<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
--------------------------
BIG FLOWER HOLDINGS, INC.
(NAME OF THE ISSUER)
<TABLE>
<S> <C>
R. THEODORE AMMON EVERCORE PARTNERS L.L.C.
EDWARD T. REILLY EVERCORE CAPITAL PARTNERS L.P.
RICHARD L. RITCHIE EVERCORE CAPITAL PARTNERS (NQ) L.P.
BFH MERGER CORP. EVERCORE CAPITAL OFFSHORE PARTNERS L.P. (CAYMAN)
THOMAS H. LEE EQUITY FUND IV, L.P. EBF GROUP L.L.C.
THL EQUITY ADVISORS IV, LLC BIG FLOWER HOLDINGS, INC.
(NAME OF PERSON(S) FILING STATEMENT)
</TABLE>
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
089159
(CUSIP NUMBER OF CLASS OF SECURITIES)
<TABLE>
<S> <C> <C>
MARK A. ANGELSON AUSTIN M. BEUTNER ANTHONY J. DINOVI
BIG FLOWER HOLDINGS, INC. EVERCORE CAPITAL PARTNERS L.P. BFH MERGER CORP.
3 EAST 54TH STREET EVERCORE CAPITAL PARTNERS (NQ) L.P. THOMAS H. LEE
NEW YORK, NEW YORK 10022 EVERCORE CAPITAL EQUITY FUND IV, L.P.
(212) 521-1600 OFFSHORE PARTNERS THL EQUITY
L.P. (CAYMAN) ADVISORS IV, LLC
EBF GROUP L.L.C. C/O THOMAS H. LEE COMPANY
65 EAST 55TH STREET, 33RD FLOOR 75 STATE STREET, SUITE 2600
NEW YORK, NEW YORK 10022 BOSTON, MASSACHUSETTS 02109
(212) 857-3100 (617) 227-1050
</TABLE>
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
COPIES TO:
<TABLE>
<S> <C> <C>
JOSEPH B. FRUMKIN THOMAS C. MAZZA ERIC L. COCHRAN
SULLIVAN & CROMWELL DEWEY BALLANTINE LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
125 BROAD STREET 1301 AVENUE OF THE AMERICAS 919 THIRD AVENUE
NEW YORK, NEW YORK 10004 NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10022
(212) 558-4000 (212) 259-8000 (212) 735-3000
</TABLE>
--------------------------
This statement is filed in connection with (check the appropriate box):
/X/(a) The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
/X/(b) The filing of a registration statement under the Securities Exchange
Act of 1933.
/ /(c) A tender offer.
/ /(d) None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. /X/
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
TRANSACTION VALUATION*: AMOUNT OF FILING FEE**:
<S> <C>
$764,873,665.17 $152,974.73
</TABLE>
* For purposes of calculating fee only. This transaction applies to an
aggregate of 26,017,032 shares of Big Flower common stock (the sum of
23,644,491 outstanding shares of Big Flower common stock and 2,372,541
shares of Big Flower common stock issuable upon the exercise of currently
exercisable stock options). The per unit price or other underlying value of
the transaction computed as of July 13, 1999 pursuant to Exchange Act Rule
0-11(b)(2) is $30.6875. The proposed maximum aggregate value of the
transaction is $764,873,665.17 (the product of the aggregate number of
shares, multiplied by the per share price, less the exercise price of $14.13
per share with respect to the shares issuable upon the exercise of stock
options).
** 1/50 of 1% of Transaction Valuation, calculated in accordance with Rule 0-11
promulgated under the Securities Exchange Act of 1934, as amended.
/X/ CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY RULE 0-11(A)(2)
AND IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY PAID.
IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM
OR SCHEDULE AND THE DATE OF ITS FILING.
AMOUNT PREVIOUSLY PAID: __$874.31
FORM OR REGISTRATION NO.: FORM S-4
FILING PARTY: BIG FLOWER HOLDINGS, INC.
DATE FILED: JULY 16, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INTRODUCTION
This Rule 13e-3 transaction statement on Schedule 13E-3 is being filed with
the Securities and Exchange Commission (the "Commission") by Big Flower
Holdings, Inc. ("Big Flower"), BFH Merger Corp. ("BFH Merger Corp."), Thomas H.
Lee Equity Fund IV, L.P. ("THL Equity Fund IV"), THL Equity Advisors IV, LLC
("THL Advisors"), Evercore Partners L.L.C. ("Evercore Partners L.L.C."),
Evercore Capital Partners L.P. ("Evercore Capital Partners"), Evercore Capital
Partners (NQ) L.P. ("Evercore NQ"), Evercore Capital Offshore Partners L.P.
(Cayman) ("Evercore Offshore"), EBF Group L.L.C. ("EBF Group") and the following
executive officers and management directors of Big Flower: R. Theodore Ammon,
Edward T. Reilly and Richard L. Ritchie. This transaction statement relates to
the Agreement and Plan of Merger, dated as of June 29, 1999 ("Merger
Agreement"), between Big Flower and BFH Merger Corp., pursuant to which BFH
Merger Corp., will be merged with and into Big Flower, with Big Flower as the
surviving corporation. BFH Merger Corp. was formed by THL Equity Fund IV and
Evercore Capital Partners and their respective affiliates for the purpose of
consummating the merger.
Under the terms, and subject to the conditions of the Merger Agreement, each
outstanding share of Big Flower common stock, par value $0.01 per share ("Big
Flower Common Stock"), other than shares held by Big Flower in its treasury or
by one of its subsidiaries, certain shares retained by members of management in
the merger, and shares for which appraisal rights are perfected in accordance
with Delaware law, will be converted into the right to receive (a) $30.00 in
cash, (b) 0.21 shares of paid-in-kind preferred stock of Big Flower, with a
liquidation preference of $25.00 per share (or $5.25 liquidation preference per
share of Big Flower Common Stock owned by each holder) and dividends accruing at
an annual rate of 10% compounded semi-annually ("PIK Preferred Stock"), and (c)
a warrant to purchase approximately 0.02 of a share of Big Flower Common Stock
which becomes exercisable upon the occurrence of certain specified events (the
"Warrants").
Concurrently with the filing of this transaction statement, Big Flower is
filing with the Commission a preliminary proxy statement/prospectus on Form S-4
(the "Registration Statement") relating to the annual meeting of stockholders of
Big Flower and the issuance of the PIK Preferred Stock and Warrants. At the Big
Flower meeting, the stockholders of Big Flower will consider and vote upon:
adoption of the Merger Agreement, the election of two directors to the Big
Flower board of directors, and ratification of the appointment of Deloitte &
Touche LLP as Big Flower's independent certified public accountants. A copy of
the Registration Statement is attached hereto as Exhibit (d), and a copy of the
Merger Agreement is attached as Appendix A to the Registration Statement.
The Cross Reference Sheet herein is supplied pursuant to General Instruction
F to Schedule 13E-3 and shows the location in the Registration Statement that
responds to each item of this statement. The information in the Registration
Statement, including all exhibits thereto, is hereby expressly incorporated by
reference to this transaction statement, and the responses to each item are
qualified in their entirety by the provisions of the Registration Statement. The
Registration Statement is in preliminary form and is subject to completion or
amendment. Capitalized terms used but not defined in this statement shall have
the meanings given to them in the Registration Statement.
2
<PAGE>
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM OF SCHEDULE 13E-3 LOCATION IN REGISTRATION STATEMENT (INCORPORATED HEREIN BY REFERENCE)
- ------------------------------ ---------------------------------------------------------------------------------
<S> <C>
</TABLE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
<TABLE>
<S> <C>
(a)..................... Cover Page; "Description of Big Flower".
(b)..................... "Summary--The Big Flower Meeting"; "Market Price and Dividend
Data--Number of Stockholders"; "The Big Flower Meeting--Voting".
(c)..................... "Special Factors--Effect of the Merger on Big Flower Capital
Stock"; "Market Price and Dividend Data".
(d)..................... "Market Price and Dividend Data--Dividend Information".
(e)..................... "Market Price and Dividend Data".
(f)..................... Appendix E--"Transactions Involving Big Flower Common Stock by
Thomas H. Lee Equity Fund IV, L.P., THL Equity Advisors IV, LLC,
Evercore Partners L.L.C., Evercore Capital Partners L.P.,
Evercore Capital Partners (NQ) L.P., Evercore Capital Offshore
Partners L.P. (Cayman), EBF Group L.L.C., Big Flower and
Executive Officers and Directors of Big Flower".
</TABLE>
ITEM 2. IDENTITY AND BACKGROUND.
This Transaction Statement is being filed by the issuer of the class of
equity securities which is the subject of the Rule 13e-3 transaction, jointly
with BFH Merger Corp., Evercore Capital Partners, Evercore Partners L.L.C.,
Evercore NQ, Evercore Offshore, EBF Group, THL Equity Fund IV, THL Advisors, A.
Theodore Ammon, Edward T. Reilly and Richard L. Ritchie.
<TABLE>
<S> <C>
(a)--(d)................ "Questions and Answers About the Merger"; "Description of Big
Flower"; "Description of BFH Merger Corp.--Thomas H. Lee Equity
Fund IV"; "Description of BFH Merger Corp.--Evercore Capital
Partners"; Appendix F--"Information Relating to Evercore Partners
L.L.C., Evercore Capital Partners L.P., Evercore Capital Partners
(NQ) L.P., Evercore Capital Offshore Partners L.P. (Cayman), EBF
Group L.L.C., Thomas H. Lee Equity Fund IV, L.P., THL Equity
Advisors IV, LLC, and their Respective Principals, and the
Executive Officers and Directors of BFH Merger Corp. and Big
Flower".
(e)--(f)................ None of the directors or executive officers of Big Flower, BFH
Merger Corp., Evercore Capital Partners, Evercore Partners
L.L.C., Evercore NQ, Evercore Offshore, EBF Group, THL Equity
Fund IV or THL Advisors nor any of Thomas H. Lee, Roger C.
Altman, Austin M. Beutner or David G. Offensend: (a) was, during
the last five years, convicted in a criminal proceeding
(excluding traffic violations or similar proceedings) or (b) was
a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining
further violations of, or prohibiting activities subject to,
federal or state securities laws or finding any violation of such
laws.
</TABLE>
3
<PAGE>
ITEM 2. IDENTITY AND BACKGROUND. (CONTINUED)
<TABLE>
<CAPTION>
LOCATION IN REGISTRATION STATEMENT (INCORPORATED HEREIN BY
ITEM OF SCHEDULE 13E-3 REFERENCE)
- ------------------------ -----------------------------------------------------------------
<S> <C> <C>
(g)........................... Appendix F--"Information Relating to Evercore Partners L.L.C., Evercore Capital
Partners L.P., Evercore Capital Partners (NQ) L.P., Evercore Capital Offshore
Partners L.P. (Cayman), EBF Group L.L.C., Thomas H. Lee Equity Fund IV, L.P., THL
Equity Advisors IV, LLC, and their Respective Principals, and the Executive
Officers and Directors of Big Flower".
</TABLE>
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
<TABLE>
<S> <C>
(a)(1).................. Appendix E--"Transactions Involving Big Flower Common Stock by
Thomas H. Lee Equity Fund IV, L.P., THL Equity Advisors IV, LLC,
Evercore Partners L.L.C., Evercore Capital Partners L.P.,
Evercore Capital Partners (NQ) L.P., Evercore Capital Offshore
Partners L.P. (Cayman), EBF Group L.L.C., Big Flower and
Executive Officers and Directors of Big Flower."
(a)(2).................. "Special Factors--Background of the Merger".
(b)..................... "Special Factors--Conflicts of Interest of Certain Members of the
Big Flower Board of Directors and Management"; "Special
Factors--Background of the Merger".
</TABLE>
ITEM 4. TERMS OF THE TRANSACTION.
<TABLE>
<S> <C>
(a)..................... "Questions and Answers About the Merger"; "Summary"; "Special
Factors"; "The Merger Agreement"; "Description of Big Flower
Capital Stock Following the Merger"; Appendix A--"Agreement and
Plan of Merger, dated as of June 29, 1999, between Big Flower
Holdings, Inc. and BFH Merger Corp."
(b)..................... "Questions and Answers About the Merger"; "Summary--Conflicts of
Interests of Management Members of the Big Flower Board and Man-
agement"; "Special Factors--Conflicts of Interest of Certain
Members of the Big Flower Board of Directors and Management";
"The Merger Agreement--Consideration to Be Received in the
Merger"; "The Merger Agreement--Covenants".
</TABLE>
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
<TABLE>
<S> <C>
(a)..................... None
(b)..................... None
(c)..................... "Special Factors--Amendment of Big Flower Restated Certificate of
Incorporation and Amended and Restated Bylaws"; "The Merger
Agreement--Corporate Governance"; "Directors and Management of
Big Flower Following the Merger".
</TABLE>
4
<PAGE>
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (CONTINUED)
<TABLE>
<CAPTION>
LOCATION IN REGISTRATION STATEMENT (INCORPORATED HEREIN BY
ITEM OF SCHEDULE 13E-3 REFERENCE)
- ------------------------ -----------------------------------------------------------------
<S> <C> <C>
(d)........................... "Description of Big Flower Capital Stock Following the Merger--PIK Preferred
Stock and Warrants"; "Market Price and Dividend Data--Dividend Information"; "Big
Flower Unaudited Pro Forma Financial Information".
(e)........................... "Description of Big Flower Capital Stock Following the Merger"; "Special
Factors--Consequences of the Merger; Plans for Big Flower After the Merger";
"Special Factors--Source and Amount of Funds"; "Capitalization"; "Sources and
Uses".
(f)........................... "Special Factors--Effect of the Merger on Big Flower Capital Stock".
(g)........................... "Special Factors--Effect of the Merger on Big Flower Capital Stock".
</TABLE>
ITEM 6. SOURCES AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
<TABLE>
<S> <C>
(a)..................... "Summary--Source and Amount of Funds and Other Consideration";
"Special Factors--Source and Amount of Funds"; "Sources and
Uses".
(b)..................... "Special Factors--Fees and Expenses of the Merger"; "The Merger
Agreement--Fees and Expenses".
(c)..................... "Special Factors--Source and Amount of Funds"; "Capitalization";
"Sources and Uses".
(d)..................... Not Applicable.
</TABLE>
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS.
<TABLE>
<S> <C>
(a)..................... "Special Factors--Background of the Merger"; "Special
Factors--Big Flower's Reasons for the Merger; Recommendation of
the Big Flower Board of Directors".
(b)..................... "Special Factors--Background of the Merger"; "Special
Factors--Big Flower's Reasons for the Merger; Recommendation of
the Big Flower Board of Directors".
(c)..................... "Special Factors--Background of the Merger"; "Special
Factors--Big Flower's Reasons for the Merger; Recommendation of
the Big Flower Board of Directors".
(d)..................... "Questions and Answers About the Merger"; "Summary--What You Will
Receive in the Merger"; "Summary--Conflicts of Interests of
Management Members of the Big Flower Board and Management";
"Summary-- Risk Factors"; "Risk Factors"; "Special
Factors--Consequences of the Merger; Plans for Big Flower After
the Merger"; "Special Factors-- Effect of the Merger on Big
Flower Capital Stock"; "Capitalization"; "Sources and Uses";
"United States Federal Income Tax Considerations"; "Special
Factors--Accounting Treatment"; "Directors and Management of Big
Flower Following the Merger".
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
ITEM OF SCHEDULE 13E-3 LOCATION IN REGISTRATION STATEMENT (INCORPORATED HEREIN BY REFERENCE)
- ------------------------------ ---------------------------------------------------------------------------------
<S> <C>
</TABLE>
ITEM 8. FAIRNESS OF THE TRANSACTION.
<TABLE>
<S> <C>
(a) and (b)................... "Summary--Recommendation of the Big Flower Board"; "Special Factors--Background
of the Merger"; "Special Factors--Big Flower's Reasons for the Merger;
Recommendation of the Big Flower Board of Directors"; "Special Factors--Opinions
of Big Flower's Financial Advisors"; "Special Factors--Fairness of the Merger".
(c)..................... "The Big Flower Meeting--Voting".
(d)..................... "Special Factors--Background of the Merger"; "Special
Factors--Big Flower's Reasons for the Merger; Recommendation of
the Big Flower Board of Directors"; "Special Factors--Opinions of
Big Flower's Financial Advisors"; "Special Factors--Fairness of
the Merger".
(e)..................... "Summary--Recommendation of the Big Flower Board"; "Special Fac-
tors--Background of the Merger"; "Special Factors--Conflicts of
Interest of Certain Members of the Big Flower Board of Directors
and Management"; "Special Factors--Fairness of the Merger";
"Special Factors--Big Flower's Reasons for the Merger;
Recommendation of the Big Flower Board of Directors".
(f)..................... "Special Factors--Background of the Merger"; "Special
Factors--Big Flower's Reasons for the Merger; Recommendation of
the Big Flower Board of Directors".
</TABLE>
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
<TABLE>
<S> <C>
(a)--(c)................ "Summary--Opinion of Financial Advisors"; "Special Factors--
Background of the Merger"; "Special Factors--Opinions of Big
Flower's Financial Advisors"; Appendix B--"Opinion of Goldman,
Sachs & Co., dated June 29, 1999"; Appendix C--"Opinion of
Berenson Minella & Company, dated June 29, 1999".
</TABLE>
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
<TABLE>
<S> <C>
(a)..................... "Special Factors--Conflicts of Interest of Certain Members of the
Big Flower Board of Directors and Management"; "Directors and
Management of Big Flower Following the Merger"; "Other
Information for the Big Flower Meeting--Voting Securities and
Principal Holders Thereof".
(b)..................... Appendix E--"Transactions Involving Big Flower Common Stock by
Thomas H. Lee Equity Fund IV, L.P., THL Equity Advisors IV, LLC,
Evercore Partners L.L.C., Evercore Capital Partners L.P.,
Evercore Capital Partners (NQ) L.P., Evercore Capital Offshore
Partners L.P. (Cayman), EBF Group L.L.C., Big Flower and
Executive Officers and Directors of Big Flower".
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
ITEM OF SCHEDULE 13E-3 LOCATION IN REGISTRATION STATEMENT (INCORPORATED HEREIN BY REFERENCE)
- ------------------------------ ---------------------------------------------------------------------------------
<S> <C>
</TABLE>
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
<TABLE>
<S> <C>
"Summary--The Big Flower Meeting"; "The Big Flower Meeting-- Voting"; "Special
Factors--Conflicts of Interest of Certain Members of the Big Flower Board of
Directors and Management"; "Special Factors-- Source and Amount of Funds";
"Sources and Uses".
</TABLE>
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
<TABLE>
<S> <C>
(a)..................... "Summary--The Big Flower Meeting"; "Summary--Recommendation of
the Big Flower Board"; "The Big Flower Meeting--Voting"; "Special
Factors--Conflicts of Interest of Certain Members of the Big
Flower Board of Directors and Management"; "Special Factors--Big
Flower's Reasons for the Merger; Recommendation of the Big Flower
Board of Directors"; "Special Factors--Source and Amount of
Funds"; "Special Factors--Fairness of the Merger".
(b)..................... "Summary--Recommendation of the Big Flower Board"; "The Big
Flower Meeting--General"; "Special Factors--Big Flower's Reasons
for the Merger; Recommendation of the Big Flower Board of
Directors"; "Special Factors--Fairness of the Merger".
</TABLE>
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
<TABLE>
<S> <C>
(a)..................... "Summary--Appraisal Rights"; "Appraisal Rights"; Appendix D--
"Section 262 of the Delaware General Corporation Law".
(b)..................... Not Applicable.
(c)..................... Not Applicable.
</TABLE>
ITEM 14. FINANCIAL INFORMATION.
<TABLE>
<S> <C>
Pursuant to General Instruction D to Schedule 13E-3, Big Flower's
Annual Report on Form 10-K for the year ended December 31, 1998
and its Quarterly Report on Form 10-Q for the quarter ended March
31, 1999 are incorporated by reference in the Registration
Statement. Big Flower's audited financial statements for the
periods covered by the Form 10-K and unaudited financial
statements for the periods covered by the Form 10-Q are
incorporated herein by reference.
</TABLE>
<TABLE>
<S> <C>
(a) and (b)............. "Summary--Selected Historical Financial Data";
"Summary--Unaudited Pro Forma Consolidated Financial Data"; "Big
Flower Unaudited Pro Forma Financial Information".
</TABLE>
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
<TABLE>
<S> <C>
(a)..................... "The Big Flower Meeting--Solicitation of Proxies".
(b)..................... "The Big Flower Meeting--Solicitation of Proxies".
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
ITEM OF SCHEDULE 13E-3 LOCATION IN REGISTRATION STATEMENT (INCORPORATED HEREIN BY REFERENCE)
- ------------------------------ ---------------------------------------------------------------------------------
<S> <C>
</TABLE>
ITEM 16. ADDITIONAL INFORMATION.
<TABLE>
<S> <C>
The Registration Statement and the Appendices and Exhibits attached thereto.
</TABLE>
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
(a)..................... (1) Senior Credit Facility Commitment Letter from the Chase
Manhattan Bank, Banker's Trust Company, Nationsbank, N.A., Chase
Securities Inc. and Deutsche Bank Securities Inc. to BFH
Merger Corp, dated June 28, 1999.
(2) Bridge Loan and Term Loan Facility Commitment Letter from
Bankers Trust Corporation, the Chase Manhattan Bank and
Nationsbridge, L.L.C. to BFH Merger Corp., dated June 28,
1999.
(b)..................... (1) Opinion of Goldman, Sachs & Co. dated June 29, 1999 (included
as Appendix B to the Registration Statement).
(2) Financial Analysis Presentation materials prepared by
Goldman, Sachs & Co. in connection with providing its opinion to
the Big Flower Board of Directors.
(3) Opinion of Berenson Minella & Company dated June 29, 1999
(included as Appendix C to the Registration statement).
(4) Financial Analysis Presentation materials prepared by
Berenson Minella & Company in connection with providing its
opinion to the Big Flower Board of Directors.
(c)..................... Not Applicable
(d)..................... Preliminary Proxy Statement/Prospectus on Form S-4 of Big Flower
Holdings, Inc.
(e)..................... Section 262 of the Delaware General Corporation Law (included as
Appendix D to the Registration Statement).
(f)..................... Not Applicable
</TABLE>
8
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth in the Cover Page and "Description of Big
Flower" of the Registration Statement is incorporated herein by
reference.
(b) The information set forth in "Summary--The Big Flower Meeting"; "Market
Price and Dividend Data--Number of Stockholders"; and "Big Flower
Meeting--Voting" of the Registration Statement is incorporated herein by
reference.
(c) The information set forth in "Special Factors--Effect of the Merger on
Big Flower Capital Stock"; and "Market Price and Dividend Data" of the
Registration Statement is incorporated herein by reference.
(d) The information set forth in "Market Price and Dividend Data--Dividend
Information" of the Registration Statement is incorporated herein by
reference.
(e) The information set forth in "Market Price and Dividend Data" of the
Registration Statement is incorporated herein by reference.
(f) The information set forth in Appendix E--"Transactions Involving Big
Flower Common Stock by Thomas H. Lee Equity Fund IV, L.P., THL Equity
Advisors IV, LLC, Evercore Partners L.L.C., Evercore Capital Partners
L.P., Evercore Capital Partners (NQ) L.P., Evercore Capital Offshore
Partners L.P. (Cayman), EBF Group L.L.C., Big Flower and Executive
Officers and Directors of Big Flower" of the Registration Statement is
incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
This Transaction Statement is being filed by the issuer of the class of
equity securities which is the subject of the Rule 13e-3 transaction, jointly
with BFH Merger Corp., Evercore Capital Partners, Evercore Partners L.L.C.,
Evercore NQ, Evercore Offshore, EBF Group, THL Equity Fund IV, THL Advisors, A.
Theodore Ammon, Edward T. Reilly and Richard L. Ritchie.
(a)--(d) The information set forth in "Questions and Answers About the
Merger"; "Description of Big Flower"; "Description of BFH Merger
Corp.--Thomas H. Lee Equity Fund IV"; "Description of BFH Merger
Corp.--Evercore Capital Partners"; and Appendix F-- "Information
Relating to Evercore Partners L.L.C., Evercore Capital Partners
L.P., Evercore Capital Partners (NQ) L.P., Evercore Capital
Offshore Partners L.P. (Cayman), EBF Group L.L.C., Thomas H. Lee
Equity Fund IV, L.P., THL Equity Advisors IV, LLC, and their
Respective Principals, and the Executive Officers and Directors of
BFH Merger Corp. and Big Flower" of the Registration Statement is
incorporated herein by reference.
(e)--(f) None of the directors or executive officers of Big Flower, BFH
Merger Corp., Evercore Capital Partners, Evercore Partners L.L.C.,
Evercore NQ, Evercore Offshore, EBF Group, THL Equity Fund IV or
THL Advisors nor any of Thomas H. Lee, Roger Altman, Austin M.
Beutner or David G. Offensend: (a) was, during the last five years,
convicted in a criminal proceeding (excluding traffic violations or
similar proceedings) or (b) was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a
result of such proceeding was or is subject to a judgment, decree
or final order enjoining further violations of, or prohibiting
activities subject to, federal or state securities laws or finding
any violation of such laws.
(g) The information set forth in Appendix F--"Information Relating to
Evercore Partners L.L.C., Evercore Capital Partners L.P., Evercore
Capital Partners (NQ) L.P., Evercore Capital Offshore Partners L.P.
(Cayman), EBF Group L.L.C., Thomas H. Lee
9
<PAGE>
ITEM 2. IDENTITY AND BACKGROUND. (CONTINUED)
Equity Fund IV, L.P., THL Equity Advisors IV, LLC, and their
Respective Principals, and the Executive Officers and Directors of
BFH Merger Corp. and Big Flower" of the Registration Statement is
incorporated herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) The information set forth in Appendix E--"Transactions Involving Big
Flower Common Stock by Thomas H. Lee Equity Fund IV, L.P., THL Equity
Advisors IV, LLC, Evercore Partners L.L.C., Evercore Capital Partners
L.P., Evercore Capital Partners (NQ) L.P., Evercore Capital Offshore
Partners L.P. (Cayman), EBF Group L.L.C., Big Flower and Executive
Officers and Directors of Big Flower" of the Registration Statement
is incorporated herein by reference.
(a)(2) The information set forth in "Special Factors--Background of the
Merger" of the Registration Statement is incorporated herein by
reference.
(b) The information set forth in "Special Factors--Conflicts of
Interest of Certain Members of the Big Flower Board of Directors
and Management"; and "Special Factors-- Background of the Merger"
of the Registration Statement is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in "Questions and Answers About the Merger";
"Summary"; "Special Factors"; "The Merger Agreement"; "Description of Big
Flower Capital Stock Following the Merger"; and Appendix A--"Agreement
and Plan of Merger, dated as of June 29, 1999, between Big Flower
Holdings, Inc. and BFH Merger Corp." of the Registration Statement is
incorporated herein by reference.
(b) The information set forth in "Questions and Answers About the Merger";
"Summary-- Conflicts of Interest of Management Members of the Big Flower
Board and Management"; "Special Factors--Conflicts of Interest of Certain
Members of the Big Flower Board of Directors and Management"; "The Merger
Agreement--Consideration to Be Received in the Merger"; and "The Merger
Agreement--Covenants" of the Registration Statement is incorporated
herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a) None.
(b) None.
(c) The information set forth in "Special Factors--Amendment of Big Flower
Restated Certificate of Incorporation and Amended and Restated Bylaws";
"The Merger Agreement--Corporate Governance"; and "Directors and
Management of Big Flower Following the Merger" of the Registration
Statement is incorporated herein by reference.
(d) The information set forth in "Description of Big Flower Capital Stock
Following the Merger-- PIK Preferred Stock and Warrants"; "Market Price
and Dividend Data--Dividend Information"; and "Big Flower Unaudited Pro
Forma Financial Information" of the Registration Statement is
incorporated herein by reference.
10
<PAGE>
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (CONTINUED)
(e) The information set forth in "Description of Big Flower Capital Stock
Following the Merger"; "Special Factors--Consequences of the Merger;
Plans for Big Flower After the Merger"; "Special Factors--Source and
Amount of Funds"; "Capitalization"; and "Sources and Uses" of the
Registration Statement is incorporated herein by reference.
(f) The information set forth in "Special Factors--Effect of the Merger on
Big Flower Capital Stock" of the Registration Statement is incorporated
herein by reference.
(g) The information set forth in "Special Factors--Effect of the Merger on
Big Flower Capital Stock" of the Registration Statement is incorporated
herein by reference.
ITEM 6. SOURCES AND AMOUNT OF FUNDS AND OTHER CONSIDERATION.
(a) The information set forth in "Summary--Source and Amount of Funds and
Other Consideration"; "Special Factors--Source and Amount of Funds"; and
"Sources and Uses" of the Registration Statement is incorporated herein
by reference.
(b) The information set forth in "Special Factors--Fees and Expenses of the
Merger"; and "The Merger Agreement--Fees and Expenses" of the
Registration Statement is incorporated herein by reference.
(c) The information set forth in "Special Factors--Source and Amount of
Funds"; "Capitalization"; and "Sources and Uses" of the Registration
Statement is incorporated herein by reference.
(d) Not Applicable.
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS.
(a) The information set forth in "Special Factors--Background of the
Merger"; and "Special Factors--Big Flower's Reasons for the Merger;
Recommendation of the Big Flower Board of Directors" of the Registration
Statement is incorporated herein by reference.
(b) The information set forth in "Special Factors--Background of the
Merger"; and "Special Factors--Big Flower's Reasons for the Merger;
Recommendation of the Big Flower Board of Directors" of the Registration
Statement is incorporated herein by reference.
(c) The information set forth in "Special Factors--Background of the
Merger"; and "Special Factors--Big Flower's Reasons for the Merger;
Recommendation of the Big Flower Board of Directors" of the Registration
Statement is incorporated herein by reference.
(d) The information set forth in "Questions and Answers About the Merger";
"Summary--What You Will Receive in the Merger"; "Summary--Conflicts of
Interests of Management Members of the Big Flower Board and Management";
"Summary--Risk Factors"; "Risk Factors"; "Special Factors--Consequences
of the Merger; Plans for Big Flower After the Merger"; "Special
Factors--Effect of the Merger on Big Flower Capital Stock";
"Capitalization"; "Sources and Uses"; "United States Federal Income Tax
Considerations"; "Special Factors-- Accounting Treatment"; and "Directors
and Management of Big Flower Following the Merger" of the Registration
Statement is incorporated herein by reference.
11
<PAGE>
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)--(b) The information set forth in "Summary--Recommendation of the Big
Flower Board"; "Special Factors--Background of the Merger";
"Special Factors--Big Flower's Reasons for the Merger;
Recommendation of the Big Flower Board of Directors"; "Special
Factors--Opinions of Big Flower's Financial Advisors"; and "Special
Factors--Fairness of the Merger" of the Registration Statement is
incorporated herein by reference.
(c) The information set forth in "The Big Flower Meeting--Voting" of the
Registration Statement is incorporated herein by reference.
(d) The information set forth in "Special Factors--Background of the
Merger"; "Special Factors--Big Flower's Reasons for the Merger;
Recommendation of the Big Flower Board of Directors"; "Special
Factors--Opinions of Big Flower's Financial Advisors"; and "Special
Factors--Fairness of the Merger" of the Registration Statement is
incorporated herein by reference.
(e) The information set forth in "Summary--Recommendation of the Big
Flower Board"; "Special Factors--Background of the Merger"; "Special
Factors--Conflicts of Interest of Certain Members of the Big Flower
Board of Directors and Management"; "Special Factors--Fairness of
the Merger"; and "Special Factors--Big Flower's Reasons for the
Merger; Recommendation of the Big Flower Board of Directors" of the
Registration Statement is incorporated herein by reference.
(f) The information set forth in "Special Factors--Background of the
Merger"; and "Special Factors--Big Flower's Reasons for the Merger;
Recommendation of the Big Flower Board of Directors" of the
Registration Statement is incorporated herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)--(c) The information set forth in "Summary--Opinion of Financial
Advisors"; "Special Factors--Background of the Merger"; "Special
Factors--Opinions of Big Flower's Financial Advisors"; Appendix
B--"Opinion of Goldman, Sachs & Co., dated June 29, 1999"; and
Appendix C--"Opinion of Berenson Minella & Company, dated June 29,
1999" of the Registration Statement is incorporated herein by
reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in "Special Factors--Conflicts of Interest of
Certain Members of the Big Flower Board of Directors and Management";
"Directors and Management of Big Flower Following the Merger"; and "Other
Information for the Big Flower Meeting--Voting Securities and Principal
Holders Thereof" of the Registration Statement is incorporated herein by
reference.
(b) The information set forth in Appendix E--"Transactions Involving Big
Flower Common Stock by Thomas H. Lee Equity Fund IV, L.P., THL Equity
Advisors IV, LLC, Evercore Partners L.L.C., Evercore Capital Partners
L.P., Evercore Capital Partners (NQ) L.P., Evercore Capital Offshore
Partners L.P. (Cayman), EBF Group L.L.C., Big Flower and Executive
Officers and Directors of Big Flower" of the Registration Statement is
incorporated herein by reference.
12
<PAGE>
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The information set forth in "Summary--The Big Flower Meeting"; "The Big
Flower Meeting-- Voting"; "Special Factors--Conflicts of Interest of Certain
Members of the Big Flower Board of Directors and Management"; "Special
Factors--Source and Amount of Funds"; and "Sources and Uses" of the Registration
Statement is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) The information set forth in "Summary--The Big Flower Meeting";
"Summary-- Recommendation of the Big Flower Board"; "The Big Flower
Meeting--Voting"; "Special Factors--Conflicts of Interest of Certain
Members of the Big Flower Board of Directors and Management"; "Special
Factors--Big Flower's Reasons for the Merger; Recommendation of the Big
Flower Board of Directors"; "Special Factors--Source and Amount of
Funds"; and "Special Factors--Fairness of the Merger" of the Registration
Statement is incorporated herein by reference.
(b) The information set forth in "Summary--Recommendation of the Big Flower
Board"; "The Big Flower Meeting--General"; "Special Factors--Big Flower's
Reasons for the Merger; Recommendation of the Big Flower Board of
Directors"; and "Special Factors--Fairness of the Merger" of the
Registration Statement is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "Summary--Appraisal Rights"; "Appraisal
Rights"; and Appendix D--"Section 262 of the Delaware General Corporation
Law" of the Registration Statement is incorporated herein by reference.
(b) Not Applicable.
(c) Not Applicable.
ITEM 14. FINANCIAL INFORMATION.
Pursuant to General Instruction D to Schedule 13-3, Big Flower's Annual
Report on Form 10-K for the year ended December 31, 1998 and its Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999 are incorporated by
reference in the Registration Statement. Big Flower's audited financial
statements for the periods covered by the Form 10-K and unaudited financial
statements for the periods covered by the Form 10-Q are incorporated herein by
reference.
(a)--(b) The information set forth in "Summary--Selected Historical
Financial Data"; "Summary--Unaudited Pro Forma consolidated
Financial Data"; and "Big Flower Unaudited Pro Forma Financial
Information" of the Registration Statement is incorporated herein
by reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in "The Big Flower Meeting--Solicitation of
Proxies" of the Registration Statement is incorporated herein by
reference.
(b) The information set forth in "The Big Flower Meeting--Solicitation of
Proxies" of the Registration Statement is incorporated herein by
reference.
13
<PAGE>
ITEM 16. ADDITIONAL INFORMATION.
The Registration Statement and the Appendices and Exhibits attached thereto
are incorporated herein by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit(a) (1) Senior Credit Facility Commitment Letter from the Chase Manhattan Bank,
Banker's Trust Company, Nationsbank, N.A., Chase Securities Inc. and Deutsche
Bank Securities Inc. to BFH Merger Corp, dated June 28, 1999.
(2) Bridge Loan and Term Loan Facility Commitment Letter from Bankers Trust
Corporation, the Chase Manhattan Bank and Nationsbridge, L.L.C. to BFH
Merger Corp., dated June 28, 1999.
Exhibit(b) (1) Opinion of Goldman Sachs & Co. dated June 29, 1999 (included as Appendix B
to the Registration it Statement).
(2) Financial analysis presentation materials prepared by Goldman Sachs & Co. in
connection with providing its opinion to the Big Flower Board of Directors.
(3) Opinion of Berenson Minella & Company dated June 29, 1999 (included as
Appendix C to the Registration statement).
(4) Financial analysis presentation materials prepared by Berenson Minella &
Company in connection with providing its opinion to the Big Flower Board of
Directors.
Exhibit(c) Not Applicable
Exhibit(d) Preliminary Proxy Statement/Prospectus on Form S-4 of Big Flower Holdings, Inc.
Exhibit(e) Section 262 of the Delaware General Corporation Law (included as Appendix D to
the Registration Statement).
Exhibit(f) Not Applicable
</TABLE>
14
<PAGE>
SIGNATURES
After due 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.
Dated: July 16, 1999
<TABLE>
<S> <C> <C>
BFH MERGER CORP.
By: /s/ ANTHONY DINOVI
-----------------------------------------
Name: Anthony DiNovi
Title: Managing Director
THOMAS H. LEE EQUITY FUND IV, L.P.
By: THL Equity Advisors IV, LLC
General Partner
</TABLE>
<TABLE>
<S> <C> <C>
By: /s/ ANTHONY DINOVI
--------------------------------------
Name: Anthony DiNovi
Title: Managing Director
</TABLE>
<TABLE>
<S> <C> <C>
THL EQUITY ADVISORS IV, LLC
By: /s/ ANTHONY DINOVI
-----------------------------------------
Name: Anthony DiNovi
Title: Managing Director
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C>
EVERCORE PARTNERS L.L.C.
By: /s/ AUSTIN M. BEUTNER
-----------------------------------------
Name: Austin M. Beutner
Title: Managing Member
EVERCORE CAPITAL PARTNERS L.P.
EVERCORE CAPITAL PARTNERS (NQ) L.P.
EVERCORE CAPITAL OFFSHORE PARTNERS L.P.
(CAYMAN)
EBF GROUP L.L.C.
By: EVERCORE PARTNERS L.L.C., their general
partner
By: /s/ AUSTIN M. BEUTNER
-----------------------------------------
Name: Austin M. Beutner
Title: Managing Member
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
BIG FLOWER HOLDINGS, INC.
By: /s/ MARK A. ANGELSON
-----------------------------------------
Name: Mark A. Angelson
Title: Executive Vice President--Office of
the Chairman, General Counsel and
Secretary
/s/ R. THEODORE AMMON
-----------------------------------------
R. Theodore Ammon
/s/ EDWARD T. REILLY
-----------------------------------------
Edward T. Reilly
/s/ RICHARD L. RITCHIE
-----------------------------------------
Richard L. Ritchie
</TABLE>
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
(a)(1).................. Senior Credit Facility Commitment Letter from the Chase Manhattan
Bank, Banker's Trust Company, Nationsbank, N.A., Chase Securities
Inc. and Deutsche Bank Securities Inc. to BFH Merger Corp, dated
June 28, 1999.
(a)(2).................. Bridge Loan and Term Loan Facility Commitment Letter from Bankers
Trust Corporation, the Chase Manhattan Bank and Nationsbridge,
L.L.C. to BFH Merger Corp., dated June 28, 1999.
(b)(1).................. Opinion of Goldman, Sachs & Co. dated June 29, 1999 (included as
Appendix B to the Registration Statement).
(b)(2).................. Financial analysis presentation materials prepared by Goldman,
Sachs & Co. in connection with providing its opinion to the Big
Flower Board of Directors.
(b)(3).................. Opinion of Berenson Minella & Company dated June 29, 1999
(included as Appendix C to the Registration statement).
(b)(4).................. Financial analysis presentation materials prepared by Berenson
Minella & Company in connection with providing its opinion to the
Big Flower Board of Directors.
(d)..................... Preliminary Proxy Statement/Prospectus on Form S-4 of Big Flower
Holdings, Inc.
(e)..................... Section 262 of the Delaware General Corporation Law (included as
Appendix D to the Registration Statement).
</TABLE>
18
<PAGE>
Exhibit 99(a)(1)
THE CHASE MANHATTAN BANK BANKERS TRUST COMPANY NATIONSBANK, N.A.
270 PARK AVENUE ONE BANKERS TRUST PLAZA 9 WEST 57TH STREET
NEW YORK, NY 10017 130 LIBERTY STREET 43RD FLOOR
NEW YORK, NY 10006 NEW YORK, NY 10019
CHASE SECURITIES INC. DEUTSCHE BANK SECURITIES INC.
270 PARK AVENUE 130 LIBERTY STREET
NEW YORK, NY 10017 NEW YORK, NY 10006
June 28, 1999
BFH Merger Corp.
c/o Thomas H. Lee Company
75 State Street
Boston, MA 02102
Attention: Anthony J. Dinovi
c/o Evercore Advisors Inc.
65 East 55 Street, 33rd Floor
New York, New York 10022
Attention: Austin M. Beutner
Re: SENIOR CREDIT FACILITY
COMMITMENT LETTER
Ladies and Gentlemen:
You have advised The Chase Manhattan Bank ("Chase"), Chase
Securities Inc. ("CSI"), Bankers Trust Company ("BTCo"), Deutsche Bank
Securities Inc. ("DBSI") and NationsBank, N.A. ("NationsBank" and, together with
Chase, CSI, DBSI and BTCo, each, a "Co-Agent" and collectively, the "Co-Agents")
that BFH Merger Corp. ("MergeCo"), a
<PAGE>
-2
Delaware corporation formed by Thomas H. Lee Company and its affiliates
(collectively, "THL"), Evercore Capital Partners L.P. and its affiliates ("ECP")
and one or more other investors acceptable to the Co-Agents (together with THL
and ECP, the "Equity Investors"), intends to consummate a recapitalization (such
transaction, together with the Merger referred to below, the "Recapitalization")
of Big Flower Holdings, Inc. ("Holdings"), as a result of which (x) the Equity
Investors would own approximately 81.8% of the issued and outstanding shares of
common stock of Holdings and (y) certain existing management of Holdings (the
"Holdover Shareholders") would own approximately 18.2% of the issued and
outstanding shares of common stock of Holdings. As part of the Recapitalization,
(i) the Holdover Shareholders would retain equity capital in Holdings with a
value of approximately $60.1 million (the "Equity Retention") and (ii) cash in
an aggregate amount of approximately $585.0 million will be distributed to the
existing shareholders and option holders of Holdings (other than in respect of
equity being retained pursuant to the Equity Retention). We understand that the
Recapitalization shall be effected by means of a merger of MergeCo with and into
Holdings, with Holdings as the surviving corporation of such merger (the
"Merger"), pursuant to an agreement and plan of merger, dated as of June 29,
1999, between MergeCo and Holdings (the "Merger Agreement"). We understand that
the percentages and dollar amounts set forth above are subject to adjustment as
provided in Section 2.03 of the Merger Agreement. We further understand that (i)
in connection with the Recapitalization, Holdings and/or certain of its
subsidiaries intend to refinance the existing senior credit facilities and
certain other existing indebtedness of Holdings and its subsidiaries in an
aggregate principal amount not to exceed $272.1 million (the "Existing Debt
Refinancing") and (ii) the currently outstanding 6% Convertible Quarterly Income
Preferred Securities of Big Flower Trust I (the "QUIPS") shall remain
outstanding after giving effect to the Merger with no defaults or events of
default existing with respect thereto, except that, at the option of the holders
thereof, the QUIPS may be converted into the right to receive cash and Seller
PIK Preferred Stock (as defined below) in an aggregate amount for all
outstanding QUIPS not to exceed $138.8 million (with any such conversion
payments required to be made in connection with the consummation of the Merger,
being herein called the "QUIPS Conversion Payments" and, together with the
Existing Debt Refinancing, collectively, the "Refinancing").
We understand that the sources of funds needed to effect the
Recapitalization and the Refinancing, to pay all fees and expenses incurred in
connection therewith and to provide for the ongoing working capital needs and
general corporate requirements of Holdings and its subsidiaries shall be
provided solely through (i) at least $390.0 million from the issuance by MergeCo
of common stock (the "Common Equity Issuance") to the Equity Investors (of which
at least $220.0 million shall be cash contributed by THL and at least $60.1
million shall be provided by the Holdover Shareholders pursuant to the Equity
Retention); provided that both the $390.0 million and $220.0 million amounts set
forth above in this clause (i) shall be reduced, but not by more than $60.0
million, by the amount of cash invested as contemplated by succeeding clause
(iv), (ii) $400.0 million from the incurrence by Holdings of unsecured and
unguaranteed senior debt (the "Holdings Senior Debt"), (iii) $123.0 million from
the issuance by Holdings of 10% pay-in-kind preferred stock to the Equity
Investors and certain Holdover Shareholders (the "Seller PIK Preferred Stock"),
(iv) up to $60.0 million from the issuance of an Investment Instrument (as
defined in the Merger Agreement) by Holdings to THL and ECP (the "Investment
<PAGE>
-3
Instrument") and (v) the incurrence by Big Flower Press Holdings, Inc., a wholly
owned-subsidiary of Holdings ("BFPH"), of indebtedness under the Senior Credit
Facility described below (the financing transactions described in preceding
clauses (i), (ii), (iii), (iv) and (v) are herein collectively referred to as
the "Financing Transactions", with the Recapitalization, the Existing Debt
Refinancing, the QUIPS Conversion Payments (to the extent consummated on the
Closing Date) and the Financing Transactions being herein collectively called
the "Transaction").
The Co-Agents further understand that the senior secured bank
financing will be in the form of (i) a $200.0 million term loan facility (the
"Tranche B Term Loan Facility"), to be made available to the Borrower pursuant
to a single drawing on the date of the consummation of the Recapitalization (the
"Closing Date") and (ii) a revolving credit facility (the "Revolving Credit
Facility" and, together with the Tranche B Term Loan Facility, the "Senior
Credit Facility") in the amount of $270.0 million to be made available to the
Borrower on and after the Closing Date; PROVIDED, that proceeds of the loans
under the Revolving Credit Facility in an amount not to exceed $150.0 million
(reduced, but not below $11.2 million, by the amount by which $138.8 million
exceeds the amount of cash QUIPS Conversion Payments actually made) may be used
to make payments owing in connection with the Transaction. A preliminary summary
of terms and conditions of the Senior Credit Facility is attached as Exhibit A
to this letter (the "Term Sheet").
Each of Chase, BTCo and NationsBank is pleased to advise you
of its commitment, on several basis and upon the terms and subject to the
conditions set forth or referred to in this commitment letter (this "Commitment
Letter") and in the Term Sheet, to provide (x) 40%, in the case of Chase, (y)
40%, in the case of BTCo and (z) 20%, in the case of NationsBank, of the Senior
Credit Facility.
It is agreed that Chase shall act as the sole and exclusive
Administrative Agent (in such capacity, the "Administrative Agent"), CSI (or an
affiliate designated by it) and DBSI (or an affiliate designated by it) shall
act as the Joint Lead Arrangers (in such capacity, the "Joint Lead Arrangers"),
CSI (or an affiliate designated by it) and DBSI (or an affiliate designated by
it) shall act as the Joint Book Managers (in such capacity, the "Joint Book
Managers"), BTCo (or an affiliate designated by it) shall act as sole and
exclusive Syndication Agent (in such capacity, the "Syndication Agent") and
NationsBank shall act as the Documentation Agent (in such capacity, the
"Documentation Agent"), for the Senior Credit Facility, and each will, in such
capacities, perform the duties and exercise the authority customarily performed
and exercised by it in such roles. You agree that, except as provided below, no
other agents, co-agents or arrangers will be appointed, no other titles will be
awarded and no compensation (other than that expressly contemplated by the Term
Sheet and the Fee Letter referred to below) will be paid in connection with the
Senior Credit Facility unless you and the Co-Agents shall so agree.
The Joint Lead Arrangers intend to syndicate the Senior Credit
Facility (including, in each Co-Agent's discretion, all or part of its
commitment hereunder) to a group of financial institutions (together with Chase,
BTCo and NationsBank, the "Lenders") identified by the Joint Lead Arrangers in
consultation with you. The Joint Lead Arrangers intend to commence syndication
efforts promptly upon the execution of this Commitment Letter, and you
<PAGE>
-4
agree actively to assist the Joint Lead Arrangers in completing a syndication
satisfactory to them. Such assistance shall include (a) your endeavoring to see
that the syndication efforts benefit materially from your, THL's, ECP's and
Holdings' existing lending relationships, (b) direct contact between senior
management of THL, ECP, Holdings, BFPH and the proposed Lenders, (c) assistance
by you in the preparation of a Confidential Information Memorandum and other
marketing materials to be used in connection with the syndication and (d) the
hosting, with Holdings, BFPH and the Joint Lead Arrangers, of a meeting of
prospective Lenders.
In consultation with you, the Joint Lead Arrangers will manage
all aspects of the syndication, including decisions as to the selection of
institutions to be approached and when they will be approached, when their
commitments will be accepted, which institutions will participate, the
allocations of the commitments among the Lenders and the amount and distribution
of fees among the Lenders. To assist the Joint Lead Arrangers in their
syndication efforts, you agree promptly to prepare and provide to the Joint Lead
Arrangers and the Co-Agents all information with respect to Holdings and its
subsidiaries, THL, ECP, the Transaction and the other transactions contemplated
hereby, including all financial information and projections (the "Projections"),
as the Co-Agents may reasonably request in connection with the arrangement and
syndication of the Senior Credit Facility. You hereby represent and covenant
that (a) all information other than the Projections (the "Information") that has
been or will be made available to any Co-Agent by you or any of your
representatives is or will be, when furnished, complete and correct in all
material respects and does not or will not, when furnished, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not materially misleading in light of
the circumstances under which such statements are made and (b) the Projections
that have been or will be made available to any Co-Agent by you or any of your
representatives have been or will be prepared in good faith based upon
reasonable assumptions. You understand that in arranging and syndicating the
Senior Credit Facility we may use and rely on the Information and Projections
without independent verification thereof.
As consideration for each of Chase's, BTCo's and NationsBank's
commitment hereunder and the Co-Agents' agreement to perform the services
described herein, you agree to pay to the Co-Agents the nonrefundable fees set
forth in the Fee Letter dated the date hereof and delivered herewith (the "Fee
Letter") on the basis provided therein.
Each of Chase's, BTCo's and NationsBank's commitment hereunder
and the Co-Agents' agreement to perform the services described herein are
subject to (a) there not occurring or becoming known to any Co-Agent any
material adverse condition or material adverse change in or affecting the
business, operations, property, assets, condition (financial or otherwise) or
reasonably foreseeable prospects of Holdings and its subsidiaries taken as a
whole, (b) the Co-Agents not becoming aware after the date hereof of any
information or other matter affecting Holdings and its subsidiaries or the
transactions contemplated hereby, which is inconsistent in a material and
adverse manner with any such information or other matter disclosed to the
Co-Agents prior to the date hereof, (c) there not having occurred a material
disruption of or material adverse change in financial, banking or capital market
conditions that, in the Co-Agents' judgment, could materially impair the
syndication of the Senior Credit Facility, (d) each Co-
<PAGE>
-5
Agent's satisfaction that prior to and during the syndication of the Senior
Credit Facility there shall be no competing offering, placement or arrangement
of any debt securities or bank financing by or on behalf of Holdings or any of
its subsidiaries or affiliates (other than the Holdings Senior Debt and a new
accounts receivable facility replacing the existing accounts receivable facility
of the Borrower) and (e) the other conditions set forth or referred to in the
Term Sheet. The terms and conditions of each of Chase's, BTCo's and
NationsBank's commitment hereunder and of the Senior Credit Facility are not
limited to those set forth herein and in the Term Sheet and the Fee Letter.
Those matters that are not covered herein or in the Term Sheet or the Fee Letter
are subject to the approval and agreement of the Co-Agents, THL and ECP.
You agree (a) to indemnify and hold harmless the Co-Agents,
the Lenders, their affiliates and their respective officers, directors,
employees, advisors, and agents (each, an "indemnified person") from and against
any and all losses, claims, damages and liabilities to which any such
indemnified person may become subject arising out of or in connection with this
Commitment Letter, the Senior Credit Facility, the use of the proceeds thereof
or any related transaction or any claim, litigation, investigation or proceeding
relating to any of the foregoing, regardless of whether any indemnified person
is a party thereto, and to reimburse each indemnified person upon demand for any
reasonable legal or other expenses incurred in connection with investigating or
defending any of the foregoing, PROVIDED that the foregoing indemnity will not,
as to any indemnified person, apply to losses, claims, damages, liabilities or
related expenses to the extent they are found by a final, non-appealable
judgment of a court to arise from the willful misconduct, bad faith or gross
negligence of such indemnified person, and (b) to reimburse each Co-Agent and
its affiliates on the Closing Date for all reasonable out-of-pocket expenses
(including due diligence expenses, syndication expenses, travel expenses, and
reasonable fees, charges and disbursements of counsel) incurred in connection
with the Senior Credit Facility and any related documentation (including this
Commitment Letter, the Term Sheet, the Fee Letter and the definitive financing
documentation) or the administration, amendment, modification or waiver thereof.
No indemnified person shall be liable for any indirect or consequential damages
in connection with its activities related to the Senior Credit Facility.
You acknowledge that the Co-Agents and/or any of their
respective affiliates may be providing debt financing, equity capital or other
services (including financial advisory services) to other companies in respect
of which you or your affiliates may have conflicting interests regarding the
transaction described hereby and otherwise. Each Co-Agent agrees that it will
not use or disclose confidential information obtained from you by virtue of the
transactions contemplated by this Commitment Letter or its other relationships
with you in connection with the performance by such Co-Agents of services for
other companies, and each Co-Agent agrees that it will not furnish any such
information to other companies. You also acknowledge that the Co-Agents have no
obligation to use in connection with the transactions contemplated by this
Commitment Letter, or to furnish to you, confidential information obtained from
other companies.
This Commitment Letter shall not be assignable by you to any
person or entity
<PAGE>
-6
other than BFPH (so long as BFPH has assumed all of your obligations hereunder
pursuant to an agreement satisfactory to us) without the prior written consent
of the Co-Agents (and any purported assignment without such consent shall be
null and void), and is intended to be solely for the benefit of the parties
hereto and is not intended to confer any benefits upon, or create any rights in
favor of, any person other than the parties hereto. This Commitment Letter may
not be amended or waived except by an instrument in writing signed by you and
the Co-Agents. This Commitment Letter may be executed in any number of
counterparts, each of which shall be an original, and all of which, when taken
together, shall constitute one agreement. Delivery of an executed signature page
of this Commitment Letter by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof. This Commitment Letter and
the Fee Letter are the only agreements that have been entered into among us with
respect to the Senior Credit Facility and set forth the entire understanding of
the parties with respect thereto. This Commitment Letter and the Fee Letter
shall be governed by, and construed in accordance with, the law of the State of
New York.
This Commitment Letter is delivered to you on the
understanding that neither this Commitment Letter, the Term Sheet or the Fee
Letter nor any of their terms or substance shall be disclosed, directly or
indirectly, to any other person except (a) to your officers, agents and advisors
who are directly involved in the consideration of this matter or (b) as may be
compelled in a judicial or administrative proceeding or as otherwise required by
law (in which case you agree to inform us promptly thereof), PROVIDED, that the
foregoing restrictions shall cease to apply (except in respect of the Fee Letter
and its terms and substance) after this Commitment Letter has been accepted by
you.
The compensation, reimbursement, indemnification and
confidentiality provisions contained herein and in the Fee Letter shall remain
in full force and effect regardless of whether definitive financing
documentation shall be executed and delivered and notwithstanding the
termination of this Commitment Letter or Chase's, BTCo's and NationsBank's
commitments hereunder.
If the foregoing correctly sets forth our agreement, please
indicate your acceptance of the terms hereof and of the Term Sheet and the Fee
Letter by returning to Chase executed counterparts hereof and of the Fee Letter
not later than 5:00 p.m., New York City time, on June 29, 1999. Each of Chase's,
BTCo's and NationsBank's commitment and the Co-Agents' agreements herein will
expire at such time in the event Chase has not received such executed
counterparts in accordance with the immediately preceding sentence. If you
accept this Commitment Letter and the Fee Letter as aforesaid, each of Chase's,
BTCo's and NationsBank's commitment herein will terminate at the close of
business on December 31, 1999 unless definitive documentation with respect to
the Senior Credit Facility satisfactory to each of the Co-Agents and their
respective counsel is executed and delivered, and the Closing Date shall have
occurred, on or before such date.
* * *
<PAGE>
-7
The Co-Agents are pleased to have been given the opportunity
to assist you in connection with this important financing.
Very truly yours,
THE CHASE MANHATTAN BANK
By:/s/ Bruce Borden
-------------------------------
Name: Bruce Borden
Title: Vice President
CHASE SECURITIES INC.
By:/s/ Claudette Kraus
-------------------------------
Name: Claudette Kraus
Title: Vice President
<PAGE>
BANKERS TRUST COMPANY
By:/s/ Julie Persily
-------------------------------
Name: Julie Persily
Title: Managing Director
DEUTSCHE BANK SECURITIES INC.
By:/s/ Julie Persily
-------------------------------
Name: Julie Persily
Title: Managing Director
NATIONSBANK, N.A.
By:/s/ Elizabeth Borow
-------------------------------
Name: Elizabeth Borow
Title: Managing Director
ACCEPTED AND AGREED TO
AS OF THE DATE FIRST
WRITTEN ABOVE BY:
BFH MERGER CORP.
By:/s/ Anthony J. DiNovi
-----------------------------------
Name: Anthony J. DiNovi
Title: Chairman of the Board
<PAGE>
EXHIBIT A
SENIOR CREDIT FACILITY
----------------------
SUMMARY OF TERMS AND CONDITIONS
-------------------------------
<TABLE>
<S> <C>
BORROWER: Big Flower Press Holdings, Inc. (the "Borrower"),
PROVIDED that at the request of the Borrower, certain
wholly-owned foreign subsidiaries of the Borrower may
become borrowers under the Senior Credit Facility on
a basis acceptable to the Lenders.
PURPOSE: The proceeds from the Tranche B Term Loan Facility
(as defined below) will be used by the Borrower to
(i) finance the Recapitalization; (ii) effect the
Refinancing and (iii) pay related costs and expenses.
Proceeds from the Revolving Credit Facility will be
used to finance the ongoing working capital
requirements of the Borrower and its subsidiaries and
for other general corporate purposes of the Borrower
and its subsidiaries.
ADMINISTRATIVE AGENT: The Chase Manhattan Bank.
JOINT LEAD ARRANGERS: Chase Securities Inc. ("CSI") (or an affiliate
designated by it) and Deutsche Bank Securities Inc.
("DBSI") (or an affiliate designated by it).
JOINT BOOK MANAGERS: CSI (or an affiliate designated by it) and DBSI (or
an affiliate designated by it).
SYNDICATION AGENT: Bankers Trust Company ("BTCo") (or an affiliate
designated by it).
DOCUMENTATION AGENT: NationsBank, N.A. ("NationsBank") (or an affiliate
designated by it).
CO-AGENTS: Chase, CSI, BTCo, DBSI and NationsBank.
LENDERS: A syndicate of banks and/or other financial
institutions (together with Chase, BTCo and
NationsBank, the "Lenders").
TYPES AND AMOUNTS
OF FACILITIES: (1) REVOLVING CREDIT FACILITY: Up to U.S.$270,000,000 six
year revolving credit facility, PROVIDED that at the
request of the Borrower, a portion of the Revolving
Credit Facility may be made available to certain
wholly-owned foreign subsidiaries of the Borrower
acceptable to the Co-Agents in an amount, in
currencies and on terms to be agreed upon.
<PAGE>
<S> <C>
SWINGLINE LOAN SUB-FACILITY: A swingline loan
facility of up to U.S. $10 million to be provided by
the Administrative Agent (with the other R/C Banks
participating in the risks associated with such loans
pro rata according to their respective R/C
commitments and with utilization reducing
availability under the Revolving Credit Facility).
LETTER OF CREDIT SUB-FACILITY: A letter of credit
facility of up to an amount to be agreed by the
Co-Agents to be provided by the Administrative Agent
(with the other R/C Banks participating in the risks
associated with such letters of credit pro rata
according to their respective R/C commitments and
with utilization reducing availability under the
Revolving Credit Facility).
(2) TRANCHE B TERM LOAN FACILITY: Up to $200,000,000
single drawdown 7.5/8-year term loan facility.
GUARANTORS: Big Flower Holdings, Inc. ("Holdings") and each
direct and indirect wholly-owned domestic subsidiary
of Holdings (other than the Borrower) shall be
required to provide an unconditional guaranty of all
amounts owing under the Senior Credit Facility
(collectively, the "Guaranties", with each entity
required to provide a Guaranty being herein called a
"Guarantor").
SECURITY: The obligations of the Borrower and the Guarantors
shall be secured by (x) a first priority perfected
pledge of all capital stock and notes owned by the
Borrower and the Guarantors (including the stock of
the Borrower); PROVIDED that no more than 65% of the
voting stock of foreign subsidiaries of the
Borrower and the Guarantors shall be required to
be pledged to secure the obligations of the
Borrower under the Senior Credit Facility unless
such pledge may be effected without giving rise to
a "deemed dividend" tax liability under applicable
law or any other material adverse tax consequence
and (y) a first priority perfected security
interest in all other tangible and intangible
assets (including, without limitation, receivables,
contracts, contract rights, securities,
intellectual property, inventory, equipment and
and real estate) of the Borrower and each
Guarantor, subject to customary exceptions for
transactions of this type.
All documentation evidencing the security required
pursuant to the immediately preceding paragraph shall
be in form and substance satisfactory to each of the
Co-Agents, and shall
-2-
<PAGE>
<S> <C>
effectively create first priority security interests
in the property purported to be covered thereby.
FINAL MATURITY DATE: (1) REVOLVING CREDIT FACILITY: Sixth anniversary of
the Closing Date.
(2) TRANCHE B TERM LOAN FACILITY: Eighth anniversary
of the Closing Date; PROVIDED that if the Existing
Senior Subordinated Notes are not refinanced on or
prior to March 31, 2007 with replacement subordinated
notes with a stated final maturity later than the
eighth anniversary of the Closing Date, then the
Final Maturity of the Tranche B Term Loan Facility
shall instead be March 31, 2007.
AMORTIZATION: The Tranche B Term Loan Facility will amortize in
quarterly installments of $250,000 during the period
commencing on the six-month anniversary of the
Closing Date and ending on the seventh anniversary of
the Closing Date, with the remaining principal amount
of the Tranche B Term Loan Facility to amortize in
equal quarterly installments through the relevant
Final Maturity Date.
INTEREST AND COMMITMENT
FEES: Set forth in Annex I.
MANDATORY
COMMITMENT REDUCTIONS/
MANDATORY REPAYMENTS: Mandatory commitment reductions/repayments (to be
applied to the various facilities in a manner to be
determined) will be required in an amount equal to
100% of the net proceeds received from (i) the sale
or other disposition of all or any part of the assets
of Holdings or its subsidiaries (other than (x) an
agreed upon amount, but not less than $60 million, of
the net proceeds from the sale of the assets
designated as "public" on Section 3.02(g) of the
Company's Disclosure Schedule to the Merger
Agreement, as such Section of the Disclosure Schedule
is attached at the end of this Term Sheet (with such
investments being herein called the "Public Internet
Investments") may be applied to make payments in
respect of the Investment Instrument, (y) 100% of
the net proceeds from the sale of the assets not
designated as "public" on Section 3.02(g) of the
Company's Disclosure Schedule to the Merger
Agreement, as such Section of the Disclosure
Schedule is attached at the end of this Term
Sheet (with such investments being herein called
the "Private Internet Investments" and, together
with the Public Internet Investments, the
"Internet Investments") may be applied to make
payments in respect of
-3-
<PAGE>
<S> <C>
the Investment Instrument and (z) certain ordinary
course of business sales and dispositions),
PROVIDED that the Borrower and its subsidiaries
may, in the absence of a default or an event of
default under the Senior Credit Facility, reinvest
proceeds of certain asset sales during a period
(to be agreed upon) following the date of the
respective asset sale, (ii) 100% of the net cash
proceeds from issuances of debt (other than the
proceeds from the issuance of the Holdings Senior
Debt) by Holdings and its subsidiaries, with
customary exceptions to be agreed upon, (iii) 50% of
the net cash proceeds from equity issuances by, or
capital contributions to, Holdings and its
subsidiaries with customary exceptions to be agreed
upon, (iv) 50% of annual excess cash flow, and (v)
100% of certain insurance proceeds, PROVIDED that the
Borrower and its subsidiaries may, in the absence of
a default or an event of default under the Senior
Credit Facility, reinvest certain insurance proceeds
in an amount to be determined during a period (to be
agreed upon) following the date of receipt of such
proceeds. The foregoing mandatory commitment
reductions/repayments shall be subject to baskets and
exceptions to be agreed upon.
VOLUNTARY PREPAYMENTS: Voluntary prepayments will be permitted in whole or
in part, at the option of the Borrower, in minimum
principal amounts to be agreed upon, without premium
or penalty, subject to reimbursement of the Lenders'
redeployment costs in the case of the prepayment of
LIBOR borrowings other than on the last day of the
relevant Interest Period.
The above-described mandatory and voluntary
prepayments shall be applied pro rata to the
remaining amortization payments under the Tranche B
Term Loan Facility.
A. PRECEDENT CONDITIONS In addition to conditions precedent typical for the
types of facilities (including accuracy of
representations and absence of defaults) and any
other conditions appropriate in the context of the
proposed transaction, the following conditions shall
apply to the initial borrowing under the Senior
Credit Facility (the date of such initial borrowing,
the "Closing Date") :
1. The structure and all terms of, and the documentation
for, each component of the Transaction to be
consummated on the
-4-
<PAGE>
<S> <C>
Closing Date shall be reasonably satisfactory to each
of the Co-Agents and the Lenders (including, without
limitation, (w) with respect to the Holdings Senior
Debt and the Seller PIK Preferred Stock,
amortizations, maturities, interest and dividend
rates, limitations on cash dividends payable,
defaults, absence of guaranties and security,
remedies and subordination provisions, as applicable,
(x) the terms of the Investment Instrument, (y)
management shareholder agreements and other
shareholder agreements and (z) the materials and
documentation publicly filed in connection with the
Recapitalization and the Refinancing). Each component
of the Transaction to be consummated on the Closing
Date shall have been consummated in accordance with
the documentation therefor and all applicable law and
the capitalization, structure and equity ownership of
Holdings and the Borrower shall be as described in
the Commitment Letter and herein or otherwise
reasonably satisfactory to each of the Co-Agents. The
aggregate amount of fees and expenses paid in
connection with the Recapitalization, the Refinancing
and the other transactions contemplated hereby shall
not exceed an amount to be agreed upon. After giving
effect to the Transaction, Holdings and its
subsidiaries shall have no outstanding indebtedness
or preferred stock other than (i) pursuant to the
Financing Transactions, (ii) to the extent QUIPS
Conversion Payments are not made on the Closing Date,
the QUIPS, (iii) the existing senior subordinated
notes of BFPH in an aggregate principal amount of
$600.1 (the "Existing Senior Subordinated Notes"),
(iv) indebtedness deemed to exist under the existing
accounts receivable facility of the Borrower and its
subsidiaries, and (v) such other indebtedness, if
any, as may be acceptable to the Co-Agents (with the
indebtedness referred to in clauses (iii), (iv) and
(v) being called the "Existing Indebtedness").
2. Holdings shall have used the aggregate amount
received from the Common Equity Issuance and the
issuance of the Seller PIK Preferred Stock and the
Investment Instrument and the net cash proceeds from
the issuance of Holdings Senior Debt (x) to make
payments owing in connection with the
Recapitalization and the Refinancing and (y) to pay
fees in connection with the Financing Transactions
before utilizing any proceeds of Loans pursuant to
the Senior Credit Facility for any such purpose. The
cash proceeds received from the Common Equity
Issuance and the issuance of the Seller PIK Preferred
Stock, the Investment Instrument and the Holdings
-5-
<PAGE>
<S> <C>
Senior Debt, when added to the aggregate principal
amount of Senior Credit Facility incurred on the
Closing Date, shall be sufficient to effect the
Transaction and to pay all fees and expenses in
connection therewith.
3. The Co-Agents and the Lenders shall be satisfied
with the terms (and documentation) for all Existing
Indebtedness and the QUIPS. All Existing Indebtedness
(and the QUIPS, as relevant) shall remain outstanding
in accordance with its (or their) terms after giving
effect to the Transaction, and no violation of any
term or covenant contained in the Existing
Indebtedness (and the QUIPS, as relevant) shall occur
as a result of the Transaction, and no default shall
exist thereunder after giving effect to the
consummation of the Transaction.
4. Nothing shall have occurred (and the Lenders shall
have become aware of no facts or conditions not
previously known) which the Co-Agents or the Lenders
shall reasonably determine could have a material
adverse effect on the rights or remedies of the
Lenders or the Co-Agents, or on the ability of
Holdings and its subsidiaries to perform their
respective obligations to the Lenders or which
could have a materially adverse effect on
the business, property, assets, nature of assets,
liabilities, condition (financial or otherwise) or
the reasonably foreseeable prospects of Holdings and
its subsidiaries taken as a whole.
5. All Loans and other financing to the Borrower shall
be in full compliance with all requirements of
Regulations T, U and X of the Board of Governors of
the Federal Reserve System.
6. The Lenders shall have received such opinions and
other appropriate factual information and expert
advice as follows: (i) legal opinions from counsel,
in form and substance and covering matters,
acceptable to the Co-Agents (including an opinion as
to no conflict with the Existing Indebtedness and the
QUIPS (to the extent same remain outstanding on the
Closing Date)), (ii) a solvency opinion with respect
to Holdings and its subsidiaries (on a consolidated
basis), the Borrower and its subsidiaries (on a
consolidated basis) and the Borrower (on a
stand-alone basis), after giving effect to the
consummation of the Transaction and the financing
therefor, reasonably acceptable to the Co-Agents,
(iii) a pro forma consolidated balance sheet of
Holdings, reasonably acceptable to the Co-Agents,
dated as of the date of the most recently
-6-
<PAGE>
<S> <C>
available quarterly financial statements, (iv)
audited consolidated financial statements of Holdings
for the fiscal years ended December 31, 1996, 1997
and 1998, which financial statements shall be in form
and substance satisfactory to the Lenders and (v) the
unaudited quarterly and monthly consolidated
financial statements of Holdings for the interim
period prior to the Closing Date, which financial
statements shall be in form and substance
satisfactory to the Lenders.
7. All costs, fees, expenses (including, without
limitation, legal fees and expenses) and other
compensation contemplated hereby or any letter
executed in connection herewith and payable to the
Lenders or the Co-Agents (or their respective
affiliates) shall have been paid to the extent due.
8. All requisite governmental authorities and third
parties shall have approved or consented to the
Transaction and the other transactions contemplated
hereby to the extent required, all applicable waiting
periods shall have expired and there shall be no
governmental or judicial action, actual or
threatened, that has or could have a reasonable
likelihood of restraining, preventing or imposing
materially burdensome conditions on any of the
Transaction or the other transactions contemplated
hereby.
9. Each of the Guaranties shall have been executed
and delivered. The security agreements required as
described under the heading "Security" above shall
have been executed and delivered in form, scope and
substance reasonably satisfactory to the Co-Agents,
and the Lenders shall have a first priority perfected
security interest in all assets as are required
above. The Lenders shall have received satisfactory
title insurance and surveys with respect to certain
of the mortgaged real property to be mutually agreed
upon by the Borrower and the Co-Agents.
10. The Borrower and each Guarantor shall have
executed and delivered satisfactory definitive
financing documentation with respect to the Senior
Credit Facility (the "Credit Documentation").
B. CONDITIONS TO ALL
LOANS: Absence of default or event of default under the
Senior Credit Facilities and continued accuracy of
representations and warranties in all material
respects.
-7-
<PAGE>
<S> <C>
COVENANTS: Those typical for these types of facilities and any
additional covenants appropriate in the context of
the proposed transaction (with such covenants having
such exceptions or baskets as may be mutually agreed
upon). Although the covenants have not yet been
specifically determined, we anticipate that the
covenants to be agreed upon shall in any event
include:
1. Financial and other information: certified
quarterly and audited annual financial statements,
and other customary information.
2. Restrictions on indebtedness, with exceptions to
be mutually agreed upon.
3. Restrictions on mergers, acquisitions, joint
ventures, partnerships, investments, and acquisitions
and dispositions of assets, with exceptions to be
agreed upon.
4. Restrictions on sale-leaseback transactions and
lease payments.
5. Limitations on dividends, redemptions and
repurchases of capital stock and debt; PROVIDED that
(x) dividends by the Borrower to Holdings will be
permitted to enable Holdings to pay (i) interest on
the Holdings Senior Debt as and when due, so long as
no default or event of default then exists under the
Senior Credit Facility or would exist after giving
effect thereto, (ii) interest on the outstanding
debentures of Holdings held by the special-purpose
trust which issued the QUIPS when and as due so long
as (I) such trust uses such interest proceeds to pay
dividends on the QUIPS when and as due and (II) no
default or event of default then exists under the
Senior Credit Facility or would exist after giving
effect thereto and (iii) certain ordinary course
administrative expenses and (y) to the extent
permitted above under the heading "Mandatory
Commitment Reductions/Mandatory Repayments," payments
with respect to the Investment Instrument may be made
with the net proceeds from certain sales of Internet
Investments.
6. Limitation on transactions with affiliates and
formation of subsidiaries.
7. INTEREST COVERAGE - Ratio of Consolidated EBITDA
to Cash Interest Expense (to be defined) for any
rolling four quarter
-8-
<PAGE>
<S> <C>
period at levels to be determined.
8. LEVERAGE RATIO - Ratio of Consolidated Debt at any
time to Consolidated EBITDA for each rolling four
quarter period at levels to be determined.
9. Restrictions on liens.
10. Compliance with laws.
11. Adequate insurance coverage.
12. ERISA covenants.
13. Limitations on capital expenditures.
14. Limitation on modifications of the agreements
relating to the subordinated debt and preferred stock
and organizational documents.
15. Limitation on changes in business conducted by
Holdings and its subsidiaries, with exceptions to be
agreed upon.
16. Restrictions on voluntary repayments of
indebtedness (including, without limitation, the
Holdings Senior Debt).
17. Limitation on issuance of redeemable common stock
and preferred stock of Holdings and restrictions on
issuance of stock by subsidiaries, with certain
exceptions to be agreed upon.
18. General affirmative covenants usual for
facilities and transactions of this type and others
to be specified by the Co-Agents (to be applicable to
Holdings and its subsidiaries).
19. Special purpose covenants shall be applicable to
Holdings and the existing special-purpose receivables
entity.
The Credit Documentation will permit the Borrower to
create or acquire subsidiaries which it may, at the
time of such creation or acquisition, designate as
"Unrestricted Subsidiaries" (including the Internet
Investments), so long as (x) no default or event of
default is then in existence under the Senior Credit
Facility or would result therefrom and (y) the
investment in such Unrestricted Subsidiary (including
any deemed investment made upon any such designation
resulting therefrom) is within the limits described
in the last sentence of this paragraph. Unrestricted
Subsidiaries shall
-9-
<PAGE>
<S> <C>
not be required to provide Guaranties or security and
shall not subject to the covenants contained in the
Credit Documentation, except that (x) the "corporate
separateness" and "line of business" covenants to be
agreed upon shall be applicable thereto and (y) all
obligations of Unrestricted Subsidiaries shall be
required to be non-recourse to Holdings and its
subsidiaries. Unrestricted Subsidiaries shall be
ignored in determining Applicable Margins and
compliance with the financial covenants contained in
the Credit Documentation. So long as no default or
event of default is then in existence under the
Credit Documentation or would result therefrom,
Investments by the Borrower and its subsidiaries
(whether as a capital contribution or otherwise) in
Unrestricted Subsidiaries shall be permitted in
amounts and from sources to be agreed upon.
REPRESENTATIONS
AND WARRANTIES: Typical for facilities and transactions of this
type and others to be specified by the Co-Agents,
including but not limited to accuracy of financial
statements; no material adverse change; absence of
litigation; no violation of agreements or
instruments, including no default or event of
default; compliance with laws (including ERISA,
margin regulations and environmental laws);
payment of taxes; ownership of properties;
inapplicability of the Investment Company Act;
solvency; effectiveness of regulatory approvals;
labor matters; environmental matters, including
the absence of material environmental liabilities;
accuracy of information; and validity, priority and
perfection of security interests in the collateral.
EVENTS OF DEFAULT: Will include (without limitation) payment,
misrepresentation, covenant, bankruptcy, ERISA,
judgments, actual or asserted invalidity of
security documents or guarantees, change of
ownership or control, and cross defaults, subject
in certain cases, to notice, grace and cure
provisions to be agreed.
ASSIGNMENT AND
PARTICIPATIONS: Each Lender may assign all or a portion of its
loans and commitments under the Senior Credit
Facility, or sell participations therein, to
another person or persons provided that (a) each
such assignment shall be in a minimum amount equal
to $5,000,000 and shall be subject to certain
conditions (including, without limitation, the
approval of the Borrower, such approval not to be
unreasonably withheld or delayed),
-10-
<PAGE>
(b) no such assignment shall result in the selling
Lender having a commitment of less than $5,000,000
(such amount to be reduced proportionately as the
total commitment is reduced and term loans are repaid)
unless such selling Lender sells all of its loans and
commitment pursuant to such assignment, (c) the
Administrative Agent shall receive at the time of
each such assignment a non-refundable assignment
fee of $3,500 from the assigning or assignee Lender
and (d) no purchaser of a participation shall have
the right to exercise or to cause the selling
Lender to exercise voting rights in respect of the
Senior Credit Facilit (except as to certain basic
issues). Promptly after consummating any
assignment, the selling Lender shall notify the
Borrower thereof. Pledges of Loans in accordance
with applicable law shall be permitted without
restriction. Promissory notes shall be issued under
the Senior Credit Facility only upon request.
YIELD PROTECTION: The Credit Documentation shall contain customary
provisions (a) protecting the Lenders against
increased costs or loss of yield resulting from
changes in reserve, tax, capital adequacy and
other requirements of laws and from the
imposition of or changes in withholding or other
taxes and (b) indemnifying the Lenders for
"breakage costs" incurred in connection with,
among other things, any prepayment of a
Eurodollar Loan on a day other than the last
day of an interest period with respect thereto.
EXPENSES AND
INDEMNIFICATIONS: The Borrower shall pay (a) all reasonable out-of-pocket
expenses of the Co-Agents associated with the
syndication of the Senior Credit Facility and
the preparation, execution, delivery and
administration of the Credit Documentation and
any amendment or waiver with respect thereto
(including the reasonable fees, disbursements
and other charges of counsel) and (b) all
out-of-pocket expenses of the Co-Agents and the
Lenders (including the reasonable fees,
disbursement and other charges of counsel) in
connection with the enforcement of the Credit
Documentation.
The Co-Agents and the Lenders (and their
affiliates and their respective officers,
directors, employees, advisors and agents)
will have no liability for, and will be
indemnified and
-11-
<PAGE>
held harmless against, any loss, liability, cost
or expense incurred in respect of the financing
contemplated hereby or the use or the proposed
use of the proceeds thereof (except to the extent
resulting from the gross negligence or willful
misconduct of the respective indemnified party).
REQUIRED LENDERS: 51%.
COUNSEL TO THE
CO-AGENTS: White & Case LLP.
GOVERNING LAW: The law of the State of New York.
</TABLE>
-12-
<PAGE>
Annex I
INTEREST AND COMMITMENT FEES
A. BASE RATE OPTION
Interest shall be at the Base Rate of the Administrative Agent PLUS
the relevant Applicable Margin (as defined below), calculated on the
basis of the actual number of days elapsed in a year of 365 days,
payable quarterly in arrears. The Base Rate is defined as the higher
of the Federal Funds Effective Rate, as published by the Federal
Reserve Bank of New York, plus 1/2 of 1%, or the prime commercial
lending rate of the Administrative Agent, as announced from time to
time at its head office. Base Rate drawings shall require one business
day's prior notice (except that advances under the Swingline Loan
Sub-Facility may be made on same day notice) and shall be in minimum
amounts to be specified.
B. LIBOR OPTION
Interest shall be determined for periods ("Interest Periods") of one,
two, three or six months and shall be at an annual rate equal to the
London Interbank Offered Rate ("LIBOR") for the corresponding deposits
of U.S. Dollars PLUS the relevant Applicable Margin. LIBOR will be
determined by the Administrative Agent at the start of each Interest
Period. Interest will be paid at the end of each Interest Period or
quarterly, whichever is earlier, and is to be calculated on the basis
of the actual number of days elapsed in a year of 360 days. LIBOR will
be adjusted for Regulation D reserve requirements.
C. DEFAULT INTEREST
Overdue principal, interest and other amounts shall bear interest at a
rate per annum equal to the otherwise applicable interest rate plus 2%.
Such interest shall be payable on demand.
D. COMMITMENT FEE
The relevant Applicable Margin on the unutilized total commitments
under the Revolving Credit Facility (for this purpose, with loans
pursuant to the Swingline Loan Sub-Facility being deemed not to
constitute a utilization of commitments under the Revolving
Credit Facility), as in effect from time to time, commencing on the
Closing Date and continuing to and including the termination of the
Revolving Credit Facility, payable quarterly in arrears and upon the
termination of the Revolving Credit Facility.
E. APPLICABLE MARGIN
The "Applicable Margin" shall mean the percentage per annum equal to
the respective margin set forth below for the loans under the Revolving
Credit Facility or the Tranche B Term Loan Facility or the Commitment
Fee, as the case may be, PROVIDED that notwithstanding the foregoing,
(i) the highest margins set forth below shall be in effect (x)
<PAGE>
for twelve months following the Closing Date and (y) at all times a
default of event of default is in existence under the Senior Credit
Facility, in either case regardless of the Consolidated Debt to
Consolidated EBITDA ratio and (ii) in the event the senior secured
debt of the Borrower under the Senior Credit Facility receives a
rating of less than BB- from Standard & Poor Ratings Services ("S&P")
and Ba3 from Moody's Investor's Services, Inc. ("Moody's"), each
Applicable Margin (other than the Applicable Margin for the Commitment
Fee) shall be increased by 0.25%, it being understood that the failure
of S&P or Moody's to rate the senior secured debt of the Borrower shall
constitute a failure to meet the specified rating level of such rating
agency for purposes of preceding clause (ii).
<TABLE>
<CAPTION>
APPLICABLE
APPLICABLE MARGIN FOR
MARGIN FOR LIBOR
RATIO APPLICABLE APPLICABLE BASE RATE LOANS
CONSOLIDATED MARGIN FOR BASE MARGIN FOR LOANS UNDER UNDER APPLICABLE
DEBT TO RATE LOANS UNDER LIBOR LOANS TRANCHE B TRANCHE B MARGIN FOR
CONSOLIDATED REVOLVING CREDIT UNDER REVOLVING TERM LOAN TERM LOAN COMMITMENT
EBITDA FACILITY CREDIT FACILITY FACILITY FEE FEE
------------ ---------------- --------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
x > or equal to 4.75 1.25% 2.25% 1.50% 2.50% .50%
x > or equal to 4.50 1.00% 2.00% 1.50% 2.50% .425%
x > or equal to 4.25 1.00% 2.00% 1.25% 2.25% .425%
x > or equal to 3.75 .75% 1.75% 1.25% 2.25% .375%
x > or equal to 3.50 .50% 1.50% 1.25% 2.25% .30%
x > or equal to 3.50 .50% 1.50% 1.00% 2.00% .30%
</TABLE>
<PAGE>
Exhibit 99(a)(2)
BANKERS TRUST CORPORATION THE CHASE MANHATTAN BANK NATIONSBRIDGE, L.L.C.
130 LIBERTY STREET 270 PARK AVENUE 100 NORTH TRYON STREET
NEW YORK, NEW YORK 10006 NEW YORK, NEW YORK 10017 CHARLOTTE, NC 28255
June 28, 1999
BFH Merger Corp.
c/o Thomas H. Lee Company
75 State Street, Suite 2600
Boston, MA 02109
c/o Evercore Advisors Inc.
65 East 55th Street, 33rd Floor
New York, New York 10022
Re: Big Flower Acquisition Financing
--------------------------------
Ladies and Gentlemen:
We understand that Thomas H. Lee Company ("THL"), Evercore
Partners Inc. ("ECP") and certain other equity investors reasonably satisfactory
to us (collectively, the "Equity Investors") intend to consummate a
recapitalization (the "Recapitalization") of Big Flower Holdings, Inc. (the
"Acquired Business"), through the merger of BFH Merger Corp. ("Newco"), a
corporation formed by the Equity Investors, with and into the Acquired Business.
We further understand that the funding requirements for the Recapitalization
(including the refinancing of certain outstanding indebtedness and the
repurchase of outstanding preferred stock and related fees and expenses) will be
approximately $1,338 million (approximately $1,199 million if the 6% Convertible
Quarterly Income Preferred Securities (the "QUIPS") remain outstanding) and such
amount, together with ongoing working capital needs, will be provided solely
from (i) term loan facilities of Big Flower Press Holdings, Inc., a wholly owned
subsidiary of the Acquired Business ("Big Flower Press"), (collectively, the
"Term Loan Facility") and a revolving credit facility of Big Flower Press (the
"Revolving Credit Facility" and, together with the Term Loan Facility, the "Bank
Financing") in an aggregate amount of up to $470 million (of which approximately
$340 million ($201 million if the QUIPS remain outstanding) is expected to be
drawn on the closing date (the "Closing Date") of the Recapitalization), (ii) an
approximately $390 million equity investment (which may be in the form of more
than one class of
<PAGE>
-2-
capital stock) in the Acquired Business (up to $105 million of which may be in
the form of rollover equity), approximately up to $60 million which will be from
the issuance by Holdings to THL of a security, instrument or arrangement, the
structure of which is still to be determined (the "Investment Instrument") (the
"Equity Financing"), (iii) approximately $85 million from a new or existing
accounts receivable facility of Big Flower Press and/or its subsidiaries (the
"A/R Facility"), (iv) approximately $123 million from the issuance of
pay-in-kind preferred stock and warrants to purchase common stock of the
Acquired Business to its existing shareholders (collectively, the "Preferred
Stock and Warrant Issuance") and (v) the issuance and sale of Debt Securities
(as defined below). We understand that the dollar amounts set forth above are
subject to adjustment as provided in Section 2.03 of the Recapitalization
Agreement (as defined below). The Recapitalization, the Bank Financing, the
Equity Financing, the A/R Facility, the Preferred Stock Issuance, the bridge
loan contemplated by this letter and the issuance and sale of the Debt
Securities are herein collectively referred to as the "Transaction".
In connection with the Transaction, you have engaged Deutsche
Bank Securities Inc. ("DBSI"), Chase Securities Inc. ("CSI"), and Banc of
America Securities LLC ("Banc of America" and, collectively with DBSI and CSI,
the "Investment Banks") to sell or place senior debt securities of the Acquired
Business (the "Debt Securities").
You have requested that Bankers Trust Corporation ("BTCO"),
The Chase Manhattan Bank ("Chase"), and NationsBridge, L.L.C. ("Nations")
(collectively, the "Lenders") commit to provide to the Acquired Business funds
in the amount of $170 million, $150 million and $80 million, respectively, of a
total commitment of up to $400 million in the form of a senior bridge loan to be
made available as described in Section 1 hereof (the "Bridge Loan").
Accordingly, subject to the terms and conditions set forth or
incorporated in this letter, the Lenders agrees with you as follows:
Section 1. BRIDGE LOAN. BTCO, Chase, and Nations hereby
commit, subject to the terms and conditions hereof and in the Summary Term Sheet
attached hereto as Exhibit A (the "Term Sheet"), severally and not jointly, to
provide to the Acquired Business $170 million, $150 million, and $80 million,
respectively, of a senior bridge loan on the Closing Date in the aggregate
principal amount of up to $400 million. If the Bridge Loan is less than $400
million, the commitments of the Lenders shall be reduced pro rata based upon
their respective initial
<PAGE>
-3-
commitment amounts. The proceeds of the Bridge Loan shall be used solely to
finance the Recapitalization and to pay fees and expenses incurred in connection
therewith. The principal terms of the Bridge Loan are summarized in the Term
Sheet.
Unless the Lenders' commitment hereunder shall have been
terminated pursuant to Section 7, the Lenders shall have the exclusive right to
provide the Bridge Loan or other bridge or interim financing required in
connection with the Transaction.
You hereby represent and covenant that based on your review
and analysis, to the best of your knowledge, (a) all information other than
Projections (as defined below) which has been or is hereafter made available to
the Lenders by you or your representatives, advisors or affiliates in connection
with the transactions contemplated hereby (the "Information") has been reviewed
and analyzed by you in connection with the performance of your own due diligence
and is, or in the case of Information made available after the date hereof will
be, correct in all material respects and does not and will not contain any
untrue statement of a material fact or omit to state a material fact known to
you and necessary to make the statements contained therein, in the light of the
circumstances under which such statements were or are made, not misleading and
(b) all financial projections concerning the Acquired Business that have been or
are hereafter made available to the Lenders by you or your representatives,
advisors or affiliates in connection with the transactions contemplated hereby
(the "Projections") have been or, in the case of Projections made available
after the date hereof, will be prepared in good faith based upon reasonable
assumptions (it being understood that the Projections are subject to significant
uncertainties and contingencies, many of which are beyond your control and that
no assurance can be given that such Projections will be realized). You agree to
supplement the Information and the Projections from time to time as the Lenders
may reasonably request until the termination of the Lenders' commitment
hereunder so that the representation and warranty made in the preceding sentence
is correct as of such date. In arranging and syndicating the Bridge Loan, the
Lenders will be using and relying on the Information and the Projections. The
representations and covenants contained in this paragraph shall remain effective
until a definitive financing agreement is executed and thereafter the disclosure
representations contained herein shall be terminated and of no further force and
effect.
Section 2. FINANCING DOCUMENTATION. The making of the Bridge
Loan will be governed by definitive loan and related agreements and
documentation (collectively, the "Financing Documentation") in form and
substance reasonably satisfactory to the Lenders and to you. The Financing
Documentation shall be prepared by Cahill Gordon & Reindel, special counsel to
the
<PAGE>
-4-
Lender. The Financing Documentation shall contain such covenants, terms and
conditions as are consistent with this letter and the Term Sheet and such other
covenants, terms, conditions, representations, warranties, events of default and
remedies provisions as shall be satisfactory to the Lenders and you.
Section 3. CONDITIONS. The obligations of the Lenders under
Section 1 of this letter to provide the Bridge Loan is subject to fulfillment of
the following conditions:
(a) RECAPITALIZATION AGREEMENT. The Equity Investors and the
Acquired Business shall have entered into an agreement relating to the
Recapitalization (the "Recapitalization Agreement") on terms and in
form and substance reasonably satisfactory to the Lenders, it being
understood that the Recapitalization Agreement executed as of the date
hereof is satisfactory. The Recapitalization Agreement shall not have
been amended without the Lenders' consent, which consent shall not be
unreasonably withheld. All conditions precedent to the Recapitalization
contained in the Recapitalization Agreement shall have been performed
or complied with substantially on the terms set forth therein and not
waived without the Lenders' consent, which consent shall not be
unreasonably withheld and simultaneously with the making of any Bridge
Loan, the Recapitalization shall have been consummated.
(b) FINANCING DOCUMENTATION. The Acquired Business and the
Lenders shall have entered into the Financing Documentation relating to
the Bridge Loan and the transactions contemplated thereby on terms and
in form and substance reasonably satisfactory to the Lenders and the
Acquired Business.
(c) BANK FINANCING. The Acquired Business and/or its
subsidiaries shall have entered into definitive documentation on terms
and in form and substance reasonably satisfactory to the Lenders with
respect to the Bank Financing (collectively with all documents and
instruments related thereto or delivered in connection therewith, the
"Bank Documents") with a commercial lender or lenders or a syndicate of
commercial lenders, it being understood that the terms set forth in the
commitment letter executed as of the date hereof with respect to the
Bank Financing is satisfactory. The Bank Documents shall be in full
force and effect and the parties thereto shall be in compliance with
all material agreements thereunder, with such exceptions that would not
have a material effect on the business, property, assets, nature of
assets, liabilities, condition (financial or otherwise), results of
operation or prospects
<PAGE>
-5-
of the Acquired Business.
(d) EQUITY FINANCING. On or prior to the Closing Date, the
Acquired Business shall have received an equity investment of not less
than $390 million, which shall be provided by the Equity Investors (up
to $105 million of which may be in the form of rollover equity)
including the Investment Instrument. The terms and conditions of the
Equity Financing shall be reasonably satisfactory to the Lenders.
(e) A/R FACILITY. Big Flower Press and/or its subsidiaries
shall have entered into definitive documentation on terms and in form
and substance reasonably satisfactory to the Lenders with respect to
the A/R Facility or the existing A/R Facility shall remain in place, it
being understood that the existing A/R Facility is satisfactory. Such
documentation shall be in full force and effect.
(f) PREFERRED STOCK AND WARRANT ISSUANCE. The Acquired
Business shall have consummated the Preferred Stock and Warrant
Issuance on terms and in form and substance reasonably satisfactory to
the Lenders.
(g) NO ADVERSE CHANGE OR DEVELOPMENT, ETC. (i) Nothing shall
have occurred since December 31, 1998 (and the Lenders shall have
become aware of no facts or conditions not previously known to the
Lenders) which the Lenders shall reasonably determine could have a
material adverse effect on the rights or remedies of the Lenders, or on
the ability of the Acquired Business to perform its obligations to the
Lenders or which could have a materially adverse effect on the
business, property, assets, nature of assets, liabilities, condition
(financial or otherwise), results of operations or prospects of the
Acquired Business after giving effect to the Transaction; (ii) trading
in securities generally on the New York or American Stock Exchange
shall not have been suspended; minimum or maximum prices shall not have
been established on any such exchange; (iii) a banking moratorium shall
not have been declared by New York or United States authorities; and
(iv) there shall not have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, or (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international
calamity or emergency, or (C) any material change in the general
financial markets of the United States which, in each case, in the
reasonable judgment of the respective Lender would materially and
adversely affect the ability to sell or place the Debt Securities.
<PAGE>
-6-
(h) CAPITAL STRUCTURE. The pro forma consolidated capital
structure of the Acquired Business and its subsidiaries after giving
effect to the Transaction, shall be consistent with the capital
structure contemplated herein, and other than the Bridge Loan, the Bank
Financing, the A/R Facility and other indebtedness reasonably
satisfactory to the Lenders (including approximately $600 million of
existing senior subordinated notes of Big Flower Press), the Acquired
Business and its subsidiaries, after giving effect to, and upon
consummation of, the Transaction, shall have no outstanding
indebtedness for money borrowed.
(i) OPINIONS. As of the Closing Date, the Lenders shall have
received a legal and other opinions (including with respect to
solvency) from persons, and covering matters, reasonably acceptable to
the Lenders.
(j) TAKE-OUT BANKS. You shall have engaged the Investment
Banks (the "Take-Out Banks") to publicly offer or privately place the
Debt Securities, the proceeds of which will be used either to fund the
Recapitalization or to prepay in whole or in part the Bridge Loan. You
and the Acquired Business shall have prepared an offering memorandum
relating to the issuance of the Debt Securities (which offering
memorandum shall contain audited, unaudited and pro forma financial
statements meeting the requirements of Regulation S-X under the
Securities Act of 1933, as amended (the "Securities Act"), of the
Acquired Business for the periods required of a registrant on Form S-1)
and the Take-Out Banks shall have been afforded the opportunity to
market and shall have marketed such Debt Securities pursuant to such
offering memorandum for such a period as is customary to complete the
sale of securities such as the Debt Securities. You and the Acquired
Business shall have used your reasonable best efforts to assist the
Take-Out Banks in marketing the Debt Securities, including, without
limitation, having prepared the offering memorandum relating thereto,
having made senior management of the Acquired Business and other
representatives of you and the Acquired Business available (at mutually
agreeable times) to participate in meetings with prospective investors
and having provided such information and assistance as the Take-Out
Banks shall have reasonably requested during the course of such
marketing process.
Section 4. SECURITIES DEMAND. You agree to comply with the
provisions in the Fee Letter from the Lenders to you dated the date hereof (the
"Fee Letter").
Section 5. INDEMNIFICATION AND CONTRIBUTION. You agree to
indemnify the Lenders and each of their respective
<PAGE>
-7-
affiliates and each person in control of the Lenders and each of their
respective affiliates and the respective officers, directors, employees, agents
and representatives of the Lenders and their respective affiliates and control
persons, as provided in the Indemnity Letter dated the date hereof (the
"Indemnity Letter") and attached hereto.
Section 6. EXPENSES. In addition to any fees that may be
payable to the Lenders hereunder, if this letter agreement is terminated, the
Bridge Loan is made available or the Financing Documentation is executed and
delivered, you hereby agree to reimburse the Lenders for all reasonable fees and
disbursements of legal counsel, including but not limited to the reasonable fees
and disbursements of Cahill Gordon & Reindel, the Lenders' special counsel, and
all of the Lenders' travel and other reasonable out-of-pocket expenses incurred
in connection with the Transaction (other than the sale of the Debt Securities,
the fees and expenses in connection with which will be payable as is customary
in such transactions) or otherwise arising out of the Lenders' commitment
hereunder; PROVIDED, HOWEVER, that if the Transaction is not consummated you
will have no obligation pursuant to this Section 6 unless you or any of your
affiliates (including, without limitation, THL or ECP) receives any termination
or similar fee or any expense reimbursement pursuant to the Recapitalization
Agreement or otherwise but only to the extent of the Lenders pro rata share of
the aggregate amount of such expense reimbursements received by you and your
affiliates (based upon the relative expenses of the co-agents under the Bank
Financing, you and your affiliates and the Investment Banks).
Section 7. TERMINATION. The Lenders' commitment hereunder to
provide the Bridge Loan shall terminate, unless expressly agreed to by the
Lenders in their sole discretion to be extended to another date, on the earlier
of (A) December 31, 1999 if no portion of the Bridge Loan has been funded (other
than as a result of failure of the Lenders to fulfill their obligations
hereunder), and (B) the termination of the Recapitalization Agreement in
accordance with the terms thereof. No such termination of such commitment shall
affect your obligations under Sections 5 and 6 hereof or this Section 7, which
shall survive any such termination.
Section 8. ASSIGNMENT; SYNDICATION. This letter shall not be
assignable by any party hereto without the prior written consent of the other
parties (other than, in the case of the Lenders, to an affiliate of such Lender,
it being understood that any such affiliate shall be subject to the restrictions
set forth in this Section 8); PROVIDED, HOWEVER, that the Lenders shall have the
right, in their sole discretion, to syndicate the Bridge Loan and their
commitment with respect thereto among banks or other financial institutions or
qualified institutional buyers
<PAGE>
-8-
(as defined in Rule 144A under the Securities Act) pursuant to the Financing
Documentation or otherwise and to sell, transfer or assign all or any portion
of, or interests or participations in, the Bridge Loan and their commitment with
respect thereto and any notes issued in connection therewith; PROVIDED, FURTHER,
that BTCO shall be the book-running syndication agent and any syndication shall
reduce the Lenders' respective commitments on a pro rata basis. You and the
Acquired Business agree to use your reasonable best efforts, whether prior to or
after the funding date of any Bridge Loan, to assist the Lenders in syndicating
the Bridge Loan or their commitment with respect thereto, including, without
limitation, in connection with (x) the preparation of an information package
regarding the Transaction, including the Information and the Projections
described in Section 1 hereof, and (y) meetings and other communications with
prospective Lenders, including making senior management of the Acquired Business
and other representatives of you and the Acquired Business available (at
mutually agreeable times) to participate in such meetings.
Section 9. MISCELLANEOUS. THIS LETTER SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE PRINCIPLES GOVERNING CONFLICTS OF LAWS, AND ANY RIGHT TO TRIAL BY
JURY WITH RESPECT TO ANY CLAIM, ACTION, SUIT OR PROCEEDING ARISING OUT OF OR
CONTEMPLATED BY THIS COMMITMENT LETTER IS HEREBY WAIVED. YOU HEREBY SUBMIT TO
THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED
IN THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO THIS
COMMITMENT LETTER OR ANY MATTERS CONTEMPLATED HEREBY. This letter (including the
provisions of the Indemnity Letter and the Fee Letter specifically incorporated
herein) embodies the entire agreement and understanding between you and the
Lenders and supersedes all prior agreements and understandings relating to the
subject matter hereof. This letter may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
constitute one instrument.
The Lenders reserve the right to employ the services of their
affiliates (including the Investment Banks) in providing services contemplated
by this letter and to allocate, in whole or in part, to its affiliates certain
fees payable to the Lenders in such manner as the Lenders and their respective
affiliates may agree in their sole discretion. You acknowledge that the Lenders
may share with any of its affiliates (including the Investment Banks) and such
affiliates may share with the Lenders (in each case, subject to any
confidentiality agreements applicable thereto), any information related to you
or your affiliates, the Acquired Business (including information relating to
creditworthiness) or the Transaction.
<PAGE>
-9-
If you are in agreement with the foregoing, please sign and
return to the Lenders c/o BTCO at 130 Liberty Street, New York, New York 10006
the enclosed copy of this letter no later than 6:00 p.m., New York time, on June
29, 1999, whereupon the undertakings of the parties shall become effective to
the extent and in the manner provided hereby. This offer shall terminate if not
so accepted by you on or prior to that time.
Very truly yours,
BANKERS TRUST CORPORATION
By: /s/ Julie Persily
----------------------------
Name: Julie Persily
Title: Managing Director
THE CHASE MANHATTAN BANK
By: /s/ James P. Casey
----------------------------
Name: James P. Casey
Title: Managing Director
NATIONSBRIDGE, L.L.C.
By: /s/ Lynne E. Wertz
----------------------------
Name: Lynne E. Wertz
Title: Senior Vice President
Accepted and Agreed to as of the date first above written:
BFH MERGER CORP.
By: Anthony J. DiNovi
--------------------------
Name: Anthony J. DiNovi
Title: Chairman of the Board
<PAGE>
EXHIBIT A
BRIDGE LOAN AND TERM LOAN FACILITY
SUMMARY TERM SHEET(1)
<TABLE>
<S> <C>
BORROWER: Big Flower Holdings, Inc. (the "Borrower").
LENDER: Bankers Trust Corporation, The Chase Manhattan Bank, and
NationsBridge, L.L.C. (the "Lenders").
AMOUNT: $400 million senior bridge loan (the "Bridge Loan").
MATURITY: The commitment shall automatically expire on December 31, 1999 if
no portion of the Bridge Loan has been funded (other than as a
result of failure of the Lenders to fulfill their obligations
hereunder). Any outstanding amount under the Bridge Loan will be
required to be repaid (a) in full on the earlier of one year
following the initial funding date of the Bridge Loan and (b) the
closing date of any permanent financing sufficient to repay the
Bridge Loan; PROVIDED, HOWEVER, that if the Borrower has failed
to raise permanent financing before the date set forth in (a)
above, the Bridge Loan shall be converted, subject to the
conditions outlined under "Conditions to Conversion of the Bridge
Loan," to a senior term loan facility (the "Term Loan") with a
maturity of ten years. The Borrower shall pay to the Lenders on
the Conversion Date (as defined below) a cash fee as provided in
the Fee Letter.
COMMITMENT AND
FUNDING FEES: As provided in the Fee Letter.
- ---------------
(1) Capitalized terms used herein and not defined herein shall have the
meanings provided in the commitment letter to which this summary term
sheet is attached.
<PAGE>
-11-
<S> <C>
TICKING FEE: As provided in the Fee Letter.
USE OF PROCEEDS: To fund in part the Recapitalization and to pay related fees and
expenses.
INTEREST RATE: As provided in the Fee Letter.
RANKING: The obligations of the Borrower under the Bridge Loan will be
senior unsecured obligations of the Borrower and will rank (i)
PARI PASSU in right of payment to all senior unsecured
indebtedness of the Borrower and (ii) senior to any subordinated
indebtedness of the Borrower.
OPTIONAL PREPAYMENT: The Borrower may prepay the Bridge Loan or the Term Loan, in
whole or in part, at any time at a redemption price equal to 100%
of the principal amount thereof plus accrued interest thereon;
PROVIDED, HOWEVER, that at such time as any amount of the Term
Loan bears interest at the Fixed Rate, such amount of the Term
Loan shall be subject to redemption restrictions and premiums
typical for high yield debt securities. No such optional
prepayment shall be made without the consent of the Lenders,
unless all amounts owing are paid in full.
MANDATORY PREPAYMENT: Net proceeds of sales of debt securities or equity securities,
(subject to exceptions to be agreed upon) in a public offering or
private placement by the Borrower, shall be used to prepay the
Bridge Loan plus accrued interest and any other amount payable
thereunder to the full extent of the net proceeds so received to
the extent such net proceeds are not used to retire bank debt.
The Borrower will be required to make an offer to purchase all
notes outstanding under
<PAGE>
-12-
<S> <C>
the Bridge Loan or the Term Loan, as the case may be, upon the
occurrence of a Change of Control (to be defined) in a manner
reasonably acceptable to the Lenders and the Borrower.
PARTICIPATION/ASSIGNMENT
OR SYNDICATION
The Lenders may participate out or sell or assign, or syndicate
to other lenders, the Bridge Loan or the Term Loan, in whole or
in part, at any time, subject to compliance with applicable
securities laws and section 8 of the commitment letter.
CONDITIONS TO
CONVERSION OF THE
BRIDGE LOAN: One year after the Funding Date of any portion of the Bridge Loan,
unless(A) the Borrower or any significant subsidiary thereof is
subject to a bankruptcy or other insolvency proceeding, (B) there
exists a payment default (whether or not matured) with respect to
the Bridge Loan or the Conversion Fee or (C) there exists a
default in the payment when due at final maturity of any
indebtedness (excluding the indebtedness under the Bridge Loan)
of the Borrower or any of its subsidiaries in excess of $5
million for any such default or all such defaults, or the
maturity of such indebtedness shall have been accelerated, the
Bridge Loan shall convert into the Term Loan (the "Conversion
Date"); PROVIDED, HOWEVER, that if an event described in clause
(B) or (C) is continuing at the scheduled Conversion Date but the
applicable grace period, if any, set forth in the events of
default provision of the Bridge Loan has not expired, the
Conversion Date shall be deferred until the earlier to occur of
(i) the cure of such event or (ii) the expiration of any
applicable grace
<PAGE>
-13-
<S> <C>
period.
DEBT SECURITY EXCHANGE: The Lenders may at any time after the Conversion Date, on not
less than 30 days' notice to the Borrower, require that the
Borrower exchange the Term Loan for long-term notes which shall
bear interest at the Fixed Rate, determined at such time, and
shall have similar terms and conditions to high yield debt
securities issued for cash in the then prevailing market and
acceptable to the Lender and the Borrower and shall in addition
provide customary registration rights, including, without
limitation, a registered exchange offer or, if not permitted by
applicable law to effect an exchange offer, demand registrations.
COVENANTS: The Financing Documentation will contain customary affirmative
and negative covenants (with customary and other agreed-upon
carve-outs and exceptions), including, without limitation,
restrictions on the ability of the Borrower and its subsidiaries,
as applicable, to incur additional indebtedness and to incur
indebtedness which is subordinated to senior debt and not
subordinated to the Bridge Loan or the Term Loan, pay certain
dividends and make certain other restricted payments and
investments, impose restrictions on the ability of the Borrower's
subsidiaries to pay dividends or make certain payments to the
Borrower, create liens, enter into transactions with affiliates,
and merge, consolidate or transfer substantially all of their
respective assets. Further, during the term of the Bridge Loan,
the covenants will be more restrictive than the covenants
<PAGE>
-14-
<S> <C>
applicable to the Term Loan and will include additional
prohibitive covenants relating to asset sales, certain
acquisitions, certain debt incurrences and certain other
corporate transactions as are customary for such financings.
REPRESENTATIONS AND
WARRANTIES: Customary for transactions of this type.
CONDITIONS PRECEDENT: Customary for transactions of this type as set forth in Section 3
of the bridge loan commitment letter.
EVENTS OF DEFAULT: Customary for transactions of this type, including, without
limitation, payment defaults, covenant defaults, bankruptcy
and insolvency, judgments, cross acceleration of and failure
to pay at final maturity other indebtedness aggregating $5
million or more, subject to, in certain cases, notice and
grace provisions.
GOVERNING LAW AND FORUM: The State of New York.
INDEMNIFICATION AND
EXPENSE REIMBURSEMENT: Customary for transactions of this type.
</TABLE>
<PAGE>
Exhibit 99(b)(2)
[LOGO]
- -------
Goldman
Sachs
- -------
Presentation to:
Board of Directors
Regarding:
Project Emma
Goldman, Sachs & Co.
June 24, 1999
<PAGE>
Table of Exhibits
Exhibit
Transaction Summary 1
Analysis of PIK Preferred Security and Issues to Consider 2
Review of Sunflower 3
Valuation Information 4
[LOGO]
- -------
Goldman
Sachs
- -------
<PAGE>
Project Emma
Transaction Summary
(as of June 23, 1999)
Thomas H. Lee
================================================================================
Consideration: o $30.00 per share in Cash
o $5.25 liquidation preference per share in 10% PIK
Preferred Stock with Warrants
o Warrants in the aggregate for 5% of the Company
Terms of Non-Cash o $119 MM of Holding Company Shareholder PIK
Consideration: Preferred Stock
o Dividend rate of 10% plus warrants (5% of Company
at a $.01 per share strike price) which, based on
management projections, projects an IRR of 18.8%
Acquisition Structure: o Merger
Timing: o Exclusivity period through June 28, 1999
Buyer Due Diligence: o Completed
Financing: o Fully committed, subject to standard terms and
conditions, including a market "out"
Financing Sources:
Bank Debt: o Chase
Bridge/Senior Notes: o Bankers Trust / Chase / Bear Stearns
Preferred Stock/Debt: o Company Shareholders
Equity: o Approximately $390 MM (includes sponsor internet
preferred)
o Thomas H. Lee ($240M); 66% of pro forma fully
diluted shares
o Theodore Ammon and other Company management
($100MM), 25% of pro forma fully diluted shares
(excluding additional 5% in new option program)
Management Roll-over: o Approximately 81% of Theodore Ammon holdings
o Approximately 50% from the majority of other
management
o Sunflower management to receive approximately 5%
of Company in new option program
Break-up Fee: o $30 MM, including expenses
================================================================================
[LOGO]
- -------
Goldman
Sachs
- -------
1
<PAGE>
Sources and Uses of Funds
Acquisition of Sunflower (a)
($ in millions)
<TABLE>
<CAPTION>
Uses Amount Sources Amount
================================== ========= ======================================= =========
<S> <C> <C> <C>
Purchase of Common Stock (b) $897 Sunflower Debt Rolled Over $600
Sunflower Debt Rolled Over: New Holding Company Notes $400
8 7/8% Notes due 2007 $350 New Senior Credit Facility Borrowings $429
8 5/8% Notes due 2008 $250 ------------------------------------- ---------
- ----------------------- --------- Total Debt $1,429
Total Debt Rolled Over $600
New PIK Preferred (e) $119
Securities to be Refinanced: --------------------- ---------
Senior Credit Facility $214 Total Debt Including PIK Preferred $1,548
A/R Facility $114
Notes Payable $26 Financial Sponsor Equity - T.H. Lee $240
Convertible QUIPS (c) $0 Financial Sponsor Internet Preferred $50
- ----------------------- --------- Rolled Over Sunflower Management Equity $100
Total Amount to be Refinanced $354 --------------------------------------- ---------
Total Sources of Funds $1,938
Total Purchase Price of Sunflower $1,851
(pre-transaction costs)
Transaction Costs (d) $87
- --------------------- ---------
Total Uses of Funds $1,938
</TABLE>
(a) Assumes transaction closes on September 30, 1999. All debt roll-over
balances are projected by the Company for 9/30/99 balances.
(b) Based upon $35.25 per share offer and 25.5m fully diluted shares
outstanding (using the Treasury stock Method) which includes 3.53m options
at an average strike price of $17.18 per share (per Sunflower management).
(c) Per Sunflower management, the Convertible QUIPS holders have been assumed
to convert to equity prior to closing and have been included in fully
diluted shares outstanding.
(d) Transaction costs estimated in T.H. Lee model dated 6/22/99 which includes
$29m of fees to T.H. Lee.
(e) Based on 22,601,247 shares outstanding, i.e., excluding roll-over shares,
at a liquidation preference of $5.25 per Sunflower non rolled-over share.
2
<PAGE>
Project Emma
Pro Forma Capital Structure Summary
($ in millions)
Thomas H. Lee
================================================================================
Capital Structure Assumptions (a):
Senior debt (term/facility) $ 315.1 (b)
A/R facility 114.0
Existing Senior Sub. Notes 600.1
Notes payable 0.0
Holding Company Notes - Cash 400.0
Holding Company Notes - PIK with Warrants 0.0
--------
Total Debt 1,429.3
Shareholder PIK Preferred Stock (e) 118.7
Total Debt, including PIK 1,548.0
Common Equity
Equity Sponsor - T.H. Lee 174.6
Equity Sponsor 65.0
Sponsor (Internet) Preferred Stock 50.0
Management Roll-over 100.4
Other investors 0.0
--------
Total Common equity $ 390.0
Total Debt/LTM EBITDA (c) 6.0x
Management options 5.0%
Returns to: 7.0x (d) 7.5x (d)
------------- -------------
Common equity 33.0% 37.0%
================================================================================
(a) Projected for a closing as of September 30, 1999. All projected debt
balances are per Sunflower management.
(b) Total senior credit facility commitment of $500 million; total A/R
facility commitment of $150 million.
(c) Projected LTM EBITDA for September 30, 1999 is $258.7 million per
Sunflower management. Includes PIK Preferred in debt.
(d) Based on Sunflower management forecast assumptions and exit EBITDA
multiple in 2004.
(e) Based upon aggregate liquidation value. For financial reporting purposes a
different initial value may be attributed to the Preferred Stock.
[LOGO]
- -------
Goldman
Sachs
- -------
3
<PAGE>
Overview of the PIK Preferred
Summary of Key Assumptions
o Operating projections are Sunflower management's most recent reforecast
o The exit multiple in five years (December 31, 2004) is 7.5x trailing
EBITDA
o The annual dividend rate on the preferred stock is 10%
o The warrants for 5% of the Company have an exercise price equal to $.01
per share
o The IRR under these assumptions is 18.7%
o Shareholder PIK Preferred Liquidation Preference Value at Issue Date is
$118.7mm
Aggregate Liquidation Preference Amount (End 198.1
of Year 5 and 3 months)
Plus: Value of Warrants 94.2
Less: Warrant Exercise Proceeds (0.0)
----
Total Exit Value to Preferred $292.3
======
Total Blended IRR: 18.7%
(a) Assumes that security is redeemed or sold at 12/31/04 at liquidation
preference value. This excludes any potential additional amount paid for a
premium on the Preferred.
[LOGO]
- -------
Goldman
Sachs
- -------
4
<PAGE>
[LOGO]
-------
Goldman
Sachs
-------
Summary of the PIK Preferred + Warrant Security Terms
- -------------------------------------- ----------------------------------------
Structural Feature Description
- -------------------------------------- ----------------------------------------
Preferred Security: 10% Cumulative PIK Preferred Stock
("Preferred Stock")
Aggregate Closing Liquidation $118.7million
Preference:
Shares of Preferred Stock Outstanding 1,118,700 shares of Preferred Stock
at Closing/Liquidation Preference per with a liquidation preference of $100
Share: per share
Preferred Shares per Sunflower Common A Sunflower shareholder (other than
Share: those rolling over) will receive
.0525 shares of $100 Preferred Stock
(i.e. with a $5.25 liquidation
preference) for each Sunflower share
Annual Dividend Rate: 10% paid semi-annually; the Company
may pay dividends with newly issued
shares of Preferred Stock for the
life of the Preferred Stock
Mandatory Redemption by Company: December 15, 2012
Ranking: Senior to common stock
Call Protection: The Preferred Stock is not callable
during the first five years (with the
exception of the Equity Clawback
below). In Year 6 it is callable at a
price of $102.50 per Preferred Share,
declining to a price of $101.25 in
Year 7 and $100 per thereafter
Equity Clawback: The issuer can redeem up to 100% of
the Preferred Shares from the
proceeds of an IPO at a price of
$102.50 per Preferred Share
Change of Control If TH Lee goes below 30% ownership
and another investor goes above 30%,
holders can put the Preferred Stock
at $101 to the Issuer, who can also
call it at the same price.
Exchangeable: At any time at the issuer's option
into subordinated debt on
substantially identical terms
Trigger Events to Receive Board Seats: Holders will get two board seats upon
non-payment of dividends for three
periods, cross default on the bonds,
bankruptcy, or failure to make a
mandatory redemption
Registration: SEC Registered
Warrants For 5% of the Company's primary shares
Exercise Price: $0.01 per share
Exercisability/Detachability: Exercisable at any time upon an IPO,
other liquidity event, or sale of the
Company. Detachable from Preferred
after 180 days or earlier if an
Exercise Event occurs
Expiration: December 15, 2012
Anti-dilution: Standard provisions
5
<PAGE>
Implied Value of the PIK Preferred + Warrants
Sunflower
12/31/2004
============
2004E EBITDA (based on Sunflower mgmt. projections) $391.1
Projected EBITDA Multiple 7.5 x
------------
Levered Market Value $2,933.0
Projected 2004E Year End Net Debt 1,090.1
------------
Implied 12/31/04 Equity Market Value (a) 1,884.9
Equity Percentage Ownership 5.00%
Value of Equity to PIK Holders (b) $94.2
Liquidation Value of PIK as of 12/31/2004 (c) 198.1
------------
Total Value to PIK Holders 292.3
Current Sunflower Shares Outstanding 22.6
------------
Total Value per share to PIK Holders as of 12/31/2004 $12.93
----------------------------------------------------
Present Value Per Sunflower Share to PIK Holders (d)
----------------------------------------------------
Discount Rate
- -------- --------------- ----------------------------------------------------
EBITDA Future Total ------ ------ ------ ------ ------
Multiple Share Value (e) 14.0% 16.0% 18.0% 20.0% 22.0%
- -------- --------------- ------ ------ ------ ------ ------
5.0x $ 10.77 $ 5.41 $ 4.94 $ 4.52 $ 4.14 $ 3.79
5.5x 11.20 5.63 5.14 4.70 4.30 3.94
6.0x 11.63 5.85 5.34 4.88 4.47 4.10
6.5x 12.07 6.07 5.54 5.06 4.63 4.25
7.0x 12.50 6.28 5.73 5.24 4.80 4.40
7.5x 12.93 6.50 5.93 5.42 4.97 4.55
8.0x 13.37 6.72 6.13 5.61 5.13 4.71
(a) Includes $42mm from XL Ventures Internet investments.
(b) Net of $5,400 cash payment on warrant conversion. Based on 540,000 shares
at $0.01 strike price.
(c) Aggregate liquidation preference of the PIK Preferred on 12/31/04 assuming
a 9/30/99 closing date and a 10.00% dividend rate, compounded
semi-annually.
(d) Future value per Sunflower share on December 31, 2004 discounted back
5+1/4 years to September 30, 1999 at a given required equity rate of
return.
(e) Projected future value per Sunflower share as of December 31, 2004 based
upon various LTM EBITDA multiples.
6
<PAGE>
Implied Value of the PIK Preferred + Warrants
Sunflower
Sensitivity Analysis of Value of PIK
================================================================================
Aggregate Initial PIK Liquidation Preference $118.7
Annual Dividend Rate 10.00%
Years 5.25
Aggregate PIK Liquidation Preference as of 12/31/04 (a) $198.1
Sunflower Shares 22.6
------
12/31/04 PIK Liquidation Preference (per Sunflower share) $8.76
<TABLE>
<CAPTION>
--------------------------------------
Discount Rate
--------------------------------------
------ ------ ------ ------ ------
14.0% 16.0% 18.0% 20.0% 22.0%
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Present Value of PIK per Sunflower share (a) $ 4.40 $ 4.02 $ 3.68 $ 3.36 $ 3.09
</TABLE>
(a) Future PIK value per Sunflower share on December 31, 2004 discounted back
5+1/4 years to September 30, 1999 at a given required equity rate of
return.
Sensitivity Analysis of Value of Warrants
================================================================================
2004E EBITDA (based on Sunflower mgmt projections) $391.1
Projected EBITDA Multiple 7.5x
-----------
Levered Market Value 2,933.0
Projected 2004E Year End Net Debt 1,090.1
-----------
Implied 12/31/04 Equity Market Value (a) 1,884.9
Equity Percentage Ownership 5.00%
Value of Equity to PIK Holders $94.2
Sunflower Shares 22.6
-----------
Value of Warrants per Sunflower share as of 12/31/04 $4.17
----------------------------------------------------
Present Value Per Sunflower Share to PIK Holders (b)
----------------------------------------------------
Discount Rate
- -------- --------------- ----------------------------------------------------
EBITDA Future Share ------ ------ ------ ------ ------
Multiple Value (c) 14.0% 16.0% 18.0% 20.0% 22.0%
- -------- --------------- ------ ------ ------ ------ ------
5.0x $ 2.01 $ 1.01 $ 0.92 $ 0.84 $ 0.77 $ 0.71
5.5x 2.44 1.23 1.12 1.02 0.94 0.86
6.0x 2.87 1.44 1.32 1.20 1.10 1.01
6.5x 3.30 1.66 1.52 1.39 1.27 1.16
7.0x 3.74 1.88 1.71 1.57 1.43 1.32
7.5x 4.17 2.10 1.91 1.75 1.60 1.47
8.0x 4.60 2.31 2.11 1.93 1.77 1.62
(a) Includes $42mm from XL Ventures Internet investments.
(b) Future value per Sunflower share on December 31, 2004 discounted back
5+1/4 years to September 30, 1999 at a given required equity rate of
return.
(c) Projected future value per Sunflower share as of September 30, 2004 based
upon various LTM EBITDA multiples.
7
<PAGE>
Issues to Consider for PIK Preferred Security
o Terms of Security
-- Annual dividend rate
-- Change of control provision
-- Rights in default and board seats
-- Call protection
-- Bankruptcy rights
-- Liquidity mechanisms and registration rights
-- Seniority
-- Length of pay in kind period
o Ratings
-- September 30, 1999 ratio of 6.0x Debt (including PIK)/EBITDA
-- September 30, 1999 ratio of 9.5x Debt (including PIK)/EBITDA less
capex
o Business Issues
-- Earnings and cash flow stability and growth
-- Competitive position
-- Exit strategy and potential for future buyers
-- Commitment of future growth/acquisition capital from financial
sponsor
o Marketability
[LOGO]
- -------
Goldman
Sachs
- -------
8
<PAGE>
SUNFLOWER
Weekly Common Stock Price and Trading Volume History Since IPO
[GRAPHIC OMITTED]
Source: Muller
[LOGO]
- -------
Goldman
Sachs
- -------
9
<PAGE>
SUNFLOWER
Share Price & Trading Volume History
March 22 - June 21,1999
<TABLE>
<CAPTION>
Date Sunflower Price Sunflower Volume (a) Date Sunflower Price Sunflower Volume (a)
===================================================== =====================================================
<S> <C> <C> <C> <C> <C>
3/22/1999 $30.13 1,781,900 5/06/1999 $32.50 239,600
3/23/1999 29.06 420,800 5/07/1999 31.25 337,100
3/24/1999 29.50 288,500 5/10/1999 31.56 166,100
3/25/1999 32.38 647,200 5/11/1999 31.63 183,200
3/26/1999 33.13 429,300 5/12/1999 31.81 81,600
3/29/1999 32.50 468,600 5/13/1999 32.06 87,300
3/30/1999 31.63 171,500 5/14/1999 31.25 46,100
3/31/1999 31.13 274,900 5/17/1999 30.63 98,700
4/01/1999 30.63 161,900 5/18/1999 30.00 31,400
4/02/1999 -- -- 5/19/1999 30.56 57,200
4/05/1999 31.31 210,000 5/20/1999 31.13 82,300
4/06/1999 31.25 205,700 5/21/1999 32.56 189,100
4/07/1999 30.88 157,400 5/24/1999 31.50 228,700
4/08/1999 30.38 395,400 5/25/1999 30.38 144,000
4/09/1999 31.38 428,500 5/26/1999 30.69 70,300
4/12/1999 31.31 386,300 5/27/1999 31.38 25,000
4/13/1999 33.75 594,600 5/28/1999 31.13 59,000
4/14/1999 32.81 326,400 5/31/1999 -- --
4/15/1999 31.56 430,200 6/01/1999 31.00 74,700
4/16/1999 31.44 84,400 6/02/1999 30.81 43,000
4/19/1999 27.88 169,600 6/03/1999 30.31 44,400
- ----------------------------------------------------- 6/04/1999 29.75 51,900
4/20/1999 32.00 400,400 6/07/1999 30.06 25,900
- ----------------------------------------------------- 6/08/1999 31.00 78,300
4/21/1999 33.38 412,100 6/09/1999 31.63 103,100
4/22/1999 33.50 288,000 6/10/1999 33.50 217,200
4/23/1999 33.50 97,500 6/11/1999 33.94 192,000
4/26/1999 33.88 187,400 6/14/1999 32.19 100,100
4/27/1999 35.00 203,700 6/15/1999 32.56 73,400
4/28/1999 34.88 893,900 6/16/1999 32.94 101,700
4/29/1999 34.38 483,900 6/17/1999 33.13 38,100
4/30/1999 35.50 310,600 6/18/1999 34.25 141,500
5/03/1999 35.50 187,800 6/21/1999 33.63 87,500
5/04/1999 34.44 201,600 =====================================================
5/05/1999 34.25 244,300
=====================================================
</TABLE>
(a) Share Volume in thousands (000s).
(b) Source: FactSet
Average closing
stock price since
March 22nd: $31.98
Average closing
stock price since
April 20th: $32.33
[LOGO]
- -------
Goldman
Sachs
- -------
10
<PAGE>
SUNFLOWER vs. S&P 500
Daily Indexed Common Stock Price History
[GRAPHIC OMITTED]
Source: Muller
[LOGO]
- -------
Goldman
Sachs
- -------
11
<PAGE>
Current Year P/E Multiple Trading History
Sunflower
[GRAPHIC OMITTED]
Source: FactSet
[LOGO]
- -------
Goldman
Sachs
- -------
12
<PAGE>
Shares Traded at Various Prices
Sunflower
- --------------------------------------------------------------------------------
Since 4/20/1999
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Daily from 4/20/1999 to 6/21/1999
Weighted Average Price: $33.13
Total Shares Traded as Percent
of Shares Outstanding: 37.1%
- --------------------------------------------------------------------------------
Last 6 Months
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Daily from 12/21/1998 to 6/21/1999
Weighted Average Price: $30.18
Total Shares Traded as Percent
of Shares Outstanding: 106.8%
- --------------------------------------------------------------------------------
One Year
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Daily from 6/21/1998 to 6/21/1999
Weighted Average Price: $28.37
Total Shares Traded as Percent
of Shares Outstanding: 151.5%
- --------------------------------------------------------------------------------
Since IPO 11/22/1995
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Daily from 11/22/1995 to 6/21/1999
Weighted Average Price: $23.40
Total Shares Traded as Percent
of Shares Outstanding: 338.7%
13
Source: Muller
<PAGE>
SUNFLOWER
Proforma Income Statement: Stand-Alone
Fiscal Year Ending December 31st
($ millions, except per share data)
<TABLE>
<CAPTION>
Actual Projections
------ ------------------------------------------------------------ 1999-2004
1998 1999 2000 2001 2002 2003 2004 CAGR
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues 1,841.8 1,922.6 2,037.1 2,157.8 2,283.1 2,410.5 2,545.9 5.8%
Total Revenues % Growth 6.5% 4.4% 6.0% 5.9% 5.8% 5.6% 5.6%
Cost of Goods Sold 1,352.9 1,397.0 1,474.1 1,550.7 1,632.8 1,718.5 1,809.8 5.3%
------- ------- ------- ------- ------- ------- -------
Gross Profit 488.8 525.6 563.0 607.0 650.2 691.9 736.1 7.0%
SG&A (a) 241.9 257.9 268.1 288.7 310.3 331.6 354.4 6.6%
------- ------- ------- ------- ------- ------- -------
Total EBITDA $ 247.0 $ 267.7 $ 294.9 $ 318.3 $ 339.9 $ 360.4 $ 381.7 7.4%
Total Depreciation & Amortization 95.9 102.0 102.1 105.5 106.9 110.0 111.4
------- ------- ------- ------- ------- ------- -------
EBIT 151.1 165.6 192.9 212.9 233.0 250.4 270.3 10.3%
Other (73.7) (76.1) (68.2) (57.9) (44.3) (36.2)
------- ------- ------- ------- ------- -------
EBT 92.0 116.7 144.7 175.0 206.1 234.1 20.5%
Tax Provision 42.3 52.0 62.9 75.0 87.5 98.6 18.5%
------- ------- ------- ------- ------- -------
Basic Net Income 49.7 61.8 81.7 87.4 118.6 135.4 22.2%
After Tax Income of BGF Convertible Preferred 4.2 3.2 -- -- -- --
------- ------- ------- ------- ------- -------
Fully Diluted Net Income (before Extra.) 53.9 67.9 81.7 100.0 118.6 135.4 20.2%
EPS - Fully Diluted (before Extra.) $ 1.80 $ 2.14 $ 2.69 $ 3.22 $ 3.92 $ 4.64 $ 5.28 19.8%
======= ======= ======= ======= ======= ======= =======
</TABLE>
(a) S,G&A includes corporate overhead.
Source: Sunflower management status quo projections dated 6/22/1999.
14
<PAGE>
SUNFLOWER
Proforma Income Statement: TH Lee Reduced Overhead
Fiscal Year Ending December 31st
($ millions, except per share data)
<TABLE>
<CAPTION>
Actual Projections 1999-2004
------ ----------------------------------------------------------- ---------
1998 1999 2000 2001 2002 2003 2004 CAGR
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues 1,841.8 1,922.6 2,037.1 2,157.8 2,283.1 2,410.5 2,545.9 5.8%
Total Revenues % Growth 6.5% 4.4% 6.0% 5.9% 5.8% 5.6% 5.6%
Cost of Goods Sold 1,352.9 1,397.0 1,474.1 1,550.7 1,632.8 1,718.5 1,809.8 5.3%
------- ------- ------- ------- ------- ------- -------
Gross Profit 488.8 525.6 563.0 607.0 650.2 691.9 736.1 7.0%
SG&A 241.9 257.9 264.6 281.2 302.2 322.9 345.1 6.0%
------- ------- ------- ------- ------- ------- -------
Total EBITDA $ 247.0 $ 267.7 $ 298.4 $ 325.9 $ 348.0 $ 369.1 $ 391.1 7.9%
</TABLE>
Source: Sunflower management projections adjusted for lower projected corporate
overhead expenses, dated 6/22/1999.
15
<PAGE>
Valuation Comparison of Selected Comparable Companies
($ in millions, except per Share)
<TABLE>
<CAPTION>
Market Data as of June 21, 1999
------------------------------------------------- Total Levered Multiples of (a)
% of Equity Levered Debt / --------------------------------
Stock 52 Wk Market Market Dividend Total LTM LTM LTM 1999E
Price High Cap Cap Yield Cap Sales EBIT EBITDA EBITDA
Company
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sunflower (d) $ 33.63 92.9% $ 852.9 $1,774.9 0.0% 84.2% 1.0x 12.2x 7.6x 6.6x
- ------------------------------------------------------------------------------------------------------------------------------------
Sunflower @ Deal (e) $ 35.25 97.4% $ 897.1 $1,851.1 0.0% 82.2% 1.0x 11.6x 7.2x 6.9x
- ------------------------------------------------------------------------------------------------------------------------------------
Specialty and Commercial Printers:
Banta Corp. $ 23.19 72.7% $ 639.4 $ 772.5 2.4% 28.7% 0.6x 8.1x 4.7x 4.3x
R.R. Donnelley 37.94 79.0% 4,962.4 6,070.4 2.2% 51.5% 1.2 12.3 7.1 6.7
Consolidated Graphics 41.75 56.0% 637.8 804.7 0.0% 44.7% 1.8 13.3 10.0 7.8
Quebecor Printing Inc. 22.56 90.0% 2,614.0 4,068.4 1.2% 47.7% 1.1 13.2 7.4 7.0
World Color Press 26.63 73.4% 1,014.2 2,352.9 0.0% 68.8% 1.0 10.7 6.5 5.8
Median 73.4% $1,014.2 $2,352.9 1.2% 47.7% 1.1x 12.3x 7.1x 6.7x
Mean 74.3% 1,973.6 2,813.8 1.2% 48.3% 1.1 11.5 7.1 6.3
Direct Marketing Services:
Acxiom $ 27.44 87.8% $2,277.2 $2,616.2 0.0% 50.0% 3.6x 22.7x 14.6x 12.0x
Advo (f) 20.13 59.9% 433.7 610.6 0.0% NM 0.6 8.0 6.1 5.4
Catalina Marketing 95.81 95.8% 1,779.7 1,773.9 0.0% 6.4% 6.7 26.1 18.6 16.5
Harte-Hanks 23.13 79.1% 1,643.1 1,460.0 0.3% 0.0% 1.9 13.7 10.7 9.7
Snyder Communications 28.00 56.0% 2,101.4 2,036.9 0.0% 4.0% 2.3 16.1 13.4 10.7
Valassis Commun. (g) 38.75 66.1% 2,211.1 2,520.9 0.0% NM 3.3 13.9 12.8 11.1
Median 72.6% $1,940.5 $1,905.4 0.0% 5.2% 2.8x 15.0x 13.1x 10.9x
Mean 74.1% 1,741.0 1,836.4 0.1% 15.1% 3.1 16.7 12.7 10.9
Digital Media Services:
Applied Graphics $ 12.63 22.1% $ 282.7 $ 460.7 0.0% 30.6% 1.0x 13.0x 7.6x 5.2x
CSG Systems Intl 26.13 56.5% 1,350.1 1,421.0 0.0% 59.3% 5.5 21.8 16.2 12.2
Schawk, Inc. 11.69 70.3% 253.0 287.3 2.2% 41.3% 1.8 9.8 7.6 4.8
Median 56.5% $ 282.7 $ 460.7 0.0% 41.3% 1.8x 13.0x 7.6x 5.2x
Mean 49.6% 628.6 723.0 0.7% 43.8% 2.8 14.9 10.5 7.4
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
LTM Margins P / E Multiple (b)
------------------ ------------------ 5-Year 1999 P/E Total Debt
Net Est. EPS / 5-Year / LTM
EBITDA Income 1999E 2000E Growth (c) Growth EBITDA
Company
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sunflower (d) 13.2% 2.4% 15.7x 13.2x 15.0% 1.0x 4.0x
- ---------------------------------------------------------------------------------------------------------------------
Sunflower @ Deal (e) 13.5% 2.7% 16.4x 13.1x 15.0% 1.1x 3.7x
- ---------------------------------------------------------------------------------------------------------------------
Specialty and Commercial Printers:
Banta Corp. 12.4% 3.9% 11.3x 10.1x 13.0% 0.9x 1.0x
R.R. Donnelley 17.1% 5.4% 17.2 15.3 11.3% 1.5 1.4
Consolidated Graphics 18.5% 7.4% 14.6 11.6 26.5% 0.6 2.1
Quebecor Printing Inc. 14.4% 4.0% 15.1 13.4 12.0% 1.3 2.6
World Color Press 15.1% 3.1% 12.5 11.0 15.0% 0.8 3.9
Median 15.1% 4.0% 14.6x 11.6x 13.0% 0.9x 2.1x
Mean 15.5% 4.8% 14.2 12.3 15.6% 1.0 2.2
Direct Marketing Services:
Acxiom 24.6% 9.0% 29.2x 22.5x 25.0% 1.2x 1.9x
Advo (f) 9.6% 3.6% 10.7 9.2 20.0% 0.5 1.9
Catalina Marketing 36.0% 15.3% 39.1 30.1 25.0% 1.6 0.1
Harte-Hanks 18.0% 9.2% 22.7 19.3 20.0% 1.1 0.0
Snyder Communications 17.5% 9.4% 19.9 15.1 35.0% 0.6 0.1
Valassis Commun. (g) 26.0% 12.2% 20.0 16.9 20.0% 1.0 1.6
Median 21.3% 9.3% 21.3x 18.1x 22.5% 1.1x 0.9x
Mean 21.9% 9.8% 23.6 18.9 24.2% 1.0 0.9
Digital Media Services:
Applied Graphics 13.6% 2.6% 13.3x 10.1x 16.0% 0.8x 3.0x
CSG Systems Intl 33.9% 35.1% 24.2 18.7 35.0% 0.7 1.3
Schawk, Inc. 24.2% 11.4% 13.6 11.7 20.0% 0.7 1.2
Median 24.2% 11.4% 13.6x 11.7x 20.0% 0.7x 1.3x
Mean 23.9% 16.4% 17.0 13.5 23.7% 0.7 1.8
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Financials exclude all extraordinary, restructuring and one time charges.
(a) LTM EBITDA numbers are reported from recent filed financials, not pro
forma for acquisitions.
(b) Calendarized IBES estimates.
(c) Source: IBES Estimates.
(d) Levered Market Cap. includes, and Debt/Total Cap. excludes, $115 mm from
QUIPS offering in October, 1997.
(e) 1999 and 2000 P/E Multiples based on IBES Estimates.
(f) Advo had book equity of $(70.7)mm as of March 27, 1999.
(g) Valassis Communications had book equity of $(253.5)mm as of March 31,
1999.
16
<PAGE>
Summary Of Selected Transactions
Sunflower
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Transaction LTM EBITDA
Business Unit Date Business Acquired Value EBITDA Multiple
- ------------- ---- ----------------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
Sunflower Nov-1997 Columbine, JOS Systems, Inc. $ 113,300 $ 13,947 8.1x
Mar-1996 Webcraft Technologies, Inc. $ 186,862 $ 33,900 5.5
Nov-1995 Laser Tech Color, Inc. (a) $ 32,248 $ 5,155 6.3
Aug-1993 Treasure Chest Advertising Co. $ 174,996 $ 34,560 5.1
--------
Subtotal Average 6.2x
Insert Advertising & Newspaper Oct-1997 RCPC (c) $ 113,000 $ 19,475 5.8x
Services Oct-1996 PrintCo. Inc. (b) $ 49,085 $ 12,079 4.1
Apr-1994 Retail Graphics & KTB $ 165,000 $ 30,000 5.5
--------
Subtotal Average 5.1x
Direct Marketing Services Jan-1999 Colographic Direct Response Ltd. (pound) 50,200 (pound) 7,000 7.2x
May-1998 ColorStream Technologies, LLC $ 5,287 $ 130 40.7
Nov-1997 IMPCO Enterprises, Inc. $ 12,517 $ 2,377 5.3
Sep-1997 Olwen Direct Mail, Ltd. (pound) 24,500 (pound) 4,174 5.9
Oct-1996 Scanforms, Inc. $ 22,314 $ 6,859 3.3
--------
Subtotal Average 12.5x
Premedia Services Nov-1998 Admagic Group Limited (pound) 7,500 (pound) 1,942 3.9x
Jul-1998 Imaging Consortium, Inc. $ 6,715 $ 1,557 4.3
May-1998 The Enteron Group $ 39,734 $ 7,639 5.2
Mar-1998 The Fusion Group (pound) 18,000 (pound) 3,098 5.8
Nov-1997 Gamma One, Inc. $ 25,500 $ 5,046 5.1
Dec-1996 Designer Color Systems, Ltd. $ 18,978 $ 3,866 4.9
/Digital Dimensions, Inc.
Oct-1996 Pacific Color Connection $ 20,600 $ 3,876 5.3
--------
Subtotal Average 4.9x
Broadcast Management Services Nov-1998 DSI Datatrak Systems, Inc. $ 10,000 $ 1,284 7.8x
Jun-1998 Adtraq Data Systems, Inc. and KTS $ 5,750 $ 657 8.8
--------
Subtotal Average 8.3x
Overall Average EBITDA Multiple 7.3x
Overall Average EBITDA Multiple (excluding ColorStream Technologies) 5.7x
Weighted Average Overall EBITDA Multiple 5.9x
Weighted Average Overall EBITDA Multiple (excluding ColorStream Technologies) 5.8x
</TABLE>
Source: Sunflower management.
(a) EBITDA excludes one-time or non-recurring charges.
(b) The actual purchase price of $53,785 was adjusted to reflect $3.5mm of
capital synergies. Actual LTM EBITDA of $8,771 was adjusted to reflect
$3.3mm of operating synergies.
(c) LTM was adjusted to reflect one-time of non-recurring costs and includes
$4.0mm or operational synergies.
17
<PAGE>
Analysis at Various Prices - Current Sunflower (a)(b)
($ in millions)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share $32.00 $33.00 $34.00 $35.00 $35.25 $36.00 $37.00 $38.00 $39.00
Equity Value $814 $840 $865 $891 $897 $916 $942 $967 $993
Net Debt (b) 954 954 954 954 954 954 954 954 954
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Enterprise Value $1,768 $1,794 $1,819 $1,845 $1,851 $1,870 $1,896 $1,921 $1,947
Premium to 6/21/1999 Stock Price (5)% (2)% 1% 4% 5% 7% 10% 13% 16%
====================================================================================================================================
Total Enterprise Value as a Multiple of Sales
9/30/99 LTM $1,914.7 0.9x 0.9x 1.0x 1.0x 1.0x 1.0x 1.0x 1.0x 1.0x
1999E 1,922.6 0.9 0.9 0.9 1.0 1.0 1.0 1.0 1.0 1.0
2000E 2,037.1 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 1.0
Total Enterprise Value as a Multiple of EBITDA
9/30/99 LTM $258.7 6.8x 6.9x 7.0x 7.1x 7.2x 7.2x 7.3x 7.4x 7.5x
1999E 267.7 6.6 6.7 6.8 6.9 6.9 7.0 7.1 7.2 7.3
2000E 294.9 6.0 6.1 6.2 6.3 6.3 6.3 6.4 6.5 6.6
Total Enterprise Value as a Multiple of EBIT
9/30/99 LTM $159.1 11.1x 11.3x 11.4x 11.6x 11.6x 11.8x 11.9x 12.1x 12.2x
1999E 165.6 10.7 10.8 11.0 11.1 11.2 11.3 11.4 11.6 11.8
2000E 192.9 9.2 9.3 9.4 9.6 9.6 9.7 9.8 10.0 10.1
Equity Value as a Multiple of Fully Diluted EPS
9/30/99 LTM $2.08 15.4x 15.9x 16.3x 16.8x 16.9x 17.3x 17.8x 18.3x 18.8x
1999E $2.14 14.9 15.4 15.9 16.3 16.4 16.8 17.3 17.7 18.2
2000E $2.69 11.9 12.3 12.7 13.0 13.1 13.4 13.8 14.1 14.5
====================================================================================================================================
</TABLE>
(a) Source: Sunflower management projections dated 6/22/1999.
(b) Assumes that the $115mm of QUIPS convert into equity at a share price of
$28.83
Total Debt of $955mm excludes the QUIPS.
18
<PAGE>
Sunflower
Discounted Cash Flow Analysis
($ millions, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
11.0% 12.0% 13.0% 14.0% 15.0%
----- ----- ----- ----- -----
Value of Equity per Share (a) (b)
- ---------------------------------
4.5x $26.34 $23.93 $21.64 $19.47 $17.40
5.0 30.68 28.07 25.59 23.24 21.00
5.5 35.01 32.20 29.54 27.01 24.60
Trailing EBITDA Multiple 6.0 39.35 36.34 33.48 30.78 28.20
6.5 43.69 40.48 37.43 34.55 31.81
7.0 48.02 44.61 41.38 38.32 35.41
7.5 52.36 48.75 45.33 42.08 39.01
8.0 56.69 52.89 49.28 45.85 42.61
</TABLE>
Note: DCF values based on Sunflower management projections dated 6/22/1999 and
assuming a 9/30/1999 transaction closing date.
(a) Net debt based on total debt of $954mm; excludes QUIPS.
(b) Based on Company's estimate of 25.4mm shares outstanding as of June 22,
1999.
19
<PAGE>
Implied Future Stock Price Analysis
Sunflower
P/E Multiple Method
Management Projections (a)
Fiscal Year
-----------
1998A 1999E 2000E 2001E
----- ----- ----- -----
EPS $1.80 $2.14 $2.69 $3.22
Growth N/A 19.1% 25.3% 19.7%
Present Value of Potential Future Stock Price (b)
-------------------------------------------------
Discount Rate
Future Stock -------------------------------------------------
P/E Price (c) 12.0% 14.0% 16.0% 18.0%
- --- ------------ ----- ----- ----- -----
9x $28.95 $25.13 $24.58 $24.05 $23.54
10x 32.17 27.92 27.31 26.72 26.15
11x 35.38 30.71 30.04 29.39 28.77
12x 38.60 33.50 32.77 32.06 31.39
13x 41.82 36.29 35.50 34.74 34.00
14x 45.03 39.08 38.23 37.41 36.62
15x 48.25 41.88 40.96 40.08 39.23
16x 51.47 44.67 43.69 42.75 41.85
17x 54.68 47.46 46.42 45.42 44.46
18x 57.90 50.25 49.15 48.09 47.08
(a) EPS estimates based on Sunflower management projections dated 6/22/1999.
(b) Future stock price on January 1, 2001 discounted back 15 months to
September 30, 1999 at a given required equity rate of return.
(c) Future stock price as of January 1, 2001 multiplied by a given forward P/E
multiple.
20
<PAGE>
Implied Future Stock Price Analysis
Sunflower
EBITDA Multiple Method
Management Projections (a)
2000E
========
EBITDA $294.9
EBITDA Multiple 6.5x
--------
Levered Market Value $1,917.0
Year End Net Debt 812.6
--------
Equity Market Value 1,104.4
Fully Diluted Shares Outstanding 25.4
--------
Future Stock Price as of Jan. 1, 2001 $43.40
Present Value of Potential Future Stock Price (b)
-------------------------------------------------
Discount Rate
EBITDA Future Stock -------------------------------------------------
Multiple Price (c) 12.0% 14.0% 16.0% 18.0%
- -------- ------------ ----- ----- ----- -----
5.0x $26.01 $22.58 $22.08 $21.61 $21.15
5.5x 31.81 27.61 27.00 26.42 25.86
6.0x 37.60 32.63 31.92 31.23 30.57
6.5x 43.40 37.66 36.84 36.05 35.28
7.0x 49.19 42.69 41.76 40.86 40.00
7.5x 54.98 47.72 46.68 45.67 44.71
8.0x 60.78 52.75 51.60 50.49 49.42
(a) Estimates based on Sunflower management projections dated 6/22/1999.
(b) Future stock price on January 1, 2001 discounted back 15 months to
September 30, 1999 at a given required equity rate of return.
(c) Future stock price as of January 1, 2001 multiplied by a given LTM EBITDA
multiple.
21
<PAGE>
XL Ventures, Inc. Confidential
================================================================================
(in thousands, except share data)
<TABLE>
<CAPTION>
Date of Total Current
Investment Investment # of Securitics Strike Cost Basis Investment Value (a) Description
- ---------- ---------- --------------- ------ ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
24/7 Media, Inc. (b)
Common Stock 2/25/98 875,351 $ -- $3.80 $3,300 $27,792 Online advertising
Class A Warrants 437,676 7.62 NMF -- 10,563
Class B Warrants 437,676 11.42 NMF -- 8,896
-------
$47,251
About.com, Inc.
Common Stock 11/13/98 737,864 -- $5.42 $4,000 $35,049 Internet portal
(formerly MiningCo.com, Inc.)
Dawntreader Fund I., LP
Partnership Units 11/23/98 1 -- $250 $250 N/A Internet venture fund
WorldGate Communications, Inc.
Convertible Preferred 2/3/99 181,820 -- $16.50 $3,000 $7,455 Cable Internet access
and portal
Nutel Corp.
2/22/99 NMF $500 $500 Internet communi-
cations services
- Convertible Bridge Note @ 10% interest rate for a minimum of 8.2% of current equity of the company.
- Warrants for a minimum of 2.68% of value of Company
Andromedia, Inc.
Convertible Preferred 3/14/99 1,132,182 -- $3.53 $4,000 $4,000 Website activity
------- ------- analysis and
personalization
Total $15,100 $94,255
======= =======
</TABLE>
- ----------
(a) Reflects stock price as of June 21, 1999.
(b) Held in Sunflower Digital.
(c) Does not include value of recent Sunflower internet investments made in
Solbright and Webstakes.com, Inc. in June 1999.
22
<PAGE>
Exhibit 99(b)(4)
-------------------------------
PROJECT EMMA
-------------------------------
Presentation to the Board of Directors
June 24, 1999
================================================================================
Berenson Minella & Company
<PAGE>
PROJECT EMMA
================================================================================
Table of Contents
I. Transaction Summary
II. Analysis of PIK Preferred Stock
III. Summary Stock Price Performance
IV. Summary Valuation Analyses
Appendix A. Internet Portfolio Summary and Valuation
Appendix B. Trading Comparison of Selected Comparable Companies
Appendix C. Selected North American Printing M&A Transactions
Appendix D. Discounted Cash Flow Analysis
Appendix E. Premiums Paid Analysis
Appendix F. Leveraged Buyout Analysis (Thomas H. Lee Company Structure)
Berenson Minella
======================================================== ================ ======
<PAGE>
================================================
Transaction Summary
================================================
<PAGE>
PROJECT EMMA
================================================================================
Transaction Summary
The following summary describes the major economic terms of the proposed
transaction (the "Merger") between Daisy (the "Company") and Daisy Merger Corp.
("MergeCo"). The specific terms and mechanics of the Merger are more fully
described in the Agreement and Plan of Merger (the "Merger Agreement") and the
ancillary documents thereto, with the most recent drafts of which we received on
June 23, 1999.
o Through the Merger, MergeCo will be merged with and into the Company. The
Merger will be recorded as a recapitalization for financial reporting
purposes.
o At closing, each outstanding Daisy share, including those from the
conversion of outstanding QUIPS and options but excluding the Retained
Shares, will be exchanged for (i) $30.00 in Cash and (ii) $5.25 in PIK
Preferred Stock (0.0525 shares of PIK Preferred with a liquidation
preference of $100) with Warrants (the "Non-Cash Consideration").
- As part of the recapitalization, certain employees and management
will retain approximately 2.8 million shares, representing
approximately $100.4 million in aggregate value ("Retained Shares").
- The Warrants issued to stockholders will represent in aggregate the
right to purchase 5% of the primary shares of the Company
immediately after closing, subject to certain terms and conditions.
- The terms of the Non-Cash Consideration will be set upon the signing
of the Merger Agreement. It is expected that MergeCo will have the
option to pay the $5.25 per share in Cash at closing in lieu of the
Non-Cash Consideration.
Berenson Minella
======================================================== ================ ======
2
<PAGE>
PROJECT EMMA
================================================================================
Transaction Summary (Cont.)
o If, following the execution of the Merger Agreement, a transaction is not
consummated between the Company and MergeCo, under certain circumstances,
MergeCo will receive a termination fee of $30 million, including expenses.
o Daisy has requested that Berenson Minella deliver an opinion to the Board
of Directors of the Company as to whether or not the consideration to be
paid to the stockholders of Daisy pursuant to the Merger Agreement is fair
from a financial point of view.
Berenson Minella
======================================================== ================ ======
3
<PAGE>
PROJECT EMMA
================================================================================
Overview of Thomas H. Lee Company Proposal
Consideration: $30.00 per share in Cash
$5.25 per share in PIK Preferred
Stock and Warrants
Terms of Shareholder Preferred: Approximately $118.7 million
Dividend rate of 10% plus warrants
equal to 5% of the Company
Acquisition Structure: Merger
Timing: Merger completed in 3 to 4 months
after signing of Merger Agreement
Due Diligence: Substantially completed
Financing: To be fully committed, subject to
standard terms and conditions,
including market "out"
Financing Sources
Bank Debt: Chase / Bankers Trust / Bear
Stearns / Bank of America
(NationsBank)
Senior Subordinated Notes: Bankers Trust / Chase / Bear
Stearns / Bank of America
(NationsBank)
Preferred Stock: Company stockholders
Equity: Approximately $390.0 million
(includes $50.0 million sponsor
preferred)
o Thomas H. Lee Company ($289.6
million)
o Ted Ammon and Other Company
management ($100.4 million)
Management Roll-Over: Approximately 80% of Theodore
Ammon holdings
Total roll-over of approximately
$100.4 million
Status of Financing Documents: Draft debt and equity commitment
letters provided
Conditional Upon T.A./Management Roll-Over: No, however, there is a clear
expectation of a significant
roll-over
Treatment of Existing Public Bonds: Remains in place
Berenson Minella
======================================================== ================ ======
4
<PAGE>
PROJECT EMMA
================================================================================
Sources and Uses
o The following financing assumptions are based on the latest Thomas H. Lee
Company model dated June 22, 1999, with certain adjustments based on
information provided by the Company:
(Dollars in Millions, Except Per Share Data)
- --------------------------------------------------------------------------------
Current Strike Value @ Option Fully-Dil.
Equity Purchase Price Shares Price $35.25 Proceeds Value
- --------------------------------------------------------------------------------
Common Shares Outstanding 19.7 $694.5 $694.5
Options Outstanding 3.5 $17.18 124.4 (60.6) 63.8
QUIPS Shares 3.9 28.83 138.8 138.8
- --------------------------------------------------------------------------------
Total 27.2 $957.7 ($60.6) $897.1
Fully-Diluted Shares 25.4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sources(A)
- --------------------------------------------------------------------------------
Senior Credit Facility $315.3
A/R Securitization Facility 114.0
Existing Senior Subordinated Notes 600.1
New HoldCo Notes 400.0
Sponsor Internet Preferred Stock 50.0
Shareholder PIK Preferred Stock (B) 118.7
Roll-Over Equity (B) 100.4
New Sponsor Equity 239.6
- --------------------------------------------------------------------------------
Total Sources $1,938.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Uses(A)
- --------------------------------------------------------------------------------
Equity Purchase Price $897.1
Refinanced Debt 239.9
Assumed Debt 714.1
Capitalized Fees and Expenses 59.4
Non-Capitalized Fees and Expenses 27.6
- --------------------------------------------------------------------------------
Total Uses $1,938.1
- --------------------------------------------------------------------------------
(A) Assumes transaction is completed on September 30, 1999.
(B) Indicated roll-over assumptions and calculation of Non-Cash Consideration
has been provided by the Company as of June 23, 1999.
Berenson Minella
======================================================== ================ ======
5
<PAGE>
PROJECT EMMA
================================================================================
Pro Forma Market Capitalization
(Dollars in Millions, Except Per Share Data)
================================================================================
Projected (A) Pro Forma (B) % of LTM EBITDA
9/30/99 9/30/99 Cap. Multiple(C)
================================================================================
Senior Credit Facility $ 214.0 $ 315.3 16.3% 1.2x
A/R Securitization Facility 114.0 114.0 5.9 0.4
Notes Payable 25.9 -- -- --
8 7/8% Senior Subordinated Notes 350.1 350.1 18.1 1.4
8 5/8% Senior Subordinated Notes 250.0 250.0 12.9 1.0
- --------------------------------------------------------------------------------
Total OpCo Debt $ 954.0 $1,029.4 53.1% 4.0x
New HoldCo Notes -- 400.0 20.6 1.5
- --------------------------------------------------------------------------------
Total HoldCo Debt $ 954.0 $1,429.4 73.8% 5.5x
Sponsor Internet Preferred Stock -- 50.0 2.6 0.2
Shareholder PIK Preferred Stock -- 118.7 6.1 0.5
- --------------------------------------------------------------------------------
Total Debt and Preferred $ 954.0 $1,598.1 82.5% 6.2x
Existing Equity 897.1 100.4 5.2 0.4
Sponsor Equity -- 239.6 12.4 0.9
- --------------------------------------------------------------------------------
Total Common Equity $ 897.1 $ 340.0 17.5% 1.3x
Total Capitalization $1,851.1 $1,938.1 100.0% 7.5x
- --------------------------------------------------------------------------------
(A) Based on Company forecast.
(B) Based on Thomas H. Lee Company model dated June 22, 1999.
(C) LTM EBITDA as of September 30, 1999 is forecast to be approximately $258.7
million.
Berenson Minella
======================================================== ================ ======
6
<PAGE>
========================================
Analysis of PIK Preferred Stock
========================================
<PAGE>
PROJECT EMMA
================================================================================
Summary Terms of PIK Preferred Stock
Issuer: Daisy (the "Company")
Security: Cumulative PIK Preferred Stock
Maturity: December 15, 2012 (13.25 years)
Amount: $118.7 million ($5.25 per share, except for
Retained Shares)
Dividends: 10.0% annual rate (paid semi-annually)
Timing: Issued at closing
Liquidation Preference: $100 per share
Ranking: Senior to Common Stock
Call Protection: NC-5; optional redemption price commencing on
December 15 of the years set forth below:
2004 102.50%
2005 101.25%
2006 and thereafter 100.00%
Exchangeable: Exchangeable at Company's option at any time into
equivalent face amount of junior subordinated
debentures
Redemption: 100% equity clawback for first 5 years at $102.50
per Preferred Share
Registration: SEC Registered
Change of Control: Investor put option and Company call option at
101% if T.H. Lee's ownership decreases below 30%
and another party goes above 30%
Trigger Events for Board Investors will get two board seats upon
Representation: non-payment of dividends for three periods, cross
default on the bonds, bankruptcy or failure to
make a mandatory redemption
Warrants: Represents 5% of the primary shares outstanding of
the Company
$0.01 per warrant exercise price
Detachable after 180 days
Warrant Exercisability: Upon an IPO or other Liquidity Event (including a
sale of the Company)
Warrant Expiration: December 15, 2012 (13.25 years)
Berenson Minella
======================================================== ================ ======
8
<PAGE>
PROJECT EMMA
================================================================================
Valuation of PIK Preferred Stock
Future Value Methodology
(Dollars in Millions, Except Per Share Data)
Projected Value in Year 5 (A)
- --------------------------------------------------------------------------------
EBITDA $ 385.6
EBITDA Multiple 7.0x
- --------------------------------------------------------------------------------
Enterprise Value $2,698.9
Net Debt (989.1)
Value of Internet Investments (C) 82.5
Internet Preferred Stock (67.2)
Shareholder PIK Preferred Stock (193.3)
Proceeds from Exercise of Management Options 18.9
- --------------------------------------------------------------------------------
Fully-Diluted Equity Value $1,550.7
Warrant Value (D) 4.8% $ 73.7
Blended IRR 18.0%
- --------------------------------------------------------------------------------
Per
Present Value as of September 30, 1999 (B) Exchanged
Total Share (E)
- --------------------------------------------------------------------------------
Shareholder PIK Preferred Stock $ 84.5 $ 3.74
Implied Value of Warrants 32.2 1.42
- --------------------------------------------------------------------------------
PIK Preferred Stock and Warrants $116.7 $ 5.16
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sensitivity Analysis (B)
- -----------------------------------------------------------------------------------------------
Blended IRR
EBITDA --------------------------------------------------------------------------------------
Multiple 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0%
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
6.0x $ 5.71 $ 5.47 $ 5.24 $ 5.02 $ 4.81 $ 4.61 $ 4.42
6.5 5.92 5.67 5.43 5.20 4.99 4.78 4.58
7.0 6.13 5.87 5.62 5.39 5.16 4.95 4.75
7.5 6.34 6.07 5.82 5.57 5.34 5.12 4.91
8.0 6.55 6.27 6.01 5.76 5.52 5.29 5.07
<CAPTION>
Present Value Excluding Future Value of Internet Investments
<S> <C> <C> <C> <C> <C> <C> <C>
6.0x $ 5.62 $ 5.38 $ 5.15 $ 4.94 $ 4.73 $ 4.54 $ 4.35
6.5 5.83 5.58 5.35 5.12 4.91 4.71 4.51
7.0 6.04 5.79 5.54 5.31 5.09 4.88 4.68
7.5 6.25 5.99 5.73 5.49 5.26 5.05 4.84
8.0 6.46 6.19 5.93 5.68 5.44 5.22 5.00
</TABLE>
- --------------------------------------------------------------------------------
(A) Year 5 EBITDA and Net Debt is estimated based on the weighted average of
2003 and 2004. See Appendix F for further details.
(B) The PIK Preferred Stock and Warrants may trade at a discount or premium to
the implied valuation, especially in initial trading.
(C) Based on current value of Internet holdings, computed after tax and after
promote. See Appendix A for further details.
(D) Based on 5% warrants at closing, adjusted for the impact of management
options.
(E) Based on estimated 22.6 Exchanged Shares (25.4 existing fully-diluted shares
less 2.8 estimated Retained Shares).
Berenson Minella
======================================================== ================ ======
9
<PAGE>
PROJECT EMMA
================================================================================
Valuation of PIK Preferred Stock (Cont.)
Current Yield Methodology
(Dollars in Millions, Except Per Share Data)
Assumptions
- --------------------------------------------------------------------------------
Face Value of PIK Preferred Stock at Closing $118.7
Annual Dividend Rate (Paid Semi-Annually) 10.0%
Years of Accrual (B) 5.0
Projected Accreted Value $193.3
Estimated Market Yield 18.0%
- --------------------------------------------------------------------------------
Per
Present Value as of September 30, 1999 (A) Exchanged
Total Share (C)
- --------------------------------------------------------------------------------
Shareholder PIK Preferred Stock $ 84.5 $ 3.74
Implied Value of Warrants (D) 17.9 0.79
- --------------------------------------------------------------------------------
PIK Preferred Stock and Warrants $102.4 $ 4.53
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIK Preferred Stock Sensitivity Analysis (A)
- -----------------------------------------------------------------------------------------------
Blended IRR
Years of --------------------------------------------------------------------------------------
Accrual 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0%
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5.00 $4.44 $4.25 $4.07 $3.90 $3.74 $3.58 $3.44
7.50 4.09 3.83 3.59 3.36 3.15 2.96 2.78
10.00 3.76 3.44 3.16 2.90 2.66 2.45 2.25
12.50 3.46 3.10 2.78 2.50 2.25 2.02 1.82
13.25 3.37 3.00 2.68 2.39 2.13 1.91 1.71
<CAPTION>
PIK Preferred Stock and Warrants Sensitivity Analysis (A)(D)
- -----------------------------------------------------------------------------------------------
Blended IRR
Years of --------------------------------------------------------------------------------------
Accrual 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0%
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5.00 $5.23 $5.04 $4.86 $4.69 $4.53 $4.38 $4.23
7.50 4.88 4.62 4.38 4.15 3.95 3.75 3.57
10.00 4.55 4.23 3.95 3.69 3.45 3.24 3.04
12.50 4.25 3.89 3.57 3.29 3.04 2.81 2.61
13.25 4.16 3.79 3.47 3.18 2.93 2.70 2.50
</TABLE>
- --------------------------------------------------------------------------------
(A) The PIK Preferred Stock and Warrants may trade at a discount or premium to
the implied valuation, especially in initial trading.
(B) Assumes liquidity event in 5.0 years. The analysis does not include the
impact of any redemption premiums, if any.
(C) Based on estimated 22.6 Exchanged Shares (25.4 existing fully-diluteded
shares less 2.8 estimated Retained Shares).
(D) Warrants have been valued based on the implied intrinsic value of $35.24 per
share ($35.25 purchase price less $0.01 Exercise price).
Berenson Minella
======================================================== ================ ======
10
<PAGE>
==========================
Summary Stock Price
Performance
==========================
<PAGE>
PROJECT EMMA
================================================================================
1999 Stock Price Performance
[LINE GRAPH OMITTED]
[The following table was depicted as a line graph in the printed material.]
[NEED PLOT POINTS FOR THIS GRAPH FROM CLIENT]
- ----------------------------------
3/22: CSFB issues report
highlighting internet holdings.
- ----------------------------------
- ----------------------------------
4/20: BGF announces it is
exploring alternatives.
- ----------------------------------
- ----------------------------------
4/28: Intraday high
price of $36 3/16
- ----------------------------------
- ----------------------------------
4/30: Implied high
closing price of $31.75
- ----------------------------------
- ----------------------------------
3/24: About.com (fka Miningco.com)
IPO at $25 per share.
- ----------------------------------
- ----------------------------------
4/15: Worldgate IPO at
$21 per share
- ----------------------------------
(A) 'After-Tax Internet Investments' value per BGF share estimated based on 25.4
million fully-diluted shares, 11.0% promote and a 20.0% effective capital gains
tax.
Berenson Minella
======================================================== ================ ======
12
<PAGE>
=======================
Summary Valuation
Analyses
=======================
<PAGE>
PROJECT EMMA
================================================================================
Valuation Summary
[BAR GRAPH OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Note:
- --------------------------------------------------------------------------------
Comparable Public Precedent M&A Discounted Cash Premiums Paid
Companies Transactions Flow Analysis Analysis
- ----------------- ------------- --------------- -------------
$33.50 $39.25 $51.00 $41.75
$27.25 $32.00 $31.00 $32.50
- --------------------------------------------------------------------------------
- ----------
Note: Yellow shaded region indicates a valuation range of $34.50 to $35.25 per
share. Valuation ranges include estimated after-tax and after-promote value of
Internet investments of approximately $3.24 per share.
Berenson Minella
======================================================== ================ ======
14
<PAGE>
PROJECT EMMA
================================================================================
Comparable Public Companies
(Dollars in Millions, Except Per Share Data)
- --------------------------------------------------------------------------------
Comparable Company Implied Value
Multiples (B) Per Share (C)
Daisy ------------------ --------------------
Data (A) Mean Median Mean Median
- --------------------------------------------------------------------------------
LTM 3/99 EBITDA $ 246.6 6.4x 6.7x $ 26.03 $ 28.75
1999E EBITDA 267.7 5.7 6.0 24.10 27.05
2000E EBITDA 294.9 5.3 5.4 25.47 26.56
LTM 3/99 EPS $ 1.87 14.5x 14.7x $ 27.18 $ 27.56
1999E EPS 2.15 12.8 12.6 27.52 27.09
2000E EPS 2.69 11.3 11.0 30.40 29.59
- --------------------------------------------------------------------------------
Current Value of Internet Investments (D) $ 3.24 $ 3.24
- --------------------------------------------------------------------------------
(A) Source: Company financial projections. Daisy LTM EBITDA is pro forma for
acquisitions completed to date.
(B) Based on large company trading multiples. Market data as of June 21, 1999.
See Appendix B for further details.
(C) Based on 3/99 net debt of $931.7 MM (including $10.0 million adjustment
for recent investments) and approximately 25.4 MM fully-diluted shares.
Implied Value Per Share excludes value of after-tax and after-promote
Internet holdings.
(D) Value of Internet holdings, computed after tax and after promote, per
share. See Appendix A for further details.
Berenson Minella
======================================================== ================ ======
15
<PAGE>
PROJECT EMMA
================================================================================
Precedent M&A Transactions
(Dollars in Millions, Except Per Share Data)
- --------------------------------------------------------------------------------
Precedent Transaction Implied Value
Multiples (B) Per Share (C)
Daisy --------------------- --------------------
Data (A) Mean Median Mean Median
- --------------------------------------------------------------------------------
LTM 3/99 Revenues $1,838.6 0.9x 0.9x $28.84 $28.84
LTM 3/99 EBITDA 246.6 7.5 6.7 36.01 28.75
LTM 3/99 EBIT 150.6 12.8 12.5 38.91 37.25
- --------------------------------------------------------------------------------
Current Value of Internet Investments (D) $ 3.24 $ 3.24
- --------------------------------------------------------------------------------
(A) Source: Company data. Daisy LTM results are pro forma for acquisitions
completed to date.
(B) Precedent transaction median multiples. See Appendix C for further
details.
(C) Based on 3/99 net debt of $931.7 MM (including $10.0 million adjustment
for recent investments) and approximately 25.4 MM fully-diluted shares.
Implied Value Per Share excludes value of after-tax and after-promote
Internet holdings.
(D) Value of Internet holdings, computed after tax and after promote, per
share. See Appendix A for further details.
Berenson Minella
======================================================== ================ ======
16
<PAGE>
PROJECT EMMA
================================================================================
Discounted Cash Flow Analysis
SELECTED FINANCIAL DATA (A)
(Dollars in Millions, Except Per Share Data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Projected
9 Mos End ------------------------------------------------------------
12/31/99 2000 2001 2002 2003 2004
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EBITDA $220.8 $298.4 $325.9 $348.0 $369.1 $391.1
(Inc) Dec in Working Capital (3.8) (13.3) (8.1) (8.0) (7.7) (8.2)
Capital Expenditures 75.9 95.2 99.8 86.5 87.1 88.8
Unlevered Free Cash Flow 97.6 112.5 122.8 145.9 159.3 170.4
</TABLE>
IMPLIED VALUE PER SHARE AT 3/31/99 (B)
--------------------------------------------------------------------
EBITDA Exit Multiple
----------------------------------------------------------
WACC 6.00x 6.25x 6.50x 6.75x 7.00x
--------------------------------------------------------------------
10.0% $39.30 $41.38 $43.46 $45.54 $47.62
11.0% 36.14 38.12 40.09 42.07 44.04
12.0% 33.16 35.03 36.91 38.79 40.66
13.0% 30.34 32.12 33.91 35.69 37.47
14.0% 27.68 29.38 31.07 32.76 34.46
--------------------------------------------------------------------
Current Value of Internet Investments (C) $ 3.24
- --------------------------------------------------------------------------------
(A) Based on Company financial projections with SG&A savings with no
acquisitions. See Appendix D for further details.
(B) Based on 3/99 net debt of $931.7 MM (including $10.0 million adjustment
for recent investments) and approximately 25.4 MM fully-diluted shares.
Implied Value Per Share excludes value of after-tax and after-promote
Internet holdings.
(C) Value of Internet holdings, computed after tax and after promote, per
share. See Appendix A for further details.
Berenson Minella
======================================================== ================ ======
17
<PAGE>
PROJECT EMMA
================================================================================
Premiums Paid Analysis
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Implied Value
Closing Actual Internet Adjusted Per Share
Price Closing Value Per Closing Median ---------------------
Date Price Share (A) Price Premium (B) Actual Adjusted(C)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Day Prior to Announcement 4/19/99 $ 27.88 ($ 3.38) $ 24.50 19.2% $ 33.23 $ 29.20
1 Week Prior to Announcement 4/13/99 33.75 (5.12) 28.63 23.7% 41.75 35.42
1 Month Prior to Announcement 3/19/99 27.00 (2.51) 24.49 39.5% 37.67 34.16
- -----------------------------------------------------------------------------------------------------------------------------------
Current Value of Internet Investments (D) -- $ 3.24
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Implied per share after-tax and after promote value of Internet
investments.
(B) Source: Mergerstat. See Appendix E for further details.
(C) Indicated Adjusted Implied Value Per Share excludes value of after-tax and
after-promote Internet investments.
(D) Value of Internet holdings, computed after tax and after promote, per
share. See Appendix A for further details.
Berenson Minella
======================================================== ================ ======
18
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1999.
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BIG FLOWER HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2750 13-3971556
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code No.) Identification No.)
</TABLE>
------------------------------
3 EAST 54TH STREET
NEW YORK, NEW YORK 10022
(212) 521-1600
(Address and telephone number of registrant's principal executive offices)
------------------------------
MARK A. ANGELSON, ESQUIRE
EXECUTIVE VICE PRESIDENT--OFFICE OF THE CHAIRMAN,
GENERAL COUNSEL AND SECRETARY
3 EAST 54TH STREET
NEW YORK, NEW YORK 10022
(212) 521-1600
(Name, address and telephone number of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C> <C>
JOSEPH B. FRUMKIN THOMAS C. MAZZA ERIC L. COCHRAN
SULLIVAN & CROMWELL DEWEY BALLANTINE LLP SKADDEN, ARPS, SLATE, MEAGHER &
125 BROAD STREET 1301 AVENUE OF THE AMERICAS FLOM LLP
NEW YORK, NEW YORK 10004 NEW YORK, NEW YORK 919 THIRD AVENUE
(212) 558-4000 (212) 259-8000 NEW YORK, NEW YORK 10022
(212) 735-3000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Paid-In-Kind Preferred Stock, par value $.01 per
share........................................... 4,574,555(1) Not Applicable $3,145,007(2) $874.31
Warrants to Purchase Shares of Big Flower Common
Stock, par value $.01........................... 21,783,595(3) (3) (3) (3)
</TABLE>
(1) Represents the maximum number of shares of paid-in-kind (PIK) preferred
stock, par value $0.01 per share, of Big Flower Holdings, Inc., a Delaware
corporation, estimated to be issuable upon the consummation of the merger of
BFH Merger Corp., a Delaware corporation, with and into Big Flower based on
the exchange ratio of 0.21 shares of PIK preferred stock to each share of
common stock of Big Flower to be exchanged for PIK preferred stock.
(2) Reflects the market price of Big Flower common stock to be exchanged for the
PIK preferred stock in connection with the merger, computed in accordance
with Rule 457(c) and Rule 457(f) under the Securities Act of 1933, as
amended, based upon the average of the high and low sales price of Big
Flower common stock as reported by the New York Stock Exchange on July 13,
1999, less the cash to be received in the merger ($30.6875--$30.00). The
proposed maximum aggregate offering price is estimated solely to determine
the registration fee.
(3) Each warrant represents the right to purchase approximately 0.02 of a share
of Big Flower common stock and is initially attached to each share of PIK
preferred stock being registered hereby. Value attributable to such
warrants, if any, is reflected in the market price of the PIK preferred
stock.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROXY STATEMENT/PROSPECTUS,
DATED JULY 16, 1999, WILL BE AMENDED OR COMPLETED
[LOGO]
BIG FLOWER HOLDINGS, INC.
3 EAST 54TH STREET
NEW YORK, NEW YORK 10022
- , 1999
Dear Fellow Stockholders:
The board of directors of Big Flower Holdings, Inc. has called a
stockholders meeting for - , 1999, at which you will be asked to consider and
vote upon a proposal to adopt a merger agreement providing for the
recapitalization of Big Flower pursuant to a merger of Big Flower with BFH
Merger Corp. BFH Merger Corp. is a corporation formed for the purpose of
effecting the merger by Thomas H. Lee Equity Fund IV, L.P., an affiliate of
Thomas H. Lee Company, a Boston-based investment firm, and Evercore Capital
Partners L.P., an affiliate of Evercore Partners Inc., a financial advisory and
private equity investment firm. Big Flower will continue in existence as the
surviving corporation in the merger.
In the merger and resulting recapitalization, Big Flower stockholders will
receive for each share of Big Flower common stock (i) $30.00 in cash, (ii) 0.21
shares of paid-in-kind (PIK) preferred stock of Big Flower, with a liquidation
preference of $25.00 per share (or $5.25 liquidation preference per share of Big
Flower common stock you own) and dividends accruing at an annual rate of 10%
compounded semi-annually, and (iii) a warrant to purchase approximately 0.02 of
a share of Big Flower common stock that would become exercisable upon the sale
of Big Flower following the merger or the occurrence of an event that results in
a public market for Big Flower common stock, such as an initial public offering.
The maximum number of warrants which could be issued in the merger represent, in
the aggregate, the right to purchase 5% of the shares of Big Flower common stock
immediately following the merger, assuming an exercise of these warrants.
Certain shares of Big Flower common stock held by members of management of Big
Flower and options to purchase shares of Big Flower common stock which are held
by some optionholders will be retained by such persons in the merger. These
members of management and optionholders include certain executive officers of
Big Flower, two of whom are directors of Big Flower. The management directors of
Big Flower did not participate in the discussions and deliberations of the board
of directors regarding the merger and related recapitalization and abstained
from voting on the approval by the board of the merger agreement. Following the
merger, these continuing members of Big Flower management are expected to hold
approximately 19.0% of Big Flower common stock. The remaining common stock of
Big Flower following the merger will be owned by Thomas H. Lee Equity Fund IV,
Evercore Capital Partners and their respective affiliates.
The Big Flower stockholders meeting will also serve as the annual meeting of
Big Flower at which you will be asked to consider and vote on the election of
two directors and the ratification of the appointment of Deloitte & Touche LLP
as Big Flower's independent certified public accountants.
YOUR VOTE IS VERY IMPORTANT. Big Flower cannot complete the merger unless
the stockholders of Big Flower adopt the merger agreement at the stockholders
meeting.
<PAGE>
Whether or not you plan to attend the stockholders meeting, please take the
time to submit your proxy with voting instructions by mail, by telephone or
through the Internet in accordance with the instructions contained in this
document.
This document describes the stockholders meeting, the merger, the terms of
the PIK preferred stock, the terms of the warrants and other related matters. A
copy of the merger agreement is attached to this document as Appendix A. This
document is a proxy statement for soliciting proxies for the stockholders
meeting. This document is also a prospectus relating to the PIK preferred stock
and warrants to be issued in the merger. Please read this entire document
carefully.
<TABLE>
<S> <C>
R. Theodore Ammon Edward T. Reilly
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
- --------------------------------------------------------------------------------
Neither this transaction nor the securities to be issued in the merger have been
approved or disapproved by the Securities and Exchange Commission. The
Commission has not passed upon the fairness or merits of this transaction nor
upon the accuracy or adequacy of the information contained in this proxy
statement/prospectus. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction where an
offer or solicitation would be illegal.
- --------------------------------------------------------------------------------
PLEASE SEE PAGE 15 FOR RISK FACTORS RELATING TO THE MERGER WHICH YOU SHOULD
CONSIDER.
This proxy statement/prospectus is dated - , 1999 and was first mailed to
Big Flower stockholders on - , 1999.
<PAGE>
[LOGO]
BIG FLOWER HOLDINGS, INC.
3 EAST 54TH STREET
NEW YORK, NEW YORK 10022
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON - , 1999
------------------------
To the Stockholders of Big Flower Holdings, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Big Flower
Holdings, Inc., a Delaware corporation, will be held on - , 1999, at -
a.m., New York time, at - . The purpose of the Big Flower meeting is to
consider and to vote upon the following matters:
1. A proposal to adopt the Agreement and Plan of Merger, dated as of June
29, 1999, between Big Flower and BFH Merger Corp., providing for the
recapitalization of Big Flower pursuant to the merger of BFH Merger Corp.
with and into Big Flower and approve the transactions contemplated by the
merger agreement. As a result of the merger, each outstanding share of
Big Flower common stock (other than shares held by Big Flower in its
treasury or by one of its subsidiaries, certain shares retained by
members of management in the merger, and shares for which appraisal
rights are perfected in accordance with Delaware law) will be converted
into the right to receive (a) $30.00 in cash, (b) 0.21 shares of
paid-in-kind (PIK) preferred stock of Big Flower, with a liquidation
preference of $25.00 per share (or $5.25 liquidation preference per share
of Big Flower common stock you own) and dividends accruing at an annual
rate of 10% compounded semi-annually, and (c) a warrant to purchase
approximately 0.02 of a share of Big Flower common stock upon the
occurrence of certain specified events.
2. The election of two (2) directors to the Big Flower board of directors.
3. Ratification of the appointment of Deloitte & Touche LLP as Big Flower's
independent certified public accountants.
4. Such other business related to the foregoing proposals as may properly
come before the Big Flower meeting.
The Big Flower board of directors has fixed the close of business on - ,
1999 as the record date for the Big Flower meeting, and only Big Flower
stockholders of record at such time will be entitled to notice of, and to vote
at, the Big Flower meeting.
A form of proxy and a proxy statement/prospectus containing more detailed
information with respect to the matters to be considered at the Big Flower
meeting, including a copy of the merger agreement attached as Appendix A,
accompany and form a part of this notice.
Whether or not you plan to attend the Big Flower meeting, please submit your
proxy with voting instructions. You may submit your proxy with voting
instructions by mail if you promptly complete, sign, date and return the
accompanying proxy card in the enclosed self-addressed stamped envelope. You may
also submit your proxy with voting instructions by telephone or through the
Internet in accordance with the instructions on the accompanying proxy card. If
you attend the Big Flower meeting and desire to revoke your proxy in writing and
vote in person, you may do so. In any event, a proxy may be revoked in writing,
by telephone or through the Internet at any time before it is exercised.
<PAGE>
THE BIG FLOWER BOARD OF DIRECTORS, WITH MANAGEMENT DIRECTORS ABSTAINING, HAS
UNANIMOUSLY DECLARED ADVISABLE, AUTHORIZED AND APPROVED THE MERGER AGREEMENT.
THE BIG FLOWER BOARD OF DIRECTORS, WITH MANAGEMENT DIRECTORS ABSTAINING,
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE MERGER
AGREEMENT.
THE BIG FLOWER BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE ELECTION OF EACH OF THE TWO (2) PERSONS NOMINATED TO THE BIG FLOWER
BOARD OF DIRECTORS AND "FOR" RATIFICATION OF THE APPOINTMENT OF DELOITTE &
TOUCHE LLP AS BIG FLOWER'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
By Order of the Board of Directors,
Mark A. Angelson
EXECUTIVE VICE PRESIDENT--OFFICE OF
THE CHAIRMAN, GENERAL COUNSEL AND
SECRETARY
New York, New York
- , 1999
THE INFORMATION AGENT FOR THE MERGER IS:
[LOGO]
WALL STREET PLAZA
NEW YORK, NY 10005
BANKS AND BROKERS CALL COLLECT: (212) 440-9800
ALL OTHERS CALL TOLL FREE: (800) 223-2064
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. PLEASE SUBMIT A PROXY WITH YOUR VOTING INSTRUCTIONS BY
TELEPHONE, THROUGH THE INTERNET OR BY RETURNING YOUR SIGNED AND DATED PROXY BY
MAIL.
- --------------------------------------------------------------------------------
ii
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Big Flower from other documents that are not included in or delivered with
this document. This information is available to you without charge upon your
written or oral request. You can obtain documents incorporated by reference in
this document, other than certain exhibits to those documents, by requesting
them in writing or by telephone from Big Flower at the following address:
BIG FLOWER HOLDINGS, INC.
3 East 54th Street
New York, New York 10022
(212) 521-1600
Attention: Associate General Counsel
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY - , 1999, IN
ORDER TO RECEIVE THEM BEFORE THE BIG FLOWER STOCKHOLDERS MEETING.
IN ADDITION, THE SECURITIES AND EXCHANGE COMMISSION MAINTAINS AN INTERNET
SITE WHICH CONTAINS THESE DOCUMENTS. YOU MAY OBTAIN THEM BY ACCESSING THE
SECURITIES AND EXCHANGE COMMISSION INTERNET SITE. THIS SITE IS LOCATED AT
HTTP://WWW.SEC.GOV.
See "Where You Can Find More Information" on page 120.
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHO ARE THOMAS H. LEE COMPANY AND THOMAS H. LEE EQUITY FUND IV, L.P.?
A. Thomas H. Lee Equity Fund IV, L.P. is an affiliate of Thomas H. Lee Company,
a Boston-based investment firm focused on acquiring substantial investments
in growth companies. Founded in 1974, Thomas H. Lee Company and its
affiliates currently manage approximately $6 billion in committed capital.
Recent investments by Thomas H. Lee Company and its affiliates include Eye
Care Centers of America, Inc., Fisher Scientific International Inc.,
HomeSide Lending, Inc., Rayovac Corporation, The Learning Company, Inc.,
Metris Companies Inc. and Wyndham International, Inc.
Q: WHO ARE EVERCORE PARTNERS INC. AND EVERCORE CAPITAL PARTNERS L.P.?
A: Evercore Partners Inc. is a firm which provides strategic and financial
advisory services to major corporations and makes private equity investments
through its affiliate, Evercore Capital Partners L.P. Evercore Capital
Partners' most recent investment was its $850 million purchase of American
Media, Inc. Evercore Partners Inc.'s recent advisory work includes advising
Tenneco Inc. on the separation of its automotive and packaging businesses,
and advising Dow Jones & Company, Inc. on its interactive joint venture with
Reuters Group PLC.
Q: WHAT WILL BIG FLOWER STOCKHOLDERS RECEIVE IN THE MERGER?
A: You will receive for each share of Big Flower common stock held $30.00 in
cash, 0.21 shares of paid-in-kind (PIK) preferred stock of Big Flower and a
warrant to purchase approximately 0.02 of a share of Big Flower common
stock. The maximum number of warrants which could be issued in the merger
represent in the aggregate the right to purchase 5% of the shares of Big
Flower common stock immediately following the merger assuming an exercise of
these warrants. Certain shares of Big Flower common stock held by members of
management will be retained in the merger or exchanged for an interest in an
investment instrument.
Q: WHAT ARE THE TERMS OF THE PIK PREFERRED STOCK TO BE RECEIVED IN THE MERGER?
A: Each share of PIK preferred stock that you own will have a liquidation
preference of $25.00 (or $5.25 liquidation preference per share of Big
Flower common stock you own). Dividends will accrue at an annual rate of 10%
of the liquidation preference, compounded semi-annually. Dividends may be
paid in additional shares of PIK preferred stock rather than in cash. If
there is an initial public offering of Big Flower's common stock during the
first five years after the merger, Big Flower can redeem up to all the
shares of PIK preferred stock outstanding at that time for $25.625 per share
plus accrued and unpaid dividends. In addition, after the first five years
following the merger, Big Flower can redeem the shares of PIK preferred
stock then outstanding at various liquidation preferences equal to or
greater than $25.00 plus accrued and unpaid dividends. Big Flower must
redeem all the outstanding shares of PIK preferred stock on December 15,
2012 at the liquidation preference of $25.00 per share plus accrued and
unpaid dividends. The holders of PIK preferred stock will only have voting
rights in two limited circumstances. Big Flower can convert the PIK
preferred stock at any time into junior subordinated debentures having
substantially similar terms as the PIK preferred stock. The PIK preferred
stock will be registered under the Securities Act of 1933.
iv
<PAGE>
Q: WHAT ARE THE TERMS OF THE WARRANTS TO BE RECEIVED IN THE MERGER?
A: At the time of the merger, the warrants will be attached to the shares of PIK
preferred stock you will receive. However, the warrants will detach from the
PIK preferred stock on the earliest of three events: 180 days after the
merger, an initial public offering or other event resulting in a public
market of Big Flower common stock, and certain change of control events. The
warrants would become exercisable upon the sale of Big Flower following the
merger or the occurrence of an event that results in a public market for Big
Flower common stock following the merger, such as an initial public
offering. The exercise price for each whole share of common stock subject to
the warrants will be $0.01. The holders of the warrants will have no voting
rights. The warrants will expire on December 15, 2012 if they have not been
exercised by then. The warrants will be registered under the Securities Act
of 1933.
Q: WILL THE PIK PREFERRED STOCK AND WARRANTS OF BIG FLOWER BE LISTED ON A
NATIONAL SECURITIES EXCHANGE?
A: No. Big Flower does not expect the PIK preferred stock or warrants to be
listed on any national securities exchange or any inter-dealer quotation
system.
Q: IS THE MERGER TAXABLE?
A: The merger will be a taxable transaction to you for United States federal
income tax purposes. The merger may also be a taxable transaction to you for
state, local, foreign and other tax purposes. You should consult your own
tax advisor for a full understanding of the tax consequences of the merger
to you.
Q: IF I DO NOT SUPPORT THE MERGER, DO I HAVE ANY ALTERNATIVES?
A: Yes. If you do not vote to approve the merger agreement and you follow the
required procedures, you may receive the fair cash value of your shares as
appraised by the Delaware Court of Chancery. This payment will only be made
if the merger is completed and if you properly exercise your appraisal
rights. You should consult your legal counsel for a full understanding of
the requirements of exercising appraisal rights.
Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A: Big Flower expects to complete the merger promptly after the Big Flower
stockholders meeting, which Big Flower plans to hold in October 1999. This
completion is subject to contingencies, including a financing condition,
that could delay the merger. However, the merger is expected to be completed
no later than December 31, 1999.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this document, either mail your signed proxy
card in the enclosed envelope or submit your proxy with voting instructions
by telephone or through the Internet in accordance with the instructions on
the accompanying proxy card so that your shares will be represented at the
Big Flower meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your broker will not be able to vote your shares with respect to the
adoption of the merger agreement or the ratification of the appointment of
Deloitte & Touche LLP without instructions from you. You should instruct
your broker to vote your shares, following the directions provided by your
broker. Your failure to instruct your broker to vote your shares will be the
equivalent of voting against the adoption of the merger agreement.
v
<PAGE>
Q: CAN I CHANGE MY VOTE AFTER I HAVE SUBMITTED MY PROXY WITH VOTING
INSTRUCTIONS?
A: Yes. There are three ways in which you may revoke your proxy and change your
vote. First, you may send a written notice to the party to whom you
submitted your proxy stating that you would like to revoke your proxy.
Second, you may complete and submit a new proxy card by mail or submit your
proxy with new voting instructions by telephone or through the Internet. The
latest vote actually received by Big Flower prior to the stockholders
meeting will be recorded and any earlier votes will be revoked. Third, you
may attend the Big Flower meeting and vote in person. Simply attending the
stockholders meeting, however, will not revoke your proxy. If you have
instructed a broker to vote your shares, you must follow directions received
from your broker to change or revoke your proxy.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. You should not send in your stock certificates at this time. After the
merger is completed, Big Flower will send instructions to you. These
instructions will explain how to exchange your Big Flower common stock for
cash, the PIK preferred stock and the warrants.
Q: WHO CAN I CALL WITH QUESTIONS?
A: If you have questions about the merger, you should contact:
[LOGO]
Wall Street Plaza
New York, NY 10005
Banks and Brokers Call Collect:
(212) 440-9800
All Others Call Toll Free: (800) 223-2064
vi
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
REFERENCES TO ADDITIONAL INFORMATION....................................................................... iii
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................... iv
SUMMARY.................................................................................................... 1
The Companies............................................................................................ 1
The Merger............................................................................................... 2
What You Will Receive in the Merger...................................................................... 2
Recommendation of the Big Flower Board................................................................... 2
Opinion of Financial Advisors............................................................................ 2
Source and Amount of Funds and Other Consideration....................................................... 3
Directors and Management of Big Flower Following the Merger.............................................. 3
Conflicts of Interests of Management Members of the Big Flower Board and Management...................... 4
Risk Factors............................................................................................. 4
The Big Flower Meeting................................................................................... 5
The Merger Agreement..................................................................................... 5
Appraisal Rights......................................................................................... 7
Listing of Big Flower PIK Preferred Stock and Warrants................................................... 7
Accounting Treatment..................................................................................... 7
United States Federal Income Tax Considerations.......................................................... 7
Regulatory Filings, Approvals and Clearances............................................................. 8
Litigation Challenging the Merger........................................................................ 8
Market Price Data........................................................................................ 9
Selected Historical Financial Data....................................................................... 10
Unaudited Pro Forma Consolidated Financial Data.......................................................... 13
RISK FACTORS............................................................................................... 15
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.................................................. 22
THE BIG FLOWER MEETING..................................................................................... 23
General.................................................................................................. 23
Voting................................................................................................... 23
Proxies.................................................................................................. 24
Solicitation of Proxies.................................................................................. 25
SPECIAL FACTORS............................................................................................ 27
General.................................................................................................. 27
Amendment of Big Flower Restated Certificate of Incorporation and Amended and Restated Bylaws............ 27
Background of the Merger................................................................................. 28
Big Flower's Reasons for the Merger; Recommendation of the Big Flower Board of Directors................. 33
Opinions of Big Flower's Financial Advisors.............................................................. 36
Fairness of the Merger................................................................................... 47
Certain Estimates of Future Operations and Other Information............................................. 48
Consequences of the Merger; Plans for Big Flower After the Merger........................................ 49
Conflicts of Interest of Certain Members of the Big Flower Board of Directors and Management............. 50
Accounting Treatment..................................................................................... 53
Source and Amount of Funds............................................................................... 53
Effect of the Merger on Big Flower Capital Stock......................................................... 57
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Regulatory Matters....................................................................................... 58
Fees and Expenses of the Merger.......................................................................... 58
Litigation Challenging the Merger........................................................................ 58
CAPITALIZATION............................................................................................. 59
SOURCES AND USES........................................................................................... 60
DESCRIPTION OF BIG FLOWER CAPITAL STOCK FOLLOWING THE MERGER............................................... 61
General.................................................................................................. 61
Big Flower Common Stock.................................................................................. 61
PIK Preferred Stock and Warrants......................................................................... 61
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS............................................................ 66
The Merger............................................................................................... 66
Issuance of the PIK Preferred Stock and Warrants......................................................... 68
PIK Preferred Stock...................................................................................... 68
Warrants................................................................................................. 71
Backup Withholding and Information Reporting............................................................. 72
THE MERGER AGREEMENT....................................................................................... 73
The Merger............................................................................................... 73
Consideration to Be Received in the Merger............................................................... 73
Exchange of Big Flower Common Stock...................................................................... 74
Corporate Governance..................................................................................... 75
Representations and Warranties........................................................................... 75
Covenants................................................................................................ 76
Conditions of the Merger................................................................................. 80
Termination and Effects of Termination................................................................... 81
Fees and Expenses........................................................................................ 83
Amendment; Waiver........................................................................................ 83
APPRAISAL RIGHTS........................................................................................... 84
MARKET PRICE AND DIVIDEND DATA............................................................................. 87
Dividend Information..................................................................................... 87
Recent Closing Prices.................................................................................... 88
Number of Stockholders................................................................................... 88
DESCRIPTION OF BIG FLOWER.................................................................................. 89
DESCRIPTION OF BFH MERGER CORP............................................................................. 90
Thomas H. Lee Equity Fund IV............................................................................. 90
Evercore Capital Partners................................................................................ 90
BIG FLOWER UNAUDITED PRO FORMA FINANCIAL INFORMATION....................................................... 91
DIRECTORS AND MANAGEMENT OF BIG FLOWER FOLLOWING THE MERGER................................................ 98
Executive Officers....................................................................................... 98
Directors................................................................................................ 99
Security Ownership of Big Flower Following the Merger.................................................... 99
OTHER INFORMATION FOR THE BIG FLOWER MEETING............................................................... 101
Nominees for Election as Big Flower Directors............................................................ 101
Directors and Executives Officers........................................................................ 103
Board Meetings and Certain Committees of the Big Flower Board of Directors............................... 103
</TABLE>
viii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Compensation of Directors................................................................................ 104
Section 16(a) Beneficial Ownership Reporting Compliance.................................................. 105
Voting Securities and Principal Holders Thereof.......................................................... 105
Executive Compensation................................................................................... 107
Employment Arrangements with Executive Officers.......................................................... 113
Compensation Committee Interlocks and Insider Participation.............................................. 117
Big Flower Stock Price Performance Graph................................................................. 117
Ratification of Appointment of Independent Certified Public Accountants.................................. 118
VALIDITY OF SECURITIES..................................................................................... 119
EXPERTS.................................................................................................... 119
FUTURE STOCKHOLDER PROPOSALS............................................................................... 119
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 119
APPENDIX A Agreement and Plan of Merger, dated as of June 29, 1999, between Big Flower Holdings, Inc. and
BFH Merger Corp.
APPENDIX B Opinion of Goldman, Sachs & Co., dated June 29, 1999
APPENDIX C Opinion of Berenson Minella & Company, dated June 29, 1999
APPENDIX D Section 262 of the Delaware General Corporation Law
APPENDIX E Transactions Involving Big Flower Common Stock by Thomas H. Lee Equity Fund IV, L.P., THL Equity
Advisors IV, LLC, Evercore Partners L.L.C., Evercore Capital Partners L.P., Evercore Capital Partners
(NQ) L.P., Evercore Capital Offshore Partners L.P. (Cayman), EBF Group L.L.C., Big Flower and Executive
Officers and Directors of Big Flower
APPENDIX F Information Relating to Evercore Partners L.L.C., Evercore Capital Partners L.P., Evercore
Capital Partners (NQ) L.P., Evercore Capital Offshore Partners L.P. (Cayman), EBF Group L.L.C., Thomas H.
Lee Equity Fund IV, L.P., THL Equity Advisors IV, LLC, and their respective Principals, and the Executive
Officers and Directors of BFH Merger Corp. and Big Flower
</TABLE>
ix
<PAGE>
SUMMARY
THIS SUMMARY, TOGETHER WITH THE PRECEDING QUESTIONS AND ANSWERS SECTION,
HIGHLIGHTS SELECTED INFORMATION CONTAINED IN THIS DOCUMENT AND MAY NOT CONTAIN
ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. WE URGE YOU TO CAREFULLY READ
THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS TO WHICH THIS DOCUMENT REFERS TO
UNDERSTAND FULLY THE MERGER AND OTHER RELATED TRANSACTIONS. SEE "WHERE YOU CAN
FIND MORE INFORMATION" ON PAGE 120. EACH ITEM IN THIS SUMMARY INCLUDES A PAGE
REFERENCE DIRECTING YOU TO A MORE COMPLETE DESCRIPTION OF THAT ITEM. THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS DOCUMENT AND TO BIG FLOWER'S FINANCIAL
STATEMENTS INCLUDED IN THIS DOCUMENT OR INCORPORATED BY REFERENCE.
ON OCTOBER 17, 1997, AS PART OF A REORGANIZATION OF BIG FLOWER'S LEGAL
STRUCTURE, BIG FLOWER HOLDINGS, INC. BECAME THE PARENT OF BIG FLOWER PRESS
HOLDINGS, INC. UNLESS OTHERWISE INDICATED OR THE CONTEXT CLEARLY IMPLIES
OTHERWISE, ALL REFERENCES TO THE BIG FLOWER COMMON STOCK, CERTIFICATE OF
INCORPORATION AND BYLAWS, BOARD OF DIRECTORS, AGREEMENTS AND OTHER INCIDENTS OF
BIG FLOWER ARE REFERENCES TO SUCH MATTERS WITH RESPECT TO BIG FLOWER PRESS PRIOR
TO SUCH REORGANIZATION AND TO BIG FLOWER HOLDINGS, INC. THEREAFTER, AND THE
TERMS "BIG FLOWER," "WE," "OUR," AND "US" REFER TO BIG FLOWER HOLDINGS, INC. AND
ITS SUBSIDIARIES BOTH BEFORE AND AFTER COMPLETION OF THE MERGER.
THE COMPANIES
BIG FLOWER HOLDINGS, INC. (PAGE 89)
Big Flower is a leading advertising and marketing services company which
provides more than 3,000 retail, advertising agency, broadcasting, manufacturing
and newspaper customers with highly-targeted, promotional advertising products,
services and software. Big Flower specializes in targeted advertising inserts,
circulation-building newspaper products, data-driven direct mail and direct
marketing services and digital services, including commercial image design and
production, and computer-based advertising management systems. Big Flower also
owns XL Ventures, a venture capital subsidiary focused on making minority
investments in companies involved in providing advertising and marketing
services through the Internet to both on-line and off-line customers.
BFH MERGER CORP. (PAGE 90)
BFH Merger Corp. is a corporation formed by Thomas H. Lee Equity Fund IV,
L.P. and Evercore Capital Partners L.P. to effect the merger and
recapitalization of Big Flower. In the merger, BFH Merger Corp. will be merged
with and into Big Flower with Big Flower as the surviving corporation in the
merger.
Thomas H. Lee Equity Fund IV is an affiliate of Thomas H. Lee Company, a
Boston-based investment firm focused on acquiring substantial investments in
growth companies. Founded in 1974, the firm and its affiliates currently manage
approximately $6 billion in committed capital. Recent investments include Eye
Care Centers of America, Inc., Fisher Scientific International Inc., Rayovac
Corporation, HomeSide Lending, Inc., The Learning Company, Inc., Metris
Companies Inc. and Wyndham International, Inc..
Evercore Partners Inc. is a firm which provides strategic and financial
advisory services to major corporations and makes private equity investments
through its affiliate, Evercore Capital Partners L.P. Evercore Capital Partners'
most recent investment was its $850 million purchase of American Media, Inc.
Evercore Partners Inc.'s recent advisory work includes advising Tenneco Inc. on
the separation of its automotive and packaging businesses, and advising Dow
Jones & Company, Inc. on its interactive joint venture with Reuters Group PLC.
Unless the context requires otherwise, all references to Thomas H. Lee
Equity Fund IV and Evercore Capital Partners in this proxy statement/prospectus
are references to Thomas H. Lee Equity Fund IV and its affiliates and Evercore
Capital Partners and its affiliates, respectively.
1
<PAGE>
THE MERGER (PAGE 73)
Under the merger agreement, BFH Merger Corp. will merge into Big Flower. Big
Flower will be the surviving corporation in the merger, and BFH Merger Corp.
will cease to exist as a corporation after the merger. Certain executive
officers of Big Flower, two of whom are directors of Big Flower, will retain
some of their shares of Big Flower common stock and/or options to purchase such
shares in the merger. The management directors did not participate in the
discussions and deliberations regarding the merger and related recapitalization
and abstained from voting on the approval by the board of directors of the
merger agreement. It is currently expected that members of management retaining
shares of Big Flower common stock in the merger will own a total of
approximately 19.0% of Big Flower common stock after the merger. Thomas H. Lee
Equity Fund IV and Evercore Capital Partners will own the remaining Big Flower
common stock immediately after the completion of the merger.
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 73)
If the merger is completed, each share of Big Flower common stock will give
you the right to receive:
- $30.00 in cash,
- 0.21 shares of paid-in-kind (PIK) preferred stock of Big Flower, with a
liquidation preference of $25.00 per share (or $5.25 liquidation
preference per share of Big Flower common stock you own) and dividends
(that may be paid in additional shares of PIK preferred stock) accruing at
an annual rate of 10%, compounded semi-annually, and
- a warrant to purchase approximately 0.02 of a share of Big Flower common
stock upon the sale of Big Flower or the occurrence of an event that
results in a public market for Big Flower common stock following the
merger, such as an initial public offering.
The maximum number of warrants which could be issued in the merger
represent, in the aggregate, the right to purchase 5% of the shares of Big
Flower common stock immediately following the merger, assuming the exercise of
these warrants. The merger consideration will not be paid with respect to
certain shares of Big Flower common stock retained, or possibly exchanged for an
interest in an investment instrument, by members of management in the merger.
RECOMMENDATION OF THE BIG FLOWER BOARD (PAGE 33)
The Big Flower board of directors, with management directors abstaining,
recommends that you vote "FOR" adoption of the merger agreement. Two members of
the Big Flower board of directors have a conflict of interest since they are
members of management who are retaining shares of Big Flower common stock and/or
options to purchase such shares in the merger. These two directors abstained
from voting to approve the merger agreement. The remaining four directors of Big
Flower voted unanimously to approve the merger agreement. See "Special
Factors--Conflicts of Interest of Certain Members of the Big Flower Board of
Directors and Management" on page 50.
The Big Flower board of directors recommends that you vote "FOR" the
election of each of the two persons nominated to the Big Flower board of
directors and "FOR" ratification of the appointment of Deloitte & Touche LLP as
Big Flower's independent certified public accountants.
OPINION OF FINANCIAL ADVISORS (PAGE 36)
GOLDMAN, SACHS & CO.
On June 29, 1999, Goldman Sachs delivered to the Big Flower board of
directors a written opinion with respect to the fairness from a financial point
of view of the merger consideration to be received by the holders of Big Flower
common stock, other than the members of management who are retaining shares of
Big Flower common stock in the merger, as to whom Goldman Sachs did not deliver
an opinion.
The full text of the Goldman Sachs opinion is contained in Appendix B. The
Goldman Sachs
2
<PAGE>
opinion was provided for the information and assistance of the Big Flower board
of directors in connection with its consideration of the merger. It is not a
recommendation to any holder of Big Flower common stock as to how any
stockholder should vote at the Big Flower meeting. Big Flower stockholders
should read the Goldman Sachs opinion in its entirety.
BERENSON MINELLA & COMPANY
On June 29, 1999, Berenson Minella & Company delivered to the Big Flower
board of directors a written opinion with respect to the fairness from a
financial point of view of the merger consideration to be received by the
holders of Big Flower common stock, other than the members of management who are
retaining shares of Big Flower common stock in the merger, as to whom Berenson
Minella did not deliver an opinion.
The full text of the Berenson Minella opinion is contained in Appendix C.
The Berenson Minella opinion was provided for the information and assistance of
the Big Flower board of directors in connection with its consideration of the
merger. It is not a recommendation to any holder of Big Flower common stock as
to how any stockholder should vote at the Big Flower meeting. Big Flower
stockholders should read the Berenson Minella opinion in its entirety.
SOURCE AND AMOUNT OF FUNDS AND OTHER CONSIDERATION (PAGE 53)
EQUITY COMMITMENTS
Thomas H. Lee Equity Fund IV and Evercore Capital Partners have committed to
contribute an aggregate of up to $390 million in cash to BFH Merger Corp. as
part of the merger and related transactions. This amount will be reduced by the
value attributed to the shares of Big Flower common stock and options to
purchase such shares which will be retained by members of management in the
merger. Up to $60 million of such equity commitments may be represented by an
investment instrument, whose form and terms have not been finalized.
DEBT FINANCINGS
Big Flower and Big Flower Press are expected to enter into new debt
financing arrangements at the time of the merger aggregating approximately $870
million. The arrangements are expected to consist of:
- $470 million of senior bank financing of Big Flower Press; and
- $400 million of high yield financing of Big Flower.
If the high yield financing, which is expected to consist of high yield
securities, cannot be consummated at the time of the merger, Big Flower expects
to enter into a bridge loan, for which it already has a commitment, until it
could replace such loan with high yield securities.
A portion of the proceeds of such new debt financing will be used to repay
in full and terminate Big Flower Press' existing revolving credit facility.
Such new debt financing will be in addition to Big Flower Press' existing
$600 million of senior subordinated notes, which are expected to remain
outstanding after the merger. The debt financing arrangements assume the
conversion of all outstanding 6% Convertible Quarterly Income Preferred
Securities (QUIPS) of Big Flower Trust I into the merger consideration.
DIRECTORS AND MANAGEMENT OF BIG FLOWER FOLLOWING THE MERGER (PAGE 98)
Executive officers of Big Flower, including the chairman of the board, the
chief executive officer and the chief financial officer of Big Flower, will be
the executive officers of Big Flower following the merger.
The board of directors of Big Flower after the merger is expected to be
comprised of R. Theodore Ammon, Edward T. Reilly, Thomas H. Lee, Anthony J.
DiNovi, Scott M. Sperling, Roger C. Altman, Austin M. Beutner and two additional
persons to be determined by Thomas H. Lee Equity Fund IV, with Evercore Capital
Partners and R. Theodore Ammon consenting to such two additional persons.
3
<PAGE>
CONFLICTS OF INTERESTS OF MANAGEMENT MEMBERS OF THE BIG FLOWER BOARD AND
MANAGEMENT (PAGE 50)
Certain members of management have interests in the merger that may conflict
with those of the other Big Flower stockholders. These include the following:
- some of the shares of Big Flower common stock that are held by certain
members of management will be retained by such persons in the merger or
exchanged for an interest in an investment instrument. These shares will
not become a right to receive $30.00 in cash, 0.21 shares of PIK preferred
stock of Big Flower and a warrant to purchase approximately 0.02 of a
share of Big Flower common stock;
- some of the options to purchase Big Flower common stock may be retained by
certain members of management or may be exchanged, in whole or part, for
other equity interests in Big Flower or an interest in the investment
instrument;
- some members of Big Flower's management will continue to serve as officers
and directors of Big Flower following the merger; and
- certain severance agreements with Big Flower executive officers and other
key employees generally provide them with a cash payment, immediate
vesting of options and the continuation of certain benefits if their
employment is terminated after a change of control of Big Flower. The
merger may constitute a change of control of Big Flower for this purpose.
However, Big Flower does not expect to terminate the employment of any
such employee in connection with the merger.
RISK FACTORS (PAGE 15)
In determining whether to vote to approve and adopt the merger agreement,
you should consider carefully the risk factors described in this document,
including the risks that:
- there may not be a trading market for the PIK preferred stock and
warrants,
- the PIK preferred stock will generally have no voting rights, and the
warrants will have no voting rights,
- holders of PIK preferred stock may be liable for taxes in respect of the
PIK preferred stock and the dividends thereon without having received any
cash with which to make necessary tax payments,
- Big Flower's ability to pay the liquidation preference and dividends on
the PIK preferred stock on the mandatory redemption date depends on its
financial condition at that time,
- Big Flower's substantial leverage following the merger could affect its
operations,
- the value of the warrants will depend mainly on the warrants becoming
exercisable,
- the Big Flower board of directors could decide after the merger to issue
additional classes of Big Flower preferred stock which are senior to, or
equal in ranking with, the PIK preferred stock,
- the terms of the new debt financing are expected to restrict Big Flower's
ability to pay cash dividends on the PIK preferred stock,
- the merger is conditioned upon Big Flower's and Big Flower Press' receipt
of funds from the committed financings which will provide, in part, the
working capital for Big Flower after the merger,
- holders of the PIK preferred stock and warrants will not have control of
Big Flower,
- the forecasts included in this document should not be relied upon by Big
Flower stockholders,
- the high level of competition in the advertising and marketing services
4
<PAGE>
industry could have a negative impact on Big Flower's success,
- changes in the cost of paper could have a negative impact on Big Flower's
success,
- Big Flower's success could be negatively affected if its Columbine JDS
operating unit is unable to make technological changes and introduce new
products in a timely manner,
- officers and management directors of Big Flower have agreements and other
arrangements that may create potential conflicts of interest with Big
Flower stockholders regarding the merger, and
- there are risks of fraudulent conveyance associated with the merger and
related recapitalization.
THE BIG FLOWER MEETING
TIME, PLACE AND MATTERS TO BE VOTED UPON (PAGE 23)
The Big Flower meeting will be held on - , 1999, at - a.m., New York
time, at - . At the Big Flower meeting you will be asked:
1. to adopt the merger agreement;
2. to elect two directors to the Big Flower board of directors;
3. to ratify the appointment of Deloitte & Touche LLP as Big Flower's
independent certified public accountants; and
4. to act on other matters relating to the foregoing proposals that may be
brought properly before the Big Flower meeting.
RECORD DATE AND VOTE REQUIRED (PAGE 23)
You may cast one vote at the Big Flower meeting for each share of Big Flower
common stock, par value $0.01 per share, that you owned at the close of business
on - , 1999.
On - , 1999, there were - shares of Big Flower common stock
outstanding and entitled to vote. To adopt the merger agreement, the holders of
a majority of the shares of Big Flower common stock issued and outstanding must
vote in favor of doing so. To elect the two persons nominated for election to
the Big Flower board of directors, the holders of a plurality of the shares of
Big Flower common stock voting on the election at the Big Flower meeting,
assuming at least a majority of the outstanding shares of Big Flower common
stock are present in person or represented by proxy at the Big Flower meeting,
must vote in favor of each nominee. To ratify the appointment of Deloitte &
Touche LLP as Big Flower's independent certified public accountants, the holders
of a majority of the shares of Big Flower common stock voting on such proposal
at the Big Flower meeting, assuming at least a majority of the outstanding
shares of Big Flower common stock are present in person or represented by proxy
at the Big Flower meeting, must vote in favor of such ratification.
As of - , 1999, directors and executive officers of Big Flower and their
affiliates owned an aggregate of approximately - % of the outstanding shares
of Big Flower common stock which they have indicated they intend to vote in
favor of adoption of the merger agreement, the election of each of the two
persons nominated to the Big Flower board of directors and ratification of the
appointment of Deloitte & Touche LLP as Big Flower's independent certified
public accountants.
THE MERGER AGREEMENT
THE MERGER AGREEMENT IS ATTACHED TO THIS DOCUMENT AS APPENDIX A. PLEASE READ
THE MERGER AGREEMENT CAREFULLY AND IN ITS ENTIRETY. IT IS THE LEGAL DOCUMENT
THAT GOVERNS THE MERGER.
EFFECTIVE TIME OF THE MERGER (PAGE 73)
Although no assurances can be given, it is currently expected that the
merger will be completed promptly after the Big Flower stockholders meeting,
which Big Flower expects to hold in October 1999. This completion is subject to
contingencies, including a financing condition, that could delay the merger.
However, the merger is expected to be completed no later than December 31, 1999.
5
<PAGE>
CONDITIONS TO THE MERGER (PAGE 80)
The completion of the merger depends on a number of conditions being
satisfied, including the following:
- the adoption of the merger agreement by Big Flower stockholders;
- the expiration or termination of the waiting period applicable to the
merger under the Hart-Scott-Rodino Antitrust Improvements Act (antitrust
notification);
- the absence of any legal restriction that prohibits completion of the
merger or is reasonably likely to impose a material limitation on the
ability of BFH Merger Corp. or its affiliates to acquire Big Flower, but
BFH Merger Corp. must have used commercially reasonable best efforts to
prevent the imposition and lessen the effects of any such legal
restriction;
- effectiveness of this registration statement for the PIK preferred stock
and warrants;
- the receipt of a letter from an independent evaluation firm as to the
solvency of Big Flower and its subsidiaries;
- the absence of any pending litigation brought by a government entity (or
by any other person which has a reasonable likelihood of success) that
seeks to prohibit or restrict the completion of the merger and the other
transactions contemplated by the merger agreement;
- that BFH Merger Corp. be reasonably satisfied that the total funded debt
of Big Flower just before the merger is less than a specified amount; and
- that Big Flower, its subsidiaries and BFH Merger Corp. received the
proceeds of the financings in amounts sufficient to consummate the merger
and the other transactions contemplated by the merger agreement.
RESTRICTIONS ON ALTERNATIVE TRANSACTIONS (PAGE 77)
The merger agreement generally limits the ability of Big Flower and its
subsidiaries to solicit or participate in discussions with any third party about
business combinations other than the merger, subject to certain exceptions,
including those relating to complying with fiduciary duties to Big Flower
stockholders.
TERMINATION OF THE MERGER AGREEMENT (PAGE 81)
Big Flower and BFH Merger Corp. may agree to terminate the merger agreement
at any time without completing the merger.
In addition, Big Flower or BFH Merger Corp. may terminate the merger
agreement if:
- the merger is not completed by the later of October 31, 1999 or the date
determined by adding to October 31, 1999 the number of days after
September 1, 1999 that this proxy statement/prospectus is mailed to Big
Flower stockholders (but in no case later than December 31, 1999);
- a court order or other government ruling prohibits completion of the
merger; or
- Big Flower's stockholders do not approve the merger agreement.
In addition, BFH Merger Corp. may terminate the merger agreement if:
- the Big Flower board of directors fails to recommend that Big Flower
stockholders vote in favor of the merger, withdraws or adversely modifies
its approval or recommendation of the merger or recommends another
transaction;
- Big Flower breaches its covenant with respect to its stockholder rights
plan (poison pill); or
- Big Flower materially breaches any representation, warranty, covenant or
agreement contained in the merger agreement.
In addition, Big Flower may terminate the merger agreement if:
- the board of directors of Big Flower determines, after consultation with
its financial and legal advisors, that another proposal is a superior
proposal and that approval of such proposal is necessary to
6
<PAGE>
comply with its fiduciary duties to stockholders under applicable law; or
- BFH Merger Corp. materially breaches any representation, warranty,
covenant or agreement contained in the merger agreement.
TERMINATION FEES AND EXPENSES (PAGE 83)
Big Flower will pay to BFH Merger Corp. a termination fee of $30 million,
less any out-of-pocket expenses reimbursed or fees paid to BFH Merger Corp.,
Thomas H. Lee Company or Evercore Capital Partners (up to $10 million), if the
merger agreement is terminated because:
- the Big Flower board of directors fails to recommend that Big Flower
stockholders vote in favor of the merger, withdraws or adversely modifies
its approval or recommendation of the merger or recommends another
transaction;
- Big Flower breaches its covenant with respect to its stockholders rights
plan;
- the board of directors of Big Flower determines, after consultation with
its financial and legal advisors, that another proposal is a superior
proposal and that approval of such proposal is necessary to comply with
its fiduciary duties to stockholders under applicable law; or
- Big Flower's stockholders have not approved the merger and prior to the
stockholder vote, a third party has made a proposal for an acquisition of
Big Flower.
If the merger agreement is terminated for any reason other than a material
breach by BFH Merger Corp., and Big Flower has not already paid the termination
fee described above, Big Flower will reimburse BFH Merger Corp., Thomas H. Lee
Company and Evercore Capital Partners, collectively, an aggregate amount of up
to $10 million of out-of-pocket expenses and fees. Whether or not the merger is
completed, all costs and expenses incurred in connection with the merger will be
paid by the party incurring the expense, except for the termination fee paid and
out-of-pocket fees paid and expenses reimbursed by Big Flower described above.
APPRAISAL RIGHTS (PAGE 84)
Under Delaware law, holders of Big Flower common stock have the right to
demand and to receive, instead of what is being offered in the merger, an amount
that the Delaware Court of Chancery decides is the fair value of such shares of
Big Flower common stock. This amount may be more or less than the value of what
these holders would otherwise receive in the merger.
Holders of Big Flower common stock wishing to exercise appraisal rights must
not vote in favor of adoption of the merger agreement and must take the steps
described in the section entitled "Appraisal Rights" and set forth in full in
Appendix D.
LISTING OF BIG FLOWER PIK PREFERRED STOCK AND WARRANTS (PAGE 68)
The shares of PIK preferred stock of Big Flower and the warrants of Big
Flower issued in the merger are not expected to be listed on any national
securities exchange or any inter-dealer quotation system. The PIK preferred
stock and warrants will be registered under the Securities Act of 1933.
ACCOUNTING TREATMENT (PAGE 52)
Big Flower will account for the merger as a recapitalization because current
management retaining shares of Big Flower common stock in the merger will have a
significant continuing interest in Big Flower common stock following the merger.
As a result, the merger will have no impact on the historical basis of Big
Flower's assets and liabilities.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS (PAGE 66)
The merger will be a taxable transaction to you for United States federal
income tax purposes. The merger may also be a taxable transaction to you for
state, local, foreign and other tax purposes.
7
<PAGE>
You should consult your own tax advisor for a full understanding of the tax
consequences of the merger to you.
REGULATORY FILINGS, APPROVALS AND CLEARANCES (PAGE 58)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires Big Flower
and BFH Merger Corp. to furnish certain information and material to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and requires that a specified waiting period expire or be terminated before the
merger can be completed.
On - , 1999, Big Flower and BFH Merger Corp. each filed a notification
and report form for the merger with the Antitrust Division and the Federal Trade
Commission. The waiting period for antitrust review by the regulatory
authorities expires on - , 1999, unless the regulatory authorities grant
early termination, as has been requested by Big Flower and BFH Merger Corp.
LITIGATION CHALLENGING THE MERGER (PAGE 58)
Six lawsuits have been filed in the State of Delaware seeking to prohibit
the merger or, if the merger has already happened, to undo the merger and
recover money damages. The complaints allege, among other things, that Big
Flower's directors breached their fiduciary duties and that the merger
consideration is unfair to Big Flower stockholders. Big Flower believes these
lawsuits have no merit.
8
<PAGE>
MARKET PRICE DATA
Shares of Big Flower common stock are listed on the New York Stock Exchange
(NYSE) under the symbol "BGF."
The following table sets forth the closing market prices per share of Big
Flower common stock on the NYSE on April 19, 1999, the last trading day before
Big Flower publicly announced that it was going to explore possible strategic
transactions, on June 28, 1999, the last trading day before public announcement
of the merger, and on July 14, 1999, the last practicable trading day prior to
the date of this document.
<TABLE>
<CAPTION>
BIG FLOWER
COMMON STOCK
---------------
<S> <C>
April 19, 1999............................................................... $ 27.875
June 28, 1999................................................................ $ 35.500
July 14, 1999................................................................ $ 30.813
</TABLE>
The market price of the Big Flower common stock will fluctuate prior to the
merger. You should obtain current market quotations for the Big Flower common
stock before making a decision with respect to the merger.
9
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth summary financial data of Big Flower and its
subsidiaries. The summary financial data of Big Flower were derived from its
audited consolidated financial statements and unaudited consolidated financial
statements filed with the Securities and Exchange Commission. On March 21, 1996,
Big Flower's board of directors elected to change Big Flower's fiscal year from
a 12-month period ending June 30th to a calendar year, effective with the period
ended December 31, 1995. On October 4, 1996, Big Flower consummated the
acquisition of Scanforms, Inc. in a transaction accounted for as a pooling of
interests. Accordingly, the Big Flower financial information has been restated
for prior periods to include the results of Scanforms for all periods presented.
Interest expense excludes amortization of deferred financing fees. Interest
expense for the year ended December 31, 1996 includes the amortization of
interest rate swap fees of $1.2 million. Big Flower's net loss for the six
months ended December 31, 1995 includes an extraordinary loss of $19.2 million,
net of tax, relating to early extinguishment of debt and termination of a swap
agreement. The net loss for the year ended December 31, 1996 includes an
extraordinary loss of $2.1 million, net of tax, and the net loss for the year
ended December 31, 1997 includes an extraordinary loss of $13.5 million net of
tax, both relating to the early extinguishment of debt.
Earnings were inadequate to cover fixed charges by $0.6 million for the 323
days ended June 30, 1994. Earnings were also insufficient to cover fixed charges
by $11.6 million for the year ended December 31, 1997, primarily due to the
non-recurring $58.2 million write-off of in-process technology resulting from
the acquisition of Columbine. Adjusted to eliminate non-cash charges of
depreciation and amortization of $28.8 million for the 323 days ended June 30,
1994 and $67.3 million for the year ended December 31, 1997, such earnings would
have exceeded fixed charges by $27.9 million for the 323 days ended June 30,
1994 and $54.2 million for the year ended December 31, 1997.
On March 19, 1996, Big Flower entered into a six-year securitization
agreement pursuant to which it may sell beneficial interests in a pool of
eligible accounts receivable. The maximum amount of the outstanding cetificates
under this arrangement is $150.0 million and the amount outstanding at any
measurement date varies based upon the level of eligible receivables. Working
capital balances since 1996 reflect the effect of that program, as accounts
receivable balances sold are recorded as a reduction of working capital and the
proceeds serve to reduce long-term borrowings under Big Flower's revolving
credit facility. At March 31, 1999, interests of $74.5 million had been sold and
were outstanding under this securitization, compared to $95.0 million at March
31, 1998, $117.6 million at December 31, 1998, $101.1 million at December 31,
1997 and $79.8 million at December 31, 1996.
Stockholders should note that the following selected historical financial
data of Big Flower should be read in conjunction with the related historical
consolidated financial statements and related notes incorporated by reference.
See "Where You Can Find More Information" on page 120.
10
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
323 DAYS YEAR SIX MONTHS YEAR YEAR YEAR THREE MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1995 1996 1997 1998 1998
--------- --------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
OPERATING DATA:
Net sales................... $ 587,630 $ 920,149 $ 546,840 $1,201,860 $1,376,706 $1,739,715 $ 383,902
Operating income............ 25,488 50,712 39,739 69,343(1) 38,502(2) 137,252(3) 19,520
Interest expense............ 19,735 37,452 19,076 36,165 40,300 55,988 13,029
(Loss) income before income
taxes and extraordinary
items..................... (549) 5,268 12,694 4,998 (11,626) 69,978 2,010
(Loss) income before
extraordinary items....... (3,277) (1,612) 6,491 (3,285) (33,571) 37,676 1,085
Extraordinary losses from
early extinguishment of
debt, net................. (19,248) (2,078) (13,463)
Net (loss) income........... (3,277) (1,612) (12,757) (5,363) (47,034) 37,676 1,085
Per share:
(Loss) income before
extraordinary items--
basic................... $ (0.29) $ (0.13) $ 0.36 $ (0.18) $ (1.79) $ 1.92 $ 0.06
Net (loss) income--basic.. (0.29) (0.13) (1.07) (0.30) (2.51) 1.92 0.06
(Loss) income before
extraordinary items--
diluted................. (0.29) (0.13) 0.35 (0.18) (1.79) 1.69 0.05
Net (loss) income--
diluted................. (0.29) (0.13) (1.03) (0.30) (2.51) 1.69 0.05
Weighted average shares
outstanding:
Basic..................... 11,218 12,382 13,451 18,046 18,704 19,660 19,455
Diluted................... 11,218 12,382 13,919 18,046 18,704 24,678 20,563
Ratio of earnings to fixed
charges................... -- 1.1x 1.5x 1.1x -- 1.9x 1.1x
OTHER DATA:
EBITDA (4).................. $ 54,238 $ 93,699 $ 58,372 $ 121,102 $ 105,824 $ 223,638 $ 40,277
Cash flows provided by
operating activities...... 31,514 47,597 27,881 135,936 120,637 118,216 15,078
Cash flows used in investing
activities................ 270,223 7,013 19,050 170,849 316,601 227,097 47,974
Cash flows provided by (used
in) financing
activities................ 241,975 (39,789) (4,326) 29,941 197,071 112,478 31,385
Capital expenditures........ 6,133 8,496 16,812 55,391 74,045 95,433 19,560
BALANCE SHEET DATA (AT
PERIOD END):
Working capital............. $ 25,198 $ 34,173 $ 29,797 $ (30,821) $ (17,557) $ (5,781) $ (11,345)
Net property, plant and
equipment................. 152,306 137,081 145,323 296,426 384,850 457,988 394,902
Total assets................ 521,461 502,939 573,393 749,742 1,059,047 1,328,182 1,090,757
Long-term debt, net of
current portion........... 331,940 301,935 274,161 430,766 590,045 731,080 630,701
Redeemable convertible
preferred securities of a
subsidiary trust.......... 115,000 115,000 115,000
Redeemable preferred stock
of a subsidiary........... 16,913 19,357
Accumulated deficit......... (1,782) (3,394) (16,151) (21,514) (68,548) (30,872) (67,463)
Other stockholder's equity.. 21,231 19,987 100,627 117,864 140,086 158,082 136,989
Common stockholders'
equity.................... 19,449 16,593 84,476 96,350 71,538 127,210 69,526
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1999
-------------
<S> <C>
OPERATING DATA:
Net sales................... $ 420,323
Operating income............ 22,575
Interest expense............ 17,215
(Loss) income before income
taxes and extraordinary
items..................... 5,233
(Loss) income before
extraordinary items....... 2,826
Extraordinary losses from
early extinguishment of
debt, net.................
Net (loss) income........... 2,826
Per share:
(Loss) income before
extraordinary items--
basic................... $ 0.14
Net (loss) income--basic.. 0.14
(Loss) income before
extraordinary items--
diluted................. 0.14
Net (loss) income--
diluted................. 0.14
Weighted average shares
outstanding:
Basic..................... 19,723
Diluted................... 20,624
Ratio of earnings to fixed
charges................... 1.2x
OTHER DATA:
EBITDA (4).................. $ 46,871
Cash flows provided by
operating activities...... 5
Cash flows used in investing
activities................ 79,220
Cash flows provided by (used
in) financing
activities................ 80,735
Capital expenditures........ 22,473
BALANCE SHEET DATA (AT
PERIOD END):
Working capital............. $ 33,251
Net property, plant and
equipment................. 482,975
Total assets................ 1,506,683
Long-term debt, net of
current portion........... 857,324
Redeemable convertible
preferred securities of a
subsidiary trust.......... 114,075
Redeemable preferred stock
of a subsidiary...........
Accumulated deficit......... (28,046)
Other stockholder's equity.. 202,941
Common stockholders'
equity.................... 174,895
</TABLE>
(FOOTNOTES CONTINUED ON NEXT PAGE)
11
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
- ------------------------------
(1) INCLUDES $2.7 MILLION OF NON-RECURRING COSTS RELATED TO ACQUISITIONS.
(2) INCLUDES NON-RECURRING CHARGES OF $63.9 MILLION RELATED TO ACQUISITIONS
(INCLUDING A $58.2 MILLION IN-PROCESS ACQUIRED TECHNOLOGY WRITE OFF) AND
$0.6 MILLION RELATED TO BIG FLOWER'S SECONDARY STOCK OFFERING.
(3) INCLUDES $4.6 MILLION OF TERMINATION COSTS FOR EXECUTIVE POSITIONS
ELIMINATED AND A $0.2 MILLION IN-PROCESS ACQUIRED TECHNOLOGY WRITE OFF.
(4) EBITDA REPRESENTS THE SUM OF OPERATING INCOME, DEPRECIATION AND AMORTIZATION
OF INTANGIBLES. EBITDA IN 1996 INCLUDES $1.5 MILLION IN MERGER COSTS, EBITDA
IN 1997 INCLUDES A $58.2 MILLION WRITE OFF OF IN-PROCESS ACQUIRED TECHNOLOGY
COSTS AND IN 1998 INCLUDES A SIMILAR CHARGE OF $0.2 MILLION. EBITDA DOES NOT
INCLUDE COSTS ASSOCIATED WITH THE SECURITIZATION OF ACCOUNTS RECEIVABLE
UNDER THE AGREEMENT MENTIONED ABOVE AND IS PRESENTED HERE TO PROVIDE
ADDITIONAL INFORMATION ABOUT BIG FLOWER'S ABILITY TO MEET ITS FUTURE DEBT
SERVICE, CAPITAL EXPENDITURE AND WORKING CAPITAL REQUIREMENTS. IT SHOULD NOT
BE CONSIDERED A BETTER INDICATOR OF OPERATING PERFORMANCE THAN OPERATING
INCOME AS DETERMINED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP), OR A BETTER INDICATOR OF LIQUIDITY THAN CASH FLOW FROM
OPERATING ACTIVITIES AS DETERMINED IN ACCORDANCE WITH GAAP. BIG FLOWER'S
DEFINITION OF EBITDA MIGHT NOT BE THE SAME AS THAT OF OTHER COMPANIES OR BIG
FLOWER'S FINANCIAL ADVISORS.
12
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables present selected unaudited pro forma financial data,
which estimates the effects on Big Flower of the merger and related
transactions, including recapitalization accounting, the financing of the merger
and acquisitions completed through March 31, 1999.
The pro forma financial data assume that:
(1) there are no dissenting stockholders;
(2) all options to purchase Big Flower common stock are retained by their
current holders in the merger;
(3) all outstanding QUIPS are converted into Big Flower common stock prior
to the merger; and
(4) the investment instrument that may be issued in the merger will be in
the form of paid-in-kind preferred stock.
Should Big Flower redeem or otherwise settle any of the stock options in
connection with the merger, compensation expense will be recognized in the
consolidated statement of operations for the period when the merger occurs.
The pro forma consolidated financial statements are provided to show you
what the results of operations and financial position of Big Flower might have
looked like had the merger, the recapitalization, the financing of the merger
and certain acquisitions occurred at an earlier date and occurred in the manner
assumed. This information is provided for illustrative purposes only and does
not claim to show what the results of operations or financial position of Big
Flower would have been if the merger and related transactions had actually
occurred on the dates assumed and occurred in the actual manner assumed. This
information also does not attempt to indicate what Big Flower's future operating
results or consolidated financial position will be.
You should read the pro forma consolidated financial statements along with
Big Flower's historical financial statements and the related notes, which are
incorporated by reference in this document.
See "Big Flower Unaudited Pro Forma Financial Information" on page 92 for a
more detailed explanation of this analysis.
13
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA UNAUDITED
------------------------------
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
1998 MARCH 31, 1999
-------------- --------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................... $1,841,750 $ 420,323
-------------- --------------
Operating expenses:
Costs of production....................................... 1,362,528 313,286
Selling, general and administrative....................... 238,075 60,479
Depreciation and amortization of intangibles.............. 95,895 24,296
In-process acquired technology write off.................. 245
-------------- --------------
1,696,743 398,061
-------------- --------------
Operating income............................................ 145,007 22,262
-------------- --------------
Other expenses (income):
Interest expense.......................................... 105,170 30,805
Amortization of deferred financing costs.................. 7,814 2,113
Interest income........................................... (799) (220)
Other, net................................................ 2,523 (2,289)
-------------- --------------
114,708 30,409
-------------- --------------
Income (loss) before income taxes........................... 30,299 (8,147)
Income tax expense (benefit)................................ 16,096 (3,025)
-------------- --------------
Net income (loss)........................................... 14,203 (5,122)
Dividend requirements on investment instrument.............. (6,150) (1,654)
Dividend requirements on PIK preferred stock................ (11,722) (3,152)
-------------- --------------
Loss applicable to common shares............................ $ (3,669) $ (9,928)
-------------- --------------
-------------- --------------
Loss per share--basic and diluted........................... $ (0.39) $ (1.06)
-------------- --------------
-------------- --------------
Weighted average shares outstanding--basic and diluted...... 9,362 9,362
-------------- --------------
-------------- --------------
<CAPTION>
BALANCE SHEET DATA: MARCH 31, 1999
--------------
<S> <C> <C>
Total assets................................................ $1,555,035
Working capital............................................. 39,491
Long-term debt.............................................. 1,338,167
Stockholders' deficit....................................... (308,286)
</TABLE>
14
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING MATTERS IN DECIDING WHETHER TO VOTE IN
FAVOR OF ADOPTING THE MERGER AGREEMENT. YOU ALSO SHOULD CONSIDER THE OTHER
INFORMATION INCLUDED AND INCORPORATED BY REFERENCE IN THIS DOCUMENT, INCLUDING
THE INFORMATION INCLUDED IN BIG FLOWER'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1998 UNDER "BUSINESS--ADDITIONAL COMPANY INFORMATION",
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--YEAR 2000" AND "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK" WHICH PROVIDE SPECIFIC INFORMATION REGARDING THE OPERATIONS OF BIG
FLOWER.
THERE MAY NOT BE A TRADING MARKET FOR THE PIK PREFERRED STOCK AND WARRANTS
The PIK preferred stock and warrants, which warrants will initially be
attached to the PIK preferred stock, are new issues of securities for which
there are currently no established trading markets. If your shares of PIK
preferred stock or warrants are traded, they may trade at a substantial discount
from their liquidation value or at a substantial discount to the implied value
of the warrants taking into account their exercise price, as the case may be.
Any discount could depend upon a number of factors, including:
- the market demand for the PIK preferred stock or warrants, as the case may
be;
- the market for similar securities;
- the financial condition and performance of Big Flower;
- prevailing dividend and interest rates generally in the financial markets;
and
- general economic conditions.
Big Flower cannot assure you that a trading market for the PIK preferred
stock or warrants will develop. The absence of a trading market adversely
affects the liquidity of your shares of PIK preferred stock and warrants. It may
be difficult for you to sell your PIK preferred stock and warrants. Big Flower
does not intend to apply for listing of the PIK preferred stock or warrants on
any national securities exchange or for quotation through any over-the-counter
market. The PIK preferred stock and the warrants will be registered under the
Securities Act of 1933. See "Description of Big Flower Capital Stock Following
the Merger" on page 62.
THE PIK PREFERRED STOCK WILL GENERALLY HAVE NO VOTING RIGHTS
As holders of the PIK preferred stock, you will generally have no voting
rights regarding the conduct of the Big Flower business. You will have the right
to elect two directors to the Big Flower board of directors if Big Flower
defaults in the payment of three declared semi-annual dividends, if Big Flower
defaults under certain outstanding debt, if Big Flower declares bankruptcy, or
if Big Flower fails to redeem the PIK preferred stock as required by the terms
of the PIK preferred stock. In addition, you will have the right to vote on any
amendment to the certificate of incorporation or bylaws of Big Flower after the
merger that adversely affects the terms of the PIK preferred stock. See
"Description of Big Flower Capital Stock Following the Merger" on page 62.
THE WARRANTS WILL HAVE NO VOTING RIGHTS
As holders of the warrants, you will have no voting rights before the
exercise of the warrants. See "Description of Big Flower Capital Stock Following
the Merger" on page 62.
15
<PAGE>
YOU MAY BY LIABLE FOR TAXES ON "IN KIND" DIVIDENDS OF ADDITIONAL SHARES OF PIK
PREFERRED STOCK AND ON "CONSTRUCTIVE DISTRIBUTIONS" DEEMED PAID RELATING TO ANY
"REDEMPTION PREMIUM" ON THE PIK PREFERRED STOCK EVEN THOUGH YOU WILL NOT HAVE
RECEIVED ANY CASH WITH WHICH TO MAKE THE NECESSARY TAX PAYMENTS
Dividends on the PIK preferred stock that you receive in the merger may be
paid "in kind" as additional shares of PIK preferred stock for which you will be
currently taxed even though an "in kind" dividend includes no cash. In addition,
the PIK preferred stock that you will receive in the merger may be issued with
"redemption premium," a portion of which you would be required to include in
income as a "constructive distribution" each year that you own the PIK preferred
stock, even though the redemption premium would not be paid by Big Flower until
it redeems the PIK preferred stock.
BIG FLOWER'S ABILITY TO PAY THE LIQUIDATION PREFERENCE AND DIVIDENDS ON THE PIK
PREFERRED STOCK ON THE MANDATORY REDEMPTION DATE DEPENDS ON ITS FINANCIAL
CONDITION AT THAT TIME
After the merger and related recapitalization, Big Flower will have a high
level of debt. Big Flower cannot assure you that it will generate cash flow
sufficient to repay its debt obligations.
The obligations of Big Flower to the holders of its debt and other creditors
take priority over Big Flower's obligations to the holders of the PIK preferred
stock. Under Delaware law, Big Flower may not redeem the PIK preferred stock for
its stated liquidation preference of $25.00 per share on December 15, 2012, the
mandatory redemption date, if at such time Big Flower's remaining assets are not
sufficient to pay its outstanding obligations or if such redemption would impair
the capital of Big Flower. See "Description of Big Flower Capital Stock
Following the Merger" on page 62.
BIG FLOWER'S SUBSTANTIAL LEVERAGE FOLLOWING THE MERGER COULD AFFECT ITS
OPERATIONS
In connection with the merger and related recapitalization, Big Flower is
expected to issue high yield debt securities and enter into syndicated term loan
facilities and revolving credit facilities to finance a significant portion of
the cash consideration to be paid to the stockholders (including any cash
consideration to be paid to holders of QUIPS who convert their QUIPS into Big
Flower common stock prior to the merger or who exercise their conversion rights
after the merger) of Big Flower in the merger, to refinance certain of the
outstanding debt of Big Flower and to provide for working capital requirements.
Upon completion of the debt financings, Big Flower will have consolidated debt
that will be substantial in relation to its stockholders' equity and
substantially greater than Big Flower's pre-merger debt. Upon consummation of
the merger and the debt financings, it is expected that, based upon the
unaudited pro forma financial statements of Big Flower as of March 31, 1999, Big
Flower would have had consolidated debt of approximately $1.34 billion. The
increased debt and higher debt-to-equity ratio of Big Flower in comparison to
that of Big Flower on a historical basis may reduce Big Flower's flexibility to
respond to changing business and economic conditions, as well as limiting
capital expenditures and acquisitions. On a pro forma basis, after giving effect
to the merger and the debt financings, assuming the transactions occurred on
January 1, 1998, Big Flower's ratio of earnings to fixed charges would have been
1.2 for the year ended December 31, 1998 and less than 1 for the three months
ended March 31, 1999. Big Flower expects that the definitive terms of the debt
instruments in the debt financings will include significant operating and
financial restrictions, such as limits on Big Flower's ability to incur debt,
create liens, sell assets, engage in certain mergers or consolidations, make
investments or acquisitions and pay dividends.
In addition, the substantial leverage will have a negative effect on Big
Flower's net income. For the fiscal year ended December 31, 1998, Big Flower's
net income on a pro forma basis, as adjusted to give effect to acquisitions, the
merger and the debt financings, would have been $14.2 million, compared to the
historical net income of $37.7 million for such period, and for the three months
ended March 31, 1999, Big Flower's pro forma net loss would have been $5.1
million as compared to the historical net income of $2.8 million for such
period. At March 31, 1999, Big Flower had the ability to borrow an
16
<PAGE>
additional $283.4 million under its revolving credit facility and $75.5 million
under its accounts receivable securitization facility. On a pro forma basis, at
March 31, 1999 Big Flower would have had available borrowing capacity of $120.7
million under the new revolving credit facility as well as the $75.5 million
available under its accounts receivable securitization facility. Pro forma
interest expense would have been $105.2 million for the year ended December 31,
1998 as compared to $56.0 million for the same period on a historical basis and,
for the three months ended March 31, 1999, pro forma interest expense would have
been $30.8 million as compared to $17.2 million on a historical basis.
After the merger and related recapitalization is consummated, Big Flower's
principal sources of liquidity are expected to be cash flow from operations and
borrowings under the revolving credit portion of its credit facility. It is
anticipated that Big Flower's principal uses of liquidity will be to provide
working capital, meet debt service requirements, finance capital expenditures
and finance Big Flower's strategic plans. See "Special Factors--Source and
Amount of Funds--Debt Financings" on page 54.
Based upon the current and anticipated level of operations, Big Flower
believes that its cash flow from operations, together with amounts available
under the new credit facilities, will be adequate to meet its anticipated
requirements for working capital, capital expenditures, interest payments and
scheduled principal payments in the foreseeable future. There can be no
assurance, however, that Big Flower's business will continue to generate cash
flow at or above current levels. If Big Flower is unable to generate sufficient
cash flow from operations in the future to service its debt, it may be required
to refinance all or a portion of its existing debt or to obtain additional
financing. There can be no assurance that any such refinancing would be possible
or that any additional financing could be obtained. The inability to obtain
additional financing could have a material adverse effect on Big Flower.
THE VALUE OF THE WARRANTS WILL DEPEND MAINLY ON THE WARRANTS BECOMING
EXERCISABLE
The value of the warrants largely depends on certain events, described
below, occuring so that the warrants become exercisable for Big Flower common
stock. The warrants only become exercisable if Big Flower is sold or an event
occurs that results in a public market for Big Flower common stock, such as an
initial public offering. There can be no guarantee that such an event will
occur. The warrants expire on December 15, 2012 if they have not been exercised
by that date.
AFTER THE MERGER BIG FLOWER MAY ISSUE PREFERRED STOCK WHICH IS SENIOR TO OR HAS
THE SAME RANKING AS THE PIK PREFERRED STOCK
Under Big Flower's restated certificate of incorporation, Big Flower has the
authority to issue 10,000,000 shares of preferred stock with rights and
preferences fixed by Big Flower's board of directors. At the time of the merger,
it is expected that 4,574,555 shares will be designated as PIK preferred stock.
Accordingly, after the merger, Big Flower could issue up to 5,425,445 shares of
preferred stock with rights and preferences fixed by Big Flower's board of
directors. The board of directors can decide to authorize the issuance of shares
of preferred stock which are senior to, or have the same ranking as, the PIK
preferred stock without a vote by the PIK preferred stockholders. The board of
directors could also decide to increase the number of shares of Big Flower's
preferred stock designated as the PIK preferred stock without such a vote.
THERE ARE RESTRICTIONS ON BIG FLOWER'S ABILITY TO PAY CASH DIVIDENDS ON THE PIK
PREFERRED STOCK
The terms of Big Flower's existing debt do, and the new debt arrangements
are expected to, restrict Big Flower's ability to pay cash dividends on the PIK
preferred stock. In addition to those restrictions, under Delaware law, Big
Flower is permitted to pay cash dividends on its preferred stock only out of its
surplus or, in the event it has no surplus, out of its net profits for the year
in which the
17
<PAGE>
dividend is declared or in the immediately preceding year. Accordingly, there is
no guarantee that, if Big Flower decides to pay cash dividends, Big Flower will
be able to pay you cash dividends on the PIK preferred stock.
THE MERGER IS CONDITIONED UPON BFH MERGER CORP.'S RECEIPT OF COMMITTED
FINANCINGS
BFH Merger Corp.'s obligations to effect the merger are subject to, among
other things, the receipt of financing proceeds on the terms described in the
financing commitment letters. Otherwise, Big Flower and BFH Merger Corp. must
reasonably agree upon other financing sources sufficient to consummate the
merger and related transactions. This must encompass payment of the cash portion
of the merger consideration, refinancing certain outstanding Big Flower debt,
payment of transaction fees and expenses and provision of working capital needs
following the merger.
BFH Merger Corp. has informed Big Flower that it expects that the financings
described under "Special Factors--Source and Amount of Funds" on page 54 will be
sufficient to consummate the merger and related transactions, if these
financings are completed in accordance with the terms and conditions described
in the financing commitments. However, there can be no assurance that if the
committed financings are not sufficient BFH Merger Corp. will be able to obtain
additional financings or that BFH Merger Corp. will agree to consummate the
merger and related transactions, even if such additional financings are
available.
HOLDERS OF THE PIK PREFERRED STOCK AND WARRANTS WILL NOT CONTROL BIG FLOWER
Upon completion of the merger and related recapitalization, excluding any
shares of Big Flower common stock received upon exercise of the warrants, 100%
of the outstanding shares of Big Flower common stock will be held by Thomas H.
Lee Equity Fund IV, Evercore Capital Partners and those members of management
who are retaining shares of Big Flower common stock in the merger. Thomas H. Lee
Equity Fund IV and Evercore Capital Partners will own - % of the outstanding
shares of Big Flower common stock. For additional information concerning the
equity investments to be made in Big Flower and the beneficial ownership of Big
Flower common stock following the merger, see "Special Factors--Source and
Amount of Funds" on page 54 and "Directors and Management of Big Flower
Following the Merger--Security Ownership of Big Flower Following the Merger" on
page 100. Accordingly, Thomas H. Lee Equity Fund IV, Evercore Capital Partners
and those members of management who are retaining shares of Big Flower common
stock in the merger will control Big Flower and the outcome of all matters
submitted to a vote or for the consent of holders of Big Flower common stock.
They will also have the power to elect all of Big Flower's directors (other than
in the limited circumstances in which the PIK preferred stock is entitled to
elect two directors), appoint new management and approve any action requiring
the approval of the holders of Big Flower common stock, including adopting
amendments to Big Flower's restated certificate of incorporation (other than
amendments which would adversely affect the terms of the PIK preferred stock)
and approving mergers or sales of substantially all of Big Flower's assets. The
directors of Big Flower will have the authority to make decisions affecting the
capital structure of Big Flower, including the issuance of additional capital
stock and the declaration of dividends. There can be no assurance that the
policies of Big Flower in effect prior to the merger will continue after the
merger.
THE FORECASTS INCLUDED IN THIS DOCUMENT SHOULD NOT BE RELIED UPON BY BIG FLOWER
STOCKHOLDERS
The forecasts included under the heading "Special Factors--Certain Estimates
of Future Operations and Other Information" on page 49 (which were provided by
Big Flower to Thomas H. Lee Company and Evercore Capital Partners), while
presented with numerical specificity, are based on a number of estimates and
assumptions. These estimates and assumptions, though considered reasonable by
Big Flower at the time presented, are inherently subject to significant
business, economic and competitive uncertainties and contingencies, including
those included under this "Risk Factors" section.
18
<PAGE>
Many of such risks are beyond Big Flower's control. These estimates are also
based on assumptions with respect to future business strategies and decisions
which are subject to change and may be beyond Big Flower's control.
The forecasts were not prepared with a view to the transactions described in
this document and did not take into account the merger and related
recapitalization. The forecasts were also not prepared with a view toward
compliance with published guidelines of the Securities and Exchange Commission,
the American Institute of Certified Public Accountants, any regulatory or
professional agency or body or generally accepted accounting principles. Also,
Big Flower's independent public accountants have not compiled or examined the
forecasts and, accordingly, do not express any opinion or any other form of
assurance with respect to these forecasts, assume no responsibility for and
disclaim any association with the forecasts.
While Big Flower believes the forecasts were based upon assumptions and
estimates which were reasonable at the time, actual results will vary and such
variations may be material. Forecasts are necessarily speculative in nature, and
it is possible that one or more of the assumptions underlying the forecasts may
not materialize. Furthermore, Big Flower does not intend to update or revise the
forecasts to reflect events or circumstances after the date of these forecasts
or to reflect the occurrence of unanticipated events. Holders of Big Flower
common stock are cautioned not to rely on any of the forecasts included in this
document. Except for the forecasts provided by Big Flower, Thomas H. Lee Company
and Evercore Capital Partners did not receive any report, opinion or approval
from Big Flower in formulating their decision to proceed with the merger. See
"Special Factors--Certain Estimates of Future Operations and Other Information"
on page 49.
THE HIGH LEVEL OF COMPETITION IN THE ADVERTISING AND MARKETING SERVICES INDUSTRY
COULD HAVE A NEGATIVE IMPACT ON BIG FLOWER'S SUCCESS
The advertising and marketing services industry is highly competitive in
most product categories and geographic regions. Competition is largely based on
price, quality and servicing the specialized needs of customers. During periods
of economic downturn, there has been excess production capacity in the industry
resulting in more competitive pricing. Any future periods of economic downturn
could again result in such increased competition and possibly affect Big
Flower's success.
CHANGES IN THE COST OF PAPER COULD HAVE NEGATIVE IMPACT ON BIG FLOWER'S SUCCESS
The cost of paper is a principal factor in Treasure Chest (TC) Advertising's
pricing to certain customers. As TC Advertising is Big Flower's largest
operating unit, the cost of paper significantly affects Big Flower's net sales.
TC Advertising is generally able to pass increases in the cost of paper to its
customers, while decreases in paper costs generally result in lower prices to
customers. Volatility in paper costs results in a corresponding volatility in
Big Flower's net sales, but generally has not affected volume or profits to any
significant extent. To the extent that there are paper cost increases and TC
Advertising is not able to pass such increases to its customers or its customers
reduce the size of their print advertising programs, Big Flower's results of
operations relating to TC Advertising could be negatively affected.
Capacity in the paper industry has remained relatively stable in recent
years. Increases or decreases in demand for paper have led to corresponding
pricing changes and, in periods of high demand, to limitations on the
availability of certain grades of paper, including grades utilized by Big
Flower. Any loss of the sources of paper supply or any disruption in such
sources' business or failure by them to meet Big Flower's product needs on a
timely basis could cause temporary shortages in needed materials which could
have a negative affect on Big Flower's results of operations.
19
<PAGE>
BIG FLOWER'S SUCCESS COULD BE NEGATIVELY AFFECTED IF ITS COLUMBINE OPERATING
UNIT IS UNABLE TO MAKE TECHNOLOGICAL CHANGES AND INTRODUCE NEW PRODUCTS IN A
TIMELY MANNER
Columbine, one of Big Flower's operating units, may need to continually
change and improve certain versions of its products in response to changes in
operating systems, application and networking software, computer and
communications hardware, programming tools and computer language technology. The
future operating results of Big Flower may be affected by Columbine's ability to
enhance its current products and to develop and introduce new products on a
timely basis that address the increasingly sophisticated needs of its customers
and that keep pace with technological developments, new competitive product
offerings and emerging industry standards. If Columbine does not respond
adequately to the need to develop and introduce new products or enhancements of
existing products in a timely manner, Big Flower's success could be negatively
affected.
OFFICERS AND MANAGEMENT DIRECTORS OF BIG FLOWER HAVE AGREEMENTS AND OTHER
ARRANGEMENTS THAT MAY CREATE POTENTIAL CONFLICTS OF INTEREST WITH BIG FLOWER
STOCKHOLDERS REGARDING THE MERGER
When considering the recommendation of the board of directors, you should be
aware that some members of management who are retaining Big Flower common stock
or options to purchase Big Flower common stock in the merger have interests
which may be different from yours. These persons will continue to participate in
the earnings and growth of Big Flower after the completion of the merger. Some
of these persons will continue as directors and officers of Big Flower following
the merger. Some of these persons have rights under severance agreements which
could be triggered by the merger. These interests may create potential conflicts
of interest. The board of directors, with management directors abstaining, was
aware of these possible conflicts when they unanimously approved the merger. See
"Special Factors--Conflicts of Interest of Certain Members of the Big Flower
Board of Directors and Management" on page 51.
THERE ARE RISKS OF FRAUDULENT CONVEYANCE ASSOCIATED WITH THE MERGER AND RELATED
RECAPITALIZATION
Big Flower's incurrence of debt, in connection with the senior debt
financing and the high yield financing, and the subsequent transfer of a portion
of the proceeds of these financings to Big Flower's stockholders to pay the cash
portion of the merger consideration, is subject to review under relevant federal
and state fraudulent conveyance statutes in a bankruptcy, reorganization or
rehabilitation case or similar proceeding or in a lawsuit by or on behalf of
unpaid creditors of Big Flower. Under these fraudulent conveyance statutes, if a
court were to find that, at the time of the merger and related recapitalization:
- Big Flower incurred debt and paid the cash portion of the merger
consideration with the intent of hindering, delaying or defrauding
creditors, or
- Big Flower received less than reasonably equivalent value or fair
consideration in connection with the merger and related recapitalization
and Big Flower:
- - was insolvent or was rendered insolvent by reason of the merger and
related recapitalization, including the incurrence of debt from these
financings,
- - was engaged in a business or transaction for which its assets
constituted unreasonably small capital,
- - intended to incur, or believed that it would incur, obligations
beyond its ability to pay as such obligations matured, or
- - was a defendant in an action for money damages, or had a judgment for
money damages docketed against it (if, in either case, after final
judgment, the judgment was unsatisfied),
20
<PAGE>
such court could determine that the payment of the cash portion of the merger
consideration to stockholders of Big Flower violated applicable provisions of
the United States bankruptcy code and/or applicable state fraudulent conveyance
laws, which determination would permit the bankruptcy trustee or debtor in
possession or unpaid creditors to avoid the payment of the cash portion of the
merger consideration and recover the cash portion of the merger consideration
from Big Flower's stockholders.
In the course of its deliberations concerning the merger agreement, the
board of directors of Big Flower was advised of the fraudulent conveyance risks
and the relevant legal principles described above. As a result, in order to
protect Big Flower and its stockholders, the board of directors insisted that
the merger agreement contain a provision requiring that, as a condition to the
consummation of the merger, Big Flower and the board of directors receive an
opinion from an independent expert as to the solvency of Big Flower after giving
effect to the merger and related recapitalization. Based upon its discussions
with its advisors and financing sources, Big Flower fully anticipates receiving
such solvency opinion.
21
<PAGE>
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements with respect to
the financial condition, results of operations and business of Big Flower. These
statements may be made directly in this document referring to Big Flower or may
be made part of this document by reference to other documents filed with the
Securities and Exchange Commission by Big Flower, which is known as
"incorporation by reference," and may include statements for the period
following the completion of the merger. You can find many of these statements by
looking for words such as "believes," "expects," "anticipates," "estimates" or
similar expressions in this document or in the documents incorporated by
reference.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors that may cause actual results to differ from those
contemplated by the forward-looking statements include, among others, the
following possibilities:
- Fluctuations in the cost of raw materials used by Big Flower may adversely
affect Big Flower's results of operations;
- Changes in the advertising and marketing services markets;
- The financial condition of Big Flower's customers;
- General economic or business conditions, both domestic and foreign, may be
less favorable than expected, resulting in, among other things, lower than
expected revenues;
- Reduced or limited availability of qualified personnel and other
information technology resources;
- Changes in interest and foreign currency exchange rates may adversely
affect profit margins;
- Necessary technological changes, including changes to address "Year 2000"
data systems issues, may be more difficult or expensive to make than
anticipated, and "Year 2000" issues at other companies or governmental
entities may adversely affect operations;
- The effect of significant debt on Big Flower's financial and operating
flexibility; and
- Other uncertainties that are difficult to predict or beyond Big Flower's
control.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. You are cautioned not to place undue reliance on
such statements, which speak only as of the date of this document or the date of
any document incorporated by reference.
All subsequent written and oral forward-looking statements attributable to
Big Flower or any person acting on its behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to in this section.
Big Flower does not undertake and specifically declines any obligation to
release publicly any revisions to such forward-looking statements to reflect
events or circumstances after the date of this document or to reflect the
occurrence of unanticipated events.
22
<PAGE>
THE BIG FLOWER MEETING
GENERAL
This document is being furnished to Big Flower stockholders in connection
with the solicitation of proxies by the Big Flower board of directors for use at
the Big Flower annual meeting, to be held on - , 1999, at - a.m., New York
time, at - . This document is also furnished to Big Flower stockholders as a
prospectus in connection with the issuance by Big Flower of shares of PIK
preferred stock and warrants to purchase Big Flower common stock pursuant to the
merger agreement. The 1998 Annual Report to Stockholders, including audited
financial statements of Big Flower for the fiscal year ended December 31, 1998,
was mailed to stockholders on or about May 27, 1999.
The purpose of the Big Flower meeting is to consider and vote upon:
(1) The adoption of the merger agreement;
(2) The election of two (2) directors to the Big Flower board of directors;
(3) Ratification of the appointment of Deloitte & Touche LLP as Big Flower's
independent certified public accountants; and
(4) Such other business related to such proposals as may properly come
before the Big Flower meeting.
THE BIG FLOWER BOARD OF DIRECTORS, WITH MANAGEMENT DIRECTORS ABSTAINING, HAS
UNANIMOUSLY DECLARED ADVISABLE, AUTHORIZED AND APPROVED THE MERGER AGREEMENT,
THE MERGER AND OTHER TRANSACTIONS CONTEMPLATED IN THE MERGER AGREEMENT, AND
UNANIMOUSLY RECOMMENDS THAT THE BIG FLOWER STOCKHOLDERS VOTE "FOR" THE ADOPTION
OF THE MERGER AGREEMENT.
THE BIG FLOWER BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE BIG FLOWER
STOCKHOLDERS VOTE "FOR" THE ELECTION OF EACH OF THE TWO (2) PERSONS NOMINATED TO
THE BIG FLOWER BOARD OF DIRECTORS AND "FOR" THE RATIFICATION OF THE APPOINTMENT
OF DELOITTE & TOUCHE LLP AS BIG FLOWER'S INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS.
VOTING
RECORD DATE
The Big Flower board of directors has fixed the close of business on - ,
1999, as the record date for the determination of the holders of Big Flower
common stock entitled to receive notice of and to vote at the Big Flower
meeting. You may vote at the Big Flower meeting only if you owned Big Flower
common stock at that time.
As of the Big Flower record date, there were - shares of Big Flower
common stock issued and outstanding. Each share of Big Flower common stock
outstanding on the record date is entitled to one vote on each matter properly
submitted at the Big Flower meeting.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of Big
Flower common stock issued and outstanding on the record date is required for
adoption of the merger agreement. The affirmative vote of the holders of a
plurality of the shares of Big Flower common stock voting on the election of
directors, assuming at least a majority of the outstanding shares of Big Flower
common stock are present in person or represented by proxy at the Big Flower
meeting, is required to elect each of the two persons nominated for election to
the Big Flower board of directors. The affirmative vote of the holders of a
majority of the shares of Big Flower common stock voting on the ratification of
the appointment of Deloitte & Touche LLP as Big Flower's independent certified
public accountants, assuming at least a majority of the outstanding shares of
Big Flower common stock are present in
23
<PAGE>
person or represented by proxy at the Big Flower meeting, is required for
ratification of the appointment of Deloitte & Touche LLP as Big Flower's
independent certified public accountants.
Any failure to be present at the Big Flower meeting, in person or by proxy,
any abstention and any broker non-vote, as explained below, will have the same
effect as a vote against adoption of the merger agreement. With respect to the
election of the two persons nominated to the Big Flower board of directors, any
failure to be present at the Big Flower meeting, in person or by proxy, any
abstention and any broker non-vote will have the same effect as not voting in
the election of directors. With respect to the ratification of the appointment
of Deloitte & Touche LLP, any failure to be present at the Big Flower meeting,
in person or by proxy, any abstention and any broker non-vote will have the
effect of reducing the aggregate number of shares of Big Flower common stock
voting and, therefore, the number of shares of Big Flower common stock required
to ratify the appointment of Deloitte & Touche LLP. Under the rules of the NYSE,
brokers who hold shares in street name for customers will not have authority to
vote on the adoption of the merger agreement or the ratification of the
appointment of Deloitte & Touche LLP unless they receive specific instructions
from the beneficial owners of such shares. Shares that are not voted because
brokers did not receive any such instructions are referred to as "broker
non-votes."
The presence, in person or represented by proxy, of a majority of the shares
of Big Flower common stock entitled to vote at the Big Flower meeting will
constitute a quorum for the transaction of business. Abstentions and broker
non-votes will be counted as present for purposes of determining a quorum.
As of - , 1999, directors and executive officers of Big Flower and its
affiliates owned beneficially an aggregate of - shares of Big Flower common
stock, including shares which may be acquired within 60 days upon exercise of
stock options, or approximately - % of the shares of Big Flower common stock
outstanding on such date. The directors and executive officers of Big Flower
have indicated their intention to vote their shares of Big Flower common stock
in favor of adoption of the merger agreement, the election of each of the two
persons nominated to the Big Flower board of directors and the ratification of
the appointment of Deloitte & Touche LLP as Big Flower's independent certified
public accountants.
As of - , 1999, the directors and executive officers of Big Flower owned
no shares of BFH Merger Corp. common stock.
PROXIES
Each copy of this document mailed to Big Flower stockholders is accompanied
by a form of proxy for use at the Big Flower meeting. In addition, Big Flower
stockholders entitled to vote at the Big Flower meeting may submit their proxies
by telephone or through the Internet in accordance with the instructions set
forth on the accompanying proxy card. However, submission of proxies with voting
instructions by telephone or through the Internet may not be available to
stockholders who hold their shares through a broker, nominee, fiduciary or other
custodian. Big Flower stockholders should contact such person to determine
whether they may submit their proxies by telephone or through the Internet.
Shares of Big Flower common stock represented by a proxy properly submitted as
described below and received at or prior to the Big Flower meeting, unless
subsequently revoked, will be voted in accordance with the instructions on such
proxy.
SUBMITTING PROXIES BY MAIL. To submit a written proxy by mail, holders of
Big Flower common stock should complete, sign, date and mail the proxy card
provided with this document in accordance with the instructions set forth on
such card. If a proxy card is signed and returned without indicating any voting
instructions, shares of Big Flower common stock represented by the proxy will be
voted "FOR" the adoption of the merger agreement, "FOR" the election of each of
the two persons
24
<PAGE>
nominated to the Big Flower board of directors and "FOR" the ratification of the
appointment of Deloitte & Touche LLP as Big Flower's independent certified
public accountants.
SUBMITTING PROXIES BY TELEPHONE OR INTERNET. Stockholders may submit
proxies with voting instructions by telephone by calling - , or through the
Internet at - . In each case, stockholders should follow the instructions
that are set forth on the reverse side of the accompanying proxy card. Each Big
Flower stockholder has been assigned a unique control number which has been
printed on each holder's proxy card. Stockholders who submit proxies by
telephone or through the Internet will be required to provide their assigned
control number before their proxy will be accepted. In addition to the
instructions that appear on the proxy card, step-by-step instructions will be
provided by recorded telephone message for those stockholders submitting proxies
by telephone, or at the designated website for those stockholders submitting
proxies through the Internet. Stockholders submitting their proxies with voting
instructions by telephone or through the Internet will receive confirmation on
the telephone or through the Internet, as applicable, that their proxies have
been successfully submitted.
REVOCATION
Any person who submits a proxy with voting instructions may revoke it at any
time before it is voted:
- by giving written notice of revocation to Big Flower, addressed to: Irene
B. Fisher, Associate General Counsel, Big Flower Holdings, Inc., 3 East
54th Street, New York, New York 10022;
- by submitting a later dated proxy with voting instructions by mail, by
telephone or through the Internet, if the proxy is received by Big Flower
prior to the Big Flower meeting; or
- by VOTING in person at the Big Flower meeting, although a proxy is not
revoked by simply ATTENDING the Big Flower meeting.
Big Flower stockholders who have instructed a broker to vote their shares must
follow directions received from their broker to change and revoke their proxy.
OTHER MATTERS
The Big Flower board of directors is not currently aware of any business to
be acted upon at the Big Flower meeting, other than as described above. If,
however, other matters related to the proposals are properly brought before the
Big Flower meeting, the persons appointed as proxies will have discretion to
vote or to act on these matters according to their best judgment, unless
otherwise indicated on any particular proxy. The persons appointed as proxies
will also have discretion to vote on adjournment of the Big Flower meeting. Such
adjournment may be for the purpose of soliciting additional proxies.
Notwithstanding this, shares represented by proxies voting against the adoption
of the merger agreement will be voted against a proposal to adjourn the Big
Flower meeting for the purpose of soliciting additional proxies.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
Big Flower, none of whom will be specifically compensated for such services, but
may be reimbursed for reasonable out-of-pocket expenses in connection with such
services, may solicit proxies from the Big Flower stockholders personally or by
telephone, facsimile or telegram or other forms of communication. Brokerage
houses, nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for their
reasonable expenses incurred in sending such materials to beneficial owners.
In addition, Big Flower has retained Georgeson & Company to assist in the
solicitation of proxies from its stockholders. The fees to be paid by Big Flower
to Georgeson & Company for such services
25
<PAGE>
will be equal to approximately $ - , plus reasonable out-of-pocket costs and
expenses. Big Flower will bear its own expenses in connection with the
solicitation of proxies for the Big Flower meeting.
BIG FLOWER STOCKHOLDERS SHOULD NOT SEND BIG FLOWER COMMON STOCK CERTIFICATES
WITH THEIR PROXY CARDS. IF THE MERGER IS COMPLETED, BIG FLOWER STOCKHOLDERS WILL
BE MAILED A TRANSMITTAL FORM WITH INSTRUCTIONS ON HOW TO EXCHANGE THEIR CURRENT
STOCK CERTIFICATES FOR THE $30.00 IN CASH, THE PIK PREFERRED STOCK AND THE
WARRANTS.
26
<PAGE>
SPECIAL FACTORS
THE DISCUSSION IN THIS DOCUMENT OF THE MERGER OF BIG FLOWER AND BFH MERGER
CORP. AND THE RELATED RECAPITALIZATION OF BIG FLOWER AND THE PRINCIPAL TERMS OF
THE AGREEMENT AND PLAN OF MERGER, DATED AS OF JUNE 29, 1999, BETWEEN BIG FLOWER
AND BFH MERGER CORP., DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE MERGER AGREEMENT, WHICH IS
INCORPORATED IN THIS DOCUMENT BY REFERENCE. A COPY OF THE MERGER AGREEMENT IS
ATTACHED AS APPENDIX A TO THIS DOCUMENT.
GENERAL
Big Flower is furnishing this document to Big Flower stockholders in
connection with the solicitation of proxies by the board of directors of Big
Flower for its use at the Big Flower meeting of stockholders, and at any
adjournments or postponements of the Big Flower meeting.
At the Big Flower meeting, Big Flower stockholders will be asked to consider
and vote upon a proposal to adopt the merger agreement. Adoption of the merger
agreement will also constitute approval of the transactions contemplated by the
merger agreement, including, among others, the merger, the recapitalization of
Big Flower, and the amendment of the Big Flower restated certificate of
incorporation. If the merger is completed, the Big Flower amended and restated
bylaws will be amended as described below. A more detailed description of the
amendments to the Big Flower restated certificate of incorporation and the Big
Flower amended and restated bylaws is found below under "--Amendment of Big
Flower Restated Certificate of Incorporation and Amended and Restated Bylaws."
In the merger, BFH Merger Corp. will be merged with and into Big Flower,
with Big Flower as the surviving corporation. In addition, in the merger each
share of Big Flower common stock issued and outstanding immediately prior to the
effective time of the merger (other than shares held by Big Flower in its
treasury or by one of its subsidiaries, shares which will be retained by certain
members of management, and shares for which appraisal rights are perfected in
accordance with Delaware law) will be converted into the right to receive $30.00
in cash, 0.21 shares of PIK preferred stock of Big Flower and a warrant to
purchase approximately 0.02 of a share of Big Flower common stock. The maximum
number of warrants which could be issued in the merger represent, in the
aggregate, the right to purchase 5% of the shares of Big Flower common stock
immediately following the merger assuming an exercise of these warrants.
The merger will become effective when the certificate of merger is properly
filed with the Secretary of State of the State of Delaware, or at such later
date or time as Big Flower and BFH Merger Corp. agree and specify in the
certificate of merger.
AMENDMENT OF BIG FLOWER RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND
RESTATED BYLAWS
The merger agreement provides that at the completion of the merger, the Big
Flower restated certificate of incorporation and the Big Flower amended and
restated bylaws will be amended in connection with the merger to:
(1) eliminate from the certificate of incorporation and bylaws the
provisions providing for staggered three-year terms for directors and
certain related matters;
(2) eliminate from the certificate of incorporation the restriction that
directors can only be removed for cause and only by the affirmative vote of
the holders of at least 85% of the outstanding shares of Big Flower's common
stock;
(3) eliminate from the certificate of incorporation and the bylaws the
requirement that stockholders can only make, adopt, alter, amend, change or
repeal the bylaws of Big Flower upon the affirmative vote of the holders of
at least 85% of the outstanding shares of Big Flower's common stock and, in
its place, provide in the bylaws that stockholders may make, adopt, alter,
27
<PAGE>
amend, change or repeal bylaws of Big Flower by the affirmative vote of the
holders of at least a majority of the outstanding shares of Big Flower's
common stock;
(4) eliminate from the certificate of incorporation the provision that
provides that stockholders cannot act by written consent in lieu of an
annual or special meeting of stockholders and, in its place, provide in the
bylaws that stockholders may act by written consent in lieu of an annual or
special meeting of stockholders and the procedures for acting by such
written consent;
(5) eliminate the restriction that any amendment to the Rights
Agreement, dated as of November 28, 1995, between Big Flower and The Bank of
New York, as Rights Agent, or decision to redeem or amend the rights issued
pursuant to this Rights Agreement be approved by a majority of "continuing
directors", as such term is defined in the certificate of incorporation;
(6) eliminate from the certificate of incorporation the requirement that
any alteration, amendment or repeal of the provisions of the certificate of
incorporation referred to in clauses (1) through (5) above be approved by
the holders of at least 85% of the outstanding shares of Big Flower's common
stock or a majority of "continuing directors", as such term is defined in
the certificate of incorporation;
(7) eliminate the procedures for the nomination of persons to the board
of directors, including the advance notice requirement for stockholder
nominations of persons to the board of directors;
(8) provide that directors will be elected annually at the annual
meeting of stockholders; and
(9) change the vote required for stockholders to fill vacancies on the
board of directors from the affirmative vote of not less than 85% of the
outstanding shares of Big Flower common stock to the affirmative vote of
holders of a majority of the outstanding shares of Big Flower common stock.
BACKGROUND OF THE MERGER
From time to time in recent years the board of directors and management of
Big Flower have considered transactions that could increase the value of the
common equity of Big Flower. These have included potential acquisitions of or
mergers with other companies, spin-offs of parts of Big Flower and the sale of
all or part of Big Flower.
Since 1994, Big Flower has made 26 acquisitions, primarily outside its
original Treasure Chest printing business. These acquisitions have added
significantly higher growth and higher margin businesses than the original
Treasure Chest printing business. Management of Big Flower believed that further
acquisitions both within and outside the traditional Treasure Chest business
were desirable. Increasingly such acquisitions, especially in businesses that
involved higher technology or direct marketing, or both, could not be effected
on a basis that was non-dilutive to the reported earnings of Big Flower. In
response to this, and in an effort to create value for its stockholders, in 1998
and early 1999 Big Flower began exploring various strategic alternatives,
including equity issuances, public offerings of the stock of certain
subsidiaries, the mergers of certain subsidiaries with other companies and the
spin-offs of one or more business units to Big Flower's stockholders. On March
17, 1999, Big Flower formally retained Berenson Minella to assist Big Flower in
exploring strategic alternatives. Subsequently, management of Big Flower met
with a number of financial sponsors, including representatives of Thomas H. Lee
Company, and explored with them on a preliminary basis various strategic
alternatives with respect to Big Flower.
On April 20, 1999, Big Flower publicly announced that its board of directors
had authorized management to explore Big Flower's strategic alternatives. In
addition to relying on Berenson Minella, which had been advising Big Flower
since early 1999, Big Flower retained Goldman Sachs as a financial advisor to
assist in the exploration of strategic alternatives.
28
<PAGE>
Following the April 20 announcement, a number of parties contacted both Big
Flower and its financial advisors directly without solicitation. In addition,
Big Flower instructed its financial advisors to contact the likely potential
strategic and financial parties that might be interested in a transaction
involving Big Flower and who had either financial strength or access to capital
markets to complete such a transaction. In all, Big Flower's financial advisors
had extensive conversations with 13 potential strategic parties and 15 potential
financial parties about their possible interests in Big Flower. One strategic
party and six financial parties entered into confidentiality agreements and
received non-public information concerning the business of Big Flower and its
subsidiaries designed to permit such parties to determine what interests they
might have in Big Flower. A number of other parties requested a package of
non-confidential public information only and did not need to sign a
confidentiality agreement.
Three parties, Thomas H. Lee Company, Evercore Capital Partners and one
potential strategic party, performed more detailed due diligence during the
month of May and received detailed presentations from management of Big Flower
concerning its business. During the month of May, Berenson Minella continued to
meet with such parties to discuss Big Flower and to determine whether such
parties could make a proposal that would be attractive to Big Flower's
stockholders. At the conclusion of this process, Thomas H. Lee Company submitted
a written proposal, Evercore Capital Partners indicated an interest in
submitting a proposal under certain circumstances, and the potential strategic
party indicated that it would not submit a proposal involving the entire
company, although it indicated that it might be interested in certain parts of
the business of Big Flower.
Big Flower continued to consider its strategic alternatives, including the
possibility of a spin-off or a sale of less than the entire company. After
receiving the advice of its financial advisors and after taking into account
financial, tax and operational factors, the Big Flower board of directors
concluded that it would not be tax-efficient for Big Flower to sell less than
all of Big Flower and that a spin-off of parts of Big Flower would not likely
enhance stockholder value.
Big Flower also continued to evaluate a stand-alone strategy, focusing on
its historic stock price and business prospects and taking note of the fact that
the trading price of Big Flower common stock had risen approximately 30% in the
three weeks leading up to a March 22, 1999 report by a Credit Suisse First
Boston analyst that had focused on Big Flower's venture capital investments in
Internet related companies and that, in the six months prior to such report, the
trading price of Big Flower common stock had ranged between $15.375 and $28.438.
In evaluating the effect on Big Flower and its stockholders of continuing as a
stand-alone company, Big Flower also considered, as reported in its public
filings and stated to financial analysts, that it would likely pursue
acquisitions in businesses involving higher technology or direct marketing, or
both, which acquisitions could be significantly dilutive to Big Flower's
reported earnings.
On June 8, 1999, the Big Flower board of directors met to review the status
of discussions with third parties and the indications of interest received. At
the outset of the meeting Mr. Ammon advised the board that because he would,
under certain circumstances, consider retaining a significant interest in Big
Flower in connection with a proposal from a financial sponsor, he would recuse
himself from board deliberations on the proposals. Following Mr. Ammon's
departure, Peter G. Diamandis, Newton N. Minow, Robert M. Kimmitt and Joan D.
Manley discussed the potential conflicts of interest involved in the fact that
certain members of the management, including Mr. Ammon, might be treated
differently than other Big Flower stockholders in a proposed transaction because
they might continue to retain their ownership in Big Flower. The board of
directors concluded that the independent directors, constituting a majority of
the board of directors, were in a position to fairly represent the interest of
Big Flower's stockholders. Messrs. Minow and Kimmitt, and Ms. Manley selected
Mr. Diamandis as the lead independent director to control the work of Big
Flower's outside financial and legal advisors.
29
<PAGE>
During the June 8 meeting of Big Flower's board of directors, Berenson
Minella reported that Thomas H. Lee Company had submitted a proposal for a
recapitalization of Big Flower pursuant to which public holders of Big Flower
common stock would receive a per share consideration of $27.00 in cash and $7.00
in liquidation preference of PIK preferred stock with a warrant to purchase a
fraction of a share of Big Flower common stock (representing in the aggregate,
approximately five percent of the Big Flower common stock after the
recapitalization). It was also reported that Evercore Capital Partners had
indicated an interest in submitting a proposal under certain circumstances for a
recapitalization of Big Flower at a per share price of $35.00 in cash plus a
contingent value right that would offer holders a to be agreed-upon percentage
of after-tax proceeds of certain of Big Flower's publicly traded venture capital
investments in Internet related companies. Both the Thomas H. Lee Company
proposal and Evercore Capital Partners' indication of interest were subject to
financing contingencies. In addition, the Evercore Capital Partners indication
of interest was conditioned on Mr. Ammon's retaining a substantial portion of
his equity in Big Flower. The Thomas H. Lee Company proposal was made with the
expectation that Mr. Ammon would retain a substantial portion of his equity in
Big Flower, but was not expressly conditioned on his doing so.
During the ensuing discussion, the Big Flower board of directors discussed
the financial terms and certainty of the Thomas H. Lee Company proposal,
Evercore Capital Partners' indication of interest in making a proposal under
certain circumstances, as well as the process by which such proposal and
interest had been communicated. After a discussion with its financial advisors,
the board of directors determined that in light of Big Flower's public
announcement of its interest in pursuing its strategic alternatives, the
extensive amount of time which had passed since such announcement was made and
the fact that 28 parties had contacted Big Flower (or had been contacted by)
Berenson Minella and Goldman Sachs, an appropriate number of potential bidders
had been contacted to ensure that the financially responsible parties likely to
be interested in Big Flower had been contacted or put on notice. The Big Flower
board of directors also agreed that determining to pursue none of the available
transactions was an alternative to be considered by the board of directors. Mr.
Diamandis requested that the board of directors take some additional time to
consider the proposals but that in the meantime, Goldman Sachs and Berenson
Minella should continue discussions with both Thomas H. Lee Company and Evercore
Capital Partners with a view to improving the Thomas H. Lee Company proposal, to
attempt to transform Evercore Capital Partners' indication of interest into a
proposal and to report further at a meeting of the board of directors scheduled
for June 14.
After the June 8 board of directors meeting, Berenson Minella and
representatives of Thomas H. Lee Company continued discussions on improving the
Thomas H. Lee Company proposal. Berenson Minella also discussed with Evercore
Capital Partners whether it could be in a position to make a firm proposal to
Big Flower.
The Big Flower board of directors (other than Messrs. Ammon and Reilly, who
recused themselves) met again on June 14, 1999 and received a report from its
financial advisors on the status of negotiations with Thomas H. Lee Company and
Evercore Capital Partners. The Evercore Capital Partners indication of interest
to make a proposal under certain circumstances was unchanged at a per share
consideration of $35.00 in cash plus a contingent value right, and it remained
contingent on Mr. Ammon's retention of a significant interest in Big Flower.
Berenson Minella representatives indicated that the Evercore Capital Partners'
indication of interest would result in a substantial increase in the leverage of
Big Flower, such that Big Flower's ratio of total debt at the time of the merger
to Big Flower's last twelve months of earnings before interest, taxes,
depreciation and amortization (EBITDA) projected as of such time of the merger
would be 6.2 to 1. Berenson Minella representatives reported that they had been
advised by Mr. Ammon that he had concerns regarding such a high degree of
leverage, and would not be willing to retain a significant interest in Big
Flower in connection with any Evercore Capital Partners proposal that might be
made on such basis. The Thomas H. Lee proposal, on the other hand, involved a
ratio of total debt at the time of the merger to Big Flower's last twelve
months' EBITDA projected as of such time of the merger of 5.5 to 1. In addition,
the
30
<PAGE>
Thomas H. Lee Company proposal offered greater promise of making available to
Big Flower additional capital to grow Big Flower's business on a going-forward
basis. The board of directors directed Berenson Minella to determine whether
Evercore Capital Partners would be willing to proceed with equity from
non-management stockholders rather than Mr. Ammon.
During the June 14, 1999 meeting, the board of directors (other than Mr.
Ammon and Mr. Reilly who recused themselves) heard from outside counsel
regarding their fiduciary duties and from outside financial advisors concerning
the status of discussions with Thomas H. Lee Company. The board of directors
determined to retain additional counsel to act for the independent directors and
thereafter retained the firm of Dewey Ballantine LLP. It was reported that
Thomas H. Lee Company had agreed to improve its proposal and was now prepared to
offer a per share price of $29.00 in cash plus $6.00 in liquidation preference
of PIK preferred stock with warrants attached. Representatives of Berenson
Minella expressed their opinion that Thomas H. Lee Company was sensitive to
increasing the cash portion of the proposed consideration, but advised that Big
Flower should nonetheless try to improve both the cash and the PIK preferred
stock portions. In light of this, the board of directors determined to request
that management of Big Flower make a presentation to the Big Flower board of
directors concerning Big Flower's business prospects and strategic plans. The
board of directors directed the Big Flower financial advisors to continue to
seek to improve the Thomas H. Lee Company proposal and to determine whether an
Evercore Capital Partners proposal capable of completion could be developed and
scheduled a meeting for June 17 to receive a further update from its advisors.
On June 14, 1999 Berenson Minella spoke with representatives of Thomas H.
Lee Company and explained that the Big Flower board of directors was seeking a
higher value level for its stockholders than offered by the current Thomas H.
Lee Company proposal. Berenson Minella continued discussions with
representatives of Thomas H. Lee Company during June 15 and June 16 in an
attempt to improve the Thomas H. Lee Company proposal.
On June 17, 1999, the Big Flower board of directors (other than Messrs.
Ammon and Reilly, who recused themselves) met to review the status of
discussions with Thomas H. Lee Company and Evercore Capital Partners.
Representatives of Berenson Minella reported that Evercore Capital Partners had
improved its financing somewhat, but that its indication of interest was still
conditioned upon Mr. Ammon's retention of a significant interest in Big Flower.
A representative from Berenson Minella reported that he had been advised by Mr.
Ammon that Mr. Ammon was still unsatisfied with the amount of leverage included
in the capital structure in the Evercore Capital Partners' indication of
interest as well as the prospects for additional capital that Evercore Capital
Partners could offer on a going-forward basis and had stated that he would not
be willing to retain a significant interest in Big Flower in connection with
such a transaction. The Goldman Sachs and Berenson Minella representatives then
summarized the current proposal from Thomas H. Lee Company, including the terms
of the PIK preferred stock and warrants being offered by Thomas H. Lee Company.
Thomas H. Lee Company had increased the cash portion of its proposal to $30.00
and reduced the PIK preferred stock portion of the purchase price to a $5.00
liquidation preference PIK preferred stock, but representatives of Goldman Sachs
and Berenson Minella indicated that the proposed PIK preferred stock/warrant
package contained terms that they believed to be unfavorable compared to market
practice and that such terms could be enhanced. After discussion with its
financial advisors, the board of directors instructed its financial advisors to
attempt to improve the terms of the PIK preferred stock and warrants in the
following ways: lowering the exercise price on the warrants to a nominal amount;
eliminating or reducing restrictions on when the warrants could be exercised;
protecting against Big Flower's unrestricted ability to redeem the PIK preferred
stock; and increasing the amount of the PIK preferred stock being offered per
share of Big Flower common stock. The directors wished to reach a prompt
determination as to the best proposal available from Thomas H. Lee Company and
directed representatives of Goldman Sachs and Berenson Minella to contact Thomas
H. Lee Company and seek to improve the amount and terms of the PIK preferred
stock/warrant package. The financial advisors left the meeting to have
discussions with Thomas H. Lee Company and while this was underway, the
31
<PAGE>
directors received a presentation from Messrs. Ammon, Reilly and Ritchie
concerning the business plans and prospects of Big Flower. After the management
presentation, Messrs. Ammon, Reilly and Ritchie left the meeting and the
representatives of Goldman Sachs and Berenson Minella rejoined the meeting and
advised the directors that the only change Thomas H. Lee Company was willing to
make was to reduce the exercise price of the warrant from $35.00 per share to a
nominal amount. The Big Flower board of directors unanimously decided to reject
the proposal from the Thomas H. Lee Company and to adjourn the meeting.
After the June 17 board of directors meeting, representatives of Big
Flower's financial advisors and Thomas H. Lee Company representatives continued
to discuss ways to improve the Thomas H. Lee Company proposal, and Thomas H. Lee
Company agreed to increase, from $5.00 to $5.25, the liquidation value of the
PIK preferred stock offered per share of Big Flower common stock and to make a
number of changes to the terms of the PIK preferred stock and warrants that the
financial advisors believed would improve the value of the security.
The Big Flower board of directors (other than Messrs. Ammon and Reilly, who
recused themselves) convened again on June 18, 1999 to receive an update on the
status of negotiations with Thomas H. Lee Company. Berenson Minella and Goldman
Sachs reported on the improvements in the Thomas H. Lee Company proposal,
including an increase in the PIK preferred stock liquidation value per share
from $5.00 to $5.25, protection against Big Flower's unrestricted ability to
redeem the PIK preferred stock for five years, lowering the exercise price of
the attached warrants to a nominal amount, increasing the number of events that
would permit a holder to exercise the warrants, and lengthening the term for
exercising the warrants. With the advice of Goldman Sachs, the board of
directors discussed the market practice with respect to making a market in
securities such as the PIK preferred stock and concluded that market practice
was such that there could be no guarantees that any investment bank would
actively make a market in the PIK preferred stock or warrants, although in
conversations with Big Flower and its financial advisors, the financial
institutions providing financing for the merger and related recapitalization
indicated their intent to make a market in such securities in accordance with
customary market practice (which does not provide an assurance of a continuous
bid). The board of directors discussed the advisability of proceeding with a
transaction on the basis of the Thomas H. Lee Company proposal as compared to
continuing with Big Flower's current business plan. At this time, the board of
directors considered the advice of its financial advisors that the current
trading price of Big Flower's stock reflected an expectation of a transaction
that was created with the April 20, 1999 announcement that Big Flower was
studying its strategic alternatives. The board of directors also discussed the
fact that the consideration offered by Thomas H. Lee Company was near the
all-time trading high of Big Flower common stock and that if no transaction were
consummated, the trading range of Big Flower common stock likely would fall to a
level below its recent trading price. The board of directors also considered the
dilutive effect on Big Flower's reported earnings of potential acquisitions if
Big Flower continued its current business plan. After discussion, the board of
directors authorized Big Flower's legal and financial advisors to commence
detailed negotiations of the terms of a possible transaction. The board of
directors was unanimous in the view that a merger agreement should contain terms
and conditions that would permit Big Flower to negotiate and enter into an
agreement with another party in the event of a proposal from such party which
was superior to the Thomas H. Lee Company proposal. This was communicated to
Thomas H. Lee Company. Big Flower's financial advisors and representatives of
Thomas H. Lee Company continued detailed discussions concerning the terms of the
PIK preferred stock and warrants.
A draft merger agreement was delivered to representatives of Big Flower on
June 19. Respective counsel for Big Flower and Thomas H. Lee Company discussed
issues arising out of the draft on June 20 and daily thereafter until the
agreement was finalized. The contract negotiations focused primarily on the
following issues: (1) the circumstances in which Big Flower could provide
information to and negotiate with third parties, (2) whether Big Flower would be
permitted to terminate the merger agreement to accept a superior proposal from a
third party, (3) the circumstances under which the
32
<PAGE>
Thomas H. Lee Company acquisition entity would be permitted not to close the
merger, (4) the scope of the representations and warranties of Big Flower and
the Thomas H. Lee Company entity, (5) the circumstances in which the Thomas H.
Lee Company entity would be entitled to reimbursement of expenses and the cap on
such reimbursement and (6) the date when the parties can terminate the merger
agreement if no merger has occurred prior to such date. During the course of
these negotiations, Thomas H. Lee Company advised Big Flower that Evercore
Capital Partners would participate with the Thomas H. Lee Company entity in the
recapitalization transaction. Big Flower's financial advisors continued to have
daily discussions with Thomas H. Lee Company regarding the financial terms of
the merger, including the terms of the PIK preferred stock and attached warrants
and the financing commitments with respect to the proposal.
The Big Flower board of directors (other than Messrs. Ammon and Reilly, who
recused themselves) met on June 24 at which time it received an update on the
status of negotiations. Big Flower's legal advisors summarized the key terms of
the merger agreement and discussed the likely timing of consummation.
Representatives of Goldman Sachs and Berenson Minella also described in detail
the board presentation materials prepared by them and distributed to the board
prior to the meeting, focusing on the financial terms of the Thomas H. Lee
Company proposal, including the PIK preferred stock and warrant, and Big
Flower's alternative as a stand-alone entity. Following such presentation,
Berenson Minella and Goldman Sachs informed the board of directors that their
respective firms were prepared to deliver oral opinions (which were subsequently
confirmed on June 29 in writing) to the effect that, assuming the negotiation
and execution of a definitive merger agreement, that the merger consideration to
be received by stockholders (other than the members of management retaining
shares of Big Flower common stock in the merger, as to whom they did not deliver
an opinion) was fair to such stockholders from a financial point of view.
After the June 24 board of directors meeting, Big Flower's legal advisors
continued to negotiate the merger agreement with counsel to Thomas H. Lee
Company. At the same time, Big Flower's financial advisors continued discussions
with Thomas H. Lee Company regarding the financial terms of the merger,
including the terms of the PIK preferred stock and attached warrants and the
financing commitments with respect to the proposed merger.
The Big Flower board of directors (other than Messrs. Ammon and Reilly, who
recused themselves) met on June 27 at which time it received an update on the
status of negotiations. Big Flower's legal advisors reported that most of the
issues had been resolved, but that there were still some issues with respect to
closing conditions, conditions under which expenses would be payable and a small
number of relatively minor issues. The board of directors directed its legal
advisors to continue negotiations with Thomas H. Lee Company.
The Big Flower board of directors (other than Messrs. Ammon and Reilly, who
recused themselves) met on June 29 at which time it unanimously approved the
merger agreement and the transactions contemplated in the merger agreement. On
June 29, 1999 the merger agreement was signed and publicly announced.
BIG FLOWER'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BIG FLOWER BOARD OF
DIRECTORS
In reaching its decision to declare advisable and approve the merger
agreement and the transactions contemplated by the merger agreement and to
recommend that Big Flower stockholders vote 'FOR' the adoption of the merger
agreement, the Big Flower board of directors, with management directors
abstaining, considered a number of favorable and unfavorable characteristics
associated with the merger. In reaching its decision, the Big Flower board of
directors considered the following potentially positive factors:
- AMOUNT OF CONSIDERATION. The Big Flower board of directors considered the
$30.00 in cash and $5.25 in liquidation preference of PIK preferred stock
with attached warrants as giving stockholders an opportunity to sell at a
price that represented a significant premium to $27.88,
33
<PAGE>
the trading price of Big Flower common stock on April 19, 1999, the day
immediately prior to the announcement of Big Flower's intention to study
its strategic alternatives, and to the average trading price of Big Flower
common stock over the prior several months. The Big Flower board of
directors considered the advice of its financial advisors that the current
trading price of Big Flower common stock reflected an expectation of a
transaction that was created with the April 20, 1999 announcement that Big
Flower was studying its strategic alternatives. The board of directors
also considered that the consideration offered was near the all-time
trading high of Big Flower common stock and that if no transaction was
consummated, the trading range of Big Flower common stock likely would
fall to a level below its recent trading price range.
- EXTENSIVE SEARCH FOR POTENTIAL BUYER. The board of directors also
considered the fact that in light of the public announcement of Big
Flower's exploration of its strategic alternatives, Big Flower and its
financial advisors had contacted or were contacted by 13 potential
strategic parties and 15 financial parties and that no strategic parties
or other financial parties had submitted a proposal for a purchase of Big
Flower. In light of the extensive market search performed by Big Flower
and its financial advisors, the board of directors concluded that the
Thomas H. Lee Company proposal represented the best price available for
Big Flower stockholders at the present time.
- RISKS OF REMAINING INDEPENDENT AND OTHER ALTERNATIVES. The Big Flower
board of directors recognized that Big Flower's remaining independent
could, based upon management projections of future performance, result in
higher future trading prices of the Big Flower common stock, but concluded
that the risks of not fully meeting business plans or of adverse changes
in stock market valuations outweighed the potential benefits of remaining
independent. In reaching this conclusion, the directors considered the
challenges inherent in continuing to manage the existing business and in
making acquisitions that could transform Big Flower into a higher
value-added service provider, which acquisitions Big Flower has reported
in its public filings and in analysts' reports, could be significantly
dilutive to Big Flower's reported earnings. The board of directors also
considered the volatility in Big Flower's stock price resulting from its
investments in Internet companies and Mr. Ammon's advice to the board of
directors that, under current circumstances and as permitted under his
employment agreement, he planned to expand his business and other
professional interests beyond those of Big Flower and that accordingly he
would have less day-to-day involvement with Big Flower. The board of
directors also concluded that the alternative of selling less than all of
Big Flower had adverse tax implications for Big Flower stockholders and
that a spin-off of parts of Big Flower's business would not enhance
stockholder value.
- MERGER AGREEMENT TERMS. The Big Flower board of directors considered as
favorable the terms of the merger agreement that permit the board of
directors to provide confidential information to and negotiate with a
third party that makes an unsolicited proposal and to terminate the merger
agreement in order to accept a superior proposal if necessary to comply
with its fiduciary duties to stockholders.
- OPINIONS OF FINANCIAL ADVISORS. The Big Flower board of directors
considered the detailed financial and comparative analyses and
presentations of Goldman Sachs and Berenson Minella, its financial
advisors, with respect to the merger and the consideration offered to
stockholders, and considered as favorable the opinions of Goldman Sachs
and Berenson Minella to the effect that the merger consideration was fair,
from a financial point of view, to stockholders of Big Flower common
stock, other than members of management who were retaining shares of Big
Flower common stock in the merger, as to whom they did not offer an
opinion.
- LIKELIHOOD OF COMPLETING THE MERGER. The Big Flower board of directors
recognized that a leveraged recapitalization transaction with any
financial sponsor involves risks that the transaction would not be
completed due to difficulties in financing markets and the fact that
34
<PAGE>
even firm financing commitments from financial institutions include
provisions that excuse performance if there are events that could have a
material adverse effect on Big Flower or on the credit markets. The Big
Flower board of directors believed, however, that despite imperfect
contractual commitments, Thomas H. Lee Company has a strong reputation for
completing transactions and that it is an extremely reliable financial
party.
The Big Flower board of directors weighed these positive factors against the
following adverse considerations:
- TERMINATION FEES AND EXPENSES. The Big Flower board of directors
considered as a negative the obligation to pay a fee of an aggregate of up
to $30 million to Thomas H. Lee Company and Evercore Capital Partners if
the merger were terminated under certain circumstances, which includes
payments of up to $10 million of out-of-pocket fees and expenses if the
merger is terminated for any reason other than a material breach by BFH
Merger Corp. of its obligations under the merger agreement. Although such
obligations are customary for transactions of this nature, the size of the
fee in this transaction was lower than market standard in transactions of
a similar size. These payments may discourage others from proposing an
alternative transaction that may be more advantageous to Big Flower
stockholders or may reduce the amount a third party would be willing to
pay in an acquisition of Big Flower.
- TRADING OF THE PIK PREFERRED STOCK AND WARRANT. The Big Flower board of
directors considered the advice of its financial advisors that the value
of the PIK preferred stock is not certain. The board of directors
considered that the PIK preferred stock and warrants to be issued in the
merger may appeal to a limited universe of potential buyers and that this
may cause the security to trade below its stated liquidation preference
for some time after the merger. The Big Flower board of directors also
considered that market practice was such that there could be no guarantees
that any investment banking firm would actively make a market in the PIK
preferred stock or warrants, although in conversations with Big Flower and
its financial advisors, the financial institutions providing financing for
the merger and related recapitalization indicated their intent to make a
market in such securities in accordance with customary market practice
(which does not provide an assurance of a continuous bid).
- RISK OF MERGER NOT CLOSING. The Big Flower board of directors considered
as a negative the fact that pursuing the merger was likely to
significantly distract management of Big Flower and that if the merger
were to fail to close for any reason the business might not be as far
advanced as it would have been had the merger not been pursued, although
the board of directors believed management intended to continue to
vigorously pursue acquisition opportunities and seek from BFH Merger Corp.
any necessary waivers under the merger agreement to pursue such
opportunities.
In reaching a determination that the terms of the merger are advisable and
in the best interest of Big Flower and its stockholders, the board of directors
also considered the terms of the merger agreement and the historical and current
market price of Big Flower. The Big Flower board of directors also considered
that certain members of Big Flower's management had interests in the merger that
were different from those of non-management stockholders. Those interests are
discussed under "--Conflicts of Interest of Certain Members of the Big Flower
Board of Directors and Management" on page 51.
The foregoing discussion of the information and factors that were given
weight by the Big Flower board of directors is not exhaustive, but includes all
of the material factors considered by the Big Flower board of directors. The Big
Flower board of directors did not assign specific weights to the foregoing
factors and individual directors may have given different weights to different
factors. The Big Flower board of directors, with management directors
abstaining, unanimously declared advisable, authorized and approved the merger
agreement and the transactions contemplated by the merger agreement.
35
<PAGE>
THE BIG FLOWER BOARD OF DIRECTORS, WITH MANAGEMENT DIRECTORS ABSTAINING,
UNANIMOUSLY RECOMMENDS THAT BIG FLOWER STOCKHOLDERS VOTE "FOR" THE ADOPTION OF
THE MERGER AGREEMENT.
OPINIONS OF BIG FLOWER'S FINANCIAL ADVISORS
GOLDMAN, SACHS & CO.
On June 24, 1999, Goldman Sachs informed the Big Flower board of directors
that Goldman Sachs was prepared to deliver an oral opinion with respect to the
fairness from a financial point of view of the merger consideration to be
received by the holders of Big Flower common stock, other than the members of
management retaining shares of Big Flower common stock in the merger, assuming
the negotiation and execution of a definitive merger agreement. On June 29,
1999, Goldman Sachs delivered a written opinion with respect to the fairness
from a financial point of view of the merger consideration to be received by the
holders of Big Flower common stock, other than the members of management
retaining shares of Big Flower common stock in the merger, as to whom Goldman
Sachs did not deliver an opinion, pursuant to the definitive merger agreement
dated June 29, 1999.
THE FULL TEXT OF THE GOLDMAN SACHS OPINION IS CONTAINED IN APPENDIX B. THE
GOLDMAN SACHS OPINION WAS PROVIDED FOR THE INFORMATION AND ASSISTANCE OF THE BIG
FLOWER BOARD OF DIRECTORS IN CONNECTION WITH ITS CONSIDERATION OF THE MERGER. IT
IS NOT A RECOMMENDATION TO ANY HOLDER OF BIG FLOWER COMMON STOCK AS TO HOW ANY
STOCKHOLDER SHOULD VOTE AT THE BIG FLOWER MEETING. THE SUMMARY OF THE GOLDMAN
SACHS OPINION BELOW IS QUALIFIED BY ITS FULL TEXT. BIG FLOWER STOCKHOLDERS
SHOULD READ THE GOLDMAN SACHS OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed:
- the merger agreement;
- Annual Reports to stockholders and Annual Reports on Form 10-K of Big
Flower for the four years ended December 31, 1998;
- a number of interim reports to stockholders and Quarterly Reports on Form
10-Q of Big Flower;
- a number of other communications from Big Flower to its stockholders; and
- a number of internal financial analyses and forecasts for Big Flower
prepared by its management.
Goldman Sachs also held discussions with members of the senior management of
Big Flower regarding Big Flower's past and current business operations,
financial condition and future prospects. In addition, Goldman Sachs held
discussions with senior management of Thomas H. Lee Company regarding Big
Flower's future prospects. Goldman Sachs also reviewed the reported price and
trading activity for Big Flower common stock and compared some financial and
stock market information with similar information for several other companies
with publicly traded securities. In addition, Goldman Sachs reviewed the
financial terms of other recent business combinations in the commercial printing
industry specifically and in other industries generally. Goldman Sachs also
performed other studies and analyses which it considered appropriate.
Goldman Sachs assumed the accuracy and completeness of all of the financial
and other information reviewed by it for purposes of rendering its opinion.
Goldman Sachs did not make an independent evaluation or appraisal of the assets
and liabilities of Big Flower or any of its subsidiaries. No evaluation or
appraisal of the assets and liabilities of Big Flower was furnished to Goldman
Sachs. Goldman Sachs provided its opinion for the information and assistance of
the Big Flower board of directors in connection with its consideration of the
merger. The Goldman Sachs opinion is not a recommendation as to how any holder
of common stock of Big Flower should vote. Goldman Sachs did not express any
opinion as to the price at which the PIK preferred stock or the warrants may
trade if
36
<PAGE>
and when they are issued or whether any market would develop for the PIK
preferred stock or the warrants.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with its presentation to the Big Flower board of
directors on June 24, 1999. At that time, the terms of the PIK preferred stock
and the warrants had not been finalized and were still being negotiated. Some of
the summaries of the financial analyses include information presented in tabular
format. The tables must be read together with the text accompanying each
summary.
SELECTED COMPANIES ANALYSIS. Goldman Sachs reviewed and compared financial
information relating to Big Flower to corresponding financial information,
ratios and public market multiples for the following publicly traded companies:
<TABLE>
<CAPTION>
SPECIALTY AND COMMERCIAL PRINTERS DIRECT MARKETING SERVICES DIGITAL MEDIA SERVICES
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Banta Corp. Acxiom Corporation Applied Graphics Technologies
R.R. Donnelly & Sons Company ADVO, Inc. CSG Systems International, Inc.
Consolidated Graphics, Inc. Catalina Marketing Corporation Schawk, Inc.
Quebecor Printing Inc. Harte-Hanks, Inc.
World Color Press, Inc. Snyder Communications, Inc. Valassis
Communications, Inc.
</TABLE>
Goldman Sachs calculated and compared various financial multiples and ratios.
The multiples for Big Flower were calculated using a stock price of $33.63, the
closing stock price on June 21, 1999, and a stock price of $35.25. The financial
multiples and ratios for the selected companies were calculated using closing
stock prices on June 21, 1999 and the most recent publicly available information
for these companies. None of the selected companies is directly comparable to
Big Flower. All estimates for EBITDA and price/earnings multiples were based on
a calendar year.
The following table presents the ranges, the mean and the median figures for
the selected companies for (i) leveraged market capitalization as a multiple of
LTM sales, LTM EBIT, LTM EBITDA, and estimated calendar year 1999 EBITDA, (ii)
price/earnings multiples for the estimated calendar years 1999 and 2000, and
(iii) 1999 price/earnings as a multiple of five year estimated EPS growth. These
values are compared to the same values for Big Flower using a Big Flower stock
price of $33.63 and also $35.25.
As used here, "P/E" means the ratio of price to earnings, "EBITDA" means
earnings before interest, taxes, depreciation and amortization; "LTM" means
latest twelve months; "EBIT" means earnings before interest and taxes; and "EPS"
means earnings per share.
SPECIALTY AND COMMERCIAL PRINTERS
<TABLE>
<CAPTION>
MULTIPLES OF LEVERAGED MARKET BIG FLOWER AT BIG FLOWER AT
CAPITALIZATION TO: RANGE(A) MEDIAN(A) MEAN(A) $33.63/SHARE(B) $35.25/SHARE(C)
- ------------------------------------------ ------------- ----------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
LTM Sales................................. 0.6x-1.8x 1.1x 1.1x 1.0x 1.0x
LTM EBIT.................................. 8.1x-13.3x 12.3x 11.5x 12.2x 11.6x
LTM EBITDA................................ 4.7x-10.0x 7.1x 7.1x 7.6x 7.2x
1999 Estimated EBITDA..................... 4.3x-7.8x 6.7x 6.3x 6.6x 6.9x
P/E MULTIPLE
1999 Estimates............................ 11.3x-17.2x 14.6x 14.2x 15.7x 16.4x
2000 Estimates............................ 10.1x-15.3x 11.6x 12.3x 13.2x 13.1x
1999 P/E/5-year EPS Growth................ 0.6x-1.5x 0.9x 1.0x 1.0x 1.1x
</TABLE>
37
<PAGE>
DIRECT MARKETING SERVICES
<TABLE>
<CAPTION>
MULTIPLES OF LEVERAGED MARKET BIG FLOWER AT BIG FLOWER AT
CAPITALIZATION TO: RANGE(A) MEDIAN(A) MEAN(A) $33.63/SHARE(B) $35.25/SHARE(C)
- ------------------------------------------ ------------- ----------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
LTM Sales................................. 0.6x-6.7x 2.8x 3.1x 1.0x 1.0x
LTM EBIT.................................. 8.0x-26.1x 15.0x 16.7x 12.2x 11.6x
LTM EBITDA................................ 6.1x-18.6x 13.1x 12.7x 7.6x 7.2x
1999 Estimated EBITDA..................... 5.4x-16.5x 10.9x 10.9x 6.6x 6.9x
P/E MULTIPLE
1999 Estimates............................ 10.7x-39.1x 21.3x 23.6x 15.7x 16.4x
2000 Estimates............................ 9.2x-30.1x 18.1x 18.9x 13.2x 13.1x
1999 P/E/5-year EPS Growth................ 0.5x-1.6x 1.1x 1.0x 1.0x 1.1x
</TABLE>
DIGITAL MEDIA SERVICES
<TABLE>
<CAPTION>
MULTIPLES OF LEVERAGED MARKET BIG FLOWER AT BIG FLOWER AT
CAPITALIZATION TO: RANGE(A) MEDIAN(A) MEAN(A) $33.63/SHARE(B) $35.25/SHARE(C)
- ------------------------------------------ ------------- ----------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
LTM Sales................................. 1.0x-5.5x 1.8x 2.8x 1.0x 1.0x
LTM EBIT.................................. 9.8x-21.8x 13.0x 14.9x 12.2x 11.6x
LTM EBITDA................................ 7.6x-16.2x 7.6x 10.5x 7.6x 7.2x
1999 Estimated EBITDA..................... 4.8x-12.2x 5.2x 7.4x 6.6x 6.9x
P/E MULTIPLE
1999 Estimates............................ 13.3x-24.2x 13.6x 17.0x 15.7x 16.4x
2000 Estimates............................ 10.1x-18.7x 11.7x 13.5x 13.2x 13.1x
1999 P/E/5-year EPS Growth................ 0.7x-0.8x 0.7x 0.7x 1.0x 1.1x
</TABLE>
- ------------------------
(a) Earnings estimates were based upon I/B/E/S International, Inc. earnings
estimates. I/B/E/S International Inc. is a data service that monitors and
publishes compilations of earnings estimates by selected research analysts
regarding companies of interest to institutional investors. EBITDA estimates
used in the foregoing analysis were based upon estimates of reputable
research analysis.
(b) For these calculations, the LTM data were derived from the Company's Form
10-Q filed for the period ending March 31, 1999 and Form 10K filed for the
Company's fiscal year ending December 31, 1998, the earnings estimates data
were based upon I/B/E/S International, Inc., and the 1999 estimated EBITDA
was based upon management's projections.
(c) For these calculations, the LTM data were based upon management's projected
balance sheet and pro forma income statement information for the twelve
month period ending September 30, 1999, the time period most relevant based
upon the estimated closing of this particular proposal, the earnings
estimates data were based management's projected EPS for 1999 and 2000, and
the 1999 estimated EBITDA was based upon management's projections.
SELECTED TRANSACTIONS ANALYSIS. Goldman Sachs reviewed and analyzed
transaction value as a multiple of the LTM EBITDA for 21 previous acquisitions
made by Big Flower and some of its business units from 1994 to 1999. The table
below summarizes the results of the analysis.
<TABLE>
<CAPTION>
BUSINESS UNIT RANGE AVERAGE
- ----------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Consolidated Big Flower................................................ 5.1x-8.1x 6.2x
Insert Advertising and Newspaper Services.............................. 4.1x-5.8x 5.1x
Direct Marketing Services.............................................. 3.3x-40.7x 12.5x
Premedia Services...................................................... 3.9x-5.8x 4.9x
Broadcast Services..................................................... 7.8x-8.8x 8.3x
</TABLE>
38
<PAGE>
The overall average EBITDA multiple was 7.3x and the weighted average
overall EBITDA multiple was 5.9x as compared to an estimated LTM EBITDA multiple
of 7.2x for the merger. Excluding the 1998 acquisition of Colorstream
Technologies LLC, which was categorized as a direct marketing services
acquisition, resulted in an overall average EBITDA multiple of 5.7x and a
weighted average overall EBITDA multiple of 5.8x as compared to an EBITDA
multiple of 7.2x for the merger. The transaction value for Colorstream
Technologies LLC was 40.7x LTM EBITDA.
DISCOUNTED CASH FLOW ANALYSIS. Goldman Sachs performed a discounted cash
flow analysis of Big Flower utilizing Big Flower's management projections for
the years 1999 through 2004. Goldman Sachs calculated the net present value of
free cash flows for the years 1999 through 2004 using discount rates ranging
from 11.0% to 15.0%. Goldman Sachs calculated the implied value of equity per
share in the year 2004 based on multiples ranging from 4.5x projected 2004
EBITDA to 8.0x projected 2004 EBITDA and then discounted these implied values
using discount rates ranging from 11% to 15%. This analysis showed that the
implied value of equity per share for the Big Flower common stock ranged from a
low of $17.40 to a high of $56.69.
ILLUSTRATIVE FUTURE MARKET TRADING PRICES ANALYSIS. Goldman Sachs
calculated potential market trading prices for the Big Flower common stock.
Goldman Sachs multiplied potential price/earnings multiples ranging from 9.0x to
18.0x by actual earnings per share for 1998 and estimated earnings per share for
years 1999 to 2001 provided by Big Flower's management. The potential future
stock prices for the Big Flower common stock ranged from $28.95 to $57.90 using
price/earnings multiples. Goldman Sachs also calculated the present value of
these potential future stock prices based on discount rates ranging from 12.0%
to 18.0%. The analyses resulted in a range of present values of the potential
future stock prices for the Big Flower common stock of $23.54 to $50.25 using
the present value analysis of price/earnings multiples.
In addition, Goldman Sachs multiplied potential EBITDA multiples ranging
from 5.0x to 8.0x by estimated EBITDA for the year 2000 provided by Big Flower's
management. The potential future stock prices for the Big Flower common stock
ranged from $26.01 to $60.78 using EBITDA multiples. Goldman Sachs also
calculated the present value of these potential future stock prices using
discount rates ranging from 12.0% to 18.0%. The analyses resulted in a range of
present values of the potential future stock price of Big Flower of $21.15 to
$52.75 using the present value analysis of EBITDA multiples.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying the Goldman Sachs opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of each of these analyses in their
totality. No company or transaction used in the above analyses as a comparison
is directly comparable to Big Flower, or the merger. The analyses were prepared
solely for the purpose of Goldman Sachs' providing its opinion to the
independent directors of Big Flower as to the fairness from a financial point of
view of the consideration to the holders of common stock of Big Flower (other
than the members of management who are retaining shares in the merger) and do
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by those analyses.
Because these analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties or their advisors,
none of Big Flower, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast. As described above,
Goldman Sachs' opinion to the Big Flower board of directors was one of many
factors taken into consideration by the independent directors of Big Flower in
making its determination to approve the merger agreement. This summary is not a
complete description of the
39
<PAGE>
analysis performed by Goldman Sachs. You should read the entire opinion of
Goldman Sachs in APPENDIX B.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Big Flower since it has provided various investment banking
services to Big Flower in the past. These services include having acted as:
- lead-managing underwriter of a public offering of 6,708,524 shares of Big
Flower common stock in June 1997;
- a co-managing underwriter of a private offering of $250,000,000 principal
amount of its 8.875% notes due July 1, 2007 in June 1997;
- lead-managing underwriter of a private offering of $115,000,000 principal
amount of its 6.00% Convertible QUIPS due October 15, 2027 in October
1997;
- a co-managing underwriter of a private offering of $100,000,000 principal
amount of its 8.875% notes due July 1, 2007 in October 1997; and
- a co-managing underwriter of a private offering of $250,000,000 principal
amount of its 8.625% Notes due December 1, 2008 in December 1998.
Goldman Sachs holds securities, including derivative securities, of Big
Flower for its own account and for the accounts of its customers in the course
of its normal trading activity. As of June 28, 1999, which is the last business
day prior to the rendering of its opinion, Goldman Sachs held the following
positions:
<TABLE>
<CAPTION>
LONG POSITION SHORT POSITION
----------------------------- ----------------------------
<S> <C> <C>
Big Flower common stock............................. 262,814 shares 12,500 shares
QUIPS............................................... $250,000 principal amount $27,000 principal amount
</TABLE>
In addition, Goldman Sachs has provided from time to time, and currently
provides, numerous investment banking services to Thomas H. Lee Company and its
affiliates. Goldman Sachs may provide similar services to Thomas H. Lee Company
and Evercore Capital Partners in the future.
Big Flower engaged Goldman Sachs to explore strategic alternatives,
including the possible sale of all or a portion of the stock or assets of Big
Flower. A retainer fee of $250,000 became payable to Goldman Sachs by Big Flower
upon the engagement of Goldman Sachs. The retainer fee will be credited against
a transaction fee of (1) 0.5% of the first $1.75 billion in aggregate
consideration paid in the merger and (2) 0.2% of the first $250 million in
aggregate consideration paid in the merger in excess of $1.75 billion, which is
payable upon completion of the merger. In addition, Big Flower has agreed to
reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including the
fees and expenses of Goldman Sachs' attorneys, and to indemnify Goldman Sachs
against various liabilities, including certain liabilities under the federal
securities laws.
40
<PAGE>
BERENSON MINELLA & COMPANY
Big Flower retained Berenson Minella on March 17, 1999 as a financial
advisor in connection with the exploration of certain strategic alternatives,
including, among other things, a potential sale of the stock or assets of Big
Flower or a business combination, reorganization, recapitalization or similar
transaction. On June 24, 1999, Big Flower engaged Berenson Minella to render an
opinion to the board of directors with respect to the fairness, from a financial
point of view as of the date of the opinion, of the merger consideration to the
holders of Big Flower common stock (other than the members of management who are
retaining shares in the merger). Berenson Minella is a nationally recognized
investment banking firm and was selected by Big Flower based on its substantial
experience and expertise in transactions similar to the merger.
On June 24, 1999, at the board of directors meeting held to evaluate the
merger, Berenson Minella presented to the board of directors the financial
analyses performed by Berenson Minella in connection with the preparation of its
opinion. Berenson Minella informed the Big Flower board of directors that
Berenson Minella was prepared to deliver an oral opinion with respect to the
fairness, from a financial point of view, of the merger consideration to be
received by the holders of Big Flower common stock other than the members of
management retaining shares of Big Flower common stock in the merger, as to whom
Berenson Minella did not deliver an opinion, assuming the negotiation and
execution of a definitive merger agreement. On June 29, 1999, Berenson Minella
delivered a written opinion to the Big Flower board of directors with respect to
the fairness, from a financial point of view, of the merger consideration to be
received by the holders of Big Flower common stock, other than the members of
management retaining shares of Big Flower common stock in the merger, as to whom
Berenson Minella did not deliver an opinion, to the effect that, as of June 29,
1999, and based upon and subject to certain factors stated in the written
opinion, the merger consideration is fair, from a financial point of view, to
the holders of Big Flower common stock (other than the members of management
retaining shares of Big Flower common stock in the merger, as to whom Berenson
Minella did not deliver an opinion).
THE FULL TEXT OF THE WRITTEN OPINION OF BERENSON MINELLA, DATED JUNE 29,
1999, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS DOCUMENT AS APPENDIX C AND IS
INCORPORATED IN THIS DOCUMENT BY REFERENCE. HOLDERS OF BIG FLOWER COMMON STOCK
ARE URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. THE OPINION OF
BERENSON MINELLA IS DIRECTED SOLELY TO THE BIG FLOWER BOARD OF DIRECTORS (AND
NOT TO THE STOCKHOLDERS OF BIG FLOWER) AND RELATES ONLY TO THE FAIRNESS OF THE
CONSIDERATION, FROM A FINANCIAL POINT OF VIEW, TO BE RECEIVED BY THE HOLDERS OF
BIG FLOWER COMMON STOCK (OTHER THAN THE MEMBERS OF MANAGEMENT RETAINING SHARES
OF BIG FLOWER COMMON STOCK IN THE MERGER, AS TO WHOM BERENSON MINELLA DID NOT
DELIVER AN OPINION), DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR THE
MERGER AGREEMENT AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS
TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE BIG FLOWER MEETING. IN ADDITION,
BERENSON MINELLA EXPRESSED NO OPINION AS TO THE PRICES AT WHICH THE PIK
PREFERRED STOCK
OR THE WARRANTS, WHEN THEY ARE ISSUED, WILL TRADE AFTER THE MERGER OR WHETHER
ANY MARKET FOR THE PIK PREFERRED STOCK OR THE WARRANTS WOULD DEVELOP AFTER THE
MERGER. THIS SUMMARY OF THE OPINION OF BERENSON MINELLA DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In arriving at its opinion, Berenson Minella, among other things:
- Reviewed the latest draft of the merger agreement dated June 27, 1999;
- Reviewed, and discussed with members of management of Big Flower, certain
business and financial information relating to Big Flower that Berenson
Minella deemed relevant, including Big Flower's recent public filings and
financial statements;
41
<PAGE>
- Reviewed, and discussed with members of management of Big Flower, certain
information, including budgets and financial forecasts relating to the
businesses, earnings, cash flows, assets, liabilities and prospects of Big
Flower;
- Reviewed the historical stock prices and trading volumes of Big Flower's
common stock;
- Reviewed certain information and documentation regarding the terms of the
PIK preferred stock and reviewed certain valuation methodologies relating
to the PIK preferred stock;
- Reviewed certain publicly available information regarding publicly traded
companies that Berenson Minella deemed reasonably comparable to Big
Flower;
- Reviewed certain publicly available information regarding comparable
merger and acquisition transactions that Berenson Minella deemed relevant,
including, without limitation, premiums paid in such transactions;
- Performed discounted cash flow analyses based on the financial forecasts
for Big Flower, as applicable;
- Participated in certain discussions among management of Big Flower, Thomas
H. Lee Company and their financial advisors regarding Big Flower and the
merger;
- Reviewed the potential pro forma impact of the merger; and
- Reviewed such other information, performed such other analyses and took
into account such other factors as Berenson Minella deemed relevant.
In its review and analysis and in formulating its opinion, Berenson Minella
assumed and relied upon the accuracy and completeness of all information
supplied or otherwise made available to it by Big Flower or obtained by Berenson
Minella from other sources, and upon the assurance of Big Flower's management
that they were not aware of any information or facts that would make the
information provided to Berenson Minella by Big Flower incomplete or misleading.
Berenson Minella did not attempt to verify independently any of the information
supplied or otherwise made available to Berenson Minella by Big Flower or
obtained by Berenson Minella from other sources. Berenson Minella did not
undertake an independent valuation or appraisal of assets or liabilities
(contingent or otherwise) of Big Flower, nor was Berenson Minella furnished with
any such valuations or appraisals of assets or liabilities (contingent or
otherwise) of Big Flower. Berenson Minella did not assume any obligation to, and
accordingly did not, conduct any physical inspection of the properties or
facilities of Big Flower. Berenson Minella assumed, without independent
verification, the accuracy of all representations and statements made by
officers and management of Big Flower. With respect to the financial forecasts
for Big Flower, Berenson Minella was advised by Big Flower and assumed, without
independent investigation, that they had been reasonably prepared and reflected
management's most currently available estimates and judgments as to the expected
future financial performance of Big Flower. Berenson Minella noted that its
opinion was necessarily based upon financial, economic, market and other
conditions as they existed and could be evaluated by Berenson Minella on the
date of its written opinion. Additionally, Berenson Minella noted that Big
Flower announced publicly, by a press release dated April 20, 1999, that it was
exploring certain strategic alternatives and a substantial number of financial
and strategic buyers were either contacted by, or contacted, Big Flower and its
financial advisors and studied a potential acquisition of Big Flower. Although
Berenson Minella evaluated the merger consideration from a financial point of
view, it was not asked to and did not recommend the specific type of
consideration payable in the merger, which was determined through negotiations
between Big Flower and Thomas H. Lee Company.
In preparing its opinion, Berenson Minella performed a variety of financial
and comparative analyses, including those described below. The summary of such
analyses does not purport to be a
42
<PAGE>
complete description of the analyses underlying Berenson Minella's opinion. The
preparation of a fairness opinion is a complete analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Furthermore, in arriving at its opinion, Berenson Minella
did not attribute any particular weight to any analysis or factor considered by
it, but rather made qualitative judgments as to the significance and relevance
of each analysis and factor. Accordingly, Berenson Minella believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and factors, without considering all analyses and factors, could create
a misleading or incomplete view of the process underlying such analyses and
opinion. In its analyses, Berenson Minella made numerous assumptions with
respect to Big Flower, industry performance, general business, economic, market
and financial conditions and other matters, many of which are beyond Big
Flower's control. The estimates contained in such analyses and the valuation
ranges resulting from any particular analysis are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by such analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. Berenson Minella's opinion and
analyses were only one of various factors considered by the Big Flower board of
directors in its evaluation of the merger and should not be viewed as
determinative of the view of the board of directors or management of Big Flower
with respect to the merger consideration to be received by the holders of common
stock of Big Flower (other than the members of management retaining shares of
Big Flower common stock in the merger, as to whom Berenson Minella did not
deliver an opinion) or the merger.
THE FOLLOWING IS A SUMMARY OF CERTAIN ANALYSES PERFORMED BY BERENSON MINELLA
IN CONNECTION WITH ITS OPINION. SOME OF THE SUMMARIES OF THE FINANCIAL ANALYSES
INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. THE TABLES MUST BE READ
TOGETHER WITH THE TEXT ACCOMPANYING EACH SUMMARY, IN ORDER TO FULLY UNDERSTAND
THE FINANCIAL ANALYSES. THE TABLES DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF
THE FINANCIAL ANALYSES.
HISTORICAL FINANCIAL INFORMATION. Berenson Minella reviewed the audited
financial statements of Big Flower for the fiscal years ended December 31, 1996,
1997 and 1998, and the unaudited income statement and balance sheet of Big
Flower for the three (3) months ended March 31, 1999.
PROJECTED FINANCIAL INFORMATION. Berenson Minella reviewed the financial
forecasts for the fiscal years ended December 31, 1999 through 2004.
STOCK TRADING HISTORY. Berenson Minella reviewed Big Flower's market
statistics, including Big Flower's price to earnings ("PE") multiple as of June
22, 1999, and Big Flower's earnings per share ("EPS") for the last twelve months
("LTM"). Berenson Minella also reviewed Big Flower's total enterprise value, and
calculated multiples of LTM 1999 and 2000 revenues, operating income (earnings
before interest and taxes or "EBIT") and earnings before interest, taxes,
depreciation and amortization ("EBITDA") based on the total enterprise value.
Berenson Minella reviewed the stock trading history of Big Flower,
including:
- the price per share of Big Flower common stock at Big Flower's initial
public offering in 1995;
- the 52-week high and low prices per share of Big Flower common stock as of
June 29, 1999;
- the trading volumes of Big Flower common stock over the six-month period
preceding June 29, 1999;
43
<PAGE>
- the daily price per share of Big Flower common stock for the period
December 29, 1998 through June 29, 1999;
- the weekly price per share of Big Flower common stock for the period July
1, 1998 through June 29, 1999; and
- the price per share of Big Flower common stock immediately preceding the
announcement, on April 20, 1999, that Big Flower was authorized by its
board of directors to explore strategic alternatives.
In addition, Berenson Minella reviewed Big Flower's investments in both
public and private Internet related entities. In reviewing the 1999 stock price
performance of the Big Flower common stock, Berenson Minella considered the
estimated value of the Internet investments per share of Big Flower common
stock, assuming the Internet investments could be liquidated at the prevailing
market prices. In estimating this per share value, Berenson Minella calculated
the after-tax market value of the Internet investments (based on the daily
closing prices for public investments and Big Flower's cost basis for private
investments and subtracting any sharing interests in profits held by employees
of Big Flower).
COMPARISON WITH SELECTED COMPARABLE PUBLICLY TRADED COMPANIES. Berenson
Minella reviewed and compared certain financial data of each of nine printing
companies deemed similar to Big Flower, based upon financial information
publicly available and stock prices as of June 22, 1999. The companies compared
were Banta Corp., Cadmus Communications Corp., Consolidated Graphics, Inc.,
Cunningham Graphics International Inc., RR Donnelly & Sons Company, Mail-Well
Inc., Master Graphics Inc., Quebecor Printing Inc. and World Color Press, Inc.
For each comparable printing company, Berenson Minella calculated: (i) the
equity value; (ii) the PE multiples for the LTM, estimated for 1999 and
estimated for 2000; (iii) the enterprise value; (iv) the ratio of the enterprise
value to EBITDA for the LTM, estimated for 1999 and estimated for 2000; and (v)
the ratio of the enterprise value to the LTM revenues.
The following table presents Berenson Minella's observations with regard to
the calculations it performed for the printing companies that Berenson Minella
deemed similar to Big Flower.
PRINTING COMPANIES
<TABLE>
<CAPTION>
PE MULTIPLE RANGE
- ------------------------------------------------------ ----------------
<S> <C>
LTM................................................... 9.0x - 19.0x
1999 Estimated........................................ 8.3x - 16.9x
2000 Estimated........................................ 6.2x - 15.1x
<CAPTION>
RATIO OF ENTERPRISE VALUE TO: RANGE
- ------------------------------------------------------ ----------------
<S> <C>
LTM EBITDA............................................ 4.7x - 10.3x
1999 Estimated EBITDA................................. 4.0x - 7.3x
2000 Estimated EBITDA................................. 3.6x - 6.5x
LTM Revenues.......................................... 0.58x - 1.90x
</TABLE>
Of the larger printing companies that Berenson Minella deemed most similar
to Big Flower, Berenson Minella reviewed the median and mean: (i) PE multiples
for the LTM, estimated for 1999 and estimated for 2000; (ii) ratio of the
enterprise value to EBITDA for the LTM, estimated for 1999 and estimated for
2000; and (iii) ratio of the enterprise value to the LTM revenues. Excluded from
this review were Consolidated Graphics, Inc., Cunningham Graphics International
Inc. and Master Graphics Inc.
44
<PAGE>
The following table presents Berenson Minella's observations with regard to
the calculations it performed for the larger printing companies.
LARGER PRINTING COMPANIES
<TABLE>
<CAPTION>
PE MULTIPLE MEDIAN MEAN
- ----------------------------------------------------------- --------- ---------
<S> <C> <C>
LTM........................................................ 14.7x 14.5x
1999 Estimated............................................. 12.6x 12.8x
2000 Estimated............................................. 11.0x 11.3x
<CAPTION>
RATIO OF ENTERPRISE VALUE TO: MEDIAN MEAN
- ----------------------------------------------------------- --------- ---------
<S> <C> <C>
LTM EBITDA................................................. 6.7x 6.4x
1999 Estimated EBITDA...................................... 6.0x 5.7x
2000 Estimated EBITDA...................................... 5.4x 5.3x
LTM Revenues............................................... 0.88x 0.88x
</TABLE>
In comparison, Berenson Minella calculated Big Flower's fully diluted common
stock based upon publicly available financial information and stock prices as of
June 22, 1999 and calculated: (i) Big Flower's LTM PE multiple; (ii) Big
Flower's 1999 estimated PE multiple; (iii) Big Flower's 2000 estimated PE
multiple; (iv) the ratio of Big Flower's enterprise value to its LTM EBITDA; (v)
the ratio of Big Flower's enterprise value to its estimated 1999 EBITDA; (vi)
the ratio of Big Flower's enterprise value to its estimated 2000 EBITDA; and
(vii) the ratio of Big Flower's enterprise value to its LTM revenues.
The following table presents Berenson Minella's observations with regard to
the calculations it performed for Big Flower.
BIG FLOWER
<TABLE>
<S> <C>
LTM PE Multiple................................... 17.8x
1999 Estimated PE Multiple........................ 15.5x
2000 Estimated PE Multiple........................ 13.1x
Ratio of Enterprise Value to:
LTM EBITDA.................................... 6.7x
1999 Estimated EBITDA......................... 5.9x
2000 Estimated EBITDA......................... 5.5x
LTM Revenues.................................. 0.89x
</TABLE>
Based upon its review of comparable multiples, Berenson Minella calculated
the implied valuation per fully diluted share of Big Flower common stock using
Big Flower's LTM EBITDA, 1999 estimated EBITDA, 2000 estimated EBITDA, LTM EPS,
1999 estimated EPS and 2000 estimated EPS and concluded that the implied
valuation per fully diluted share of Big Flower common stock was $27.25 to
$33.50 (including the value of Big Flower's Internet investments).
COMPARISON WITH SELECTED COMPARABLE MERGER AND ACQUISITION
TRANSACTIONS. Berenson Minella reviewed certain recent business combinations
involving North American companies engaged in businesses deemed relatively
comparable to those of Big Flower and reviewed selected financial data and
valuation parameters, to the extent publicly available, including total
enterprise value as a multiple of LTM sales, EBITDA and EBIT, and equity market
value as a multiple of LTM net income and book value.
45
<PAGE>
The following table presents Berenson Minella's observations with regard to
recent merger and acquisition transactions involving North American companies
engaged in businesses that Berenson Minella deemed relatively comparable to
those of Big Flower.
COMPARABLE NORTH AMERICAN COMPANIES INVOLVED IN RECENT
MERGER AND ACQUISITION TRANSACTIONS
<TABLE>
<CAPTION>
TOTAL ENTERPRISE VALUE AS A MULTIPLE OF: RANGE
- ------------------------------------------------------------ ----------------
<S> <C>
LTM Sales................................................... 0.4x - 1.6x
EBITDA...................................................... 5.5x - 11.6x
EBIT........................................................ 6.7x - 17.6x
<CAPTION>
EQUITY MARKET VALUES AS A MULTIPLE OF: RANGE
- ------------------------------------------------------------ ----------------
<S> <C>
LTM Net Income.............................................. 9.8x - 57.5x
Book Value.................................................. 1.7x - 12.9x
</TABLE>
Based upon its review of companies involved in comparable merger and
acquisition transactions, Berenson Minella calculated the implied valuation per
fully diluted share of Big Flower common stock using Big Flower's LTM revenues,
LTM EBITDA and LTM EBIT and concluded that the implied valuation per fully
diluted share of Big Flower common stock was $32.00 to $39.25 (including the
value of Big Flower's internet investments), but noted that many of these
precedent transactions involved strategic buyers who could recognize significant
synergies or cost savings or eliminate duplicative operations.
DISCOUNTED CASH FLOW ANALYSIS. Berenson Minella utilized a discounted cash
flow analysis to calculate the implied equity values per fully diluted share of
Big Flower common stock based upon the discounted net present value (utilizing
discount rates ranging from 10% to 14%) of the sum of the projected stream of
after-tax unlevered free cash flows of Big Flower for the period from March 1999
through 2004 and the projected terminal value of Big Flower at 2004 by applying
multiples ranging from 6.0x to 7.0x to Big Flower's projected EBITDA in 2004. In
performing its calculations, Berenson Minella observed that the implied value
per fully diluted share of Big Flower common stock ranged from a low of $30.92
to a high of $50.86 (including the value of Big Flower's Internet investments).
PREMIUMS PAID ANALYSIS. In performing its premium paid analysis, Berenson
Minella screened the transactions analyzed based on the following criteria: (i)
the transactions were announced after January 1, 1997 and closed after January
1, 1997; (ii) only completed or unconditional transactions were analyzed; and
(iii) the value of each transaction analyzed was between $1.5 billion and $2.5
billion.
Berenson Minella compared the premiums paid relative to the acquired
companies' stock values one day prior to announcement of the transaction, five
days prior to announcement of the transaction and 30 days prior to announcement
of the transaction, and observed that: (i) in the case of one day prior to
announcement, the premiums ranged from a minimum of negative 16.11% to a maximum
of 100.85%; (ii) in the case of five days prior to announcement, the premiums
ranged from a minimum of negative 11.49% to a maximum of 154.07%; and (iii) in
the case of 30 days prior to announcement, the premiums ranged from a minimum of
negative 27.35% to a maximum of 163.14%.
BERENSON MINELLA'S RELATIONSHIP WITH BIG FLOWER
Berenson Minella manages a profit sharing plan, for the benefit of its
employees, that holds shares of common stock of Big Flower. In addition,
partners and employees of Berenson Minella hold common stock of Big Flower for
their own account. As of June 29, 1999, the profit sharing plan
46
<PAGE>
managed by Berenson Minella and the individual employees of Berenson Minella
collectively held approximately 170,000 shares of common stock of Big Flower.
Pursuant to the terms of Berenson Minella's engagement by Big Flower,
Berenson Minella is to receive a quarterly retainer fee of $40,000 for its
services as a financial advisor. The first payment was made during the first
quarter of 1999, the second payment was made on or about April 1, 1999 and the
third payment was made in July of 1999. In addition, Berenson Minella is to
receive a fee of 0.4% of the transaction value of the merger if the merger is
consummated. The transaction value, as set forth in the engagement letter, dated
March 17, 1999, between Big Flower and Berenson Minella includes (i) the
aggregate value of cash, debt or equity securities (calculated at fair market
value) received by Big Flower's stockholders and optionholders in connection
with the merger plus (ii) the aggregate principal amount of any indebtedness
(including QUIPS and Big Flower's off-balance sheet accounts receivable
securitization facility) and preferred stock of Big Flower which is assumed,
refinanced or renegotiated as part of the merger, all as of the date of the
closing of the merger minus (iii) any consideration paid or payable by
optionholders in connection with the exercise of options. Big Flower has also
agreed to reimburse Berenson Minella for reasonable out-of-pocket expenses
incurred in performing its services, including the reasonable fees and expenses
of its outside legal counsel, and to indemnify Berenson Minella and related
persons against certain liabilities, including liabilities under the federal
securities laws, arising out of Berenson Minella's engagement. Berenson Minella
was also engaged to deliver an opinion, from a financial point of view, as to
the fairness of the merger consideration. Berenson Minella was not paid a
separate fee to render its opinion.
FAIRNESS OF THE MERGER
Thomas H. Lee Equity Fund IV, Evercore Capital Partners and the members of
management who are retaining shares of Big Flower common stock in the merger
believe the merger is fair to Big Flower stockholders. However, none of Thomas
H. Lee Equity Fund IV, Evercore Capital Partners or such members of management
has undertaken any formal evaluation of the fairness of the merger to Big
Flower's stockholders. Because of the variety of factors considered, Thomas H.
Lee Equity Fund IV and Evercore Capital Partners did not find it practicable to
make specific assessments of, quantify or otherwise assign relative weights to
the specific factors considered in reaching their determination. The
determination was made after consideration of all the factors together. These
factors include:
(1) the current and past trading prices of Big Flower common stock compared
to the common stock of other similar companies;
(2) the fact that the merger will provide Big Flower stockholders with a
premium for their shares compared to the market price of Big Flower
common stock on April 19, 1999, the date immediately prior to the time at
which Big Flower publicly announced that it was going to explore possible
strategic alternatives;
(3) the fact that the merger agreement was the result of an auction process
and arm's length negotiations in which the independent directors of Big
Flower were assisted by financial and legal advisors;
(4) Big Flower advised Thomas H. Lee Company that its proposal was believed
to be the best alternative for Big Flower and its stockholders;
(5) Big Flower's public announcement on April 20, 1999 that it intended to
explore possible strategic transactions, including a possible sale of Big
Flower;
(6) the unanimous recommendation of the Big Flower board of directors, with
management directors abstaining; See "--Big Flower's Reasons for the
Merger; Recommendation of the Big Flower Board of Directors" on page 33;
and
47
<PAGE>
(7) the fact that the Big Flower board of directors received a written
opinion from each of its independent financial advisors as to the
fairness, from a financial point of view, of the merger consideration to
the holders of Big Flower common stock, other than members of management
who are retaining shares of common stock in the merger. See "--Opinions
of Big Flower's Financial Advisors" on page 36.
Thomas H. Lee Equity Fund IV, Evercore Capital Partners and such members of
management believe that these analyses and factors provide a reasonable basis
for them to believe that the merger is fair to Big Flower common stockholders.
This belief should not, however, be construed as a recommendation to Big
Flower's stockholders by Thomas H. Lee Equity Fund IV, Evercore Capital Partners
or such members of management to vote to adopt the merger agreement.
CERTAIN ESTIMATES OF FUTURE OPERATIONS AND OTHER INFORMATION
In connection with the evaluation by certain third parties, including Thomas
H. Lee Company and Evercore Capital Partners, of a possible transaction
involving Big Flower, Big Flower provided certain nonpublic estimates reflecting
management's views as to the possible future performance of Big Flower,
including estimates for the two fiscal years ending in fiscal 2000. These
estimates were based on assumptions that management believed to be reasonable at
the time. Management's belief as to the reasonableness of its estimates and of
the assumptions underlying such estimates is based upon the use of industry data
and management's history of operations of Big Flower.
The material assumptions underlying such estimates were that (i) overall
sales would increase at a growth rate of 4.4% and 6.0% for fiscal 1999 and 2000,
respectively, based upon the historical rate of growth of Big Flower, (ii)
EBITDA and operating income would increase as a result of sales growth and
because of higher growth in Big Flower's higher margin businesses and
efficiencies relating to integrating recently completed acquisitions, and (iii)
there would be no additional acquisitions made during such periods, which
assumption is contrary to the historical operating strategy of Big Flower and
contrary to Big Flower's strategic plans following the merger. This information
was provided to such parties on a confidential basis. A summary of these
estimates is provided in the following table:
<TABLE>
<CAPTION>
FORECAST
--------------------
FISCAL YEAR ENDED
DECEMBER 31,
--------------------
(AMOUNTS IN 000'S) 1999 2000
--------- ---------
<S> <C> <C>
Sales........................................... $1,922,565 $2,037,142
% Growth........................................ 4.4% 6.0%
EBITDA.......................................... $ 267,681 $ 294,919
% Margin........................................ 13.9% 14.5%
EBIT............................................ $ 165,639 $ 192,859
% Margin........................................ 8.6% 9.5%
</TABLE>
THESE ESTIMATES WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
COMPLIANCE WITH PUBLISHED GUIDELINES ESTABLISHED BY THE SECURITIES AND EXCHANGE
COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS. NONE OF BIG FLOWER, THOMAS H. LEE COMPANY, EVERCORE CAPITAL
PARTNERS OR THEIR AFFILIATES OR BIG FLOWER'S INDEPENDENT AUDITORS ASSUME ANY
RESPONSIBILITY FOR THE ACCURACY OF SUCH INFORMATION. IN ADDITION, BECAUSE THESE
ESTIMATES ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND OTHER CONTINGENCIES BEYOND BIG FLOWER'S CONTROL, THERE CAN BE
NO ASSURANCE THAT THESE ESTIMATES WILL BE REALIZED; ACTUAL RESULTS MAY BE HIGHER
OR LOWER THAN THOSE ESTIMATED. SEE "RISK FACTORS" ON PAGE 15. BIG FLOWER DOES
NOT GENERALLY PUBLISH ITS BUSINESS PLANS AND STRATEGIES OR MAKE EXTERNAL
DISCLOSURES OF ITS ANTICIPATED FINANCIAL POSITION OR RESULTS OF OPERATIONS.
ACCORDINGLY, BIG FLOWER DOES NOT INTEND TO, AND SPECIFICALLY DECLINES ANY
OBLIGATION TO, UPDATE OR OTHERWISE REVISE THE PROSPECTIVE FINANCIAL INFORMATION
TO REFLECT
48
<PAGE>
CIRCUMSTANCES EXISTING SINCE THEIR PREPARATION OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS, EVEN IF ANY OR ALL OF THE UNDERLYING ASSUMPTIONS ARE SHOWN
TO BE IN ERROR. ALSO, BIG FLOWER DOES NOT INTEND TO, AND SPECIFICALLY DECLINES
ANY OBLIGATION TO, UPDATE OR REVISE THE PROSPECTIVE FINANCIAL INFORMATION TO
REFLECT CHANGES IN GENERAL ECONOMIC OR INDUSTRY CONDITIONS. NEITHER BIG FLOWER'S
AUDITORS NOR ANY OTHER INDEPENDENT ACCOUNTANTS HAVE COMPILED, EXAMINED OR
PERFORMED ANY PROCEDURES WITH RESPECT TO THESE ESTIMATES, NOR HAVE THEY
EXPRESSED ANY OPINION OR ANY OTHER FORM OF ASSURANCE ON SUCH INFORMATION OR ITS
ACHIEVABILITY, AND ASSUME NO RESPONSIBILITY FOR, AND DISCLAIM ANY ASSOCIATION
WITH, SUCH PROSPECTIVE FINANCIAL INFORMATION.
These estimates do not give effect to the merger and related transactions
and should be read together with "Risk Factors" on page 15 and "Big Flower
Unaudited Pro Forma Financial Information" on page 92.
CONSEQUENCES OF THE MERGER; PLANS FOR BIG FLOWER AFTER THE MERGER
Immediately following the completion of the merger and the related
recapitalization:
(1) All of the common stock of Big Flower will be owned, directly or
indirectly, by Thomas H. Lee Equity Fund IV, Evercore Capital Partners
and the members of management retaining shares of Big Flower common stock
in the merger;
(2) All current stockholders of Big Flower, other than the members of
management retaining shares of Big Flower common stock or options to
purchase such shares in the merger, will not participate in Big Flower's
future earnings and growth other than the right to receive dividends on,
and the liquidation value of, the PIK preferred stock and the right to
buy Big Flower common stock pursuant to the warrants if the warrants
become exercisable;
(3) Thomas H. Lee Equity Fund IV, Evercore Capital Partners and the members
of management retaining shares of Big Flower common stock or options to
purchase such shares in the merger will have the opportunity to benefit
from any earnings and growth of Big Flower, and will bear the risk of any
decrease in Big Flower's value as well as the increased leverage of Big
Flower;
(4) Big Flower will incur a significant amount of additional debt;
(5) Big Flower's common stock will no longer be traded on the NYSE, price
quotations will no longer be available and the registration of Big Flower
common stock under the Securities Exchange Act of 1934 will be
terminated;
(6) The PIK preferred stock and the warrants will be registered under the
Securities Act of 1933, but Big Flower does not expect such PIK preferred
stock or warrants to be listed on any national securities exchange or any
inter-dealer quotation system;
(7) The board of directors of Big Flower after the merger is expected to be
comprised of R. Theodore Ammon, Edward T. Reilly, Thomas H. Lee, Anthony
J. DiNovi, Scott M. Sperling, Roger C. Altman, Austin M. Beutner and two
additional persons to be determined by Thomas H. Lee Equity Fund IV, with
Evercore Capital Partners and R. Theodore Ammon consenting to such two
additional persons; and
(8) Executive officers of Big Flower, including the chairman of the board,
the chief executive officer and the chief financial officer, will be the
executive officers of Big Flower following the merger.
49
<PAGE>
Following the completion of the merger, Thomas H. Lee Equity Fund IV and
Evercore Capital Partners expect that the business and operations of Big Flower
will be continued substantially as they are currently being conducted. The board
of directors and management of Big Flower following the merger will, however,
continue to evaluate Big Flower's business, operations, corporate structure and
organization and will make changes as they deem appropriate.
CONFLICTS OF INTEREST OF CERTAIN MEMBERS OF THE BIG FLOWER BOARD OF DIRECTORS
AND MANAGEMENT
When you consider the recommendations of the Big Flower board of directors,
you should be aware that the members of management retaining shares of Big
Flower common stock or options to purchase such shares in the merger, including
the two management directors, may have interests in the merger that are
different from your interests. These interests may create potential conflicts of
interest. The Big Flower board of directors was aware of these interests when it
approved the merger agreement. The management directors did not participate in
the discussions of the board of directors regarding the merger and related
recapitalization and abstained from voting on the approval by the board of the
merger agreement.
EQUITY INVESTMENT
In the recapitalization that will occur at the same time as the completion
of the merger, some of the shares of Big Flower common stock will be retained by
members of management in the merger. Some of the stock options to acquire shares
of Big Flower common stock may be retained by such holders or may be exchanged,
in whole or in part, for equity interests in Big Flower or for interests in the
investment instrument. It is currently expected that following the merger, the
members of management who retain shares of Big Flower common stock in the merger
will hold approximately 19.0% of Big Flower common stock as a result of such
common stock retention.
The following table sets forth the investments that members of management
are expected to retain in Big Flower in the merger. The investments will consist
of retained shares of common stock and/or existing options to acquire common
stock currently held by such person. Shares of Big Flower common stock have been
valued at $35.25 for this purpose. Each existing option to acquire common stock
has been valued at the difference between $35.25 and the exercise price of the
option, multiplied by the number of shares of Big Flower common stock subject to
such option.
<TABLE>
<CAPTION>
DOLLAR VALUE OF
NUMBER OF EXISTING SHARES DOLLAR VALUE OF
EXISTING SHARES OF EXISTING
OF COMMON STOCK COMMON STOCK TO OPTIONS
TO BE RETAINED BE RETAINED TO BE RETAINED
IN BIG FLOWER IN BIG FLOWER IN BIG FLOWER
NAME(1) IN THE MERGER IN THE MERGER IN THE MERGER
- ---------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
R. Theodore Ammon......................................... - $ - $ -
Edward T. Reilly.......................................... - - -
Mark A. Angelson.......................................... - - -
Richard L. Ritchie........................................ - - -
Employees of Big Flower (- employees)(2).................. - - -
Employees of TC Advertising and subsidiaries
(- employees)........................................... - - -
Employees of Webcraft and subsidiaries
(- employees)........................................... - - -
Employees of Laser Tech Color and subsidiaries
(- employees)........................................... - - -
Employees of Columbine JDS and subsidiaries
(- employees)........................................... - - -
Employees of other Big Flower subsidiaries
(- employees)........................................... - - -
---------------
Total............................................. - - $ -
---------------
---------------
</TABLE>
- ------------------------
(1) The members of management who will be retaining shares of Big Flower common
stock or options to purchase such shares, in each case in the merger, and
the number of shares and/or options each
50
<PAGE>
such person will retain are still being finalized and will be completed upon
the earlier of August 13, 1999 or the date when this proxy
statement/prospectus is first mailed to Big Flower stockholders.
(2) Excluding executive officers.
As of the record date for the Big Flower meeting, the members of management
retaining shares of Big Flower common stock or options to purchase such shares,
in each case in the merger, beneficially owned a total of - shares of Big
Flower common stock, including shares which may be acquired within 60 days upon
exercise of stock options, or approximately - % of the shares of Big Flower
common stock outstanding on such date. Appendix E to this document includes
information relating to transactions since May 17, 1999 involving Big Flower
common stock effected by or on behalf of Thomas H. Lee Equity Fund IV, Evercore
Capital Partners, Big Flower and any directors and executive officers of Big
Flower who are retaining shares of common stock or options to purchase such
shares, in each case in the merger.
ARRANGEMENTS WITH THOMAS H. LEE COMPANY AND EVERCORE CAPITAL PARTNERS
It is expected that Thomas H. Lee Equity Fund IV and Evercore Capital
Partners will enter into an agreement before the merger with respect to various
pre-merger matters, including their relative entitlements to receive (1) a share
of the termination fee if the merger does not occur in circumstances which
trigger the payment of this fee and (2) payment for their out-of pocket fees and
expenses if the merger does not occur in circumstances which trigger the payment
of these fees and expenses up to a cap of $10 million. See "The Merger
Agreement--Termination and Effects of Termination" on page 82.
It is expected that Big Flower will enter into a management agreement with
Thomas H. Lee Company, Evercore Capital Partners or their respective affiliates
under which Thomas H. Lee Company, Evercore Capital Partners or their respective
affiliates will provide consulting and management advisory services to Big
Flower following the merger. In return for those services, Thomas H. Lee Company
or its affiliates will receive an annual management fee of $1.0 million, payable
monthly, and Evercore Advisors Inc. will receive an annual management fee of
$250,000, payable monthly.
AGREEMENTS RELATING TO EQUITY IN BIG FLOWER FOLLOWING THE MERGER
Mr. Ammon has consented to Big Flower's inclusion in the merger agreement of
a reference to his retention of two million shares of Big Flower common stock in
the merger and has understandings with Thomas H. Lee Company and Evercore
Capital Partners with respect to certain governance and shareholders' issues
following the merger. The parties expect to formalize these understandings in a
written shareholders agreement, which is intended to confer rights consistent
with Big Flower's accounting for the merger as a recapitalization.
TREATMENT OF STOCK OPTIONS
In the merger, all outstanding and unexercised Big Flower stock options,
whether vested or unvested, will be treated as follows, unless the optionholders
and BFH Merger Corp. agree otherwise and, in limited circumstances, Big Flower
consents to this agreement:
- a portion of an option may be agreed by an optionholder and BFH Merger
Corp. to be a retained option which will continue to remain outstanding
and will remain subject to all terms and conditions which were applicable
to such option immediately prior to the merger, except that such option
will become fully vested and exercisable for common stock of Big Flower
following the merger; and
51
<PAGE>
- the remaining portion of such option will be designated as an exchanged
option and will be cancelled in exchange for the right to receive from Big
Flower the same merger consideration (including cash, PIK preferred stock
and warrants) received by Big Flower stockholders per share of Big Flower
common stock, in each case multiplied by:
- - a fraction where the numerator is the "spread" of such option (I.E.,
the excess, if any, of $35.25 over the exercise price of such option)
and the denominator is $35.25, and
- - the number of shares of Big Flower common stock subject to such
portion of such option.
The merger agreement currently provides that each option has been designated
as an exchanged option. However, until either August 13, 1999 or, if earlier,
the date when this proxy statement/ prospectus is mailed to Big Flower's
stockholders, BFH Merger Corp. and such optionholder may agree:
- to change the number of such person's options which will be retained and
exchanged as described above, and
- to treat such person's options differently than described above, which
amendment will require Big Flower's consent, not to be unreasonably
withheld.
This document assumes that all options will become retained options,
although an agreement to treat options in this manner has not been reached
between BFH Merger Corp. and optionholders.
SEVERANCE AGREEMENTS
Big Flower has severance agreements with its executive officers and other
key employees. Generally, these agreements provide that if the employment of any
such employee is terminated under specified circumstances within 12 months after
a change of control, the employee will be entitled to receive various benefits.
The completion of the merger may constitute a change of control for purposes of
these agreements. However, Big Flower does not expect to terminate the
employment of any such employees in connection with the merger. The benefits,
which vary depending on the employee, include:
- a cash payment equal to up to three times the current base salary and
highest bonus received in the previous three years;
- the immediate vesting and exercisability of all outstanding equity
incentive awards, including stock options;
- the right to receive a cash payment equal to the spread on all outstanding
stock options;
- a cash payment with respect to foregone fringe benefits;
- additional service credit for purposes of the supplemental retirement
benefit; and
- the payment by Big Flower of the amount necessary, if any, to offset the
effects of any excise tax imposed under Section 4999 of the Internal
Revenue Code of 1986.
The cash payment amounts which would be required to be paid by Big Flower
under the severance agreements to each of the executive officers of Big Flower
upon termination of their employment by Big Flower without cause or by the
executive for good reason (or in the case of Mark A. Angelson, in the event that
he terminates employment with Big Flower) following a change of control are
estimated by Big Flower to be as follows: R. Theodore Ammon, $7.2 million;
Edward T. Reilly, $3.6 million; Mark A. Angelson, $2.3 million; and Richard L.
Ritchie, $1.8 million.
52
<PAGE>
ACCOUNTING TREATMENT
Big Flower will account for the merger as a recapitalization because current
management retaining shares of Big Flower common stock in the merger will have a
significant continuing interest in Big Flower common stock following the merger.
As a result, the merger will have no impact on the historical basis of Big
Flower's assets and liabilities.
SOURCE AND AMOUNT OF FUNDS
EQUITY COMMITMENTS
Thomas H. Lee Equity Fund IV and Evercore Capital Partners have committed to
contribute an aggregate of up to $390 million to BFH Merger Corp. as part of the
merger and related transactions. This amount will be reduced by the value
attributed to the shares of Big Flower common stock and options to purchase such
shares which will be retained by members of management in the merger. Up to $60
million of such equity commitments may be represented by the investment
instrument described below.
The commitments of each of Thomas H. Lee Equity Fund IV and Evercore Capital
Partners are as follows (in millions):
<TABLE>
<CAPTION>
EQUITY INVESTORS COMMITMENT
- -------------------------------------------------------------------------------- ---------------
<S> <C>
Thomas H. Lee Equity Fund IV.................................................... $ 325
Evercore Capital Partners....................................................... $ 65
-----
Total........................................................................... $ 390
-----
-----
</TABLE>
The commitments of each of Thomas H. Lee Equity Fund IV and Evercore Capital
Partners are subject to the execution of documentation customary in financings
of this type.
The merger agreement provides that BFH Merger Corp. may replace up to $60
million of its equity commitment with a cash contribution of such sum to an
investment instrument. The exact terms of the investment instrument have not
been determined. However, the merger agreement provides that BFH Merger Corp.
may establish the terms of an investment instrument. The investment instrument
could take the form of redeemable capital stock of Big Flower, prepaid forward
contracts, or some other securities, instruments or arrangements. One possible
arrangement is the establishment of an entity to be funded by (1) a cash
contribution by BFH Merger Corp. or its affiliates and (2) subject to Big
Flower's existing agreements, a contribution by Big Flower of assets identified
by BFH Merger Corp., in each case in exchange for equity interests in such
entity. The merger agreement provides that any investment instrument can have an
interest or dividend rate of no more than 10% and that any investment instrument
can have a call on the assets of Big Flower, equal to no more than $60 million,
increasing at a rate of 10% per annum, compounded semi-annually. It is expected
that such investment instrument will involve Big Flower's Internet related
assets.
DEBT FINANCINGS
GENERAL. Big Flower and Big Flower Press are expected to enter into debt
financing arrangements at the time of the merger aggregating approximately $870
million. The arrangements are expected to consist of:
- $470 million of senior bank financing; and
- $400 million of high yield financing.
Big Flower Press is expected to enter into the senior bank financing and
will be the primary borrower. Big Flower Press may request that its wholly-owned
foreign subsidiaries be borrowers also.
53
<PAGE>
Big Flower is expected to consummate a high yield financing. It is expected
that the high yield financing will take the form of high yield debt securities.
If Big Flower cannot consummate the issuance and sale of such high yield debt
securities at the time of the merger, Big Flower expects to enter into a bridge
loan for which it has a commitment. The bridge loan would be expected to be on
terms less favorable to Big Flower than the terms of such high yield debt
securities. Also, the bridge loan would initially be expected to bear interest
at a rate in excess of the expected interest rate on such high yield debt
securities, and the rate would increase over time.
It is anticipated that the full proceeds of the high yield financing,
together with a portion of the proceeds of the senior bank financing and the
proceeds of the equity commitments of Thomas H. Lee Equity Fund IV and Evercore
Capital Partners, will be used:
- to finance the cash consideration payable in the merger to the holders of
Big Flower common stock and options to purchase Big Flower common stock
(other than shares and options in Big Flower which are retained by members
of management in the merger) and the QUIPS holders who elect to convert
such QUIPS into Big Flower common stock,
- to refinance certain outstanding indebtedness of Big Flower (including
indebtedness under Big Flower Press' existing senior bank facility) and to
pay related fees and expenses of the merger and related transactions, and
- to provide for Big Flower's and its subsidiaries' working capital and
general corporate requirements after the merger.
On June 28, 1999, BFH Merger Corp. received commitment letters on behalf of
Big Flower Press to provide the senior bank financing and on behalf of Big
Flower to provide a bridge loan relating to the high yield financing. The
commitments are subject to customary conditions, including the negotiation,
execution and delivery of definitive documentation with respect to the
financings contemplated by the commitments.
In addition to the new debt financing, Big Flower Press' existing $600
million of senior subordinated notes will remain outstanding after the merger.
These debt financing arrangements assume the conversion of all outstanding
QUIPS into Big Flower common stock prior to the merger. However, the QUIPS
holders could decide not to convert their QUIPS or could exercise their
conversion rights after the merger. If the QUIPS holders convert their QUIPS
after the merger, they would receive the same consideration they would have
received had they exercised their conversion rights prior to the merger, except
that the PIK preferred stock would not have started accruing dividends until the
QUIPS holder has actually exercised its conversion right.
THE SENIOR BANK FINANCING.
SUMMARY. The senior bank financing is expected to consist of:
- a $200 million term loan facility; and
- a $270 million revolving credit facility.
AGENTS. The Chase Manhattan Bank will act as administrative agent for the
syndicate of lenders providing the senior bank financing; Bankers Trust Company
(or an affiliate) will act as syndication agent for the bank facilities and
NationsBank, N.A. (or an affiliate) will act as documentation agent.
FEES. In its capacity as administrative agent, Chase will receive a
standard annual administrative fee. The revolving credit facility will include a
sub-limit for the issuance of letters of credit. In its capacity as issuing bank
of any letters of credit, Chase will receive a standard fronting fee equal to a
specified percentage per annum of the undrawn face amount of the letters of
credit. Big Flower Press
54
<PAGE>
will also pay to the lenders a commitment fee equal to 0.5% per annum of the
undrawn portion of each lender's commitment from time to time.
INTEREST. Borrowings made under the revolving credit facility will bear
interest at a rate equal to, at Big Flower Press' option, a eurodollar rate
(LIBOR) plus 2.25%, or the base rate plus 1.25%. Borrowings made under the term
loan facility will bear interest at a rate equal to, at Big Flower Press'
option, a eurodollar rate (LIBOR) plus 2.50% or the base rate plus 1.50%. The
base rate is a fluctuating interest rate equal to the higher of (i) the rate of
interest announced publicly by the administrative agent as its prime commercial
lending rate and (ii) a rate equal to one-half of 1% per annum above the Federal
Funds Effective Rate, as published by the Federal Reserve Bank of New York.
Base rate interest will be payable quarterly in arrears. Eurodollar rate
interest will be payable in arrears at the earlier of the end of (i) the
applicable interest period or (ii) each quarter. Eurodollar rate borrowings are
available in 1-, 2-, 3- or 6-month interest periods.
The eurodollar rate and base rate margins and the commitment fees will be
subject to reductions, based on various tests of Big Flower Press' financial
performance. The eurodollar rate and base rate margins will be subject to an
increase of 0.25% based on the credit rating of the senior bank financing.
MATURITY. The revolving credit facility matures six years after funding.
The term loan facility matures eight years after funding, PROVIDED THAT the
maturity date will be March 31, 2007 if a refinancing of certain existing
subordinated debt does not occur on specified terms by March 31, 2007.
The term loan facility will amortize in quarterly installments of $250,000
starting six months from funding and ending seven years from funding, and
thereafter will amortize in equal quarterly installments through maturity.
GUARANTEES AND SECURITY. The obligations of Big Flower Press and the
subsidiary borrowers (if any) under the senior bank financing credit agreement
will be guaranteed by Big Flower and each of its domestic subsidiaries (other
than Big Flower Press), and the obligations of the borrowers and the guarantors
will be secured by substantially all assets of the borrowers and the guarantors.
The obligations of foreign subsidiary borrowers, if any, under the senior bank
financing credit agreement may also be guaranteed by (and secured by the assets
of) their respective subsidiaries on a basis to be determined.
CREDIT AGREEMENT. It is expected that the senior bank financing credit
agreement will contain customary covenants of Big Flower and its subsidiaries
(other than certain unrestricted subsidiaries on a basis to be agreed).
Restrictions which would be expected are restrictions on:
- indebtedness,
- the sale of certain assets,
- sale/leaseback transactions and lease payments,
- changes in business,
- issuances of stock,
- certain mergers, acquisitions, joint ventures, partnerships and other
business combinations,
- voluntary prepayment of certain debt,
- transactions with affiliates and formation of subsidiaries,
- capital expenditures,
- liens,
55
<PAGE>
- loans and investments, and
- subject to certain exceptions, the payment of dividends to, or the
repurchase or redemption of stock from, shareholders.
The senior bank financing credit agreement would also include financial
covenants, such as requirements to maintain certain levels of interest coverage
and debt to EBITDA (earnings before interest, taxes, depreciation and
amortization).
Pursuant to the terms of the senior bank financing credit agreement, and
subject to applicable grace periods in some circumstances, Big Flower Press
would be in default if principal or interest was not paid when due under the
credit agreement or, upon the non-fulfillment of the covenants described above,
on certain changes in control of the ownership of Big Flower Press or various
other defaults (including bankruptcy, cross defaults, and invalidity of security
and guarantees). If a default occurs, the senior bank financing lenders would be
entitled to take all actions permitted to be taken by a secured creditor under
the Uniform Commercial Code and to accelerate the amounts due under the senior
bank financing credit agreement and may require all such amounts to be
immediately paid in full.
Subject to customary exceptions, loans under the term loan facility will be
required to be prepaid, as follows:
- with 50% of the annual excess cash flow (to be defined in the senior bank
financing credit agreement and subject to limits to be specified in the
credit agreement),
- with 50% of the net cash proceeds from certain equity issuances by, or
capital contributions to, Big Flower and its subsidiaries, and
- with 100% of the net cash proceeds of certain asset sales, certain
insurance and condemnation proceeds and certain debt issuances of Big
Flower and its subsidiaries.
Big Flower Press will be permitted to own, create or acquire subsidiaries
designated as "unrestricted subsidiaries" in some circumstances. These
unrestricted subsidiaries will not provide guarantees or collateral security or
be subject generally to the covenants contained in the loan documentation.
THE HIGH YIELD FINANCING
SUMMARY. The high yield financing is expected to consist of:
- a $400 million offering of Big Flower securities in the form of notes, or
- a $400 million unsecured bridge loan financing of Big Flower that would be
anticipated to be replaced with debt securities substantially similar to
the high yield notes as soon as practicable after the merger.
Big Flower will utilize the bridge loan financing if the high yield notes
are not issued at the time of the merger.
High Yield Notes
INTEREST, MATURITY. The high yield notes are expected to have an interest
rate, maturity date and other financial terms based on market conditions at the
time of issuance.
INITIAL PURCHASERS, AGENTS. On behalf of Big Flower, BFH Merger Corp. has
engaged Deutsche Bank Securities Inc., Chase Securities Inc. and Bank of America
Securities LLC to act as underwriters, placement agents or initial purchasers
for the high yield notes.
REGISTRATION. The high yield notes are expected to be issued in a
transaction which is not a public offering but which anticipates resales
pursuant to Rule 144A of the Securities Act of 1933 to qualified
56
<PAGE>
institutional buyers and non-U.S. persons. Accordingly, they are not expected to
be registered under the Securities Act of 1933 upon their original issuance, but
are expected to have registration rights.
INDENTURE. The high yield notes indenture is expected to contain customary
covenants that will restrict, among other things, the ability of Big Flower and
certain of its subsidiaries to:
- incur additional indebtedness,
- pay dividends or make certain other restricted payments,
- incur liens,
- apply net proceeds from certain asset sales,
- merge or consolidate with any other person, or sell, assign, transfer,
lease, convey or otherwise dispose of substantially all of the assets of
Big Flower, or
- enter into certain transactions with affiliates.
The high yield notes indenture is also expected to contain events of default
which are customary for transactions of this type.
Bridge Loan Financing
FUNDING. The bridge loan financing would be funded in a principal amount of
up to $400 million if the high yield notes are not issued by Big Flower at the
time of the merger.
SECURITY. The bridge loan financing would be unsecured.
FEES. Big Flower would pay customary fees.
MATURITY. The bridge loan financing would mature on the earlier of (i) one
year after funding, and (ii) the closing date of any permanent refinancing of
the bridge loan financing.
CONVERSION OF BRIDGE LOAN FINANCING INTO TERM LOAN AND/OR LONG-TERM
NOTES. If Big Flower fails to refinance the bridge loan financing in full by
one year after funding, the bridge loan financing would be converted to a term
loan maturing in ten years. This loan would bear interest at the then prevailing
market rates for such loans, and would be evidenced by a loan agreement with
terms no less favorable than with respect to the terms for the bridge loan.
At any time after this conversion date, upon 30 days' notice to Big Flower,
the bridge lenders may at their option require that Big Flower exchange the term
loan for long-term notes. These would have similar terms and conditions to high
yield debt securities issued for cash in the then prevailing financial markets.
Big Flower does not expect to register these long-term notes upon their
initial issuance to the bridge lenders, relying on a private placement exemption
under the Securities Act of 1933. With respect to subsequent resales of these
long-term notes, it is expected that the holders would have registration rights
or could resell the securities under Rule 144A of the Securities Act of 1933 or
another available exemption from registration.
These long-term notes and the term loan would be expected to be mandatorily
redeemable or repayable on the same terms as the bridge loan financing, and
optionally redeemable or repayable, as applicable, at declining premiums, on
terms customary for high yield debt securities.
EFFECT OF THE MERGER ON BIG FLOWER CAPITAL STOCK
The Big Flower common stock is currently listed on the NYSE. Following the
completion of the merger, Big Flower's common stock will no longer be traded on
the NYSE, price quotations will no
57
<PAGE>
longer be available and the registration of Big Flower common stock under the
Exchange Act will be terminated. In addition, following the completion of the
merger, neither the PIK preferred stock, the warrants nor any other class or
series of Big Flower capital stock will be listed on the NYSE or any other
national securities exchange and will not be quoted on the NASDAQ Stock Market,
Inc. Big Flower will, however, remain subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act in respect of the PIK preferred stock,
the warrants and the QUIPS following completion of the merger. Big Flower Press
will also remain subject to such reporting requirements in respect of its
existing $600 million of senior subordinated notes.
REGULATORY MATTERS
Big Flower and BFH Merger Corp. cannot complete the merger until
notification and certain information has been provided to the Federal Trade
Commission and the Department of Justice and the specified waiting period
requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 have
been satisfied. The required notification and report forms were filed with the
Federal Trade Commission and the Department of Justice on - , 1999. The
waiting period for antitrust review by the regulatory authorities expires on
- , 1999 unless the regulatory authorities grant early termination, which
early termination has been requested by both Big Flower and BFH Merger Corp.
This period may be extended by the regulatory authorities if they request
additional information.
FEES AND EXPENSES OF THE MERGER
Big Flower's estimated fees and expenses for the merger are as follows:
<TABLE>
<CAPTION>
DESCRIPTION APPROXIMATE AMOUNT
- ------------------------------------------------------------------------- -------------------
<S> <C>
Advisory fees and expenses............................................... $
Debt financing fees and expenses.........................................
Legal fees and expenses..................................................
Transaction fees and expenses............................................
Accounting fees and expenses.............................................
Printing and mailing costs...............................................
Miscellaneous expenses...................................................
-------------------
Total................................................................ $ 84,000,000
-------------------
-------------------
</TABLE>
LITIGATION CHALLENGING THE MERGER
Six lawsuits have been filed individually and as class actions by
stockholders in the Delaware Court of Chancery seeking to enjoin the
consummation of or rescind the merger or, in the alternative, to recover
monetary damages. The complaints name as defendants Big Flower, all of its
directors and, in some cases, Thomas H. Lee Company, Evercore Capital Partners
and Mark A. Angelson, General Counsel of Big Flower. The complaints allege in
general that the Big Flower directors breached their fiduciary duties by
approving the merger at a price that is inadequate and unfair to Big Flower's
stockholders. In addition, the complaints allege that certain members of
management have conflicts of interest that have prevented them from acting in
the best interests of Big Flower's stockholders. The cases naming Thomas H. Lee
Company and Evercore Capital Partners as defendants allege that they aided and
abetted the alleged breaches of fiduciary duties. The defendants believe that
the claims are entirely without merit and intend to vigorously contest the
claims.
58
<PAGE>
CAPITALIZATION
The following table shows Big Flower's actual capitalization as of March 31,
1999 and as adjusted for the merger and related recapitalization. The following
table assumes that all of the options to purchase Big Flower common stock are
retained by all current holders of such options and that the QUIPS have been
converted into Big Flower common stock prior to the merger. You should read this
table along with the sections of this document entitled "Special Factors" on
page 27, "Big Flower Unaudited Pro Forma Financial Information" on page 92 and
the consolidated financial statements of Big Flower and related notes, which are
incorporated by reference in this proxy statement/prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------
AS
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Debt (including current portion)(1)(2):
Revolving credit facility.......................................... $ 235,411
New revolving credit facility...................................... $ 138,060
New term loan facility............................................. 200,000
8 7/8% senior subordinated notes due 2007.......................... 350,107 350,107
8 5/8% senior subordinated notes due 2008.......................... 250,000 250,000
New high yield notes............................................... 400,000
Other notes payable................................................ 26,146
--------- ---------
Total Debt....................................................... 861,664 1,338,167
QUIPS................................................................ 114,075
Investment instrument................................................ 60,000
PIK preferred stock.................................................. 114,364
Stockholders' equity (deficit)....................................... 174,895 (308,286)
--------- ---------
$1,150,634 $1,204,245
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Excludes off-balance sheet borrowings of $74.5 million under Big Flower's
accounts receivable securitization facility.
(2) At March 31, 1999, Big Flower had the ability to borrow an additional $283.4
million under its revolving credit facility and $75.5 million under its
accounts receivable securitization facility. On a pro forma basis, Big
Flower would have had available borrowing capacity of $120.7 million under
the new revolving credit facility as well as the $75.5 million available
under its accounts receivable securitization facility.
59
<PAGE>
SOURCES AND USES
The following table summarizes the proposed sources and uses of funds in
connection with the merger and the related recapitalization. See
"Capitalization" on page 60, "Big Flower Unaudited Pro Forma Financial
Information" on page 92, and "Special Factors--Source and Amount of Funds" on
page 54.
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
SOURCES
New revolving credit facility.................................................................... $ 138,060
New term loan facility........................................................................... 200,000
New high yield notes............................................................................. 400,000
Issuance of PIK preferred stock.................................................................. 114,364
Issuance of investment instrument................................................................ 60,000
Cash investment in common stock by BFH Merger Corp............................................... 202,905
-------------
Total.......................................................................................... $ 1,115,329
-------------
-------------
USES
Repurchase of common shares ($535.4 million in cash and $93.7 million in PIK preferred stock and
warrants)...................................................................................... $ 629,088
Repurchase of common shares resulting from conversion of QUIPS ($118.1 million in cash and $20.7
million in PIK preferred stock and warrants)................................................... 138,784
Repayment of revolving credit facility (balance outstanding at 3/31/99).......................... 235,411
Repayment of other notes payable (balance outstanding at 3/31/99)................................ 26,146
Payment of accrued interest (balance outstanding at 3/31/99)..................................... 464
Payment of accrued preferred dividends of a subsidiary trust (balance outstanding at 3/31/99).... 1,436
Transaction expenses............................................................................. 84,000
-------------
Total.......................................................................................... $ 1,115,329
-------------
-------------
</TABLE>
The sources and uses of funds assume the following:
(1) Payment of the merger consideration for shares of Big Flower common
stock outstanding at March 31, 1999 less shares of Big Flower common
stock retained by members of management in the merger.
(2) Conversion of all QUIPS into 3,937,144 shares of Big Flower common stock
(2.27 million QUIPS currently outstanding at a conversion rate of 1.7344
shares of Big Flower common stock for each QUIPS outstanding) and the
payment of the merger consideration for all such shares.
(3) Equity investment of $390.0 million consisting of
- $60.0 million of value attributed to an investment instrument,
- $127.1 million of value attributed to shares of Big Flower common stock
and options to purchase such shares retained by the members of
management and such option holders in the merger, and
- $202.9 million in cash.
(4) Issuance by Big Flower of $400.0 million of new high yield notes.
(5) Big Flower Press' entering into a $200.0 million term loan facility with
revolving credit facility borrowings for the balance of cash needs.
(6) Repayment of the existing revolving credit facility and all notes
payable other than Big Flower Press' senior subordinated notes that are
currently outstanding.
60
<PAGE>
DESCRIPTION OF BIG FLOWER CAPITAL STOCK
FOLLOWING THE MERGER
The following description of material terms of the capital stock of Big
Flower does not purport to be complete and is qualified in its entirety by
reference to Big Flower's restated certificate of incorporation, which is
incorporated in this proxy statement/prospectus by reference as an exhibit to
the registration statement of which this document is a part.
GENERAL
Following the merger, the authorized capital stock of Big Flower will be
50,000,000 shares of common stock, par value $0.01 per share and 10,000,000
shares of preferred stock, par value $0.01 per share.
BIG FLOWER COMMON STOCK
The holders of Big Flower common stock following the merger will be entitled
to one vote per share on all matters submitted for action by the stockholders,
including the election of directors, and are entitled to participate equally in
dividends when and as such dividends may be declared by the Big Flower board of
directors out of funds legally available for such dividends. In the event of a
liquidation, dissolution or winding-up of Big Flower, holders of Big Flower
common stock will have the right to a ratable portion of assets remaining after
satisfaction in full of the prior rights of creditors (including the holders of
Big Flower's debt), all liabilities and the aggregate liquidation preferences of
any outstanding shares of preferred stock, including the PIK preferred stock
discussed below. The holders of Big Flower common stock will have no conversion,
redemption, preemptive or cumulative voting rights. All outstanding shares of
Big Flower common stock will be validly issued, fully paid and non-assessable.
PIK PREFERRED STOCK AND WARRANTS
As part of the merger, Big Flower will issue up to a total of 4,574,555
shares of PIK preferred stock, and warrants to purchase up to 492,721 shares of
common stock.
Each stockholder exchanging his or her shares of Big Flower common stock
will receive as part of the merger consideration:
- 0.21 of shares of PIK preferred stock, with a liquidation preference of
$25.00 per share (or $5.25 liquidation preference per share of Big Flower
common stock such stockholder owns), and
- a warrant to purchase approximately 0.02 of a share of common stock of Big
Flower following the merger.
The warrants will initially be attached to the shares of PIK preferred stock
but they will detach from the PIK preferred stock as described in the section
below on the warrants.
No fractional interests of this PIK preferred stock/warrant package will be
issued, and fractional interests will be cashed out. See "The Merger
Agreement--Exchange of Big Flower Common Stock" on page 75. Accordingly, each
whole share of PIK preferred stock that is delivered as part of the merger
consideration will have attached warrants to purchase approximately 0.11 of a
share of common stock of Big Flower, subject to receipt of cash for fractional
shares.
PIK PREFERRED STOCK
LIQUIDATION PREFERENCE. Each share of PIK preferred stock will have a
liquidation preference of $25.00. This means that, if Big Flower is liquidated,
dissolved or wound up, each holder of a share of PIK preferred stock will be
entitled to be paid the liquidation preference of $25.00 per share of PIK
61
<PAGE>
preferred stock held plus accrued and unpaid dividends. As a holder of PIK
preferred stock, you will not be entitled to any further payment.
If the assets remaining after distribution to holders of debt and other
obligations are insufficient to pay all of the holders of PIK preferred stock,
any remaining assets will be distributed on a proportionate basis to the holders
of PIK preferred stock.
In a liquidation, holders of PIK preferred stock must be paid before any
holders of Big Flower common stock and other junior securities receive any
payments for their shares.
RANK. The PIK preferred stock will rank ahead of Big Flower's common stock.
To the extent that the investment instrument takes the form of capital stock of
Big Flower, the investment instrument will have seniority over the PIK preferred
stock with respect to both the assets that the investment instrument relates to
and the proceeds from the sale of these assets, up to a maximum of $60 million
plus 10% per year on such amount accruing from the date of the merger,
compounding semi-annually.
While it is not expected that there will be other classes of preferred stock
immediately after the merger (other than if the investment instrument takes the
form of preferred stock), the Big Flower board of directors could at any time
after the merger authorize the issuance of additional classes of preferred stock
which rank senior to, or equal with, the PIK preferred stock.
DIVIDENDS. Holders of shares of PIK preferred stock issued in the merger
will be entitled to receive dividends that are cumulative, and accrue and
compound semi-annually from the date of the merger at an annual rate of 10% of
the liquidation preference. Big Flower will determine, in its discretion, the
timing of the actual declaration and payment of dividends and can pay the PIK
preferred stock dividends in additional PIK preferred stock at a rate of one
share per $25.00 of semi-annual dividend not paid in cash.
No dividends can be declared or paid on the common stock or any other junior
securities while accrued dividends on the PIK preferred stock are unpaid.
MANDATORY REDEMPTION. All of the outstanding shares of PIK preferred stock
must be redeemed by Big Flower on December 15, 2012 at the liquidation
preference of $25.00 per share plus accrued and unpaid dividends to the date of
redemption.
OPTIONAL REDEMPTION. Big Flower can redeem the PIK preferred stock as
follows:
- Subject to the "equity clawback" described below, Big Flower cannot redeem
the PIK preferred stock for the first five years after the merger.
- During the sixth year after the merger, Big Flower can redeem the PIK
preferred stock at 102.5% of the liquidation preference plus accrued and
unpaid dividends to the date of redemption.
- During the seventh year after the merger, Big Flower can redeem the PIK
preferred stock at 101.25% of the liquidation preference plus accrued and
unpaid dividends to the date of redemption.
- During the eighth year after the merger and during all subsequent years,
Big Flower can redeem the PIK preferred stock at 100% of the liquidation
preference plus accrued and unpaid dividends to the date of redemption.
EQUITY CLAWBACK. If there is an initial public offering of Big Flower's
common stock during the first five years after the merger, Big Flower can redeem
up to 100% of the then outstanding shares of PIK preferred stock. The redemption
must be made out of the proceeds of the offering at 102.5% of the liquidation
preference plus accrued and unpaid dividends to the date of redemption. Big
Flower can decide whether to redeem all of the PIK preferred stock, or a
percentage of the PIK preferred
62
<PAGE>
stock equal to 49% or less. If Big Flower elects to redeem less than 100%, the
redemption will be done on a pro rata basis.
CHANGE OF CONTROL. If there is a "change of control" of Big Flower (as
described below), the holders can require Big Flower to repurchase the PIK
preferred stock, and Big Flower can redeem up to 100% of the PIK preferred
stock, in each case at 101% of the liquidation preference plus accrued and
unpaid dividends to the date of redemption. With regard to the redemption,
however, Big Flower can decide whether to redeem all of the PIK preferred stock,
or a percentage of the PIK preferred stock equal to 49% or less. If Big Flower
elects to redeem less than 100%, the redemption will be done on a pro rata
basis.
A "change of control" of Big Flower arises if:
- Thomas H. Lee Equity Fund IV, Evercore Capital Partners and R. Theodore
Ammon in the aggregate own less than 25% of the fully diluted common
equity of Big Flower, and
- another entity or group of persons owns more than 50% of the fully diluted
common equity of Big Flower.
COMPANY'S RIGHT OF EXCHANGE. The PIK preferred stock is exchangeable at Big
Flower's option at any time into an equivalent face amount of junior
subordinated debentures having substantially similar terms to the PIK preferred
stock.
NO RIGHT OF CONVERSION. The holders of PIK preferred stock will not have
any conversion rights.
VOTING RIGHTS. The holders of PIK preferred stock will have voting rights
in two instances:
- The first instance will be to elect two directors to Big Flower's board of
directors if one of the following events occurs:
- - the default in the payment of three declared semi-annual dividends,
- - the default under Big Flower's bonds existing at the time of the
merger or any debt replacements for such bonds,
- - the bankruptcy of Big Flower, or
- - Big Flower's failure to redeem the PIK preferred stock as required by
the terms of the PIK preferred stock.
If this right is triggered, it must be exercised by the later of: (i) 90
days after one of these events has occurred, and (ii) the expiration of the
cure period in the applicable debt indenture.
If the holders of PIK preferred stock elect board members and, subsequently,
the event that triggered the voting right is remedied, the board members who
were elected by the holders of the PIK preferred stock will be removed from
the board.
- The second instance will be to approve any amendments to the certificate
of incorporation or bylaws of Big Flower that would adversely affect the
terms of the PIK preferred stock, including any such amendment effected
pursuant to a merger or similar transaction.
A vote of holders of the PIK preferred stock will not be required for Big
Flower to increase the authorized amount of PIK preferred stock or to issue
securities which are senior to, equal with, or junior to, the PIK preferred
stock.
INVESTMENT INSTRUMENT. Any investment instrument will be secured by, and
will have priority over, the PIK preferred stock in respect of the assets that
the investment instrument relates to, and the proceeds from the sale of these
assets, subject to a maximum of $60 million plus 10% per year on such amount
accruing from the date of the merger, compounding semi-annually. It is expected
that such
63
<PAGE>
investment instrument will involve Big Flower's Internet related assets.
Interest or dividends, if applicable, will be payable on any investment
instrument whether or not dividends have been paid on the PIK preferred stock.
In other words, Big Flower can dispose of any proceeds from the sale of assets
which secure the investment instrument, up to $60 million plus the 10% accrual,
whether or not dividends are paid on the PIK preferred stock.
WARRANTS
GENERAL. The maximum number of warrants that could be issued in the merger
represent, in the aggregate, the right to purchase 5% of the shares of Big
Flower common stock outstanding immediately after the merger assuming the
exercise of these warrants.
ATTACHMENT TO PIK PREFERRED STOCK. At the time of the merger, the warrants
will be attached to the shares of PIK preferred stock issued. However, the
warrants will detach from the PIK preferred stock on the earlier of one of three
events:
- 180 days after the merger,
- an event that triggers the exercisability of the warrants, as described
below, and
- a "change of control", as that term is used in the description of the PIK
preferred stock above.
EXERCISABILITY. You will be able to exercise the warrants after the sale of
Big Flower or an initial public offering of the Big Flower common stock or any
other event which results in a public market in the common stock, unless
prohibited by applicable federal and state securities laws.
EXERCISE PRICE. The exercise price for each whole share of common stock
subject to the warrants will be $0.01. This works out to an exercise price of
each individual warrant of approximately $0.0002.
PROCEDURES FOR EXERCISE. Subject to the section below on fractional
interests, you can exercise a warrant by surrendering to Big Flower the warrant
certificate evidencing the warrant to be exercised, and delivering a form of
election to purchase that is properly completed and executed as well as the
exercise price for that warrant. You can pay the exercise price in cash or by
certified or official bank check payable to Big Flower. Alternatively, and
subject also to the section below on fractional interests, a holder can exercise
a warrant in a cashless exercise by receiving for each warrant a fraction of a
share of common stock with an aggregate current market value equal to the
difference between the then current market value of that fraction of a share of
common stock and the exercise price of the warrant.
After a holder has surrendered warrant certificates and paid the exercise
price (or made a cashless exercise), Big Flower will deliver or cause to be
delivered, to or upon the written order of such holder, stock certificates
representing the number of whole shares of Big Flower common stock to which the
holder is entitled. If less than all of the warrants evidenced by a warrant
certificate are exercised, a new warrant certificate will be issued for the
remaining number of warrants.
FRACTIONAL INTERESTS. No fractional shares of common stock will be issued
upon exercise of the warrants. Big Flower will pay to the holder of a warrant at
the time of exercise an amount in cash equal to the current market value of any
fractional share of Big Flower common stock less a corresponding fraction of the
exercise price.
NO VOTING RIGHTS. The holders of the warrants will have no right to vote on
matters submitted to the stockholders of Big Flower.
NO DIVIDENDS OR RIGHTS TO SHARE IN ASSETS. The holders of the warrants will
have no right to receive dividends. Also, the holders of the warrants will not
be entitled to share in the assets of Big Flower if Big Flower is liquidated,
dissolved or wound up. If a bankruptcy or reorganization action is commenced by
or against Big Flower, a bankruptcy court may hold that unexercised warrants are
64
<PAGE>
executory contracts that may be subject to rejection by Big Flower with approval
of the bankruptcy court. If this happened, the holders of warrants may, even if
sufficient funds are available, receive nothing or a lesser amount as a result
of a bankruptcy case than they would be entitled to if they had exercised their
warrants prior to the commencement of the bankruptcy case.
WARRANT EXPIRATION. The warrants will expire on December 15, 2012 if they
have not been exercised prior to this date.
REGISTRATION. The warrants will be registered under the Securities Act at
the time of the merger. The warrants will have no piggyback registration rights
and the common stock underlying the warrants will have no piggyback registration
rights.
ADJUSTMENTS. The number of shares of Big Flower common stock that you can
purchase upon exercise of the warrants and the exercise price will be subject to
customary anti-dilution provisions.
If Big Flower is subject to a merger, or all or substantially all of Big
Flower's assets are sold, each warrant will be exercisable for the right to
receive the kind and amount of securities, cash, or property to which the holder
would have been entitled if the warrants had been exercised immediately prior to
the merger or sale.
65
<PAGE>
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of United States federal income tax consequences of
the merger and the ownership of the PIK preferred stock and warrants is for
general information only and is based upon the Internal Revenue Code of 1986, as
amended, its legislative history, existing and proposed Treasury regulations,
judicial authority and current administrative rulings and pronouncements of the
Internal Revenue Service, all of which are subject to change, possibly with
retroactive effect. The summary does not address any foreign, state, or local
tax consequences of the merger or of the ownership of the PIK preferred stock
and warrants received in the merger.
The summary assumes that the Big Flower common stock is, and the PIK
preferred stock, warrants and warrant shares will be, held as a capital asset.
Moreover, the summary does not address all tax consequences of the merger that
may be relevant to stockholders of Big Flower in light of their particular
circumstances or to some types of stockholders subject to special treatment
under United States federal income tax law, including:
- tax-exempt entities,
- insurance companies,
- financial institutions,
- members of management of Big Flower retaining shares of common stock in
the merger,
- persons who acquired their shares of common stock by exercising employee
or director stock options or otherwise as compensation,
- dealers in securities or currencies,
- traders in securities that elect to mark to market,
- investors that hold common stock as part of a straddle or a hedging or
conversion transaction,
- foreign persons, and
- investors whose functional currency is not the U.S. dollar.
Furthermore, the summary does not address the tax treatment of persons who
exercise appraisal rights in the merger.
HOLDERS OF BIG FLOWER COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS
CONCERNING THE TAX CONSEQUENCES, IN THEIR PARTICULAR CIRCUMSTANCES, UNDER THE
INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION, OF THE
MERGER AND THE OWNERSHIP OF THE PIK PREFERRED STOCK AND WARRANTS RECEIVED IN THE
MERGER.
THE MERGER
The merger will be a taxable transaction for U.S. federal income tax
purposes. You will be treated for federal income tax purposes as if you (1) sold
a portion of your Big Flower common stock to Thomas H. Lee Equity Fund IV and
Evercore Capital Partners for cash, (2) had a portion of your Big Flower common
stock redeemed by Big Flower for cash, and (3) exchanged a portion of your Big
Flower common stock with Big Flower for PIK preferred stock and warrants.
The percentage of your shares of Big Flower common stock that will be
considered sold to Thomas H. Lee Equity Fund IV and Evercore Capital Partners
for cash should be equal to
- the aggregate amount of cash contributed to BFH Merger Corp. by Thomas H.
Lee Equity Fund IV and Evercore Capital Partners, divided by
66
<PAGE>
- the aggregate amount of cash plus the fair market value (on the effective
date of the merger) of the PIK preferred stock and warrants paid to
holders of Big Flower common stock in the merger.
Your remaining shares of Big Flower common stock will be treated,
proportionately, as having been redeemed by Big Flower for the remaining cash
and exchanged for PIK preferred stock and warrants issued by Big Flower.
THE SALE OF BIG FLOWER COMMON STOCK TO THOMAS H. LEE EQUITY FUND IV AND
EVERCORE CAPITAL PARTNERS FOR CASH
You will recognize capital gain or loss on the deemed sale for cash of your
shares of Big Flower common stock to Thomas H. Lee Equity Fund IV and Evercore
Capital Partners equal to the difference between the amount of cash you are
considered to have received from those investors and your adjusted tax basis in
the shares of Big Flower common stock you are considered to have sold to those
investors. Your gain or loss will be long-term capital gain or loss if at the
time of the sale you have held your Big Flower common stock for more than one
year.
THE REDEMPTION OF BIG FLOWER COMMON STOCK FOR CASH
Your shares of Big Flower common stock that are considered to have been
redeemed by Big Flower for cash will be treated as having been sold for cash if
the redemption
(1) is "substantially disproportionate" or
(2) is "not essentially equivalent to a dividend."
In determining whether either of these tests has been met, you must take into
account the shares of stock you actually own and the shares of stock you
constructively own by reason of the constructive ownership rules set forth in
Section 318 of the Internal Revenue Code. Under the constructive ownership
rules, you will be deemed to own any shares of Big Flower stock that are owned
(actually and in some cases constructively) by certain related individuals or
entities and any shares of Big Flower stock that you have a right to acquire by
exercise of an option or by conversion or exchange of a security. Due to the
contingent nature of the warrants that you will receive in the merger, you
should not be deemed (on the effective date of the merger) to constructively own
the shares of Big Flower common stock that you would receive upon your exercise
of the warrants.
The deemed purchase of your Big Flower common stock by Big Flower will be
"substantially disproportionate" if, among other things, the percentage of
shares of Big Flower common stock you actually or constructively own immediately
following the merger is less than 80% of the percentage of shares of common
stock you actually and constructively owned immediately prior to the merger.
The deemed purchase of your Big Flower common stock will be "not essentially
equivalent to a dividend" if the reduction in your proportionate interest in Big
Flower by reason of the merger constitutes a "meaningful reduction" given your
particular facts and circumstances. Depending upon your specific facts and
circumstances, even a small reduction in your proportionate equity interest may
satisfy this test. For example, the IRS has indicated in a published ruling that
any reduction in the percentage interest of a stockholder whose relative stock
interest in a publicly held corporation is minimal (E.G., an interest of less
than 1%) and who exercises no control over corporate affairs should constitute a
"meaningful reduction."
You should consult your tax advisor to determine whether, in your particular
circumstances, the deemed redemption of your Big Flower common stock will be
"substantially disproportionate" or "not essentially equivalent to a dividend."
67
<PAGE>
If you meet either of the tests listed above for the redemption to be
treated as a sale of your common stock of Big Flower, you will recognize capital
gain or loss on the redemption of your shares of Big Flower stock equal to the
difference between the amount of cash you are treated as receiving from Big
Flower and your adjusted tax basis in the shares of Big Flower common stock
considered to have been redeemed. Your gain or loss will be long-term gain or
loss if at the time of the redemption you have held your Big Flower common stock
for more than one year.
If you do not meet either of the tests listed above for the redemption to be
treated as a sale of your common stock of Big Flower, the cash you are
considered to have received from Big Flower will generally be taxed as a
dividend to the extent paid out of our current or accumulated earnings and
profits. Any amount in excess of our current or accumulated earnings and profits
would first reduce your tax basis in the common stock and thereafter would be
treated as a capital gain. If you are a corporation, you may be eligible for the
dividends-received deduction, subject to the limitations described below under
"PIK Preferred Stock."
THE EXCHANGE OF BIG FLOWER COMMON STOCK FOR PIK PREFERRED STOCK AND WARRANTS
To the extent that your shares of Big Flower common stock are considered to
have been exchanged by Big Flower for PIK preferred stock and warrants, you will
be taxed as though you sold those shares, and you will recognize capital gain or
loss equal to the difference between (i) the fair market value (as of the
effective time of the merger) of the PIK preferred stock and the warrants and
(ii) your adjusted tax basis in those shares of common stock that you are deemed
to have exchanged. Your gain or loss will be long-term capital gain or loss if
at the time of the exchange you have held your Big Flower common stock for more
than one year.
ISSUANCE OF THE PIK PREFERRED STOCK AND WARRANTS
The PIK preferred stock and the warrants will likely be treated as an
investment unit for United States federal income tax purposes and, accordingly,
the aggregate fair market value of the unit as of the effective time of the
merger should be allocated between the PIK preferred stock and the warrants
according to their respective fair market values as of such date. This
allocation will determine the issue price of and your initial tax basis in the
PIK preferred stock and the warrants.
PIK PREFERRED STOCK
REDEMPTION PREMIUM
The PIK preferred stock you receive in the merger will be issued with a
redemption premium to the extent that the amount that will be paid upon
mandatory redemption of the PIK preferred stock (excluding accrued and unpaid
dividends) exceeds the issue price of the PIK preferred stock by an amount
greater than a "DE MINIMIS amount" (defined as 0.25% multiplied by the number of
complete years from the date of issuance of the PIK preferred stock to the
mandatory redemption date).
You must include the redemption premium in income as a "constructive
distribution" to the extent the distribution does not exceed our current and
accumulated earnings and profits, using a constant yield method similar to the
method described in applicable Treasury regulations governing the inclusion of
income on debt instruments issued with original issue discount. You must include
in income the sum of the daily portions of redemption premium for each day
during the taxable year or portion of the taxable year in which you hold the PIK
preferred stock, without regard to whether you have actually received cash
attributable to such income. One effect of this rule is that you will generally
be required to include in income increasingly greater amounts of redemption
premium during the time that you own your PIK preferred stock.
68
<PAGE>
The adjusted tax basis of your PIK preferred stock generally will be
increased by the amount of redemption premium that you include in income as a
constructive distribution.
DIVIDENDS PAID IN CASH AND "IN KIND"
You may receive dividends on your PIK preferred stock in the form of either
cash distributions or "in kind" distributions of additional PIK preferred stock.
Your receipt of a cash distribution should be taxable as ordinary income to the
extent the distribution does not exceed our current and accumulated earnings and
profits.
Your receipt of an "in kind" distribution should be taxable as ordinary
income in an amount equal to the fair market value (as of the date of
distribution) of the additional PIK preferred stock you receive to the extent
that the distribution does not exceed our current and accumulated earnings and
profits. The fair market value of the PIK preferred stock distribution will also
represent the issue price and tax basis of that stock. Your holding period for
your newly-issued PIK preferred stock will commence with its distribution.
The additional shares of PIK preferred stock that you receive as an "in
kind" distribution will be issued with a redemption premium if the amount that
will be paid upon mandatory redemption of the PIK preferred stock (excluding
accrued and unpaid dividends) exceeds the issue price of the PIK preferred stock
by an amount greater than the DE MINIMIS amount described above under
"--Redemption premium." You should refer to that discussion for a description of
the consequences of holding PIK preferred stock that bears a redemption premium.
The IRS has indicated that it is considering issuing regulations that would
require the current inclusion of cumulative dividends on preferred stock such as
the PIK preferred stock under a constant yield method similar to the method used
to determine the taxation of accrued interest on debt instruments issued with
original issue discount. There can be no certainty whether such regulations will
be issued, what their effective date will be, or whether such regulations, if
issued, would affect the United States federal income tax treatment of your
ownership of PIK preferred stock.
THE DIVIDENDS-RECEIVED DEDUCTION
To the extent that dividends are paid out of our current or accumulated
earnings and profits, dividends received by a corporate holder which owns less
than 20% of Big Flower's stock (by vote or value) generally will be eligible for
the 70% dividends-received deduction allowed to corporations, subject to various
limitations, including the following:
(1) Section 246A of the Internal Revenue Code, which reduces the
dividends-received deduction allowed to a corporate shareholder that has
incurred indebtedness that is "directly attributable" to an investment in
portfolio stock such as the PIK preferred stock;
(2) Section 246(c) of the Internal Revenue Code, which, among other things,
disallows the dividends-received deduction in respect of any dividend on
a share of stock that is held for less than the minimum holding period
(generally at least 46 days during the 90-day period beginning on the
date which is 45 days before the date on which such share becomes
ex-dividend with respect to such dividend);
(3) Section 1059 of the Internal Revenue Code, which, under certain
circumstances, reduces the tax basis of stock for purposes of calculating
gain or loss in a subsequent disposition by the portion of any
"extraordinary dividend" that is eligible for the dividends-received
deduction.
The President has proposed amendments to the tax law that would eliminate
the 70% dividends-received deduction for dividends on the PIK preferred stock.
There can be no certainty whether, or in what form, such legislation will be
enacted or what its effective date would be.
69
<PAGE>
REDEMPTION OF PIK PREFERRED STOCK
The terms of the PIK preferred stock provide for a mandatory redemption and
an optional redemption of the stock. The possibility of a redemption premium in
the event of a mandatory redemption of the PIK preferred stock has been
discussed above under "--Redemption premium."
In the event of an optional redemption of the PIK preferred stock, an
"optional redemption premium" will be paid in an amount equal to the excess of a
specified sum (under the terms of the PIK preferred stock) over the liquidation
preference (excluding accrued and unpaid dividends). SEE "Description of the Big
Flower Capital Stock Following the Merger--PIK preferred stock--Optional
Redemption" on page 63. The existence of Big Flower's optional redemption rights
will result in a constructive distribution of the optional redemption premium
using a constant yield method unless, pursuant to Treasury regulations governing
optional redemption rights, an exception applies. Big Flower intends to take the
position that the existence of Big Flower's optional redemption rights does not
result in a constructive distribution to holders based on one or more of the
following exceptions: (i) the optional redemption rights would not be treated as
more likely than not to be exercised, (ii) the optional redemption premium is in
the nature of a penalty for premature redemption, or (iii) a safe harbor would
apply. You should, therefore, include any optional redemption premium in gross
income in the year in which it is received.
A redemption of your PIK preferred stock for cash or for junior subordinated
debentures (whether at the mandatory redemption date or an earlier date pursuant
to which Big Flower has exercised its optional redemption rights) generally will
be a taxable event and will be treated as if you sold the PIK preferred stock
for cash or exchanged your PIK preferred stock for junior subordinated
debentures, assuming that, after the redemption, you do not own actually or
constructively any stock in Big Flower. As discussed above under "--The
Merger--The redemption of Big Flower common stock for cash," the constructive
ownership rules described in Section 318 of the Internal Revenue Code determine
whether you will be deemed to own constructively an interest in Big Flower
stock. The ownership of warrants at the time of such redemption, the exercise of
which remains subject to contingencies outside your control, should not cause
you to be deemed to own constructively the shares of Big Flower common stock
that you would receive if you were to exercise your warrants.
In the event of a redemption of your PIK preferred stock, you should consult
your tax advisor to determine the application of the Section 318 constructive
ownership rules to your particular circumstances and whether, in your particular
circumstances, the redemption of your PIK preferred stock will be treated as a
sale or as a dividend.
If a redemption of shares of PIK preferred stock for cash or an exchange of
the PIK preferred stock for junior subordinated debentures is treated as a sale
or exchange, you will recognize capital gain or loss equal to the difference
between (i) the cash or the issue price of the junior subordinated debentures
received and (ii) your adjusted tax basis in the PIK preferred stock
surrendered. Your gain or loss will be long-term gain or loss if at the time of
the redemption you have held your PIK preferred stock for more than one year.
If a redemption of shares of the PIK preferred stock for cash or an exchange
of the PIK preferred stock for junior subordinated debentures is treated as a
dividend:
(1) you would not recognize any loss on the exchange;
(2) (A) to the extent of our current or accumulated earnings and profits,
you would recognize dividend income, rather than capital gain, in an
amount equal to any cash received or the fair market value of any junior
subordinated debentures received without regard to your tax basis in the
shares of PIK preferred stock surrendered in the exchange and (B) to the
extent that the distribution is not made out of our current or
accumulated earnings or profits, you would
70
<PAGE>
first reduce your tax basis in the PIK preferred stock and thereafter
would recognize capital gain; and
(3) the holding period for your junior subordinated debentures would begin
on the day following their acquisition date.
DISPOSITION OF PIK PREFERRED STOCK
Upon the sale, exchange or other disposition (collectively, a "disposition")
of PIK preferred stock, other than by redemption, you will generally recognize
capital gain or loss equal to the difference between the amount realized upon
the disposition and your adjusted tax basis in the PIK preferred stock. This
gain or loss would be long-term capital gain or loss if at the time of the
disposition you held the PIK preferred stock for more than one year.
WARRANTS
DISPOSITION OF A WARRANT
You generally should recognize capital gain or loss upon the disposition of
a warrant in an amount equal to the difference between the amount realized on
the disposition and your adjusted tax basis in the warrant. Your adjusted tax
basis in a warrant will be the fair market value of the warrant at the time the
warrant is received in the merger, adjusted as described below under
"Adjustments." Capital gain or loss attributable to the disposition of the
warrants will be long-term capital gain or loss if, at the time of the
disposition, you have held the warrants for more than one year.
EXERCISE OF A WARRANT
In general, you will not recognize income, gain or loss upon the exercise of
a warrant, except with respect to cash, if any, paid in lieu of the issuance of
fractional shares of Big Flower common stock. Upon exercise of a warrant, your
tax basis in the shares acquired will be the sum of:
(a) your adjusted tax basis in the warrant, and
(b) the cash paid upon exercise of the warrant.
If you receive any cash in lieu of fractional shares of warrant stock, you
will recognize gain or loss, and the character and amount of gain or loss will
be determined as if you had received such fractional shares and then immediately
sold them for cash. Your holding period of the stock acquired upon exercise of a
warrant begins on the day following the day of exercise.
EXPIRATION OF A WARRANT
Upon the expiration of an unexercised warrant, you will recognize a loss
equal to your adjusted tax basis in the warrant which will be long-term capital
loss if you held your warrant for more than one year at the time of the
expiration.
ADJUSTMENTS
Pursuant to the terms of the warrants, the number of shares of warrant stock
you may purchase upon exercise of the warrants is subject to adjustment from
time to time upon the occurrence of certain events. In certain circumstances, a
change in conversion ratio or any transaction having a similar effect may be
treated as a taxable distribution without regard to whether you receive any cash
or other property if your proportionate interest in our earnings and profits is
increased by such change or transaction. If you receive such a taxable
distribution, your tax basis in the warrants will be increased by an amount
equal to the taxable distribution.
71
<PAGE>
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to dividends paid
(and accrued dividends deemed paid) in respect of your Big Flower common stock,
PIK preferred stock and warrant stock, and to the proceeds received on the
disposition of your Big Flower common stock, PIK preferred stock, warrants or
warrant stock. Backup withholding at a rate of 31% will apply to payments you
receive in respect of your Big Flower common stock, PIK preferred stock and
warrant stock if you fail to provide an accurate taxpayer identification number
or you are notified by the Internal Revenue Service that you have failed to
report all interest and dividends required to be shown on your federal income
tax returns. You should consult your tax advisor concerning the application of
information reporting and backup withholding requirements to your particular
circumstances.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against your United States federal income tax liability
provided the required information is furnished to the IRS.
72
<PAGE>
THE MERGER AGREEMENT
THE FOLLOWING DESCRIBES CERTAIN ASPECTS OF THE PROPOSED MERGER, INCLUDING
MATERIAL PROVISIONS OF THE MERGER AGREEMENT. THE FOLLOWING DESCRIPTION OF THE
MERGER AGREEMENT DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE MERGER AGREEMENT, WHICH IS
ATTACHED AS APPENDIX A TO THIS DOCUMENT AND IS INCORPORATED INTO THIS DOCUMENT
BY REFERENCE. ALL BIG FLOWER STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENT
CAREFULLY AND IN ITS ENTIRETY.
THE MERGER
The merger agreement provides for a merger of Big Flower and BFH Merger
Corp. pursuant to which BFH Merger Corp. will be merged with and into Big
Flower, with Big Flower as the surviving corporation. Big Flower will continue
to be governed by the laws of the State of Delaware. The transaction is intended
to qualify as a "recapitalization" for accounting and financial reporting
purposes and will be a taxable transaction for federal income tax purposes.
The merger will become effective when Big Flower files a certificate of
merger with the Secretary of State of the State of Delaware or at a later time
if so specified in the certificate of merger. The merger is expected to become
effective on the same day as the closing of the merger, which will take place
either as soon as practicable after the conditions described in the merger
agreement have been satisfied or waived or on another date agreed upon by Big
Flower and BFH Merger Corp.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the time the merger becomes effective:
- each share of Big Flower common stock outstanding, except for the shares
owned by (i) BFH Merger Corp., Big Flower or any of its subsidiaries, (ii)
any holder who properly exercises his or her appraisal rights and (iii)
certain members of Big Flower management retaining shares of Big Flower
common stock in the merger, will be converted into:
(1) $30.00 in cash, without interest, and
(2) 0.21 of a share of PIK preferred stock of Big Flower with a
liquidation preference of $25 per share (or $5.25 liquidation
preference per share of Big Flower common stock you own) and a
warrant to purchase approximately 0.02 of a share of Big Flower
common stock (the maximum number of warrants which could be issued in
the merger represent in the aggregate, the right to purchase 5% of
the shares of Big Flower common stock immediately after the merger
assuming an exercise of these warrants);
- each share of Big Flower common stock owned by Big Flower will
automatically be cancelled without the payment of any consideration;
- each Big Flower option outstanding and unexercised will be converted into
the specific rights described on page 52 under "Special Factors--Conflicts
of Interest of Certain Members of the Big Flower Board of Directors and
Management--Treatment of Stock Options;"
- the shares of common stock of BFH Merger Corp. outstanding will be
converted into a number of shares of Big Flower common stock equal to
9,361,702 shares of Big Flower common stock, minus any shares retained by
members of management in the merger and any shares issued in exchange for
options (subject to certain adjustments); and
- certain shares of Big Flower common stock held by members of management
will be retained by such persons in the merger.
73
<PAGE>
The merger agreement provides that until either August 13, 1999 or, if
earlier, the date when this document is first mailed to Big Flower stockholders,
the following agreements could be reached:
- BFH Merger Corp. and any member of management who owns shares of Big
Flower common stock may agree to (i) add or remove such member of
management from the list of those who will retain shares of Big Flower
common stock in the merger and (ii) permit such member of management to
exchange a number of shares of Big Flower common stock for an interest in
an investment instrument;
- BFH Merger Corp. and any member of management who holds options to
purchase common stock of Big Flower may agree to (i) change the number of
options being retained by such member of management and (ii) otherwise
change the treatment of such options in the merger; and
- Thomas H. Lee Company or Evercore Capital Partners may agree with any
member of management who owns shares of Big Flower common stock to
purchase any of such person's shares that would otherwise be exchanged for
the merger consideration.
EXCHANGE OF BIG FLOWER COMMON STOCK
- will be the paying agent and exchange agent. After the merger is
completed, - will mail a letter of transmittal to each person who held shares
of Big Flower common stock at the time of the completion of the merger. You
should use that letter of transmittal in forwarding and exchanging Big Flower
stock certificates. Instructions for doing so will be included in the letter of
transmittal. After a Big Flower stock certificate and a letter of transmittal is
received by - , you will be entitled to receive $30.00 in cash, 0.21 of a
share of PIK preferred stock of Big Flower, with a liquidation preference of
$25.00 per share (or $5.25 liquidation preference per share of Big Flower common
stock you own) and an attached warrant to purchase approximately 0.02 of a share
of Big Flower common stock for each share of Big Flower common stock
surrendered. In the case of members of management who own common stock, they
will be entitled (i) with respect to retained shares, to receive a certificate
representing the number of retained shares, (ii) with respect to shares being
exchanged for an interest in the investment instrument, such documents that
reflect such interest in the investment instrument and (iii) with respect to all
other shares, $30.00 in cash plus 0.21 of a share of PIK preferred stock of Big
Flower with a liquidation preference of $25.00 per share (or $5.25 liquidation
preference per share of Big Flower common stock owned by such person) and an
attached warrant to purchase approximately 0.02 of a share of Big Flower common
stock. - will cancel the surrendered certificates. DO NOT SEND IN YOUR STOCK
CERTIFICATES UNTIL YOU RECEIVE A LETTER OF TRANSMITTAL.
No interest will be paid on the cash payable upon surrender of any
certificate. In the event of a transfer of ownership of Big Flower common stock
that is not registered in the transfer records of Big Flower, documentary
evidence of the transfer and prior payment of applicable taxes will be required
by - before payment of the merger consideration is made to the stockholder.
Fractional shares of the PIK preferred stock and attached warrant will not
be issued to stockholders. Instead of fractional shares, Big Flower stockholders
will be entitled to receive an amount in cash, without interest, equal to the
stockholder's proportional interest in the net proceeds of the sale on a
national securities exchange by the exchange agent on behalf of all stockholders
of fractional shares of PIK preferred stock and attached warrant that the
exchange agent would otherwise issue in the merger. If the PIK preferred stock
is not trading on a national securities exchange, then Big Flower stockholders
will be entitled to receive an amount in cash, without interest, equal to their
proportionate interest in the amount obtained by multiplying the total excess
shares (being the total shares of PIK preferred stock delivered to the exchange
agent minus the number of whole shares of PIK preferred stock distributed to any
stockholder) by $25.00.
74
<PAGE>
Any Big Flower stockholder who has not complied with the exchange procedures
within 180 days after the completion of the merger may look only to Big Flower
for payment in exchange for his shares. Neither Big Flower, nor any other person
will be liable to you for any amount properly delivered to a public official
under applicable abandoned property, escheat or similar laws.
If your Big Flower stock certificate has been lost, stolen or destroyed, you
will only be entitled to receive payment for your common stock by making an
affidavit and, if required by Big Flower, posting a bond in an amount sufficient
to protect Big Flower against claims related to your stock certificate.
CORPORATE GOVERNANCE
CERTIFICATE OF INCORPORATION AND BYLAWS OF BIG FLOWER FOLLOWING THE MERGER
The merger agreement provides that the Big Flower restated certificate of
incorporation and the Big Flower amended and restated bylaws as in effect
immediately prior to the merger will be amended in the merger as described in
Schedule 1.04(a) and Schedule 1.04(b), respectively, to the merger agreement.
See "Special Factors--Amendment of Big Flower Restated Certificate of
Incorporation and Amended and Restated Bylaws" on page 27 for a summary of the
amendments to the Big Flower restated certificate of incorporation and amended
and restated bylaws to be effected pursuant to the merger agreement.
DIRECTORS AND OFFICERS OF BIG FLOWER FOLLOWING THE MERGER
The directors of BFH Merger Corp. immediately prior to the merger will be
the directors of Big Flower immediately after the merger until their successors
are duly elected. The officers of Big Flower immediately prior to the merger
will be the officers of Big Flower until their successors are duly elected. See
"Directors and Management of Big Flower Following the Merger" on page 99.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties made by
Big Flower, some of which are qualified as to materiality and knowledge,
regarding the following matters, among others:
- corporate existence and capitalization;
- ownership of the shares of capital stock of Big Flower's material
subsidiaries;
- corporate power and authority to execute, deliver and perform its
obligations under the merger agreement, and to consummate the merger;
- that the merger agreement and the transactions contemplated by the merger
agreement, will not result in a violation of the organizational documents
of Big Flower or any of its subsidiaries or contracts to which Big Flower
is a party, or violate any law, rule or regulation;
- consents and regulatory approvals necessary for Big Flower to complete the
merger;
- documents filed with the Securities and Exchange Commission, including
financial statements, and the accuracy of information contained in these
documents;
- absence of certain material adverse effects on Big Flower;
- pending or threatened suits, actions or other proceedings;
- employee benefit plans and labor relations;
- related party transactions;
- tax matters;
75
<PAGE>
- compliance with laws and required licenses and permits;
- material contracts;
- intellectual property matters;
- environmental matters;
- non-applicability of state anti-takeover statutes; and
- year 2000 compliance.
In addition, Big Flower represented and warranted to BFH Merger Corp. that
it has amended the Rights Agreement, dated as of November 28, 1995, between Big
Flower and The Bank of New York, as rights agent, to render such agreement
inapplicable to the merger.
The merger agreement also contains various representations and warranties
made by BFH Merger Corp., some of which are qualified as to materiality,
regarding the following matters, among others:
- corporate existence;
- corporate power and authority to execute, deliver and perform its
obligations under the merger agreement and to consummate the merger;
- that the merger agreement and the transactions contemplated by the merger
agreement will not result in a violation of BFH Merger Corp.'s
organizational documents or contracts to which BFH Merger Corp. is a
party;
- consents and regulatory approvals necessary for BFH Merger Corp. to
complete the merger;
- accuracy of information provided by BFH Merger Corp. for inclusion in this
document;
- financing commitments; and
- non-applicability of Delaware anti-takeover statute.
COVENANTS
CONDUCT OF BIG FLOWER'S BUSINESS PRIOR TO THE MERGER
Big Flower has agreed as to itself and each of its subsidiaries, from the
date of the merger agreement to the completion of the merger, unless BFH Merger
Corp. otherwise approves in writing, and except as otherwise expressly
contemplated by the merger agreement or, in certain cases, disclosed to BFH
Merger Corp., that, among other things:
- it will conduct its businesses in the ordinary and usual course in
substantially the same manner as previously conducted and will use all
reasonable best efforts to preserve intact its current business, keep
available the services of its current officers and employees and preserve
its various business relationships, goodwill and businesses;
- it will not 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 by a subsidiary to Big Flower and certain distributions;
- it will not split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of or in
substitution for shares of its capital stock;
- it will not purchase, redeem or otherwise acquire any shares of capital
stock or other securities of it or any of its subsidiaries or any rights,
warrants or options to acquire any such shares or other securities;
76
<PAGE>
- it will not issue, sell or pledge securities, other than (i) the issuance
of common stock upon the exercise of outstanding stock options or
otherwise pursuant to outstanding equity stock-based awards, (ii) upon
conversion of the QUIPS and (iii) up to 50,000 shares of common stock
pursuant to two specified 401(k) plans;
- it will not amend its certificate of incorporation, bylaws or other
comparable organizational documents or alter the corporate structure of
any material subsidiary;
- it will not acquire any assets that are material, individually or in the
aggregate, to Big Flower and its subsidiaries, except for purchases of
inventory and supplies in the ordinary course and purchase orders in the
ordinary course which do not require payments over $5,000,000 per year;
- it will not acquire any business or acquire any equity interest in any
person who is not an affiliate;
- it will not incur any indebtedness for borrowed money in excess of
$1,000,000, except for borrowings under existing lines of credit incurred
to fund working capital in the ordinary course of business and consistent
with past practice;
- it will not make any new capital expenditures that would cause total
capital expenditure for the period from January 1, 1999 to the completion
of the merger to exceed $102,500,000;
- it will not change its principles of accounting or methods of reporting
income and deductions for federal income tax purposes, except as required
by changes in law or regulation, by generally accepted accounting
principles, or as discussed in Big Flower's securities filings;
- it will not settle or compromise any shareholder derivative suits arising
out of the merger agreement or any other material litigation or settle,
pay or compromise any claims not required to be paid;
- it will not, except for certain limited exceptions and in the ordinary
course of business consistent with past practice, increase the
compensation or benefits of any director, officer or employee of Big
Flower or any of its subsidiaries;
- it will not sell, lease or encumber any of its properties or assets other
than immaterial properties or assets except in the ordinary course of
business consistent with past practice;
- it will not enter into or amend in a manner adverse to BFH Merger Corp.
any new agreement which has a non-competition, geographical restriction or
similar covenant that would be material to Big Flower;
- it will not make or rescind any material tax election, or settle any
material claim, litigation, or other controversy relating to taxes; and
- it will not authorize, or commit or agree to take, any of the foregoing
actions.
ACQUISITION TRANSACTIONS
In the merger agreement and except as described below, Big Flower has agreed
that it will not, directly or indirectly through another person, solicit,
initiate or encourage any inquiries or proposals relating to an "acquisition
transaction," as defined below, or participate in any discussions or
negotiations regarding an acquisition transaction. This prohibition on
solicitation and facilitation precludes, among other things, Big Flower from
furnishing information to any other person.
For purposes of the merger agreement, an "acquisition transaction" is:
- any acquisition or purchase of 15% or more of the assets of Big Flower or
any of its subsidiaries, or 15% or more of any securities of Big Flower or
any of its subsidiaries;
77
<PAGE>
- any merger, consolidation, share exchange, business combination,
recapitalization or similar transaction involving Big Flower or any of its
subsidiaries, other than the transactions contemplated by the merger
agreement; or
- any public announcement of a proposal, plan or intention to do any of the
foregoing.
However, in response to a "bona fide proposal" to acquire Big Flower or its
subsidiaries, as defined below, which it did not solicit, Big Flower may, but
only to the extent independent, legal counsel advises the board of directors
that doing so is necessary for the board of directors to comply with its
fiduciary duties to stockholders under applicable law:
- furnish information with respect to it and its subsidiaries to any person
making a bona fide proposal; and
- participate in discussions or negotiations regarding such bona fide
proposal.
In order to engage in such activities, Big Flower must provide prior written
notice of its intention to take such action to BFH Merger Corp. and must obtain
a confidentiality agreement from the party making the proposal.
For purposes of the merger agreement, a "bona fide proposal" to acquire Big
Flower or its subsidiaries means a proposal which the board of directors
determines in good faith, after receiving and considering advice from legal and
financial advisors, is reasonably capable of being consummated.
Nothing contained in the merger agreement prohibits Big Flower from taking
and disclosing to its stockholders a position contemplated by Rules 14d-9 and
14e-2(a) under the Securities Exchange Act of 1934.
Big Flower has also agreed:
- to terminate any discussions or negotiations with any parties regarding
acquisition transactions that were being conducted at the time the merger
agreement was signed,
- to notify BFH Merger Corp. promptly if any proposals regarding an
acquisition transaction are received or any discussions or negotiations
are sought and to identify the terms and conditions of such proposal and
the name of the party making it, and
- to use reasonable best efforts to cause any party possessing confidential
information about Big Flower to return or destroy all such information.
EFFORTS; OTHER ACTIONS
The merger agreement contains additional agreements relating to the conduct
of the parties prior to the merger, including the following:
- to promptly make their respective filings with applicable governmental
entities;
- to use reasonable best efforts in obtaining all necessary regulatory
approvals and consents and to take other reasonable actions to implement
the transactions contemplated by the merger agreement;
- to give prompt notice of any representation or warranty being untrue in a
material respect or the failure to comply with any covenant, condition or
agreement;
- to correct any of the information supplied by either BFH Merger Corp. or
Big Flower or by any of their affiliates for inclusion in the registration
statement on Form S-4 filed with the Securities and Exchange Commission to
register the shares of Big Flower to be issued in the merger, of which
this document is a part, if such information becomes false or misleading;
and
78
<PAGE>
- to consult with each other on any public statement or press release
regarding the merger and related recapitalization.
The merger agreement contains additional agreements by Big Flower, including
the following:
- to deliver to BFH Merger Corp. no later than the time of the merger a list
of all "affiliates" of Big Flower under Rule 145 of the Securities Act at
the time the merger agreement is submitted to Big Flower's stockholders
and to use reasonable best efforts to cause such persons to deliver
"affiliates' letters" to BFH Merger Corp.;
- to afford BFH Merger Corp. and its representatives reasonable access to
information pertaining to Big Flower and its subsidiaries;
- to call a meeting of stockholders, prepare and file with the Securities
and Exchange Commission a proxy statement and a registration statement on
Form S-4 to register the shares of Big Flower to be issued in the merger,
of which this document is a part, and use reasonable best efforts to
solicit from stockholders proxies in favor of the merger;
- to begin compliance with the requirements of the New Jersey Industrial
Site Recovery Act; and
- on BFH Merger Corp.'s request, to take all reasonable steps to assist any
challenge by BFH Merger Corp. to the validity or applicability to the
merger and related recapitalization of any state takeover law.
The merger agreement contains additional agreements by BFH Merger Corp.,
including the following:
- to use commercially reasonable efforts to cause the necessary financing to
be obtained on the terms set forth in the commitment letters that are
attached to Schedule 6.02(e) of the merger agreement, except that BFH
Merger Corp. may enter into similar financing commitments with other
nationally recognized financial institutions and may modify the capital
structure set forth in the commitment letters but only if:
- - the total committed equity equals at least $390,000,000 (which
includes any shares of common stock being retained in the merger, any
options that are exchanged in the merger for equity interests in the
surviving corporation and the investment instrument being issued to
the common stockholders of the recapitalized Big Flower),
- - the total cash price paid to all Big Flower stockholders is no less
than otherwise would have been paid, and
- - such modified financing is no less certain than the committed
financing.
INDEMNIFICATION AND INSURANCE
After the merger, Big Flower will indemnify the directors, officers and
employees of Big Flower and its subsidiaries for any losses they incur because
they acted as directors, officers and employees of Big Flower or its
subsidiaries before the merger, to the full extent permitted under Delaware law
unless the protections under Delaware law are greater than under Big Flower's
certificate of incorporation, bylaws and agreements in effect on June 29, 1999
in which case the protections will be what is in the certificate of
incorporation, bylaws and agreements, respectively.
Big Flower will either provide liability insurance for a period of six years
after the merger, for those directors and officers for acts or omissions
occurring before the merger on terms at least as favorable as those of any
policy presently in effect, or will provide tail insurance covering the same
matters and for the same period. However, during the six-year period, Big Flower
will not be required to provide any more coverage than can be obtained for the
remainder of the period for an annual
79
<PAGE>
premium costing more than 250% of the annual premium currently paid by Big
Flower for its existing coverage.
EMPLOYEE BENEFITS
BFH Merger Corp. has agreed that after the completion of the merger, Big
Flower will honor the existing obligations under disclosed employment, severance
and bonus arrangements. For a period of two years following the completion of
the merger, Big Flower will provide its employees with benefits no less
favorable in the aggregate than those provided by Big Flower at the time the
merger agreement was signed, except with respect to employees of any business
sold to a third party after the merger is completed.
CONDITIONS OF THE MERGER
The respective obligations of each of Big Flower and BFH Merger Corp. to
effect the merger are subject to the satisfaction or waiver, at or prior to the
merger, of the following conditions:
- the adoption of the merger agreement by Big Flower's stockholders;
- the expiration or termination of the waiting period applicable to the
merger under the Hart-Scott-Rodino Act (antitrust notification);
- the absence of any legal restriction that prohibits completion of the
merger or is reasonably likely to impose a material limitation on the
ability of BFH Merger Corp. or its affiliates to acquire Big Flower, but,
if the legal restriction is an order or injunction, BFH Merger Corp. must
have used commercially reasonable best efforts to prevent the imposition
of such order or injunction or to lessen the effects of such order or
injunction;
- the compliance with any material state securities laws applicable to the
merger;
- the registration statement on Form S-4 filed with the Securities and
Exchange Commission to register the shares of PIK preferred stock and
warrants to be issued in the merger shall have become effective under the
Securities Act and no stop order or proceeding seeking a stop order with
respect to such registration statement shall be in effect; and
- the receipt of a letter from an independent evaluation firm as to the
solvency of Big Flower and its subsidiaries on a consolidated basis after
giving effect to the merger and recapitalization.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF BIG FLOWER AND BFH MERGER CORP.
The obligations of each of Big Flower and BFH Merger Corp. are subject to
the further satisfaction or waiver by each party of the following conditions:
- generally, the representations and warranties of the other party set forth
in the merger agreement,
- - to the extent already subject to a material adverse effect qualifier,
being true both as of the date of the merger agreement and at and as
of the time of the merger, and
- - to the extent not already subject to a material adverse effect
qualifier, being true both as of the date of the merger agreement and
at and as of the time of the merger unless failure to be true would
have a material adverse effect on the other party; and
- the other party having performed all obligations required to be performed
by it under the merger agreement at or prior to the time of the merger
except for failures to perform that would not have a material adverse
effect on such other party or materially adversely affect the ability of
such other party to complete the transactions contemplated by the merger
agreement.
80
<PAGE>
For purposes of the merger agreement, "material adverse effect" means, when
used in connection with Big Flower or BFH Merger Corp., any change in or effect
on the business, financial condition, results of operations or reasonably
foreseeable prospects of such party and its subsidiaries taken as a whole.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF BFH MERGER CORP.
The obligations of BFH Merger Corp. are subject to the further satisfaction
or waiver by BFH Merger Corp. of the following conditions:
- Big Flower, its subsidiaries and BFH Merger Corp. must have received the
proceeds of the debt and equity financings set forth in the commitment
letters in sufficient amounts to complete the merger (including to pay the
cash portion of the merger consideration, to refinance certain of Big
Flower's debt, to pay transaction fees and expenses and to provide for
working capital needs of Big Flower after the merger);
- BFH Merger Corp. being reasonably satisfied that Big Flower's total funded
debt (including the accounts receivable securitization facility)
immediately prior to the merger, net of cash, cash equivalents and debt in
respect of the QUIPS, is less than:
- - $970 million, plus
- - any indebtedness incurred in consummating acquisitions disclosed to
BFH Merger Corp.; and
- the absence of any pending litigation brought by a government entity (or
by any other person which has a reasonable likelihood of success) that
seeks to, among other things, prohibit or restrict the completion of the
merger and the transactions contemplated by the merger agreement.
TERMINATION AND EFFECTS OF TERMINATION
Big Flower and BFH Merger Corp. may terminate the merger agreement and
abandon the merger at any time prior to the merger becoming effective by mutual
written consent.
TERMINATION BY BIG FLOWER OR BFH MERGER CORP.
Big Flower or BFH Merger Corp. may terminate the merger agreement and
abandon the merger at any time prior to the merger if:
- the merger is not completed by the "termination date" (as defined below),
provided that the terminating party has not materially breached the merger
agreement;
- a court order or ruling of another governmental entity permanently
prohibiting completion of the merger becomes final and non-appealable,
provided that the terminating party shall have used its reasonable best
efforts to remove or lift such order or ruling; or
- the approval of Big Flower's stockholders required by the merger agreement
is not obtained.
TERMINATION BY BFH MERGER CORP.
BFH Merger Corp. may terminate the merger agreement and abandon the merger
at any time prior to the merger if:
- the Big Flower board fails to recommend to Big Flower's stockholders that
they vote in favor of the merger, withdraws or adversely modifies its
approval or recommendation of the merger to Big Flower's stockholders or
resolves to do any of the foregoing;
81
<PAGE>
- the Big Flower board approves or recommends an acquisition transaction to
its stockholders;
- Big Flower takes any other steps to impede Big Flower stockholder approval
of the merger, or resolve to do so;
- Big Flower breaches its covenant with respect to its rights plan, which
prohibits Big Flower from:
- - redeeming the stockholder rights,
- - amending the stockholder rights plan, or
- - taking any other action that would permit a third party (other than
BFH Merger Corp. and its affiliates) to acquire beneficial ownership
of at least 15% of Big Flower common stock,
or Big Flower takes any such action after the board of directors determines
in good faith and after consultation with legal counsel, that doing so is
necessary for the board of directors to comply with its fiduciary duties to
stockholders under applicable law.
- Big Flower materially breaches any representation, warranty, covenant or
agreement contained in the merger agreement which, unless cured, would
result in a failure of either:
- - the condition to the obligations of BFH Merger Corp. to complete the
merger relating to the accuracy of the representations and warranties
of Big Flower, or
- - the condition to the obligations of BFH Merger Corp. to complete the
merger relating to the performance by Big Flower of its obligations
under the merger agreement.
TERMINATION BY BIG FLOWER
Big Flower may terminate the merger agreement and abandon the merger at any
time prior to the merger by action of its board if:
- any person has made a bona fide proposal relating to an acquisition
transaction, or has commenced a tender or exchange offer for the shares of
Big Flower common stock, and the board of directors determines in good
faith (a) after consultation with its financial advisors, that such
transaction constitutes a superior proposal and (b) after consultation
with counsel, that approval of such proposal and termination of the merger
agreement is necessary to comply with its fiduciary duties to stockholders
under applicable law; or
- BFH Merger Corp. materially breaches any representation, warranty,
covenant or agreement contained in the merger agreement which, unless
cured prior to the termination date, would result in a failure of either:
- - the condition to the obligations of Big Flower to complete the merger
relating to the accuracy of the representations and warranties of BFH
Merger Corp., or
- - the condition to the obligations of Big Flower to complete the merger
relating to the performance by BFH Merger Corp. of its obligations
under the merger agreement.
For purposes of the merger agreement, "termination date" means the later of
October 31, 1999 and the date determined by adding to October 31, 1999 the
number of days after September 1, 1999 that this proxy statement is mailed to
Big Flower stockholders; but in no event will the termination date be later than
December 31, 1999.
82
<PAGE>
FEES AND EXPENSES
If the merger agreement is terminated for any reason other than a material
breach by BFH Merger Corp., Big Flower will reimburse Thomas H. Lee Company,
Evercore Capital Partners and BFH Merger Corp. collectively for out-of-pocket
expenses and fees up to $10 million.
If the merger agreement is terminated:
(1) by BFH Merger Corp. because:
- the Big Flower board fails to recommend to Big Flower's stockholders
that they vote in favor of the merger or the board withdraws or
adversely modifies its approval or recommendation of the merger to Big
Flower's stockholders or resolves to do any of the foregoing;
- the Big Flower board of directors recommends another acquisition
transaction or resolves to do so;
- Big Flower takes any other steps to impede Big Flower stockholders'
adoption of the merger agreement;
- Big Flower breaches its covenant with respect to its stockholder rights
plan, which prohibits Big Flower from redeeming the rights, amending
the stockholder rights plan, or taking any other action that would
permit a third party (other than BFH Merger Corp. and its affiliates)
to acquire beneficial ownership of at least 15% of Big Flower common
stock; or
(2) by Big Flower because:
- any person has made a bona fide proposal relating to an acquisition
transaction, or has commenced a tender or exchange offer for the shares
of Big Flower common stock, and the board of directors determines in
good faith (a) after consultation with its financial advisors, that
such transaction constitutes a superior proposal and (b) after
consultation with counsel, that approval of such proposal and
termination of the merger agreement is necessary to comply with its
fiduciary duties to stockholders under applicable law; or
(3) by either Big Flower or BFH Merger Corp. because:
- Big Flower's stockholders have not adopted the merger agreement; and
- prior to the stockholder vote, a third party (other than Thomas H. Lee
Company, Evercore Capital Partners or their affiliates) has made or
disclosed a proposal for an acquisition transaction,
then Big Flower must pay to BFH Merger Corp. a termination fee of $30 million,
less any out-of-pocket expenses or fees paid to Thomas H. Lee Company, Evercore
Capital Partners and BFH Merger Corp. (up to $10 million) as described above.
Whether or not the merger is completed, all costs and expenses incurred in
connection with the merger will be paid by the party incurring the expense,
except for termination fees paid and expenses reimbursed by Big Flower, as
described above.
AMENDMENT; WAIVER
BFH Merger Corp. and Big Flower may amend the merger agreement by written
agreement at any time before or after the approval of the merger agreement by
Big Flower's stockholders. After Big Flower's stockholders have approved the
merger agreement, no amendment may be made which by law requires further
stockholder approval without such further approval by Big Flower's stockholders
having been obtained.
Any provision of the merger agreement may be waived prior to the merger
being completed, but only if the waiver is in writing and signed by the party
against whom the waiver is to be effective.
83
<PAGE>
APPRAISAL RIGHTS
Holders of Big Flower common stock can decide to receive, instead of having
their shares converted into the merger consideration, an amount which the Court
of Chancery of the State of Delaware decides is the "fair value" of their Big
Flower common stock, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, as determined by the court.
These rights are known as "appraisal rights." If a holder of Big Flower
common stock wishes to exercise appraisal rights in connection with the merger,
the holder must not vote in favor of the merger and must meet the conditions
described below.
The conditions necessary to secure appraisal rights are set out in full in
Appendix D. This summary is not meant to be a complete statement on appraisal
rights, but rather is only a guide for a stockholder who wishes to exercise
appraisal rights. Delaware law requires that Big Flower notify stockholders at
least 20 days prior to the meeting of Big Flower stockholders that they have a
right of appraisal and provide stockholders with a copy of Section 262 of the
Delaware General Corporation Law (DGCL). This proxy statement/prospectus
constitutes that notice. If Big Flower stockholders do not follow the procedures
set out below and in Appendix D, they will lose their appraisal rights.
ALL REFERENCES IN THIS SUMMARY AND IN SECTION 262 OF THE DGCL TO A
"STOCKHOLDER" OR TO A "HOLDER" OF BIG FLOWER STOCK ARE TO THE RECORD HOLDERS OF
BIG FLOWER COMMON STOCK. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES OF BIG
FLOWER COMMON STOCK HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A
BROKER OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE
STEPS SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT THE HOLDER'S
APPRAISAL RIGHTS.
A holder of Big Flower common stock wishing to exercise his or her appraisal
rights with respect to the merger must not vote in favor of adoption of the
merger agreement. Because a duly executed proxy that does not contain voting
instruction will, unless revoked, be voted for the merger, a holder of Big
Flower common stock who votes by proxy and who wishes to exercise appraisal
rights must vote against the merger agreement or abstain from voting on the
merger agreement. A vote against the merger, in person or by proxy, will not in
and of itself constitute a written demand for appraisal satisfying the
requirements of Section 262 of the DGCL, and a separate written demand for
appraisal is required.
A demand for appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as the holder's name appears on the stock
certificates. The demand must also state that the stockholder intends to demand
appraisal of the holder's shares of Big Flower common stock in connection with
the merger.
If the shares are owned of record in a fiduciary capacity, including by a
trustee, guardian or custodian, the demand should be executed in that capacity,
and if the shares are owned of record by more than one person, as in a joint
tenancy and tenancy in common, the demand should be executed by or on behalf of
a holder of record but the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is agent
for the owner or owners.
A record holder such as a broker who holds Big Flower common stock as
nominee for several beneficial owners may exercise appraisal rights with respect
to the shares held for one or more beneficial owners while not exercising these
rights with respect to the shares held for other beneficial owners; in this
circumstance, however, the written demand should set forth the number of shares
as to which appraisal is sought and, where no number of shares is expressly
mentioned, the demand will be presumed to cover all shares of Big Flower common
stock held in the name of the record owner. Holders who hold their Big Flower
common stock in brokerage accounts or other nominee forms and who wish to
exercise appraisal rights are urged to consult with their brokers to determine
the appropriate procedures for the making of a demand for appraisal by the
nominee.
84
<PAGE>
HOLDERS OF BIG FLOWER COMMON STOCK MUST SEND ALL WRITTEN DEMANDS FOR
APPRAISAL UNDER SECTION 262 OF THE DGCL TO BIG FLOWER HOLDINGS, INC., 3 EAST
54TH STREET, NEW YORK, NEW YORK 10022, ATTENTION: IRENE B. FISHER, ASSOCIATE
GENERAL COUNSEL. BIG FLOWER MUST RECEIVE WRITTEN DEMANDS FOR APPRAISAL UNDER
SECTION 262 OF THE DGCL BEFORE THE MERGER AGREEMENT IS VOTED UPON AT THE BIG
FLOWER MEETING.
Within ten days after the date the merger becomes effective, Big Flower must
notify each holder of common stock who has complied with Section 262 of the DGCL
and has not voted in favor of the merger of the date that the merger has become
effective.
Within 120 days after the date the merger becomes effective, but not
thereafter, Big Flower or any holder of Big Flower common stock who has complied
with Section 262 and is entitled to appraisal rights under Section 262 of the
DGCL may file a petition in the Court of Chancery of the State of Delaware
demanding a determination of the fair value of the holder's shares of common
stock. Big Flower will have no obligation to file a petition, and neither Big
Flower nor BFH Merger Corp. has any present intention to cause such a petition
to be filed. Accordingly, it is the obligation of stockholders seeking appraisal
rights to initiate all necessary action to perfect appraisal rights within the
time prescribed in Section 262 of the DGCL.
Any holder of Big Flower common stock who has complied with the requirements
for exercise of appraisal rights will be entitled, upon written request, to
receive from Big Flower, a statement setting forth the aggregate number of
shares of Big Flower common stock not voted in favor of the merger and the
number of shares of Big Flower common stock with respect to which demands for
appraisal have been received and the total number of holders of these shares. If
a holder of Big Flower common stock timely files a petition for an appraisal,
the Court of Chancery is empowered to conduct a hearing on this petition to
determine those holders who have complied with Section 262 of the DGCL and who
have become entitled to appraisal rights thereunder. The Court of Chancery may
require the holders of Big Flower common stock who demanded appraisal of their
shares to submit their stock certificates to the Register in Chancery for
notation of the pending appraisal proceeding. If any stockholder fails to comply
with its discretion, the Court of Chancery may dismiss the proceedings as to the
stockholder.
After determining the holders entitled to appraisal, the Court of Chancery
will appraise the "fair value" of their shares of Big Flower common stock,
exclusive of any element of value arising from the accomplishment or expectation
of the merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Stockholders considering seeking
appraisal should be aware that the fair value of their Big Flower common stock,
as determined in an appraisal proceeding under Section 262 of the DGCL could be
more than, the same as or less than the merger consideration they would receive
pursuant to the merger if they did not seek appraisal of their shares, and that
investment banking opinions as to fairness from financial point of view are not
necessarily opinions as to fair value under Section 262 of the DGCL. The
Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal proceeding.
In addition, Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a dissenter's exclusive
remedy. The Court of Chancery will also determine the amount of interest, if
any, payable upon the amounts due to persons whose shares of Big Flower common
stock have been appraised.
The court may determine the cost of the appraisal action and may allocate
the costs among the parties as the court deems equitable. Each party must bear
its own other expenses of the proceeding, although the court may order that all
or a portion of the expenses incurred by any stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
against the value of all of the shares of Big Flower common stock entitled to an
appraisal.
85
<PAGE>
Any holder of Big Flower common stock who duly demands appraisal in
compliance with Section 262 of the DGCL will not, after the merger, be entitled
to vote the holder's shares for any purpose or be entitled to the payment of
dividends or other distributions on those shares other than dividends or other
distributions payable to holders of record as of a record date prior to the
merger.
If any stockholder who demands appraisal of shares of Big Flower common
stock under Section 262 fails to perfect, or effectively withdraws or loses, the
holder's right to appraisal, the shares of the stockholder will be converted
into the right to receive the merger consideration pursuant to the merger,
without interest.
A stockholder will fail to perfect and lose the right to appraisal if he
does not file a petition for appraisal within 120 days after the date the merger
becomes effective, or if the stockholder delivers to Big Flower a written
withdrawal of a demand for appraisal and an acceptance of the terms offered upon
the merger. However, any attempt to withdraw a demand for appraisal made more
than 60 days after the date the merger becomes effective will require the
written approval of Big Flower and, once a petition for appraisal is filed, an
appraisal proceeding may not be dismissed as to any holder absent court
approval.
A HOLDER OF BIG FLOWER COMMON STOCK MAY LOSE APPRAISAL RIGHTS IF THE HOLDER
FAILS TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING
APPRAISAL RIGHTS.
86
<PAGE>
MARKET PRICE AND DIVIDEND DATA
The table sets forth, for the calendar quarters indicated, the high and low
closing prices per share of Big Flower common stock, as reported on the NYSE
Composite Tape.
<TABLE>
<CAPTION>
BIG FLOWER
COMMON STOCK
------------------
CALENDAR QUARTER HIGH LOW
- -------------------------------------------------------------- ------- -------
<S> <C> <C>
1996
First Quarter............................................... $19 1/8 $10 7/8
Second Quarter.............................................. 14 5/8 11 7/8
Third Quarter............................................... 14 12 1/2
Fourth Quarter.............................................. 18 3/4 12 1/4
1997
First Quarter............................................... 20 7/8 17 7/8
Second Quarter.............................................. 21 7/8 18 1/8
Third Quarter............................................... 25 11/16 20 3/8
Fourth Quarter.............................................. 24 3/4 21
1998
First Quarter............................................... 30 3/8 25 1/8
Second Quarter.............................................. 34 9/16 27 7/8
Third Quarter............................................... 32 1/8 19 3/8
Fourth Quarter.............................................. 24 9/16 15 3/8
1999
First Quarter............................................... 33 1/8 21 13/16
Second Quarter.............................................. 35 1/2 27 7/8
Third Quarter (through July 14, 1999)....................... 35 1/2 27 7/8
</TABLE>
In June 1997, Big Flower completed an underwritten secondary public offering
of 6,708,524 shares of Big Flower common stock. The offering price per share was
$21.00 and the aggregate net proceeds of the offering was $133,835,054.
DIVIDEND INFORMATION
Big Flower has not paid cash dividends on its common stock and intends to
continue this policy for the foreseeable future and retain funds for repayment
of indebtedness and investment in its business.
Because Big Flower is a holding company, holders of its debt and equity
securities, including holders of the common stock, are dependent primarily upon
the cash flow from Big Flower's subsidiaries for payment of principal, interest
and dividends. Potential dividends and other advances and transfers from Big
Flower's subsidiaries represent its most significant sources of cash flow.
Applicable state laws and the provisions of the debt instruments and other
capital instruments by which Big Flower's principal subsidiaries are bound limit
the ability of such companies to declare dividends or otherwise provide funds to
Big Flower. Specifically, on June 22, 1998, Big Flower and certain of its
subsidiaries entered into an amended and restated revolving credit agreement.
The credit agreement limits the ability of Big Flower to pay dividends. In
addition, the indenture governing the 8 7/8% Notes due July 1, 2007 and the
8 5/8% Notes due December 1, 2008 of Big Flower Press imposes certain
restrictions on Big Flower Press' ability to make distributions to Big Flower.
Also, the indenture governing the QUIPS restricts the payment of dividends by
Big Flower on its common stock in certain circumstances.
87
<PAGE>
RECENT CLOSING PRICES
Shares of Big Flower common stock are listed on the NYSE under the symbol
"BGF".
The following table sets forth the closing market prices per share of Big
Flower common stock on the NYSE on April 19, 1999, the last trading day before
Big Flower publicly announced that it was going to explore possible strategic
transactions, on June 28, 1999, the last trading day before the public
announcement of the merger, and on July 14, 1999, the last practicable trading
day prior to the date of this document.
<TABLE>
<CAPTION>
BIG FLOWER
COMMON STOCK
--------------
<S> <C>
April 19, 1999...................................................... $ 27.875
June 28, 1999....................................................... $ 35.50
July 14, 1999....................................................... $ 30.813
</TABLE>
NUMBER OF STOCKHOLDERS
As of - , 1999, there were approximately 250 holders of record of Big
Flower common stock, as shown on the records of Big Flower's transfer agent for
such shares.
88
<PAGE>
DESCRIPTION OF BIG FLOWER
Big Flower is a leading advertising and marketing services company with four
business segments: Insert Advertising & Newspaper Services, Direct Marketing
Services, Digital Services, and Specialty Products & Commercial Printing.
- Insert Advertising & Newspaper Services are provided through Treasure
Chest Advertising Company, Inc., a leading producer of insert advertising
programs, TV listing magazines, Sunday comics, Sunday magazines and
special supplements for many of the most widely circulated U.S.
newspapers.
- Direct Marketing Services are provided through Webcraft, Inc., a leader in
design, development and production of highly personalized, data-driven
direct mail; database solutions and response management services; and
one-to-one digital printing and marketing.
- Digital Services are provided through Big Flower Digital Services, Inc.,
which offers an array of digital service principally through its three
subsidiaries: Laser Tech Color, Inc., Columbine JDS Systems, Inc. and
Reach America, Inc.
- - Laser Tech is a leading provider of outsourced, digital premedia and
content management services to retailers, advertising agencies, and
consumer product companies.
- - Columbine is a leading provider of software products and related
services to the advertising agency, cable, satellite and terrestrial
broadcast industries in both the United States and internationally.
- - Reach America is a leading provider of targeted advertising software
applications that develops proprietary, target audience databases,
tracks consumer products category sales potential and maps retail
trade zones.
- Big Flower's fourth business segment consists of its speciality Products &
Commercial Printing Services. These products and services are also offered
by Webcraft. This segment includes commercial printing services, the
production of specialty chemicals, adhesives and coatings, and the
production of fragrance samplers. Big Flower has stated its intention to
de-emphasize this line of business and to focus on the core direct
marketing services area.
Big Flower was incorporated in Delaware in 1997. Big Flower Press was
incorporated in Delaware in 1993. Big Flower's and Big Flower Press' principal
executive offices are located at 3 East 54th Street, New York, New York 10022
and their telephone number is (212) 521-1600.
89
<PAGE>
DESCRIPTION OF BFH MERGER CORP.
BFH Merger Corp. is a newly formed Delaware corporation formed by Thomas H.
Lee Equity Fund IV, L.P., an affiliate of Thomas H. Lee Company, and Evercore
Capital Partners L.P., an affiliate of Evercore Partners Inc., for the purpose
of completing the merger. The address of BFH Merger Corp.'s principal executive
offices is BFH Merger Corp., c/o Thomas H. Lee Company, 75 State Street, Suite
2600, Boston, MA 02109. BFH Merger Corp. will not have any significant assets or
liabilities, except as described in this document. BFH Merger Corp. will not
engage in any activities other than those related to completing the merger.
All of the outstanding capital stock of BFH Merger Corp. is owned by Thomas
H. Lee Equity Fund IV and Evercore Capital Partners. Information about the
principals, directors and executive officers of BFH Merger Corp., Thomas H. Lee
Equity Fund IV and Evercore Capital Partners is set forth in Appendix F to this
document.
THOMAS H. LEE EQUITY FUND IV
Thomas H. Lee Equity Fund IV is an affiliate of Thomas H. Lee Company, a
Boston-based investment firm focused on acquiring substantial investments in
growth companies. Founded in 1974, the firm and its affiliates currently manages
approximately $6 billion in committed capital. Recent investments include Eye
Care Centers of America, Inc., Fisher Scientific International Inc., Rayovac
Corporation, HomeSide Lending, Inc., The Learning Company, Inc., Metris
Companies Inc. and Wyndham International, Inc.
EVERCORE CAPITAL PARTNERS
Evercore Partners Inc. is a firm which provides strategic and financial
advisory services to major corporations and makes private equity investments
through its affiliate, Evercore Capital Partners L.P. Evercore Capital Partners'
most recent investment was its $850 million purchase of American Media, Inc.
Evercore Partners Inc.'s recent advisory work includes advising Tenneco Inc. on
the separation of its automotive and packaging businesses, and advising Dow
Jones & Company, Inc. on its interactive joint venture with Reuters Group PLC.
90
<PAGE>
BIG FLOWER UNAUDITED PRO FORMA
FINANCIAL INFORMATION
The following tables contain selected financial information adjusted to
reflect the merger and related events. We derived this "pro forma" financial
information from Big Flower's historical consolidated financial statements and
adjusted for:
(1) The merger transaction, accounted for as a recapitalization. Under
recapitalization accounting, the historical basis of Big Flower's assets
and liabilities will not be affected by the transaction.
(2) Financing transactions related to the merger. The pro forma consolidated
financial data assume $5.25 of merger consideration has all been
allocated to the PIK preferred stock. Subsequent to the completion of the
merger and the related financings, a final estimate of the carrying value
of the PIK preferred stock and the warrants will be completed, with the
portion allocated to the warrants credited to stockholders' equity.
(3) Acquisitions that we completed in 1998 and January 1999, using the
purchase method of accounting. Under the purchase method of accounting,
the total purchase cost was allocated to the assets acquired and
liabilities assumed based on their respective fair values, based upon
currently available information.
The pro forma consolidated statements of operations for the year ended
December 31, 1998 and three months ended March 31, 1999 give effect to these
transactions as if they were completed on January 1, 1998. The pro forma
consolidated balance sheet as of March 31, 1999 gives effect to these
transactions as if they had occurred on that date. The adjustments are described
in the accompanying notes.
The pro forma consolidated financial data assume that:
(1) there are no dissenting stockholders;
(2) all options to purchase Big Flower common stock are retained by their
current holders in the merger;
(3) all outstanding QUIPS are converted into Big Flower common stock prior
to the merger; and
(4) the investment instrument that may be issued in the merger will be in
the form of paid-in-kind preferred stock.
Should Big Flower redeem or otherwise settle any of these stock options in
connection with the merger, compensation expense will be recognized in the
consolidated statement of operations for the period when the merger occurs.
The pro forma consolidated financial statements are provided to show you
what the results of operations and financial position of Big Flower might have
looked like had the merger, the recapitalization, the financing of the merger
and certain acquisitions occurred at an earlier date and occurred in the manner
assumed. This information is provided for illustrative purposes only and does
not claim to show what the results of operations or financial position of Big
Flower would have been if the merger and related transactions had actually
occurred on the dates assumed and occurred in the actual manner assumed. This
information also does not attempt to indicate what Big Flower's future operating
results or consolidated financial position will be.
You should read the pro forma consolidated financial statements along with
Big Flower's historical financial statements and the related notes, which are
incorporated by reference in this document.
91
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS(A) PRO FORMA
----------- -------------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 9,864 $ 9,864
Accounts receivable, net................................... 188,565 188,565
Inventories................................................ 50,030 50,030
Prepaid expenses and other current assets.................. 11,802 11,802
Deferred income taxes and income tax receivable............ 9,653 9,653
----------- -----------
Total current assets..................................... 269,914 269,914
Property, plant and equipment, net........................... 482,975 482,975
Goodwill..................................................... 540,780 540,780
Long-term investments........................................ 173,056 173,056
Other assets................................................. 39,958 $ 48,352 88,310
----------- -------------- -----------
Total Assets............................................. $ 1,506,683 $ 48,352 $ 1,555,035
----------- -------------- -----------
----------- -------------- -----------
<CAPTION>
LIABILITIES AND EQUITY (DEFICIT)
<S> <C> <C> <C>
Current liabilities:
Accounts payable........................................... $ 139,671 $ 139,671
Compensation and benefits payable.......................... 39,924 39,924
Accrued interest........................................... 14,998 $ (464) 14,534
Accrued income taxes....................................... 1,032 1,032
Current portion of long-term debt.......................... 4,340 (4,340)
Other current liabilities.................................. 36,698 (1,436) 35,262
----------- -------------- -----------
Total current liabilities................................ 236,663 (6,240) 230,423
Revolving credit facility.................................... 235,411 (235,411)
New revolving credit facility................................ 138,060 138,060
New term loan facility....................................... 200,000 200,000
8 7/8% senior subordinated notes due 2007.................... 350,107 350,107
8 5/8% senior subordinated notes due 2008.................... 250,000 250,000
New high yield notes......................................... 400,000 400,000
Other notes payable.......................................... 21,806 (21,806)
Deferred income taxes........................................ 94,952 (3,359) 91,593
Other........................................................ 28,774 28,774
----------- -------------- -----------
Total liabilities........................................ 1,217,713 471,244 1,688,957
----------- -------------- -----------
QUIPS........................................................ 114,075 (114,075)
Investment instrument........................................ 60,000 60,000
PIK preferred stock.......................................... 114,364 114,364
Stockholders' equity (deficit):
Common stock............................................... 197 (102) 95
Additional paid-in capital................................. 143,517 44,998 188,515
Accumulated deficit........................................ (28,046) (528,077) (556,123)
Accumulated other comprehensive income..................... 59,968 59,968
Other...................................................... (741) (741)
----------- -------------- -----------
Total stockholders' equity (deficit)..................... 174,895 (483,181) (308,286)
----------- -------------- -----------
Total liabilities and equity (deficit)....................... $ 1,506,683 $ 48,352 $ 1,555,035
----------- -------------- -----------
----------- -------------- -----------
</TABLE>
See Notes to Pro Forma Consolidated Balance Sheet.
92
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(a) The following table summarizes the pro forma adjustments to the Pro Forma
Consolidated Balance Sheet. The adjustments are described in the notes that
follow.
<TABLE>
<CAPTION>
CONVERSION OF
QUIPS
AND
PURCHASE REPURCHASE OF TRANSACTION REPAYMENT
OF COMMON RESULTING FEES AND OF EXISTING TOTAL NET
FINANCING(1) STOCK(2) SHARES(3) EXPENSES(4) DEBT(5) ADJUSTMENT
------------ ----------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Cash and cash equivalents................... $1,000,965 $(535,394) $ (119,550) $ (84,000) $ (262,021) $ --
Other assets................................ 56,626 (8,274) 48,352
Accrued interest............................ (464) (464)
Current portion of long-term debt........... (4,340) (4,340)
Other current liabilities................... (1,436) (1,436)
Revolving credit facility................... (235,411) (235,411)
New revolving credit facility............... 138,060 138,060
New term loan facility...................... 200,000 200,000
New high yield notes........................ 400,000 400,000
Other notes payable......................... (21,806) (21,806)
Deferred income taxes....................... (3,359) (3,359)
QUIPS....................................... (114,075) (114,075)
Investment instrument....................... 60,000 60,000
PIK preferred stock......................... 93,694 20,670 114,364
Common stock................................ 76 (178) (102)
Additional paid-in capital.................. 202,829 (130,457) (27,374) 44,998
Accumulated deficit......................... (498,453) (24,709) (4,915) (528,077)
</TABLE>
- ------------------------------
(1) See "Sources and Uses" on page 61 for a summary of the proposed sources
and uses of funds in connection with the merger and related
recapitalization.
(2) The adjustments represent the payment of the merger consideration for
17,846,451 shares of Big Flower common stock (which excludes shares
retained by management in the merger). Subsequent to the merger,
management will own approximately 19.0% of the outstanding Big Flower
common shares.
(3) The adjustments represent the assumed conversion of all QUIPS into
3,937,144 shares of Big Flower common stock (2.27 million QUIPS
outstanding at a conversion rate of 1.7344 shares of common stock for
each QUIPS outstanding) and the payment of accrued dividends through the
conversion date and payment of the merger consideration with respect to
all such shares.
(4) The adjustment represents the estimated transaction fees and expenses of
$84.0 million. The portion of estimated transaction fees and expenses
attributable to the debt financing is $56.6 million which will be
recorded as deferred financing costs and will be amortized over the
expected life of the debt to be issued. Such estimated debt issuance
costs include estimated fees and expenses payable to banks and related
advisors. The remaining estimated transaction fees and expenses of $27.4
million represent costs associated with the recapitalization, which will
be expensed or charged against equity as appropriate.
(5) The adjustment represents the repayment of certain existing indebtedness
and related accrued interest, and the write-off of $8.3 million ($4.9
million after tax) of unamortized deferred financing costs related to the
debt and the QUIPS.
93
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
ACQUISITIONS PRO FORMA FOR PRO FORMA
HISTORICAL (A) ADJUSTMENTS (A) ACQUISITIONS ADJUSTMENTS NOTE PRO FORMA
--------- --------------- --------------- ----------- ------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales...................... $1,739,715 $ 102,035 $1,841,750 $1,841,750
--------- --------------- ----------- -----------
Operating expenses:
Costs of production.......... 1,296,336 66,192 1,362,528 1,362,528
Selling, general and
administrative............. 219,496 17,329 236,825 $ 1,250 (b) 238,075
Depreciation and amortization
of intangibles............. 86,386 6,220 $ 3,289 95,895 95,895
In-process acquired
technology write off....... 245 245 245
--------- --------------- --------------- ----------- ------------- -----------
1,602,463 89,741 3,289 1,695,493 1,250 1,696,743
--------- --------------- --------------- ----------- ------------- -----------
Operating income............... 137,252 12,294 (3,289) 146,257 (1,250) 145,007
--------- --------------- --------------- ----------- ------------- -----------
Other expenses (income):
Interest expense............. 55,988 2,058 7,519 65,565 39,605 (c) 105,170
Amortization of deferred
financing costs............ 1,902 1,902 5,912 (d) 7,814
Interest income.............. (498) (301) (799) (799)
Preferred dividends of a
subsidiary trust (QUIPS)... 6,900 6,900 (6,900) (e)
Other, net................... 2,982 (439) 2,543 (20) (f) 2,523
--------- --------------- --------------- ----------- ------------- -----------
67,274 1,318 7,519 76,111 38,597 114,708
--------- --------------- --------------- ----------- ------------- -----------
Income before income taxes..... 69,978 10,976 (10,808) 70,146 (39,847) 30,299
Income tax expense............. 32,302 4,360 (4,388) 32,274 (16,178) (g) 16,096
--------- --------------- --------------- ----------- ------------- -----------
Net income..................... 37,676 6,616 (6,420) 37,872 (23,669) 14,203
Dividend requirements on
investment instrument........ (6,150) (h) (6,150)
Dividend requirements on PIK
preferred stock.............. (11,722) (i) (11,722)
--------- --------------- --------------- ----------- ------------- --- -----------
Income (loss) applicable to
common shares................ $ 37,676 $ 6,616 $ (6,420) $ 37,872 $ (41,541) $ (3,669)
--------- --------------- --------------- ----------- ------------- -----------
--------- --------------- --------------- ----------- ------------- -----------
Earnings (loss) per share
Basic........................ $ 1.92 $ 1.91 $ (0.39)
--------- ----------- -----------
--------- ----------- -----------
Diluted...................... $ 1.69 $ 1.69 $ (0.39)
--------- ----------- -----------
--------- ----------- -----------
Weighted average shares
outstanding
Basic........................ 19,660 122 19,782 9,362
--------- ----------- -----------
--------- ----------- -----------
Diluted...................... 24,678 133 24,811 9,362
--------- ----------- -----------
--------- ----------- -----------
Pro forma ratio of earnings to
fixed charges (j)............ 1.2x
-----------
-----------
</TABLE>
See Notes to Pro Forma Consolidated Statements of Operations.
94
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS NOTE PRO FORMA
--------- ----------- ----- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales.......................................... $ 420,323 $ 420,323
--------- ---------
Operating expenses:
Costs of production.............................. 313,286 313,286
Selling, general and administrative.............. 60,166 $ 313 (b) 60,479
Depreciation and amortization of intangibles..... 24,296 24,296
--------- ----------- ---------
397,748 313 398,061
--------- ----------- ---------
Operating income................................... 22,575 (313) 22,262
--------- ----------- ---------
Other expenses (income):
Interest expense................................. 17,215 13,590 (c) 30,805
Amortization of deferred financing costs......... 716 1,397 (d) 2,113
Interest income.................................. (220) (220)
Preferred dividends of a subsidiary trust
(QUIPS)........................................ 1,702 (1,702) (e)
Other, net....................................... (2,071) (218) (f) (2,289)
--------- ----------- ---------
17,342 13,067 30,409
--------- ----------- ---------
Income (loss) before income taxes.................. 5,233 (13,380) (8,147)
Income tax expense (benefit)....................... 2,407 (5,432) (g) (3,025)
--------- ----------- ---------
Net income (loss).................................. 2,826 (7,948) (5,122)
Dividend requirements on investment instrument..... (1,654) (h) (1,654)
Dividend requirements on PIK preferred stock....... (3,152) (i) (3,152)
--------- ----------- ---------
Income (loss) applicable to common shares.......... $ 2,826 $ (12,754) $ (9,928)
--------- ----------- ---------
--------- ----------- ---------
Earnings (loss) per share
Basic............................................ $ 0.14 $ (1.06)
--------- ---------
--------- ---------
Diluted.......................................... $ 0.14 $ (1.06)
--------- ---------
--------- ---------
Weighted average shares outstanding
Basic............................................ 19,723 9,362
--------- ---------
--------- ---------
Diluted.......................................... 20,624 9,362
--------- ---------
--------- ---------
Pro forma ratio of earnings to fixed charges (j)... --
---------
---------
</TABLE>
See Notes to Pro Forma Consolidated Statements of Operations.
95
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The pro forma adjustments to the Consolidated Statements of Operations
exclude the write-off of $8.3 million ($4.9 million after tax) of deferred
financing costs associated with the QUIPS and certain existing debt, as neither
are assumed to be outstanding after the merger. Such amount represents a
non-recurring expense which Big Flower anticipates will be recorded in the
Consolidated Statement of Operations for the period including the merger.
(a) Represents the results of operations prior to acquisition for all companies
acquired during 1998 and the full year operations for Colorgraphic Direct
Response Limited, acquired January 4, 1999. Pro forma adjustments represent
incremental goodwill and software amortization based on the fair values of
the net assets of the acquired businesses as well as incremental interest on
borrowings to fund the acquisitions.
(b) Represents the annual $1.25 million management fee to be paid to Thomas H.
Lee Company and Evercore Advisors Inc. after completion of the merger.
(c)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- -----------------
<S> <C> <C>
(IN THOUSANDS)
Interest on new debt(1).......................................... $ 74,086 $ 18,014
Less: Historical interest on long-term debt repaid............... (24,904) (4,424)
Less: Interest related to acquired businesses(2)................. (9,577)
-------- -------
Net adjustment................................................. $ 39,605 $ 13,590
-------- -------
-------- -------
</TABLE>
- ------------------------
(1) Represents interest on borrowings of $738.1 million at an assumed
weighted average interest rate of 10.0% for the year ended December 31,
1998 and 9.8% for the three months ended March 31, 1999.
(2) Represents elimination of historical interest expense related to
acquired businesses prior to purchase by Big Flower as well as pro forma
interest for the acquisitions (see (a)).
A 1/8% increase or decrease in the assumed weighted average interest rate
applicable to new variable rate debt would change the pro forma interest
expense by $0.9 million for the year ended December 31, 1998 and by $0.2
million for the three months ended March 31, 1999.
(d)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- -----------------
<S> <C> <C>
(IN THOUSANDS)
Amortization of deferred financing costs(1)...................... $ 6,773 $ 1,694
Less: Amortization of deferred financing costs of debt
repaid(2)...................................................... (861) (297)
------ ------
Net adjustment................................................. $ 5,912 $ 1,397
------ ------
------ ------
</TABLE>
- ------------------------
(1) Represents amortization of deferred financing costs of $56.6 million
over the term of the related debt.
96
<PAGE>
(2) Represents the elimination of historical amortization of deferred
financing costs for the QUIPS and certain existing long-term debt, as
neither are assumed to be outstanding after the merger.
(e) Represents elimination of preferred dividends on QUIPS assumed to be
converted into common stock prior to the merger and exchanged for merger
consideration in the merger.
(f) Represents a 0.5% commitment fee on the unused portions of the new revolving
credit facility, net of actual amounts incurred under the existing facility.
(g) Represents the tax benefit of the pro forma adjustments.
(h) Represents paid-in-kind dividends on $60.0 million at a rate of 10%
compounded semi-annually.
(i) Represents paid-in-kind dividends on $114.4 million at a rate of 10%
compounded semi-annually.
(j) For purposes of determining the pro forma ratio of earnings to fixed
charges, earnings are defined as earnings before income taxes, plus fixed
charges. Fixed charges include interest, amortization of deferred financing
costs, one-third of rental expense on operating leases (representing that
portion of rent expense deemed to be attributable to interest) and preferred
dividends of a subsidiary trust. On a pro forma basis, earnings were
insufficient to cover fixed charges by $8.1 million for the three months
ended March 31, 1999.
97
<PAGE>
DIRECTORS AND MANAGEMENT OF
BIG FLOWER FOLLOWING THE MERGER
EXECUTIVE OFFICERS
Certain executive officers of Big Flower will be the executive officers of
Big Flower following the merger. The name, age, current position and business
experience of such executive officers of Big Flower is as follows:
R. THEODORE AMMON has been the Chairman of the Board of Big Flower since its
inception and was Chief Executive Officer of Big Flower Press from its inception
until April 1997. Mr. Ammon is also the Chairman of XL Ventures, Inc., Big
Flower's Internet and new media venture capital subsidiary. Mr. Ammon is also a
director of Big Flower Press and Big Flower Digital Services, Inc., a wholly
owned subsidiary of Big Flower. Mr. Ammon was a General Partner of Kohlberg
Kravis Roberts & Co. (a New York and San Francisco-based investment firm) from
1990 to 1992, and an executive of such firm prior to 1990. Mr. Ammon is also the
Chairman of the Board of 24/7 Media, Inc. and a member of the Board of Directors
of Host Marriott Corporation and of CAIS Internet, Inc., and serves on the
boards of directors of numerous privately held corporations. Mr. Ammon is
involved in a number of not-for-profit organizations and serves as a member of
the Board of Directors of The Municipal Art Society of New York, The New York
YMCA, and Jazz @ Lincoln Center. He is also a member of the Board of Trustees of
Bucknell University. Mr. Ammon is 49 years old.
EDWARD T. REILLY has been the President and the Chief Executive Officer and
a director of Big Flower since its inception. He has also been a director of Big
Flower Press since June 1996, and its Chief Executive Officer since April 1997,
having also served as its Chief Operating Officer from March 1996 until April
1997. Additionally, he is a director of Big Flower's subsidiaries, TC
Advertising, Digital Services and Webcraft. Prior to joining Big Flower, Mr.
Reilly held a variety of executive positions with McGraw-Hill, Inc., a
publishing and communications company, in their Broadcast and Publication groups
from 1968 to 1996, and served as President of McGraw-Hill Broadcasting from 1987
to 1996. He is Vice Chairman and a member of the executive committee of the Ad
Council and serves on the Board of Trustees of Lynchburg College in Virginia.
Recently, Mr. Reilly was elected to the Board of Directors of The National
Council of La Raza. In addition, Mr. Reilly has been active in television
industry affairs, having served as the Chairman of the Television Bureau of
Advertising and as a member of the Board of Directors of the National
Association of Broadcasters. He is the former Chairman of the Association for
Maximum Service Television (MSTV), a trade association of over 300 television
stations which has been in the forefront of the effort to facilitate the
industry's transition to high definition television. Mr. Reilly is 52 years old.
RICHARD L. RITCHIE has been Executive Vice President and Chief Financial
Officer of Big Flower since January 1997. Prior to joining Big Flower, Mr.
Ritchie served as Senior Vice President and Chief Financial Officer of
Harte-Hanks Communications, Inc. from 1986 to 1996. Mr. Ritchie is 52 years old.
The term of office of each executive officer is until the organizational
meeting of Big Flower's board of directors following the next annual meeting of
Big Flower stockholders and until a successor is elected and qualified or until
such officer's prior death, resignation, retirement, disqualification or
removal.
98
<PAGE>
DIRECTORS
At the time of the merger, the board of directors of Big Flower will be
replaced by the board of directors of BFH Merger Corp., which will be comprised
of five directors. The name, age, current position and business experience of
these directors is as follows:
THOMAS H. LEE founded Thomas H. Lee Company in 1974 and since that time has
served as its President. From 1966 through 1974, Mr. Lee was with First National
Bank of Boston where he directed the bank's high technology lending group from
1968 to 1974 and became a Vice President in 1973. Mr. Lee serves as a director
of numerous public and private corporations including Finlay Enterprises, Inc.,
Metris Companies, Inc., Safelite Glass Corporation, Vail Resorts, Inc and
Wyndham International, Inc. Mr. Lee is 55 years old.
ANTHONY J. DINOVI is a Managing Director of Thomas H. Lee Company. Prior to
joining Thomas H. Lee Company in 1988, Mr. DiNovi was in the Corporate Finance
Department at Wertheim Schroder & Co., Inc. Mr. DiNovi is a director of CelPage,
Inc., Eye Care Centers of America, Inc., Fisher Scientific International, Inc.,
LiveWire Systems, Inc., ProcureNet, Inc., and Safelite Glass Corporation. Mr.
DiNovi is 36 years old.
SCOTT M. SPERLING is a Managing Director of Thomas H. Lee Company. In this
capacity he is a director of Fisher Scientific International, Inc., GenTek Inc.,
ProcureNet, Inc., Safelite Glass Corporation, Wyndham International, Inc. and a
number of private companies. For ten years prior, Mr. Sperling was Managing
Partner of the Aeneas Group, the private capital affiliate of the Harvard
Management Company, Inc. Mr. Sperling is 41 years old.
ROGER C. ALTMAN co-founded Evercore Partners in 1996. From 1992-1995, Mr.
Altman served as Deputy Treasury Secretary. From 1987-1992, Mr. Altman was Vice
Chairman of The Blackstone Group, where he led the firm's merger advisory
business and originated several principal investment opportunities. Prior to
1987, Mr. Altman spent 14 years at Lehman Brothers where he was a managing
director, Co-head of Investment Banking, Member of the Management Committee and
Member of the Board of Directors. Mr. Altman is 53 years old.
AUSTIN M. BEUTNER co-founded Evercore Partners in 1996. From 1994 to 1996,
Mr. Beutner was Chief Executive Officer and President of the U.S. Russia
Investment Fund, and in January 1997, Mr. Beutner was named Vice Chairman of its
Board of Directors. Before his affiliation with the U.S. Russia Investment Fund,
he was a General Partner of The Blackstone Group. Mr. Beutner is 39 years old.
Shortly after the merger, it is expected that the Big Flower board of
directors will be increased to nine members. Two of the additional members are
expected to be as follows:
R. THEODORE AMMON. See information included under "--Executive Officers."
EDWARD T. REILLY. See information included under "--Executive Officers."
The remaining two directors will be determined by Thomas H. Lee Equity Fund
IV, subject to the consent of Evercore Capital Partners and R. Theodore Ammon.
SECURITY OWNERSHIP OF BIG FLOWER FOLLOWING THE MERGER
The following table sets forth the anticipated beneficial ownership of the
securities of Big Flower immediately after completion of merger. The amounts set
forth below assume a total equity contribution from Thomas H. Lee Equity Fund IV
and Evercore Capital Partner of up to
99
<PAGE>
$ - million and a total equity contribution from members of management who are
retaining shares of Big Flower common stock or options to purchase such shares,
in each case in the merger, of $ - million (based on the value attributed to
the shares of common stock and/or options to purchase such shares of common
stock which will be retained by such persons in Big Flower). The table does not
take into account any options to acquire Big Flower common stock which may be
granted to employees of Big Flower after completion of the merger. The actual
investment of each such member of management has not been definitively
determined and may be changed.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER AMOUNT AND NATURE OF OWNERSHIP PERCENTAGE OF CLASS
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
R. Theodore Ammon................... - -
Edward T. Reilly.................... - -
Thomas H. Lee
Equity Fund IV.................... - -
Evercore Capital Partners........... - -
</TABLE>
100
<PAGE>
OTHER INFORMATION FOR THE BIG FLOWER MEETING
NOMINEES FOR ELECTION AS BIG FLOWER DIRECTORS
The directors of Big Flower are divided into three classes, designated Class
I, Class II and Class III. Each class consists, as nearly as possible, of
one-third of the total number of directors constituting the entire board of
directors. Currently, the Class I directors are Messrs. Kimmitt and Minow; the
Class II directors are Ms. Manley and Mr. Diamandis; and the Class III directors
are Messrs. Ammon and Reilly. For certain information regarding the Class II
directors of Big Flower, see "--Directors and Executive Officers" below. For
information regarding the Class III directors of Big Flower, see "Directors and
Management of Big Flower Following the Merger" on page 99. The Class I directors
were reelected at the 1996 Annual Meeting of Stockholders to hold office until
the date of the Big Flower meeting; the Class II directors were reelected at the
1997 Annual Meeting of Stockholders to hold office until the date of the 2000
Annual Meeting of Stockholders; and the Class III directors were reelected at
the 1998 Annual Meeting of Stockholders to hold office until the date of the
2001 Annual Meeting of Stockholders and, in each case, until a successor is
elected and qualified and subject to a director's prior death, resignation,
retirement, disqualification or removal.
It is recommended that Messrs. Kimmitt and Minow be elected as Class I
directors of Big Flower, to hold office until the 2002 Annual Meeting of
Stockholders, and in each case until a successor is elected and qualified or
until such director's prior death, resignation, retirement, disqualification or
removal, unless the merger is completed prior to such time. Both nominees are
presently serving as directors of Big Flower. Class I directors were classified
as such at a meeting of the board of directors held on November 10, 1995. Big
Flower is unaware of any reason why either nominee would be unwilling or unable
to serve as a director. However, should either nominee be unwilling or unable to
serve as a director at the time of the Big Flower meeting or any adjournment or
postponement thereof, the persons named in the proxy will vote for the election
of such other person for such directorship as the board of directors may
recommend.
If the merger is completed then, at the completion of the merger, the board
of directors of Big Flower at such time will be replaced by the board of
directors of BFH Merger Corp. in accordance with the merger agreement. See
"Directors and Management of Big Flower Following the Merger-- Directors" on
page 100. In addition, if the merger is completed then, as part of the merger,
the restated certificate of incorporation and amended and restated bylaws of Big
Flower will be amended to eliminate the provisions providing for staggered
three-year terms for directors and provide that directors will be elected
annually at the annual meeting of stockholders. See "Special Factors-- Amendment
of Big Flower Restated Certificate of Incorporation and Amended and Restated
Bylaws" on page 27.
Certain information regarding each person nominated by the board of
directors, including such nominee's principal occupation during the past five
years and current directorships, is set forth below. Unless otherwise indicated,
the nominees have had the indicated principal occupations for the past five
years.
101
<PAGE>
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE BUSINESS EXPERIENCE DURING PAST FIVE YEARS AND OTHER INFORMATION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Robert M. Kimmitt...................... 51 Robert M. Kimmitt has been a Director of Big Flower since its
inception. He was also a director of Big Flower Press from
November 1996 until December 1997. Since May 1997, he has been a
partner in the law firm of Wilmer, Cutler & Pickering. From 1993
to April 1997, Mr. Kimmitt was a managing director of Lehman
Brothers and head of its Washington corporate finance office.
Prior to joining Lehman Brothers, Mr. Kimmitt served from 1991 to
1993 as American Ambassador to Germany, and from 1989 to 1991 as
Under Secretary of State for Political Affairs. He was a partner
in the Washington office of Sidley & Austin from 1987 to 1989. Mr.
Kimmitt served as a member of the National Security Council staff
at the White House from 1978 to 1985 and General Counsel of the
Department of the Treasury from 1985 to 1987. Mr. Kimmitt serves
on the boards of Allianz Life Insurance Company of North America
and United Defense Industries, Inc., as well as on the supervisory
boards of Mannesmann AG of Duesseldorf, Germany, and Siemens AG of
Munich, Germany, and on the U.S. Group Council of BMW AG of
Munich, Germany. He is also on the Boards of Georgetown
University, the German Marshall Fund, and several other non-profit
organizations whose focus is international affairs.
Newton N. Minow........................ 73 Newton N. Minow has been a Director of Big Flower since its
inception. He was also a director of Big Flower Press from
September 1996 until December 1997. Since 1991, Mr. Minow has been
counsel to the law firm of Sidley & Austin, where he served as
Partner from 1965 to 1991. He also served as Chairman of the
Federal Communications Commission from 1961 to 1963. He is a
director of Aon Corporation and Manpower, Inc. Mr. Minow is former
Chairman of the Carnegie Corporation of New York, an Advisory
Trustee and former Chairman of the Board of Trustees of The RAND
Corporation and former Chairman of the Board of Governors of the
Public Broadcasting Service. Mr. Minow is also a Life Trustee of
the University of Notre Dame and a Life Trustee of Northwestern
University.
</TABLE>
102
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Class II
directors of Big Flower, both of whom are U.S. citizens. For information
regarding the Class III directors of Big Flower and the executive officers of
Big Flower, see "Directors and Management of Big Flower following the Merger" on
page 99.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- --------------------------------------- --- ----------------------------------------------
<S> <C> <C>
Peter G. Diamandis..................... 67 Class II Director
Joan D. Manley......................... 66 Class II Director
</TABLE>
Set forth below is certain additional information concerning the persons
listed above.
PETER G. DIAMANDIS has been a Director of Big Flower since its inception. He
was also a director of Big Flower Press from September 1994 until December 1997.
Mr. Diamandis is also a director of XL Ventures. Mr. Diamandis was Vice Chairman
of Donnelley Marketing, Inc., a marketing company, from 1991 through 1996. Since
1996, he has been the Vice Chairman of DM LLC, the successor entity to Donnelley
Marketing, Inc. He is the former Chairman of TVSM, Inc., a magazine publishing
company. From 1988 to 1991, Mr. Diamandis served as President and Chief
Executive Officer of Hachette Publications, which purchased Diamandis
Communications Inc. in 1988. From 1987 to 1988, Mr. Diamandis served as
Chairman, President and Chief Executive Officer of Diamandis Communications
Inc., a publisher of special interest magazines. In 1982, Mr. Diamandis joined
CBS Magazines as Vice President, Group Publisher, Women's Day, and served as
President of CBS from September 1983 to 1987. Mr. Diamandis is a former Chairman
of Magazine Publishers of America. Mr. Diamandis serves on the Board of Trustees
of Bucknell University.
JOAN D. MANLEY has been a Director of Big Flower since September 1994. Ms.
Manley retired from Time Incorporated in 1984, where she had held numerous
positions since 1960. At the time of her retirement, Ms. Manley was Group Vice
President and a director of Time Incorporated. Ms. Manley serves on the Board of
Directors of Sara Lee Corporation and Founders Fund and is a Trustee of the
Rocky Mountain Resource Center.
BOARD MEETINGS AND CERTAIN COMMITTEES OF THE BIG FLOWER BOARD OF DIRECTORS
Six meetings of the full board of directors of Big Flower were held during
the fiscal year ended December 31, 1998. Each incumbent director attended more
than 75% of the aggregate of all meetings of the board of directors that were
held after such director's election to the board and of all committees of the
board of directors that such director was eligible to attend in fiscal 1998.
Big Flower has standing audit, compensation and nominating committees whose
current functions and members are described below. It is anticipated that at its
first meeting following the Big Flower meeting, the board will designate
directors to serve on each of these standing committees until the next annual
meeting of stockholders. However, if the merger is completed then, at the
completion of the merger, the new board of directors of Big Flower will
designate from such new board the directors to serve on each of the standing
committees. See "Directors and Management of Big Flower Following the Merger" on
page 99.
AUDIT COMMITTEE. The Audit Committee is composed of Joan D. Manley
(Chairman), Robert M. Kimmitt and Newton N. Minow. The Audit Committee meets
periodically with Big Flower's management, internal accounting staff, and
representatives of Big Flower's independent certified public accountants to
assure that appropriate audits of Big Flower's financial statements are being
conducted. Additionally, this committee reviews corporate compliance policies
and activities, the scope of internal and external audit activities, and the
results of the annual audit. Both the independent certified public accountants
and the internal accounting staff communicate directly with the committee
regarding the
103
<PAGE>
results of their examinations, the adequacy of internal accounting controls, and
the integrity of financial reporting. In the course of performing its functions,
the Audit Committee also (i) recommends the action to be taken with respect to
the appointment of Big Flower's independent certified public accountants, (ii)
reviews with Big Flower's independent certified public accountants the scope of
their audit, their report and their recommendations, and (iii) considers the
possible effect on the independence of such accountants in approving non-audit
services requested of them. The Audit Committee met three times during fiscal
1998.
COMPENSATION COMMITTEE. The Compensation Committee is composed of Peter G.
Diamandis (Chairman), Robert M. Kimmitt and Newton N. Minow. This committee is
charged with the responsibility of (i) reviewing, advising and making
recommendations with respect to employee salary and compensation plans, benefits
and standards applicable to the executive officers of Big Flower, (ii) taking
such actions with respect thereto as are not specifically reserved to the Board
of Directors, and (iii) administering the Big Flower Holdings, Inc. Restated
1993 Stock Award and Incentive Plan (the "Plan"), Big Flower's Executive
Incentive Plan ("EIP"), and such other salary or compensation plans as this
committee is designated to administer. The Compensation Committee met four times
during fiscal 1998.
NOMINATING COMMITTEE. The Nominating Committee is composed of R. Theodore
Ammon (Chairman), Peter G. Diamandis and Joan D. Manley. This committee is
charged with the responsibility of considering and recommending individuals to
be considered by the board of directors for membership on the board of
directors. The Nominating Committee was established in March 1997 and met once
in fiscal 1998.
The Nominating Committee will also consider nominations for board membership
by stockholders. The Nominating Committee has adopted the following rules with
respect to considering such nominations: (i) the nominating stockholder must
have owned shares of common stock of Big Flower for at least six months prior to
the date the nomination is submitted; (ii) the nomination must be received by
the Nominating Committee 120 days before the mailing date for proxy material
applicable to the annual meeting for which such nomination is proposed for
submission; and (iii) a detailed statement setting forth the qualifications, as
well as the written consent, of each party nominated must accompany each
nomination submitted.
COMPENSATION OF DIRECTORS
Directors of Big Flower who are also employees of Big Flower or its
subsidiaries do not receive any additional compensation for service as a member
of the board of directors of Big Flower or any of its committees. For
information relating to compensation of Big Flower's management directors, see
"--Employment Arrangements with Executive Officers" below.
All other directors of Big Flower (each, a "non-employee director") are paid
an annual fee of $25,000 for serving on the board. In addition, (a) the Chairman
of each of the standing committees who is a non-employee director is paid an
annual retainer of $2,500 and (b) each member of such standing committees
(including any Chairman who is a non-employee director) is paid a fee of $1,000
for each standing committee meeting attended by such member. In addition, each
non-employee director is given the option of electing to receive all or any
portion of their annual retainer and meeting fees in the form of (a) shares of
common stock of Big Flower, (b) options to purchase shares of common stock of
Big Flower, or (c) cash. Furthermore, each member of the board of directors of
Big Flower who is not an employee of Big Flower, any of its subsidiaries or any
of its affiliates (a "non-management director") receives (i) an option to
purchase 13,400 shares of common stock (the "Initial Election Option") on the
date that such director is first elected to the board of directors and (ii) an
option to purchase 1,000 shares of common stock (the "Reelection Option") on the
date that such director is reelected to the board of directors. Each Initial
Election Option has a term of ten
104
<PAGE>
years, and each Reelection Option has a term of five years. Each such option
vests immediately upon the date of grant. Each such option has an exercise price
equal to the closing price of a share of common stock of Big Flower on the NYSE
on the date of grant, which exercise price may be paid in cash, by check or in
previously acquired unrestricted shares of common stock, valued at the closing
price of a share of common stock of Big Flower on the NYSE on the date of such
exercise.
The compensation of directors following the merger has not yet been
determined.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Big Flower's directors, executive
officers, and persons who own more than ten percent of Big Flower's common stock
to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with
the Securities and Exchange Commission and the NYSE. Directors, executive
officers and greater than ten percent stockholders are required by the
Securities and Exchange Commission regulations to furnish Big Flower with copies
of all Forms 3, 4 and 5 they file.
Based solely on Big Flower's review of the copies of such forms it has
received, or written representations from certain reporting persons that no
Forms 5 were required for these persons, Big Flower believes that all its
directors, executive officers and greater than ten percent beneficial owners
complied with all filing requirements applicable to them with respect to fiscal
1998.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth the beneficial ownership as of - by each
person known by Big Flower to be the beneficial owner of more than 5% of the
outstanding shares of common stock of Big Flower (constituting the only class of
voting capital stock of Big Flower), each director of Big Flower and nominee for
director of Big Flower, each executive officer whose name appears in the Summary
Compensation Table below who was an executive officer of Big Flower as of - ,
1999 and all directors and executive officers as a group.
105
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF OWNERSHIP (A) PERCENTAGE OF CLASS
- -------------------------------------------------------------------------- ------------------ -------------------
<S> <C> <C>
R. Theodore Ammon (b)..................................................... 2,517,144 12.6%
c/o Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
EnTrust Capital Inc....................................................... 4,049,354 20.6%
650 Madison Avenue
New York, New York 10022
The Prudential Insurance Company of America............................... 1,287,700 6.5%
751 Broad Street
Newark, New Jersey 07102-3777
Peter G. Diamandis (c).................................................... 24,816 *
700 Canal Street
Stamford, Connecticut 06902
Robert M. Kimmitt (d)..................................................... 23,651 *
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
Joan D. Manley (e)........................................................ 17,004 *
P.O. Box 1353
Dillon, Colorado 80435
Newton N. Minow (f)....................................................... 33,651 *
c/o Sidley & Austin
One First National Plaza
Suite 4800
Chicago, Illinois 60603
Edward T. Reilly (g)...................................................... 294,467 1.5%
c/o Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
Mark A. Angelson (h)...................................................... 201,000 1.0%
c/o Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
Richard L. Ritchie (i).................................................... 50,000 *
c/o Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
All directors and current executive officers
as a group (8 persons) (j).............................................. 3,161,733 15.3%
</TABLE>
- ------------------------
* Less than one percent
(FOOTNOTES CONTINUED ON NEXT PAGE)
106
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
(a) This column includes shares which directors and executive officers have the
right to acquire within 60 days. Except as otherwise indicated, each person
and entity has sole voting and dispositive power with respect to the shares
set forth in the table.
(b) Includes (x) 6,000 shares held by Mr. Ammon as general partner of a
partnership in which certain family members are the limited partners and
have 99% of the economic interests, (y) options to purchase 300,000 shares
of common stock which are presently exercisable and (z) 200 shares owned by
Mr. Ammon's minor children, as to which Mr. Ammon disclaims beneficial
ownership.
(c) Represents options to purchase 24,816 shares of common stock which are
presently exercisable.
(d) Represents options to purchase 23,651 shares of common stock which are
presently exercisable.
(e) Includes options to purchase 14,400 shares of common stock which are
presently exercisable.
(f) Includes options to purchase 23,651 shares of common stock which are
presently exercisable.
(g) Includes options to purchase 286,667 shares of common stock which are
presently exercisable.
(h) Includes options to purchase 195,800 shares of common stock which are
presently exercisable.
(i) Represents options to purchase 50,000 shares of common stock which are
presently exercisable.
(j) Includes options to purchase 918,985 shares of common stock which are
presently exercisable.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
INTRODUCTION. This report to stockholders presents an overview of both the
charter of the Compensation Committee of the board of directors and of Big
Flower's compensation philosophy. The Compensation Committee is composed
entirely of non-employee directors.
THE COMPENSATION COMMITTEE'S ROLE. The Compensation Committee's principal
function is to review and approve the compensation program for the executive
officers and other senior executives of Big Flower and to administer grants
under the Plan.
Big Flower's executive compensation program is designed to motivate the
executives to achieve Big Flower's business objectives, with a special emphasis
on increasing stockholder value, earnings per share ("EPS"), operating income
plus depreciation, amortization and merger costs ("EBITDA") and after tax return
on invested capital. Certain of Big Flower's executive officers are currently
employed pursuant to multi-year employment agreements, the purpose of which is
to retain the services of such officers for extended periods. The minimum salary
to which each such executive officer is entitled is specified in the employment
agreement, but the annual bonus for such executive officers, which is a major
part of an executive officer's cash compensation, and awards of stock options
for executive officers, are subject to approval by the Compensation Committee
from time to time. The principal terms of the employment agreements of executive
officers of Big Flower are described under "--Employment Arrangements with
Executive Officers" on page 114.
OVERALL OBJECTIVES OF THE EXECUTIVE COMPENSATION PROGRAM. The executive
compensation program is designed to help Big Flower retain, motivate and recruit
the executives needed to maximize Big Flower's return to stockholders. Big
Flower's explicit objective is to pay at levels required to secure the services
of exceptionally talented executive officers, in particular, and employees, in
general, necessary to achieve its long-term financial, strategic and stock price
growth goals. Since one of Big Flower's objectives is rapid revenue growth, by
internal expansion and through acquisitions, Big Flower has
107
<PAGE>
recruited the executive talent required to run a company that is larger than Big
Flower in its present form. Toward that end, the executive compensation program
is designed to provide:
- Levels of compensation that are highly competitive with those provided in
the various markets in which Big Flower competes for its executive
resources.
- Incentive compensation that:
- - varies with the financial performance of Big Flower and/or its
various business units;
- - varies with the performance of Big Flower's stock price; and
- - effectively rewards individual performance.
- Equity-based compensation that ties executives' long-term financial
interests to growth in Big Flower's market value per share.
PROVIDING HIGHLY COMPETITIVE LEVELS OF COMPENSATION. Big Flower provides
its executive officers with a total compensation package that--at expected
levels of performance--is generally intended to compare favorably with
compensation packages provided to executives in the advertising, marketing and
information services industries (as adjusted to reflect Big Flower's current
size and intended growth) who hold comparable positions or have similar
qualifications. In addition, such compensation takes into account the highly
demanding roles and combinations of responsibilities undertaken by Big Flower's
executive officers.
Given Big Flower's aggressive stockholder return objectives, Big Flower has
designed salary and incentive programs intended to attract exceptionally
high-caliber executives and is committed to paying these executives a
substantial portion of their compensation based directly on the performance of
Big Flower and, in appropriate cases, on the performance of a particular
business unit.
To establish appropriate competitive frames of reference, Big Flower looks
toward pay levels offered by leading-performance companies in the relevant
markets for executive talent. Big Flower periodically assesses an executive's
competitive level of compensation based on information drawn from a variety of
sources, including proxy statements, compensation surveys and external
compensation consultants. Big Flower's review of competitive compensation levels
incorporates a case-by-case approach that considers each position's relative
content, accountabilities and scope of responsibility. Big Flower also takes
into account its businesses, current size and expected growth, expected
contributions from specific executives and other similar factors. For senior
executives, this review includes an examination of pay data for comparable
positions within the advertising and marketing services industries, as well as
data for other diversified holding companies and pay data for individuals with
backgrounds comparable to those of such officers.
While the expected value of an executive's compensation package is set at a
highly competitive level, each executive officer's pay package places a
significant portion of pay at risk, and the actual value of the package will
exceed or fall below this level depending on actual results of Big Flower. Big
Flower is committed to the pay-for-performance philosophy and believes that the
executive compensation program should provide stockholders with
performance-for-pay.
ENSURING THAT INCENTIVE COMPENSATION VARIES WITH PERFORMANCE. The executive
compensation program is designed to ensure that incentive compensation varies
with the performance of Big Flower and its business units. Awards paid under Big
Flower's Executive Incentive Plan ("EIP") and the grants under the Plan will be
directly tied to the short- and long-term financial performance (especially EPS,
EBITDA and after tax return on invested capital) of Big Flower and its business
units, as well as the performance of Big Flower's stock price.
Big Flower's various incentive plans each serve different purposes and, as
such, employ different measures of performance and cover different periods of
time. Accordingly, an executive officer's total
108
<PAGE>
compensation will not typically vary based on any single measure of Big Flower
or business unit performance. However, in combination, these plans provide a
powerful incentive--focusing management attention on those measures important to
stockholders (such as growth, EPS, EBITDA and after tax return on invested
capital), holding executives accountable for poor results and rewarding them for
superior accomplishments.
Big Flower also believes that effectively rewarding performance helps
motivate executives to contribute in ways that enhance the financial and stock
performance of Big Flower and its various business units. Although the executive
compensation program provides compensation that varies with financial and stock
price performance, an executive's incentive awards may also be influenced by
qualitative assessment of Big Flower, business unit and individual performance,
as appropriate. For all executive officers, these assessments are made by the
Compensation Committee.
OVERVIEW OF THE EXECUTIVE COMPENSATION PROGRAM. The executive compensation
program is comprised of three principal elements: the base salary program,
annual incentives under the EIP and grants of stock and option awards under the
Plan. Each of these is designed and administered with the explicit purpose of
furthering the stockholders' interests by facilitating the employment of highly-
talented executives and motivating them to achieve exceptional levels of
performance and growth. An overview of each of these elements and of how each is
intended to support stockholder interests is provided below.
BASE SALARY COMPENSATION. Big Flower's base salary program is intended
to provide base salary levels that are competitive in the external market
for executive talent, reflect an individual's on-going performance, and are
periodically adjusted based on the executive's performance, Big Flower's
overall financial performance and growth and expected salary increases in
the market for executive talent, taking into account the growth which Big
Flower hopes to achieve.
ANNUAL INCENTIVE COMPENSATION. The EIP provides competitive annual pay
opportunities linked to Big Flower's annual financial performance. The EIP
sets annual incentive target awards at levels that are competitive in the
context of Big Flower's total executive compensation program, and the
appropriate mix of variable and fixed compensation. Financial performance is
assessed annually against pre-set financial and strategic objectives.
LONG-TERM INCENTIVE COMPENSATION. Big Flower provides the executives of
Big Flower with stock-based incentives intended to provide competitive
long-term incentive opportunities, enable participants to build significant
wealth when meaningful stockholder wealth has been created, and directly
link a significant portion of total pay to Big Flower's long-term stock
performance. Although the Plan is generally designed to provide periodic
grants of options to purchase common stock of Big Flower, it also provides
for the use of restricted stock awards.
OTHER EXECUTIVE COMPENSATION. Big Flower has entered into an arrangement
with certain managers responsible for the XL Ventures unit which will provide
those managers with an effective carried interest in the results of XL Ventures
and Big Flower Digital LLC above specified minimum levels. Big Flower believes
that the nature and scope of this arrangement is similar to arrangements found
in other comparable venture capital investment organizations.
In addition, Big Flower provides all its executives with benefits and
perquisites such as a 401(k) plan and health and life insurance benefits.
Overall, the Compensation Committee believes the provided levels of benefits and
perquisites are necessary and, in combination with the previously mentioned
compensation elements, facilitate Big Flower's ability to secure the most
appropriate executive talents.
CEO COMPENSATION. Mr. Reilly has been Big Flower's Chief Executive Officer
from its inception. In determining Mr. Reilly's compensation, the committee took
a number of factors into account,
109
<PAGE>
including considering to what extent Mr. Reilly met his personal goals
established at the beginning of the fiscal year, rewarding Mr. Reilly for Big
Flower's financial performance during Fiscal 1998 and for increasing long-term
shareholder value of Big Flower, and seeking adequately and fairly to compensate
Mr. Reilly in relation to his responsibilities and contributions to Big Flower
and in a manner that is commensurate with compensation paid by comparable
companies within Big Flower's industry. For a discussion of Big Flower's
Employment Agreement with Mr. Reilly, see "--Employment Arrangements with
Executive Officers" on page 114.
The committee took no action during fiscal 1998 to establish a policy with
respect to the payment of compensation to Big Flower's executive officers in
amounts that exceed the $1 million limit on deductible compensation under The
Omnibus Budget Reconciliation Act of 1993 (the "Tax Act"). During fiscal 1998
Big Flower exceeded targeted goals under the EIP, which resulted in certain
executives' overall compensation being greater than $1 million. Given these
results, the committee intends to formulate a policy regarding the Tax Act to be
based upon the overall needs of Big Flower, taking into account the underlying
principles of the executive compensation program and the particular
circumstances at issue.
SUMMARY. The Compensation Committee believes the executive compensation
program will ensure Big Flower's ability to retain, motivate and attract the
executive resources required to maximize long-term stockholder returns. Big
Flower's competitive pay philosophy facilitates the employment of talented
executives. The emphasis on variable pay and the direct link to both financial
and stock performance ties this competitive pay to critical measures of Big
Flower performance. In combination, all these elements act in the best interests
of Big Flower's stockholders and are worthy of your support.
The Compensation Committee
Peter G. Diamandis, Chairman
Robert M. Kimmitt
Newton N. Minow
110
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid in respect of the
fiscal year ended December 31, 1998, 1997 and 1996 to R. Theodore Ammon,
Chairman of Big Flower, Edward T. Reilly, Chief Executive Officer of Big Flower,
and to each of the other most highly paid executive officers of Big Flower
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- -------------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION PERIOD SALARY($) BONUS($) ($) OPTIONS/SARS (#)(1) ($)(2)
- --------------------------------------- ----------- --------- --------- ------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
R. Theodore Ammon...................... 1998 750,000 675,000 (3) -- 2,400
Chairman of Big Flower 1997 750,000 799,875 (3) -- 2,400
1996 750,000 339,844 (3) -- 2,178
Edward T. Reilly....................... 1998 550,000 495,000 (3) -- 2,400
President and Chief Executive Officer 1997 533,333 586,575 (3) 200,000 2,400
of Big Flower 1996 375,000 287,000(4) (3) 200,000 1,593
Mark A. Angelson....................... 1998 505,000 463,500 (3) 25,000 2,400
Executive Vice President-- Office of 1997 468,750 506,588 (3) 58,300 2,400
the Chairman, General Counsel and 1996 315,000 225,000 343,982(5) 150,000 --
Secretary
Richard L. Ritchie(6).................. 1998 425,000 382,500 (3) 45,000 2,400
Executive Vice President and Chief 1997 395,641 451,600(7) (3) 100,000 2,400
Financial Officer of Big Flower 1996 -- -- -- -- --
</TABLE>
- ------------------------
(1) All stock option grants were made pursuant to the Big Flower Holdings, Inc.
Restated 1993 Stock Award and Incentive Plan (the "Plan") and are described
below under "--Options Granted in Fiscal 1998" and "--Employment
Arrangements with Executive Officers."
(2) Represents amounts contributed to 401(k) plan by Big Flower on behalf of the
Named Executive Officer.
(3) Perquisites and other personal benefits did not exceed the lesser of $50,000
or 10% of the total annual salary and bonus reported under the headings of
"Salary" and "Bonus."
(4) Includes a one-time signing bonus of $37,000 to reimburse Mr. Reilly for
certain costs incurred in connection with his leaving his previous position.
(5) Includes relocation costs of $335,862 (including tax gross up).
(6) The Named Executive Officer began his employment with Big Flower in 1997;
therefore the Named Executive Officer did not receive any compensation from
Big Flower prior to that time.
(7) Includes a lump sum payment of $25,000 for incidental moving expenses.
111
<PAGE>
OPTIONS GRANTED IN FISCAL 1998
The following table sets forth certain information with respect to options
to purchase shares of common stock of Big Flower granted to the Named Executive
Officers during fiscal 1998. Big Flower did not grant any stock appreciation
rights to any of the Named Executive Officers and no stock options were
exercised by any Named Executive Officer during Fiscal 1998.
OPTIONS GRANTED IN FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
NUMBER OF % OF TOTAL GRANT DATE VALUE
SECURITIES OPTIONS ------------------
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL 1998 ($/SHARE) DATE VALUE($)(1)
- ------------------------------------- ----------- ---------------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Mark A. Angelson(2).................. 25,000 7.76% $ 28.4375 3/11/08 449,600
Richard L. Ritchie(3)................ 45,000 13.98% $ 26.75 2/17/08 799,700
</TABLE>
- ------------------------
(1) These values were calculated using a Black-Scholes option pricing model. The
actual value, if any, that an executive may realize will depend on the
excess, if any, of the stock price over the exercise price on the date the
options are exercised, and no assurance exists that the value realized by an
executive will be at or near the value estimated by the Black-Scholes model.
The following assumptions were used in the calculations:
(a) assumed option term of 10 years;
(b) stock price volatility factor of 0.4427;
(c) 5.77% annual discount rate;
(d) no dividend payment; and
(e) 3% discount to Black-Scholes ratio for each year an option remains
unvested.
(2) These options were granted on March 11, 1998 and vested in full on the first
anniversary of the date of grant. The exercise price was equal to the
closing price of a share of Big Flower common stock on the NYSE on the date
of the grant. The options are exercisable at any time between the date of
vesting and the tenth anniversary of the date of grant.
(3) These options were granted on February 17, 1998 and vest in full on the
second anniversary of the date of grant. The exercise price was equal to the
closing price of a share of Big Flower common stock on the NYSE on the date
of the grant. The options will be exercisable at any time between the date
of vesting and the tenth anniversary of the date of grant.
112
<PAGE>
OPTION VALUES AT END OF FISCAL 1998
The following table sets forth certain information concerning the number and
the value at the end of fiscal 1998 of unexercised in-the-money options to
purchase common stock of Big Flower granted to the Named Executive Officers as
of the end of fiscal 1998. No stock appreciation rights have been granted to any
of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
SHARES AT FISCAL 1998 END OPTIONS
ACQUIRED ON VALUE (#) AT FISCAL 1998 END
NAME EXERCISE (#) REALIZED ($) --------------------- ($)
- ----------------------------------------- ----------------- --------------- --------------------
EXERCISABLE/
UNEXERCISABLE EXERCISABLE/
--------------------- UNEXERCISABLE(1)
--------------------
<S> <C> <C> <C> <C>
R. Theodore Ammon........................ -0- -0- 300,000/0 1,818,750/0
Edward T. Reilly......................... -0- -0- 253,334/146,666 1,517,334/807,166
Mark A. Angelson......................... -0- -0- 133,300/100,000 937,369/707,813
Richard L. Ritchie....................... -0- -0- 25,000/120,000 101,563/304,688
</TABLE>
- ------------------------
(1) Based on the closing price of $22.0625 of Big Flower's common stock on the
NYSE on December 31, 1998, the last trading day of fiscal 1998, less the
exercise price payable for such shares.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The following table sets forth annual amounts payable to the Named Executive
Officers' upon their retirement under TC Advertising's supplemental executive
retirement plan (the "SERP").
PENSION PLAN TABLE
<TABLE>
<CAPTION>
REMUNERATION 5 10 15 20 25 30
- ----------- --------- --------- --------- --------- --------- ---------
YEARS OF SERVICE
<S> <C> <C> <C> <C> <C> <C>
$ 150,000 $ 7,500 $ 15,000 $ 22,000 $ 30,000 $ 37,500 $ 45,000
175,000 8,750 17,500 26,250 35,000 43,750 52,500
200,000 10,000 20,000 30,000 40,000 50,000 60,000
225,000 11,250 22,500 33,750 45,000 56,250 67,500
250,000 12,500 25,000 37,500 50,000 62,500 75,000
275,000 13,750 27,500 41,250 55,000 68,750 82,500
300,000 15,000 30,000 45,000 60,000 75,000 90,000
500,000 25,000 50,000 75,000 100,000 125,000 150,000
600,000 30,000 60,000 90,000 120,000 150,000 180,000
700,000 35,000 70,000 105,000 140,000 175,000 210,000
800,000 40,000 80,000 120,000 160,000 200,000 240,000
900,000 45,000 90,000 135,000 180,000 225,000 270,000
</TABLE>
The compensation covered by the SERP includes the executive's entire annual
base salary. Messrs. Ammon, Reilly, Angelson and Ritchie currently have 5, 3, 3
and 2 years of service, respectively. See "--Employment Arrangements with
Executive Officers" on page 114. Benefits under the SERP are computed by
multiplying the participant's average salary for the last five years prior to
retirement by a percentage equal to one percent for each year of service up to a
maximum of 30 years. Benefits under the SERP are not subject to a deduction for
Social Security or other offset amounts.
EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
AMMON EMPLOYMENT AGREEMENT. Big Flower has entered into an employment
agreement with Mr. Ammon, effective November 20, 1995 (as amended to date, the
"Ammon Agreement"), pursuant to
113
<PAGE>
which Mr. Ammon currently serves as Chairman of the Board. The initial term of
the Ammon Agreement is three years, subject to automatic one-year extensions,
the first of which commenced on the second anniversary of the Ammon Agreement,
unless either Big Flower or Mr. Ammon provides specified notice to the contrary.
Mr. Ammon is required to devote to Big Flower the time necessary for the
effective conduct of his duties under the Ammon Agreement and is permitted to
engage in outside business interests that do not conflict with such duties or
otherwise compete with Big Flower. Under the Ammon Agreement, Mr. Ammon
currently receives a base salary of $750,000 per year; an annual bonus targeted
at not less than 75% of base salary (assuming bonus targets under the EIP are
met); an annual payment of $108,000 with respect to life insurance premiums; and
certain fringe benefits, including participation in the SERP. In connection with
his entering into the Ammon Agreement, Mr. Ammon was granted an option to
purchase 300,000 shares of common stock of Big Flower (a) with a ten-year term,
(b) at an exercise price equal to $16.00 per share and (c) vesting ratably over
a three-year period.
If Mr. Ammon's employment with Big Flower is terminated other than for
"cause" (as defined in the Ammon Agreement), Mr. Ammon will be entitled to
receive a supplemental retirement benefit, subject to certain vesting and
benefit accrual requirements and subject to being offset by amounts payable
under the SERP, of up to 50% of his final average compensation (including salary
and EIP bonus), which benefit would commence at age 60. Mr. Ammon will have the
right to terminate the Ammon Agreement in the event of the material breach
thereof by Big Flower or for other "good reason" (as defined in the Ammon
Agreement). In that event, or if Big Flower terminates Mr. Ammon's employment
without cause, (i) Mr. Ammon will be entitled generally to receive the salary
and bonus otherwise payable to him over the greater of (x) the remaining term of
the Ammon Agreement and (y) a period of six months; (ii) all outstanding equity
incentive awards (including stock options) would immediately vest; (iii) Mr.
Ammon would receive additional service credit for purposes of the supplemental
retirement benefit; and (iv) the life insurance and certain fringe benefits
would continue during the severance period. Upon the termination of his
employment following a "change in control" of Big Flower (as defined in the
Ammon Agreement), Mr. Ammon would (i) be entitled to receive a lump sum amount
equal to three times his base salary and bonus, (ii) become vested in all
outstanding equity incentive awards, (iii) have the right to receive a cash
payment equal to the spread on all outstanding stock options, (iv) receive a
lump sum payment with respect to foregone fringe benefits, (v) receive
additional service credit for purposes of the supplemental retirement benefit
and (vi) be entitled to a payment sufficient to offset the effects of any excise
tax imposed under Section 4999 of the Internal Revenue Code. The merger may
constitute a change of control of Big Flower for purposes of the Ammon
Agreement. During the term of the Ammon Agreement (and if Mr. Ammon terminates
his employment other than for good reason or Big Flower terminates Mr. Ammon's
employment for cause, for a period of one year beyond the expiration of the
employment term), Mr. Ammon will be subject to certain non-competition and
non-solicitation requirements.
REILLY EMPLOYMENT AGREEMENT. Big Flower has entered into an employment
agreement with Mr. Reilly, effective March 29, 1996 (as amended to date, the
"Reilly Agreement"), pursuant to which Mr. Reilly currently serves as President
and Chief Executive Officer of Big Flower. The initial term of the Reilly
Agreement is three years, subject to automatic one-year extensions, the first of
which commenced on the second anniversary of the Reilly Agreement, unless either
Big Flower or Mr. Reilly provides specified notice to the contrary. Mr. Reilly
is required to devote to Big Flower all of his working time, attention and
efforts. Under the Reilly Agreement, Mr. Reilly currently receives a base salary
of $575,000 per year; an annual bonus targeted at not less than 75% of base
salary (assuming bonus targets under the EIP are met); and certain fringe
benefits, including participation in the SERP. In connection with his entering
into the Reilly Agreement, Mr. Reilly was granted an option to purchase 200,000
shares of common stock on Big Flower (a) with a ten-year term, (b) at an
exercise price of $12.75 per share (the closing price of a share of Big Flower
common stock on the NYSE on
114
<PAGE>
the date of grant), and (c) vesting in installments of 20% each on December 31,
1996, 1997, 1998, and 1999 and the remaining 20% on the fourth anniversary of
the Reilly Agreement. On April 29, 1997, Mr. Reilly was granted an option to
purchase 100,000 shares of common stock of Big Flower (a) with a ten-year term
and (b) at an exercise price of $18.375 (the closing price on the date of
grant). These options vested in full on the first anniversary of the date of
grant. In addition, on April 29, 1997, Mr. Reilly was granted an option to
purchase 100,000 shares of common stock of Big Flower (a) with a ten-year term
and (b) at an exercise price of $21.13 (which was equal to 115% of the closing
price of a share of Big Flower common stock on the NYSE on the date of grant).
One-third of these options vested on each of April 29, 1998 and April 29, 1999,
with the remaining one-third to vest on the third anniversary of the date of
grant. All of the foregoing options will immediately vest upon the occurrence of
a "change of control" of Big Flower (as defined in the Reilly Agreement). The
merger may constitute a change of control of Big Flower for purposes of the
Reilly Agreement.
Mr. Reilly will have the right to terminate the Reilly Agreement in the
event of the material breach thereof by Big Flower or for other "good reason"
(as defined in the Reilly Agreement). In that event, or if Big Flower terminates
Mr. Reilly's employment without "cause" (as defined in the Reilly Agreement),
(i) Mr. Reilly will be entitled to receive a lump sum amount equal to the sum of
(A) two times the sum of (x) his then base salary plus (y) the highest annual
performance bonus Mr. Reilly received in the three years preceding such
termination of employment, plus (B) the present value of all fringe benefits
payable under the remaining term of the Reilly Agreement, (ii) all outstanding
equity incentive awards (including stock options) will immediately vest and
remain exercisable for a period of one year following the date of such
termination (or, if earlier, until the end of the option term), and (iii) Mr.
Reilly would be entitled to receive a payment sufficient to offset the effects
of any excise tax imposed under Section 4999 of the Code. During the term of the
Reilly Agreement (and if Mr. Reilly terminates his employment other than for
good reason or Big Flower terminates Mr. Reilly's employment for cause, for a
period of one year beyond the expiration of the employment term), Mr. Reilly
will be subject to certain non-competition and non-solicitation requirements.
ANGELSON EMPLOYMENT AGREEMENT. Big Flower has entered into an employment
agreement with Mr. Angelson, effective March 21, 1996 (as amended to date, the
"Angelson Agreement"), pursuant to which Mr. Angelson currently serves as
Executive Vice President--Office of the Chairman, General Counsel and Secretary
of the Board of Directors of Big Flower and as Deputy Chairman of XL Ventures.
The initial term of the Angelson Agreement is three years, subject to automatic
one-year extensions, the first of which commenced on the second anniversary of
the Angelson Agreement, unless either Big Flower or Mr. Angelson provides
specified notice to the contrary. Mr. Angelson is required to devote to Big
Flower and its affiliates all of his working time, attention and efforts. Under
the Angelson Agreement, Mr. Angelson currently receives a base salary of
$540,000 per year; an annual bonus targeted at not less than 75% of base salary
(assuming bonus targets under the EIP are met); annual premium payments during
the term of employment with respect to a $2 million split-dollar life insurance
policy owned by Mr. Angelson; and certain fringe benefits, including
participation in the SERP. In connection with his entering into the Angelson
Agreement, Mr. Angelson was granted an option to purchase 150,000 shares of
common stock of Big Flower (a) with a ten-year term, (b) at an exercise price of
$12.625 per share (the closing price of a share of Big Flower common stock on
the NYSE on the date of grant), and (c) vesting in installments of 10% on
December 31, 1996, 15% on the first anniversary of the Angelson Agreement and
25% on each of the next three anniversaries of the Angelson Agreement. On March
25, 1997, Mr. Angelson was granted an option to purchase 58,300 shares of common
stock of Big Flower (a) with a ten-year term and (b) at an exercise price of
$18.125 (the closing price of a share of Big Flower common stock on the NYSE on
the date of grant). These options vested in full on the first anniversary of the
date of grant. For information regarding options granted to Mr. Angelson in
1998, see "--Options Granted in Fiscal 1998" on page 113. All of the foregoing
options will immediately vest upon the occurrence of a "change of control" of
Big Flower (as
115
<PAGE>
defined in the Angelson Agreement). The merger may constitute a change of
control of Big Flower for purposes of the Angelson Agreement.
Mr. Angelson will have the right to terminate the Angelson Agreement in the
event of the material breach thereof by Big Flower or for other "good reason"
(as defined in the Angelson Agreement). In that event, or if Big Flower
terminates Mr. Angelson's employment without "cause" (as defined in the Angelson
Agreement), (i) Mr. Angelson will be entitled to receive a lump sum amount equal
to the sum of (A) two times the sum of (x) his then base salary plus (y) the
highest annual performance bonus Mr. Angelson received in the three years
preceding such termination of employment, plus (B) the present value of all
insurance premium payments and other fringe benefits payable under the remaining
term of the Angelson Agreement, (ii) all outstanding equity incentive awards
(including stock options) will immediately vest and remain exercisable for a
period of one year following the date of such termination (or, if earlier, until
the end of the option term), and (iii) Mr. Angelson would be entitled to receive
a payment sufficient to offset the effects of any excise tax imposed under
Section 4999 of the Code. During the term of the Angelson Agreement (and if Mr.
Angelson terminates his employment other than for good reason or Big Flower
terminates Mr. Angelson's employment for cause, for a period of one year beyond
the expiration of the employment term), Mr. Angelson will be subject to certain
non-competition and non-solicitation requirements. In connection with the
negotiation on behalf of Big Flower of the merger agreement and related
recapitalization, the Angelson Agreement was amended to provide that Mr.
Angelson would report to the independent directors with respect to matters as to
which Mr. Ammon has recused himself and to provide certain other changes related
to the determination of aspects of Mr. Angelson's compensation.
RITCHIE EMPLOYMENT ARRANGEMENTS. Big Flower entered into a letter agreement
with Mr. Ritchie on December 13, 1996 (the "Ritchie Agreement"), pursuant to
which Mr. Ritchie serves as Executive Vice President and Chief Financial Officer
of Big Flower. Mr. Ritchie is required to devote to Big Flower all of his
working time, attention and efforts. In the event that Mr. Ritchie's employment
should be terminated by Big Flower other than for "cause" (as defined in the
Executive Severance Agreement discussed below) prior to a "change in control" of
Big Flower (as defined in the Executive Severance Agreement discussed below),
Mr. Ritchie will be entitled to a payment equal to one year's base salary. Under
the Ritchie Agreement, Mr. Ritchie currently receives a base salary of $450,000
per year; an annual bonus targeted at not less than 75% of base salary (assuming
bonus targets under the EIP are met); and certain fringe benefits, including
participation in the SERP. In connection with his entering into the Ritchie
Agreement, Mr. Ritchie was granted an option to purchase 100,000 shares of
common stock of Big Flower (a) with a ten-year term, (b) at an exercise price of
$18.00 per share (the closing price of a share of Big Flower common stock on the
NYSE on the date of grant), and (c) vesting in installments of 25% on January 6
of each of 1998, 1999, 2000 and 2001. For information regarding options granted
to Mr. Ritchie in 1998, see "--Options Granted in Fiscal 1998" on page 113. All
of the foregoing options will immediately vest upon the occurrence of a "change
in control" of Big Flower (as defined in the Executive Severance Agreement
discussed below).
In addition, Big Flower has entered into a severance agreement with Mr.
Ritchie, effective January 6, 1997 (the "Executive Severance Agreement"), which
provides that if Mr. Ritchie's employment is terminated by Big Flower without
"cause" or by Mr. Ritchie for "good reason" following a "change in control" of
Big Flower (each as defined in the Executive Severance Agreement), Mr. Ritchie
will receive a lump sum amount equal to two times the sum of (x) the greater of
his annual base salary in effect immediately prior to the termination of
employment and his annual base salary in effect immediately prior to the "change
in control" and (y) the greater of the target bonus for Mr. Ritchie under the
EIP in the year immediately preceding that in which the termination occurs and
the average such bonus for the three years immediately preceding the "change in
control." In addition, (i) all outstanding stock incentive awards (including
stock options) will immediately vest and remain exercisable until at least 90
days following the "change in control," and (ii) Mr. Ritchie would be
116
<PAGE>
entitled to two years of continued medical and other insurance benefits. The
total amount of benefits payable to Mr. Ritchie would be limited to the extent
necessary to preserve Big Flower's deduction pursuant to Section 280G of the
Code. The merger may constitute a change of control of Big Flower for purposes
of the Ritchie Agreement and the Executive Severance Agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None.
BIG FLOWER STOCK PRICE PERFORMANCE GRAPH
The following graphs compare the cumulative total stockholder returns
(assuming reinvestment of dividends) of Big Flower's Common Stock, the Russell
2000-Registered Trademark- Index, the Russell Consumer Discretionary Index, the
Standard & Poor's 500 Index, and the Standard & Poor's Advertising and Marketing
Services Index. The comparisons reflected in the graph are not intended to
forecast the future performance of Big Flower's common stock and may not be
indicative of such future performance. The graph assumes $100 invested on
November 22, 1995 (the date of Big Flower's initial public offering) in Big
Flower's common stock and each of the indices.
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN*:
BIG FLOWER VS. RUSSELL 2000, RUSSELL CONSUMER DISCRETIONARY INDEX,
S&P 500 AND S&P ADVERTISING AND MARKETING INDEX
TOTAL RETURN TO STOCKHOLDERS
REINVESTED DIVIDENDS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BGF RUSSELL 2000 RUSSELL CONSUMER SP ADVERTISING MARKETING 500 INDEX S&P 500 INDEX
<S> <C> <C> <C> <C> <C>
11/22/95 $100.00 $100.00 $100.00 $100.00 $100.00
1995 $100.81 $105.14 $99.89 $113.46 $103.11
1996 $121.95 $122.49 $116.91 $129.61 $126.78
1997 $156.91 $149.87 $141.96 $190.04 $169.08
1998 $143.50 $146.06 $147.40 $301.72 $217.40
</TABLE>
- ------------------------
* Assumes that the value of the investment in Big Flower common stock and in
each index was $100 on November 22, 1995 and that all dividends were
reinvested.
117
<PAGE>
Big Flower selected the Russell 2000 Index for comparison for 1998 because
Big Flower is listed as a member of such index, and the entities included in
such index more closely resemble the capitalization of Big Flower than the much
larger companies included generally in the S&P 500 Index. Moreover, Big Flower
believes that overall securities' market conditions affecting Big Flower are
better represented when compared with other members of the Russell 2000 Index
then the much larger companies included in the S&P 500 Index. Similarly, Big
Flower selected the Russell Consumer Discretionary Index for comparison for
1998, rather that the S&P Advertising and Marketing Index, as more
representative of companies with comparable market capitalization. As a result
of the addition of these indices, the above graph compares the total cumulative
returns of Big Flower's common stock with the Russell 2000 Index, the Russell
Consumer Discretionary Index, the S&P 500 Index and the S&P Advertising and
Marketing Index.
The total percentage return for the Big Flower common stock for fiscal 1998
was approximately
- --8.5%. This compares with the total percentage return for such period of--2.5%
for the Russell 2000 Index, 3.8% for the Russell Consumer Discretionary Index,
28.6% for the S&P 500 Index, and 58.8% for the S&P Advertising and Marketing
Index. These percentages assume that all dividends were reinvested.
RATIFICATION OF APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche LLP to be Big Flower's
independent certified public accountants for its fiscal year ended December 31,
1999. Deloitte & Touche has acted as Big Flower's independent certified public
accountants since its inception and as Big Flower Press' independent certified
public accountants since July 1993.
Representatives of Deloitte & Touche LLP will be present at the Big Flower
meeting with the opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions.
REQUIRED VOTE
Ratification of the appointment of the independent certified public
accountant requires the affirmative vote of a majority in voting power present
(in person or by proxy) and entitled to vote at the Big Flower meeting. In the
event that Big Flower's stockholders fail to ratify the appointment of Deloitte
& Touche LLP, the selection of Big Flower's independent certified public
accountants will be submitted to Big Flower's board of directors for
reconsideration.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS BIG FLOWER'S INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS.
118
<PAGE>
VALIDITY OF SECURITIES
The validity of the PIK preferred stock and warrants to be issued to Big
Flower's stockholders pursuant to the merger will be passed upon for Big Flower
by Irene B. Fisher, Vice President and Associate General Counsel of Big Flower.
EXPERTS
The consolidated financial statements and the related financial statement
schedules incorporated by reference from Big Flower's Annual Report on Form 10-K
for the year ended December 31, 1998, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference, and have been so incorporated herein by reference in
reliance upon the report of such firm given upon authority as experts in
accounting and auditing.
FUTURE STOCKHOLDER PROPOSALS
If the merger is not completed, stockholder proposals intended to be
presented at the 2000 annual meeting of Big Flower stockholders pursuant to Rule
14a-8 promulgated under the Exchange Act must be received by the Secretary of
Big Flower no later than January 15, 2000 in order to be included in the proxy
materials sent by management of Big Flower for such meeting. Stockholder
proposals intended to be presented at the 2000 annual meeting of Big Flower
stockholders that are not intended to be included in management's proxy
materials pursuant to Rule 14a-8 must be received by the Secretary of Big Flower
not less than 60 days nor more than 90 days prior to the date of such meeting.
WHERE YOU CAN FIND MORE INFORMATION
Big Flower files reports, proxy statements and other information with the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
You may read and copy this information at the following locations of the
Securities and Exchange Commission:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, 7 World Trade Center Citicorp Center
N.W. Suite 1300 500 West Madison Street
Room 1024 New York, New York 10048 Suite 1400
Washington, D.C. Chicago, Illinois
20549 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. Further
information on the operation of the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. can be obtained by calling the Securities and
Exchange Commission at 1-800-SEC-0330.
The Securities and Exchange Commission also maintains an Internet world wide
web site that contains reports, proxy statements and other information about
issuers, such as Big Flower, who file electronically with the Securities and
Exchange Commission. The address of that site is http://www.sec.gov.
You can also inspect reports, proxy statements and other information about
Big Flower at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
The Securities and Exchange Commission allows Big Flower to "incorporate by
reference" information into this document, which means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is deemed to be part of this document, except for any
information superseded by information in this document. This document
incorporates by reference the
119
<PAGE>
documents set forth below that we have previously filed with the Securities and
Exchange Commission. These documents contain important information about our
companies and their finances.
<TABLE>
<CAPTION>
BIG FLOWER COMMISSION FILINGS (FILE NO. 1-11834) PERIOD OR DATE FILED
- ---------------------------------------------------------------- ------------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Reports on Form 10-Q Quarter ended March 31, 1999
Current Reports on Form 8-K or 8-K/A Filed on January 19, 1999, March 19, 1999, April
21, 1999 and July 1, 1999
</TABLE>
Big Flower also incorporates by reference additional documents that either
company may file with the Securities and Exchange Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 between the
date of this document and the date of the Big Flower meeting. These documents
include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements.
120
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
BFH MERGER CORP.
AND
BIG FLOWER HOLDINGS, INC.
DATED AS OF JUNE 29, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN
BFH MERGER CORP.
AND
BIG FLOWER HOLDINGS, INC.
DATED AS OF JUNE 29, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.01 The Merger............................................................ 2
SECTION 1.02 Effective Time........................................................ 2
SECTION 1.03 Effects of the Merger................................................. 2
SECTION 1.04 Certificate of Incorporation and By-Laws of the Surviving
Corporation........................................................... 2
SECTION 1.05 Directors............................................................. 3
SECTION 1.06 Officers.............................................................. 3
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
SECTION 2.01 Effect on Capital Stock............................................... 3
SECTION 2.02 Options; Stock Plans.................................................. 7
SECTION 2.03 Modification of Merger Consideration.................................. 9
SECTION 2.04 Payment for Shares.................................................... 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01 Organization and Qualification; Subsidiaries.......................... 18
SECTION 3.02 Capitalization; Subsidiaries.......................................... 19
SECTION 3.03 Authority Relative to this Agreement.................................. 20
SECTION 3.04 No Violations of Law.................................................. 21
SECTION 3.05 No Defaults or Violations Arising from the Merger..................... 22
SECTION 3.06 Absence of Certain Changes............................................ 23
SECTION 3.07 SEC Reports and Financial Statements.................................. 23
SECTION 3.08 Information........................................................... 24
SECTION 3.09 Litigation............................................................ 24
SECTION 3.10 Material Contracts.................................................... 25
SECTION 3.11 Taxes................................................................. 25
SECTION 3.12 Employee Benefits..................................................... 27
SECTION 3.13 Labor Relations and Employment........................................ 29
SECTION 3.14 Environmental Matters................................................. 31
SECTION 3.15 Intellectual Property................................................. 34
SECTION 3.16 Year 2000 Compliance.................................................. 35
SECTION 3.17 Rights Agreement...................................................... 36
SECTION 3.18 Board Recommendation.................................................. 37
SECTION 3.19 Required Company Vote................................................. 37
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
SECTION 3.20 Related Party Transactions............................................ 37
SECTION 3.21 State Takeover Statutes............................................... 38
SECTION 3.22 Brokers and Finders................................................... 38
SECTION 3.23 Opinions of Investment Banking Firms.................................. 38
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGECO
SECTION 4.01 Organization and Qualification........................................ 39
SECTION 4.02 Authority Relative to this Agreement.................................. 39
SECTION 4.03 No Violation.......................................................... 40
SECTION 4.04 Information........................................................... 40
SECTION 4.05 Financing............................................................. 41
SECTION 4.06 Delaware Law.......................................................... 41
SECTION 4.07 Newly Organized....................................................... 41
ARTICLE V
COVENANTS
SECTION 5.01 Conduct of Business of the Company.................................... 41
SECTION 5.02 Access to Information................................................. 44
SECTION 5.03 Efforts............................................................... 44
SECTION 5.04 Public Announcements.................................................. 47
SECTION 5.05 Indemnification; Directors' and Officers' Insurance................... 48
SECTION 5.06 Notification of Certain Matters....................................... 49
SECTION 5.07 Rights Agreement...................................................... 50
SECTION 5.08 State Takeover Laws................................................... 50
SECTION 5.09 No Solicitation....................................................... 50
SECTION 5.10 Affiliate Letters..................................................... 53
SECTION 5.11 ISRA Requirements..................................................... 53
SECTION 5.12 Reports............................................................... 53
SECTION 5.13 Stockholders' Meeting................................................. 54
SECTION 5.14 Employee Benefit Arrangements......................................... 55
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.01 Conditions............................................................ 56
SECTION 6.02 Conditions to Obligations of MergeCo.................................. 57
SECTION 6.03 Conditions to Obligation of the Company............................... 59
ARTICLE VII
TERMINATION; AMENDMENTS; WAIVER
SECTION 7.01 Termination........................................................... 59
SECTION 7.02 Effect of Termination................................................. 61
SECTION 7.03 Fees and Expenses..................................................... 61
SECTION 7.04 Amendment............................................................. 62
SECTION 7.05 Extension; Waiver..................................................... 63
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Non-Survival of Representations and Warranties........................ 63
SECTION 8.02 Entire Agreement; Assignment.......................................... 63
SECTION 8.03 Validity.............................................................. 64
SECTION 8.04 Notices............................................................... 64
SECTION 8.05 Governing Law......................................................... 65
SECTION 8.06 Descriptive Headings.................................................. 65
SECTION 8.07 Counterparts.......................................................... 65
SECTION 8.08 Parties in Interest................................................... 65
SECTION 8.09 Certain Definitions................................................... 65
SECTION 8.10 Specific Performance.................................................. 66
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------------------------------------------------------
<S> <C>
SCHEDULES
Schedule 1.04(a)........................................ Amendments to Certificate of Incorporation
Schedule 1.04(b)........................................ Amendments to By-Laws
Schedule 2.01(c)(i)(B)(1)............................... Terms of PIK Preferred
Schedule 2.01(c)(i)(B)(2)............................... Terms of Warrants
Schedule 2.01(c)(ii).................................... Holders of Retained Shares
Schedule 2.02(a)........................................ Treatment of Options
Schedule 6.02(e)........................................ Financing Commitments
</TABLE>
A-5
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
401(k) Plans............................................................................................... 20
Acquisition Transactions................................................................................... 51
affiliate.................................................................................................. 65
Agreement.................................................................................................. 1
Basic Warrant Entitlement.................................................................................. 5
Bona Fide Proposal......................................................................................... 52
Business................................................................................................... 32
Cash Price................................................................................................. 4
Certificate Amendments..................................................................................... 2
Certificates............................................................................................... 11
Code....................................................................................................... 27
Common Shares.............................................................................................. 1
Company.................................................................................................... 1
Company Affiliated Group................................................................................... 25
Company Board.............................................................................................. 1
Company Disclosure Schedule................................................................................ 18
Company Representatives.................................................................................... 44
Company Stock Plan......................................................................................... 19
Company Stockholder Approval............................................................................... 20
Confidentiality Agreement.................................................................................. 44
Consent.................................................................................................... 45
control.................................................................................................... 65
DGCL....................................................................................................... 1
Dissenting Shares.......................................................................................... 6
Effective Time............................................................................................. 2
Environmental Laws......................................................................................... 32
Environmental Liabilities and Costs........................................................................ 33
Environmental Permits...................................................................................... 33
ERISA...................................................................................................... 27
ERISA Affiliate............................................................................................ 28
Excess Shares.............................................................................................. 16
Exchange Act............................................................................................... 20
Exchange Agent............................................................................................. 11
Exchange Fund.............................................................................................. 11
Exchanged Option........................................................................................... 7
Exchanged Option Merger Consideration...................................................................... 7
Exchanged Share............................................................................................ 4
Exchanged Share Certificates............................................................................... 16
Exchanged Share Merger Consideration....................................................................... 4
Financial Statements....................................................................................... 23
Form 10-K.................................................................................................. 23
Form S-4................................................................................................... 54
Governmental Entity........................................................................................ 21
Hazardous Substances....................................................................................... 33
HSR Act.................................................................................................... 21
Indemnified Parties........................................................................................ 48
Injunction................................................................................................. 56
Intellectual Property...................................................................................... 35
</TABLE>
A-6
<PAGE>
<TABLE>
<S> <C>
interested stockholder..................................................................................... 41
Investment Instrument...................................................................................... 47
ISRA....................................................................................................... 33
Junior Preferred Stock..................................................................................... 19
Laws....................................................................................................... 66
LNA........................................................................................................ 53
Material Adverse Effect on MergeCo......................................................................... 39
Material Adverse Effect on the Company..................................................................... 19
Material Contracts......................................................................................... 25
MergeCo.................................................................................................... 1
MergeCo Representatives.................................................................................... 44
Merger..................................................................................................... 1
Merger Consideration....................................................................................... 6
Offeror.................................................................................................... 51
Option..................................................................................................... 7
Order...................................................................................................... 56
Other Filings.............................................................................................. 24
PBGC....................................................................................................... 28
Person..................................................................................................... 66
Persons.................................................................................................... 66
PIK Preferred.............................................................................................. 4
PIK Preferred Trust........................................................................................ 16
Plans...................................................................................................... 27
Preferred Stock............................................................................................ 19
Proxy Statement............................................................................................ 54
Purchase Agreement......................................................................................... 9
QUIPS...................................................................................................... 19
Release.................................................................................................... 33
Relevant Period............................................................................................ 9
Remedial Action............................................................................................ 34
Representatives............................................................................................ 50
Retained Option............................................................................................ 7
Retained Share............................................................................................. 6
Rights Agreement........................................................................................... 1
Rights Amendment........................................................................................... 36
SEC........................................................................................................ 23
SEC Reports................................................................................................ 23
Securities Act............................................................................................. 53
Shares..................................................................................................... 1
Significant Subsidiary..................................................................................... 20
Special Meeting............................................................................................ 54
Subsidiaries............................................................................................... 66
Subsidiary................................................................................................. 66
Surviving Corporation...................................................................................... 2
Tax Return................................................................................................. 26
Taxes...................................................................................................... 26
Terminating Company Breach................................................................................. 61
Terminating MergeCo Breach................................................................................. 61
Termination Date........................................................................................... 61
Termination Fee............................................................................................ 62
Title IV Plans............................................................................................. 27
</TABLE>
A-7
<PAGE>
<TABLE>
<S> <C>
Total Post-Merger Common Shares............................................................................ 3
Trust Agreement............................................................................................ 19
WARN....................................................................................................... 31
Warrant.................................................................................................... 5
Year 2000 Compliant........................................................................................ 35
</TABLE>
A-8
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of June 29, 1999,
between BFH Merger Corp., a Delaware corporation ("MERGECO"), and Big Flower
Holdings, Inc., a Delaware corporation (the "COMPANY").
WHEREAS, the respective Boards of Directors of MergeCo and the Company have
approved the merger of MergeCo with and into the Company, as set forth below
(the "MERGER"), in accordance with the General Corporation Law of the State of
Delaware (the "DGCL").
WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, in the Merger, the holders of shares of common stock of the Company,
par value $.01 per share (the "COMMON SHARES"), issued and outstanding
immediately prior to the Effective Time (as defined in Section 1.02), including
the associated Rights issued pursuant to, and defined in, the Rights Agreement,
dated as of November 28, 1995, between the Company and The Bank of New York, as
Rights Agent (the "RIGHTS AGREEMENT", which Rights, together with the Common
Shares, are hereinafter referred to as the "SHARES"), will be entitled to either
(i) receive cash and certain other consideration in exchange for their Shares,
or (ii) retain a certain number of their Shares and receive cash and certain
other consideration in exchange for the remainder of their Shares.
WHEREAS, the Board of Directors of the Company (the "COMPANY BOARD") has, in
light of and subject to the terms and conditions set forth herein: (i)
determined that (A) the consideration to be paid for each Share in the Merger is
fair to the stockholders of the Company, and (B) the Merger is advisable and
otherwise in the best interests of the Company and its stockholders, and (ii)
resolved to approve and adopt this Agreement and the transactions contemplated
hereby and to recommend approval and adoption by the stockholders of the Company
of this Agreement.
WHEREAS, MergeCo and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger, and also to
prescribe various conditions to the Merger.
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, MergeCo
and the Company agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER. Upon the terms and subject to the satisfaction or
waiver of the conditions hereof, and in accordance with the applicable
provisions of this Agreement and the DGCL, at the Effective Time (as defined in
Section 1.02), MergeCo shall be merged with and into the Company. Following the
Merger, the separate corporate existence of MergeCo shall cease and the Company
shall continue as the surviving corporation (the "SURVIVING CORPORATION").
SECTION 1.02 EFFECTIVE TIME. As soon as practicable after the satisfaction
or waiver of the conditions set forth in Article VI, the Company shall execute,
in the manner required by the DGCL, and deliver to the Secretary of State of the
State of Delaware, a duly executed and verified certificate of merger, and the
parties shall take such other and further actions as may be required by Law to
make the Merger effective. The time the Merger becomes effective in accordance
with applicable Law is referred to herein as the "EFFECTIVE TIME."
SECTION 1.03 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the
A-9
<PAGE>
properties, rights, privileges, powers and franchises of the Company and MergeCo
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of the Company and MergeCo shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.04 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION.
(a) The certificate of incorporation of the Company, as in effect
immediately prior to the Effective Time, together with amendments substantially
in the form set forth in Schedule 1.04(a) (the "CERTIFICATE AMENDMENTS"), if the
Certificate Amendments are approved by the Company's stockholders in accordance
with the DGCL, shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended in accordance with the provisions thereof
and applicable Law.
(b) The by-laws of the Company in effect immediately prior to the Effective
Time, together with the amendments set forth in Schedule 1.04(b), shall be the
by-laws of the Surviving Corporation until amended in accordance with the
provisions thereof and applicable Law.
SECTION 1.05 DIRECTORS. Subject to applicable Law, the directors of MergeCo
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation and shall hold office until their respective successors
are duly elected and qualified, or their earlier death, resignation or removal.
SECTION 1.06 OFFICERS. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation and
shall hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
SECTION 2.01 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any Shares or
any shares of capital stock of MergeCo:
(a) COMMON STOCK OF MERGECO. All of the shares of common stock of MergeCo,
par value $0.01 per share, issued and outstanding immediately prior to the
Effective Time shall be converted into a number of Common Shares following the
Merger equal to:
(i) the Total Post-Merger Common Shares (defined below), minus
(ii) the number of Retained Shares together with the number of Common
Shares, if any, issued in the Merger in exchange for Options (as
defined in Section 2.02) pursuant to Section 2.03(c).
The "TOTAL POST-MERGER COMMON SHARES" shall be 9,361,702 Common Shares as long
as the amount of funds that MergeCo and/or its affiliates delivers in respect of
the Investment Instrument (as defined in Section 5.03(c)(ii)) is equal to $60
million. If the amount of funds that MergeCo and/or its affiliates delivers in
respect of the Investment Instrument is less than $60 million, the Total
Post-Merger Common Shares shall be the number that is obtained by dividing:
(A) $390 million minus the amount of funds which MergeCo and/or its
affiliates delivers in respect of the Investment Instrument, by
(B) $35.25.
(b) CANCELLATION OF TREASURY STOCK. Each Share that is owned by the Company
shall automatically be cancelled and retired and shall cease to exist, and no
cash or other consideration shall be delivered or deliverable in exchange
therefor.
A-10
<PAGE>
(c) TREATMENT OF COMMON SHARES. Each Share issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger, be
treated as follows:
(i) Subject to Section 2.03, each Share held by a Person not listed in the
table set forth on Schedule 2.01(c)(ii), other than Dissenting Shares
(as defined in Section 2.01(d)) and shares owned by any subsidiary of
the Company, (each of such Shares, together with each of the Shares
described in Section 2.01(c)(ii)(B), an "EXCHANGED SHARE") shall be
converted into the right to receive from the Company after the Merger
the following (being the "EXCHANGED SHARE MERGER CONSIDERATION"):
(A) cash in an amount equal to $30 (the "CASH PRICE"), and
(B) the following consideration (being the "PIK PREFERRED/WARRANT
CONSIDERATION"), subject to Section 2.04(i) relating to fractional
interests:
(1) 0.21 of a share of 10% Cumulative Exchangeable Redeemable
Paid-In-Kind Preferred Stock of the Company ("PIK PREFERRED"),
such PIK Preferred having the terms set forth on Schedule
2.01(c)(i)(B)(1), and
(2) attached to such 0.21 of PIK Preferred (subject to detachment as
set forth on Schedule 2.01(c)(i)(B)(2)) shall be a warrant (a
"WARRANT"), having the terms set forth on Schedule
2.01(c)(i)(B)(2), to purchase a number of Common Shares equal to
the following (the number that follows being the "BASIC WARRANT
ENTITLEMENT"):
(x) 0.05 multiplied by a quotient where (aa) the numerator is the
Total Post-Merger Common Shares and (bb) the denominator is
0.95, multiplied by
(y) a quotient where (aa) the numerator is one and (bb) the
denominator is the number of Exchanged Shares plus the number
of Adjusted Exchanged Options (as defined in Section 2.02(a))
plus the number of Common Shares into which the QUIPS (as
defined in Section 3.02(c)) are convertible immediately prior
to the Effective Time pursuant to Section 4.3 of the Trust
Agreement (as defined in Section 3.02(c)),
and each such Exchanged Share shall no longer be outstanding, shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such Exchanged Shares shall, to
the extent such certificate represents such Exchanged Shares, cease to
have any rights with respect thereto, except the right to receive the
Exchanged Share Merger Consideration applicable thereto, upon surrender
of such certificate in accordance with Section 2.04.
(ii) Subject to Section 2.03, in respect of the Shares held by each Person
listed in the table set forth on Schedule 2.01(c)(ii):
(A) that number of such Person's Shares which is set forth in the column
of such table headed "Retained Shares" shall be converted into the
right to retain such number of fully paid and nonassessable Common
Shares (each of such Common Shares, a "RETAINED SHARE"); and
(B) each of such Person's Shares which is not a Retained Share shall be
an Exchanged Share and shall be converted into the right to receive
from the Company after the Merger the Exchanged Share Merger
Consideration for each such Share, and each such Exchanged Share
shall no longer be outstanding, shall automatically be cancelled and
retired and shall cease to exist, and each holder of a certificate
representing any such Exchanged Shares shall, to the extent such
certificate represents such Exchanged Shares, cease to have any
rights with respect thereto, except the right to receive the
Exchanged Share
A-11
<PAGE>
Merger Consideration applicable thereto, upon surrender of such
certificate in accordance with Section 2.04.
The Retained Shares, together with the Exchanged Share Merger Consideration,
the Exchanged Option Merger Consideration (as defined in Section 2.02(c)), and
any other consideration agreed to be provided to holders of Shares or Options
pursuant to Section 2.03 in exchange for such Shares or Options, shall be
referred to as the "MERGER CONSIDERATION".
(d) DISSENTING SHARES. Notwithstanding Section 2.01(c), Shares outstanding
immediately prior to the Effective Time and held by a holder who has not voted
in favor of the Merger or consented thereto in writing and who has demanded
appraisal for such Shares in accordance with the DGCL prior to the Effective
Time ("DISSENTING SHARES") shall not be converted into a right to receive the
Exchanged Share Merger Consideration relating to such Shares, unless such holder
fails to perfect, withdraws or otherwise loses such holder's right to appraisal.
If, after the Effective Time, such holder fails to perfect, withdraws or loses
such holder's right to appraisal, such Shares shall be treated as if they had
been converted as of the Effective Time into a right to receive the Exchanged
Share Merger Consideration relating to such Shares. The Company shall give
MergeCo prompt notice of any demands received by the Company for appraisal of
Shares, and MergeCo shall have the right to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of MergeCo, make any payment with respect to, or settle or
offer to settle, any such demands.
SECTION 2.02 OPTIONS; STOCK PLANS. As of the Effective Time, by virtue of
the Merger and without any action on the part of any holder of any outstanding
option to acquire Common Shares granted under any stock option or other similar
plan of the Company, whether or not then exercisable (each such option, an
"OPTION"):
(a) Subject to Section 2.03(c), a portion of each Option may be designated
as a "RETAINED OPTION" and the remaining portion of such Option shall be
designated as an "EXCHANGED OPTION" as set forth on Schedule 2.02(a). For the
purposes of this Agreement, the term "ADJUSTED EXCHANGED OPTIONS" shall mean a
number equal to:
(i) the aggregate of the Total Spread (as defined in Section
2.02(c)(i)(B)) of all Exchanged Options, divided by
(ii) $35.25.
(b) With respect to each portion of an Option designated as a Retained
Option (if any), such portion of such Option shall continue to remain
outstanding and shall remain subject to all terms and conditions which were
applicable to such Option immediately prior to the Merger; PROVIDED, HOWEVER,
that such Option shall become fully vested and exercisable as of the Effective
Time.
(c) With respect to each portion of an Option designated as an Exchanged
Option, such portion of such Option shall be cancelled in exchange for the right
to receive from the Company after the Merger the following (being the "EXCHANGED
OPTION MERGER CONSIDERATION"):
(i) Cash in an amount equal to:
(A) the Cash Price, multiplied by
(B) a quotient where
(1) the numerator is the excess, if any, of $35.25 over the per share
exercise price of such Exchanged Option (such excess being the
"SPREAD" with respect to such Exchanged Option; and the Spread
with respect to an Exchanged Option multiplied by the number of
Common Shares subject to such Exchanged Option shall be the
"TOTAL SPREAD" for such Exchanged Option), and
A-12
<PAGE>
(2) the denominator is $35.25, multiplied by
(C) the number of Common Shares subject to such Exchanged Option.
(ii) An amount of the PIK Preferred/Warrant Consideration equal to the
following:
(A) Such number of shares of PIK Preferred that is equal to:
(1) 0.21, multiplied by
(2) a quotient where (x) the numerator is the Spread with respect to
such Exchanged Option and (y) the denominator is $35.25,
multiplied by
(3) the number of Common Shares subject to such Exchanged Option, and
(B) attached to such shares of PIK Preferred (subject to detachment as
set forth on Schedule 2.01(c)(i)(B)(2)), a Warrant to purchase such
number of Common Shares that is equal to:
(1) the Basic Warrant Entitlement, multiplied by
(2) a quotient where (x) the numerator is the Spread with respect to
such Exchanged Option, and (y) the denominator is $35.25,
multiplied by
(3) the number of Common Shares subject to such Exchanged Option.
(d) Prior to the Effective Time, the Company shall amend the terms of its
equity incentive plans or arrangements, in each case as is necessary to give
effect to the provisions of this Section 2.02 and any other arrangements made in
respect of the Options pursuant to Section 2.03(c).
SECTION 2.03 MODIFICATION OF MERGER CONSIDERATION.
(a) If, within the earlier of: (i) 45 days from the date hereof, and (ii)
the date when the Proxy Statement is first mailed to the Company's shareholders
(such period from the date hereof until such date, the "RELEVANT PERIOD"),
Thomas H. Lee Company ("THL"), Evercore Capital Partners LP ("EVERCORE") or any
of their affiliates (any such entity being a "RELEVANT PURCHASER") enters into
an agreement with any of the Persons listed on Schedule 2.01(c)(ii) (as amended
pursuant to Section 2.03(c)) to purchase from such Person any of such Person's
Exchanged Shares at the Effective Time in exchange for consideration equal to
the Exchanged Share Merger Consideration with respect to such Exchanged Shares
(any such agreement, a "PURCHASE AGREEMENT"):
(i) MergeCo and the Company shall modify this Agreement (including,
without limitation, Section 2.01(c) and any schedule attached to
this Agreement) on or prior to such date as appropriate to reflect
the terms of such Purchase Agreement, and
(ii) the Company shall take such other actions reasonably requested by
the Relevant Purchaser so that such Purchase Agreement can be
effected.
(b) The parties agree that, during the Relevant Period, Schedule 2.01(c)(ii)
may be amended by MergeCo, without the consent of the Company, in the following
manner:
(i) MergeCo and any Person holding Shares may agree at any time during
the Relevant Period as to:
(A) the number of such Person's Shares which shall be Exchanged
Shares,
(B) the number of such Person's Shares which shall be Retained
Shares, and
A-13
<PAGE>
(C) the number of such Person's Shares, if any, which shall be
exchanged in the Merger in consideration for an interest in an
Investment Instrument (such per Share interest in an Investment
Instrument being the "INVESTMENT CONSIDERATION" for such Share),
and MergeCo shall provide the Company with reasonable evidence of
any such agreement.
(ii) Schedule 2.01(c)(ii) shall be amended to reflect such an agreement
reached between MergeCo and a Person holding Shares as follows:
(A) To the extent such Person is not listed on Schedule 2.01(c)(ii)
and such Person has agreed to a number of such Person's Shares
being Retained Shares, such Person shall be added to Schedule
2.01(c)(ii).
(B) The number of such Person's Shares that such Person and MergeCo
agree shall become Retained Shares shall be inserted in the
column in the table set forth in Schedule 2.01(c)(ii) headed
"Retained Shares" beside such Person's name and shall be treated
in the Merger as set forth in Section 2.01(c)(ii)(A), subject to
further adjustments under Section 2.03(b)(i).
(C) The number of such Person's Shares that such Person and MergeCo
agree shall be Exchanged Shares shall be treated in the Merger as
set forth in Section 2.01(c)(ii)(B), subject to further
adjustments under Section 2.03(b)(i).
(D) The number of such Person's shares that MergeCo and such Person
agree shall be exchanged in consideration for an interest in the
Investment Instrument shall be treated in the Merger as set forth
in such agreement, subject to further adjustments under Section
2.03(b)(i).
(c) The parties agree that, during the Relevant Period, the treatment of a
Person's Options in the Merger may be amended by MergeCo:
(i) without the consent of the Company, if MergeCo and such Person agree
that the number of such Person's Options which shall be Exchanged
Options and Retained Option shall be different from that set forth
in Schedule 2.02(a) PROVIDED THAT such Options shall be Retained
Options, Exchanged Options, or a combination of both, and
(ii) only with the consent of the Company, such consent not to be
unreasonably withheld, if MergeCo and such Person agree that all or
a portion of such Person's Options shall be treated differently
than the Options which constitute Retained Options, Exchanged
Options or a combination of both,
and Section 2.02 and Schedule 2.02(a) shall be amended to reflect such
agreement, PROVIDED THAT the Exchanged Option Merger Consideration with respect
to an Exchanged Option at the Effective Time, as set forth in Section 2.02(c),
shall not in any event be amended. MergeCo shall provide the Company with
reasonable evidence of any such agreement.
SECTION 2.04 PAYMENT FOR SHARES.
(a) APPOINTMENT OF EXCHANGE AGENT AND DEPOSIT OF MERGER
CONSIDERATION. From and after the Effective Time, such bank or trust company as
shall be mutually acceptable to MergeCo and the Company shall act as exchange
agent (the "EXCHANGE AGENT"). At or prior to the Effective Time, the Company and
MergeCo shall deposit, or the Company and MergeCo shall otherwise take all steps
necessary to cause to be deposited, with the Exchange Agent in an account (the
"EXCHANGE FUND") the aggregate Merger Consideration to which holders of Shares
and Options shall be entitled after the Effective Time pursuant to Sections
2.01(c), 2.02 and 2.03 (including, with respect to the aggregate
A-14
<PAGE>
Cash Price, the financing arranged by MergeCo in accordance with Section
5.03(c)). Notwithstanding the foregoing, nothing in this Section 2.04(a) is
intended to detract from, or limit, MergeCo's obligations in Section 5.03(c), or
impose any obligation on the Company with respect thereto.
(b) MAILING OF TRANSMITTAL LETTER. Promptly after the Effective Time, the
Surviving Corporation shall cause the Exchange Agent to mail to each record
holder of certificates (the "CERTIFICATES") that immediately prior to the
Effective Time represented Shares a form of letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and instructions for use in surrendering such Certificates and
receiving the Merger Consideration in respect thereof.
(c) DELIVERY OF MERGER CONSIDERATION FOR SHARES UNDER SECTION
2.01(C)(I). In effecting the delivery of the Exchanged Share Merger
Consideration in respect of Exchanged Shares represented by Certificates
entitled to the Exchanged Share Merger Consideration pursuant to Section
2.01(c)(i), upon the surrender of each such Certificate, and in consideration
for such Certificate, the Exchange Agent shall:
(i) pay the holder of such Certificate the Cash Price multiplied by the
number of such Exchanged Shares,
(ii) deliver to the holder of such Certificate in respect of the PIK
Preferred/Warrant Consideration to which such holder is entitled:
(A) a certificate representing that number of whole shares of PIK
Preferred which such holder has the right to receive pursuant to
Section 2.01(c)(i)(B)(1);
(B) a certificate representing a Warrant to purchase that number of
Common Shares which such holder has the right to receive pursuant
to Section 2.01(c)(i)(B)(2); and
(C) cash in lieu of fractional interests of PIK Preferred/Warrant
Consideration in accordance with Section 2.04(i).
Upon such actions by the Exchange Agent, such Certificate shall forthwith be
cancelled and retired, and shall cease to exist.
(d) DELIVERY OF MERGER CONSIDERATION FOR SHARES UNDER SECTION
2.01(C)(II). In effecting the:
(i) retention of the Retained Shares,
(ii) delivery of the Exchanged Share Merger Consideration, and
(iii) delivery of the Investment Consideration, if any,
in respect of the Shares held by a holder listed in the table set forth on
Schedule 2.01(c)(ii), upon surrender of the Certificate or Certificates in
respect of such Shares, the Exchange Agent shall:
(A) in respect of the Shares which are set forth in the column of
such table headed "Retained Shares" relating to such holder,
deliver to such holder a certificate representing that number of
Retained Shares which such holder has the right to retain
pursuant to Section 2.01(c)(ii)(A),
(B) in respect of such holder's Exchanged Shares:
(1) pay such holder the Cash Price multiplied by the number of such
holder's Exchanged Shares,
A-15
<PAGE>
(2) deliver to such holder in respect of the PIK Preferred/Warrant
Consideration to which such holder is entitled:
(x) a certificate representing that number of whole shares of PIK
Preferred which such holder has the right to receive pursuant
to Section 2.01(c)(ii)(B),
(y) a certificate representing a Warrant to purchase that number
of Common Shares which such holder has the right to receive
pursuant to Section 2.01(c)(ii)(B), and
(z) cash in lieu of fractional interests of the PIK
Preferred/Warrant Consideration in accordance with Section
2.04(i), and
(C) in respect of the shares, if any, which are being exchanged for
an interest in the Investment Instrument, deliver to such holder
such documents which reflect such holder's interest in the
Investment Instrument.
Upon such actions by the Exchange Agent, each such Certificate so
surrendered shall forthwith be cancelled and retired, and shall cease to exist.
(e) DELIVERY OF MERGER CONSIDERATION FOR OPTIONS UNDER SECTION 2.02. In
effecting the delivery of the Exchanged Option Merger Consideration, in respect
of each Person entitled to such consideration in the Merger pursuant to Section
2.02(c), the Exchange Agent shall:
(i) pay such Person cash in an amount to which such Person is entitled
pursuant to Section 2.02(c)(i),
(ii) deliver to such Person in respect of the PIK Preferred/Warrant
Consideration to which such Person is entitled:
(A) a certificate representing that number of whole shares of PIK
Preferred which such Person has the right to receive pursuant to
Section 2.02(c)(ii)(A),
(B) deliver to such Person, a certificate representing a Warrant to
purchase that number of Common Shares which such Person has the
right to receive pursuant to Section 2.02(c)(ii)(B), and
(C) pay such Person cash in lieu of fractional interests of the PIK
Preferred/Warrant Consideration in accordance with 2.04(i).
Upon such actions by the Exchange Agent, each such Exchanged Option shall be
cancelled and shall cease to exist.
(f) DELIVERY OF MERGER CONSIDERATION FOR OPTIONS UNDER REVISED
TREATMENT. If:
(i) an Option shall be treated differently than that set forth in
Schedule 2.02(a) on the date hereof as a result of an amendment to
Schedule 2.02(a) pursuant to Section 2.03(c), and
(ii) the consideration to be received by a holder of an Option is of a
type which is appropriate for the Exchange Agent to deliver to such
holder,
then after the deposit with the Exchange Agent of such consideration pursuant to
Section 2.04(a), the Exchange Agent shall deliver such consideration to the
holder of such Option. Upon such action by the Exchange Agent, each such Option
for which consideration has been delivered to each holder shall be cancelled and
shall cease to exist.
(g) RIGHTS UNTIL SURRENDER. Until surrendered in accordance with Sections
2.04 (c) or (d) above, each Certificate (other than Certificates representing
(i) Shares held by MergeCo or any of its affiliates, (ii) Shares held in the
treasury of the Company, (iii) Shares held by any subsidiary of the Company or
(iv) Dissenting Shares) shall represent solely the right to receive the
aggregate Merger
A-16
<PAGE>
Consideration relating thereto. No interest or dividends shall be paid or
accrued on the Merger Consideration, except that dividends shall accrue on the
shares of PIK Preferred from the Effective Time and be paid when certificates
representing PIK Preferred are delivered to the holders thereof in accordance
with Sections 2.04(c), (d), or (e) as the case may be. If the Merger
Consideration (or any portion thereof) is to be delivered to any Person other
than the Person in whose name the Certificate formerly representing Shares
surrendered therefor is registered, it shall be a condition to such right to
receive such Merger Consideration that the Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
Person surrendering such Shares shall pay to the Exchange Agent any transfer or
other taxes required by reason of the payment of the Merger Consideration to a
Person other than the registered holder of the Certificate surrendered, or shall
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not applicable.
(h) DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED SHARES. No dividends or
other distributions with respect to Shares with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the Shares represented thereby. No cash payment in lieu of fractional
shares or interests shall be paid to any holder of a Certificate representing
Exchanged Shares pursuant to Section 2.04(i) until the surrender of such
Certificates in accordance with this Section 2.04.
(i) PAYMENT OF CASH IN LIEU OF FRACTIONAL INTERESTS IN PIK PREFERRED/WARRANT
CONSIDERATION. The following provisions shall apply with respect to the PIK
Preferred/Warrant Consideration:
(i) Subject to the effect of applicable Laws:
(A) following the surrender of any Certificate with respect to
Exchanged Shares, there shall be paid to the holder of such
Certificate, and
(B) following the Merger, there shall be paid to each holder of an
Exchanged Option, the amount, if any, of cash payable in lieu of
a fractional share of PIK Preferred (with attached Warrant) to
which such holder is entitled pursuant to the remaining
provisions of this Section 2.04(i).
(ii) No certificates or scrip representing a fractional interest in
shares of PIK Preferred (with attached Warrant) shall be issued
upon the surrender for exchange of Certificates representing
Exchanged Shares ("EXCHANGED SHARE CERTIFICATES") or upon the
cancellation of Exchanged Options, and such fractional share
interests shall not entitle the owner thereof to vote or to any
rights of a stockholder of the Surviving Corporation.
(iii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of:
(A) the number of shares of PIK Preferred delivered to the Exchange
Agent by MergeCo pursuant to Section 2.04(a), over
(B) the aggregate number of whole shares of PIK Preferred to be
distributed to holders of the Exchanged Share Certificates and
holders of Exchanged Options (such excess shares, together with
the Warrants which are attached to such excess shares, being the
"EXCESS SHARES").
(iv) If the Excess Shares are traded on a national securities exchange,
then the sale of such Excess Shares by the Exchange Agent shall be
executed on such securities exchange through one or more member
firms of such exchange and shall be executed in round lots to the
extent practicable. MergeCo shall bear the cost of all related
charges and fees of the Exchange Agent, commissions, transfer taxes
and other out-of-pocket transaction costs. Until the proceeds of
such sale or sales have been distributed to the relevant holders of
the Exchanged Share Certificates and the relevant holders of
Exchanged Options, the Exchange Agent shall hold such proceeds in
trust for the relevant holders of
A-17
<PAGE>
the Exchanged Share Certificates and the relevant holders of
Exchanged Options (the "PIK PREFERRED TRUST"). If the Exchanged
Shares are not traded on a national securities exchange, then
MergeCo shall deposit or cause to be deposited with the Exchange
Agent, in trust for such holders, for credit to the PIK Preferred
Trust in consideration of such Excess Shares, cash in the amount of
the product of:
(A) the total number of Excess Shares, and
(B) $25.
(v) The Exchange Agent shall determine the portion of the PIK Preferred
Trust to which each holder of an Exchanged Share Certificate and
each holder of an Exchanged Option is entitled, if any, by
multiplying:
(A) the amount of the aggregate proceeds comprising the PIK Preferred
Trust, by
(B) a quotient, the numerator of which is the amount of the
fractional share interests to which such holder of an Exchanged
Share Certificate or such holder of an Exchanged Option, as the
case may be, is entitled and the denominator of which is the
aggregate amount of fractional share interests to which all
holders of the Exchanged Share Certificates and holders of
Exchanged Options are entitled.
(vi) As soon as practicable after the determination of the amount of
cash to be paid to holders of Exchanged Share Certificates and
holders of Exchanged Options in lieu of any fractional share
interests, the Exchange Agent shall make available such amounts,
without interest, to such holders of Exchanged Share Certificates
who have surrendered their Certificates in accordance with Section
2.04 of the Agreement and to such holders of Exchanged Options.
(j) TERMINATION OF EXCHANGE AGENT'S DUTIES. Promptly following the date
which is 180 days after the Effective Time, the Exchange Agent shall deliver to
the Surviving Corporation all cash, Certificates and other documents in its
possession relating to the transactions described in this Agreement, and the
Exchange Agent's duties shall terminate. Thereafter, each holder of a
Certificate formerly representing a Share may surrender such Certificate to the
Surviving Corporation and (subject to applicable abandoned property, escheat and
similar Laws) receive in consideration therefor the aggregate Merger
Consideration relating thereto, without any interest or dividends thereon,
except that dividends shall accrue on the shares of PIK Preferred from the
Effective Time and be paid when certificates representing shares of PIK
Preferred are delivered to the holders thereof in accordance with Sections
2.04(c), (d) or (e), as the case may be.
(k) NO TRANSFERS OF SHARES. After the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving Corporation of any Shares
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates formerly representing Shares are presented to the
Surviving Corporation or the Exchange Agent, they shall be surrendered and
cancelled in return for the payment of the aggregate Merger Consideration
relating thereto, as provided in this Article II.
(l) NO LIABILITY. None of MergeCo, the Company or the Exchange Agent shall
be liable to any Person in respect of any Retained Shares (or dividends or
distributions with respect thereto), any cash from the Exchange Fund, any
certificates representing shares of PIK Preferred, any certificates representing
Warrants or any other Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar Law. If any
Certificates shall not have been surrendered prior to seven years after the
Effective Time (or immediately prior to such earlier date on which any Retained
Shares (or any dividends or distributions with respect thereto), any cash from
the Exchange Fund, any certificates representing shares of PIK Preferred, any
certificates representing Warrants or any other Merger Consideration would
otherwise escheat to or become the property of any
A-18
<PAGE>
Governmental Entity (as defined in Section 3.03(b)), any such shares, cash,
dividends, distributions or other considerations in respect of such Certificate
shall, to the extent permitted by applicable Law, become the property of the
Surviving Corporation, free and clear of all claims or interest of any Person
previously entitled thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to MergeCo as follows:
SECTION 3.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The Company and
each of its Subsidiaries (as defined in Section 8.09), which Subsidiaries are
listed on Section 3.01 of the disclosure schedule delivered to MergeCo by the
Company on the date hereof (the "COMPANY DISCLOSURE SCHEDULE"), is a
corporation, partnership or a limited liability company duly organized, validly
existing and in good standing under the Laws of its state or jurisdiction of
incorporation and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted and
is in good standing in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification and where
failure to be in good standing or to so qualify would have a Material Adverse
Effect on the Company. The term "MATERIAL ADVERSE EFFECT ON THE COMPANY," as
used in this Agreement, means any change in or effect on the business, financial
condition, results of operations or reasonably foreseeable prospects of the
Company or any of its Subsidiaries that would be materially adverse to the
Company and its Subsidiaries taken as a whole. The Company has heretofore made
available to MergeCo a complete and correct copy of its current certificate of
incorporation and by-laws.
SECTION 3.02 CAPITALIZATION; SUBSIDIARIES.
(a) The authorized capital stock of the Company consists of 50,000,000
Common Shares and 10,000,000 shares of preferred stock, par value $.01 per share
("PREFERRED STOCK"), of which 250,000 shares are designated Series A Junior
Preferred Stock, par value $.01 per share ("JUNIOR PREFERRED STOCK").
(b) As of the close of business on June 21, 1999, 19,707,347 Common Shares
were issued and outstanding, all of which are entitled to vote on this
Agreement, and no Common Shares were held in treasury. The Company has no shares
of Preferred Stock issued and outstanding.
(c) As of June 21, 1999, except for:
(i) 3,524,230 Common Shares reserved for issuance pursuant to options
granted under the Company Restated 1993 Stock Award and Incentive
Plan (the "COMPANY STOCK PLAN") which options are outstanding on the
date hereof,
(ii) 3,937,144 Common Shares subject to issuance upon conversion of the
6% Convertible Quarterly Income Preferred Securities due October
15, 2027 (the "QUIPS") issued pursuant to the Amended and Restated
Trust Agreement (the "TRUST AGREEMENT") dated as of October 14,
1997 among the Company, The Bank of New York, The Bank of New York
(Delaware) and the Administrative Trustees named therein,
(iii) 250,000 shares of Junior Preferred Stock reserved for issuance upon
exercise of the Rights, and
(iv) 484,375 Common Shares reserved for issuance pursuant to Big Flower
Holdings, Inc. and Subsidiaries Savings Plus 401(k) Plan and
489,779 Common Shares reserved for issuance pursuant to Webcraft,
Inc. Employees Accumulated Savings Trust Plan and pursuant to
Webcraft Employee Savings Trust Plan (collectively, the "401(K)
PLANS"),
A-19
<PAGE>
there are not now, and at the Effective Time there will not be, any existing
options, warrants, calls, subscriptions, or other rights, or other agreements or
commitments, obligating the Company to issue, transfer or sell any shares of
capital stock of the Company or any of its Subsidiaries. Following the Effective
Time, in respect of a Trust Security (as such term is defined in the Trust
Agreement), if a holder of such a Trust Security exercises its conversion right
pursuant to Section 4.3 of the Trust Agreement, the conversion rate will be such
that such holder will be entitled, in respect of such Trust Security, to 1.7344
times the Exchanged Share Merger Consideration to which an Exchanged Share is
entitled pursuant to Section 2.01(c)(i).
(d) All issued and outstanding Common Shares are validly issued, fully
paid, nonassessable and free of preemptive rights.
(e) The Significant Subsidiaries of the Company are set forth on Section
3.02(e)(i) of the Company Disclosure Schedule. All of the outstanding shares of
capital stock of each of the Company's Significant Subsidiaries have been
validly issued and are fully paid and non-assessable and, except as set forth on
Section 3.02(e)(ii) of the Company Disclosure Schedule, are owned by either the
Company or another of its Significant Subsidiaries free and clear of all liens,
charges, claims or encumbrances. A "SIGNIFICANT SUBSIDIARY" of any Person means
any subsidiary or Person that constitutes a significant subsidiary of such
Person within the meaning of Rule 1-02(w) of Regulation S-X promulgated pursuant
to the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT").
(f) The information set forth on Section 3.02(f) of the Company Disclosure
Schedule with respect to the Company and its Subsidiaries is true, complete and
correct in all material respects.
SECTION 3.03 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) The Company has the requisite corporate power and authority to execute
and deliver this Agreement and, except for the approval of this Agreement by a
vote of a majority of the issued and outstanding Common Shares (the "COMPANY
STOCKHOLDER APPROVAL"), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Company Board and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than the Company Stockholder Approval). This Agreement has
been duly and validly executed and delivered by the Company, and, assuming this
Agreement constitutes a valid and binding obligation of MergeCo, this Agreement
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms.
(b) Other than in connection with, or in compliance with, the provisions of
the DGCL with respect to the transactions contemplated hereby, the Exchange Act,
the securities Laws of the various states, ISRA (as defined in 3.14(g)) and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), no authorization, consent or approval of, or filing with, any
Governmental Entity (as defined in this Section 3.03(b)) is necessary for the
consummation by the Company of the transactions contemplated by this Agreement
other than authorizations, consents and approvals the failure to obtain, or
filings the failure to make, which would not, in the aggregate, have a Material
Adverse Effect on the Company. As used in this Agreement, the term "GOVERNMENTAL
ENTITY" means any government or subdivision thereof, domestic, foreign or
supranational or any administrative, governmental or regulatory authority,
agency, commission, tribunal or body, domestic, foreign or supranational.
SECTION 3.04 NO VIOLATIONS OF LAW.
Except as identified in Section 3.04 of the Company Disclosure Schedule:
(a) except for matters relating to Taxes, employee benefit arrangements,
labor relations and employment and environmental matters (which matters are
covered in Sections 3.11, 3.12, 3.13 and
A-20
<PAGE>
3.14, respectively), the business operations of the Company and its Subsidiaries
have been conducted in compliance with all applicable federal, state and local
statutes, codes, ordinances, rules and regulations, judgments, decrees, orders,
writs and injunctions of the United States and all other countries and
subdivisions thereof to the extent applicable, and
(b) the Company and its Subsidiaries hold all permits, licenses and
approvals of all Governmental Entities necessary for the conduct of the
businesses of the Company and its Subsidiaries,
except in the case of clause (a) for possible violations, and except in the case
of clause (b) for such permits, licenses and approvals, that would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
SECTION 3.05 NO DEFAULTS OR VIOLATIONS ARISING FROM THE MERGER.
Except as set forth in Section 3.05 of the Company Disclosure Schedule, the
execution and delivery of this Agreement by the Company does not, and the
consummation by the Company of the transactions contemplated by this Agreement
and compliance by the Company with the provisions of this Agreement will not:
(a) constitute a breach of,
(b) conflict with,
(c) result in any violation of,
(d) constitute any default (or an event which, with notice or lapse of
time, or both would constitute a default) under,
(e) constitute a "change of control" under,
(f) require consent from, or the giving of notice to, a third party
pursuant to,
(g) give rise to a right of termination, purchase, repurchase, cancellation
or acceleration of any obligation or to loss of any property, rights or benefits
under,
(h) result in the imposition of any additional obligation under, or
(i) result in the creation of any lien or encumbrance upon any of the
properties or assets of the Company or any of its Subsidiaries, in each case
above as applicable under:
(i) the organizational documents of the Company or any of its
Subsidiaries,
(ii) any contract, instrument, permit, concession, franchise, license,
loan or credit agreement, note, bond, mortgage, indenture, deed of trust,
lease or other property agreement, partnership or joint venture agreement or
other legally binding agreement, whether oral or written, to which the
Company or any of its Subsidiaries is bound, or
(iii) subject to the government filings and other matters referred to
in Section 3.03(b), any judgment, order, decree, statute, Law, ordinance,
rule or regulation applicable to the Company or any of its Subsidiaries or
their respective properties or assets,
other than, in the case of clauses (ii) and (iii), any such breaches,
conflicts, violations, defaults, terminations, accelerations, obligations,
rights, encumbrances, liens or adverse consequences resulting from a change of
control or the failure to obtain consents or provide notices that individually
or in the aggregate would not have a Material Adverse Effect on the Company.
A-21
<PAGE>
SECTION 3.06 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC
Reports (as defined in Section 3.07(a)) filed prior to the date hereof, since
the date of the latest balance sheet in the Form 10-K:
(a) there has not been any Material Adverse Effect on the Company, whether
or not arising from transactions in the ordinary course of business, and
(b) the Company has conducted its business only in the ordinary course
consistent with past practice.
SECTION 3.07 SEC REPORTS AND FINANCIAL STATEMENTS. (a) Since January 1,
1998, the Company has filed all forms, reports and documents ("SEC REPORTS")
with the Securities and Exchange Commission ("SEC") required to be filed by it
pursuant to the federal securities Laws and the SEC rules and regulations
thereunder. Copies of all such SEC Reports have been made available to MergeCo
or its affiliates by the Company. None of such SEC Reports (as of their
respective filing dates) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) The audited and unaudited consolidated financial statements of the
Company included in the SEC Reports (collectively, the "FINANCIAL STATEMENTS"),
including without limitation the financial statements included in the Annual
Report on Form 10-K of the Company for the year ended December 31, 1998 (the
"FORM 10-K"), have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as otherwise stated
in such financial statements, including the related notes) and fairly present
the financial position of the Company and its consolidated Subsidiaries as of
the dates thereof and the results of their operations and changes in financial
position for the periods then ended, subject, in the case of the unaudited
financial statements, to year-end audit adjustments. Except as set forth in the
SEC Reports, at the date of the most recent audited financial statements of the
Company included in the SEC Reports, neither the Company nor any of its
Subsidiaries had, and since such date neither the Company nor any of such
Subsidiaries has incurred, any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which, individually or in the
aggregate, would be required to be disclosed in a balance sheet prepared in
accordance with generally accepted accounting principles and would reasonably be
expected to have a Material Adverse Effect on the Company except liabilities
incurred in the ordinary and usual course of business and consistent with past
practice and liabilities incurred in connection with the transactions
contemplated by this Agreement.
SECTION 3.08 INFORMATION. None of the information supplied by the Company
in writing (other than projections of future financial performance) specifically
for inclusion or incorporation by reference in (i) the Form S-4 or (ii) any
other document to be filed with the SEC or any other Governmental Entity in
connection with the transactions contemplated by this Agreement (the "OTHER
FILINGS") will:
(a) at the respective times filed with the SEC or other Governmental Entity
and,
(b) in the case of the Proxy Statement, at the date the Proxy Statement or
any amendment or supplement to the Proxy Statement is mailed to stockholders, at
the time of the Special Meeting, and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, no representation is made by the
Company with respect to (i) any forward-looking information which may have been
supplied by the Company, whether or not included by MergeCo in the Form S-4 or
(ii) statements made in any of the foregoing documents based upon information
supplied by MergeCo.
A-22
<PAGE>
SECTION 3.09 LITIGATION. Except as set forth on Schedule 3.09 of the
Company Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened, against
the Company or any of its Subsidiaries, individually or in the aggregate, which
would have a Material Adverse Effect on the Company or would prevent or
materially delay the consummation of the transactions contemplated by this
Agreement. Except as disclosed in the SEC Reports filed prior to the date of
this Agreement, neither the Company nor any of its Subsidiaries is subject to
any outstanding order, writ, injunction or decree which, individually or in the
aggregate, would have a Material Adverse Effect on the Company or would prevent
or materially delay the consummation of the transactions contemplated hereby.
SECTION 3.10 MATERIAL CONTRACTS.
The Company has heretofore furnished or made available to MergeCo or its
affiliates complete and true copies of all material contracts (together, the
"MATERIAL CONTRACTS"), each of which is listed in Section 3.10 of the Company
Disclosure Schedule. Neither the Company nor any of its Subsidiaries is, or has
received any notice or has any knowledge that any other party is, in default
under any such Material Contract, except for those defaults that would not
reasonably be likely, either individually or in the aggregate, to have a
Material Adverse Effect on the Company; and there has not occurred any event
that, with the lapse of time or the giving of notice or both, would constitute
such a material default.
SECTION 3.11 TAXES.
(a) The Company, each of its Subsidiaries and each affiliated, combined,
consolidated, unitary or aggregate group of which the Company or any of its
Subsidiaries is a member (a "COMPANY AFFILIATED GROUP") (i) has, within the time
and in the manner prescribed by applicable Law, filed all Tax Returns (as
hereinafter defined) required to be filed by it, and all such Tax Returns are
true, complete and correct in all material respects, (ii) has timely paid or
caused to be paid all Taxes (as hereinafter defined) required to be paid except
for Taxes contested in good faith and for which adequate reserves have been
established in the Company's financial statements, and (iii) has made adequate
provision in the Company's financial statements for the payment of all Taxes not
yet due and payable (including deferred Taxes), except in each case where the
failure to file, pay or make adequate provision, as applicable, would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
(b) Except as set forth in Section 3.11(b) of the Company Disclosure
Schedule, there are no outstanding agreements, consents, waivers or requests to
extend (i) the application of the statute of limitations with respect to any
Taxes or Tax Return of the Company, any of its Subsidiaries or any Company
Affiliated Group, or (ii) the time within which to file any Tax Returns of the
Company, any of its Subsidiaries or any Company Affiliated Group, which Tax
Return has not since been timely filed.
(c) Except as set forth on Section 3.11(c) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries (i) has been a member
of a group filing consolidated returns for federal income tax purposes (except
for any group of which the Company is the common parent or the Subsidiary was
the common parent at the time such Subsidiary was acquired by the Company), (ii)
is a party to a Tax sharing or Tax indemnity agreement or any other agreement of
a similar nature that remains in effect or (iii) has any liability for Taxes of
any party (other than the Company or any of its Subsidiaries) under Treasury
Regulation Section 1.1502-6 or any similar provision of state, local or foreign
Law, as a transferee or successor, by contract or otherwise.
(d) Except as set forth on Section 3.11(d) of the Company Disclosure
Schedule, no audits or other administrative proceedings or court proceedings are
presently pending or threatened with regard to any Taxes or Tax Return of the
Company, any of its Subsidiaries or any Company Affiliated Group
A-23
<PAGE>
(other than those being contested in good faith and for which adequate reserves
have been established) and no material issues have been raised by any Tax
authority in connection with any Tax or Tax Return.
(e) There are no material Tax liens upon any assets or properties of the
Company or any of its Subsidiaries except for statutory liens for Taxes not yet
due.
(f) The Company, each of its Subsidiaries and each Company Affiliated Group
have complied in all material respects with all applicable rules and regulations
relating to the withholding of Taxes.
(g) For purposes of this Agreement, the term "TAXES" means all taxes,
charges, fees, levies or other assessments, including, without limitation, all
income, gross receipts, excise, property, sales, use, occupation, transfer,
license, ad valorem, gains, profits, gift, estimated, social security,
unemployment, disability, premium, recapture, credit, payroll, withholding,
severance, stamp, capital stock, franchise and other taxes or similar charges of
any kind imposed by any Governmental Entity, including any interest and
penalties on or additions to or in respect of a failure to comply with any
requirement relating to any Tax Return. For purposes of this Agreement, the term
"TAX RETURN" means any report, return or other information or document required
to be supplied to a Tax authority or jurisdiction in connection with Taxes,
including, without limitation, combined, unitary or consolidated returns for any
group of entities.
SECTION 3.12 EMPLOYEE BENEFITS.
(a) Section 3.12(a) of the Company Disclosure Schedule includes a complete
list of all material employee benefit plans and programs providing benefits to
any employee or former employee of the Company and its subsidiaries sponsored or
maintained by the Company or any of its subsidiaries or to which the Company or
any of its subsidiaries contributes or is obligated to contribute ("PLANS").
Without limiting the generality of the foregoing, the term "Plans" includes all
employee welfare benefit plans within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended and the regulations
thereunder ("ERISA"), and all employee pension benefit plans within the meaning
of Section 3(2) of ERISA. Each of the Plans that is subject to Section 302 or
Title IV of ERISA or Section 412 of the Internal Revenue Code of 1986, as
amended (the "CODE") is identified on Section 3.12(a) of the Company Disclosure
Schedule (the "TITLE IV PLANS"). Neither the Company nor any of its Subsidiaries
has any commitment or formal plan, whether legally binding or not, to create any
additional material employee benefit plan or modify or change any existing Plan
that would affect any employee or former employee of the Company or any
Subsidiary in any material respect.
(b) With respect to each Plan, the Company has heretofore delivered or made
available to MergeCo or its affiliates true and complete copies of each of the
following documents:
(i) a copy of the Plan and any amendments thereto (or if the Plan is not
a written Plan, a description of the material terms thereof);
(ii) a copy of the two most recent annual reports and actuarial reports,
if required under ERISA, and the most recent report prepared with
respect thereto in accordance with Statement of Financial
Accounting Standards No. 87;
(iii) a copy of the most recent Summary Plan Description required under
ERISA with respect thereto;
(iv) if the Plan is funded through a trust or any third party funding
vehicle, a copy of the trust or other funding agreement and the
latest financial statements thereof; and
(v) the most recent determination letter received from the Internal
Revenue Service with respect to each Plan intended to qualify under
section 401 of the Code.
A-24
<PAGE>
(c) No material liability under Title IV or Section 302 of ERISA or Sections
412 or 4871 of the Code has been incurred by the Company with respect to any
Plan or any "single-employer plan," within the meaning of Section 4001(a)(15) of
ERISA, of any trade or business (whether or not incorporated) which would be
considered one employer with the Company under Section 4001 of ERISA or Section
414 of the Code (an "ERISA AFFILIATE") that has not been satisfied in full, and
to the knowledge of the Company no condition exists that presents a material
risk to the Company or any ERISA Affiliate of incurring any such liability,
other than liability for premiums due the Pension Benefit Guaranty Corporation
("PBGC") (which premiums have been paid when due). Without limiting the
generality of the foregoing, none of the Company, its Subsidiaries nor any ERISA
Affiliate of the Company or any of its Subsidiaries has engaged in any
transaction described in Section 4069 or Section 4204 or 4212 of ERISA.
(d) All contributions required to be made with respect to any Plan on or
prior to the Effective Time have been timely made or are reflected on the
Company's balance sheet, except for instances where failure to make such
contributions would not, either individually or in the aggregate, have a
Material Adverse Effect on the Company.
(e) Except as disclosed in Section 3.12(e) of the Company Disclosure
Schedule, No Title IV Plan is a "multiemployer pension plan," as defined in
section 3(37) of ERISA, nor is any Title IV Plan a plan described in section
4063(a) of ERISA.
(f) Neither the Company nor any Subsidiary has engaged in a transaction with
respect to any Plan or any trust created thereunder in connection with which the
Company or any Subsidiary, could be subject to either a civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section
4975 or 4976 of the Code in an amount which would be material.
(g) Except as set forth in Section 3.12(g) of the Company Disclosure
Schedule, the Company and each of its subsidiaries has complied, and is now in
compliance, in all material respects with all provisions of ERISA, the Code, and
all Laws and regulations applicable to the Plans. With respect to each Plan that
is intended to be a "qualified plan" within the meaning of section 401(a) of the
Code, the IRS has issued a favorable determination letter.
(h) Except as set forth on Section 3.12(a) of the Company Disclosure
Schedule, no Plan provides medical, surgical, hospitalization, death or similar
benefits (whether or not insured) for employees or former employees of the
Company or any Subsidiary for periods extending beyond their retirement or other
termination of service, other than (i) coverage mandated by applicable Law, (ii)
death benefits under any "pension plan," or (iii) benefits the full cost of
which is borne by the current or former employee (or his beneficiary). No
condition exists that would prevent the Company or any Subsidiary from amending
or terminating any Plan providing health or medical benefits in respect of any
active employee of the Company or any Subsidiary.
(i) Except as set forth on Section 3.12(i) of the Company Disclosure
Schedule, or in the SEC Reports, no amounts payable by the Company to Persons
who are "covered persons" within the meaning of Section 162(M) of the Code or
"disqualified individuals" within the meaning of Section 280G of the Code will
fail to be deductible for federal income tax purposes by virtue of Section
162(M) or 280G of the Code.
A-25
<PAGE>
SECTION 3.13 LABOR RELATIONS AND EMPLOYMENT.
(a) Except (x) as disclosed in the SEC Reports filed on or before the date
hereof, and, (y) as set forth on Section 3.13(a) of the Company Disclosure
Schedule and (z) for matters which would not (other than in the case of clause
(iii) or (iv) of this sentence) result in a Material Adverse Effect:
(i) there is no labor strike, dispute, slowdown, stoppage or lockout
actually pending, or, to the best knowledge of the Company,
threatened against the Company or any of its Subsidiaries, and
during the past three years there has not been any such action;
(ii) to the best knowledge of the Company, no union claims to represent
the employees of the Company or any of its Subsidiaries;
(iii) neither the Company nor any of its Subsidiaries is a party to or
bound by any collective bargaining or similar agreement with any
labor organization, or work rules or practices agreed to with any
labor organization or employee association applicable to employees
of the Company or any of its Subsidiaries;
(iv) none of the employees of the Company or any of its Subsidiaries is
represented by any labor organization and the Company does not have
any knowledge of any current union organizing activities among the
employees of the Company or any of its Subsidiaries, nor does any
question concerning representation exist concerning such employees;
(v) the Company and its Subsidiaries are, and have at all times been, in
material compliance with all applicable Laws respecting employment
and employment practices, terms and conditions of employment, wages,
hours of work and occupational safety and health, and are not
engaged in any unfair labor practices as defined in the National
Labor Relations Act or other applicable Law, ordinance or
regulation;
(vi) there is no unfair labor practice charge or complaint against the
Company or any of its Subsidiaries pending or, to the knowledge of
the Company, threatened before the National Labor Relations Board
or any similar state or foreign agency;
(vii) there is no grievance arising out of any collective bargaining
agreement or other grievance procedure;
(viii) no charges with respect to or relating to the Company or any of its
Subsidiaries are pending before the Equal Employment Opportunity
Commission or any other agency responsible for the prevention of
unlawful employment practices;
(ix) neither the Company nor any of its Subsidiaries has received notice
of the intent of any federal, state, local or foreign agency
responsible for the enforcement of labor or employment Laws to
conduct an investigation with respect to or relating to the Company
or any of its Subsidiaries and no such investigation is in
progress;
(x) there are no complaints, lawsuits or other proceedings pending or to
the best knowledge of the Company threatened in any forum by or on
behalf of any present or former employee of the Company or any of
its Subsidiaries alleging breach of any express or implied contract
of employment, any Law or regulation governing employment or the
termination thereof or other discriminatory, wrongful or tortious
conduct in connection with the employment relationship.
(b) Except as set forth in Section 3.13(b) of the Company Disclosure
Schedule, to the best knowledge of the Company, since the enactment of the
Worker Adjustment and Retraining Notification ("WARN") Act, there has not been
(i) a "plant closing" (as defined in the WARN Act) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility
A-26
<PAGE>
of the Company or any of its Subsidiaries; or (ii) a "mass layoff" (as defined
in the WARN Act) affecting any site of employment or facility of the Company or
any of its Subsidiaries; nor has the Company or any of its Subsidiaries been
affected by any transaction or engaged in layoffs or employment terminations
sufficient in number to trigger application of any similar state or local Law.
To the best knowledge of the Company, none of the employees of the Company or
any of its Subsidiaries has suffered an "employment loss" (as defined in the
WARN Act) since three months prior to the date of this Agreement.
SECTION 3.14 ENVIRONMENTAL MATTERS. Except as disclosed in Schedule 3.14:
(a) The Company and its Subsidiaries have been and are in compliance with
all applicable Environmental Laws as in effect on the date hereof, except for
such violations and defaults as would not, individually or in the aggregate,
have a Material Adverse Effect on the Company.
(b) The Company and its Subsidiaries possess all Environmental Permits
required for the current operation of the Business pursuant to Environmental
Laws as in effect on the date hereof, all such Environmental Permits are in
effect, there are no pending or, to the best knowledge of the Company,
threatened proceedings to revoke such Environmental Permits and the Company and
its Subsidiaries are, to the best knowledge of the Company, in compliance with
all terms and conditions thereof, except for such failures to possess or comply
with Environmental Permits as would not, individually or in the aggregate, have
a Material Adverse Effect on the Company. In connection with any pending
applications or proceedings for new, renewal or modified Environmental Permits,
the Company has not received written notice that modifications to the terms,
conditions and requirements of such Environmental Permits may be imposed or
required that, individually or in the aggregate, would have a Material Adverse
Effect on the Company.
(c) Except for matters which would not, individually or in the aggregate,
have a Material Adverse Effect on the Company, neither the Company nor any
Subsidiary has received any written notification that the Company or any
Subsidiary, as a result of any of the current or past operations of the
Business, or any property currently or formerly owned or leased in connection
with the Business, is or may be the subject of any proceeding, investigation,
claim, lawsuit or order by any Governmental Entity or other person, relating to
(i) any violation or alleged violation of Environmental Laws; (ii) any Remedial
Action; or (iii) any Release or threatened Release of Hazardous Substances,
whether or not such Release or threatened Release has occurred or is occurring
at properties currently or formerly owned or operated by the Company or its
Subsidiaries; and (iv) any Environmental Liabilities and Costs.
(d) Except as would not have a Material Adverse Effect on the Company, none
of the Company and its Subsidiaries has entered into any written agreement with
any Governmental Entity, or is subject to any Order or decree, by which the
Company or any subsidiary has assumed responsibility or is responsible, either
directly or as a guarantor or surety, for the remediation of any Release of
Hazardous Substances into the environment in connection with the Business,
including for cost recovery with respect to such Releases.
(e) There is not now and has not been at any time in the past, a Release of
Hazardous Substances for which the Company or any Subsidiary is required or is
reasonably likely to be required to perform a Remedial Action pursuant to
applicable Environmental Laws as currently in effect, or will incur
Environmental Liabilities and Costs that, with respect to any matter covered by
this Section 3.14(e) would, individually or in the aggregate, have a Material
Adverse Effect on the Company.
(f) This Section contains the only representations and warranties concerning
the Company or any Subsidiary relating to any Environmental Law, Environmental
Liabilities and Costs, or Environmental Permits.
A-27
<PAGE>
(g) For purposes of this Agreement:
(i) "BUSINESS" means the current and former businesses of the Company
and its Subsidiaries including, but not limited to, businesses or
Subsidiaries that have been previously sold by the Company, its
Subsidiaries or any predecessors thereto.
(ii) "ENVIRONMENTAL LAWS" shall mean all foreign, federal, state and
local Laws, regulations, rules and ordinances relating to pollution
or protection of the environment or human health and safety as it
relates to Hazardous Substances, including, without limitation,
Laws relating to Releases or threatened Releases of Hazardous
Substances in the environment (including, without limitation,
ambient air, surface water, groundwater, land, surface and
subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, Release,
transport or handling of Hazardous Substances and all Laws and
regulations with regard to record keeping, notification, disclosure
and reporting requirements respecting Hazardous Substances, and all
Laws relating to endangered or threatened species of fish, wildlife
and plants and the management or use of natural resources.
(iii) "ENVIRONMENTAL LIABILITIES AND COSTS" means all damages, natural
resource damages, claims, losses, expenses, costs, obligations, and
liabilities (collectively, "Losses"), whether direct or indirect,
known or unknown, current or potential, past, present or future,
imposed by, under or pursuant to Environmental Laws, including, but
not limited to, all Losses related to Remedial Actions, and all
fees, capital costs, disbursements, penalties, fines and expenses
of counsel, experts, contractors, personnel and consultants.
(iv) "ENVIRONMENTAL PERMITS" means any federal, state, foreign or local
permit, license, registration, consent, certificate, approval or
other authorization necessary for the conduct of the Business as
currently conducted under any Environmental Law.
(v) "HAZARDOUS SUBSTANCES" means any substance that (A) is defined,
listed or identified or otherwise regulated as a "hazardous waste,"
"hazardous material" or "hazardous substance" "toxic substance,"
"hazardous air pollutant," "pollutant" or "contaminant" or words of
similar meaning and regulatory effect under any Environmental Law
(including, without limitation, radioactive substances,
polychlorinated biphenyls, petroleum and petroleum derivatives and
products) or (B) requires investigation, removal or remediation
under applicable Environmental Law.
(vi) "ISRA" means the New Jersey Industrial Site Recovery Act, N.J.S.A.
13:IK-6 ET SEQ.
(vii) "RELEASE" shall mean any release, spill, emission, discharge,
leaking, pumping, injection, deposit, discharge, dispersal,
leaching or migration into the environment (including, without
limitation, ambient air, surface water, groundwater, and surface or
subsurface strata) or into or out of any property, including the
movement of Hazardous Substances through the air, soil, surface
water, groundwater or property, but not including any discharge or
emission in compliance with an Environmental Permit.
(viii) "REMEDIAL ACTION" means all actions required by Governmental Entity
pursuant to Environmental Law or otherwise taken as necessary to
comply with Environmental Law to (A) clean up, remove, treat or in
any other way remediate any Hazardous Substances; (B) prevent the
release of Hazardous Substances so that they do not migrate or
endanger or threaten to endanger public health or welfare or the
environment; or (C) perform studies, investigations or monitoring
in respect of any such matter.
A-28
<PAGE>
SECTION 3.15 INTELLECTUAL PROPERTY.
(a) The Company and its Subsidiaries own or possess valid and adequate
licenses or other legal rights to use all material Intellectual Property as are
necessary to permit the Company and its Subsidiaries to conduct the business as
presently conducted, free and clear of all liens, claims, and encumbrances, and
except for those licenses issued to third parties in the ordinary course of
business, free and clear of all material licenses to third parties.
(b) The conduct of the business as presently conducted does not infringe on
the Intellectual Property rights of any Person except for such infringements
which, individually or in the aggregate, would not have a Material Adverse
Effect on the Company.
(c) To the Company's knowledge, all filings, registrations and issuances
pertaining to the material Intellectual Property owned by the Company and its
Subsidiaries, including any and all patents, registered trademarks and copyright
registrations, are in full force and effect and the Company and its Subsidiaries
have good and marketable title thereto.
(d) To the Company's knowledge, there are no threats of claims or challenges
to the validity or effectiveness of the Intellectual Property as are necessary
to permit the Company and its Subsidiaries to conduct the business as presently
conducted, which individually or in the aggregate would have a Material Adverse
Effect on the Company.
(e) As employed herein, the term "INTELLECTUAL PROPERTY" shall mean:
(i) registered and unregistered trademarks, service marks, slogans,
trade names, logos, Internet domain names and trade dress together
with the goodwill associated therewith;
(ii) patents, patent applications and invention disclosures;
(iii) registered and unregistered copyrights, including, but not limited
to, copyrights in software and databases;
(iv) software programs and databases;
(v) trade secrets, proprietary information and other proprietary
intellectual property rights, and
(vi) agreements pursuant to which the Company or a Subsidiary has
obtained the right to use any of the foregoing.
SECTION 3.16 YEAR 2000 COMPLIANCE.
(a) Except as set forth in Section 3.16 of the Company Disclosure Schedule,
all software, systems and hardware owned or used by the Company and its
Subsidiaries are substantially Year 2000 Compliant and are reasonably expected
to be Year 2000 Compliant by December 31, 1999, except for such software,
systems and hardware the failure of which to be Year 2000 Compliant would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
(b) The Company and its Subsidiaries have taken, or are taking, commercially
reasonable steps to determine whether all material third party software, systems
and hardware used by, for, or on behalf of the Company and its Subsidiaries are
Year 2000 Compliant or are reasonably expected to be Year 2000 Compliant by
December 31, 1999.
(c) As used herein, "YEAR 2000 COMPLIANT" means for all dates and times,
including, without limitation, dates and times before, on and after December 31,
1999, when used on a stand-alone system or in combination with other software or
systems of the Company and its Subsidiaries, other than any
A-29
<PAGE>
errors or malfunctions which are the result of any incorrect date and time
information incorporated into calculations from systems external to the Company
and its Subsidiaries:
(i) the application system consistently functions and receives and
processes dates and times correctly without abnormal results;
(ii) no date related calculations are incorrect (including, without
limitation, age calculations, duration calculations and scheduling
calculations) as a result of the advent of the year 2000;
(iii) all manipulations and comparisons of date-related data produce
correct and consistent results for all valid date values within the
scope of the application;
(iv) there is no century ambiguity;
(v) all reports and displays are sorted correctly; and
(vi) leap years are accounted for and correctly identified (including,
without limitation, that the year 2000 is recognized as a leap
year).
SECTION 3.17 RIGHTS AGREEMENT.
(a) The Company and the Company Board have taken all action to amend the
Rights Agreement (the "RIGHTS AMENDMENT") so that the execution and delivery of
this Agreement (and any amendments thereto by the parties hereto) and the
consummation of the Merger and the transactions contemplated thereby, will not
cause:
(i) the Rights (as defined in the Rights Agreement) to become
exercisable pursuant to Section 11(a)(ii) thereof or otherwise,
(ii) MergeCo or any of its affiliates to constitute an "Acquiring
Person" (as defined in the Rights Agreement),
(iii) a "Distribution Date," a "Triggering Event," or a "Stock
Acquisition Date" (as each term is defined in the Rights Agreement)
to occur, or
(iv) the Rights to otherwise be operative with respect to the
transactions contemplated by this Agreement, and
such amendment will be in full force and effect from and after the date hereof.
(b) As a result of the Rights Amendment, the Rights will expire as of
immediately before the Effective Time.
SECTION 3.18 BOARD RECOMMENDATION. The Company Board, at a meeting duly
called and held, has:
(a) determined that this Agreement and the transactions contemplated hereby,
taken together, and the Certificate Amendments are advisable and in the best
interests of the Company and its stockholders; and
(b) subject to the other provisions hereof, resolved to recommend that the
holders of the Shares approve this Agreement, and the transactions contemplated
hereby, including the Merger, and the Certificate Amendments.
SECTION 3.19 REQUIRED COMPANY VOTE. The Company Stockholder Approval, being
the affirmative vote of a majority of the Shares, is the only vote of the
holders of any class or series of the Company's securities necessary to approve
this Agreement, the Merger and the other transactions contemplated hereby, and
the Certificate Amendments.
A-30
<PAGE>
SECTION 3.20 RELATED PARTY TRANSACTIONS. Except as previously disclosed to
MergeCo in writing or as disclosed in the SEC Reports, no director, officer,
partner, "affiliate" or "associate" (as such terms are defined in Rule 12b-2
under the Exchange Act) of the Company or any of its Subsidiaries, to the
knowledge of the Company:
(i) has outstanding any indebtedness or other similar obligations to the
Company or any of its Subsidiaries in excess of $60,000;
(ii) owns any direct or indirect interest of any kind in (other than a
DE MINIMUS interest), or is a director, officer, employee, partner,
affiliate or associate of, or consultant or lender to, or borrower
from, or has the right to participate in the management, operations
or profits of, any person or entity which is:
(A) a competitor, supplier, customer, distributor, lessor, tenant,
creditor or debtor of the Company or any of its Subsidiaries,
(B) engaged in a business related to the business of the Company or
any of its Subsidiaries,
(C) participating in any transaction to which the Company or any of
its Subsidiaries is a party, or
(iii) is otherwise a party to any contract, arrangement or understanding
with the Company or any of its Subsidiaries except any such
contract, arrangement or understanding providing for (A) such
Person's employment by the Company or one of its Subsidiaries, or
(B) employee or other fringe benefits, or (C) options or other
rights, granted pursuant to the Company Stock Plan.
SECTION 3.21 STATE TAKEOVER STATUTES. The Company Board has taken such
action so that no statute, takeover statute or similar statute or regulation of
the State of Delaware, including the provisions of Section 203 of the DGCL (and,
to the knowledge of the Company after due inquiry, of any other state or
jurisdiction), applies to this Agreement, the Merger, or any of the other
transactions contemplated hereby. Except for the Rights Agreement, neither the
Company nor any of its Subsidiaries has any rights plan, preferred stock or
similar arrangement which have any of the aforementioned consequences in respect
of the transactions contemplated hereby.
SECTION 3.22 BROKERS AND FINDERS. Except for the engagement of Goldman,
Sachs & Co. and Berenson Minella & Company, none of the Company, any of its
Subsidiaries, or any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finder's fees in connection with the transactions contemplated by
this Agreement.
SECTION 3.23 OPINIONS OF INVESTMENT BANKING FIRMS. The Company has received
the opinions of Goldman, Sachs & Co. and Berenson Minella & Company, each dated
the date hereof, to the effect that, the Exchanged Share Merger Consideration to
be received by the holders of Shares pursuant to the Merger is fair to the
Company's stockholders (other than holders of Retained Shares, as to which
Goldman, Sachs & Co. and Berenson, Minella & Company express no opinion) from a
financial point of view.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGECO
MergeCo represents and warrants to the Company as follows:
SECTION 4.01 ORGANIZATION AND QUALIFICATION. MergeCo is a corporation duly
organized, validly existing and in good standing under the Laws of its state or
jurisdiction of incorporation and is in good
A-31
<PAGE>
standing as a foreign corporation in each other jurisdiction where the
properties owned, leased or operated, or the business conducted, by it require
such qualification and where failure to be in good standing or to so qualify
would have a Material Adverse Effect on MergeCo. The term "MATERIAL ADVERSE
EFFECT ON MERGECO", as used in this Agreement, means any change in or effect on
the business, financial condition, results of operations or reasonably
foreseeable prospects of MergeCo or any of its Subsidiaries that would be
materially adverse to MergeCo.
SECTION 4.02 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) MergeCo has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of MergeCo and no other corporate proceedings on the part of
MergeCo are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by MergeCo and, assuming this Agreement constitutes a valid and
binding obligation of the Company, this Agreement constitutes a valid and
binding agreement of MergeCo, enforceable against MergeCo in accordance with its
terms.
(b) Other than in connection with, or in compliance with, the provisions of
the DGCL with respect to the transactions contemplated hereby, the Exchange Act,
the securities Laws of the various states and the HSR Act, no authorization,
consent or approval of, or filing with, any Governmental Entity is necessary for
the consummation by MergeCo of the transactions contemplated by this Agreement
other than authorizations, consents and approvals the failure to obtain, or
filings the failure to make, which would not, in the aggregate, have a Material
Adverse Effect on MergeCo.
SECTION 4.03 NO VIOLATION. Neither the execution or delivery of this
Agreement by MergeCo nor the consummation by MergeCo of the transactions
contemplated hereby will:
(a) constitute a breach or violation of any provision of the certificate of
incorporation or by-laws of MergeCo, or
(b) constitute a breach, violation or default (or any event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in the
creation of any lien or encumbrance upon any of the properties or assets of
MergeCo under, any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument to which MergeCo is a party or by which it
or any of its properties or assets are bound,
other than breaches, violations, defaults, terminations, accelerations or
creation of liens and encumbrances which, in the aggregate, would not have a
Material Adverse Effect on MergeCo.
SECTION 4.04 INFORMATION. None of the information supplied by MergeCo in
writing (other than projections of future financial performance) specifically
for inclusion or incorporation by reference in (i) the Form S-4 or (ii) the
Other Filings will:
(a) at the respective times filed with the SEC or other Governmental Entity
and,
(b) in the case of the Proxy Statement, at the date the Proxy Statement or
any amendment or supplement to the Proxy Statement is mailed to stockholders, at
the time of the Special Meeting and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, no representation is made by MergeCo
with respect to statements made in any of the foregoing documents based upon
information supplied by the Company.
A-32
<PAGE>
SECTION 4.05 FINANCING. Schedule 6.02(e) sets forth true and complete copies
of written documentation from third parties which provides for financing in
amounts sufficient to consummate the transactions contemplated hereby as
contemplated by Section 6.02(e). As of the date hereof, none of MergeCo., its
representatives or its affiliates has any reason to believe that the financing
contemplated by such written documentation will not be obtained on the terms and
subject to the conditions set forth in such documentation, or that such
conditions will not be satisfied.
SECTION 4.06 DELAWARE LAW. MergeCo was not immediately prior to the
execution of this Agreement, an "interested stockholder" within the meaning of
Section 203 of the DGCL and neither MergeCo, nor any of its "affiliates" or
"associates" (as such terms are defined in the Rights Agreement) beneficially
owns any Common Shares on the date hereof.
SECTION 4.07 NEWLY ORGANIZED. MergeCo was formed solely for the purpose of
engaging in the Merger and the other transactions contemplated by this Agreement
and has engaged in no other business activities.
ARTICLE V
COVENANTS
SECTION 5.01 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by
this Agreement or as expressly agreed to in writing by MergeCo, during the
period from the date of this Agreement to the Effective Time, the Company shall,
and shall cause each of its Subsidiaries to, conduct its operations according to
its ordinary and usual course of business and consistent with past practice and
use its and their respective reasonable best efforts to preserve intact their
current business organizations, keep available the services of their current
officers and employees and preserve their relationships with customers,
suppliers, licensors, licensees, advertisers, distributors and others having
business dealings with them and to preserve goodwill. Without limiting the
generality of the foregoing, and except as (x) otherwise expressly provided in
this Agreement, (y) required by Law, or (z) as set forth on Section 5.01 of the
Company Disclosure Schedule, prior to the Effective Time, the Company shall not,
and shall cause its Subsidiaries not to, without the consent of MergeCo (which
consent shall not be unreasonably withheld):
(a) except with respect to annual bonuses made in the ordinary course of
business consistent with past practice, and except as required by Law, adopt or
amend in any material respect any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, pension,
retirement, employment or other employee benefit agreement, trust, plan or other
arrangement for the benefit or welfare of any director, officer or employee of
the Company or any of its Subsidiaries or increase in any manner the
compensation or fringe benefits of any director, officer or employee of the
Company or any of its Subsidiaries or pay any benefit not required by any
existing agreement or place any assets in any trust for the benefit of any
director, officer or employee of the Company or any of its Subsidiaries not
required by any existing agreement (in each case, except with respect to
employees and directors in the ordinary course of business consistent with past
practice);
(b) incur any indebtedness for borrowed money in excess of $1,000,000 on an
aggregate basis, other than indebtedness under existing lines of credit drawn to
fund working capital (defined as current assets (excluding cash and cash
equivalents) minus current liabilities, each as determined in accordance with
generally acceptable accounting principles applied on a consistent basis) in the
ordinary course of business and consistent with past practice;
(c) expend funds for capital expenditures (including capitalized software
and lease-buybacks but other than expenditures permitted pursuant to Section
5.01(i)) that in the aggregate would cause total capital expenditure (including
capitalized software and lease-buybacks but other than expenditures
A-33
<PAGE>
permitted pursuant to Section 5.01(i)) for the period from January 1, 1999 to
the Effective Time to exceed an amount equal to $102,500,000;
(d) sell, lease, license, mortgage or otherwise encumber or subject to any
lien or otherwise dispose of any of its properties or assets other than
immaterial properties or assets (or immaterial portions of properties or
assets), except in the ordinary course of business consistent with past
practice;
(e) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock (except (A) as
contemplated by the Rights Agreement and (B) for dividends paid by Subsidiaries
to the Company with respect to capital stock), (ii) split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (iii) purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or other
securities;
(f) except for issuances (i) upon exercise of presently outstanding awards
under the Company Stock Plan and (ii) upon conversion of the QUIPS, (iii) of up
to 50,000 Common Shares pursuant to the 401(k) Plans, or (iv) as previously
disclosed in writing to MergeCo or its affiliates, authorize for issuance,
issue, deliver, sell or agree or commit to issue, sell or deliver (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), pledge or otherwise encumber
any shares of its capital stock or the capital stock of any of its Subsidiaries,
any other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities or any other securities or equity equivalents (including
without limitation stock appreciation rights);
(g) amend its certificate of incorporation, by-laws or equivalent
organizational documents or alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or ownership of
any material subsidiary of the Company;
(h) except as provided in Section 5.01(c), make or agree to make any
acquisition of assets which is material to the Company and its Subsidiaries,
taken as a whole, except for (i) purchases of inventory and supplies in the
ordinary course of business or (ii) pursuant to purchase orders entered into in
the ordinary course of business which do not call for payments in excess of
$5,000,000 per annum;
(i) except as previously disclosed to MergeCo in writing, acquire any
business (whether by merger, consolidation, purchase of assets or otherwise) or
acquire any equity interest in any person not an affiliate (whether through a
purchase of stock, establishment of a joint venture or otherwise);
(j) change its principles of accounting in effect at December 31, 1998,
except as required by changes in generally accepted accounting principles or Law
or regulation or as discussed in the SEC Reports, or change any of its methods
of reporting income and deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns of the Company for
the taxable year ending December 31, 1998, except as required by changes in Law
or regulation;
(k) settle or compromise any shareholder derivative suits arising out of
the transactions contemplated hereby or any other material litigation (whether
or not commenced prior to the date of this Agreement) or settle, pay or
compromise any claims not required to be paid, other than in consultation and
cooperation with MergeCo, and, with respect to any such settlement, with the
prior written consent of MergeCo (which consent will not be unreasonably
withheld);
(l) enter into or amend in a manner adverse to MergeCo any new agreement
which has a non-competition, geographical restriction or similar covenant that
would be material to the Company;
(m) make or rescind any material election relating to Taxes, or settle any
material claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes; or
A-34
<PAGE>
(n) authorize, or commit or agree to take, any of the foregoing actions.
SECTION 5.02 ACCESS TO INFORMATION. From the date of this Agreement until
the Effective Time, the Company shall, and shall cause its Subsidiaries, and
each of their respective officers, directors, employees, counsel, advisors and
representatives (collectively, the "COMPANY REPRESENTATIVES") to, give MergeCo
and their respective officers, employees, counsel, advisors, representatives
(collectively, the "MERGECO REPRESENTATIVES") and representatives of financing
sources identified by MergeCo reasonable access, upon reasonable notice and
during normal business hours, to the offices and other facilities and to the
books and records of the Company and its Subsidiaries and will cause the Company
Representatives and the Company's Subsidiaries to furnish MergeCo and the
MergeCo Representatives and representatives of financing sources identified by
MergeCo with such financial and operating data and such other information with
respect to the business and operations of the Company and its Subsidiaries as
MergeCo and representatives of financing sources identified by MergeCo may from
time to time reasonably request. MergeCo agrees that any information furnished
pursuant to this Section 5.02 shall be subject to the provisions of the letter
agreement dated March 11, 1999 between THL and the Company (the "CONFIDENTIALITY
AGREEMENT").
SECTION 5.03 EFFORTS.
(a) Each of the Company and MergeCo shall, and the Company shall cause each
of its Subsidiaries to, make all necessary filings with Governmental Entities as
promptly as practicable in order to facilitate prompt consummation of the
transactions contemplated by this Agreement. In addition, each of MergeCo and
the Company shall use its reasonable best efforts (including, without
limitation, payment of any required fees) and shall cooperate fully with each
other to:
(i) comply as promptly as practicable with all governmental requirements
applicable to the transactions contemplated by this Agreement,
including the making of all filings necessary or proper under
applicable Laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, but not
limited to, cooperation in the preparation and filing of the Form
S-4 and any actions or filings related thereto, the Proxy Statement
and any amendments to any thereof,
(ii) obtain promptly all consents, waivers, approvals, authorizations or
permits of, or registrations or filings with or notifications to
(any of the foregoing being a "CONSENT"), any Governmental Entity
necessary for the consummation of the transactions contemplated by
this Agreement (except for such Consents the failure of which to
obtain would not prevent or materially delay the consummation of
the Merger), and
(iii) take such other reasonable actions to implement the transactions
contemplated hereby.
Subject to the Confidentiality Agreement, MergeCo and the Company shall
furnish to one another such necessary information and reasonable assistance as
MergeCo or the Company may reasonably request in connection with the foregoing.
(b) Without limiting Section 5.03(a), MergeCo and the Company shall each:
(i) promptly make or cause to be made the filings required of such party
under the HSR Act with respect to the Merger;
(ii) use its reasonable best efforts to avoid the entry of, or to have
vacated or terminated, any decree, order, or judgment that would
restrain, prevent or delay the consummation of the Merger,
including without limitation defending through litigation on the
merits any claim asserted in any court by any party; and
(iii) take any and all steps which, in such party's judgment, are
commercially reasonable to avoid or eliminate each and every
impediment under any antitrust, competition, or trade
A-35
<PAGE>
regulation Law that may be asserted by any Governmental Entity with
respect to the Merger so as to enable consummation thereof to occur
as soon as reasonably possible.
Each party hereto shall promptly notify the other party of any communication
to that party from any Governmental Entity and permit the other party to review
in advance any proposed communication to any Governmental Entity. MergeCo and
the Company shall not (and shall cause their respective affiliates and
representatives not to) agree to participate in any meeting with any
Governmental Entity in respect of any filings, investigation or other inquiry
unless it consults with the other party in advance and, to the extent permitted
by such Governmental Entity, give the other party the opportunity to attend and
participate therein. Subject to the Confidentiality Agreement, each of the
parties hereto shall coordinate and cooperate fully with the other parties
hereto in exchanging such information and providing such assistance as such
other parties may reasonably request in connection with the foregoing and in
seeking early termination of any applicable waiting periods under the HSR Act or
in connection with other Consents. Each of the Company and MergeCo agrees to
respond promptly to and comply fully with any request for additional information
or documents under the HSR Act. Subject to the Confidentiality Agreement, the
Company shall provide MergeCo, and MergeCo shall provide the Company, with
copies of all correspondence, filings or communications (or memoranda setting
forth the substance thereof) between such party or any of its representatives,
on the one hand, and any Governmental Entity or members of its staff, on the
other hand, with respect to this Agreement and the transactions contemplated
hereby.
(c) MergeCo shall use commercially reasonable efforts to cause the
financing necessary for satisfaction of the condition in Section 6.02(e) to be
obtained on the terms set forth in the commitment letters attached to Schedule
6.02(e); PROVIDED, HOWEVER, THAT MergeCo shall be entitled to:
(i) enter into commitments for equity and debt financing with other
nationally recognized financial institutions, which commitments will
have substantially the same terms as those set forth in the
commitment letters and which commitments may be substituted for such
commitment letters, and
(ii) modify the capital structure set forth in such commitment letters
so long as:
(A) the total committed common equity equals at least $390 million
(including (1) the Retained Shares, (2) the portion of any
Options which at the time of the Merger is exchanged for Common
Shares and (3) the Investment Instrument, if any, as defined
below),
(B) the aggregate Cash Price paid to all stockholders of the Company
is no less than otherwise would have been paid in accordance
with this Agreement, and
(C) such modified financing is no less certain than that set forth
in such commitment letter.
"INVESTMENT INSTRUMENT" shall mean securities, instruments or arrangements
which replace a portion of the equity commitment set forth in Schedule 6.02 by
means of (x) redeemable stock, (y) prepaid forward contracts, or (z) some other
securities, instruments or arrangements; PROVIDED, HOWEVER, THAT:
(A) such securities, instruments or arrangements shall have an interest
or dividend rate of no more than 10%,
(B) such securities, instruments or arrangements shall in no event be
entitled to a call on more than $60 million in the aggregate of the
assets of the Company and its Subsidiaries, such amount to increase
at a rate of 10% per annum, compounding semiannually, such total
amount to be valued at the time such assets leave the control of the
Company, and
A-36
<PAGE>
(C) such arrangement may include the establishment of an entity to be
funded by (1) a cash contribution by MergeCo or any of its
affiliates and (2) subject to the Company's existing agreements, a
contribution by the Company of assets identified by MergeCo, in each
case in exchange for equity interests in such entity.
(d) At the direction of MergeCo, the Company shall take commercially
reasonable actions to implement an Investment Instrument at the Effective Time,
the terms of which shall be established by MergeCo.
SECTION 5.04 PUBLIC ANNOUNCEMENTS. The Company and MergeCo:
(a) agree to consult promptly with each other prior to issuing any press
release or otherwise making any public statement with respect to the Merger and
the other transactions contemplated hereby,
(b) agree to provide to the other party for review a copy of any such press
release or statement, and
(c) shall not issue any such press release or make any such public
statement prior to such consultation and review, unless required by applicable
Law or any listing agreement with a securities exchange.
SECTION 5.05 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) From and after the Effective Time, MergeCo shall and shall cause the
Surviving Corporation to indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of the Company and its
Subsidiaries (the "INDEMNIFIED PARTIES") against all losses, claims, damages,
expenses or liabilities arising out of or related to actions or omissions or
alleged actions or omissions occurring at or prior to the Effective Time:
(i) to the full extent permitted by the DGCL or,
(ii) if the protections afforded thereby to an Indemnified Party are
greater, to the same extent and on the same terms and conditions (including
with respect to advancement of expenses) provided for in the Company's
certificate of incorporation and by-laws and agreements in effect at the
date hereof (to the extent consistent with applicable Law), which provisions
will survive the Merger and continue in full force and effect after the
Effective Time.
Without limiting the foregoing:
(i) MergeCo shall and shall cause the Surviving Corporation to
periodically advance expenses (including attorney's fees) as incurred by an
Indemnified Party with respect to the foregoing to the full extent permitted
under applicable Law, and
(ii) any determination required to be made with respect to whether an
Indemnified Party shall be entitled to indemnification shall, if requested
by such Indemnified Party, be made by independent legal counsel selected by
the Surviving Corporation and reasonably satisfactory to such Indemnified
Party.
(b) MergeCo agrees that the Company, and, from and after the Effective
Time, the Surviving Corporation, shall cause to be maintained in effect for not
less than six years from the Effective Time the current policies of the
directors' and officers' liability insurance maintained by the Company subject
to the following:
(i) the Surviving Corporation may substitute therefor other policies of
at least the same coverage amounts and which are underwritten by insurers of
at least equal claims paying ratings and which contain terms and conditions
not less advantageous to the beneficiaries of the current
A-37
<PAGE>
policies; PROVIDED, THAT such substitution shall not result in any gaps or
lapses in coverage with respect to matters occurring prior to the Effective
Time; and
(ii) the Surviving Corporation shall not be required to pay an annual
premium in excess of 250% of the last annual premium paid by the Company
prior to the date hereof and if the Surviving Corporation is unable to
obtain the insurance required by this Section 5.05(b) it shall obtain as
much comparable insurance as possible for an annual premium equal to such
maximum amount; and
(iii) MergeCo and the Surviving Corporation shall be entitled to
purchase and maintain tail insurance coverage for such six year period,
which insurance coverage shall comply with the coverage amount requirement,
and the other requirements, of Section 5.05(b)(i), and the purchase and
maintenance of such tail insurance coverage by MergeCo or the Surviving
Corporation, as the case may be, shall be deemed to fulfill MergeCo's and
the Surviving Corporation's obligations under this Section 5.05(b).
(c) This Section 5.05 shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
MergeCo and the Surviving Corporation, and shall be enforceable by the
Indemnified Parties.
SECTION 5.06 NOTIFICATION OF CERTAIN MATTERS. MergeCo and the Company
shall promptly notify each other of:
(a) the occurrence or non-occurrence of any fact or event which would be
reasonably likely:
(i) to cause any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect at any time from the date
hereof to the Effective Time, or
(ii) to cause any covenant, condition or agreement under this Agreement
not to be complied with or satisfied, and
(b) any failure of the Company, or MergeCo, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; PROVIDED, HOWEVER, THAT no such notification shall
affect the representations or warranties of any party or the conditions to the
obligations of any party hereunder. Each of the Company and MergeCo shall give
prompt notice to the other of any notice or other communication from any third
party alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement.
SECTION 5.07 RIGHTS AGREEMENT. Subject to the provisions of Section 3.17,
the Company covenants and agrees that it shall not (i) redeem the Rights prior
to the Effective Time, (ii) amend the Rights Agreement, or (iii) take any action
which would allow any Person (as defined in the Rights Agreement) other than
MergeCo to acquire beneficial ownership of 15% or more of the Common Shares
without causing a "Distribution Date," a "Triggering Event" or a "Stock
Acquisition Date" (as each term is defined in the Rights Agreement) to occur.
Notwithstanding the foregoing, the Company may take any of the actions described
in the preceding sentence, if the Company Board determines in good faith, after
consultation with counsel, that taking such action is necessary for the Company
Board to comply with its fiduciary duties to stockholders under applicable Law.
SECTION 5.08 STATE TAKEOVER LAWS. The Company shall, upon the request of
MergeCo, take all reasonable steps to assist in any challenge by MergeCo to the
validity or applicability to the transactions contemplated by this Agreement,
including the Merger, of any state takeover Law.
SECTION 5.09 NO SOLICITATION.
(a) From and after the date hereof until the termination of this Agreement,
the Company and its Subsidiaries (x) shall not, (y) shall use their best efforts
to cause their respective affiliates not to, and
A-38
<PAGE>
(z) shall instruct their respective officers, directors, employees, agents or
other representatives (including, without limitation, any investment banker,
attorney or accountant retained by the Company or its Subsidiaries) (the
"REPRESENTATIVES") not to:
(i) directly or indirectly solicit, initiate, or encourage (including
by way of furnishing nonpublic information or assistance), or take any other
action to facilitate, any inquiries or proposals from any person that
constitute, or may reasonably be expected to lead to, an acquisition,
purchase, merger, consolidation, share exchange, recapitalization, business
combination or other similar transaction involving 15% or more of the assets
or any securities of, any merger consolidation or business combination with,
or any public announcement of a proposal, plan, or intention to do any of
the foregoing by, the Company or any of its Subsidiaries (such transactions
being referred to herein as "ACQUISITION TRANSACTIONS"),
(ii) enter into, maintain, or continue discussions or negotiations with
any person in furtherance of such inquiries or to obtain a proposal for an
Acquisition Transaction,
(iii) agree to or endorse any proposal for an Acquisition Transition,
or
(iv) authorize or permit the Company's or any of its affiliates'
Representatives to take any such action.
Notwithstanding the foregoing, nothing in this Agreement shall prohibit the
Company Board from:
(A) furnishing information to, and engaging in discussions or
negotiations with, any Person (an "OFFEROR") that makes an unsolicited
and written Bona Fide Proposal (as defined below) to acquire the Company
and/or its Subsidiaries pursuant to a merger, consolidation, share
exchange, tender offer or other similar transaction, but only to the
extent that independent legal counsel (who may be the Company's regularly
engaged outside legal counsel) advises the Company Board in good faith
that furnishing such information to, or engaging in such discussions or
negotiations with, such Offeror is necessary for the Company Board to
comply with its fiduciary duties to stockholders under applicable Law;
PROVIDED, THAT prior to taking such action, the Company Board notifies
MergeCo of its intentions and obtains an executed confidentiality
agreement from the Offeror and such other appropriate parties
substantially similar to the Confidentiality Agreement (other than with
respect to the standstill provisions of the Confidentiality Agreement in
a situation where the Offeror has commenced a tender offer to acquire at
least 15% or more of the Common Shares prior to the date of the
furnishing of information, and the discussions or negotiations,
referenced above),
(B) failing to make or withdrawing or modifying its recommendation
referred to in Section 5.13 if the Company Board, after consultation with
and based upon the advice of independent legal counsel (who may be the
Company's regularly engaged outside legal counsel), determines in good
faith that such action is necessary for the Company Board to comply with
its fiduciary duties to stockholders under applicable Law, and
(C) disclosing to the Company's shareholders a position contemplated
by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with respect
to any tender offer, or taking any other legally required action
(including, without limitation, the making of public disclosure as may be
necessary or advisable under applicable securities Laws); and
PROVIDED, FURTHER, THAT the Company's or the Company Board's exercise of its
rights under clause (A), (B) or (C) above shall not constitute a breach by the
Company of this Agreement. For the purposes of this Agreement, "BONA FIDE
PROPOSAL" means a proposal which the Company Board determines in good faith, and
after receipt and consideration of advice from its legal and financial advisors,
is reasonably capable of being consummated by the Person making the proposal,
taking into account regulatory, legal, financial and other relevant matters.
A-39
<PAGE>
(b) The Company shall promptly notify MergeCo of the receipt of any
proposal for an Acquisition Transaction, the terms and conditions of such
proposal and the identity of the person making it. The Company also shall
promptly notify MergeCo of any change to or modification of such proposal for an
Acquisition Transaction and the terms and conditions thereof.
(c) The Company shall immediately cease and cause its affiliates and its
and their Representatives to cease any and all existing activities, discussions
or negotiations with any parties (other than MergeCo) conducted heretofore with
respect to any of the matters set forth in Section 5.09(a)(i) to (iv) and shall
use its reasonable best efforts to cause any such parties in possession of
confidential information about the Company that was furnished by or on behalf of
the Company to return or destroy all such information in the possession of any
such party (other than MergeCo or its affiliates) or in the possession of any
Representative of any such party.
SECTION 5.10 AFFILIATE LETTERS. Prior to the Effective Time, the Company
shall deliver to MergeCo a letter identifying all Persons who are, at the time
this Agreement is submitted for approval to the stockholders of the Company,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act of
1993, as amended (the "SECURITIES ACT"). The Company shall use its reasonable
best efforts to cause each such person to deliver to MergeCo on or prior to the
Effective Time a written agreement in a form reasonably satisfactory to MergeCo
and the Company.
SECTION 5.11 ISRA REQUIREMENTS. Prior to the Effective Time, the Company
shall commence compliance with the requirements of ISRA applicable to this
transaction by submitting all required filings for each property subject to ISRA
in order to obtain authorizations that will allow the transactions contemplated
by this Agreement to be effected pursuant to N.J.S.A. 13:1K-11.2 or pursuant to
N.J.S.A. 13:1K-11.5, as the case may be. If the Company is unable to obtain an
ISRA authorization for any property subject to ISRA prior to the Effective Time,
then the Company shall seek a letter of non-applicability (a "LNA") if, in the
reasonable judgment of MergeCo and the Company, there is a reasonable
probability of obtaining a LNA in order to effect the transactions contemplated
by this Agreement according to the time schedule desired by MergeCo and the
Company. If it is determined not to seek a LNA, or an application to seek a LNA
is denied, then the Company shall obtain a Remediation Agreement with respect to
such property or properties in order to allow the transactions contemplated by
this Agreement to be effected. The Company shall consult with MergeCo with
respect to its ISRA filings and strategy, including allowing MergeCo to comment
on such filings, and shall provide copies of all correspondence to and from the
DEP with respect to ISRA compliance. MergeCo shall cooperate with the Company in
connection with the ISRA applications and filings by the Company relating to
approval and allow the transactions contemplated by this Agreement to be
effected in a timely manner, including, without limitation, signing any
documents reasonably requested by the Company and providing any information
within the possession, custody or control of MergeCo.
SECTION 5.12 REPORTS. During the period from the date of this Agreement to
the Effective Time, the Company shall provide MergeCo with monthly financial
statements (balance sheet, cash flow statement, income statement and, if
available, notes thereto), broken out by operating unit (except as to the cash
flow statement, which shall be a consolidated statement), no later than the
fifteenth business day following the end of each calendar month following the
date of this Agreement; PROVIDED, THAT for calendar months that are also the end
of a calendar quarter, the Company may provide such financial information to
MergeCo on the same date such information is publicly released in accordance
with the past practice of the Company.
A-40
<PAGE>
SECTION 5.13 STOCKHOLDERS' MEETING.
(a) The Company, acting through the Company Board, shall, in accordance
with applicable Law:
(i) duly call, give notice of, convene and hold a special meeting of
its stockholders (the "SPECIAL MEETING") as soon as practicable following
the execution of this Agreement for the purpose of considering and taking
action upon this Agreement and the Certificate Amendments;
(ii) prepare and file with the SEC a preliminary proxy statement
relating to this Agreement, and use its reasonable efforts:
(A) to obtain and furnish the information required to be included by
the SEC in a definitive proxy statement (the "PROXY STATEMENT") and Form
S-4 in which the Proxy Statement will be included (collectively with the
Proxy Statement, the "FORM S-4") and, after consultation with MergeCo, to
respond promptly to any comments made by the SEC with respect to the
preliminary Proxy Statement and cause the Proxy Statement to be mailed to
its stockholders and
(B) to obtain the necessary approvals of the Merger, this Agreement
and the Certificate Amendments by its stockholders; and
(iii) subject to the fiduciary duties of the Company Board as provided
in Section 5.09, the Company Board shall declare that this Agreement is
advisable and recommend that the Agreement and the transactions contemplated
hereby be approved and adopted by the stockholders of the Company and
include in the Form S-4 and Proxy Statement a copy of such recommendations;
PROVIDED, HOWEVER, THAT the Company Board shall, if requested to do so in
writing by MergeCo, submit this Agreement to the Company's stockholders
whether or not the Company Board determines at any time subsequent to
declaring its advisability that this Agreement is no longer advisable and
recommends that the stockholders of the Company reject it.
(b) Unless the Company Board has withdrawn its recommendation of this
Agreement in compliance with Section 5.09, the Company shall use its reasonable
best efforts to solicit from stockholders of the Company proxies in favor of the
Merger and shall use its reasonable best efforts to take all other action
necessary or advisable to secure the vote or consent of stockholders required by
the DGCL to effect the Merger.
(c) The Company represents that the Form S-4 will comply in all material
respects with the provisions of applicable federal securities Laws except that
no representation is made by the Company with respect to information supplied by
MergeCo or its affiliates for inclusion in the Form S-4. Each of the Company, on
the one hand, and MergeCo, on the other hand, agree promptly to correct any
information provided by either of them for use in the Form S-4 if and to the
extent that it shall have become false or misleading, and the Company further
agrees to take all steps necessary to cause the Form S-4 as so corrected to be
filed with the SEC and to be disseminated to the holders of Shares, in each
case, as and to the extent required by applicable federal securities Laws.
SECTION 5.14 EMPLOYEE BENEFIT ARRANGEMENTS.
(a) MergeCo agrees that the Company shall honor, and, from and after the
Effective Time, MergeCo shall cause the Surviving Corporation to honor, in
accordance with their respective terms as in effect on the date hereof, the
employment, severance and bonus arrangements to which the Company is a party and
which have been previously disclosed in writing to MergeCo or its affiliates.
(b) MergeCo agrees that for a period of two years following the Effective
Time, the Surviving Corporation shall continue the (i) compensation (including
bonus and incentive awards) programs and plans, and (ii) employee benefit and
welfare plans, programs, contracts, agreements and policies (including insurance
and pension plans), fringe benefits and vacation policies, which are currently
A-41
<PAGE>
provided by the Company; PROVIDED, THAT notwithstanding anything in this
Agreement to the contrary the Surviving Corporation shall not be required to
maintain any individual plan or program so long as the benefit plan and
agreements maintained by the Surviving Corporation are, in the aggregate, not
materially less favorable than those provided by the Company immediately prior
to the date of this Agreement, and; PROVIDED, FURTHER, THAT this provision shall
terminate with respect to the participation in any plans or programs by
employees of any business transferred to any third party after the Effective
Time.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.01 CONDITIONS. The respective obligations of MergeCo and the
Company to consummate the Merger are subject to the satisfaction, at or before
the Effective Time, of each of the following conditions:
(a) STOCKHOLDER APPROVAL. The stockholders of the Company shall have duly
approved this Agreement and transactions contemplated by this Agreement.
(b) FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order, and any material "blue sky" and other state securities
Laws applicable to the registration and qualification of Common Shares to be
retained in the Merger shall have been complied with.
(c) SOLVENCY LETTERS. Each of the Company Board and the Board of Directors
of MergeCo shall have received a solvency letter, in form and substance and from
an independent evaluation firm reasonably satisfactory to each such board, as to
the solvency of the Company and its Subsidiaries on a consolidated basis after
giving effect to the transactions contemplated by this Agreement, including all
financings contemplated hereby.
(d) ORDERS AND INJUNCTIONS. No order shall have been entered in any action
or proceeding before any United States federal or state court or governmental
agency or other United States regulatory or administrative agency or commission
(an "ORDER"), or a preliminary or permanent injunction by a United States court
of competent jurisdiction shall have been issued and remain in effect (an
"INJUNCTION"), which, in either case, would have the effect of (i) preventing
consummation of the Merger, or (ii) imposing material limitations on the ability
of MergeCo effectively to acquire or hold the business of the Company and its
Subsidiaries taken as a whole or to exercise full rights of ownership of the
Common Shares acquired by it; PROVIDED, HOWEVER, THAT in order to invoke this
condition, MergeCo shall have used in its good faith judgment, its commercially
reasonable best efforts to prevent such Order or Injunction or ameliorate the
effects thereof.
(e) ILLEGALITY. There shall not have been any United States federal or
state statute, rule or regulation enacted or promulgated after the date of this
Agreement that could, in the reasonable judgment of MergeCo, result in any of
the adverse consequences referred to in Section 6.01(d).
(f) HSR ACT. Any waiting period (and any extension thereof) under the HSR
Act applicable to the Merger shall have expired or terminated.
SECTION 6.02 CONDITIONS TO OBLIGATIONS OF MERGECO. The obligations of
MergeCo to effect the Merger are further subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
respects in each case as of the date of this Agreement and as of the Effective
Time as though made on and as of the Effective Time; PROVIDED, HOWEVER, THAT,
with respect to representations and warranties other than Sections 3.02 and
3.03(a) and representations and warranties otherwise qualified by Material
Adverse Effect, for purposes of this
A-42
<PAGE>
Section 6.02(a), such representations and warranties and statements shall be
deemed to be true and correct in all respects unless the failure or failures of
such representations and warranties and statements to be so true and correct,
individually or in the aggregate, would result in a Material Adverse Effect on
the Company. MergeCo shall have received a certificate signed on behalf of the
Company by its Executive Vice President--Office of the Chairman, or such other
executive officer of the Company reasonably satisfactory to MergeCo to the
effect set forth in this paragraph.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed the obligations required to be performed by it under this Agreement at
or prior to the Effective Time, 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 transactions contemplated hereby.
(c) [Intentionally omitted]
(d) NO LITIGATION. There shall not be pending by any Governmental Entity
any suit, action or proceeding (or by any other person any suit, action or
proceeding which has a reasonable likelihood of success):
(i) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement
or seeking to obtain from MergeCo, the Company or any of their affiliates
any damages that would have a Material Adverse Effect on the Company,
(ii) seeking to prohibit or limit the ownership or operation by the
Company or any of its Subsidiaries of any material portion of the business
or assets of the Company or any of its Subsidiaries, taken as a whole, to
dispose of or hold separate any material portion of the business or assets
of the Company or any of its Subsidiaries taken as a whole, as a result of
the Merger or any of the other transactions contemplated by this Agreement,
or
(iii) seeking to impose limitations on the ability of MergeCo (or any
designee of MergeCo), to acquire or hold, or exercise full rights of
ownership of, any Common Shares, including, without limitation, the right to
vote Common Shares on all matters properly presented to the stockholders of
the Company.
(e) FINANCING. The Company, its Subsidiaries and MergeCo shall have
received the proceeds of financing pursuant to the commitment letters set forth
on Schedule 6.02(e) on terms and conditions set forth therein (or, as modified
in accordance with Section 5.03(c), on such other terms and conditions, or
involving such other financing sources, as MergeCo and the Company shall
reasonably agree and are not materially more onerous) in amounts sufficient to
consummate the transactions contemplated by this Agreement, including, without
limitation:
(i) to pay, with respect to all Shares in the Merger, the cash portion
of the Merger Consideration pursuant to Section 2.01(c) and Section 2.02,
(ii) to refinance the outstanding indebtedness of the Company (other
than that indebtedness which the commitment letters set forth in Schedule
6.02(e) contemplate will remain outstanding),
(iii) to pay any fees and expenses in connection with the transactions
contemplated by this Agreement or the financing thereof, and
(iv) to provide for the working capital needs of the Company following
the Merger.
(f) TOTAL FUNDED INDEBTEDNESS. MergeCo shall be reasonably satisfied that
the total funded indebtedness of the Company on a consolidated basis immediately
prior to the Effective Time (including the current portion of indebtedness but
net of (i) cash, (ii) cash equivalents and
A-43
<PAGE>
(iii) indebtedness in respect of the QUIPS) is less than an amount equal to $970
million plus indebtedness incurred in consummating the acquisitions permitted by
Section 5.01(i).
SECTION 6.03 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of
the Company to effect the Merger is further subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
MergeCo set forth in this Agreement shall be true and correct in all respects,
in each case as of the date of this Agreement and as of the Effective Time as
though made on and as of the Effective Time; PROVIDED, THAT for purposes of this
Section 6.03(a), with respect to representations and warranties other than
Section 3.02(a) and the representations and warranties otherwise qualified by
Material Adverse Effect, such representations and warranties shall be deemed to
be true and correct in all respects unless the failure or failures of such
representations and warranties to be so true and correct, individually or in the
aggregate, would result in a Material Adverse Effect on MergeCo. The Company
shall have received certificates signed on behalf of MergeCo, by an authorized
officer of MergeCo, to the effect set forth in this paragraph.
(b) PERFORMANCE OF OBLIGATIONS OF MERGECO. MergeCo shall have performed
the obligations required to be performed by it under this Agreement at or prior
to the Effective Time, except for such failures to perform as have not had or
could not reasonably be expected, either individually or in the aggregate, to
have a Material Adverse Effect on MergeCo or adversely affect the ability of
MergeCo to consummate the transactions herein contemplated or perform its
obligations hereunder.
ARTICLE VII
TERMINATION; AMENDMENTS; WAIVER
SECTION 7.01 TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company:
(a) by the mutual written consent of MergeCo and the Company, by action of
their respective Boards of Directors;
(b) by MergeCo or the Company if the Merger shall not have been consummated
on or before the Termination Date (as defined below) and; PROVIDED, THAT neither
MergeCo nor the Company may terminate this Agreement pursuant to this Section
7.01(b) if such party shall have materially breached this Agreement;
(c) by MergeCo or the Company if any court of competent jurisdiction in the
United States or other United States Governmental Entity has issued an order,
decree or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable; PROVIDED, HOWEVER, THAT the party seeking to
terminate this Agreement shall have used its reasonable best efforts to remove
or lift such order, decree, ruling or other action;
(d) by the Company if, prior to the Effective Time, any Person has made a
Bona Fide Proposal relating to an Acquisition Transaction, or has commenced a
tender or exchange offer for the Common Shares, and the Company Board determines
in good faith (i) after consultation with its financial advisors, that such
transaction constitutes a superior offer from a financial point of view to the
offer constituted by this Agreement and (ii) after consultation with counsel,
that the approval of such Bona Fide Proposal and termination of this Agreement
is necessary for the Company Board to comply with its fiduciary duties to the
Company's stockholders under applicable Law; PROVIDED, HOWEVER, THAT
notwithstanding anything in this Agreement to the contrary, the termination of
this Agreement by the
A-44
<PAGE>
Company in compliance with this Section 7.01(d) shall not be deemed to violate
any other obligations of the Company under this Agreement;
(e) by MergeCo if (i) the Company breaches its covenant in Section 5.07, or
(ii) takes an action pursuant to the second sentence of Section 5.07;
(f) by MergeCo, if the Company Board shall have (i) failed to recommend to
the stockholders of the Company that they give the Company Stockholder Approval,
(ii) withdrawn or modified in a manner adverse to MergeCo its approval or
recommendation of this Agreement or the Merger, (iii) shall have approved or
recommended an Acquisition Transaction (other than the Acquisition Transaction
contemplated by this Agreement), (iv) shall have resolved to effect any of the
foregoing or (v) shall have otherwise taken steps to impede the Company
Stockholder Approval;
(g) by either MergeCo or the Company, if the Company Stockholder Approval
shall not have been obtained by reason of the failure to obtain the required
vote upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof;
(h) by MergeCo, upon a material breach of any covenant or agreement on the
part of the Company set forth in this Agreement, or if any representation or
warranty of the Company hereunder shall become untrue or inaccurate, in any case
such that the conditions set forth in Section 6.02(a) or Section 6.02(b) would
not be satisfied (a "TERMINATING COMPANY BREACH"); PROVIDED, THAT if such
Terminating Company Breach is curable by the Company through the exercise of its
reasonable efforts, and the Company continues to exercise such reasonable
efforts, MergeCo may not terminate this Agreement under this Section 7.01(h) if
such Terminating Company Breach has been cured prior to the Termination Date; or
(i) by the Company, upon material breach of any covenant or agreement on
the part of MergeCo set forth in this Agreement, or if any representation or
warranty of MergeCo shall be or become untrue or inaccurate, in any case such
that the conditions set forth in Section 6.03(a) or Section 6.03(b) would not be
satisfied (a "TERMINATING MERGECO BREACH"); PROVIDED, THAT if such Terminating
MergeCo Breach is curable by MergeCo through the exercise of its reasonable
efforts, the Company may not terminate this Agreement under this Section 7.01(i)
if such Terminating MergeCo Breach has been cured prior to the Termination Date.
"TERMINATION DATE" shall mean the later of (i) October 31, 1999 and (ii) the
date determined by adding to October 31, 1999 the number of days after September
1, 1999 that the Proxy Statement is first mailed to stockholders; PROVIDED,
HOWEVER, THAT the Termination Date shall not be later than December 31, 1999.
SECTION 7.02 EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 7.01, this Agreement shall forthwith become
void and have no effect, without any liability on the part of any party or its
directors, officers or stockholders, other than the provisions of the last
sentence of Section 5.02 and the provisions of this Section 7.02 and Section
7.03, which shall survive any such termination. Nothing contained in this
Section 7.02 shall relieve any party from liability for any breach of this
Agreement.
SECTION 7.03 FEES AND EXPENSES.
(a) If this Agreement is terminated for any reason other than a material
breach by MergeCo, and the Company has not paid previously to MergeCo the
Termination Fee in accordance with Section 7.03(b), the Company shall promptly
reimburse THL, Evercore and MergeCo, as the case may be, collectively, an
aggregate amount of up to $10 million, for out-of-pocket expenses and fees
(including, without limitation, expenses payable to all banks, investment
banking firms and other financial institutions, (which shall include, without
limitation, fees and expenses of such banks', firms' and institutions' legal
counsel), and all fees and expenses of counsel, accountants, financial printers,
A-45
<PAGE>
experts and consultants to THL, Evercore and their affiliates), whether incurred
prior to, on or after the date hereof, in connection with the Merger and the
consummation of all transactions contemplated by this Agreement, and the
financing thereof; PROVIDED, THAT the Company shall be entitled to pay MergeCo
the total amount of such out-of-pocket expenses and fees and MergeCo shall be
obligated to forward to THL and Evercore the portion of such amount for
out-of-pocket expenses and fees owing to THL and Evercore in the circumstances.
Except as otherwise specifically provided for herein, whether or not the Merger
is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring such expenses.
(b) If:
(i) this Agreement is terminated pursuant to Section 7.01(d), (e)(i) or
(f), or
(ii) any Person (other than THL, Evercore or any of their affiliates)
shall have made, or proposed, communicated or disclosed in a
manner which is or otherwise becomes public a proposal for an
Acquisition Transaction prior to the Special Meeting, the
Stockholder Approval has not been obtained and, thereafter, this
Agreement is terminated,
then the Company shall promptly pay MergeCo a termination fee of $30 million
(the "TERMINATION FEE"), less amounts paid under Section 7.03(a); PROVIDED, THAT
in no event shall more than one Termination Fee be payable by the Company under
this Section 7.03, and; PROVIDED, FURTHER, THAT MergeCo shall be obligated to
forward to THL and Evercore that share of such Termination Fee owing to THL and
Evercore in the circumstances.
SECTION 7.04 AMENDMENT. This Agreement may be amended by the Company and
MergeCo at any time before or after any approval of this Agreement by the
stockholders of the Company but, after any such approval, no amendment shall be
made which decreases the Merger Consideration or which adversely affects the
rights of the Company's stockholders hereunder without the approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of all the parties.
SECTION 7.05 EXTENSION; WAIVER. At any time prior to the Effective Time,
MergeCo, on the one hand, and the Company, on the other hand, may, subject to
applicable Law, (i) extend the time for the performance of any of the
obligations or other acts of the other, (ii) waive any inaccuracies in the
representations and warranties contained herein of the other or in any document,
certificate or writing delivered pursuant hereto by the other or (iii) waive
compliance by the other with any of the agreements or conditions. Any agreement
on the part of any party to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made in this Agreement shall not survive beyond
the Effective Time. Notwithstanding the foregoing, the agreements set forth in
Article II, the last sentence of Section 5.02, Section 5.05 and Section 5.14
shall survive the Effective Time indefinitely (except to the extent a shorter
period of time is explicitly specified therein).
SECTION 8.02 ENTIRE AGREEMENT; ASSIGNMENT.
(a) This Agreement (including the documents and the instruments referred to
herein) and the Confidentiality Agreement constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and thereof.
A-46
<PAGE>
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder may be assigned by any of the parties hereto (whether by operation of
Law or otherwise) without the prior written consent of the other party (except
that MergeCo may assign its rights, interest and obligations to any affiliate or
direct or indirect subsidiary of MergeCo without the consent of the Company;
PROVIDED, THAT such assignee is an affiliate of THL and no such assignment shall
relieve MergeCo of any liability for any breach by such assignee). Subject to
the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
SECTION 8.03 VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
SECTION 8.04 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
If to MergeCo:
c/o Thomas H. Lee Company
75 State Street, Ste. 2600
Boston, Massachusetts 02109
Attention: Anthony J. DiNovi
Scott M. Sperling
Facsimile: (617) 227-3514
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Eric L. Cochran, Esq.
Facsimile: (212) 735-2000
with a copy to:
Evercore Capital Partners LP.
65 East 55(th) Street, 33(rd) Floor
New York, New York 10022
Attention: Austin M. Beutner
Facsimile: (212) 857-3122
If to the Company:
Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
Attention: Mark A. Angelson
Facsimile: (212) 521-1640
A-47
<PAGE>
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Joseph B. Frumkin, Esq.
Facsimile: (212) 558-3588
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
PROVIDED, THAT notice of any change of address shall be effective only upon
receipt thereof.
SECTION 8.05 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Delaware, without
reference to principles of conflicts or choice of Laws, or any other Law that
would make the Laws of any jurisdiction other than the State of Delaware
applicable hereto.
SECTION 8.06 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 8.07 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 8.08 PARTIES IN INTEREST. Except with respect to Sections 2.01,
2.02, 2.03, 2.04, 5.05 and 5.14 (which are intended to be for the benefit of the
persons identified therein, and may be enforced by such persons), this Agreement
shall be binding upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.
SECTION 8.09 CERTAIN DEFINITIONS. As used in this Agreement:
(a) the term "AFFILIATE", as applied to any person, shall mean any other
person directly or indirectly controlling, controlled by, or under common
control with, that person. For the purposes of this Agreement, "CONTROL"
(including, with correlative meanings, the terms "CONTROLLING," "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through the
ownership of voting securities, by contract or otherwise;
(b) the term "LAWS" means all (A) constitutions, treaties, statutes, Laws
(including, but not limited to, the common Law), rules, regulations, ordinances,
executive orders or codes of any Governmental Entity, (B) Environmental Permits,
and (C) orders, decisions, injunctions, judgments, awards and decrees of any
Governmental Entity;
(c) the term "PERSON" or "PERSONS" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act); and
(d) the term "SUBSIDIARY" or "SUBSIDIARIES" means, with respect to MergeCo,
the Company or any other person, any corporation, partnership, joint venture or
other legal entity of which MergeCo, the Company or such other person, as the
case may be (either alone or through or together with any other subsidiary),
owns, directly or indirectly, stock or other equity interests the holders of
which are generally entitled to more than 50% of the vote for the election of
the board of directors or other
A-48
<PAGE>
governing body of such corporation or other legal entity or otherwise controls
such corporation or other legal entity.
SECTION 8.10 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at Law or in equity.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officer thereunto duly authorized, all
as of the day and year first above written.
BIG FLOWER HOLDINGS, INC.
By: /s/ MARK A. ANGELSON
--------------------------------------
Name: Mark A. Angelson
Title: Executive Vice President
BFH MERGER CORP.
By: /s/ ANTHONY J. DINOVI
--------------------------------------
Name: Anthony J. DiNovi
Title: Chairman of the Board
A-49
<PAGE>
SCHEDULE 1.04(A)
AMENDMENTS TO RESTATED CERTIFICATE OF INCORPORATION OF THE COMPANY
Paragraph FIFTH of the Restated Certificate of Incorporation of the Company
shall be amended to read in its entirety as follows:
FIFTH: The following provisions are inserted for the management of
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation, and
of its directors and stockholders:
(1) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The Board of Directors shall
consists of not less than three nor more than 12 members, the exact number
of which shall be fixed from time to time by the Board of Directors.
(2) In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, adopt,
alter, amend, change or repeal the Bylaws of the Corporation. Stockholders
may make, adopt, alter, amend, change or repeal the Bylaws of the
Corporation upon the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock.
(3) No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the GCL or (iv) for any
transaction from which the director derived an improper personal benefit.
Any repeal or modification of this Article FIFTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification with
respect to acts or omissions occurring prior to such repeal or modification.
(4) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation, subject, nevertheless, to the provisions of the
GCL, this Certificate of Incorporation, and any Bylaws adopted by the
stockholders; provided, however, that no Bylaws hereafter adopted by the
stockholders shall invalidate any prior act of the directors which would
have been valid if such Bylaws had not been adopted.
A-50
<PAGE>
SCHEDULE 1.04(B)
AMENDMENTS TO THE AMENDED AND RESTATED BYLAWS OF THE COMPANY
A. SECTIONS 1, 2 AND 3 OF ARTICLE III. Sections 1, 2 and 3 of Article III
of the Amended and Restated By-Laws of the Company (the "By-Laws") shall be
amended to read in their entirety as follows:
SECTION 1. NUMBER OF DIRECTORS. The Board of Directors shall consist of
not less than three nor more than 12 members, the exact number of which
shall be fixed from time to time by the Board of Directors.
SECTION 2. ELECTION OF DIRECTORS. Except as provided in Section 3 of
this Article III, directors shall be elected by a plurality of the votes
cast at the Annual Meetings of Stockholders and each director so elected
shall hold office until the next Annual Meeting of Stockholders and until
such director's successor is duly elected and qualified, or until such
director's earlier death, resignation or removal. Any director may resign at
any time upon written notice to the Corporation. Directors need not be
stockholders.
SECTION 3. VACANCIES. Unless otherwise required by law or the
Certificate of Incorporation, vacancies arising through death, resignation,
removal, an increase in the number of directors or otherwise may be filled
by a majority of the directors then in office, though less than a quorum, by
a sole remaining director or by the affirmative vote of holders of a
majority in interest of the outstanding shares of common stock of the
Company (the "Common Stock"), and the directors so chosen shall hold office
until the next annual election and until their successors are duly elected
and qualified, or until their earlier death, resignation or removal.
B. ARTICLE IX, SECTION 1. Article IX, Section 1 of the By-Laws shall be
amended by deleting the phrase "eighty-five percent (85%)" and inserting in its
place and stead the phrase "a majority."
C. ARTICLE II. Article II of the By-Laws will be amended by adding a new
Section 9 to read in its entirety as follows:
SECTION 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise
provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of
the Corporation, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the
Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders
are recorded. Delivery made to the Corporation's registered office shall be
by hand or by certified or registered mail, return receipt requested. Every
written consent shall bear the date of signature of each stockholder who
signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by this Section 9 to
the Corporation, written consents signed by a sufficient number of holders
to take action are delivered to the Corporation by delivery to its
registered office in the state of Delaware, its principal place of business,
or an officer or agent of the Corporation having custody of the book in
which proceedings of meetings of stockholders are recorded. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented
in writing and who, if the action had been taken at a meeting, would have
been entitled to notice of the meeting if the record date for such meeting
had been the date that written consents signed by a sufficient number of
holders to take the action were delivered to the Corporation as provided
above in this section.
A-51
<PAGE>
SCHEDULE 2.01(C)(I)(B)(1)
TERMS OF 10% CUMULATIVE EXCHANGEABLE REDEEMABLE
PAID-IN-KIND PREFERRED STOCK ("PIK PREFERRED")
<TABLE>
<S> <C>
ISSUER: Big Flower Holdings, Inc. (the "COMPANY")
AMOUNT: $123,044,766, subject to adjustment in accordance with
Section 2.03 of the Merger Agreement between the Company and
BFH Merger Corp.
NUMBER OF SHARES: 4,921,791, subject to adjustment in accordance with Section
2.03 of the Agreement
ISSUANCE DATE: Date of Effective Time
ISSUE PRICE PER SHARE: $25 per share of PIK Preferred.
LIQUIDATION PREFERENCE PER
SHARE: $25 per share of PIK Preferred.
RANKING: Senior to common stock.(1)
DIVIDENDS: Cumulative, accruing and compounded from the effective date
of the Merger at an annual rate of 10% (or $2.50 per share
of PIK Preferred), calculated semi-annually. The Company
will determine the timing of the actual declaration and
payment of such dividends and will have the option to pay
the PIK Preferred dividends in additional shares of PIK
Preferred at a rate of one share per $25 of such semi-annual
dividend not paid in cash.
No dividends can be declared or paid on the common stock or
any other junior securities while accrued dividends on the
PIK Preferred are unpaid.(2)
MANDATORY REDEMPTION DATE: All of the outstanding PIK Preferred will be redeemed by the
Company on December 15, 2012 at the Liquidation Preference
plus accrued and unpaid dividends.
OPTIONAL REDEMPTION: Subject to Equity Clawback described below, non-callable for
five years; callable at option of Company in year 6 at
102.50% of Liquidation Preference plus accrued and unpaid
dividends; callable in year 7 at 101.25% of Liquidation
Preference plus accrued and unpaid dividends; callable in
year 8 and thereafter at 100% of Liquidation Preference plus
accrued and unpaid dividends.
CHANGE OF CONTROL: In the event of a "Change of Control", (i) the holders can
put the PIK Preferred and (ii) the Company can call the PIK
Preferred, in
</TABLE>
- --------------
(1) To the extent an Investment Instrument is implemented pursuant to Section
5.03(c), such instrument will be secured by, and will have priority over,
the relevant investment assets and proceeds from the sale of such assets
subject to a maximum of $60 million plus accrued interest or dividends.
(2) The Investment Instrument will not be subject to this restriction; any
disposition by the Company of up to $60 million of the proceeds from the
sale of Investment assets which are the security for the Investment
Instrument (plus an amount for any interest or dividends on such Investment
Instrument) will not constitute a dividend for the purpose of this
restriction.
A-52
<PAGE>
<TABLE>
<S> <C>
each case at 101% of the Liquidation Preference plus accrued
and unpaid dividends.
A "Change of Control" will be deemed to have occurred if (i)
the initial investor group (comprising MergeCo, THL,
Evercore, Theodore Ammon) owns less than 25% of the fully
diluted common equity, and (ii) a new investor group owns
more than 50% of the fully diluted common equity.
The percentage of PIK Preferred redeemed pursuant to a
Change of Control can be 1-49% or 100% of the then
outstanding PIK Preferred and will be done on a pro rata
basis if applicable.
EXCHANGEABLE: Exchangeable at Company's option at any time into equivalent
face amount of junior subordinated debentures having
substantially similar terms.
EQUITY CLAWBACK: Upon the occurrence of an IPO, the Company will have the
right to redeem up to 100% of the then outstanding PIK
Preferred out of the proceeds of the IPO at 102.5% of
Liquidation Preference plus accrued and unpaid dividends.
The percentage of PIK Preferred redeemed may be 1-49% or
100% and will be done on a pro rata basis if applicable.
CONVERSION: The PIK Preferred will have no conversion rights.
VOTING RIGHTS: 1. To elect two directors upon the occurrence of any one or
more of the following: (i) the default of three semi-annual
dividends, (ii) default under any bonds existing as of the
Effective Time or any replacements for such bonds, (iii)
bankruptcy, and (iv) failure to redeem the PIK Preferred as
required by its terms (collectively, the "TRIGGERING
EVENTS").
If any of the above Triggering Events occur, holders of the
PIK Preferred will have the right to elect two directors to
the board of the Company. Such election shall occur at the
later of (i) 90 days after one of the Triggering Events has
occurred, or (ii) the expiration of the cure period in the
applicable bond indenture. In the event that the PIK
Preferred investors have elected board members and the
Triggering Event is remedied, the board members which were
elected by the PIK Preferred investors shall be removed from
the board.
2. To approve any charter or by-laws amendment that would
adversely affect the terms of the PIK Preferred, including
any such amendment effected pursuant to a merger or similar
transaction.
A vote will not be required for the Company to increase the
authorized amount of PIK Preferred or to issue securities
which are senior to, or PARI PASSU with, or junior to, the
PIK Preferred.
REGISTRATION/LISTING: The PIK Preferred will be registered under the Securities
Act of 1933.
</TABLE>
A-53
<PAGE>
SCHEDULE 2.01(C)(I)(B)(2)
TERMS OF COMMON STOCK WARRANTS
<TABLE>
<CAPTION>
<S> <C>
WARRANTS: Warrants to purchase 5% of a number where the numerator is
equal to the Total Post-Merger Common Shares (as defined in
the Agreement) and the denominator is 0.95.
WARRANT EXERCISE PRICE: $0.01
EXERCISABILITY: Upon IPO or sale of the Company or any other event that
results in a public market in the common stock (a "LIQUIDITY
EVENT").
WARRANT DETACHABILITY: The earlier of 180 days, a Liquidity Event or a "Change of
Control" as set forth in Schedule 2.01(c)(i)(B)(1).
REGISTRATION: The warrants will be registered under the Securities Act of
1933.
WARRANT PIGGYBACK
REGISTRATION RIGHTS: None
WARRANT EXPIRATION: December 15, 2012
ANTI-DILUTION: Standard anti-dilution provisions.
FRACTIONAL INTERESTS: To be cashed-out upon exercise.
</TABLE>
A-54
<PAGE>
APPENDIX B
[LOGO]
June 29, 1999
Special Committee of the Board of Directors
Big Flower Holdings, Inc.
3 East 54th Street
New York, NY 10022
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders, other than Theodore Ammon and certain other members of the
management of Big Flower Holdings, Inc. (the "Company") set forth on Schedule
2.01(c)(ii) of the Agreement (as defined below) (the "Management Investors"), of
the outstanding shares of Common Stock, par value $0.01 per share (the
"Shares"), of the Company of the Exchanged Share Merger Consideration (as
defined below) to be received by such holders pursuant to the Agreement and Plan
of Merger, dated as of June 29, 1999, between BFH Merger Corp. ("MergeCo") and
the Company (the "Agreement"). Pursuant to the Agreement, MergeCo will be merged
with and into the Company (the "Merger"), and each issued and outstanding Share,
other than some of the Shares held by the Management Investors as provided for
in the Agreement, will be converted (such converted shares, the "Exchanged
Shares") into the right to receive (i) $30 in cash (the "Cash Consideration"),
(ii) 0.21 shares of the Company's 10% Cumulative Exchangeable Redeemable
Paid-In-Kind Preferred Stock ("PIK Preferred"), with those terms as set forth on
Schedule 2.01(c)(i)(B)(1) of the Agreement, and (iii) a warrant to purchase a
number of Shares with an exercise price of $0.01 per Share as specified in, and
with those terms as set forth on, Schedule 2.01(c)(i)(B)(2) of the Agreement
(the "Warrant" and together with the Cash Consideration and the PIK Preferred,
the "Exchanged Share Merger Consideration"). The Shares held by the Management
Investors which are not converted into the right to receive the Exchanged Share
Merger Consideration will be converted into the right to retain such number of
Shares.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Agreement and having provided certain investment banking services to the
B-1
<PAGE>
Big Flower Holdings
June 29, 1999
Page Two
Company from time-to-time, including having acted as a lead-managing underwriter
of a public offering of 6,708,524 Shares in June 1997, as a co-managing
underwriter of a private offering of $250,000,000 principal amount of the
Company's 8.875% Notes due July 1, 2007 in June 1997, as a lead-managing
underwriter of a private offering of $115,000,000 principal amount of the
Company's 6.00% Convertible QUIPS due October 15, 2027 in October 1997, as a
co-managing underwriter of a private offering of $100,000,000 principal amount
of the Company's 8.875% Notes due July 1, 2007 in October 1997, and as a
co-managing underwriter of a private offering of $250,000,000 principal amount
of the Company's 8.625% Notes due December 1, 2008 in December 1998. We have
also provided from time-to-time, and are currently providing, numerous
investment banking services to Thomas H. Lee Company and affiliates of Thomas H.
Lee Company and expect to provide such services to Thomas H. Lee Company in the
future. MergeCo is an affiliate of Thomas H. Lee Company. Goldman Sachs provides
a full range of financial advisory and securities services and, in the course of
its normal trading activities, may from time-to-time effect transactions and
hold securities, including derivative securities, of Big Flower for its own
account and for the accounts of customers. As of the date hereof, Goldman Sachs
has accumulated a long position of 262,814 Shares against which Goldman Sachs is
short 12,500 Shares, and a long position of $250,000 principal amount of the
Company's 6.00% Convertible QUIPS due October 1, 2027 against which Goldman
Sachs is short $27,500 principal amount of the Company's 6.00% Convertible QUIPS
due October 1, 2027.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the four years ended December 31, 1998; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company; certain other
communications from the Company to stockholders; and certain internal financial
analyses and forecasts prepared by the Company's management for the Company. We
also have held discussions with members of the senior management of the Company
regarding the Company's past and current business operations, financial
condition and future prospects, and have held discussions with members of the
senior management of MergeCo regarding the Company's future prospects. In
addition, we have reviewed the reported price and trading activity for the
Shares, compared certain financial and stock market information for the Company
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the commercial printing industry specifically and in other
industries generally and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In addition, we have not
made an independent evaluation or appraisal of the assets and liabilities of the
Company or any of its subsidiaries and we have not been furnished with any such
evaluation or appraisal. Our advisory services and the opinion expressed herein
are provided for the information and assistance of the Special Committee of the
Board of Directors of the Company in connection with its consideration of the
transaction contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of Shares should vote with respect to such
transaction.
Any estimate of the future trading value, if any, of the PIK Preferred or
the Warrants would be speculative and subject to substantial uncertainties and
contingencies. We are not expressing any opinion herein as to the prices at
which the PIK Preferred or the Warrants may trade if and when they are issued or
whether any market would develop for the PIK Preferred or the Warrants.
B-2
<PAGE>
Big Flower Holdings
June 29, 1999
Page Three
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchanged
Share Merger Consideration to be received by the holders of Shares (other than
the Management Investors) pursuant to the Agreement is fair from a financial
point of view to such holders.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
--------------------------------------
(GOLDMAN, SACHS & CO.)
B-3
<PAGE>
APPENDIX C
The Board of Directors
Big Flower Holdings, Inc.
June 29, 1999
Page 1
June 29, 1999
The Board of Directors
Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10023
Gentlemen:
Berenson Minella & Company ("Berenson Minella") understands that Big Flower
Holdings, Inc., a Delaware corporation (collectively, with any subsidiaries, the
"Company"), and Thomas H. Lee Company ("THL") intend to enter into an Agreement
and Plan of Merger (the "Merger Agreement"), whereby control of the Company will
be acquired by a group led by THL and the Company's Common Stock (as defined
below) will cease to be publicly traded (the "Merger"). Berenson Minella further
understands that at the Effective Time (as defined in the Merger Agreement) of
the Merger, and in accordance with the terms of the Merger Agreement, the public
shareholders of the Company will have their shares of common stock of the
Company (the "Common Stock") converted into the right to receive $30 in cash and
$5.25 face value in preferred stock of the Company (the "Preferred Stock"), with
warrants to purchase approximately 5% of the primary shares of Common Stock
issued and outstanding following the Effective Date (the "Merger
Consideration"). Berenson Minella further understands that, in accordance with
the terms of the Merger Agreement, in the Merger certain employees and members
of management of the Company will retain a portion of their Common Stock
ownership interests (both directly held and options) such that the aggregate
retained amount is approximately 8%-10% of the outstanding shares of Common
Stock, on a fully diluted basis, prior to the Merger, with the balance being
converted into Merger Consideration as set forth above.
The terms and conditions of the Merger are more fully set forth in the
Merger Agreement. A copy of the most recent draft of the Merger Agreement
reviewed by Berenson Minella, dated June 27, 1999, is attached hereto as Exhibit
A.
You have asked us, as investment bankers, to render an opinion to you as to
whether or not the Merger Consideration is fair, from a financial point of view,
to the holders of the Company's Common Stock as of the date hereof.
In arriving at our opinion, we have, among other things:
(i) reviewed the latest draft of the Merger Agreement dated June 27, 1999;
(ii) reviewed, and discussed with members of management of the Company,
certain business and financial information relating to the Company that
we deemed relevant, including the Company's recent public filings and
financial statements;
(iii) reviewed, and discussed with members of management of the Company,
certain information, including budgets and financial forecasts
(collectively, the "Forecasts") relating to the businesses, earnings,
cash flows, assets, liabilities and prospects of the Company;
(iv) reviewed the historical stock prices and trading volumes of the
Company's Common Stock;
C-1
<PAGE>
The Board of Directors
Big Flower Holdings, Inc.
June 29, 1999
Page 2
(v) reviewed certain information and documentation regarding the terms of
the Preferred Stock and reviewed certain valuation methodologies
relating to the Preferred Stock;
(vi) reviewed certain publicly available information regarding publicly
traded companies we deemed reasonably comparable to the Company;
(vii) reviewed certain publicly available information regarding comparable
merger and acquisition transactions we deemed relevant, including,
without limitation, premiums paid in such transactions;
(viii) performed discounted cash flow analyses based on the Forecasts, for the
Company, as applicable;
(ix) participated in certain discussions among management of the Company,
THL and their financial advisors regarding the Company and the Merger;
(x) reviewed the potential pro forma impact of the Merger; and
(xi) reviewed such other information, performed such other analyses and
taken into account such other factors as we deemed relevant.
For purposes of rendering our opinion, we have assumed and relied upon the
accuracy and completeness of all information provided to us by and on behalf of
the Company and have not assumed any responsibility for independent verification
of such information or for any independent valuation or appraisal of any assets
of the Company, nor were we furnished with any such valuations or appraisals. We
have relied upon the capitalization of the Company as provided to us by the
Company and THL in connection with the Merger to form our views with regard to
the valuation of the Preferred Stock and Berenson Minella disclaims any
obligation to update or revise this opinion for events occurring subsequent to
the date hereof, whether foreseen or unforeseen, affecting such valuation,
including, without limitation, changes in the capitalization or changes in the
financial markets or interest rates. We did not assume any obligation to, and
accordingly did not, conduct any physical inspection of the properties or
facilities of the Company. We have assumed, without independent investigation,
the accuracy of all representations and statements made by officers and
management of the Company. With respect to the Forecasts furnished to or
discussed with us by the Company, we have assumed, and relied upon, that they
were reasonably prepared and reflect the best currently available estimates and
good faith judgments of the Company's management as to the expected future
financial performance of the Company.
Our opinion is necessarily based on economic, market and other conditions,
and information made available to us as of the date hereof. Also, we note that
the Company, by press release dated April 20, 1999, announced publicly that it
was exploring certain strategic alternatives and a substantial number of
financial and strategic buyers were either contacted by, or contacted, the
Company and its financial advisors and studied a potential acquisition of the
Company. The result of this process is an important element in the views stated
herein.
This opinion is provided at the request and for the benefit of the Board of
Directors of the Company in connection with its consideration of the Merger and
shall not be reproduced, summarized, described, relied upon, or referred to, or
furnished to any other person without, in each instance, Berenson Minella's
prior written consent; PROVIDED that, subject to our prior review, the Company
may refer to this opinion in any Proxy Statement or other disclosure statement
delivered to the shareholders of the Company with respect to the Merger, without
such written consent. This opinion does not and
C-2
<PAGE>
The Board of Directors
Big Flower Holdings, Inc.
June 29, 1999
Page 3
will not constitute a recommendation to the Company to enter into the Merger
Agreement. This opinion is delivered subject to the conditions, scope of
engagement, standard of care, limitations, and understandings set forth herein
and in the agreement between Berenson Minella and the Company, dated June 24,
1999.
This opinion is delivered with the explicit understanding that this opinion
is based on standards of assessment in existence as of the date hereof, and that
standards of assessment may change in the future. Berenson Minella disclaims any
responsibility for any impact any such changes may have on the assessment of the
Merger. Unforeseen future events that could affect the fairness of the Merger
Consideration, from a financial point of view, have not been factored into this
opinion. Berenson Minella disclaims any obligation to update or revise this
opinion for events occurring subsequent to the date hereof, whether foreseen or
unforeseen.
This opinion is a fairness opinion only from a financial point of view.
Berenson Minella makes no representations with respect to questions of legal
interpretation or enforceability and expressly disclaims that this opinion may
be construed in any way as a legal opinion, solvency opinion or a tax opinion.
In addition, without limiting the foregoing, we express no opinion as to the
prices at which the Preferred Stock will trade or be saleable following the
Merger.
We note that we have acted as financial advisor to the Company in connection
with the Merger and will receive a fee for our services, a significant portion
of which is contingent upon the consummation of the Merger.
Based upon and subject to the foregoing, and subject to the various
assumptions, qualifications, and limitations set forth herein, it is our
opinion, as investment bankers, that, as of the date hereof, the Merger
Consideration is fair to holders of the Company's Common Stock, from a financial
point of view.
Very truly yours,
/s/ BERENSON MINELLA & COMPANY
BERENSON MINELLA & COMPANY
C-3
<PAGE>
APPENDIX D
DELAWARE CODE TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
SECTION 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251 (other than a merger effected pursuant to
Section251(g) of this title), Section252, Section254, Section257, Section258,
Section263 or Section264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
D-1
<PAGE>
d. Any combination of the shares of stock depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or Section253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent
D-2
<PAGE>
corporation that are entitled to appraisal rights of the effective date of
the merger or consolidation or (ii) the surviving or resulting corporation
shall send such a second notice to all such holders on or within 10 days
after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given, provided, that, if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
D-3
<PAGE>
(h) After determining the stockholders entitled to an appraisal the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled hereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all of
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D-4
<PAGE>
APPENDIX E
TRANSACTIONS INVOLVING BIG FLOWER COMMON STOCK
BY THOMAS H. LEE EQUITY FUND IV, L.P., THL EQUITY ADVISORS IV, LLC,
EVERCORE PARTNERS L.L.C., EVERCORE CAPITAL PARTNERS L.P.,
EVERCORE CAPITAL PARTNERS (NQ) L.P., EVERCORE CAPITAL OFFSHORE
PARTNERS L.P. (CAYMAN), EBF GROUP L.L.C., BIG FLOWER AND
EXECUTIVE OFFICERS AND DIRECTORS OF BIG FLOWER
TRANSACTIONS INVOLVING BIG FLOWER COMMON STOCK BY THE EXECUTIVE OFFICERS AND
DIRECTORS OF BIG FLOWER
On June 18, 1999, R. Theodore Ammon made a charitable gift to a university
in the amount of 175,000 shares of common stock of Big Flower and a charitable
gift to a family foundation in the amount of 50,000 shares of common stock of
Big Flower.
PURCHASES OF BIG FLOWER COMMON STOCK BY BIG FLOWER
The following table sets forth purchases of Big Flower common stock by Big
Flower since January 1, 1997.
<TABLE>
<CAPTION>
AVERAGE
QUARTER SHARES PURCHASE
ENDED PURCHASED LOW HIGH PRICE PER SHARE
- --------- ----------- --------- --------- ---------------
<S> <C> <C> <C> <C>
3/31/97 129,981 $ 18.75 $ 20.00 $ 19.69
6/30/97 20,634 19.38 19.50 19.39
9/30/97 24,716 22.63 22.75 22.74
12/31/97 108,845 22.00 23.13 22.63
3/31/98 127,982 26.00 28.88 26.45
6/30/98 23,200 30.31 34.56 32.82
9/30/98 50,689 28.88 30.13 29.79
12/31/98 85,000 20.19 24.25 21.86
3/31/99 92,167 24.63 31.63 30.72
6/30/99 8,000 31.00 31.00 31.00
</TABLE>
TRANSACTIONS INVOLVING BIG FLOWER COMMON STOCK BY THOMAS H. LEE EQUITY FUND IV,
L.P., THL EQUITY ADVISORS IV, LLC AND THOMAS H. LEE
None.
TRANSACTIONS INVOLVING BIG FLOWER COMMON STOCK BY EVERCORE PARTNERS L.L.C.,
EVERCORE CAPITAL PARTNERS L.P., EVERCORE CAPITAL PARTNERS (NQ) L.P., EVERCORE
CAPITAL OFFSHORE PARTNERS L.P. (CAYMAN), EBF GROUP L.L.C., ROGER C. ALTMAN,
AUSTIN M. BEUTNER AND DAVID G. OFFENSEND.
In October 1997, Evercore Partners Inc. advised Big Flower Holdings, Inc. on
its acquisition of certain assets and liabilities of Riverside Country
Publishing Company, a division of Gruner+Jahr Printing and Publishing Co.
Evercore Partners Inc. was paid $250,000 for these services.
E-1
<PAGE>
APPENDIX F
INFORMATION RELATING TO EVERCORE PARTNERS, L.L.C.,
EVERCORE CAPITAL PARTNERS L.P., EVERCORE CAPITAL PARTNERS (NQ) L.P., EVERCORE
CAPITAL OFFSHORE PARTNERS L.P. (CAYMAN), EBF GROUP L.L.C., THOMAS H. LEE EQUITY
FUND IV, L.P., THL EQUITY ADVISORS IV, LLC AND THEIR RESPECTIVE PRINCIPALS, AND
THE EXECUTIVE OFFICERS AND DIRECTORS OF
BFH MERGER CORP. AND BIG FLOWER
(I)(a) The name and business address of each of Evercore Capital Partners L.P.,
a Delaware Limited Partnership, Evercore Capital Partners (NQ) L.P., a
Delaware Limited Partnership, Evercore Capital Offshore Partners L.P.
(Cayman), a Cayman Islands Exempted Limited Partnership and EBF Group
L.L.C., a Delaware Limited Liability Company are set forth below. The
principle business of each of these entities is making equity and
equity-related investments.
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS
- -----------------------------------------
<S> <C>
Evercore Capital Partners L.P.
65 East 65(th) Street, 33(rd) Floor
New York, New York 10022
Evercore Capital Partners (NQ) L.P.
65 East 65(th) Street, 33(rd) Floor
New York, New York 10022
Evercore Capital Offshore Partners L.P. (Cayman)
65 East 65(th) Street, 33(rd) Floor
New York, New York 10022
EBF Group L.L.C.
65 East 65(th) Street, 33(rd) Floor
New York, New York 10022
</TABLE>
(b) The name and business address of Evercore Partners L.L.C., a Delaware
Limited Liability Company, the general partner of Evercore Capital
Partners L.P., Evercore Capital Partners (NQ) L.P. and Evercore Capital
Offshore Partners L.P. (Cayman) and the managing member of EBF Group
L.L.C., are set forth below. The principal business of Evercore Partners
L.L.C. is making equity and equity-related investments.
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS
- -----------------------------------------
<S> <C>
Evercore Partners L.L.C.
65 East 65th Street, 33rd Floor
New York, New York 10022
</TABLE>
F-1
<PAGE>
(c) The name, business address, present principal occupation or employment and
five-year employment history of the members of Evercore Partners L.L.C.
are set forth below, and each such person is a citizen of the United
States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ----------------------------------------- -----------------------------------------
<S> <C>
Roger C. Altman Roger C. Altman co-founded Evercore
c/o Evercore Partners L.L.C. Partners in 1996. From 1992-1995, Mr.
65 East 65th Street, 33rd Floor Altman served as Deputy Treasury
New York, New York 10022 Secretary. From 1987-1992, Mr. Altman was
Vice Chairman of The Blackstone Group,
where he led the firm's merger advisory
business and originated several principal
investment opportunities. Prior to 1987,
Mr. Altman spent 14 years at Lehman
Brothers where he was a managing
director, Co-head of Investment Banking,
Member of the Management Committee and
Member of the Board of Directors.
Austin M. Beutner Austin M. Beutner co-founded Evercore
c/o Evercore Partners L.L.C. Partners in 1996. From 1994 to 1996, Mr.
65 East 65th Street, 33rd Floor Beutner was Chief Executive Officer and
New York, New York 10022 President of the U.S. Russia Investment
Fund, and in January 1997, Mr. Beutner
was named Vice Chairman of its Board of
Directors. Before his affiliation with
the U.S. Russia Investment Fund, he was a
General Partner of The Blackstone Group.
David G. Offensend David G. Offensend co-founded Evercore
c/o Evercore Partners L.L.C. Partners in 1996. Prior to 1996, Mr.
65 East 65th Street, 33rd Floor Offensend was responsible for the
New York, New York 10022 leveraged acquisition portfolio of Acadia
Partners, an investment vehicle for
Robert M. Bass. Prior to Acadia, Mr.
Offensend spent 6 years managing the
Merchant Banking Group at Lehman
Brothers.
Jeffrey R. Sechrest Jeffrey R. Sechrest joined Evercore in
c/o Evercore Partners L.L.C. 1996 as a partner. Prior to 1996, Mr.
65 East 65th Street, 33rd Floor Sechrest spent 10 years at Lehman
New York, New York 10022 Brothers, most recently as a Managing
Director. At Lehman Brothers, Mr.
Sechrest held several senior positions,
including head of Mergers and
Acquisitions, Media & Telecommunications
and Natural Resources.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ----------------------------------------- -----------------------------------------
<S> <C>
Stacy S. Dick Stacy S. Dick joined Evercore in 1998 as
c/o Evercore Partners L.L.C. a partner. From 1992 to 1998, Mr. Dick
65 East 65th Street, 33rd Floor was an Executive Vice President of
New York, New York 10022 Tenneco Inc., where he was responsible
for leading strategic planning, corporate
development and international development
activities. From 1989-1992, Mr. Dick was
a Managing Director at First Boston
Corporation.
Roger C. Altman 1997 Family Limited N/A
Partnership
c/o Roger C. Altman
Evercore Partners L.L.C.
65 East 65th Street, 33rd Floor
New York, New York 10022
David Glenn Offensend Trust f/b/o N/A
Rebecca Lee Offensend
c/o David G. Offensend
Evercore Partners L.L.C.
65 East 65th Street, 33rd Floor
New York, New York 10022
David Glenn Offensend Trust f/b/o N/A
Christopher David Offensend
c/o David G. Offensend
Evercore Partners L.L.C.
65 East 65th Street, 33rd Floor
New York, New York 10022
</TABLE>
(d) The name, business address, present principal occupation or employment and
five-year employment history of Roger C. Altman, the general partner of
Roger C. Altman 1997 Family Limited Partnership, is set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ----------------------------------------- -----------------------------------------
<S> <C>
Roger C. Altman Roger C. Altman co-founded Evercore
c/o Evercore Partners L.L.C. Partners in 1996. From 1992-1995, Mr.
65 East 65th Street, 33rd Floor Altman served as Deputy Treasury
New York, New York 10022 Secretary. From 1987-1992, Mr. Altman was
Vice Chairman of The Blackstone Group,
where he led the firm's merger advisory
business and originated several principal
investment opportunities. Prior to 1987,
Mr. Altman spent 14 years at Lehman
Brothers where he was a managing
director, Co-head of Investment Banking,
Member of the Management Committee and
Member of the Board of Directors.
</TABLE>
F-3
<PAGE>
(e) The name, business address, present principal occupation or employment and
five-year employment history of David G. Offensend, the trustee of David
Glenn Offensend Trust f/b/o Rebecca Lee Offensend and David Glenn
Offensend f/b/o Christopher David Offensend, is set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ----------------------------------------- -----------------------------------------
<S> <C>
David G. Offensend David G. Offensend co-founded Evercore
c/o Evercore Partners L.L.C. Partners in 1996. Prior to 1996, Mr.
65 East 65th Street, 33rd Floor Offensend was responsible for the
New York, New York 10022 leveraged acquisition portfolio of Acadia
Partners, an investment vehicle for
Robert M. Bass. Prior to Acadia, Mr.
Offensend spent 6 years managing the
Merchant Banking Group at Lehman
Brothers.
</TABLE>
(II) (a) The name, principal business and address of the principal executive
offices of Thomas H. Lee Equity Fund IV, L.P., a Delaware limited
partnership, are set forth below.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
PRINCIPAL EXECUTIVE OFFICES PRINCIPAL BUSINESS
- ----------------------------------------- -----------------------------------------
<S> <C>
Thomas H. Lee Equity Fund IV, L.P. Making equity and equity-related
c/o Thomas H. Lee Company investments
75 State Street, Suite 2600
Boston, Massachusetts 02109
</TABLE>
(b) The name, principal business and address of the principal executive
offices of THL Equity Advisors IV, LLC, a Delaware limited liability
company, are set forth below:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
PRINCIPAL EXECUTIVE OFFICES PRINCIPAL BUSINESS
- ----------------------------------------- -----------------------------------------
<S> <C>
THL Equity Advisors IV, LLC Managing institutional funds that make
c/o Thomas H. Lee Company equity and equity-related investments
75 State Street, Suite 2600
Boston, Massachusetts 02109
</TABLE>
F-4
<PAGE>
(c) The name, business address, present principal occupation or employment
and five-year employment history of the person who controls THL Equity
Advisors IV, LLC, a United States citizen, are set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ----------------------------------------- -----------------------------------------
<S> <C>
Thomas H. Lee Thomas H. Lee founded Thomas H. Lee
c/o Thomas H. Lee Company Company in 1974 and since that time has
75 State Street, Suite 2600 served as its President. Mr. Lee serves
Boston, Massachusetts 02109 as a director of numerous public and
private corporations including Finlay
Enterprises, Inc., Metris Companies,
Inc., Safelite Glass Corporation, Vail
Resorts, Inc. and Wyndham International,
Inc.
</TABLE>
(III) The name and position of each director and executive officer of BFH Merger
Corp., together with the business address, present principal occupation or
employment and five-year employment history of each director and executive
officer of BFH Merger Corp. are set forth below.
<TABLE>
<CAPTION>
POSITION WITH BFH MERGER CORP., AND
PRESENT PRINCIPAL OCCUPATION AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
- ----------------------------------------- -----------------------------------------
<S> <C>
Anthony J. DiNovi Director of BFH Merger Corp. Anthony J.
c/o Thomas H. Lee Company DiNovi is a Managing Director of Thomas
75 State Street, Suite 2600 H. Lee, and has been employed with Thomas
Boston, Massachusetts 02109 H. Lee Company since 1988.
Scott M. Sperling Director of BFH Maerger Corp. Scott M.
c/o Thomas H. Lee Company Sterling is a Managing Director of Thomas
75 State Street, Suite 2600 H. Lee, and has been employed with Thomas
Boston, Massachusetts 02109 H. Lee Company since 1994.
</TABLE>
(IV) The name, business address, present principal occupation or employment and
five-year employment history of each management director and executive
officer of Big Flower Holdings, Inc. who is retaining shares of Big Flower
common stock or options to purchase such shares, in each case in the merger
are set forth below. Unless otherwise indicated, the business
F-5
<PAGE>
address of each such person is 3 East 54th Street, New York, New York 10022
and each such person is a citizen of the United States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ----------------------------------------- -----------------------------------------
<S> <C>
R. Theodore Ammon R. Theodore Ammon has been the Chairman
of the Board of Big Flower since its
inception and was Chief Executive Officer
of Big Flower Press from its inception
until April 1997. Mr. Ammon is also the
Chairman of XL Ventures, Inc., Big
Flower's Internet and new media venture
capital subsidiary. Mr. Ammon is also a
director of Big Flower Press and Big
Flower Digital Services, Inc., a wholly
owned subsidiary of Big Flower. Mr. Ammon
was a General Partner of Kohlberg Kravis
Roberts & Co. (a New York and San
Francisco-based investment firm) from
1990 to 1992, and an executive of such
firm prior to 1990. Mr. Ammon is also the
Chairman of the Board of 24/7 Media, Inc.
and a member of the Board of Directors of
Host Marriott Corporation and of CAIS
Internet, Inc., and serves on the boards
of directors of numerous privately held
corporations. Mr. Ammon is involved in a
number of not-for-profit organizations
and serves as a member of the Board of
Directors of The Municipal Art Society of
New York, The New York YMCA, and Jazz @
Lincoln Center. He is also a member of
the Board of Trustees of Bucknell
University. Mr. Ammon is 49 years old.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ----------------------------------------- -----------------------------------------
<S> <C>
Edward T. Reilly Edward T. Reilly has been the President
and the Chief Executive Officer and the
director of Big Flower since its
inception. He has also been a director of
Big Flower Press since June 1996, and its
Chief Executive Officer since April 1997,
having also served as its Chief Operating
Officer from March 1996 until April 1997.
Additionally, he is a director of Big
Flower's subsidiaries, TC Advertising,
Digital Services and Webcraft. Prior to
joining Big Flower, Mr. Reilly held a
variety of executive positions with
McGraw-Hill, Inc., a publishing and
communications company, in their
Broadcast and Publication groups from
1968 to 1996, and served as President of
McGraw-Hill Broadcasting from 1987 to
1996. He is Vice Chairman and a member of
the executive committee of the Ad Council
and serves on the Board of Trustees of
Lynchburg College in Virginia. Recently,
Mr. Reilly was elected to the Board of
Directors of The National Council of La
Raza. In addition, Mr. Reilly has been
active in television industry affairs,
having served as the Chairman of the
Television Bureau of Advertising and as a
member of the Board of Directors of the
National Association of Broadcasters. He
is the former Chairman of the Association
for Maximum Service Television (MSTV), a
trade association of over 300 television
stations which has been in the forefront
of the effort to facilitate the
industry's transition to high definition
television. Mr. Reilly is 52 years old.
Richard L. Ritchie Richard L. Ritchie has been Executive
Vice President and Chief Financial
Officer of Big Flower since January 1997.
Prior to joining Big Flower, Mr. Ritchie
served as Senior Vice President and Chief
Financial Officer of Harte-Hanks
Communications, Inc. from 1986 to 1996.
Mr. Ritchie is 52 years old.
</TABLE>
F-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Big Flower restated certificate of incorporation provides that no
director of Big Flower will be personally liable to Big Flower or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (1) for any breach of the director's duty of loyalty to Big
Flower or its stockholders; (2) for acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of the law; (3) under
Section 174 of the Delaware General Corporation Law; or (4) for any transaction
from which a director derived an improper benefit.
Article VIII of the Big Flower amended and restated bylaws provides that Big
Flower will indemnify any person who was or is a party or is threatened to be
made a party to or otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (including any action or suit
by or in the right of Big Flower) by reason of the fact that such person is or
was a director or officer of Big Flower or, being at the time a director or
officer of Big Flower, is or was serving at the request of Big Flower as a
director, trustee, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan, whether in an official capacity or any
other capacity related to Big Flower, or such other enterprise, to the fullest
extent not prohibited by Section 145 of the Delaware General Corporation Law
against all expenses, liability and loss (including attorneys' fees) reasonably
incurred or suffered by such person in connection with such a claim. However,
except as may be provided in the Big Flower bylaws or by the Big Flower board of
directors, Big Flower shall not indemnify any director or officer in connection
with a proceeding (or portion thereof) initiated by that director or officer,
unless such proceeding (or portion thereof) was authorized by the Big Flower
board of directors.
The Big Flower bylaws further state that such an indemnification will not be
deemed exclusive of any other right which any person may have or may thereafter
acquire, and will continue as to a person who has ceased to be a director or
officer of Big Flower, or a director, officer, employee or agent of such other
enterprise and will inure to the benefit of the heirs, executives and
administrators of such a person.
Section 145 of the Delaware General Corporation Law permits a corporation to
indemnify its directors and officers against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties, if such directors or officers acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. In a derivative action,
I.E., one by or in the right of the corporation, indemnification may be made
only for expenses actually and reasonably incurred by directors and officers in
connection with the defense or settlement of an action or suit, and only with
respect to a matter as to which they have acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification will be made if such person will
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought will determine upon
application that the defendant officers or directors are fairly and reasonably
entitled to indemnity for such expenses despite such adjudication of liability.
Article VIII, Section 8 of the Big Flower by-laws states that Big Flower may
purchase and maintain liability insurance for directors and officers of Big
Flower. Big Flower maintains directors' and officers' liability insurance which
provides for payment, on behalf of its directors and officers, of certain losses
of such persons (other than matters uninsurable under law) arising from claims,
including claims
II-1
<PAGE>
arising under the Securities Act of 1933, as amended, for acts or omissions by
such persons while acting as directors or officers of Big Flower and/or its
subsidiaries, as the case may be.
After the merger, Big Flower will indemnify the directors and officers of
Big Flower and its subsidiaries for any losses they incur because they acted as
directors and officers of Big Flower or its subsidiaries before the merger, to
the full extent permitted under Delaware law and as follows:
- Big Flower will maintain all rights to indemnification and all limitations
on liability existing under the Big Flower certificate of incorporation
and the Big Flower by-laws in favor of those directors and officers of Big
Flower;
- Big Flower will maintain all rights to indemnification and all limitations
on liability existing under any agreement between any of those directors
or officers and Big Flower or its subsidiaries; and
- Big Flower will, for a period of six years after the merger becomes
effective, provide liability insurance for those directors and officers
for acts or omissions occurring before the effective time of the merger on
terms at least as favorable as those of any policy presently in effect.
However, during the six-year period, Big Flower will not be required to
provide any more coverage than can be obtained for the remainder of the
period for an annual premium costing more than 250% of the annual premium
currently paid by Big Flower for its existing coverage.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of June 29, 1999, between Big Flower Holdings, Inc. and BFH
Merger Corp. (included as Appendix A to the Proxy Statement/Prospectus contained in this Registration
Statement).
3.1 Restated Certificate of Incorporation of Big Flower Holdings, Inc., effective October 20, 1997. (17)
3.2 Amended and Restated Bylaws of Big Flower Holdings, Inc., effective October 20, 1997. (17)
3.3 Certificate of Designation, Preferences and Rights of Series A Junior Preferred Stock of Big Flower
Holdings, Inc. (17)
3.4 Amendments to the Restated Certificate of Incorporation of Big Flower Holdings, Inc. (included as
Schedule 1.04(a) to the Agreement and Plan of Merger filed as Exhibit 2.1 to this Registration
Statement).
3.5 Amendments to the Amended and Restated Bylaws of Big Flower Holdings, Inc. (included as Schedule
1.04(b) to the Agreement and Plan of Merger filed as Exhibit 2.1 to this Registration Statement).
4.1 Rights Agreement, dated as of November 28, 1995, between Big Flower Holdings, Inc. and The Bank of New
York, as Rights Agent. (17)
**4.2 Amendment to Rights Agreement, dated as of June 29, 1999, between Big Flower Holdings, Inc. and The
Bank of New York, as Rights Agent.
4.3 Indenture, dated as of June 20, 1997, between Big Flower Press Holdings, Inc. and State Street Bank and
Trust Company (as successor in interest to Fleet National Bank), as Trustee, relating to the 8 7/8%
Senior Subordinated Notes due 2007. (18)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
4.4 Registration Rights Agreement, dated as of June 20, 1997, between Big Flower Press Holdings, Inc. and
BT Securities Corporation, Credit Suisse First Boston and Goldman, Sachs & Co. (18)
4.5 Amended and Restated Trust Agreement, dated as of October 14, 1997, among (i) Big Flower Holdings,
Inc., (ii) The Bank of New York as property trustee, (iii) The Bank of New York (Delaware), as Delaware
trustee and (iv) Mark A. Angelson and Richard L. Ritchie, as Administrative Trustees, relating to the
Preferred Securities of Big Flower Trust I. (13)
4.6 Guarantee Agreement, dated as of October 20, 1997, between Big Flower Holdings, Inc., and The Bank of
New York, as Guarantee Trustee, relating to the Preferred Securities of Big Flower Trust I. (13)
4.7 Indenture dated as of October 20, 1997, between Big Flower Holdings, Inc. and The Bank of New York, as
Trustee, relating to the 6% Convertible Subordinated Debentures due October 15, 2027, of Big Flower
Holdings, Inc., issued to Big Flower Trust I. (13)
**4.8 First Supplemental Indenture, dated as of June 25, 1999 between Big Flower Holdings, Inc. and The Bank
of New York, as Trustee.
4.9 Registration Rights Agreement, dated as of October 20, 1997, among Big Flower Trust I, Big Flower
Holdings, Inc. and Goldman, Sachs & Co., on behalf of the purchasers listed therein. (13)
4.10 Indenture, dated as of December 9, 1998, between Big Flower Press Holdings, Inc. and State Street Bank
and Trust Company, as Trustee, relating to the 8 5/8% Senior Subordinated Notes due 2008. (25)
4.11 Registration Rights Agreement, dated as of December 9, 1998, among Big Flower Press Holdings, Inc., BT
Alex. Brown Incorporated, Chase Securities Inc. and Goldman, Sachs & Co. (25)
4.12 Terms of paid-in-kind preferred stock to be issued in connection with the Agreement and Plan of Merger
(included as Schedule 2.01(c)(i)(B)(1) to the Agreement and Plan of Merger filed as Exhibit 2.1 to this
Registration Statement).
4.13 Terms of warrants to be issued in connection with the Agreement and Plan of Merger (included as
Schedule 2.01(c)(i)(B)(2) to the Agreement and Plan of Merger filed as Exhibit 2.1 to this Registration
Statement).
*5.1 Opinion of Irene B. Fisher regarding legality of the securities being registered.
10.1 Amended and Restated Credit Agreement, dated as of June 22, 1998, among Big Flower Holdings, Inc., Big
Flower Press Holdings, Inc., certain subsidiaries of Big Flower named therein, the Banks from time to
time party thereto, Bank of America NT & SA and The Industrial Bank of Japan, Limited, as Co Agents,
Credit Suisse First Boston, as Documentation Agent, and Bankers Trust Company, as Administrative Agent
(the "Credit Agreement"). (21)
10.2 First Amendment and Consent to the Credit Agreement, dated as of November 10, 1998. (25)
10.3 Second Amendment and Consent to the Credit Agreement, dated as of November 24, 1998. (25)
10.4 Certificate Purchase Agreement (Series 1996-1), dated as of March 19, 1996, by BFP Receivables
Corporation, Big Flower Press Holdings, Inc., the Purchasers described therein, Credit Suisse, as
Co-Agent, and Bankers Trust Company, as Agent. (9)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.5 Receivables Purchase Agreement, dated as of March 19, 1996, as amended as of April 25, 1996, June 10,
1996 and September 24, 1996 (the "Receivables Purchase Agreement"), among Big Flower Press Holdings,
Inc., as initial Servicer, certain subsidiaries of Big Flower Press Holdings, Inc., as Sellers, and BFP
Receivables Corporation, as Buyer. (19)
10.6 Amendment to the Receivables Purchase Agreement, dated January 31, 1997. (19)
10.7 Big Flower Receivables Master Trust Pooling and Servicing Agreement, dated as of March 19, 1996, as
amended as of April 25, 1996, June 10, 1996 and September 24, 1996, among BFP Receivables Corporation,
as Transferor, Big Flower Press Holdings, Inc., as Servicer, and Manufacturers and Traders Trust
Company, as Trustee (the "Pooling and Servicing Agreement"). (19)
10.8 Series 1996-2 Supplement to the Pooling and Servicing Agreement, dated as of October 4, 1996, among BFP
Receivables Corporation, as Transferor, Big Flower Press Holdings, Inc., as Servicer, and Manufacturers
and Traders Trust Company, as Trustee. (19)
10.9 Series 1996-3 Supplement to the Pooling and Servicing Agreement, dated as of October 4, 1996, among BFP
Receivables Corporation, as Transferor, Big Flower Press Holdings, Inc., as Servicer, and Manufacturers
and Traders Trust Company, as Trustee. (19)
10.10 Purchase Agreement (Series 1996-2), dated September 25, 1996, among Big Flower Press Holdings, Inc.,
BFP Receivables Corporation, BT Securities Corporation, Bankers Trust International PLC, and CS First
Boston Corporation. (19)
10.11 Certificate Purchase Agreement (Series 1996-3), dated as of October 4, 1996, among BFP Receivables
Corporation, Big Flower Press Holdings, Inc., the purchasers described therein, and Caisse Nationale de
Credit Agricole, as Agent. (19)
10.12 Non-Competition Agreement, dated November 27, 1995, between Big Flower Press Holdings, Inc. and Brian
Mason. (8)
10.13 Non-Competition Agreement, dated as of April 27, 1994, by and among Lee A. Thompson, BFP Holdings
Corp., Treasure Chest Advertising Company, Inc. and Retail Graphics Holding Company. (5)
10.14 Non-Competition Agreement, dated as of April 27, 1994, by and among John G. Brown, BFP Holdings Corp.,
Treasure Chest Advertising Company, Inc. and Retail Graphics Holding Company. (5)
10.15 Non-Competition Agreement, dated as of April 27, 1994, by and among Thomas G. Hansen, BFP Holdings
Corp., Treasure Chest Advertising Company, Inc. and Retail Graphics Holding Company. (5)
10.16 Non-Competition Agreement, dated as of April 27, 1994, by and among Gary W. Pestello, BFP Holdings
Corp., Treasure Chest Advertising Company, Inc. and Retail Graphics Holding Company. (5)
10.17 Non-Competition Agreement, dated April 27, 1994, by and between Brian T. Clemente and Treasure Chest
Advertising Company, Inc. (19)
10.18 Non-Competition Agreement, dated August 5, 1993, by and among Big Flower Press, Inc., Robert E. Milhous
and Paul B. Milhous, together with assignment to Treasure Chest Advertising Company, Inc. (10)
10.19 Employment Agreement (the "Angelson Agreement"), effective March 21, 1996, by and between Mark A.
Angelson, Big Flower Press Holdings, Inc. and Treasure Chest Advertising Company, Inc. (9)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
*10.20 Amendment to the Angelson Agreement, dated June 24, 1999.
10.21 Employment Agreement, effective March 29, 1996, by and among Edward T. Reilly, Big Flower Press
Holdings, Inc. and Treasure Chest Advertising Company, Inc. (9)
10.22 Employment Agreement, dated January 1, 1998, by and between Laser Tech Color, Inc. and Damien Gough.
(25)
10.23 Employment Agreement, dated November 20, 1995, by and between Big Flower Press Holdings, Inc., Treasure
Chest Advertising Company, Inc. and R. Theodore Ammon. (8)
10.24 Executive Change in Control Severance Agreement, dated January 6, 1997, by and between Big Flower Press
Holdings, Inc. and Richard L. Ritchie. (19)
10.25 Letter Agreement, dated December 12, 1996, by and between Big Flower Press Holdings, Inc. and Richard
L. Ritchie. (19)
10.26 Employment Agreement, dated April 27, 1994, between Treasure Chest Advertising Company, Inc. and Thomas
R. Clemente. (5)
10.27 Employment Agreement, dated April 27, 1994, between Treasure Chest Advertising Company, Inc. and Joseph
T. Clemente. (5)
10.28 Employment Agreement, dated April 27, 1994, between Treasure Chest Advertising Company, Inc. and Kevin
Clemente. (5)
10.29 Big Flower Holdings, Inc. Restated 1993 Stock Award and Incentive Plan. (20)
10.30 Form of Treasure Chest Advertising Company, Inc.'s Supplemental Executive Retirement Plan, effective
January 1, 1994. (5)
10.31 Registration Rights Agreement, dated as of August 12, 1993, by and among BFP Holdings Corp., each of
the purchasers listed on Schedule 1 thereto, Theodore Ammon, Berenson Minella & Company, and each other
purchaser who executed the agreement ("Registration Rights Agreement"). (5)
10.32 Amendment to Registration Rights Agreement, dated as of April 27, 1994, by and among BFP Holdings
Corp., each of the purchasers listed on Schedule 1 thereto, Theodore Ammon, Berenson Minella & Company,
and each other purchaser who executed the agreement. (5)
10.33 Boca Raton Letter Agreement, dated May 10, 1993, by and among Robert E. Milhous, Paul B. Milhous, Big
Flower Press, Inc. and Treasure Chest Advertising Company, Inc. (1)
10.34 Ink Supply Requirements Agreement, dated as of July 31, 1993, between Treasure Chest Advertising
Company, Inc. and Marpax, Inc. (the "Ink Supply Agreement"). (6)
10.35 Amendment to Ink Supply Agreement, dated as of July 1, 1997. (22) +
10.36 Master Lease Agreement, dated December 21, 1993, between (TB Associates, Inc. and Chase Equipment
Leasing, Inc. (5)
10.37 Master Lease Agreement No. Atel/Trea3, dated as of August 31, 1993, between ATEL Financial Corporation
and Treasure Chest Advertising Company, Inc. (5)
10.38 Master Lease, dated as of July 7, 1993, between General Electric Capital Corporation and Treasure Chest
Advertising Company, Inc. (5)
10.39 Master Lease, dated as of December 28, 1992, between ITT Capital Finance division of ITT Commercial
Finance Corp. and Treasure Chest Advertising Company, Inc. (7)
10.40 Master Equipment Lease Agreement, dated as of July 28, 1992, between AT&T Commercial Finance
Corporation and Treasure Chest Advertising Company, Inc. (5)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.41 Master Lease Agreement, dated June 22, 1990, between (TB Associates, Inc. and Chase Lincoln Lease/Way,
Inc. (5)
10.42 Master Lease Agreement, dated May 16, 1991, between KTB Associates, Inc. and Chase Lincoln Lease/Way,
Inc. 10.43 (5)
10.43 Master Lease, dated as of June 21, 1991 (and as amended through 08/31/93), between The CIT
Group/Equipment Financing, Inc. and Treasure Chest Advertising Company, Inc. (5)
10.44 Third Amendment and Consent to the Credit Agreement, dated as of February 23, 1999. (25)
10.45 Amendment to the Angelson Agreement, effective March 29, 1999, by and between Mark A. Angelson, Big
Flower Press Holdings, Inc. and Treasure Chest Advertising Company, Inc. (25)
**12.1 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
21.1 Subsidiaries of Big Flower Holdings, Inc. (25)
**23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Irene B. Fisher (included in Exhibit 5.1).
24.1 Power of Attorney of directors of Big Flower Holdings, Inc. (included in the signature page of this
Registration Statement).
*99.1 Form of Proxy Card of Big Flower Holdings, Inc.
*99.2 Consent of Robert M. Kimmitt.
*99.3 Consent of Newton N. Minow.
</TABLE>
- ------------------------
* To be filed by amendment.
** Filed herewith.
+ Confidential treatment has been granted for portions of this exhibit.
(1) Incorporated by reference to TCA Holdings Corp. Form 5-1, filed on May 26,
1993 (File # 33-63392).
(2) Incorporated by reference to Big Flower Press, Inc. Amendment No. 3 to the
Form 5-1, filed on August 4, 1993 (File # 33-63392).
(3) Incorporated by reference to Big Flower Press, Inc. Form 8-K, dated as of
January 24, 1994 (File # 33-63392).
(4) Incorporated by reference to Big Flower Press, Inc. Form 8-K, dated as of
April 27, 1994 (File # 33-63392).
(5) Incorporated by reference to BFP Holdings Corp. Form 5-1, filed on May 26,
1994 (File # 33-79406).
(6) Incorporated by reference to Big Flower Press, Inc. Amendment No. 2 to the
Form 5-1, filed on July 19, 1993 (File # 33-63392).
(7) Incorporated by reference to Big Flower Press Holdings, Inc. Form 5-1, filed
on September 19, 1995 (File # 33-97082).
(8) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-Q for
the quarterly period ended December 31, 1995 (File # 1-14084).
(9) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-Q filed
on May 15, 1996 (Accession # 0000912057-96-009947).
(10) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-K for
the transition period from July 1, 1995 to December 31, 1995 (File #
1-14084).
II-6
<PAGE>
(11) Incorporated by reference to Annex I to the Proxy Statement/Prospectus
dated September 6, 1996, forming part of the Registration Statement on Form
S-4 (Registration No. 333-11225) of Big Flower Press Holdings, Inc.
(12) Incorporated by reference to Big Flower Press Holdings, Inc. Form 8-K,
dated October 1, 1996 (File # 1-14084).
(13) Incorporated by reference to Big Flower Holdings, Inc. Form 10-0 for the
quarterly period ended September 30, 1997 (File # 0-29474).
(14) Incorporated by reference to Big Flower Press Holdings, Inc. Current Report
on Form 8-K, dated September 18, 1997 (File # 1-14084).
(15) Incorporated by reference to Big Flower Press Holdings, Inc. Current Report
on Form 8-K, dated October 15, 1997 (File # 1-14084).
(16) Incorporated by reference to Big Flower Holdings, Inc. Current Report on
Form 8-K, dated October 31, 1997 (File # 0-29474).
(17) Incorporated by reference to Big Flower Holdings, Inc. Registration
Statement on Form S-8 and Post-Effective Amendment No. 1 to Registration
Statement No. 333-2152, filed on November 4, 1997 (File # 1-14084).
(18) Incorporated by reference to Big Flower Press Holdings, Inc. Registration
Statement on Form S-4 (Registration No. 333-32141).
(19) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-K for
the fiscal year ended December 31, 1996 (File # 1-14084).
(20) Incorporated by reference to Big Flower Press Holdings, Inc. Notice of
Annual Meeting of Stockholders and Proxy Statement, dated May 13, 1997 (File
U 1-14084).
(21) Incorporated by reference to Big Flower Holdings, Inc. Quarterly Report on
Form 10-0 for the quarter ended June 30, 1998 (File U 0-29474).
(22) Incorporated by reference to Big Flower Holdings, Inc. Form 10-K for the
fiscal year ended December 31, 1997 (File U 0-29474).
(23) Incorporated by reference to Big Flower Holdings, Inc. Current Report on
Form 8-K, dated March 13, 1998 (File U 0-29474).
(24) Incorporated by reference to Big Flower Holdings, Inc. Current Report on
Form 8-K, dated January 4, 1999 (File # 0-29474).
(25) Incorporated by reference to Big Flower Holdings, Inc. Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 (File # 001-14084).
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
II-7
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the registrant pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(c)(1) The undersigned registrant undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned registrant hereby undertakes that every prospectus
(i) that is filed pursuant to paragraph (1) immediately preceding, or (ii)
that purports to meet the requirements of Section 10(a)(3) of the Securities
Act of 1933 and is used in connection with an offering of securities subject
to Rule 415, will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective, and that,
for purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time will be deemed to be the initial BONA FIDE
offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such
II-8
<PAGE>
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of New York, State of New York on the 15th day of July,
1999.
BIG FLOWER HOLDINGS, INC.
By: /s/ R. THEODORE AMMON
-----------------------------------------
R. Theodore Ammon
CHAIRMAN OF THE BOARD
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints R. Theodore Ammon
and Edward T. Reilly his true and lawful attorney-in-fact, with power of
substitution, in his name, place and stead, in any and all capacities, to sign
any or all amendments, including post-effective amendments, and supplements to
this Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ R. THEODORE AMMON Chairman and Director
- ------------------------------ (Principal Executive July 15, 1999
R. Theodore Ammon Officer)
/s/ EDWARD T. REILLY
- ------------------------------ President, Chief Executive July 15, 1999
Edward T. Reilly Officer and Director
Executive Vice President
/s/ RICHARD L. RITCHIE and Chief Financial
- ------------------------------ Officer (Principal July 15, 1999
Richard L. Ritchie Financial and Accounting
Officer)
/s/ PETER G. DIAMANDIS
- ------------------------------ Director July 15, 1999
Peter G. Diamandis
/s/ ROBERT M. KIMMITT
- ------------------------------ Director July 15, 1999
Robert M. Kimmitt
/s/ JOAN D. MANLEY
- ------------------------------ Director July 15, 1999
Joan D. Manley
/s/ NEWTON N. MINOW
- ------------------------------ Director July 15, 1999
Newton N. Minow
</TABLE>
II-10
