee
By: /s/ FANNY WARREN
------------------------------------
Dated: August 10, 1997
Name: Fanny Warren
Title: Trustee
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ANNEX C
[WASSERSTEIN PERELLA & CO]
Wasserstein, Perella & Co., Inc.
31 West 52nd Street
New York, New York 10019
Tel: (212) 969-2700
August 10, 1997
Board of Directors
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the holders of the common stock, par value $0.10 per
share (the "Shares"), of Amscan Holdings, Inc. (the "Company") (other than
Shares owned by the estate of John A. Svenningsen, referred to herein as the
"Principal Stockholder") of the Cash Consideration (as hereinafter defined) to
be received by such holders pursuant to the terms of the Agreement and Plan of
Merger, dated as of August 10, 1997 (the "Merger Agreement"), between the
Company and Confetti Acquisition, Inc. ("Newco"). The Merger Agreement provides
for, among other things, a merger of Newco with and into the Company (the
"Merger") whereby each Share, except as otherwise provided in the Merger
Agreement, will be converted, at the election of the holder thereof, into either
(a) the right to receive $9.33 per Share in cash plus a retained interest in the
Company equal to one Share for every 150,000 Shares elected (the "Cash and
Equity Consideration") or (b) the right to receive $16.50 per Share in cash (the
"Cash Consideration"), subject to certain procedures contained in the Merger
Agreement, as to which procedures we express no opinion. We understand that
pursuant to a Voting Agreement, dated as of August 10, 1997, among Newco, the
Principal Stockholder and Christine Svenningsen, the Principal Stockholder,
which owns approximately 71% of the outstanding Shares, will agree to elect to
receive the Cash and Equity Consideration in exchange for all of its Shares
pursuant to the Merger. The terms and conditions of the Merger are set forth in
more detail in the Merger Agreement.
In connection with rendering our opinion, we have reviewed and analyzed the
financial terms and conditions of a draft of the Merger Agreement, and for
purposes thereof, we have assumed that the final form of the Merger Agreement
will not differ in any material respect from the draft provided to us. We have
also reviewed and analyzed certain publicly available business and financial
information relating to the Company for recent years and interim periods to
date, as well as certain internal financial and operating information, including
financial forecasts, analyses and projections prepared by or on behalf of the
Company and provided to us for purposes of our analysis, and we have met with
management of the Company to review and discuss such information and, among
other matters, the Company's business, operations, assets, financial condition
and future prospects.
We have reviewed and considered certain financial and stock market data
relating to the Company, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to the Company or one
or more of its businesses or assets, and we have reviewed and considered the
financial terms of certain recent acquisitions and business combination
transactions in the party goods industry specifically, and in other industries
generally, that we believe to be reasonably comparable to the Merger or
otherwise relevant to our inquiry. We have also performed such other studies,
analyses, and investigations and reviewed such other information as we
considered appropriate for purposes of this opinion.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also relied upon the reasonableness and accuracy of the
financial projections, forecasts and analyses provided to us and we have
assumed, with your consent, that such projections, forecasts and analyses were
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates
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of the Company's management, and we express no opinion with respect to such
projections, forecasts and analyses or the assumptions upon which they are
based. In addition, we have not reviewed any of the books and records of the
Company, or assumed any responsibility for conducting a physical inspection of
the properties or facilities of the Company, or for making or obtaining an
independent valuation or appraisal of the assets or liabilities of the Company,
and no such independent valuation or appraisal was provided to us. We have
assumed that the transactions described in the Merger Agreement will be
consummated on the terms set forth therein, without material waiver or
modification. Our opinion is necessarily based on economic and market conditions
and other circumstances as they exist and can be evaluated by us as of the date
hereof.
It should be noted that in the context of our current engagement by the
Company, we have not been authorized to and have not solicited alternative
offers for the Company or its assets, or investigated any other alternative
transactions that may be available to the Company.
We are acting as financial advisor to the Company in connection with the
proposed Merger and will receive a fee for our services, a major portion of
which is contingent upon the consummation of the Merger. In the ordinary course
of our business, we may actively trade the debt and equity securities of the
Company for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
Our opinion addresses only the fairness from a financial point of view to
the stockholders of the Company other than the Principal Stockholder of the Cash
Consideration to be received by such stockholders pursuant to the Merger. We do
not express any opinion as to the fairness of the Cash and Equity Consideration
to be received by the Principal Stockholder or any other stockholders pursuant
to the Merger, nor do we express any opinion as to the fairness of the aggregate
consideration to be paid by Newco pursuant to the Merger. Our opinion also does
not address the Company's underlying business decision to effect the
transactions contemplated by the Merger Agreement.
It is understood that this letter is solely for the benefit and use of the
Board of Directors of the Company in its consideration of the Merger and may not
be relied upon by any other person, and except for inclusion in its entirety in
a registration statement or proxy statement or both relating to the Merger, the
opinion may not be quoted, used or reproduced for any other purpose without our
prior written consent.* This opinion does not constitute a recommendation to any
stockholder which respect to how such holder should vote with respect to the
Merger, or with respect to whether such holder should elect to receive the Cash
and Equity Consideration or the Cash Consideration pursuant to the Merger, and
should not be relied upon by any stockholder as such.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that as of the date hereof,
the Cash Consideration to be received by the stockholders of the Company, other
than the Principal Stockholder, pursuant to the Merger Agreement is fair to such
stockholders from a financial point of view.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
- ---------------
* As described on page 29 of the proxy statement relating to the merger, "The
letter agreement, dated as of July 8, 1997, pursuant to which Wasserstein
Perella was retained by the Company (the "Letter Agreement"), and the
Wasserstein Perella opinion state that the fairness opinion rendered by
Wasserstein Perella to the Company is solely for the benefit and use of the
Board of Directors of the Company and may not be relied upon by any other
person. It is Wasserstein Perella's position that its duties in connection
with its fairness opinion are solely to the Company, and that it has no legal
responsibility to any other persons, including the Company's stockholders,
under New York state law, the governing law of the Letter Agreement.
Wasserstein Perella intends to assert the substance of the foregoing
disclaimer as a defense to any claims that might be brought against it by
stockholders with respect to its fairness opinion. However, since no New York
state court has definitively ruled on the availability to a financial adviser
of an express disclaimer as a defense to stockholder liability with respect to
its fairness opinion, this issue necessarily would have to be resolved by a
court of competent jurisdiction. In any event, the availability or
non-availability of such a defense will have no effect on Wasserstein
Perella's rights and responsibilities under the federal securities laws, or
the rights and responsibilities of the Board of Directors under governing
state law or under the federal securities laws."
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ANNEX D
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE RELATING TO THE RIGHTS
OF DISSENTING STOCKHOLDERS
262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholder entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the
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date the notice is given; provided that, if the notice is given on or after
the effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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<PAGE> 210
PROXY
AMSCAN HOLDINGS, INC.
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS
ON DECEMBER 17, 1997
The undersigned stockholder of Amscan Holdings, Inc. (the "Company") hereby
appoints Gerald C. Rittenberg, James M. Harrison and Frank A. Rosenberry, and
each of them individually, with full power of substitution, the proxy of the
undersigned, to vote all shares of Common Stock, par value $0.10 per share, of
the Company which the undersigned is entitled, in any capacity, to vote at the
Special Meeting of Stockholders to be held on December 17, 1997 and any and all
adjournments or postponements thereof (the "Special Meeting"), with all powers
the undersigned would possess if personally present, as follows:
1. To approve and adopt the Agreement and Plan of Merger, dated as of August 10,
1997 (the "Merger Agreement"), between the Company and Confetti Acquisition,
Inc., a Delaware corporation ("Acquisition") affiliated with GS Capital
Partners II, L.P. and certain other private investment funds managed by
Goldman, Sachs & Co., and to approve the transactions contemplated thereby,
including the merger of Acquisition with and into the Company, with the
Company as the surviving corporation in the merger (the "Merger").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, upon all matters incident to the conduct of the Special
Meeting and such other matters as may properly come before the Special
Meeting or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE APPROVAL AND
ADOPTION
OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
MERGER.
(continued, and to be signed, on other side)
<PAGE> 211
This proxy, if properly executed and returned, will be voted in accordance
with the instructions appearing on the proxy and at the discretion of the proxy
holders as to any other matters that may properly come before the Special
Meeting. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, THIS PROXY WILL BE VOTED FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND AT THE DISCRETION OF THE PROXY
HOLDERS AS TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE SPECIAL
MEETING.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING
AND THE PROXY STATEMENT/PROSPECTUS DATED NOVEMBER 14, 1997, RELATING TO THE
SPECIAL MEETING.
PLEASE SIGN, DATE, AND MAIL THIS PROXY PROMPTLY IN THE RETURN ENVELOPE
whether or not you expect to attend the Special Meeting. You may nevertheless
vote in person if you do attend.
Date
---------------------------------------
---------------------------------------
---------------------------------------
Signature(s)
Note: Please sign this proxy exactly as
name appears hereon. If shares are held
as joint tenants, both joint tenants
should sign. Attorneys-in-fact,
executors, administrators, trustees,
guardians, corporation officers or
others signing in a representative
capacity should indicate the capacity
in which they are signing.
<PAGE> 212
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
in such capacity at another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that such person's conduct was
unlawful.
Section 145 of the DGCL also provides that a corporation may indemnify any
person who was or is a party or threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted under similar
standards, except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145 of the DGCL also provides that to the extent that a director,
officer, employee or agent of a corporation is successful on the merits or
otherwise in the defense of any action referred to above, or in defense of any
claim, issue or matter therein, the corporation must indemnify such person
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
In accordance with Section 145 of the DGCL, the Registrant's By-laws
provide that the Registrant will indemnify, to the maximum extent permitted by
applicable law, any person who was or is a party, or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, including any action
by or in the right of the Registrant to procure a judgment in its favor, by
reason of the fact that such person is or was a director, officer, employee or
agent of the Registrant or is or was serving at the request of the Registrant as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.
The Registrant's By-laws also provide that expenses incurred by an officer
or director in defending an action, suit or proceeding will be paid by the
Registrant in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person seeking
indemnification to repay such amount in the event that it shall be ultimately
determined that such person is not entitled to be indemnified by the Registrant
by law or pursuant to the Registrant's By-laws. The Registrant's By-laws define
the term "expenses" to include, without limitation, costs of and expenses
incurred in connection with or in preparation for litigation, attorneys' fees,
judgments, fines, penalties, amounts paid in settlement, excise taxes in respect
of any employee benefit plan of the Registrant, and interest on any of the
foregoing.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of a corporation shall not be
personally liable to the corporation or its stockholders for monetary
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<PAGE> 213
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the directors' duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL (regarding certain illegal distributions) or (iv) for any transaction
from which the director derived an improper personal benefit. The Registrant's
Certificate of Incorporation provides that the personal liability of the
Registrant's directors to the Registrant or any of its stockholders for monetary
damages for breach of fiduciary duty by such director as a director is limited
to the fullest extent permitted by Delaware law.
The Registrant also maintains directors' and officers' liability insurance
covering certain liabilities that may be incurred by directors and officers of
the Registrant in the performance of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, dated as of August 10, 1997, between Confetti
Acquisition, Inc. and Amscan Holdings, Inc. (included as Annex A to the Proxy
Statement/Prospectus).
2.2 -- Voting Agreement, dated as of August 10, 1997, among Confetti Acquisition, Inc., the
Estate of John A. Svenningsen and Christine Svenningsen (included as Annex B to the
Proxy Statement/Prospectus).
2.3 -- Form of Stockholders Agreement to be entered into among Amscan Holdings, Inc., GS
Capital Partners II, L.P., GS Capital Partners II Offshore, L.P., Goldman, Sachs &
Co. Verwaltungs GmbH and each of the individuals and the Estate of John A.
Svenningsen listed on Schedule I thereto.
3.1 -- Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit
3(a) to the Registrant's Registration Statement on Form S-1 (Registration No.
333-14107)).
3.2 -- By-laws of the Registrant (incorporated by reference to Exhibit 3(b) to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-14107)).
5 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality of the
securities being registered.
8 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to certain tax matters.
10.1 -- Credit Agreement among Amscan Inc., Kookaburra USA Ltd., Deco Paper Products, Inc.,
Trisar, Inc., the banks signatory thereto and The Chase Manhattan Bank N.A., dated
as of September 20, 1995 (incorporated by reference to Exhibit 4(a) to Amendment No.
1 to the Registrant's Registration Statement on Form S-1 (Registration No.
333-14107)).
10.2 -- Amendment No. 1 to Credit Agreement among Amscan Holdings, Inc., Amscan Inc., Trisar
Inc., the banks signatory thereto and The Chase Manhattan Bank, dated as of November
14, 1996 (incorporated by reference to Exhibit 4(b) to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-14107)).
10.3 -- Amendment No. 2 to Credit Agreement among Amscan Holdings, Inc., Amscan Inc., Trisar
Inc., the banks signatory thereto and The Chase Manhattan Bank, dated as of December
11, 1996 (incorporated by reference to Exhibit 4(c) to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-14107)).
10.4 -- Employment Agreement by and between Amscan Holdings, Inc. and John A. Svenningsen,
dated November 1, 1996 (incorporated by reference to Amendment No. 1 to Exhibit
10(a) to the Registration's Registration Statement on Form S-1 (Registration No.
333-14107)).
10.5 -- Employment Agreement by and between Amscan Holdings, Inc. and Gerald C. Rittenberg,
dated October 9, 1996 (incorporated by reference to Exhibit 10(b) to Amendment No. 1
to the Registrant's Registration Statement on Form S-1 (Registration No.
333-14107)).
</TABLE>
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<PAGE> 214
<TABLE>
<C> <C> <S>
10.6 -- Stock Agreement among Gerald C. Rittenberg, John A. Svenningsen and Amscan Inc.,
dated October 9, 1996 (incorporated by reference to Exhibit 10(c) to Amendment No. 1
to the Registrant's Registration Statement on Form S-1 (Registration No.
333-14107)).
10.7 -- Employment Agreement by and between Amscan Inc. and William Wilkey, dated as of
October 4, 1996 (incorporated by reference to Exhibit 10(e) to Amendment No. 1 to
the Registrant's Registration Statement on Form S-1 (Registration No. 333-14107)).
10.8 -- Employment Agreement between Amscan Holdings, Inc. and James M. Harrison, dated as
of February 1, 1997 (incorporated by reference to Exhibit 10(e) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.9 -- 1996 Stock Option Plan for Key Employees (incorporated by reference to Exhibit 10(h)
to Amendment No. 2 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-14107)).
10.10 -- Lease between ACP East LLC and Amscan Inc., dated as of December 1, 1995, as amended
(incorporated by reference to Exhibit 10(i) to Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-14107)).
10.11 -- Lease between John Anders Svenningsen and Amscan Inc., dated March 1, 1995, as
modified and amended (incorporated by reference to Exhibit 10(j) to Amendment No. 1
to the Registrant's Registration Statement on Form S-1 (Registration No.
333-14107)).
10.12 -- Lease between John Anders Svenningsen and Amscan Inc., dated November 9, 1995, as
amended (incorporated by reference to Exhibit 10(k) to Amendment No. 1 to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-14107)).
10.13 -- Tax Indemnification Agreement between Amscan Holdings, Inc. and John A. Svenningsen,
dated as of December 18, 1996 (incorporated by reference to Exhibit 10(j) to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996).
10.14 -- The MetLife Capital Corporation Master Lease Purchase Agreement between MetLife
Capital Corporation and Amscan Inc., Deco Paper Products, Inc., Kookaburra USA Ltd.,
and Trisar, Inc., dated November 21, 1991, as amended (incorporated by reference to
Exhibit 10(n) to Amendment No. 2 to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-14107)).
10.15 -- Form of Indemnification Agreement between Amscan Holdings, Inc. and each of the
directors of Amscan Holdings, Inc. (incorporated by reference to Exhibit 10(o) to
Amendment No. 2 to the Registrant's Registration Statement on Form S-1 (Registration
No. 333-14107)).
10.16 -- The Metlife Capital Corporation Master Lease Purchase Agreement between Metlife
Capital Corporation and Amscan Inc., Deco Paper Products, Inc., Kookaburra USA Ltd.,
and Trisar, Inc., dated November 21, 1995, as amended (incorporated by reference to
Exhibit 10(n) to Amendment No. 2 to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-14107)).
10.17 -- Tax Indemnification Agreement, dated as of August 10, 1997, between the Registrant,
Christine Svenningsen and the Estate of John A. Svenningsen (included as Schedule I
to Annex B to the Proxy Statement/Prospectus).
12 -- Statement re Computation of Ratios.
21 -- Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to Amendment
No. 1 to the Registrant's Registration Statement on Form S-1 (Registration No.
333-14107)).
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5).
23.3 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 8).
24.1 -- Power of Attorney (included in the signature page of this Registration Statement).
</TABLE>
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<PAGE> 215
<TABLE>
<C> <C> <S>
99.1 -- Opinion of Wasserstein Perella & Co., Inc. (included as Annex C to the Proxy
Statement/Prospectus).
99.2 -- Form of Election to be used in connection with the Merger.
99.3 -- Consent of Wasserstein Perella & Co., Inc.
99.4 -- Consent of Terence M. O'Toole.
99.5 -- Consent of Sanjeev Mehra.
99.6 -- Consent of Joseph P. DiSabato.
</TABLE>
(b) Financial Statement Schedules
See the Schedule of Valuation and Qualifying Accounts included on page F-21
of the Proxy Statement/Prospectus.
(c) A copy of opinion of Wasserstein Perella & Co., Inc. has been filed as
exhibit 99.1 hereto.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such posteffective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed pursuant
to the immediately preceding undertaking, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is
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<PAGE> 216
used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement throughout the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 217
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on November 14, 1997.
AMSCAN HOLDINGS, INC.
(Registrant)
By: /s/ GERALD C. RITTENBERG
------------------------------------
Name: Gerald C. Rittenberg
Title: President and Acting Chairman
of the Board
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Gerald C. Rittenberg and James M. Harrison, and each of them, as their
attorneys-in-fact, with full power of substitution and resubstitution, for such
person and in such person's name, place and stead, in any and all capacities, to
execute one or more amendments (including post-effective amendments) to this
Registration Statement and to file any such amendment, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<C> <S> <C>
/s/ GERALD C. RITTENBERG President and Acting Chairman November 14, 1997
- ------------------------------------------ of the Board and a Director
Gerald C. Rittenberg (Principal Executive
Officer)
/s/ JAMES M. HARRISON Chief Financial Officer and November 14, 1997
- ------------------------------------------ Secretary (Principal
James M. Harrison Financial Officer)
/s/ MICHAEL A. CORREALE Corporate Controller November 14, 1997
- ------------------------------------------ (Principal Accounting
Michael A. Correale Officer)
/s/ ALLYN H. POWELL Director November 14, 1997
- ------------------------------------------
Allyn H. Powell
</TABLE>
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<PAGE> 218
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<C> <S> <C>
/s/ FRANK A. ROSENBERRY Director November 14, 1997
- ------------------------------------------
Frank A. Rosenberry
Director
- ------------------------------------------
John Tugwell
</TABLE>
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<PAGE> 219
INDEX TO EXHIBITS
<TABLE>
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, dated as of August 10,1997, between Confetti
Acquisition, Inc. and Amscan Holdings, Inc. (included as Annex A to the Proxy
Statement/Prospectus).
2.2 -- Voting Agreement, dated as of August 10, 1997, among Confetti Acquisition, Inc., the
Estate of John A. Svenningsen and Christine Svenningsen (included as Annex B to the
Proxy Statement/Prospectus).
2.3 -- Form of Stockholders Agreement to be entered into among Amscan Holdings, Inc., GS
Capital Partners II, L.P., GS Capital Partners II Offshore, L.P., Goldman, Sachs &
Co. Verwaltungs GmbH and each of the individuals and the Estate of John A.
Svenningsen listed on Schedule I thereto.
3.1 -- Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit
3(a) to the Registrant's Registration Statement on Form S-1 (Registration No.
333-14107)).
3.2 -- By-laws of the Registrant (incorporated by reference to Exhibit 3(b) to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-14107)).
5 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality of the
securities being registered.
8 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to certain tax matters.
10.1 -- Credit Agreement among Amscan Inc., Kookaburra USA Ltd., Deco Paper Products, Inc.,
Trisar, Inc., the banks signatory thereto and The Chase Manhattan Bank N.A., dated
as of September 20, 1995 (incorporated by reference to Exhibit 4(a) to Amendment No.
1 to the Registrant's Registration Statement on Form S-1 (Registration No.
333-14107)).
10.2 -- Amendment No. 1 to Credit Agreement among Amscan Holdings, Inc., Amscan Inc., Trisar
Inc., the banks signatory thereto and The Chase Manhattan Bank, dated as of November
14, 1996 (incorporated by reference to Exhibit 4(b) to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-14107)).
10.3 -- Amendment No. 2 to Credit Agreement among Amscan Holdings, Inc., Amscan Inc., Trisar
Inc., the banks signatory thereto and The Chase Manhattan Bank, dated as of December
11, 1996 (incorporated by reference to Exhibit 4(c) to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-14107)).
10.4 -- Employment Agreement by and between Amscan Holdings, Inc. and John A. Svenningsen,
dated November 1, 1996 (incorporated by reference to Amendment No. 1 to Exhibit
10(a) to the Registration's Registration Statement on Form S-1 (Registration No.
333-14107)).
10.5 -- Employment Agreement by and between Amscan Holdings, Inc. and Gerald C. Rittenberg,
dated October 9, 1996 (incorporated by reference to Exhibit 10(b) to Amendment No. 1
to the Registrant's Registration Statement on Form S-1 (Registration No.
333-14107)).
10.6 -- Stock Agreement among Gerald C. Rittenberg, John A. Svenningsen and Amscan Inc.,
dated October 9, 1996 (incorporated by reference to Exhibit 10(c) to Amendment No. 1
to the Registrant's Registration Statement on Form S-1 (Registration No.
333-14107)).
10.7 -- Employment Agreement by and between Amscan Inc. and William Wilkey, dated as of
October 4, 1996 (incorporated by reference to Exhibit 10(e) to Amendment No. 1 to
the Registrant's Registration Statement on Form S-1 (Registration No. 333-14107)).
10.8 -- Employment Agreement between Amscan Holdings, Inc. and James M. Harrison, dated as
of February 1, 1997 (incorporated by reference to Exhibit 10(e) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.9 -- 1996 Stock Option Plan for Key Employees (incorporated by reference to Exhibit 10(h)
to Amendment No. 2 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-14107)).
</TABLE>
<PAGE> 220
<TABLE>
<C> <C> <S>
10.10 -- Lease between ACP East LLC and Amscan Inc., dated as of December 1, 1995, as amended
(incorporated by reference to Exhibit 10(i) to Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-14107)).
10.11 -- Lease between John Anders Svenningsen and Amscan Inc., dated March 1, 1995, as
modified and amended (incorporated by reference to Exhibit 10(j) to Amendment No. 1
to the Registrant's Registration Statement on Form S-1 (Registration No.
333-14107)).
10.12 -- Lease between John Anders Svenningsen and Amscan Inc., dated November 9, 1995, as
amended (incorporated by reference to Exhibit 10(k) to Amendment No. 1 to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-14107)).
10.13 -- Tax Indemnification Agreement between Amscan Holdings, Inc. and John A. Svenningsen,
dated as of December 18, 1996 (incorporated by reference to Exhibit 10(j) to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996).
10.14 -- The MetLife Capital Corporation Master Lease Purchase Agreement between MetLife
Capital Corporation and Amscan Inc., Deco Paper Products, Inc., Kookaburra USA Ltd.,
and Trisar, Inc., dated November 21, 1991, as amended (incorporated by reference to
Exhibit 10(n) to Amendment No. 2 to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-14107)).
10.15 -- Form of Indemnification Agreement between Amscan Holdings, Inc. and each of the
directors of Amscan Holdings, Inc. (incorporated by reference to Exhibit 10(o) to
Amendment No. 2 to the Registrant's Registration Statement on Form S-1 (Registration
No. 333-14107)).
10.16 -- The Metlife Capital Corporation Master Lease Purchase Agreement between Metlife
Capital Corporation and Amscan Inc., Deco Paper Products, Inc., Kookaburra USA Ltd.,
and Trisar, Inc., dated November 21, 1995, as amended (incorporated by reference to
Exhibit 10(n) to Amendment No. 2 to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-14107)).
10.17 -- Tax Indemnification Agreement, dated as of August 10, 1997, between the Registrant,
Christine Svenningsen and the Estate of John A. Svenningsen (included as Schedule I
to Annex B to the Proxy Statement/Prospectus).
12 -- Statement re Computation of Ratios.
21 -- Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to Amendment
No. 1 to the Registrant's Registration Statement on Form S-1 (Registration No.
333-14107)).
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5).
23.3 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 8).
24.1 -- Power of Attorney (included in the signature page of this Registration Statement).
99.1 -- Opinion of Wasserstein Perella & Co., Inc. (included as Annex C to the Proxy
Statement/Prospectus).
99.2 -- Form of Election to be used in connection with the Merger.
99.3 -- Consent of Wasserstein Perella & Co., Inc.
99.4 -- Consent of Terence M. O'Toole.
99.5 -- Consent of Sanjeev Mehra.
99.6 -- Consent of Joseph P. DiSabato.
</TABLE>
<PAGE> 1
EXHIBIT 2.3
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of _______, 1997 (the "Agreement"), by
and among AMSCAN HOLDINGS, INC., a Delaware corporation ("Holdings"), GS
CAPITAL PARTNERS II, L.P., a Delaware limited partnership ("GSCP II"), GS
CAPITAL PARTNERS II OFFSHORE, L.P., a Cayman Islands exempt limited partnership
("GSCP II Offshore"), GOLDMAN, SACHS & CO. VERWALTUNGS GMBH, a corporation
recorded in the Commercial Register Frankfurt, as nominee for GS Capital
Partners II Germany C.L.P. ("GSCP II Germany" and, together with GSCP II and
GSCP II Offshore, "GSCP") and each of the individuals and the Estate of John A.
Svenningsen (the "Estate") listed on Schedule I hereto (collectively, including
the Estate, the "Management Investors"). References herein to Holdings shall
mean Holdings as the surviving corporation in the Merger (as defined below).
Employees, directors, consultants and certain other Persons (as defined below)
having significant business relationships with Holdings and its Affiliates (as
defined below) may be issued shares of Common Stock (as defined below) (or other
equity securities of Holdings) or securities convertible into or exchangeable
for Common Stock (or other equity securities of Holdings) subject to the terms
of this Agreement and, if so issued, Holdings, without the consent of any other
party hereto, may amend this Agreement to allow any such Person Holdings so
chooses to become an additional Management Investor hereunder, subject to such
Person becoming a signatory to this Agreement. The parties hereto (other than
Holdings) and any other Person who shall hereafter acquire shares of Common
Stock of Holdings or options to acquire Common Stock of Holdings pursuant to the
provisions of, and/or subject to the restrictions and rights set forth in, this
Agreement (including through participation in certain Holdings stock or option
plans) are sometimes hereinafter referred to individually as a "Stockholder" or
collectively as the "Stockholders."
<PAGE> 2
RECITALS
A. Holdings, as of the Effective Date (as defined herein), will have an
authorized capital stock consisting of __________ shares of Common Stock, par
value $0.10 per share (the "Common Stock"), each share of which is entitled to
one vote on all stockholder matters as more specifically provided in the amended
certificate of incorporation of Holdings (the "Amended Certificate"), and of
which __________ shares will be issued and outstanding as of the Effective Date.
As used in
<PAGE> 3
this Agreement, Common Stock shall include any shares of Restricted Stock (as
defined below) of Holdings granted to Management Investors; provided, however,
that to the extent the Transfer thereof is otherwise prohibited or restricted,
no rights to Transfer (as defined below), including pursuant to Section 2.4 or
Article III, shall be granted hereunder. In addition, Holdings will have
reserved, as of the Effective Date, _________ shares of Common Stock for
issuance pursuant to a Holdings 1997 Stock Incentive Plan (the "Stock Incentive
Plan").
B. An Agreement and Plan of Merger, dated August 10, 1997 (the "Merger
Agreement"), has been executed by and among Confetti Acquisition, Inc., a
Delaware corporation ("Confetti"), and Holdings, pursuant to which Confetti was
merged with and into Holdings (the "Merger") with Holdings as the surviving
corporation in the Merger.
C. In connection with the Merger, Confetti entered into employment
agreements with certain Management Investors (the "Employment Agreements") that
provide for, among other things, the investment by such Management Investors in
the Common Stock and the grant and/or rollover of Options to such Management
Investors. As of or immediately following the Effective Date, Holdings has
executed or shall execute and become a party to the Employment Agreements.
D. In connection with the Merger, Confetti entered into a Voting
Agreement, dated August 10, 1997 (the "Voting Agreement"), by and among
Confetti, the Estate and a certain individual.
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<PAGE> 4
E. The individual holdings of Common Stock of each Stockholder,
immediately after the closing of the transactions contemplated in the Merger
Agreement and the Employment Agreements (not assuming the exercise of any
Options) are as follows:
Number of Shares
of Common Stock
Name Held Upon Closing
GSCP II
GSCP II Offshore
GSCP II Germany
Gerald C. Rittenberg
James M. Harrison
William Wilkey
Diane D. Spaar
Katherine A. Kusnierz
The Estate of John A. Svenningsen
-------------------------- -----------
Total
F. The parties hereto desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of the Common Stock which the parties
hereto own or may hereafter acquire, and to provide for certain rights and
obligations in respect thereof as hereinafter provided.
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<PAGE> 5
Draft 8/10/97
NOW, THEREFORE, in consideration of the premises and of the terms and
conditions contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
ascribed to them below:
"Affected Holder" shall have the meaning ascribed to it in Section 5.10
hereof.
"Affiliate" of a Person shall mean a Person directly or indirectly
controlled by, controlling or under common control with such Person.
"Agreement" shall have the meaning ascribed to it in the Introduction
hereof.
"Amended Certificate" shall have the meaning ascribed to it in the
Recitals hereof.
"Buy-Out Note" shall mean an unsecured promissory note of Holdings, or
a direct or indirect subsidiary thereof, which shall have a stated maturity of 5
years, shall accrue interest at 7 percent per annum, shall be prepayable at the
option of Holdings or such subsidiary at any time, in whole or in part, at its
principal amount plus any accrued and unpaid interest, shall provide for the
reimbursement of reasonable expenses incurred by the holder to enforce the note
and shall accelerate upon the earlier of a Change of Control or the consummation
of an IPO.
"Change of Control" shall mean (1) the acquisition by any
<PAGE> 6
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act) other than GSCP and their Affiliates of a majority of the
outstanding voting stock of Holdings or (2) the sale of or other disposition
(other than by way of merger or consolidation) of all or substantially all of
the assets of Holdings and its subsidiaries taken as a whole to any Person or
group of Persons.
"Claims" shall mean losses, claims, damages or liabilities, joint or
several, actions or proceedings (whether commenced or threatened).
<PAGE> 7
"Common Stock" shall have the meaning ascribed to it in the Recitals
hereof.
"Confetti" shall have the meaning ascribed to it in the Recitals
hereof.
"Demand Registration" shall have the meaning ascribed to it in Section
3.1(b) hereof.
"Drag-Along Right" shall have the meaning ascribed to it in Section
2.5.1 hereof.
"Drag-Along Seller" shall have the meaning ascribed to it in Section
2.5.2 hereof.
"Effective Date" shall have the meaning ascribed to it in Section 5.1
hereof.
"Employment Agreements" shall have the meaning ascribed to it in the
Recitals hereof.
"Estate" shall have the meaning ascribed to it in the Introduction
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean fair value as reasonably determined by
Goldman Sachs in light of all circumstances including comparable recent bona
fide third party sales.
"Goldman Sachs" shall mean Goldman, Sachs & Co.
"GSCP", "GSCP II", "GSCP II Germany" and "GSCP II Offshore" shall have
the meanings ascribed to them in the Introduction hereof.
"Holdings" shall have the meaning ascribed to it in the Introduction
hereof.
"IPO" shall mean an underwritten initial public offering or public
offerings (on a cumulative basis) of shares of Common Stock pursuant to a
registration statement or registration statements under the Securities Act with
aggregate gross proceeds to Holdings of at least $50 million.
"Management Investors" shall have the meaning ascribed to it in the
Introduction hereof.
-2-
<PAGE> 8
The "Merger" shall have the meaning ascribed to it in the Recitals
hereof.
"Merger Agreement" shall have the meaning ascribed to it in the
Recitals hereof.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"New Cost Per Share" shall have the meaning ascribed to it in the
Employment Agreement, by and between James M. Harrison and Confetti, dated as of
August 10, 1997.
"Offer Shares" shall have the meaning ascribed to it in Section 2.4.1.
"Offeree Stockholders" shall have the meaning ascribed to it in Section
2.4.1.
"Options" shall mean options to purchase shares of Common Stock from
Holdings, whether granted pursuant to the Stock Incentive Plan or otherwise.
"Permitted Transferee" shall have the meaning ascribed to it in
Sections 2.3.3 and 2.3.4 hereof.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, unincorporated organization, government (or any department or
agency thereof) or other entity.
"Piggyback Notice" shall have the meaning ascribed to it in Section
3.1(a) hereof.
"Piggyback Registration" shall have the meaning ascribed to it in
Section 3.1(a) hereof.
"Proposed Transferee" means a Person or group as defined in Section
13(d)(3) of the Exchange Act, other than any Stockholders or their Affiliates
(whether any such Affiliate is such prior to or upon consummation of the
proposed Transfer, but not solely by virtue of becoming a party to this
Agreement), to whom Common Stock is proposed to be Transferred pursuant to the
terms of Section 2.4.3(a) or 2.5 of this Agreement.
-3-
<PAGE> 9
"Registrable Securities" shall mean the shares of Common Stock;
provided, however, as to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) such securities shall
have been sold pursuant to Rule 144 (or any successor provision) under the
Securities Act, (iii) such securities shall have been otherwise transferred and
new certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by Holdings, (iv) such securities shall have
ceased to be outstanding (and, in the case of shares of Common Stock underlying
options granted under the Stock Incentive Plan or underlying options or warrants
granted otherwise, such shares of Common Stock shall have ceased to be
outstanding after issuance pursuant to the exercise of such options or
warrants), or (v) in the case of shares of Common Stock held by a Management
Investor, such securities shall have been transferred to any Person other than a
Management Investor or a Permitted Transferee.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance with Article III of this Agreement, including
without limitation, (ii) all SEC and stock exchange or the NASD registration and
filing fees, (iii) all fees and expenses of complying with securities or "blue
sky" laws (including reasonable fees and disbursements of counsel for the
underwriters in connection with "blue sky" qualifications of the Registrable
Securities), (iv) all printing, messenger and delivery expenses, (v) the fees
and disbursements of counsel for Holdings and of Holdings' independent public
accountants, including the expenses of any special audits and/ or "cold comfort"
letters required by or incident to such performance and compliance, (vi) the
reasonable fees and disbursements of one counsel retained by the Stockholders
(if GSCP is one of the selling Stockholders, such counsel to be selected by
GSCP) as a group in connection with each such registration, (vii) any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities and the reasonable fees and expenses of any special experts retained
in connection with the requested registration, including any fee payable to a
qualified independent underwriter within the meaning of the rules of the NASD,
but excluding underwriting discounts and commissions and transfer taxes, if any,
(viii) internal expenses of Holdings (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties) and (ix) securities acts liability insurance (if Holdings
elects to obtain such insurance).
-4-
<PAGE> 10
"Restricted Stock" shall have the meaning ascribed to it in the
Employment Agreements.
"Rule 144" shall mean Rule 144 under the Securities Act.
"Sale Notice" shall have the meaning ascribed to it is Section 2.4.1.
"SEC" shall mean the Securities and Exchange Commission.
"Section 3.1 Sale Number" shall have the meaning ascribed to it in
Section 3.1(d) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stock Incentive Plan" shall have the meaning ascribed to it in the
Recitals hereof.
"Subsidiary Dividend" shall have the meaning ascribed to it in Section
4.1 hereof.
"Tag-Along Right" shall have the meaning ascribed to it in Section
2.4.3(a) hereof.
"Tag-Along Seller" shall have the meaning ascribed to it in Section
2.4.3(b) hereof.
"Tag-Along Shares" shall have the meaning ascribed to it in Section
2.4.2 hereof.
"Transfer" shall mean to sell, assign, pledge or encumber or otherwise
transfer, directly or indirectly, whether or not for consideration.
"Transferee" shall mean any Person to whom a Transfer is made,
regardless of the method of Transfer.
"Transferor" shall mean any Person by whom a Transfer is made,
regardless of the method of Transfer.
"Violation" shall have the meaning ascribed to it in Section 3.3(a)
hereof.
"Voting Agreement" shall have the meaning ascribed to it in the
Recitals hereof.
2.
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<PAGE> 11
ARTICLE II
RESTRICTIONS ON TRANSFERS OF STOCK
2.1 General Prohibition on Transfers.
(a) Prohibition on Transfers Generally. No Management Investor shall,
at any time prior to an IPO, Transfer any shares of Common Stock, unless such
Transfer is made in accordance with Section 2.3, 2.4 or 2.5 or pursuant to a
Piggyback Registration, and any Transfer by any Management Investor of any
shares of Common Stock owned as of the date hereof or hereafter acquired not in
accordance with such provisions shall be null and void.
(b) Recordation. Holdings shall not record upon its books any Transfer
of shares of Common Stock held or owned by any of the Management Investors to
any other Person except Transfers in accordance with this Agreement.
(c) Obligations of Transferees. No Transfer of shares of Common Stock
by a Management Investor otherwise permitted pursuant to this Agreement (other
than pursuant to a Piggyback Registration or pursuant to a Tag-Along Right or
Drag-Along Right (each as defined herein)) shall be effective unless (x) the
Transferee (including a Permitted Transferee pursuant to Section 2.3) shall have
executed an appropriate document in form and substance reasonably satisfactory
to Holdings confirming that (i) the Transferee takes such shares subject to all
the terms and conditions of this Agreement to the same extent as its Transferor
was bound by and entitled to the benefits of such provisions and (ii) the shares
shall bear legends, substantially in the forms required by Section 2.6, and (y)
such document shall have been delivered to and approved (as described above) by
Holdings prior to such Transferee's acquisition of shares of Common Stock.
(d) Transfers to Competitors. Notwithstanding anything to the contrary
in this Agreement, no Management Investor shall, at any time, directly or
indirectly, Transfer any shares of Common Stock to any Person who is a
competitor of Holdings or to any Affiliate of such a competitor (other than
Transfers to Holdings and its Affiliates), unless such Transfer (i) is made in
connection with the exercise of a Tag-Along Right pursuant to Section 2.4 or in
connection with the exercise of a Drag-Along Right pursuant to Section 2.5, in
which event such sale may be effected only in accordance with such Section 2.4
or Section 2.5, as applicable, or (ii) is made in accordance with the terms of
this Agreement and is made pursuant to a widely distributed, underwritten public
offering registered
-6-
<PAGE> 12
under the Securities Act (or an underwritten offering pursuant to the exercise
of such Management Investor's piggyback registration rights pursuant to Section
3.1(a) hereof) or pursuant to a sale effected through an open market,
nondirected broker's transaction pursuant to Rule 144 in which the seller does
not know that the buyer is a competitor. For purposes of this provision, the
good faith determination of a majority of the entire Board that a proposed
Transferee is a "competitor," made within 30 days of written notice to the Board
of the proposed Transfer, shall in all respects be conclusive.
2.2 Compliance with Securities Laws. No Management Investor shall
Transfer any shares of Common Stock unless the Transfer is made in accordance
with the terms of this Agreement and (i) the Transfer is pursuant to an
effective registration statement under the Securities Act and in compliance with
any other applicable federal securities laws and state securities or "blue sky"
laws or (ii) such Management Investor shall have furnished Holdings with an
opinion of counsel, if reasonably requested by Holdings, which opinion and
counsel shall be reasonably satisfactory to Holdings, to the effect that no such
registration is required because of the availability of an exemption from
registration under the Securities Act and under any applicable state securities
or "blue sky" laws and that the Transfer otherwise complies with this Agreement
and any other applicable federal securities laws and state securities or "blue
sky" laws.
2.3 Permitted Transfers.
2.3.1 GSCP Transfers. (a) GSCP and any Affiliate of GSCP shall be free
to Transfer shares of Common Stock to any Person, in whole at any time, or in
part from time to time; provided, however, that if such Person is not Affiliate
of GSCP, such Transfer shall be subject to Section 2.4 and Section 2.5 hereof.
In any Transfer made pursuant to the foregoing to an Affiliate of GSCP, the
Transferee shall agree, in connection with such Transfer, for the benefit of
Holdings, that such Transferee will Transfer back to the Transferor or another
continuing Affiliate of GSCP (that will be similarly bound by this sentence) any
shares of Common Stock so Transferred, if the Transferee at any time is no
longer an Affiliate of GSCP.
(b) No Transfer of shares of Common Stock by GSCP or an Affiliate of
GSCP otherwise permitted pursuant to this Section 2.3.1 shall be effective
unless the Transferee (whether or not an Affiliate of GSCP) shall have executed
an appropriate document in form and substance reasonably satisfactory to
Holdings confirming that the Transferee takes such shares subject to all the
terms and conditions of this Agreement to the same
-7-
<PAGE> 13
extent as its Transferor was bound by and entitled to the benefits of such
provisions.
2.3.2 Management Investors. (a) The restrictions contained in Sections
2.1(a) of this Agreement with respect to Transfers by Management Investors
(other than the Estate) of shares of Common Stock shall not apply to any
Transfer by a Management Investor (other than the Estate): (i) to or among such
Management Investor's spouse, children, grandchildren or other living
descendants, or to a trust or family partnership of which there are no principal
(i.e., corpus) beneficiaries or partners other than the grantor or one or more
of such Management Investor, spouse or described relatives, and provided, in the
case of a trust, that the existing beneficiaries and/or trustee(s) and/or
grantor(s) of such trust have the power to act with respect to the trust's
assets without court approval and, in the case of a family partnership, that the
partners thereof have the power to act with respect to the partnership's assets
without court approval and the partnership is not permitted to (x) distribute
assets to Persons who are not among the relatives listed above or (y) have
partners who are not among the relatives listed above, and, in any case, all the
partners agree, for the benefit of Holdings and GSCP, not to amend such
provisions; (ii) to a legal representative of such Management Investor in the
event such Management Investor becomes mentally incompetent or to such
Management Investor's personal representative following the death of such
Management Investor; (iii) with the prior written approval of Holdings, which
approval may be granted or withheld by the Board of Directors of Holdings in its
sole and absolute discretion; and (iv) pursuant to any pledge by a Management
Investor to Holdings or an Affiliate thereof for money borrowed to purchase
shares of Common Stock pursuant to the Employment Agreements, if applicable.
(b) The restrictions contained in Section 2.1(a) of this Agreement with
respect to Transfers by the Estate shall not apply to any of the following
Transfers by the Estate: (i) to a qualified terminable interest property trust
in accordance with the terms of the will of the decedent of the Estate or (ii)
with the prior written approval of Holdings which approval may be granted or
withheld by the Board of Directors of Holdings in its sole and absolute
discretion.
2.3.3 Permitted Transferees. Transferees to whom Transfers are
permitted pursuant to clauses (i), (ii) and (iii) of Section 2.3.2(a) and
clauses (i) and (ii) of Section 2.3.2(b) are referred to herein as "Permitted
Transferees." Any such permitted Transfer shall be subject to the terms of this
Agreement, including compliance with Section 2.1(c).
-8-
<PAGE> 14
2.3.4 Transfer by Permitted Transferees. The restrictions contained in
Section 2.1(a) of this Agreement with respect to Transfers by Management
Investors of shares of Common Stock shall not apply to any Transfer by a
Permitted Transferee of a Management Investor to such Management Investor or to
another Permitted Transferee of such Stockholder, and any such Transferee shall
also be a "Permitted Transferee," subject to the provisions of Section 2.3.3.
2.3.5 Other Transfer Restrictions. The restrictions contained in
Sections 2.1(a), 2.4 and 2.5 hereof and the provisions regarding Permitted
Transferees contained in this Section 2.3 shall be in addition to and not in
lieu or limitation of any restrictions on the ownership or Transfer of shares of
Common Stock (including with respect to any Restricted Stock) contained in any
Employment Agreement or any analogous provision of any employment, compensation
or benefit agreement or arrangement or other agreement between Confetti or
Holdings and any Stockholder; provided, however, that upon the termination of
any such Employment Agreement or other such agreement or arrangement or lapsing
of such restrictions, the restrictions and provisions contained herein shall
continue in full force and effect pursuant to this Agreement.
2.4 Tag-Along Rights.
2.4.1 Sale Notice. If GSCP proposes to sell any of the Common Stock
owned by it, other than (a) to an Affiliate of GSCP, (b) pursuant to the
exercise of a Drag-Along Right (as defined below) pursuant to Section 2.5 of
this Agreement, (c) pursuant to a Demand Registration (which affords piggyback
registration rights pursuant to Section 3.1) or Piggyback Registration, or (d)
following an IPO, sales effected through open market, nondirected broker's
transactions pursuant to Rule 144, then GSCP shall first give written notice
(the "Sale Notice") to Holdings and to each of the Management Investors (such
Management Investors, being referred to herein as the "Offeree Stockholders"),
stating that GSCP desires to make such sale, referring to Section 2.4 of this
Agreement, specifying the number of shares of Common Stock proposed to be sold
by GSCP pursuant to the offer (the "Offer Shares"), and specifying the price,
the form of consideration and the material terms pursuant to which such sale is
proposed to be made.
2.4.2 Tag-Along Election. Within seven days of the date of receipt of
the Sale Notice, each Offeree Stockholder, other than GSCP, shall deliver to
GSCP and to Holdings a written notice stating whether the Offeree Stockholder
elects to sell a pro rata portion of its Common Stock (equal to (A) the total
number of shares of Common Stock owned by such Offeree
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Stockholder, plus the total number of shares of Common Stock then issuable upon
exercise of vested Options then exercisable by such Offeree Stockholder,
multiplied by (B) a fraction, (i) the numerator of which is the number of Offer
Shares and (ii) the denominator of which is the total number of shares of Common
Stock held by GSCP plus the total number of shares of Common Stock then issuable
upon exercise or conversion of any convertible securities, if applicable, then
exercisable or convertible by GSCP) to such Proposed Transferee on the same
terms and conditions as GSCP (with respect to each Offeree Stockholder, its
"Tag-Along Shares"). An election pursuant to the first sentence of this Section
2.4.2 shall constitute an irrevocable commitment by the Offeree Stockholder
making such election to sell such Common Stock to the Proposed Transferee if the
sale of Offer Shares to the Proposed Transferee occurs on the terms contemplated
hereby.
2.4.3 Seller's Rights to Transfer.
(a) Third Party Sale; Tag-Along Buyer. A sale to a Proposed Transferee
shall only be consummated if the Proposed Transferee shall purchase, within 120
days of the date of the Sale Notice, concurrently with and on the same terms and
conditions and at the same price as the Offer Shares, all of each Offeree
Stockholder's Tag-Along Shares with respect to such sale, in accordance with
their elections pursuant to Section 2.4.2 (the "Tag-Along Right").
(b) Sale Agreement. Each Offeree Stockholder electing to sell Tag-Along
Shares (a "Tag-Along Seller") agrees to cooperate in consummating such a sale,
including, without limitation, by becoming a party to the sales agreement and
all other appropriate related agreements (other than any amendment to such
Tag-Along Seller's Employment Agreement, if any), delivering at the consummation
of such sale, stock certificates and other instruments for such Common Stock
duly endorsed for transfer, free and clear of all liens and encumbrances, and
voting or consenting in favor of such transaction (to the extent a vote or
consent is required) and taking any other necessary or appropriate action in
furtherance thereof, including the execution and delivery of any other
appropriate agreements, certificates, instruments and other documents. The
foregoing notwithstanding, in connection with such sale, a Tag-Along Seller, as
such, shall not be required to make any representations and warranties with
respect to Holdings or Holdings' business or with respect to any other seller.
In addition, each Tag-Along Seller shall be severally responsible for its
proportionate share of the expenses of sale incurred by the sellers in
connection with such sale and the obligations and liabilities incurred by the
sellers in connection with such
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sale. Such obligations and liabilities shall include (to the extent such
obligations are incurred) obligations and liabilities for indemnification
(including for (x) breaches of representations and warranties made in connection
with such sale by Holdings or any other seller with respect to Holdings or
Holdings' business, (y) breaches of covenants and (z) other matters), and shall
also include amounts paid into escrow or subject to holdbacks, and amounts
subject to post-closing purchase price adjustments. The foregoing
notwithstanding, (1) without the written consent of a Tag-Along Seller, the
amount of such obligations and liabilities for which such Tag-Along Seller shall
be responsible shall not exceed the gross proceeds received by such Tag-Along
Seller in such sale and (2) a Tag-Along Seller shall not be responsible for the
fraud of any other seller or for any indemnification obligations and liabilities
for breaches of representations and warranties made by any other seller with
respect to such other seller's (i) ownership of and title to shares of capital
stock of Holdings, (ii) organization, (iii) authority and (iv) conflicts and
consents.
(c) No Liability. Notwithstanding any other provision contained in this
Section 2.4.3, there shall be no liability on the part of Holdings or GSCP in
the event that the sale pursuant to this Section 2.4.3 is not consummated for
any reason whatsoever. The decision whether to effect a Transfer pursuant to
this Section 2.4.3 shall be in the sole and absolute discretion of GSCP.
2.5 Drag-Along Right.
2.5.1 Exercise. If GSCP proposes to make a bona fide sale of all of its
shares of Common Stock to a Proposed Transferee, pursuant to a stock sale,
merger, business combination, recapitalization, consolidation, reorganization,
restructuring or similar transaction, GSCP shall have the right (a "Drag-Along
Right"), exercisable upon fifteen (15) days' prior written notice to the other
Stockholders, to require the other Stockholders to sell all of their shares of
Common Stock and, at the election of GSCP, Options (whether vested or unvested)
to the Proposed Transferee on the same terms and conditions and at the same
price (in the case of Options the purchase price of each Option shall be equal
to the purchase price attributable to the number of shares of Common Stock
issuable upon exercise of such Option less the exercise price thereof) as GSCP.
2.5.2 Sale Agreement. Each Stockholder selling shares of Common Stock
pursuant to a transaction contemplated by this Section 2.5 (a "Drag-Along
Seller") agrees to cooperate in consummating such a sale, including, without
limitation, by
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becoming a party to the sales agreement and all other appropriate related
agreements (other than any amendment to such Drag-Along Seller's Employment
Agreement, if any), delivering at the consummation of such sale, stock
certificates and other instruments for such shares of Common Stock duly endorsed
for transfer, free and clear of all liens and encumbrances, and voting or
consenting in favor of such transaction (to the extent a vote or consent is
required) and taking any other necessary or appropriate action in furtherance
thereof, including the execution and delivery of any other appropriate
agreements, certificates, instruments and other documents. The foregoing
notwithstanding, in connection with such sale, a Drag-Along Seller, as such,
shall not be required to make any representations and warranties with respect to
Holdings or Holdings' business or with respect to any other seller. In addition,
each Drag-Along Seller shall be severally responsible for its proportionate
share of the expenses of sale incurred by GSCP in connection with such sale and
the obligations and liabilities incurred by the seller in connection with such
sale. Such obligations and liabilities shall include (to the extent such
obligations are incurred) obligations and liabilities for indemnification
(including for (x) breaches of representations and warranties made in connection
with such sale by Holdings or any other seller with respect to Holdings or
Holdings' business, (y) breaches of covenants and (z) other matters), and shall
also include amounts paid into escrow or subject to hold-backs, and amounts
subject to post-closing purchase price adjustments. The foregoing
notwithstanding, (1) without the written consent of a Drag-Along Seller, the
amount of such obligations and liabilities for which such Drag-Along Seller
shall be responsible shall not exceed the gross proceeds received by such
Drag-Along Seller in such sale and (2) a Drag-Along Seller shall not be
responsible for the fraud of any other seller or any indemnification obligations
and liabilities for breaches of representations and warranties made by any other
seller with respect to such other seller's (i) ownership of and title to shares
of capital stock of Holdings, (ii) organization, (iii) authority and (iv)
conflicts and consents.
2.5.3 No Liability. Notwithstanding any other provision contained in
this Section 2.5, there shall be no liability on the part of Holdings or GSCP in
the event that the sale pursuant to this Section 2.5 is not consummated for any
reason whatsoever. The decision whether to effect a Transfer pursuant to this
Section 2.5 shall be in the sole and absolute discretion of GSCP.
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2.6 Additional Provisions Relating to Restrictions on Transfers.
2.6.1 Legends. Each of the Stockholders hereby agrees that each
outstanding certificate representing shares of Common Stock held or owned by
such Stockholder or its Transferee, including any certificate representing
shares of Common Stock acquired in accordance with the provisions of this
Agreement or the Employment Agreements and any certificates representing shares
of Common Stock issued upon exercise of the Options, in any case, subject to the
provisions of this Agreement and issued prior to the date when the applicable
restrictions are terminated pursuant to Section 2.6.3, shall bear endorsements
reading substantially as follows:
(a) The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under the
securities laws of any state and may not be transferred, sold or otherwise
disposed of except while such a registration is in effect or pursuant to an
exemption from registration under said Act and applicable state securities
laws.
(b) The securities represented by this certificate are subject to the
terms and conditions set forth in a Stockholders Agreement, dated as of
_________, 1997, copies of which may be obtained from the issuer or from
the holder of this security. No transfer of such securities will be made on
the books of the issuer unless accompanied by evidence of compliance with
the terms of such agreement.
Each outstanding certificate representing shares of Common Stock shall
also bear any legend required by the terms of the Employment Agreements or the
Stock Incentive Plan or as Holdings may otherwise deem appropriate.
2.6.2 Copy of Agreement. A copy of this Agreement shall be filed with
the corporate secretary of Holdings and kept with the records of Holdings and
shall be made available for inspection by any stockholder of Holdings at the
principal executive offices of Holdings.
2.6.3 Termination of Restrictions. The restriction referred to in the
endorsement required pursuant to Section 2.6.1(a) shall cease and terminate as
to any particular shares of Common Stock when, in the reasonable opinion of
counsel for Holdings, such restriction is no longer required in order to
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assure compliance with the Securities Act. Holdings or Holdings' counsel, at
their election, may request from any Stockholder a certificate or an opinion of
such Stockholder's counsel with respect to any relevant matters in connection
with the removal of the endorsement set forth in Section 2.6.1(a) from such
Stockholder's stock certificates, any such certificate or opinion of counsel to
be reasonably satisfactory to Holdings and its counsel. The restrictions
referred to in Section 2.6.1(b) shall cease and terminate as to any particular
shares of Common Stock when, in the reasonable opinion of counsel for Holdings,
the provisions of this Agreement are no longer applicable to such shares or this
Agreement shall have terminated in accordance with its terms. Any other
restrictions referred to in any other legends required pursuant to Section 2.6.1
shall cease and terminate when, in the reasonable opinion of counsel for
Holdings, such restrictions are no longer applicable. Whenever such restrictions
shall cease and terminate as to any shares of Common Stock, the Stockholder
holding such shares shall be entitled to receive from Holdings, without expense
(other than applicable transfer taxes, if any, if such unlegended shares are
being delivered and transferred to any Person other than the registered holder
thereof), new certificates for a like number of shares of Common Stock not
bearing the relevant legend(s) set forth or referred to in Section 2.6.1.
3.
ARTICLE III
REGISTRATION RIGHTS
3.1 Piggyback and Demand Registrations.
(a) Piggyback Registrations. If at any time Holdings proposes to
register for sale by Holdings under the Securities Act any of its equity
securities (other than a registration on Form S-4 or Form S-8, or any
successor or similar forms), or any shares of Common Stock held by GSCP
pursuant to Section 3.1(b), in a manner that would permit registration of
Registrable Securities for sale to the public under the Securities Act and
in an underwritten offering, Holdings will each such time promptly give
written notice to all Stockholders who beneficially own any Registrable
Securities of its intention to do so, of the registration form of the SEC
that has been selected by Holdings and of such holders' rights under this
Section 3.1 (the "Piggyback Notice"). Holdings will use its reasonable best
efforts to include, and to cause the underwriter or underwriters to
include, in the proposed offering, on the
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same terms and conditions as the securities of Holdings included in such
offering, all Registrable Securities that Holdings has been requested in
writing, within 15 calendar days after the Piggyback Notice is given, to
register by the Stockholders thereof (each such registration pursuant to this
Section 3.1(a), a "Piggyback Registration"); provided, however, that (i) if, at
any time after giving a Piggyback Notice and prior to the effective date of the
registration statement filed in connection with such registration, Holdings
shall determine for any reason not to register such equity securities (or, in
the case of a Demand Registration (as defined below), GSCP so determines),
Holdings may, at its election (or, in the case of a Demand Registration where
GSCP so determines, Holdings shall), give written notice of such determination
to all Stockholders who beneficially own any Registrable Securities and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such abandoned registration, and (ii) in case of a
determination by Holdings to delay registration of its equity securities (or, in
the case of a Demand Registration, GSCP so determines), Holdings shall be
permitted to (or, in the case of a Demand Registration where GSCP so determines,
Holdings shall) delay the registration of such Registrable Securities for the
same period as the delay in registering such other equity securities (provided
that clauses (i) and (ii) shall not relieve Holdings of its obligations under
Section 3.1(b)). In the case of any registration of Registrable Securities in an
underwritten offering pursuant to this Section 3.1(a), all Stockholders
proposing to distribute their securities pursuant to this Section 3.1(a) shall,
at the request of Holdings (or, in the case of a Demand Registration, GSCP),
enter into an agreement in customary form with the underwriter or underwriters
selected by Holdings (or, in the case of a Demand Registration, selected by
GSCP). Notwithstanding the foregoing, following an IPO, Holdings shall not be
obligated to effect registration of Registrable Securities for which Piggyback
Registration is requested by a Management Investor if, at the time of such
request, all such Registrable Securities are eligible for sale to the public by
the requesting Management Investor without registration under Rule 144 under the
Securities Act, with such sale not being limited by the volume restrictions
thereunder.
(b) Demand Registrations. Holdings, upon the reasonable request of
GSCP, shall, from time to time, use its reasonable best efforts to register
under the Securities Act any reasonable portion of Registrable Securities held
by GSCP (including, at the election of GSCP, in an underwritten offering) and
bear all expenses in connection with such offering in a manner consistent with
paragraph (c) below and shall enter into such other agreements in furtherance
thereof (including with
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underwriters selected by GSCP, including, in any case, Affiliates of GSCP as
lead underwriters, if requested by GSCP) (each such registration pursuant to
this Section 3.1(b), a "Demand Registration"), and Holdings shall provide
customary indemnifications in such instances (in a manner consistent with the
indemnification provisions of this Article III) to GSCP and any such
underwriters; provided, however, that Holdings shall not be obligated to effect
more than four Demand Registrations. A registration shall not count as a Demand
Registration unless and until the registration statement relating thereto has
been declared effective by the SEC and not withdrawn.
(c) Expenses. Holdings shall pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 3.1; provided, however, that each Stockholder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Stockholder's Registrable Securities pursuant to
a registration statement effected pursuant to this Section 3.1.
(d) Priority in Piggyback and Demand Registrations. If the managing
underwriter for a registration pursuant to this Section 3.1 shall advise
Holdings in writing that, in its opinion, the number of securities requested to
be included in such registration exceeds the number (the "Section 3.1 Sale
Number") that can be sold in an orderly manner in such offering within a price
range acceptable to Holdings (or, in the case of a Demand Registration, to
GSCP), Holdings shall include in such offering (i) first, all the securities
Holdings proposes to register for its own sale, and (ii) second, to the extent
that the securities Holdings proposes to register are less than the Section 3.1
Sale Number, all Registrable Securities requested to be included by all
Stockholders; provided, however, that if the number of such Registrable
Securities exceeds (x) the Section 3.1 Sale Number less (y) the number of
securities included pursuant to clause (i) hereof, then the number of such
Registrable Securities included in such registration shall be allocated pro rata
among all requesting Stockholders, on the basis of the relative number of shares
of such Registrable Securities each such Stockholder then holds. If there is any
reduction or exclusion of Registrable Securities pursuant to this Section 3.1(d)
in connection with a Demand Registration, such registration shall not be deemed
to be a Demand Registration for purposes of determining the maximum number of
Demand Registrations Holdings is obligated to effect pursuant to Section 3.1(b)
hereof.
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(e) Underwriting Requirements. In connection with any offering
involving any underwriting of securities in a Piggyback Registration, Holdings
shall not be required to include any Stockholder's Registrable Securities in
such underwriting unless such Stockholder accepts the terms of the underwriting
as agreed upon between Holdings and the underwriters in such quantities and on
such terms as set forth in Section 3.1(a) hereof, and such Management Investor
agrees to sell such Management Investor's securities on the basis provided
therein and completes and/or executes all questionnaires, indemnities, lock-ups,
underwriting agreements and other documents (including powers of attorney and
custody arrangements) required generally of all selling Stockholders, in each
case in customary form and substance, which are requested to be executed in
connection therewith.
3.2 Registration Procedures. If and whenever Holdings is required to
use its reasonable best efforts to effect or cause the registration of any
Registrable Securities under the Securities Act as provided in this Article III,
Holdings will, as soon as practicable:
(a) prepare and file with the SEC the requisite registration
statement with respect to such Registrable Securities and use its
reasonable best efforts to cause such registration statement to become
and remain effective;
(b) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for such period as Holdings shall deem appropriate and to
comply with the provisions of the Securities Act with respect to the
sale or other disposition of all securities covered by such
registration statement during such period;
(c) furnish to each seller of such Registrable Securities and each
underwriter such number of copies of such registration statement and of
each amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and
summary prospectus), in conformity with the requirements of the
Securities Act, and such other documents as such seller may reasonably
request;
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(d) promptly notify each Stockholder that holds Registrable
Securities covered by such registration statement, (i) when such
registration statement or any post-effective amendment or supplement
thereto becomes effective, (ii) of the issuance by the SEC or any state
securities authority of any stop order, injunction or other order or
requirement suspending the effectiveness of such registration statement
(and take all reasonable action to prevent the entry of such stop order
or to remove it if entered, or the initiation of any proceedings for
that purpose), or (iii) of the happening of any event as a result of
which the registration statement, as then in effect, the prospectus
related thereto or any document included therein by reference includes
an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made and promptly file such amendments and supplements which
may be required on account of such event and use its reasonable best
efforts to cause each such amendment and supplement to become
effective;
(e) promptly furnish counsel for each underwriter, if any, and for
the selling Stockholders of Registrable Securities copies of any
written request by the SEC or any state securities authority for
amendments or supplements to a registration statement and prospectus or
for additional information;
(f) use reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration statement at the
earliest possible time;
(g) use its best efforts to cause all such Registrable Securities
covered by such registration statement to be listed on the principal
securities exchange or authorized for quotation on NASDAQ on which
similar equity securities issued by Holdings are then listed or
authorized for quotation, or eligible for listing or quotation, if the
listing or authorization for quotation of such securities is then
permitted under the rules of such exchange or the NASD;
(h) enter into an underwriting agreement with the underwriter of
such offering in the form customary for such underwriter for similar
offerings, including such representations and warranties by Holdings,
provisions regarding the delivery of opinions of counsel for Holdings
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and accountants' letters, provisions regarding indemnification and
contribution, and such other terms and conditions as are at the time
customarily contained in such underwriter's underwriting agreements for
similar offerings (the sellers of Registrable Securities which are to
be distributed by such underwriter(s) may, at their option, require
that any or all of the representations and warranties by, and the other
agreements on the part of, Holdings to and for the benefit of such
underwriter(s) shall also be made to and for the benefit of such
sellers of Registrable Securities);
(i) make available for inspection by representatives of the
selling Stockholders who hold Registrable Securities and any
underwriters participating in any disposition pursuant hereto and any
counsel or accountant retained by such Stockholders or underwriters,
all relevant financial and other records, pertinent corporate documents
and properties of Holdings and cause the respective officers, directors
and employees of Holdings to supply all information reasonably
requested by any such representative, underwriter, counsel or
accountant in connection with a registration pursuant hereto; provided,
however, that, with respect to records, documents or information which
Holdings determines, in good faith, to be confidential and as to which
Holdings notifies such representatives, underwriters, counsel or
accountants in writing of such confidentiality, such representatives,
underwriters, counsel or accountants shall not disclose such records,
documents or information unless (i) the release of such records,
documents or information is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction, (ii) such records,
documents or information have previously been generally made available
to the public, or (iii) the disclosure of such records, documents or
information is necessary, in the written opinion of outside legal
counsel, to avoid or correct a material misstatement or omission in the
registration statement and then only after reasonable request has been
made to Holdings to make such disclosure and Holdings has denied such
request. Each selling Stockholder of such Registrable Securities agrees
that information obtained by it as a result of such inspections shall
be deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of Holdings or its Affiliates (or
for such Stockholder's business purposes or for any reason other than
in connection with a registration hereunder) unless and until such
information is made generally available (other than by such Stockholder
or where such Stockholder knows that such information became publicly
available as a
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result of a breach of any confidentiality arrangement) to the public.
Each selling Stockholder of such Registrable Securities further agrees
that it will, upon learning that disclosure of such records is sought,
give notice to Holdings and allow Holdings, at its expense, to
undertake appropriate action to prevent disclosure of the records
deemed confidential;
(j) permit any beneficial owner of Registrable Securities who, in
the sole judgment, exercised in good faith, of such holder, might be
deemed to be a controlling person of Holdings, to participate in the
preparation of such registration or comparable statement and to require
the insertion therein of material, furnished to Holdings in writing,
that in the judgment of such holder, as aforesaid, should be included;
and
(k) make reasonably available its employees and personnel and
otherwise provide reasonable assistance to the underwriters (taking
into account the needs of Holdings' businesses and the requirements of
the marketing process) in the marketing of Registrable Securities in
any underwritten offering.
Holdings may require each seller of Registrable Securities as to
which any registration is being effected to furnish Holdings such information
regarding such seller and the distribution of such securities as Holdings may
from time to time reasonably request in writing. Holdings shall not be required
to register or qualify any Registrable Securities covered by such registration
statement under any state securities, or "blue sky," laws of such jurisdictions
other than as it deems necessary in connection with the chosen method of
distribution or to take any other actions or do any other things other than
those it deems necessary or advisable to consummate such distribution, and
Holdings shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would not
otherwise be obligated to be so qualified, to subject itself to taxation in any
such jurisdiction or to consent to general service of process in any such
jurisdiction.
Each beneficial owner of Registrable Securities agrees that upon
receipt of any notice from Holdings of the happening of any event of the kind
described in clause (d) of this Section 3.2, such beneficial owner will
forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such
beneficial owner's receipt of the copies of the supplemented or amended
prospectus contemplated by clause (d) of
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this Section 3.2, and, if so directed by Holdings, such beneficial owner will
deliver to Holdings (at Holdings' expense) all copies, other than permanent file
copies then in such beneficial owner's possession, of the prospectus covering
such Registrable Securities that was in effect prior to such amendment or
supplement.
3.3 Indemnification.
(a) In the event of any registration of any Registrable Securities
pursuant to this Article III, Holdings will, and hereby does, indemnify and hold
harmless, to the fullest extent permitted by law, the seller of any Registrable
Securities covered by such registration statement, its directors, officers,
fiduciaries, employees and stockholders or general and limited partners (and the
directors, officers, fiduciaries, employees and stockholders or general and
limited partners thereof), each other Person who participates as an underwriter
or a qualified independent underwriter, if any, in the offering or sale of such
securities, each director, officer, fiduciary, employee and stockholder or
general and limited partner of such underwriter or qualified independent
underwriter, and each other Person (including any such Person's directors,
officers, fiduciaries, employees and stockholders or general and limited
partners), if any, who controls such seller or any such underwriter or qualified
independent underwriter, within the meaning of the Securities Act, against any
and all Claims in respect thereof and expenses (including reasonable fees and
expenses of counsel and any amounts paid in any settlement effected with
Holdings' consent, which consent shall not be unreasonably withheld or delayed)
to which each such indemnified party may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such Claims or expenses arise out
of or are based upon any of the following actual or alleged statements,
omissions or violations (each, a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement under which such securities were registered pursuant to this Agreement
under the Securities Act or the omission or alleged omission to state therein 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, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary, final or summary prospectus or any amendment
or supplement thereto, together with the documents incorporated by reference
therein, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to
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make the statements therein, in light of the circumstances under which they were
made, not misleading, or (iii) any violation by Holdings of any federal, state
or common law rule or regulation applicable to Holdings and relating to action
required of or inaction by Holdings in connection with any such registration,
and Holdings will reimburse any such indemnified party for any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such Claim as such expenses are incurred;
provided, that Holdings shall not be liable to any such indemnified party in any
such case to the extent such Claim or expense arises out of or is based upon any
Violation which occurs in reliance upon and in conformity with written
information furnished to Holdings or its representatives by or on behalf of such
indemnified party expressly stating that such information is for use therein.
(b) Each holder of Registrable Securities that are included in the
securities as to which any Demand Registration or Piggyback Registration is
being effected (and, if Holdings requires as a condition to including any
Registrable Securities in any registration statement filed in connection with
any Demand Registration or Piggyback Registration, any underwriter and qualified
independent underwriter, if any) shall, severally and not jointly, indemnify and
hold harmless (in the same manner and to the same extent as set forth in
paragraph (a) of this Section 3.3), to the extent permitted by law, Holdings,
its directors, officers, fiduciaries, employees and stockholders (and the
directors, officers, fiduciaries, employees and stockholders or general and
limited partners thereof) and each Person (including any such Person's
directors, officers, fiduciaries, employees and stockholders or general and
limited partners), if any, controlling Holdings within the meaning of the
Securities Act and all other prospective sellers and their directors, officers,
fiduciaries, employees and stockholders or general and limited partners and
respective controlling Persons (including any such Person's directors, officers,
fiduciaries, employees and stockholders or general and limited partners) against
any and all Claims and expenses (including reasonable fees and expenses of
counsel and any amounts paid in any settlement effected with the consent of the
indemnifying party, which consent shall not be unreasonably withheld or delayed)
to which each such indemnified party may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such Claims or expenses arise out
of or are based upon any Violation which occurs in reliance upon and in
conformity with written information furnished to Holdings or its representatives
by or on behalf of such holder or underwriter or qualified independent
underwriter, if any, expressly stating that such information is for use in
connection with any registration statement,
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preliminary, final or summary prospectus or amendment or supplement or document
incorporated by reference into any of the foregoing; provided, however, that the
aggregate amount which any such holder, underwriter or qualified independent
underwriter shall be required to pay pursuant to this Section 3.3(b) and
Sections 3.3(c) and (e) shall be limited to (x) in the case of any such holder,
the amount of the gross proceeds received by such holder upon the sale of the
Registrable Securities pursuant to the registration statement giving rise to
such claim and (y) in the case of any such underwriter or qualified independent
underwriter, the amount of the total sales price of the Registrable Securities
sold through or by it pursuant to the registration statement giving rise to such
claim.
(c) Indemnification similar to that specified in the preceding
paragraphs (a) and (b) of this Section 3.3 (with appropriate modifications)
shall be given by Holdings and each seller of Registrable Securities (and, if
Holdings requires as a condition to including any Registrable Securities in any
registration statement filed in connection with any Demand Registration or
Piggyback Registration, any underwriter and qualified independent underwriter,
if any) with respect to any required registration or other qualification of
securities under any state securities and "blue sky" laws.
(d) Any Person entitled to indemnification under this Agreement shall
notify promptly the indemnifying party in writing of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to this Section 3.3, but the failure of any indemnified party to
provide such notice shall not relieve the indemnifying party of its obligations
under the preceding paragraphs of this Section 3.3, except to the extent the
indemnifying party is prejudiced thereby and shall not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than under this Section 3.3. In case any action or proceeding is brought against
an indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, unless in the reasonable opinion of outside counsel to the
indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
thereof jointly with any other indemnifying party similarly notified, to the
extent that it chooses, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party
that it so chooses, the indemnifying party shall not be liable to such
indemnified party for any
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legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that (i) if the indemnifying party fails to
take reasonable steps necessary to defend diligently the action or proceeding
within 20 days after receiving notice from such indemnified party that the
indemnified party believes it has failed to do so; or (ii) if such indemnified
party who is a defendant in any action or proceeding which is also brought
against the indemnifying party reasonably shall have concluded that there may be
one or more legal defenses available to such indemnified party which are not
available to the indemnifying party; or (iii) if representation of both parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct, then, in any such case, the indemnified party shall have
the right to assume or continue its own defense as set forth above (but with no
more than one firm of counsel for all indemnified parties in each jurisdiction,
except to the extent any indemnified party or parties reasonably shall have
concluded that there may be legal defenses available to such party or parties
which are not available to the other indemnified parties or to the extent
representation of all indemnified parties by the same counsel is otherwise
inappropriate under applicable standards of professional conduct) and the
indemnifying party shall be liable for any expenses therefor. No indemnifying
party shall, without the written consent of the indemnified party, which consent
shall not be unreasonably withheld, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(A) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (B) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(e) If for any reason the foregoing indemnity is unavailable or is
insufficient to hold harmless an indemnified party under Section 3.3(a), (b) or
(c), then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of any Claim in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other from the relevant offering of
securities. If, however, the allocation provided in the immediately preceding
sentence is not permitted by applicable law, or if the indemnified party failed
to give the notice required by Section 3.3(d) above and
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<PAGE> 30
the indemnifying party is prejudiced thereby, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative fault of but also
the relative benefits received by the indemnifying party, on the one hand, and
the indemnified party, on the other hand, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the Violation relates to information supplied by
the indemnifying party or the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such Violation. The parties hereto agree that it would not be just and equitable
if contributions pursuant to this Section 3.3(e) were to be determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the preceding sentences of this
Section 3.3(e). The amount paid or payable in respect of any Claim shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such Claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Notwithstanding
anything in this Section 3.3(e) to the contrary, no indemnifying party (other
than Holdings) shall be required pursuant to this Section 3.3(e) to contribute
any amount in excess of (x) in the case of an indemnifying party that is a
holder of Registrable Securities, the gross proceeds received by such
indemnifying party from the sale of Registrable Securities in the offering to
which the losses, claims, damages or liabilities of the indemnified parties
relate, or (y) in the case of an indemnifying party that is an underwriter or a
qualified independent underwriter, the amount of the total sales price of the
Registrable Securities sold through or by it in the offering to which the
losses, claims, damages or liabilities of the indemnified parties relate, less,
in any such case referred to in (x) and (y), the amount of all indemnification
and contribution payments made pursuant to Sections 3.3(b) and (c) and this
Section 3.3(e), as the case may be, in connection with such offering.
(f) The indemnity agreements contained herein shall be in addition to
any other rights to indemnification or contribution which any indemnified party
may have pursuant to law or contract and shall remain operative and in full
force and effect regardless of any investigation made or omitted by or on behalf
of any indemnified party and shall survive the transfer of the Registrable
Securities by any such party.
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(g) The indemnification and contribution required by this Section
3.3 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
(h) In connection with underwritten offerings, Holdings will use
reasonable best efforts to negotiate terms of indemnification that are
reasonably favorable to the various sellers pursuant thereto, as appropriate
under the circumstances.
3.4 Holdback Agreement.
(a) If requested in writing by Holdings or the underwriter, if
any, of any offering affording Stockholders registration rights pursuant to
Section 3.1 (whether or not some or all of such Stockholder's Registrable
Securities are subject to a cutback pursuant to Section 3.1 of this Agreement),
including without limitation an IPO, each Stockholder agrees not to effect any
public sale or distribution, including any sale pursuant to Rule 144, of any
Registrable Securities or any other equity security of Holdings or of any
security convertible into or exchangeable or exercisable for any equity security
of Holdings (in each case, other than as part of such underwritten public
offering) within 14 days before or 180 days after the effective date of a
registration statement affording Stockholders registration rights pursuant to
Section 3.1 (including where subject to a cutback pursuant to Section 3.1(d)).
(b) If requested in writing by the underwriter of any offering in
connection with a Demand Registration, Holdings agrees not to effect any public
sale or distribution (other than public sales or distributions solely by and for
the account of Holdings of securities issued (x) pursuant to any employee or
director benefit or similar plan or any dividend reinvestment plan or (y) in any
acquisition by Holdings) of any Registrable Securities or any other equity
security of Holdings or of any security convertible into or exchangeable or
exercisable for any equity security of Holdings (in each case, other than as
part of such underwritten public offering), within 14 days before or 180 days
after the effective date of a registration statement filed in connection with a
Demand Registration, or for such shorter period as the sole or lead managing
underwriter shall request, in any such case, unless consented to by such
underwriter.
4.
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ARTICLE IV
MANAGEMENT INVESTORS' PUTS AND CALLS
4.1 Call Rights. If, prior to the consummation of an IPO, a Management
Investor (other than the Estate or the Estate's Permitted Transferees) dies or
the Management Investor's (other than the Estate or the Estate's Permitted
Transferees) employment by Holdings terminates for any reason (including due to
a Disability, as defined in such Management Investor's Employment Agreement or
any analogous provision of any employment, compensation or benefit agreement or
arrangement, if any, and if not so defined, upon the good faith determination of
the Board of Directors of Holdings of such Disability), Holdings shall have the
right, at its election, to purchase all (but not less than all) of the
Management Investor's shares of Common Stock (including any shares held by its
Permitted Transferees) within 6 months after such termination, or 15 months
after such termination in the case of death of the Management Investor (with
respect to any shares of Common Stock acquired after such termination or death
upon the exercise of Options held by the Management Investor, such period to run
from the date of exercise) at a price equal to the Fair Market Value of such
Common Stock determined as of, in all cases other than the death of the
Management Investor, the date such termination is effective and, in the case of
the Management Investor's death, as of the date of death. Holdings shall pay the
purchase price in cash to the extent that (x) subsidiaries of Holdings are
permitted to dividend the funds for such purchase to Holdings (a "Subsidiary
Dividend") (under both applicable law and the indebtedness of Holdings and its
Affiliates) and (y) Holdings is permitted to purchase such shares for cash
(under both applicable law and such indebtedness). Holdings shall fund any
amount not permitted to be funded through a Subsidiary Dividend or to be used to
purchase such shares with a Buy-Out Note. The Board of Directors of Holdings
may, in its discretion, assign the rights and obligations of Holdings under this
Section 4.1 to any other Person, but no such assignment shall relieve Holdings
of its obligations hereunder to the extent not satisfied by such assignee.
4.2 Put Rights. If, prior to the consummation of an IPO, (a) a
Management Investor (other than the Estate or the Estate's Permitted Transferee)
dies or the Management Investor's (other than the Estate or the Estate's
Permitted Transferee's) employment by Holdings is terminated by Holdings for any
reason (including due to a Disability, as defined in such Management Investor's
Employment Agreement or any analogous provision of any employment, compensation
or benefit
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<PAGE> 33
agreement or arrangement, if any, and if not so defined, upon the good faith
determination of the Board of Directors of Holdings of such Disability), the
Management Investor or the Management Investor's legal representative or
trustee, as the case may be, shall have the right, within three months after
such termination is effective (or one year after the date of death in the case
of the Management Investor's death), to require Holdings to purchase all (but
not less than all) of the Management Investor's Common Stock (including any
shares held by its Permitted Transferees) at a price equal to (A) in the case of
termination by reason of death or Disability, the Fair Market Value thereof
determined as of the date of death (in the case of termination due to death) or
the date such other termination is effective and (B) in the case of termination
by Holdings for any other reason, the lower of (1) Fair Market Value and (2) the
product of (x) the number of shares of Common Stock and (y) the New Cost Per
Share (subject to adjustment to reflect any adjustments to the Common Stock made
to reflect any merger, reorganization, consolidation, recapitalization, spinoff,
stock dividend, stock split, extraordinary distribution with respect to the
Common Stock or other change in corporate structure affecting the Common Stock,
as Holdings reasonably shall deem fair and appropriate). To the extent the funds
for such purchase are permitted under the indebtedness of Holdings and its
Affiliates and applicable law to be funded through a Subsidiary Dividend and to
be used to purchase such shares, Holdings shall pay the purchase price in cash.
Holdings shall pay any amount not permitted to be funded through a Subsidiary
Dividend or to be used to purchase such shares with a Buy-Out Note. The Board of
Directors of Holdings may, in its discretion, assign the rights and obligations
of Holdings under this Section 4.2 to any other Person, but no such assignment
shall relieve Holdings of its obligations hereunder to the extent not satisfied
by such assignee.
5.
ARTICLE V
MISCELLANEOUS
5.1 Effectiveness; Term. (a) This Agreement shall become effective (the
"Effective Date") simultaneously with the closing of the transactions under the
Merger Agreement and shall terminate without liability or penalty on the part of
any party or its directors, officers, fiduciaries, employees and stockholders or
general and limited partners (and the directors, officers, fiduciaries,
employees and stockholders or general and limited partners thereof) to any other
party or such other party's Affiliates upon the termination of the Merger
Agreement pursuant to its terms.
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<PAGE> 34
(b) Unless theretofore terminated pursuant to the preceding paragraph,
the rights and obligations of, and restrictions on, the Stockholders under
Article II of this Agreement shall terminate when GSCP and its Affiliates no
longer hold in the aggregate at least 40% of the fully diluted shares of Common
Stock then outstanding. Notwithstanding the foregoing, in the event Holdings
enters into any agreement to merge with or into any other Person or adopts any
other plan of recapitalization, consolidation, reorganization or other
restructuring transaction as a result of which the Stockholders and their
respective Permitted Transferees (including GSCP and any Affiliates thereof)
shall own less than a majority of the outstanding voting power of the entity
surviving such transaction, this Agreement shall terminate.
(c) Unless theretofore terminated pursuant to Section 5.1(a), and
notwithstanding anything in Section 5.1(b) to the contrary, the provisions
contained in Article III hereof shall continue to remain in full force and
effect until the earlier to occur of the twentieth anniversary of the date
hereof and the date on which there are no longer any Registrable Securities
outstanding or issuable or thereafter available for or subject to issuance to
any Stockholder upon exercise or conversion of any options, warrants, rights or
other convertible securities; provided, however, that the provisions of Section
3.3 hereof shall survive termination pursuant to Section 5.1(b) or (c) of this
Agreement.
5.2 No Voting or Conflicting Agreements. Prior to an IPO, no Management
Investor shall grant any proxy or enter into or agree to be bound by any voting
trust with respect to the Common Stock nor, at any time, shall any Management
Investor enter into any stockholder agreements or arrangements of any kind with
any Person with respect to the Common Stock inconsistent with the provisions of
this Agreement (whether or not such agreements and arrangements are with other
Management Investors or holders of Common Stock that are not parties to this
Agreement). The foregoing prohibition includes, but is not limited to,
agreements or arrangements with respect to the acquisition, disposition or
voting of shares of Common Stock inconsistent with the provisions of this
Agreement. No Management Investor shall act, at any time, for any reason, as a
member of a group or in concert with any other Persons in connection with the
acquisition, disposition or voting of shares of Common Stock in any manner which
is inconsistent with the provisions of this Agreement.
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<PAGE> 35
5.3 Approval of Stock Incentive Plan by Stockholders.
The Stockholders by their execution of this Agreement, hereby approve
the Stock Incentive Plan, a copy of which is attached hereto as Exhibit A.
5.4 Specific Performance. The parties hereto acknowledge that there would be
no adequate remedy at law if any party fails to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to
compel specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement. Any
remedy under this Section 5.4 is subject to certain equitable defenses and to
the discretion of the court before which any proceedings therefor may be
brought.
5.5 Notices. All notices, statements, instructions or other documents
required to be given hereunder shall be in writing and shall be given either
personally or by mailing the same in a sealed envelope, by overnight courier or
by first-class mail, postage prepaid and either certified or registered, in
either case, return receipt requested, or by telecopy, addressed to Holdings at
its principal offices and to the other parties at their addresses reflected on
the signature pages hereto. Each party hereto, by written notice given to the
other parties hereto in accordance with this Section 5.5, may change the address
to which notices, statements, instructions or other documents are to be sent to
such party. All notices, statements, instructions and other documents hereunder
that are mailed or telecopied shall be deemed to have been given on the date of
mailing or, in the case of telecopying, upon confirmation of receipt.
5.6 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties, and their respective successors and
assigns. If any Stockholder or any Affiliate thereof or any Transferee of any
Stockholder shall acquire any shares of Common Stock in any manner, whether by
operation of law or otherwise, such shares shall be held subject to all of the
terms of this Agreement, and by taking and holding such shares such Person shall
be conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement.
5.7 Recapitalizations and Exchanges Affecting Common Stock. The provisions
of this Agreement shall apply, to the full extent set forth herein with respect
to Common Stock, to any and all shares of capital stock or equity securities of
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<PAGE> 36
Holdings or any successor or assign of Holdings (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in exchange for, or in substitution of, the Common Stock, or which may be issued
by reason of any stock dividend, stock split, reverse stock split, combination,
recapitalization, reclassification or otherwise. Upon the occurrence of any of
such events, numbers of shares and amounts hereunder shall be appropriately
adjusted, as determined in good faith by the Board of Directors of Holdings.
5.8 Governing Law. This Agreement shall be governed and construed and
enforced in accordance with the laws of the State of New York, without regard to
the principles of conflicts of law thereof.
5.9 Descriptive Headings, Etc. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires, references to "hereof," "herein," "hereby," "hereunder" and
similar terms shall refer to this entire Agreement.
5.10 Amendment; Waiver; Bylaws. This Agreement may not be amended or
supplemented except by an instrument in writing signed by Holdings and by
Stockholders holding a majority of the then outstanding shares of Common Stock
held by all Stockholders; provided that any amendment, supplement or
modification of this Agreement which adversely affects the rights and
obligations of any Stockholder (an "Affected Holder") differently than those of
any other Stockholder shall also require the approval of such Affected Holder;
provided further, the foregoing proviso notwithstanding, any amendment,
supplement or modification of this Agreement that adversely affects the
Management Investors (or a group thereof) as a class may be approved by
Management Investors (or members of such group, as the case may be) holding
Common Stock or Options to purchase Common Stock, which together represent a
majority of the sum of the total number of (x) the shares of such Common Stock
and (y) the shares of Common Stock issuable upon exercise of such Options held
by all the Management Investors (or such group, as the case may be). The
foregoing notwithstanding, (i) Holdings, without the consent of any other party
hereto, may amend Schedule I and the signature pages hereto, in order to add any
Management Investor or any other party that becomes a holder of Common Stock or
securities convertible into or exercisable for Common Stock and (ii) GSCP and
Holdings may amend Article III of this Agreement (other than in a manner that
would materially reduce the Management Investor's rights or materially increase
the Management Investor's obligations with respect to Piggyback
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<PAGE> 37
Registrations) without the agreement or consent of any Management Investor.
5.11 Severability. If any term or provision of this Agreement shall to any
extent be invalid or unenforceable, the remainder of this Agreement shall not be
affected thereby, and each term and provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law. Upon the determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties shall negotiate in good faith to modify this Agreement so
as to effect their original intent as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
5.12 Further Assurances. The parties hereto shall from time to time execute
and deliver all such further documents and do all acts and things as the other
party may reasonably require to effectively carry out or better evidence or
perfect the full intent and meaning of this Agreement, including, to the extent
necessary or appropriate, using all reasonable efforts to cause the amendment of
the Amended Certificate or the By-Laws in order to provide for the enforcement
of this Agreement in accordance with its terms. In furtherance and not in
limitation of the foregoing, in the event of any amendment, modification or
termination of this Agreement in accordance with its terms, the Stockholders
shall cause the Board to meet within thirty days following such amendment,
modification or termination or as soon thereafter as is practicable for the
purpose of amending the Amended Certificate and By-Laws, as may be required as a
result of such amendment, modification or termination, and, to the extent
required by law, proposing such amendments to the stockholders of Holdings
entitled to vote thereon, and such action shall be the first action to be taken
at such meeting.
5.13 Complete Agreement; Counterparts. This Agreement (together with the
Merger Agreement, the Voting Agreement, the Stock Incentive Plan, the Employment
Agreements and the other agreements referred to herein and therein) constitutes
the entire agreement and supersedes all other agreements and understandings,
both written and oral, among the parties or any of them, with respect to the
subject matter hereof. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
5.14 Certain Transactions. The parties hereto agree that Goldman Sachs shall
have the exclusive right to perform
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<PAGE> 38
all consulting, financing, investment banking and similar services for Holdings
and its subsidiaries (including as lead underwriter or in any analogous role in
connection with any public or private offering of securities or debt, and
including in connection with the Merger), for customary compensation and on
other terms that are customary for similar engagements with unaffiliated third
parties, and neither Holdings nor its subsidiaries shall engage any other Person
to perform such services during the term of this Agreement except to the extent
Goldman Sachs shall consent thereto or shall decline, at its sole election, to
perform such services.
5.15 No Third Party Beneficiaries. The provisions of this Agreement shall be
only for the benefit of the parties to this Agreement, and no other Person
(other than Goldman Sachs with respect to Section 5.14) shall have any third
party beneficiary or other right hereunder.
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<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed on the date first written above.
AMSCAN HOLDINGS, INC.
By:
Name:
Title:
Address:
Attn:
Telecopier No.:
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P.
General Partner
By: GS Advisors Inc., its
General Partner
By:
Name:
Title:
Address: c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
<PAGE> 40
GS CAPITAL PARTNERS II OFFSHORE, L.P.
By: GS Advisors II (Cayman), L.P.
General Partner
By: GS Advisors II, Inc., its
General Partner
By:
Name:
Title:
Address: c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
GOLDMAN, SACHS & CO. VERWALTUNGS GMBH
By:
Name:
Title:
By:
Name:
Title:
Address: c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Attn: David J. Greenwald
Telecopier No.: (212) 357-5505
<PAGE> 41
THE ESTATE OF JOHN A. SVENNINGSEN
By:
Name:
Title: Executrix
Address:
The following individuals, in their capacities as trustees or other fiduciaries
(whether on the date hereof or at any point in the future) of any trust or
similar instrument created by or at the instruction of, or under the last will
and testament of, John A. Svenningsen or the Estate, acknowledge this Agreement
and agree to be bound by the terms hereof in each such capacity, such agreement
being for the benefit of each of the parties hereto, and such individuals
further agree to cause any such trust or similar instrument upon its formation
to become a party to this Agreement as a Permitted Transferee pursuant to
Section 2.3.3 hereof (and as if a Management Investor hereunder) and in
accordance herewith have agreed to and acknowledged this Agreement:
By: Dated:
Name:
Title: Trustee
Address:
By: Dated:
Name:
Title: Trustee
Address:
<PAGE> 42
Dated:
Gerald C. Rittenberg
Management Investor
Address:
Dated:
James M. Harrison
Management Investor
Address:
Dated:
William Wilkey
Management Investor
Address:
Dated:
Diane D. Spaar
Management Investor
Address:
Dated:
Katherine A Kusnierz
Management Investor
Address:
<PAGE> 43
EXHIBIT A
[STOCK INCENTIVE PLAN]
<PAGE> 44
Schedule I
Management Investors
------------------
------------------
------------------
------------------
------------------
<PAGE> 1
Exhibit 5
November 14, 1997
Board of Directors
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Re: Amscan Holdings, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
We are acting as special counsel to the independent directors
of Amscan Holdings, Inc., a Delaware corporation (the "Company"), in connection
with the registration under the Securities Act of 1933, as amended (the
"Securities Act"), on Form S-4 of shares of the Company's Common Stock, par
value $.10 per share (the "Common Stock"), to be issued pursuant to an Agreement
and Plan of Merger, dated as of August 10, 1997 (the "Merger Agreement"),
between Confetti Acquisition, Inc., a Delaware corporation ("Acquisition"), and
the Company. The Merger Agreement provides for the merger of Acquisition with
and into the Company (the "Merger"), with the Company as the surviving
corporation in the Merger. The number of shares (the "Shares") of Common Stock
to be issued in the Merger shall be determined as provided in 2.1 of the Merger
Agreement.
This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act.
In connection with this opinion, we have examined originals
or copies, certified or otherwise identified to our satisfaction, of (i) the
Registration State-
<PAGE> 2
Board of Directors
Amscan Holdings, Inc.
November 14, 1997
Page 2
ment on Form S-4 (File No. 333- ) relating to the Shares as filed with the
Securities and Exchange Commission (the "Commission") on the date hereof
(together with all exhibits thereto, the "Registration Statement"); (ii) the
Certificate of Incorporation of the Company, as currently in effect (the
"Certificate of Incorporation"); (iii) the By-laws of the Company, as currently
in effect (the "By-Laws"); (iv) the Merger Agreement; (v) a specimen of the
stock certificate used to evidence the Common Stock; and (vi) certain
resolutions of the Company's Board of Directors. We have also examined originals
or copies, certified or otherwise identified to our satisfaction, of such
records of the Company and such agreements, certificates of public officials,
certificates of officers or other representatives of the Company and others and
such other documents, certificates and records as we have deemed necessary or
appropriate as a basis for the opinion set forth herein.
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had or will have the power, corporate
or other, to enter into and perform all obligations thereunder, and have also
assumed the due authorization by all requisite action, corporate or other, and
execution and delivery by such parties of such documents and the validity and
binding effect thereof on such parties. As to any facts material to the opinions
expressed herein which were not independently established or verified, we have
relied upon oral or written statements and representations of officers and other
representatives of the Company and others.
Members of our Firm are admitted to the Bar in the State of
Delaware, and we do not express any opinion as to the laws of any other
jurisdiction.
2
<PAGE> 3
Board of Directors
Amscan Holdings, Inc.
November 14, 1997
Page 3
Based upon and subject to the foregoing, we are of the opinion
that, assuming (i) the Registration Statement, as amended (including all
necessary post-effective amendments), has become effective; (ii) the Merger has
become effective in accordance with the terms of the Merger Agreement and
Delaware law; and (iii) certificates representing the Shares in the form of the
specimen certificate examined by us are duly executed, countersigned,
registered and delivered, the Shares, when issued for shares of Common Stock
upon consummation of the Merger in accordance with the Merger Agreement
(including Section 2.1(c)(i) thereof) and Delaware law and pursuant to the
Registration Statement, will have been duly authorized and will be validly
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement and the reference to our
firm under the caption "Legal Matters" in the Registration Statement. In giving
such consent, we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
Skadden, Arps, Slate, Meagher & Flom LLP
3
<PAGE> 1
Exhibit 8
November 14, 1997
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Re: Amscan Holdings, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as special counsel to the independent directors
of the Board of Directors of Amscan Holdings, Inc. (the "Company"), in
connection with the Proxy Statement/Prospectus which is included in the
Registration Statement on Form S-4 (333-_____) (the "Registration Statement")
filed on November 14, 1997 with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended, respecting the Agreement
and Plan of Merger, dated as of August 10, 1997 (the "Merger Agreement"),
between the Company and Confetti Acquisition Inc., a Delaware corporation
("Acquisition") affiliated with GS Capital Partners II, L.P. and certain other
private investment funds managed by Goldman, Sachs & Co., pursuant to which
Acquisition will be merged with and into the Company, with the Company as the
surviving corporation (the "Merger"). Capitalized terms used and not otherwise
defined herein have the meanings assigned to them in the Registration Statement.
In connection with this opinion, we have examined the
Registration Statement as filed with the SEC on November 13, 1997, including (i)
the Proxy Statement/Prospectus contained therein (the "Proxy
Statement/Prospectus"), (ii) the Merger Agreement, (iii) the Voting Agreement,
dated as of August 10, 1997, by and among Acquisition, the Estate of John A.
Svenningsen and Christine Svenningsen, and (iv) such other documents as we have
deemed necessary or appropriate as a basis for the opinion set forth below, and
we have assumed that (i) such documents will not be amended and (ii) the parties
to such documents will comply with the terms thereof.
<PAGE> 2
Amscan Holdings, Inc.
November 14, 1997
Page 2
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents. As to any facts material to the opinions expressed herein which were
not independently established or verified, we have relied upon statements,
representations, and certifications of officers and other representatives of the
Company.
In rendering our opinion, we have also considered and relied
upon the Internal Revenue Code of 1986, as amended, and administrative rulings,
judicial decisions, regulations, and such other authorities as we have deemed
appropriate, all as in effect as of the date hereof. The statutory provisions,
regulations, interpretations, and other authorities upon which our opinion is
based are subject to change, and such changes could apply retroactively. In
addition, there can be no assurance that positions contrary to those stated in
our opinion will not be taken by the Internal Revenue Service.
We express no opinions as to the laws of any jurisdiction
other than the federal laws of the United States of America to the extent
specifically referred to herein.
Based upon and subject to the foregoing, and subject to the
qualifications set forth herein, it is the opinion of Skadden, Arps, Slate,
Meagher & Flom LLP that the discussion in the Proxy Statement/Prospectus under
the heading "Federal Income Tax Consequences" is true and correct in all
material respects, and we confirm that the opinion expressed therein represents
our opinion on the federal income tax consequences.
2
<PAGE> 3
Amscan Holdings, Inc.
November 14, 1997
Page 3
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to our being named in the Proxy Statement/Prospectus.
In giving such consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Securities Act or
the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
Skadden, Arps, Slate, Meagher & Flom LLP
3
<PAGE> 1
Exhibit 12
AMSCAN HOLDINGS, INC.
RATIO OF INCOME TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIO DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------------------ -------------------------------------
MERGER PRO MERGER PRO
FORMA FORMA
1997 1997 1996 1996 1996 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before taxes and minority interests $14,438 $28,677 $20,104 $ 8,587 $ 5,732 $19,206
Add: Fixed charges 18,431 4,296 6,013 24,952 8,735 6,874
------- ------- ------- ------- ------- -------
Earnings, as adjusted $32,869 $32,973 $26,117 $33,539 $14,467 $26,080
======= ======= ======= ======= ======= =======
Computation of fixed charges:
Interest expense $16,934 $ 2,799 $ 4,827 $23,185 $ 6,968 $ 6,025
Interest portion of rent expense 1,497 1,497 1,186 1,767 1,767 849
------- ------- ------- ------- ------- -------
Total fixed charges $18,431 $ 4,296 $ 6,013 $24,952 $ 8,735 $ 6,874
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 1.8x 7.7x 4.3x 1.3x 1.7x 3.8x
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Earnings:
Income before taxes and minority interests $10,591 $ 9,104 $ 7,784
Add: Fixed charges 4,719 3,358 2,556
------- ------- -------
Earnings, as adjusted $15,310 $12,462 $10,340
======= ======= =======
Computation of fixed charges:
Interest expense $ 3,971 $ 2,711 $ 2,135
Interest portion of rent expense 748 647 421
------- ------- -------
Total fixed charges $ 4,719 $ 3,358 $ 2,556
======= ======= =======
Ratio of earnings to fixed charges 3.2x 3.7x 4.0x
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Amscan Holdings, Inc.:
The audits referred to in our report dated February 14, 1997, included the
related financial statement schedule of Amscan Holdings, Inc. and Subsidiaries
(the Company) for each of the years in the three year period ended December 31,
1996, included in the registration statement. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and the reference to our
firm under the heading "Experts" in the registration statement.
KPMG Peat Marwick LLP
Stamford, Connecticut
November 13, 1997
<PAGE> 1
FORM OF ELECTION
This Form of Election, or a facsimile hereof (in either case, a "Form of
Election"), is to accompany the certificates for shares of Common Stock, par
value $0.10 per share ("Company Common Stock"), of Amscan Holdings, Inc. (the
"Company") if such certificates are submitted pursuant to an election (a "Mixed
Election") to receive $9.33 in cash plus a retained interest in the Company
equal to one fully paid and nonassessable share of Company Common Stock for
every 150,000 shares of Company Common Stock so elected (the "Mixed
Consideration"), with cash being paid in lieu of any fractional shares (such
retained shares, the "Mixed Election Shares"), in connection with the proposed
merger (the "Merger") of Confetti Acquisition, Inc. ("Acquisition") with and
into the Company.
HOLDERS OF COMPANY COMMON STOCK WHO DO NOT WISH TO MAKE A MIXED ELECTION
(ANY SUCH HOLDER, A "CASH ELECTING HOLDER") SHOULD NOT SUBMIT THIS FORM. EACH
SHARE OF COMPANY COMMON STOCK OWNED BY ANY SUCH CASH ELECTING HOLDER WILL
AUTOMATICALLY BE CONVERTED INTO THE RIGHT TO RECEIVE $16.50 IN CASH FROM THE
COMPANY SUBJECT TO AND FOLLOWING THE MERGER. STOCKHOLDERS HOLDING LESS THAN
150,000 SHARES SHOULD NOT ELECT THE MIXED CONSIDERATION WITH RESPECT TO SUCH
SHARES. STOCKHOLDERS DESIRING TO ELECT THE MIXED CONSIDERATION SHOULD CONSULT
WITH THEIR FINANCIAL ADVISORS PRIOR TO MAKING A MIXED ELECTION.
TO: CHASEMELLON SHAREHOLDER SERVICES, L.L.C., EXCHANGE AGENT
<TABLE>
<S> <C> <C>
BY MAIL: BY HAND: BY OVERNIGHT COURIER:
P.O. Box 3301 120 Broadway, 13(th) Floor 85 Challenger Road
South Hackensack, New Jersey
07606 New York, New York 10271 Mail Drop -- Reorg.
Attention: Reorganization Attention: Reorganization
Department Department Ridgefield Park, New Jersey 07660
Attention: Reorganization
Department
BY FACSIMILE:
(201) 329-8936
Confirm by telephone to:
(201) 296-4860
</TABLE>
FOR INFORMATION CALL: (888) 213-0969
Delivery of this Form of Election to an address, or transmission of
instructions via a telecopy facsimile number, other than as set forth above,
does not constitute a valid delivery.
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
<PAGE> 2
[SHARES SUBMITTED FOR MIXED CONSIDERATION -- BOX I]
<TABLE>
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF SHARES SUBMITTED
REGISTERED HOLDER* (ATTACH ADDITIONAL LIST IF NEEDED)
------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
TOTAL NUMBER OF SHARES SUBMITTED
CERTIFICATE REPRESENTED FOR MIXED
NUMBER(S) BY CERTIFICATE(S) CONSIDERATION**
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
TOTAL SHARES OF
COMPANY COMMON STOCK
------------------------------------------------------------------------------------------------------------------
* Only certificates registered in a single form may be submitted with this Form of Election. If certificates are
registered in different forms (e.g., John R. Doe and J.R. Doe), it will be necessary to fill in, sign and submit
as many separate Forms of Election as there are different registrations of certificates.
** Unless otherwise indicated, it will be assumed that all shares represented by the listed certificates are to
be treated as having made a Mixed Election.
------------------------------------------------------------------------------------------------------------------
</TABLE>
IF YOU CANNOT LOCATE CERTIFICATES, YOU SHOULD CALL THE EXCHANGE AGENT AT
(888) 213-0969 (TOLL FREE) OR (212) 273-8293 (COLLECT) IMMEDIATELY TO RECEIVE
INSTRUCTIONS AS TO THE STEPS YOU MUST TAKE IN ORDER TO MAKE AN EFFECTIVE
SUBMISSION FOR THE MIXED CONSIDERATION.
2
<PAGE> 3
Ladies and Gentlemen:
In connection with the proposed merger (the "Merger") of Confetti
Acquisition, Inc. ("Acquisition") with and into Amscan Holdings, Inc. (the
"Company"), the undersigned hereby submits the certificate(s) for shares of
Common Stock, par value $0.10 per share, of the Company ("Company Common Stock")
listed above and elects, subject as set forth herein, to have all or a portion
of the shares of Company Common Stock represented by such certificates as set
forth above converted into the right to receive $9.33 in cash plus a retained
interest in the Company equal to one fully paid and nonassessable share of
Company Common Stock for every 150,000 shares of Company Common Stock so elected
(the "Mixed Consideration"), with cash being paid in lieu of any fractional
shares (such retained shares, the "Mixed Election Shares"), in connection with
the Merger of Acquisition with and into the Company.
It is understood that this election is subject to (i) the terms, conditions
and limitations set forth in the Proxy Statement/Prospectus, dated November 14,
1997, relating to the Merger (the "Proxy Statement/Prospectus"), receipt of
which is hereby acknowledged by the undersigned, (ii) the terms of the Agreement
and Plan of Merger, dated as of August 10, 1997, as the same may be amended from
time to time (the "Merger Agreement"), a conformed copy of which appears as
Annex A to the Proxy Statement/ Prospectus, and (iii) the accompanying
Instructions.
Fractional shares of Company Common Stock will not be issued in the Merger.
Holders of Company Common Stock who elect the Mixed Consideration and who would
otherwise have been entitled to retain a fraction of a share of Company Common
Stock will receive, in lieu thereof (but in addition to the $9.33 in cash to be
paid for each share so elected), cash in an amount equal to $0.50 per share so
elected.
STOCKHOLDERS DESIRING TO ELECT THE MIXED CONSIDERATION SHOULD ONLY DO SO
WITH RESPECT TO SHARES OF COMPANY COMMON STOCK IN WHOLE NUMBER MULTIPLES OF
150,000 SHARES. A STOCKHOLDER MAKING SUCH AN ELECTION FOR A NUMBER OF SHARES
THAT IS NOT A WHOLE NUMBER MULTIPLE OF 150,000 WILL RECEIVE $9.83 PER SHARE IN
CASH WITH RESPECT TO THE PORTION OF SUCH ELECTION MADE WITH RESPECT TO A NUMBER
OF SHARES IN EXCESS OF A WHOLE NUMBER MULTIPLE OF 150,000. SUCH A STOCKHOLDER
WOULD RECEIVE A GREATER AMOUNT OF CASH IN THE MERGER BY ELECTING THE CASH
CONSIDERATION OF $16.50 PER SHARE WITH RESPECT TO THOSE SHARES WHICH ARE NOT
WHOLE NUMBER MULTIPLES OF 150,000. A DESCRIPTION OF THE TREATMENT OF FRACTIONAL
SHARES IN THE MERGER IS SET FORTH IN THE PROXY STATEMENT/PROSPECTUS UNDER "THE
MERGER -- FRACTIONAL SHARES."
The undersigned hereby represents and warrants that the undersigned is the
registered holder of the above-described Company Common Stock with good title to
such Company Common Stock and full power and authority to sell, assign and
transfer such Company Common Stock represented by the enclosed certificate(s),
free and clear of all liens, claims and encumbrances, and not subject to any
adverse claims. The undersigned will, upon request, execute any additional
documents necessary or desirable to complete the surrender and submission of
such Company Common Stock. All authority conferred or agreed to be conferred in
this Form of Election shall be binding upon the successors, assigns, heirs,
executors, administrators and legal representatives of the undersigned and shall
not be affected by, and shall survive, the death or incapacity of the
undersigned.
The undersigned authorizes and instructs you, as Exchange Agent, to deliver
such certificates of Company Common Stock to the Company and to receive on
behalf of the undersigned, for the shares of Company Common Stock represented
thereby and for which an election for Mixed Consideration is made pursuant
hereto, any certificate for Mixed Election Shares and any check for cash
issuable in the Merger pursuant to the Merger Agreement. If certificates of
Company Common Stock are not submitted herewith, there is furnished below a
guarantee of delivery of such certificates representing shares of Company Common
Stock from a member of a national securities exchange, a member of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States.
Unless otherwise indicated below under Special Issuance and Payment
Instructions, please issue any certificate for Mixed Election Shares and/or any
check for cash issuable for shares of Company Common Stock represented by the
certificates submitted herewith in the name of the registered holder(s) of such
Company Common Stock. Similarly, unless otherwise indicated below under Special
Delivery Instructions,
3
<PAGE> 4
please mail any certificate for shares of Company Common Stock and/or any check
for cash issuable for shares of Company Common Stock represented by the
Certificates submitted herewith to the registered holder(s) of the Company
Common Stock at the address shown above. In the event that both the Special
Delivery Instructions and the Special Issuance and Payment Instructions are
completed, please issue such certificate in the name of, and mail such
certificate to, the person or entity so indicated at the address so indicated.
Appropriate signature guarantees have been included with respect to Company
Common Stock for which Special Delivery Instructions and/or Special Issuance and
Payment Instructions have been given.
4
<PAGE> 5
[SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS BOX -- BOX II]
SPECIAL ISSUANCE AND PAYMENT
INSTRUCTIONS
(SEE INSTRUCTIONS D.1 AND D.7)
To be completed ONLY if the certificate representing the Mixed Election Shares
and/or any check for cash issuable in the Merger pursuant to the Merger
Agreement is to be issued in the name of someone other than the undersigned.
Issue
[ ] Certificate [ ] Check
To:
Name
- -----------------------------------------------
(PLEASE PRINT)
Address
- ---------------------------------------------
------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
[SPECIAL DELIVERY INSTRUCTIONS
BOX -- BOX III]
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS D.1 AND D.8)
To be completed ONLY if certificate representing the Mixed Election Shares
and/or any check for cash issuable in the Merger pursuant to the Merger
Agreement is to be sent to someone other than the undersigned or to the
undersigned at an address other than that shown above.
Mail
[ ] Certificate [ ] Check
To:
Name
- -----------------------------------------------
(PLEASE PRINT)
Address
- ---------------------------------------------
------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
5
<PAGE> 6
[SIGNATURE BOX -- BOX IV]
SIGN HERE AND HAVE SIGNATURES GUARANTEED IF NECESSARY
(SEE INSTRUCTIONS D.1, D.3, D.7 AND D.8)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) OF OWNER(S)
(Must be signed by registered holder(s) as name(s) appear(s) on stock
certificate(s) or subsequent transferee. See Instruction D.3. If signed by an
attorney, trustee, executor, administrator, guardian, officer, custodian or
other person acting in a representative capacity and the shares substituted
herewith are registered in the name of such signatory expressly in such capacity
(e.g., John Doe, as Trustee), such capacity should be indicated. See Instruction
D.3)
Dated:
- ------------------------------
Name(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity, if applicable:
- --------------------------------------------------------------------------------
Area Code and
Telephone Number:
- ------------------------------
SIGNATURE GUARANTEE
(REQUIRED IF EITHER "SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS" OR "SPECIAL
DELIVERY INSTRUCTIONS" ARE PROVIDED ABOVE OR IF THE SIGNATURE ON CERTIFICATES
OR STOCK POWERS MUST BE GUARANTEED. SEE INSTRUCTIONS D.1, D.3 AND D.7)
Signature(s) Guaranteed:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name of Firm Providing Signature
Guarantee -- Please Print)
- --------------------------------------------------------------------------------
(Authorized Signature)
Dated:
- ------------------------------, 1997
6
<PAGE> 7
[GUARANTEED DELIVERY BOX -- BOX V]
GUARANTEE OF DELIVERY
(TO BE USED ONLY IF CERTIFICATES ARE NOT SUBMITTED HEREWITH)
The undersigned is:
[ ] A member of a national securities exchange,
[ ] A member of the National Association of Securities Dealers,
Inc., or
[ ] A commercial bank or trust company having an office or
correspondent in the United States;
and guarantees to deliver to the Exchange Agent the certificates for shares of
Company Common Stock to which this Form of Election (as defined in the
instructions hereto) relates, duly endorsed in blank or otherwise in form
acceptable for transfer on the books of the Company, no later than 5:00 p.m.,
New York City time, no later than three NASDAQ trading days after the date of
execution of this guarantee of delivery.
<TABLE>
<S> <C>
- ------------------------------------------------------ X
NAME OF FIRM AUTHORIZED SIGNATURE
- ------------------------------------------------------ ------------------------------------------------------
ADDRESS NAME (PLEASE PRINT)
- ------------------------------------------------------ ------------------------------------------------------
ZIP CODE TITLE
- ------------------------------------------------------
(AREA CODE) TELEPHONE NUMBER DATED:
</TABLE>
7
<PAGE> 8
INSTRUCTIONS
A. SPECIAL CONDITIONS
1. Time in Which to Elect. To be effective, an election pursuant to the
terms and conditions set forth herein (a "Mixed Election") on this form of
election or a facsimile hereof (in either case, a "Form of Election"), properly
completed and signed and accompanied by the above-described certificates
representing shares of Company Common Stock, or a proper guarantee of delivery
thereof in the form set forth above, must be received by the Exchange Agent, at
the address set forth above, no later than 5:00 p.m., New York City time, on
December 16, 1997 (the "Election Date"). Holders of Company Common Stock whose
stock certificates are not immediately available may make an effective Mixed
Election by completing a Form of Election, having the Guarantee of Delivery Box
(BOX V) properly completed and duly executed (subject to the condition that the
certificates for which delivery is thereby guaranteed are in fact delivered to
the Exchange Agent within three NASDAQ trading days after the date of execution
of such guarantee of delivery). Each share of Company Common Stock with respect
to which the Exchange Agent shall have not received an effective Mixed Election
prior to the Election Date outstanding at the Effective Time of the Merger will
be converted into the right to receive $16.50 in cash from the Company subject
to and following the Merger.
2. Revocation of Mixed Election. Any Mixed Election may be revoked by the
person who submitted this Form of Election to the Exchange Agent and the
certificate(s) for shares submitted for Mixed Consideration therewith withdrawn
by written notice duly executed and received by the Exchange Agent prior to 5:00
p.m., New York City time, on the Election Date, unless Confetti Acquisition,
Inc. ("Acquisition") and such person who submitted such revocation agree
otherwise. Such notice must specify the person in whose name the shares of
Company Common Stock to be withdrawn were submitted, the number of shares to be
withdrawn, the name of the registered holder thereof, and the serial numbers
shown on the certificate(s) representing the shares to be withdrawn. If a Mixed
Election is revoked, and the certificate(s) for shares withdrawn, the Company
Common Stock certificate(s) submitted for Mixed Consideration therewith will be
promptly returned to the person who submitted such certificate(s).
3. Termination of Right to Elect. If for any reason the Merger is not
consummated or is abandoned, all Forms of Election will automatically be revoked
and will be void and of no effect. Certificate(s) for Company Common Stock
previously received by the Exchange Agent will be returned promptly by the
Exchange Agent to the person who submitted such stock certificate(s).
B. MIXED ELECTION PROCEDURES
A description of the mixed election procedures is set forth in the Proxy
Statement/Prospectus under "THE MERGER -- Mixed Election; Mixed Election
Procedure." A full statement of the mixed election procedures is contained in
the Merger Agreement and all Mixed Elections are subject to compliance with such
procedures. IN CONNECTION WITH MAKING ANY MIXED ELECTION, A HOLDER OF COMPANY
COMMON STOCK SHOULD READ CAREFULLY, AMONG OTHER MATTERS, THE AFORESAID
DESCRIPTION AND STATEMENT AND THE INFORMATION CONTAINED IN THE PROXY
STATEMENT/PROSPECTUS UNDER "THE MERGER -- FEDERAL INCOME TAX CONSEQUENCES."
C. RECEIPT OF MIXED ELECTION SHARES OR CHECKS
As soon as practicable after the Effective Time of the Merger, the Exchange
Agent will mail certificate(s) for Mixed Election Shares and/or cash payments by
check to the holders of Company Common Stock with respect to each share of
Company Common Stock which is included in any effective Mixed Election. Holders
of Company Common Stock who declined to make a Mixed Election, or failed to make
an effective Mixed Election, with respect to any or all of their shares will
receive, for each such share, the right to receive in cash from the Company
following the Merger $16.50 as soon as practicable after the certificate(s)
representing such share or shares have been submitted.
8
<PAGE> 9
No certificates or scrip representing fractional shares of retained Company
Common Stock will be issued pursuant to a Mixed Election in connection with the
Merger. Each holder of shares of Company Common Stock submitted for Mixed
Consideration pursuant to a Mixed Election in connection with the Merger who
would otherwise have been entitled to receive a fraction of a share of retained
Company Common Stock (after taking into account all shares of Company Common
Stock submitted by such holder) shall receive, in lieu of such fraction, a cash
payment (without interest) equal to $0.50 per share so elected.
STOCKHOLDERS DESIRING TO ELECT THE MIXED CONSIDERATION SHOULD ONLY DO SO
WITH RESPECT TO SHARES OF COMPANY COMMON STOCK IN WHOLE NUMBER MULTIPLES OF
150,000 SHARES. A STOCKHOLDER MAKING SUCH AN ELECTION FOR A NUMBER OF SHARES
THAT IS NOT A WHOLE NUMBER MULTIPLE OF 150,000 WILL RECEIVE $9.83 PER SHARE IN
CASH WITH RESPECT TO THE PORTION OF SUCH ELECTION MADE WITH RESPECT TO A NUMBER
OF SHARES IN EXCESS OF A WHOLE NUMBER MULTIPLE OF 150,000. SUCH A STOCKHOLDER
WOULD RECEIVE A GREATER AMOUNT OF CASH IN THE MERGER BY ELECTING THE CASH
CONSIDERATION OF $16.50 PER SHARE WITH RESPECT TO THOSE SHARES WHICH ARE NOT
WHOLE NUMBER MULTIPLES OF 150,000. A DESCRIPTION OF THE TREATMENT OF FRACTIONAL
SHARES IN THE MERGER IS SET FORTH IN THE PROXY STATEMENT/PROSPECTUS UNDER "THE
MERGER -- FRACTIONAL SHARES."
D. GENERAL
1. Execution and Delivery. This Form of Election must be properly
completed, dated and signed in BOX IV, and must be delivered (together with
stock certificates representing the shares of Company Common Stock as to which
the Mixed Election is made or with a duly signed guarantee of delivery of such
certificates) to the Exchange Agent, no later than 5:00 p.m., New York City
time, on the Election Date, at any of the addresses set forth above.
THE METHOD OF DELIVERY OF ALL DOCUMENTS IS AT THE OPTION AND RISK OF THE
STOCKHOLDER, BUT IF SENT BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, IS SUGGESTED.
2. Inadequate Space. If there is insufficient space on this Form of
Election to list all your stock certificates being submitted for Mixed
Consideration to the Exchange Agent, please attach a separate signed list.
3. Signatures. The signature (or signatures, in the case of certificates
owned by two or more joint holders) on this Form of Election and any additional
attached lists should correspond exactly with the name(s) as written on the face
of the certificate(s) submitted for Mixed Consideration unless the shares of
Company Common Stock described on this Form of Election have been assigned by
the registered holder(s), in which event this Form of Election should be signed
in exactly the same form as the name of the last transferee indicated on the
transfers attached to or endorsed on the certificates.
If this Form of Election is signed by a person or persons other than the
registered owners of the certificates listed, the certificates must be endorsed
or accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered owner(s) appear on the certificates. Signatures on
such certificates or stock powers must be guaranteed.
If this Form of Election or any stock certificate(s) or stock power(s) are
signed by a trustee, executor, administrator, guardian, officer of a
corporation, attorney-in-fact or any other person acting in a representative or
fiduciary capacity, the person signing must give such person's full title in
such capacity and appropriate evidence of authority to act in such capacity must
be forwarded with this Form of Election.
4. Partial Submissions. If fewer than all the shares represented by any
certificate delivered to the Exchange Agent are to be submitted for Mixed
Consideration, fill in the number of shares which are to be so submitted in the
column entitled "Shares Submitted For Mixed Consideration" in BOX I of this Form
of Election. In such case, a new certificate for the remainder of the shares
represented by the old certificate will be sent to the registered owner(s) as
soon as practicable following the Election Date. All shares represented by
certificates submitted hereunder will be deemed to have been submitted for Mixed
Consideration unless otherwise indicated.
9
<PAGE> 10
5. Lost or Destroyed Certificates. IF YOUR CERTIFICATE(S) HAVE BEEN LOST,
STOLEN OR DESTROYED, YOU SHOULD CALL THE EXCHANGE AGENT AT (888) 213-0969 (TOLL
FREE) OR (212) 273-8293 (COLLECT) IMMEDIATELY TO RECEIVE INSTRUCTIONS AS TO THE
STEPS YOU MUST TAKE IN ORDER TO MAKE AN EFFECTIVE SUBMISSION FOR THE MIXED
CONSIDERATION.
6. New Certificates and Checks in Same Name. If the stock certificate(s)
representing Mixed Election Shares are to be registered in, or the check(s) in
respect of Mixed Election Shares are to be payable to the order of, a name that
is exactly the same name(s) that appear on the certificate(s) representing
shares of Company Common Stock submitted for Mixed Consideration with this Form
of Election, no endorsement of certificate(s) or separate stock power(s) are
required.
7. New Certificates and Checks in Different Name. If the stock
certificate(s) representing Mixed Election Shares are to be registered in, or
the check(s) in respect of Mixed Election Shares are to be payable to the order
of, a name other than exactly the name(s) that appears on the certificate(s)
representing shares of Company Common Stock submitted for Mixed Consideration
herewith, such submission shall not be treated as effective by the Exchange
Agent unless the certificates so submitted are endorsed, BOX II is completed,
and the signature is guaranteed in BOX IV by a member of a national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company or correspondent in the United States.
8. Special Delivery Instructions. If the checks are to be payable to the
order of, or the certificates for Mixed Election Shares are to be registered in,
the name of the registered holder(s) of shares of Company Common Stock, but are
to be sent to someone other than the registered holder(s) or to an address other
than the address of the registered holder, it will be necessary to indicate such
person or address by completing BOX III.
9. Miscellaneous. A single check and a single stock certificate
representing Mixed Election Shares will be issued.
The good faith determination of the Exchange Agent as to whether Mixed
Elections have been properly made or revoked with respect to shares of Company
Common Stock, and as to when Mixed Elections and such revocations were received
by it, shall be binding. If the Exchange Agent determines that any Mixed
Election was not properly made with respect to shares of Company Common Stock,
such shares will be treated by the Exchange Agent as shares which were not Mixed
Election Shares at the Effective Time of the Merger, and such shares will be
converted in the Merger into the right to receive $16.50 per share in cash
pursuant to the terms of the Merger Agreement.
10. Backup Federal Income Tax Withholding and Substitute Form W-9. Under
the "backup withholding" provisions of federal income tax law, the Exchange
Agent may be required to withhold 31% of the amount of any payments made to
holders of Company Common Stock pursuant to the Merger. To prevent backup
withholding, each holder should complete and sign the Substitute Form W-9
included in this Form of Election and either: (a) provide the correct taxpayer
identification number ("TIN") and certify, under penalties of perjury, that the
TIN provided is correct (or that such holder is awaiting a TIN), and that (i)
the holder has not been notified by the Internal Revenue Service ("IRS") that
the holder is subject to backup withholding as a result of failure to report all
interest or dividends, or (ii) the IRS has notified the holder that the holder
is no longer subject to backup withholding; or (b) provide an adequate basis for
exemption. If a holder who is awaiting a TIN so indicates by writing "Applied
For" on the Substitute Form W-9, the Exchange Agent will retain 31% of cash
payments made to a holder during the sixty (60) day period following the date of
the Substitute Form W-9. If the holder furnishes the Exchange Agent with his or
her TIN within sixty (60) days of the date of the Substitute Form W-9, the
Exchange Agent shall remit such amounts retained during the sixty (60) day
period to the holder and no further amounts shall be retained or withheld from
payments made to the holder thereafter. If, however, the holder has not provided
the Exchange Agent with his or her TIN within such sixty (60) day period, the
Exchange Agent shall remit such previously retained amounts to the IRS as backup
withholding and shall withhold 31% of all payments to the holder thereafter
until the holder furnishes a TIN to the Exchange Agent. In general, if a holder
is an individual, the TIN is the Social Security number of such individual. If
the certificates for Company Common Stock are
10
<PAGE> 11
registered in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
If the Exchange Agent is not provided with the correct TIN or an adequate basis
for exemption, the holder may be subject to a $50 penalty imposed by the IRS and
backup withholding at a rate of 31%. Certain holders (including, among others,
all corporations and certain foreign individuals) are not subject to these
backup withholding and reporting requirements. In order to satisfy the Exchange
Agent that a foreign individual qualifies as an exempt recipient, such holder
must submit a statement (generally, IRS Form W-8), signed under penalties of
perjury, attesting to that individual's exempt status. A form for such
statements can be obtained from the Exchange Agent.
For further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a TIN if you do not
have one and how to complete the Substitute Form W-9 if shares of Company Common
Stock are held in more than one name), consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Company Common Stock to be deemed invalidly submitted, but may require the
Exchange Agent to withhold 31% of the amount of any payments made pursuant to
the Merger. Backup withholding is not an additional federal income tax. Rather,
the federal income tax liability of a person subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
11
<PAGE> 12
PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
SUBSTITUTE PART I -- Taxpayer
FORM W-9 Identification Number -- For -------------------------
DEPARTMENT OF THE TREASURY all accounts, enter Taxpayer Social
Security
Number
INTERNAL REVENUE SERVICE Identification Number in the
box at right. (For most OR
individuals, this is your ---------------
social security number. If you Employer
do not have a number, see Identification
Obtaining a Number in the Number
enclosed Guidelines for "Applied For")
Certification of Taxpayer (If awaiting
Identification Number on TIN write
Substitute Form W-9
("Guidelines").) Certify by
signing and dating below.
Note: If the account is in
more than one name, see the
chart in the enclosed
Guidelines to determine which
social security or employer
identification number to give
the payer.
---------------------------------------------------------------------------
Payer's Request for Taxpayer PART II -- For Payees Exempt From Backup
Identification Number (TIN) Withholding, see the enclosed Guidelines
and complete as instructed therein.
</TABLE>
- -----------------------------------------------------------------------------
Certification -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
Certification Instructions -- You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2). (Also see instructions in the
enclosed Guidelines.)
- --------------------------------------------------------------------------------
SIGNATURE ___________________________________________________________________
DATE: ______________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU WROTE "APPLIED FOR"
INSTEAD OF A TIN IN THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable payments made to me will be withheld until I provide a number, but
will be refunded if I provide a certified taxpayer identification number within
60 days.
Signature ____________________________________________________ Dated: _________
12
<PAGE> 13
Additional copies of this Form of Election may be obtained from ChaseMellon
Shareholder Services, L.L.C. (whose telephone number is 888-213-0969).
Questions and requests for assistance or additional copies of the Proxy
Statement/Prospectus or this Form of Election may be directed to ChaseMellon
Shareholder Services, L.L.C. at the address set forth below:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
REORGANIZATION DEPT.
120 BROADWAY, 13TH FLOOR
NEW YORK, NEW YORK 10271
(888) 213-0969 (TOLL FREE)
(212) 273-8293 (COLLECT)
13
<PAGE> 14
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF --
- ---------------------------------------------------------
<S> <C> <C>
1. Individual The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-
trust account (grantor is trustee(1)
also trustee)
b. So-called trust account that The actual owner(1)
is not a legal or valid
trust under State law
5. Sole proprietorship The owner(3)
<CAPTION>
- ---------------------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF --
- ---------------------------------------------------------
<S> <C> <C>
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or The legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational, or
other tax-exempt organization
account
10. Partnership The partnership
11. A broker or registered nominee The broker or
nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments
- ---------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
your employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 15
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4. Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding include the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), an individual
retirement plan or a custodial account under section 403(b)(7) if the
account satisfies the requirements of section 401(f)(2).
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
political subdivision or instrumentality thereof.
- A foreign government or any political subdivision, agency or instrumentality
thereof.
- An international organization or any agency, or instrumentality thereof.
- A dealer in securities or commodities registered in the U.S. or a possession
of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident alien partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Section 404(k) payments made by ESOP.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid to you.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments, other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Wilfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 1
Exhibit 99.3
CONSENT OF WASSERSTEIN PERELLA & CO., INC.
We hereby consent to the use of our name and to the description of our opinion
letter dated August 10, 1997 under the caption "The Merger-Opinion of Financial
Advisor" in, and to the inclusion of our opinion letter as Annex C to, the Proxy
Statement/Prospectus of Amscan Holdings, Inc., which Proxy Statement/Prospectus
is part of the Registration Statement on Form S-4 of Amscan Holdings, Inc. By
giving this consent we do not thereby admit that we are experts with respect to
any part of such Registration Statement within the meaning of the term "expert"
as used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
WASSERSTEIN PERELLA & CO., INC.
New York, New York
November 6, 1997
2
<PAGE> 1
Exhibit 99.4
CONSENT
To: Corporate Secretary
Amscan Holdings, Inc.
I hereby consent to being named in the Proxy
Statement/Prospectus to be filed by Amscan Holdings, Inc. (the "Company") as
about to become a director of the Company and to serving as a director of the
Company if the merger of Confetti Acquisition, Inc., of which I am presently a
director, with and into the Company is consummated.
Dated: November 14, 1997
Signature: /s/ Terence M. O'Toole
-----------------------
Name: Terence M. O'Toole
<PAGE> 1
Exhibit 99.5
CONSENT
To: Corporate Secretary
Amscan Holdings, Inc.
I hereby consent to being named in the Proxy
Statement/Prospectus to be filed by Amscan Holdings, Inc. (the "Company") as
about to become a director of the Company and to serving as a director of the
Company if the merger of Confetti Acquisition, Inc., of which I am presently a
director, with and into the Company is consummated.
Dated: November 14, 1997
Signature: /s/ Sanjeev Mehra
--------------------------
Name: Sanjeev Mehra
2
<PAGE> 1
CONSENT EXHIBIT 99.6
To: Corporate Secretary
Amscan Holdings, Inc.
I hereby consent to being named in the Proxy Statement/Prospectus to
be filed by Amscan Holdings, Inc. (the "Company") as about to become a director
of the Company and to serving as a director of the Company if the merger of
Confetti Acquisition, Inc., of which I am presently a director, with and into
the Company is consummated.
Dated: November 14, 1997
Signature: /s/ Joseph P. DiSabato
--------------------------
Name: Joseph P. DiSabato
