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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
SCHEDULE 14D-9/A
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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AUTHENTIC SPECIALTY FOODS, INC.
(NAME OF SUBJECT COMPANY)
AUTHENTIC SPECIALTY FOODS, INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS OF SECURITIES)
05266E 10 7
(CUSIP NUMBER OF CLASS OF SECURITIES)
SAMUEL E. HILLIN, JR.
1313 AVENUE R
GRAND PRAIRIE, TEXAS 75050
(972) 933-4100
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE
AND COMMUNICATIONS ON BEHALF OF PERSON FILING STATEMENT)
WITH A COPY TO:
J. MARK METTS, ESQ.
VINSON & ELKINS L.L.P.
1001 FANNIN, SUITE 2300
HOUSTON, TEXAS 77002
(713) 758-2222
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Authentic Specialty Foods, Inc., a Texas
corporation (the "Company"). The address of the principal executive offices of
the Company is 1313 Avenue R, Grand Prairie, Texas 75050. The title of the
class of equity securities to which this statement relates is the common
stock, par value $1.00 per share, of the Company (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to a tender offer by Authentic Acquisition
Corporation, a Texas corporation ("Purchaser") and a wholly owned, indirect
subsidiary of Agrobios, S.A. de C.V. ("Parent"), a corporation organized under
the laws of the United Mexican States ("Mexico") and a wholly owned subsidiary
of Desc, S.A. de C.V., a corporation organized under the laws of Mexico
("Desc"), disclosed in a Tender Offer Statement on Schedule 14D-1, dated May
14, 1998 (the "Schedule 14D-1"), whereby Purchaser has offered to purchase all
of the outstanding Shares at a price of $17.00 per Share (such price, or any
such higher price as may be paid in the Offer (as defined below), being
referred to herein as the "Offer Price"), net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in
the Offer to Purchase dated May 14, 1998 (the "Offer to Purchase") and in the
related Letter of Transmittal (which together constitute the "Offer"), each of
which is incorporated by reference herein.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF
SHARES (THE "MINIMUM SHARES") WHICH, WHEN ADDED TO THE NUMBER OF SHARES (IF
ANY) BENEFICIALLY OWNED BY PARENT AND PURCHASER, REPRESENTS AT LEAST TWO-
THIRDS OF THE SHARES OUTSTANDING (ASSUMING EXERCISE OF ALL OUTSTANDING OPTIONS
AND WARRANTS NOT SUBJECT TO CANCELLATION AGREEMENTS) ON THE DATE SHARES ARE
ACCEPTED FOR PAYMENT (THE "MINIMUM CONDITION").
The Company has represented and warranted to Purchaser and Parent in the
Merger Agreement (as defined below) that, as of May 6, 1998, there were (i)
8,027,126 Shares issued and outstanding, (ii) 336,000 Shares issuable pursuant
to the exercise of options and (iii) 480,000 Shares issuable pursuant to the
exercise of warrants. The Merger Agreement provides, among other things, that
the Company will not, without the prior written consent of Parent, issue any
additional Shares (except upon the exercise of outstanding options and
warrants). Based on the foregoing, assuming the issuance of 336,000 Shares
upon the exercise of outstanding options and warrants not subject to
cancellation agreements, the Company believes that the Minimum Condition will
be satisfied if 5,575,418 Shares are validly tendered and not withdrawn prior
to expiration of the Offer. Holders of approximately 1,428,066 (approximately
17.8% of the outstanding Shares) have agreed to tender their Shares pursuant
to the Offer. See "Voting Agreement" under Item 3.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of May 7, 1998 (the "Merger Agreement"), by and among Parent, Purchaser and
the Company. Pursuant to the Merger Agreement and the Texas Business
Corporation Act ("TBCA"), as soon as practicable after the completion of the
Offer and satisfaction or waiver if permissible, of all conditions, Purchaser
will be merged with and into the Company (the "Merger"), and the Company will
be the surviving corporation in the Merger (the "Surviving Corporation"). At
the effective time of the Merger (the "Effective Time of the Merger"), each
Share then outstanding (other than Shares held by (i) Parent or any subsidiary
of Parent, including Purchaser, and (ii) the Company or any subsidiary of the
Company), will be converted into the right to receive $17.00 in cash or any
higher price per Share paid in the Offer (the "Merger Consideration"), without
interest. The Merger Agreement is incorporated by reference herein and is
summarized in Item 3.
Consummation of the Merger is conditioned upon, among other things, the
approval and adoption by the requisite vote of shareholders of the Company of
the Merger Agreement, if required by applicable law and the Company's Restated
Articles of Incorporation, as amended (the "Articles of Incorporation"). See
Item 3. Under the TBCA and pursuant to the Articles of Incorporation, the
affirmative vote of the holders of two-thirds of the outstanding Shares is the
only vote of any class or series of the Company's capital stock that is
required to approve the Merger Agreement and the Merger.
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Under Article 5.16 of the TBCA, if a corporation owns at least 90% of the
outstanding shares of each class of a subsidiary corporation, the corporation
holding such stock may merge such subsidiary into itself, or itself into such
subsidiary, without any action or vote on the part of the board of directors
or the shareholders of such other corporation (a "short-form merger"). In the
event that Purchaser acquires in the aggregate at least 90% of the outstanding
Shares pursuant to the Offer or otherwise, then, at the election of Parent, a
short-form merger could be effected without any further approval of the
Company's Board of Directors (the "Company Board") or the Company's
shareholders.
Pursuant to the Merger Agreement, following the purchase of Shares in the
Offer, Parent has the right to designate directors on the Company Board. See
the Company's Information Statement (the "Information Statement") pursuant to
Section 14(f) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which is attached as Annex A hereto and incorporated herein
by reference.
According to the Schedule 14D-1, (i) the principal office of Desc and Parent
is located at Paseo de los Tamarindos 400-B, 28th Floor, Bosques de las Lomas,
Mexico, D.F. 05120 and (ii) the principal office of Purchaser is located at
7150 Village Drive, Buena Park, California 90621.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, is set forth in Item 1 above. All information contained in this
Statement or incorporated herein by reference concerning Desc, Parent,
Purchaser or their respective officers, directors, representatives or
affiliates, or actions or events with respect to any of them, was provided by
Desc, Parent or Purchaser, respectively, and the Company takes no
responsibility for such information.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and its executive officers, directors or
affiliates are described below and/or in the Information Statement under the
captions "Information about Directors," "Information about Executive Officers"
and "Other Information--Certain Transactions." In addition, certain members of
the Company Board and management have interests in the Offer and the Merger
that are in addition to, and not necessarily aligned with, the interests of
the other shareholders. These interests are described below and/or in the
above referenced sections of the Information Statement. Except as described
herein, there are no material contracts, agreements, arrangements or
understandings between the Company or its affiliates and Desc, Parent,
Purchaser or any of their respective executive officers, directors or
affiliates.
MERGER AGREEMENT
The following summary of the Merger Agreement is qualified by reference to
the Merger Agreement which is filed as an exhibit hereto and is incorporated
herein by reference. Capitalized terms used but not defined herein shall have
the meaning given to them in the Merger Agreement.
The Offer. The Merger Agreement provides that Purchaser will commence the
Offer and that, upon the terms and subject to prior satisfaction or waiver of
the conditions of the Offer, Purchaser will purchase all Shares validly
tendered and not properly withdrawn pursuant to the Offer. The Offer is
conditioned upon, among other things, there being tendered and not withdrawn
prior to the Expiration Date (as defined below) that number of Shares which,
when added to the number of Shares beneficially owned by Parent and Purchaser,
represents at least two-thirds of the Shares outstanding (assuming exercise of
all outstanding options and warrants not subject to cancellation agreements)
("Fully Diluted Shares"). The term "Expiration Date" shall mean 12:00
Midnight, New York City time, on Thursday, June 11, 1998 (the "Initial
Expiration Date"), unless and until Purchaser, in accordance with the terms of
the Merger Agreement, shall have extended the period of time for which the
Offer is open, in which event the term "Expiration Date" shall mean the latest
time and date at which the Offer, as so extended by Purchaser, shall expire.
The Merger Agreement provides that, without the written consent of the
Company, Purchaser will not (i) reduce the maximum number of Shares to be
purchased in the Offer, (ii) decrease the Offer Price, (iii) change the form
of consideration to be paid in the Offer, (iv) reduce or waive the Minimum
Condition, (v) impose additional conditions to the Offer or (vi) amend any
other term of the Offer in a
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manner adverse to the holders of Shares. Purchaser may (subject to the
Company's right to terminate the Merger Agreement), without the consent of the
Company, (i) extend the Offer on one or more occasions for up to 10 business
days for each such extension beyond the then scheduled Expiration Date, if at
the then scheduled Expiration Date of the Offer any of the conditions to the
Offer have not been satisfied or waived, (ii) extend the Offer for any period
required by any rule or regulation of the Securities and Exchange Commission
(the "Commission") and (iii) extend the Offer for not more than five business
days beyond the latest Expiration Date if there shall not have been validly
tendered and not withdrawn sufficient Shares so that the Merger could be
effected without a meeting of the Company's shareholders in accordance with
the TBCA. In addition, Parent and Purchaser have agreed that, if all
conditions to the Offer are not satisfied on the then scheduled Expiration
Date and at the request of the Company, Purchaser (subject to its right to
terminate the Merger Agreement) shall extend the Offer from time to time until
such conditions are satisfied or waived; provided that Purchaser shall not be
required to extend the Offer beyond July 13, 1998.
The Merger Agreement requires Purchaser to accept for payment and promptly
pay for all Shares validly tendered and not withdrawn pursuant to the Offer if
all conditions to the Offer are satisfied on the Expiration Date.
Conditions to the Offer. Notwithstanding any other provision of the Offer,
and subject to the terms of the Merger Agreement (including the obligation of
Purchaser to extend the Offer at the request of the Company) and any
applicable rules and regulations of the Commission, including Rule 14e-1(c)
relating to Purchaser's obligation to pay for or return tendered Shares after
termination of the Offer, Parent and Purchaser shall not be required to accept
for payment or pay for any Shares tendered pursuant to the Offer and may delay
acceptance for payment, if the Minimum Condition is not satisfied by the
Expiration Date, or if any applicable waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), has not
expired or terminated by the Expiration Date, or if, at any time after the
date of the Merger Agreement and before the Expiration Date, any of the
following events shall occur and be continuing:
(a) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, promulgated or deemed applicable to the
Offer or the Merger pursuant to an authoritative interpretation by or
on behalf of a Governmental Entity (as defined in the Merger Agreement)
that (i) prohibits the acquisition by Parent or Purchaser of any Shares
under the Offer, or restrains or prohibits the making or consummation
of the Offer or the Merger, (ii) prohibits or materially limits the
ownership or operation by the Company, Parent or any of their
respective subsidiaries of a material portion of the business or assets
of the Company, Parent or any of their respective subsidiaries or
compels the Company, Parent or any of their respective subsidiaries to
dispose of or hold separate any material portion of the business or
assets of the Company, Parent or any of their respective subsidiaries,
in each case as a result of the Offer or the Merger or (iii) imposes
material limitations on the ability of Parent or Purchaser to acquire
or hold, or exercise full rights of ownership of, any Shares to be
accepted for payment pursuant to the Offer including, without
limitation, the right to vote such Shares on all matters properly
presented to the shareholders of the Company or (iv) prohibits Parent
or any of its subsidiaries from effectively controlling in any material
respect any material portion of the business or operations of the
Company; or
(b) any of the representations and warranties of the Company contained in
the Merger Agreement shall not be true and correct in all material
respects at and as of the date of consummation of the Offer (except to
the extent such representations and warranties speak to an earlier
date), as if made at and as of the date of consummation of the Offer,
in each case except as contemplated or permitted by the Merger
Agreement and with respect to any representations or warranties not
qualified by "Material Adverse Effect," unless the inaccuracies under
such representations and warranties, taking all the inaccuracies under
such representations and warranties together in their entirety, do not
individually or in the aggregate, result in a Material Adverse Effect
(as defined in the Merger Agreement) on the Company; or
(c) the Company shall have failed to perform in all material respects the
obligations required to be performed by it under the Merger Agreement
at or prior to the Expiration Date, including but not
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limited to its obligations under the Merger Agreement regarding the non-
solicitation of other Transaction Proposals, except for such failures to
perform as have not had or would not, individually or in the aggregate,
have a Material Adverse Effect with respect to the Company or materially
adversely affect the ability of the Company to consummate the Merger or
the Purchaser to accept for payment or pay for Shares pursuant to the
Offer; or
(d) the Company Board shall have (i) withdrawn, modified or amended in any
respect adverse to Parent or Purchaser its approval or recommendation
of the Merger Agreement, the Offer or the Merger, (ii) recommended or
approved any Transaction Proposal from a person other than Parent,
Purchaser or any of their respective affiliates, or (iii) resolved to
do any of the foregoing; or
(e) the Merger Agreement shall have been terminated in accordance with its
terms; or
(f) the Company shall have entered into a definitive agreement or agreement
in principle with any person with respect to a Transaction Proposal or
similar business combination with the Company or any of its
subsidiaries, which in the reasonable judgment of Parent or Purchaser
in any such case, and regardless of the circumstances giving rise to
such condition, makes it inadvisable to proceed with the Offer and/or
with such acceptance for payment.
The foregoing conditions (other than the Minimum Condition) are for the sole
benefit of the Parent and Purchaser and, subject to the Merger Agreement, may
be waived by Parent or Purchaser, in whole or in part at any time and from
time to time, in the sole discretion of Parent or Purchaser; provided that,
without the express written consent of the Company, neither Parent nor
Purchaser may waive the Minimum Condition.
The Merger. Pursuant to the Merger Agreement and the TBCA, as soon as
practicable after the completion of the Offer and satisfaction or waiver, if
permissible, of all conditions, Purchaser will be merged with and into the
Company and the Company will be the Surviving Corporation in the Merger. At
the Effective Time of the Merger, each Share then outstanding (other than
Shares held by (i) Parent or any subsidiary of Parent including Purchaser, and
(ii) the Company or any subsidiary of the Company) will be converted into the
Merger Consideration.
Conditions to the Merger. The respective obligations of Parent and
Purchaser, on the one hand, and the Company, on the other hand, to effect the
Merger are subject to the satisfaction or waiver of each of the following
conditions: (i) the Merger Agreement and the Merger shall have been approved
by the requisite vote of the Company's shareholders if required by law; (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 Governmental Entity or other legal restraint or
prohibition shall be in effect preventing or prohibiting the acceptance for
payment of, or payment for, Shares pursuant to the Offer, or the consummation
of the Merger, provided, however, that the parties shall use all reasonable
efforts to have any such injunction, order, restraint or prohibition vacated;
and (iv) no statute, rule, order, decree or regulation shall have been enacted
or promulgated by any Governmental Entity of competent jurisdiction which
prohibits the consummation of the Merger. The obligation of Parent and
Purchaser to effect the Merger also is subject to Parent or Purchaser having
been obligated to purchase Shares in the Offer.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things, corporate organization, capital stock, options
or other rights to acquire Shares, authority to enter into the Merger
Agreement, required consents, no conflicts between the Merger Agreement and
the Articles of Incorporation and Bylaws of the Company or applicable laws or
agreements to which the Company or its assets may be subject, financial
statements, public filings, conduct of business, employee benefit plans,
ERISA, intellectual property, labor and employment matters, compliance with
laws, tax matters, litigation, environmental matters, material contracts,
brokers' and finders' fees, title to properties, absence of liens, votes
required to approve the Merger Agreement, undisclosed liabilities, product
liability, disclosures in proxy statement and tender offer documents and the
absence of material adverse changes.
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In the Merger Agreement, each of Parent and Purchaser has made customary
representations and warranties to the Company with respect to, among other
things, corporate organization, authority to enter into the Merger Agreement,
required consents, no conflicts between the Merger Agreement and the
Certificate of Incorporation, Bylaws and other constituent documents of Parent
or Purchaser or laws applicable to Parent and Purchaser or agreements to which
Parent or Purchaser are subject, brokers' fees and disclosures in proxy
statement and tender offer documents.
The Company Board. The Merger Agreement provides that effective upon the
acceptance for payment and payment by Purchaser of Shares pursuant to the
Offer such that Parent or Purchaser shall own at least two-thirds of the Fully
Diluted Shares, Purchaser shall be entitled to designate the number of
Directors, rounded up to the next whole number, on the Company Board that
equals the product of (i) the total number of directors on the Company Board
(giving effect to the election of any additional directors pursuant to the
Merger Agreement) and (ii) the percentage that the number of Shares owned by
Purchaser (including Shares accepted for payment and paid for) bears to the
total number of Fully Diluted Shares, and the Company shall take all action
necessary to cause Purchaser's designees to be elected or appointed to the
Company Board, including, without limitation, increasing the number of
directors (to the extent permitted under Article 2.34(C) of the TBCA), and
seeking and accepting resignations of incumbent directors. At such times, the
Company will use its best efforts to cause individuals designated by Purchaser
to constitute the same percentage as such individuals represent on the Company
Board of (x) each committee of the Company Board (other than any committee
established to take action under the Merger Agreement), (y) each board of
directors of each subsidiary of the Company and (z) each committee of each
such board.
In the event that Purchaser's designees are elected or appointed to the
Company Board, until the Effective Time of the Merger, the Company Board shall
have at least two directors who were directors of the Company on the date of
the Merger Agreement and who are not employees of the Company or any of its
subsidiaries (the "Independent Directors"). In such event, if the number of
Independent Directors shall be reduced below two for any reason whatsoever,
the remaining Independent Director shall designate a person to fill such
vacancy who shall be deemed to be an Independent Director for purposes of the
Merger Agreement or, if no Independent Directors then remain, the other
directors of the Company on the date of the Merger Agreement shall designate
two persons to fill such vacancies who shall not be officers or affiliates of
the Company or any of its subsidiaries, or officers or affiliates of Parent or
any of its subsidiaries, and such persons shall be deemed to be Independent
Directors for purposes of the Merger Agreement.
Notwithstanding anything in the Merger Agreement to the contrary, the
affirmative vote of the majority of the Independent Directors shall be
required to (i) amend or otherwise modify the Articles of Incorporation of the
Company, (ii) approve any amendment, modification or waiver by the Company of
any provisions of the Merger Agreement or (iii) approve any other action by
the Company that adversely affects the interests of the shareholders of the
Company (other than Parent, Purchaser or any affiliate thereof) with respect
to the transactions contemplated by the Merger Agreement, including without
limitation, any actions which would constitute a breach by the Company of its
representations, warranties or covenants contained in the Merger Agreement.
The foregoing provisions of the Merger Agreement shall not limit any rights
which Parent, Purchaser or their affiliates may have as holders or beneficial
owners of Shares with respect to the election of directors or otherwise.
The Company's obligations to appoint designees of Purchaser to the Company
Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. Subject to applicable law, the Company shall promptly
take all action requested by Purchaser necessary to effect any such election,
including mailing to its shareholders the information statement containing the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, and the Company agrees to make such mailing with the
mailing of the Schedule 14D-9 (provided that Purchaser shall have provided to
the Company on a timely basis all information required to be included in such
information statement with respect to Purchaser's designees). Purchaser will
supply to the Company in writing and be solely responsible for any information
with respect to itself and its nominees, officers, directors and affiliates
required by Section 14(f) and Rule 14f-1.
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Shareholders' Meeting; Proxy Statement. Pursuant to the Merger Agreement,
the Company will, if required by applicable law in order to consummate the
Merger, as promptly as practicable following the acceptance for payment of and
payment for Shares pursuant to the Offer prepare and file with the Commission
a preliminary proxy or information statement (the "Proxy Statement") in
accordance with the Exchange Act relating to the Merger and the Merger
Agreement and use all reasonable efforts to obtain and furnish the information
required to be included by the Exchange Act and the Commission in such Proxy
Statement and, after consultation with Parent and Purchaser, to respond
promptly to any comments made by the Commission with respect to such Proxy
Statement and cause the Proxy Statement in definitive form to be mailed to the
Company's shareholders. Pursuant to the Merger Agreement, the Company will, if
required by applicable law in order to consummate the Merger, as promptly as
practicable following the acceptance for payment of and payment for Shares
pursuant to the Offer and in consultation with Purchaser and Parent, duly
call, give notice of, convene and hold a meeting of its shareholders (the
"Shareholders Meeting") for the purpose of approving the Merger Agreement and
the transactions contemplated thereby. The Company will, through the Company
Board, recommend to its shareholders approval of the foregoing matters and
seek to obtain all votes and approvals thereof by the shareholders, subject to
provisions set forth below under "No Solicitation;" and provided that such
recommendation and other action may be withdrawn, modified or amended if the
Company determines in good faith, based on advice of its outside counsel, that
such action is necessary in order for the Company Board to comply with its
fiduciary duties under applicable law. Subject to the foregoing, such
recommendation, together with a copy of the opinion of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") shall be included in the Proxy
Statement. At the Shareholders Meeting, Purchaser has agreed to cause all
Shares then owned by it, Parent or any affiliate thereof to be voted in favor
of the adoption of the Merger Agreement and in favor of any other resolution
necessary to approve the transactions contemplated by the Merger Agreement. IF
PURCHASER ACQUIRES, THROUGH THE OFFER OR OTHERWISE, AT LEAST TWO-THIRDS OF THE
OUTSTANDING SHARES, PURCHASER WILL HAVE SUFFICIENT VOTING POWER TO APPROVE THE
MERGER, EVEN IF NO OTHER SHAREHOLDERS VOTE IN FAVOR OF THE MERGER.
Notwithstanding the foregoing, if Purchaser shall acquire at least 90% of
the Shares outstanding pursuant to the Offer or otherwise, Purchaser may cause
the Merger to occur without a Shareholders Meeting in accordance with Article
5.16 of the TBCA; provided, however, that in such event, the rights of
shareholders of the Company under the Merger Agreement (including, without
limitation, the right to receive the Merger Consideration) shall not be
adversely affected thereby (other than the right to receive the Proxy
Statement, attend the Shareholders Meeting and vote on the Merger, each of
which shall no longer be applicable).
Employee Benefits. The Merger Agreement provides that, for a period of
twelve months following the Effective Time of the Merger, the Surviving
Corporation shall maintain employee benefits plans and arrangements (directly
or in conjunction with Parent or Purchaser) which, in the aggregate, will
provide a level of benefits to continuing employees of the Company and its
subsidiaries substantially comparable in the aggregate to those provided to
similarly situated employees of Parent in the United States as in effect
immediately prior to the Effective Time of the Merger (other than
discretionary benefits) provided that Parent may make modifications to such
benefit plans and arrangements to the extent necessary to comply with
applicable law or to reflect widespread adjustments in benefits (or costs
thereof) provided to employees under compensation and benefit plans of Parent
and its subsidiaries, and no specific compensation and benefit plans need be
provided. For purposes of determining eligibility and vesting with respect to
any of the Surviving Corporation's benefit plans, Parent shall use the
employee's hire date with the Company or such other date as has been
previously determined by the Company for credit for prior employment with any
predecessor or ERISA Affiliate (as defined in the Merger Agreement) of the
Company. The Surviving Corporation's benefit plans providing medical, dental
or life insurance benefits after the Effective Time of the Merger to any
individual who is an active or former employee of the Company or any of its
subsidiaries (or a dependent of such employee) as of the Effective Time of the
Merger shall waive any waiting periods, pre-existing conditions, and certain
exclusions to the extent so waived under present policy and shall take into
account expenses incurred by such individuals on or before the Effective Time
of the Merger for purposes of satisfying deductible, coinsurance and maximum
out-of-pocket provisions to the extent taken into account under present
policy.
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The Merger Agreement does not prohibit the Company or Purchaser from
terminating the employment of any employee at any time with or without cause
(subject to, and in accordance with the terms of, any existing employment
agreements), nor shall it be construed or applied to restrict the ability of
Purchaser or Parent to establish such types and levels of compensation and
benefits as they determine to be appropriate. Parent has agreed to cause the
Surviving Corporation to honor the employment agreements existing on the date
of the Merger Agreement and disclosed to Parent.
Options and Warrants. The Merger Agreement provides that, as soon as
practicable following the date of the Merger Agreement, the Company Board
shall: (i) adjust the terms of all outstanding options to purchase Shares
("Company Stock Options") to provide that, at the Effective Time of the
Merger, each Company Stock Option outstanding immediately prior to the
Effective Time of the Merger shall vest as a consequence of the Merger and
shall be canceled in exchange for a payment from the Company after the Merger
(subject to any applicable withholding taxes) equal to the product of (1) the
total number of Shares subject to such Company Stock Option, multiplied by (2)
the excess of the Merger Consideration over the exercise price per Share
subject to such Company Stock Option, payable in cash immediately upon the
Effective Time of the Merger; and (ii) except as provided in the Merger
Agreement or as otherwise agreed to by the parties, the Company's stock option
plans and any other plan, program or arrangement providing for the issuance or
grant of any other interest in respect of the capital stock of the Company or
any subsidiary shall terminate as of the Effective Time of the Merger, and the
Company shall ensure that, following the Effective Time of the Merger, no
holder of a Company Stock Option nor any participant in any of the Company's
stock option plans shall have any right thereunder to acquire equity
securities of the Surviving Corporation following the Merger, except for the
rights set forth in clause (i) above. Certain of the Company's officers and
directors own Company Stock Options.
The Merger Agreement also provides that, as soon as practicable following
the date of the Merger Agreement, the Company Board shall take all action
necessary to cause each outstanding Warrant (each a "Warrant" and collectively
"Warrants") governed by the Warrant Agreements (as defined in the Merger
Agreement), to be, at the Effective Time of the Merger, automatically (without
any further action of the Company or the holders thereof) cancelled in
exchange for the right to receive an amount in cash equal to the product of
(i) the total number of Shares subject to such Warrant, multiplied by (ii) the
excess of the Merger Consideration over the exercise price per Share subject
to such Warrant. If certain consents to have such Warrants accelerated and
cashed out pursuant to the terms above are not obtained, the Company has
agreed to redeem such Warrants in accordance with the terms of the Warrants.
Certain of the Company's directors have beneficial interests in the Warrants.
Interim Operations; Covenants. Pursuant to the Merger Agreement, during the
period from May 7, 1998 to the Effective Time of the Merger, the Company has
agreed that, except as expressly contemplated by the Merger Agreement, the
Company shall, and shall cause its subsidiaries to, act and carry on their
respective businesses in the ordinary course of business consistent with past
practice and use its and their respective reasonable efforts to preserve
intact their current business organizations, keep available the services of
their current officers and employees and preserve their relationships with
customers, suppliers, licensors, licensees, advertisers, distributors and
others having business dealings with them and to preserve goodwill. Without
limiting the generality of the foregoing, during such period, the Company
shall not, and shall not permit any of its subsidiaries to, without the prior
written consent of Parent, which consent shall not be unreasonably withheld:
(a) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than
dividends and distributions by a subsidiary of the Company to the
Company in accordance with applicable law;
(b) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock;
(c) purchase, redeem or otherwise acquire any shares of capital stock of
the Company or any of its subsidiaries or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities, except for the cash-out (or redemption in certain
circumstances) of Company Stock Options and Warrants outstanding on the
date of the Merger Agreement;
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(d) authorize for issuance, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock or the capital stock of any of
its subsidiaries, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities or any other
securities or equity equivalents (including without limitation stock
appreciation rights) other than the issuance of Shares upon the
exercise of Company Stock Options and Warrants outstanding on the date
of the Merger Agreement and in accordance with their present terms;
(e) amend its certificates or articles of incorporation, bylaws or other
comparable charter or organizational documents;
(f) subject to the provisions of the Merger Agreement, acquire or agree to
acquire by merging or consolidating with, or by purchasing a
substantial portion of the stock or assets of, or by any other manner,
any business or any corporation, partnership, joint venture,
association or other business organization;
(g) other than as specifically permitted by the Merger Agreement, mortgage
or otherwise encumber or subject to any lien (in each case except as
provided by the existing terms of the Company's credit agreements) or
otherwise dispose of or sell, lease or license any of its properties or
assets other than sales of inventory in the ordinary course of business
consistent with past practice;
(h) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company
or any of its subsidiaries, guarantee any debt securities of another
person, 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, except
for borrowings under current credit facilities and for lease
obligations, in each case incurred in the ordinary course of business
consistent with past practice;
(i) make any loans, advances or capital contributions to, or investments
in, any other person, other than to the Company or any direct or
indirect wholly owned subsidiary of the Company;
(j) pay, discharge or satisfy any claims (including claims of
shareholders), liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), except for the payment,
discharge or satisfaction, (i) of liabilities or obligations in the
ordinary course of business consistent with past practice or in
accordance with their terms as in effect on the date of the Merger
Agreement or (ii) claims settled or compromised to the extent permitted
by the Merger Agreement, or waive, release, grant, or transfer any
rights of material value or modify or change in any material respect
any existing license, lease, Permit, contract or other document, other
than in the ordinary course of business consistent with past practice;
(k) adopt resolutions providing for or authorizing a liquidation or a
dissolution;
(l) enter into any new collective bargaining agreement;
(m) change any material accounting principle used by it, except to the
extent required by generally accepted accounting principles;
(n) settle or compromise any litigation (whether or not commenced prior to
the date of the Merger Agreement) other than settlements or compromises
of litigation where the amount paid (after giving effect to insurance
proceeds actually received) in settlement or compromise is not greater
than $50,000;
(o) make any new capital expenditure or expenditures, other than capital
expenditures not to exceed, in the aggregate $200,000;
(p) except in the ordinary course of business or otherwise permitted by the
Merger Agreement, modify, amend or terminate any contract or agreement
set forth in filings with the Commission filed and publicly available
prior to the date of the Merger Agreement to which the Company or any
of its subsidiaries is a party or waive, release or assign any material
rights or claims;
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(q) except as permitted by the Merger Agreement, (i) enter into any
employment agreement with any officer, director or key employee of the
Company or any of its subsidiaries or (ii) hire or agree to hire any
new or additional key employees with annual compensation of $50,000 or
more or officers;
(r) make any tax election or settle or compromise any material tax
liability;
(s) voluntarily take, or voluntarily agree to commit to take, any action
that would make any representation or warranty of the Company contained
in Merger Agreement inaccurate in any material respect at, or as of any
time prior to, the Effective Time of the Merger; or
(t) authorize any of, or commit or agree to take any of, the foregoing
actions.
Except as set forth in the Merger Agreement, the Company has also agreed not
to:
(a) adopt or amend (except as may be required by law) any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement,
trust, fund or other arrangement for the benefit or welfare of any
employee, director or former director or employee, or increase the
compensation or fringe benefits of any director, employee or former
director or employee or pay any benefit not required by any existing
plan, arrangement or agreement, other than increases for employees
other than officers and directors in the ordinary course of business
consistent with past practice;
(b) grant any new or modified severance or termination arrangement or
increase or accelerate any benefits payable under its severance or
termination pay policies in effect on the date of the Merger Agreement;
or
(c) effectuate a "plant closing" or "mass layoff", as those terms are
defined in the Worker Adjustment and Retraining Notification Act of
1988 or similar state law ("WARN") affecting in whole or in part any
site of employment, facility, operating unit or employee of the Company
or any subsidiary of the Company, without the prior written consent of
Purchaser and without complying with the notice requirements and other
provisions of WARN.
Access to Information; Confidentiality. Pursuant to the Merger Agreement,
during the period prior to the earlier of the Effective Time of the Merger and
the termination of the Merger Agreement, each of the Company and its
subsidiaries shall afford to Parent, Purchaser and their representatives
reasonable access during normal business hours to its properties, books,
contracts, commitments, personnel and records (including, without limitation,
to the extent available, the work papers of the Company's and its
subsidiaries' independent public accountants) and, during such period, each of
the Company and its subsidiaries shall furnish promptly to Parent and
Purchaser (i) 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 laws and (ii) all other information concerning its
business, properties, financial condition, operations and personnel as Parent
and Purchaser may from time to time reasonably request; provided, however,
that the foregoing shall not require Company or any of its subsidiaries to
disclose any information that would cause a violation of any contractual
confidentiality obligation existing on the date of the Merger Agreement.
Except as required by law, each of the Company, Parent and Purchaser, will
hold and will cause its representatives to hold any nonpublic information in
confidence to the extent required by the Confidentiality Agreement (as defined
below).
No Solicitation. Until the termination of the Merger Agreement, neither the
Company nor any of its subsidiaries, nor any of their respective officers,
directors, employees, representatives, agents or affiliates (including,
without limitation, any investment banker, attorney, or accountant retained by
the Company or any of its subsidiaries) (collectively "Responsible Parties")
will directly or indirectly initiate, solicit or knowingly encourage
(including by way of furnishing non-public information or assistance), or take
any other action to facilitate knowingly, any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Transaction Proposal (as defined below), or enter into or maintain or continue
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain a Transaction Proposal or agree to or endorse any
Transaction Proposal or authorize or permit any Responsible Party to take any
such action.
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Notwithstanding the foregoing, if prior to the acceptance for payment of,
and payment for, Shares pursuant to the Offer and after consultation with
their financial advisors and after receipt of advice from independent outside
legal counsel, the Company Board or any Special Committee thereof determines
in good faith that such action is necessary to comply with its fiduciary
duties, nothing in the Merger Agreement shall prohibit the Company Board from:
(i) furnishing information to or entering into discussions or negotiations
with, any person or entity that makes an unsolicited bona fide Transaction
Proposal only to the extent that prior to taking such action the Company
provides prompt notice to Parent to the effect that it is furnishing such
information to or entering into discussions or negotiations with such person
or entity and receives from such person or entity an executed confidentiality
agreement containing terms and provisions, when taken in the aggregate,
comparable to those in the Confidentiality Agreement in the reasonable
judgment of the Company Board, (ii) failing to make or withdrawing or
modifying its recommendation referred to in the Merger Agreement if there
exists a Transaction Proposal, or (iii) making to the Company's shareholders
any recommendation and related filing with the Commission as required by Rule
14e-2 and 14d-9 under the Exchange Act, with respect to any tender offer, or
taking any other legally required action with respect to such tender offer
(including, without limitation, the making of public disclosures as may be
necessary or reasonably advisable under applicable securities laws).
"Transaction Proposal" shall mean any of the following (other than the
transactions between the Company, Parent and Purchaser contemplated by the
Offer and the Merger Agreement) involving the Company or any of its
subsidiaries: (i) any merger, consolidation, share exchange, recapitalization,
business combination, or other similar transaction; (ii) except in the
ordinary course of business, any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 20% or more of the assets of the Company and
its subsidiaries, taken as a whole, in a single transaction or series of
related transactions; (iii) any tender offer or exchange offer for, or the
acquisition of (or right to acquire) "beneficial ownership" by any person,
"group" or entity (as such terms are defined under Section 13(d) of the
Exchange Act), of 20% or more of the outstanding shares of capital stock of
the Company or the filing of a registration statement under the Securities Act
in connection therewith; or (iv) any public announcement of a proposal, plan
or intention to do any of the foregoing or any agreement to engage in any of
the foregoing or recapitalization, liquidation, dissolution or similar
transaction involving the Company or any of its subsidiaries.
Prior to the Company Board withdrawing or modifying its approval or
recommendation of the Offer, the Merger Agreement or the Merger, approving or
recommending a Transaction Proposal, or entering into an agreement with
respect to a Transaction Proposal, the Company Board shall provide Purchaser
with a written notice (a "Notice of Takeover Proposal") advising Purchaser
that the Company Board has received a Transaction Proposal, specifying the
material terms and conditions of such Transaction Proposal and identifying the
person making such Transaction Proposal, and neither the Company nor any
subsidiary shall enter into an agreement with respect to a Transaction
Proposal until 48 hours after the first Notice of Takeover Proposal with
respect to a given third party was given to Purchaser. In addition, if the
Company or any of its subsidiaries proposes to enter into an agreement with
respect to any Transaction Proposal, the Company shall, if required in
accordance with the terms of the Merger Agreement, concurrently with entering
into such agreement pay, or cause to be paid, to Purchaser the expenses and
fees, including those referred to under "Termination Fee" below.
Indemnification. The Merger Agreement provides that, for six years after the
Effective Time of the Merger, the Surviving Corporation shall indemnify all
present and former directors or officers of the Company and its subsidiaries
and Shansby Partners, L.L.C. ("Shansby Partners") (but, with respect to
Shansby Partners, only to the extent of the indemnity contained in the
Advisory Agreement (as defined in the Information Statement)) ("Indemnified
Parties") against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages, penalties or liabilities
(collectively, "Costs") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring
at or prior to the Effective Time of the Merger, whether asserted or claimed
prior to, at or after the Effective Time of the Merger, to the fullest extent
as would have been permitted in their respective articles of incorporation or
bylaws consistent with applicable law, to the extent such Costs have not been
paid for by insurance and shall, in connection with defending against any
action for which
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indemnification is available hereunder, reimburse such Indemnified Parties
from time to time upon receipt of sufficient supporting documentation, for any
reasonable costs and expenses reasonably incurred by such Indemnified Parties;
provided that any determination required to be made with respect to whether an
Indemnified Party's conduct complies with the standards set forth in the
articles of incorporation or bylaws of the Company or its subsidiaries, as
applicable, consistent with applicable law shall be made by independent
counsel mutually acceptable to the Surviving Corporation and the Indemnified
Party; and provided, further, that such reimbursement shall be conditioned
upon such Indemnified Parties' agreement promptly to return such amounts to
the Company if a court of competent jurisdiction shall ultimately determine
that indemnification of such Indemnified Parties is prohibited by applicable
law.
The Surviving Corporation will maintain for a period of not less than six
years from the Effective Time of the Merger the Company's current directors'
and officers' insurance and indemnification policy (or a policy providing
substantially similar coverage) for all persons who are directors and officers
of the Company on the date of the Merger Agreement; provided that the
Surviving Corporation shall not be required to spend as an annual premium for
such insurance an amount in excess of 200% of the annual premium paid for such
insurance in effect prior to the date of the Merger Agreement; and provided
further that the Surviving Corporation shall nevertheless be obligated to
provide such coverage as may be obtained for such amount. These provisions of
the Merger Agreement are intended for the benefit of, and shall be enforceable
by, each Indemnified Party and his or her heirs and representatives.
Termination. The Merger Agreement may be terminated and the transactions
contemplated therein abandoned at any time prior to the Effective Time of the
Merger, whether before or after approval of the matters presented in
connection with the Merger by the shareholders of the Company:
(a) by mutual written consent of Parent and the Company; or
(b) by either Parent or the Company, if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting, or if there shall be
in effect any other legal restraint or prohibition preventing or
prohibiting, the acceptance for payment of, or payment for, Shares
pursuant to the Offer or the consummation of the Merger, and such
order, decree, ruling or other action shall have become final and
nonappealable (other than due to the failure of the party seeking to
terminate the Merger Agreement to perform its obligations under the
Merger Agreement required to be performed at or prior to the Effective
Time of the Merger); or
(c) by the Company, if Purchaser shall not have (i) commenced the Offer
within five business days after the initial public announcement of
Purchaser's intention to commence the Offer, or (ii) accepted for
payment any Shares pursuant to the Offer (other than due to the failure
of the Company to perform its obligations under the Merger Agreement)
on or prior to July 31, 1998, or, if any necessary approvals required
under the HSR Act shall not have been obtained by such date, ten
business days after receipt of all necessary approvals under the HSR
Act; or
(d) by the Company, substantially concurrently with the execution, prior to
Purchaser's purchase of Shares pursuant to the Offer, of a binding
agreement with a third party with respect to a Transaction Proposal,
provided that it has complied with all provisions of the Merger
Agreement, including the notice provisions in the Merger Agreement, and
that it pays the Termination Fee pursuant to the provisions of the
Merger Agreement described under "Termination Fee" below; or
(e) by Parent, prior to Purchaser's purchase of any Shares pursuant to the
Offer, in the event of a material breach or failure to perform in any
material respect by the Company of any covenant or other agreement
contained in the Merger Agreement or in the event of a breach of any
representation or warranty of the Company that could reasonably be
expected to have a Material Adverse Effect, in each case which cannot
be or has not been cured within 15 days after the giving of written
notice to the Company; or
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(f) by the Company, prior to Purchaser's purchase of any Shares pursuant to
the Offer, in the event of a material breach or failure to perform in
any material respect by Parent or Purchaser of any covenant or other
agreement contained in the Merger Agreement or in the event of a breach
of any representation or warranty of the Company that could reasonably
be expected to have a Material Adverse Effect, in each case which
cannot be or has not been cured within 15 days after the giving of
written notice to Parent or Purchaser; or
(g) by Parent, if the Company Board, or any subcommittee thereof
established to take action under the Merger Agreement, shall (i)
withdraw or modify in any adverse manner its approval or recommendation
of the Merger Agreement, the Offer or the Merger, (ii) approve or
recommend any Transaction Proposal, or (iii) resolve to take any of the
actions specified in clause (i) above; or
(h) by Parent or the Company, in each case after two business days' notice
to the other party if the Offer expires without renewal.
Termination Fee. If any person (other than Purchaser or any of its
affiliates) shall have made, proposed, communicated or disclosed a Transaction
Proposal in a manner which is or otherwise becomes public and the Merger
Agreement is terminated pursuant to any of the following provisions:
(i) by the Company pursuant to clause (d) under "Termination" above; or
(ii) by Parent, pursuant to clause (g) under "Termination" above;
then the Company shall, simultaneously with such termination of the Merger
Agreement, pay Purchaser a fee of $3,700,000 in cash, which amount shall be
payable in same-day funds (the "Termination Fee").
CONFIDENTIALITY AGREEMENT
The following is a summary of certain provisions of the confidentiality
letter agreement, dated as of February 26, 1998, as supplemented by the
supplemental confidentiality letter agreement dated March 31, 1998, each
between the Company and Desc (as amended, the "Confidentiality Agreement").
This summary does not purport to be complete and is qualified in its entirety
by reference to the complete text of the confidentiality letters, copies of
which are filed as exhibits hereto and are incorporated herein by reference.
Capitalized terms not otherwise defined below shall have the meanings set
forth in the Confidentiality Agreement.
The Confidentiality Agreement contains customary provisions pursuant to
which, among other matters, Desc has agreed, subject to certain exceptions, to
keep confidential all nonpublic, confidential or proprietary information
concerning the Company which is furnished to Desc by or on behalf of the
Company, including certain information about the Company's acquisition
opportunities with respect to certain acquisition candidates (the
"Confidential Information"), and to use the Confidential Information solely
for the purpose of evaluating a possible transaction involving the Company and
Desc and will not be used in any way detrimental to the Company.
Desc has further agreed that, for a period of two years from the date of the
Confidentiality Agreement, unless Desc receives the prior written consent of
the Company, Desc will not, directly or indirectly, solicit any management
employee of the Company for employment with whom Desc has had contact or who
becomes known to Desc in connection with the consideration of the Offer.
Desc has further agreed that, for a period of two years following the date
of the Confidentiality Agreement, unless specifically requested in advance by
the Company Board, neither it nor any of its "affiliates" or "associates" (as
those terms are defined under the Exchange Act) will, other than in connection
with the Offer and the Merger, (a) acquire, offer to acquire, or agree to
acquire, or cause or recommend that any other person acquire, directly or
indirectly, by purchase, gift, through the acquisition or control of another
person or otherwise, any voting securities of the Company, or arrange or
participate in the arranging of financing thereof, (b) make or in any way
participate in, directly or indirectly, any "solicitation" of "proxies" to
vote or become a
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"participant" in an "election contest" (as such terms are used in the proxy
rules of the Commission) or seek to advise or influence any person or entity
with respect to the voting of any voting securities of the Company, (c) form,
join or in any way participate in a "group" within the meaning of Section
13(d)(3) of the Exchange Act, with respect to any such voting securities of
the Company, (d) deposit any voting securities in a voting trust or subject
any such voting securities to any arrangement or agreement with respect to the
voting of such voting securities, (e) propose any business combination
(including without limitation pursuant to any merger or share exchange) with
the Company or make or propose a tender or exchange offer or any other offer
for any of the Company's voting securities, or arrange, or participate in the
arrangement of, financing thereof, (f) disclose an intent, purpose, plan or
proposal with respect to the Company or its voting securities inconsistent
with the provisions of the Confidentiality Agreement or otherwise take any
other action that could reasonably be expected to require the Company to
disclose any such intent, purpose, plan or proposal, (g) otherwise act, alone
or in concert with or on behalf of others, to seek directly or indirectly to
control the management, board of directors, policies or affairs of the
Company, (h) encourage or assist any other person in connection with any of
the foregoing or (i) request permission to do any of the foregoing.
Desc has further agreed it will not directly or indirectly pursue, solicit
or encourage, or take any other action with respect to, any acquisition,
merger or other combination with any acquisition candidate that has been
identified to it by the Company or its Representatives without the prior
written consent of the Company or unless the Company has notified Desc in
writing that the Company has broken off all discussions with such acquisition
candidate. Desc, subject to certain exceptions, may not directly or indirectly
contact any employee, officer or Representative of any acquisition candidate
identified to it by the Company or its Representatives without the prior
written consent of the Company.
VOTING AGREEMENT
The following summary of the Voting Agreement (the "Voting Agreement") by
and among Shansby Partners, TSG2 L.P., TSG2 Management, L.L.C., J. Gary
Shansby and Charles H. Esserman (each a "Shansby Affiliate" and collectively,
the "Shansby Affiliates") and the Company dated as of May 7, 1998 is qualified
by reference to the Voting Agreement which is filed as an exhibit hereto and
is incorporated herein by reference. Capitalized terms used but not defined
herein shall have the meaning given to them in the Voting Agreement.
Pursuant to the Voting Agreement, each of the Shansby Affiliates has agreed
(w) to tender in connection with the Offer all Shares beneficially owned by
such Shansby Affiliate and not to withdraw such Shares unless the Merger
Agreement has been terminated in accordance with its terms, (x) not to
exercise any Warrants held by such Shansby Affiliates unless the Merger
Agreement has been terminated, (y) that at the Effective Time of the Merger
the Warrants held by the Shansby Affiliates will automatically be cancelled in
exchange for the right to receive a cash amount equal to the product of (1)
the total number of Shares subject to such Warrants, multiplied by (2) the
excess of the Merger Consideration over the exercise price per Share subject
to such Warrants and (z) to cancel the Advisory Agreement effective upon, and
subject to, the consummation of the Offer and the payment of a cancellation
fee by the Company to Shansby Partners of $1,400,000.
The Voting Agreement automatically terminates if the Merger Agreement is
terminated in accordance with its terms.
Based on public filings of the Shansby Affiliates, the Shansby Affiliates
own 1,428,066 Shares (approximately 17.8% of the outstanding Shares).
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Company Board.
On May 7, 1998, the Company Board, based in part upon the opinion of DLJ
that, as of such date and based upon and subject to the assumptions made,
matters considered and limitations on the review undertaken, the consideration
offered to shareholders of the Company pursuant to the Merger Agreement was
fair to such
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holders from a financial point of view, unanimously approved the Offer, the
Merger and the Merger Agreement. In addition, the Company Board determined
that the terms of the Offer and the Merger are fair to, and in the best
interests of, the shareholders of the Company and recommends acceptance of the
Offer.
A copy of a letter to all shareholders of the Company communicating the
recommendations of the Company Board is filed as an exhibit hereto and is
incorporated herein by reference.
(b) Background; Reasons for the Company Board's Recommendation.
Background. On November 5 and 21, 1997, J. Gary Shansby and Charles H.
Esserman of Shansby Partners, the Company's acquisition advisor, approached
Embasa Foods, Inc. ("Embasa"), a subsidiary of Desc, to discuss a possible
acquisition of Embasa by the Company. No agreement resulted from those
discussions.
On January 8, 1998, Mr. Shansby and Mr. Esserman met with representatives of
Desc at its headquarters in Mexico City to discuss a purchase of Embasa.
During that meeting, the Desc representatives indicated that they might be
interested in acquiring a position in the Company. Mr. Shansby and Mr.
Esserman indicated that they did not know whether the Company Board would be
interested in authorizing the sale of the Company. At a regular meeting of the
Company Board on January 22, 1998 Mr. Shansby and Mr. Esserman informed the
Board of Directors of their meetings with Desc. The Board encouraged Mr.
Shansby and Mr. Esserman to continue discussions with Desc and to inform the
Board about the status of those discussions.
On February 26, 1998, Desc and the Company entered into a confidentiality
agreement. At the February 27 meeting of the Company Board, Mr. Esserman
described for the Board the discussions with Desc and also described a
presentation planned for a meeting with Desc later in the day at the offices
of the Company's La Victoria subsidiary. The Board confirmed that the Company
was not for sale, but asked to be informed about any proposals from Desc.
After the Board meeting, representatives of Desc met with Mr. Shansby, Mr.
Esserman, and Keith R. Lively, who then served as Chairman and Chief Executive
Officer of the Company, and toured the La Victoria facility. Following the
meeting, Desc informed Mr. Shansby and Mr. Esserman that Desc might be
interested in making an acquisition proposal, probably for less than all of
the outstanding Shares, but no proposal was made and no agreements were
reached.
On February 27, the Company contacted DLJ about serving as financial advisor
in connection with a possible transaction with Desc. On March 4, the Company
announced that both Mr. Lively and Mr. Bing Graffunder, President of the
Company, had unexpectedly resigned. The Company's Board elected one of its
outside directors, Mr. Robert K. Swanson, to serve as Chairman of the Board
and Chief Executive Officer. During March, DLJ and JP Morgan discussed Desc's
interest in the Company but no proposals were made and no agreements were
reached. At the March 24, 1998 meeting of the Company Board, Mr. Shansby and
Mr. Esserman gave a report to the Board about discussions with Desc and agreed
to keep the Board informed of any proposals.
On March 26, 1998, representatives of Desc and its financial and legal
advisors met with representatives of the Company, including Mr. Swanson and
the Company's financial and legal advisors, in Dallas, Texas, to discuss
possible approaches to a transaction and to commence a business due diligence
review of the Company. At the Dallas meeting, Desc expressed interest in
acquiring control of the Company in a partial tender offer, and leaving the
remaining Shares outstanding so that Desc would have a public U.S. subsidiary.
The Company representatives expressed a strong preference that all Shares be
purchased.
On April 3, 1998, representatives of Desc, certain of its subsidiaries and
their financial and legal advisors met in Costa Mesa, California, with the
Company and its financial and legal advisors to review the Company's
operations and to discuss the scope of the information that the Company would
make available for Desc's due diligence review. Additionally, Desc and the
Company entered into a supplemental confidentiality agreement, dated as of
March 31, 1998, relating to information regarding certain acquisitions the
Company was considering. Following this meeting, the Company provided Desc and
its representatives access to information about the Company, and
representatives of Desc and its financial and legal advisors began discussions
with the Company and its financial and legal advisors concerning terms of a
possible transaction.
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On April 17, 1998, representatives of J.P. Morgan and Desc met in San
Francisco, California with representatives of the Company and DLJ to discuss
the operating budget for the year ended December 31, 1998, as prepared by the
management of the Company. At this meeting, Desc indicated that it would
consider a transaction involving a purchase of all outstanding Shares.
During late April and early May, DLJ held discussions with a limited number
of potential purchasers other than Desc to discern whether any of those
potential purchasers would be interested in making an acquisition proposal for
the Shares. Certain of these potential purchasers reviewed publicly available
information about the Company and others reviewed a limited amount of non-
public information after signing confidentiality agreements with the Company.
None of these potential purchasers indicated that they were interested at that
time in having further discussions with DLJ or the Company with respect to an
acquisition proposal for the Shares.
At the April 28, 1998 meeting of Parent's Board of Directors, the Parent's
Board authorized continued negotiations related to the proposed acquisition
and, if satisfactory terms could be reached, executing a definitive agreement
for such acquisition. On April 28, the Company Board also met, received a
report on the negotiations, and authorized Company representatives to continue
to discuss a proposed acquisition. At this meeting of the Company Board legal
counsel from the Company described for the Board the material terms that were
likely to be included in a definitive merger agreement.
Following April 28, 1998, representatives of J.P. Morgan and representatives
of DLJ continued negotiations with respect to price and the terms of the
Merger Agreement, and a proposed Merger Agreement was drafted and discussed.
Desc, Parent, and the Company held board meetings on May 6, 1998. The Boards
of Desc and Parent approved the Merger Agreement. Purchaser's directors
approved the Merger Agreement at a meeting on May 7. At the May 6 meeting of
the Company Board, the Company's directors received a presentation from DLJ
with respect to the financial aspects of the transaction, as well as a
presentation from Vinson & Elkins L.L.P., its legal counsel, with respect to
the material terms of the Merger Agreement and other legal matters. However,
no decision was made at this meeting, and it was agreed that a telephonic
Company Board meeting would be held the next day after the close of the U.S.
financial markets. Accordingly, on May 7, a telephonic meeting of the Company
Board was held. After an update of the financial and legal presentations, the
Company Board unanimously approved the Merger Agreement, which was signed late
in the day on May 7.
On May 8, 1998, each of the Company and Desc publicly announced the
execution of the Merger Agreement. A copy of the press release issued by Desc
has been filed with the Commission as an exhibit to the Schedule 14D-1 of
Desc, Parent, AAC Delaware and Purchaser.
Reasons for the Company Board's Recommendation. In approving the Offer, the
Merger, the Merger Agreement and the other transactions contemplated thereby,
and recommending that shareholders accept the Offer and vote for adoption of
the Merger Agreement and approval of the transactions contemplated thereby,
the Company Board discussed the proposed transaction at several Board meetings
and consulted with the Company's legal and financial advisors, as well as the
Company's management. The following are material factors considered by the
Company Board in rendering its recommendation, each of which the Company Board
believes supports its recommendation:
. The fact that the $17.00 Offer Price represents (i) a premium of
approximately 28.6% over the average closing sale price of $13.22 per
Share for the 30 trading days immediately preceding the date (the
"Announcement Date") the Company first publicly announced it had
executed the Merger Agreement, (ii) a premium of approximately 19.3%
over the closing sale price of $14.25 per Share on April 30, 1998, the
eighth day prior to the Announcement Date and (iii) a premium of
approximately 6.25% over the closing sale price of $16.00 per Share on
May 7, 1998, the last trading day prior to the Announcement Date, each
as reported on the Nasdaq National Market.
. The historical market prices and trading activity of the Shares, which
historical market prices have, since the Company's initial public
offering, generally been significantly lower than the $17.00 Offer Price
(averaging $12.01 per share from September 2, 1997 to May 5, 1998) and
extremely volatile (ranging from $9.25 on August 9, 1997 to $16.00 on
May 7, 1998).
16
<PAGE>
. The Company's historical and pro forma financial results, including the
fact that the Offer Price represents a 62.1x multiple of historical
earnings before interest and taxes ("EBIT") for 1997 and a 27.1x
multiple of pro forma EBIT (after giving effect to acquisitions
completed in 1997 and 1998) as compared to the median multiple of 13.2x
paid in other similar transactions selected by DLJ. In addition, the
Offer Price represents a 42.5x multiple of historical earnings before
interest, taxes, depreciation and amortization ("EBITDA") for 1997 and a
17.1x multiple of pro forma EBITDA (after giving effect to acquisitions
completed in 1997 and 1998) as compared to the median multiple of 8.3x
paid in other similar transactions selected by DLJ.
. The opinion of DLJ to the Company Board dated May 7, 1998 to the effect
that, as of such date and based upon and subject to the assumptions
made, matters considered and limitations on the review undertaken set
forth therein, the consideration to be received by holders of the Shares
pursuant to the Offer and the Merger was fair to such holders from a
financial point of view; the full text of the opinion of DLJ is attached
as Annex B hereto and is incorporated herein by reference and should be
read in its entirety;
. The fact that the Offer provides for a prompt cash tender offer for all
Shares, thereby enabling shareholders of the Company to receive cash in
exchange for their Shares at the earliest possible time;
. The likelihood that the Offer and the Merger would be consummated,
including the ability of Parent to finance the Offer and the Merger and
the fact that Desc has agreed to guarantee Parent's obligation to
purchase the Shares in the Offer and the Merger, as well as the effects
on the Company's business, operations and financial condition should it
not be possible to consummate the Merger following public announcement
that the Merger Agreement had been entered into;
. The terms and conditions of the Offer and the Merger, the Merger
Agreement and the transactions contemplated thereby, which were the
product of arm's-length negotiations, including the parties'
representations, warranties and covenants, the conditions to their
respective obligations, and the limited ability of Parent and Purchaser
to terminate the Offer or the Merger Agreement;
. A review of the Company's management structure and the fact that Mr.
Lively and Mr. Graffunder had resigned in March, and that there was no
assurance as to whether the Company could find an acceptable permanent
chief executive officer and chief financial officer for the Company, or
that such officers could be found on a timely basis;
. A review of the strategic alternatives available to the Company
(including continuing the Company's business in its present
configuration without significant changes and continuing the Company's
acquisition program), none of which the Company Board believed to be as
favorable to the Company's shareholders as the Offer and the Merger;
. The provisions of the Merger Agreement relating to potential competing
transactions, including the ability of the Company to entertain
unsolicited competing bids (provided that the Company Board determines
that such is required by its obligations to the Company and its
shareholders), to provide information to such competing bidders, to
negotiate with such competing bidders, to withdraw its recommendation
with respect to the Offer and the Merger, and to terminate the Merger
Agreement in favor of a transaction with a competing bidder upon payment
of the Termination Fee; and
. The fact that DLJ informed the Board that none of the potential
purchasers contacted by DLJ in late April and early May indicated that
they were interested at that time in having further discussions with DLJ
or the Company with respect to an acquisition proposal for the Shares.
In determining whether to recommend the transaction, the Company Board
recognized that certain members of the Company Board and management have
interests in the Offer and the Merger that are in addition to, and not
necessarily aligned with, the interests in the Offer and the Merger of other
holders of Shares. In addition, the Company Board reviewed two possible
acquisitions with respect to which the Company had entered into non-binding
letters of intent that were scheduled to expire on or about May 7. However,
the Company Board unanimously determined that, despite the foregoing, and,
based specifically on the factors described above, the consideration to be
received in the Offer and the Merger is fair to and in the best interests of
the Company's shareholders.
17
<PAGE>
The foregoing discussion of the factors considered by the Company Board is
not intended to be exhaustive. In view of the wide variety of factors
considered in connection with its evaluation of the Offer and the Merger, the
Company Board did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors
considered in reaching its determinations. Rather, the Company Board made its
determination based on the total mix of information available to it, and the
judgments of individual directors may have been influenced to a greater or
lesser degree by differing factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to a letter agreement between the Company and DLJ dated April 27,
1998, the Company agreed to pay DLJ: (a) cash compensation as set forth below
(the "DLJ Advisory Fee") and (b) a fee of $300,000 at the time DLJ delivered
to the Company Board its fairness opinion, irrespective of the conclusion
reached therein (the "DLJ Opinion Fee"). In addition, the Company agreed to
reimburse DLJ promptly for certain out-of-pocket expenses reasonably incurred
by DLJ in connection with the engagement hereunder, whether or not a
transaction is consummated, and to indemnify DLJ for certain liabilities and
expenses arising out of the Merger or the transactions in connection
therewith.
The DLJ Advisory Fee for the transactions contemplated by the Merger
Agreement is 0.75% of the aggregate value of the Shares outstanding (treating
any Shares issuable upon exercise of options, warrants or other rights of
conversion as outstanding net of the cash proceeds that would be received upon
exercise of such options or warrants) plus the amount of any debt for borrowed
money (net of cash) assumed, acquired, remaining outstanding, retired or
defeased or preferred stock redeemed or remaining outstanding in connection
with the transaction (the "Aggregate Value") less the amount of the DLJ
Opinion Fee. Based upon the amount of the Company's debt for borrowed money
(net of cash) as of March 31, 1998, the Company estimates that the DLJ
Advisory Fee will be approximately $1.2 million, before deducting the amount
of the DLJ Opinion Fee. Notwithstanding the foregoing, if a transaction were
to be consummated with a party other than Desc, the Company has agreed to pay
DLJ cash compensation in an amount equal to 1.0% of the Aggregate Value, less
the amount of the DLJ Opinion Fee.
DLJ is a full service securities firm engaged in securities trading and
brokerage activities, as well as providing investment banking and financial
advisory services. In the ordinary course of its trading and brokerage
activities, DLJ or its affiliates may at any time actively trade or hold the
securities of the Company for their own account or for the account of
customers and, accordingly, may at any time hold a long or short position in
such securities.
For a description of the cancellation fee to be paid to Shansby Partners
pursuant to the Merger Agreement, see "Item 3. Identity and Background--Voting
Agreement," which discussion is incorporated herein by reference.
Except as described herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to shareholders on its behalf concerning
the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past 60 days, no transactions in the Shares (other than the
grant of options to purchase an aggregate of 83,000 Shares at an exercise
price of $13.5625 to certain employees of the Company on March 24, 1998) have
been effected by the Company or, to the best of the Company's knowledge, by
any executive officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, all of the Company's
executive officers, directors and affiliates who own Shares currently intend
to tender such Shares to Purchaser pursuant to the Offer.
18
<PAGE>
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described in this Schedule 14D-9, or as set forth in the Offer
to Purchase, no negotiation is being undertaken or is under way by the Company
in response to the Offer which relates to or would result in: (i) an
extraordinary transaction such as a merger or reorganization, involving the
Company or any subsidiary of the Company, (ii) a purchase, sale or transfer of
a material amount of assets by the Company or any subsidiary of the Company,
(iii) a tender offer for or other acquisition of securities by or of the
Company or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) There are no transactions, board resolutions, agreements in principle,
or signed contracts in response to the Offer, other than as described in Item
3(b) and Item 4(b) above, which relates to or would result in one or more of
the matters referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached as Annex A hereto is being furnished in
connection with the possible designation by Purchaser, pursuant to the Merger
Agreement, of certain persons to be appointed to the Company Board other than
at a meeting of the Company's shareholders. The information contained in all
of the Exhibits referred to in Item 9 below is incorporated herein by
reference.
19
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
(a)(1) Offer to Purchase (incorporated by reference to Exhibit 99.1 to the
Tender Offer Statement on Schedule 14D-1, filed with the Commission by
Parent and Purchaser on May 14, 1998). *
(a)(2) Letter of Transmittal (incorporated by reference to Exhibit 99.2 to
the Tender Offer Statement on Schedule 14D-1, filed with the
Commission by Parent and Purchaser on May 14, 1998). *
(a)(3) Letter to Company Shareholders, dated May 15, 1998. *+
(a)(4) Notice of Guaranteed Delivery (incorporated by reference to Exhibit
99.3 to the Tender Offer Statement on Schedule 14D-1, filed with the
Commission by Parent and Purchaser on May 14, 1998). *
(a)(5) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees (incorporated by reference to Exhibit 99.4 to the
Tender Offer Statement on Schedule 14D-1, filed with the Commission by
Parent and Purchaser on May 14, 1998).
(a)(6) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees (incorporated by reference to Exhibit
99.5 to the Tender Offer Statement on Schedule 14D-1, filed with the
Commission by Parent and Purchaser on May 14, 1998). *
(a)(7) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (incorporated by reference to Exhibit 99.6 to the
Tender Offer Statement on Schedule 14D-1, filed with the Commission by
Parent and Purchaser on May 14, 1998). *
(a)(8) Form of Summary Advertisement (incorporated by reference to Exhibit
99.7 to the Tender Offer Statement on Schedule 14D-1, filed with the
Commission by Parent and Purchaser on May 14, 1998).
(c)(1) Agreement and Plan of Merger dated as of May 7, 1998, among Parent,
Purchaser and the Company (incorporated by reference to Exhibit 99.10
to the Tender Offer Statement on Schedule 14D-1, filed with the
Commission by Parent and Purchaser on May 14, 1998).
(c)(2) Opinion of Donaldson, Lufkin & Jenrette Securities Corporation dated
May 7, 1998 (included as
Annex B to the Company's Solicitation/Recommendation Statement on
Schedule 14D-9). *
(c)(3) Confidentiality Letter Agreement, dated February 26, 1998, by and
between Desc and the Company (incorporated by reference to Exhibit
99.11 to the Tender Offer Statement on Schedule 14D-1, filed with the
Commission by Parent and Purchaser on May 14, 1998).
(c)(4) Supplemental Confidentiality Letter Agreement, dated March 31, 1998,
by and between Desc and the Company (incorporated by reference to
Exhibit 99.12 to the Tender Offer Statement on Schedule 14D-1, filed
with the Commission by Parent and Purchaser on May 14, 1998).
(c)(5) Letter Agreement, dated May 7, 1998, by and among Shansby Partners,
L.L.C., TSG2 L.P., TSG2 Management, L.L.C. and the Company
(incorporated by reference to Exhibit 99.13 to the Tender Offer
Statement on Schedule 14D-1, filed with the Commission by Parent and
Purchaser on May 14, 1998).
</TABLE>
- --------
* Included in documents mailed to shareholders.
+ Previously filed.
20
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
AUTHENTIC SPECIALTY FOODS, INC .
/s/ Robert K. Swanson
----------------------------------
Robert K. Swanson
Chairman of the Board and
Chief Executive Officer
Dated: May 28, 1998
21
<PAGE>
ANNEX A
AUTHENTIC SPECIALTY FOODS, INC.
1313 AVENUE R
GRAND PRAIRIE, TEXAS 75050
(972) 933-4100
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement ("Information Statement") is being mailed on or
about May 15, 1998, as a part of the Company's Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") to the holders of record of
shares of common stock, par value $1.00 per share, of the Company (the
"Shares") at the close of business on or about May 7, 1998. You are receiving
this Information Statement in connection with the possible election of persons
designated by Purchaser to a majority of the seats on the Board of Directors.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on May 14,
1998. The Offer is scheduled to expire at 12:00 midnight, New York City time,
on Thursday, June 11, 1998, unless the Offer is extended.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the Schedule 14D-
9.
The information contained in this Information Statement or incorporated by
reference herein concerning Parent, Purchaser, or their respective officers,
directors, representatives or affiliates or actions or events with respect to
any of them, was provided by Parent or Purchaser, and the Company takes no
responsibility for such information.
INFORMATION ABOUT DIRECTORS
PURCHASER'S RIGHT TO DESIGNATE DIRECTORS; PURCHASER'S DESIGNEES
The Merger Agreement provides that, upon Purchaser's acquisition of at least
66 2/3% of the outstanding Shares, on a fully diluted basis, pursuant to the
Offer, Purchaser shall be entitled to designate such number of Directors,
rounded up to the next whole number, on the Board of Directors as shall give
Purchaser representation on the Board of Directors equal to the product of the
total number of Directors on the Board of Directors multiplied by the
percentage that the aggregate number of Shares beneficially owned by Purchaser
at such time bears to the total number of Shares then outstanding, on a fully
diluted basis (the "Purchaser Designees"), and the Company shall, at such
time, promptly take all actions necessary to cause the Purchaser's Designees
to be elected as Directors of the Company, including increasing the size of
the Board of Directors or securing the resignations of incumbent directors or
both. Notwithstanding the foregoing, at all times prior to the Effective Time,
the Board of Directors shall include at least two Directors who held office as
of the date of the Merger Agreement (any such director remaining in office
being an "Independent Director"). Following the election or appointment of the
Purchaser's Designees and, prior to the Effective Time, such designees shall
abstain from acting upon, and the approval of a majority of the Independent
Directors shall be required to (i) amend or otherwise modify the Company's
Articles of Incorporation, (ii) approve any amendment, modification or waiver
by the Company or any of the provisions of the Merger Agreement or (iii)
approve any other action by the Company that adversely affects the interests
of the shareholders of the Company with respect to the transactions
contemplated thereby, including without limitation, any actions that would
constitute a breach by the Company of its representations, warranties or
covenants contained in the Merger Agreement.
A-1
<PAGE>
The Purchaser Designees will be selected by the Purchaser from among the
individuals listed below. Each of the following individuals has consented to
serve as a Director of the Company if appointed or elected. None of the
following individuals owns any Shares. In addition, none of the following
individuals is a Director of, or holds any position with, the Company. The
name, age, present principal occupation or employment and five-year employment
history of each of the following individuals are set forth below. Unless
otherwise provided below, each person is a citizen of Mexico and the business
address of each such person is c/o Authentic Acquisition Corporation, 7150
Village Drive, Buena Park, California 90621. Unless otherwise indicated, each
such person has held his or her present occupation as set forth below, or has
been an executive officer of Purchaser or Authentic Acquisition Corporation, a
Delaware corporation and the parent of Purchaser ("AAC Delaware"), or the
organization indicated, for the past five years (or since inception with
respect to AAC Delaware and Purchaser).
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
MATERIAL POSITIONS HELD DURING THE PAST FIVE
NAME AGE YEARS
---- --- ------------------------------------------------
<S> <C> <C>
Ignacio Hernandez....... 52 Chairman of the Board and Chief Executive
Officer of Corfuerte, S.A. de C.V.
Jerry Wright(1)......... 47 Chief Executive Officer; Chief Executive Officer
of Embasa Foods, Inc.
Jose Alberto Aranda..... 36 Chief Financial Officer of Corfuerte, S.A. de
C.V.
Eduardo Medina-Mora 41 Corporate Director of Strategic Planning of Desc
Icaza.................. and Vice Chairman.
Ramon F. Estrada Rivero. 33 Secretary and General Counsel of Parent, AAC
Delaware and Purchaser; General Counsel of
Desc.
Ernesto Scharrer Tamm... 44 Corporate Director of Control (Agrobios).
</TABLE>
- --------
(1) United States citizen.
INFORMATION ABOUT DIRECTORS
BOARD OF DIRECTORS
The Company's Board of Directors currently consists of five members. The
Company's Bylaws provide for a classified Board of Directors. Thus, the Board
of Directors is divided into Classes I, II and III, the terms of office of
which are currently scheduled to expire, respectively, on the dates of the
Company's Annual Meeting of Shareholders in 1998, 1999 and 2000.
The following table sets forth information regarding the names, ages and
principal occupations of the nominees and directors, directorships in other
companies held by them, the length of continuous service as a director of the
Company and the year their term as a director expires:
<TABLE>
<CAPTION>
YEAR TERM AS
PRINCIPAL OCCUPATION AND DIRECTOR DIRECTOR
DIRECTORS DIRECTORSHIPS AGE SINCE EXPIRES
--------- ------------------------ --- -------- ------------
<C> <S> <C> <C> <C>
CLASS I DIRECTORS:
Robert K. Swanson.... Chief Executive Officer and 65 1997 1998
Chairman of the Board of
the Company; Chairman,
RKS, Inc.
Charles A. Lynch..... Chairman and Chief 70 1997 1998
Executive Officer of
Arrowhead Mills, Inc.;
Chairman, Fresh Choice,
Inc.; Director, Pacific
Mutual Holding Company,
Nordstrom, Inc., Fresh
Choice, Inc., PST Vans,
Inc., Madge Networks, N.V.
and SRI International,
Inc.
CLASS II DIRECTORS:
Tim G. Bruer......... President and Chief 40 1997 1999
Executive Officer of
Silverado Foods, Inc.;
Director, Silverado Foods,
Inc.
CLASS III DIRECTORS:
Charles H. Esserman.. General Partner of The 39 1992 2000
Shansby Group
J. Gary Shansby...... Managing General Partner of 60 1992 2000
The Shansby Group;
Director, The Sharper
Image
</TABLE>
A-2
<PAGE>
Set forth below is a brief description of the business experience of the
directors of the Company.
Robert K. Swanson. Mr. Swanson has served as Chief Executive Officer and
Chairman of the Board of the Company since March 1998. Mr. Swanson has also
served as Chairman of RKS, Inc., an international investment and
financial/marketing consulting firm ("RKS"), since November 1987. From October
1994 to December 1997, Mr. Swanson served as Chairman of Grossman's Inc., a
company offering "do-it-yourself" products. From April 1994 to May 1996, Mr.
Swanson served as Chairman of US Games, a manufacturer of amusement and gaming
machines. From January 1981 until October 1987, Mr. Swanson served as Chief
Executive Officer of Del Webb Corporation. From May 1971 to January 1980, Mr.
Swanson held various positions with General Mills, Inc., including Chairman of
the Board and Chief Executive Officer of General Mills Europe Ltd.
Charles A. Lynch. Mr. Lynch has served as the Chairman and Chief Executive
Officer of Arrowhead Mills, Inc., a manufacturer of natural food products,
since March 1998. Mr. Lynch has also served as Chairman of Fresh Choice, Inc.,
a restaurant chain, since March 1995. From 1989 until 1995, Mr. Lynch was
Chairman of Market Value Partners Company, an investment firm. From 1988 until
1989, Mr. Lynch served as President and Chief Executive Officer of Levolor
Corporation, a manufacturer of window coverings, and from 1986 until 1988, he
served as Chairman and Chief Executive Officer of DHL Airways, Inc., an
express courier.
Tim G. Bruer. Mr. Bruer is President and Chief Executive Officer of
Silverado Foods, Inc., an American Stock Exchange company that manufactures
specialty baked goods. From November 1992 until he joined Silverado Foods,
Inc. in March 1997, Mr. Bruer served as Vice President and General Manager of
the Culinary Division of Nestle Food Company. From February 1992 until
November 1992, Mr. Bruer was Vice President, Business Development of Nestle
USA, Inc., and from December 1990 until February 1992, he was a partner in the
consumer marketing practice area of Bain & Company ("Bain"), a strategic
consulting firm.
J. Gary Shansby. Mr. Shansby is the founder of The Shansby Group, a buyout
firm based in San Francisco that specializes in acquiring and improving
branded consumer product companies (particularly in the food industry), and
has served as a managing member of its general partner since The Shansby Group
was formed in 1987. Mr. Shansby was formerly the Chairman of the Board and
Chief Executive Officer of Shaklee Corporation, a direct marketer of
nutritional, personal care and household products, and has over 35 years of
experience with consumer products companies.
Charles H. Esserman. Mr. Esserman is a co-founder of The Shansby Group and
has served as a managing member of its general partner since The Shansby Group
was founded in 1987. Prior to joining The Shansby Group, Mr. Esserman worked
at Bain from 1982 to 1987. While at Bain, Mr. Esserman's work was primarily
focused on helping companies formulate and implement marketing strategies.
A-3
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth the number of Shares beneficially owned by
(i) each director, (ii) the Chief Executive Officer and the other executive
officers of the Company who received at least $100,000 in annual salary and
bonus during fiscal 1997 (the Named Officers) and (iii) the directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
------------------------------------
NUMBER OF SHARES PERCENT OF CLASS
---------------- ----------------
<S> <C> <C>
DIRECTORS:
J. Gary Shansby.......................... 1,504,969(2)(3) 18.5%
Charles H. Esserman...................... 1,489,097(2)(3) 18.3%
Tim G. Bruer............................. 0 0
Charles A. Lynch......................... 0 0
Robert K. Swanson........................ 4,000 *
NAMED OFFICERS:
Michael T. Westhusing.................... 0 0
Samuel E. Hillin, Jr..................... 51,000 *
Keith R. Lively (4)...................... 14,000 *
Herman L. Graffunder (4)................. 85,000 1.1%
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(7 persons):.............................. 1,573,066(3) 19.4%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, beneficial owners have sole voting and
investment power with respect to the Shares listed. Amounts shown are as
of April 15, 1998.
(2) Mr. Shansby and Mr. Esserman may be deemed to beneficially own the
aggregate 1,386,000 Shares owned by TSG2 L.P. ("TSG2") and TSG2
Management, L.L.C. ("TSG2 Management") because they are managing members
of TSG2 Management, which is the general partner of TSG2.
(3) Includes warrants to purchase an aggregate of 90,000 Shares issued by the
Company to Shansby Partners, L.L.C. ("Shansby Partners") in connection
with Shansby Partners providing financial advisory services to the Company
for three of the Company's recent acquisitions. Mr. Shansby and Mr.
Esserman are deemed to beneficially own the warrants issued to Shansby
Partners because they are the only members of Shansby Partners.
(4) Mr. Lively and Mr. Graffunder resigned as executive officers of the
Company in March 1998.
DIRECTORS' MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held two meetings during 1997. Each director attended
at least 75% of the aggregate total meetings of the Board of Directors and any
committee on which such director served.
The Board has established an Audit Committee and a Compensation Committee to
act on behalf of the Board and to advise the Board with respect to specific
matters. The Board does not have a standing nominating committee or a
committee that performs a similar function. The responsibilities of the Audit
Committee and the Compensation Committee are as follows:
Audit Committee. Because the Company did not consummate its initial public
offering until September 1997, the Audit Committee did not hold its first
meeting until January 1998. Messrs. Lynch, Esserman and Bruer were elected to
the Committee on September 4, 1997 and served on the Committee for the
remainder of 1997. The Committee is currently comprised of Messrs. Lynch
(Chairman), Esserman, Bruer and Swanson. The Committee's principal functions
are to confirm the existence of effective accounting and internal control
systems and to oversee the entire audit function, both independent and
internal.
Compensation Committee. The Compensation Committee met one time during 1997.
Messrs. Bruer and Swanson were elected to the Committee on August 31, 1997 and
served on the Committee for the remainder of
A-4
<PAGE>
1997. The Committee is currently comprised of Messrs. Bruer and Lynch. The
Committee's principal functions are to study, advise and consult with the
Company's management respecting the compensation of officers and other key
employees of the Company.
COMPENSATION OF DIRECTORS
Director and Meeting Fees. During 1997, each director of the Company who was
not an employee or executive officer of the Company or The Shansby Group or
its affiliates ("Nonemployee Director") was paid an annual director's fee of
$10,000 plus $1,000 for each Board of Directors and committee meeting
attended. During 1997, the Company paid an aggregate of $10,500 in fees to its
Nonemployee Directors.
Stock Options. On June 19, 1997, the Board of Directors and the shareholders
of the Company approved the Authentic Specialty Foods, Inc. 1997 Stock Plan
(the "Stock Plan"). The purpose of the Stock Plan is to provide directors,
employees and consultants of the Company and its subsidiaries additional
incentive and reward opportunities designed to enhance the profitable growth
of the Company. The options granted to each individual vest over a four-year
period, with 25% of the options vesting each year, commencing one year after
the date of grant. The options expire 10 years from the date of grant.
During fiscal 1997, the Company granted each Nonemployee Director options to
purchase a total of 6,000 Shares. One thousand of such options were granted to
each Nonemployee Director on September 2, 1997 and have an exercise price
(subject to adjustment) of $8.00 per share. The remaining 5,000 options were
granted to each Nonemployee Director on November 6, 1997 and have an exercise
price (subject to adjustment) of $11.125.
INFORMATION ABOUT EXECUTIVE OFFICERS
EXECUTIVE OFFICERS
The following table sets forth certain information about the executive
officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert K. Swanson(1).................. 65 Chief Executive Officer, Chairman of the
Board and Director
Michael T. Westhusing(2).............. 42 President and Chief Operating Officer
Samuel E. Hillin, Jr.................. 41 President, DSD Division, Chief Financial
Officer and Vice President
</TABLE>
- --------
(1) Mr. Swanson became the Chief Executive Officer and Chairman of the Board
on March 4, 1998.
(2) From August 15, 1997 until December 31, 1997, Mr. Westhusing was the Chief
Operating Officer of La Victoria. Effective January 1, 1998, he became the
President and Chief Executive Officer of La Victoria, and effective March
4, 1998, he became the President and Chief Operating Officer of the
Company.
Robert K. Swanson. For biographical information with respect to Mr. Swanson,
see "Information about Directors--Board of Directors" above.
Michael T. Westhusing. Mr. Westhusing became the President and Chief
Operating Officer of the Company in March 1998. Mr. Westhusing is also the
President and Chief Executive Officer of La Victoria. Mr. Westhusing joined La
Victoria in August 1997 after 20 years in the specialty food and consumer
products industries. Prior to joining La Victoria, Mr. Westhusing was Senior
Vice President, Marketing, from 1995 to 1997, for Favorite Brands
International, a manufacturer of branded confection products. From 1989 to
1995, Mr. Westhusing served as Vice President, Operations for The Famous Amos
Chocolate Chip Cookie Corporation ("Famous Amos"). Prior to joining Famous
Amos, Mr. Westhusing was Vice President, Operations for Shamitoff Foods from
1987 to 1988 and previously served in various marketing and operational
capacities at Beecham Cosmetics, the consumer products division of Beecham
Group Ltd., from 1978 to 1988.
A-5
<PAGE>
Samuel E. Hillin, Jr. Mr. Hillin became the President of the Company's DSD
Division in March 1998. Mr. Hillin joined the Company as Chief Financial
Officer in 1994 after 15 years in the food industry. Prior to joining the
Company, Mr. Hillin was Vice President, Finance of Schepps-Foremost, Inc., a
dairy company based in Dallas, Texas, from 1990 to 1994. From 1988 to 1990,
Mr. Hillin served as the Controller of Texas Operations (Cabell's/Oak Farms
Dairy and Specialty Foods Inc.) for Morningstar Foods. From 1981 to 1988, Mr.
Hillin held several positions with Southland Corporation of Dallas, Texas,
including Division Controller of MovieQuik Systems and Assistant Division
Controller of Cabell's/Oak Farms Dairy.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended December
31, 1995, 1996 and 1997, of those persons who were, at December 31, 1997, the
Named Officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
---------------- ---------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS OPTIONS/SARS COMPENSATION
POSITION YEAR ($) ($) (#)(1) ($)
------------------ ---- ------ ----- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Michael T. Westhusing
(2)................... 1997 $ 75,000 $65,000 60,000 $ 225(3)
President and Chief
Operating Officer
Samuel E. Hillin, Jr... 1997 $119,220 $ 0 25,000 $2,150(4)
President, DSD
Division, Chief
Financial 1996 $118,751 $ 0 0 $1,410
Officer and Vice
President 1995 $103,556 $ 0 0 $1,696(4)
Keith R. Lively (5).... 1997 $ 66,666 $75,000 60,000 $ 225(3)
Chairman of the Board
and Chief Executive
Officer
Herman L. Graffunder
(6)................... 1997 $192,064 $ 0 35,000 $2,908(7)
President 1996 $190,304 $ 0 0 $2,200(7)
1995 $177,520 $ 0 0 $2,700(7)
</TABLE>
(1) No grants of stock appreciation rights have been made.
(2) From August 15, 1997 until December 31, 1997, Mr. Westhusing was the Chief
Operating Officer of La Victoria. Effective January 1, 1998, he became the
President and Chief Executive Officer of La Victoria, and effective March
4, 1998, he became the President and Chief Operating Officer of the
Company.
(3) Represents amounts paid by the Company for term life insurance premiums.
(4) For 1997, 1996 and 1995, respectively, includes $1,250, $685 and $1,096
contributed by the Company to Mr. Hillins account under the Company's
401(k) Plan, and $900, $725 and $600 paid by the Company for term life
insurance premiums for Mr. Hillin.
(5) Mr. Lively served as the Company's Chairman of the Board and Chief
Executive Officer from June 19, 1997 until his resignation on March 4,
1998.
(6) Mr. Graffunder resigned as President of the Company on March 4, 1998.
(7) For 1997, 1996 and 1995, respectively, includes $1,518, $810 and $1,500
contributed by the Company to Mr. Graffunder's account under the Company's
401(k) Plan, and $1,390, $1,390 and $1,200 paid by the Company for term
life insurance premiums for Mr. Graffunder.
EMPLOYMENT AGREEMENTS
Mr. Westhusing. Mr. Westhusing does not currently have an employment
agreement with the Company but the Company and Mr. Westhusing are in the
process of negotiating one. Under the terms being discussed, the agreement
would have a three-year term, Mr. Westhusing's annual base salary will be
$200,000, and the
A-6
<PAGE>
Compensation Committee, in its sole discretion, may grant Mr. Westhusing an
annual bonus of up to 100% of his annual base salary based upon such factors
as the Compensation Committee deems appropriate. There can be no assurance as
to whether Mr. Westhusing will enter into an employment agreement, or as to
the final terms thereof.
Mr. Hillin. Mr. Hillin entered into an employment agreement with the
Company, effective as of January 1, 1998. Mr. Hillin's employment agreement
expires one year after its effective date; provided, however, that it will
automatically be extended for additional one-year periods unless the Company
or Mr. Hillin gives the other party a notice of non-renewal at least 60 days
prior to the scheduled expiration date of the agreement. The agreement
provides for an annual base salary of $175,000. In addition to his base
salary, the Compensation Committee, in its sole discretion, may grant Mr.
Hillin an annual bonus of up to 50% of his base salary based upon such factors
as the Compensation Committee deems appropriate. On September 2, 1997, Mr.
Hillin received a grant of options to acquire 25,000 Shares (the "Options").
The employment agreement provides that if Mr. Hillin ceases to be an employee
of the Company for any reason, the Company will take such action as shall be
necessary to vest the greater of (i) the applicable percentage of Options
vested under the applicable stock option agreement and (ii) 50% of the
Options. Notwithstanding the foregoing, the Options will vest and become fully
exercisable on the occurrence of a "change of control" (as defined in the
employment agreement). Mr. Hillin will be reimbursed for life insurance
premiums with respect to a $500,000 term policy, subject to an annual limit of
$5,000. Mr. Hillin also receives an automobile allowance. During Mr. Hillin's
employment and for a period of two years thereafter, Mr. Hillin has agreed to
certain noncompetition covenants. The Company can terminate Mr. Hillin's
employment for cause, as defined in the agreement, or without cause upon
written notice. If employment is terminated without cause, Mr. Hillin is
entitled to receive his base salary for the remainder of the term of the
employment agreement, or, if longer, for a period of six months after
termination.
Mr. Graffunder. Mr. Graffunder entered into a three-year employment
agreement with the Company, effective as of June 23, 1997. The agreement
provided for an annual base salary of $200,000, subject to increase by the
Board of Directors, as well as an annual incentive award with a target of 40%
of his base salary, which could be further increased up to 80% upon the
attainment of certain performance targets. Mr. Graffunder was reimbursed for
life insurance premiums with respect to a $500,000 term policy, subject to an
annual limit of $5,000. Mr. Graffunder was also reimbursed for the purchase
price or lease payments for an automobile to be used primarily in the
Company's business and for the cost of insurance for such automobile. Mr.
Graffunder resigned as President and from all other positions he held with the
Company on March 4, 1998. The Company was not required to make any severance
payments to Mr. Graffunder as a result of his resignation.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to the unexercised
options to purchase Shares under the Stock Plan granted to the Named Officers
and held by them at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
NUMBER OPTIONS/SARS AT AT DECEMBER 31,
OF SHARES VALUE DECEMBER 31, 1997 (#) 1997($)(1)
ACQUIRED ON REALIZED ------------------------- -------------------------
EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael T. Westhusing... 0 $ 0 0 60,000 $ 0 $337,250
Samuel E. Hillin, Jr.... 0 $ 0 0 25,000 $ 0 $140,375
Keith R. Lively......... 0 $ 0 0 60,000(2) $ 0 $337,250(2)
Herman L. Graffunder.... 0 $ 0 0 35,000(2) $ 0 $196,875(2)
</TABLE>
- --------
(1) Value based on the closing price for the Shares on the Nasdaq National
Market on December 31, 1997 ($13.625 per share).
(2) As a result of the resignations of Mr. Lively and Mr. Graffunder, all of
the options held by these two individuals were forfeited for no value in
March 1998.
A-7
<PAGE>
OPTION GRANTS
The following table sets forth information with respect to grants of options
in fiscal 1997 pursuant to the Company's Stock Plan to the Named Officers
reflected in the Summary Compensation Table. No stock appreciation rights were
granted under the Stock Plan in fiscal 1997:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
- ------------------------------------------------------------------------ -----------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#)(1) FISCAL 1997 ($/SH.) DATE 5% ($) 10% ($)
---- -------------- ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael T. Westhusing... 35,000 19.44% $ 8.00 9/2/07 $176,000 $446,000
25,000 13.89% $9.875 9/4/97 $155,000 $393,000
Samuel E. Hillin, Jr.... 25,000 13.89% $ 8.00 9/2/07 $126,000 $319,000
Keith R. Lively (3)..... 35,000 19.44% $ 8.00 9/2/07 $176,000 $446,000
25,000 13.89% $9.875 9/4/07 $155,000 $393,000
Herman L. Graffunder
(3).................... 35,000 19.44% $ 8.00 9/2/07 $176,000 $446,000
</TABLE>
- --------
(1) The options with an exercise price of $8.00 were granted on September 2,
1997, and the options with an exercise price of $9.875 were granted on
September 4, 1997. Options granted under the Stock Plan (i) have an
exercise price per share equal to the closing price of the Shares on the
Nasdaq National Market on the date of grant, (ii) vest in four equal
annual increments beginning one year from the date of grant and (iii)
expire 10 years from the date of grant.
(2) The dollar amounts under these columns represent the potential realizable
value of each grant of options assuming that the market price of the
Shares appreciates in value from the date of grant at the 5% and 10%
annual rates of return prescribed by the Securities and Exchange
Commission (the "SEC"). These calculations are not intended to forecast
possible future appreciation, if any, of the price of the Shares.
(3) As a result of the resignations of Mr. Lively and Mr. Graffunder, all of
the options held by these two individuals were forfeited for no value in
March 1998.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is designed to help the Company
attract, motivate and retain the executive resources that the Company needs in
order to maximize its return to shareholders. The Company's executive
compensation program, as structured and implemented by the Compensation
Committee (the "Committee"), consists of three main components: (1) base
salaries, (2) potential for annual bonuses based on overall Company
performance as well as individual performance and (3) the opportunity to earn
long-term stock-based incentives that are intended to encourage the
achievement of superior results over time and to align the interests of
executive officers and shareholders. The compensation program is structured to
provide senior management with a total compensation package that--at expected
levels of performance--is competitive with those provided to executives who
hold comparable positions or have similar qualifications in other similarly
situated organizations. During 1997, the Committee emphasized base salary and
long-term stock-based incentives for executive officers, while in 1998 the
Committee plans to emphasize incentive-based bonuses by adopting an incentive
compensation plan.
Base Salary. Base salaries of the Company's executive officers are
competitive with salaries of executives with comparable positions at similar
companies. The Committee evaluated peer group information in setting base
salary levels. Annual salary adjustments for the Company's executive officers
are based on general levels of market salary increases, individual performance
and the Company's overall financial results, without any specific relative
weight assigned to any of these factors.
Bonus. The Committee determines the annual bonuses, if any, for executive
officers based on overall Company performance as well as individual
performances. Certain executive officers employment or consulting agreements
provide for bonuses based upon the attainment of certain performance targets.
In 1998, the Committee plans to adopt an incentive compensation plan for the
Company.
A-8
<PAGE>
Long-Term Incentive Compensation. The Company currently grants long-term
incentive compensation in the form of stock options. The Committee emphasizes
incentive compensation in the form of stock options because they tend to align
the interests of employees and shareholders by rewarding performance that
increases shareholder value. Option holders will only recognize value when the
stock price increases over the exercise price established on the date of
grant. The Committee does not utilize the number of options or shares held by
any individual as a factor to limit option grants to that individual in
subsequent years.
All outstanding options have terms of ten years and vest in four equal
annual installments beginning one year from the date of grant. All options
have been granted at 100% of the market value of the Shares on the date of
grant. The exercise price is payable in cash, Shares, or any combination
thereof.
Chief Executive Officer Compensation. As described above, the Company's
executive compensation, including the compensation of the Chief Executive
Officer, consists of a competitive base salary, a performance-based bonus and
long-term stock-based incentives. From June 19, 1997 until March 4, 1998, Mr.
Lively served as the Chief Executive Officer of the Company. Mr. Lively did
not have an employment agreement with the Company. He had a base salary, on an
annualized basis, of $200,000 during 1997. In addition, Mr. Lively received an
annual bonus of $75,000 for 1997 in appreciation of Mr. Lively's efforts
during the Initial Public Offering and the Company's transition to becoming a
public company. On September 2, 1997, Mr. Lively was granted options to
purchase 35,000 Shares with an exercise price of $8.00, vesting in four equal
annual increments beginning one year from the date of grant and expiring 10
years from the date of grant. On September 4, 1997, Mr. Lively was granted
options to purchase 25,000 Shares with identical terms to the options granted
on September 2, 1997, other than an exercise price of $9.875. As a result of
his resignation from the Company, all of the options held by Mr. Lively were
forfeited for no value in March 1998.
The current Chief Executive Officer of the Company is Mr. Swanson. Effective
as of March 6, 1998, RKS, of which he is the Chairman and he and his family
beneficially own all of the capital stock, entered into the Consulting
Agreement with the Company. The Consulting Agreement provides that RKS will
provide consulting services to the Company, and Mr. Swanson will serve as
Chairman of the Board and Chief Executive Officer of the Company or in such
other positions as the Company and RKS mutually agree, until the termination
of the Consulting Agreement. Pursuant to the Consulting Agreement, RKS will be
paid a Consulting Fee of $25,000 per month and is eligible for consulting fee
bonuses to be determined by the Compensation Committee at its discretion. For
more information on the Consulting Agreement, see "Other Information--Certain
Transactions--RKS Consulting Agreement."
On September 2, 1997, Mr. Swanson was granted options to purchase 1,000
Shares with an exercise price (subject to adjustment) of $8.00 per Share,
vesting in four equal annual increments beginning one year from the date of
grant and expiring 10 years from the date of grant. On November 6, 1997, Mr.
Swanson was granted options to purchase 5,000 Shares with identical terms to
the options granted on September 2, 1997, other than an exercise price
(subject to adjustment) of $11.125 per share. The options will not produce
gain for Mr. Swanson unless the Company's Share price rises over the exercise
price established on the date of grant and therefore emphasize pay-for-
performance in the form of enhanced shareholder value.
Section 162(m). Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), which was enacted in 1993, precludes a public
corporation from taking a deduction for compensation in excess of $1 million
paid to its chief executive officer or any of its four other highest-paid
officers. However, compensation that qualifies under Section 162(m) of the
Code as "performance-based" is specifically exempt from the deduction limit.
The Committee has been advised that the Company's ability to deduct
compensation income generated in connection with the exercise of stock options
granted under the Company's Stock Plan should not be limited by Section 162(m)
of the Code. During 1998, no executive of the Company is expected to receive
compensation in excess of $1 million.
Compensation Committee
Tim G. Bruer
Charles A. Lynch
A-9
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The performance graph shown below was prepared by using data from the
Standard and Poor's Compustat Database for use in this Proxy Statement. As
required by applicable rules of the SEC, the graph was prepared based upon the
following assumptions:
1. $100 was invested in Common Stock, the S&P 500 and the Peer Group (as
defined below) on September 2, 1997.
2. Peer Group investment is weighted based on the market capitalization
of each individual company within the Peer Group at the beginning of the
period.
3. Dividends are reinvested on the ex-dividend dates.
The industry peer group (the "Peer Group") is comprised of the following:
Ben & Jerry's Homemade, Inc., Gardenburger, Inc., Grist Mill Co., The Hain
Food Group, Inc., Performance Food Group Company, Tasty Baking Company and
Worthington Foods, Inc.
AUTHENTIC SPECIALTY FOODS, INC.
COMPARATIVE TOTAL RETURNS
SEPTEMBER 2, 1997-DECEMBER 31, 1997
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG AUTHENTIC SPECIALTY FOODS, INC., S&P 500 INDEX AND PEER GROUP
[Graph appears here]
<TABLE>
<CAPTION>
CUMULATIVE
RETURN
PERCENTAGE
AT
COMPANY NAME/INDEX 9/2/97 12/31/97 12/31/97
------------------ ------- -------- ----------
<S> <C> <C> <C>
Authentic Specialty Foods, Inc...................... $100.00 $170.31 70.31%
S&P 500............................................. $100.00 $108.51 8.51%
Peer Group.......................................... $100.00 $108.05 8.05%
</TABLE>
A-10
<PAGE>
PRINCIPAL SHAREHOLDERS
To the knowledge of the management of the Company and based upon filings
with the SEC, the only persons who may be deemed to own beneficially more than
5% of the outstanding Shares (including any group as that term is used in
Section 13(d)(3) of the Exchange Act), as of May 14, 1998, are named in the
following table:
<TABLE>
<CAPTION>
PERCENT
NUMBER OF OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS
------------------------------------ --------- -------
<S> <C> <C>
TSG2 L.P................................................... 1,386,000(1) 17.3%
250 Montgomery Street
San Francisco, California 94104
Robert C. Tanklage......................................... 875,000 10.9%
P.O. Box 1722
Lake Arrowhead, CA 92352
Scudder Kemper Investments, Inc. (2)....................... 436,900(3) 5.4%
345 Park Avenue
New York, New York 10154
</TABLE>
- --------
(1) Of the Shares shown to be beneficially owned by TSG2, 9,800 are owned by
its general partner, TSG2 Management.
(2) This information was derived from a Schedule 13G filed by Scudder Kemper
Investments, Inc. with the SEC on February 12, 1998.
(3) According to the Schedule 13G filed by Scudder Kemper Investments, Inc.,
it has sole power to vote or direct the vote of 155,500 Shares, shared
power to vote or direct the vote of 195,100 Shares and sole power to
dispose or direct the disposition of all 436,900 Shares it is deemed to
beneficially own.
OTHER INFORMATION
OUTSTANDING VOTING STOCK
As of May 6, 1998, there were (i) 8,027,126 Shares issued and outstanding,
all of which were validly issued, fully paid and nonassessable, (ii) 336,000
Shares issuable pursuant to the exercise of options and (iii) 480,000 Shares
issuable pursuant to the exercise of Warrants.
CERTAIN TRANSACTIONS
The La Victoria Acquisition. Immediately following the Company's initial
public offering consummated on September 2, 1997 (the "Initial Public
Offering"), the Company acquired La Victoria Foods, Inc. ("La Victoria").
Prior to its acquisition, 50% of the capital stock of La Victoria was owned by
Robert C. Tanklage, who was the President of La Victoria, and 50% was owned by
LV Foods, L.L.C. ("LV Foods"). TSG2 and TSG2 Management owned 99% of LV Foods,
and Keith R. Lively owned the remaining 1%. As a result of the transactions
contemplated by the Contribution and Exchange Agreement, dated June 20, 1997,
(i) 100% of the ownership of LV Foods was transferred to the Company; (ii)
TSG2 and TSG2 Management received an aggregate of 1,386,000 Shares; (iii) Mr.
Lively received 14,000 Shares; (iv) LV Foods became a wholly-owned subsidiary
of the Company; (v) the Company acquired Mr. Tanklage's interest in La
Victoria for $12 million in cash and 875,000 Shares; and (vi) La Victoria
became a wholly-owned subsidiary of the Company.
During 1997, La Victoria paid LV Foods $475,000 to reimburse LV Foods for
expenses it incurred in connection with the acquisition of La Victoria. In
addition, La Victoria paid TSG Ventures $250,000 to reimburse it for expenses
incurred in connection with the acquisition of La Victoria during 1997. TSG
Ventures is a company owned by Messrs. Shansby and Esserman.
A-11
<PAGE>
Robert C. Tanklage Employment Agreement and Termination Agreement. Effective
as of May 31, 1997, Mr. Tanklage entered into a five-year employment agreement
with La Victoria (the "Employment Agreement"). The Employment Agreement
provided for an annual base salary of $360,000, subject to increase by the
Board of Directors, as well as an annual incentive award which could be
increased, but not decreased by the Board of Directors, in accordance with
past practices of La Victoria. Under the Employment Agreement, La Victoria
could terminate Mr. Tanklage's employment for cause, death (upon payment of
one month's salary to Mr. Tanklage's estate), incapacity or disability, as
defined in the agreement, or without cause. If employment was terminated
without cause, Mr. Tanklage was entitled to receive the greater of (a)
$1,980,000 or (b) $660,000 multiplied times the number of years then remaining
in the term of the Employment Agreement. As of April 15, 1998, Mr. Tanklage
owned 875,000 Shares representing 10.9% of the Company's outstanding Shares,
effective as of May 31, 1997.
Pursuant to a Termination Agreement between La Victoria and Mr. Tanklage,
dated December 17, 1997, Mr. Tanklage's employment with La Victoria was
terminated without cause as of December 31, 1997 (the "Termination Date"). On
the Termination Date, Mr. Tanklage received a severance payment of $2,915,000
in accordance with the provisions of the Employment Agreement. Notwithstanding
the termination of his employment with La Victoria, Mr. Tanklage will continue
to serve as a director and Chairman of the Board of La Victoria until, in each
case, he resigns or is removed by a vote of a majority of a quorum of the
Board of Directors from such positions. While he serves as Chairman of the
Board, Mr. Tanklage will be entitled to an annual retainer of $10,000.
Tanklage Lease Arrangements. La Victoria leases its facilities from Tanklage
Property Trust and Tanklage Investments, Ltd., entities partially owned and
controlled by Mr. Tanklage and certain of his family members. Tanklage
Property Trust is owned 50% by Mr. Tanklage and 50% by Ms. Carolyn Johnson,
Mr. Tanklage's sister. Tanklage Investments, Ltd. is owned 12.5% by Mr.
Tanklage and the remaining 87.5% is owned by other family members, two of whom
are employed by La Victoria.
La Victoria's 170,000 square foot warehouse and distribution facility in
City of Industry, California is owned by Tanklage Property Trust and is leased
to La Victoria under a lease that expires in July 2010. The annual lease
payment is approximately $860,000 and is scheduled to increase consistent with
changes in the Consumer Price Index (the "CPI") every five years. The next
increase is scheduled to occur in August 2000.
The 51,000 square foot warehouse facility in Rosemead, California is owned
by Tanklage Property Trust and leased to La Victoria under a lease that
expires in July 2010. The annual lease payment is approximately $262,000 and
is scheduled to increase consistent with changes in the CPI every five years.
The next increase is scheduled to occur in August 2000.
La Victoria's 61,000 square foot production facility in Rosemead is owned by
Tanklage Investments, Ltd. and leased to La Victoria under a lease that
expires in July 2010. The annual lease payment is approximately $214,000 and
is scheduled to increase consistent with changes in the CPI every five years.
The next increase is scheduled to occur in August 2000.
Although La Victoria has not conducted a survey of rental rates for
comparable properties in the Los Angeles area, it is believed that La Victoria
would be able to obtain more favorable lease terms from unaffiliated third
parties than those contained in these leases.
Shansby Partners Advisory Agreement. The Company entered into a three-year
Advisory Agreement with Shansby Partners, effective August 15, 1997 (the
"Advisory Agreement"), pursuant to which Shansby Partners provides the Company
with advisory services, including assistance with respect to the
identification of potential acquisition candidates and assistance in the
negotiation, implementation and financing of these acquisitions. Shansby
Partners is a limited liability company owned by Messrs. Shansby and Esserman.
The Advisory Agreement expires on September 2, 2000 and may be terminated by
either party for a material breach by the other party if the breach has not
been remedied within 60 days after notice. Shansby Partners will be reimbursed
A-12
<PAGE>
for out-of-pocket expenses incurred in connection with its services under the
Advisory Agreement and will also receive customary financial advisory fees in
connection with acquisitions identified by the Company during the term of the
Advisory Agreement. In connection with the Initial Public Offering, the
Company paid Shansby Partners a financial advisory fee of $125,000 and an
additional $50,000 to reimburse Shansby Partners for out-of-pocket expenses it
incurred in connection with the Initial Public Offering. Furthermore, Shansby
Partners received an initial retainer of $125,000 pursuant to the Advisory
Agreement.
During the term of the Advisory Agreement, Shansby Partners will offer to
the Company for its consideration any Mexican food companies identified by
Shansby Partners and its affiliates that primarily produce tortillas, tortilla
chips, salsas and Mexican sauces. If the Company declines to pursue any such
acquisition opportunity, then Shansby Partners and its affiliates will be able
to pursue the opportunity without the involvement of the Company.
In connection with the provision of financial advisory services pursuant to
the Advisory Agreement, Shansby Partners has received cash fees and warrants
to purchase Shares. Upon consummation of the Initial Public Offering, Shansby
Partners received a five-year warrant to acquire 350,000 Shares at an exercise
price of $8.00 per share, subject to customary adjustments (the "IPO
Warrant"). The IPO Warrant may not be exercised until September 3, 1998 and
expires on September 3, 2002. In connection with the Company's acquisition of
La Monita Mexican Food Products, Inc. on September 30, 1997, Shansby Partners
received $120,000 in cash and a five-year warrant to acquire 30,000 Shares at
an exercise price of $10.5875 per share, subject to customary adjustments (the
"La Monita Warrant"). The La Monita Warrant is exercisable at any time on or
prior to September 30, 2002. In connection with the Company's acquisition of
Sauces Unlimited, Inc. on October 29, 1997, Shansby Partners received $120,000
in cash and a five-year warrant to acquire 30,000 Shares at an exercise price
of $10.45 per share, subject to customary adjustments (the "Sauces Warrant").
The Sauces Warrant is exercisable at any time on or prior to October 29, 2002.
In connection with the Company's acquisition of The Tortilla King, Inc. on
January 9, 1998, Shansby Partners received $175,000 in cash and a five-year
warrant to acquire 30,000 Shares at an exercise price of $12.5125 per Share,
subject to customary adjustments (the "Tortilla King Warrant"). The Tortilla
King Warrant is exercisable at any time on or prior to January 9, 2003. The
amounts of the cash fees and warrants received by Shansby Partners have been
approved by the Compensation Committee of the Board of Directors. The Company
believes that these cash fees and warrants are consistent with compensation
arrangements that would be payable by the Company to unaffiliated third
parties for the types of services provided to the Company by Shansby Partners.
The parties to the Advisory Agreement have agreed to terminate the Advisory
Agreement upon consummation of the Offer pursuant to the Merger Agreement. For
a description of the terms of such termination, see "Item 3. Identity and
Background--Voting Agreement" of the Schedule 14D-9 which is incorporated
herein by reference.
RKS Consulting Agreement. The Company entered into a consulting agreement
with RKS, Inc. ("RKS") as of March 6, 1998 (the "Consulting Agreement").
Robert K. Swanson is the Chairman of RKS, and Mr. Swanson and certain members
of his family are the beneficial owners of all of the capital stock of RKS.
The Consulting Agreement provides that RKS will provide consulting services to
the Company, and Mr. Swanson will serve as Chairman of the Board and Chief
Executive Officer of the Company or in such other positions as the Company and
RKS mutually agree, until the termination of the Consulting Agreement. The
term of the Consulting Agreement is month-to-month; provided, however, that
the Consulting Agreement may be terminated by either party upon 30 days prior
written notice, with or without cause, in which case no further compensation
or other payments will be payable after the date of such termination (except
in connection with a Change of Control (as defined in the Consulting
Agreement)). The Consulting Agreement will terminate upon the death or
disability (as defined in the Consulting Agreement) of Mr. Swanson, in which
case no further compensation or other payments will be payable.
Pursuant to the Consulting Agreement, RKS will be paid a consulting fee of
$25,000 per month ("Consulting Fee") and is eligible for consulting fee
bonuses to be determined by the Compensation Committee
A-13
<PAGE>
at its discretion. In this regard, the Compensation Committee has awarded RKS
a $250,000 bonus subject to consummation of the Offer and the Merger. If the
Consulting Agreement is terminated by either the Company or RKS within nine
months after the occurrence of a Change of Control (or within 30 days prior to
the public announcement of a Change of Control), then RKS will be entitled to
receive from the Company a lump sum payment on the date of such termination
equal to (i) three months' Consulting Fee, less (ii) the amount of any
Consulting Fee actually paid by the Company prior to termination (not to
exceed 30 days' Consulting Fee) that accrued between the date of the
termination notice and the date of termination. Any stock options that Mr.
Swanson has been granted or may be granted in the future will become
immediately exercisable if Mr. Swanson ceases to serve as a director of the
Company for any reason or if a Change of Control occurs. The Offer and the
Merger will constitute a Change of Control.
Mr. Swanson served as Chairman of Grossman's Inc. from October 1994 to
December 1997. Grossman's Inc. filed a petition for Chapter 11 Bankruptcy on
April 7, 1997, and a Confirmation Order in connection with the petition was
entered on December 9, 1997.
SECTION 16 COMPLIANCE
Pursuant to the requirements of Section 16(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), each of Keith R. Lively, Robert C.
Tanklage, Charles H. Esserman, TSG2, Samuel E. Hillin, Jr., Herman L.
Graffunder, J. Gary Shansby, Robert K. Swanson, Charles A. Lynch and Tim G.
Bruer filed an initial statement of beneficial ownership on Form 3 with the
SEC in September 1997. However, because the Company's registration statement
in connection with its Initial Public Offering was declared effective on
August 27, 1997, none of these filings were made timely. Each of these persons
has advised the Company that they made all other Section 16(a) filings during
1997 on a timely basis.
A-14
<PAGE>
Annex B
DONALDSON, LUFKIN & JENRETTE
Donaldson, Lufkin & Jenrette Securities Corporation
2900 Texas Commerce Tower
2200 Ross Avenue
Dallas, Texas 75201
May 7, 1998
Board of Directors
Authentic Specialty Foods, Inc.
1313 Avenue R
Grand Prairie, TX 75050
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock, par value $1.00
per share (the "Shares"), of Authentic Specialty Foods, Inc. (the "Company")
of the consideration to be received by such shareholders pursuant to the
Agreement and Plan of Merger, dated as of May 7, 1998 (the "Agreement"), by
and between Agrobios S.A. de C.V. (""Buyer''), the Company and Authentic
Acquisition Corporation (""MergerCo''), a wholly owned subsidiary of Buyer.
Pursuant to the Agreement, Buyer or MergerCo will commence a tender offer (the
"Tender Offer") for any and all outstanding Shares at a price of $17.00 in
cash per share (the "Offer Price"). The Tender Offer is to be followed by a
merger (the "Merger") of MergerCo with and into the Company in which the
Shares not tendered into the Tender Offer would be converted, subject to
certain exceptions, into the right to receive the Offer Price. The Tender
Offer, together with the Merger is referred to herein as the "Transaction".
In arriving at our opinion, we have reviewed the draft dated May 6, 1998 of
the Agreement. We also have reviewed financial and other information that was
publicly available or furnished to us by the Company including information
provided during discussions with management. Included in the information
provided during discussions with management was certain financial projections
of the Company for the fiscal year ending December 31, 1998 (the "1998
Budget") prepared by the management of the Company. In addition, we have
compared certain financial and securities data of the Company with various
other companies whose securities are traded in public markets, reviewed the
historical stock prices and trading volumes of the Shares, reviewed prices and
premiums paid in certain other business combinations and conducted such other
financial studies, analyses and investigations as we deemed appropriate for
purposes of this opinion.
B-1
<PAGE>
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by the Company or its
representatives, or that was otherwise reviewed by us. With respect to the
1998 Budget supplied to us, we have assumed that it has been reasonably
prepared on the basis reflecting the best currently available estimates and
judgments of the management of the Company as to the estimated operating and
financial performance of the Company. We have not assumed any responsibility
for making an independent evaluation of any assets or liabilities or for
making any independent verification of any of the information reviewed by us.
We have relied as to certain legal matters on advice of counsel to the
Company.
We were requested by the Board of Directors to solicit indications of
interest in the Company from a limited number of parties considered to be the
most likely potential acquirors of the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as
of, the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion does not address the relative
merits of the Transaction and the other business strategies being considered
by the Company's Board of Directors, nor does it address the Board's decision
to proceed with the Transaction. Our opinion does not constitute a
recommendation to any shareholder as to whether such shareholder should tender
in the Tender Offer or how such shareholder should vote on the proposed
Transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be received by the holders of Shares
pursuant to the Transaction is fair to such shareholders from a financial
point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Michael L. Crow
------------------------------
Michael L. Crow
Senior Vice President
B-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
(a)(1) Offer to Purchase (incorporated by reference to Exhibit 99.1 to the
Tender Offer Statement on Schedule 14D-1, filed with the Commission by
Parent and Purchaser on May 14, 1998). *
(a)(2) Letter of Transmittal (incorporated by reference to Exhibit 99.2 to
the Tender Offer Statement on Schedule 14D-1, filed with the
Commission by Parent and Purchaser on May 14, 1998). *
(a)(3) Letter to Company Shareholders, dated May 15, 1998. *+
(a)(4) Notice of Guaranteed Delivery (incorporated by reference to Exhibit
99.3 to the Tender Offer Statement on Schedule 14D-1, filed with the
Commission by Parent and Purchaser on May 14, 1998). *
(a)(5) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees (incorporated by reference to Exhibit 99.4 to the
Tender Offer Statement on Schedule 14D-1, filed with the Commission by
Parent and Purchaser on May 14, 1998).
(a)(6) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees (incorporated by reference to Exhibit
99.5 to the Tender Offer Statement on Schedule 14D-1, filed with the
Commission by Parent and Purchaser on May 14, 1998). *
(a)(7) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (incorporated by reference to Exhibit 99.6 to the
Tender Offer Statement on Schedule 14D-1, filed with the Commission by
Parent and Purchaser on May 14, 1998). *
(a)(8) Form of Summary Advertisement (incorporated by reference to Exhibit
99.7 to the Tender Offer Statement on Schedule 14D-1, filed with the
Commission by Parent and Purchaser on May 14, 1998).
(c)(1) Agreement and Plan of Merger dated as of May 7, 1998, among Parent,
Purchaser and the Company (incorporated by reference to Exhibit 99.10
to the Tender Offer Statement on Schedule 14D-1, filed with the
Commission by Parent and Purchaser on May 14, 1998).
(c)(2) Opinion of Donaldson, Lufkin & Jenrette Securities Corporation dated
May 7, 1998 (included as
Annex B to the Company's Solicitation/Recommendation Statement on
Schedule 14D-9). *
(c)(3) Confidentiality Letter Agreement, dated February 26, 1998, by and
between Desc and the Company (incorporated by reference to Exhibit
99.11 to the Tender Offer Statement on Schedule 14D-1, filed with the
Commission by Parent and Purchaser on May 14, 1998).
(c)(4) Supplemental Confidentiality Letter Agreement, dated March 31, 1998,
by and between Desc and the Company (incorporated by reference to
Exhibit 99.12 to the Tender Offer Statement on Schedule 14D-1, filed
with the Commission by Parent and Purchaser on May 14, 1998).
(c)(5) Letter Agreement, dated May 7, 1998, by and among Shansby Partners,
L.L.C., TSG2 L.P., TSG2 Management, L.L.C. and the Company
(incorporated by reference to Exhibit 99.13 to the Tender Offer
Statement on Schedule 14D-1, filed with the Commission by Parent and
Purchaser on May 14, 1998).
</TABLE>
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* Included in documents mailed to shareholders.
+ Previously filed.
