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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 5
TO THE
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.
</TABLE>
(NAME OF PERSON(S) FILING STATEMENT)
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)
<TABLE>
<S> <C> <C>
COPIES TO:
JOSEPH B. FRUMKIN THOMAS C. MAZZA ERIC L. COCHRAN
SULLIVAN & CROMWELL DEWEY BALLANTINE LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM
125 BROAD STREET 1301 AVENUE OF THE AMERICAS LLP
NEW YORK, NEW YORK 10004 NEW YORK, NEW YORK 10019 919 THIRD AVENUE
(212) 558-4000 (212) 259-8000 NEW YORK, NEW YORK 10022
(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.
/ /(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. / /
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
TRANSACTION VALUATION*: AMOUNT OF FILING FEE**:
<S> <C>
$705,373,605.47 $141,074.72
</TABLE>
* For purposes of calculating fee only. This transaction applies to an
aggregate of 22,639,875 shares of Big Flower common stock. The underlying
value of the transaction of $705,373,605.47 has been calculated pursuant to
Exchange Act Rule 0-11 by (a) multiplying $31.15625 (the average of the high
and low prices of Big Flower common stock on December 6, 1999 on the New
York Stock Exchange) by 22,639,875.
** 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: __$152,974.73
FORM OR REGISTRATION NO.: FORM S-4 AND SCHEDULE 13E-3
FILING PARTY: BIG FLOWER HOLDINGS, INC.
DATE FILED: JULY 16, 1999
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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 Amended and Restated Agreement and Plan of Merger, dated as of October 11,
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 $31.50 in cash.
On October 25, 1999, Big Flower mailed to its stockholders and filed with
the Commission a definitive proxy statement on Schedule 14A (the "Proxy
Statement") relating to the annual meeting of stockholders of Big Flower. On
November 3, 1999, Big Flower mailed to its stockholders and filed with the
Commission a supplement to the Proxy Statement (the "Supplement") to provide
further information to Big Flower's stockholders regarding the merger and the
transactions related to the merger. A copy of the Proxy Statement is attached
hereto as Exhibit (d)(1), a copy of the Supplement is attached hereto as
Exhibit (d)(2) and a copy of the Merger Agreement is attached as Appendix A to
the Proxy Statement.
At the Big Flower meeting held on November 23, 1999, the stockholders of Big
Flower voted upon and approved: the adoption of the Merger Agreement, the
election of two directors to the Big Flower board of directors, a proposal to
permit the proxies, in their discretion, to adjourn the meeting for the sole
purpose of soliciting more votes or proxies in favor of the Merger Agreement,
and the ratification of the appointment of Deloitte & Touche LLP as Big Flower's
independent certified public accountants.
The Cross Reference Sheet herein is supplied pursuant to General Instruction
F to Schedule 13E-3 and shows the location in the Proxy Statement and Supplement
that responds to each item of this statement. The information in the Proxy
Statement and Supplement, 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 Proxy
Statement and Supplement. Capitalized terms used but not defined in this
statement shall have the meanings given to them in the Proxy Statement.
2
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CROSS-REFERENCE SHEET
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LOCATION IN PROXY STATEMENT (OR SUPPLEMENT, WHERE INDICATED)
ITEM OF SCHEDULE 13E-3 (INCORPORATED HEREIN BY REFERENCE)
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</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, R.
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
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<TABLE>
<CAPTION>
LOCATION IN PROXY STATEMENT (OR SUPPLEMENT, WHERE INDICATED)
ITEM OF SCHEDULE 13E-3 (INCORPORATED HEREIN BY REFERENCE)
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</TABLE>
ITEM 2. IDENTITY AND BACKGROUND. (CONTINUED)
<TABLE>
<CAPTION>
LOCATION IN PROXY STATEMENT (OR SUPPLEMENT, WHERE INDICATED)
ITEM OF SCHEDULE 13E-3 (INCORPORATED HEREIN BY REFERENCE)
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<S> <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 BFH
Merger Corp. and 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"; Supplement:
"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"; Supplement:
"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--"Amended and Restated Agreement and Plan of Merger, dated
as of October 11, 1999, between Big Flower Holdings, Inc.
and BFH Merger Corp."; Supplement: "Additional Information
Regarding the Rabbi Trust"; Supplement: "Additional
Information Regarding Columbine JDS Systems and the Internet
Investments".
(b)............................ "Questions and Answers About the Merger";
"Summary--Conflicts of Interests 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"; "The
Merger Agreement--Covenants"; Supplement: "Additional
Information Regarding the Rabbi Trust"; Supplement:
"Additional Information Regarding Columbine JDS Systems and
the Internet Investments".
</TABLE>
4
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<TABLE>
<CAPTION>
LOCATION IN PROXY STATEMENT (OR SUPPLEMENT, WHERE INDICATED)
ITEM OF SCHEDULE 13E-3 (INCORPORATED HEREIN BY REFERENCE)
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</TABLE>
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
<TABLE>
<S> <C>
(a)............................ "Summary"; "Special Factors--Background of the Merger";
"Special Factors--Consequences of the Merger; Plans for Big
Flower After the Merger"; "The Merger Agreement--Covenants;
Columbine JDS Systems"; Appendix A--"Amended and Restated
Agreement and Plan of Merger, dated as of October 11, 1999,
between Big Flower Holdings, Inc. and BFH Merger Corp.";
Supplement: "Additional Information Regarding Columbine JDS
Systems and the Internet Investments"; Supplement:
"Background of the Merger".
(b)............................ "Summary"; "Special Factors--Background of the Merger";
"Special Factors--Consequences of the Merger; Plans for Big
Flower After the Merger"; "The Merger Agreement--Covenants;
Columbine JDS Systems"; "The Merger Agreement--Covenants;
Internet Investments"; Appendix A--"Amended and Restated
Agreement and Plan of Merger, dated as of October 11, 1999,
between Big Flower Holdings, Inc. and BFH Merger Corp.";
Supplement: "Additional Information Regarding Columbine JDS
Systems and the Internet Investments"; Supplement:
"Background of the Merger".
(c)............................ "Special Factors--Consequences of the Merger; Plans for Big
Flower After the Merger"; "The Merger Agreement--Corporate
Governance"; "Directors and Management of Big Flower
Following the Merger".
(d)............................ "Special Factors--Source and Amount of Funds"; "Special
Factors--Big Flower Press Debt Tender Offer";
"Capitalization"; "Sources and Uses"; "Description of Big
Flower Capital Stock Following the Merger"; "Market Price
and Dividend Data--Dividend Information"; Supplement:
"Additional Information Regarding the Rabbi Trust";
Supplement: "Additional Information Regarding the Big Flower
Press Debt Tender Offer".
(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";
Supplement: "Additional Information Regarding the Rabbi
Trust".
(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"; Supplement:
"Additional Information Regarding Fees and Expenses of the
Merger".
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
LOCATION IN PROXY STATEMENT (OR SUPPLEMENT, WHERE INDICATED)
ITEM OF SCHEDULE 13E-3 (INCORPORATED HEREIN BY REFERENCE)
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<S> <C>
</TABLE>
ITEM 6. SOURCES AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (CONTINUED)
<TABLE>
<CAPTION>
LOCATION IN PROXY STATEMENT (OR SUPPLEMENT, WHERE INDICATED)
ITEM OF SCHEDULE 13E-3 (INCORPORATED HEREIN BY REFERENCE)
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<S> <C>
(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"; Supplement:
"Background of the Merger"; Supplement: "Additional
Information Regarding 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"; Supplement:
"Background of the Merger"; Supplement: "Additional
Information Regarding 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"; Supplement:
"Background of the Merger"; Supplement: "Additional
Information Regarding Big Flower's Reasons for the Merger;
Recommendation of the Big Flower Board of Directors";
Supplement: "Additional Information Regarding Columbine JDS
Systems and the Internet Investments".
(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"; "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>
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"; Supplement: "Background of the Merger";
Supplement: "Additional Information Regarding Big Flower's
Reasons for the Merger; Recommendation of the Big Flower
Board of Directors"; Supplement: "Additional Information
Regarding Opinions of Big Flower's Financial Advisors";
Supplement: "Additional Information Regarding the Fairness
of the Merger".
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
LOCATION IN PROXY STATEMENT (OR SUPPLEMENT, WHERE INDICATED)
ITEM OF SCHEDULE 13E-3 (INCORPORATED HEREIN BY REFERENCE)
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</TABLE>
ITEM 8. FAIRNESS OF THE TRANSACTION. (CONTINUED)
<TABLE>
<CAPTION>
LOCATION IN PROXY STATEMENT (OR SUPPLEMENT, WHERE INDICATED)
ITEM OF SCHEDULE 13E-3 (INCORPORATED HEREIN BY REFERENCE)
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<S> <C>
(c)............................ "The Big Flower Meeting--Voting"; "Special Factors--Fairness
of the Merger".
(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"; Supplement:
"Background of the Merger"; Supplement: "Additional
Information Regarding Big Flower's Reasons for the Merger;
Recommendation of the Big Flower Board of Directors";
Supplement: "Additional Information Regarding Opinions of
Big Flower's Financial Advisors".
(e)............................ "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"; "Special Factors--Big
Flower's Reasons for the Merger; Recommendation of the Big
Flower Board of Directors"; Supplement: "Background of the
Merger"; Supplement: "Additional Information Regarding 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"; Supplement:
"Background of the Merger"; Supplement: "Additional
Information Regarding 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--Opinions 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
October 11, 1999"; Appendix C--"Opinion of Berenson Minella
& Company, dated October 11, 1999"; Supplement: "Background
of the Merger"; Supplement: "Additional Information
Regarding Opinions of Big Flower's Financial Advisors";
Supplement: "Additional Information Regarding the Fairness
of the Merger".
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
LOCATION IN PROXY STATEMENT (OR SUPPLEMENT, WHERE INDICATED)
ITEM OF SCHEDULE 13E-3 (INCORPORATED HEREIN BY REFERENCE)
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<S> <C>
</TABLE>
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS. (CONTINUED)
<TABLE>
<CAPTION>
LOCATION IN PROXY STATEMENT (OR SUPPLEMENT, WHERE INDICATED)
ITEM OF SCHEDULE 13E-3 (INCORPORATED HEREIN BY REFERENCE)
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<S> <C>
_ Big Flower engaged Valuation Research Corporation, an
independent evaluation firm, on November 1, 1999, to render
solvency letters as to Big Flower, Big Flower Press
Holdings, Inc., Big Flower Digital Services, Inc. and
Columbine JDS Systmes, Inc. and their respective
subsidiaries, as the merger agreement requires. Valuation
Research Corporation is a nationally recognized evaluation
firm and was selected by Big Flower based on its substantial
experience in rendering solvency letters. On December 7,
1999, Valuation Research Corporation rendered opinions as to
the solvency of each of Big Flower, Big Flower Press
Holdings, Inc., Big Flower Digital Services, Inc., Columbine
JDS Systems, Inc. and their respective subsidiaries in which
they (i) own stock or other equity interests entitling them
to more than 50% of the vote for the election of the board
of directors or other governing body or (ii) otherwise
control, on a consolidated basis, immediately after and
giving effect to the consummation of the merger, subject to
certain conditions and assumptions set forth in the opinion.
The full text of the Valuation Research Corporation solvency
letter with respect to Big Flower, Big Flower Press
Holdings, Inc. and Big Flower Digital Services, Inc. and
their respective subsidiaries, and the solvency letter with
respect to Columbine JDS Systems, Inc. and its subsidiaries,
including these conditions and assumptions, are attached
hereto as Exhibits (b)(8) and (b)(9), respectively. The
terms of Valuation Research Corporation's engagement by Big
Flower provide that Valuation Research Corporation is to
receive a fee of $52,500, plus reasonable expenses, for its
services in rendering the opinions.
</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>
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>
8
<PAGE>
<TABLE>
<CAPTION>
LOCATION IN PROXY STATEMENT (OR SUPPLEMENT, WHERE INDICATED)
ITEM OF SCHEDULE 13E-3 (INCORPORATED HEREIN BY REFERENCE)
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<S> <C>
</TABLE>
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES. (CONTINUED)
<TABLE>
<CAPTION>
LOCATION IN PROXY STATEMENT (OR SUPPLEMENT, WHERE INDICATED)
ITEM OF SCHEDULE 13E-3 (INCORPORATED HEREIN BY REFERENCE)
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<S> <C>
On November 19, 1999, Big Flower entered into an agreement
with Mr. Reilly and Treasure Chest Advertising Company, Inc.
with respect to (i) the exchange by Mr. Reilly of a portion
of the value of his options for certain rights to acquire
shares of common stock of Big Flower following the merger,
(ii) the grant to Mr. Reilly of certain options to purchase
common stock of Big Flower following the merger and
(iii) the consequences of the termination of Mr. Reilly's
employment during the first year after the merger. The full
text of this agreement is attached hereto as
Exhibit (c)(2).
On November 24, 1999, Big Flower reached an understanding
with Mr. Ritchie with respect to his investment in Big
Flower upon the effectiveness of the merger and the
consequences of the termination of Mr. Ritchie's employment
during the first year after the merger. Pursuant to this
understanding, Mr. Ritchie would be entitled to exchange the
value of his options for rights to acquire 65,714 shares of
common stock of Big Flower following the merger. During the
period leading to the last business day prior to the first
anniversary of the merger (the "Initial Year"), Mr. Ritchie
would have a one-time right to sell any or all of these
rights to Big Flower if his employment is terminated for any
reason, including his resignation, other than for cause, for
an amount equal to $31.50 per underlying share of common
stock. During the Initial Year, Big Flower would have a
one-time right to purchase any or all of these rights from
Mr. Ritchie if his employment is terminated for any reason
for an amount equal to $31.50 per underlying share of common
stock. Big Flower also reached an understanding with
Mr. Ritchie that would grant Mr. Ritchie options to purchase
131,428 shares of common stock of Big Flower following the
merger. Big Flower also reached an understanding with
Mr. Ritchie that would entitle him to certain severance
payments under his existing Executive Change in Control
Severance Agreement if he elects to resign at the end of the
Initial Year. Big Flower expects to formalize these
understandings with Mr. Ritchie contemporaneously with the
effectiveness of the merger.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
LOCATION IN PROXY STATEMENT (OR SUPPLEMENT, WHERE INDICATED)
ITEM OF SCHEDULE 13E-3 (INCORPORATED HEREIN BY REFERENCE)
- ---------------------- ------------------------------------------------------------
<S> <C>
</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"; Supplement: "Additional
Information Regarding the Rabbi Trust"; Supplement:
"Additional Information Regarding Reasons for the Merger;
Recommendation of the Big Flower Board of Directors";
Supplement: "Additional Information Regarding the 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"; Supplement: "Additional Information Regarding
Reasons for the Merger; Recommendation of the Big Flower
Board of Directors"; Supplement: "Additional Information
Regarding the 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 quarters ended March 31, 1999 and June 30, 1999 are
incorporated by reference in the Proxy 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 Forms 10-Q are incorporated
herein by reference.
</TABLE>
<TABLE>
<S> <C>
(a) and (b).................... "Summary--Selected Historical Financial Data".
</TABLE>
10
<PAGE>
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
<TABLE>
<S> <C>
(a)............................ "Summary"; "The Big Flower Meeting--Solicitation of
Proxies"; "Special Factors--Background of the Merger";
"Special Factors--Consequences of the Merger; Plans for Big
Flower After the Merger"; "The Merger Agreement--Covenants;
Columbine JDS Systems"; "The Merger Agreement--Covenants;
Internet Investments"; Appendix A--"Amended and Restated
Agreement and Plan of Merger, dated as of October 11, 1999,
between Big Flower Holdings, Inc. and BFH Merger Corp.";
Supplement: "Additional Information Regarding Columbine JDS
Systems and the Internet Investments".
(b)............................ "The Big Flower Meeting--Solicitation of Proxies".
</TABLE>
ITEM 16. ADDITIONAL INFORMATION.
<TABLE>
<S> <C>
The Proxy Statement and Supplement and the Appendices and
Exhibits attached thereto.
</TABLE>
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit(a) (1) Senior Credit Facility Commitment Letter from the The
Chase Manhattan Bank, Bankers Trust Company, Bank of
America, N.A., Chase Securities Inc. and Deutsche Bank
Securities Inc. to BFH Merger Corp, dated October 11,
1999.*
(2) Bridge Loan Commitment Letter from Bankers Trust
Corporation, The Chase Manhattan Bank and Nationsbridge,
L.L.C. to BFH Merger Corp., dated October 11, 1999.*
(3) Mezzanine Financing Commitment Letter from Thomas H. Lee
Equity Fund IV, L.P. to BFH Merger Corp., dated October 11,
1999.*
(4) Alternative Senior Credit Facility Commitment Letter
from The Chase Manhattan Bank, Bankers Trust Company, Bank
of America, N.A., Chase Securities Inc. and Deutsche
Bank Securities Inc. to BFH Merger Corp., dated
October 24, 1999**
(5) Alternative Bridge Loan Commitment Letter from Bankers
Trust Corporation, The Chase Manhattan Bank and
Nationsbridge, L.L.C. to BFH Merger Corp., dated
October 22, 1999.**
(6) Alternative Mezzanine Financing Commitment Letter from
Thomas H. Lee Equity Fund IV, L.P. to BFH Merger Corp.,
dated October 24, 1999.**
Exhibit(b) (1) Opinion of Goldman Sachs & Co., dated October 11, 1999
(included as Appendix B to the Proxy Statement).
(2) Financial analysis presentation materials prepared by
Goldman Sachs & Co. for the Big Flower Board of Directors,
dated October 2, 1999.*
(3) Opinion of Berenson Minella & Company dated October 11,
1999 (included as Appendix C to the Proxy statement).
(4) Financial analysis presentation materials prepared by
Berenson Minella & Company in connection with providing its
opinion to the Big Flower Board of Directors dated
October 7, 1999.*
</TABLE>
11
<PAGE>
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. (CONTINUED)
<TABLE>
<S> <C>
(5) Strategic Discussion Materials prepared by Chase
Securities Inc. for Thomas H. Lee Equity Fund IV and BFH
Merger Corp., dated April 29, 1999.***
(6) Strategic Discussion Materials prepared by Chase
Securities Inc. for Thomas H. Lee Equity Fund IV and BFH
Merger Corp., dated May 12, 1999.***
(7) Update to Strategic Discussion Materials, prepared by
Chase Securities Inc. for Thomas H. Lee Equity Fund IV and
BFH Merger Corp., dated September 28, 1999.***
(8) Opinion of Valuation Research Corporation, dated
December 7, 1999.*****
(9) Opinion of Valuation Research Corporation, dated
December 7, 1999.*****
Exhibit(c) (1) Equity Contribution Commitment Letter from Thomas H. Lee
Equity Fund IV, L.P. and Evercore Capital Partners L.P.,
dated October 11, 1999.*
(2) Interim Agreement, effective as of November 19, 1999, by
and among Edward T. Reilly, Big Flower Holdings, Inc., and
Treasure Chest Advertising Company, Inc.****
Exhibit(d) (1) Definitive Proxy Statement on Schedule 14A of Big Flower
Holdings, Inc.**
(2) Supplement to Definitive Proxy Statement on Schedule 14A
of Big Flower Holdings, Inc. ***
Exhibit(e) Section 262 of the Delaware General Corporation Law
(included as Appendix D to the Proxy Statement).
Exhibit(f) Not Applicable
</TABLE>
- ------------------------
* Filed with Amendment Number 1 to the Big Flower Holdings, Inc. Schedule
13E-3 on October 14, 1999.
** Filed with Amendment Number 2 to the Big Flower Holdings, Inc. Schedule
13E-3 on October 25, 1999.
*** Filed with Amendment Number 3 to the Big Flower Holdings, Inc.
Schedule 13E-3 on November 3, 1999.
**** Filed with Amendment Number 4 to the Big Flower Holdings, Inc. Schedule
13E-3 on November 30, 1999.
***** Filed herewith.
12
<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 Proxy 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 Proxy 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
Proxy Statement is incorporated herein by reference.
(d) The information set forth in "Market Price and Dividend Data--Dividend
Information" of the Proxy Statement is incorporated herein by reference.
(e) The information set forth in "Market Price and Dividend Data" of the
Proxy 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 Proxy 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 Proxy 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
13
<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 Proxy 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 Proxy Statement, is
incorporated herein by reference.
(a)(2) The information set forth in "Special Factors--Background of the
Merger" of the Proxy Statement, and "Background of the Merger" of the
Supplement, 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
Proxy Statement, and "Background of the Merger" of the Supplement, 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--"Amended and
Restated Agreement and Plan of Merger, dated as of October 11, 1999,
between Big Flower Holdings, Inc. and BFH Merger Corp." of the Proxy
Statement, and "Additional Information Regarding the Rabbi Trust"; and
"Additional Information Regarding Columbine JDS Systems and the Internet
Investments" of the Supplement, 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 Proxy Statement, and "Additional Information
Regarding the Rabbi Trust"; and "Additional Information Regarding
Columbine JDS Systems and the Internet Investments" of the Supplement, is
incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a) The information set forth in "Summary"; "Special Factors--Background of
the Merger"; "Special Factors--Consequences of the Merger; Plans for Big
Flower After the Merger"; "The Merger Agreement--Covenants; Columbine JDS
Systems"; Appendix A--"Amended and Restated Agreement and Plan of Merger,
dated as of October 11, 1999, between Big Flower Holdings, Inc. and BFH
Merger Corp." of the Proxy Statement, and "Additional Information
Regarding Columbine JDS Systems and the Internet Investments"; and
"Background of the Merger" of the Supplement, is incorporated herein by
reference.
14
<PAGE>
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (CONTINUED)
(b) The information set forth in "Summary"; "Special Factors--Background of
the Merger" "Special Factors--Consequences of the Merger; Plans for Big
Flower After the Merger"; "The Merger Agreement--Covenants; Columbine JDS
Systems"; "The Merger Agreement--Covenants; Internet Investments";
Appendix A--"Amended and Restated Agreement and Plan of Merger, dated as
of October 11, 1999, between Big Flower Holdings, Inc. and BFH Merger
Corp." of the Proxy Statement, and "Additional Information Regarding
Columbine JDS Systems and the Internet Investments"; and "Background of
the Merger" of the Supplement, is incorporated herein by reference.
(c) The information set forth in "Special Factors--Consequences of the
Merger; Plans for Big Flower After the Merger"; "The Merger
Agreement--Corporate Governance"; and "Directors and Management of Big
Flower Following the Merger" of the Proxy Statement is incorporated
herein by reference.
(d) The information set forth in "Special Factors--Source and Amount of
Funds"; "Special Factors--Big Flower Press Debt Tender Offer";
"Capitalization"; "Sources and Uses"; "Description of Big Flower Capital
Stock Following the Merger"; and "Market Price and Dividend
Data--Dividend Information" of the Proxy Statement, and "Additional
Information Regarding the Rabbi Trust"; and "Additional Information
Regarding the Big Flower Press Debt Tender Offer" of the Supplement, is
incorporated herein by reference.
(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 Proxy
Statement, and "Additional Information Regarding the Rabbi Trust" of the
Supplement, is incorporated herein by reference.
(f) The information set forth in "Special Factors--Effect of the Merger on
Big Flower Capital Stock" of the Proxy 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 Proxy 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 Proxy 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 Proxy
Statement, and "Additional Information Regarding Fees and Expenses of the
Merger" of the Supplement, 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 Proxy Statement
is incorporated herein by reference.
(d) Not Applicable.
15
<PAGE>
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 Proxy
Statement, and "Background of the Merger"; and "Additional Information
Regarding Big Flower's Reasons for the Merger; Recommendation of the Big
Flower Board of Directors" of the Supplement, 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 Proxy
Statement, and "Background of the Merger"; and "Additional Information
Regarding Big Flower's Reasons for the Merger; Recommendation of the Big
Flower Board of Directors" of the Supplement, 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 Proxy
Statement, and "Background of the Merger"; "Additional Information
Regarding Big Flower's Reasons for the Merger; Recommendation of the Big
Flower Board of Directors"; and "Additional Information Regarding
Columbine JDS Systems and the Internet Investments" of the Supplement, 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";
"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
Proxy Statement is incorporated herein by reference.
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 Proxy Statement, and
"Background of the Merger"; "Additional Information Regarding Big
Flower's Reasons for the Merger; Recommendation of the Big Flower
Board of Directors"; "Additional Information Regarding Opinions of
Big Flower's Financial Advisors"; and "Additional Information
Regarding the Fairness of the Merger" of the Supplement, is
incorporated herein by reference.
(c) The information set forth in "The Big Flower Meeting--Voting"; and
"Special Factors--Fairness of the Merger" of the Proxy 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 Proxy Statement, and
"Background of the Merger"; "Additional Information Regarding Big
Flower's Reasons for the Merger; Recommendation of the Big Flower
Board of Directors"; and "Additional Information Regarding Opinions
of Big Flower's Financial Advisors" of the Supplement, is
incorporated herein by reference.
16
<PAGE>
ITEM 8. FAIRNESS OF THE TRANSACTION. (CONTINUED)
(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
Proxy Statement, and "Background of the Merger"; "Additional
Information Regarding Big Flower's Reasons for the Merger;
Recommendation of the Big Flower Board of Directors" of the
Supplement, 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 Proxy
Statement, and "Background of the Merger"; "Additional Information
Regarding Big Flower's Reasons for the Merger; Recommendation of the
Big Flower Board of Directors" of the Supplement, is incorporated
herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)--(c) The information set forth in "Summary--Opinions 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 October 11,
1999"; and Appendix C--"Opinion of Berenson Minella & Company,
dated October 11, 1999" of the Proxy Statement, and "Background of
the Merger"; "Additional Information Regarding Opinions of Big
Flower's Financial Advisors"; and "Additional Information Regarding
the Fairness of the Merger" of the Supplement, is incorporated
herein by reference.
Big Flower engaged Valuation Research Corporation, an independent
evaluation firm, on November 1, 1999, to render solvency letters as
to Big Flower, Big Flower Press Holdings, Inc., Big Flower Digital
Services, Inc. and Columbine JDS Systmes, Inc. and their respective
subsidiaries, as the merger agreement requires. Valuation Research
Corporation is a nationally recognized evaluation firm and was
selected by Big Flower based on its substantial experience in
rendering solvency letters. On December 7, 1999, Valuation Research
Corporation rendered opinions as to the solvency of each of Big
Flower, Big Flower Press Holdings, Inc., Big Flower Digital
Services, Inc., Columbine JDS Systems, Inc. and their respective
subsidiaries in which they (i) own stock or other equity interests
entitling them to more than 50% of the vote for the election of the
board of directors or other governing body or (ii) otherwise
control, on a consolidated basis, immediately after and giving
effect to the consummation of the merger, subject to certain
conditions and assumptions set forth in the opinion. The full text
of the Valuation Research Corporation solvency letter with respect
to Big Flower, Big Flower Press Holdings, Inc. and Big Flower
Digital Services, Inc. and their respective subsidiaries, and the
solvency letter with respect to Columbine JDS Systems, Inc. and its
subsidiaries, including these conditions and assumptions, are
attached hereto as Exhibits (b)(8) and (b)(9), respectively. The
terms of Valuation Research Corporation's engagement by Big Flower
provide that Valuation Research Corporation is to receive a fee of
$52,500, plus reasonable expenses, for its services in rendering
the opinions.
17
<PAGE>
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 Proxy 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 Proxy Statement is
incorporated herein by reference.
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 Proxy
Statement is incorporated herein by reference.
On November 19, 1999, Big Flower entered into an agreement with Mr. Reilly
and Treasure Chest Advertising Company, Inc. with respect to (i) the exchange by
Mr. Reilly of a portion of the value of his options for certain rights to
acquire shares of common stock of Big Flower following the merger, (ii) the
grant to Mr. Reilly of certain options to purchase common stock of Big Flower
following the merger and (iii) the consequences of the termination of
Mr. Reilly's employment during the first year after the merger. The full text of
this agreement is attached hereto as Exhibit (c)(2).
On November 24, 1999, Big Flower reached an understanding with Mr. Ritchie
with respect to his investment in Big Flower upon the effectiveness of the
merger and the consequences of the termination of Mr. Ritchie's employment
during the first year after the merger. Pursuant to this understanding,
Mr. Ritchie would be entitled to exchange the value of his options for rights to
acquire 65,714 shares of common stock of Big Flower following the merger. During
the period leading to the last business day prior to the first anniversary of
the merger (the "Initial Year"), Mr. Ritchie would have a one-time right to sell
any or all of these rights to Big Flower if his employment is terminated for any
reason, including his resignation, other than for cause, for an amount equal to
$31.50 per underlying share of common stock. During the Initial Year, Big Flower
would have a one-time right to purchase any or all of these rights from
Mr. Ritchie if his employment is terminated for any reason for an amount equal
to $31.50 per underlying share of common stock. Big Flower also reached an
understanding with Mr. Ritchie that would grant Mr. Ritchie options to purchase
131,428 shares of common stock of Big Flower following the merger. Big Flower
also reached an understanding with Mr. Ritchie that would entitle him to certain
severance payments under his existing Executive Change in Control Severance
Agreement if he elects to resign at the end of the Initial Year. Big Flower
expects to formalize these understandings with Mr. Ritchie contemporaneously
with the effectiveness of the merger.
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
18
<PAGE>
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION. (CONTINUED)
"Special Factors--Fairness of the Merger" of the Proxy Statement, and
"Additional Information Regarding the Rabbi Trust"; "Additional
Information Regarding Reasons for the Merger; Recommendation of the Big
Flower Board of Directors"; and "Additional Information Regarding the
Fairness of the Merger" of the Supplement, 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 Proxy
Statement, and "Additional Information Regarding Reasons for the Merger;
Recommendation of the Big Flower Board of Directors"; and "Additional
Information Regarding the Fairness of the Merger" of the Supplement, 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 Proxy Statement is incorporated herein by reference.
(b) Not Applicable.
(c) Not Applicable.
ITEM 14. FINANCIAL INFORMATION.
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
Reports on Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999 are
incorporated by reference in the Proxy 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 Forms 10-Q are incorporated herein by
reference.
(a)--(b) The information set forth in "Summary--Selected Historical
Financial Data".
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in "Summary"; "The Big Flower
Meeting--Solicitation of Proxies"; "Special Factors--Background of the
Merger"; "Special Factors--Consequences of the Merger; Plans for Big
Flower After the Merger"; "The Merger Agreement--Covenants; Columbine JDS
Systems"; "The Merger Agreement--Covenants; Internet Investments";
Appendix A--"Amended and Restated Agreement and Plan of Merger, dated as
of October 11, 1999, between Big Flower Holdings, Inc. and BFH Merger
Corp." of the Proxy Statement, and "Additional Information Regarding
Columbine JDS Systems and the Internet Investments" of the Supplement, is
incorporated herein by reference.
(b) The information set forth in "The Big Flower Meeting--Solicitation of
Proxies" of the Proxy Statement is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
The Proxy Statement and Supplement and the Appendices and Exhibits attached
thereto are incorporated herein by reference.
19
<PAGE>
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit(a) (1) Senior Credit Facility Commitment Letter from the The
Chase Manhattan Bank, Bankers Trust Company, Bank of
America, N.A., Chase Securities Inc. and Deutsche Bank
Securities Inc. to BFH Merger Corp, dated October 11,
1999.*
(2) Bridge Loan Commitment Letter from Bankers Trust
Corporation, The Chase Manhattan Bank and Nationsbridge,
L.L.C. to BFH Merger Corp., dated October 11, 1999.*
(3) Mezzanine Financing Commitment Letter from Thomas H. Lee
Equity Fund IV, L.P. to BFH Merger Corp., dated October 11,
1999.*
(4) Alternative Senior Credit Facility Commitment Letter
from The Chase Manhattan Bank, Bankers Trust Company, Bank
of America, N.A., Chase Securities Inc. and Deutsche
Bank Securities Inc. to BFH Merger Corp., dated
October 24, 1999**
(5) Alternative Bridge Loan Commitment Letter from Bankers
Trust Corporation, The Chase Manhattan Bank and
Nationsbridge, L.L.C. to BFH Merger Corp., dated
October 22, 1999.**
(6) Alternative Mezzanine Financing Commitment Letter from
Thomas H. Lee Equity Fund IV, L.P. to BFH Merger Corp.,
dated October 24, 1999.**
Exhibit(b) (1) Opinion of Goldman Sachs & Co., dated October 11, 1999
(included as Appendix B to the Proxy Statement).
(2) Financial analysis presentation materials prepared by
Goldman Sachs & Co. for the Big Flower Board of Directors,
dated October 2, 1999.*
(3) Opinion of Berenson Minella & Company dated October 11,
1999 (included as Appendix C to the Proxy statement).
(4) Financial analysis presentation materials prepared by
Berenson Minella & Company in connection with providing its
opinion to the Big Flower Board of Directors dated
October 7, 1999.*
(5) Strategic Discussion Materials prepared by Chase
Securities Inc. for Thomas H. Lee Equity Fund IV and BFH
Merger Corp., dated April 29, 1999.***
(6) Strategic Discussion Materials prepared by Chase
Securities Inc. for Thomas H. Lee Equity Fund IV and BFH
Merger Corp., dated May 12, 1999.***
(7) Update to Strategic Discussion Materials, prepared by
Chase Securities Inc. for Thomas H. Lee Equity Fund IV and
BFH Merger Corp., dated September 28, 1999.***
(8) Opinion of Valuation Research Corporation, dated
December 7, 1999.*****
(9) Opinion of Valuation Research Corporation, dated
December 7, 1999.*****
Exhibit(c) (1) Equity Contribution Commitment Letter from Thomas H. Lee
Equity Fund IV, L.P. and Evercore Capital Partners L.P.,
dated October 11, 1999.*
(2) Interim Agreement, effective as of November 19, 1999, by
and among Edward T. Reilly, Big Flower Holdings, Inc., and
Treasure Chest Advertising Company, Inc.****
Exhibit(d) (1) Definitive Proxy Statement on Schedule 14A of Big Flower
Holdings, Inc.**
(2) Supplement to Definitive Proxy Statement on
Schedule 14A of Big Flower Holdings, Inc.***
Exhibit(e) Section 262 of the Delaware General Corporation Law
(included as Appendix D to the Proxy Statement).
Exhibit(f) Not Applicable
</TABLE>
- ------------------------
* Filed with Amendment Number 1 to the Big Flower Holdings, Inc. Schedule
13E-3 on October 14, 1999.
** Filed with Amendment Number 2 to the Big Flower Holdings, Inc. Schedule
13E-3 on October 25, 1999.
20
<PAGE>
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. (CONTINUED)
*** Filed with Amendment Number 3 to the Big Flower Holdings, Inc.
Schedule 13E-3 on November 3, 1999.
**** Filed with Amendment Number 4 to the Big Flower Holdings, Inc. Schedule
13E-3 on November 30, 1999.
***** Filed herewith.
21
<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: November 29, 1999
<TABLE>
<S> <C> <C>
BFH MERGER CORP.
By: /s/ ANTHONY DINOVI
-----------------------------------------
Name: Anthony DiNovi
Title: Chairman of the Board
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>
22
<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>
23
<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>
24
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit(a) (1) Senior Credit Facility Commitment Letter from the The
Chase Manhattan Bank, Bankers Trust Company, Bank of
America, N.A., Chase Securities Inc. and Deutsche Bank
Securities Inc. to BFH Merger Corp, dated October 11,
1999.*
(2) Bridge Loan Commitment Letter from Bankers Trust
Corporation, The Chase Manhattan Bank and Nationsbridge,
L.L.C. to BFH Merger Corp., dated October 11, 1999.*
(3) Mezzanine Financing Commitment Letter from Thomas H. Lee
Equity Fund IV, L.P. to BFH Merger Corp., dated October 11,
1999.*
(4) Alternative Senior Credit Facility Commitment Letter
from The Chase Manhattan Bank, Bankers Trust Company, Bank
of America, N.A., Chase Securities Inc. and Deutsche
Bank Securities Inc. to BFH Merger Corp., dated
October 24, 1999**
(5) Alternative Bridge Loan Commitment Letter from Bankers
Trust Corporation, The Chase Manhattan Bank and
Nationsbridge, L.L.C. to BFH Merger Corp., dated
October 22, 1999.**
(6) Alternative Mezzanine Financing Commitment Letter from
Thomas H. Lee Equity Fund IV, L.P. to BFH Merger Corp.,
dated October 24, 1999.**
Exhibit(b) (1) Opinion of Goldman Sachs & Co., dated October 11, 1999
(included as Appendix B to the Proxy Statement).
(2) Financial analysis presentation materials prepared by
Goldman Sachs & Co. for the Big Flower Board of Directors,
dated October 2, 1999.*
(3) Opinion of Berenson Minella & Company dated October 11,
1999 (included as Appendix C to the Proxy statement).
(4) Financial analysis presentation materials prepared by
Berenson Minella & Company in connection with providing its
opinion to the Big Flower Board of Directors dated
October 7, 1999.*
(5) Strategic Discussion Materials prepared by Chase
Securities Inc. for Thomas H. Lee Equity Fund IV and BFH
Merger Corp., dated April 29, 1999.***
(6) Strategic Discussion Materials prepared by Chase
Securities Inc. for Thomas H. Lee Equity Fund IV and BFH
Merger Corp., dated May 12, 1999.***
(7) Update to Strategic Discussion Materials, prepared by
Chase Securities Inc. for Thomas H. Lee Equity Fund IV and
BFH Merger Corp., dated September 28, 1999.***
(8) Opinion of Valuation Research Corporation, dated
December 7, 1999.*****
(9) Opinion of Valuation Research Corporation, dated
December 7, 1999.*****
Exhibit(c) (1) Equity Contribution Commitment Letter from Thomas H. Lee
Equity Fund IV, L.P. and Evercore Capital Partners L.P.,
dated October 11, 1999.*
(2) Interim Agreement, effective as of November 19, 1999 by
and among Edward T. Reilly, Big Flower Holdings, Inc., and
Treasure Chest Advertising Company, Inc.****
Exhibit(d) (1) Definitive Proxy Statement on Schedule 14A of Big Flower
Holdings, Inc.**
(2) Supplement to Definitive Proxy Statement on
Schedule 14A of Big Flower Holdings, Inc.***
Exhibit(e) Section 262 of the Delaware General Corporation Law
(included as Appendix D to the Proxy Statement).
Exhibit(f) Not Applicable
</TABLE>
25
<PAGE>
- ------------------------
* Filed with Amendment Number 1 to the Big Flower Holdings, Inc. Schedule
13E-3 on October 14, 1999.
** Filed with Amendment Number 2 to the Big Flower Holdings, Inc.
Schedule 13E-3 on October 25, 1999.
*** Filed with Amendment Number 3 to the Big Flower Holdings, Inc.
Schedule 13E-3 on November 3, 1999.
****Filed with Amendment Number 4 to the Big Flower Holdings, Inc. Schedule
13E-3 on November 30, 1999.
*****Filed herewith.
26
<PAGE>
Exhibit (b)(8)
December 7, 1999
To each of the Lenders party to the Credit Agreement (as defined below), The
Chase Manhattan Bank, as Administrative Agent, Chase Securities Inc. and
Deutsche Bank Securities Inc., as Joint Lead Arrangers and Joint Book Managers,
Bankers Trust Company, as Syndication Agent, and Bank of America, N.A., as
Documentation Agent;
The Board of Directors of Big Flower Holdings, Inc.;
The Board of Directors of BFH Merger Corp.;
Thomas H. Lee Company; and
The Lenders and Agents under the Senior Subordinated Bridge
Loans
Ladies and Gentlemen:
Pursuant to an amended and restated agreement and plan of merger, dated as of
October 11, 1999 (the "Merger Agreement") between BFH Merger Corp. ("Merger
Sub") and Big Flower Holdings, Inc. ("Holdings"), Holdings will be recapitalized
in a transaction in which (a) Merger Sub shall be merged with and into Holdings
(the "Merger") with Holdings as the surviving corporation in the Merger, (b)
certain members of management of Holdings will retain equity capital in Holdings
with a value of approximately $86.1 million (the "Equity Rollover"), and (c)
each outstanding share of Holdings' common stock (other than shares comprising
the Equity Rollover, shares held by Holdings as treasury stock and shares held
by Subsidiaries (as defined in the Merger Agreement) of Holdings) shall be
converted into the right to receive from Holdings following the Merger an amount
of cash equal to $31.50, and each option to acquire Holdings common stock
outstanding immediately prior to the Merger (other than options which will be
converted into the right to receive equity interests in Holdings or Columbine
(as defined below)) shall be converted into the right to receive from Holdings
following the Merger an amount of cash equal to $31.50 less the exercise price
of such option, multiplied by the number of shares of Holdings' common stock
subject to such option, for a total consideration of approximately $576.6
million (the value of (b) and (c) not to exceed $662.7 million) (the "Recap
Distribution") (the transactions described in clauses (a), (b), and (c) being
hereinafter called the "Recapitalization").
<PAGE>
VALUATION RESEARCH CORPORATION
In connection with the Recapitalization, (a) Big Flower Press Holdings, Inc.
("BFPH"), a wholly-owned subsidiary of Holdings, will commence, prior to the
consummation of the Recapitalization, a tender offer/consent solicitation (the
"Existing Senior Subordinated Notes Tender Offer/Consent Solicitation") with
respect to BFPH's existing senior subordinated notes in an aggregate principal
amount equal to $600.0 million (the "Existing Senior Subordinated Notes"),
pursuant to which BFPH shall offer to purchase all of the outstanding Existing
Senior Subordinated Notes at 100% of the principal amount thereof plus a consent
fee equal to $20.00 for each $1,000 principal amount of such holder's Existing
Senior Subordinated Notes, (b) Holdings and/or certain of its Subsidiaries will
refinance the existing senior credit facilities and certain other existing
senior indebtedness of Holdings and its Subsidiaries in an aggregate principal
amount of approximately $280.0 million (the "Additional Refinanced
Indebtedness") and (c) at the option of the holders thereof, the currently
outstanding 6% Convertible Quarterly Income Preferred Securities of Big Flower
Trust I (the "Convertible QUIPS") may be converted into common stock of
Holdings, which will then be converted into the right to receive $31.50 in cash
per share of common stock, it being understood that the aggregate amount for all
outstanding Convertible QUIPS not to exceed $124.0 million (with any such
conversion payments being hereinafter called the "QUIPS Conversion Payments"
and, together with all payments made to effect the Existing Senior Subordinated
Notes Tender Offer/Consent Solicitation and the Additional Refinanced
Indebtedness, collectively, the "Refinancing").
The funds required to finance the Recapitalization and effect the Refinancing
and to pay fees and expenses associated with the Transaction (as defined below)
are provided by (a) the issuance of common stock of Merger Sub (the "Common
Equity Financing") to Thomas H. Lee Company and its affiliates (collectively,
"THL"), Evercore Partners L.P. and its affiliates (collectively, "ECP") and one
or more other investors acceptable to the Managing Agents (as defined below)
(together with THL and ECP, the "Equity Investors") generating proceeds of at
least $308.1 million (it being understood that if the Equity Rollover increases,
such amount will decrease on a dollar for dollar basis), (b) the sale of the
private Internet investments specified on Exhibit A to Schedule 5.15(a) to the
Merger Agreement, and the sale of private Internet investments purchased by
Holdings or its Subsidiaries after the execution of the Merger Agreement and
before the Recapitalization, in each case to the Equity Investors (the "Private
Internet Investment Sale") generating proceeds of approximately $21.4 million,
(c) the incurrence by BFPH of unsecured senior subordinated debt (the "Senior
Subordinated Bridge Loans") generating $450.0 million in proceeds, with such
amount reduced by the aggregate principal amount of the Existing Senior
Subordinated Notes not tendered pursuant to the Existing Senior Subordinated
Notes Tender Offer/Consent Solicitation, (d) the sale of all of the capital
stock of Columbine JDS Systems, Inc. ("Columbine") owned by Big Flower Digital
Services, Inc. ("BF Digital"), a wholly-owned Subsidiary of BFPH, generating
proceeds of approximately $164.9 million (the "Columbine Sale"), (e) the
issuance by Holdings of 12.0% unsecured subordinated notes to THL (the
"Mezzanine Subordinated Debt") generating gross proceeds of approximately $100.0
million, and (f) the incurrence by the Borrowers (as defined below) of
indebtedness under the senior secured credit facilities provided pursuant to the
Agreement (as defined below) (the transactions described in clauses (a), (b),
(c), (d), (e) and (f) being hereinafter called the "Transaction Financing", and
together with the Recapitalization and the Refinancing, being hereinafter called
the "Transaction").
2
<PAGE>
VALUATION RESEARCH CORPORATION
Holdings, BFPH, Big Flower Limited ("BFL"), Olwen Direct Mail Limited ("Olwen"),
Big Flower Digital Services Limited ("BFDSL"), Fusion Premedia Group Limited
(f/k/a Troypeak Limited) ("Fusion"), Pismo Limited ("Pismo"), Colorgraphic
Direct Response Limited ("Colorgraphic") and The Admagic Group Limited
("Admagic", and together with BFPH, BFL, Olwen, BFDSL, Fusion, Pismo,
Colorgraphic and each other entity that may become a party thereto as a U.K.
Borrower, the "Borrowers", and each, a "Borrower") have entered into a Credit
Agreement dated as of the date hereof (the "Agreement") with various lenders
party thereto from time to time (the "Lenders"), Chase Securities, Inc. and
Deutsche Bank Securities Inc., as Joint Lead Arrangers and Joint Book Managers,
The Chase Manhattan Bank, as Administrative Agent, Bankers Trust Company, as
Syndication Agent, and Bank of America, N.A., as Documentation Agent, and
certain Managing Agents named therein (collectively, the "Managing Agents", and
each a "Managing Agent") pursuant to which new senior secured credit facilities
will be made available to the Borrowers. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to them in the
Agreement.
The facilities made available to the Borrowers under the Agreement include (a)
up to $255.0 million of Tranche A Term Loans maturing on the Tranche A Term Loan
Maturity Date, (b) up to $300.0 million of Tranche B Term Loans maturing on the
Tranche B Term Loan Maturity Date and (c) up to $250.0 million of Revolving
Loans (including sublimits for Swingline Loans up to $60.0 million and Letters
of Credit) maturing on the Revolving Loan Maturity Date. Loans made available to
the U.K. Borrowers will be guaranteed by Holdings, BFPH and each Subsidiary
Guarantor. Loans made available to BFPH will be guaranteed by Holdings and each
U.S. Subsidiary Guarantor.
This letter is provided by Valuation Research Corporation ("Valuation")
reporting the performance of certain procedures undertaken by Valuation which
form the basis for Valuation's opinion, as of the date hereof, stated below
("Opinion") delivered at the request of the Lenders pursuant to Section 5.01(f)
of the Agreement, at the request of the Lenders and Agents pursuant to Section
3.1A(7) of the Senior Subordinated Credit Documents and at the request of the
Board of Directors of Holdings and the Board of Directors of Merger Sub pursuant
to Section 6.01(b) of the Merger Agreement, that immediately after and giving
effect to the consummation of the Transaction:
(a) The Fair Market Value of the assets of each of (i) Holdings,
(ii) BFPH and (iii) BF Digital, and each of such companies'
respective Subsidiaries, and each on a consolidated basis,
exceeds and will exceed their liabilities (including, without
limitation, New Financing, Stated Liabilities and Identified
Contingent Liabilities, each as defined below);
(b) The Present Fair Saleable Value of the assets of each of (i)
Holdings, (ii) BFPH and (iii) BF Digital, and each of such
companies' respective Subsidiaries, and each on a consolidated
basis, exceeds and will exceed their probable liabilities on
their debts (including, without limitation, New Financing,
Stated Liabilities, and Identified Contingent Liabilities) as
such debts become absolute and mature;
3
<PAGE>
VALUATION RESEARCH CORPORATION
(c) Each of (i) Holdings, (ii) BFPH and (iii) BF Digital, and each
of such companies' respective Subsidiaries, and each on a
consolidated basis, are and will be able to pay their debts
(including, without limitation, New Financing, Stated
Liabilities, and Identified Contingent Liabilities) as such
debts mature during the normal course of business;
(d) Each of (i) Holdings, (ii) BFPH and (iii) BF Digital, and each
of such companies' respective Subsidiaries, and each on a
consolidated basis, will not have Unreasonably Small Capital
(as defined below) with which to conduct their present and
anticipated business; and
(e) The Fair Market Value of the assets of each of (i) Holdings,
(ii) BFPH and (iii) BF Digital, and each of such companies'
respective Subsidiaries, and each on a consolidated basis,
exceeds their liabilities (including, without limitation, New
Financing, Stated Liabilities and Identified Contingent
Liabilities) plus the total par value of their capital stock.
The Opinion rendered is with respect to each of Holdings, BFPH and BF Digital,
and each of such companies' respective Subsidiaries, and each on a consolidated
basis, as a going concern, immediately after and giving effect to the
Transaction and the associated indebtedness. In the course of preparing this
Opinion, nothing has come to our attention that causes us to believe that each
of Holdings, BFPH and BF Digital, and each of such companies' respective
Subsidiaries, and each on a consolidated basis, would not be a going concern.
For the purposes of this Opinion, the following terms are defined:
(a) Fair Market Value
The amount at which the aggregate assets of an entity would
change hands between a willing buyer and a willing seller,
within a commercially reasonable period of time, each having
reasonable knowledge of the relevant facts, neither being
under any compulsion to act, with equity to both.
(b) Present Fair Saleable Value
The aggregate amount that would be obtained by an independent
willing seller from an independent willing buyer if an
entity's assets are sold as an entirety with reasonable
promptness in an arm's-length transaction under present
conditions for the sale of assets as an entirety of the
business comprising such entity.
4
<PAGE>
VALUATION RESEARCH CORPORATION
(c) Stated Liabilities
The recorded liabilities, respectively, of (i) Holdings and
its Subsidiaries, on a consolidated basis, pursuant to its
unaudited pro forma balance sheet as of November 30, 1999,
(ii) BFPH and its Subsidiaries, on a consolidated basis,
pursuant to its unaudited internal balance sheet as of October
31, 1999, with such balance sheet adjusted by Valuation to
exclude indebtedness being refinanced as part of the
Refinancing, and (iii) BF Digital and its Subsidiaries, on a
consolidated basis, pursuant to its unaudited internal balance
sheet as of October 31, 1999, with such balance sheet adjusted
by Valuation to eliminate the accounts of Columbine and to
exclude indebtedness being refinanced as part of the
Refinancing. The balance sheets (before any adjustments by
Valuation) in (i), (ii), and (iii) above were provided by
management of Holdings ("Management"). Stated Liabilities
exclude indebtedness under New Financing (as defined below).
Valuation has made inquiries of Management and has been
advised by Management that there are no material adverse
changes in Stated Liabilities between the date of the
information shown on such balance sheets and the date hereof.
Based on our inquiries with this letter, we have no reason to
believe that there has been any such material adverse change.
(d) New Financing
The indebtedness being incurred, assumed or guaranteed by
Holdings, BFPH, BF Digital or the Subsidiary Guarantors, as
the case may be, pursuant to the Agreement and/or the other
Credit Documents and from the issuance of the Senior
Subordinated Bridge Loans and the Mezzanine Subordinated Debt.
(e) Identified Contingent Liabilities
The maximum amount of contingent liabilities that may result
from pending, threatened and anticipated litigation, asserted,
anticipated and unasserted claims and assessments, guaranties,
environmental conditions, uninsured risks, and other
contingent liabilities as identified and explained to us in
terms of their nature and estimated dollar magnitude by
Management. We do not give any opinion as to whether such
contingent liabilities meet the criteria for accrual under
Statement of Financial Accounting Standards No. 5. Based on
our reasonable inquiries and analysis in connection with this
letter, we have no reason to believe that Identified
Contingent Liabilities are materially understated, and nothing
has come to our attention suggesting that material contingent
liabilities have not been identified or disclosed.
5
<PAGE>
VALUATION RESEARCH CORPORATION
(f) Unreasonably Small Capital
This phrase relates to the ability of each of Holdings, BFPH
and BF Digital, and each of such companies' respective
Subsidiaries, and each on a consolidated basis, after giving
effect to the incurrence of New Financing and after
consummation of the Transaction to continue as a going concern
and not lack sufficient capital for their present and
anticipated needs, including, without limitation, payment of
Identified Contingent Liabilities as they become absolute and
matured, without substantial unplanned disposition of assets
outside the ordinary course of business, restructuring of
debt, externally forced revisions of its operations, or
similar actions.
We believe the foregoing definitions are reasonable and appropriate for purposes
of rendering the Opinion, and we believe that the methodologies we use in our
analyses are appropriate for determining Fair Market Value, Present Fair
Saleable Value and Unreasonably Small Capital as defined herein. Based on our
inquiry, we believe it is appropriate for us to value each of Holdings, BFPH and
BF Digital, and each of such companies' respective Subsidiaries, and each on a
consolidated basis and as going concern as part of our analyses relating to this
Opinion.
In expressing its Opinion, Valuation has relied on information and analyses
furnished by and/or discussions held with Management and the Equity Investors,
which information and analyses have been the subject of review by Valuation and
have been the subject of discussion and inquiry. Valuation does not assume any
responsibility for the sufficiency and accuracy of the information. Nothing has
come to Valuation's attention in the course of its review that would lead it to
believe that any such information is incorrect in any material respect or that
it was unreasonable for Valuation to utilize and rely upon the information. Such
data has been accepted as reasonably reflecting the Transaction, the financial
condition of each of Holdings, BFPH and BF Digital, and each of such companies'
respective Subsidiaries, and each on a consolidated basis, and their past and
future operations. All items subject to audit pursuant to generally accepted
auditing standards and in conformity with generally accepted accounting
principles ("GAAP") have been relied upon without review, check, or
verification, and nothing has come to our attention that would cause us to
believe the information is incorrect in any material respect or that it was
unreasonable for Valuation to utilize and rely upon the information. Valuation
has performed certain analyses, studies, and investigations more fully described
herein in support of its Opinion. Further, the Opinion expressed herein is
subject to the General Limiting Conditions and Assumptions attached hereto as
Exhibit A.
Valuation has reviewed available historical financial information of each of
Holdings, BFPH and BF Digital, and each of such companies' respective
Subsidiaries, and each on a consolidated basis, in addition to background data
and material considered appropriate to the Opinion expressed and referenced
below. Such areas of investigation include, but are not limited to:
o An overview of the business segments in which BFPH competes
(including that of BF Digital), including an analysis of
companies engaged in similar lines of business as BFPH and a
review of acquisitions of companies engaged in similar lines
of business.
6
<PAGE>
VALUATION RESEARCH CORPORATION
o A visit to Holdings' corporate headquarters in New York, which
visit included discussion of the business and prospects of
BFPH, with Management, including discussions of each of the
business segments, historical and projected profitability, key
competitors, customer relationships, business risks and key
actions to be taken in the near term, among other factors.
o Attendance at Holdings' presentation for the Lenders on
November 9, 1999 in New York.
o Review of Holdings' (a) audited consolidated financial
statements on Form 10-K for the four years ended December 31,
1998, (b) unaudited consolidated financial statements on Form
10-Q for the six months ended June 30, 1999 and (c) unaudited
consolidated financial results for the three months and nine
months ended September 30, 1999, respectively, from its
October 26, 1999 press release.
o Review of the Big Flower Press Confidential Information
Memorandum, dated November 1999 (the "Confidential Information
Memorandum").
o Review of Holdings' projected consolidated income statements,
balance sheets, cash flow statements, credit statistics and
other projected financial information for the years 1999
through 2008 (the "Projections"), and Management assumptions
thereto, as provided by THL.
o Performance of sensitivity analyses with respect to the
Projections.
o Review of the Agreement, the other Credit Documents, and the
Senior Subordinated Credit Documents.
o Review of the Mezzanine Subordinated Debt Agreement.
o Review of the Recapitalization Documents.
o Review of Holdings' Schedule 13E-3, and Schedule 14A, as filed
with the Securities and Exchange Commission, related to the
Transaction.
o Review of historical trading prices for Holdings' common
stock.
o Inquiries of members of Management who have responsibility for
legal, financial, and accounting matters as to the existence,
nature, and magnitude of Identified Contingent Liabilities.
Because the Identified Contingent Liabilities are estimates of
Management, we express no opinion as to the completeness or
propriety of such items. However, after discussion with
Management with respect thereto, and based on our experience
in reviewing such liabilities, nothing has come to our
attention in the course of our review which would suggest that
any such information is incorrect in any material respect or
unreasonable for Valuation to utilize.
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VALUATION RESEARCH CORPORATION
For purposes of this Opinion, Valuation has assumed that there will be no
material change in any documents in Valuation's possession as of the date
herein.
Valuation has discussed financial and operating matters of Holdings, BFPH and BF
Digital and each of such companies' respective Subsidiaries with Management.
Valuation has reviewed the Projections prepared by Management and the Equity
Investors and discussed the Projections with Management and the Equity
Investors. This review included, but was not limited to, discussions of basic
assumptions made in preparing the Projections relating to revenue growth,
operating margins, and capital expenditure and working capital requirements.
Nothing has come to our attention that would cause us to believe the basic
assumptions made in preparing the Projections are unreasonable or unattainable.
We believe that the review we have conducted and the analyses and procedures
undertaken are those generally considered appropriate for expressing the Opinion
set forth herein.
Based on the foregoing review, procedures and analyses, we express the following
Opinion as of the date hereof, that immediately after and giving effect to the
consummation of the Transaction, subject to the General Limiting Conditions and
Assumptions set forth in Exhibit A hereto:
(a) The Fair Market Value of the assets of each of (i) Holdings,
(ii) BFPH and (iii) BF Digital, and each of such companies'
respective Subsidiaries, and each on a consolidated basis,
exceeds and will exceed their liabilities (including, without
limitation, New Financing, Stated Liabilities, and Identified
Contingent Liabilities);
(b) The Present Fair Saleable Value of the assets of each of (i)
Holdings, (ii) BFPH and (iii) BF Digital, and each of such
companies' respective Subsidiaries, and each on a consolidated
basis, exceeds and will exceed their probable liabilities on
their debts (including, without limitation, New Financing,
Stated Liabilities, and Identified Contingent Liabilities) as
such debts become absolute and mature;
(c) Each of (i) Holdings, (ii) BFPH and (iii) BF Digital, and each
of such companies' respective Subsidiaries, and each on a
consolidated basis, are and will be able to pay their debts
(including, without limitation, New Financing, Stated
Liabilities, and Identified Contingent Liabilities) as such
debts mature during the normal course of business;
(d) Each of (i) Holdings, (ii) BFPH and (iii) BF Digital, and each
of such companies' respective Subsidiaries, and each on a
consolidated basis, will not have Unreasonably Small Capital
with which to conduct their present and anticipated business;
and
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VALUATION RESEARCH CORPORATION
(e) The Fair Market Value of the assets of each of (i) Holdings,
(ii) BFPH and (iii) BF Digital, and each of such companies'
respective Subsidiaries, and each on a consolidated basis,
exceeds their liabilities (including, without limitation, New
Financing, Stated Liabilities and Identified Contingent
Liabilities) plus the total par value of their capital stock.
This letter may be relied upon and disclosed as provided for in Exhibit A.
Respectfully submitted,
VALUATION RESEARCH CORPORATION
/s/ Valuation Research Corporation
Engagement Number: 04-3185-00
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VALUATION RESEARCH CORPORATION
EXHIBIT A
GENERAL LIMITING CONDITIONS AND ASSUMPTIONS
In accordance with recognized professional standards as generally practiced in
the valuation industry, the fee for these services is not contingent upon the
conclusions contained herein. Valuation has determined to the best of its
knowledge and in good faith that neither it nor any of its agents or employees
have any material financial interest in Holdings, BFPH, BF Digital or their
respective Subsidiaries.
Neither Valuation, nor its agents or employees, assume any responsibility for
matters legal in nature, nor do they render any opinion as to any title to, or
legal status of, property which may be involved, both real and personal,
tangible and intangible.
Valuation assumes that all laws, statutes, ordinances, or other regulations, or
regulations of any governmental authority relevant to and in connection with
this engagement are complied with by each relevant party other than Valuation
unless express written noncompliance is brought to the attention of Valuation
and is stated and defined by those relied on by Valuation.
Valuation has relied on certain information furnished by others, including but
not limited to, Holdings and the Equity Investors, without verification, other
than the procedures specified in Valuation's letter attached hereto. Valuation
believes such information to be reliable as to accuracy and completeness but
offers no warranty or representation to that effect; however, nothing has come
to our attention in the course of this engagement that would cause us to believe
that any information is inaccurate in any material respect or that it is
unreasonable to utilize and rely upon such information. The information relied
upon generally includes, but is not limited to, financial analyses and
forecasts; historical, pro forma, audited and unaudited financial statements;
and Management analyses and forecasts.
Where there may be real property involved in the Transaction, unless
specifically stated, Valuation has not made a land survey of the property, but
has relied on information furnished by Holdings. It is assumed that there are no
hidden or inapparent conditions of the property, subsoil, or structures thereon
that render it more or less valuable except as disclosed in environmental
reports. No responsibility is assumed for such conditions or for arranging for
engineering studies that may be required to discover them.
Valuation assumes in the case of leases of real and other property that the
Transaction will not trigger any renegotiations of such leases to market rates
based upon the financial condition of Holdings, BFPH or BF Digital, and each of
such companies' respective Subsidiaries, and each on a consolidated basis,
arising out of the Transaction that would, in the aggregate, be material to
Holdings, BFPH or BF Digital, and each of such companies' respective
Subsidiaries, and each on a consolidated basis. In connection with this matter,
we have no reason to believe that there will be any material adverse effect on
Holdings, BFPH or BF Digital, and each of such companies' respective
Subsidiaries, and each on a consolidated basis, arising from the consummation of
the Transaction.
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VALUATION RESEARCH CORPORATION
Valuation is not an environmental consultant or auditor, and it takes no
responsibility for any actual or potential environmental liabilities. Valuation
does not conduct or provide environmental assessments and has not performed one
for any property of Holdings, BFPH, BF Digital or their respective Subsidiaries.
Valuation has asked Management whether Holdings, BFPH or BF Digital, and each of
such companies' respective Subsidiaries, and each on a consolidated basis, are
subject to any present or future liability relating to environmental matters
(including but not limited to CERCLA/Superfund liability). Valuation has not
determined independently whether Holdings, BFPH, or BF Digital, and each of such
companies' respective Subsidiaries, and each on a consolidated basis, are
subject to any such liabilities, nor the scope of any such liabilities.
Valuation's Opinion takes no such liabilities into account except as they have
been reported expressly to Valuation by Holdings, or by an environmental
consultant working for Holdings or the Equity Investors , and then only to the
extent that the liability was reported to us in an actual or estimated dollar
amount. To the extent such information has been reported to us, Valuation has
relied on it without verification and offers no warranty or representation as to
its accuracy or completeness.
In some instances, public information and statistical information have been
obtained from sources Valuation has accepted as being reliable. These sources
include annual reports to shareholders and the Form 10-Ks and Form 10-Qs filed
with the Securities and Exchange Commission of companies reviewed within
business segments in which BFPH or its Subsidiaries compete, VALUE LINE
INVESTMENT SURVEY, and STANDARD & POOR'S INDUSTRY SURVEYS; however, Valuation
makes no representation as to the accuracy or completeness of such information
and has accepted the information without further verification, but nothing has
come to Valuation's attention which would lead it to believe that such
information is incorrect or incomplete in any material respect.
The Opinion of Valuation does not represent an assurance, guarantee, or warranty
that Holdings, BFPH, BF Digital or the Subsidiary Guarantors will meet all of
their obligations under the Agreement or in connection with the Senior
Subordinated Bridge Loans or the Mezzanine Subordinated Debt.
Valuation makes no assurance, guarantee, or warranty that the covenants for the
New Financing will not be broken in the future.
Valuation has analyzed and reviewed the Transaction and provided the Opinion for
solvency purposes only and for no other purpose. Valuation's Opinion is in no
way given as an indication of the fairness of the Transaction to any shareholder
of Holdings, BFPH, BF Digital, their respective Subsidiaries, the Equity
Investors or any equity participant in the Transaction.
The Opinion expressed herein is valid only for the express and stated purposes
of providing information and assistance to the parties to whom it is addressed
and their counsel and specific agents and their respective assignees and
participants in connection with the Transaction and their counsel and specific
agents and is not in any way, implied or expressed, to be construed, used,
circulated, quoted, relied upon or otherwise referred to for any other purpose
without the written consent of Valuation, which will not be unreasonably
withheld. In addition, Valuation hereby consents to (i) the filing and
disclosure of the Opinion with the Securities and Exchange Commission (the
"SEC") and any state securities commission or blue sky authority, or other
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VALUATION RESEARCH CORPORATION
governmental authority or agency if such filing or disclosure is required
pursuant to the rules, statutes, and regulations thereof, or required by
applicable law, (ii) the disclosure of the Opinion upon demand, order or request
of any court, administrative or governmental agency, regulatory body or examiner
(whether or not such demand, order or request has the force of law) or as may be
required or appropriate in response to any summons, subpoena, or discovery
requests, (iii) the use or disclosure of the Opinion in any pending or
threatened litigation, judicial, or administrative proceeding (including,
without limitation, any proceeding in bankruptcy) or inquiry, or government
investigation, (iv) the attachment of the Opinion as an exhibit to the Credit
Documents governing the senior debt financing by the Lenders and Issuing Lender
or other Lenders and financial institutions who, in the future, may extend
credit to the Borrowers as an exhibit to any documents governing debt financing
by other financing sources, (v) the disclosure of the Opinion in connection with
(a) the prospective sale, assignment, participation or any other disposition by
any Lender, Issuing Lender or financing source of any right or interest in the
debt financing by such Lender, Issuing Lender or financing source, (b) an audit
of any Lender, Issuing Lender or financing source by an independent public
accountant or any administrative agency or regulatory body or examiner or (c)
the exercise of any right or remedy by any Lender, or Issuing Lender or
financing source in connection with the debt financing, (vi) the disclosure of
the Opinion as may be requested, required or ordered in, or to protect a
Lender's, Issuing Lender's or financing source's interest in, any litigation,
administrative, judicial or governmental proceeding, or investigation to which
any Lender, Issuing Lender or financing source is subject or purported to be
subject, or (vii) the disclosure of the Opinion as otherwise required by, or as
reasonably determined by any Lender, Issuing Lender or financing source to be
required by, any law, order, statute, regulation or ruling applicable to such
Lender, Issuing Lender or financing source. Valuation has no responsibility to
update the Opinion stated herein for events and circumstances occurring after
the date of this letter.
Any further consultation, testimony, attendance or research in reference to the
present engagement beyond the Opinion expressed herein as of the date herein are
subject to agreement by Valuation in specific written arrangements between the
parties.
No representation is made herein as to the legal sufficiency of the above
definitions (term definitions contained in the body of the Opinion) for any
purpose; such definitions are used solely for setting forth the scope of this
Opinion and Valuation believes such definitions to be reasonable for the
purposes of rendering this Opinion.
The determination of Present Fair Saleable Value and Fair Market Value of the
aggregate assets results from the development and analysis of several value
indications arrived at through the use of accepted valuation procedures as
practiced in the valuation industry. These procedures included the Asset-Based
Approach, the Income Approach and the Market Approach, as described below, which
we believe to be procedures appropriate to express the Opinion herein.
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VALUATION RESEARCH CORPORATION
The Asset-Based Approach is based directly on the value of the underlying assets
of a business. Our procedures in connection with this approach were limited to a
review of the consolidated financial statements of each of Holdings, BFPH and BF
Digital and their respective Subsidiaries, including a general review of the
current assets and intangible assets of each of Holdings, BFPH and BF Digital,
and each of such companies' respective Subsidiaries, and each on a consolidated
basis, as well as the other procedures outlined herein.
The Income Approach utilized cash flow projections discounted to a present
value. The discount rates selected were based on risk and return requirements
deemed appropriate by Valuation, given the facts and circumstances surrounding
the Transaction. The discount rates were based upon a weighted average cost of
capital concept, which considers the after-tax cost of debt and equity. The
after-tax costs were derived, among other factors, from our review of the
current credit and equity markets. The discount rate included a risk premium
over and above the required return associated with risk-free investments such as
U.S. Government treasury bonds.
The Market Approach is a valuation technique in which the estimated market value
is based on market prices in actual transactions. The technique consists of
undertaking a detailed market analysis of publicly traded companies and
acquisitions of companies that provide a reasonable basis for comparison to the
relative investment characteristics of the subject entity. Valuation ratios
derived from the guideline companies are then selected and applied to the
subject entity after consideration of adjustments for dissimilarities in
financial position, growth prospects, market position, profitability, capital
structure and other factors. The companies reviewed were generally engaged in
commercial printing services, advertising services, direct marketing services
and/or digital services.
Material changes in the business segments in which BFPH competes (including that
of BF Digital) or in general market conditions which might affect Holdings,
BFPH, or BF Digital, and each of such companies' respective Subsidiaries, and
each on a consolidated basis, from and after the date herein and which are not
reasonably foreseeable are not taken into account.
Our conclusion of Present Fair Saleable Value and Fair Market Value of assets is
for the aggregate or total assets of each of Holdings, BFPH and BF Digital, and
each of such companies' respective Subsidiaries, and each on a consolidated
basis, after giving effect to the Transaction. Nothing has come to our attention
that would cause us to believe that the Present Fair Saleable Value of assets is
materially different from the Fair Market Value of assets.
Amounts payable with respect to Identified Contingent Liabilities cannot be
predicted with exact certainty. In addition, contingent liabilities exclude
obligations under executory contracts such as operating leases. The exclusion of
such executory contracts, in our opinion, has no material effect on the excess
of Present Fair Saleable Value or Fair Market Value of assets over liabilities.
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VALUATION RESEARCH CORPORATION
Valuation has not made a specific compliance study or analysis of the Y2K issue
of Holdings, BFPH, BF Digital or their respective Subsidiaries, their customers
or suppliers and the effect, if any, that the Y2K issue may have on these
entities.
Based on the Projections and a debt repayment analysis by Valuation which
included extending the Projections through the year 2010, the Borrowers may not
be able to repay in full the Revolving Loans on the Revolving Loan Maturity
Date. We have assumed that the Borrowers will be able to refinance outstanding
Revolving Loans with a new revolving credit facility. We believe that it is not
unreasonable to make this assumption given BFPH and its Subsidiaries' (on a
consolidated basis) projected level of pre-tax operating cash flow, projected
interest coverage and projected leverage ratios, and current and projected level
of accounts receivables.
The Senior Subordinated Bridge Loans are required to be repaid in full on (a)
the earlier of one year following their initial funding date and (b) the closing
date of the Permanent Senior Subordinated Notes financing sufficient to repay
the Senior Subordinated Bridge Loans; provided, however, that if BFPH is unable
to raise the Permanent Senior Subordinated Notes financing before the date set
forth in (a) above, the Senior Subordinated Bridge Loans will be converted to a
senior term loan facility with a maturity of ten years following the initial
funding date of the Senior Subordinated Bridge Loans. Based on Valuation's debt
repayment analysis, BFPH and its Subsidiaries (on a consolidated basis) may not
generate sufficient free cash flow to repay in full principal amounts due under
the Permanent Senior Subordinated Notes or a senior term loan facility at their
maturity. We have assumed that BFPH will repay the Permanent Senior Subordinated
Notes or a senior term loan facility by refinancing amounts outstanding, raising
equity through either a private placement or public offering, or issuing new
debt. We believe that it is not unreasonable to make this assumption given BFPH
and its Subsidiaries' (on a consolidated basis) projected level of pre-tax
operating cash flow, projected interest coverage and leverage ratios, and
current and projected level of accounts receivables.
The Mezzanine Subordinated Debt is subordinated to borrowings under the Credit
Agreement and to the Senior Subordinated Bridge Loan facility and matures on the
eleventh anniversary of its issuance. Based on Valuation's debt repayment
analysis, Holdings and its Subsidiaries (on a consolidated basis) may not
generate sufficient free cash flow to repay the Mezzanine Subordinated Debt at
its maturity. We have assumed that Holdings will repay the Mezzanine
Subordinated Debt by refinancing amounts outstanding, raising equity through
either a private placement or public offering, or issuing new debt. We believe
that it is not unreasonable to make this assumption given Holdings and its
Subsidiaries' (on a consolidated basis) projected level of pre-tax operating
cash flow, projected interest coverage and leverage ratios, and current and
projected level of accounts receivables.
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Exhibit (b)(9)
December 7, 1999
To each of the Lenders party to the Credit Agreement (as defined below), The
Chase Manhattan Bank, as Administrative Agent, Bankers Trust Company, as
Syndication Agent, and Bank of America, N.A., as Documentation Agent;
The Board of Directors of Big Flower Holdings, Inc.;
The Board of Directors of BFH Merger Corp.; and
Thomas H. Lee Company
Ladies and Gentlemen:
Pursuant to an amended and restated agreement and plan of merger, dated as of
October 11, 1999 (the "Merger Agreement") between BFH Merger Corp. ("Merger
Sub") and Big Flower Holdings, Inc. ("BF Holdings"), BF Holdings will be
recapitalized in a transaction in which (a) Merger Sub shall be merged with and
into BF Holdings (the "Merger") with BF Holdings as the surviving corporation in
the Merger, (b) certain members of management of BF Holdings and its direct and
indirect subsidiaries will retain equity capital in BF Holdings with a value of
approximately $86.1 million (the "Equity Rollover"), and (c) and each
outstanding share of BF Holdings' common stock (other than shares comprising the
Equity Rollover, shares held by BF Holdings as treasury stock and shares held by
subsidiaries of BF Holdings) shall be converted into the right to receive from
BF Holdings following the Merger an amount of cash equal to $31.50, and each
option to acquire BF Holdings common stock outstanding immediately prior to the
Merger (other than options which will be converted into the right to receive
equity interests in BF Holdings or the Borrower (as defined below)) shall be
converted into the right to receive from BF Holdings following the Merger an
amount of cash equal to $31.50 less the exercise price of such option,
multiplied by the number of shares of BF Holdings common stock subject to such
option, for a total consideration of approximately $576.6 million (the value of
(b) and (c) not to exceed $662.7 million) (the "Recap Distribution") (the
transactions described in clauses (a), (b), and (c) being hereinafter called the
"Recapitalization').
In connection with the Recapitalization and pursuant to a stock purchase
agreement, dated as of the date hereof (the "Acquisition Agreement") among CJDS
Holdings, Inc. ("Holdings") and Big Flower Digital Services, Inc. ("BF
Digital"), Holdings will acquire all of the capital stock of Columbine JDS
Systems, Inc. (the "Borrower") from BF Digital for a total purchase price of
$164,944,437, payable at the closing by a wire
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VALUATION RESEARCH CORPORATION
transfer of $30,000,000 and a demand promissory note of Holdings (the
"Acquisition Note") to BF Digital in the amount of $134,944,437 (the
"Acquisition"). In order to consummate the Transaction (as defined below), (a)
Holdings will receive cash proceeds of up to $37.0 million (such amount to be
reduced by the investment by management of the Borrower and its subsidiaries
through the purchase of shares of Holdings common stock or rights in a rabbi
trust to receive shares of Holdings common stock) from the issuance of Holdings
common stock ("Holdings Common Stock") to Thomas H. Lee Company and its
affiliates ("THL") and Evercore Partners L.P. and its affiliates ("EVP" and,
together with THL, the "Equity Investors") (the "Common Equity Financing"), (b)
the Borrower will receive gross cash proceeds equal to $35.0 million from the
issuance of unsecured subordinated notes to THL due 2009 (the "Mezzanine
Subordinated Debt") and (c) members of senior management of the Borrower and its
subsidiaries (the "Management Participants") and certain other investors will
exchange shares of common stock (and/or options to purchase common stock) of BF
Holdings for shares of Holdings Common Stock or rights in a rabbi trust to
receive shares of Holdings Common Stock (the "Equity Exchange" and, together
with the Common Equity Financing, the "Equity Financing"). Additionally, the
Borrower will obtain $100.0 million from borrowings under a new senior credit
facility (the "Term Loans" and the "Multicurrency Facility Revolving Loans")
pursuant to the Agreement (as defined below). The proceeds of the Term Loans,
the Multicurrency Facility Revolving Loans and the Mezzanine Subordinated Debt
issuance will be used by the Borrower to make a cash dividend of up to $135.0
million to Holdings (the "Acquisition Dividend") immediately after the
consummation of the Acquisition, and Holdings will use the proceeds from the
Acquisition Dividend to repay the Acquisition Note to BF Digital issued in
connection with the Acquisition.
Holdings and the Borrower have entered into a Credit Agreement dated as of the
date hereof (the "Agreement") with various lenders party thereto from time to
time (the "Lenders"), Chase Securities, Inc. and Deutsche Bank Securities Inc.,
as Joint Lead Arrangers and Joint Book Managers, The Chase Manhattan Bank, as
Administrative Agent, Bankers Trust Company, as Syndication Agent, and Bank of
America, N.A., as Documentation Agent, pursuant to which new senior secured
credit facilities will be made available to the Borrower. Unless otherwise
defined herein, capitalized terms used herein shall have the meanings ascribed
to them in the Agreement.
The facilities made available to the Borrower under the Agreement include (a) up
to $70.0 million of Term Loans, comprised of the Tranche A Term Loans maturing
on the Tranche A Term Loan Maturity Date and the Tranche B Term Loans maturing
on the Tranche B Term Loan Maturity Date and (b) up to $45.0 million of
Multicurrency Facility Revolving Loans (including sublimits for Multicurrency
Facility Swingline Loans and Letters of Credit) maturing on the Multicurrency
Facility Revolving Loan Maturity Date. Loans made available to the Borrower will
be guaranteed by Holdings and the Subsidiary Guarantors.
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VALUATION RESEARCH CORPORATION
For purposes of this letter, the "Transaction" means (a) the consummation of the
Acquisition (including the issuance of the Acquisition Note), (b) the
consummation of the Equity Financing, (c) the incurrence of the Mezzanine
Subordinated Debt, (d) the payment of the Acquisition Dividend and the repayment
of the Acquisition Note, (e) the entering into of the Credit Documents and the
incurrence of the Term Loans and the Multicurrency Facility Revolving Loans
thereunder on the Initial Borrowing Date and (f) the payment of fees and
expenses in connection with foregoing.
This letter is provided by Valuation Research Corporation ("Valuation")
reporting the performance of certain procedures undertaken by Valuation which
form the basis for Valuation's opinion, as of the date hereof, stated below
("Opinion") delivered at the request of the Lenders pursuant to Section 5.07
(i)(y) of the Agreement and at the request of the Board of Directors of BF
Holdings and the Board of Directors of Merger Sub pursuant to Section 6.01(b) of
the Merger Agreement, that immediately after and giving effect to the
consummation of the Transaction:
(a) The Fair Market Value of the assets of the Borrower and its
Subsidiaries, (as defined in the Merger Agreement) on a
consolidated basis, exceeds and will exceed its liabilities
(including, without limitation, New Financing, Stated
Liabilities and Identified Contingent Liabilities, each as
defined below);
(b) The Present Fair Saleable Value of the assets of the Borrower
and its Subsidiaries, on a consolidated basis, exceeds and
will exceed its probable liabilities on its debts (including,
without limitation, New Financing, Stated Liabilities, and
Identified Contingent Liabilities) as such debts become
absolute and mature;
(c) The Borrower and its Subsidiaries, on a consolidated basis, is
and will be able to pay its debts (including, without
limitation, New Financing, Stated Liabilities, and Identified
Contingent Liabilities) as such debts mature during the normal
course of business;
(d) The Borrower and its Subsidiaries, on a consolidated basis,
will not have Unreasonably Small Capital (as defined below)
with which to conduct its present and anticipated business;
and
(e) The Fair Market Value of the assets of the Borrower and its
Subsidiaries, on a consolidated basis, exceeds its liabilities
(including, without limitation, New Financing, Stated
Liabilities and Identified Contingent Liabilities) plus the
total par value of its capital stock.
The Opinion rendered is with respect to the Borrower and its Subsidiaries, on a
consolidated basis, as a going concern, immediately after and giving effect to
the Transaction and the associated indebtedness. In the course of preparing this
Opinion, nothing has come to our attention that causes us to believe that the
Borrower and its Subsidiaries, on a consolidated basis, would not be a going
concern. For the purposes of this Opinion, the following terms are defined:
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VALUATION RESEARCH CORPORATION
(a) Fair Market Value
The amount at which the aggregate assets of an entity would
change hands between a willing buyer and a willing seller,
within a commercially reasonable period of time, each having
reasonable knowledge of the relevant facts, neither being
under any compulsion to act, with equity to both.
(b) Present Fair Saleable Value
The aggregate amount that would be obtained by an independent
willing seller from an independent willing buyer if an
entity's assets are sold as an entirety with reasonable
promptness in an arm's-length transaction under present
conditions for the sale of assets as an entirety of the
business comprising such entity.
(c) Stated Liabilities
The recorded liabilities of the Borrower and its Subsidiaries,
on a consolidated basis, pursuant to its unaudited pro forma
balance sheet as of November 30, 1999, as provided by
management of BF Holdings ("Management"). Stated Liabilities
exclude indebtedness under New Financing (as defined below).
Valuation has made inquiries of Management and has been
advised by Management that there are no material adverse
changes in Stated Liabilities between the date of the
information shown on such balance sheet and the date hereof.
Based on our inquiries with this letter, we have no reason to
believe that there has been any such material adverse change.
(d) New Financing
The indebtedness being incurred, assumed or guaranteed by
Holdings, the Borrower, or the Subsidiary Guarantors, as the
case may be, pursuant to the Agreement and/or the other Credit
Documents and from the issuance of the Mezzanine Subordinated
Debt.
(e) Identified Contingent Liabilities
The maximum amount of contingent liabilities that may result
from pending, threatened and anticipated litigation, asserted,
anticipated and unasserted claims and assessments, guaranties,
environmental conditions, uninsured risks, and other
contingent liabilities as identified and explained to us in
terms of their nature and estimated dollar magnitude by
Management. We do not give any opinion as to whether such
contingent liabilities meet the criteria for accrual under
Statement of Financial Accounting Standards No. 5. Based on
our reasonable inquiries and
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VALUATION RESEARCH CORPORATION
analysis in connection with this letter, we have no reason to
believe that Identified Contingent Liabilities are materially
understated, and nothing has come to our attention suggesting
that material contingent liabilities have not been identified
or disclosed.
(f) Unreasonably Small Capital
This phrase relates to the ability of the Borrower and its
Subsidiaries, on a consolidated basis, after giving effect to
the incurrence of New Financing and after consummation of the
Transaction to continue as a going concern and not lack
sufficient capital for its present and anticipated needs,
including, without limitation, payment of Identified
Contingent Liabilities as they become absolute and matured,
without substantial unplanned disposition of assets outside
the ordinary course of business, restructuring of debt,
externally forced revisions of its operations, or similar
actions.
We believe the foregoing definitions are reasonable and appropriate for purposes
of rendering the Opinion, and we believe that the methodologies we use in our
analyses are appropriate for determining Fair Market Value, Present Fair
Saleable Value and Unreasonably Small Capital as defined herein. Based on our
inquiry, we believe it is appropriate for us to value the Borrower and its
Subsidiaries on a consolidated basis and as going concern as part of our
analyses relating to this Opinion.
In expressing its Opinion, Valuation has relied on information and analyses
furnished by and/or discussions held with Management and the Equity Investors,
which information and analyses have been the subject of review by Valuation and
have been the subject of discussion and inquiry. Valuation does not assume any
responsibility for the sufficiency and accuracy of the information. Nothing has
come to Valuation's attention in the course of its review that would lead it to
believe that any such information is incorrect in any material respect or that
it was unreasonable for Valuation to utilize and rely upon the information. Such
data has been accepted as reasonably reflecting the Transaction, the financial
condition of the Borrower and its Subsidiaries, on a consolidated basis, and its
past and future operations. All items subject to audit pursuant to generally
accepted auditing standards and in conformity with generally accepted accounting
principles ("GAAP") have been relied upon without review, check, or
verification, and nothing has come to our attention that would cause us to
believe the information is incorrect in any material respect or that it was
unreasonable for Valuation to utilize and rely upon the information. Valuation
has performed certain analyses, studies, and investigations more fully described
herein in support of its Opinion. Further, the Opinion expressed herein is
subject to the General Limiting Conditions and Assumptions attached hereto as
Exhibit A.
Valuation has reviewed available historical financial information of the
Borrower and its Subsidiaries, on a consolidated basis, in addition to
background data and material considered appropriate to the Opinion expressed and
referenced below. Such areas of investigation include, but are not limited to: o
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VALUATION RESEARCH CORPORATION
- - An overview of the software industry in which the Borrower competes,
including an analysis of companies engaged in similar lines of business
as the Borrower and a review of acquisitions of companies engaged in
similar lines of business.
- - A visit to BF Holdings' corporate headquarters in New York, which visit
included discussion of the business and prospects of the Borrower, with
Management, including discussions of the business, historical and
projected profitability, key competitors, customer relationships,
business risks and key actions to be taken in the near term, among
other factors.
- - Review of the Borrower and its Subsidiaries' consolidated balance
sheets as of December 31, 1998 and 1997 and the related consolidated
statements of operations, stockholder's equity (deficit), and cash
flows for the year ended December 31, 1998, the two months ended
December 31, 1997, the ten months ended October 31, 1997, and the year
ended December 31, 1996.
- - Review of the Columbine Confidential Information Memorandum dated
November 1999 (the "Columbine Confidential Information Memorandum").
- - Review of the Borrower's projected consolidated income statements,
balance sheets, cash flow statements, credit statistics and other
projected financial information for the years 1999 through 2008 (the
"Projections"), and Management assumptions thereto, as provided by
Management and the Equity Investors.
- - Performance of sensitivity analyses with respect to the Projections.
- - Review of the Agreement and other Credit Documents.
- - Review of the Acquisition Documents.
- - Inquiries of members of Management who have responsibility for legal,
financial, and accounting matters as to the existence, nature, and
magnitude of Identified Contingent Liabilities. Because the Identified
Contingent Liabilities are estimates of Management, we express no
opinion as to the completeness or propriety of such items. However,
after discussion with Management with respect thereto, and based on our
experience in reviewing such liabilities, nothing has come to our
attention in the course of our review which would suggest that any such
information is incorrect in any material respect or unreasonable for
Valuation to utilize.
For purposes of this Opinion, Valuation has assumed that there will be no
material change in any documents in Valuation's possession as of the date
herein.
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VALUATION RESEARCH CORPORATION
Valuation has discussed financial and operating matters of the Borrower and its
Subsidiaries, on a consolidated basis, with Management. Valuation has reviewed
the Projections prepared by Management and the Equity Investors and discussed
the Projections with Management and the Equity Investors. This review included,
but was not limited to, discussions of basic assumptions made in preparing the
Projections relating to revenue growth, operating margins, and capital
expenditure and working capital requirements. Nothing has come to our attention
that would cause us to believe the basic assumptions made in preparing the
Projections are unreasonable or unattainable. We believe that the review we have
conducted and the analyses and procedures undertaken are those generally
considered appropriate for expressing the Opinion set forth herein.
Based on the foregoing review, procedures and analyses, we express the following
Opinion as of the date hereof, that immediately after and giving effect to the
consummation of the Transaction, subject to the General Limiting Conditions and
Assumptions set forth in Exhibit A hereto:
(a) The Fair Market Value of the assets of the Borrower and its
Subsidiaries, on a consolidated basis, exceeds and will exceed
its liabilities (including, without limitation, New Financing,
Stated Liabilities, and Identified Contingent Liabilities);
(b) The Present Fair Saleable Value of the assets of the Borrower
and its Subsidiaries, on a consolidated basis, exceeds and
will exceed its probable liabilities on its debts (including,
without limitation, New Financing, Stated Liabilities, and
Identified Contingent Liabilities) as such debts become
absolute and mature;
(c) The Borrower and its Subsidiaries, on a consolidated basis, is
and will be able to pay its debts (including, without
limitation, New Financing, Stated Liabilities, and Identified
Contingent Liabilities) as such debts mature during the normal
course of business;
(d) The Borrower and its Subsidiaries, on a consolidated basis,
will not have Unreasonably Small Capital with which to conduct
its present and anticipated business; and
(e) The Fair Market Value of the assets of the Borrower and its
Subsidiaries, on a consolidated basis, exceeds its liabilities
(including, without limitation, New Financing, Stated
Liabilities and Identified Contingent Liabilities) plus the
total par value of its capital stock.
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VALUATION RESEARCH CORPORATION
This letter may be relied upon and disclosed as provided for in Exhibit A.
Respectfully submitted,
VALUATION RESEARCH CORPORATION
/s/ Valuation Research Corporation
Engagement Number: 04-3185-00
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VALUATION RESEARCH CORPORATION
EXHIBIT A
GENERAL LIMITING CONDITIONS AND ASSUMPTIONS
In accordance with recognized professional standards as generally practiced in
the valuation industry, the fee for these services is not contingent upon the
conclusions contained herein. Valuation has determined to the best of its
knowledge and in good faith that neither it nor any of its agents or employees
have any material financial interest in Holdings, the Borrower or their
Subsidiaries.
Neither Valuation, nor its agents or employees, assume any responsibility for
matters legal in nature, nor do they render any opinion as to any title to, or
legal status of, property which may be involved, both real and personal,
tangible and intangible.
Valuation assumes that all laws, statutes, ordinances, or other regulations, or
regulations of any governmental authority relevant to and in connection with
this engagement are complied with by each relevant party other than Valuation
unless express written noncompliance is brought to the attention of Valuation
and is stated and defined by those relied on by Valuation.
Valuation has relied on certain information furnished by others, including but
not limited to, BF Holdings and the Equity Investors, without verification,
other than the procedures specified in Valuation's letter attached hereto.
Valuation believes such information to be reliable as to accuracy and
completeness but offers no warranty or representation to that effect; however,
nothing has come to our attention in the course of this engagement that would
cause us to believe that any information is inaccurate in any material respect
or that it is unreasonable to utilize and rely upon such information. The
information relied upon generally includes, but is not limited to, financial
analyses and forecasts; historical, pro forma, audited and unaudited financial
statements; and Management analyses and forecasts.
Where there may be real property involved in the Transaction, unless
specifically stated, Valuation has not made a land survey of the property, but
has relied on information furnished by BF Holdings. It is assumed that there are
no hidden or inapparent conditions of the property, subsoil, or structures
thereon that render it more or less valuable except as disclosed in
environmental reports. No responsibility is assumed for such conditions or for
arranging for engineering studies that may be required to discover them.
Valuation assumes in the case of leases of real and other property that the
Transaction will not trigger any renegotiations of such leases to market rates
based upon the financial condition of the Borrower and its Subsidiaries, on a
consolidated basis, arising out of the Transaction that would, in the aggregate,
be material to the Borrower and its Subsidiaries, on a consolidated basis. In
connection with this matter, we have no reason to believe that there will be any
material adverse effect on the Borrower and its Subsidiaries, on a consolidated
basis, arising from the consummation of the Transaction.
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VALUATION RESEARCH CORPORATION
Valuation is not an environmental consultant or auditor, and it takes no
responsibility for any actual or potential environmental liabilities. Valuation
does not conduct or provide environmental assessments and has not performed one
for any property of the Borrower or its Subsidiaries.
Valuation has asked Management whether the Borrower and its Subsidiaries, on a
consolidated basis, is subject to any present or future liability relating to
environmental matters (including but not limited to CERCLA/Superfund liability).
Valuation has not determined independently whether the Borrower and its
Subsidiaries, on a consolidated basis, is subject to any such liabilities, nor
the scope of any such liabilities. Valuation's Opinion takes no such liabilities
into account except as they have been reported expressly to Valuation by BF
Holdings, or by an environmental consultant working for BF Holdings or the
Equity Investors, and then only to the extent that the liability was reported to
us in an actual or estimated dollar amount. To the extent such information has
been reported to us, Valuation has relied on it without verification and offers
no warranty or representation as to its accuracy or completeness.
In some instances, public information and statistical information have been
obtained from sources Valuation has accepted as being reliable. These sources
include annual reports to shareholders and the Form 10-Ks and Form 10-Qs filed
with the Securities and Exchange Commission of companies reviewed within the
industry in which the Borrower and its Subsidiaries compete, VALUE LINE
INVESTMENT SURVEY, and STANDARD & POOR'S INDUSTRY SURVEYS; however, Valuation
makes no representation as to the accuracy or completeness of such information
and has accepted the information without further verification, but nothing has
come to Valuation's attention which would lead it to believe that such
information is incorrect or incomplete in any material respect.
The Opinion of Valuation does not represent an assurance, guarantee, or warranty
that the Borrower, or the Subsidiary Guarantors will meet all of their
obligations under the Agreement or in connection with the Mezzanine Subordinated
Debt.
Valuation makes no assurance, guarantee, or warranty that the covenants for the
New Financing will not be broken in the future.
Valuation has analyzed and reviewed the Transaction and provided the Opinion for
solvency purposes only and for no other purpose. Valuation's Opinion is in no
way given as an indication of the fairness of the Transaction to any shareholder
of BF Holdings, the Borrower, their Subsidiaries, the Equity Investors or any
equity participant in the Transaction.
The Opinion expressed herein is valid only for the express and stated purposes
of providing information and assistance to the parties to whom it is addressed
and their counsel and specific agents and their respective assignees and
participants in connection with the Transaction and their counsel and specific
agents and is not in any way, implied or expressed, to be construed, used,
circulated, quoted, relied upon or otherwise referred to for any other purpose
without the written consent of Valuation, which will not be unreasonably
withheld. In addition, Valuation hereby consents to (i) the filing and
disclosure of the Opinion with the Securities and Exchange Commission (the
"SEC") and any state securities commission or blue sky authority, or other
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governmental authority or agency if such filing or disclosure is required
pursuant to the rules, statutes, and regulations thereof, or required by
applicable law, (ii) the disclosure of the Opinion upon demand, order or request
of any court, administrative or governmental agency, regulatory body or examiner
(whether or not such demand, order or request has the force of law) or as may be
required or appropriate in response to any summons, subpoena, or discovery
requests, (iii) the use or disclosure of the Opinion in any pending or
threatened litigation, judicial, or administrative proceeding (including,
without limitation, any proceeding in bankruptcy) or inquiry, or government
investigation, (iv) the attachment of the Opinion as an exhibit to the Credit
Documents governing the senior debt financing by the Lenders and Issuing Lender
or other Lenders and financial institutions who, in the future, may extend
credit to the Borrower as an exhibit to any documents governing debt financing
by other financing sources, (v) the disclosure of the Opinion in connection with
(a) the prospective sale, assignment, participation or any other disposition by
any Lender, Issuing Lender or financing source of any right or interest in the
debt financing by such Lender, Issuing Lender or financing source, (b) an audit
of any Lender, Issuing Lender or financing source by an independent public
accountant or any administrative agency or regulatory body or examiner or (c)
the exercise of any right or remedy by any Lender, or Issuing Lender or
financing source in connection with the debt financing, (vi) the disclosure of
the Opinion as may be requested, required or ordered in, or to protect a
Lender's, Issuing Lender's or financing source's interest in, any litigation,
administrative, judicial or governmental proceeding, or investigation to which
any Lender, Issuing Lender or financing source is subject or purported to be
subject, or (vii) the disclosure of the Opinion as otherwise required by, or as
reasonably determined by any Lender, Issuing Lender or financing source to be
required by, any law, order, statute, regulation or ruling applicable to such
Lender, Issuing Lender or financing source. Valuation has no responsibility to
update the Opinion stated herein for events and circumstances occurring after
the date of this letter.
Any further consultation, testimony, attendance or research in reference to the
present engagement beyond the Opinion expressed herein as of the date herein are
subject to agreement by Valuation in specific written arrangements between the
parties.
No representation is made herein as to the legal sufficiency of the above
definitions (term definitions contained in the body of the Opinion) for any
purpose; such definitions are used solely for setting forth the scope of this
Opinion and Valuation believes such definitions to be reasonable for the
purposes of rendering this Opinion.
The determination of Present Fair Saleable Value and Fair Market Value of the
aggregate assets results from the development and analysis of several value
indications arrived at through the use of accepted valuation procedures as
practiced in the valuation industry. These procedures included the Asset-Based
Approach, the Income Approach and the Market Approach, as described below, which
we believe to be procedures appropriate to express the Opinion herein.
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VALUATION RESEARCH CORPORATION
The Asset-Based Approach is based directly on the value of the underlying assets
of a business. Our procedures in connection with this approach were limited to a
review of the consolidated financial statements of the Borrower and its
Subsidiaries, including a general review of the current assets and intangible
assets of the Borrower and its Subsidiaries, on a consolidated basis, as well as
the other procedures outlined herein.
The Income Approach utilized cash flow projections discounted to a present
value. The discount rates selected were based on risk and return requirements
deemed appropriate by Valuation, given the facts and circumstances surrounding
the Transaction. The discount rates were based upon a weighted average cost of
capital concept, which considers the after-tax cost of debt and equity. The
after-tax costs were derived, among other factors, from our review of the
current credit and equity markets. The discount rate included a risk premium
over and above the required return associated with risk-free investments such as
U.S. Government treasury bonds.
The Market Approach is a valuation technique in which the estimated market value
is based on market prices in actual transactions. The technique consists of
undertaking a detailed market analysis of publicly traded companies and
acquisitions of companies that provide a reasonable basis for comparison to the
relative investment characteristics of the subject entity. Valuation ratios
derived from the guideline companies are then selected and applied to the
subject entity after consideration of adjustments for dissimilarities in
financial position, growth prospects, market position, profitability, capital
structure and other factors. The companies reviewed were generally enagaged in
the software industry.
Material changes in the industry or business segment in which the Borrower
competes or in general market conditions which might affect the Borrower and its
Subsidiaries, on a consolidated basis, from and after the date herein and which
are not reasonably foreseeable are not taken into account.
Our conclusion of Present Fair Saleable Value and Fair Market Value of assets is
for the aggregate or total assets of the Borrower and its Subsidiaries, on a
consolidated basis, after giving effect to the Transaction. Nothing has come to
our attention that would cause us to believe that the Present Fair Saleable
Value of assets is materially different from the Fair Market Value of assets.
Amounts payable with respect to Identified Contingent Liabilities cannot be
predicted with exact certainty. In addition, contingent liabilities exclude
obligations under executory contracts such as operating leases. The exclusion of
such executory contracts, in our opinion, has no material effect on the excess
of Present Fair Saleable Value or Fair Market Value of assets over liabilities.
Valuation has not made a specific compliance study or analysis of the Y2K issue
of the Borrower or its Subsidiaries, their customers or suppliers and the
effect, if any, that the Y2K issue may have on these entities.
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VALUATION RESEARCH CORPORATION
Based on Valuation's review of the Projections, the Borrower and its
Subsidiaries, on a consolidated basis, may not generate sufficient free cash
flow to repay the Multicurrency Facility Revolving Loans in full by the
Multicurrency Facility Revolving Loan Maturity Date. Although it is not
unreasonable to expect that the Borrower will be able to refinance the
Multicurrency Facility Revolving Loans based on the projected capital structure,
there can be no assurance that any such refinancing will be effected. We have
assumed that the Borrower will be able to refinance outstanding Multicurrency
Facility Revolving Loans with a new revolving credit facility. We believe that
it is not unreasonable to make this assumption given the consolidated projected
level of pre-tax operating cash flow, projected interest coverage and leverage
ratios, and current and projected levels of accounts receivables.
