<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
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>
$629,671,523.44 $125,934.0
</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 $629,671,523.44 has been calculated pursuant to
Exchange Act Rule 0-11 by (a) multiplying $27.8125 (the average of the high
and low prices of Big Flower common stock on October 22, 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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<PAGE>
INTRODUCTION
This Rule 13e-3 transaction statement on Schedule 13E-3 is being filed with
the Securities and Exchange Commission (the "Commission") by Big Flower
Holdings, Inc. ("Big Flower"), BFH Merger Corp. ("BFH Merger Corp."), Thomas H.
Lee Equity Fund IV, L.P. ("THL Equity Fund IV"), THL Equity Advisors IV, LLC
("THL Advisors"), Evercore Partners L.L.C. ("Evercore Partners L.L.C."),
Evercore Capital Partners L.P. ("Evercore Capital Partners"), Evercore Capital
Partners (NQ) L.P. ("Evercore NQ"), Evercore Capital Offshore Partners L.P.
(Cayman) ("Evercore Offshore"), EBF Group L.L.C. ("EBF Group") and the following
executive officers and management directors of Big Flower: R. Theodore Ammon,
Edward T. Reilly and Richard L. Ritchie. This transaction statement relates to
the 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.
Concurrently with the filing of this transaction statement, Big Flower is
filing with the Commission a definitive proxy statement on Schedule 14A (the
"Proxy Statement") relating to the annual meeting of stockholders of Big Flower.
At the Big Flower meeting, the stockholders of Big Flower will consider and vote
upon: 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. A copy of the Proxy Statement is attached hereto as
Exhibit (d), and a copy of the Merger Agreement is attached as Appendix A to the
Proxy Statement.
The Cross Reference Sheet herein is supplied pursuant to General Instruction
F to Schedule 13E-3 and shows the location in the Proxy Statement that responds
to each item of this statement. The information in the Proxy Statement,
including all exhibits thereto, is hereby expressly incorporated by reference to
this transaction statement, and the responses to each item are qualified in
their entirety by the provisions of the Proxy Statement. Capitalized terms used
but not defined in this statement shall have the meanings given to them in the
Proxy Statement.
2
<PAGE>
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM OF SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT (INCORPORATED HEREIN BY REFERENCE)
- ---------------------- --------------------------------------------------------------
<S> <C>
</TABLE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
<TABLE>
<CAPTION>
(a). Cover Page; "Description of Big Flower".
<S> <C>
(b)............................ "Summary--The Big Flower Meeting"; "Market Price and
Dividend Data--Number of Stockholders"; "The Big Flower
Meeting--Voting".
(c)............................ "Special Factors--Effect of the Merger on Big Flower Capital
Stock"; "Market Price and Dividend Data".
(d)............................ "Market Price and Dividend Data--Dividend Information".
(e)............................ "Market Price and Dividend Data".
(f)............................ Appendix E--"Transactions Involving Big Flower Common Stock
by Thomas H. Lee Equity Fund IV, L.P., THL Equity Advisors
IV, LLC, Evercore Partners L.L.C., Evercore Capital Partners
L.P., Evercore Capital Partners (NQ) L.P., Evercore Capital
Offshore Partners L.P. (Cayman), EBF Group L.L.C., Big
Flower and Executive Officers and Directors of Big Flower".
</TABLE>
ITEM 2. IDENTITY AND BACKGROUND.
This Transaction Statement is being filed by the issuer of the class of
equity securities which is the subject of the Rule 13e-3 transaction, jointly
with BFH Merger Corp., Evercore Capital Partners, Evercore Partners L.L.C.,
Evercore NQ, Evercore Offshore, EBF Group, THL Equity Fund IV, THL Advisors, A.
Theodore Ammon, Edward T. Reilly and Richard L. Ritchie.
<TABLE>
<CAPTION>
(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 Part-
ners"; 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".
<S> <C>
(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, con-
victed in a criminal proceeding (excluding traffic violations or similar
proceedings) or (b) was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order
enjoining further violations of, or prohibiting activities subject to,
federal or state securities laws or finding any violation of such laws.
</TABLE>
3
<PAGE>
ITEM 2. IDENTITY AND BACKGROUND. (CONTINUED)
<TABLE>
<CAPTION>
ITEM OF SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT (INCORPORATED HEREIN BY REFERENCE)
- ---------------------- --------------------------------------------------------------
<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>
<CAPTION>
(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 Capi-
tal Partners (NQ) L.P., Evercore Capital Offshore Partners L.P. (Cay-
man), EBF Group L.L.C., Big Flower and Executive Officers and Direc-
tors of Big Flower."
<S> <C>
(a)(2)......................... "Special Factors--Background of the Merger".
(b)............................ "Special Factors--Conflicts of Interest of Certain Members of the Big
Flower Board of Directors and Management"; "Special Factors--Back-
ground of the Merger".
</TABLE>
ITEM 4. TERMS OF THE TRANSACTION.
<TABLE>
<CAPTION>
(a). "Questions and Answers About the Merger"; "Summary"; "Special Fac-
tors"; "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."
<S> <C>
(b)............................ "Questions and Answers About the Merger"; "Summary--Conflicts of
Interests of Management Members of the Big Flower Board and Man-
agement"; "Special Factors--Conflicts of Interest of Certain Members of
the Big Flower Board of Directors and Management"; "The Merger
Agreement--Consideration to Be Received in the Merger"; "The Merger
Agreement--Covenants".
</TABLE>
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
4
<PAGE>
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (CONTINUED)
<TABLE>
<CAPTION>
ITEM OF SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT (INCORPORATED HEREIN BY REFERENCE)
- ---------------------- --------------------------------------------------------------
<S> <C>
(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."
(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".
(e)............................ "Description of Big Flower Capital Stock Following the
Merger"; "Special Factors--Consequences of the Merger; Plans
for Big Flower After the Merger"; "Special Factors--Source and
Amount of Funds"; "Capitalization"; "Sources and Uses".
(f)............................ "Special Factors--Effect of the Merger on Big Flower Capital
Stock".
(g)............................ "Special Factors--Effect of the Merger on Big Flower Capital
Stock".
</TABLE>
ITEM 6. SOURCES AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
<TABLE>
<CAPTION>
(a). "Summary--Source and Amount of Funds and Other Consideration";
"Special Factors--Source and Amount of Funds"; "Sources and Uses".
<S> <C>
(b)............................ "Special Factors--Fees and Expenses of the Merger"; "The Merger
Agreement--Fees and Expenses".
(c)............................ "Special Factors--Source and Amount of Funds"; "Capitalization";
"Sources and Uses".
(d)............................ Not Applicable.
</TABLE>
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS.
<TABLE>
<CAPTION>
(a). "Special Factors--Background of the Merger"; "Special Factors--Big
Flower's Reasons for the Merger; Recommendation of the Big Flower
Board of Directors".
<S> <C>
(b)............................ "Special Factors--Background of the Merger"; "Special Factors--Big
Flower's Reasons for the Merger; Recommendation of the Big Flower
Board of Directors".
</TABLE>
5
<PAGE>
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS. (CONTINUED)
<TABLE>
<CAPTION>
ITEM OF SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT (INCORPORATED HEREIN BY REFERENCE)
- ---------------------- --------------------------------------------------------------
<S> <C>
(c)............................ "Special Factors--Background of the Merger"; "Special
Factors--Big Flower's Reasons for the Merger; Recommendation
of the Big Flower Board of Directors".
(d)............................ "Questions and Answers About the Merger"; "Summary--What You
Will Receive in the Merger"; "Summary--Conflicts of Interests
of Management Members of the Big Flower Board and Management";
"Special Factors--Consequences of the Merger; Plans for Big
Flower After the Merger"; "Special Factors--Effect of the
Merger on Big Flower Capital Stock"; "Capitalization";
"Sources and Uses"; "United States Federal Income Tax
Considerations"; "Special Factors--Accounting Treatment";
"Directors and Management of Big Flower Following the Merger".
</TABLE>
ITEM 8. FAIRNESS OF THE TRANSACTION.
<TABLE>
<CAPTION>
(a) and (b). "Summary--Recommendation of the Big Flower Board"; "Special Fac-
tors--Background of the Merger"; "Special Factors--Big Flower's Rea-
sons for the Merger; Recommendation of the Big Flower Board of Direc-
tors"; "Special Factors--Opinions of Big Flower's Financial Advisors";
"Special Factors--Fairness of the Merger".
<S> <C>
(c)............................ "The Big Flower Meeting--Voting".
(d)............................ "Special Factors--Background of the Merger"; "Special Factors--Big
Flower's Reasons for the Merger; Recommendation of the Big Flower Board
of Directors"; "Special Factors--Opinions of Big Flower's Financial
Advisors"; "Special Factors--Fairness of the Merger".
(e)............................ "Summary--Recommendation of the Big Flower Board"; "Special Fac-
tors--Background of the Merger"; "Special Factors--Conflicts of Interest
of Certain Members of the Big Flower Board of Directors and Manage-
ment"; "Special Factors--Fairness of the Merger"; "Special Factors--Big
Flower's Reasons for the Merger; Recommendation of the Big Flower Board
of Directors".
(f)............................ "Special Factors--Background of the Merger"; "Special Factors--Big
Flower's Reasons for the Merger; Recommendation of the Big Flower Board
of Directors".
</TABLE>
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
6
<PAGE>
<TABLE>
<CAPTION>
ITEM OF SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT (INCORPORATED HEREIN BY REFERENCE)
- ---------------------- --------------------------------------------------------------
<S> <C>
</TABLE>
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
<TABLE>
<CAPTION>
ITEM OF SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT (INCORPORATED HEREIN BY REFERENCE)
- ---------------------- --------------------------------------------------------------
<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.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
<TABLE>
<CAPTION>
(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".
<S> <C>
(b)............................ "Summary--Recommendation of the Big Flower Board"; "The Big Flower
Meeting--General"; "Special Factors--Big Flower's Reasons for the
Merger; Recommendation of the Big Flower Board of Directors"; "Special
Factors--Fairness of the Merger".
</TABLE>
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
<TABLE>
<CAPTION>
(a). "Summary--Appraisal Rights"; "Appraisal Rights"; Appendix D--
"Section 262 of the Delaware General Corporation Law".
<S> <C>
(b)............................ Not Applicable.
(c)............................ Not Applicable.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
ITEM OF SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT (INCORPORATED HEREIN BY REFERENCE)
- ---------------------- --------------------------------------------------------------
<S> <C>
</TABLE>
ITEM 14. FINANCIAL INFORMATION.
<TABLE>
<CAPTION>
ITEM OF SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT (INCORPORATED HEREIN BY REFERENCE)
- ---------------------- --------------------------------------------------------------
<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>
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
<TABLE>
<CAPTION>
(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."
<S> <C>
(b)............................ "The Big Flower Meeting--Solicitation of Proxies".
</TABLE>
ITEM 16. ADDITIONAL INFORMATION.
8
<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.*
Exhibit(c) Equity Contribution Commitment Letter from Thomas H. Lee
Equity Fund IV, L.P. and Evercore Capital Partners L.P.,
dated October 11, 1999.*
Exhibit(d) 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 herewith.
9
<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
10
<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 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 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 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 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 is incorporated herein by reference.
(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 is incorporated herein by reference.
11
<PAGE>
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (CONTINUED)
(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 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 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 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.
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 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 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 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
12
<PAGE>
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS. (CONTINUED)
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 is
incorporated herein by reference.
(c) The information set forth in "The Big Flower Meeting--Voting" 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 is
incorporated herein by reference.
(e) The information set forth in "Summary--Recommendation of the Big
Flower Board"; "Special Factors--Background of the Merger"; "Special
Factors--Conflicts of Interest of Certain Members of the Big Flower
Board of Directors and Management"; "Special Factors--Fairness of
the Merger"; and "Special Factors--Big Flower's Reasons for the
Merger; Recommendation of the Big Flower Board of Directors" of the
Proxy Statement is incorporated herein by reference.
(f) The information set forth in "Special Factors--Background of the
Merger"; and "Special Factors--Big Flower's Reasons for the Merger;
Recommendation of the Big Flower Board of Directors" of the Proxy
Statement 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 is incorporated
herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in "Special Factors--Conflicts of Interest of
Certain Members of the Big Flower Board of Directors and Management";
"Directors and Management of Big Flower Following the Merger"; and "Other
Information for the Big Flower Meeting--Voting Securities and Principal
Holders Thereof" of the Proxy Statement is incorporated herein by
reference.
13
<PAGE>
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER. (CONTINUED)
(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.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) The information set forth in "Summary--The Big Flower Meeting";
"Summary--Recommendation of the Big Flower Board"; "The Big Flower
Meeting--Voting"; "Special Factors--Conflicts of Interest of Certain
Members of the Big Flower Board of Directors and Management"; "Special
Factors--Big Flower's Reasons for the Merger; Recommendation of the Big
Flower Board of Directors"; "Special Factors--Source and Amount of
Funds"; and "Special Factors--Fairness of the Merger" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth in "Summary--Recommendation of the Big Flower
Board"; "The Big Flower Meeting--General"; "Special Factors--Big Flower's
Reasons for the Merger; Recommendation of the Big Flower Board of
Directors"; and "Special Factors--Fairness of the Merger" of the Proxy
Statement is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "Summary--Appraisal Rights"; "Appraisal
Rights"; and Appendix D--"Section 262 of the Delaware General Corporation
Law" of the 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
14
<PAGE>
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED. (CONTINUED)
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 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 the Appendices and Exhibits attached thereto are
incorporated herein by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit(a) (1) Senior Credit Facility Commitment Letter from the 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.*
Exhibit(c) Equity Contribution Commitment Letter from Thomas H. Lee
Equity Fund IV, L.P. and Evercore Capital Partners L.P.,
dated October 11, 1999.*
Exhibit(d) 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 herewith.
15
<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: October 25, 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>
16
<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>
17
<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>
18
<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.*
Exhibit(c) Equity Contribution Commitment Letter from Thomas H. Lee
Equity Fund IV, L.P. and Evercore Capital Partners L.P.,
dated October 11, 1999.*
Exhibit(d) 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 herewith.
19
<PAGE>
Exhibit (a)(4)
THE CHASE MANHATTAN BANK BANKERS TRUST COMPANY BANK OF AMERICA, N.A.
270 PARK AVENUE ONE BANKERS TRUST PLAZA 9 WEST 57TH STREET
NEW YORK, NY 10017 130 LIBERTY STREET 43RD FLOOR
NEW YORK, NY 10006 NEW YORK, NY 10019
CHASE SECURITIES INC. DEUTSCHE BANK SECURITIES INC.
270 PARK AVENUE 130 LIBERTY STREET
NEW YORK, NY 10017 NEW YORK, NY 10006
October 24, 1999
BFH Merger Corp.
c/o Thomas H. Lee Company
75 State Street
Boston, MA 02102
Attention: Anthony J. Dinovi
c/o Evercore Advisors Inc.
65 East 55 Street, 33rd Floor
New York, New York 10022
Attention: Austin M. Beutner
Re: Alternative Senior Bank Financing
---------------------------------
COMMITMENT LETTER
Ladies and Gentlemen:
Reference is made to the Commitment Letter, dated as of October 11,
1999, among The Chase Manhattan Bank ("Chase"), Chase Securities Inc. ("CSI"),
Bankers Trust Company ("BTCo"), Deutsche Bank Securities Inc. ("DBSI") and Bank
of America, N.A. ("BOA" and, together with Chase, CSI, BTCo and DBSI, each, a
"Co-Agent" and collectively, the "Co-Agents") and BFH Merger Corp. ("MergeCo"),
a Delaware corporation formed by Thomas H. Lee Company and its affiliates
(collectively, "THL"), Evercore Capital Partners L.P. and its affiliates ("ECP")
and one or more other investors acceptable to the Co-Agents (together with THL
and ECP, the "Equity Investors") (as in effect on the date hereof, the "Original
Commitment Letter"). This letter and the Term Sheet attached hereto as Exhibit A
(the "Term Sheet") will set forth certain terms and conditions of the
Alternative Senior Bank Financing
<PAGE>
referred to below. The Alternative Senior Bank Financing is intended as an
alternative financing arrangement to the Senior Bank Financing referred to in
the Original Commitment Letter and under no circumstances will the Lenders (as
defined below) have the obligation to fund both the Alternative Senior Bank
Financing and the Senior Credit Facility (as defined in the Original Commitment
Letter). Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings provided such terms in the Original Commitment
Letter.
You have advised the Co-Agents that MergeCo intends to consummate a
recapitalization (such transaction, together with the Merger referred to below,
the "Recapitalization") of Big Flower Holdings, Inc. ("Holdings"), as a result
of which (x) the Equity Investors would own approximately 86.2% issued and
outstanding shares of common stock of Holdings and (y) certain existing
management of Holdings (the "Holdover Shareholders") would own approximately
13.8% of the issued and outstanding shares of common stock of Holdings. As part
of the Recapitalization, (i) the Holdover Shareholders would retain equity
capital in Holdings with a value of approximately $63.0 million (the "Equity
Rollover") and (ii) cash in an aggregate amount of approximately $608.4 million
will be distributed to the existing common equity shareholders and option
holders of Holdings (other than in respect of equity being rolled over pursuant
to the Equity Rollover and net of the cash payable in connection with the
exercise of options accelerated in connection with the Recapitalization). We
understand that the Recapitalization shall be effected by means of a merger of
MergeCo with and into Holdings, with Holdings as the surviving corporation of
such merger (the "Merger"), pursuant to an amended and restated agreement and
plan of merger, dated as of October 12, 1999, between MergeCo and Holdings (as
in effect on the date hereof, the "Merger Agreement"). We understand that the
percentages and dollar amounts set forth above are subject to adjustment as
provided in Section 2.03 of the Merger Agreement and as a result of the
transactions contemplated by the proviso to clause (i) of the following
paragraph.
We further understand that (i) prior to the date of the consummation of
the Recapitalization (the "Closing Date"), Big Flower Press Holdings, Inc., a
wholly-owned subsidiary of Holdings ("BFPH"), shall have commenced 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 $600.1 million (the "Existing
Senior Subordinated Notes"), pursuant to which (x) BFPH shall offer to purchase
all of the outstanding Existing Senior Subordinated Notes at 100% of the
principal amount thereof, (y) consents shall be solicited pursuant to an
amendment (the "Existing Senior Subordinated Notes Indenture Amendment") to the
indenture relating to the Existing Senior Subordinated Notes (the "Existing
Senior Subordinated Notes Indenture") and (z) BFPH shall offer to pay to each
holder of Existing Senior Subordinated Notes who validly consents to the
Existing Senior Subordinated Notes Indenture Amendment a consent fee in an
amount equal to $10.00 for each $1,000 principal amount of such holder's
Existing Senior Subordinated Notes, all on terms and conditions reasonably
satisfactory to each of the Co-Agents, which amendment would, inter alia,
substantially eliminate the covenants currently contained in the Existing Senior
Subordinated Notes Indenture in a manner reasonably satisfactory to the
Co-Agents, (ii) in connection with the Recapitalization, Holdings and/or certain
of its subsidiaries intend to refinance the existing senior credit facilities
and certain other existing indebtedness of Holdings
-2-
<PAGE>
and its subsidiaries in an aggregate principal amount not to exceed $340.1
million (the "Other Existing Debt Refinancing") and (iii) the currently
outstanding 6% Convertible Quarterly Income Preferred Securities of Big Flower
Trust I (the "QUIPS") shall remain outstanding after giving effect to the Merger
with no defaults or events of default existing with respect thereto, except
that, at the option of the holders thereof, the QUIPS may be converted into the
right to receive cash in an aggregate amount for all outstanding QUIPS not to
exceed $124.0 million (with any such conversion payments required to be made in
connection with the consummation of the Merger, being herein called the "QUIPS
Conversion Payments" and, together with the Existing Senior Subordinated Notes
Tender Offer/Consent Solicitation (and all payments made to effect same), the
Existing Senior Subordinated Notes Indenture Amendment and the Other Existing
Debt Refinancing, collectively, the "Refinancing").
We understand that the sources of funds needed to effect the
Recapitalization and the Refinancing (assuming all Existing Senior Subordinated
Notes are tendered and purchased pursuant to the Existing Senior Subordinated
Notes Tender Offer/Consent Solicitation and all outstanding QUIPS are converted
into QUIPS Conversion Payments), to obtain the Existing Senior Subordinated
Notes Indenture Amendment, to pay all fees and expenses incurred in connection
therewith (including consent fees payable pursuant to the Existing Senior
Subordinated Notes Tender Offer/Consent Solicitation) and to provide for the
ongoing working capital needs and general corporate requirements of Holdings and
its subsidiaries shall be provided solely through (i) at least $420.6 million
(or $457.6 million if the Columbine Sale is not effected on the Closing Date)
from the issuance by MergeCo of common stock (the "Common Equity Issuance") to
the Equity Investors (of which at least $281.4 million (or $306.2 million if the
Columbine Sale is not effected on the Closing Date) shall be cash contributed by
THL and at least $63.0 million shall be provided by the Holdover Shareholders
pursuant to the Equity Rollover), provided that each of the amounts set forth
above in this clause (i) (other than the amount provided by the Holdover
Shareholders pursuant to the Equity Rollover) shall be reduced, but not by more
than $60.0 million in the aggregate, by the amount of cash invested or received
as contemplated by succeeding clauses (ii) and (iii), (ii) up to $19.2 million
from the sale of the private internet investments specified on Exhibit A to
Schedule 5.15(a) to the Merger Agreement to the Equity Investors on terms
satisfactory to the Co-Agents (the "Private Internet Investment Sale"), (iii) up
to $60.0 million from the issuance of an Investment Instrument (as defined in
the Merger Agreement) by Holdings to the Equity Investors, (iv) $450.0 million
from the incurrence by BFPH of unsecured senior subordinated debt (the "BFPH
Senior Subordinated Debt"), provided that the amount of proceeds required from
the incurrence of the BFPH Senior Subordinated Debt as otherwise required above
shall be reduced by the aggregate principal amount of the Existing Senior
Subordinated Notes that are not tendered pursuant to the Existing Senior
Subordinated Notes Tender Offer/Consent Solicitation, (v) to the extent same is
consummated on the Closing Date, at least $37.0 million from the sale by
Holdings of all of the capital stock of Columbine JDS Systems, Inc., a
wholly-owned subsidiary of Holdings, on terms satisfactory to the Co-Agents (the
"Columbine Sale"), (vi) to the extent the Columbine Sale is consummated on the
Closing Date, at least $128.0 million from the payment by Columbine of a cash
dividend (through its parent) to Holdings (the "Columbine Dividend") with the
proceeds of the Term Loan Facility and the Mezzanine Debt referred to (and as
defined in) the Commitment Letter (the "Columbine Commitment Letter"), dated as
of October 11, 1999, among the Co-
-3-
<PAGE>
Agents and MergeCo with respect to the acquisition by an affiliate of MergeCo of
Columbine (the "Columbine Financing"), (vii) at least $50.0 million (or, in the
event the Columbine Sale is not consummated on the Closing Date, $97.5 million)
from the issuance by Holdings of 12.0% subordinated notes (10% of the interest
on which will be payable in cash and 2.0% of the interest on which will be
paid-in-kind) to THL on terms acceptable to each of the Co-Agents (the
"Mezzanine Subordinated Debt"), provided, however, that if on the Closing Date
the ratio (the "Senior Leverage Ratio") of BFPH's senior debt (including
"indebtedness" deemed to exist under the A/R Facility referred to in the Term
Sheet but less cash and cash equivalents) to pro forma EBITDA (to be defined on
a basis consistent with GAAP but without giving effect to extraordinary and
non-recurring gains and losses) after giving effect to the Transaction (as if
the same had been consummated based on the incurrence of the Alternative Senior
Bank Financing as described in the first sentence of the immediately succeeding
paragraph) would not be less than or equal to 3.5 to 1 (the "Senior Leverage
Ratio Requirement"), then the amount of the Mezzanine Subordinated Debt shall be
increased by such amount (the "Additional Mezzanine Amount") not to exceed $50.0
million (with a dollar-for-dollar decrease in the Alternative Senior Bank
Financing as described below) as may be required to ensure that the Senior
Leverage Ratio of BFPH on the Closing Date is no greater than 3.5 to 1; provided
that for purposes of this proviso only, the "EBITDA" of BFPH used in determining
the Senior Leverage Ratio and the satisfaction of the Senior Leverage Ratio
Requirement shall be deemed to be $231.0 million (or $256.9 million if the
Columbine Sale is not consummated on the Closing Date) and (viii) the incurrence
by BFPH and/or one or more wholly-owned subsidiaries of BFPH (collectively, the
"Borrower") of indebtedness under the Alternative Senior Bank Financing
described below (the financing transactions described in preceding clauses (i),
(iii), (iv), (vi), (vii) and (viii) (but in the case of the financing
transactions referred to in clauses (iii) and (vi), only to the extent
consummated on the Closing Date) are herein collectively referred to as the
"Financing Transactions", with the Recapitalization, the Existing Senior
Subordinated Notes Tender Offer/Consent Solicitation, the Existing Senior
Subordinated Notes Indenture Amendment, the Other Existing Debt Refinancing, the
QUIPS Conversion Payments (to the extent consummated on the Closing Date), the
Private Internet Investment Sale (to the extent consummated on the Closing
Date), the Columbine Sale (to the extent consummated on the Closing Date), the
Columbine Dividend (to the extent made on the Closing Date) and the Financing
Transactions being herein collectively called the "Transaction").
The Co-Agents further understand that the senior secured bank financing
will be in the form of (i) a $350.0 million (or, if the Columbine Sale is not
consummated on the Closing Date, $437.5 million) term loan facility (the
"Tranche A Term Loan Facility"), to be made available to the Borrower pursuant
to a single drawing on the Closing Date, (ii) a $350.0 million term loan
facility (the "Tranche B Term Loan Facility" and, together with the Tranche A
Term Loan Facility, the "Term Loan Facilities"), to be made available to the
Borrower pursuant to a single drawing on the Closing Date and (iii) a revolving
credit facility (the "Revolving Credit Facility" and, together with the Term
Loan Facilities, the "Alternative Senior Bank Financing") in the amount of
$200.0 million to be made available to the Borrower on and after the Closing
Date; provided, that proceeds of the loans under the Revolving Credit Facility
in an amount not to exceed $23.0 million (as the same may be (x) reduced by the
amount of deemed "debt" outstanding under the A/R Facility on the Closing Date
in excess of $85.0 million and (y)
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increased by the excess of $85.0 million over the amount of deemed "debt"
outstanding under the A/R Facility on the Closing Date) may be used to make
payments owing in connection with the Transaction. Notwithstanding the foregoing
provisions of this paragraph, if the Senior Leverage Ratio Requirement would not
be satisfied on the Closing Date as contemplated by the proviso to clause (vii)
of the immediately preceding paragraph, then the amount of the Term Loan
Facilities as set forth above shall be reduced in the aggregate by the
Additional Mezzanine Amount (which reduction shall be allocated among the Term
Loan Facilities as the Co-Agents may determine in their sole discretion).
Finally, you have advised us that, after the consummation of the
Transaction, if (I) the aggregate Mezzanine Subordinated Debt (including the
Additional Mezzanine Amount) is less than $100.0 million (or $147.5 million if
the Columbine Sale is not consummated on the Closing Date) at March 31, 2000 or
such earlier date when audited consolidated financial statements of BFPH for the
fiscal year ended December 31, 1999 are made available (the "Additional
Investment Determination Date") and (II) the EBITDA (the "1999 EBITDA") of BFPH
(pro forma to include interim acquisitions by BFPH and its subsidiaries and to
exclude Columbine and its subsidiaries in the event the Columbine Sale is
consummated on the Closing Date) for the year ended December 31, 1999 (as
determined based on the audited financial statements of BFPH for the year ended
December 31, 1999) is less than $231.0 million (or $256.9 million if the
Columbine Sale is not consummated on the Closing Date) (or such audited
financial statements shall not have been made available to the Lenders on or
prior to March 31, 2000), then the Equity Investors will contribute to Holdings,
within 10 days following the Additional Investment Determination Date, an amount
not to exceed $50.0 million in the form of common equity or mezzanine financing
substantially in the form of the Mezzanine Subordinated Debt (the "Additional
Investment") such that the sum of the Mezzanine Subordinated Debt outstanding on
the Additional Investment Determination Date and the Additional Investment will
aggregate $100.0 million (or $147.5 million if the Columbine Sale is not
consummated on the Closing Date) and such amount shall be contributed by
Holdings to BFPH and applied to repay loans under the Term Loan Facilities to
the extent required by the relevant provisions of the Term Sheet.
Each of Chase, BTCo and BOA is pleased to advise you of its commitment,
on several basis and upon the terms and subject to the conditions set forth or
referred to in this commitment letter (this "Commitment Letter") and in the Term
Sheet, to provide (x) 40%, in the case of Chase, (y) 40%, in the case of BTCo
and (z) 20%, in the case of BOA, of the total amount of the Alternative Senior
Bank Financing (i.e., the remainder of $987.5 million (or $900.0 million if the
Columbine Sale is consummated on the Closing Date) less the Additional Mezzanine
Amount (if any)).
It is agreed that Chase shall act as the sole and exclusive
Administrative Agent (in such capacity, the "Administrative Agent"), CSI (or an
affiliate designated by it) and DBSI (or an affiliate designated by it) shall
act as the Joint Lead Arrangers (in such capacity, the "Joint Lead Arrangers"),
CSI (or an affiliate designated by it) and DBSI (or an affiliate designated by
it) shall act as the Joint Book Managers (in such capacity, the "Joint Book
Managers"), BTCo (or an affiliate designated by it) shall act as sole and
exclusive Syndication Agent (in such capacity, the
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"Syndication Agent") and BOA shall act as the Documentation Agent (in such
capacity, the "Documentation Agent"), for the Alternative Senior Bank Financing,
and each will, in such capacities, perform the duties and exercise the authority
customarily performed and exercised by it in such roles. You agree that, except
as provided below, no other agents, co-agents or arrangers will be appointed, no
other titles will be awarded and no compensation (other than that expressly
contemplated by the Term Sheet and the Fee Letter referred to below) will be
paid in connection with the Alternative Senior Bank Financing unless you and the
Co-Agents shall so agree.
The Joint Lead Arrangers intend to syndicate the Alternative Senior
Bank Financing (including, in each Co-Agent's discretion, all or part of its
commitment hereunder) to a group of financial institutions (together with Chase,
BTCo and BOA, the "Lenders") identified by the Joint Lead Arrangers in
consultation with you. The Joint Lead Arrangers intend to commence syndication
efforts promptly upon the execution of this Commitment Letter, and you agree
actively to assist the Joint Lead Arrangers in completing a syndication
satisfactory to them. Such assistance shall include (a) your endeavoring to see
that the syndication efforts benefit materially from your, THL's, ECP's,
Holdings' and BFPH's existing lending relationships, (b) direct contact between
senior management of THL, ECP, Holdings, BFPH and the proposed Lenders, (c)
assistance by you in the preparation of a Confidential Information Memorandum
and other marketing materials to be used in connection with the syndication and
(d) the hosting, with Holdings, BFPH and the Joint Lead Arrangers, of a meeting
of prospective Lenders.
In consultation with you, the Joint Lead Arrangers will manage all
aspects of the syndication, including decisions as to the selection of
institutions to be approached and when they will be approached, when their
commitments will be accepted, which institutions will participate, the
allocations of the commitments among the Lenders and the amount and distribution
of fees among the Lenders. To assist the Joint Lead Arrangers in their
syndication efforts, you agree promptly to prepare and provide to the Joint Lead
Arrangers and the Co-Agents all information with respect to Holdings and its
subsidiaries, THL, ECP, the Transaction and the other transactions contemplated
hereby, including all financial information and projections (the "Projections"),
as the Co-Agents may reasonably request in connection with the arrangement and
syndication of the Alternative Senior Bank Financing. You hereby represent and
covenant that (a) all information other than the Projections (the "Information")
that has been or will be made available to any Co-Agent by you or any of your
representatives is or will be, when furnished, complete and correct in all
material respects and does not or will not, when furnished, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not materially misleading in light of
the circumstances under which such statements are made and (b) the Projections
that have been or will be made available to any Co-Agent by you or any of your
representatives have been or will be prepared in good faith based upon
reasonable assumptions. You understand that in arranging and syndicating the
Alternative Senior Bank Financing we may use and rely on the Information and
Projections without independent verification thereof.
As consideration for each of Chase's, BTCo's and BOA's commitment
hereunder and the Co-Agents' agreement to perform the services described herein,
you agree to pay to the
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Co-Agents the nonrefundable fees set forth in the Fee Letter dated the date
hereof and delivered herewith (the "Fee Letter") on the basis provided therein.
Each of Chase's, BTCo's and BOA's commitment hereunder and the
Co-Agents' agreement to perform the services described herein are subject to (a)
except as disclosed in reports filed by the Holdings and its subsidiaries with
the Securities Exchange Commission on or prior to the date hereof or as
disclosed in the Merger Agreement as of the date hereof or in the disclosure
schedules to the Merger Agreement as of the date hereof, there not occurring or
becoming known to any Co-Agent since December 31, 1998 any material adverse
condition or material adverse change in or affecting the business, operations,
property, assets, condition (financial or otherwise) or reasonably foreseeable
prospects of Holdings and its subsidiaries taken as a whole, (b) the Co-Agents
not becoming aware after the date hereof of any information or other matter
affecting Holdings and its subsidiaries or the transactions contemplated hereby,
which is inconsistent in a material and adverse manner with any such information
or other matter disclosed to the Co-Agents prior to the date hereof, (c) there
not having occurred a material disruption of or material adverse change in
financial, banking or capital market conditions prevailing as of the date hereof
that, in the Co-Agents' judgment, could materially impair the syndication of the
Alternative Senior Bank Financing, (d) each Co-Agent's satisfaction that prior
to and during the syndication of the Alternative Senior Bank Financing there
shall be no competing offering, placement or arrangement of any debt securities
or bank financing by or on behalf of Holdings or any of its subsidiaries or
affiliates (other than the BFPH Senior Subordinated Debt and the financing to be
provided by the Co-Agents as contemplated by Original Commitment Letter and the
Columbine Commitment Letter) and (e) the other conditions set forth or referred
to in the Term Sheet. The terms and conditions of each of Chase's, BTCo's and
BOA's commitment hereunder and of the Alternative Senior Bank Financing are not
limited to those set forth herein and in the Term Sheet and the Fee Letter.
Those matters that are not covered herein or in the Term Sheet or the Fee Letter
are subject to the approval and agreement of the Co-Agents, THL and ECP.
You agree (a) to indemnify and hold harmless the Co-Agents, the
Lenders, their affiliates and their respective officers, directors, employees,
advisors, and agents (each, an "indemnified person") from and against any and
all losses, claims, damages and liabilities to which any such indemnified person
may become subject arising out of or in connection with this Commitment Letter,
the Alternative Senior Bank Financing, the use of the proceeds thereof or any
related transaction or any claim, litigation, investigation or proceeding
relating to any of the foregoing, regardless of whether any indemnified person
is a party thereto, and to reimburse each indemnified person upon demand for any
reasonable legal or other expenses incurred in connection with investigating or
defending any of the foregoing, provided that the foregoing indemnity will not,
as to any indemnified person, apply to losses, claims, damages, liabilities or
related expenses to the extent they are found by a final, non-appealable
judgment of a court to arise from the willful misconduct, bad faith or gross
negligence of such indemnified person, and (b) to reimburse each Co-Agent and
its affiliates on the Closing Date for all reasonable out-of-pocket expenses
(including due diligence expenses, syndication expenses, travel expenses, and
reasonable fees, charges and disbursements of counsel) incurred in connection
with the Alternative Senior Bank Financing and any related documentation
(including this Commitment
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Letter, the Term Sheet, the Fee Letter and the definitive financing
documentation) or the administration, amendment, modification or waiver thereof.
No indemnified person shall be liable for any indirect or consequential damages
in connection with its activities related to the Alternative Senior Bank
Financing.
You acknowledge that the Co-Agents and/or any of their respective
affiliates may be providing debt financing, equity capital or other services
(including financial advisory services) to other companies in respect of which
you or your affiliates may have conflicting interests regarding the transaction
described hereby and otherwise. Each Co-Agent agrees that it will not use or
disclose confidential information obtained from you by virtue of the
transactions contemplated by this Commitment Letter or its other relationships
with you in connection with the performance by such Co-Agents of services for
other companies, and each Co-Agent agrees that it will not furnish any such
information to other companies. You also acknowledge that the Co-Agents have no
obligation to use in connection with the transactions contemplated by this
Commitment Letter, or to furnish to you, confidential information obtained from
other companies.
This Commitment Letter shall not be assignable by you to any person or
entity other than BFPH (so long as BFPH has assumed all of your obligations
hereunder pursuant to an agreement satisfactory to us) without the prior written
consent of the Co-Agents (and any purported assignment without such consent
shall be null and void), and is intended to be solely for the benefit of the
parties hereto and is not intended to confer any benefits upon, or create any
rights in favor of, any person other than the parties hereto. This Commitment
Letter may not be amended or waived except by an instrument in writing signed by
you and the Co-Agents. This Commitment Letter may be executed in any number of
counterparts, each of which shall be an original, and all of which, when taken
together, shall constitute one agreement. Delivery of an executed signature page
of this Commitment Letter by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof. This Commitment Letter and
the Fee Letter are the only agreements that have been entered into among us with
respect to the Alternative Senior Bank Financing and set forth the entire
understanding of the parties with respect thereto. This Commitment Letter and
the Fee Letter shall be governed by, and construed in accordance with, the law
of the State of New York.
This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter, the Term Sheet or the Fee Letter nor any of
their terms or substance shall be disclosed, directly or indirectly, to any
other person except (a) to your officers, agents and advisors who are directly
involved in the consideration of this matter or (b) as may be compelled in a
judicial or administrative proceeding or as otherwise required by law (in which
case you agree to inform us promptly thereof), provided, that the foregoing
restrictions shall cease to apply (except in respect of the Fee Letter and its
terms and substance) after this Commitment Letter has been accepted by you.
The compensation, reimbursement, indemnification and confidentiality
provisions contained herein and in the Fee Letter shall remain in full force and
effect regardless of whether
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definitive financing documentation shall be executed and delivered and
notwithstanding the termination of this Commitment Letter or Chase's, BTCo's and
BOA's commitments hereunder.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof and of the Term Sheet and the Fee Letter by
returning to Chase executed counterparts hereof and of the Fee Letter not later
than 5:00 p.m., New York City time, on October 25, 1999. Each of Chase's, BTCo's
and BOA's commitment and the Co-Agents' agreements herein will expire at such
time in the event Chase has not received such executed counterparts in
accordance with the immediately preceding sentence. If you accept this
Commitment Letter and the Fee Letter as aforesaid, each of Chase's, BTCo's and
BOA's commitment herein will terminate at the close of business on December 31,
1999 unless definitive documentation with respect to the Alternative Senior Bank
Financing satisfactory to each of the Co-Agents and their respective counsel is
executed and delivered, and the Closing Date shall have occurred, on or before
such date.
* * *
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The Co-Agents are pleased to have been given the opportunity to assist
you in connection with this important financing. Very truly yours,
THE CHASE MANHATTAN BANK
By: /s/ Bruce Borden
----------------------------------
Name: Bruce Borden
Title: Vice President
CHASE SECURITIES INC.
By: /s/ Claudette Kraus
----------------------------------
Name: Claudette Kraus
Title: Vice Presient
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BANKERS TRUST COMPANY
By: /s/ William W. Archer
----------------------------------
Name: William W. Archer
Title: Managing Director
DEUTSCHE BANK SECURITIES INC.
By: /s/ William W. Archer
----------------------------------
Name: William W. Archer
Title: Managing Director
BANK OF AMERICA, N.A.
By: /s/ Liz Borow
----------------------------------
Name: Liz Borow
Title: Managing Director
ACCEPTED AND AGREED TO
AS OF THE DATE FIRST
WRITTEN ABOVE BY:
BFH MERGER CORP.
By: /s/ Anthony J. DiNovi
----------------------------------
Name: Anthony J. DiNovi
Title: Chairman of The Board
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EXHIBIT A
ALTERNATIVE SENIOR BANK FINANCING
SUMMARY OF TERMS AND CONDITIONS
BORROWER: Big Flower Press Holdings, Inc. (the "Borrower"),
PROVIDED that at the request of the Borrower, certain
wholly-owned subsidiaries of the Borrower may become
borrowers under the Alternative Senior Bank Financing
on a basis acceptable to the Lenders.
PURPOSE: The proceeds from the Tranche A Term Loan Facility
and the Tranche B Term Loan Facility referred to
below (collectively, the "Term Loan Facilities") will
be used by the Borrower to (i) finance the
Recapitalization; (ii) effect the Refinancing and
(iii) pay related costs and expenses; PROVIDED that
proceeds of the Term Loan Facilities in an amount not
to exceed $124.0 million shall be used exclusively to
make the QUIPS Conversion Payments on the date of the
consummation of the Recapitalization (the "Closing
Date"), with any portion of the Term Loan Facilities
not so utilized on the Closing Date to reduce the
commitments under the Term Loan Facilities in the
manner contemplated under the section "Mandatory
Commitment Reductions/Mandatory Repayments" below.
Proceeds from the Revolving Credit Facility will be
used to finance the ongoing working capital
requirements of the Borrower and its subsidiaries and
for other general corporate purposes of the Borrower
and its subsidiaries (including the repayment of
Mezzanine Subordinated Debt in the circumstances
contemplated by the proviso to clause 16 appearing
under the heading "Covenants"); PROVIDED --------
that (i) proceeds from the Revolving Credit Facility
in an amount not to exceed $23.0 million (as the same
may be (x) reduced by the amount of deemed "debt"
under the A/R Facility (as defined below) on the
Closing Date in excess of $85.0 million and (y)
increased by the excess of $85.0 million over the
amount of deemed "debt" under the A/R Facility on the
Closing Date) may be utilized to make payments in
connection with the Transaction and (ii) proceeds
from the Revolving Credit Facility may be used to
make QUIPS Conversion Payments after the Closing
Date.
ADMINISTRATIVE AGENT: The Chase Manhattan Bank.
<PAGE>
JOINT LEAD ARRANGERS: Chase Securities Inc. ("CSI") (or an affiliate
designated by it) and Deutsche Bank Securities Inc.
("DBSI") (or an affiliate designated by it).
JOINT BOOK MANAGERS: CSI (or an affiliate designated by it) and DBSI (or
an affiliate designated by it).
SYNDICATION AGENT: Bankers Trust Company ("BTCo") (or an affiliate
designated by it).
DOCUMENTATION AGENT: Bank of America, N.A. ("BOA") (or an affiliate
designated by it).
CO-AGENTS: Chase, CSI, BTCo, DBSI and BOA.
LENDERS: A syndicate of banks and/or other financial
institutions (together with Chase, BTCo and BOA, the
"Lenders").
TYPES AND AMOUNTS
OF FACILITIES COMPRISING
ALTERNATIVE SENIOR BANK FINANCING:
(1) REVOLVING CREDIT FACILITY: Up to U.S.$200.0
million six year revolving credit facility,
PROVIDED that at the request of the
Borrower, a portion of the Revolving Credit
Facility may be made available to certain
wholly-owned subsidiaries of the Borrower
acceptable to the Co-Agents in an amount, in
currencies and on terms to be agreed upon.
SWINGLINE LOAN SUB-FACILITY: A swingline
loan facility of up to U.S. $30.0 million to
be provided by the Administrative Agent
(with the other R/C Banks participating in
the risks associated with such loans pro
rata according to their respective R/C
commitments and with utilization reducing
availability under the Revolving Credit
Facility), PROVIDED that at the request of
the Borrower, a portion of the Swingline
Loan Sub-Facility may be made available to
certain wholly-owned subsidiaries of the
Borrower acceptable to the Co-Agents in an
amount, in currencies and on terms to be
agreed upon.
LETTER OF CREDIT SUB-FACILITY: A letter of
credit facility of up to an amount to be
agreed by the Co-Agents to be provided by
the Administrative Agent (with the other R/C
Banks participating in the risks associated
with such letters of credit pro rata
according to their respective R/C
commitments and
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with utilization reducing availability under
the Revolving Credit Facility).
(2) TRANCHE A TERM LOAN FACILITY: Up to $437.5
million (or U.S. $350.0 million, if the
Columbine Sale is consummated on the Closing
Date) single drawdown 6-year term loan
facility, PROVIDED that each of the
foregoing amounts shall be subject to
reduction by up to the Additional Mezzanine
Amount if the Senior Leverage Ratio
Requirement has not been satisfied on the
Closing Date as contemplated by the last
sentence of the fifth paragraph of the
Commitment Letter.
(3) TRANCHE B TERM LOAN FACILITY: Up to
U.S.$350.0 million single drawdown 9-year
term loan facility; PROVIDED that the
foregoing amount shall be subject to
reduction by up to the Additional Mezzanine
Amount if the Senior Leverage Ratio
Requirement has not been satisfied on the
Closing Date as contemplated by the last
sentence of the fifth paragraph of the
Commitment Letter.
GUARANTORS: Big Flower Holdings, Inc. ("Holdings") and each
direct and indirect wholly-owned domestic subsidiary
of Holdings (excluding the Borrower and including
Columbine to the extent the Columbine Sale is not
consummated on the Closing Date) shall be required to
provide an unconditional guaranty of all amounts
owing under the Alternative Senior Bank Financing
(collectively, the "Guaranties", with each entity
required to provide a Guaranty being herein called a
"Guarantor").
SECURITY: The obligations of the Borrower and the Guarantors
shall be secured by (x) a first priority perfected
pledge of all capital stock and notes owned by the
Borrower and the Guarantors (including the stock of
the Borrower); PROVIDED that no more than 65% of the
voting stock of foreign subsidiaries of the Borrower
and the Guarantors shall be required to be pledged to
secure the obligations of the Borrower under the
Alternative Senior Bank Financing unless such pledge
may be effected without giving rise to a "deemed
dividend" tax liability under applicable law or any
other material adverse tax consequence and (y) a
first priority perfected security interest in all
other tangible and intangible assets (including,
without limitation, receivables, contracts, contract
rights, securities,
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intellectual property, inventory, equipment and real
estate) of the Borrower and each Guarantor, subject
to customary exceptions for transactions of this
type.
All documentation evidencing the security required
pursuant to the immediately preceding paragraph shall
be in form and substance satisfactory to each of the
Co-Agents, and shall effectively create first
priority security interests in the property purported
to be covered thereby.
FINAL MATURITY DATE: (1) REVOLVING CREDIT FACILITY: Sixth anniversary
of the Closing Date.
(2) TRANCHE A TERM LOAN FACILITY: Sixth
anniversary of the Closing Date.
(3) TRANCHE B TERM LOAN FACILITY: Ninth
anniversary of the Closing Date.
AMORTIZATION: The Tranche A Term Loan Facility will amortize
annually in quarterly installments to be determined.
Amortization of the loans under Tranche B Term Loan
Facility (the "Tranche B Term Loans") shall be
required (x) for each annual period on or prior to
the seventh anniversary of the Initial Borrowing
Date, in an amount equal to 1% of the initial
aggregate principal amount of the Tranche B Term Loan
Facility (with each annual amortization payable in
four equal quarterly installments) and (y) for the
two annual periods thereafter, in an amount equal to
all then remaining principal of the Tranche B Term
Loans (with such remaining amortization payable in
eight equal quarterly installments over such two year
period).
INTEREST AND COMMITMENT Set forth in Annex I.
FEES:
MANDATORY
COMMITMENT REDUCTIONS/
MANDATORY REPAYMENTS: Mandatory commitment reductions/repayments (to be
applied to the various facilities in a manner to be
determined) will be required in an amount equal to
100% of the net proceeds received from (i) the sale
or other disposition of all or any part of the assets
of Holdings or its subsidiaries (other than (A) up to
50% of the lesser of (x) the Net Sale Proceeds (as
defined below) from the sale of the 24/7 Media
investments
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previously identified to the Co-Agents (the "24/7
Media Investments") and (y) the Implied Net Sale
Proceeds (as defined below) from the sale of the 24/7
Media Investments on the date of the Commitment
Letter (such lesser amount, the "Shared 24/7 Media
Proceeds"), to the extent same are used to repay all
or a portion of the Additional Mezzanine Amount as
contemplated by clause (A)(I)(y) or (C)(I)(x) of the
proviso to clause 16 under the heading "Covenants"
below, (B) up to 100% of that portion of the Net Sale
Proceeds from the sale of the 24/7 Media Investments
in excess of the Implied Net Sale Proceeds from the
sale of the 24/7 Media Investments on the date of the
Commitment Letter (the "24/7 Media Appreciation
Proceeds"), to the extent same (x) are used to repay
all or a portion of the Additional Mezzanine Amount
as contemplated by clause (A)(I)(z) or (C)(I)(y) of
the proviso to clause 16 under the heading
"Covenants" below or (y) are applied to make required
payments owing, when and as due, to the Equity
Investors in respect of the Investment Instrument,
(C) up to 75% of the lesser of (x) the Net Sale
Proceeds from the sale of the XL Ventures investments
previously identified to the Co-Agents (the "XL
Ventures Investments" and, together with the 24/7
Media Investments, the "Public Internet Investments")
and (y) the Implied Net Sale Proceeds from the sale
of the XL Ventures Investments on the date of the
Commitment Letter (such lesser amount, the "Shared XL
Ventures Proceeds"), to the extent same are used to
repay all or a portion of the Mezzanine Subordinated
Debt as contemplated by clause (B)(I) or (C)(II)(x)
of the proviso to clause 16 under the heading
"Covenants" below, (D) up to 100% of that portion of
the Net Sale Proceeds from the sale of the XL
Ventures Investments in excess of the Implied Net
Sale Proceeds from the sale of the XL Ventures
Investments on the date of the Commitment Letter (the
"XL Ventures Appreciation Proceeds"), to the extent
same (x) are used to repay all or a portion of the
Mezzanine Subordinated Debt as contemplated by clause
(B)(II) or (C)(II)(y) of the proviso to clause 16
under the heading "Covenants" below or (y) are
applied to make required payments owing, when and as
due, to the Equity Investors in respect of the
Investment Instrument, (E) the Columbine Sale to the
extent consummated on the Closing Date, (F) net
proceeds not to exceed $19.2 million from the Private
Internet Investment Sale and (G) certain ordinary
course of business sales and dispositions), PROVIDED
that the Borrower and its subsidiaries
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<PAGE>
may, in the absence of a default or an event of
default under the Alternative Senior Bank Financing,
reinvest proceeds (excluding in any event any portion
of the Shared 24/7 Media Proceeds or the Shared XL
Ventures Proceeds not exempted pursuant to the
immediately preceding parenthetical) of certain asset
sales during a period (to be agreed upon) following
the date of the respective asset sale, (ii) 100% of
the net cash proceeds from issuances of debt
(including 100% of the net proceeds from that portion
of the Additional Investment (to the extent in the
form of mezzanine financing) as is required (after
giving effect to the repayment of loans under the
Alternative Senior Bank Financing with the proceeds
of such portion of the Additional Investment) to
achieve a Senior Leverage Ratio of 3.5 to 1 (with any
portion of the Additional Investment not so required
to be applied as a mandatory repayment or commitment
reduction hereunder or under sub-clause (x) of the
proviso to clause (iii) below being called the
"Excluded Additional Investment Portion") but
excluding (x) so long as no default or event of
default is then in existence under the Alternative
Senior Bank Financing and 100% of the net proceeds
therefrom are applied to repay BFPH Senior
Subordinated Debt then outstanding in the form (and
only in the form) of a bridge loan, the Excluded
Additional Investment Portion (to the extent in the
form of mezzanine financing), (y) the proceeds from
the incurrence of the BFPH Senior Subordinated Debt
and the Mezzanine Subordinated Debt on the Closing
Date and (z) the Columbine Financing), by Holdings
and its subsidiaries, with customary exceptions to be
agreed upon, (iii) 75% (subject to reduction based on
the achievement of specified financial ratios to be
determined) of the net cash proceeds from equity
issuances by, or capital contributions to, Holdings
and its subsidiaries, with customary exceptions to be
agreed upon, PROVIDED that notwithstanding the
foregoing, (x) 100% of the net proceeds from that
portion of the Additional Investment (to the extent
in the form of equity) as is required to achieve a
Senior Leverage Ratio of 3.5 to 1 (after giving
effect to the repayment of loans under the
Alternative Senior Bank Financing with the proceeds
of such Additional Investment) shall be applied as a
mandatory repayment and/or commitment reduction and
(y) so long as no default or event of default is then
in existence under the Alternative Senior Bank
Financing and 100% of the net proceeds therefrom are
applied to repay BFPH Senior Subordinated Debt
outstanding in the form (and only in the
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form) of a bridge loan, no portion of the Excluded
Additional Investment Portion (to the extent in the
form of equity) shall be applied as a mandatory
repayment and/or commitment reduction hereunder, (iv)
75% (subject to reduction based on the achievement of
specified financial ratios to be determined) of
annual excess cash flow, and (v) 100% of certain
insurance proceeds, PROVIDED that the Borrower and
its subsidiaries may, in the absence of -------- a
default or an event of default under the Alternative
Senior Bank Financing, reinvest certain insurance
proceeds in an amount to be determined during a
period (to be agreed upon) following the date of
receipt of such proceeds. The foregoing mandatory
commitment reductions/repayments shall be subject to
baskets and exceptions to be agreed upon.
As used above, (x) "Net Sale Proceeds" shall mean,
with respect to any asset sale, cash proceeds
received by BFPH from such asset sale after payment
of taxes and carried interest to employees and (y)
"Implied Net Sale Proceeds" shall mean, with respect
to any asset sale, cash proceeds that would have been
received by BFPH from such asset sale after payment
of taxes and carried interest to employees if the
respective asset had been sold at market price.
In addition, (i) on Closing Date (and after giving
effect to any loans under the Term Loan Facilities
made on such date), the aggregate commitments under
the Term Loan Facilities shall be permanently reduced
by the remainder of (x) $124.0 million LESS (y) the
amount of the Term Loan Facilities actually utilized
by the Borrower to make QUIPS Conversion Payments on
the Closing Date (with such reduction to the
commitments under the Term Loan Facilities to be
allocated among the Term Loan Facilities in a manner
to be determined by the Agents in their sole
discretion) and (ii) the commitments under the
Revolving Credit Facility shall be permanently
reduced (and to the extent outstandings under the
Revolving Credit Facility exceed the commitments
thereunder as so reduced, outstandings in excess of
the commitments as so reduced shall be repaid) in
amount equal to the amount that outstanding
"indebtedness" deemed to exist under the A/R Facility
exceeds the A/R Facility Threshold Amount. The "A/R
Facility Threshold Amount" shall mean, at any time,
the sum of $120.0 million PLUS the aggregate amount
of the commitment reductions theretofore
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made to the Revolving Credit Facility as a result of
the application of clause (ii) above.
VOLUNTARY PREPAYMENTS: Voluntary prepayments will be permitted in whole or
in part, at the option of the Borrower, in minimum
principal amounts to be agreed upon, without premium
or penalty, subject to reimbursement of the Lenders'
redeployment costs in the case of the prepayment of
LIBOR borrowings other than on the last day of the
relevant Interest Period.
The above-described mandatory and voluntary
prepayments of loans under the Tranche A Term Loan
Facility and the Tranche B Term Loan Facility shall
be applied on a PRO RATA basis to reduce the
remaining amortization payments under the Tranche A
Term Loan Facility or the Tranche B Term Loan
Facility, as the case may be.
A. CONDITIONS
PRECEDENT In addition to conditions precedent typical for these
types of facilities (including accuracy of
representations and absence of defaults) and any
other conditions appropriate in the context of the
proposed transaction, the following conditions shall
apply to the initial borrowing under the Alternative
Senior Bank Financing (the date of such initial
borrowing, the "Closing Date") :
1. The structure and all terms of, and the documentation
for, each component of the Transaction to be
consummated on the Closing Date shall be reasonably
satisfactory to each of the Co-Agents and the Lenders
(including, without limitation, (v) with respect to
the BFPH Senior Subordinated Debt and the Mezzanine
Subordinated Debt, amortizations, maturities,
interest rates, limitations on cash interest payable,
defaults, absence of guaranties and security,
remedies and subordination provisions, as applicable
(it being understood that in any event the Mezzanine
Subordinated Debt shall contain a customary one-year
standstill provision upon the occurrence of any
default), (w) the terms of the Investment Instrument
(to the extent issued), (x) the terms of the
Columbine Sale, the Columbine Financing, the
Columbine Dividend and the Private Internet
Investment Sale, in each case to the extent
consummated on the Closing Date, (y)
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<PAGE>
management shareholder agreements and other
shareholder agreements and (z) the materials and
documentation publicly filed in connection with the
Recapitalization and the Refinancing). Each component
of the Transaction to be consummated on the Closing
Date shall have been consummated in accordance with
the documentation therefor and all applicable law and
the capitalization, structure and equity ownership of
Holdings and the Borrower shall be as described in
the Commitment Letter and herein or otherwise
reasonably satisfactory to each of the Co-Agents. The
aggregate amount of fees and expenses paid in
connection with the Recapitalization, the Refinancing
and the other transactions contemplated hereby shall
not exceed $130.0 million. After giving effect to the
Transaction, Holdings and its subsidiaries shall have
no outstanding indebtedness or preferred stock other
than (i) pursuant to the Financing Transactions, (ii)
to the extent QUIPS Conversion Payments are not made
on the Closing Date, the QUIPS, (iii) indebtedness
deemed to exist under the existing accounts
receivable facility of the Borrower and its
subsidiaries (the "A/R Facility") in an aggregate
amount not to exceed $120.0 million, (iv) the
Existing Senior Subordinated Notes not tendered and
repurchased pursuant to the Existing Senior
Subordinated Notes Tender Offer/Consent Solicitation
and (v) such other indebtedness, if any, as may be
acceptable to the Co-Agents (with the indebtedness
referred to in clauses (iii), (iv) and (v) being
called the "Existing Indebtedness").
2. BFPH shall have commenced the Existing Senior
Subordinated Notes Tender Offer/Consent Solicitation
and the Existing Senior Subordinated Notes Indenture
Amendment shall have been entered into on or prior to
the Closing Date. The Existing Senior Subordinated
Notes Tender Offer/Consent Solicitation and the
Existing Senior Subordinated Notes Indenture
Amendment (and all terms and conditions thereof)
shall be in form and substance satisfactory to the
Co-Agents and the period for tendering Existing
Senior Subordinated Notes pursuant to the Existing
Senior Subordinated Notes Tender Offer/Consent
Solicitation shall have terminated. In any event, the
Existing Senior Subordinated Notes Tender
Offer/Consent Solicitation shall provide that holders
of Existing Senior Subordinated Notes shall only
receive a consent fee if they have tendered their
notes prior to the 10th business day after
commencement of the Existing Senior Subordinated
Notes Tender Offer/Consent
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<PAGE>
Solicitation. At least 51% of the holders of
outstanding principal amount of each series of the
Existing Senior Subordinated Notes shall have
tendered their Existing Senior Subordinated Notes and
consents pursuant to the Existing Senior Subordinated
Tender Offer/Consent Solicitation and the tender
offer pursuant thereto shall have been consummated on
or prior to the Closing Date.
3. Holdings and/or BFPH, as applicable, shall have
received cash proceeds from (i) the Common Equity
Issuance, (ii) the issuance of the Investment
Instrument (to the extent issued on the Closing
Date), (iii) the Columbine Sale, the Columbine
Dividend (through the Columbine Financing) and the
Private Internet Investment Sale (in each case, to
the extent consummated on the Closing Date) and (iv)
the incurrence of BFPH Senior Subordinated Debt and
the Mezzanine Subordinated Debt, in the amounts and
as otherwise contemplated by the Commitment Letter,
and shall have used the net cash proceeds therefrom
to make payments owing in connection with the
Recapitalization and the Refinancing before the
Borrower utilizes any proceeds of Loans pursuant to
the Alternative Senior Bank Financing for any such
purpose. The cash proceeds received from the Common
Equity Issuance, the issuance of the Investment
Instrument (to the extent issued), the Columbine
Sale, the Columbine Dividend (through the Columbine
Financing) and the Private Internet Investment Sale
(in each case, to the extent consummated on the
Closing Date) and the incurrence of the BFPH Senior
Subordinated Debt and the Mezzanine Subordinated
Debt, when added to the aggregate principal amount of
the loans under the Alternative Senior Bank Financing
incurred on the Closing Date, shall be sufficient to
effect the Transaction and to pay all fees and
expenses in connection therewith.
4. The Co-Agents and the Lenders shall be satisfied with
the terms (and documentation) for all Existing
Indebtedness and the QUIPS. All Existing Indebtedness
(and the QUIPS, as relevant) shall remain outstanding
in accordance with its (or their) terms after giving
effect to the Transaction, and no violation of any
term or covenant contained in the Existing
Indebtedness (and the QUIPS, as relevant) shall occur
as a result of the Transaction, and no default shall
exist thereunder after giving effect to the
consummation of the Transaction.
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<PAGE>
5. Nothing shall have occurred (and the Lenders shall
have become aware of no facts or conditions not
previously known) which the Co-Agents or the Lenders
shall reasonably determine could have a material
adverse effect on the rights or remedies of the
Lenders or the Co-Agents, or on the ability of
Holdings and its subsidiaries to perform their
respective obligations to the Lenders or which could
have a materially adverse effect on the business,
property, assets, nature of assets, liabilities,
condition (financial or otherwise) or the reasonably
foreseeable prospects of Holdings and its
subsidiaries taken as a whole.
6. All Loans and other financing to the Borrower shall
be in full compliance with all requirements of
Regulations T, U and X of the Board of Governors of
the Federal Reserve System.
7. The Lenders shall have received such opinions and
other appropriate factual information and expert
advice as follows: (i) legal opinions from counsel,
in form and substance and covering matters,
acceptable to the Co-Agents (including an opinion as
to no conflict with the Existing Indebtedness and the
QUIPS (to the extent same remain outstanding on the
Closing Date)), (ii) a solvency opinion with respect
to Holdings and its subsidiaries (on a consolidated
basis), the Borrower and its subsidiaries (on a
consolidated basis) and the Borrower (on a
stand-alone basis), after giving effect to the
consummation of the Transaction and the financing
therefor, reasonably acceptable to the Co-Agents,
(iii) a PRO FORMA consolidated balance sheet of
Holdings, --- ----- reasonably acceptable to the
Co-Agents, dated as of the date of the most recently
available quarterly financial statements, (iv)
audited consolidated financial statements of Holdings
for the fiscal years ended December 31, 1996, 1997
and 1998, which financial statements shall be in form
and substance satisfactory to the Lenders and (v) the
unaudited quarterly and monthly consolidated
financial statements of Holdings for the interim
period prior to the Closing Date, which financial
statements shall be in form and substance
satisfactory to the Lenders.
8. All costs, fees, expenses (including, without
limitation, legal fees and expenses) and other
compensation contemplated hereby or any letter
executed in connection herewith and payable to the
Lenders or the Co-Agents (or their respective
affiliates) shall have been paid to the extent due.
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<PAGE>
9. All requisite governmental authorities and third
parties shall have approved or consented to the
Transaction and the other transactions contemplated
hereby to the extent required, all applicable waiting
periods shall have expired and there shall be no
governmental or judicial action, actual or
threatened, that has or could have a reasonable
likelihood of restraining, preventing or imposing
materially burdensome conditions on any of the
Transaction or the other transactions contemplated
hereby.
10. Each of the Guaranties shall have been executed and
delivered. The security agreements required as
described under the heading "Security" above shall
have been executed and delivered in form, scope and
substance reasonably satisfactory to the Co-Agents,
and the Lenders shall have a first priority perfected
security interest in all assets as are required
above. The Lenders shall have received satisfactory
title insurance and surveys with respect to certain
of the mortgaged real property to be mutually agreed
upon by the Borrower and the Co-Agents.
11. The Borrower and each Guarantor shall have executed
and delivered satisfactory definitive financing
documentation with respect to the Alternative Senior
Bank Financing (the "Credit Documentation").
12. The Senior Leverage Ratio shall be less than or equal
to 3.5 to 1 (after giving effect to the Transaction
and the incurrence of the Alternative Senior Bank
Financing).
13. The Equity Investors shall have entered into a
capital call agreement (the "Capital Call Agreement")
in form and substance reasonably satisfactory to the
Co-Agents, pursuant to which the Equity Investors
shall be obligated (on a joint and several basis) to
make an Additional Investment in the amount, at the
time and under the circumstances contemplated by the
sixth paragraph of the Commitment Letter.
B. CONDITIONS TO ALL
LOANS: Absence of default or event of default under the
Senior Credit Facilities and continued accuracy of
representations and warranties in all material
respects.
COVENANTS: Those typical for these types of facilities and any
additional covenants appropriate in the context of
the proposed transaction (with such covenants having
such exceptions or baskets as may be mutually agreed
upon). Although the
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<PAGE>
covenants have not yet been specifically determined,
we anticipate that the covenants to be agreed upon
shall in any event include:
1. Financial and other information: certified quarterly
and audited annual financial statements, and other
customary information.
2. Restrictions on indebtedness, with exceptions to be
mutually agreed upon.
3. Restrictions on mergers, acquisitions, joint
ventures, partnerships, investments, and acquisitions
and dispositions of assets, with exceptions to be
agreed upon.
4. Restrictions on sale-leaseback transactions and lease
payments.
5. Limitations on dividends, redemptions and repurchases
of capital stock and debt; PROVIDED that (x)
dividends by the Borrower to Holdings will be
permitted to enable Holdings to pay (i) interest on
the outstanding debentures of Holdings held by the
special-purpose trust which issued the QUIPS when and
as due so long as (I) such trust uses such interest
proceeds to pay dividends on the QUIPS when and as
due and (II) no default or event of default then
exists under the Alternative Senior Bank Financing or
would exist after giving effect thereto, (ii) cash
interest on the Mezzanine Subordinated Debt as and
when due, so long as no default or event of default
then exists under the Alternative Senior Bank
Financing or would exist after giving effect thereto
and (iii) certain ordinary course administrative
expenses and (y) to the extent permitted above under
the heading "Mandatory Commitment
Reductions/Mandatory Repayments," payments owing to
the Equity Investors with respect to the Investment
Instrument may be made with the net proceeds from
certain sales of Public Internet Investments.
6. Limitation on transactions with affiliates and
formation of subsidiaries.
7. INTEREST COVERAGE - Ratio of Consolidated EBITDA (to
be defined) to Cash Interest Expense (to be defined)
for any rolling four quarter period at levels to be
determined.
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<PAGE>
8. TOTAL LEVERAGE RATIO - Ratio of Total Consolidated
Debt (to be defined) at any time to Consolidated
EBITDA for each rolling four quarter period at levels
to be determined.
9. Restrictions on liens.
10. Compliance with laws.
11. Adequate insurance coverage.
12. ERISA covenants.
13. Limitations on capital expenditures.
14. Limitation on modifications of the agreements
relating to certain indebtedness (including the BFPH
Senior Subordinated Debt and the Mezzanine
Subordinated Debt) and preferred stock and
organizational documents.
15. Limitation on changes in business conducted by
Holdings and its subsidiaries, with exceptions to be
agreed upon.
16. Restrictions on voluntary repayments of indebtedness
(including, without limitation, the BFPH Senior
Subordinated Debt and the Mezzanine Subordinated
Debt); PROVIDED that (A) so long as no default or
event of default then exists under the Alternative
Senior Bank Financing or would result therefrom, all
or a portion of the outstanding Additional Mezzanine
Amount may be repaid (I) prior to the earlier of (a)
March 31, 2000 or (b) the date audited financial
statements of BFPH for the fiscal year ended December
31, 1999 are made available (such earlier date, the
"Final Tested Mezzanine Prepayment Date") (x) if BFPH
and its subsidiaries have generated sufficient cash
such that the Senior Leverage Ratio (after giving
effect to such repayment) is no greater than 3.5 to
1, (y) with up to 50% of the Shared 24/7 Media
Proceeds, so long as the Senior Leverage Ratio is no
greater than 3.5 to 1 after giving effect to the sale
of such 24/7 Media Investments and such repayment and
(z) with up to 100% of the 24/7 Media Appreciation
Proceeds, so long as the Senior Leverage Ratio is no
greater than 3.5 to 1 after giving effect to the sale
of such 24/7 Media Investments and such repayment and
(II) on the date the audited financial statements for
BFPH for the fiscal year ended December 31, 1999 are
made available if the 1999 EBITDA is at least $231.0
million (or $256.9 million if the Columbine Sale is
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<PAGE>
not consummated on the Closing Date) so long as after
giving effect to such repayment the Senior Leverage
Ratio is no greater than 3.5 to 1, (B) all or a
portion of the outstanding Mezzanine Subordinated
Debt (including the Additional Mezzanine Amount) may
be repaid prior to the Final Tested Mezzanine
Prepayment Date with up to (I) 75% of the Shared XL
Ventures Proceeds and (II) 100% of the XL Ventures
Appreciation Proceeds, in either case so long as (x)
no default or event of default then exists under the
Alternative Senior Bank Financing or would result
therefrom, (y) the Senior Leverage Ratio is no
greater than 3.5 to 1 after giving effect to the sale
of the respective XL Ventures Investments and such
repayment and (z) in the case of any prepayment of
the Mezzanine Subordinated Debt not constituting the
Additional Mezzanine Amount, all BFPH Senior
Subordinated Debt outstanding in the form of a loan
shall have been theretofore refinanced with the
proceeds of an issuance of senior subordinated notes
pursuant to a public offering and (C) commencing on
the 15th business day following the Final Tested
Mezzanine Prepayment Date, so long as no default or
event of default then exists under the Alternative
Senior Bank Financing or would result therefrom, (I)
all or a portion of the outstanding Additional
Mezzanine Amount may be repaid with up to (x) 50% of
the Shared 24/7 Media Proceeds and (y) 100% of the
24/7 Media Appreciation Proceeds and (II) all or a
portion of the outstanding Mezzanine Subordinated
Debt (including the Additional Mezzanine Amount) may
be repaid with up to (x) 75% of the Shared XL
Investments Proceeds and (y) 100% of the XL
Investments Appreciation Proceeds. For purposes of
clauses (A)(I) and (B) of this proviso only, it is
understood and agreed that the Senior Leverage Ratio
shall be calculated assuming that EBITDA is $231.0
million (or $256.9 million if the Columbine Sale is
not consummated on the Closing Date).
17. Limitation on issuance of redeemable common stock and
preferred stock of Holdings and restrictions on
issuance of stock by subsidiaries, with certain
exceptions to be agreed upon.
18. General affirmative covenants usual for facilities
and transactions of this type and others to be
specified by the Co-Agents (to be applicable to
Holdings and its subsidiaries).
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<PAGE>
19. Special purpose covenants shall be applicable to
Holdings and the existing special-purpose receivables
entity.
The Credit Documentation will permit the Borrower to
create or acquire subsidiaries which it may, at the
time of such creation or acquisition, designate as
"Unrestricted Subsidiaries" (including the Public
Internet Investments), so long as (x) no default or
event of default is then in existence under the
Alternative Senior Bank Financing or would result
therefrom and (y) the investment in such Unrestricted
Subsidiary (including any deemed investment made upon
any such designation resulting therefrom) is within
the limits described in the last sentence of this
paragraph. Unrestricted Subsidiaries shall not be
required to provide Guaranties or security and shall
not subject to the covenants contained in the Credit
Documentation, except that (x) the "corporate
separateness" and "line of business" covenants to be
agreed upon shall be applicable thereto and (y) all
obligations of Unrestricted Subsidiaries shall be
required to be non-recourse to Holdings and its
subsidiaries. Unrestricted Subsidiaries shall be
ignored in determining Applicable Margins and
compliance with the financial covenants contained in
the Credit Documentation. So long as no default or
event of default is then in existence under the
Credit Documentation or would result therefrom,
Investments by the Borrower and its subsidiaries
(whether as a capital contribution or otherwise) in
Unrestricted Subsidiaries shall be permitted in
amounts and from sources to be agreed upon.
REPRESENTATIONS
AND WARRANTIES: Typical for facilities and transactions of this type
and others to be specified by the Co-Agents,
including but not limited to accuracy of financial
statements; no material adverse change; absence of
litigation; no violation of agreements or
instruments, including no default or event of
default; compliance with laws (including ERISA,
margin regulations and environmental laws); payment
of taxes; ownership of properties; inapplicability of
the Investment Company Act; solvency; effectiveness
of regulatory approvals; labor matters; environmental
matters, including the absence of material
environmental liabilities; accuracy of information;
and validity, priority and perfection of security
interests in the collateral.
EVENTS OF DEFAULT: Will include (without limitation) payment,
misrepresentation, covenant, bankruptcy, ERISA,
judgments, actual or asserted invalidity of security
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documents, guarantees or the Capital Call Agreement,
change of ownership or control, and cross defaults,
subject in certain cases, to notice, grace and cure
provisions to be agreed.
ASSIGNMENT AND
PARTICIPATIONS: Each Lender may assign all or a portion of its loans
and commitments under the Alternative Senior Bank
Financing, or sell participations therein, to another
person or persons provided that (a) each such
assignment shall be in a minimum amount equal to
$5,000,000 and shall be subject to certain conditions
(including, without limitation, the approval of the
Borrower, such approval not to be unreasonably
withheld or delayed), (b) no such assignment shall
result in the selling Lender having a commitment of
less than $5,000,000 (such amount to be reduced
proportionately as the total commitment is reduced
and term loans are repaid) unless such selling Lender
sells all of its loans and commitment pursuant to
such assignment, (c) the Administrative Agent shall
receive at the time of each such assignment a
non-refundable assignment fee of $3,500 from the
assigning or assignee Lender and (d) no purchaser of
a participation shall have the right to exercise or
to cause the selling Lender to exercise voting rights
in respect of the Alternative Senior Bank Financing
(except as to certain basic issues). Promptly after
consummating any assignment, the selling Lender shall
notify the Borrower thereof. Pledges of Loans in
accordance with applicable law shall be permitted
without restriction. Promissory notes shall be issued
under the Alternative Senior Bank Financing only upon
request.
YIELD PROTECTION: The Credit Documentation shall contain customary
provisions (a) protecting the Lenders against
increased costs or loss of yield resulting from
changes in reserve, tax, capital adequacy and other
requirements of laws and from the imposition of or
changes in withholding or other taxes and (b)
indemnifying the Lenders for "breakage costs"
incurred in connection with, among other things, any
prepayment of a Eurodollar Loan on a day other than
the last day of an interest period with respect
thereto.
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EXPENSES AND
INDEMNIFICATIONS: The Borrower shall pay (a) all reasonable
out-of-pocket expenses of the Co-Agents associated
with the syndication of the Alternative Senior Bank
Financing and the preparation, execution, delivery
and administration of the Credit Documentation and
any amendment or waiver with respect thereto
(including the reasonable fees, disbursements and
other charges of counsel) and (b) all out-of-pocket
expenses of the Co-Agents and the Lenders (including
the reasonable fees, disbursement and other charges
of counsel) in connection with the enforcement of the
Credit Documentation.
The Co-Agents and the Lenders (and their affiliates
and their respective officers, directors, employees,
advisors and agents) will have no liability for, and
will be indemnified and held harmless against, any
loss, liability, cost or expense incurred in respect
of the financing contemplated hereby or the use or
the proposed use of the proceeds thereof (except to
the extent resulting from the gross negligence or
willful misconduct of the respective indemnified
party).
REQUIRED LENDERS: 51%.
COUNSEL TO THE
CO-AGENTS: White & Case LLP.
GOVERNING LAW: The law of the State of New York.
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ANNEX I
INTEREST AND COMMITMENT FEES
A. BASE RATE OPTION
Interest shall be at the Base Rate of the Administrative Agent PLUS the
relevant Applicable Margin (as defined below), calculated on the basis
of the actual number of days elapsed in a year of 365 days, payable
quarterly in arrears. The Base Rate is defined as the higher of the
Federal Funds Effective Rate, as published by the Federal Reserve Bank
of New York, plus 1/2 of 1%, or the prime commercial lending rate of
the Administrative Agent, as announced from time to time at its head
office. Base Rate drawings shall require one business day's prior
notice (except that advances under the Swingline Loan Sub-Facility may
be made on same day notice) and shall be in minimum amounts to be
specified.
B. LIBOR OPTION
Interest shall be determined for periods ("Interest Periods") of one,
two, three or six months and shall be at an annual rate equal to the
London Interbank Offered Rate ("LIBOR") for the corresponding deposits
of U.S. Dollars PLUS the relevant Applicable Margin. LIBOR will be
determined by the Administrative Agent at the start of each Interest
Period. Interest will be paid at the end of each Interest Period or
quarterly, whichever is earlier, and is to be calculated on the basis
of the actual number of days elapsed in a year of 360 days. LIBOR will
be adjusted for Regulation D reserve requirements.
C. DEFAULT INTEREST
Overdue principal, interest and other amounts shall bear interest at a
rate per annum equal to the otherwise applicable interest rate plus 2%.
Such interest shall be payable on demand.
D. COMMITMENT FEE
The relevant Applicable Margin on the unutilized total commitments
under the Revolving Credit Facility (for this purpose, with loans
pursuant to the Swingline Loan Sub-Facility being deemed not to
constitute a utilization of commitments under the Revolving Credit
Facility), as in effect from time to time, commencing on the Closing
Date and continuing to and including the termination of the Revolving
Credit Facility, payable quarterly in arrears and upon the termination
of the Revolving Credit Facility.
E. APPLICABLE MARGIN
The "Applicable Margin" shall mean the percentage per annum equal to
(x) in the case of loans under the Revolving Credit Facility and the
Tranche A Term Loan Facility maintained as (i) LIBOR loans, 3.00% and
(ii) Base Rate loans, 2.00%, (y) in the case of loans under the Tranche
B Term Loan Facility maintained as (i) LIBOR loans, 3.75% and (ii) Base
Rate loans, 2.75% and (z) in the case of the Commitment Fee, 0.50%,
PROVIDED
<PAGE>
that so long as no default or event of default is then in existence
under the Alternative Senior Bank Financing, commencing after a period
to be agreed upon, the Applicable Margins for loans under the Revolving
Credit Facility and the Tranche A Term Loan Facility shall be subject
to reduction based upon the achievement of financial ratios to be
determined.
<PAGE>
Exhibit 99(a)(5)
[Opco Commitment Letter]
BANKERS TRUST CORPORATION THE CHASE MANHATTAN BANK NATIONSBRIDGE, L.L.C.
130 LIBERTY STREET 270 PARK AVENUE 100 NORTH TRYON STREET
NEW YORK, NEW YORK 10006 NEW YORK, NEW YORK 10017 CHARLOTTE, NC 28255
October 22, 1999
BFH Merger Corp.
c/o Thomas H. Lee Company
75 State Street, Suite 2600
Boston, MA 02109
c/o Evercore Advisors Inc.
65 East 55th Street, 33rd Floor
New York, New York 10022
Re: Big Flower Acquisition Financing
--------------------------------
Ladies and Gentlemen:
We understand that Thomas H. Lee Company ("THL"), Evercore
Partners Inc. ("ECP") and certain other equity investors reasonably satisfactory
to us (collectively, the "Equity Investors") intend to consummate a
recapitalization (the "Recapitalization") of Big Flower Holdings, Inc. (the
"Acquired Business"), through the merger of BFH Merger Corp. ("Newco"), a
corporation formed by the Equity Investors, with and into the Acquired Business.
We further understand that the funding requirements for the Recapitalization
(including the refinancing of certain outstanding indebtedness and the
repurchase of outstanding preferred stock and related fees and expenses) will be
approximately $1,950 million (approximately $1,826 million if the 6% Convertible
Quarterly Income Preferred Securities (the "QUIPS") remain outstanding) and such
amount, together with ongoing working capital needs, will be provided solely
from (i) term loan facilities of Big Flower Press Holdings, Inc., a wholly owned
subsidiary of the Acquired Business ("Big Flower Press") (collectively, the
"Term Loan Facility"), and a revolving credit facility of Big Flower Press (the
"Revolving Credit Facility" and, together with the Term Loan Facility, the "Bank
Financing") in an aggregate amount of up to $900 million (of which approximately
$780 million
<PAGE>
-2-
($656 million if the QUIPS remain outstanding) is expected to be
drawn on the closing date (the "Closing Date") of the Recapitalization), (ii) an
approximately $402 million equity investment (which may be in the form of more
than one class of capital stock) in the Acquired Business ($63 million of which
may be in the form of rollover equity) a portion of which may be in the form of
the issuance by Holdings to THL of a security, instrument or arrangement, the
structure of which is still to be determined (the "Investment Instrument"),
which equity investment will increase in the event that the Private Internet
Sale (as defined below) does not occur (the "Equity Financing"), (iii)
approximately $85 million, or such higher amount not to exceed $120 million,
provided that the total amount of borrowings under the existing revolving credit
facilities prior to closing and the A/R Facility (as defined) does not exceed
$400 million, from a new or existing accounts receivable facility of Big Flower
Press and/or its subsidiaries (the "A/R Facility"), (iv) to the extent same is
consummated on the Closing Date, at least $37.0 million from the sale by the
Acquired Business of all of the capital stock of Columbine JDS System, Inc.
("Columbine"), a wholly-owned subsidiary of the Acquired Business, on terms
satisfactory to the Lenders (the "Columbine Sale"), (v) to the extent the
Columbine Sale is consummated on the Closing Date, at least $128.0 million from
the payment by Columbine of a cash dividend (through its parent) to the Acquired
Business (the "Columbine Dividend") with the proceeds of the Term Loan Facility
and the Mezzanine Debt referred to (and as defined in) that certain Commitment
Letter (the "Columbine Commitment Letter"), dated as of October 11, 1999, among
the Acquired Business with respect to the acquisition by an affiliate of Newco
of Columbine, (vi) approximately $19.2 million from the sale of certain private
internet investments (the "Private Internet Sale" and together with the
Columbine Sale and the Columbine Dividend, the "Columbine/XL Ventures
Disposition"), (vii) $50 million subject to increase to an amount not to exceed
$100 million as provided in Section 3(g) from the issuance of subordinated debt
of the Acquired Business to THL or an affiliate (the "Mezzanine Financing") and
(viii) the issuance and sale of Debt Securities (as defined below). We
understand that the dollar amounts set forth above are subject to adjustment as
provided in Section 2.03 of the Recapitalization Agreement (as defined below).
Notwithstanding the foregoing, we understand that in the event that the
Columbine Sale is not consummated the amount of the Bank Financing will increase
by $87.5 million, the amount of the Mezzanine Financing will increase by $47.5
million and the amount of the Equity Financing will in-
<PAGE>
-3-
crease by $37 million. The Recapitalization, the Bank Financing, the Equity
Financing, the A/R Facility, the Columbine/XL Ventures Disposition, the
Mezzanine Financing, the bridge loan contemplated by this letter and the
issuance and sale of the Debt Securities are herein collectively referred to as
the "Transaction".
In connection with the Transaction, you have engaged Deutsche Bank
Securities Inc. ("DBSI"), Chase Securities Inc. ("CSI") and Banc of America
Securities LLC ("Banc of America" and, collectively with DBSI and CSI, the
"Investment Banks") to sell or place debt securities of Big Flower Press (the
"Debt Securities").
You have requested that Bankers Trust Corporation ("BTCO"), The Chase
Manhattan Bank ("Chase") and NationsBridge, L.L.C. ("Nations") (collectively,
the "Lenders") commit to provide to Big Flower Press funds in the amount of
$191.25 million, $168.75 million and $90 million, respectively, of a total
commitment of up to $450 million (subject to reduction as set forth in Section
3(e) below) in the form of a senior subordinated bridge loan to be made
available as described in Section 1 hereof (the "Bridge Loan").
The Lenders have also delivered to you a bridge commitment letter dated
October 11, 1999 (together with the related fee letter, the "Holdco Bridge
Letter") relating to a possible bridge loan (the "Holdco Bridge Loan") to the
Acquired Business. Under the circumstances set forth in Section 6(a) of the
related fee letter, the Holdco Bridge Letter will no longer be of any force and
effect. In such case, this commitment letter will be operative. Under no
circumstances will the Lenders have the obligation to fund both the Holdco
Bridge Loan and the Bridge Loan.
Accordingly, subject to the terms and conditions set forth or
incorporated in this letter, the Lenders agree with you as follows:
Section 1. BRIDGE LOAN. BTCO, Chase and Nations hereby commit, subject
to the terms and conditions hereof and in the Summary Term Sheet attached hereto
as Exhibit A (the "Term Sheet"), severally and not jointly, to provide to the
Acquired Business $191.25 million, $168.75 million and $90 million,
respectively, of a senior subordinated bridge loan on the Closing Date in the
aggregate principal amount of up to $450 million (subject to reduction as set
forth in Section 3(l) below). If the Bridge Loan is less than $450 million, the
commitments of the Lenders shall be reduced pro rata based upon
<PAGE>
-4-
their respective initial commitment amounts. The proceeds of the Bridge Loan
shall be used solely to finance the Recapitalization and to pay fees and
expenses incurred in connection therewith. The principal terms of the Bridge
Loan are summarized in the Term Sheet.
Unless the Lenders' commitment hereunder shall have been terminated
pursuant to Section 7, the Lenders shall have the exclusive right to provide the
Bridge Loan or other bridge or interim financing required in connection with the
Transaction.
You hereby represent and covenant that based on your review and
analysis, to the best of your knowledge, (a) all information other than
Projections (as defined below) which has been or is hereafter made available to
the Lenders by you or your representatives, advisors or affiliates in connection
with the transactions contemplated hereby (the "Information") has been reviewed
and analyzed by you in connection with the performance of your own due diligence
and is, or in the case of Information made available after the date hereof will
be, correct in all material respects and does not and will not contain any
untrue statement of a material fact or omit to state a material fact known to
you and necessary to make the statements contained therein, in the light of the
circumstances under which such statements were or are made, not misleading and
(b) all financial projections concerning the Acquired Business that have been or
are hereafter made available to the Lenders by you or your representatives,
advisors or affiliates in connection with the transactions contemplated hereby
(the "Projections") have been or, in the case of Projections made available
after the date hereof, will be prepared in good faith based upon reasonable
assumptions (it being understood that the Projections are subject to significant
uncertainties and contingencies, many of which are beyond your control, and that
no assurance can be given that such Projections will be realized). You agree to
supplement the Information and the Projections from time to time as the Lenders
may reasonably request until the termination of the Lenders' commitment
hereunder so that the representation and warranty made in the preceding sentence
is correct as of such date. In arranging and syndicating the Bridge Loan, the
Lenders will be using and relying on the Information and the Projections. The
representations and covenants contained in this paragraph shall remain effective
until a definitive financing agreement is executed and thereafter the disclosure
representations contained herein shall be terminated and of no further force and
effect.
<PAGE>
-5-
Section 2. FINANCING DOCUMENTATION. The making of the Bridge Loan will
be governed by definitive loan and related agreements and documentation
(collectively, the "Financing Documentation") in form and substance reasonably
satisfactory to the Lenders and to you. The Financing Documentation shall be
prepared by Cahill Gordon & Reindel, special counsel to the Lenders. The
Financing Documentation shall contain such covenants, terms and conditions as
are consistent with this letter and the Term Sheet and such other covenants,
terms, conditions, representations, warranties, events of default and remedies
provisions as shall be satisfactory to the Lenders and you.
Section 3. CONDITIONS. The obligations of the Lenders under Section 1
of this letter to provide the Bridge Loan are subject to fulfillment of the
following conditions:
(a) RECAPITALIZATION AGREEMENT. The Equity Investors and the
Acquired Business shall have entered into an agreement relating to the
Recapitalization (the "Recapitalization Agreement") on terms and in
form and substance reasonably satisfactory to the Lenders, it being
understood that the Amended and Restated Agreement and Plan of Merger
between Newco and the Acquired Business dated October 11, 1999, is
satisfactory. The Recapitalization Agreement shall not have been
amended without the Lenders' consent, which consent shall not be
unreasonably withheld. All conditions precedent to the Recapitalization
contained in the Recapitalization Agreement shall have been performed
or complied with substantially on the terms set forth therein and not
waived without the Lenders' consent, which consent shall not be
unreasonably withheld, and simultaneously with the making of any Bridge
Loan, the Recapitalization shall have been consummated.
(b) FINANCING DOCUMENTATION. Big Flower Press and the Lenders
shall have entered into the Financing Documentation relating to the
Bridge Loan and the transactions contemplated thereby on terms and in
form and substance reasonably satisfactory to the Lenders and Big
Flower Press.
(c) BANK FINANCING. Big Flower Press and/or its subsidiaries
shall have entered into definitive documentation on terms and in form
and substance reasonably satisfactory to the Lenders with respect to
the Bank Financing (collectively with all documents and instruments
related thereto or delivered in connection therewith, the "Bank
Documents") with a commercial lender or lenders or a syn-
<PAGE>
-6-
dicate of commercial lenders, it being understood that the terms set
forth in the commitment letter executed as of the date hereof with
respect to the Bank Financing are satisfactory. The Bank Documents
shall be in full force and effect and the parties thereto shall be in
compliance with all material agreements thereunder, with such
exceptions that would not have a material effect on the business,
property, assets, nature of assets, liabilities, condition (financial
or otherwise), results of operations or prospects of Big Flower Press.
(d) EQUITY FINANCING. On or prior to the Closing Date, the
Acquired Business shall have received an equity investment of not less
than $402 million, which shall be provided by the Equity Investors ($63
million of which will be in the form of rollover equity) including the
Investment Instrument. The terms and conditions of the Equity Financing
shall be reasonably satisfactory to the Lenders.
(e) A/R FACILITY. Big Flower Press and/or its subsidiaries
shall have entered into definitive documentation on terms and in form
and substance reasonably satisfactory to the Lenders with respect to
the A/R Facility or the existing A/R Facility shall remain in place, it
being understood that the existing A/R Facility is satisfactory. Such
documentation shall be in full force and effect.
(f) COLUMBINE/XL VENTURES DISPOSITION. The Acquired Business
shall have consummated each of the Columbine Sale and the Private
Internet Sale on terms and in form and substance reasonably
satisfactory to the Lenders and the Acquired Business shall have
received the proceeds from the Columbine Dividend; provided that if
Acquired Business is not able to consummate the Columbine Sale and does
not receive the proceeds from the Columbine Dividend then the amount of
the Bank Financing shall be increased by $87.5 million, the amount of
the Mezzanine Financing shall be increased by $47.5 million and the
Equity Financing shall be increased by $37 million, and provided,
further, that if the Private Internet Sale is not consummated the
amount of the equity investment will be increased, to the extent not
otherwise replaced by the Investment Instrument.
(g) MEZZANINE FINANCING. The Acquired Business shall have
received $50 million (or $97.5 million if the Columbine Sale is not
consummated on the Closing Date) from the Mezzanine Financing, which
financing shall be
<PAGE>
-7-
subordinated to the Bridge Loan; PROVIDED, HOWEVER, that if on the
Closing Date the ratio (the "Senior Leverage Ratio") of senior debt
(less cash and cash equivalents) of Big Flower Press to pro forma
EBITDA (as defined in the Bridge Loan) after giving effect to the
Transaction will be greater than 3.5 to 1 then the amount of the
Mezzanine Financing shall be increased by an amount not to exceed $50.0
million with a dollar for dollar decrease in the Bank Financing (the
"Additional Mezzanine Amount") such that on the Closing Date the Senior
Leverage Ratio of Big Flower Press is no greater than 3.5 to 1. The
terms and conditions of the Mezzanine Financing shall be reasonably
satisfactory to the Lenders. For purposes of this paragraph the Senior
Leverage Ratio shall be calculated assuming that EBITDA (pro forma to
give effect to certain acquisitions and the exclusion of Columbine and
its subsidiaries in the event the Columbine Sale is consummated on the
Closing Date) is $231.0 million (or $256.9 million if the Columbine
Sale is not consummated on the Closing Date and pro forma for certain
acquisitions).
The Bridge Loan will provide for a repayment (each a
"Repayment") of all or a portion of the Additional Mezzanine Amount
prior to the earlier of (a) March 31, 2000 or (b) the date audited
financial statements of Big Flower Press are available (x) if the
Acquired Business has generated sufficient cash such that the Senior
Leverage Ratio after giving effect to such Repayment is no greater than
3.5 to 1 or (y) with the proceeds of the Internet Investments (as
defined below) PROVIDED that after giving effect to such asset sales
and such Repayment the Senior Leverage Ratio is no greater than 3.5 to
1. For purposes of this paragraph the Senior Leverage Ratio shall be
calculated assuming that EBITDA (pro forma to give effect to certain
acquisitions and the exclusion of Columbine and its subsidiaries in the
event the Columbine Sale is consummated on the Closing Date) is $231.0
million (or $256.9 million if the Columbine Sale is not consummated on
the Closing Date and pro forma for certain acquisitions). As used
herein, "Internet Investments" shall mean proceeds from the sale of (x)
the 24/7 Media, Inc. and/or (y) the XL Ventures investments.
The Bridge Loan will provide that if the aggregate Mezzanine
Financing (including the Additional Mezzanine Amount) is less than $100
million (or $147.5 million if the Columbine Sale is not consummated on
the Closing Date) at March 31, 2000 or such earlier date when audited
finan-
<PAGE>
-8-
cial statements of Big Flower Press are available and the EBITDA (the
"1999 EBITDA") of Big Flower Press for the year ended December 31, 1999
as determined based on the audited financial statements of Big Flower
Press for the year ended December 31, 1999 is less than $231.0 million
(pro forma to give effect to certain acquisitions and the exclusion of
Columbine and its subsidiaries in the event the Columbine Sale is
consummated on the Closing Date) (or $256.9 million if the Columbine
Sale is not consummated on the Closing Date and pro forma for certain
acquisitions) or such audited financial statements shall not have been
made available to the Lenders on or prior to March 31, 2000, then the
Equity Investors will contribute to the Acquired Business an amount not
to exceed $50 million in the form of common equity or mezzanine
financing substantially in the form of the Mezzanine Financing (the
"Additional Investment") such that the Mezzanine Financing and the
Additional Investment will aggregate $100.0 million (or $147.5 million
if the Columbine Sale is not consummated on the Closing Date) and such
amount shall be contributed by the Acquired Business to Big Flower
Press. Such Additional Investment shall be contributed no later than 10
days after the determination that it is required. The Bridge Loan will
further provide that if the 1999 EBITDA is at least $231 million (pro
forma to give effect to certain acquisitions and the exclusion of
Columbine and its subsidiaries in the event the Columbine Sale is
consummated on the Closing Date) (or $256.9 million if the Columbine
Sale is not consummated on the Closing Date and pro forma for certain
acquisitions ) and all or a portion of the Additional Mezzanine Amount
remains outstanding a Repayment will be allowed to be made PROVIDED
that after giving effect to such Repayment the Senior Leverage Ratio is
no greater than 3.5 to 1.
(h) NO ADVERSE CHANGE OR DEVELOPMENT, ETC. (i) Except as
disclosed in reports filed by the Acquired Business with the SEC on or
prior to the date hereof or disclosed in the Recapitalization Agreement
as of the date hereof or in the disclosure schedules to the
Recapitalization Agreement as of the date hereof, nothing shall have
occurred since December 31, 1998 (and the Lenders shall have become
aware of no facts or conditions not previously known to the Lenders)
which the Lenders shall reasonably determine could have a material
adverse effect on the rights or remedies of the Lenders, or on the
ability of Big Flower Press to perform its obligations to the Lenders
or which could have a materially adverse effect on the
<PAGE>
-9-
business, property, assets, nature of assets, liabilities, condition
(financial or otherwise), results of operations or prospects of Big
Flower Press after giving effect to the Transaction; (ii) trading in
securities generally on the New York or American Stock Exchange shall
not have been suspended; minimum or maximum prices shall not have been
established on any such exchange; (iii) a banking moratorium shall not
have been declared by New York or United States authorities; and (iv)
there shall not have been (A) an outbreak or escalation of hostilities
between the United States and any foreign power, or (B) an outbreak or
escalation of any other insurrection or armed conflict involving the
United States or any other national or international calamity or
emergency, or (C) any material change in the general financial markets
of the United States since the date hereof which, in each case, in the
reasonable judgment of the respective Lender would materially and
adversely affect the ability to sell or place the Debt Securities.
(i) CAPITAL STRUCTURE. The pro forma consolidated capital
structure of the Acquired Business, Big Flower Press and their
subsidiaries after giving effect to the Transaction, shall be
consistent with the capital structure contemplated herein, and other
than the Bridge Loan, the Bank Financing, the A/R Facility, the
Mezzanine Financing and other indebtedness reasonably satisfactory to
the Lenders, the Acquired Business, Big Flower Press and their
subsidiaries, after giving effect to, and upon consummation of, the
Transaction, shall have no outstanding indebtedness for money borrowed.
(j) OPINIONS. As of the Closing Date, the Lenders shall have
received legal and other opinions (including with respect to solvency)
from persons, and covering matters, reasonably acceptable to the
Lenders.
(k) TAKE-OUT BANKS. You shall have engaged the Investment
Banks (the "Take-Out Banks") to publicly offer or privately place the
Debt Securities, the proceeds of which will be used either to fund the
Recapitalization or to prepay in whole or in part the Bridge Loan. You
and the Acquired Business and Big Flower Press shall have prepared an
offering memorandum relating to the issuance of the Debt Securities
(which offering memorandum shall contain audited, unaudited and pro
forma financial statements meeting the requirements of Regulation S-X
under the Securities Act of 1933, as amended (the "Securities Act"), of
<PAGE>
-10-
the Acquired Business and Big Flower Press for the periods required of
a registrant on Form S-1).
(l) DEBT TENDER OFFER. Newco, Big Flower Press and/or the
Acquired Business shall have commenced a tender offer and consent
solicitation for the approximately $600 million of existing senior
subordinated notes (the "Big Flower Press Notes") of Big Flower Press,
providing for a tender price and a consent fee to eliminate the
restrictive covenants contained therein. Such tender offer shall
provide that holders of Big Flower Press Notes shall only receive the
consent fee if they have tendered their notes prior to the later of the
10th business day after commencement of the tender offer or the date on
which the supplemental indentures for the Big Flower Press Notes are
executed (the "Consent Date"). Tenders and consents of the holders of
at least 51% of the outstanding principal amount of each of the series
of the Big Flower Press Notes shall have been received. The tender
offer and consent solicitation shall be consummated simultaneously with
the making of the Bridge Loan. The amount of the Bridge Loan shall be
reduced by the aggregate principal amount of Big Flower Press Notes
that are not tendered pursuant to the tender offer and consent
solicitation.
Section 4. SECURITIES DEMAND. You agree to comply with the provisions
in the Fee Letter from the Lenders to you dated the date hereof (the "Fee
Letter").
Section 5. INDEMNIFICATION AND CONTRIBUTION. You agree to indemnify the
Lenders and each of their respective affiliates and each person in control of
the Lenders and each of their respective affiliates and the respective officers,
directors, employees, agents and representatives of the Lenders and their
respective affiliates and control persons, as provided in the Indemnity Letter
dated October 11, 1999 (the "Indemnity Letter") and attached hereto.
Section 6. EXPENSES. In addition to any fees that may be payable to the
Lenders hereunder, if this letter agreement is terminated, the Bridge Loan is
made available or the Financing Documentation is executed and delivered, you
hereby agree to reimburse the Lenders for all reasonable fees and disbursements
of legal counsel, including but not limited to the reasonable fees and
disbursements of Cahill Gordon & Reindel, the Lenders' special counsel, and all
of the Lenders' travel and other reasonable out-of-pocket expenses incurred in
connection with the Transaction (other than the sale of the Debt Se-
<PAGE>
-11-
curities, the fees and expenses in connection with which will be payable as is
customary in such transactions) or otherwise arising out of the Lenders'
commitment hereunder; PROVIDED, HOWEVER, that if the Transaction is not
consummated you will have no obligation pursuant to this Section 6 unless you or
any of your affiliates (including, without limitation, THL or ECP) receives any
termination or similar fee or any expense reimbursement pursuant to the
Recapitalization Agreement or otherwise but only to the extent of the Lenders'
pro rata share of the aggregate amount of such expense reimbursements received
by you and your affiliates (based upon the relative expenses of the co-agents
under the Bank Financing, you and your affiliates and the Investment Banks).
Section 7. TERMINATION. The Lenders' commitment hereunder to provide
the Bridge Loan shall terminate, unless expressly agreed to by the Lenders in
their sole discretion to be extended to another date, on the earlier of (A)
December 31, 1999 if no portion of the Bridge Loan has been funded (other than
as a result of failure of the Lenders to fulfill their obligations hereunder)
and (B) the termination of the Recapitalization Agreement in accordance with the
terms thereof. No such termination of such commitment shall affect your
obligations under Sections 5 and 6 hereof or this Section 7, which shall survive
any such termination.
Section 8. ASSIGNMENT; SYNDICATION. This letter shall not be assignable
by any party hereto without the prior written consent of the other parties
(other than, in the case of the Lenders, to an affiliate of such Lender, it
being understood that any such affiliate shall be subject to the restrictions
set forth in this Section 8); PROVIDED, HOWEVER, that the Lenders shall have the
right, in their sole discretion, to syndicate the Bridge Loan and their
commitment with respect thereto among banks or other financial institutions or
qualified institutional buyers (as defined in Rule 144A under the Securities
Act) pursuant to the Financing Documentation or otherwise and to sell, transfer
or assign all or any portion of, or interests or participations in, the Bridge
Loan and their commitment with respect thereto and any notes issued in
connection therewith; PROVIDED, FURTHER, that BTCO shall be the book-running
syndication agent and any syndication shall reduce the Lenders' respective
commitments on a pro rata basis. You and the Acquired Business and Big Flower
Press agree to use your reasonable best efforts, whether prior to or after the
funding date of any Bridge Loan, to assist the Lenders in syndicating the Bridge
Loan or their commitment with respect thereto, including, without limitation, in
connection with (x) the prepa-
<PAGE>
-12-
ration of an information package regarding the Transaction, including the
Information and the Projections described in Section 1 hereof, and (y) meetings
and other communications with prospective Lenders, including making senior
management of the Acquired Business and Big Flower Press and other
representatives of you and the Acquired Business and Big Flower Press available
(at mutually agreeable times) to participate in such meetings.
Section 9. MISCELLANEOUS. THIS LETTER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES GOVERNING CONFLICTS OF LAWS, AND ANY RIGHT TO TRIAL BY JURY
WITH RESPECT TO ANY CLAIM, ACTION, SUIT OR PROCEEDING ARISING OUT OF OR
CONTEMPLATED BY THIS COMMITMENT LETTER IS HEREBY WAIVED. YOU HEREBY SUBMIT TO
THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED
IN THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO THIS
COMMITMENT LETTER OR ANY MATTERS CONTEMPLATED HEREBY. This letter (including the
provisions of the Indemnity Letter dated October 11, 1999 and the Fee Letter
dated the date hereof and specifically incorporated herein) and the Holdco
Bridge Letter embodies the entire agreement and understanding between you and
the Lenders and supersedes and replaces all prior agreements and understandings,
including the Commitment Letter, the Indemnity Letter and the Fee Letter, each
dated June 28, 1999 and between you and the Lenders, relating to the subject
matter hereof. This letter may be executed in any number of counterparts, each
of which shall be an original, but all of which shall constitute one instrument.
The Lenders reserve the right to employ the services of their
affiliates (including the Investment Banks) in providing services contemplated
by this letter and to allocate, in whole or in part, to their affiliates certain
fees payable to the Lenders in such manner as the Lenders and their respective
affiliates may agree in their sole discretion. You acknowledge that the Lenders
may share with any of their affiliates (including the Investment Banks) and such
affiliates may share with the Lenders (in each case, subject to any
confidentiality agreements applicable thereto) any information related to you or
your affiliates, the Acquired Business and Big Flower Press (including
information relating to creditworthiness) or the Transaction.
<PAGE>
-13-
If you are in agreement with the foregoing, please sign and return to
the Lenders c/o BTCO at 130 Liberty Street, New York, New York 10006 the
enclosed copy of this letter no later than 6:00 p.m., New York time, on October
, 1999, whereupon the undertakings of the parties shall become effective to the
extent and in the manner provided hereby. This offer shall terminate if not so
accepted by you on or prior to that time.
Very truly yours,
BANKERS TRUST CORPORATION
By: /s/ William W. Archer
-------------------------------------
Name: William W. Archer
Title: Senior Vice President
THE CHASE MANHATTAN BANK
By: /s/ Bruce S. Borden
-------------------------------------
Name: Bruce S. Borden
Title: Vice President
NATIONSBRIDGE, L.L.C.
By: /s/ Lynne E. Wertz
-------------------------------------
Name: Lynne E. Wertz
Title: Senior Vice President
Accepted and Agreed to as of the date first above written:
BFH MERGER CORP.
By: /s/ Anthony J. DiNovi
-------------------------------------
Name: Anthony J. DiNovi
Title: Chairman of the Board
<PAGE>
EXHIBIT A
BRIDGE LOAN AND TERM LOAN FACILITY
SUMMARY TERM SHEET 1
BORROWER: Big Flower Press Holdings, Inc. (the "Borrower").
GUARANTORS: All obligations under the Bridge Loan shall be
unconditionally guaranteed on a senior subordinated
basis by each of the Borrower's subsidiaries that
guarantees the Bank Financing on the Closing Date
(collectively, the "Guarantors").
LENDER: Bankers Trust Corporation, The Chase Manhattan Bank
and NationsBridge, L.L.C. (the "Lenders").
AMOUNT: $450 million (subject to reduction as set forth in
Section 3(l) of the commitment letter) senior
subordinated bridge loan (the "Bridge Loan").
MATURITY: The commitment shall automatically expire on December
31, 1999 if no portion of the Bridge Loan has been
funded (other than as a result of failure of the
Lenders to fulfill their obligations hereunder). Any
outstanding amount under the Bridge Loan will be
required to be repaid in full on the earlier of (a)
one year following the initial funding date of the
Bridge Loan and (b) the closing date of any permanent
financing sufficient to repay the Bridge Loan;
PROVIDED, HOWEVER, that
- ---------------
1 Capitalized terms used herein and not defined herein shall have the
meanings provided in the commitment letter to which this summary term
sheet is attached.
<PAGE>
-2-
if the Borrower has failed to raise permanent
financing before the date set forth in (a) above, the
Bridge Loan shall be converted, subject to the
conditions outlined under "Conditions to Conversion
of the Bridge Loan," to a senior term loan facility
(the "Term Loan") with a maturity of ten years. The
Borrower shall pay to the Lenders on the Conversion
Date (as defined below) a cash fee as provided in the
Fee Letter.
COMMITMENT AND
FUNDING FEES: As provided in the Fee Letter.
TICKING FEE: As provided in the Fee Letter.
USE OF PROCEEDS: To fund in part the Recapitalization and to pay
related fees and expenses.
INTEREST RATE: As provided in the Fee Letter.
RANKING: The obligations of the Borrower and the Guarantors
under the Bridge Loan will be senior subordinated
obligations of the Borrower and the Guarantors and
will rank (i) junior in right of payment to all
senior indebtedness of the Borrower or such
Guarantor, as the case may be, (ii) PARI PASSU in
right of payment to all senior subordinated
indebtedness of the Borrower or such Guarantor, as
the case may be and (iii) senior to any subordinated
indebtedness of the Borrower or such Guarantor, as
the case may be.
OPTIONAL PREPAYMENT: The Borrower may prepay the Bridge Loan or the Term
Loan, in whole or in part, at any time at a
redemption price equal to 100% of the principal
amount thereof plus accrued interest thereon;
PROVIDED, HOWEVER, that at such time as any amount of
the Term Loan bears interest at the Fixed Rate, such
amount of the Term
<PAGE>
-3-
Loan shall be subject to redemption restrictions and
premiums typical for high yield debt securities. No
such optional prepayment shall be made without the
consent of the Lenders, unless all amounts owing are
paid in full.
MANDATORY PREPAYMENT: Net proceeds of sales of debt securities or equity
securities, (subject to exceptions to be agreed upon)
in a public offering or private placement by the
Borrower, shall be used to prepay the Bridge Loan
plus accrued interest and any other amount payable
thereunder to the full extent of the net proceeds so
received to the extent such net proceeds are not used
to retire bank debt. The Borrower will be required to
make an offer to purchase all notes outstanding under
the Bridge Loan or the Term Loan, as the case may be,
upon the occurrence of a Change of Control (to be
defined) in a manner reasonably acceptable to the
Lenders and the Borrower.
PARTICIPATION/ASSIGNMENT
OR SYNDICATION: The Lenders may participate out or sell or assign, or
syndicate to other lenders, the Bridge Loan or the
Term Loan, in whole or in part, at any time, subject
to compliance with applicable securities laws and
section 8 of the commitment letter.
CONDITIONS TO CONVERSION
OF THE BRIDGE LOAN: One year after the Funding Date of any portion of the
Bridge Loan, unless (A) the Borrower or any
significant subsidiary thereof is subject to a
bankruptcy or other insolvency proceeding, (B) there
exists a payment default (whether or not ma-
<PAGE>
-4-
tured) with respect to the Bridge Loan or the
Conversion Fee or (C) there exists a default in the
payment when due at final maturity of any
indebtedness (excluding the indebtedness under the
Bridge Loan) of the Borrower or any of its
subsidiaries in excess of $5 million for any such
default or all such defaults, or the maturity of such
indebtedness shall have been accelerated, the Bridge
Loan shall convert into the Term Loan (the
"Conversion Date"); PROVIDED, HOWEVER, that if an
event described in clause (B) or (C) is continuing at
the scheduled Conversion Date but the applicable
grace period, if any, set forth in the events of
default provision of the Bridge Loan has not expired,
the Conversion Date shall be deferred until the
earlier to occur of (i) the cure of such event or
(ii) the expiration of any applicable grace period.
DEBT SECURITY EXCHANGE: The Lenders may at any time after the Conversion
Date, on not less than 30 days' notice to the
Borrower, require that the Borrower exchange the Term
Loan for long-term notes which shall bear interest at
the Fixed Rate, determined at such time, and shall
have similar terms and conditions to high yield debt
securities issued for cash in the then prevailing
market and acceptable to the Lender and the Borrower
and shall in addition provide customary registration
rights, including, without limitation, a registered
exchange offer or, if not permitted by applicable law
to effect an exchange offer, demand registrations.
COVENANTS: The Financing Documentation will contain customary
affirmative and
<PAGE>
-5-
negative covenants (with customary and other
agreed-upon carve-outs and exceptions), including,
without limitation, restrictions on the ability of
the Borrower and its subsidiaries, as applicable, to
incur additional indebtedness and to incur
indebtedness which is subordinated to senior debt and
not subordinated to the Bridge Loan or the Term Loan,
pay certain dividends and make certain other
restricted payments and investments, impose
restrictions on the ability of the Borrower's
subsidiaries to pay dividends or make certain
payments to the Borrower, create liens, enter into
transactions with affiliates, and merge, consolidate
or transfer substantially all of their respective
assets. Further, during the term of the Bridge Loan,
the covenants will be more restrictive than the
covenants applicable to the Term Loan and will
include additional prohibitive covenants relating to
asset sales, certain acquisitions, certain debt
incurrences and certain other corporate transactions
as are customary for such financings.
REPRESENTATIONS AND
WARRANTIES: Customary for transactions of this type.
CONDITIONS PRECEDENT: Customary for transactions of this type as set forth
in Section 3 of the bridge loan commitment letter.
EVENTS OF DEFAULT: Customary for transactions of this type, including,
without limitation, payment defaults, covenant
defaults, bankruptcy and insolvency, judgments,
cross-acceleration of and failure to pay at final
maturity other indebtedness aggregating $5 million or
more, subject to, in cer-
<PAGE>
-6-
tain cases, notice and grace provisions.
GOVERNING LAW AND FORUM: The State of New York.
INDEMNIFICATION AND
EXPENSE REIMBURSEMENT: Customary for transactions of this type.
<PAGE>
Exhibit 99(a)(6)
THOMAS H. LEE EQUITY FUND IV, L.P.
c/o Thomas H. Lee Company
75 State Street, Suite 2600
Boston, Massachusetts 02109
Telephone 617-227-1050
Fax 617-227-3514
October 24, 1999
Big Flower Holdings, Inc.
3 East 54th Street
New York, New York 10022
RE: HOLDCO MEZZANINE FINANCING COMMITMENT
-------------------------------------
Dear Sirs or Madams:
Thomas H. Lee Company, affiliates of Evercore Capital Partners LP and
certain other equity investors intend to consummate a recapitalization (the
"RECAPITALIZATION") of Big Flower Holdings, Inc. (the "COMPANY") through the
merger of BFH Merger Corp. ("BFH" or "YOU"), an affiliate of Thomas H. Lee
Company and of Evercore Capital Partners LP, with and into the Company.
You have requested that THL Equity Advisors IV, LLC on behalf of Thomas
H. Lee Equity Fund IV, L.P. and affiliates (the "THL FUND") commit to provide to
the Company, in connection with the Recapitalization, up to $147.5 million
(which amount will be reduced by up to $47.5 million if the sale of Columbine
JDS Systems, Inc. is consummated pursuant to Section 5.14 of the Amended and
Restated Agreement and Plan of Merger (the "AMENDED AND RESTATED MERGER
AGREEMENT") dated as of October 11, 1999 executed in the form attached hereto)
in mezzanine financing to be made available under the terms and conditions
described below (the "HOLDCO MEZZANINE FINANCING").
THL Fund has delivered to BFH a mezzanine financing commitment letter
dated the date hereof (together with the related fee letter, the "BFH MEZZANINE
LETTER") relating to a possible mezzanine financing (the "BFH MEZZANINE
FINANCING") for BFH. If prior to or simultaneous with the Recapitalization, (i)
BFH, Big Flower Press Holdings, Inc. ("BIG FLOWER PRESS") and/or the Company
shall have commenced a tender offer and consent solicitation (the "DEBT TENDER
OFFER") for the approximately $600 million of existing senior subordinated notes
of Big Flower Press (the "BIG FLOWER PRESS NOTES"), providing for a tender price
and a consent fee to eliminate the restrictive covenants contained therein on
terms reasonably satisfactory to THL Fund, (ii) tenders and consents of the
holders of at least 51% of the outstanding principal
<PAGE>
BFH Merger Corp.
October 11, 1999
Page 2
amount of each of the series of the Big Flower Press Notes shall have been
received, and (iii) the Debt Tender offer shall have been consummated, then the
BFH Mezzanine Letter will no longer be of any force and effect. In such case,
this commitment letter will be operative. Under no circumstances, will THL Fund
have the obligation to fund both the BFH Mezzanine Financing and the Holdpco
Mezzanine Financing.
Accordingly, subject to terms and conditions set forth or incorporated
in this letter, THL Fund agree with you as follows.
SECTION 1. HOLDCO MEZZANINE FINANCING. THL Fund hereby commits, subject to the
terms and conditions hereof and in the Summary Term Sheet attached hereto as
Exhibit A (the "TERM SHEET"), to provide to the Company, in connection with the
Recapitalization, up to $147.5 million (which amount will be reduced by up to
$47.5 million if the sale of Columbine JDS Systems, Inc. is consummated pursuant
to Section 5.14 of the Amended and Restated Merger Agreement executed in the
form attached hereto) in mezzanine financing.
SECTION 2. CONDITIONS. The Holdco Mezzanine Financing shall be subject to:
(a) the execution of definitive documentation customary in
financings of this type;
(b) the execution of the Amended and Restated Merger Agreement, to
replace the Agreement and Plan of Merger, dated as of June 29,
1999, to be used to implement the Recapitalization in the form
attached to this commitment (including changes reasonably
acceptable to THL Fund) and satisfaction (and not waiver) of
all conditions set forth therein;
(c) the consummation of the Recapitalization simultaneously with
the making of any Holdco Mezzanine Financing;
(d) the commencement of the Debt Tender Offer prior to or
simultaneous with the Recapitalization;
(e) the receipt of tenders and consents of the holders of at least
51% of the outstanding principal amount of each of the series
of the Big Flower Press Notes;
(f) the consummation of the Debt Tender Offer prior to or
simultaneous with the Recapitalization; and
(g) the simultaneous funding of the financings described in
Schedule 6.02(d) of the Amended and Restated Merger Agreement
in amounts sufficient to
<PAGE>
BFH Merger Corp.
October 11, 1999
Page 3
effect the Recapitalization, the other matters described in
ss.6.02(a) of the Amended and Restated Merger Agreement and to
consummate the Debt Tender Offer.
SECTION 3. EXPENSES. If the transactions contemplated by this letter shall be
consummated, the Company shall pay and save THL Fund harmless against any
liability for all reasonable out-of-pocket expenses of THL Fund for attorneys,
accountants and other professional services required in conjunction with (i) the
preparation of this letter, (ii) the "due diligence" process involved in
evaluating the status of the affairs of the Company, (iii) the negotiation,
documenta tion and closing of the transactions contemplated hereby, and (iv) all
related printing, reproduc tion, or similar transactional costs, provided,
however, that the Company shall not be required to pay for such expenses if THL
Fund fails to close this transaction for reasons which are unrelated to the
satisfaction of any of the conditions of this commitment letter in accordance
with the terms hereof.
SECTION 4. INDEMNIFICATION. The Company agrees to indemnify and to hold harmless
THL Fund from and against any and all actions, suits, proceedings (including any
investigations or inquiries), losses, claims, damages, liabilities or expenses
of any kind or nature whatsoever which may be incurred by or asserted against or
involve THL Fund or any of its partners, officers, agents or employees as a
result of or arising out of or in any way related to the transac tions described
in this letter, provided, however, that THL Fund shall not have the right to be
indemnified hereunder for their own gross negligence or willful misconduct as
determined by a court of competent jurisdiction. The Company further agrees to
pay or reimburse to THL Fund upon demand any legal or other expenses incurred by
THL Fund in connection with investigat ing, defending or preparing to defend any
such action, writ, claim or proceeding (including any inquiry or investigation).
The provisions of this Section 4 and the immediately preceding Section 3 are
independent of all other obligations of the Company hereunder and shall survive
termination or expiration of the commitment embodied in this letter.
SECTION 5. TERMINATION DATE. THL Fund's commitment hereunder to provide the
Holdco Mezzanine Financing shall terminate, unless expressly agreed to by THL
Fund in its sole discretion to be extended to another date, on the earlier of
(i) December 31, 1999 if the Recapital ization is not consummated by that date,
(ii) the termination of the Amended and Restated Merger Agreement or (iii) the
replacement of this commitment with other mezzanine financing on terms and
conditions reasonably satisfactory to you from an affiliate of THL Fund. No such
termination of such commitment shall affect your obligations under Sections 3
and 4 hereof or this Section 6, which shall survive any such termination.
SECTION 6. ASSIGNMENT; SYNDICATION. The commitment evidenced by this letter
shall not be assignable by you without THL Fund's prior written consent, and the
granting of such consent in a given instance shall be solely in the discretion
of THL Fund and, if granted, shall not constitute a waiver of this requirement
as to any subsequent assignment. THL Fund may, in its sole
<PAGE>
BFH Merger Corp.
October 11, 1999
Page 4
discretion, syndicate the Holdco Mezzanine Financing and its commitment with
respect thereto among its affiliates pursuant to the definitive documentation or
otherwise and to sell, transfer or assign all or any portion of, or interests or
participations in, the Mezzanine Financing and its commitment with respect
thereto to such affiliates.
SECTION 7. MISCELLANEOUS. THIS LETTER SHALL BE GOVERNED BY, AND CON STRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITH OUT REGARD TO THE
PRINCIPLES GOVERNING CONFLICTS OF LAWS, AND ANY RIGHT TO TRIAL BY JURY WITH
RESPECT TO ANY CLAIM, ACTION, SUIT OR PROCEEDING ARISING OUT OF OR CONTEMPLATED
BY THIS COMMITMENT LETTER IS HEREBY WAIVED. YOU HEREBY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN
THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO THIS COMMITMENT
LETTER OR ANY MATTERS CONTEMPLATED HEREBY. This letter (including the provisions
of the Fee Letter dated the date hereof and specifically incorporated herein)
embodies the entire agreement and understanding between you and THL Fund and
supersedes and replaces all prior agreements and understandings.
If this letter is agreeable to you, please so indicate by signing in
the space indicated.
Very truly yours,
[SIGNATURE PAGE FOLLOWS]
<PAGE>
THOMAS H. LEE EQUITY FUND IV, L.P.
By: THL Equity Advisors IV, LLC
eneral Partner
By: /s/ Scott M. Sperling
--------------------------------------
Name: Scott M. Sperling
Title: Managing Director
Accepted and agreed as of October 11, 1999:
BFH MERGER CORP.
By: /s/ Scott M. Sperling
-----------------------------------
Name: Scott M. Sperling
Title: President
<PAGE>
EXHIBIT A
Holdco Mezzanine Financing
Summary Term Sheet
Borrower: Big Flower Holdings, Inc.
Lender: Thomas H. Lee Equity Fund IV
Amount: Up to $147.5 million (which amount shall be reduced
by up to $47.5 million upon the consummation of a
sale of Columbine JDS Systems, Inc.)
Maturity: The commitment shall automatically terminate on
December 31, 1999 if no portion of the Holdco
Mezzanine Financing has been funded (other than as a
result of failure of THL Fund to fulfill its
obligations hereunder). Any outstanding amount under
the Holdco Mezzanine Financing will be required to be
repaid on the tenth anniversary of the initial
funding date of the Holdco Mezzanine Financing.
Fees: As provided in the Fee Letter.
Interest Rate: As provided in the Fee Letter.
Ranking: The obligations of the Borrower under the Holdco
Mezzanine Financing will be subordinate to the debt
financings identified on Schedule 6.02(d) of the
Amended and Restated Agreement and Plan of Merger.
Optional
Prepayment: Subject to the restrictions contained in the
documentation of the debt financings identified on
Schedule 6.02(d) of the Amended and Re stated
Agreement and Plan of Merger, the Borrower may repay
the Holdco Mezzanine Financing, in whole or in part,
at any time at a redemption price equal to 100% of
the principal amount thereof plus accrued interest
thereon.
<PAGE>
Mandatory
Prepayment: To the extent provided in the documentation of the
debt financings identified on Schedule 6.02(d) of the
Amended and Restated Agree ment and Plan of Merger,
the Borrower shall repay the Holdco Mez zanine
Financing.
Covenants: The Holdco Mezzanine Financing documentation will
contain cus tomary affirmative and negative covenants
with customary and other agreed-upon carve-outs and
exceptions.
Representations and Customary for transactions of this type.
Warranties:
Conditions Precedent: Customary for transactions of this type as set forth
in Section 1 of the Holdco Mezzanine Financing
commitment letter.
Provisions Regarding As provided in the Fee Letter.
Failure to Take-Out
Holdco Mezzanine
Financing:
Events of Default: Customary for transactions of this type, including,
without limitation, payment defaults, covenant
defaults, bankruptcy and insolvency, judgments,
cross-acceleration of and failure to pay at final
maturity other indebtedness aggregating $5 million or
more, subject to, in certain cases, notice and grace
provisions.
Governing Law and The State of New York
Forum:
Assignment: The commitment shall not be assignable without THL
Fund's prior written consent, and the granting of
such consent in a given instance shall be solely in
the discretion of THL Fund and, if granted, shall not
constitute a waiver of this requirement as to any
subsequent assignment.
<PAGE>
Syndication Transfer: THL Fund may, in its sole discretion, syndicate the
Holdco Mezza nine Financing and its commitment with
respect thereto among its affiliates pursuant to the
definitive documentation or otherwise and to sell,
transfer or assign all or any portion of, or
interests or participations in, the Holdco Mezzanine
Financing and its commit ment with respect thereto to
such affiliates.
Indemnification and Customary for transactions of this type.
Expense
Reimbursement:
<PAGE>
BIG FLOWER HOLDINGS, INC.
NOTICE OF ANNUAL
MEETING OF
STOCKHOLDERS AND
PROXY STATEMENT
PLEASE COMPLETE, SIGN, DATE AND RETURN
WITH YOUR PROXY PROMPTLY
[LOGO]
TUESDAY, NOVEMBER 23, 1999
AT 9:00 A.M.
HOTEL INTER-CONTINENTAL NEW YORK
111 EAST 48TH STREET
NEW YORK, NEW YORK
<PAGE>
[LOGO]
BIG FLOWER HOLDINGS, INC.
3 EAST 54TH STREET
NEW YORK, NEW YORK 10022
October 25, 1999
Dear Fellow Stockholders:
The board of directors of Big Flower Holdings, Inc. has called a
stockholders meeting for Tuesday, November 23, 1999, at which you will be asked
to consider and vote upon a proposal to adopt a merger agreement providing for
the recapitalization of Big Flower.
In the merger, Big Flower stockholders will receive $31.50 in cash for each
share of Big Flower common stock they own.
R. Theodore Ammon, the chairman of the board of Big Flower, will retain
shares of Big Flower common stock in the merger. Also, Big Flower expects that
some employees holding options to purchase shares of Big Flower common stock,
including Edward T. Reilly, president and chief executive officer, will
surrender those options for an interest in a rabbi trust, to which Big Flower
will issue shares of Big Flower common stock. The rabbi trust would retain these
shares of Big Flower common stock in the merger. Following the merger, R.
Theodore Ammon is expected to hold approximately 13.8% of Big Flower common
stock, Thomas H. Lee Equity Fund IV and its affiliates are expected to hold
approximately 64% of Big Flower common stock, Evercore Capital Partners and its
affiliates are expected to hold approximately 17.9% of Big Flower common stock,
and the rabbi trust is expected to hold approximately 4.3% of Big Flower common
stock.
The Big Flower stockholders meeting will also serve as the annual meeting of
Big Flower at which you will be asked to consider and vote on the election of
two directors and the ratification of the appointment of Deloitte & Touche LLP
as Big Flower's independent certified public accountants.
YOUR VOTE IS VERY IMPORTANT. Big Flower cannot complete the merger unless
the stockholders of Big Flower adopt the merger agreement at the stockholders
meeting. Whether or not you plan to attend the stockholders meeting, please take
the time to submit your proxy with voting instructions by mail, by telephone or
through the Internet in accordance with the instructions contained in this
document.
<TABLE>
<S> <C>
/s/ R. Theodore Ammon /s/ Edward T. Reilly
R. Theodore Ammon Edward T. Reilly
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
- --------------------------------------------------------------------------------
This transaction has not been approved or disapproved by the Securities and
Exchange Commission. The Commission has not passed upon the fairness or merits
of this transaction nor upon the accuracy or adequacy of the information
contained in this proxy statement. Any representation to the contrary is a
criminal offense. This proxy statement does not constitute a solicitation of an
offer to buy any securities in any jurisdiction where a solicitation would be
illegal.
- --------------------------------------------------------------------------------
This proxy statement is dated October 25, 1999 and was first mailed to Big
Flower stockholders on October 25, 1999.
<PAGE>
[LOGO]
BIG FLOWER HOLDINGS, INC.
3 EAST 54TH STREET
NEW YORK, NEW YORK 10022
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 23, 1999
------------------------
To the Stockholders of Big Flower Holdings, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Big Flower
Holdings, Inc., a Delaware corporation, will be held on Tuesday, November 23,
1999, at 9:00 a.m., New York time, at Hotel Inter-Continental New York, 111 East
48th Street, New York, New York. The purpose of the Big Flower meeting is to
consider and to vote upon the following matters:
1. A proposal to adopt the Amended and Restated Agreement and Plan of
Merger, dated as of October 11, 1999, between Big Flower and BFH Merger
Corp., providing for the recapitalization of Big Flower pursuant to the
merger of BFH Merger Corp. with and into Big Flower and approve the
transactions contemplated by the merger agreement. As a result of the
merger, each outstanding share of Big Flower common stock, other than
shares held by Big Flower in its treasury or by one of its subsidiaries,
some 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.
2. A proposal to permit the proxies, in their discretion, to adjourn the
Big Flower meeting for the sole purpose of soliciting more votes or
proxies in favor of the adoption of the merger agreement.
3. The election of two directors to the Big Flower board of directors.
4. Ratification of the appointment of Deloitte & Touche LLP as Big Flower's
independent certified public accountants.
5. Such other business related to these proposals as may properly come
before the Big Flower meeting.
The Big Flower board of directors has fixed the close of business on October
22, 1999 as the record date for the Big Flower meeting, and only Big Flower
stockholders of record at such time will be entitled to notice of, and to vote
at, the Big Flower meeting.
A form of proxy and a proxy statement containing more detailed information
with respect to the matters to be considered at the Big Flower meeting,
including a copy of the merger agreement attached as Appendix A, accompany and
form a part of this notice.
Whether or not you plan to attend the Big Flower meeting, please submit your
proxy with voting instructions. You may submit your proxy with voting
instructions by mail if you promptly complete, sign, date and return the
accompanying proxy card in the enclosed self-addressed stamped envelope. If you
attend the Big Flower meeting and desire to revoke your proxy in writing and
vote in person, you may do so. In any event, a proxy may be revoked in writing
or in person at any time before it is exercised.
<PAGE>
THE BIG FLOWER BOARD OF DIRECTORS, WITH MESSRS. AMMON AND REILLY ABSTAINING,
HAS UNANIMOUSLY DECLARED ADVISABLE THE MERGER AGREEMENT, AUTHORIZED IT AND
APPROVED IT.
THE BIG FLOWER BOARD OF DIRECTORS, WITH MESSRS. AMMON AND REILLY ABSTAINING,
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE MERGER
AGREEMENT.
THE BIG FLOWER BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE PROPOSAL TO PERMIT THE PROXIES, IN THEIR DISCRETION, TO ADJOURN THE
BIG FLOWER MEETING TO SOLICIT MORE VOTES OR PROXIES IN FAVOR OF THE ADOPTION OF
THE MERGER AGREEMENT, "FOR" THE ELECTION OF EACH OF THE TWO PERSONS NOMINATED TO
THE BIG FLOWER BOARD OF DIRECTORS AND "FOR" RATIFICATION OF THE APPOINTMENT OF
DELOITTE & TOUCHE LLP AS BIG FLOWER'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
By Order of the Board of Directors,
/s/ Mark A. Angelson
Mark A. Angelson
EXECUTIVE VICE PRESIDENT--OFFICE OF
THE CHAIRMAN, GENERAL COUNSEL AND
SECRETARY
New York, New York
October 25, 1999
THE INFORMATION AGENT FOR THE MERGER IS:
[LOGO]
WALL STREET PLAZA
NEW YORK, NY 10005
BANKS AND BROKERS CALL COLLECT: (212) 440-9800
ALL OTHERS CALL TOLL FREE: (800) 223-2064
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. PLEASE SUBMIT A PROXY WITH YOUR VOTING INSTRUCTIONS BY
RETURNING YOUR SIGNED AND DATED PROXY BY MAIL.
- --------------------------------------------------------------------------------
ii
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Big Flower from other documents that are not included in or delivered with
this document. This information is available to you without charge upon your
written or oral request. You can obtain documents incorporated by reference in
this document, other than certain exhibits to those documents, by requesting
them in writing or by telephone from Big Flower at the following address:
BIG FLOWER HOLDINGS, INC.
3 East 54th Street
New York, New York 10022
(212) 521-1600
Attention: Associate General Counsel
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY MONDAY,
NOVEMBER 15, 1999, IN ORDER TO RECEIVE THEM BEFORE THE BIG FLOWER STOCKHOLDERS
MEETING.
IN ADDITION, THE SECURITIES AND EXCHANGE COMMISSION MAINTAINS AN INTERNET
SITE WHICH CONTAINS THESE DOCUMENTS. YOU MAY OBTAIN THEM BY ACCESSING THE
SECURITIES AND EXCHANGE COMMISSION INTERNET SITE. THIS SITE IS LOCATED AT
HTTP://WWW.SEC.GOV.
See "Where You Can Find More Information" on page 121.
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL BIG FLOWER STOCKHOLDERS RECEIVE IN THE MERGER?
A: For each share of Big Flower common stock you hold, you will receive $31.50
in cash. Mr. Ammon will retain some of his shares of Big Flower common stock
in the merger. Big Flower expects that some members of management, including
Mr. Reilly, will surrender options to purchase shares of Big Flower common
stock for an interest in a rabbi trust, to which Big Flower will issue
shares of Big Flower common stock. The rabbi trust would retain these shares
of Big Flower common stock in the merger.
Q: IS THE MERGER TAXABLE?
A: The merger will be a taxable transaction to you for United States federal
income tax purposes. The merger may also be a taxable transaction to you for
state, local, foreign and other tax purposes.
Q: IF I DO NOT SUPPORT THE MERGER, DO I HAVE ANY ALTERNATIVES?
A: Yes. If you do not vote to adopt the merger agreement and you follow the
required procedures, you may receive the fair cash value of your shares as
appraised by the Delaware Court of Chancery. This payment will only be made
if the merger is completed and if you properly exercise your appraisal
rights. You should consult your legal counsel for a full understanding of
the requirements of exercising appraisal rights.
Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A: Big Flower expects to complete the merger promptly after the Big Flower
meeting. This completion is subject to contingencies, including a financing
condition, that could delay the merger. However, the merger is expected to
be completed no later than December 31, 1999.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this document, mail your signed proxy card in
the enclosed self-addressed stamped envelope so that your shares will be
represented at the Big Flower meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your broker will not be able to vote your shares with respect to the
adoption of the merger agreement, adjournment of the meeting to solicit more
votes, election of directors or the ratification of the appointment of
Deloitte & Touche LLP without instructions from you. You should instruct
your broker to vote your shares, following the directions provided by your
broker. Your failure to instruct your broker to vote your shares will be the
equivalent of voting against the adoption of the merger agreement.
Q: CAN I CHANGE MY VOTE AFTER I HAVE SUBMITTED MY PROXY WITH VOTING
INSTRUCTIONS?
A: Yes. There are three ways in which you may revoke your proxy and change your
vote. First, you may send a written notice to the party to whom you
submitted your proxy stating that you would like to revoke your proxy.
Second, you may complete and submit a new proxy card by mail. The latest
vote actually received by Big Flower prior to the Big Flower meeting will be
recorded and any earlier votes will be revoked. Third, you may attend the
Big Flower meeting and vote in person. Simply attending the Big Flower
meeting, however, will not revoke your proxy. If you have instructed a
broker to vote your shares, you must follow directions received from your
broker to change or revoke your proxy.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. You should not send in your stock certificates at this time. After the
merger is completed, Big Flower will send instructions to you. These
instructions will explain how to exchange your Big Flower common stock for
cash.
Q: WHO CAN I CALL WITH QUESTIONS?
A: If you have questions about the merger, you should contact:
[LOGO]
Wall Street Plaza
New York, NY 10005
Banks and Brokers Call Collect:
(212) 440-9800
All Others Call Toll Free: (800) 223-2064
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TABLE OF CONTENTS
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REFERENCES TO ADDITIONAL INFORMATION........................ iii
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... iv
SUMMARY..................................................... 1
The Companies............................................. 1
Recent Developments....................................... 2
The Merger................................................ 2
What You Will Receive in the Merger....................... 2
Recommendation of the Big Flower Board.................... 2
Opinions of Financial Advisors............................ 2
Columbine JDS Systems and the Internet Investments........ 3
Source and Amount of Funds and Other Consideration........ 4
Big Flower Press Debt Tender Offer........................ 4
Directors and Management of Big Flower Following the
Merger.................................................. 5
Conflicts of Interests of Management Members of the Big
Flower Board and Management............................. 5
The Big Flower Meeting.................................... 5
The Merger Agreement...................................... 6
Appraisal Rights.......................................... 8
Accounting Treatment...................................... 8
United States Federal Income Tax Considerations........... 8
Regulatory Filings, Approvals and Clearances.............. 8
Litigation Challenging the Merger......................... 8
Market Price Data......................................... 9
Selected Historical Financial Data........................ 10
THE BIG FLOWER MEETING.................................... 13
General................................................... 13
Voting.................................................... 13
Proxies................................................... 15
Solicitation of Proxies................................... 16
SPECIAL FACTORS............................................. 17
General................................................... 17
Background of the Merger.................................. 17
Big Flower's Reasons for the Merger; Recommendation of the
Big Flower Board of Directors........................... 28
Opinions of Big Flower's Financial Advisors............... 31
Fairness of the Merger.................................... 46
Certain Estimates of Future Operations and Other
Information............................................. 57
Consequences of the Merger; Plans for Big Flower After the
Merger.................................................. 58
Conflicts of Interest of Certain Members of the Big Flower
Board of Directors and Management....................... 59
Accounting Treatment...................................... 63
Source and Amount of Funds................................ 63
Big Flower Press Debt Tender Offer........................ 70
Effect of the Merger on Big Flower Capital Stock.......... 70
Regulatory Matters........................................ 71
Fees and Expenses of the Merger........................... 71
Litigation Challenging the Merger......................... 71
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CAPITALIZATION.............................................. 72
SOURCES AND USES............................................ 73
DESCRIPTION OF BIG FLOWER CAPITAL STOCK FOLLOWING THE
MERGER.................................................... 74
General................................................... 74
Big Flower Common Stock................................... 74
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS............. 75
The Merger................................................ 75
Backup Withholding and Information Reporting.............. 77
THE MERGER AGREEMENT........................................ 78
The Merger................................................ 78
Consideration to Be Received in the Merger................ 78
Exchange of Big Flower Common Stock....................... 79
Corporate Governance...................................... 79
Representations and Warranties............................ 79
Covenants................................................. 80
Conditions of the Merger.................................. 86
Termination and Effects of Termination.................... 87
Fees and Expenses......................................... 88
Amendment; Waiver......................................... 89
APPRAISAL RIGHTS............................................ 90
MARKET PRICE AND DIVIDEND DATA.............................. 93
Dividend Information...................................... 93
Recent Closing Prices..................................... 94
Number of Stockholders.................................... 94
DESCRIPTION OF BIG FLOWER................................... 95
DESCRIPTION OF BFH MERGER CORP.............................. 96
Thomas H. Lee Equity Fund IV.............................. 96
Evercore Capital Partners................................. 96
RECENT DEVELOPMENTS......................................... 97
DIRECTORS AND MANAGEMENT OF BIG FLOWER FOLLOWING THE
MERGER.................................................... 98
Executive Officers........................................ 98
Directors................................................. 99
Security Ownership of Big Flower Following the Merger..... 99
OTHER INFORMATION FOR THE BIG FLOWER MEETING................ 101
Nominees for Election as Big Flower Directors............. 101
Directors and Executives Officers......................... 103
Board Meetings and Certain Committees of the Big Flower
Board of Directors...................................... 103
Compensation of Directors................................. 104
Section 16(a) Beneficial Ownership Reporting Compliance... 105
Voting Securities and Principal Holders Thereof........... 105
Executive Compensation.................................... 107
Employment Arrangements with Executive Officers........... 114
Compensation Committee Interlocks and Insider
Participation........................................... 118
Big Flower Stock Price Performance Graph.................. 118
Ratification of Appointment of Independent Certified
Public Accountants...................................... 119
FUTURE STOCKHOLDER PROPOSALS................................ 121
WHERE YOU CAN FIND MORE INFORMATION......................... 121
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APPENDIX A Amended and Restated Agreement and Plan of
Merger, dated as of October 11, 1999, between BFH Merger
Corp. and Big Flower Holdings, Inc.
APPENDIX B Opinion of Goldman, Sachs & Co., dated
October 11, 1999
APPENDIX C Opinion of Berenson Minella & Company, dated
October 11, 1999
APPENDIX D Section 262 of the Delaware General Corporation
Law
APPENDIX E Transactions Involving Big Flower Common Stock by
Thomas H. Lee Equity Fund IV, L.P., THL Equity Advisors
IV, LLC, Evercore Partners L.L.C., Evercore Capital
Partners L.P., Evercore Capital Partners (NQ) L.P.,
Evercore Capital Offshore Partners L.P. (Cayman), EBF
Group L.L.C., Big Flower and Executive Officers and
Directors of Big Flower
APPENDIX F Information Relating to Evercore Partners L.L.C.,
Evercore Capital Partners L.P., Evercore Capital Partners
(NQ) L.P., Evercore Capital Offshore Partners L.P.
(Cayman), EBF Group L.L.C., Thomas H. Lee Equity Fund IV,
L.P., THL Equity Advisors IV, LLC, and their respective
Principals, and the Executive Officers and Directors of
BFH Merger Corp. and Big Flower
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SUMMARY
THIS SUMMARY, TOGETHER WITH THE PRECEDING QUESTIONS AND ANSWERS SECTION,
HIGHLIGHTS SELECTED INFORMATION CONTAINED IN THIS DOCUMENT AND MAY NOT CONTAIN
ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. WE URGE YOU TO CAREFULLY READ
THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS TO WHICH THIS DOCUMENT REFERS TO
UNDERSTAND FULLY THE MERGER AND OTHER RELATED TRANSACTIONS. SEE "WHERE YOU CAN
FIND MORE INFORMATION" ON PAGE 121 FOR DETAILS OF HOW YOU CAN OBTAIN ADDITIONAL
INFORMATION ABOUT BIG FLOWER AND THE MERGER. EACH ITEM IN THIS SUMMARY INCLUDES
A PAGE REFERENCE DIRECTING YOU TO A MORE COMPLETE DESCRIPTION OF THAT ITEM. THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS DOCUMENT AND TO BIG FLOWER'S FINANCIAL
STATEMENTS INCLUDED IN THIS DOCUMENT OR INCORPORATED BY REFERENCE.
ON OCTOBER 17, 1997, AS PART OF A REORGANIZATION OF BIG FLOWER'S LEGAL
STRUCTURE, BIG FLOWER HOLDINGS, INC. BECAME THE PARENT OF BIG FLOWER PRESS
HOLDINGS, INC. UNLESS OTHERWISE INDICATED OR THE CONTEXT CLEARLY IMPLIES
OTHERWISE, ALL REFERENCES TO THE BIG FLOWER COMMON STOCK, CERTIFICATE OF
INCORPORATION AND BYLAWS, BOARD OF DIRECTORS, AGREEMENTS AND OTHER INCIDENTS OF
BIG FLOWER ARE REFERENCES TO THOSE MATTERS WITH RESPECT TO BIG FLOWER PRESS
PRIOR TO THE REORGANIZATION AND TO BIG FLOWER HOLDINGS, INC. AFTER THE
REORGANIZATION, AND THE TERMS "BIG FLOWER," "WE," "OUR," AND "US" REFER TO BIG
FLOWER HOLDINGS, INC. AND ITS SUBSIDIARIES BOTH BEFORE AND AFTER COMPLETION OF
THE MERGER.
THE COMPANIES
BIG FLOWER HOLDINGS, INC. (PAGE 95)
3 EAST 54 STREET
NEW YORK, NEW YORK 10022
(212) 521-1600
Big Flower is a leading advertising and marketing services company which
provides more than 3,000 retail, advertising agency, broadcasting, manufacturing
and newspaper customers with highly-targeted, promotional advertising products,
services and software. Big Flower specializes in targeted advertising inserts,
circulation-building newspaper products, data-driven direct mail and direct
marketing services and digital services, including commercial image design and
production, and computer-based advertising management systems. Big Flower also
owns XL Ventures, a venture capital subsidiary focused on making minority
investments in companies involved in providing advertising and marketing
services through the Internet to both on-line and off-line customers.
BFH MERGER CORP. (PAGE 96)
C/O THOMAS H. LEE COMPANY
75 STATE STREET
SUITE 2600
BOSTON, MA 02109
(617) 227-1050
BFH Merger Corp. is a corporation formed by Thomas H. Lee Equity Fund IV,
L.P. and Evercore Capital Partners L.P. to effect the merger and
recapitalization of Big Flower. In the merger, BFH Merger Corp. will merge with
and into Big Flower with Big Flower as the surviving corporation in the merger.
Thomas H. Lee Equity Fund IV is an affiliate of Thomas H. Lee Company, a
Boston-based investment firm focused on acquiring substantial investments in
growth companies. Founded in 1974, the firm and its affiliates currently manage
approximately $6 billion in committed capital. Recent investments include Eye
Care Centers of America, Inc., Fisher Scientific International Inc., Rayovac
Corporation, HomeSide Lending, Inc., The Learning Company, Inc., Metris
Companies Inc. and Wyndham International, Inc..
Evercore Partners is a firm which provides strategic and financial advisory
services to major corporations and makes private equity investments through its
affiliate, Evercore
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Capital Partners L.P. Evercore Capital Partners' most recent investment was its
$850 million purchase of American Media, Inc. Evercore Partners' recent advisory
work includes advising CBS on its merger with Viacom, advising Tenneco Inc. on
the separation of its automotive and packaging businesses, and advising Dow
Jones & Company, Inc. on its interactive joint venture with Reuters Group PLC.
Unless the context requires otherwise, all references to Thomas H. Lee
Equity Fund IV and Evercore Capital Partners in this proxy statement are
references to Thomas H. Lee Equity Fund IV and its affiliates and Evercore
Capital Partners and its affiliates, respectively.
RECENT DEVELOPMENTS (PAGE 97)
On October 11, 1999, Big Flower announced that it estimated its adjusted
earnings per diluted share results for the third quarter of 1999 to be
approximately five to ten percent lower than these earnings in the comparable
period of 1998.
THE MERGER (PAGE 78)
Under the merger agreement, BFH Merger Corp. will merge into Big Flower. Big
Flower will be the surviving corporation in the merger, and BFH Merger Corp.
will cease to exist as a corporation after the merger. R. Theodore Ammon will
retain some of his shares of Big Flower common stock in the merger. Big Flower
expects that some members of management, including Mr. Reilly, will surrender
options to purchase shares of Big Flower common stock in exchange for an
interest in a rabbi trust, to which Big Flower will issue shares of Big Flower
common stock. The rabbi trust would retain these shares of Big Flower common
stock in the merger. We currently expect that Mr. Ammon will own a total of
approximately 13.8% and the rabbi trust will own approximately 4.3% of Big
Flower common stock after the merger. Thomas H. Lee Equity Fund IV and Evercore
Capital Partners have advised Big Flower that they expect to own approximately
64% and 17.9%, respectively, of Big Flower common stock immediately after the
merger. These percentages exclude warrants for shares of Big Flower common stock
which will be held by Thomas H. Lee Equity Fund IV after the merger as a result
of mezzanine debt financing provided by Thomas H. Lee Equity Fund IV to Big
Flower in connection with the merger and the related recapitalization.
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 78)
See answer to Question #1 of the "Questions and Answers about the Merger" on
page (iv).
RECOMMENDATION OF THE BIG FLOWER BOARD (PAGE 28)
The Big Flower board of directors, with management directors abstaining,
determined that the transactions contemplated by the merger agreement were fair
to the unaffiliated stockholders and recommends that you vote "FOR" adoption of
the merger agreement. Two members of the Big Flower board of directors,
Messrs. Ammon and Reilly, have a conflict of interest since they are members of
management who are expected to retain direct or indirect equity interests in Big
Flower. These two directors abstained from voting to approve the merger
agreement. The remaining four directors of Big Flower voted unanimously to
approve the merger agreement. See "Special Factors--Conflicts of Interest of
Certain Members of the Big Flower Board of Directors and Management" on page 59
for a more detailed discussion of the interests of these members of management
in the merger.
The Big Flower board of directors recommends that you vote "FOR" the
proposal to permit the proxies, in their discretion, to adjourn the Big Flower
meeting to solicit more votes or proxies in favor of the adoption of the merger
agreement, "FOR" the election of each of the two persons nominated to the Big
Flower board of directors and "FOR" ratification of the appointment of
Deloitte & Touche LLP as Big Flower's independent certified public accountants.
OPINIONS OF FINANCIAL ADVISORS (PAGE 31)
GOLDMAN, SACHS & CO.
On October 11, 1999, Goldman Sachs delivered to the Big Flower board of
directors,
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its oral opinion, subsequently confirmed in writing, that, as of that date, the
merger consideration to be received by the holders of Big Flower common stock,
other than the members of management who are retaining shares of Big Flower
common stock in the merger, as to whom Goldman Sachs did not deliver an opinion,
was fair from a financial point of view.
The full text of the Goldman Sachs opinion is contained in Appendix B.
Goldman Sachs provided its opinion for the information and assistance of the Big
Flower board of directors in connection with its consideration of the merger. It
is not a recommendation to any holder of Big Flower common stock as to how any
stockholder should vote at the Big Flower meeting. Big Flower stockholders
should read the Goldman Sachs opinion in its entirety.
BERENSON MINELLA & COMPANY
On October 11, 1999, Berenson Minella & Company delivered to the Big Flower
board of directors a written opinion that, as of that date, the merger
consideration to be received by the holders of Big Flower common stock, other
than the members of management who are retaining shares of Big Flower common
stock in the merger, as to whom Berenson Minella did not deliver an opinion, was
fair from a financial point of view.
The full text of the Berenson Minella opinion is contained in Appendix C.
Berenson Minella provided its opinion for the information and assistance of the
Big Flower board of directors in connection with its consideration of the
merger. It is not a recommendation to any holder of Big Flower common stock as
to how any stockholder should vote at the Big Flower meeting. Big Flower
stockholders should read the Berenson Minella opinion in its entirety.
COLUMBINE JDS SYSTEMS AND THE INTERNET INVESTMENTS (PAGE 84)
The merger agreement provides that, at the time of the merger:
- an affiliate of BFH Merger Corp. will purchase all of the outstanding
shares of capital stock of Columbine JDS Systems, Inc., currently one of
Big Flower's operating subsidiaries owned through Big Flower Digital
Services, Inc., and Mr. Ammon and some members of Columbine JDS Systems'
management will exchange shares of Big Flower common stock and/or options
to purchase shares of Big Flower common stock for indirect equity
interests in Columbine JDS Systems; and
- an affiliate or affiliates of BFH Merger Corp. will purchase Big Flower's
private Internet investments and invest in the entities holding Big
Flower's public Internet investments, and Mr. Ammon will exchange shares
of Big Flower common stock and/or options to purchase shares of Big Flower
common stock into an interest in this affiliate or these affiliates of BFH
Merger Corp.
The terms of these transactions can be amended in any manner reasonably
requested by BFH Merger Corp. provided that there is no cost to Big Flower if
the merger does not occur and the merger is not delayed.
If any or all of these transactions are effected, the Big Flower entities
receiving these funds will dividend all or substantially all of these funds to
Big Flower Press Holdings, Inc. and/or Big Flower. These funds will then be used
to effect the merger and the related recapitalization of Big Flower.
These transactions will not occur if the merger does not occur.
Currently, Big Flower and BFH Merger Corp. expect that an affiliate of BFH
Merger Corp. will purchase Columbine JDS Systems and Big Flower's private
Internet investments as described above, but that the investment in the entities
holding Big Flower's public Internet investments by an affiliate of BFH Merger
Corp. will not occur. Big Flower and BFH Merger Corp. expect that the merger
agreement will be amended to reflect this expectation regarding the investment
in the public Internet investments.
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SOURCE AND AMOUNT OF FUNDS AND OTHER CONSIDERATION (PAGE 63)
EQUITY COMMITMENTS
Thomas H. Lee Equity Fund IV and Evercore Capital Partners have committed to
contribute an aggregate of up to approximately $458 million in cash to BFH
Merger Corp. as part of the merger and related transactions. This amount will be
reduced by approximately $138 million, which represents the value attributed to:
first, equity interests in Big Flower that members of management are expected to
hold after the merger; and second, the funds used by affiliates of BFH Merger
Corp. to purchase Columbine JDS Systems, and purchase Big Flower's private
Internet investments, at the time of the merger.
DEBT FINANCINGS
At the time of the merger, Big Flower, Big Flower Press and Columbine JDS
Systems are expected to enter into new debt financing arrangements aggregating
approximately $950 million. This amount will increase by up to approximately
$600 million if the debt tender offer, described below, is consummated at the
time of the merger. The arrangements, assuming the up to approximately $600
million to be used as part of the debt tender offer, are expected to consist of:
- $400 million of Big Flower Press senior bank financing;
- $300 million of Big Flower high yield financing;
- $100 million of Big Flower mezzanine financing;
- $115 million of Columbine JDS Systems senior bank financing; and
- $35 million of Columbine JDS Systems mezzanine financing.
If the high yield financing, which we expect to consist of high yield
securities, cannot be consummated at the time of the merger, Big Flower expects
to enter into a bridge loan, for which it already has a commitment, until it can
replace that loan with high yield securities.
If an affiliate of BFH Merger Corp. does not purchase Columbine JDS Systems
at the time of the merger, the amounts of the Big Flower Press senior bank
financing and the Big Flower mezzanine financing will increase by $115 million
and $35 million, respectively. The existing commitments include these increased
amounts.
A portion of the proceeds of these new debt financings will be used to repay
and terminate Big Flower Press' existing revolving credit facility. Based on the
June 30, 1999 pro forma balance sheet, we expect that approximately
$183 million of the senior bank financing would not be borrowed immediately, but
would be used as needed to satisfy the working capital and general corporate
requirements of Big Flower after the merger.
The debt financing arrangements generally assume that all outstanding 6%
Convertible Quarterly Income Preferred Securities (QUIPS) of Big Flower Trust I
are converted into Big Flower common stock prior to the merger.
BIG FLOWER PRESS DEBT TENDER OFFER
(PAGE 70)
Big Flower Press has commenced tender offers and consent solicitations for
all of its outstanding 8 7/8% senior subordinated notes due 2007 and all of its
outstanding 8 5/8% senior subordinated notes due 2008. The consideration for
notes validly tendered pursuant to the tender offers and accepted for payment is
100% of the notes' principal amount plus accrued and unpaid interest. The tender
offers will expire on November 23, 1999 unless extended by Big Flower Press.
In conjunction with the tender offers, Big Flower Press is also soliciting
consents of noteholders to certain proposed amendments to the indentures
pursuant to which the notes were issued. Big Flower Press will pay holders
$10.00 for each $1,000 principal amount of notes for which consents are validly
tendered, and not revoked, by the later of the date the proposed amendments are
executed and November 5, 1999, unless extended by Big Flower Press.
The tender offers are subject to a number of conditions, including the
consummation of the
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merger. If the tender offers are consummated at or around the time of the
merger, the debt arrangements described above will be changed as follows:
- the Big Flower Press senior bank financing will increase to $900 million,
- the high yield financing will change from being at the Big Flower level to
being at the Big Flower Press level, and will increase to $450 million,
and
- the Big Flower mezzanine financing will decrease to $50 million.
If an affiliate of BFH Merger Corp. does not purchase Columbine JDS Systems
at the time of the merger, then:
- the Big Flower Press senior bank financing will increase to
$987.5 million, and
- the Big Flower mezzanine financing will increase to $97.5 million.
Completion of the merger is not conditioned on the consummation of the Big
Flower Press debt tender offer, and the amount of consideration to be received
by holders of shares of Big Flower common stock in the merger will be the same
regardless of whether or not the Big Flower Press debt tender offer is
consummated.
DIRECTORS AND MANAGEMENT OF BIG FLOWER FOLLOWING THE MERGER (PAGE 98)
Executive officers of Big Flower, including R. Theodore Ammon, the chairman
of the board, Edward T. Reilly, the chief executive officer, and Richard L.
Ritchie, the chief financial officer, will be the executive officers of Big
Flower following the merger.
We expect the board of directors of Big Flower after the merger to be
comprised of R. Theodore Ammon, Edward T. Reilly, Thomas H. Lee, Anthony J.
DiNovi, Scott M. Sperling, Roger C. Altman, Austin M. Beutner and two additional
persons to be determined by Thomas H. Lee Equity Fund IV, with Evercore Capital
Partners and R. Theodore Ammon consenting to the two additional persons.
CONFLICTS OF INTERESTS OF MANAGEMENT MEMBERS OF THE BIG FLOWER BOARD AND
MANAGEMENT (PAGE 59)
Some members of management have interests in the merger that may conflict
with those of the other Big Flower stockholders. These include the following:
- some of the equity interests in Big Flower that are held by members of
management, including Messrs. Ammon and Reilly, are expected to be
retained by them in the merger or exchanged for other direct or indirect
equity interests in Big Flower;
- some members of Big Flower's management will continue to serve as officers
and directors of Big Flower following the merger; and
- severance agreements with some Big Flower executive officers and other key
employees generally provide them with a cash payment, immediate vesting of
options and the continuation of some benefits if their employment is
terminated after a change of control of Big Flower.
THE BIG FLOWER MEETING
TIME, PLACE AND MATTERS TO BE VOTED UPON (PAGE 13)
The Big Flower meeting will be held on Tuesday, November 23, 1999, at
9:00 a.m., New York time, at Hotel Inter-Continental New York, 111 East
48th Street, New York, New York. At the Big Flower meeting you will be asked:
1. to adopt the merger agreement;
2. 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
adoption of the merger agreement;
3. to elect two directors to the Big Flower board of directors;
4. to ratify the appointment of Deloitte & Touche LLP as Big Flower's
independent certified public accountants; and
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5. to act on other matters relating to the proposals listed above that may
be brought properly before the Big Flower meeting.
RECORD DATE AND VOTE REQUIRED (PAGE 13)
You may cast one vote at the Big Flower meeting for each share of Big Flower
common stock, par value $0.01 per share, that you owned at the close of business
on October 22, 1999.
On October 22, 1999, there were 19,722,731 shares of Big Flower common stock
outstanding and entitled to vote.
To adopt the merger agreement, the holders of a majority of the shares of
Big Flower common stock issued and outstanding must vote in favor of doing so.
To permit the proxies, in their discretion, to adjourn the Big Flower
meeting for the sole purpose of soliciting more votes or proxies in favor of the
adoption of the merger agreement, the holders of a majority of the shares of Big
Flower common stock voting on that proposal at the Big Flower meeting, assuming
at least a majority of the outstanding shares of Big Flower common stock are
present in person or represented by proxy at the Big Flower meeting, must vote
in favor of doing so.
To elect the two persons nominated for election to the Big Flower board of
directors, the holders of a plurality of the shares of Big Flower common stock
voting on the election at the Big Flower meeting, assuming at least a majority
of the outstanding shares of Big Flower common stock are present in person or
represented by proxy at the Big Flower meeting, must vote in favor of each
nominee.
To ratify the appointment of Deloitte & Touche LLP as Big Flower's
independent certified public accountants, the holders of a majority of the
shares of Big Flower common stock voting on that proposal at the Big Flower
meeting, assuming at least a majority of the outstanding shares of Big Flower
common stock are present in person or represented by proxy at the Big Flower
meeting, must vote in favor of ratifying that appointment.
As of October 22, 1999, directors and executive officers of Big Flower and
their affiliates owned an aggregate of approximately 14.5% of the outstanding
shares of Big Flower common stock which they have indicated they intend to vote
in favor of the adoption of the merger agreement, the permission of the proxies
to adjourn the Big Flower meeting to solicit more votes or proxies in favor of
the adoption of the merger agreement, the election of each of the two persons
nominated to the Big Flower board of directors and the ratification of the
appointment of Deloitte & Touche LLP as Big Flower's independent certified
public accountants.
THE MERGER AGREEMENT
The merger agreement is attached to this document as Appendix A. Please read
the merger agreement carefully and in its entirety. It is the legal document
that governs the merger.
EFFECTIVE TIME OF THE MERGER (PAGE 78)
Although no assurances can be given, it is currently expected that the
merger will be completed promptly after the Big Flower meeting, which is
currently scheduled for November 23, 1999. This completion is subject to
contingencies, including a financing condition, that could delay the merger.
However, the merger is expected to be completed no later than December 31, 1999.
CONDITIONS TO THE MERGER (PAGE 86)
The completion of the merger depends on a number of conditions being
satisfied, including the following:
- the adoption of the merger agreement by Big Flower stockholders;
- the absence of any legal restriction that prohibits completion of the
merger or is reasonably likely to impose a material limitation on the
ability of BFH Merger Corp. or its affiliates to acquire Big Flower, but
BFH Merger Corp. must have used commercially reasonable best efforts to
prevent the imposition and lessen the effects of any such legal
restriction;
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- that BFH Merger Corp. be reasonably satisfied that the total funded
obligations, excluding the QUIPS, of Big Flower just before the merger is
less than $1.028 billion, plus any indebtedness incurred in consummating
acquisitions and investments after October 11, 1999 that have been
consented to by BFH Merger Corp.;
- the absence of any pending litigation brought by a government entity (or
by any other person which has a reasonable likelihood of success) that
seeks to prohibit or restrict the completion of the merger and the other
transactions contemplated by the merger agreement; and
- that Big Flower, its subsidiaries and BFH Merger Corp. have received the
proceeds of the financings in amounts sufficient to consummate the merger
and the other transactions contemplated by the merger agreement.
RESTRICTIONS ON ALTERNATIVE TRANSACTIONS (PAGE 79)
The merger agreement generally limits the ability of Big Flower and its
subsidiaries to solicit or participate in discussions with any third party about
business combinations other than the merger, subject to certain exceptions,
including those relating to complying with fiduciary duties to Big Flower
stockholders.
TERMINATION OF THE MERGER AGREEMENT (PAGE 87)
Big Flower and BFH Merger Corp. may agree to terminate the merger agreement
at any time without completing the merger.
In addition, Big Flower or BFH Merger Corp. may terminate the merger
agreement if:
- the merger is not completed by the later of October 31, 1999 or the date
determined by adding to October 31, 1999 the number of days after
September 1, 1999 that this proxy statement is mailed to Big Flower
stockholders, but in no case later than December 31, 1999;
- a court order or other government ruling prohibits completion of the
merger; or
- Big Flower's stockholders do not approve the merger agreement.
In addition, BFH Merger Corp. may terminate the merger agreement if:
- the Big Flower board of directors fails to recommend that Big Flower
stockholders vote in favor of the merger, withdraws or adversely modifies
its approval or recommendation of the merger or recommends another
transaction;
- Big Flower breaches its covenant with respect to its stockholder rights
plan; or
- Big Flower materially breaches any representation, warranty, covenant or
agreement contained in the merger agreement.
In addition, Big Flower may terminate the merger agreement if:
- the board of directors of Big Flower determines, after consultation with
its financial and legal advisors, that another proposal is a superior
proposal and that approval of that proposal is necessary to comply with
its fiduciary duties to stockholders under applicable law; or
- BFH Merger Corp. materially breaches any representation, warranty,
covenant or agreement contained in the merger agreement.
TERMINATION FEES AND EXPENSES (PAGE 88)
Big Flower will pay to BFH Merger Corp. a termination fee of either
$30 million or $10 million, depending upon a particular set of circumstances
that trigger the termination, less any out-of-pocket expenses reimbursed or fees
paid to BFH Merger Corp., Thomas H. Lee Company or Evercore Capital Partners, up
to $10 million, if the merger agreement is terminated under specified
circumstances.
Whether or not the merger is completed, each party to the merger will pay
all costs and expenses it incurs in connection with the merger, except for the
termination fee paid and out-of-pocket fees paid and expenses reimbursed by Big
Flower described above.
7
<PAGE>
APPRAISAL RIGHTS (PAGE 90)
Under Delaware law, holders of Big Flower common stock have the right to
demand and to receive, instead of what is being offered in the merger, an amount
that the Delaware Court of Chancery decides is the fair value of those shares of
Big Flower common stock. This amount may be more or less than the value of what
these holders would otherwise receive in the merger.
Holders of Big Flower common stock wishing to exercise appraisal rights must
not vote in favor of adoption of the merger agreement and must take the steps
described in the section entitled "Appraisal Rights" and set forth in full in
Appendix D.
ACCOUNTING TREATMENT (PAGE 63)
Big Flower will account for the merger as a recapitalization because current
management retaining shares of Big Flower common stock in the merger will have a
significant continuing interest in Big Flower common stock following the merger.
As a result, the merger will have no impact on the historical basis of Big
Flower's assets and liabilities.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS (PAGE 75)
See answer to Question #2 of the "Questions and Answers about the Merger" on
page (iv).
REGULATORY FILINGS, APPROVALS AND CLEARANCES (PAGE 71)
The Hart-Scott-Rodino Antitrust Improvements Act requires Big Flower and BFH
Merger Corp. to furnish certain information and material to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and
requires that a specified waiting period expire or be terminated before the
merger can be completed.
On September 2, 1999, Big Flower and BFH Merger Corp. each filed a
notification and report form for the merger with the Antitrust Division and the
Federal Trade Commission. The regulatory authorities granted early termination
of the waiting period for antitrust review on September 16, 1999. On October 2,
1999, the waiting period for antitrust review of the formation of BFH Merger
Corp. expired.
LITIGATION CHALLENGING THE MERGER (PAGE 71)
Seven lawsuits have been filed in the State of Delaware seeking to prohibit
the merger or, if the merger has already happened, to undo the merger and
recover money damages. The lawsuits have been consolidated into one action, and
the plaintiffs have served an amended complaint in the consolidated action. The
amended complaint alleges, among other things, that Big Flower's directors
breached their fiduciary duties and that the merger consideration is unfair to
Big Flower stockholders. Big Flower believes these lawsuits have no merit.
8
<PAGE>
MARKET PRICE DATA
Shares of Big Flower common stock are listed on the New York Stock Exchange
under the symbol "BGF."
The following table sets forth the closing market prices per share of Big
Flower common stock on the NYSE on April 19, 1999, the last trading day before
Big Flower publicly announced that it was going to explore possible strategic
transactions, and on October 22, 1999, the last practicable trading day prior to
the date of this document.
<TABLE>
<CAPTION>
BIG FLOWER
COMMON STOCK
------------
<S> <C>
April 19, 1999.............................................. $27.875
October 22, 1999............................................ $27.750
</TABLE>
The market price of the Big Flower common stock is likely to fluctuate prior
to the merger. You should obtain current market quotations for the Big Flower
common stock before making a decision with respect to the merger.
9
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents summary financial data of Big Flower and its
subsidiaries. Big Flower derived the summary financial data from its audited
consolidated financial statements and unaudited consolidated financial
statements filed with the Securities and Exchange Commission. On March 21, 1996,
Big Flower's board of directors elected to change Big Flower's fiscal year from
a 12-month period ending June 30th to a calendar year, effective with the period
ended December 31, 1995. On October 4, 1996, Big Flower consummated the
acquisition of Scanforms, Inc. in a transaction accounted for as a pooling of
interests. Accordingly, Big Flower restated its financial information for prior
periods to include the results of Scanforms for all periods presented.
Interest expense excludes amortization of deferred financing fees. Interest
expense for the year ended December 31, 1996 includes the amortization of
interest rate swap fees of $1.2 million. Big Flower's net loss for the six
months ended December 31, 1995 includes an extraordinary loss of $19.2 million,
net of tax, relating to early extinguishment of debt and termination of a swap
agreement. The net loss for the year ended December 31, 1996 includes an
extraordinary loss of $2.1 million, net of tax, and the net loss for the year
ended December 31, 1997 includes an extraordinary loss of $13.5 million net of
tax, both relating to the early extinguishment of debt.
Earnings were inadequate to cover fixed charges by $0.6 million for the
323 days ended June 30, 1994. Earnings were also insufficient to cover fixed
charges by $11.6 million for the year ended December 31, 1997, primarily due to
the non-recurring $58.2 million write-off of in-process technology resulting
from the acquisition of Columbine JDS Systems. Net income in those periods
included non-cash charges of depreciation and amortization of $28.8 million for
the 323 days ended June 30, 1994 and $67.3 million for the year ended
December 31, 1997.
On March 19, 1996, Big Flower entered into a six-year securitization
agreement under which it may sell beneficial interests in a pool of eligible
accounts receivable. The maximum amount of the outstanding cetificates under
this arrangement is $150.0 million and the amount outstanding at any measurement
date varies based upon the level of eligible receivables. Working capital
balances since 1996 reflect the effect of that program, as accounts receivable
balances sold are recorded as a reduction of working capital and the proceeds
serve to reduce long-term borrowings under Big Flower's revolving credit
facility. As of June 30, 1999, Big Flower had sold interests of $86.6 million
under this securitization, compared to $88.3 million as of June 30, 1998,
$117.6 million as of December 31, 1998, $101.1 million as of December 31, 1997
and $79.8 million as of December 31, 1996.
Stockholders should read the following selected historical financial data of
Big Flower in conjunction with the related historical consolidated financial
statements and related notes incorporated by reference which are listed under
"Where You Can Find More Information" on page 121.
10
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
323 DAYS YEAR SIX MONTHS YEAR YEAR YEAR SIX MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1995 1996 1997 1998 1998
-------- -------- ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
OPERATING DATA:
Net sales................... $587,630 $920,149 $546,840 $1,201,860 $1,376,706 $1,739,715 $ 796,772
Operating income............ 25,488 50,712 39,739 69,343(1) 38,502(2) 137,252(3) 51,287
Interest expense............ 19,735 37,452 19,076 36,165 40,300 55,988 26,547
(Loss) income before income
taxes and extraordinary
items..................... (549) 5,268 12,694 4,998 (11,626) 69,978 17,390
(Loss) income before
extraordinary items....... (3,277) (1,612) 6,491 (3,285) (33,571) 37,676 9,391
Extraordinary losses from
early extinguishment of
debt, net................. (19,248) (2,078) (13,463)
Net (loss) income........... (3,277) (1,612) (12,757) (5,363) (47,034) 37,676 9,391
Per share:
(Loss) income before
extraordinary
items--basic............ $ (0.29) $ (0.13) $ 0.36 $ (0.18) $ (1.79) $ 1.92 $ 0.48
Net (loss)
income--basic........... (0.29) (0.13) (1.07) (0.30) (2.51) 1.92 0.48
(Loss) income before
extraordinary items--
diluted................. (0.29) (0.13) 0.35 (0.18) (1.79) 1.69 0.46
Net (loss)
income--diluted......... (0.29) (0.13) (1.03) (0.30) (2.51) 1.69 0.46
Weighted average shares
outstanding:
Basic..................... 11,218 12,382 13,451 18,046 18,704 19,660 19,549
Diluted................... 11,218 12,382 13,919 18,046 18,704 24,678 24,698
Ratio of earnings to fixed
charges................... -- 1.1x 1.5x 1.1x -- 1.9x 1.5x
BALANCE SHEET DATA (AT
PERIOD END):
Working capital............. $ 25,198 $ 34,173 $ 29,797 $ (30,821) $ (17,557) $ (5,781) $ 12,301
Net property, plant and
equipment................. 152,306 137,081 145,323 296,426 384,850 457,988 425,778
Total assets................ 521,461 502,939 573,393 749,742 1,059,047 1,328,182 1,205,180
Long-term debt, net of
current portion........... 331,940 301,935 274,161 430,766 590,045 731,080 717,238
Redeemable convertible
preferred securities of a
subsidiary trust.......... 115,000 115,000 115,000
Redeemable preferred stock
of a subsidiary........... 16,913 19,357
Accumulated deficit......... (1,782) (3,394) (16,151) (21,514) (68,548) (30,872) (59,157)
Other stockholder's
equity.................... 21,231 19,987 100,627 117,864 140,086 158,082 146,289
Common stockholders'
equity.................... 19,449 16,593 84,476 96,350 71,538 127,210 87,132
OTHER DATA:
Cash flows provided by
operating activities...... $ 31,514 $ 47,597 $ 27,881 $ 135,936 $ 120,637 $ 118,216 $ 25,672
Cash flows used in investing
activities................ 270,223 7,013 19,050 170,849 316,601 227,097 116,800
Cash flows provided by (used
in) financing
activities................ 241,975 (39,789) (4,326) 29,941 197,071 112,478 90,634
Capital expenditures........ 6,133 8,496 16,812 55,391 74,045 95,433 44,766
EBITDA (4).................. 54,238 93,699 58,372 121,102 105,824 223,638 93,718
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1999
----------
<S> <C>
IN
THOUSANDS,
EXCEPT PER
SHARE
AMOUNTS
OPERATING DATA:
Net sales................... $ 851,889
Operating income............ 55,795
Interest expense............ 34,274
(Loss) income before income
taxes and extraordinary
items..................... 20,953
(Loss) income before
extraordinary items....... 11,315
Extraordinary losses from
early extinguishment of
debt, net.................
Net (loss) income........... 11,315
Per share:
(Loss) income before
extraordinary
items--basic............ $ 0.57
Net (loss)
income--basic........... 0.57
(Loss) income before
extraordinary items--
diluted................. 0.54
Net (loss)
income--diluted......... 0.54
Weighted average shares
outstanding:
Basic..................... 19,714
Diluted................... 24,659
Ratio of earnings to fixed
charges................... 1.5x
BALANCE SHEET DATA (AT
PERIOD END):
Working capital............. $ 29,010
Net property, plant and
equipment................. 494,863
Total assets................ 1,494,955
Long-term debt, net of
current portion........... 856,230
Redeemable convertible
preferred securities of a
subsidiary trust.......... 114,070
Redeemable preferred stock
of a subsidiary...........
Accumulated deficit......... (19,557)
Other stockholder's
equity.................... 183,344
Common stockholders'
equity.................... 163,787
OTHER DATA:
Cash flows provided by
operating activities...... $ 42,697
Cash flows used in investing
activities................ 121,479
Cash flows provided by (used
in) financing
activities................ 72,271
Capital expenditures........ 52,400
EBITDA (4).................. 104,230
</TABLE>
(FOOTNOTES CONTINUED ON NEXT PAGE)
11
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
- ------------------------------
(1) INCLUDES $2.7 MILLION OF NON-RECURRING COSTS RELATED TO ACQUISITIONS.
(2) INCLUDES NON-RECURRING CHARGES OF $63.9 MILLION RELATED TO ACQUISITIONS
(INCLUDING A $58.2 MILLION IN-PROCESS ACQUIRED TECHNOLOGY WRITE OFF) AND
$0.6 MILLION RELATED TO BIG FLOWER'S SECONDARY STOCK OFFERING.
(3) INCLUDES $4.6 MILLION OF TERMINATION COSTS FOR EXECUTIVE POSITIONS
ELIMINATED AND A $0.2 MILLION IN-PROCESS ACQUIRED TECHNOLOGY WRITE OFF.
(4) EBITDA REPRESENTS THE SUM OF OPERATING INCOME, DEPRECIATION AND AMORTIZATION
OF INTANGIBLES. EBITDA IN 1996 INCLUDES $1.5 MILLION IN MERGER COSTS, EBITDA
IN 1997 INCLUDES A $58.2 MILLION WRITE OFF OF IN-PROCESS ACQUIRED TECHNOLOGY
COSTS AND IN 1998 INCLUDES A SIMILAR CHARGE OF $0.2 MILLION. EBITDA DOES NOT
INCLUDE COSTS ASSOCIATED WITH THE SECURITIZATION OF ACCOUNTS RECEIVABLE
UNDER THE AGREEMENT MENTIONED ABOVE AND IS PRESENTED HERE TO PROVIDE
ADDITIONAL INFORMATION ABOUT BIG FLOWER'S ABILITY TO MEET ITS FUTURE DEBT
SERVICE, CAPITAL EXPENDITURE AND WORKING CAPITAL REQUIREMENTS. IT SHOULD NOT
BE CONSIDERED A BETTER INDICATOR OF OPERATING PERFORMANCE THAN OPERATING
INCOME AS DETERMINED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP), OR A BETTER INDICATOR OF LIQUIDITY THAN CASH FLOW FROM
OPERATING ACTIVITIES AS DETERMINED IN ACCORDANCE WITH GAAP. BIG FLOWER'S
DEFINITION OF EBITDA MIGHT NOT BE THE SAME AS THAT OF OTHER COMPANIES OR BIG
FLOWER'S FINANCIAL ADVISORS.
12
<PAGE>
THE BIG FLOWER MEETING
GENERAL
Big Flower is furnishing this document to its stockholders in connection
with the solicitation of proxies by the Big Flower board of directors for use at
the Big Flower annual meeting, to be held on Tuesday, November 23, 1999, at
9:00 a.m., New York time, at the Hotel Inter-Continental New York, 111 East 48th
Street, New York, New York. The 1998 Annual Report to Stockholders, including
audited financial statements of Big Flower for the fiscal year ended
December 31, 1998, was mailed to stockholders on or about May 27, 1999.
The purpose of the Big Flower meeting is to consider and vote upon:
- the adoption of the merger agreement,
- a proposal to permit the proxies, in their discretion, to adjourn the Big
Flower meeting for the sole purpose of soliciting more votes or proxies in
favor of the adoption of the merger agreement,
- the election of two directors to the Big Flower board of directors,
- ratification of the appointment of Deloitte & Touche LLP as Big Flower's
independent certified public accountants, and
- such other business related to these proposals as may properly come before
the Big Flower meeting.
THE BIG FLOWER BOARD OF DIRECTORS, WITH MESSRS. AMMON AND REILLY ABSTAINING,
HAS UNANIMOUSLY DECLARED ADVISABLE, AUTHORIZED AND APPROVED THE MERGER
AGREEMENT, THE MERGER AND OTHER TRANSACTIONS CONTEMPLATED IN THE MERGER
AGREEMENT, AND UNANIMOUSLY RECOMMENDS THAT THE BIG FLOWER STOCKHOLDERS VOTE
"FOR" THE ADOPTION OF THE MERGER AGREEMENT.
THE BIG FLOWER BOARD OF DIRECTORS, WITH MESSRS. AMMON AND REILLY ABSTAINING,
UNANIMOUSLY RECOMMENDS THAT THE BIG FLOWER STOCKHOLDERS VOTE "FOR" THE PROPOSAL
TO PERMIT THE PROXIES, IN THEIR DISCRETION, TO ADJOURN THE BIG FLOWER MEETING TO
SOLICIT MORE VOTES OR PROXIES IN FAVOR OF THE ADOPTION OF THE MERGER AGREEMENT,
"FOR" THE ELECTION OF EACH OF THE TWO PERSONS NOMINATED TO THE BIG FLOWER BOARD
OF DIRECTORS AND "FOR" THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE
LLP AS BIG FLOWER'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
VOTING
RECORD DATE
The Big Flower board of directors has fixed the close of business on
October 22, 1999, as the record date for the determination of the holders of Big
Flower common stock entitled to receive notice of and to vote at the Big Flower
meeting. You may vote at the Big Flower meeting only if you owned Big Flower
common stock at that time.
As of the Big Flower record date, there were 19,722,731 shares of Big Flower
common stock issued and outstanding. Each share of Big Flower common stock
outstanding on the record date is entitled to one vote on each matter properly
submitted at the Big Flower meeting.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of Big
Flower common stock issued and outstanding on the record date is required for
adoption of the merger agreement. The affirmative vote of the holders of a
majority of the shares of Big Flower common stock voting on the proposal to
permit the proxies, in their discretion, to adjourn the Big Flower meeting to
solicit more votes or proxies in favor of the adoption of the merger agreement,
assuming at least a majority of the
13
<PAGE>
outstanding shares of Big Flower common stock are present in person or
represented by proxy at the Big Flower meeting, is required to permit the
proxies to adjourn the Big Flower meeting to solicit more votes or proxies in
favor of adoption of the merger agreement. In order to elect each of the two
persons nominated for election to the Big Flower board of directors, the holders
of a plurality of the shares of Big Flower common stock that are voting on the
election of directors must vote in favor of each of those directors, assuming
that the holders of at least a majority of the outstanding shares of Big Flower
common stock are represented at the meeting in person or by proxy. In order to
ratify the appointment of Deloitte & Touche LLP as Big Flower's independent
certified public accountants, the holders of a majority of the shares of Big
Flower common stock that are voting on the ratification of that appointment must
vote in favor of that ratification, assuming that the holders of at least a
majority of the outstanding shares of Big Flower common stock are represented at
the meeting in person or by proxy.
Any failure to be present at the Big Flower meeting, in person or by proxy,
any abstention and any broker non-vote, as explained below, will have the same
effect as a vote against adoption of the merger agreement. With respect to the
proposal to permit the proxies, in their discretion, to adjourn the meeting to
solicit more votes or proxies in favor of the adoption of the merger agreement,
any failure to be present at the Big Flower meeting, in person or by proxy, any
abstention and any broker non-vote will have the effect of reducing the
aggregate number of shares of Big Flower common stock voting and, therefore, the
number of shares of Big Flower common stock required to permit the proxies to
adjourn the Big Flower meeting to solicit more votes or proxies in favor of the
adoption of the merger agreement. With respect to the election of the two
persons nominated to the Big Flower board of directors, any failure to be
present at the Big Flower meeting, in person or by proxy, any abstention and any
broker non-vote will have the same effect as not voting in the election of
directors. With respect to the ratification of the appointment of Deloitte &
Touche LLP, any failure to be present at the Big Flower meeting, in person or by
proxy, any abstention and any broker non-vote will have the effect of reducing
the aggregate number of shares of Big Flower common stock voting and, therefore,
the number of shares of Big Flower common stock required to ratify the
appointment of Deloitte & Touche LLP. Under the rules of the NYSE, brokers who
hold shares in street name for customers will not have authority to vote on the
adoption of the merger agreement or the ratification of the appointment of
Deloitte & Touche LLP unless they receive specific instructions from the
beneficial owners of those shares. Shares that are not voted because brokers did
not receive any instructions are referred to as "broker non-votes."
The persons appointed to vote as proxies of Big Flower stockholders are
authorized to vote upon any adjournments, postponements, continuations or
rescheduling, and upon any other matters that properly come before the Big
Flower meeting. In the event that less than a majority of the shares of Big
Flower common stock votes in favor of adoption of the merger agreement, and a
majority of the shares of Big Flower common stock votes in favor of the proposal
to permit the appointees, in their discretion, to adjourn the Big Flower meeting
for the sole purpose of soliciting more votes or proxies in favor of the
adoption of the merger agreement, the appointees are authorized, in their
discretion, to vote the shares of Big Flower common stock for which they hold
proxies to adjourn, postpone or continue the Big Flower meeting for the sole
purpose of allowing them to have additional time to solicit additional votes or
proxies in favor of adoption of the merger agreement. If less than a majority of
the shares of Big Flower common stock votes in favor of the proposal to permit
the proxies to adjourn the meeting to solicit more votes or proxies in favor of
the adoption of the merger agreement, the proxies may not adjourn, postpone or
continue the Big Flower meeting for that purpose alone.
The presence, in person or represented by proxy, of a majority of the shares
of Big Flower common stock entitled to vote at the Big Flower meeting will
constitute a quorum for the transaction of business. Abstentions and broker
non-votes will be counted as present for purposes of determining a quorum.
14
<PAGE>
As of October 22, 1999, directors and executive officers of Big Flower and
its affiliates owned beneficially an aggregate of 2,986,733 shares of Big Flower
common stock, including shares which may be acquired within 60 days upon
exercise of stock options, or approximately 14.5% of the shares of Big Flower
common stock outstanding on that date. The directors and executive officers of
Big Flower have indicated their intention to vote their shares of Big Flower
common stock in favor of adoption of the merger agreement, the proposal to
permit the proxies, in their discretion, to adjourn the Big Flower meeting for
the sole purpose of soliciting more votes or proxies in favor of the adoption of
the merger agreement, the election of each of the two persons nominated to the
Big Flower board of directors and the ratification of the appointment of
Deloitte & Touche LLP as Big Flower's independent certified public accountants.
As of October 22, 1999, the directors and executive officers of Big Flower
owned no shares of BFH Merger Corp. common stock.
PROXIES
Each copy of this document mailed to Big Flower stockholders is accompanied
by a form of proxy for use at the Big Flower meeting. In addition, Big Flower
stockholders entitled to vote at the Big Flower meeting may submit their proxies
by telephone or through the Internet in accordance with the instructions set
forth on the accompanying proxy card. However, stockholders who hold their
shares through a broker, nominee, fiduciary or other custodian may not be able
to submit their proxies with voting instructions by telephone or through the
Internet. Big Flower stockholders should contact that person to determine
whether they may submit their proxies by telephone or through the Internet.
Shares of Big Flower common stock represented by a proxy properly submitted as
described below and received at or prior to the Big Flower meeting, unless
subsequently revoked, will be voted in accordance with the instructions on the
proxy.
SUBMITTING PROXIES BY MAIL. To submit a written proxy by mail, holders of
Big Flower common stock should complete, sign, date and mail the proxy card
provided with this document in accordance with the instructions set forth on
that card. If a proxy card is signed and returned without indicating any voting
instructions, shares of Big Flower common stock represented by the proxy will be
voted "FOR" the adoption of the merger agreement, "FOR" permitting the proxies,
in their discretion, to adjourn the meeting to solicit more votes or proxies in
favor of the adoption of the merger agreement, "FOR" the election of each of the
two persons nominated to the Big Flower board of directors and "FOR" the
ratification of the appointment of Deloitte & Touche LLP as Big Flower's
independent certified public accountants.
REVOCATION
Any person who submits a proxy with voting instructions may revoke it at any
time before it is voted:
- by giving written notice of revocation to Big Flower, addressed to: Irene
B. Fisher, Associate General Counsel, Big Flower Holdings, Inc., 3 East
54th Street, New York, New York 10022,
- by submitting a later dated proxy with voting instructions by mail, by
telephone or through the Internet, if the proxy is received by Big Flower
prior to the Big Flower meeting, or
- by VOTING in person at the Big Flower meeting, although a proxy is not
revoked by simply ATTENDING the Big Flower meeting.
Big Flower stockholders who have instructed a broker to vote their shares must
follow directions received from their broker to change and revoke their proxy.
15
<PAGE>
OTHER MATTERS
The Big Flower board of directors is not currently aware of any business to
be acted upon at the Big Flower meeting, other than as described above. If,
however, other matters related to the proposals are properly brought before the
Big Flower meeting, the persons appointed as proxies will have discretion to
vote or to act on these matters according to their best judgment, unless
otherwise indicated on any particular proxy. The persons appointed as proxies
will also have discretion to vote on adjournment of the Big Flower meeting. That
adjournment may be for the purpose of soliciting additional proxies. However, no
proxy that is voted against the adoption of the merger agreement, the proposal
to permit the proxies, in their discretion, to adjourn the Big Flower meeting
for the sole purpose of soliciting more votes or proxies in favor of the
adoption of the merger agreement, the election of any director nominated to the
Big Flower board of directors or the ratification of the appointment of
Deloitte & Touche LLP as Big Flower's independent certified public accountants
will be voted in favor of adjournment, postponement, continuation or
rescheduling of the annual meeting for the purpose of allowing additional votes
or proxies in favor of such proposal.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
Big Flower, none of whom will be specifically compensated for those services,
but may be reimbursed for reasonable out-of-pocket expenses in connection with
those services, may solicit proxies from the Big Flower stockholders personally
or by telephone, facsimile or telegram or other forms of communication.
Brokerage houses, nominees, fiduciaries and other custodians will be requested
to forward soliciting materials to beneficial owners and will be reimbursed for
their reasonable expenses incurred in sending the materials to beneficial
owners.
In addition, Big Flower has retained Georgeson & Company to assist in the
solicitation of proxies from its stockholders. The fees to be paid by Big Flower
to Georgeson & Company for those services will be equal to approximately
$20,000, plus reasonable out-of-pocket costs and expenses and other incidental
charges. Big Flower will bear its own expenses in connection with the
solicitation of proxies for the Big Flower meeting.
BIG FLOWER STOCKHOLDERS SHOULD NOT SEND BIG FLOWER COMMON STOCK CERTIFICATES
WITH THEIR PROXY CARDS. IF THE MERGER IS COMPLETED, BIG FLOWER STOCKHOLDERS WILL
RECEIVE A TRANSMITTAL FORM WITH INSTRUCTIONS ON HOW TO EXCHANGE THEIR CURRENT
STOCK CERTIFICATES FOR THE $31.50 IN CASH.
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SPECIAL FACTORS
THE DISCUSSION IN THIS DOCUMENT OF THE MERGER OF BIG FLOWER AND BFH MERGER
CORP. AND THE RELATED RECAPITALIZATION OF BIG FLOWER AND THE MATERIAL TERMS OF
THE AMENDED AND RESTATED MERGER AGREEMENT, DATED AS OF OCTOBER 11, 1999, BETWEEN
BIG FLOWER AND BFH MERGER CORP., DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT
TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE MERGER AGREEMENT, WHICH
IS INCORPORATED IN THIS DOCUMENT BY REFERENCE. THE MATERIAL TERMS OF THE MERGER
AGREEMENT ARE SUMMARIZED ELSEWHERE IN THIS DOCUMENT. A COPY OF THE MERGER
AGREEMENT IS ATTACHED AS APPENDIX A TO THIS DOCUMENT.
GENERAL
Big Flower is furnishing this document to Big Flower stockholders in
connection with the solicitation of proxies by the board of directors of Big
Flower for its use at the Big Flower meeting of stockholders, and at any
adjournments or postponements of the Big Flower meeting.
At the Big Flower meeting, Big Flower stockholders will be asked to consider
and vote upon a proposal to adopt the merger agreement. Adoption of the merger
agreement will also constitute approval of the transactions contemplated by the
merger agreement, including, among others, the merger and the recapitalization
of Big Flower.
BACKGROUND OF THE MERGER
From time to time in recent years the board of directors and management of
Big Flower have considered transactions that could increase the value of the
common equity of Big Flower. These have included potential acquisitions of or
mergers with other companies, spin-offs of parts of Big Flower and the sale of
all or part of Big Flower. Ultimately, the board of directors determined that
these strategic alternatives were inferior to the merger for a variety of
reasons, including concerns related to future trading values, illiquidity and
taxes. In addition, the board of directors considered an initial public offering
of each of Big Flower's main operating units, along with an analysis of
combinations with other companies and the strategic rationale for each. Based
upon presentations of various investment banks during these years and after
taking into account taxes and probable trading values for such offerings and
combinations, the board of directors did not believe that any of these
alternatives was likely to result in Big Flower's stock price being greater than
the merger consideration in the foreseeable future.
Since 1994, Big Flower has made 28 acquisitions, primarily outside its
original Treasure Chest Advertising printing business. These acquisitions have
added significantly higher growth and higher margin businesses than the original
Treasure Chest Advertising printing business. Management of Big Flower believed
that further acquisitions both within and outside the traditional Treasure Chest
Advertising business were desirable. Increasingly, however, these acquisitions,
especially in businesses that involve higher technology or direct marketing, or
both, could not be effected on a basis that was non-dilutive to the reported
earnings of Big Flower because companies involved in those businesses tend to
trade, if publicly held, or are sold to third parties, if privately held, at
higher multiples to earnings than Big Flower. The Big Flower board believed that
its earnings would be diluted, even when the trading price of Big Flower shares
was higher than its average trading price range, if it consistently purchased
companies with higher trading multiples than its own because Big Flower would
need to issue a greater number of Big Flower shares to pay for these companies
because the Big Flower stock traded at a lower multiple. The Big Flower board
believed that its trading history demonstrated that Big Flower was not generally
awarded a higher trading multiple even as it diversified itself through
acquisitions into higher growth, higher multiple businesses. Consequently, the
board believed that any material dilution to Big Flower's earnings per share
would adversely affect Big Flower's stock price.
In response to this determination that future acquisitions are likely to be
dilutive, and in an effort to create value for its stockholders, in 1998 and
early 1999 Big Flower began exploring various strategic alternatives, including
equity issuances, public offerings of the stock of each of its main operating
units,
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the mergers of each of its main operating units with other companies and the
spin-offs of one or more business units to Big Flower's stockholders. In
exploring the various strategic alternatives, the management of Big Flower met
with a number of entities to determine the best strategic alternatives to
pursue, including Mr. Ammon's initial meeting with Mr. Thomas H. Lee of Thomas
H. Lee Company in October 1998. At this meeting, Mr. Ammon gave Mr. Lee an
overview of the business of Big Flower. No further discussions ensued at that
time. Subsequently, management of Big Flower met with three financial sponsors,
including representatives of Thomas H. Lee Company, and explored with them on a
preliminary basis various strategic alternatives with respect to Big Flower. On
March 17, 1999 Big Flower formally retained Berenson Minella to assist Big
Flower in exploring strategic alternatives.
On April 20, 1999, Big Flower publicly announced that its board of directors
had authorized management to explore Big Flower's strategic alternatives. In
addition to relying on Berenson Minella, which had been advising Big Flower
since early 1999, Big Flower retained Goldman Sachs as a financial advisor to
assist in the exploration of strategic alternatives. Big Flower retained Goldman
Sachs to act as its financial advisor based upon Goldman Sachs' qualifications,
experience and expertise, as well as its knowledge of Big Flower's business.
Following the April 20 announcement, approximately ten parties contacted
both Big Flower and its financial advisors directly without solicitation. In
addition, Big Flower instructed its financial advisors to contact the likely
potential strategic and financial parties that might be interested in a
transaction involving Big Flower and who had either financial strength or access
to capital markets to complete such a transaction. The contacted parties were
chosen based upon publicly available information regarding their financial
resources, record for completing transactions and interest in Big Flower's lines
of business. In all, Big Flower's financial advisors had extensive conversations
with 13 potential strategic parties and 15 potential financial parties about
their possible interests in Big Flower. One strategic party and six financial
parties entered into confidentiality agreements and received non-public
information concerning the business of Big Flower and its subsidiaries designed
to permit those parties to determine what interests they might have in Big
Flower. Nine other parties requested a package of non-confidential public
information only and did not need to sign a confidentiality agreement.
Three parties, Thomas H. Lee Company, Evercore Capital Partners and one
potential strategic party, performed more detailed due diligence during the
month of May and received detailed presentations from management of Big Flower,
including Mr. Reilly, Mr. Ritchie, and the chief executive officers of each of
Big Flower's four main operating units, concerning its business. During the
month of May, Berenson Minella held telephonic conversations daily and, along
with representatives of Big Flower's senior management, including
Messrs. Ammon, Reilly and Ritchie, met with those parties to discuss Big Flower
and to determine whether the parties could make a proposal that would be
attractive to Big Flower's stockholders. The nature of these discussions
revolved around resolving issues necessary to permit the parties to submit a
proposal. The principal topics of discussion included resolving outstanding due
diligence questions and requests for information, possible transaction
structures, including the involvement of management, the amount and form of
consideration and financing plans.
At the conclusion of this process in mid-June, Thomas H. Lee Company
submitted a written proposal, and Evercore Capital Partners indicated an
interest in submitting a proposal, but only if Big Flower's senior management,
including Mr. Ammon, indicated a willingness to invest a significant portion of
their Big Flower equity interest in the merger transaction. Evercore Capital
Partners had also communicated this desire to Mr. Ammon prior to submitting its
indication of interest. At this time, the potential strategic party indicated
that it would not submit a proposal involving the entire company, although it
indicated that it might be interested in some parts of the business of Big
Flower. The potential strategic party advised Big Flower that it was not
interested in acquiring Treasure Chest Advertising, as it did not fit within its
business plan. Thereafter, there were no further negotiations with the potential
strategic party, although Goldman Sachs, on behalf of Big Flower, sought to
obtain a
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proposal from the strategic party. The strategic party never indicated an amount
it would pay for any or all of Big Flower's subsidiaries. The other parties who
had received information but did not submit a proposal either gave no reason for
their decision not to submit a proposal or indicated any one or more of the
following reasons:
- the total amount of money it would take to pay the merger consideration to
all of the unaffiliated stockholders and to arrange financing for the
additional working capital needs of Big Flower was too large and would
either cause excessive leverage or the issuance of an excessive number of
shares,
- valuation, and/or
- a lack of interest in one or more of Big Flower's subsidiaries.
Big Flower continued to consider its strategic alternatives, including the
possibility of a spin-off or a sale of less than the entire company. After
discussing these matters with its financial advisors, who orally advised the Big
Flower board that it would not be tax efficient for Big Flower to sell less than
all of Big Flower and that a spin-off of part of Big Flower would not likely
enhance stockholder value, and after taking into account financial, tax and
operational factors, the Big Flower board of directors concluded that it would
not be tax-efficient for Big Flower to sell less than all of Big Flower and that
a spin-off of parts of Big Flower would not likely enhance stockholder value.
The principal financial factors that the board took into account included the
expected sale proceeds and expected trading values from these transaction(s).
The principal tax factors that the board took into account included the
corporate tax implications to Big Flower from pursuing these transaction(s). The
principal operating factors that the board took into account included the
existing business and cross-selling relationships that existed among Big
Flower's subsidiaries.
Big Flower also continued to evaluate a stand-alone strategy, focusing on
its historic stock price and business prospects and taking note of the fact that
the trading price of Big Flower common stock had risen approximately 30% in the
three weeks leading up to a March 22, 1999 report by a Credit Suisse First
Boston analyst. This report had focused on Big Flower's venture capital
investments in a variety of Internet-related companies, estimating the then
current value of these investments to be approximately $4.50 per share before
taxes and other expenses. In the six months prior to that report, the trading
price of Big Flower common stock had ranged between $15.375 and $28.438. On
March 22, the Credit Suisse First Boston initial report was released and the
trading price of Big Flower common stock closed at $30.13, an increase from the
$27 trading price on March 19, the preceding trading day. The Credit Suisse
First Boston report was published in its entirety on March 24, on which day the
trading price of Big Flower common stock closed at $29.50. On March 25, the
trading price of Big Flower common stock closed at $32.38. In evaluating the
effect on Big Flower and its stockholders of continuing as a stand-alone
company, Big Flower also considered, as reported in its public filings and
stated to financial analysts, that it would likely pursue acquisitions in
businesses involving higher technology or direct marketing, or both, which
acquisitions could be significantly dilutive to Big Flower's reported earnings.
On June 8, 1999, the Big Flower board of directors met to review the status
of discussions with third parties and the indications of interest received. At
the outset of the meeting Mr. Ammon, chairman of the board of Big Flower,
advised the board that because the possibility existed that he would, under some
circumstances, consider retaining a significant interest in Big Flower in
connection with a proposal from a financial sponsor, he would recuse himself
from board deliberations on the proposals. Mr. Ammon left the meeting and did
not return. Following Mr. Ammon's departure, Peter G. Diamandis, Newton N.
Minow, Robert M. Kimmitt and Joan D. Manley discussed the potential conflicts of
interest involved in the fact that certain members of the management, including
Mr. Ammon, might be treated differently than other Big Flower stockholders in a
proposed transaction because they might continue to retain their ownership in
Big Flower. The board of directors concluded
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that the independent directors, constituting a majority of the board of
directors, were in a position to fairly represent the interest of Big Flower's
stockholders. Messrs. Minow and Kimmitt and Ms. Manley selected Mr. Diamandis as
the lead independent director to control the work of Big Flower's outside
financial and legal advisors. Mr. Reilly, while present for these deliberations,
did not participate in them.
During the June 8 meeting of Big Flower's board of directors, Berenson
Minella reported that Thomas H. Lee Company had submitted a proposal for a
recapitalization of Big Flower under which public holders of Big Flower common
stock would receive a per share consideration of $27.00 in cash and $7.00 in
liquidation preference of PIK preferred stock with a warrant to purchase a
fraction of a share of Big Flower common stock representing in the aggregate
approximately five percent of the Big Flower common stock after the
recapitalization. It was also reported that Evercore Capital Partners had
indicated an interest in submitting a proposal for a recapitalization of Big
Flower at a per share price of $35.00 in cash plus a contingent value right that
would offer holders a to be agreed-upon percentage of after-tax proceeds of Big
Flower's publicly traded venture capital investments in 24/7 Media, Inc.,
About.com, Inc. (formerly known as Miningco.com) and WorldGate Communications,
Inc. Both the Thomas H. Lee Company proposal and Evercore Capital Partners'
indication of interest were subject to financing contingencies. In addition, the
Evercore Capital Partners indication of interest was conditioned on Mr. Ammon's
retaining a substantial portion of his equity in Big Flower. The Thomas H. Lee
Company proposal was made with the expectation that Mr. Ammon would retain a
substantial portion of his equity in Big Flower, but was not expressly
conditioned on his doing so.
During the ensuing discussion, the Big Flower board of directors discussed
the financial terms and certainty of the Thomas H. Lee Company proposal and
Evercore Capital Partners' indication of interest in making a proposal under
certain circumstances. The board also discussed whether an appropriate number of
potential bidders had been contacted to obtain the best available offer in the
marketplace. The financial advisors reported to the board the number of entities
who had been contacted or who had contacted the financial advisors and the
status of discussions with each of them. The financial advisors also reported
that they believed they and Big Flower had run a thorough auction process
because of the public announcement of the process, the number of people
contacted, the amount of time and effort devoted to the auction process and the
amount of time the auction process had remained open. After these discussions
with its financial advisors, the board of directors determined that in light of
Big Flower's public announcement of its interest in pursuing its strategic
alternatives, the extensive amount of time which had passed since such
announcement was made and the fact that 28 parties had contacted, or been
contacted by, Big Flower, Berenson Minella or Goldman Sachs, an appropriate
number of potential bidders had been contacted to ensure that the financially
responsible parties likely to be interested in Big Flower had been contacted or
put on notice. The Big Flower board of directors also agreed that determining to
pursue none of the available transactions was an alternative to be considered by
the board of directors. Mr. Diamandis requested that the board of directors take
some additional time to consider the proposals but that in the meantime, Goldman
Sachs and Berenson Minella should continue discussions with both Thomas H. Lee
Company and Evercore Capital Partners with a view to improving the Thomas H. Lee
Company proposal, to attempt to transform Evercore Capital Partners' indication
of interest into a proposal and to report further at a meeting of the board of
directors scheduled for June 14.
After the June 8 board of directors meeting, Berenson Minella and
representatives of Thomas H. Lee Company continued discussions on improving the
Thomas H. Lee Company proposal. During these discussions, Berenson Minella
sought to increase the cash component and the total consideration offered by
Thomas H. Lee Company. Berenson Minella also discussed with Evercore Capital
Partners whether it could be in a position to make a firm proposal to Big
Flower. After the June 8 board of directors meeting, Mr. Ammon had discussions
with Thomas H. Lee Company and, to a lesser extent, Evercore Capital Partners,
regarding the terms of their bids and management's on-going equity
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interests. Mr. Reilly did not participate in these discussions. Mr. Ammon did
indicate to Mr. Reilly, however, that he would be expected to continue with Big
Flower after the consummation of the transaction. Around this time,
Messrs. Ammon and Reilly each had a number of conversations with Thomas H. Lee
Company regarding due diligence matters.
The Big Flower board of directors, other than Messrs. Ammon and Reilly, who
recused themselves, met again on June 14, 1999 and received a report from its
financial advisors on the status of negotiations with Thomas H. Lee Company and
Evercore Capital Partners. Mr. Reilly recused himself from the meeting because
he believed, based on conversations with Mr. Ammon, that the possibility existed
that he would continue with Big Flower after the merger. The Evercore Capital
Partners indication of interest to make a proposal was unchanged at a per share
consideration of $35.00 in cash plus a contingent value right, and it remained
contingent on Mr. Ammon's retention of a significant interest in Big Flower.
Berenson Minella representatives indicated that the Evercore Capital Partners'
indication of interest would result in a substantial increase in the leverage of
Big Flower, such that Big Flower's ratio of total debt at the time of the merger
to Big Flower's projected EBITDA for the last twelve months ending at the time
of the merger would be 6.2 to 1. Berenson Minella representatives reported that
they had been advised by Mr. Ammon that he had concerns regarding such a high
degree of leverage, and would not be willing to retain a significant interest in
Big Flower in connection with any Evercore Capital Partners proposal that might
be made on that basis. The Thomas H. Lee proposal, on the other hand, involved a
ratio of total debt at the time of the merger to Big Flower's last twelve
months' EBITDA projected as of the time of the merger of 5.5 to 1. In addition,
the Thomas H. Lee Company proposal offered greater promise of making available
to Big Flower additional capital to grow Big Flower's business on a
going-forward basis. The board of directors directed Berenson Minella to
determine whether Evercore Capital Partners would be willing to proceed with
equity from non-management stockholders rather than Mr. Ammon.
During the June 14, 1999 meeting, the board of directors, other than
Mr. Ammon and Mr. Reilly, who recused themselves, heard from outside counsel
regarding their fiduciary duties and from outside financial advisors concerning
the status of discussions with Thomas H. Lee Company. The board of directors
determined to retain additional counsel to act for the independent directors and
thereafter retained the firm of Dewey Ballantine LLP. The financial advisors
reported that Thomas H. Lee Company had agreed to improve its proposal and was
now prepared to offer a per share price of $29.00 in cash plus $6.00 in
liquidation preference of PIK preferred stock with warrants attached.
Representatives of Berenson Minella expressed their opinion that Thomas H. Lee
Company was sensitive to increasing the cash portion of the proposed
consideration, but advised that Big Flower should nonetheless try to improve
both the cash and the PIK preferred stock portions. In light of this, the board
of directors determined to request that management of Big Flower make a
presentation to the Big Flower board of directors concerning Big Flower's
business prospects and strategic plans. The board of directors directed the Big
Flower financial advisors to continue to seek to improve the Thomas H. Lee
Company proposal and to determine whether an Evercore Capital Partners proposal
capable of completion could be developed and scheduled a meeting for June 17 to
receive a further update from its advisors.
On June 14, 1999 Berenson Minella spoke with representatives of Thomas H.
Lee Company and explained that the Big Flower board of directors was seeking a
higher value level for its stockholders than offered by the current Thomas H.
Lee Company proposal. Berenson Minella continued discussions with
representatives of Thomas H. Lee Company during June 15 and June 16 in an
attempt to improve the Thomas H. Lee Company proposal. Discussions between them
continued to focus on increasing the cash component and the total consideration.
On June 16, 1999, Thomas H. Lee Company submitted its first written proposal
to Big Flower. The proposal was for a recapitalization of Big Flower, whereby
public shareholders of Big Flower
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would receive $30.00 per share in cash plus $5.00 in liquidation preference of
PIK preferred stock with warrants attached.
On June 17, 1999, the Big Flower board of directors, other than
Messrs. Ammon and Reilly, who recused themselves, met to review the status of
discussions with Thomas H. Lee Company and Evercore Capital Partners.
Representatives of Berenson Minella reported that Evercore Capital Partners had
improved its financing somewhat, but that its indication of interest was still
conditioned upon Mr. Ammon's retention of a significant interest in Big Flower.
A representative from Berenson Minella reported that he had been advised by
Mr. Ammon that Mr. Ammon was still unsatisfied with the amount of leverage
included in the capital structure in the Evercore Capital Partners' indication
of interest as well as the prospects for additional capital that Evercore
Capital Partners could offer on a going-forward basis and had stated that he
would not be willing to retain a significant interest in Big Flower in
connection with such a transaction. Having been informed of Mr. Ammon's concerns
regarding the high degree of leverage in Evercore Capital Partners' own
indication of interest and the fact that Mr. Ammon would not be willing to
retain a significant interest in Big Flower under the terms of such indication
of interest, Evercore Capital Partners decided not to submit its own proposal to
acquire Big Flower.
The Goldman Sachs and Berenson Minella representatives then summarized the
current proposal from Thomas H. Lee Company, including the terms of the PIK
preferred stock and warrants being offered by Thomas H. Lee Company. Thomas H.
Lee Company had increased the cash portion of its proposal to $30.00 and reduced
the PIK preferred stock portion of the purchase price to a $5.00 liquidation
preference PIK preferred stock, but representatives of Goldman Sachs and
Berenson Minella indicated that the proposed PIK preferred stock/warrant package
contained terms that they believed to be unfavorable compared to market practice
and that those terms could be enhanced. These unfavorable terms included a high
warrant exercise price, extensive restrictions on the ability to exercise the
warrants, and the ability of Big Flower to redeem the PIK preferred stock in a
relatively short time frame, each of which the financial advisors advised was
contrary to prevailing market practice, and a low level of PIK preferred stock
offered in exchange for Big Flower common stock. After discussion with its
financial advisors, the board of directors instructed its financial advisors to
attempt to improve the terms of the PIK preferred stock and warrants in the
following ways:
- lowering the exercise price on the warrants to a nominal amount,
- eliminating or reducing restrictions on when the warrants could be
exercised,
- protecting against Big Flower's ability to redeem the PIK preferred stock
in a relatively short time frame, and
- increasing the amount of the PIK preferred stock being offered per share
of Big Flower common stock.
The directors wished to reach a prompt determination as to the best proposal
available from Thomas H. Lee Company and directed representatives of Goldman
Sachs and Berenson Minella to contact Thomas H. Lee Company and seek to improve
the amount and terms of the PIK preferred stock/warrant package. The financial
advisors left the meeting to have discussions with Thomas H. Lee Company. At
this time, Messrs. Ammon and Reilly joined the meeting, along with Mr. Ritchie,
solely to give a presentation to the board of directors concerning the current
financial and operating status and business plans and prospects of Big Flower.
Although Messrs. Ammon and Reilly had recused themselves from all board
deliberations regarding the transaction, they, along with Mr. Ritchie, were the
most appropriate and knowledgeable persons to address the board on Big Flower's
current status and business plans and prospects. In addition, Messrs. Ammon,
Reilly and Ritchie had addressed the board on these very same matters in the
past. In the presentation, these members of management reported to the board
that Big Flower's operating units were performing consistent with past reports
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and consistent with management's expectations for the business. After the
management presentation, Messrs. Ammon, Reilly and Ritchie left the meeting and
the representatives of Goldman Sachs and Berenson Minella rejoined the meeting
and advised the directors that the only change Thomas H. Lee Company was willing
to make was to reduce the exercise price of the warrant from $35.00 per share to
a nominal amount. Because this was the sole improvement offered to the terms of
the PIK preferred stock and the warrants, the Big Flower board of directors
unanimously decided to reject the proposal from the Thomas H. Lee Company and to
adjourn the meeting and resolved that in the absence of an improved offer there
would be no transaction.
After the June 17 board of directors meeting, representatives of Big
Flower's financial advisors and of Thomas H. Lee Company continued to discuss
ways to improve the Thomas H. Lee Company proposal. Thomas H. Lee Company agreed
to increase, from $5.00 to $5.25, the liquidation value of the PIK preferred
stock offered per share of Big Flower common stock and to make a number of
changes to the terms of the PIK preferred stock and warrants that the financial
advisors believed would improve the value of the security. During this time,
Mr. Ammon also had conversations with Thomas H. Lee Company regarding the terms
of his possible participation in Big Flower following the merger. These
conversations continued throughout the bidding process.
The Big Flower board of directors, other than Messrs. Ammon and Reilly, who
recused themselves, convened again on June 18, 1999 to receive an update on the
status of negotiations with Thomas H. Lee Company. Berenson Minella and Goldman
Sachs reported on the improvements in the Thomas H. Lee Company proposal,
including an increase in the PIK preferred stock liquidation value per share
from $5.00 to $5.25, protection against Big Flower's unrestricted ability to
redeem the PIK preferred stock within the first five years, a lowered exercise
price of the attached warrants to a nominal amount, an increase in the number of
events that would permit a holder to exercise the warrants, and a longer term
for exercising the warrants. With the advice of Goldman Sachs, the board of
directors discussed the market practice with respect to making a market in
securities such as the PIK preferred stock and concluded that market practice
was such that there could be no guarantees that any investment bank would
actively make a market in the PIK preferred stock or warrants, although in
conversations with Big Flower and its financial advisors, the financial
institutions providing financing for the merger and related recapitalization
indicated their intent to make a market in such securities in accordance with
customary market practice, which does not provide an assurance of a continuous
bid. The board of directors discussed the advisability of proceeding with a
transaction on the basis of the Thomas H. Lee Company proposal as compared to
continuing with Big Flower's current business plan. At this time, the board of
directors considered the advice of its financial advisors that the then current
trading price of Big Flower's stock, $34.25 on June 18, 1999, reflected an
expectation of a transaction that was created with the April 20, 1999
announcement that Big Flower was studying its strategic alternatives. The board
of directors also discussed the fact that the consideration offered by
Thomas H. Lee Company was near the all-time trading high of Big Flower common
stock and that if no transaction were consummated, the trading range of Big
Flower common stock likely would fall to a level below its recent elevated
trading price resulting from the April 20th announcement. The board of directors
also considered the dilutive effect on Big Flower's reported earnings of
potential acquisitions if Big Flower continued its current business plan. After
discussion on all of these factors, including the improvements on Thomas H. Lee
Company's proposal outlined above, the board of directors authorized Big
Flower's legal and financial advisors to commence detailed negotiations of the
terms of a possible transaction. The board of directors was unanimous in the
view that a merger agreement should contain terms and conditions that would
permit Big Flower to negotiate and enter into an agreement with another party in
the event of a proposal from that party which was superior to the Thomas H. Lee
Company proposal. This was communicated to Thomas H. Lee Company.
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After Big Flower communicated to Thomas H. Lee Company that its board of
directors had determined to pursue Thomas H. Lee Company's proposed transaction
with Big Flower, Thomas H. Lee Company contacted Evercore Capital Partners, at
the suggestion of Mr. Ammon, to offer Evercore Capital Partners an interest in
the proposed transaction. Mr. Ammon made this suggestion because while he had
been concerned with the high degree of leverage that would result from Evercore
Capital Partners' indication of interest, he believed that Evercore Capital
Partners could provide Big Flower with useful strategic advice and assist Big
Flower in identifying business opportunities in the future.
Negotiations followed between Thomas H. Lee Company and Evercore Capital
Partners in which Evercore Capital Partners requested a larger percentage of the
equity investment than was ultimately agreed upon and Thomas H. Lee Company
offered Evercore Capital Partners a smaller percentage of the equity investment
than was ultimately agreed upon. The parties ultimately negotiated an agreement
whereby Evercore Capital Partners would have the right to invest up to $65
million in Big Flower.
Big Flower's financial advisors and representatives of Thomas H. Lee Company
continued detailed discussions concerning the terms of the PIK preferred stock
and warrants. A draft merger agreement was delivered to representatives of Big
Flower on June 19. Respective counsel for Big Flower and Thomas H. Lee Company
discussed issues arising out of the draft on June 20 and daily thereafter until
the agreement was finalized. The contract negotiations focused primarily on the
following issues:
- the circumstances in which Big Flower could provide information to and
negotiate with third parties,
- whether Big Flower would be permitted to terminate the merger agreement to
accept a superior proposal from a third party,
- the circumstances under which the Thomas H. Lee Company acquisition entity
would be permitted not to close the merger,
- the scope of the representations and warranties of Big Flower and the
Thomas H. Lee Company entity,
- the circumstances in which the Thomas H. Lee Company entity would be
entitled to reimbursement of expenses and the cap on such reimbursement,
and
- the date when the parties could terminate the merger agreement if no
merger has occurred prior to such date.
During the course of these negotiations, Thomas H. Lee Company advised Big
Flower that Evercore Capital Partners would participate with the Thomas H. Lee
Company entity in the recapitalization transaction. The inclusion, however, of
Evercore Capital Partners did not affect the structure or terms of the Thomas H.
Lee Company proposal, and therefore did not affect Big Flower's analysis of the
proposal. Big Flower's financial advisors continued to have daily discussions
with Thomas H. Lee Company regarding the financial terms of the merger,
including the terms of the PIK preferred stock and attached warrants and the
financing commitments with respect to the proposal. These discussions included
whether the warrants would be exercisable for 5% of the equity before or after
giving effect to the exercise of the warrants and Big Flower's efforts to reduce
the number of financing contingencies in the financing commitment with respect
to the proposal.
The Big Flower board of directors, other than Messrs. Ammon and Reilly, who
recused themselves, met on June 24 at which time it received an update on the
status of negotiations. Big Flower's legal advisors summarized the following key
terms of the merger agreement:
- scope of the representations and warranties of Big Flower and BFH Merger
Corp.,
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- the ability of Big Flower to enter into transactions with other parties,
including transactions for the sale of 15% or more of Big Flower's assets
or securities or a merger with a party other than BFH Merger Corp.,
- conditions to consummation of the transaction with BFH Merger Corp.,
- the ability of Big Flower or BFH Merger Corp. to terminate the agreement,
including the ability of either of them to terminate the agreement if the
merger is not completed by the later of October 31, 1999 and the date
determined by adding to October 31, 1999 the number of days after
September 1, 1999 that this proxy statement is mailed to Big Flower
stockholders, but in no event later than December 31, 1999, and
- fees and expenses payable by Big Flower to BFH Merger Corp. upon
termination of the agreement in some circumstances.
Representatives of Goldman Sachs and Berenson Minella also described in
detail the board presentation materials prepared by them and distributed to the
board prior to the meeting, focusing on the financial terms of the Thomas H. Lee
Company proposal, including the PIK preferred stock and warrant, and Big
Flower's alternative as a stand-alone entity. Following their presentation,
Berenson Minella and Goldman Sachs informed the board of directors that their
respective firms were prepared to deliver oral opinions, which were subsequently
confirmed on June 29 in writing, to the effect that, assuming the negotiation
and execution of a definitive merger agreement, that the merger consideration to
be received by stockholders, other than the members of management retaining
shares of Big Flower common stock in the merger, as to whom they did not deliver
an opinion, was fair to those stockholders from a financial point of view.
After the June 24 board of directors meeting, Big Flower's legal advisors
continued to negotiate the merger agreement with counsel to Thomas H. Lee
Company. At the same time, Big Flower's financial advisors continued discussions
with Thomas H. Lee Company regarding the financial terms of the merger,
including discussions to clarify the terms of the PIK preferred stock and
attached warrants, and the terms of the financing commitments with respect to
the proposed merger.
The Big Flower board of directors, other than Messrs. Ammon and Reilly, who
recused themselves, met on June 27 at which time it received an update on the
status of negotiations. Big Flower's legal advisors reported that most of the
issues had been resolved, but that there were still some issues with respect to
closing conditions, conditions under which expenses would be payable and a small
number of relatively minor issues. The board of directors directed its legal
advisors to continue negotiations with Thomas H. Lee Company.
The Big Flower board of directors, other than Messrs. Ammon and Reilly, who
recused themselves, met on June 29 at which time it unanimously approved the
original merger agreement and the transactions contemplated in the original
merger agreement. On June 29, 1999 the original merger agreement was signed and
publicly announced.
Following announcement of the original merger, several stockholders,
including Big Flower's largest stockholder, expressed disappointment with the
terms of the original merger agreement, on the grounds that the overall merger
consideration should have been greater and that the preferred stock with
warrants was unattractive to them. In addition, the trading price of Big
Flower's stock remained well below the nominal $35.25 price per share which was
being offered to stockholders in the original merger agreement. In early August,
at the request of Mr. Diamandis, representatives of Big Flower contacted
Thomas H. Lee Company and asked that Thomas H. Lee Company consider revising the
terms of the merger to provide $35.25 in cash. Representatives of Thomas H. Lee
Company indicated that they were not willing to do so at that time but might be
open to considering an all cash proposal at a later time.
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During the week of September 6, 1999, representatives of Thomas H. Lee
Company indicated to representatives of Big Flower that Thomas H. Lee Company
and Evercore Capital Partners were working on developing an all cash proposal
but that it would be at a level below $35.25 per share. The Thomas H. Lee
Company representatives indicated that they would attempt to have a proposal for
consideration by the Big Flower board of directors at the time of its regularly
scheduled meeting on September 14, 1999. The Thomas H. Lee Company
representatives also indicated that they were attempting to obtain financing
commitments for a $34.00 cash offer.
On September 13, 1999, representatives of Thomas H. Lee Company indicated to
representatives of Big Flower that negotiations for obtaining financing
commitments for a $34.00 cash deal were continuing, but that they were having
difficulty obtaining the necessary commitments on terms acceptable to Thomas H.
Lee Company and Evercore Capital Partners. In particular, the Thomas H. Lee
Company representatives indicated that their financing sources were seeking to
re-benchmark the lending terms agreed upon in June 1999 to reflect the market
conditions existing in September 1999, which were less favorable to borrowers in
the high yield and bank markets.
On September 14, 1999, the Big Flower board of directors held a regularly
scheduled meeting at which management reported on financial results through the
end of July 1999 and expectations for the third quarter and the year. The
expected results were somewhat weaker, both in terms of earnings and EBITDA,
than had been expected at the time the original merger agreement was entered
into. On September 14, 1999, management estimated that third quarter earnings
per share would be $0.58 per share, compared with $0.69 per share reflected in
consensus securities analyst estimates, and that full year earnings per share
would be approximately $2.07 per share compared with the approximately $2.14
estimated at the time of the original merger agreement. Management also
estimated that full year 1999 EBITDA would be approximately $264 million as
compared to the approximately $267 million estimated at the time of the original
merger agreement.
Following the completion of regular board business, Messrs. Ammon and Reilly
left the meeting, and the board of directors received a report on the status of
communications from Thomas H. Lee Company. The board of directors also received
presentations from Berenson Minella and Goldman Sachs analyzing a potential
$34.00 cash offer. The board of directors discussed the advisability of amending
the original merger agreement to provide for an all cash consideration but did
not make any decision with respect to such a transaction because Thomas H. Lee
Company had not yet submitted any proposal. In the discussion, the board of
directors noted that:
- holders of Big Flower common stock had expressed a desire for an all cash
transaction,
- Big Flower common stock had been trading below $30.00 a share, and the
theoretical value of the preferred stock and warrants had declined as a
result of an overall decline in the market for high yield securities, and
- Big Flower's financial results had deteriorated.
After the meeting on September 14, 1999, Big Flower informed Thomas H. Lee
Company about the revised projections, and Thomas H. Lee Company indicated that
it was continuing to seek financing for an all cash proposal.
On September 17, 1999, the board of directors, other than Messrs. Ammon and
Reilly who recused themselves, held a telephonic meeting and were advised that
Thomas H. Lee Company had thus far been unable to obtain financing for a $34.00
cash proposal. The board of directors was also advised that Big Flower
management had determined that results of the direct mail business were going to
be even weaker than expected on September 14, 1999 and that work was being done
to revise the earnings and EBITDA projections.
Thomas H. Lee Company was advised of this additional shortfall on
September 20, 1999. At that time, representatives of Thomas H. Lee Company
indicated that while they would continue working on
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a proposal for an all cash transaction, given Big Flower's recent performance,
the proposal likely would be at a level below $34.00 per share.
During the weeks of September 20 and 27, 1999, representatives of Thomas H.
Lee Company communicated that they were working to be in a position to present a
proposal for a revised transaction. They also indicated their view that the high
yield debt markets and Big Flower's financial performance and prospects could
give the financial institutions that provided commitments in connection with the
original merger agreement a basis for seeking not to provide funding. The board
of directors, other than Messrs. Ammon and Reilly who recused themselves, held a
telephonic meeting on September 29, 1999 and received reports from Big Flower's
financial and legal advisors on the status of discussions with Thomas H. Lee
Company.
On September 30, 1999, representatives of Thomas H. Lee Company advised Big
Flower's financial and legal advisors that Thomas H. Lee Company's proposal for
a revised transaction was $28.00 in cash plus $4.00 in PIK preferred stock
WITHOUT warrants attached. The representatives of Big Flower advised the
Thomas H. Lee Company representatives against taking that proposal to the board
of directors to consider. Later that day, the Thomas H. Lee Company
representatives indicated that they were considering making a proposal of $29.00
in cash plus $3.00 in PIK preferred stock without warrants attached. The Big
Flower representatives agreed to take this proposal to the board of directors
for consideration. The Big Flower representatives approached Mr. Diamandis, who
declined to convene a board meeting to consider such a proposal, rejecting it
outright.
On October 1, 1999, representatives of Thomas H. Lee Company indicated that
they were prepared to propose a $30.00 all cash transaction and this was the
best proposal they were able to make under the circumstances. The board of
directors, other than Messrs. Ammon and Reilly who recused themselves, held
telephonic meetings on October 1, 1999 and October 2, 1999. At the October 1,
1999 meeting, the board of directors rejected this proposal. On October 2, 1999,
after receipt of financial presentations from each of Goldman Sachs and Berenson
Minella, the board discussed possible proposals from Thomas H. Lee Company and
based on a number of factors -- including the enhanced certainty of completing a
revised transaction (particularly if re-benchmarking of closing conditions could
be obtained), the possible decrease in the trading price of Big Flower common
stock if a merger was not completed, and uncertainty of any alternative
transaction -- believed it could support a transaction in the $31.00 to $32.00
range. On October 2, 1999, representatives of Big Flower notified Thomas H. Lee
Company of the board's rejection of the $30.00 proposal and the board's
determination that a higher offer may be acceptable if coupled with an increased
certainty of merger and enhanced speed of closing. Representatives of Thomas H.
Lee Company indicated that they wished to have their financing sources update
their due diligence on Big Flower and to seek to submit an improved proposal.
On October 4, 1999, representatives of Thomas H. Lee Company, Evercore
Capital Partners, their financing sources, Goldman Sachs and Berenson Minella
met with representatives of Big Flower and received detailed updates on the
financial results and operations of Big Flower and its subsidiaries.
On October 5, 1999, representatives of Thomas H. Lee Company indicated they
were seeking financing for a $31.00 cash transaction. On October 6, 1999,
representatives of Big Flower, in consultation with the independent directors,
stated that the board of directors would not support a $31.00 cash transaction
that conditioned completion of the merger on the absence of adverse market
conditions. On October 7, 1999, representatives of Thomas H. Lee Company
indicated that they could agree to a $31.50 cash transaction and believed they
could obtain financing for a transaction at that level.
On October 7, 1999, the board of directors, other than Messrs. Ammon and
Reilly, who recused themselves, met by telephone and received a description of
the proposed terms of a $31.50 all cash transaction. In response to Big Flower's
statement that it would not agree to condition completion of
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the merger on the absence of adverse market conditions, Thomas H. Lee Company
proposed to benchmark this condition and the condition relating to the financial
position of Big Flower to the date of the signing of the revised merger
agreement. Thomas H. Lee Company also proposed to purchase Columbine JDS Systems
and the Internet investments separately but at or around the effective time of
the merger. After referring to the financial presentations previously received
from each of Goldman Sachs and Berenson Minella, the board of directors
authorized the negotiation and execution of a revised merger agreement on the
terms described to them. In doing so, the board directed that the proposed
purchase of Columbine JDS Systems and the Internet investments should be subject
to the board's receipt of fairness opinions from a reputable investment bank.
The board also reiterated the importance of the proposed re-benchmarking of the
conditions relating to market conditions and the financial condition of the
Company to a current time period.
On October 11, 1999 the amended and restated merger agreement was signed and
publicly announced.
BIG FLOWER'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BIG FLOWER BOARD OF
DIRECTORS
In reaching its decision to declare advisable and fair to unaffiliated
stockholders and approve the amended and restated merger agreement and the
transactions contemplated by the amended and restated merger agreement and to
recommend that Big Flower stockholders vote 'FOR' the adoption of the amended
and restated merger agreement, the Big Flower board of directors, with
Messrs. Ammon and Reilly abstaining, considered a number of favorable and
unfavorable characteristics associated with the amended merger terms. In
reaching its decision, the Big Flower board of directors considered the
following potentially positive factors:
- AMOUNT OF CONSIDERATION. The Big Flower board of directors considered the
$31.50 in cash as giving stockholders an opportunity to sell at a price
that represented a significant premium to $27.88, the trading price of Big
Flower common stock on April 19, 1999, the day immediately prior to the
announcement of Big Flower's intention to study its strategic
alternatives, and to the average trading price of Big Flower common stock
over the several months prior to such announcement. The Big Flower board
of directors considered the advice of its financial advisors that the
elevated trading price of Big Flower common stock, which had reached a
trading high of $35.50 after the April 20, 1999 announcement that Big
Flower was studying its strategic alternatives, reflected an expectation
of a transaction that was created by this announcement. The board of
directors also considered that if no transaction was consummated, the
trading range of Big Flower common stock likely would fall to a level
below its then current trading price range.
- EXTENSIVE SEARCH FOR POTENTIAL BUYER. The board of directors also
considered the fact that in light of the public announcement of Big
Flower's exploration of its strategic alternatives, Big Flower and its
financial advisors had contacted or were contacted by 13 potential
strategic parties and 15 financial parties and that no strategic parties
or other financial parties had submitted a proposal for a purchase of Big
Flower. In light of the extensive market search performed by Big Flower
and its financial advisors, the board of directors concluded the extensive
search had provided an indication of Big Flower's value and that the
Thomas H. Lee Company proposal represented the best price available for
Big Flower stockholders at the present time. The board did not consider
net book value or liquidation value of Big Flower to be a relevant or
appropriate indicator of Big Flower's value. The board believed that with
respect to net book value, the historical accounting treatment relating to
the numerous acquisitions by Big Flower, including extraordinary charges
associated with these acquisitions, diminished the benefit of using this
type of analysis. With respect to the liquidation value, the board
considered this analysis inappropriate because it did not expect that Big
Flower would be liquidated after the merger.
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- RISKS OF REMAINING INDEPENDENT AND OTHER ALTERNATIVES. The Big Flower
board of directors recognized that Big Flower's remaining independent
could, based upon management projections of future performance and
customary trading multiples of other comparable publicly traded companies,
each as indicated by Big Flower's financial advisors, result in higher
future trading prices of the Big Flower common stock, but concluded that
the risks of not fully meeting business plans or of adverse changes in
stock market valuations outweighed the potential benefits of remaining
independent. In reaching this conclusion, the directors considered the
challenges inherent in continuing to manage the existing business,
especially given the recent developments in Big Flower's direct marketing
business and in making acquisitions that could transform Big Flower into a
higher value-added service provider, which acquisitions Big Flower has
reported in its public filings and in analysts' reports, could be
significantly dilutive to Big Flower's reported earnings. The board of
directors also considered the volatility in Big Flower's stock price
resulting from its investments in Internet companies. The board of
directors also considered Mr. Ammon's advice to the board of directors in
the spring of 1999 that, under some circumstances and as permitted under
his employment agreement, he planned to expand his business and other
professional interests beyond those of Big Flower and that accordingly he
would have less day-to-day involvement with Big Flower. The independent
directors believed that they would not be able to persuade Mr. Ammon not
to reduce his involvement with Big Flower. While Mr. Ammon plans to remain
actively involved with Big Flower, he plans to have less day-to-day
involvement with Big Flower over time. The board of directors also
concluded that the alternative of selling less than all of Big Flower had
adverse tax implications for Big Flower stockholders and that a spin-off
of parts of Big Flower's business would not enhance stockholder value. The
board made this conclusion after considering financial factors such as
expected sale proceeds and expected individual trading values, as reported
by Berenson Minella. The board also considered operating factors such as
the existing business and cross-selling relationships existing among Big
Flower's subsidiaries, and tax factors such as the corporate tax
implications from such transaction(s). The board believed that any
corporate level taxes payable by Big Flower as a result of such
transaction(s) would be an offset against any theoretical value
enhancement to Big Flower and/or its stockholders. In considering the
possible separation of Big Flower's subsidiaries, the board believed that
the value of Treasure Chest Advertising, Webcraft and Laser Tech Color
would be diminished because of the reduction in cross-selling that would
naturally occur if they were owned by different entities. In recent years,
Big Flower has created programs to encourage cross-selling among its
subsidiaries and in recent quarters, these cross-selling efforts have
begun to achieve success.
- MERGER AGREEMENT TERMS. The Big Flower board of directors considered as
favorable the terms of the amended and restated merger agreement that (1)
permit the board of directors to provide confidential information to and
negotiate with a third party that makes an unsolicited proposal and to
terminate the merger agreement in order to accept a superior proposal if
necessary to comply with its fiduciary duties to stockholders, and (2)
measure Big Flower's performance and changes in financial markets to a
current date, rather than June 1999, enhancing the certainty of completing
the merger, as described below.
- OPINIONS OF FINANCIAL ADVISORS. The Big Flower board of directors
considered the detailed financial and comparative analyses and
presentations of Goldman Sachs and Berenson Minella, its financial
advisors, with respect to the merger and the consideration offered to
stockholders, and considered as favorable the opinions of Goldman Sachs
and Berenson Minella to the effect that the merger consideration is fair,
from a financial point of view, to stockholders of Big Flower common
stock, other than members of management who are retaining shares of Big
Flower common stock in the merger, as to whom they did not offer an
opinion. The Big Flower board of directors considered these analyses and
presentations with respect to fairness in their
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entirety and did not attribute any particular weight or factor to any
single methodology used by its financial advisors.
- ENHANCED CERTAINTY OF COMPLETION. The Big Flower board of directors
considered that deterioration in the high yield debt markets and in Big
Flower's financial performance since June 1999 could give either BFH
Merger Corp. or its financing sources a basis for seeking not to fulfill
their respective obligations under the original merger agreement or the
original financing commitments. Although the Big Flower board of directors
believed it could be possible to require BFH Merger Corp. and its
financing sources to consummate the merger notwithstanding this
deterioration, representatives of Thomas H. Lee Company advised
representatives of the board that Thomas H. Lee Company held what they
described as a reasoned opinion that the merger would not be financed at
the time of closing of the merger. While the Big Flower board of directors
recognized that this opinion involved a prediction as to uncertain future
events, the board also recognized the difficulty of completing a merger
with an unenthusiastic partner and the difficulty and uncertainty of
effectively enforcing the original merger agreement made it advisable to
reach a mutually acceptable compromise, if one could be reached. The Big
Flower board of directors also considered the advantage, in terms of
increasing the probability that the transaction would be completed, of
re-benchmarking the conditions to consummate the merger contained in the
original merger agreement with respect to the absence of an undisclosed
material adverse effect on Big Flower, along with similar conditions and
conditions relating to market conditions in the financing commitments.
- RISKS OF NON-COMPLETION. The Big Flower board of directors considered that
the trading prices for public companies in businesses comparable to Big
Flower had declined substantially since the date of the original merger
agreement and the views of its financial advisors, which were qualified by
the difficulty of predicting future stock prices, that the trading level
of Big Flower common stock would initially fall substantially, if the
merger was not consummated.
- REPUTATION OF THOMAS H. LEE COMPANY. The Big Flower board of directors
recognized that a leveraged recapitalization transaction with any
financial sponsor involves risks that the transaction would not be
completed, and that the time and effort of Big Flower's management and
directors would be diverted with no result, due to difficulties in
financial markets and the fact that even firm financing commitments from
financial institutions include provisions that excuse performance if there
are events that could have a material adverse effect on Big Flower or on
the credit markets. The Big Flower board of directors believed, however,
that despite imperfect contractual commitments, Thomas H. Lee Company has
a strong reputation for completing transactions and that it is an
extremely reliable financial party. The board considered this belief a
favorable factor in determining the advisability of Big Flower pursuing a
transaction with Thomas H. Lee Company.
- UNCERTAINTY OF ALTERNATIVE TRANSACTIONS. The Big Flower board of directors
considered the uncertainty of the Company's ability to attract an
alternative transaction if the original merger agreement was not completed
and the absence of any logical strong alternative buyer for Big Flower.
While recognizing that an alternative bidder might emerge if the original
merger agreement were terminated, the Big Flower board viewed such a
possibility as uncertain, particularly at a price in the range of $31.50
or higher.
The Big Flower board of directors weighed these positive factors against the
following adverse considerations:
- TERMINATION FEES AND EXPENSES. The Big Flower board of directors
considered as a negative the obligation to pay a fee of an aggregate of up
to $30 million, or $0.91 per basic share of Big Flower common stock for
the six months ended June 30, 1999, to Thomas H. Lee Company and Evercore
Capital Partners if the merger were terminated under certain
circumstances, which
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includes payments of up to $10 million of out-of-pocket fees and expenses
if the merger is terminated for any reason other than a material breach by
BFH Merger Corp. of its obligations under the merger agreement. Although
these obligations are customary for transactions of this nature, the size
of the fee in this transaction was lower than market standard in
transactions of a similar size. These payments may discourage others from
proposing an alternative transaction that may be more advantageous to Big
Flower stockholders or may reduce the amount a third party would be
willing to pay in an acquisition of Big Flower.
- RISK OF MERGER NOT CLOSING. The Big Flower board of directors considered
as a negative the fact that pursuing the merger was likely to
significantly distract management of Big Flower and that if the merger
were to fail to close for any reason the business might not be as far
advanced as it would have been had the merger not been pursued, although
the board of directors believed management intended to continue to
vigorously pursue acquisition opportunities and seek from BFH Merger Corp.
any necessary waivers under the merger agreement to pursue opportunities
of this kind.
The discussion above of the information and factors that were given weight
by the Big Flower board of directors is not exhaustive, but includes all of the
material factors considered by the Big Flower board of directors. The Big Flower
board of directors did not assign specific weights to the foregoing factors and
individual directors may have given different weights to different factors. The
Big Flower board of directors, with Messrs. Ammon and Reilly abstaining,
unanimously declared advisable, authorized and approved the amended and restated
merger agreement and the transactions contemplated by the amended and restated
merger agreement. The Big Flower board of directors considered the fairness of
the transaction to all stockholders and believed the transaction was
procedurally fair to unaffiliated stockholders because it was approved by a
unanimous vote of the unaffiliated directors, which also constituted a majority
of the board.
THE BIG FLOWER BOARD OF DIRECTORS, WITH MESSRS. AMMON AND REILLY ABSTAINING,
UNANIMOUSLY RECOMMENDS THAT BIG FLOWER STOCKHOLDERS VOTE "FOR" THE ADOPTION OF
THE MERGER AGREEMENT.
OPINIONS OF BIG FLOWER'S FINANCIAL ADVISORS
GOLDMAN, SACHS & CO.
On June 24, 1999, Goldman Sachs informed the Big Flower board of directors
that Goldman Sachs was prepared to deliver an oral opinion with respect to the
fairness from a financial point of view of the merger consideration to be
received by the holders of Big Flower common stock, other than the members of
management retaining shares of Big Flower common stock in the merger, assuming
the negotiation and execution of a definitive merger agreement. On June 29,
1999, Goldman Sachs delivered a written opinion to the board of directors that
as of that date, the original merger consideration to be received by the holders
of Big Flower common stock, other than the members of management retaining
shares of Big Flower common stock in the merger, as to whom Goldman Sachs did
not deliver an opinion, was fair from a financial point of view.
Prior to the execution of the amended and restated merger agreement, the Big
Flower board of directors advised Goldman Sachs that representatives of BFH
Merger Corp. had informed Big Flower that, in their opinion, the merger, based
upon the original merger consideration, would not be completed due to changes in
Big Flower's recent financial performance and future prospects, as well as
changes in financial market conditions. The Big Flower board of directors
further advised Goldman Sachs that it had concluded that the certainty of
consummation of the merger, based on the original merger consideration, had been
meaningfully diminished and that the Big Flower board of directors had
determined that Big Flower should pursue the merger on the terms set forth in
the agreement. Accordingly, in reaching their opinion, Goldman Sachs, with the
consent of the Big Flower board of
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directors, assumed that the merger on the terms originally agreed to would not
be consummated, and therefore, did not take into account the financial terms of
the merger as originally agreed to.
On October 11, Goldman Sachs delivered to the Big Flower board of directors
its oral opinion, subsequently confirmed in writing, to the effect that as of
such date, and based upon and subject to the various considerations contained in
the opinion, the revised merger consideration to be received by the holders of
Big Flower common stock, other than members of management retaining shares of
Big Flower common stock in the merger, as to whom Goldman Sachs did not deliver
an opinion, was fair from a financial point of view to such holders.
THE FULL TEXT OF THE GOLDMAN SACHS OPINION IS CONTAINED IN APPENDIX B. THE
GOLDMAN SACHS OPINION WAS PROVIDED FOR THE INFORMATION AND ASSISTANCE OF THE BIG
FLOWER BOARD OF DIRECTORS IN CONNECTION WITH ITS CONSIDERATION OF THE MERGER. IT
IS NOT A RECOMMENDATION TO ANY HOLDER OF BIG FLOWER COMMON STOCK AS TO HOW ANY
STOCKHOLDER SHOULD VOTE AT THE BIG FLOWER MEETING. THE SUMMARY OF THE GOLDMAN
SACHS OPINION BELOW IS QUALIFIED BY ITS FULL TEXT. BIG FLOWER STOCKHOLDERS
SHOULD READ THE GOLDMAN SACHS OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed:
- the amended and restated merger agreement,
- Annual Reports to stockholders and Annual Reports on Form 10-K of Big
Flower for the four years ended December 31, 1998,
- a number of interim reports to stockholders and Quarterly Reports on
Form 10-Q of Big Flower,
- a number of other communications from Big Flower to its stockholders, and
- a number of internal financial analyses and forecasts for Big Flower
prepared by its management, including revised forecasts prepared by
management on October 1, 1999.
Goldman Sachs also held discussions with members of the senior management of
Big Flower regarding Big Flower's past and current business operations,
financial condition and future prospects. In addition, Goldman Sachs held
discussions with senior management of Thomas H. Lee Company regarding Big
Flower's future prospects. Goldman Sachs also reviewed the reported price and
trading activity for Big Flower common stock and compared some financial and
stock market information with similar information for several other companies
with publicly traded securities. In addition, Goldman Sachs reviewed the
financial terms of other recent business combinations in the commercial printing
industry specifically and in other industries generally. Goldman Sachs also
performed other studies and analyses which it considered appropriate.
Goldman Sachs assumed the accuracy and completeness of all of the financial
and other information reviewed by it for purposes of rendering its opinion.
Goldman Sachs did not make an independent evaluation or appraisal of the assets
and liabilities of Big Flower or any of its subsidiaries. No evaluation or
appraisal of the assets and liabilities of Big Flower was furnished to Goldman
Sachs. Goldman Sachs provided its opinion for the information and assistance of
the Big Flower board of directors in connection with its consideration of the
merger. The Goldman Sachs opinion is not a recommendation as to how any holder
of common stock of Big Flower should vote. In its June 29, 1999 opinion, Goldman
Sachs did not express any opinion as to the price at which the PIK preferred
stock or the warrants may trade if and when they are issued or whether any
market would develop for the PIK preferred stock or the warrants.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with its presentations to the Big Flower board of
directors on June 24, 1999 and October 2, 1999. As of June 24, 1999, the terms
of the PIK preferred stock and the warrants had not been finalized and were
still being negotiated. Some of the summaries of the financial analyses include
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information presented in tabular format. The tables must be read together with
the text accompanying each summary.
Goldman Sachs was not asked, and did not undertake, to value separately the
PIK preferred stock and the warrants apart from the overall merger
consideration. As part of the analysis included in its June 24, 1999
presentation, however, Goldman Sachs calculated a range of implied theoretical
values for the PIK preferred stock and the warrants to be received in exchange
for one share of Big Flower common stock. In performing its analysis, Goldman
Sachs used Big Flower management's projections for 2004 EBITDA, 2004 year-end
net debt and total shares of Big Flower common stock outstanding. Goldman Sachs
calculated the projected future value, as of December 31, 2004, for the PIK
preferred and the warrants per share of Big Flower stock using EBITDA multiples,
based upon EBITDA multiples for transactions that Goldman Sachs considered
reasonably similar to the merger, ranging from 5.0x to 8.0x and then discounted
the implied future values using discount rates, based upon the expected return
on securities Goldman Sachs considered reasonably similar to the PIK preferred
stock and the warrants, ranging from 14.0% to 22.0%, resulting in a range of
implied present values for the PIK preferred stock and the warrants per share of
Big Flower stock of $3.79 to $6.72.
In connection with its October 2, 1999 presentation, Goldman Sachs compared
the implied present value per share of Big Flower common stock of the PIK
preferred stock and warrants based upon the revised management projections
prepared on October 1, 1999 to the implied present values of such preferred
stock and warrants based upon the management projections prepared prior to
June 29, 1999. In performing its analysis, Goldman Sachs used EBITDA multiples
ranging from 6.0x to 7.5x and discount rates ranging from 14.0% to 22.0%. This
analysis resulted in a range of implied values of $3.99 to $6.33 based on the
revised projections, compared to a range of implied values of $4.10 to $6.50
based on the original projections.
SUMMARY ANALYSIS OF VALUATION EFFECT OF EBITDA DECLINE. As part of its
October 2, 1999 presentation, Goldman Sachs analyzed the effect of the decrease
in projected 1999 EBITDA on Big Flower's equity value per share. Goldman Sachs
multiplied the difference in projected EBITDA between the management projections
prepared on June 22, 1999 and the management projections prepared on October 1,
1999 by the original transaction value, expressed as a multiple of the projected
1999 EBITDA based upon management's June 22, 1999 projections. The net effect,
excluding the effect of new investments made and debt incurred since June 29,
1999, was a decrease in Big Flower's equity value per share of $3.30.
SELECTED COMPANIES ANALYSIS. As part of its June 29, 1999 presentation,
Goldman Sachs reviewed and compared financial information relating to Big Flower
to corresponding financial information, ratios and public market multiples for
the following publicly traded companies:
<TABLE>
<CAPTION>
SPECIALTY AND COMMERCIAL PRINTERS DIRECT MARKETING SERVICES DIGITAL MEDIA SERVICES
- --------------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Banta Corp. Acxiom Corporation Applied Graphics Technologies
R.R. Donnelly & Sons Company ADVO, Inc. CSG Systems International,
Inc.
Consolidated Graphics, Inc. Catalina Marketing Schawk, Inc.
Corporation
Quebecor Printing Inc. Harte-Hanks, Inc.
World Color Press, Inc. Snyder Communications, Inc.
Valassis Communications, Inc.
</TABLE>
Goldman Sachs chose these companies because they were publicly traded companies
that for purposes of the analysis Goldman Sachs considered reasonably similar to
Big Flower in each of Big Flower's business lines. Goldman Sachs calculated and
compared various financial multiples and ratios in order to indicate how various
valuation multiples and financial ratios for Big Flower compare on a relative
basis to those of the selected public companies which Goldman Sachs considered
comparable to Big Flower. The multiples for Big Flower were calculated using a
stock price of $33.63, the closing stock price on June 21, 1999, the last
trading day for which closing prices could be obtained before Goldman
33
<PAGE>
Sachs finalized its June 24, 1999 presentation, and a stock price of $35.25. For
purposes of its analysis only, and without making any assumptions as to the
value of the merger consideration, or how the PIK preferred stock or the
warrants would trade if and when they are issued, Goldman Sachs used a stock
price of $35.25 based upon the cash consideration to be received per share of
Big Flower common stock of $30.00 and the $5.25 liquidation preference of the
PIK preferred per share of Big Flower stock. The financial multiples and ratios
for the selected companies were calculated using closing stock prices on
June 21, 1999 and the most recent publicly available information for these
companies. None of the selected companies is directly comparable to Big Flower.
All estimates for EBITDA and price/ earnings multiples were based on a calendar
year.
The following table presents the ranges, the mean and the median figures for
the selected companies for:
(1) leveraged market capitalization as a multiple of LTM sales, LTM EBIT,
LTM EBITDA, and estimated calendar year 1999 EBITDA,
(2) price/earnings multiples for the estimated calendar years 1999 and 2000,
and
(3) 1999 price/earnings as a multiple of five year estimated EPS growth.
These values are compared to the same values for Big Flower using a Big
Flower stock price of $33.63 and also $35.25.
As used here, "P/E" means the ratio of price to earnings, "LTM" means latest
twelve months; "EBIT" means earnings before interest and taxes; and "EPS" means
earnings per share.
SPECIALTY AND COMMERCIAL PRINTERS
<TABLE>
<CAPTION>
MULTIPLES OF LEVERAGED MARKET CAPITALIZATION BIG FLOWER AT BIG FLOWER AT
TO: RANGE(A) MEDIAN(A) MEAN(A) $33.63/SHARE(B) $35.25/SHARE(C)
- -------------------------------------------- ------------------- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
LTM Sales.............................. 0.6x-1.8x 1.1x 1.1x 1.0x 1.0x
LTM EBIT............................... 8.1x-13.3x 12.3x 11.5x 12.2x 11.6x
LTM EBITDA............................. 4.7x-10.0x 7.1x 7.1x 7.6x 7.2x
1999 Estimated EBITDA.................. 4.3x-7.8x 6.7x 6.3x 6.6x 6.9x
P/E MULTIPLE
1999 Estimates......................... 11.3x-17.2x 14.6x 14.2x 15.7x 16.4x
2000 Estimates......................... 10.1x-15.3x 11.6x 12.3x 13.2x 13.1x
1999 P/E/5-year EPS Growth............. 0.6x-1.5x 0.9x 1.0x 1.0x 1.1x
</TABLE>
DIRECT MARKETING SERVICES
<TABLE>
<CAPTION>
MULTIPLES OF LEVERAGED MARKET CAPITALIZATION BIG FLOWER AT BIG FLOWER AT
TO: RANGE(A) MEDIAN(A) MEAN(A) $33.63/SHARE(B) $35.25/SHARE(C)
- -------------------------------------------- ------------------- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
LTM Sales.............................. 0.6x-6.7x 2.8x 3.1x 1.0x 1.0x
LTM EBIT............................... 8.0x-26.1x 15.0x 16.7x 12.2x 11.6x
LTM EBITDA............................. 6.1x-18.6x 13.1x 12.7x 7.6x 7.2x
1999 Estimated EBITDA.................. 5.4x-16.5x 10.9x 10.9x 6.6x 6.9x
P/E MULTIPLE
1999 Estimates......................... 10.7x-39.1x 21.3x 23.6x 15.7x 16.4x
2000 Estimates......................... 9.2x-30.1x 18.1x 18.9x 13.2x 13.1x
1999 P/E/5-year EPS Growth............. 0.5x-1.6x 1.1x 1.0x 1.0x 1.1x
</TABLE>
34
<PAGE>
DIGITAL MEDIA SERVICES
<TABLE>
<CAPTION>
MULTIPLES OF LEVERAGED MARKET CAPITALIZATION BIG FLOWER AT BIG FLOWER AT
TO: RANGE(A) MEDIAN(A) MEAN(A) $33.63/SHARE(B) $35.25/SHARE(C)
- -------------------------------------------- ------------------- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
LTM Sales.............................. 1.0x-5.5x 1.8x 2.8x 1.0x 1.0x
LTM EBIT............................... 9.8x-21.8x 13.0x 14.9x 12.2x 11.6x
LTM EBITDA............................. 7.6x-16.2x 7.6x 10.5x 7.6x 7.2x
1999 Estimated EBITDA.................. 4.8x-12.2x 5.2x 7.4x 6.6x 6.9x
P/E MULTIPLE
1999 Estimates......................... 13.3x-24.2x 13.6x 17.0x 15.7x 16.4x
2000 Estimates......................... 10.1x-18.7x 11.7x 13.5x 13.2x 13.1x
1999 P/E/5-year EPS Growth............. 0.7x-0.8x 0.7x 0.7x 1.0x 1.1x
</TABLE>
- ------------------------
(a) Earnings estimates were based upon I/B/E/S International, Inc. earnings
estimates. I/B/E/S International Inc. is a data service that monitors and
publishes compilations of earnings estimates by selected research analysts
regarding companies of interest to institutional investors. EBITDA estimates
used in the foregoing analysis were based upon estimates of reputable
research analysts. With respect to those companies to which Goldman Sachs
provides research coverage, estimates were provided by Goldman Sachs
research analysts. For those companies for which Goldman Sachs did not
provide research coverage, it obtained estimates from research reports
prepared by Salomon Smith Barney, Credit Suisse First Boston, Morgan Stanley
Dean Witter, Robert W. Baird & Company and Robinson Humphrey Company.
(b) For these calculations, the LTM data were derived from the Company's
Form 10-Q filed for the period ending March 31, 1999 and Form 10-K filed for
the Company's fiscal year ending December 31, 1998, the earnings estimates
data were based upon I/B/E/S International, Inc., and the 1999 estimated
EBITDA was based upon management's projections.
(c) For these calculations, the LTM data were based upon management's projected
balance sheet and pro forma income statement information for the twelve
month period ending September 30, 1999, the time period most relevant based
upon the estimated closing of this particular proposal, the earnings
estimates data were based management's projected EPS for 1999 and 2000, and
the 1999 estimated EBITDA was based upon management's projections.
In connection with its October 2, 1999 presentation, Goldman Sachs reviewed
and compared financial information for the selected companies, with the
exception of World Color Press, Inc., as of June 29, 1999 to corresponding
financial information for such companies as of October 1, 1999.
The following tables present the ranges, mean and median of the selected
companies' stock prices as of June 29, 1999 and as of October 1, 1999 as a
multiple of estimated 1999 and 2000 price/earnings ratios and the range, mean
and median of the percentage stock price increase or decline since June 29,
1999.
SPECIALTY AND COMMERCIAL PRINTERS
<TABLE>
<CAPTION>
STOCK PRICE AS A MULTIPLE OF P/E(A)
AS OF JUNE 29, 1999 AS OF OCTOBER 1, 1999
P/E P/E
----------------------------------------- -----------------------------------------
1999E 2000E 1999E 2000E
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Median................ 15.3x 13.0x 13.6x 11.3x
Mean.................. 14.6x 12.6x 13.4x 11.5x
Range................. 10.9x-16.8x 9.7x-14.6x 11.3x-15.2x 10.0x-13.5x
<CAPTION>
STOCK PRICE %
INCREASE/(DECLINE)
SINCE
6/29/99
---------------------
<S> <C>
Median................ (5.7)%
Mean.................. (6.1)%
Range................. (20.0)%-7.1%
</TABLE>
35
<PAGE>
DIRECT MARKETING SERVICES
<TABLE>
<CAPTION>
STOCK PRICE AS A MULTIPLE OF P/E(A)
AS OF JUNE 29, 1999 AS OF OCTOBER 1, 1999
P/E P/E
----------------------------------------- -----------------------------------------
1999E 2000E 1999E 2000E
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Median................ 22.8x 18.4x 21.3x 17.8x
Mean.................. 23.2x 18.6x 21.7x 17.8x
Range................. 11.0x-38.5x 9.4x-29.7x 10.7x 9.2x-26.4x
<CAPTION>
STOCK PRICE %
INCREASE/(DECLINE)
SINCE
6/29/99
---------------------
<S> <C>
Median................ (13.1)%
Mean.................. (13.7)%
Range................. (40.2)%-13.3%
</TABLE>
DIGITAL MEDIA COMPANIES
<TABLE>
<CAPTION>
STOCK PRICE AS A MULTIPLE OF P/E(A)
AS OF JUNE 29, 1999 AS OF OCTOBER 1, 1999
P/E P/E
----------------------------------------- -----------------------------------------
1999E 2000E 1999E 2000E
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Median................ 12.4x 9.5x 14.4x 10.1x
Mean.................. 15.7x 12.3x 16.1x 11.7x
Range................. 9.9x-24.7x 8.5x-19.1x 12.2x-21.7x 7.6x-17.3x
<CAPTION>
STOCK PRICE %
INCREASE/(DECLINE)
SINCE
6/29/99
---------------------
<S> <C>
Median................ (9.1)%
Mean.................. (9.6)%
Range................. (27.0)%-7.4%
</TABLE>
- ------------------------
(a) Earnings estimates were based upon I/B/E/S International, Inc. earnings
estimates.
During the same period, the Dow Jones Industrial Average declined by 5.0%
and the S&P 500 Index declined by 5.1%.
SELECTED TRANSACTIONS ANALYSIS. As part of its June 24, 1999 presentation,
Goldman Sachs reviewed and analyzed transaction value as a multiple of the LTM
EBITDA for 21 previous acquisitions made by Big Flower and some of its business
units from 1994 to 1999 to assist the Big Flower board of directors in valuing
Big Flower based on transaction values paid by Big Flower in acquiring its
assets. The average multiples and value weighted average multiples for Big
Flower's previous acquisitions were deemed by Goldman Sachs to provide a more
meaningful comparison for purposes of this analysis than multiples for
transactions involving companies whose assets may or may not be directly
comparable to those of Big Flower. The table below summarizes the results of the
analysis.
<TABLE>
<CAPTION>
BUSINESS UNIT RANGE AVERAGE
- ------------- ------------------ --------
<S> <C> <C>
Consolidated Big Flower.................................. 5.1x-8.1x 6.2x
Insert Advertising and Newspaper Services................ 4.1x-5.8x 5.1x
Direct Marketing Services................................ 3.3x-40.7x 12.5x
Premedia Services........................................ 3.9x-5.8x 4.9x
Broadcast Services....................................... 7.8x-8.8x 8.3x
</TABLE>
The overall average EBITDA multiple was 7.3x and the weighted average
overall EBITDA multiple was 5.9x as compared to an estimated LTM EBITDA multiple
of 7.2x for the merger based on a transaction value based upon a stock price of
$35.25 per share of Big Flower common stock. For purposes of its analysis only
and without making any assumption as to the value of the merger consideration,
or how the PIK preferred stock or the warrants would trade if and when they are
issued, Goldman Sachs used a stock price of $35.25 based upon the $30.00 cash
consideration and the $5.25 liquidation preference of the PIK preferred stock
and warrants to be received per share of Big Flower common stock. Excluding the
1998 acquisition of Colorstream Technologies LLC, which was categorized as a
direct marketing services acquisition to provide a more meaningful analysis,
resulted in an overall average EBITDA multiple of 5.7x and a weighted average
overall EBITDA multiple of 5.8x as compared to an EBITDA multiple of 7.2x for
the merger. The transaction value for Colorstream
36
<PAGE>
Technologies LLC was 40.7x LTM EBITDA, due to that company's small size and
relatively low LTM EBITDA as compared to the transaction value which resulted in
an unusually large EBITDA multiple.
As used here, "overall average EBITDA multiple" means the mean of the EBITDA
multiples for the transactions reviewed and "weighted average overall EBITDA
multiple" means the average EBITDA multiples for the transactions reviewed after
weighting each transaction based upon size. "LTM EBITDA" means the latest twelve
months EBITDA.
DISCOUNTED CASH FLOW ANALYSIS. As part of its June 24, 1999 presentation,
Goldman Sachs performed a discounted cash flow analysis of Big Flower utilizing
Big Flower's management projections for the years 1999 through 2004 using
discount rates and multiples it considered appropriate. Goldman Sachs calculated
the net present value of free cash flows for the years 1999 through 2004 using
discount rates ranging from 11.0% to 15.0%. Goldman Sachs calculated the implied
value of equity per share in the year 2004 based on multiples, chosen by Goldman
Sachs based upon transactions it considered reasonably similar to the merger,
ranging from 4.5x projected 2004 EBITDA to 8.0x projected 2004 EBITDA and then
discounted these implied values using discount rates ranging from 11.0% to
15.0%. This analysis showed that the implied value of equity per share for the
Big Flower common stock ranged from a low of $17.40 to a high of $56.69.
In performing its discounted cash flow analysis, Goldman Sachs used discount
rates based upon Big Flower's estimated weighted average cost of capital,
including debt. Goldman Sachs calculated Big Flower's estimated weighted average
cost of capital based upon the expected return on a weighted average of all of
Big Flower's debt and equity securities. Goldman Sachs used Big Flower's
weighted average cost of capital, which includes debt, because the discounted
cash flow analysis was intended to provide an indication of Big Flower's
enterprise value.
ILLUSTRATIVE FUTURE MARKET TRADING PRICES ANALYSIS. In connection with its
June 24, 1999 presentation, Goldman Sachs calculated potential market trading
prices for the Big Flower common stock using discount rates and multiples it
considered appropriate. Goldman Sachs multiplied potential price/earnings
multiples, chosen by Goldman Sachs based upon Big Flower's historic
price/earnings multiples, ranging from 9.0x to 18.0x by actual earnings per
share for 1998 and estimated earnings per share for years 1999 to 2001 provided
by Big Flower's management. The potential future stock prices for the Big Flower
common stock ranged from $28.95 to $57.90 using price/earnings multiples.
Goldman Sachs also calculated the present value of these potential future stock
prices based on discount rates ranging from 12.0% to 18.0%. The analyses
resulted in a range of present values of the potential future stock prices for
the Big Flower common stock of $23.54 to $50.25 using the present value analysis
of price/earnings multiples.
In addition, Goldman Sachs multiplied potential EBITDA multiples, chosen by
Goldman Sachs based upon Big Flower's historic EBITDA multiples, ranging from
5.0x to 8.0x by estimated EBITDA for the year 2000 provided by Big Flower's
management. The potential future stock prices for the Big Flower common stock
ranged from $26.01 to $60.78 using EBITDA multiples. Goldman Sachs also
calculated the present value of these potential future stock prices using
discount rates ranging from 12.0% to 18.0%. The analyses resulted in a range of
present values of the potential future stock price of Big Flower of $21.15 to
$52.75 using the present value analysis of EBITDA multiples.
In calculating potential market trading prices for the Big Flower common
stock, Goldman Sachs used discount rates based upon Big Flower's estimated cost
of equity capital. Goldman Sachs calculated Big Flower's estimated cost of
equity capital based upon the expected return on Big Flower's equity. For
purposes of this analysis, which Goldman Sachs used to provide an indication of
the present value of Big Flower's equity, Goldman Sachs used the estimated cost
of equity capital, which does not include debt.
37
<PAGE>
As part of its October 2, 1999 presentation, Goldman Sachs calculated
potential market trading prices for the Big Flower common stock by multiplying
potential EBITDA multiples ranging from 5.0x to 8.5x by Big Flower's estimated
EBITDA for year 1999 ranging from $240 million to $270 million. This analysis
indicated potential future market trading prices for the Big Flower common stock
ranging from $7.09 to $52.41.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying the Goldman Sachs opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of each of these analyses in their
totality. No company or transaction used in the above analyses as a comparison
is directly comparable to Big Flower, or the merger. The analyses were prepared
solely for the purpose of Goldman Sachs' providing its opinion to the
independent directors of Big Flower as to the fairness from a financial point of
view of the consideration to the holders of common stock of Big Flower, other
than the members of management who are retaining shares in the merger, and do
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by those analyses.
Because these analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties or their advisors,
none of Big Flower, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast. As described above,
Goldman Sachs' opinion to the Big Flower board of directors was one of many
factors taken into consideration by the independent directors of Big Flower in
making its determination to approve the merger agreement. This summary is not a
complete description of the analysis performed by Goldman Sachs. You should read
the entire opinion of Goldman Sachs in Appendix B.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Big Flower since it has provided various investment banking
services to Big Flower in the past. These services include having acted as:
- lead-managing underwriter of a public offering of 6,708,524 shares of Big
Flower common stock in June 1997,
- a co-managing underwriter of a private offering of $250,000,000 principal
amount of its 8.875% notes due July 1, 2007 in June 1997,
- lead-managing underwriter of a private offering of $115,000,000 principal
amount of its 6.00% Convertible QUIPS due October 15, 2027 in
October 1997,
- a co-managing underwriter of a private offering of $100,000,000 principal
amount of its 8.875% notes due July 1, 2007 in October 1997, and
- a co-managing underwriter of a private offering of $250,000,000 principal
amount of its 8.625% Notes due December 1, 2008 in December 1998.
Goldman Sachs holds securities, including derivative securities, of Big
Flower for its own account and for the accounts of its customers in the course
of its normal trading activity. As of October 8, 1999,
38
<PAGE>
which was the last business day prior to the rendering of its opinion, Goldman
Sachs held the following positions:
<TABLE>
<CAPTION>
LONG POSITION SHORT POSITION
------------------------- ------------------------
<S> <C> <C>
Big Flower common stock................... 282,579 shares 12,500 shares
QUIPS..................................... $250,000 principal amount $27,500 principal amount
</TABLE>
In addition, Goldman Sachs has provided from time to time, and currently
provides, numerous investment banking services to Thomas H. Lee Company and its
affiliates. Goldman Sachs may provide similar services to Thomas H. Lee Company
and Evercore Capital Partners in the future.
Big Flower engaged Goldman Sachs to explore strategic alternatives,
including the possible sale of all or a portion of the stock or assets of Big
Flower. A retainer fee of $250,000 became payable to Goldman Sachs by Big Flower
upon the engagement of Goldman Sachs. The retainer fee will be credited against
a transaction fee of (1) 0.5% of the first $1.75 billion in aggregate
consideration paid in the merger and (2) 0.2% of the first $250 million in
aggregate consideration paid in the merger in excess of $1.75 billion, which is
payable upon completion of the merger. Assuming a transaction value of
$1.75 billion, excluding the Company's accounts receivable facility, this fee
would equal $8,750,000. In addition, Big Flower has agreed to reimburse Goldman
Sachs for its reasonable out-of-pocket expenses, including the fees and expenses
of Goldman Sachs' attorneys, and to indemnify Goldman Sachs against various
liabilities, including certain liabilities under the federal securities laws.
BERENSON MINELLA & COMPANY
Big Flower retained Berenson Minella on March 17, 1999 as a financial
advisor in connection with the exploration of certain strategic alternatives,
including, among other things, a potential sale of the stock or assets of Big
Flower or a business combination, reorganization, recapitalization or similar
transaction. Berenson Minella is a nationally recognized investment banking firm
and was selected by Big Flower based on its substantial experience and expertise
in transactions similar to the merger.
Prior to the execution of the amended and restated merger agreement, the Big
Flower board of directors advised Berenson Minella that representatives of BFH
Merger Corp. had informed Big Flower that, in their opinion, the merger, based
upon the original merger consideration, would not be completed due to changes in
Big Flower's recent financial performance and future prospects, as well as
changes in financial market conditions. The Big Flower board of directors
further advised Berenson Minella that it had concluded that the certainty of
consummation of the merger, based on the original merger consideration, had been
meaningfully diminished and that the Big Flower board of directors had
determined that Big Flower should pursue the merger on the terms set forth in
the agreement. However, Berenson Minella did not rely upon this information in
reaching its opinion.
On October 7, 1999, at the board of directors meeting held to evaluate the
merger, Berenson Minella presented to the board of directors the financial
analyses performed by Berenson Minella in connection with the preparation of its
opinion. Berenson Minella informed the Big Flower board of directors that
Berenson Minella was prepared to deliver an oral opinion with respect to the
fairness, from a financial point of view, of the merger consideration to be
received by the holders of Big Flower common stock other than the members of
management retaining shares of Big Flower common stock in the merger, as to whom
Berenson Minella did not deliver an opinion, assuming the negotiation and
execution of a definitive merger agreement. On October 11, 1999, Berenson
Minella delivered a written opinion to the Big Flower board of directors that,
as of that date, the merger consideration to be received by the holders of Big
Flower common stock, other than the members of management retaining shares of
Big Flower common stock in the merger, as to whom Berenson Minella did not
deliver an opinion, was fair, from a financial point of view.
39
<PAGE>
THE FULL TEXT OF THE WRITTEN OPINION OF BERENSON MINELLA, DATED OCTOBER 11,
1999, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS DOCUMENT AS APPENDIX C AND IS
INCORPORATED IN THIS DOCUMENT BY REFERENCE. HOLDERS OF BIG FLOWER COMMON STOCK
ARE URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. THE OPINION OF
BERENSON MINELLA IS DIRECTED SOLELY TO THE BIG FLOWER BOARD OF DIRECTORS, AND
NOT TO THE STOCKHOLDERS OF BIG FLOWER, AND RELATES ONLY TO THE FAIRNESS OF THE
CONSIDERATION, FROM A FINANCIAL POINT OF VIEW, TO BE RECEIVED BY THE HOLDERS OF
BIG FLOWER COMMON STOCK, OTHER THAN THE MEMBERS OF MANAGEMENT RETAINING SHARES
OF BIG FLOWER COMMON STOCK IN THE MERGER, AS TO WHOM BERENSON MINELLA DID NOT
DELIVER AN OPINION, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR THE
MERGER AGREEMENT AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS
TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE BIG FLOWER MEETING. THIS SUMMARY OF
THE OPINION OF BERENSON MINELLA DESCRIBED IN THIS PROXY STATEMENT IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT OPINION.
In arriving at its opinion, Berenson Minella, among other things:
- reviewed the latest draft of the amended and restated merger agreement
dated October 10, 1999,
- reviewed, and discussed with members of management of Big Flower, certain
business and financial information relating to Big Flower that Berenson
Minella deemed relevant, including Big Flower's recent public filings and
financial statements,
- reviewed, and discussed with members of management of Big Flower, certain
information, including budgets and financial forecasts relating to the
businesses, earnings, cash flows, assets, liabilities and prospects of Big
Flower, including revised forecasts prepared by management on October 1,
1999,
- reviewed the historical stock prices and trading volumes of Big Flower's
common stock,
- reviewed certain publicly available information regarding publicly traded
companies that Berenson Minella deemed reasonably comparable to Big
Flower,
- reviewed certain publicly available information regarding comparable
merger and acquisition transactions that Berenson Minella deemed relevant,
including, without limitation, premiums paid in such transactions,
- performed discounted cash flow analyses based on the financial forecasts
for Big Flower, as applicable,
- participated in certain discussions among management of Big Flower, Thomas
H. Lee Company and their financial advisors regarding Big Flower and the
merger, and
- reviewed such other information, performed such other analyses and took
into account such other factors as Berenson Minella deemed relevant.
In its review and analysis and in formulating its opinion, Berenson Minella
assumed and relied upon the accuracy and completeness of all information
supplied or otherwise made available to it by Big Flower or obtained by Berenson
Minella from other sources, and upon the assurance of Big Flower's management
that they were not aware of any information or facts that would make the
information provided to Berenson Minella by Big Flower incomplete or misleading.
Berenson Minella did not attempt to verify independently any of the information
supplied or otherwise made available to Berenson Minella by Big Flower or
obtained by Berenson Minella from other sources. Berenson Minella did not
undertake an independent valuation or appraisal of assets or liabilities,
contingent or otherwise, of Big Flower, nor was Berenson Minella furnished with
any such valuations or appraisals of assets or liabilities, contingent or
otherwise, of Big Flower. Berenson Minella did not assume any obligation to, and
accordingly did not, conduct any physical inspection of the properties or
facilities of
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Big Flower. Berenson Minella assumed, without independent verification, the
accuracy of all representations and statements made by officers and management
of Big Flower. With respect to the financial forecasts for Big Flower, Berenson
Minella was advised by Big Flower and assumed, without independent
investigation, that they had been reasonably prepared and reflected management's
most currently available estimates and judgments as to the expected future
financial performance of Big Flower. Berenson Minella noted that its opinion was
necessarily based upon financial, economic, market and other conditions as they
existed and could be evaluated by Berenson Minella on the date of its written
opinion. Additionally, Berenson Minella noted that Big Flower announced
publicly, by a press release dated April 20, 1999, that it was exploring certain
strategic alternatives and a substantial number of financial and strategic
buyers were either contacted by, or contacted, Big Flower and its financial
advisors and studied a potential acquisition of Big Flower.
In preparing its opinion, Berenson Minella performed a variety of financial
and comparative analyses, including those described below. The summary of these
analyses does not purport to be a complete description of the analyses
underlying Berenson Minella's opinion. The preparation of a fairness opinion is
a complete analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Furthermore, in arriving at its
opinion, Berenson Minella did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly,
Berenson Minella believes that its analyses must be considered as a whole and
that selecting portions of its analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying such analyses and opinion. In its analyses, Berenson Minella
made numerous assumptions with respect to Big Flower, industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond Big Flower's control. The estimates contained in these
analyses and the valuation ranges resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by these analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, these analyses and
estimates are inherently subject to substantial uncertainty. Berenson Minella's
opinion and analyses were only one of various factors considered by the Big
Flower board of directors in its evaluation of the merger and should not be
viewed as determinative of the view of the board of directors of Big Flower with
respect to the merger consideration to be received by the holders of common
stock of Big Flower, other than the members of management retaining shares of
Big Flower common stock in the merger, as to whom Berenson Minella did not
deliver an opinion, or the merger.
THE FOLLOWING IS A SUMMARY OF THE MATERIAL ANALYSES PERFORMED BY BERENSON
MINELLA IN CONNECTION WITH ITS OPINION. SOME OF THE SUMMARIES OF THE FINANCIAL
ANALYSES INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. THE TABLES MUST BE
READ TOGETHER WITH THE TEXT ACCOMPANYING EACH SUMMARY, IN ORDER TO FULLY
UNDERSTAND THE FINANCIAL ANALYSES. THE TABLES DO NOT CONSTITUTE A COMPLETE
DESCRIPTION OF THE FINANCIAL ANALYSES.
STOCK TRADING HISTORY. Berenson Minella reviewed Big Flower's market
statistics, including Big Flower's price to earnings (PE) multiple as of
October 7, 1999, and Big Flower's earnings per share (EPS) for the last twelve
months (LTM). Berenson Minella also reviewed Big Flower's total enterprise
value, and calculated multiples of LTM 1999 and 2000 revenues, operating income:
earnings before interest and taxes (EBIT) and EBITDA based on the enterprise
value.
Berenson Minella reviewed the stock trading history of Big Flower,
including:
- the price per share of Big Flower common stock at Big Flower's initial
public offering in 1995,
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- the 52-week high and low prices per share of Big Flower common stock as of
October 8, 1999,
- the trading volumes of Big Flower common stock over the six-month period
preceding October 8, 1999,
- the daily prices per share of Big Flower common stock for the period
December 29, 1998 through October 8, 1999,
- the weekly prices per share of Big Flower common stock for the period
July 1, 1998 through October 8, 1999, and
- the price per share of Big Flower common stock immediately preceding the
announcement, on April 20, 1999, that Big Flower was authorized by its
board of directors to explore strategic alternatives.
In addition, Berenson Minella reviewed Big Flower's investments in both
public and private Internet-related entities. Given the movement of Big Flower's
stock price following the March 22, 1999 Credit Suisse First Boston research
report, which highlighted the value of Big Flower's Internet investments, as
well as the significant volatility in the stock price of these Internet
securities, in reviewing the 1999 stock price performance of the Big Flower
common stock, Berenson Minella considered the estimated value of the Internet
investments per share of Big Flower common stock, assuming the Internet
investments could be liquidated at the prevailing market prices. In estimating
this per share value, Berenson Minella calculated the after-tax market value of
the Internet investments. The net value was based on the daily closing prices
for public investments and Big Flower's cost basis for private investments less
estimated capital gains tax due upon the sale of such securities, less any
sharing interests in profits held by some employees of Big Flower. The after-tax
market value of the Internet investments as of October 7, 1999 was approximately
$109.1 million, or approximately $4.32 per share, and has been treated like cash
and marketable securities in calculating the valuation per fully diluted share
of Big Flower common stock in each of Berenson Minella's valuation analyses.
COMPARISON WITH SELECTED COMPARABLE PUBLICLY TRADED COMPANIES. Berenson
Minella reviewed and compared certain financial data of each of eight printing
companies deemed similar to Big Flower, based upon financial information
publicly available and stock prices as of October 7, 1999. The companies
compared were Banta Corp., Cadmus Communications Corp., Consolidated
Graphics, Inc., Cunningham Graphics International Inc., RR Donnelly & Sons
Company, Mail-Well Inc., Master Graphics Inc. and Quebecor Printing Inc. For
each comparable printing company, Berenson Minella calculated:
- the equity value,
- the PE multiples for the LTM, estimated for 1999 and estimated for 2000,
- the enterprise value,
- the ratio of the enterprise value to EBITDA for the LTM, estimated for
1999 and estimated for 2000, and
- the ratio of the enterprise value to the LTM revenues.
The following table presents Berenson Minella's observations with regard to
the calculations it performed for the printing companies that Berenson Minella
deemed similar to Big Flower.
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PRINTING COMPANIES
<TABLE>
<CAPTION>
PE MULTIPLE RANGE MEDIAN MEAN
- ----------------------------- ------------- -------- --------
<S> <C> <C> <C>
LTM.......................... 9.1x - 23.3x 13.7x 14.3x
1999 Estimated............... 9.4x - 15.7x 11.3x 12.0x
2000 Estimated............... 6.6x - 12.0x 9.7x 9.3x
<CAPTION>
RATIO OF ENTERPRISE VALUE TO: RANGE MEDIAN MEAN
- ----------------------------- ------------- -------- --------
LTM EBITDA. 4.8x - 9.2x 7.1x 6.8x
<S> <C> <C> <C>
1999 Estimated EBITDA........ 4.0x - 7.3x 6.0x 6.0x
2000 Estimated EBITDA........ 3.7x - 6.5x 5.3x 5.2x
LTM Revenues................. 0.59x - 1.43x 1.00x 0.96x
</TABLE>
Of the larger printing companies that Berenson Minella deemed most similar
to Big Flower, Berenson Minella reviewed the median and mean:
- PE multiples for the LTM, estimated for 1999 and estimated for 2000,
- ratio of the enterprise value to EBITDA for the LTM, estimated for 1999
and estimated for 2000, and
- ratio of the enterprise value to the LTM revenues.
Excluded from this review were Consolidated Graphics, Inc., Cunningham Graphics
International Inc. and Master Graphics Inc., all of which were viewed as
regional consolidators of independent sheet fed printers and not directly
comparable to Big Flower.
The following table presents Berenson Minella's observations with regard to
the calculations it performed for the larger printing companies.
LARGER PRINTING COMPANIES
<TABLE>
<CAPTION>
PE MULTIPLE RANGE MEDIAN MEAN
- ---------------------------------- ------------- -------- --------
<S> <C> <C> <C>
LTM............................... 9.1x - 17.1x 13.1x 13.3x
1999 Estimated.................... 10.8x - 15.7x 11.2x 12.5x
2000 Estimated.................... 7.0x - 12.0x 9.9x 10.0x
<CAPTION>
RATIO OF ENTERPRISE VALUE TO: RANGE MEDIAN MEAN
- ---------------------------------- ------------- -------- --------
LTM EBITDA. 4.8x - 7.4x 5.9x 6.2x
<S> <C> <C> <C>
1999 Estimated EBITDA............. 4.0x - 6.9x 5.8x 5.7x
2000 Estimated EBITDA............. 3.7x - 6.5x 5.4x 5.2x
LTM Revenues...................... 0.59x - 1.04x 0.83x 0.82x
</TABLE>
Berenson Minella calculated the implied valuation per fully diluted share of
Big Flower common stock by applying the larger printing companies' median and
mean multiples to Big Flower's LTM EBITDA, 1999 estimated EBITDA, 2000 estimated
EBITDA, LTM EPS, 1999 estimated EPS and 2000 estimated EPS and observed that the
range of valuations per fully diluted share of Big Flower common stock was
$20.50 to $29.25, including the value of Big Flower's Internet investments.
COMPARISON WITH SELECTED COMPARABLE MERGER AND ACQUISITION
TRANSACTIONS. Berenson Minella reviewed certain recent business combinations
involving North American companies engaged in businesses deemed relatively
comparable to those of Big Flower and reviewed selected financial data and
valuation parameters, to the extent publicly available, including total
enterprise value as a multiple
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of LTM sales, EBITDA and EBIT, and equity market value as a multiple of LTM net
income and book value.
The merger and acquisition transactions that Berenson Minella compared were:
- Merrill Corp./DLJ Merchant Banking
- World Color Press, Inc./Quebecor Printing Inc.
- UP/Graphics, Inc. / World Color Press, Inc.
- Infiniti Graphics, Inc. / World Color Press, Inc.
- Katz Digital Technologies, Inc. / Photobition Group plc
- Quebecor Printing Inc.'s Check & Card Division / MDC Communications
Corporation
- Port City Press, Inc. / Mack Printing Company
- Anderson Lithograph Company / Mail-Well Inc.
- Devon Group, Inc. / Applied Graphics Technologies, Inc.
- Artistic Greetings, Inc. / MDC Communications Company
- Acme Printing Company / World Color Press, Inc.
- Century Graphics Corporation / World Color Press, Inc.
- Uarco Incorporated / The Standard Register Company
- Graphic Industries Inc. / Wallace Computer Services Inc.
- Judd's, Incorporated / Perry Graphic Communications, Inc.
- Brown Printing-Franklin Division / Quebecor Printing Inc.
- Riverside County Publishing Company / Big Flower Holdings, Inc.
- Johnson & Hardin / World Color Press, Inc.
Given the lack of precedent transactions involving companies with a
comparable mix of businesses to Big Flower and similar transaction value to the
merger, Berenson Minella analyzed transaction multiples for a broad group of
mergers and acquisitions in the North American printing and related industries
completed over the last three years.
The following table presents Berenson Minella's observations with regard to
recent merger and acquisition transactions involving North American companies
engaged in businesses that Berenson Minella deemed relatively comparable to
those of Big Flower.
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COMPARABLE NORTH AMERICAN COMPANIES INVOLVED IN RECENT
MERGER AND ACQUISITION TRANSACTIONS
<TABLE>
<CAPTION>
TOTAL ENTERPRISE VALUE AS A MULTIPLE OF: RANGE MEDIAN MEAN
- ---------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
LTM Sales............................. 0.4x - 1.6x 0.9x 0.9x
EBITDA................................ 5.5x - 11.6x 7.2x 7.5x
EBIT.................................. 6.7x - 17.6x 12.2x 12.6x
<CAPTION>
EQUITY MARKET VALUES AS A MULTIPLE OF: RANGE MEDIAN MEAN
- ---------------------------------------- ------------ -------- --------
LTM Net Income. 9.8x - 57.5x 18.6x 26.2x
<S> <C> <C> <C>
Book Value............................ 1.7x - 12.9x 2.8x 4.0x
</TABLE>
Based upon its review of companies involved in comparable merger and
acquisition transactions, Berenson Minella calculated the implied valuation per
fully diluted share of Big Flower common stock using Big Flower's LTM revenues,
LTM EBITDA and LTM EBIT and concluded that the implied valuation per fully
diluted share of Big Flower common stock was $29.50 to $37.50, including the
value of Big Flower's Internet investments, but noted that many of these
precedent transactions involved competitors being acquired by larger strategic
buyers who could recognize significant synergies or cost savings or eliminate
duplicative operations and that no strategic buyer submitted any offer to
acquire Big Flower or any indication of interest in making such an offer.
Berenson Minella observed that, in the absence of interest from strategic buyers
able to recognize significant synergies or cost savings, it is typically more
difficult to achieve premium valuation multiples in a sale transaction. Berenson
Minella did not make any conclusions as to whether the valuation amounts it
computed should be adjusted based on this observation.
DISCOUNTED CASH FLOW ANALYSIS. Berenson Minella utilized a discounted cash
flow analysis to calculate the implied equity values per fully diluted share of
Big Flower common stock based upon the discounted net present value, utilizing
discount rates ranging from 10% to 14%, of the sum of management's projections
of after-tax unlevered free cash flows of Big Flower for the period from
March 1999 through 2004 and of the terminal value of Big Flower at 2004 by
applying multiples ranging from 5.75x to 6.75x to Big Flower's projected EBITDA
in 2004. In performing its discounted cash flow analysis, Berenson Minella used
discount rates based upon Big Flower's estimated weighted average cost of
capital and EBITDA multiples based on Big Flower's historical valuation range.
Based on its analysis, Berenson Minella calculated that the implied value per
fully diluted share of Big Flower common stock ranged from a low of $31.00 to a
high of $50.75, including the value of Big Flower's Internet investments.
BERENSON MINELLA'S RELATIONSHIP WITH BIG FLOWER
Berenson Minella manages a profit sharing plan, for the benefit of its
employees, that holds shares of common stock of Big Flower. In addition,
partners and employees of Berenson Minella hold common stock of Big Flower for
their own account. As of October 11, 1999, the profit sharing plan managed by
Berenson Minella and the individual employees of Berenson Minella collectively
held approximately 170,000 shares of common stock of Big Flower.
The terms of Berenson Minella's engagement by Big Flower provide that
Berenson Minella is to receive a quarterly retainer fee of $40,000 for its
services as a financial advisor. The first payment was made during the first
quarter of 1999, the second payment was made on or about April 1, 1999 and the
third payment was made in July of 1999. In addition, Berenson Minella is to
receive a fee of 0.4% of the transaction value of the merger if the merger is
consummated. Assuming a transaction value of $1.8 billion, including the
Company's accounts receivable facility, based on the June 30, 1999 balance
sheet, this fee would equal approximately $7.3 million, with all retainer fees
received credited against
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such fee. However, the actual fee will be calculated based on the transaction
value at closing. The transaction value, as set forth in the engagement letter,
dated March 17, 1999, between Big Flower and Berenson Minella includes:
(1) the aggregate value of cash, debt or equity securities, calculated
at fair market value received by Big Flower's stockholders and optionholders
in connection with the merger, plus
(2) the aggregate principal amount of any indebtedness, including QUIPS
and Big Flower's off-balance sheet accounts receivable securitization
facility, and preferred stock of Big Flower which is assumed, refinanced or
renegotiated as part of the merger, all as of the date of the closing of the
merger, minus
(3) any consideration paid or payable by optionholders in connection
with the exercise of options.
Big Flower has also agreed to reimburse Berenson Minella for reasonable
out-of-pocket expenses incurred in performing its services, including the
reasonable fees and expenses of its outside legal counsel, and to indemnify
Berenson Minella and related persons against certain liabilities, including
liabilities under the federal securities laws, arising out of Berenson Minella's
engagement. Berenson Minella was also engaged to deliver an opinion, from a
financial point of view, as to the fairness of the merger consideration.
Berenson Minella was not paid a separate fee to render its opinion.
FAIRNESS OF THE MERGER
THOMAS H. LEE EQUITY FUND IV, THL EQUITY ADVISORS IV, LLC AND BFH MERGER
CORP.
Thomas H. Lee Equity Fund IV believes that the merger is fair to Big
Flower's unaffiliated stockholders, being those Big Flower stockholders other
than members of management retaining shares of Big Flower common stock in the
merger. Thomas H. Lee Equity Fund IV, however, has not undertaken any formal
evaluation of the fairness of the merger to Big Flower's unaffiliated
stockholders. Thomas H. Lee Equity Fund IV did not make specific assessments of,
quantify or otherwise assign relative weights to, the specific factors
considered in reaching its determination. The decision was made after
consideration of all the factors together. These factors include:
(1) The fact that the current and past trading prices of Big Flower's common
stock and earnings per share of Big Flower are comparable to or
consistent with the trading prices of common stock and earnings per share
of other similar companies.
(2) The fact that the merger will provide Big Flower stockholders with a
premium for their shares compared to the market price of Big Flower
common stock on April 19, 1999, the date immediately prior to the time at
which Big Flower publicly announced that it was going to explore possible
strategic alternatives.
(3) Big Flower's public announcement on April 20, 1999 that it intended to
explore possible strategic transactions, including a possible sale of Big
Flower. This public announcement together with the extensive market
search performed by Big Flower's independent financial advisors provided
an opportunity for a competitive bidding process, creating a market check
on the value of the merger consideration.
(4) The fact that Big Flower advised Thomas H. Lee Company that its proposal
was believed to be the best alternative for Big Flower and its
stockholders.
(5) The fact that the merger agreement was, to the belief of Thomas H. Lee
Equity Fund IV, an arm's-length negotiation between Big Flower,
represented by the independent directors of Big Flower constituting a
majority of the Big Flower board and assisted by independent legal and
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financial advisors, on the one hand, and Thomas H. Lee Company and
Evercore Capital Partners, on the other.
(6) The fact that the merger agreement provides Big Flower with the ability
to terminate the merger if it determines that a bona fide superior
transaction is available to the unaffiliated stockholders.
(7) The determination of the independent directors of Big Flower that the
terms of the merger agreement are fair to and in the best interest of Big
Flower and its unaffiliated stockholders, and the unanimous
recommendation of the independent directors of Big Flower that the
stockholders of Big Flower vote in favor of the merger. See "--Big
Flower's Reasons for the Merger; Recommendation of the Big Flower Board
of Directors" on page 28 for a detailed discussion of the bases
underlying this recommendation.
(8) Notwithstanding that the opinions of the independent advisors to the Big
Flower board of directors were intended solely for the information and
assistance of the board of directors and that Thomas H. Lee Equity
Fund IV is not entitled to rely on them, the fact that the board of
directors received a written opinion from each of two independent
financial advisors as to the fairness, from a financial point of view, of
the merger consideration to the unaffiliated stockholders of Big Flower.
See "--Opinions of Big Flower's Financial Advisors" on page 31 for a
detailed discussion of these opinions.
(9) The fact that the independent directors of Big Flower constituted a
majority of the board of directors, and represented the interests of the
unaffiliated stockholders of Big Flower.
(10) The fact that the independent directors of Big Flower, constituting a
majority of the board of directors, retained and received advice from
reputable independent outside legal and financial advisors separate and
apart from the legal and other advisors of the management participants in
the merger.
(11) The facts that the independent directors of Big Flower, constituting a
majority of the board of directors, engaged in extensive deliberations to
evaluate the merger and alternatives to the merger, and that Messrs.
Ammon and Reilly recused themselves from, and did not participate in nor
have any influence on, any of these deliberations.
(12) The fact that any stockholder desiring to do so may exercise and
perfect such stockholder's appraisal rights under DGCL and receive "fair
value", as determined by the court, for the shares of common stock which
such stockholder holds.
(13) The fact that the merger provides unaffiliated stockholders of Big
Flower with the opportunity to sell their shares of common stock in
exchange for the merger consideration without incurring the transaction
costs typically associated with market sales.
(14) The fact that although the transaction does not require the affirmative
vote of a majority of the shares of common stock held by unaffiliated
stockholders of Big Flower, the affirmative vote of approximately 40% of
the shares held by unaffiliated stockholders is necessary to approve the
transaction, assuming that members of management who hold shares of Big
Flower common stock vote to approve the merger.
(15) In arriving at its proposal accepted by Big Flower, represented by the
independent directors of Big Flower and assisted by independent legal and
financial advisors, Thomas H. Lee Equity Fund IV performed a number of
quantitative financial analyses based upon projections developed by
Thomas H. Lee Equity Fund IV, which in turn were based in part on
projections provided by management and discussions with management, and
Thomas H. Lee Equity Fund IV's own assessment of future events. Thomas H.
Lee Equity Fund IV then developed a
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recapitalization model based on these projections which allowed Thomas H.
Lee Equity Fund IV to examine various scenarios with respect to such
characteristics as debt capacity, required capital spending, operating
cash flow and return on equity to establish the proper capitalization to
be implemented in the merger. While the purpose of these analyses was not
to determine what would be a fair amount of consideration, from a
financial point of view, to be paid by Thomas H. Lee Equity Fund IV to
the unaffiliated stockholders of Big Flower, in the view of Thomas H. Lee
Equity Fund IV, the results of those analyses support the conclusion that
the merger consideration is fair to unaffiliated stockholders of Big
Flower.
(16) Thomas H. Lee Equity Fund IV considered neither net book value nor
liquidation value analyses in developing the proposal accepted by Big
Flower. In considering the relevance of net book value analysis, Thomas
H. Lee Equity Fund IV concluded that the historical accounting treatment
relating to the numerous acquisitions by Big Flower, including
extraordinary charges associated with these acquisitions, diminished the
benefit of using this type of analysis. With respect to liquidation value
analysis, Thomas H. Lee Equity Fund IV considered this analysis
inappropriate because it is not expected that Big Flower will be
liquidated after the merger. Accordingly, Thomas H. Lee Equity Fund IV
valued Big Flower as a going concern as described in factor (15) above,
utilizing Big Flower management's projections.
(17) Thomas H. Lee Equity Fund IV has not purchased any securities of Big
Flower in any previous transactions, and therefore did not consider
purchase price paid in previous transactions as a relevant factor.
(18) Thomas H. Lee Equity Fund IV did not rely on any reports, opinions or
appraisals of any party external to itself in arriving at its proposal
accepted by Big Flower, represented by the independent directors of Big
Flower and assisted by independent legal and financial advisors.
Thomas H. Lee Equity Fund IV, however, reviewed reports prepared by its
financing sources in the merger which did not address the fairness of the
merger consideration to unaffiliated stockholders of Big Flower and were
not material to its decision to proceed with the merger.
Thomas H. Lee Equity Fund IV believes that these analyses and factors
provide a reasonable basis for its belief that the merger is fair to the Big
Flower unaffiliated stockholders, despite the fact that the merger does not
require the affirmative vote of a majority of the unaffiliated stockholders of
Big Flower. This belief, however, should not be construed as a recommendation to
Big Flower's stockholders by Thomas H. Lee Equity Fund IV to vote for the
adoption of the merger agreement.
While Thomas H. Lee Equity Fund IV believes that the merger as negotiated is
fair to Big Flower and its unaffiliated stockholders, representatives of Thomas
H. Lee Company attempted to negotiate the terms of a transaction that would be
most favorable to Thomas H. Lee Equity Fund IV and Evercore Capital Partners,
and not to Big Flower and its unaffiliated stockholders. Thomas H. Lee Equity
Fund IV does not believe that it is an affiliate of the issuer at this time, nor
that it owes any fiduciary duty to Big Flower or its unaffiliated stockholders,
including with respect to the merger and its terms. Thomas H. Lee Equity Fund IV
filed the Schedule 13E-3 solely in light of its relationship with Mr. Ammon and
the fact that it has noticed that in some instances involving similar
transactions, persons similarly situated to it have filed a Schedule 13E-3.
Thomas H. Lee Equity Fund IV does not believe this relationship, which consists
of an understanding with Mr. Ammon concerning Mr. Ammon's retention of shares of
common stock owned and controlled by him in the merger, renders it an affiliate.
Therefore, Thomas H. Lee Equity Fund IV believes that it assumes no
responsibility for the fairness of the merger and its terms from the perspective
of Big Flower and its unaffiliated stockholders who, as described elsewhere in
this proxy statement, were represented at all relevant times by the independent
directors of Big Flower and the independent legal and financial advisors who
negotiated on their behalf with Thomas H. Lee Company and Evercore Capital
Partners. However any ultimate determination of
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any duty owed by Thomas H. Lee Equity Fund IV to unaffiliated stockholders of
Big Flower would be made by a court of competent jurisdiction.
Both BFH Merger Corp. and THL Equity Advisors IV, LLC, the general partner
of Thomas H. Lee Equity Fund IV, also believe that the merger is fair to Big
Flower's unaffiliated stockholders, based upon the analyses and factors that
formed the basis of Thomas H. Lee Equity Fund IV's fairness determination
described above.
EVERCORE CAPITAL PARTNERS AND ITS AFFILIATES
Evercore Capital Partners believes that the merger is fair to Big Flower's
unaffiliated stockholders, being those Big Flower stockholders other than
members of management retaining shares of Big Flower common stock in the merger.
Evercore Capital Partners, however, has not undertaken any formal evaluation of
the fairness of the merger to Big Flower's unaffiliated stockholders. Evercore
Capital Partners did not find it practicable to make specific assessments of,
quantify or otherwise assign relative weights to, the specific factors
considered in reaching its determination. The decision was made after
consideration of all the factors together. In addition to those listed above
under "--Big Flower's Reasons for the Merger; Recommendation of the Big Flower
Board of Directors" on page 28, which were considered based only on the facts
and information available to Evercore Capital Partners, these factors include:
(1) The fact that the current and past trading prices of Big Flower's
common stock and earnings per share of Big Flower are comparable to or
consistent with the trading prices of common stock and earnings per share of
other similar companies.
(2) The fact that the merger will provide Big Flower stockholders with a
premium for their shares compared to the market price of Big Flower common
stock on April 19, 1999, the date immediately prior to the day on which Big
Flower publicly announced that it was going to explore possible strategic
alternatives.
(3) Big Flower's public announcement on April 20, 1999 that it intended to
explore the possible strategic transactions, including a possible sale of
Big Flower. This public announcement, together with the extensive market
search performed by Big Flower's independent financial advisors, provided an
opportunity for a competitive bidding process, which in turn created a
market check on the value of the merger consideration.
(4) The fact that Big Flower advised Thomas H. Lee Company that the
Thomas H. Lee Company's proposal was believed to be the best alternative for
Big Flower and its stockholders.
(5) The fact that the merger agreement was the result of active bargaining
between Thomas H. Lee Company and Evercore Capital Partners, on the one
hand, and Big Flower on the other, with Big Flower being represented by the
independent directors of Big Flower who constituted a majority of the Big
Flower board and assisted by independent legal and financial advisors.
(6) The fact that the merger agreement provides Big Flower with the ability
to terminate the merger if it determines that a bona fide superior
transaction is available to the unaffiliated stockholders.
(7) The determination of the independent directors of Big Flower that the
terms of the merger agreement are fair to and in the best interest of Big
Flower and its unaffiliated stockholders, and the unanimous recommendation
of the independent directors of Big Flower that the stockholders of Big
Flower vote in favor of the merger. See "--Big Flower's Reasons for the
Merger; Recommendation of the Big Flower Board of Directors" on page 28 for
a detailed discussion of the bases underlying this recommendation.
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(8) Notwithstanding that the opinions of the independent advisors to the
Big Flower board of directors were intended solely for the information and
assistance of the board of directors and that Evercore Capital Partners is
not entitled to rely on them, the fact that the board of directors received
a written opinion from each of two independent financial advisors as to the
fairness, from a financial point of view, of the merger consideration to the
unaffiliated stockholders of Big Flower. See "--Opinions of Big Flower's
Financial Advisors" on page 31 for a detailed discussion of these opinions.
(9) The fact that the independent directors of Big Flower constituted a
majority of the board of directors and represented the interests of the
unaffiliated stockholders of Big Flower.
(10) The fact that the independent directors of Big Flower, constituting a
majority of the board of directors, retained and received advice from
reputable independent outside legal and financial advisors separate and
apart from the legal and other advisors of the management participants in
the merger.
(11) The facts that the independent directors of Big Flower, constituting a
majority of the board of directors, engaged in extensive deliberations to
evaluate the merger and alternatives to the merger and that Messrs. Ammon
and Reilly recused themselves from, and neither participated in nor had any
influence on, any of these deliberations.
(12) The fact that any stockholder desiring to do so may exercise and
perfect such stockholder's appraisal rights under DGCL and receive "fair
value", as determined by the court, for the shares of Big Flower common
stock which such stockholder holds.
(13) The fact that although the transaction does not require the
affirmative vote of a majority of the shares of common stock held by
unaffiliated stockholders of Big Flower, the affirmative vote of
approximately 40% of the shares held by unaffiliated stockholders is
necessary to approve the transaction, assuming that members of management
who hold shares of Big Flower common stock vote to approve the merger.
(14) Evercore Capital Partners considered neither net book value nor
liquidation value to be relevant or appropriate indicators of value in
transactions of this sort involving advertising solutions companies. In
considering the relevance of net book value analysis, Evercore Capital
Partners concluded that the historical accounting treatment relating to the
numerous acquisitions made by Big Flower diminished the benefit of using
this type of analysis. With respect to the liquidation value analysis,
Evercore Capital Partners considered this analysis inappropriate because it
is not expected that Big Flower will be liquidated after the merger.
Evercore Capital Partners believes that the most relevant analysis of Big
Flower was to value the business on a going concern basis using Big Flower
management's projections.
(15) Evercore Capital Partners has not purchased any securities of Big
Flower in any previous transactions, and therefore did not consider purchase
price paid in previous transactions as a relevant factor.
(16) Evercore Capital Partners did not rely on any reports, opinions or
appraisals of any party external to itself and which were materially related
to the merger in arriving at its proposal accepted by Big Flower,
represented by the independent directors of Big Flower and assisted by
independent legal and financial advisors.
Evercore Capital Partners believes that these analyses and factors provide a
reasonable basis for its belief that the merger is fair to the Big Flower
unaffiliated stockholders, despite the fact that the merger does not require the
affirmative vote of a majority of the unaffiliated stockholders of Big Flower.
This belief, however, should not be construed as a recommendation to Big
Flower's stockholders by Evercore Capital Partners to vote for the adoption of
the merger agreement.
50
<PAGE>
While Evercore Capital Partners believes that the merger as negotiated is
fair to Big Flower and its unaffiliated stockholders, it assumes that
representatives of Thomas H. Lee Company attempted to negotiate the terms of a
transaction that would be most favorable to Thomas H. Lee Equity Fund IV and
Evercore Capital Partners, and not to Big Flower and its unaffiliated
stockholders. Evercore Capital Partners does not believe that it is an affiliate
of the issuer at this time, nor that it owes any fiduciary duty to Big Flower or
its unaffiliated stockholders, including with respect to the merger and its
terms. Evercore Capital Partners filed the Schedule 13E-3 solely in light of its
relationship with Mr. Ammon and the fact that it had noticed that in some
instances involving similar transactions, persons similarly situated to it have
filed a Schedule 13E-3. Evercore Capital Partners does not believe this
relationship, which consists of an understanding with Mr. Ammon concerning
Mr. Ammon's retention of shares of common stock owned and controlled by him in
the merger, renders it an affiliate. Therefore, Evercore Capital Partners
believes that it assumes no responsibility for the fairness of the merger and
its terms from the perspective of Big Flower and its unaffiliated stockholders
who, as described elsewhere in this proxy statement, were represented at all
relevant times by the independent directors of Big Flower and the independent
legal and financial advisors who negotiated on their behalf with Thomas H. Lee
Company and Evercore Capital Partners. A court of competent jurisdiction would
ultimately determine whether any fiduciary duties are owed by Evercore Capital
Partners to the unaffiliated stockholders of Big Flower.
Each of Evercore Partners, Evercore Capital Partners (NQ), Evercore Capital
Offshore Partners (Cayman) and EBF Group also believes that the merger is fair
to Big Flower's unaffiliated stockholders, based upon the analysis and factors
that formed the basis of Evercore Capital Partners' fairness determination
described above.
R. THEODORE AMMON
Mr. Ammon believes that the merger is fair to Big Flower's unaffiliated
stockholders, being those Big Flower stockholders other than members of
management retaining shares of Big Flower common stock in the merger. Mr. Ammon,
however, has not undertaken any formal evaluation of the fairness of the merger
to Big Flower's unaffiliated stockholders. Mr. Ammon did not make specific
assessments of, quantify or otherwise assign relative weights to, the specific
factors considered in reaching his determination. His decision was made after
consideration of all the factors together. These factors include:
(1) The fact that the current and past trading prices of Big Flower's common
stock and earnings per share of Big Flower are comparable to or
consistent with the trading prices of common stock and earnings per share
of other similar companies.
(2) The fact that the merger will provide Big Flower stockholders with a
premium for their shares compared to the market price of Big Flower
common stock on April 19, 1999, the date immediately prior to the time at
which Big Flower publicly announced that it was going to explore possible
strategic alternatives.
(3) Big Flower's public announcement on April 20, 1999 that it intended to
explore possible strategic transactions, including a possible sale of Big
Flower. This public announcement together with the extensive market
search performed by Big Flower's independent financial advisors provided
an opportunity for a competitive bidding process, creating a market check
on the value of the merger consideration.
(4) The fact that the independent directors of Big Flower advised Mr. Ammon
that Thomas H. Lee Company's proposal was believed to be the best
alternative for Big Flower and its stockholders.
51
<PAGE>
(5) The fact that the merger agreement was, to Mr. Ammon's belief, an
arm's-length negotiation between Big Flower, represented by the
independent directors of Big Flower constituting a majority of the Big
Flower board and assisted by independent legal and financial advisors, on
the one hand, and Thomas H. Lee Company and Evercore Capital Partners, on
the other.
(6) The fact that the merger agreement provides Big Flower with the ability
to terminate the merger if it determines that a bona fide superior
transaction is available to the unaffiliated stockholders.
(7) The determination of the independent directors of Big Flower that the
terms of the merger agreement are fair to and in the best interest of Big
Flower and its unaffiliated stockholders, and the unanimous
recommendation of the independent directors of Big Flower that the
stockholders of Big Flower vote in favor of the merger. See "--Big
Flower's Reasons for the Merger; Recommendation of the Big Flower Board
of Directors" on page 28 for a detailed discussion of the bases
underlying this recommendation.
(8) Notwithstanding that the opinions of the independent advisors to the Big
Flower board of directors were intended solely for the information and
assistance of the independent directors, the fact that the independent
directors received a written opinion from each of two independent
financial advisors as to the fairness, from a financial point of view, of
the merger consideration to the unaffiliated stockholders of Big Flower.
See "--Opinions of Big Flower's Financial Advisors" on page 31 for a
detailed discussion of these opinions.
(9) The fact that the independent directors of Big Flower constituted a
majority of the board of directors, and represented the interests of the
unaffiliated stockholders of Big Flower.
(10) The fact that the independent directors of Big Flower, constituting a
majority of the board of directors, retained and received advice from
reputable independent outside legal advisors and reputable independent
financial advisors.
(11) The facts that the independent directors of Big Flower, constituting a
majority of the board of directors, engaged in extensive deliberations to
evaluate the merger and alternatives to the merger, and that Messrs.
Ammon and Reilly recused themselves from, and did not participate in nor
have any influence on, any of these deliberations.
(12) The fact that any stockholders desiring to do so may exercise and
perfect their appraisal rights under DGCL and receive "fair value", as
determined by the court, for the shares of common stock which such
stockholder holds.
(13) The fact that the merger provides unaffiliated stockholders of Big
Flower with the opportunity to sell their shares of common stock in
exchange for the merger consideration without incurring the transaction
costs typically associated with market sales.
(14) The fact that although the transaction does not require the affirmative
vote of a majority of the shares of common stock held by unaffiliated
stockholders of Big Flower, the affirmative vote of approximately 40% of
the shares held by unaffiliated stockholders is necessary to approve the
transaction, assuming that members of management who hold shares of Big
Flower common stock vote to approve the merger.
(15) In arriving at his conclusion that the merger is fair to Big Flower's
unaffiliated stockholders, Mr. Ammon had the benefit of Thomas H. Lee
Equity Fund IV's quantitative financial analyses, which were based upon
projections developed by Thomas H. Lee Equity Fund IV, which in turn were
based in part on projections provided by management and discussions with
management, and Thomas H. Lee Equity Fund IV's own assessment of future
events. Thomas H. Lee Equity Fund IV then developed a recapitalization
model based on these projections
52
<PAGE>
which allowed Thomas H. Lee Equity Fund IV to examine various scenarios
with respect to such characteristics as debt capacity, required capital
spending, operating cash flow and return on equity to establish the
proper capitalization to be implemented in the merger. Those models were
made available to Mr. Ammon. While the purpose of these analyses was not
to determine what would be a fair amount of consideration, from a
financial point of view, to be paid to the unaffiliated stockholders of
Big Flower, in the view of Mr. Ammon, the results of those models support
the conclusion that the merger consideration is fair to unaffiliated
stockholders of Big Flower.
(16) Mr. Ammon considered neither net book value nor liquidation value to be
relevant indicators of value. In considering the relevance of net book
value analysis, Mr. Ammon concluded that the historical accounting
treatment relating to the numerous acquisitions by Big Flower, including
extraordinary charges associated with these acquisitions, diminished the
benefit of using this type of analysis. With respect to liquidation value
analysis, Mr. Ammon considered this analysis inappropriate because it is
not expected that Big Flower will be liquidated after the merger.
Accordingly, Mr. Ammon valued Big Flower as a going concern as described
in factor (15) above, utilizing Big Flower management's projections.
(17) Mr. Ammon has not purchased any securities of Big Flower since 1996,
and therefore did not consider purchase price paid in previous
transactions as a relevant factor.
Mr. Ammon has recused himself from considering this merger transaction. Big
Flower and its unaffiliated stockholders, as described elsewhere in this proxy
statement, were represented at all relevant times by the independent directors
of Big Flower and their independent legal and financial advisors who negotiated
on their behalf.
EDWARD T. REILLY
Mr. Reilly believes that the merger is fair to Big Flower's unaffiliated
stockholders, being those Big Flower stockholders other than members of
management retaining shares of Big Flower common stock in the merger.
Mr. Reilly, however, has not undertaken any formal evaluation of the fairness of
the merger to Big Flower's unaffiliated stockholders. Mr. Reilly did not make
specific assessments of, quantify or otherwise assign relative weights to, the
specific factors considered in reaching his determination. His decision was made
after consideration of all the factors together. These factors include:
(1) The fact that the current and past trading prices of Big Flower's common
stock and earnings per share of Big Flower are comparable to or
consistent with the trading prices of common stock and earnings per share
of other similar companies.
(2) The fact that the merger will provide Big Flower stockholders with a
premium for their shares compared to the market price of Big Flower
common stock on April 19, 1999, the date immediately prior to the time at
which Big Flower publicly announced that is was going to explore possible
strategic alternatives.
(3) Big Flower's public announcement on April 20, 1999 that it intended to
explore possible strategic transactions, including a possible sale of Big
Flower. This public announcement together with the extensive market
search performed by Big Flower's independent financial advisors provided
an opportunity for a competitive bidding process, creating a market check
on the value of the merger consideration.
(4) The fact that the independent directors of Big Flower advised
Mr. Reilly that Thomas H. Lee Company's proposal was believed to be the
best alternative for Big Flower and its stockholders.
53
<PAGE>
(5) The fact that the merger agreement was, to Mr. Reilly's belief, an
arm's-length negotiation between Big Flower, represented by the
independent directors of Big Flower constituting a majority of the Big
Flower board and assisted by independent legal and financial advisors, on
the one hand, and Thomas H. Lee Company and Evercore Capital Partners, on
the other.
(6) The fact that the merger agreement provides Big Flower with the ability
to terminate the merger if it determines that a bona fide superior
transaction is available to the unaffiliated stockholders.
(7) The determination of the independent directors of Big Flower that the
terms of the merger agreement are fair to and in the best interest of Big
Flower and its unaffiliated stockholders, and the unanimous
recommendation of the independent directors of Big Flower that the
stockholders of Big Flower vote in favor of the merger. See "--Big
Flower's Reasons for the Merger; Recommendation of the Big Flower Board
of Directors" on page 28 for a detailed discussion of the bases
underlying this recommendation.
(8) Notwithstanding that the opinions of the independent advisors to the Big
Flower board of directors were intended solely for the information and
assistance of the independent directors, the fact that the independent
directors received a written opinion from each of two independent
financial advisors as to the fairness, from a financial point of view, of
the merger consideration to the unaffiliated stockholders of Big Flower.
See "--Opinions of Big Flower's Financial Advisors" on page 31 for a
detailed discussion of these opinions.
(9) The fact that the independent directors of Big Flower constituted a
majority of the board of directors, and represented the interests of the
unaffiliated stockholders of Big Flower.
(10) The fact that the independent directors of Big Flower, constituting a
majority of the board of directors, retained and received advice from
reputable independent outside legal advisors and reputable independent
financial advisors.
(11) The facts that the independent directors of Big Flower, constituting a
majority of the board of directors, engaged in extensive deliberations to
evaluate the merger and alternatives to the merger, and that
Messrs. Ammon and Reilly recused themselves from, and did not participate
in nor have any influence on, any of these deliberations.
(12) The fact that any stockholders desiring to do so may exercise and
perfect their appraisal rights under DGCL and receive "fair value", as
determined by the court, for the shares of common stock which such
stockholder holds.
(13) The fact that the merger provides unaffiliated stockholders of Big
Flower with the opportunity to sell their shares of common stock in
exchange for the merger consideration without incurring the transaction
costs typically associated with market sales.
(14) The fact that although the transaction does not require the affirmative
vote of a majority of the shares of common stock held by unaffiliated
stockholders of Big Flower, the affirmative vote of approximately 40% of
the shares held by unaffiliated stockholders is necessary to approve the
transaction, assuming that members of management who hold shares of Big
Flower common stock vote to approve the merger.
(15) In arriving at his conclusion that the merger is fair to Big Flower's
unaffiliated stockholders, Mr. Reilly had the benefit of Thomas H. Lee
Equity Fund IV's quantitative financial analyses, which were based upon
projections developed by Thomas H. Lee Equity Fund IV, which in turn were
based in part on projections provided by management and discussions with
management, and Thomas H. Lee Equity Fund IV's own assessment of future
events. Thomas H. Lee Equity IV then developed a recapitalization model
based on these projections which allowed Thomas H. Lee Equity Fund IV to
examine various scenarios with respect to such
54
<PAGE>
characteristics as debt capacity, required capital spending, operating
cash flow and return on equity to establish the proper capitalization to
be implemented in the merger. Those models were made available to
Mr. Reilly. While the purpose of these analyses was not to determine what
would be a fair amount of consideration, from a financial point of view,
to be paid to the unaffiliated stockholders of Big Flower, in the view of
Mr. Reilly, the results of those models support the conclusion that the
merger consideration is fair to unaffiliated stockholders of Big Flower.
(16) Mr. Reilly considered neither net book value nor liquidation value to
be relevant indicators of value. In considering the relevance of net book
value analysis, Mr. Reilly concluded that the historical accounting
treatment relating to the numerous acquisitions by Big Flower, including
extraordinary charges associated with these acquisitions, diminished the
benefit of using this type of analysis. With respect to liquidation value
analysis, Mr. Reilly considered this analysis inappropriate because it is
not expected that Big Flower will be liquidated after the merger.
Accordingly, Mr. Reilly valued Big Flower as a going concern as described
in factor (15) above, utilizing Big Flower management's projections.
(17) Mr. Reilly has not purchased any securities of Big Flower since 1996,
and therefore did not consider purchase price paid in previous
transactions as a relevant factor.
Mr. Reilly has recused himself from considering this merger transaction. Big
Flower and its unaffiliated stockholders, as described elsewhere in this proxy
statement, were represented at all relevant times by the independent directors
of Big Flower and their independent legal and financial advisors who negotiated
on their behalf.
RICHARD L. RITCHIE
Mr. Ritchie believes that the merger is fair to Big Flower's unaffiliated
stockholders, being those Big Flower stockholders other than members of
management retaining shares of Big Flower common stock in the merger.
Mr. Ritchie, however, has not undertaken any formal evaluation of the fairness
of the merger to Big Flower's unaffiliated stockholders. Mr. Ritchie did not
make specific assessments of, quantify or otherwise assign relative weights to,
the specific factors considered in reaching his determination. His decision was
made after consideration of all the factors together. These factors include:
(1) The fact that the current and past trading prices of Big Flower's common
stock and earnings per share of Big Flower are comparable to or
consistent with the trading prices of common stock and earnings per share
of other similar companies.
(2) The fact that the merger will provide Big Flower stockholders with a
premium for their shares compared to the market price of Big Flower
common stock on April 19, 1999, the date immediately prior to the time at
which Big Flower publicly announced that is was going to explore possible
strategic alternatives.
(3) Big Flower's public announcement on April 20, 1999 that it intended to
explore possible strategic transactions, including a possible sale of Big
Flower. This public announcement together with the extensive market
search performed by Big Flower's independent financial advisors provided
an opportunity for a competitive bidding process, creating a market check
on the value of the merger consideration.
(4) The fact that the independent directors of Big Flower advised
Mr. Ritchie that Thomas H. Lee Company's proposal was believed to be the
best alternative for Big Flower and its stockholders.
55
<PAGE>
(5) The fact that the merger agreement was, to Mr. Ritchie's belief, an
arm's-length negotiation between Big Flower, represented by the
independent directors of Big Flower constituting a majority of the Big
Flower board and assisted by independent legal and financial advisors, on
the one hand, and Thomas H. Lee Company and Evercore Capital Partners, on
the other.
(6) The fact that the merger agreement provides Big Flower with the ability
to terminate the merger if it determines that a bona fide superior
transaction is available to the unaffiliated stockholders.
(7) The determination of the independent directors of Big Flower that the
terms of the merger agreement are fair to and in the best interest of Big
Flower and its unaffiliated stockholders, and the unanimous
recommendation of the independent directors of Big Flower that the
stockholders of Big Flower vote in favor of the merger. See "--Big
Flower's Reasons for the Merger; Recommendation of the Big Flower Board
of Directors" on page 28 for a detailed discussion of the bases
underlying this recommendation.
(8) Notwithstanding that the opinions of the independent advisors to the Big
Flower board of directors were intended solely for the information and
assistance of the independent directors, the fact that the independent
directors received a written opinion from each of two independent
financial advisors as to the fairness, from a financial point of view, of
the merger consideration to the unaffiliated stockholders of Big Flower.
See "--Opinions of Big Flower's Financial Advisors" on page 31 for a
detailed discussion of these opinions.
(9) The fact that the independent directors of Big Flower constituted a
majority of the board of directors, and represented the interests of the
unaffiliated stockholders of Big Flower.
(10) The fact that the independent directors of Big Flower, constituting a
majority of the board of directors, retained and received advice from
reputable independent outside legal advisors and reputable independent
financial advisors.
(11) The facts that the independent directors of Big Flower, constituting a
majority of the board of directors, engaged in extensive deliberations to
evaluate the merger and alternatives to the merger, and that
Messrs. Ammon and Reilly recused themselves from, and did not participate
in nor have any influence on, any of these deliberations.
(12) The fact that any stockholders desiring to do so may exercise and
perfect their appraisal rights under DGCL and receive "fair value", as
determined by the court, for the shares of common stock which such
stockholder holds.
(13) The fact that the merger provides unaffiliated stockholders of Big
Flower with the opportunity to sell their shares of common stock in
exchange for the merger consideration without incurring the transaction
costs typically associated with market sales.
(14) The fact that although the transaction does not require the affirmative
vote of a majority of the shares of common stock held by unaffiliated
stockholders of Big Flower, the affirmative vote of approximately 40% of
the shares held by unaffiliated stockholders is necessary to approve the
transaction, assuming that members of management who hold shares of Big
Flower common stock vote to approve the merger.
(15) In arriving at his conclusion that the merger is fair to Big Flower's
unaffiliated stockholders, Mr. Ritchie had the benefit of Thomas H. Lee
Equity Fund IV's quantitative financial analyses, which was based upon
projections developed by Thomas H. Lee Equity Fund IV, which in turn were
based in part on projections provided by management and discussions with
management, and Thomas H. Lee Equity Fund IV's own assessment of future
events. Thomas H. Lee Equity IV then developed a recapitalization model
based on these projections which allowed Thomas H. Lee Equity Fund IV to
examine various scenarios with respect to such
56
<PAGE>
characteristics as debt capacity, required capital spending, operating
cash flow and return on equity to establish the proper capitalization to
be implemented in the merger. Those models were made available to
Mr. Ritchie. While the purpose of these analyses was not to determine
what would be a fair amount of consideration, from a financial point of
view, to be paid to the unaffiliated stockholders of Big Flower, in the
view of Mr. Ritchie, the results of those models support the conclusion
that the merger consideration is fair to unaffiliated stockholders of Big
Flower.
(16) Mr. Ritchie considered neither net book value nor liquidation value to
be relevant indicators of value. In considering the relevance of net book
value analysis, Mr. Ritchie concluded that the historical accounting
treatment relating to the numerous acquisitions by Big Flower, including
extraordinary charges associated with these acquisitions, diminished the
benefit of using this type of analysis. With respect to liquidation value
analysis, Mr. Ritchie considered this analysis inappropriate because it
is not expected that Big Flower will be liquidated after the merger.
Accordingly, Mr. Ritchie valued Big Flower as a going concern as
described in factor (15) above, utilizing Big Flower management's
projections.
(17) Mr. Ritchie has not purchased any securities of Big Flower in any
previous transactions, and therefore did not consider purchase price paid
in previous transactions as a relevant factor.
Big Flower and its unaffiliated stockholders, as described elsewhere in this
proxy statement, were represented at all relevant times by the independent
directors of Big Flower and their independent legal and financial advisors who
negotiated on their behalf.
CERTAIN ESTIMATES OF FUTURE OPERATIONS AND OTHER INFORMATION
In connection with the original evaluation by third parties, including
Thomas H. Lee Company and Evercore Capital Partners, of a possible transaction
involving Big Flower, Big Flower provided some nonpublic estimates reflecting
management's views as to the possible future performance of Big Flower. Then, in
connection with the recent renegotiation of the terms of the merger, Big Flower
provided Thomas H. Lee Company and Evercore Capital Partners with revised
nonpublic estimates for the two fiscal years ending in 2000 which reflected the
weaker than originally anticipated results of the Company's core businesses,
offset by (a) earnings from businesses acquired since the date of the original
projections and (b) greater than previously estimated reductions in overhead
costs. It is these revised estimates, together with estimates for the fiscal
years ending 2001 to 2004, which are set forth below. Management based these
estimates on assumptions that it believed to be reasonable at the time.
Management's belief as to the reasonableness of its estimates and of the
assumptions underlying these estimates is based upon the use of industry data
and management's history of operations of Big Flower.
The material assumptions underlying these estimates were that:
- on a pro forma basis, assuming all businesses have been owned since
January 1, 1998, overall sales would increase by 0.3% and 6.3% for fiscal
1999 and 2000, respectively, based upon the historical rate of growth of
Big Flower,
- EBITDA and operating income would increase as a result of sales growth and
because of higher growth in Big Flower's higher margin businesses and
efficiencies relating to integrating recently completed acquisitions,
- Big Flower's future expenses would remain consistent with past practice
other than for certain cost savings, including both reduction in overhead
costs and material purchases related to recently integrated acquisitions,
and
57
<PAGE>
- there would be no additional acquisitions made during such periods, which
assumption is contrary to the historical operating strategy of Big Flower
and contrary to Big Flower's strategic plans following the merger.
These estimates were provided on a confidential basis and are summarized in
the following table:
<TABLE>
<CAPTION>
FORECAST
---------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1999(1) 2000 2001 2002 2003 2004
(AMOUNTS IN 000'S) ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales.................. $1,879,445 $1,997,514 $2,117,760 $2,242,954 $2,369,788 $2,504,692
% Growth............... 0.3% 6.3% 6.0% 5.9% 5.7% 5.7%
EBITDA................. $ 260,244 $ 298,606 $ 328,671 $ 351,793 $ 373,433 $ 395,683
% Margin............... 13.8% 14.9% 15.5% 15.7% 15.8% 15.8%
EBIT................... $ 158,183 $ 192,050 $ 217,766 $ 239,650 $ 258,314 $ 279,631
% Margin............... 8.4% 9.6% 10.3% 10.7% 10.9% 11.2%
Net Income............. $ 44,290 $ 61,726 $ 82,896 $ 103,002 $ 122,966 $ 141,855
Basic EPS.............. $ 2.22 $ 2.61 $ 3.50 $ 4.35 $ 5.19 $ 5.99
Diluted EPS............ $ 1.94 $ 2.57 $ 3.27 $ 4.04 $ 4.81 $ 5.54
</TABLE>
- ------------------------
(1) Fiscal year 1999 estimates are pro forma for the Drake Automation Limited
acquisition completed July 1, 1999 and the J.J. Grace Incorporated
acquisition completed August 3, 1999.
THESE ESTIMATES WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
COMPLIANCE WITH PUBLISHED GUIDELINES ESTABLISHED BY THE SECURITIES AND EXCHANGE
COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS. NONE OF BIG FLOWER, THOMAS H. LEE COMPANY, EVERCORE CAPITAL
PARTNERS OR THEIR RESPECTIVE AFFILIATES OR BIG FLOWER'S INDEPENDENT AUDITORS
ASSUME ANY RESPONSIBILITY FOR THE ACCURACY OF THIS INFORMATION. IN ADDITION,
BECAUSE THESE ESTIMATES ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND OTHER CONTINGENCIES BEYOND BIG FLOWER'S CONTROL,
THERE CAN BE NO ASSURANCE THAT THESE ESTIMATES WILL BE REALIZED; ACTUAL RESULTS
MAY BE HIGHER OR LOWER THAN THOSE ESTIMATED. GIVEN THE FACT THAT EACH YEAR SINCE
1994 BIG FLOWER HAS ACQUIRED IN EXCESS OF 5 ENTITIES PER YEAR ON AVERAGE, ANY
YEAR OVER YEAR COMPARISON BEYOND 1999 IS UNLIKELY TO PROVIDE A REALISTIC VIEW OF
BIG FLOWER'S BUSINESS OR PERFORMANCE. BIG FLOWER DOES NOT GENERALLY PUBLISH ITS
BUSINESS PLANS AND STRATEGIES OR MAKE EXTERNAL DISCLOSURES OF ITS ANTICIPATED
FINANCIAL POSITION OR RESULTS OF OPERATIONS. ACCORDINGLY, BIG FLOWER DOES NOT
INTEND TO, AND SPECIFICALLY DECLINES ANY OBLIGATION TO, UPDATE OR OTHERWISE
REVISE THE PROSPECTIVE FINANCIAL INFORMATION TO REFLECT CIRCUMSTANCES EXISTING
SINCE THEIR PREPARATION OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS,
EVEN IF ANY OR ALL OF THE UNDERLYING ASSUMPTIONS ARE SHOWN TO BE IN ERROR. ALSO,
BIG FLOWER DOES NOT INTEND TO, AND SPECIFICALLY DECLINES ANY OBLIGATION TO,
UPDATE OR REVISE THE PROSPECTIVE FINANCIAL INFORMATION TO REFLECT CHANGES IN
GENERAL ECONOMIC OR INDUSTRY CONDITIONS. NEITHER BIG FLOWER'S AUDITORS NOR ANY
OTHER INDEPENDENT ACCOUNTANTS HAVE COMPILED, EXAMINED OR PERFORMED ANY
PROCEDURES WITH RESPECT TO THESE ESTIMATES, NOR HAVE THEY EXPRESSED ANY OPINION
OR ANY OTHER FORM OF ASSURANCE ON THIS INFORMATION OR ITS ACHIEVABILITY, AND
ASSUME NO RESPONSIBILITY FOR, AND DISCLAIM ANY ASSOCIATION WITH, THIS
PROSPECTIVE FINANCIAL INFORMATION.
CONSEQUENCES OF THE MERGER; PLANS FOR BIG FLOWER AFTER THE MERGER
Immediately following the completion of the merger and the related
recapitalization:
- all of the common stock of Big Flower is expected to be owned, directly or
indirectly, by Thomas H. Lee Equity Fund IV, Evercore Capital Partners, R.
Theodore Ammon and a rabbi trust, which will own approximately 64%, 17.9%,
13.8% and 4.3% of such stock, respectively, excluding warrants which will
be held by Thomas H. Lee Equity Fund IV for shares of Big
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Flower's common stock received in connection with the mezzanine debt
financing of Big Flower in the merger,
- no current stockholders of Big Flower, other than the members of
management who are expected to hold direct or indirect equity interests in
Big Flower after the merger, will participate in Big Flower's future
earnings and growth,
- Thomas H. Lee Equity Fund IV, Evercore Capital Partners and the members of
management who are expected to hold direct or indirect equity interests in
Big Flower after the merger will have the opportunity to benefit from any
earnings and growth of Big Flower, and will bear the risk of any decrease
in Big Flower's value as well as the increased leverage of Big Flower,
- Big Flower will incur a significant amount of additional debt,
- Big Flower's common stock will no longer be traded on the NYSE, price
quotations will no longer be available and the registration of Big Flower
common stock under the Securities Exchange Act of 1934 will be terminated,
- the board of directors of Big Flower after the merger is expected to be
comprised of R. Theodore Ammon, Edward T. Reilly, Thomas H. Lee, Anthony
J. DiNovi, Scott M. Sperling, Roger C. Altman, Austin M. Beutner and two
additional persons to be determined by Thomas H. Lee Equity Fund IV, with
Evercore Capital Partners and R. Theodore Ammon consenting to those two
additional persons,
- executive officers of Big Flower, including the chairman of the board, the
chief executive officer and the chief financial officer, will be the
executive officers of Big Flower following the merger,
- it is expected that Columbine JDS Systems will no longer be a subsidiary
of Big Flower, but will be owned by an affiliate of BFH Merger Corp.,
still to be formed and ultimately to be controlled by Thomas H. Lee Equity
Fund IV, Evercore Capital Partners and Mr. Ammon, and
- it is expected that the private Internet investments currently owned by XL
Ventures and other Big Flower subsidiaries will have been sold to an
affiliate of BFH Merger Corp., still to be formed and ultimately to be
controlled by Thomas H. Lee Equity Fund IV, Evercore Capital Partners and
Mr. Ammon.
Following the completion of the merger, Thomas H. Lee Equity Fund IV and
Evercore Capital Partners expect that the business and operations of Big Flower
will be continued substantially as they are currently being conducted, except as
these operations are affected by the sale of Columbine JDS Systems and the sale
of Big Flower's private Internet investments. The board of directors and
management of Big Flower following the merger will, however, continue to
evaluate Big Flower's business, operations, corporate structure and organization
and will make changes as they deem appropriate.
CONFLICTS OF INTEREST OF CERTAIN MEMBERS OF THE BIG FLOWER BOARD OF DIRECTORS
AND MANAGEMENT
When you consider the recommendations of the Big Flower board of directors,
you should be aware that the members of management who are expected to hold
direct or indirect equity interests in Big Flower after the merger, including
Messrs. Ammon and Reilly, may have interests in the merger that are different
from your interests. These interests may create potential conflicts of interest.
The Big Flower board of directors was aware of these interests when it approved
the merger agreement. Messrs. Ammon and Reilly did not participate in the
discussions of the board of directors regarding the merger and related
recapitalization and abstained from voting on the approval by the board of the
merger agreement.
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EQUITY INVESTMENT
In the recapitalization that will occur at the same time as the completion
of the merger, some of the shares of Big Flower common stock will be retained by
R. Theodore Ammon in the merger. It is expected that some of the stock options
to acquire shares of Big Flower common stock held by members of management,
including Edward T. Reilly, may be surrendered, in whole or in part, in exchange
for an interest in a rabbi trust to which Big Flower will issue shares of Big
Flower common stock. The number of shares of Big Flower common stock to be
issued to the rabbi trust upon the surrender of these options would be
determined by dividing the aggregate spread value of the surrendered options by
$31.50. It is currently expected that following the merger, R. Theodore Ammon
and the rabbi trust will hold approximately 13.8% and 4.3%, respectively, of Big
Flower's remaining common stock.
The following table sets forth the direct or indirect investments in Big
Flower that we assume employees and members of management will hold immediately
after the merger. The investments will consist of directly or indirectly
retained shares of common stock and/or interests in a rabbi trust that will hold
shares of Big Flower common stock. Shares of Big Flower common stock have been
valued at $31.50 for the purpose of the table. Each existing option to acquire
common stock has been valued at the difference between $31.50 and the exercise
price of the option, multiplied by the number of shares of Big Flower common
stock subject to the option.
<TABLE>
<CAPTION>
DOLLAR VALUE OF
EXISTING OPTIONS
NUMBER OF DOLLAR VALUE OF TO BE EXCHANGED
EXISTING SHARES EXISTING SHARES OF DIRECTLY OR
OF COMMON STOCK COMMON STOCK TO INDIRECTLY INTO
TO BE RETAINED BE RETAINED COMMON STOCK
IN BIG FLOWER IN BIG FLOWER OF BIG FLOWER
NAME IN THE MERGER IN THE MERGER IN THE MERGER
- ---- ------------------- -------------------- -----------------
<S> <C> <C> <C>
R. Theodore Ammon........................................... 1,678,916 $ 52,885,855 $ 0
Edward T. Reilly............................................ 3,500,000
Richard L. Ritchie.......................................... 2,000,000
Employees of Big Flower (8 employees)(excluding executive
officers)................................................. 500,000
Employees of TC Advertising and subsidiaries
(55 employees)............................................ 5,900,000
Employees of Webcraft and subsidiaries
(40 employees)............................................ 3,200,000
Employees of Laser Tech Color and subsidiaries
(27 employees)............................................ 2,200,000
--------- -------------------- -----------
Total............................................... 1,678,916 $ 52,885,855 $17,300,000
========= ==================== ===========
</TABLE>
As of October 22, 1999, the members of management directly or indirectly
retaining shares of Big Flower common stock and/or interests in a rabbi trust
that will hold shares of Big Flower common stock beneficially owned a total of
2,686,611 shares of Big Flower common stock, including shares which they may
acquire within 60 days upon exercise of stock options, or approximately 13.2% of
the shares of Big Flower common stock outstanding on that date. Appendix E to
this document includes information relating to transactions since August 12,
1999 involving Big Flower common stock effected by or on behalf of Thomas H. Lee
Equity Fund IV, Evercore Capital Partners, Big Flower and any directors and
executive officers of Big Flower who are expected to hold equity interests in
Big Flower after the merger.
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ARRANGEMENTS WITH THOMAS H. LEE COMPANY AND EVERCORE CAPITAL PARTNERS
We expect that Thomas H. Lee Equity Fund IV and Evercore Capital Partners
will enter into an agreement before the merger with respect to various
pre-merger matters, including their relative entitlements to receive (1) a share
of the termination fee if the merger does not occur in circumstances which
trigger the payment of this fee and (2) payment for their out-of pocket fees and
expenses if the merger does not occur in circumstances which trigger the payment
of these fees and expenses up to a cap of $10 million. For more information
regarding the consequences of the merger not occurring, see "The Merger
Agreement--Termination and Effects of Termination" on page 87.
We expect that Big Flower will enter into a management agreement with
Thomas H. Lee Company, Evercore Capital Partners or their respective affiliates
under which Thomas H. Lee Company, Evercore Capital Partners or their respective
affiliates will provide consulting and management advisory services to Big
Flower following the merger. In return for those services, Thomas H. Lee Company
or its affiliates will receive an annual management fee of $1.0 million, payable
monthly, and Evercore Advisors Inc. will receive an annual management fee of
$250,000, payable monthly. In addition, in connection with the merger, Thomas H.
Lee Company and its affiliates are expected to receive from Big Flower a
one-time transaction fee of $20 million in the aggregate and Evercore Capital
Partners and its affiliates are expected to receive from Big Flower a one-time
transaction fee of $4.3 million in the aggregate. These fees are included in Big
Flower's estimate of fees and expenses of the merger appearing on page 71.
AGREEMENTS RELATING TO EQUITY IN BIG FLOWER FOLLOWING THE MERGER
Mr. Ammon has consented to Big Flower's inclusion of a reference in the
merger agreement to his retention of two million shares of Big Flower common
stock in the merger and has understandings with Thomas H. Lee Company and
Evercore Capital Partners with respect to certain governance and shareholders'
issues following the merger. The parties expect to formalize these
understandings in a written shareholders agreement, which is intended to confer
rights consistent with Big Flower's accounting for the merger as a
recapitalization. Although the terms of the shareholders agreement have not yet
been finalized and reduced to writing, it is expected that they will, among
other things,
- restrict transfers of the shares of Big Flower common stock by Evercore
Capital Partners and Mr. Ammon prior to an initial public offering,
- permit Thomas H. Lee Equity Fund IV, Evercore Capital Partners and
Mr. Ammon to purchase equity securities proposed to be issued by Big
Flower on a preemptive basis,
- require Evercore Capital Partners and Mr. Ammon to sell shares of Big
Flower common stock in some circumstances should Thomas H. Lee Equity Fund
IV choose to sell any shares of Big Flower common stock owned by it,
- permit Evercore Capital Partners and Mr. Ammon to participate in some
sales of shares of Big Flower common stock by Thomas H. Lee Equity Fund
IV, and
- provide for registration rights on customary terms.
It is also expected that the shareholders agreement will provide Thomas H.
Lee Equity Fund IV the right to appoint, subject to a limited right of approval
of Evercore Capital Partners and Mr. Ammon, a majority of the members of the
board of directors of Big Flower.
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TREATMENT OF STOCK OPTIONS
Big Flower and BFH Merger Corp. intend that, in the merger, all outstanding
and unexercised Big Flower stock options, whether vested or unvested, will be
treated in either of the following ways:
- the options will be surrendered by the holder prior to the effective time
of the merger in exchange for the number of shares of Big Flower common
stock equal to the spread value of the option divided by $31.50. These
shares of Big Flower common stock issued to the option holder will be
converted into the right to receive the same merger consideration received
by Big Flower stockholders per share of Big Flower common stock. No
fractional shares of Big Flower common stock will be issued in the
exchange but Big Flower will pay the holder cash in lieu of the fractional
interest; or
- alternatively, Big Flower, BFH Merger Corp. and an option holder may agree
to a different treatment of that holder's options. This different
treatment may include a direct or indirect equity interest in Big Flower,
including an interest in a rabbi trust which holds as its asset the spread
value of a holder's option in the form of Big Flower common stock.
Big Flower has agreed to use its best efforts to obtain the consent from Big
Flower option holders to the treatment of the options as set forth in the first
bullet point above, unless Big Flower, BFH Merger Corp. and an option holder
agree to a different treatment.
If, at the time of the merger, an option holder has not consented to his or
her options being treated as described in the first bullet point above, or
agreed with Big Flower and BFH Merger Corp. to a different treatment of his or
her options, those options will be cancelled in the merger and converted into
the right to receive cash equal to $31.50 less the per share exercise price of
the options, multiplied by the number of shares of Big Flower common stock
subject to the options.
This document assumes that certain options, as more fully reflected on page
60, will be exchanged for an interest in a rabbi trust, while the remaining
options are surrendered as set forth in the first bullet point above.
SEVERANCE AGREEMENTS
Big Flower has severance agreements with its executive officers and other
key employees. Generally, these agreements provide that if the employment of any
of these employees is terminated under specified circumstances within 12 months
after a change of control, the employee will be entitled to receive various
benefits. The completion of the merger may constitute a change of control for
purposes of these agreements. The benefits, which vary depending on the
employee, include:
- a cash payment equal to up to three times the current base salary and
highest bonus received in the previous three years,
- the immediate vesting and exercisability of all outstanding equity
incentive awards, including stock options,
- the right to receive a cash payment equal to the spread on all outstanding
stock options,
- a cash payment with respect to foregone fringe benefits,
- additional service credit for purposes of the supplemental retirement
benefit, and
- the payment by Big Flower of the amount necessary, if any, to offset the
effects of any excise tax imposed under Section 4999 of the Internal
Revenue Code of 1986.
We estimate these benefits to be as follows: R. Theodore Ammon, $13.2
million (includes loss of deductions to Big Flower and gross up payments for
excise taxes); Edward T. Reilly, $9.2 million; Mark
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A. Angelson, $6.7 million; and Richard L. Ritchie, $3.8 million. Big Flower does
not expect to terminate the employment of any of these employees in connection
with the merger.
ACCOUNTING TREATMENT
Big Flower will account for the merger as a recapitalization because current
management retaining shares of Big Flower common stock in the merger will have a
significant continuing interest in Big Flower common stock following the merger.
As a result, the merger will have no impact on the historical basis of Big
Flower's assets and liabilities.
SOURCE AND AMOUNT OF FUNDS
EQUITY COMMITMENTS
Thomas H. Lee Equity Fund IV and Evercore Capital Partners have committed to
contribute an aggregate of up to approximately $458 million in cash to BFH
Merger Corp. as part of the merger and related transactions. This amount will be
reduced by approximately $138 million, which represents the value attributed to:
first, direct or indirect equity interests in Big Flower that members of
management are expected to hold immediately after the merger; and second, the
funds used by affiliates of BFH Merger Corp. to purchase Columbine JDS Systems,
and purchase Big Flower's private Internet investments, at the time of the
merger.
The commitments of each of Thomas H. Lee Equity Fund IV and Evercore Capital
Partners are as follows (in millions):
<TABLE>
<CAPTION>
EQUITY INVESTORS COMMITMENT
- ---------------- ------------
<S> <C>
Thomas H. Lee Equity Fund IV................................ $ 369.1
Evercore Capital Partners................................... $ 88.4
------------
Total....................................................... $ 457.5
============
</TABLE>
The commitments of each of Thomas H. Lee Equity Fund IV and Evercore Capital
Partners are subject to the execution of documentation customary in financings
of this type.
If the equity commitments of Thomas H. Lee Equity Fund IV and Evercore
Capital Partners are reduced because affiliates of BFH Merger Corp. purchase
Columbine JDS Systems, or purchase Big Flower's private Internet investments,
the funds used by the BFH Merger Corp. affiliates in these transactions will be
dividended to Big Flower Press and/or Big Flower and used as part of the funds
to effect the merger and related recapitalization.
DEBT FINANCINGS
GENERAL. Big Flower, Big Flower Press and Columbine JDS Systems expect to
enter into debt financing arrangements at the time of the merger aggregating
approximately $950 million if Columbine JDS Systems is sold at the time of the
merger. If Columbine JDS Systems is not sold at the time of the merger, Big
Flower and Big Flower Press, but not Columbine JDS Systems, expect to enter into
debt financing arrangements at the time of the merger aggregating approximately
$950 million. These amounts exclude the debt financing arrangements which will
be entered into at the time of the merger if the debt tender offer, described
below under the heading "Special Factors--Big Flower Press Debt Tender Offer" on
page 70, is consummated at the time of the merger. If this debt tender offer is
consummated, the debt financing arrangements will increase by approximately $600
million if Columbine JDS is sold at the time of the merger, and approximately
$585 million if Columbine JDS Systems is not sold at the time of the merger.
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The arrangements, excluding the amounts required to consummate the debt
tender offer, are expected to consist of:
- $400 million of senior bank financing at Big Flower Press or, if Columbine
JDS is not sold at the time of the merger, $515 million of senior bank
financing;
- $300 million of high yield financing at Big Flower;
- $100 million of mezzanine financing at Big Flower or, if Columbine JDS
Systems is not sold at the time of the merger, $135 million of mezzanine
financing;
- $115 million of senior bank financing at Columbine JDS Systems if
Columbine JDS Systems is sold at the time of the merger; and
- $35 million of mezzanine financing at Columbine JDS Systems if Columbine
JDS Systems is sold at the time of the merger.
The changes to these arrangements if the debt tender offer is consummated at
the time of the merger are described below under the heading "Special
Factors--Big Flower Press Debt Tender Offer," on page 70. The following summary
of the debt financing arrangements assume the debt tender offer is not
consummated at the time of the merger.
Big Flower Press will be the primary borrower under its senior bank
financing. Big Flower Press may request that its wholly-owned foreign
subsidiaries be borrowers also.
Big Flower expects that the high yield financing, if consummated, will take
the form of high yield debt securities. If Big Flower cannot consummate the
issuance and sale of the high yield debt securities at the time of the merger,
Big Flower expects to enter into a bridge loan for which it has a commitment.
The bridge loan is expected to be on terms less favorable to Big Flower than the
terms of the high yield debt securities. Also, the bridge loan is initially
expected to bear interest at a rate in excess of the expected interest rate on
the high yield debt securities, and the rate would increase over time.
We anticipate that the full proceeds of the high yield financing and the
mezzanine financings, together with a portion of the proceeds of the senior bank
financings and the equity commitments of Thomas H. Lee Equity Fund IV and
Evercore Capital Partners, will be used:
- to finance the merger consideration payable to:
-- the holders of Big Flower common stock (including option holders who
surrender their options in exchange for shares of Big Flower common
stock), but excluding the equity interests in Big Flower which are
expected to be retained by members of management in the merger and
options which are treated in a manner requiring no cash payment, and
-- the QUIPS holders who elect to convert their QUIPS into Big Flower
common stock prior to the merger,
- to refinance some of Big Flower's outstanding debt, including debt under
Big Flower Press' existing senior bank facility, and to pay related fees
and expenses of the merger and related transactions, and
- to provide for Big Flower's and its subsidiaries' working capital and
general corporate requirements after the merger.
We expect that, if the debt tender offer is not consummated at the time of
the merger, approximately $183 million of the senior bank financing would not be
borrowed immediately, but would be used as needed to satisfy the working capital
and general corporate requirements of Big Flower after the merger.
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On October 11, 1999, commitment letters were provided for the senior bank
financings, a bridge loan relating to the high yield financing and the mezzanine
financings. The commitments are subject to customary conditions, including the
negotiation, execution and delivery of definitive documentation with respect to
the financings contemplated by the commitments.
These debt financing arrangements assume the conversion of all outstanding
QUIPS into Big Flower common stock prior to the merger. However, the QUIPS
holders could decide not to convert their QUIPS or could exercise their
conversion rights after the merger. If the QUIPS holders convert their QUIPS
after the merger, they would receive the same consideration they would have
received had they exercised their conversion rights prior to the merger.
THE SENIOR BANK FINANCING AT BIG FLOWER PRESS.
SUMMARY. We expect the senior bank financing at Big Flower Press to consist
of:
- If Columbine JDS Systems is sold at the time of the merger:
-- a $200 million term loan facility, and
-- a $200 million revolving credit facility, or
- If Columbine JDS Systems is not sold at the time of the merger:
-- a $300 million term loan facility, and
-- a $215 million revolving credit facility.
We describe how this financing changes if the debt tender offer is
consummated under the heading "Special Factors--Big Flower Press Debt Tender
Offer" on page 70.
AGENTS. The Chase Manhattan Bank will act as administrative agent for the
syndicate of lenders providing the senior bank financing. Bankers Trust Company
or an affiliate will act as syndication agent for the bank facilities.
FEES. In its capacity as administrative agent, Chase will receive a
standard annual administrative fee. The revolving credit facility will include a
sub-limit for the issuance of letters of credit. In its capacity as issuing bank
of any letters of credit, Chase will receive a standard fronting fee equal to a
specified percentage per annum of the undrawn face amount of the letters of
credit. Big Flower Press will also pay to the lenders a commitment fee equal to
0.5% per annum of the undrawn portion of each lender's commitment from time to
time.
INTEREST. Borrowings made under the revolving credit facility will bear
interest at a rate equal to, at Big Flower Press' option, a eurodollar rate
(LIBOR) plus 2.50%, or the base rate plus 1.50%. Borrowings made under the term
loan facility will bear interest at a rate equal to, at Big Flower Press'
option, a eurodollar rate (LIBOR) plus 2.50% or the base rate plus 1.50%. The
base rate is a fluctuating interest rate equal to the higher of (1) the rate of
interest announced publicly by the administrative agent as its prime commercial
lending rate and (2) a rate equal to one-half of 1% per annum above the Federal
Funds Effective Rate, as published by the Federal Reserve Bank of New York.
Base rate interest will be payable quarterly in arrears. Eurodollar rate
interest will be payable in arrears at the earlier of the end of (1) the
applicable interest period or (2) each quarter. Eurodollar rate borrowings are
available in 1-, 2-, 3- or 6-month interest periods.
The eurodollar rate and base rate margins and the commitment fees will be
subject to reductions, based on various tests of Big Flower Press' financial
performance. The eurodollar rate and base rate margins will be subject to an
increase of 0.25% based on the credit rating of the senior bank financing.
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MATURITY. The term loan facility and the revolving credit facility each
mature six years after funding.
The term loan facility will amortize in quarterly installments of an amount
to be specified in the credit agreement.
GUARANTEES AND SECURITY. The obligations of Big Flower Press and the
subsidiary borrowers, if any, under, the senior bank financing credit agreement
will be guaranteed by Big Flower and each of its wholly-owned domestic
subsidiaries other than Big Flower Press and Columbine JDS Systems, to the
extent the sale of Columbine JDS Systems is not consummated at the time of the
merger, and the obligations of the borrowers and the guarantors will be secured
by substantially all assets of the borrowers and the guarantors. The obligations
of foreign subsidiary borrowers, if any, under the senior bank financing credit
agreement may also be guaranteed by and secured by the assets of their
respective subsidiaries on a basis to be determined.
CREDIT AGREEMENT. We expect that the senior bank financing credit agreement
will contain customary covenants of Big Flower and its subsidiaries, other than
certain unrestricted subsidiaries on a basis to be agreed. We also expect the
credit agreement to contain restrictions on:
- debt,
- the sale of some assets,
- sale/leaseback transactions and lease payments,
- changes in business,
- issuances of stock,
- some mergers, acquisitions, joint ventures, partnerships and other
business combinations,
- voluntary prepayment of some debt,
- transactions with affiliates and formation of subsidiaries,
- capital expenditures,
- liens,
- loans and investments, and
- subject to some exceptions, the payment of dividends to, or the repurchase
or redemption of stock from, shareholders.
The senior bank financing credit agreement would also include financial
covenants, such as requirements to maintain certain levels of interest coverage
and debt to EBITDA.
The terms of the senior bank financing credit agreement provide that,
subject to applicable grace periods in some circumstances, Big Flower Press
would be in default if principal or interest was not paid when due under the
credit agreement or, upon the non-fulfillment of the covenants described above,
on some changes in control of the ownership of Big Flower Press or various other
defaults, including bankruptcy, cross defaults, and invalidity of security and
guarantees. If a default occurs, the senior bank financing lenders would be
entitled to take all actions permitted to be taken by a secured creditor under
the Uniform Commercial Code and to accelerate the amounts due under the senior
bank financing credit agreement and may require all of those amounts to be
immediately paid in full.
Subject to customary exceptions, loans under the term loan facility will
have to be prepaid, as follows:
- with 50% of the annual excess cash flow, which will be defined in the
senior bank financing credit agreement and will be subject to limits to be
specified in the credit agreement,
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- with 50% of the net cash proceeds from some equity issuances by, or
capital contributions to, Big Flower and its subsidiaries, subject to
customary exceptions to be specified in the credit agreement, and
- with 100% of the net cash proceeds of some asset sales, some insurance and
condemnation proceeds and some debt issuances of Big Flower and its
subsidiaries.
Big Flower Press will be permitted to own, create or acquire subsidiaries
designated as "unrestricted subsidiaries" in some circumstances. These
unrestricted subsidiaries will not provide guarantees or collateral security or
be subject generally to the covenants contained in the loan documentation.
THE SENIOR BANK FINANCING AT COLUMBINE JDS SYSTEMS.
If Columbine JDS Systems is sold at the time of the merger, Columbine JDS
Systems will enter into debt financing at the time of the merger consisting of:
- a $100 million term loan facility, and
- a $15 million revolving credit facility.
The terms and conditions of this financing are expected to be substantially
similar to those in the senior bank financing for Big Flower Press with the
following exceptions:
- the term loan facility and the revolving credit facility at Columbine JDS
Systems will each mature seven years after funding,
- the financing at Columbine JDS Systems will not provide for the creation
or acquisition of "unrestricted subsidiaries", and
- borrowings under the term loan facility and the revolving credit facility
at Columbine JDS Systems will each initially bear interest at a rate equal
to, at Columbine JDS Systems' option, a eurodollar rate (LIBOR) plus 3.00%
or the base rate plus 2.00%.
THE HIGH YIELD FINANCING AT BIG FLOWER.
SUMMARY. We expect that the high yield financing will consist of:
- a $300 million offering of Big Flower high yield notes, or
- a $300 million unsecured bridge loan financing of Big Flower that we will
replace with debt securities substantially similar to the high yield notes
as soon as practicable after the merger.
Big Flower will utilize the bridge loan financing if the high yield notes
are not issued at the time of the merger.
We describe how this financing changes if the debt tender offer is
consummated under the heading "Special Factors--Big Flower Press Debt Tender
Offer" on page 70.
HIGH YIELD NOTES.
INTEREST, MATURITY. We expect that the high yield notes will have an
interest rate, maturity date and other financial terms based on market
conditions at the time of issuance.
INITIAL PURCHASERS, AGENTS. On behalf of Big Flower, BFH Merger Corp. has
engaged Deutsche Bank Securities Inc., Chase Securities Inc. and Bank of America
Securities LLC to act as underwriters, placement agents or initial purchasers
for the high yield notes.
REGISTRATION. We expect that the high yield notes will be issued in a
transaction which is not a public offering but which anticipates resales under
Rule 144A of the Securities Act of 1933 to qualified
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institutional buyers and non-U.S. persons. Accordingly, we do not expect that
they will be registered under the Securities Act of 1933 upon their original
issuance, but we expect that they will have registration rights.
INDENTURE. We expect that the high yield notes indenture will contain
customary covenants that will restrict, among other things, the ability of Big
Flower and some of its subsidiaries to:
- incur additional debt,
- pay dividends or make some other restricted payments,
- incur liens,
- apply net proceeds from some asset sales,
- merge or consolidate with any other person, or sell, assign, transfer,
lease, convey or otherwise dispose of substantially all of the assets of
Big Flower, or
- enter into various transactions with affiliates.
We also expect that the high yield notes indenture will contain events of
default which are customary for transactions of this type.
BRIDGE LOAN FINANCING.
FUNDING. The bridge loan financing would be funded in a principal amount of
up to $300 million if Big Flower does not issue the high yield notes at the time
of the merger.
SECURITY. The bridge loan financing would be unsecured.
FEES. Big Flower would pay customary fees.
MATURITY. The bridge loan financing would mature on the earlier of (1) one
year after funding, and (2) the closing date of any permanent refinancing of the
bridge loan financing.
CONVERSION OF BRIDGE LOAN FINANCING INTO TERM LOAN AND/OR LONG-TERM
NOTES. If Big Flower fails to refinance the bridge loan financing in full by
one year after funding, it would be converted to a term loan maturing in ten
years. This loan would bear interest at the then prevailing market rates for
loans of that type, and would be evidenced by a loan agreement with terms no
less favorable than those of the bridge loan.
At any time after this conversion date, upon 30 days' notice to Big Flower,
the bridge lenders may at their option require that Big Flower exchange the term
loan for long-term notes. These would have similar terms and conditions to high
yield debt securities issued for cash in the then prevailing financial markets.
Big Flower does not expect to register these long-term notes upon their
initial issuance to the bridge lenders, relying on a private placement exemption
under the Securities Act of 1933. With respect to subsequent resales of these
long-term notes, we expect that the holders would have registration rights or
could resell the securities under Rule 144A of the Securities Act of 1933 or
another available exemption from registration.
We expect that these long-term notes and the term loan would be mandatorily
redeemable or repayable on the same terms as the bridge loan financing, and
optionally redeemable or repayable, as applicable, at declining premiums, on
terms customary for high yield debt securities.
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THE BIG FLOWER MEZZANINE FINANCING.
FUNDING. Big Flower expects that at the time of the merger, if Columbine
JDS Systems is sold, Big Flower will receive mezzanine financing from Thomas H.
Lee Equity Fund IV in a principal amount of $100 million. However, if Columbine
JDS Systems is not sold at the time of the merger, Big Flower expects to receive
mezzanine financing from Thomas H. Lee Equity Fund IV in a principal amount of
$135 million. We describe how this financing changes if the debt tender offer is
consummated under the heading "Special Factors--Big Flower Press Debt Tender
Offer" on page 70.
SECURITY. The mezzanine financing will be unsecured.
INTEREST. The mezzanine financing will bear interest at a rate of 12% per
annum, of which 10% will be payable in the form of cash and 2% of which will be
paid in kind. Interest will be payable quarterly in arrears.
MATURITY. The mezzanine financing will mature on the earlier of its
replacement by term loans and/or junior subordinated notes or the tenth
anniversary of the date of funding.
PREPAYMENT. Subject to the terms of the senior secured financing and the
high yield financing, Big Flower expects to be able to prepay the mezzanine
financing with the proceeds of any debt or equity offering, asset sale, or other
similar transaction.
FEES. Big Flower expects to pay customary fees.
WARRANTS. In consideration for providing $100 million in the mezzanine
financing, Thomas H. Lee Equity Fund IV will receive warrants convertible into
3.3% of the shares of Big Flower common stock on a fully diluted basis.
REPLACEMENT OF MEZZANINE FINANCING INTO MEZZANINE TERM LOAN AND/OR JUNIOR
SUBORDINATED NOTES. Big Flower expects to replace the mezzanine financing with a
mezzanine term loan from a different entity or junior subordinated notes. If a
mezzanine term loan from a different entity replaces the mezzanine financing,
Big Flower expects that the mezzanine term loan will mature on the tenth
anniversary of the date of funding of the original mezzanine financing from
Thomas H. Lee Equity Fund IV and contain terms and conditions based on market
conditions at the time of replacement. If junior subordinated notes replace the
original mezzanine financing from Thomas H. Lee Equity Fund IV, Big Flower
expects that the notes will mature on the tenth anniversary of the date of
funding of the original mezzanine financing and will contain terms and
conditions based on market conditions at the time of issuance.
THE COLUMBINE JDS SYSTEMS MEZZANINE FINANCING.
FUNDING. If Columbine JDS Systems is sold at the time of the merger,
Columbine JDS Systems expects to receive mezzanine financing from Thomas H. Lee
Equity Fund IV in a principal amount of $35 million. It is expected that all or
substantially all of the proceeds of the mezzanine financing will be dividended
to Big Flower Press and/or Big Flower to be used as part of the merger and
related recapitalization. However, if Columbine JDS Systems is not sold at the
time of the merger, Columbine JDS Systems does not expect to receive any
mezzanine financing.
GENERAL. Columbine JDS Systems expects any mezzanine financing it may
receive to be on substantially the same terms as the mezzanine financing Big
Flower receives in connection with the merger. This financing will bear interest
at a rate of 11% per annum, all of which will be payable in cash. Warrants will
be issued which will be convertible into 11.8% of the Columbine JDS Systems
common stock on a fully diluted basis.
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BIG FLOWER PRESS DEBT TENDER OFFER
On October 25, 1999, Big Flower Press commenced tender offers and consent
solicitations for all of its outstanding 8 7/8% senior subordinated notes due
2007 and all of its outstanding 8 5/8% senior subordinated notes due 2008.
The consideration to be paid to the note holders in exchange for the notes
validly tendered pursuant to the tender offers and accepted for payment is 100%
of the principal amount of the notes plus accrued and unpaid interest to, but
not including, the date that the notes are accepted for payment under the tender
offers, payable on that date. The tender offers will expire at 5:00 P.M.,
New York City time, on November 23, 1999, unless extended by Big Flower Press.
Holders of notes are required to tender their notes on or prior to the
expiration date in order to receive their consideration under the tender offer.
The tender offers are subject to the satisfaction of certain conditions,
including the consummation of the merger and the valid tender of at least a
majority in aggregate principal amount of the outstanding notes of each series.
In conjunction with the tender offers, Big Flower Press is also soliciting
consents of registered holders of notes to certain proposed amendments to the
indentures pursuant to which the notes were issued. Big Flower Press will pay
holders $10.00 for each $1,000 principal amount of notes for which consents are
validly delivered and not revoked by the later of the date the proposed
amendments are executed and November 5, 1999, unless extended by Big Flower
Press. Those payments are to be made on the date on which payment will be made
under the tender offers if, but only if, the notes are accepted for payment
pursuant to the terms of the tender offers.
If the debt tender offer is consummated at the time of the merger, the debt
financings described above will change as follows:
- the senior bank financing at Big Flower Press will increase by
approximately $500 million from $400 million to $900 million if Columbine
JDS Systems is sold at the time of the merger, and by approximately
$472.5 million from $515 million to $987.5 million if Columbine JDS
Systems is not sold at the time of the merger,
- the high yield financing at Big Flower will change from being at the Big
Flower level to being at the Big Flower Press level and will increase by
$150 million from $300 million to $450 million, and
- the mezzanine financing at Big Flower will decrease by $50 million from
$100 million to $50 million if Columbine JDS Systems is sold at the time
of the merger, and by approximately $37.5 million from $135 million to
$97.5 million if Columbine JDS Systems is not sold at the time of the
merger.
The terms of the debt financings, including interest rates and maturity
terms, are not expected to be materially different if the debt tender offer is
consummated at the time of the merger.
EFFECT OF THE MERGER ON BIG FLOWER CAPITAL STOCK
The Big Flower common stock is currently listed on the NYSE. Following the
completion of the merger, Big Flower's common stock will no longer be traded on
the NYSE, price quotations will no longer be available and the registration of
Big Flower common stock under the Exchange Act will be terminated. Big Flower
will, however, remain subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act in respect of the QUIPS following completion of the
merger, to the extent that any QUIPS remain outstanding after the merger.
Holders of the QUIPS who exercise their conversion rights after the merger will
be entitled to receive the same merger consideration as holders of Big Flower
common stock prior to the merger. Big Flower Press will also remain subject to
those
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reporting requirements in respect of its existing $600 million of senior
subordinated notes if these notes remain outstanding.
REGULATORY MATTERS
Big Flower and BFH Merger Corp. cannot complete the merger until
notification and information related to their respective businesses has been
provided to the Federal Trade Commission and the Department of Justice and the
specified waiting period requirements under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 have been satisfied. The required notification and
report forms were filed with the Federal Trade Commission and the Department of
Justice on September 2, 1999. The regulatory authorities granted early
termination of the waiting period for antitrust review of the merger on
September 16, 1999. The waiting period for antitrust review of the formation of
BFH Merger Corp. expired on October 2, 1999.
FEES AND EXPENSES OF THE MERGER
Big Flower's estimated fees and expenses for the merger, not including fees
and expenses associated with the Big Flower Press debt tender offer, are as
follows:
<TABLE>
<CAPTION>
DESCRIPTION APPROXIMATE AMOUNT
- ----------- -----------------------------
<S> <C>
Advisory fees and expenses................................ $ 21,000,000
Debt and equity financing fees and expenses............... 50,000,000
Legal fees and expenses................................... 12,000,000
Accounting fees and expenses.............................. 3,000,000
Printing and mailing costs................................ 1,500,000
Miscellaneous expenses.................................... 2,500,000
-----------------------------
Total................................................. $ 90,000,000
=============================
</TABLE>
To Big Flower's knowledge, no such fees and expenses are being paid to Big
Flower's affiliates, although it is expected that Thomas H. Lee Company and
Evercore Capital Partners and their respective affiliates will receive one-time
transaction fees of $20 million and $4.3 million, respectively. See "Special
Factors--Conflicts of Interest of Certain Members of the Big Flower Board of
Directors and Management; Arrangements with Thomas H. Lee Company and Evercore
Capital Partners" on page 61 for discussion of these fees.
LITIGATION CHALLENGING THE MERGER
Seven lawsuits were filed individually and as class actions by stockholders
in the Delaware Court of Chancery seeking to enjoin the consummation of or
rescind the merger or, in the alternative, to recover monetary damages. On
July 21, 1999 the lawsuits were consolidated into one action, and on August 13,
1999 an amended complaint was filed in the consolidated action. The amended
complaint names as defendants Big Flower and all of its directors. The amended
complaint alleges in general that the Big Flower directors breached their
fiduciary duties by approving the merger at a price that is inadequate and
unfair to Big Flower's stockholders. In addition, the amended complaint alleges
that certain members of management have conflicts of interest that have
prevented them from acting in the best interests of Big Flower's stockholders.
The defendants believe that the claims are entirely without merit and intend to
vigorously contest the claims.
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CAPITALIZATION
The following table shows Big Flower's actual capitalization as of June 30,
1999 and as adjusted for:
- acquisitions completed and Internet investments made subsequently;
- the merger and related recapitalization;
- the sale of Columbine JDS Systems at the time of the merger; and
- the acquisition by affiliates of BFH Merger Corp., at the time of the
merger, of Big Flower's private Internet investments.
The following table assumes that all of the options to purchase Big Flower
common stock are settled with Big Flower common shares prior to the merger or
exchanged for direct or indirect equity interests in Big Flower and that the
QUIPS have been converted into Big Flower common stock prior to the merger. The
table also assumes that there will be no investment by an affiliate of BFH
Merger Corp. in entities of Big Flower holding Big Flower's public Internet
investments; see the section of this document headed "The Merger
Agreement--Internet Investments" on page 84. You should read this table along
with the sections of this document entitled "Special Factors" on page 17 and the
consolidated financial statements of Big Flower and related notes, which are
incorporated by reference in this proxy statement.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt (including current portion)(1)(2):
Revolving credit facility................................. $ 235,231
New senior credit facility................................ $ 208,478
8 7/8% senior subordinated notes due 2007(3).............. 350,104 350,104
8 5/8% senior subordinated notes due 2008(3).............. 250,000 250,000
New high yield notes...................................... 300,000
Mezzanine financing....................................... 100,000
Other notes payable....................................... 24,741 7,341
---------- ----------
Total Debt.............................................. 860,076 1,215,923
QUIPS....................................................... 114,070
Stockholders' equity (deficit).............................. 163,787 (79,649)
---------- ----------
$1,137,933 $1,136,274
========== ==========
</TABLE>
- ------------------------
(1) Excludes off-balance sheet borrowings of $86.6 million under Big Flower's
accounts receivable securitization facility.
(2) At June 30, 1999, Big Flower had available borrowing capacity of
$286.5 million under its revolving credit facility and $63.4 million under
its accounts receivable securitization facility. On a pro forma basis, Big
Flower would have had available borrowing capacity of $183.2 million under
the new revolving credit facility as well as the $63.4 million available
under its accounts receivable securitization facility.
(3) These notes will be repurchased if the debt tender offer described under the
heading "Special Factors--Big Flower Press Debt Tender Offer" on page 70 is
consummated. If the debt tender offer is consummated, the amounts of the
senior credit facility, the new high yield notes and the mezzanine financing
will change as described under the heading "Special Factors--Big Flower
Press Debt Tender Offer" on page 70.
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SOURCES AND USES
The following table summarizes the proposed sources and uses of funds in
connection with the merger and the related recapitalization. For more
information on the capitalization of Big Flower, see "Capitalization" on
page 72; and for more information regarding Big Flower's plans to raise and use
funds involved in the recapitalization, see "Special Factors--Source and Amount
of Funds" on page 63.
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
SOURCES
New senior credit facility................................ $ 208,478
New high yield notes...................................... 300,000
Mezzanine debt............................................ 100,000
Cash investment in common stock by BFH Merger Corp........ 321,280
Proceeds from financings at, and the sale of, Columbine
JDS Systems............................................. 165,000
Proceeds from the sale of Internet investments............ 19,198
----------
Total................................................... $1,113,956
==========
USES
Repurchase of common shares............................... $ 588,651
Repurchase of common shares resulting from conversion of
QUIPS................................................... 124,020
Repayment of revolving credit facility (balance
outstanding at 6/30/99 as adjusted for acquisitions and
investments completed subsequently)..................... 291,648
Repayment of other notes payable (balance outstanding at
6/30/99)................................................ 17,500
Payment of accrued interest (balance outstanding at
6/30/99)................................................ 701
Payment of accrued preferred dividends of a subsidiary
trust (balance outstanding at 6/30/99).................. 1,436
Transaction expenses...................................... 90,000
----------
Total................................................... $1,113,956
==========
</TABLE>
The sources and uses of funds assume the following:
(1) Payment of the merger consideration for shares of Big Flower common
stock outstanding at June 30, 1999 plus shares assumed to be issued upon
the settlement of stock options less shares retained by members of
management in the merger.
(2) Conversion of all QUIPS into 3,937,144 shares of Big Flower common
stock, calculated as 2.27 million QUIPS currently outstanding at a
conversion rate of 1.7344 shares of Big Flower common stock for each
QUIPS outstanding, and the payment of the merger consideration for all of
those shares.
(3) Equity investment of $401.6 million consisting of
- $80.3 million of value attributed to shares of Big Flower common stock
retained by members of management and the exchange of options to
purchase such shares into direct or indirect equity interests of Big
Flower in the merger, and
- $321.3 million in cash.
(4) Issuance by Big Flower of $300.0 million of new high yield notes and
$100.0 million of mezzanine debt.
(5) Big Flower Press' entering into a $400.0 million senior credit facility
borrowing for operating cash needs.
(6) Repayment of the existing revolving credit facility, as adjusted to
include funds paid in connection with acquisitions and investments
completed in the third quarter of 1999.
(7) Repayment of notes payable other than Big Flower Press' senior
subordinated notes that are currently outstanding and capital lease
obligations. The Big Flower Press' senior subordinated notes will be
repurchased if the debt tender offer described under the heading "Special
Factors--Big Flower Press Debt Tender Offer" on page 70 is consummated.
(8) The sale of Columbine JDS Systems and Big Flower's private Internet
investments at the time of the merger, but no investment by an affiliate
of BFH Merger Corp. in the entities of Big Flower holding Big Flower's
public Internet investments.
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DESCRIPTION OF BIG FLOWER CAPITAL STOCK
FOLLOWING THE MERGER
The following description of the material terms of the capital stock of Big
Flower does not purport to be complete and is qualified in its entirety by
reference to Big Flower's restated certificate of incorporation.
GENERAL
Following the merger, the authorized capital stock of Big Flower will be
50,000,000 shares of common stock, par value $0.01 per share and 10,000,000
shares of preferred stock, par value $0.01 per share.
BIG FLOWER COMMON STOCK
The holders of Big Flower common stock following the merger will be entitled
to one vote per share on all matters submitted for action by the stockholders,
including the election of directors, and will be entitled to participate equally
in dividends when and as such dividends may be declared by the Big Flower board
of directors out of funds legally available for those dividends. In the event of
a liquidation, dissolution or winding-up of Big Flower, holders of Big Flower
common stock will have the right to a ratable portion of assets remaining after
satisfaction in full of the prior rights of creditors, including the holders of
Big Flower's debt, all liabilities and the aggregate liquidation preferences of
any outstanding shares of preferred stock. The holders of Big Flower common
stock will have no conversion, redemption, preemptive or cumulative voting
rights. All outstanding shares of Big Flower common stock will be validly
issued, fully paid and non-assessable.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of United States federal income tax consequences of
the merger represents the opinion of Sullivan & Cromwell, counsel to Big Flower,
and is based upon the Internal Revenue Code of 1986, its legislative history,
existing and proposed Treasury regulations, judicial authority and current
administrative rulings and pronouncements of the Internal Revenue Service, all
of which are subject to change, possibly with retroactive effect. The summary
does not address any foreign, state, or local tax consequences of the merger.
The summary assumes that the Big Flower common stock is held as a capital
asset. Moreover, the summary does not address all tax consequences of the merger
that may be relevant to stockholders of Big Flower in light of their particular
circumstances or to some types of stockholders subject to special treatment
under United States federal income tax law, including:
- tax-exempt entities,
- insurance companies,
- financial institutions,
- members of management of Big Flower retaining shares of common stock in
the merger,
- persons who acquired their shares of common stock by exercising employee
or director stock options or otherwise as compensation,
- dealers in securities or currencies,
- traders in securities that elect to mark to market,
- investors that hold common stock as part of a straddle or a hedging or
conversion transaction,
- foreign persons, and
- investors whose functional currency is not the U.S. dollar.
Furthermore, the summary does not address the tax treatment of persons who
exercise appraisal rights in the merger.
HOLDERS OF BIG FLOWER COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS
CONCERNING THE TAX CONSEQUENCES, IN THEIR PARTICULAR CIRCUMSTANCES, UNDER THE
INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION, OF THE
MERGER.
THE MERGER
The merger will be a taxable transaction for United States federal income
tax purposes. You will be treated for United States federal income tax purposes
as if you:
- sold a portion of your Big Flower common stock to Thomas H. Lee Equity
Fund IV and Evercore Capital Partners for cash, and
- had your remaining Big Flower common stock redeemed by Big Flower for
cash.
The percentage of your shares of Big Flower common stock that will be
considered sold to Thomas H. Lee Equity Fund IV and Evercore Capital Partners
should be equal to
- the aggregate amount of cash contributed to BFH Merger Corp. by
Thomas H. Lee Equity Fund IV and Evercore Capital Partners, divided by
- the aggregate amount of cash paid to holders of Big Flower common stock in
the merger.
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Your remaining shares of Big Flower common stock will be treated as having been
redeemed by Big Flower for the remaining cash paid by Big Flower.
THE SALE OF BIG FLOWER COMMON STOCK TO THOMAS H. LEE EQUITY FUND IV AND
EVERCORE CAPITAL PARTNERS FOR CASH
You will recognize capital gain or loss on the deemed sale for cash of your
shares of Big Flower common stock to Thomas H. Lee Equity Fund IV and Evercore
Capital Partners equal to the difference between the amount of cash you are
considered to have received from those investors and your adjusted tax basis in
the shares of Big Flower common stock you are considered to have sold to those
investors. Your gain or loss will be long-term capital gain or loss if at the
time of the sale you have held your Big Flower common stock for more than one
year.
THE REDEMPTION OF BIG FLOWER COMMON STOCK FOR CASH
Your shares of Big Flower common stock that are considered to have been
redeemed by Big Flower for cash will be treated as having been sold or exchanged
for cash if the redemption
- is "substantially disproportionate,"
- is "not essentially equivalent to a dividend," or
- is a "complete termination" of your interest in Big Flower.
In determining whether any of these tests has been met, you must take into
account the shares of stock you actually own and the shares of stock you
constructively own by reason of the constructive ownership rules set forth in
Section 318 of the Internal Revenue Code. Under the constructive ownership
rules, you will be deemed to own any shares of Big Flower stock that are owned,
actually and in some cases constructively, by certain related individuals or
entities and any shares of Big Flower stock that you have a right to acquire by
exercise of an option or by conversion or exchange of a security.
The deemed redemption of your Big Flower common stock by Big Flower will be
"substantially disproportionate" if, among other things, the percentage of
shares of Big Flower common stock you actually or constructively own immediately
following the merger is less than 80% of the percentage of shares of common
stock you actually and constructively owned immediately prior to the merger.
The deemed redemption of your Big Flower common stock will be "not
essentially equivalent to a dividend" if the reduction in your proportionate
interest in Big Flower by reason of the merger constitutes a "meaningful
reduction" given your particular facts and circumstances. Depending upon your
specific facts and circumstances, even a small reduction in your proportionate
equity interest may satisfy this test. For example, the IRS has indicated in a
published ruling that any reduction in the percentage interest of a stockholder
whose relative stock interest in a publicly held corporation is minimal (I.E.,
an interest of less than 1%) and who exercises no control over corporate affairs
should constitute a "meaningful reduction."
The deemed redemption of your Big Flower common stock will be a "complete
termination" of your interest in Big Flower if (1) all of the shares of Big
Flower common stock you actually own are purchased or redeemed pursuant to the
merger and (2) all of the shares of Big Flower common stock you constructively
own are purchased or redeemed pursuant to the merger or, if certain requirements
are satisfied, you waive, in accordance with Section 302(c) of the Internal
Revenue Code, attribution of those shares of Big Flower common stock which would
otherwise be treated as constructively owned by you.
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You should consult your tax advisor to determine whether, in your particular
circumstances, the deemed redemption of your Big Flower common stock will be
"substantially disproportionate," "not essentially equivalent to a dividend" or
a "complete termination" of your interest in Big Flower.
If you meet any of the tests listed above for the redemption to be treated
as a sale or exchange of your common stock of Big Flower, you will recognize
capital gain or loss on the redemption of your shares of Big Flower stock equal
to the difference between the amount of cash you are treated as receiving from
Big Flower and your adjusted tax basis in the shares of Big Flower common stock
considered to have been redeemed. Your gain or loss will be long-term gain or
loss if at the time of the redemption you have held your Big Flower common stock
for more than one year.
If you do not meet any of the tests listed above for the redemption to be
treated as a sale or exchange of your common stock of Big Flower, the cash you
are considered to have received from Big Flower will generally be taxed as a
dividend to the extent paid out of our current or accumulated earnings and
profits. Any amount in excess of our current or accumulated earnings and profits
would first reduce your tax basis in the common stock and thereafter would be
treated as a capital gain. If you are a corporation, you may be eligible for the
dividends-received deduction, subject to certain limitations.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to dividends paid,
and accumulated dividends deemed paid, in respect of your Big Flower common
stock and to the proceeds received on the disposition of your Big Flower common
stock. Backup withholding at a rate of 31% will apply to payments you receive in
respect of your Big Flower common stock if you fail to provide an accurate
taxpayer identification number or you are notified by the Internal Revenue
Service that you have failed to report all interest and dividends required to be
shown on your United States federal income tax returns. You should consult your
tax advisor concerning the application of information reporting and backup
withholding requirements to your particular circumstances.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against your United States federal income tax liability
provided the required information is furnished to the IRS.
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THE MERGER AGREEMENT
THE FOLLOWING DESCRIBES VARIOUS ASPECTS OF THE PROPOSED MERGER, INCLUDING
THE MATERIAL PROVISIONS OF THE MERGER AGREEMENT. THE FOLLOWING DESCRIPTION OF
THE MERGER AGREEMENT DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE AMENDED AND RESTATED MERGER
AGREEMENT, WHICH IS ATTACHED AS APPENDIX A TO THIS DOCUMENT AND IS INCORPORATED
INTO THIS DOCUMENT BY REFERENCE. ALL BIG FLOWER STOCKHOLDERS ARE URGED TO READ
THE MERGER AGREEMENT CAREFULLY AND IN ITS ENTIRETY.
THE MERGER
The merger agreement provides for a merger of Big Flower and BFH Merger
Corp. under which BFH Merger Corp. will merge with and into Big Flower, with Big
Flower as the surviving corporation. Big Flower will continue to be governed by
the laws of the State of Delaware. The transaction is intended to qualify as a
"recapitalization" for accounting and financial reporting purposes and will be a
taxable transaction for federal income tax purposes.
The merger will become effective when Big Flower files a certificate of
merger with the Secretary of State of the State of Delaware or at a later time
if so specified in the certificate of merger. The merger is expected to become
effective on the same day as the closing of the merger. This will take place
either as soon as practicable after the conditions described in the merger
agreement have been satisfied or waived or on another date agreed upon by Big
Flower and BFH Merger Corp.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the time the merger becomes effective:
- each share of Big Flower common stock then outstanding, except for the
shares owned by:
- - BFH Merger Corp., Big Flower or any of its subsidiaries,
- - any holder who properly exercises his or her appraisal rights, and
- - R. Theodore Ammon and, if Columbine JDS Systems Inc. is sold, an
affiliate of BFH Merger Corp., retaining shares of Big Flower common
stock in the merger,
will be converted into $31.50 in cash, without interest;
- each share of Big Flower common stock owned by Big Flower will
automatically be cancelled without the payment of any consideration;
- each Big Flower option outstanding and unexercised will be converted into
the specific rights described on page 62 under "Special Factors--Conflicts
of Interest of Certain Members of the Big Flower Board of Directors and
Management--Treatment of Stock Options;"
- the shares of common stock of BFH Merger Corp. outstanding will be
converted into a number of shares of Big Flower common stock equal to
12,194,449 shares of Big Flower common stock, minus any shares retained by
members of management in the merger and any shares issued in exchange for
options, subject to specific adjustments; and
- some shares of Big Flower common stock held by members of management will
be retained by those persons in the merger.
The merger agreement provides that at any time until the effective time of
the merger, the following agreements could be reached:
- BFH Merger Corp. and any person who owns shares of Big Flower common stock
may agree to add or remove that person from the list of those who will
retain shares of Big Flower common stock in the merger;
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- BFH Merger Corp. and Mr. Ammon may agree to permit him to exchange a
number of shares of Big Flower common stock for an interest in an
investment instrument;
- BFH Merger Corp. and any person who holds options to purchase common stock
of Big Flower may agree to change the treatment of those options in the
merger; and
- Thomas H. Lee Company or Evercore Capital Partners may agree with any
member of management who owns shares of Big Flower common stock to
purchase any of that person's shares that would otherwise be exchanged for
the merger consideration.
EXCHANGE OF BIG FLOWER COMMON STOCK
Bank of New York will be the paying agent and exchange agent. After the
merger is completed, Bank of New York will mail a letter of transmittal to you.
You should use that letter of transmittal in forwarding and exchanging Big
Flower stock certificates. After Bank of New York receives a Big Flower stock
certificate and a letter of transmittal from you, you will be entitled to
receive the merger consideration. Bank of New York will cancel the surrendered
certificates. DO NOT SEND IN YOUR STOCK CERTIFICATES UNTIL YOU RECEIVE A LETTER
OF TRANSMITTAL.
You will not receive any interest on the cash payable upon surrender of any
certificate. In the event of a transfer of ownership of Big Flower common stock
that is not registered in the transfer records of Big Flower, Bank of New York
will require documentary evidence of the transfer and prior payment of
applicable taxes before payment of the merger consideration is made to the
stockholder.
If you have not complied with the exchange procedures within 180 days after
the completion of the merger, you may look only to Big Flower for payment in
exchange for your shares.
If your Big Flower stock certificate has been lost, stolen or destroyed, you
will only be entitled to receive payment for your common stock by making an
affidavit and, if required by Big Flower, posting a bond in an amount sufficient
to protect Big Flower against claims related to your stock certificate.
CORPORATE GOVERNANCE
CERTIFICATE OF INCORPORATION AND BYLAWS OF BIG FLOWER FOLLOWING THE MERGER
The merger agreement provides that the Big Flower restated certificate of
incorporation and the Big Flower amended and restated bylaws as in effect
immediately prior to the merger will remain in effect after the merger until
amended in accordance with their respective provisions.
DIRECTORS AND OFFICERS OF BIG FLOWER FOLLOWING THE MERGER
The directors of BFH Merger Corp. immediately prior to the merger will be
the directors of Big Flower immediately after the merger until their successors
are duly elected. The executive officers of Big Flower immediately prior to the
merger will be the officers of Big Flower until their successors are duly
elected. For a list and description of the directors and executive officers of
Big Flower after the merger, see "Directors and Management of Big Flower
Following the Merger" on page 98.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties made by
Big Flower, some of which are qualified as to materiality and knowledge. The
matters these representations cover include:
- corporate existence and capitalization,
- ownership of the shares of capital stock of Big Flower's material
subsidiaries,
- corporate power and authority to enter into and perform its obligations
under the merger agreement, and to consummate the merger,
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- that the merger agreement and the transactions contemplated by the merger
agreement will not result in a violation of the organizational documents
of Big Flower or any of its subsidiaries or contracts to which Big Flower
is a party, or violate any law, rule or regulation,
- approvals necessary for Big Flower to complete the merger,
- documents filed with the Securities and Exchange Commission, including
financial statements, and the accuracy of information contained in these
documents,
- absence of some material adverse effects on Big Flower,
- pending or threatened suits, actions or other proceedings,
- employee benefit plans and labor relations,
- related party transactions,
- tax matters,
- compliance with laws and required licenses and permits,
- material contracts,
- intellectual property matters,
- environmental matters,
- non-applicability of state anti-takeover statutes, and
- year 2000 compliance.
In addition, Big Flower represented and warranted to BFH Merger Corp. that
it has amended the rights agreement, dated as of November 28, 1995, between Big
Flower and The Bank of New York, as rights agent, to render that agreement
inapplicable to the merger.
The merger agreement also contains various representations and warranties
made by BFH Merger Corp., some of which are qualified as to materiality. The
matters these representations cover include:
- corporate existence,
- corporate power and authority to enter into, deliver and perform its
obligations under the merger agreement and to consummate the merger,
- that the merger agreement and the transactions contemplated by the merger
agreement will not result in a violation of BFH Merger Corp.'s
organizational documents or contracts to which BFH Merger Corp. is a
party,
- approvals necessary for BFH Merger Corp. to complete the merger,
- accuracy of information provided by BFH Merger Corp. for inclusion in this
document,
- financing commitments, and
- non-applicability of Delaware anti-takeover statute.
COVENANTS
CONDUCT OF BIG FLOWER'S BUSINESS PRIOR TO THE MERGER
Big Flower has agreed as to itself and each of its subsidiaries, that, from
the date of the merger agreement to the completion of the merger, unless BFH
Merger Corp. otherwise approves in writing, and except as otherwise expressly
contemplated by the merger agreement or disclosed to BFH Merger Corp. to, in
general, conduct its businesses in the ordinary and usual course in
substantially the same manner as previously conducted.
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Specifically, Big Flower has agreed that:
- it will not declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than
dividends paid by a subsidiary to Big Flower and various distributions,
- it will not split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of or in
substitution for shares of its capital stock,
- it will not purchase, redeem or otherwise acquire any shares of capital
stock or other securities of it or any of its subsidiaries or any rights,
warrants or options to acquire any such shares or other securities,
- it will not issue, sell or pledge securities, other than
- - the issuance of common stock upon the exercise of outstanding stock
options or otherwise pursuant to outstanding equity stock-based
awards,
- - upon conversion of the QUIPS,
- - up to 50,000 shares of common stock pursuant to Big Flower's two
existing 401(k) plans, and
- - as previously disclosed in writing to BFH Merger Corp.,
- it will not amend its certificate of incorporation, bylaws or other
comparable organizational documents or alter the corporate structure of
any material subsidiary,
- it will not acquire any assets that are material, individually or in the
aggregate, to Big Flower and its subsidiaries, except for purchases of
inventory and supplies in the ordinary course and purchase orders in the
ordinary course which do not require payments over $5,000,000 per year,
- it will not acquire any business or acquire any equity interest in any
person who is not an affiliate,
- it will not incur any indebtedness for borrowed money in excess of
$1,000,000, except for borrowings under existing lines of credit incurred
to fund working capital in the ordinary course of business and consistent
with past practice,
- it will not make any new capital expenditures that would cause total
capital expenditure for the period from January 1, 1999 to the completion
of the merger to exceed $115,000,000,
- it will not change its principles of accounting or methods of reporting
income and deductions for federal income tax purposes, except as required
by changes in law or regulation, by generally accepted accounting
principles, or as discussed in Big Flower's securities filings,
- it will not settle or compromise any shareholder derivative suits arising
out of the merger agreement or any other material litigation or settle,
pay or compromise any claims not required to be paid,
- it will not, except under some limited exceptions and in the ordinary
course of business consistent with past practice, increase the
compensation or benefits of any director, officer or employee of Big
Flower or any of its subsidiaries,
- it will not sell, lease or encumber any of its properties or assets other
than immaterial properties or assets except in the ordinary course of
business consistent with past practice,
- it will not enter into or amend in a manner adverse to BFH Merger Corp.
any new agreement which has a non-competition, geographical restriction or
similar covenant that would be material to Big Flower,
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- it will not make or rescind any material tax election, or settle any
material claim, litigation, or other controversy relating to taxes, and
- it will not authorize, or commit or agree to take, any of the foregoing
actions.
ACQUISITION TRANSACTIONS
In the merger agreement and except as described below, Big Flower has agreed
that it will not, directly or indirectly through another person, solicit any
inquiries or proposals relating to an "acquisition transaction," as defined
below, or participate in any discussions or negotiations regarding an
acquisition transaction. This prohibition on solicitation and facilitation also
covers Big Flower's furnishing information to any other person.
In the merger agreement, an "acquisition transaction" means:
- any acquisition or purchase of 15% or more of the assets of Big Flower or
any of its subsidiaries, or 15% or more of any securities of Big Flower or
any of its subsidiaries,
- any merger, business combination, recapitalization or similar transaction
involving Big Flower or any of its subsidiaries, or
- any public announcement of a proposal, plan or intention to do any of the
foregoing.
However, in response to a "bona fide proposal" to acquire Big Flower or its
subsidiaries, which it did not solicit, Big Flower may, but only if legal
counsel advises the board of directors that doing so is necessary for it to
comply with its fiduciary duties to stockholders under applicable law:
- furnish information with respect to it and its subsidiaries to any person
making a bona fide proposal, and
- participate in discussions or negotiations regarding the bona fide
proposal.
In order to engage in those activities, Big Flower must provide prior
written notice of its intention to take that action to BFH Merger Corp. and must
obtain a confidentiality agreement from the party making the proposal.
In the merger agreement, a "bona fide proposal" to acquire Big Flower or its
subsidiaries means a proposal which the board of directors determines in good
faith, after receiving and considering advice from legal and financial advisors,
is reasonably capable of being consummated.
Nothing contained in the merger agreement prohibits Big Flower from taking
and disclosing to its stockholders a position with respect to some specified
tender offers, as contemplated by the Securities Exchange Act of 1934.
Big Flower has also agreed:
- to terminate any discussions or negotiations with any parties regarding
acquisition transactions that were being conducted at the time the merger
agreement was signed,
- to notify BFH Merger Corp. promptly if any proposals regarding an
acquisition transaction are received or any discussions or negotiations
are sought and to identify the terms and conditions of the proposal and
the name of the party making it, and
- to use reasonable best efforts to cause any party possessing confidential
information about Big Flower to return or destroy all of that information.
EFFORTS; OTHER ACTIONS
The merger agreement contains additional agreements relating to the conduct
of the parties prior to the merger, including the following:
- to promptly make their respective filings with applicable governmental
entities,
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- to use reasonable best efforts in obtaining all necessary regulatory
approvals and consents and to take other reasonable actions to implement
the transactions contemplated by the merger agreement,
- to give prompt notice of any representation or warranty being untrue in a
material respect or the failure to comply with any covenant, condition or
agreement,
- to correct any of the information supplied by either BFH Merger Corp. or
Big Flower or by any of their affiliates for inclusion in this proxy
statement if that information becomes false or misleading,
- to consult with each other on any public statement or press release
regarding the merger and related recapitalization,
- to use best efforts to promptly hold the stockholders' meeting and to
complete the merger promptly after receipt of the requisite stockholder
approval.
The merger agreement contains additional agreements by Big Flower, including
the following:
- to afford BFH Merger Corp. and its representatives reasonable access to
information pertaining to Big Flower and its subsidiaries,
- to call a meeting of stockholders, prepare and file with the Securities
and Exchange Commission a proxy statement, and use best efforts to solicit
from stockholders proxies in favor of the merger,
- to begin compliance with the requirements of the New Jersey Industrial
Site Recovery Act, and
- on BFH Merger Corp.'s request, to take all reasonable steps to assist any
challenge by BFH Merger Corp. to the validity or applicability to the
merger and related recapitalization of any state takeover law.
In the merger agreement, BFH Merger Corp. also agreed to use its best
efforts to cause the necessary financing to be obtained on the terms described
in the commitment letters that are attached to Schedule 6.02(d) of the merger
agreement. This is subject to the exception that BFH Merger Corp. may enter into
similar financing commitments with other nationally recognized financial
institutions and may modify the capital structure set forth in the commitment
letters but only if:
- the total committed equity equals at least $457.5 million, which includes
any shares of common stock being retained in the merger, any options that
are exchanged in the merger for direct or indirect equity interests in the
surviving corporation or its current operating subsidiaries and the funds
utilized by BFH Merger Corp. or its affiliates to purchase Columbine JDS
Systems and purchase and/or invest in the Internet investments,
- the total cash price paid to all Big Flower stockholders is no less than
otherwise would have been paid, and
- the modified financing is no less certain than the committed financing.
In addition, BFH Merger Corp. has agreed to obtain or provide additional
debt financing or equity commitments necessary to obtain commitments for any
increased financing required as a result of any acquisition by Big Flower or its
subsidiaries approved by BFH Merger Corp.
INDEMNIFICATION AND INSURANCE
After the merger, Big Flower will indemnify the directors, officers and
employees of Big Flower and its subsidiaries for any losses they incur because
they acted as directors, officers and employees of Big Flower or its
subsidiaries before the merger, to the full extent permitted under Delaware law
or, if
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this protection is less, under Big Flower's certificate of incorporation, bylaws
and agreements in effect on October 11, 1999.
Big Flower will either provide liability insurance for a period of six years
after the merger for those directors and officers for acts or omissions
occurring before the merger on terms at least as favorable as those of any
policy presently in effect, or will provide tail insurance covering these
matters for the same period. However, during the six-year period, Big Flower
will not be required to provide any more coverage than can be obtained for the
remainder of the period for an annual premium costing more than 250% of the
annual premium currently paid by Big Flower for its existing coverage.
EMPLOYEE BENEFITS
BFH Merger Corp. has agreed that after the completion of the merger, Big
Flower will honor the existing obligations under disclosed employment, severance
and bonus arrangements. For a period of two years following the completion of
the merger, Big Flower will provide its employees with benefits no less
favorable in the aggregate than those provided by Big Flower at the time the
merger agreement was signed, except with respect to employees of any business
sold to a third party after the merger is completed.
COLUMBINE JDS SYSTEMS
Big Flower has agreed to cause Big Flower Digital Services, Inc. to transfer
all of the outstanding shares of Columbine JDS Systems, Inc. to an affiliate of
BFH Merger Corp. at or after the effective time of the merger for a purchase
price of $37 million, subject to the satisfaction of certain conditions. These
conditions include
- the completion of the merger,
- compliance with all relevant provisions of the 8 5/8% and the 8 7/8% bond
indentures, and
- the receipt by the Big Flower board of directors of an opinion that the
purchase price for Columbine JDS Systems is fair to Big Flower from a
financial point of view.
Simultaneously with this transaction, Columbine JDS Systems will borrow $135
million, comprised of $100 million in senior bank financing and $35 million in
mezzanine financing. These proceeds, less $7 million (which represents estimated
fees and expenses), will be paid to Big Flower Digital Services and then
dividended up to either Big Flower Press or Big Flower to be used as necessary
to effect the merger and related recapitalization.
Big Flower has agreed to amend the terms and conditions of the Columbine JDS
Systems sale, as set forth in Schedule 5.14 to the merger agreement, in any
manner reasonably requested by BFH Merger Corp. provided that the amendment does
not result in any cost to Big Flower if the merger does not occur or result in
any delay to the merger or make the merger less likely.
INTERNET INVESTMENTS
Big Flower and BFH Merger Corp. have agreed that an affiliate of BFH Merger
Corp. will purchase certain of Big Flower's private Internet investments,
including investments Big Flower makes after the date of the merger agreement,
at or after the effective time of the merger, at a purchase price equal to Big
Flower's cost of investment, subject to the satisfaction of certain conditions.
These conditions include
- the completion of the merger,
- compliance with all relevant provisions of the 8 5/8% and the 8 7/8% bond
indentures, and
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- the receipt by the Big Flower board of directors of an opinion from a
nationally-recognized financial advisor that the purchase price for each
Internet investment is fair to Big Flower from a financial point of view.
The proceeds of each of these purchases will be dividended to Big Flower
Press or Big Flower to be used as necessary to effect the merger and related
recapitalization.
The merger agreement states that, if the sale of any private Internet
investment cannot be consummated because a third party consent or approval is
not obtained, Big Flower has agreed to ensure that the affiliate of BFH Merger
Corp. receives the economic benefit it would have received had the investment
been transferred.
Big Flower and BFH Merger Corp. have also agreed that an affiliate of BFH
Merger Corp. will invest in the entities currently holding Big Flower's public
Internet investments by contributing cash to them in exchange for an interest in
these entities at or after the effective time of the merger on certain agreed
upon terms and subject to the satisfaction of certain conditions. If these
investments are made, the cash that is contributed to these entities will be
distributed to Big Flower to be used as necessary to effect the merger and
related recapitalization. The conditions to these investments include:
- the completion of the merger,
- compliance with all relevant provisions of the 8 5/8% and the 8 7/8% bond
indentures, and
- the receipt by the Big Flower board of directors of an opinion from a
nationally-recognized financial advisor that the contribution of cash by
the affiliate of BFH Merger Corp. and subsequent distribution of these
funds to the holders of interests in these entities is fair to Big Flower
from a financial point of view.
The merger agreement states that, if any contribution to a public Internet
investment cannot be consummated because a third party consent or approval is
not obtained, Big Flower has agreed to ensure that the affiliate of BFH Merger
Corp. receives the economic benefit it would have received had the contribution
been made.
Big Flower has agreed to amend the terms and conditions of the transactions
relating to the private and public Internet investments, as set forth in
Schedules 5.15(a) and 5.15(b) to the merger agreement, in any manner reasonably
requested by BFH Merger Corp. provided that the amendment does not result in any
cost to Big Flower if the merger does not occur or result in any delay to the
merger or make the merger less likely to occur.
Big Flower and BFH Merger Corp. currently expect that an affiliate of BFH
Merger Corp. will purchase the private Internet investments, subject to
fulfillment of conditions described above, but that the investment by an
affiliate of BFH Merger Corp. in the entities holding Big Flower's public
Internet investments will not occur. Big Flower and BFH Merger Corp. expect that
the merger agreement will be amended to reflect this expectation regarding the
investment in the public Internet investments.
Finally, Big Flower has agreed that it will take commercially reasonable
actions to implement an investment instrument on terms established by BFH Merger
Corp. if requested by BFH Merger Corp. It is intended that an investment
instrument could be utilized if a private Internet investment cannot be sold or
if BFH Merger Corp. considers that such an investment instrument would be
appropriate with respect to a public Internet investment. An investment
instrument is any security, instrument or other arrangement which replaces a
portion of BFH Merger Corp.'s equity commitment. It could take the form of
redeemable stock, a prepaid forward contract or any other security or
instrument. No investment instrument will be implemented if it results in a cost
or liability to Big Flower if the merger does not occur, or if the merger is
delayed or made less likely to occur. As of the date of this document, BFH
Merger Corp. has not requested Big Flower to implement an investment instrument.
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CONDITIONS OF THE MERGER
The respective obligations of each of Big Flower and BFH Merger Corp. to
effect the merger are subject to the satisfaction or waiver, at or prior to the
merger, of the following conditions:
- the adoption of the merger agreement by Big Flower's stockholders,
- the absence of any legal restriction that prohibits completion of the
merger or is reasonably likely to impose a material limitation on the
ability of BFH Merger Corp. or its affiliates to acquire Big Flower, but,
if the legal restriction is an order or injunction, BFH Merger Corp. must
have used commercially reasonable best efforts to prevent the imposition
of the order or injunction or to lessen the effects of the order or
injunction,
- the receipt of a letter from an independent evaluation firm as to the
solvency of Big Flower, Big Flower Press, Big Flower Digital
Services, Inc., and any other subsidiary which Big Flower or BFH Merger
Corp. reasonably requests the solvency opinion letter to address, and each
of such companies' respective subsidiaries on a consolidated basis after
giving effect to the merger and recapitalization.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF BIG FLOWER AND BFH MERGER CORP.
The obligations of each of Big Flower and BFH Merger Corp. are subject to
the further satisfaction or waiver by each party of the following conditions:
- generally, the representations and warranties of the other party in the
merger agreement,
- - to the extent already subject to a material adverse effect qualifier,
being true both as of the date of the merger agreement and at and as
of the time of the merger, and
- - to the extent not already subject to a material adverse effect
qualifier, being true both as of the date of the merger agreement and
at and as of the time of the merger unless failure to be true would
have a material adverse effect on the other party, and
- the other party having performed all obligations required to be performed
by it under the merger agreement at or prior to the time of the merger
except for failures to perform that would not have a material adverse
effect on the other party or materially adversely affect the ability of
that other party to complete the transactions contemplated by the merger
agreement.
In the merger agreement, "material adverse effect" means, when used in
connection with Big Flower or BFH Merger Corp., any change in or effect on the
business, financial condition, results of operations or reasonably foreseeable
prospects of that party and its subsidiaries taken as a whole.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF BFH MERGER CORP.
The obligations of BFH Merger Corp. are subject to the further satisfaction
or waiver by BFH Merger Corp. of the following conditions:
- Big Flower, its subsidiaries and BFH Merger Corp. must have received the
proceeds of the debt and equity financings described in the commitment
letters in sufficient amounts to complete the merger, including to pay the
merger consideration and any cash consideration for options, to refinance
certain of Big Flower's debt, to pay transaction fees and expenses and to
provide for working capital needs of Big Flower after the merger,
- BFH Merger Corp. being reasonably satisfied that Big Flower's total funded
debt, including the accounts receivable securitization facility,
immediately prior to the merger, net of cash, cash equivalents and debt in
respect of the QUIPS, is less than:
- - $1.028 billion, plus
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- - any indebtedness incurred in consummating acquisitions after
October 11, 1999 which have been agreed to by BFH Merger Corp., and
- the absence of any pending litigation brought by a government entity, or
by any other person which has a reasonable likelihood of success, that
seeks to, among other things, prohibit or restrict the completion of the
merger and the transactions contemplated by the merger agreement.
TERMINATION AND EFFECTS OF TERMINATION
Big Flower and BFH Merger Corp. may terminate the merger agreement and
abandon the merger at any time prior to the merger becoming effective by mutual
written consent.
TERMINATION BY BIG FLOWER OR BFH MERGER CORP.
Big Flower or BFH Merger Corp. may terminate the merger agreement and
abandon the merger at any time prior to the merger if:
- the merger is not completed by the "termination date", defined below,
provided that the terminating party has not materially breached the merger
agreement,
- a court order or ruling of another governmental entity permanently
prohibiting completion of the merger becomes final and non-appealable,
provided that the terminating party shall have used its reasonable best
efforts to remove or lift the order or ruling, or
- the approval of Big Flower's stockholders required by the merger agreement
is not obtained.
TERMINATION BY BFH MERGER CORP.
BFH Merger Corp. may terminate the merger agreement and abandon the merger
at any time prior to the merger if:
- the Big Flower board fails to recommend to Big Flower's stockholders that
they vote in favor of the merger, withdraws or adversely modifies its
approval or recommendation of the merger to Big Flower's stockholders or
resolves to do any of the foregoing,
- the Big Flower board approves or recommends an acquisition transaction to
its stockholders,
- Big Flower takes any other steps to impede Big Flower stockholder approval
of the merger, or resolve to do so,
- Big Flower breaches its covenant with respect to its rights plan, which
prohibits Big Flower from:
- - redeeming the stockholder rights,
- - amending the stockholder rights plan, or
- - taking any other action that would permit a third party, other than
BFH Merger Corp. and its affiliates, to acquire beneficial ownership
of at least 15% of Big Flower common stock,
or Big Flower takes any action like that after the board of directors
determines in good faith and after consultation with legal counsel, that
doing so is necessary for the board of directors to comply with its
fiduciary duties to stockholders under applicable law.
- Big Flower materially breaches any representation, warranty, covenant or
agreement contained in the merger agreement which, unless cured, would
result in a failure of either:
- - the condition to the obligations of BFH Merger Corp. to complete the
merger relating to the accuracy of the representations and warranties
of Big Flower, or
- - the condition to the obligations of BFH Merger Corp. to complete the
merger relating to the performance by Big Flower of its obligations
under the merger agreement.
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TERMINATION BY BIG FLOWER
Big Flower may terminate the merger agreement and abandon the merger at any
time prior to the merger by action of its board if:
- any person has made a bona fide proposal relating to an acquisition
transaction, or has commenced a tender or exchange offer for the shares of
Big Flower common stock, and the board of directors determines in good
faith
- - after consultation with its financial advisors, that the transaction
constitutes a superior proposal, and
- - after consultation with counsel, that approval of the proposal and
termination of the merger agreement is necessary to comply with its
fiduciary duties to stockholders under applicable law, or
- BFH Merger Corp. materially breaches any representation, warranty,
covenant or agreement contained in the merger agreement which, unless
cured prior to the termination date, would result in a failure of either:
- - the condition to the obligations of Big Flower to complete the merger
relating to the accuracy of the representations and warranties of BFH
Merger Corp., or
- - the condition to the obligations of Big Flower to complete the merger
relating to the performance by BFH Merger Corp. of its obligations
under the merger agreement.
In the merger agreement, "termination date" means the later of October 31,
1999 and the date determined by adding to October 31, 1999 the number of days
after September 1, 1999 that this proxy statement is mailed to Big Flower
stockholders; but in no event will the termination date be later than
December 31, 1999.
FEES AND EXPENSES
If the merger agreement is terminated for any reason other than a material
breach by BFH Merger Corp., Big Flower will reimburse Thomas H. Lee Company,
Evercore Capital Partners and BFH Merger Corp. collectively for out-of-pocket
expenses and fees up to $10 million.
If the merger agreement is terminated:
- by BFH Merger Corp. because:
- - the Big Flower board fails to recommend to Big Flower's stockholders
that they vote in favor of the merger or the board withdraws or
adversely modifies its approval or recommendation of the merger to
Big Flower's stockholders or resolves to do any of the foregoing,
- - the Big Flower board of directors recommends another acquisition
transaction or resolves to do so,
- - Big Flower takes any other steps to impede Big Flower stockholders'
adoption of the merger agreement,
- - Big Flower breaches its covenant with respect to its stockholder
rights plan, which prohibits Big Flower from redeeming the rights,
amending the stockholder rights plan, or taking any other action that
would permit a third party, other than BFH Merger Corp. and its
affiliates, to acquire beneficial ownership of at least 15% of Big
Flower common stock, or
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- by Big Flower because any person has made a bona fide proposal relating to
an acquisition transaction, or has commenced a tender or exchange offer
for the shares of Big Flower common stock, and the board of directors
determines in good faith
- - after consultation with its financial advisors, that the transaction
constitutes a superior proposal, and
- - after consultation with counsel, that approval of the proposal and
termination of the merger agreement is necessary to comply with its
fiduciary duties to stockholders under applicable law, or
- by either Big Flower or BFH Merger Corp. because:
- - Big Flower's stockholders have not adopted the merger agreement, and
- - prior to the stockholder vote, a third party, other than Thomas H.
Lee Company, Evercore Capital Partners or their affiliates, has made
or disclosed a proposal for an acquisition transaction,
then Big Flower must pay to BFH Merger Corp. a termination fee of $30 million
less any out-of-pocket expenses or fees paid to Thomas H. Lee Company, Evercore
Capital Partners and BFH Merger Corp., up to $10 million, as described above.
If the merger agreement is terminated by either Big Flower or BFH Merger
Corp. because Big Flower's stockholders have not adopted the merger agreement in
a situation other than where a third party, other than Thomas H. Lee Company,
Evercore Capital Partners or their affiliates, has made or disclosed a proposal
for an acquisition transaction, then Big Flower must pay to BFH Merger Corp. a
termination fee of $10 million, to be set-off against any out-of-pocket expenses
or fees paid to Thomas H. Lee Company, Evercore Capital Partners and BFH Merger
Corp. described above.
Whether or not the merger is completed, all costs and expenses incurred in
connection with the merger will be paid by the party incurring the expense,
except for termination fees paid and expenses reimbursed by Big Flower, as
described above.
AMENDMENT; WAIVER
BFH Merger Corp. and Big Flower may amend the merger agreement by written
agreement at any time before or after the approval of the merger agreement by
Big Flower's stockholders. After Big Flower's stockholders have approved the
merger agreement, no amendment may be made which by law requires further
stockholder approval without that further approval by Big Flower's stockholders
having been obtained.
Any provision of the merger agreement may be waived prior to the merger
being completed, but only if the waiver is in writing and signed by the party
against whom the waiver is to be effective.
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APPRAISAL RIGHTS
Holders of Big Flower common stock can decide to receive, instead of having
their shares converted into the merger consideration, an amount which the Court
of Chancery of the State of Delaware decides is the "fair value" of their Big
Flower common stock, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, as determined by the court.
These rights are known as "appraisal rights." If a holder of Big Flower
common stock wishes to exercise appraisal rights in connection with the merger,
the holder must not vote in favor of the merger and must meet the conditions
described below.
The conditions necessary to secure appraisal rights are set out in full in
Appendix D. This summary is not meant to be a complete statement on appraisal
rights, but rather is only a guide for a stockholder who wishes to exercise
appraisal rights. Delaware law requires that Big Flower notify stockholders at
least 20 days prior to the meeting of Big Flower stockholders that they have a
right of appraisal and provide stockholders with a copy of Section 262 of the
Delaware General Corporation Law, or DGCL. This proxy statement/prospectus
constitutes that notice. If Big Flower stockholders do not follow the procedures
set out below and in Appendix D, they will lose their appraisal rights.
ALL REFERENCES IN THIS SUMMARY AND IN SECTION 262 OF THE DGCL TO A
"STOCKHOLDER" OR TO A "HOLDER" OF BIG FLOWER STOCK ARE TO THE RECORD HOLDERS OF
BIG FLOWER COMMON STOCK. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES OF BIG
FLOWER COMMON STOCK HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A
BROKER OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE
STEPS SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT THE HOLDER'S
APPRAISAL RIGHTS.
A holder of Big Flower common stock wishing to exercise his or her appraisal
rights with respect to the merger must not vote in favor of adoption of the
merger agreement. Because a duly executed proxy that does not contain voting
instruction will, unless revoked, be voted for the merger, a holder of Big
Flower common stock who votes by proxy and who wishes to exercise appraisal
rights must vote against the merger agreement or abstain from voting on the
merger agreement. A vote against the merger, in person or by proxy, will not in
and of itself constitute a written demand for appraisal satisfying the
requirements of Section 262 of the DGCL, and a separate written demand for
appraisal is required.
A demand for appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as the holder's name appears on the stock
certificates. The demand must also state that the stockholder intends to demand
appraisal of the holder's shares of Big Flower common stock in connection with
the merger.
If the shares are owned of record in a fiduciary capacity, including by a
trustee, guardian or custodian, the demand should be executed in that capacity,
and if the shares are owned of record by more than one person, as in a joint
tenancy and tenancy in common, the demand should be executed by or on behalf of
a holder of record but the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is agent
for the owner or owners.
A record holder such as a broker who holds Big Flower common stock as
nominee for several beneficial owners may exercise appraisal rights with respect
to the shares held for one or more beneficial owners while not exercising these
rights with respect to the shares held for other beneficial owners; in this
circumstance, however, the written demand should set forth the number of shares
as to which appraisal is sought and, where no number of shares is expressly
mentioned, the demand will be presumed to cover all shares of Big Flower common
stock held in the name of the record owner. Holders who hold their Big Flower
common stock in brokerage accounts or other nominee forms and who wish to
exercise appraisal rights are urged to consult with their brokers to determine
the appropriate procedures for the making of a demand for appraisal by the
nominee.
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HOLDERS OF BIG FLOWER COMMON STOCK MUST SEND ALL WRITTEN DEMANDS FOR
APPRAISAL UNDER SECTION 262 OF THE DGCL TO BIG FLOWER HOLDINGS, INC., 3 EAST
54TH STREET, NEW YORK, NEW YORK 10022, ATTENTION: IRENE B. FISHER, ASSOCIATE
GENERAL COUNSEL. BIG FLOWER MUST RECEIVE WRITTEN DEMANDS FOR APPRAISAL UNDER
SECTION 262 OF THE DGCL BEFORE THE MERGER AGREEMENT IS VOTED UPON AT THE BIG
FLOWER MEETING.
Within ten days after the date the merger becomes effective, Big Flower must
notify each holder of common stock who has complied with Section 262 of the DGCL
and has not voted in favor of the merger of the date that the merger has become
effective.
Within 120 days after the date the merger becomes effective, but not
thereafter, Big Flower or any holder of Big Flower common stock who has complied
with Section 262 and is entitled to appraisal rights under Section 262 of the
DGCL may file a petition in the Court of Chancery of the State of Delaware
demanding a determination of the fair value of the holder's shares of common
stock. Big Flower will have no obligation to file a petition, and neither Big
Flower nor BFH Merger Corp. has any present intention to cause such a petition
to be filed. Accordingly, it is the obligation of stockholders seeking appraisal
rights to initiate all necessary action to perfect appraisal rights within the
time prescribed in Section 262 of the DGCL.
Any holder of Big Flower common stock who has complied with the requirements
for exercise of appraisal rights will be entitled, upon written request, to
receive from Big Flower, a statement setting forth the aggregate number of
shares of Big Flower common stock not voted in favor of the merger and the
number of shares of Big Flower common stock with respect to which demands for
appraisal have been received and the total number of holders of these shares. If
a holder of Big Flower common stock timely files a petition for an appraisal,
the Court of Chancery is empowered to conduct a hearing on this petition to
determine those holders who have complied with Section 262 of the DGCL and who
have become entitled to appraisal rights thereunder. The Court of Chancery may
require the holders of Big Flower common stock who demanded appraisal of their
shares to submit their stock certificates to the Register in Chancery for
notation of the pending appraisal proceeding. If any stockholder fails to comply
with its discretion, the Court of Chancery may dismiss the proceedings as to the
stockholder.
After determining the holders entitled to appraisal, the Court of Chancery
will appraise the "fair value" of their shares of Big Flower common stock,
exclusive of any element of value arising from the accomplishment or expectation
of the merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Stockholders considering seeking
appraisal should be aware that the fair value of their Big Flower common stock,
as determined in an appraisal proceeding under Section 262 of the DGCL could be
more than, the same as or less than the merger consideration they would receive
under the merger if they did not seek appraisal of their shares, and that
investment banking opinions as to fairness from financial point of view are not
necessarily opinions as to fair value under Section 262 of the DGCL. The
Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal proceeding.
In addition, Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a dissenter's exclusive
remedy. The Court of Chancery will also determine the amount of interest, if
any, payable upon the amounts due to persons whose shares of Big Flower common
stock have been appraised.
The court may determine the cost of the appraisal action and may allocate
the costs among the parties as the court deems equitable. Each party must bear
its own other expenses of the proceeding, although the court may order that all
or a portion of the expenses incurred by any stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
against the value of all of the shares of Big Flower common stock entitled to an
appraisal.
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Any holder of Big Flower common stock who duly demands appraisal in
compliance with Section 262 of the DGCL will not, after the merger, be entitled
to vote the holder's shares for any purpose or be entitled to the payment of
dividends or other distributions on those shares other than dividends or other
distributions payable to holders of record as of a record date prior to the
merger.
If any stockholder who demands appraisal of shares of Big Flower common
stock under Section 262 fails to perfect, or effectively withdraws or loses, the
holder's right to appraisal, the shares of the stockholder will be converted
into the right to receive the merger consideration under the merger, without
interest.
A stockholder will fail to perfect and lose the right to appraisal if he
does not file a petition for appraisal within 120 days after the date the merger
becomes effective, or if the stockholder delivers to Big Flower a written
withdrawal of a demand for appraisal and an acceptance of the terms offered upon
the merger. However, any attempt to withdraw a demand for appraisal made more
than 60 days after the date the merger becomes effective will require the
written approval of Big Flower and, once a petition for appraisal is filed, an
appraisal proceeding may not be dismissed as to any holder absent court
approval.
A HOLDER OF BIG FLOWER COMMON STOCK MAY LOSE APPRAISAL RIGHTS IF THE HOLDER
FAILS TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING
APPRAISAL RIGHTS.
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MARKET PRICE AND DIVIDEND DATA
The table sets forth, for the calendar quarters indicated, the high and low
closing prices per share of Big Flower common stock, as reported on the NYSE
Composite Tape.
<TABLE>
<CAPTION>
BIG FLOWER
COMMON STOCK
---------------------------
CALENDAR QUARTER HIGH LOW
- ---------------- ------------ ------------
<S> <C> <C>
1996
First Quarter............................................. $19 1/8 $10 7/8
Second Quarter............................................ 14 5/8 11 7/8
Third Quarter............................................. 14 12 1/2
Fourth Quarter............................................ 18 3/4 12 1/4
1997
First Quarter............................................. 20 7/8 17 7/8
Second Quarter............................................ 21 7/8 18 1/8
Third Quarter............................................. 25 11/16 20 3/8
Fourth Quarter............................................ 24 3/4 21
1998
First Quarter............................................. 30 3/8 25 1/8
Second Quarter............................................ 34 9/16 27 7/8
Third Quarter............................................. 32 1/8 19 3/8
Fourth Quarter............................................ 24 9/16 15 3/8
1999
First Quarter............................................. 33 1/8 21 13/16
Second Quarter............................................ 35 1/2 27 7/8
Third Quarter............................................. 31 9/16 27 13/16
Fourth Quarter (through October 22, 1999)................. 28 3/8 26 7/8
</TABLE>
In June 1997, Big Flower completed an underwritten secondary public offering
of 6,708,524 shares of Big Flower common stock. The offering price per share was
$21.00 and the aggregate net proceeds of the offering was $133,835,054.
DIVIDEND INFORMATION
Big Flower has not paid cash dividends on its common stock and intends to
continue this policy for the foreseeable future and retain funds for repayment
of indebtedness and investment in its business.
Because Big Flower is a holding company, holders of its debt and equity
securities, including holders of the common stock, are dependent primarily upon
the cash flow from Big Flower's subsidiaries for payment of principal, interest
and dividends. Potential dividends and other advances and transfers from Big
Flower's subsidiaries represent its most significant sources of cash flow.
Applicable state laws and the provisions of the debt instruments and other
capital instruments by which Big Flower's principal subsidiaries are bound limit
the ability of those companies to declare dividends or otherwise provide funds
to Big Flower. Specifically, on June 22, 1998, Big Flower and most of its
subsidiaries entered into an amended and restated revolving credit agreement.
The credit agreement limits the ability of Big Flower to pay dividends. In
addition, the indenture governing the 8 7/8% Notes due July 1, 2007 and the
8 5/8% Notes due December 1, 2008 of Big Flower Press imposes restrictions on
Big Flower Press' ability to make distributions to Big Flower, subject to some
customary exceptions. Also, the indenture governing the QUIPS restricts the
payment of dividends by Big Flower on its common stock in some circumstances.
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<PAGE>
RECENT CLOSING PRICES
Shares of Big Flower common stock are listed on the NYSE under the symbol
"BGF".
The following table sets forth the closing market prices per share of Big
Flower common stock on the NYSE on April 19, 1999, the last trading day before
Big Flower publicly announced that it was going to explore possible strategic
transactions and on October 22, 1999, the last practicable trading day prior to
the date of this document.
<TABLE>
<CAPTION>
BIG FLOWER
COMMON STOCK
------------
<S> <C>
April 19, 1999......................................... $ 27.875
October 22, 1999....................................... $ 27.750
</TABLE>
NUMBER OF STOCKHOLDERS
As of October 22, 1999, there were approximately 250 holders of record of
Big Flower common stock, as shown on the records of Big Flower's transfer agent
for those shares.
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<PAGE>
DESCRIPTION OF BIG FLOWER
Big Flower is a leading advertising and marketing services company with four
business segments: Insert Advertising & Newspaper Services, Direct Marketing
Services, Digital Services, and Specialty Products & Commercial Printing.
- Treasure Chest Advertising Company, Inc. provides insert advertising &
newspaper services and is a leading producer of insert advertising
programs, TV listing magazines, Sunday comics, Sunday magazines and
special supplements for many of the most widely circulated U.S.
newspapers.
- Webcraft, Inc. provides direct marketing services and is a leader in
design, development and production of highly personalized, data-driven
direct mail; database solutions and response management services; and
one-to-one digital printing and marketing.
- Big Flower Digital Services, Inc. provides an array of digital services
principally through its three subsidiaries: Laser Tech Color, Inc.,
Columbine JDS Systems, Inc. and Reach America, Inc.
- - Laser Tech is a leading provider of outsourced, digital premedia and
content management services to retailers, advertising agencies, and
consumer product companies.
- - Columbine is a leading provider of software products and related
services to the advertising agency, cable, satellite and terrestrial
broadcast industries in both the United States and internationally.
- - Reach America is a leading provider of targeted advertising software
applications that develops proprietary, target audience databases,
tracks consumer products category sales potential and maps retail
trade zones.
- Big Flower's fourth business segment consists of its speciality
products & commercial printing services. Webcraft also offers these
products and services. This segment includes commercial printing services,
the production of specialty chemicals, adhesives and coatings, and the
production of fragrance samplers. Big Flower has stated its intention to
de-emphasize this line of business and to focus on the core direct
marketing services area.
Big Flower was incorporated in Delaware in 1997. Big Flower Press was
incorporated in Delaware in 1993. Big Flower's and Big Flower Press' principal
executive offices are located at 3 East 54th Street, New York, New York 10022
and their telephone number is (212) 521-1600.
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<PAGE>
DESCRIPTION OF BFH MERGER CORP.
BFH Merger Corp. is a newly formed Delaware corporation formed by Thomas H.
Lee Equity Fund IV, L.P., an affiliate of Thomas H. Lee Company, and Evercore
Capital Partners L.P., an affiliate of Evercore Partners Inc., for the purpose
of completing the merger. The address of BFH Merger Corp.'s principal executive
offices is BFH Merger Corp., c/o Thomas H. Lee Company, 75 State Street, Suite
2600, Boston, MA 02109. BFH Merger Corp. will not have any significant assets or
liabilities, except as described in this document. BFH Merger Corp. will not
engage in any activities other than those related to completing the merger.
All of the outstanding capital stock of BFH Merger Corp. is owned by Thomas
H. Lee Equity Fund IV and Evercore Capital Partners. Information about the
principals, directors and executive officers of BFH Merger Corp., Thomas H. Lee
Equity Fund IV and Evercore Capital Partners is set forth in Appendix F to this
document.
THOMAS H. LEE EQUITY FUND IV
Thomas H. Lee Equity Fund IV is an affiliate of Thomas H. Lee Company, a
Boston-based investment firm focused on acquiring substantial investments in
growth companies. Founded in 1974, the firm and its affiliates currently manages
approximately $6 billion in committed capital. Recent investments include Eye
Care Centers of America, Inc., Fisher Scientific International Inc., Rayovac
Corporation, HomeSide Lending, Inc., The Learning Company, Inc., Metris
Companies Inc. and Wyndham International, Inc.
EVERCORE CAPITAL PARTNERS
Evercore Partners is a firm which provides strategic and financial advisory
services to major corporations and makes private equity investments through its
affiliate, Evercore Capital Partners L.P. Evercore Capital Partners' most recent
investment was its $850 million purchase of American Media, Inc. Evercore
Partners' recent advisory work includes advising CBS on its recent merger with
Viacom, advising Tenneco Inc. on the separation of its automotive and packaging
businesses, and advising Dow Jones & Company, Inc. on its interactive joint
venture with Reuters Group PLC.
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<PAGE>
RECENT DEVELOPMENTS
On October 11, 1999, Big Flower announced that as a result of slower than
expected integration of recent marketing acquisitions, accompanied by weakness
in the direct mail sector arising from business with consumer products and
publishing companies, it estimated adjusted earnings per diluted share for the
third quarter of 1999 will be approximately five to ten percent lower than
adjusted earnings per diluted share for the comparable period in 1998. Big
Flower expects that its performance for the third quarter of 1999 as well as the
continuing soft environment in the direct mail sector will result in adjusted
earnings per diluted share for fiscal year 1999 that are slightly higher than
the fiscal year 1998 adjusted earnings of $1.80 per diluted share.
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<PAGE>
DIRECTORS AND MANAGEMENT OF
BIG FLOWER FOLLOWING THE MERGER
EXECUTIVE OFFICERS
Some executive officers of Big Flower will be the executive officers of Big
Flower following the merger. The name, age, current position and business
experience of these executive officers of Big Flower is as follows:
R. THEODORE AMMON has been the Chairman of the Board of Big Flower since its
inception and was Chief Executive Officer of Big Flower Press from its inception
until April 1997. Mr. Ammon is also the Chairman of XL Ventures, Inc., Big
Flower's Internet and new media venture capital subsidiary. Mr. Ammon is also a
director of Big Flower Press and Big Flower Digital Services, Inc., a wholly
owned subsidiary of Big Flower. Mr. Ammon was a General Partner of Kohlberg
Kravis Roberts & Co., a New York and San Francisco-based investment firm, from
1990 to 1992, and an executive of such firm prior to 1990. Mr. Ammon is also the
Chairman of the Board of 24/7 Media, Inc. and a member of the Board of Directors
of Host Marriott Corporation and of CAIS Internet, Inc., and serves on the
boards of directors of numerous privately held corporations. Mr. Ammon is
involved in a number of not-for-profit organizations and serves as a member of
the Board of Directors of The Municipal Art Society of New York, The New York
YMCA, and Jazz @ Lincoln Center. He is also a member of the Board of Trustees of
Bucknell University. Mr. Ammon is 50 years old.
EDWARD T. REILLY has been the President and the Chief Executive Officer and
a director of Big Flower since its inception. He has also been a director of Big
Flower Press since June 1996, and its Chief Executive Officer since April 1997,
having also served as its Chief Operating Officer from March 1996 until
April 1997. Additionally, he is a director of Big Flower's subsidiaries, TC
Advertising, Digital Services, Inc. and Webcraft. Prior to joining Big Flower,
Mr. Reilly held a variety of executive positions with McGraw-Hill, Inc., a
publishing and communications company, in their Broadcast and Publication groups
from 1968 to 1996, and served as President of McGraw-Hill Broadcasting from 1987
to 1996. He is Vice Chairman and a member of the executive committee of the Ad
Council and serves on the Board of Trustees of Lynchburg College in Virginia.
Recently, Mr. Reilly was elected to the Board of Directors of The National
Council of La Raza. In addition, Mr. Reilly has been active in television
industry affairs, having served as the Chairman of the Television Bureau of
Advertising and as a member of the Board of Directors of the National
Association of Broadcasters. He is the former Chairman of the Association for
Maximum Service Television (MSTV), a trade association of over 300 television
stations which has been in the forefront of the effort to facilitate the
industry's transition to high definition television. Mr. Reilly is 52 years old.
RICHARD L. RITCHIE has been Executive Vice President and Chief Financial
Officer of Big Flower since January 1997. Prior to joining Big Flower,
Mr. Ritchie served as Senior Vice President and Chief Financial Officer of
Harte-Hanks Communications, Inc. from 1986 to 1996. Mr. Ritchie is 53 years old.
The term of office of each executive officer is until the organizational
meeting of Big Flower's board of directors following the next annual meeting of
Big Flower stockholders and until a successor is elected and qualified or until
that officer's prior death, resignation, retirement, disqualification or
removal.
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<PAGE>
DIRECTORS
At the time of the merger, the board of directors of Big Flower will be
replaced by the board of directors of BFH Merger Corp., which will be comprised
of five directors. The name, age, current position and business experience of
these directors is as follows:
THOMAS H. LEE founded Thomas H. Lee Company in 1974 and since that time has
served as its President. From 1966 through 1974, Mr. Lee was with First National
Bank of Boston where he directed the bank's high technology lending group from
1968 to 1974 and became a Vice President in 1973. Mr. Lee serves as a director
of numerous public and private corporations including Finlay Enterprises, Inc.,
Metris Companies, Inc., Safelite Glass Corporation, Vail Resorts, Inc and
Wyndham International, Inc. Mr. Lee is 55 years old.
ANTHONY J. DINOVI is a Managing Director of Thomas H. Lee Company. Prior to
joining Thomas H. Lee Company in 1988, Mr. DiNovi was in the Corporate Finance
Department at Wertheim Schroder & Co., Inc. Mr. DiNovi is a director of
CelPage, Inc., Eye Care Centers of America, Inc., Fisher Scientific
International, Inc., LiveWire Systems, Inc., ProcureNet, Inc., and Safelite
Glass Corporation. Mr. DiNovi is 37 years old.
SCOTT M. SPERLING is a Managing Director of Thomas H. Lee Company. In this
capacity he is a director of Fisher Scientific International, Inc., GenTek Inc.,
ProcureNet, Inc., Safelite Glass Corporation, Wyndham International, Inc. and a
number of private companies. For ten years prior, Mr. Sperling was Managing
Partner of the Aeneas Group, the private capital affiliate of the Harvard
Management Company, Inc. Mr. Sperling is 41 years old.
ROGER C. ALTMAN co-founded Evercore Partners in 1996. From 1992-1995,
Mr. Altman served as Deputy Treasury Secretary. From 1987-1992, Mr. Altman was
Vice Chairman of The Blackstone Group, where he led the firm's merger advisory
business and originated several principal investment opportunities. Prior to
1987, Mr. Altman spent 14 years at Lehman Brothers where he was a managing
director, Co-head of Investment Banking, Member of the Management Committee and
Member of the Board of Directors. Mr. Altman is 53 years old.
AUSTIN M. BEUTNER co-founded Evercore Partners in 1996. From 1994 to 1996,
Mr. Beutner was Chief Executive Officer and President of the U.S. Russia
Investment Fund, and in January 1997, Mr. Beutner was named Vice Chairman of its
Board of Directors. Before his affiliation with the U.S. Russia Investment Fund,
he was a General Partner of The Blackstone Group. Mr. Beutner is a director of
American Media Inc. Mr. Beutner is 39 years old.
Shortly after the merger, it is expected that the Big Flower board of
directors will be increased to nine members. Two of the additional members are
expected to be as follows:
R. THEODORE AMMON. See information included under "--Executive Officers."
EDWARD T. REILLY. See information included under "--Executive Officers."
The remaining two directors will be determined by Thomas H. Lee Equity Fund
IV, subject to the consent of Evercore Capital Partners and R. Theodore Ammon.
SECURITY OWNERSHIP OF BIG FLOWER FOLLOWING THE MERGER
The following table sets forth the anticipated beneficial ownership of the
securities of Big Flower immediately after completion of merger. The amounts
below assume (1) a total equity contribution from Thomas H. Lee Equity Fund IV
and Evercore Capital Partners of up to $321.3 million,
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<PAGE>
(2) consummation of the acquisition of Columbine JDS Systems and the acquisition
of the private Internet investments in accordance with the merger agreement,
(3) no investment by an affiliate of BFH Merger Corp. in the entities holding
the public Internet investments and (4) a total equity contribution from members
of management who are expected to retain direct or indirect equity interests in
Big Flower in the merger of $80.3 million. The table does not take into account
any options to acquire Big Flower common stock which may be granted to employees
of Big Flower after completion of the merger. The actual investment of each of
those member of management has not been definitively determined and may be
changed.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER AMOUNT AND NATURE OF OWNERSHIP PERCENTAGE OF CLASS
- ----------------------------- ------------------------------ -----------------------------
<S> <C> <C>
R. Theodore Ammon............ 1,755,329 13.8%
Thomas H. Lee
Equity Fund IV*............ 8,156,877 64%
Evercore Capital Partners.... 2,285,748 17.9%
Trustee of Rabbi Trust....... 551,511 4.3%
</TABLE>
- ------------------------
* This number:
- includes 244,671 shares of Big Flower common stock owned by an affiliate
of BFH Merger Corp., of which Thomas H. Lee Equity Fund IV will control a
majority, as a result of the sale of Columbine JDS Systems, and
- excludes the warrants for Big Flower common stock which will be held by
Thomas H. Lee Equity Fund IV after the merger as a result of the mezzanine
debt financing provided by Thomas H. Lee Equity Fund IV to Big Flower in
connection with the merger and related recapitalization.
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<PAGE>
OTHER INFORMATION FOR THE BIG FLOWER MEETING
NOMINEES FOR ELECTION AS BIG FLOWER DIRECTORS
The directors of Big Flower are divided into three classes, designated
Class I, Class II and Class III. Each class consists, as nearly as possible, of
one-third of the total number of directors constituting the entire board of
directors. Currently, the Class I directors are Messrs. Kimmitt and Minow; the
Class II directors are Ms. Manley and Mr. Diamandis; and the Class III directors
are Messrs. Ammon and Reilly. For information regarding the Class II directors
of Big Flower, see "--Directors and Executive Officers" below. For information
regarding the Class III directors of Big Flower, see "Directors and Management
of Big Flower Following the Merger" on page 98. The Class I directors were
reelected at the 1996 Annual Meeting of Stockholders to hold office until the
date of the Big Flower meeting; the Class II directors were reelected at the
1997 Annual Meeting of Stockholders to hold office until the date of the 2000
Annual Meeting of Stockholders; and the Class III directors were reelected at
the 1998 Annual Meeting of Stockholders to hold office until the date of the
2001 Annual Meeting of Stockholders and, in each case, until a successor is
elected and qualified and subject to a director's prior death, resignation,
retirement, disqualification or removal.
It is recommended that Messrs. Kimmitt and Minow be elected as Class I
directors of Big Flower, to hold office until the 2002 Annual Meeting of
Stockholders, and in each case until a successor is elected and qualified or
until that director's prior death, resignation, retirement, disqualification or
removal, unless the merger is completed prior to that time. Both nominees are
presently serving as directors of Big Flower. Class I directors were classified
as such at a meeting of the board of directors held on November 10, 1995. Big
Flower is unaware of any reason why either nominee would be unwilling or unable
to serve as a director. However, should either nominee be unwilling or unable to
serve as a director at the time of the Big Flower meeting or any adjournment or
postponement thereof, the persons named in the proxy will vote for the election
of that other person for that directorship as the board of directors may
recommend.
If the merger is completed then, at the completion of the merger, the board
of directors of Big Flower at that time will be replaced by the board of
directors of BFH Merger Corp. in accordance with the merger agreement. For more
information regarding the composition of the Big Flower board of directors, see
"Directors and Management of Big Flower Following the Merger--Directors" on
page 99.
Information regarding each person nominated by the board of directors,
including the nominee's principal occupation during the past five years and
current directorships, is set forth below. Unless otherwise indicated, the
nominees have had the indicated principal occupations for the past five years.
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<PAGE>
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE BUSINESS EXPERIENCE DURING PAST FIVE YEARS AND OTHER INFORMATION
- ---------------- -------- ----------------------------------------------------------------
<S> <C> <C>
Robert M. Kimmitt...................... 51 Robert M. Kimmitt has been a Director of Big Flower since its
inception. He was also a director of Big Flower Press from
November 1996 until December 1997. Since May 1997, he has been a
partner in the law firm of Wilmer, Cutler & Pickering. From 1993
to April 1997, Mr. Kimmitt was a managing director of Lehman
Brothers and head of its Washington corporate finance office.
Prior to joining Lehman Brothers, Mr. Kimmitt served from 1991
to 1993 as American Ambassador to Germany, and from 1989 to 1991
as Under Secretary of State for Political Affairs. He was a
partner in the Washington office of Sidley & Austin from 1987 to
1989. Mr. Kimmitt served as a member of the National Security
Council staff at the White House from 1978 to 1985 and General
Counsel of the Department of the Treasury from 1985 to 1987. Mr.
Kimmitt serves on the boards of Allianz Life Insurance Company
of North America and United Defense Industries, Inc., as well as
on the supervisory boards of Mannesmann AG of Duesseldorf,
Germany, and Siemens AG of Munich, Germany, and on the U.S.
Group Council of BMW AG of Munich, Germany. He is also on the
Boards of Georgetown University, the German Marshall Fund, and
several other non-profit organizations whose focus is
international affairs.
Newton N. Minow........................ 73 Newton N. Minow has been a Director of Big Flower since its
inception. He was also a director of Big Flower Press from
September 1996 until December 1997. Since 1991, Mr. Minow has
been counsel to the law firm of Sidley & Austin, where he served
as Partner from 1965 to 1991. He also served as Chairman of the
Federal Communications Commission from 1961 to 1963. He is a
director of Aon Corporation and Manpower, Inc. Mr. Minow is
former Chairman of the Carnegie Corporation of New York, an
Advisory Trustee and former Chairman of the Board of Trustees of
The RAND Corporation and former Chairman of the Board of
Governors of the Public Broadcasting Service. Mr. Minow is also
a Life Trustee of the University of Notre Dame and a Life
Trustee of Northwestern University.
</TABLE>
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<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table shows information regarding the Class II directors of
Big Flower, both of whom are U.S. citizens. For information regarding the
Class III directors of Big Flower and the executive officers of Big Flower, see
"Directors and Management of Big Flower following the Merger" on page 98.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- -------- ---------
<S> <C> <C>
Peter G. Diamandis..................... 67 Class II Director
Joan D. Manley......................... 67 Class II Director
</TABLE>
Set forth below is certain additional information concerning the persons
listed above.
PETER G. DIAMANDIS has been a Director of Big Flower since its inception. He
was also a director of Big Flower Press from September 1994 until
December 1997. Mr. Diamandis is also a director of XL Ventures. Mr. Diamandis
was Vice Chairman of Donnelley Marketing, Inc., a marketing company, from 1991
through 1996. Since 1996, he has been the Vice Chairman of DM LLC, the successor
entity to Donnelley Marketing, Inc. He is the former Chairman of TVSM, Inc., a
magazine publishing company. From 1988 to 1991, Mr. Diamandis served as
President and Chief Executive Officer of Hachette Publications, which purchased
Diamandis Communications Inc. in 1988. From 1987 to 1988, Mr. Diamandis served
as Chairman, President and Chief Executive Officer of Diamandis
Communications Inc., a publisher of special interest magazines. In 1982,
Mr. Diamandis joined CBS Magazines as Vice President, Group Publisher, Women's
Day, and served as President of CBS from September 1983 to 1987. Mr. Diamandis
is a former Chairman of Magazine Publishers of America. Mr. Diamandis serves on
the Board of Trustees of Bucknell University.
JOAN D. MANLEY has been a Director of Big Flower since September 1994.
Ms. Manley retired from Time Incorporated in 1984, where she had held numerous
positions since 1960. At the time of her retirement, Ms. Manley was Group Vice
President and a director of Time Incorporated. Ms. Manley serves on the Board of
Directors of Sara Lee Corporation and Founders Fund and is a Trustee of the
Rocky Mountain Resource Center.
BOARD MEETINGS AND COMMITTEES OF THE BIG FLOWER BOARD OF DIRECTORS
Six meetings of the full board of directors of Big Flower were held during
the fiscal year ended December 31, 1998. Each incumbent director attended more
than 75% of the aggregate of all meetings of the board of directors that were
held after that director's election to the board and of all committees of the
board of directors that the director was eligible to attend in fiscal 1998.
Big Flower has standing audit, compensation and nominating committees whose
current functions and members are described below. It is anticipated that at its
first meeting following the Big Flower meeting, the board will designate
directors to serve on each of these standing committees until the next annual
meeting of stockholders. However, if the merger is completed then, at the
completion of the merger, the new board of directors of Big Flower will
designate from such new board the directors to serve on each of the standing
committees. For a more detailed explanation of the effect of the merger on the
Big Flower board of directors and members of management, see "Directors and
Management of Big Flower Following the Merger" on page 98.
AUDIT COMMITTEE. The audit committee is composed of Joan D. Manley
(Chairman), Robert M. Kimmitt and Newton N. Minow. The audit committee meets
periodically with Big Flower's management, internal accounting staff, and
representatives of Big Flower's independent certified public accountants to
assure that appropriate audits of Big Flower's financial statements are being
conducted. Additionally, this committee reviews corporate compliance policies
and activities, the scope of internal and external audit activities, and the
results of the annual audit. Both the independent certified public
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accountants and the internal accounting staff communicate directly with the
committee regarding the results of their examinations, the adequacy of internal
accounting controls, and the integrity of financial reporting. The audit
committee met three times during fiscal 1998. In the course of performing its
functions, the audit committee also:
- recommends the action to be taken with respect to the appointment of Big
Flower's independent certified public accountants,
- reviews with Big Flower's independent certified public accountants the
scope of their audit, their report and their recommendations, and
- considers the possible effect on the independence of such accountants in
approving non-audit services requested of them.
COMPENSATION COMMITTEE. The compensation committee is composed of Peter G.
Diamandis (Chairman), Robert M. Kimmitt and Newton N. Minow. The compensation
committee met four times during fiscal 1998. This committee is charged with the
responsibility of:
- reviewing, advising and making recommendations with respect to employee
salary and compensation plans, benefits and standards applicable to the
executive officers of Big Flower,
- taking such actions with respect thereto as are not specifically reserved
to the board of directors, and
- administering the Big Flower restated 1993 stock award and incentive plan,
Big Flower's executive incentive plan, and other salary or compensation
plans that the committee is designated to administer.
NOMINATING COMMITTEE. The nominating committee is composed of R. Theodore
Ammon (Chairman), Peter G. Diamandis and Joan D. Manley. This committee is
charged with the responsibility of considering and recommending individuals to
be considered by the board of directors for membership on the board of
directors. The nominating committee was established in March 1997 and met once
in fiscal 1998.
The nominating committee will also consider nominations for board membership
by stockholders. The nominating committee has adopted the following rules with
respect to considering such nominations:
- the nominating stockholder must have owned shares of common stock of Big
Flower for at least six months prior to the date the nomination is
submitted;
- the nomination must be received by the nominating committee 120 days
before the mailing date for proxy material applicable to the annual
meeting for which such nomination is proposed for submission; and
- a detailed statement setting forth the qualifications, as well as the
written consent, of each party nominated must accompany each nomination
submitted.
COMPENSATION OF DIRECTORS
Directors of Big Flower who are also employees of Big Flower or its
subsidiaries do not receive any additional compensation for service as a member
of the board of directors of Big Flower or any of its committees. For
information relating to compensation of Big Flower's management directors, see
"--Employment Arrangements with Executive Officers" below.
All other directors of Big Flower are paid an annual fee of $25,000 for
serving on the board. In addition, (a) the Chairman of each of the standing
committees who is a non-employee director is paid an annual retainer of $2,500
and (b) each member of such standing committees (including any
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Chairman who is a non-employee director) is paid a fee of $1,000 for each
standing committee meeting attended by such member.
In addition, each non-employee director is given the option of electing to
receive all or any portion of their annual retainer and meeting fees in the form
of:
- shares of common stock of Big Flower,
- options to purchase shares of common stock of Big Flower, or
- cash.
Furthermore, each member of the board of directors of Big Flower who is not
an employee of Big Flower, any of its subsidiaries or any of its affiliates
receives:
- an option to purchase 13,400 shares of common stock on the date that such
director is first elected to the board of directors and
- an option to purchase 1,000 shares of common stock on the date that such
director is reelected to the board of directors. Each initial election
option has a term of ten years, and each reelection option has a term of
five years.
Each of these options vests immediately upon the date of grant and has an
exercise price equal to the closing price of a share of common stock of Big
Flower on the NYSE on the date of grant, which may be paid (1) in cash,
(2) by check or (3) in previously acquired unrestricted shares of common
stock, valued at the closing price of a share of common stock of Big Flower
on the NYSE on the date of its exercise.
The compensation of directors following the merger has not yet been
determined.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Big Flower's directors, executive
officers, and persons who own more than ten percent of Big Flower's common stock
to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with
the Securities and Exchange Commission and the NYSE. Directors, executive
officers and greater than ten percent stockholders are required by the
Securities and Exchange Commission regulations to furnish Big Flower with copies
of all Forms 3, 4 and 5 they file.
Based solely on Big Flower's review of the copies of these forms it has
received, or written representations from some reporting persons that no Forms 5
were required for these persons, Big Flower believes that all its directors,
executive officers and greater than ten percent beneficial owners complied with
all filing requirements applicable to them with respect to fiscal 1998.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth the beneficial ownership as of October 22,
1999 by each person known by Big Flower to be the beneficial owner of more than
5% of the outstanding shares of common stock of Big Flower, constituting the
only class of voting capital stock of Big Flower, each director of Big Flower
and nominee for director of Big Flower, each executive officer whose name
appears in the summary compensation table below who was an executive officer of
Big Flower as of October 22, 1999 and all directors and executive officers as a
group.
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF OWNERSHIP (A) PERCENTAGE OF CLASS
- ------------------------------------ ----------------- -------------------
<S> <C> <C>
R. Theodore Ammon (b)...................................... 2,342,144 11.7%
c/o Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
EnTrust Capital Inc........................................ 4,049,354 20.5%
650 Madison Avenue
New York, New York 10022
Highfields Capital Management LP........................... 1,338,100 6.8%
c/o Highfields Capital Management
200 Clarendon Street
Boston, Massachusetts 02117
The Prudential Insurance Company of America................ 1,287,700 6.5%
751 Broad Street
Newark, New Jersey 07102-3777
Highfields Capital Ltd..................................... 1,029,827 5.2%
c/o Goldman Sachs (Cayman) Trust, Limited
Harbour Centre, North Church Street
P.O. Box 896
George Town, Grand Cayman
Cayman Islands
Peter G. Diamandis (c)..................................... 24,816 *
700 Canal Street
Stamford, Connecticut 06902
Robert M. Kimmitt (d)...................................... 23,651 *
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
Joan D. Manley (e)......................................... 17,004 *
P.O. Box 1353
Dillon, Colorado 80435
Newton N. Minow (f)........................................ 33,651 *
c/o Sidley & Austin
One First National Plaza
Suite 4800
Chicago, Illinois 60603
Edward T. Reilly (g)....................................... 294,467 1.5%
c/o Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
Mark A. Angelson (h)....................................... 201,000 1.0%
c/o Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
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<PAGE>
(TABLE CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF OWNERSHIP (A) PERCENTAGE OF CLASS
- ------------------------------------ ----------------- -------------------
<S> <C> <C>
Richard L. Ritchie (i)..................................... 50,000 *
c/o Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
All directors and current executive officers
as a group (8 persons) (j)............................... 2,986,733 14.5%
</TABLE>
- ------------------------
* Less than one percent
(a) This column includes shares which directors and executive officers have the
right to acquire within 60 days. Except as otherwise indicated, each person
and entity has sole voting and dispositive power with respect to the shares
set forth in the table.
(b) Includes:
- 6,000 shares held by Mr. Ammon as general partner of a partnership in
which his family members are the limited partners and have 99% of the
economic interests,
- options to purchase 300,000 shares of common stock which are presently
exercisable,
- 200 shares owned by Mr. Ammon's minor children, as to which Mr. Ammon
disclaims beneficial ownership, and
- 50,000 shares owned by a charitable foundation, as to which shares
Mr. Ammon disclaims beneficial ownership.
(c) Represents options to purchase 24,816 shares of common stock which are
presently exercisable.
(d) Represents options to purchase 23,651 shares of common stock which are
presently exercisable.
(e) Includes options to purchase 14,400 shares of common stock which are
presently exercisable.
(f) Includes options to purchase 23,651 shares of common stock which are
presently exercisable.
(g) Includes options to purchase 286,667 shares of common stock which are
presently exercisable.
(h) Includes options to purchase 195,800 shares of common stock which are
presently exercisable.
(i) Represents options to purchase 50,000 shares of common stock which are
presently exercisable.
(j) Includes options to purchase 918,985 shares of common stock which are
presently exercisable.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
INTRODUCTION. This report to stockholders presents an overview of both the
charter of the compensation committee of the board of directors and of Big
Flower's compensation philosophy. The compensation committee is composed
entirely of non-employee directors.
THE COMPENSATION COMMITTEE'S ROLE. The compensation committee's principal
function is to review and approve the compensation program for the executive
officers and other senior executives of Big Flower and to administer grants
under the Plan.
Big Flower's executive compensation program is designed to motivate the
executives to achieve Big Flower's business objectives, with a special emphasis
on increasing stockholder value, earnings per share, EBITDA and after tax return
on invested capital. Some of Big Flower's executive officers are currently
employed under multi-year employment agreements, whose purpose is to retain the
services
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of those officers for extended periods. The minimum salary to which each of
those executive officer is entitled is specified in the employment agreement,
but the annual bonus for each executive officer, which is a major part of an
executive officer's cash compensation, and awards of stock options for executive
officers, are subject to approval by the compensation committee from time to
time. The principal terms of the employment agreements of executive officers of
Big Flower are described under "--Employment Arrangements with Executive
Officers" on page 114.
OVERALL OBJECTIVES OF THE EXECUTIVE COMPENSATION PROGRAM. The executive
compensation program is designed to help Big Flower retain, motivate and recruit
the executives needed to maximize Big Flower's return to stockholders. Big
Flower's explicit objective is to pay at levels required to secure the services
of exceptionally talented executive officers, in particular, and employees, in
general, necessary to achieve its long-term financial, strategic and stock price
growth goals. Since one of Big Flower's objectives is rapid revenue growth, by
internal expansion and through acquisitions, Big Flower has recruited the
executive talent required to run a company that is larger than Big Flower in its
present form. Toward that end, the executive compensation program is designed to
provide:
- Levels of compensation that are highly competitive with those provided in
the various markets in which Big Flower competes for its executive
resources.
- Incentive compensation that:
- - varies with the financial performance of Big Flower and/or its
various business units;
- - varies with the performance of Big Flower's stock price; and
- - effectively rewards individual performance.
- Equity-based compensation that ties executives' long-term financial
interests to growth in Big Flower's market value per share.
PROVIDING HIGHLY COMPETITIVE LEVELS OF COMPENSATION. Big Flower provides
its executive officers with a total compensation package that--at expected
levels of performance--is generally intended to compare favorably with
compensation packages provided to executives in the advertising, marketing and
information services industries, as adjusted to reflect Big Flower's current
size and intended growth, who hold comparable positions or have similar
qualifications. In addition, this compensation takes into account the highly
demanding roles and combinations of responsibilities undertaken by Big Flower's
executive officers.
Given Big Flower's aggressive stockholder return objectives, Big Flower has
designed salary and incentive programs intended to attract exceptionally
high-caliber executives and is committed to paying these executives a
substantial portion of their compensation based directly on the performance of
Big Flower and, in appropriate cases, on the performance of a particular
business unit.
To establish appropriate competitive frames of reference, Big Flower looks
toward pay levels offered by leading-performance companies in the relevant
markets for executive talent. Big Flower periodically assesses an executive's
competitive level of compensation based on information drawn from a variety of
sources, including proxy statements, compensation surveys and external
compensation consultants. Big Flower's review of competitive compensation levels
incorporates a case-by-case approach that considers each position's relative
content, accountabilities and scope of responsibility. Big Flower also takes
into account its businesses, current size and expected growth, expected
contributions from specific executives and other similar factors. For senior
executives, this review includes an examination of pay data for comparable
positions within the advertising and marketing services industries, as well as
data for other diversified holding companies and pay data for individuals with
backgrounds comparable to those of its officers.
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While the expected value of an executive's compensation package is set at a
highly competitive level, each executive officer's pay package places a
significant portion of pay at risk, and the actual value of the package will
exceed or fall below this level depending on actual results of Big Flower. Big
Flower is committed to the pay-for-performance philosophy and believes that the
executive compensation program should provide stockholders with
performance-for-pay.
ENSURING THAT INCENTIVE COMPENSATION VARIES WITH PERFORMANCE. The executive
compensation program is designed to ensure that incentive compensation varies
with the performance of Big Flower and its business units. Awards paid under Big
Flower's executive incentive plan and the grants under the Plan will be directly
tied to the short- and long-term financial performance, especially EPS, EBITDA
and after tax return on invested capital, of Big Flower and its business units,
as well as the performance of Big Flower's stock price.
Big Flower's various incentive plans each serve different purposes and, as
such, employ different measures of performance and cover different periods of
time. Accordingly, an executive officer's total compensation will not typically
vary based on any single measure of Big Flower or business unit performance.
However, in combination, these plans provide a powerful incentive--focusing
management attention on those measures important to stockholders, such as
growth, EPS, EBITDA and after tax return on invested capital, holding executives
accountable for poor results and rewarding them for superior accomplishments.
Big Flower also believes that effectively rewarding performance helps
motivate executives to contribute in ways that enhance the financial and stock
performance of Big Flower and its various business units. Although the executive
compensation program provides compensation that varies with financial and stock
price performance, an executive's incentive awards may also be influenced by
qualitative assessment of Big Flower, business unit and individual performance,
as appropriate. For all executive officers, these assessments are made by the
compensation committee.
OVERVIEW OF THE EXECUTIVE COMPENSATION PROGRAM. The executive compensation
program is comprised of three principal elements: the base salary program,
annual incentives under the executive incentive plan and grants of stock and
option awards under the plan. Big Flower has designed and administered each of
these with the explicit purpose of furthering the stockholders' interests by
facilitating the employment of highly-talented executives and motivating them to
achieve exceptional levels of performance and growth. An overview of each of
these elements and of how each is intended to support stockholder interests is
provided below.
BASE SALARY COMPENSATION. Big Flower's base salary program is intended
to provide base salary levels that are competitive in the external market
for executive talent, reflect an individual's on-going performance, and are
periodically adjusted based on the executive's performance, Big Flower's
overall financial performance and growth and expected salary increases in
the market for executive talent, taking into account the growth which Big
Flower hopes to achieve.
ANNUAL INCENTIVE COMPENSATION. The executive incentive plan provides
competitive annual pay opportunities linked to Big Flower's annual financial
performance. The executive incentive plan sets annual incentive target
awards at levels that are competitive in the context of Big Flower's total
executive compensation program, and the appropriate mix of variable and
fixed compensation. Financial performance is assessed annually against
pre-set financial and strategic objectives.
LONG-TERM INCENTIVE COMPENSATION. Big Flower provides the executives of
Big Flower with stock-based incentives intended to provide competitive
long-term incentive opportunities, enable participants to build significant
wealth when meaningful stockholder wealth has been created, and directly
link a significant portion of total pay to Big Flower's long-term stock
performance.
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Although the plan is generally designed to provide periodic grants of
options to purchase common stock of Big Flower, it also provides for the use
of restricted stock awards.
OTHER EXECUTIVE COMPENSATION. Big Flower has entered into an arrangement
with some managers responsible for the XL Ventures unit which will provide those
managers with an effective carried interest in the results of XL Ventures and
Big Flower Digital LLC above specified minimum levels. Big Flower believes that
the nature and scope of this arrangement is similar to arrangements found in
other comparable venture capital investment organizations.
In addition, Big Flower provides all its executives with benefits and
perquisites such as a 401(k) plan and health and life insurance benefits.
Overall, the compensation committee believes the provided levels of benefits and
perquisites are necessary and, in combination with the previously mentioned
compensation elements, facilitate Big Flower's ability to secure the most
appropriate executive talents.
CEO COMPENSATION. Mr. Reilly has been Big Flower's Chief Executive Officer
from its inception. In determining Mr. Reilly's compensation, the committee took
a number of factors into account, including considering to what extent
Mr. Reilly met his personal goals established at the beginning of the fiscal
year, rewarding Mr. Reilly for Big Flower's financial performance during Fiscal
1998 and for increasing long-term shareholder value of Big Flower, and seeking
adequately and fairly to compensate Mr. Reilly in relation to his
responsibilities and contributions to Big Flower and in a manner that is
commensurate with compensation paid by comparable companies within Big Flower's
industry. For a discussion of Big Flower's employment agreement with
Mr. Reilly, see "--Employment Arrangements with Executive Officers" on
page 114.
The committee took no action during fiscal 1998 to establish a policy with
respect to the payment of compensation to Big Flower's executive officers in
amounts that exceed the $1 million limit on deductible compensation under The
Omnibus Budget Reconciliation Act of 1993. During fiscal 1998 Big Flower
exceeded targeted goals under the executive incentive plan, which resulted in
some executives' overall compensation being greater than $1 million. Given these
results, the committee intends to formulate a policy regarding that Act to be
based upon the overall needs of Big Flower, taking into account the underlying
principles of the executive compensation program and the particular
circumstances at issue.
SUMMARY. The compensation committee believes the executive compensation
program will ensure Big Flower's ability to retain, motivate and attract the
executive resources required to maximize long-term stockholder returns. Big
Flower's competitive pay philosophy facilitates the employment of talented
executives. The emphasis on variable pay and the direct link to both financial
and stock performance ties this competitive pay to critical measures of Big
Flower performance. In combination, all these elements act in the best interests
of Big Flower's stockholders and are worthy of your support.
The Compensation Committee
Peter G. Diamandis, Chairman
Robert M. Kimmitt
Newton N. Minow
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SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid in respect of the
fiscal year ended December 31, 1998, 1997 and 1996 to R. Theodore Ammon,
Chairman of Big Flower, Edward T. Reilly, Chief Executive Officer of Big Flower,
and to each of the other most highly paid executive officers of Big Flower.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- -------------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION PERIOD SALARY($) BONUS($) ($) OPTIONS/SARS (#)(1) ($)(2)
- --------------------------- -------- --------- -------- ------------ ------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
R. Theodore Ammon............. 1998 750,000 675,000 (3) -- 2,400
Chairman of Big Flower 1997 750,000 799,875 (3) -- 2,400
1996 750,000 339,844 (3) -- 2,178
Edward T. Reilly.............. 1998 550,000 495,000 (3) -- 2,400
President and Chief 1997 533,333 586,575 (3) 200,000 2,400
Executive Officer of Big 1996 375,000 287,000(4) (3) 200,000 1,593
Flower
Mark A. Angelson.............. 1998 505,000 463,500 (3) 25,000 2,400
Executive Vice President-- 1997 468,750 506,588 (3) 58,300 2,400
Office of the Chairman, 1996 315,000 225,000 343,982(5) 150,000 --
General Counsel and
Secretary
Richard L. Ritchie(6)......... 1998 425,000 382,500 (3) 45,000 2,400
Executive Vice President and 1997 395,641 451,600(7) (3) 100,000 2,400
Chief Financial Officer of 1996 -- -- -- -- --
Big Flower
</TABLE>
- ------------------------
(1) All stock option grants were made under the Big Flower Holdings, Inc.
restated 1993 stock award and incentive plan and are described below under
"--Options Granted in Fiscal 1998" and "--Employment Arrangements with
Executive Officers."
(2) Represents amounts contributed to 401(k) plan by Big Flower on behalf of the
named executive officer.
(3) Perquisites and other personal benefits did not exceed the lesser of $50,000
or 10% of the total annual salary and bonus reported under the headings of
"Salary" and "Bonus."
(4) Includes a one-time signing bonus of $37,000 to reimburse Mr. Reilly for
costs incurred in connection with his leaving his previous position.
(5) Includes relocation costs of $335,862, including tax gross up.
(6) Mr. Ritchie began his employment with Big Flower in 1997; therefore he did
not receive any compensation from Big Flower prior to that time.
(7) Includes a lump sum payment of $25,000 for incidental moving expenses.
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OPTIONS GRANTED IN FISCAL 1998
The following table presents information with respect to options to purchase
shares of common stock of Big Flower granted to the named executive officers
during fiscal 1998. Big Flower did not grant any stock appreciation rights to
any of the named executive officers. No named executive officer exercised any
stock options during Fiscal 1998.
The values listed under "Grant Date Value" were calculated using a
Black-Scholes option pricing model. The actual value, if any, that an executive
may realize will depend on the excess, if any, of the stock price over the
exercise price on the date the options are exercised, and no assurance exists
that the value realized by an executive will be at or near the value estimated
by the Black-Scholes model. The following assumptions were used in the
calculations:
(a) assumed option term of 10 years;
(b) stock price volatility factor of 0.4427;
(c) 5.77% annual discount rate;
(d) no dividend payment; and
(e) 3% discount to Black-Scholes ratio for each year an option remains
unvested.
OPTIONS GRANTED IN FISCAL 1998
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
----------------------------------------------------- ----------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME GRANTED(#) FISCAL 1998 ($/SHARE) DATE PRESENT VALUE($)
- ---- ---------- ------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Mark A. Angelson(1)............. 25,000 7.76% $28.4375 3/11/08 449,600
Richard L. Ritchie(2)........... 45,000 13.98% $ 26.75 2/17/08 799,700
</TABLE>
- ------------------------
(1) These options were granted on March 11, 1998 and vested in full on the first
anniversary of the date of grant. The exercise price was equal to the
closing price of a share of Big Flower common stock on the NYSE on the date
of the grant. The options are exercisable at any time between the date of
vesting and the tenth anniversary of the date of grant.
(2) These options were granted on February 17, 1998 and vest in full on the
second anniversary of the date of grant. The exercise price was equal to the
closing price of a share of Big Flower common stock on the NYSE on the date
of the grant. The options will be exercisable at any time between the date
of vesting and the tenth anniversary of the date of grant.
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OPTION VALUES AT END OF FISCAL 1998
The following table sets forth information concerning the number and the
value at the end of fiscal 1998 of unexercised in-the-money options to purchase
common stock of Big Flower granted to the named executive officers as of the end
of fiscal 1998. No named executive officer received any stock appreciation
rights. The amounts listed under "Value of Unexercised In-the-Money Options at
Fiscal 1998 End" are based on the closing price of $22.0625 of Big Flower's
common stock on the NYSE on December 31, 1998, the last trading day of fiscal
1998, less the exercise price payable for those shares.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
ACQUIRED ON VALUE UNEXERCISED OPTIONS OPTIONS
NAME EXERCISE (#) REALIZED ($) AT FISCAL 1998 END (#) AT FISCAL 1998 END ($)
- ---- ------------ ------------ ---------------------- ----------------------
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
---------------------- ----------------------
<S> <C> <C> <C> <C>
R. Theodore Ammon................ -0- -0- 300,000/0 1,818,750/0
Edward T. Reilly................. -0- -0- 253,334/146,666 1,517,334/807,166
Mark A. Angelson................. -0- -0- 133,300/100,000 937,369/707,813
Richard L. Ritchie............... -0- -0- 25,000/120,000 101,563/304,688
</TABLE>
- ------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The following table sets forth annual amounts payable to the named executive
officers' upon their retirement under Treasure Chest Advertising's supplemental
executive retirement plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL 5 YEARS
AVERAGE PAY
AT AGE 65 5 10 15 20 25 30
------------- -------- -------- -------- -------- -------- --------
YEARS OF SERVICE AT AGE 65
<S> <C> <C> <C> <C> <C> <C>
$150,000 $ 7,500 $15,000 $22,500 $30,000 $37,500 $45,000
175,000 8,750 17,500 26,250 35,000 43,750 52,500
200,000 10,000 20,000 30,000 40,000 50,000 60,000
225,000 11,250 22,500 33,750 45,000 56,250 67,500
250,000 12,500 25,000 37,500 50,000 62,500 75,000
275,000 13,750 27,500 41,250 55,000 68,750 82,500
300,000 15,000 30,000 45,000 60,000 75,000 90,000
500,000 25,000 50,000 75,000 100,000 125,000 150,000
600,000 30,000 60,000 90,000 120,000 150,000 180,000
700,000 35,000 70,000 105,000 140,000 175,000 210,000
800,000 40,000 80,000 120,000 160,000 200,000 240,000
900,000 45,000 90,000 135,000 180,000 225,000 270,000
</TABLE>
The compensation covered by this plan includes the executive's entire annual
base salary. Messrs. Ammon, Reilly, Angelson and Ritchie currently have 5, 3, 3
and 2 years of service, respectively. For more information regarding
compensation paid to individual executive officers, see "--Employment
Arrangements with Executive Officers" on page 114. Benefits under this plan are
computed by multiplying the participant's average salary for the last five years
prior to retirement by a percentage
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equal to one percent for each year of service up to a maximum of 30 years.
Benefits under this plan are not subject to a deduction for Social Security or
other offset amounts, other than for a participant's contributions to a 401(k)
plan and for benefits received under a retirement income plan.
EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
AMMON EMPLOYMENT AGREEMENT. Big Flower has entered into an employment
agreement with Mr. Ammon, effective November 20, 1995, under which Mr. Ammon
currently serves as chairman of the board of Big Flower. The initial term of the
Ammon agreement is three years, and may be automatically extended for one-year
periods, unless either Big Flower or Mr. Ammon provides notice to the contrary.
The commencement of the first extension occurred on November 20, 1997.
Mr. Ammon is required to devote to Big Flower the time necessary for the
effective conduct of his duties under the Ammon agreement and is permitted to
engage in outside business interests that do not conflict with those duties or
otherwise compete with Big Flower. Under the Ammon agreement, Mr. Ammon
currently receives:
- a base salary of $750,000 per year,
- an annual bonus targeted at not less than 75% of base salary, assuming
bonus targets under the executive incentive plan are met,
- an annual payment of $108,000 with respect to life insurance premiums, and
- certain fringe benefits, including participation in the supplemental
executive retirement plan.
In connection with his entering into the Ammon agreement, Mr. Ammon received
an option to purchase 300,000 shares of common stock of Big Flower:
- with a ten-year term,
- at an exercise price equal to $16.00 per share, and
- vesting ratably over a three-year period.
If Mr. Ammon's employment with Big Flower is terminated other than for
"cause" as defined in the Ammon agreement, Mr. Ammon will be entitled to receive
a supplemental retirement benefit, subject to vesting and benefit accrual
requirements and subject to being offset by amounts payable under the
supplemental executive retirement plan, of up to 50% of his final average
compensation including salary and executive incentive plan bonus, which would
commence at age 60. Mr. Ammon will have the right to terminate the Ammon
agreement in the event of its material breach by Big Flower or for other "good
reason" as defined in the agreement. In that event, or if Big Flower terminates
Mr. Ammon's employment without cause:
- Mr. Ammon will be entitled generally to receive the salary and bonus
otherwise payable to him over the greater of (a) the remaining term of the
Ammon agreement and (b) a period of six months,
- all outstanding equity incentive awards (including stock options) would
immediately vest,
- Mr. Ammon would receive additional service credit for purposes of the
supplemental retirement benefit, and
- the life insurance and other fringe benefits would continue during the
severance period.
Upon the termination of his employment following a "change in control" of
Big Flower as defined in the agreement, Mr. Ammon would:
- be entitled to receive a lump sum amount equal to three times his base
salary and bonus,
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- become vested in all outstanding equity incentive awards,
- have the right to receive a cash payment equal to the spread on all
outstanding stock options,
- receive a lump sum payment with respect to foregone fringe benefits,
- receive additional service credit for purposes of the supplemental
retirement benefit, and
- be entitled to a payment sufficient to offset the effects of any excise
tax imposed under Section 4999 of the Internal Revenue Code.
The merger may constitute a change of control of Big Flower for purposes of
the Ammon agreement. During the term of the Ammon agreement and if Mr. Ammon
terminates his employment other than for good reason or Big Flower terminates
Mr. Ammon's employment for cause, for a period of one year beyond the expiration
of the employment term, Mr. Ammon will be subject to non-competition and
non-solicitation requirements.
Big Flower and Mr. Ammon are currently reviewing whether the Ammon agreement
should be revised upon consummation of the merger.
REILLY EMPLOYMENT AGREEMENT. Big Flower has entered into an employment
agreement with Mr. Reilly, effective March 29, 1996, under which Mr. Reilly
currently serves as president and chief executive officer of Big Flower. The
initial term of the Reilly agreement is three years, and may be automatically
extended for one-year periods, unless either Big Flower or Mr. Reilly provides
notice to the contrary. The commencement of the first extension occurred on
March 29, 1998. Mr. Reilly is required to devote to Big Flower all of his
working time, attention and efforts. Under the Reilly agreement, Mr. Reilly
currently receives:
- a base salary of $575,000 per year,
- an annual bonus targeted at not less than 75% of base salary, assuming
bonus targets under the executive incentive plan are met, and
- fringe benefits, including participation in the supplemental executive
retirement plan.
In connection with his entering into the Reilly agreement, Mr. Reilly
received an option to purchase 200,000 shares of common stock on Big Flower:
- with a ten-year term,
- at an exercise price of $12.75 per share, the closing price of a share of
Big Flower common stock on the NYSE on the date of grant, and
- vesting in installments of 20% each on December 31, 1996, 1997, 1998, and
1999 and the remaining 20% on March 29, 2000.
On April 29, 1997, Mr. Reilly received an option to purchase 100,000 shares
of common stock of Big Flower:
- with a ten-year term, and
- at an exercise price of $18.375 per share, the closing price on the date
of grant.
These options vested in full on April 29, 1998. In addition, on April 29,
1997, Mr. Reilly received an option to purchase 100,000 shares of common stock
of Big Flower:
- with a ten-year term, and
- at an exercise price of $21.13 per share, which was equal to 115% of the
closing price of a share of Big Flower common stock on the NYSE on the
date of grant.
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One-third of these options vested on each of April 29, 1998 and April 29,
1999, with the remaining one-third to vest on the third anniversary of the date
of grant. All of these options will immediately vest upon the occurrence of a
"change of control" of Big Flower as defined in the Reilly agreement. The merger
may constitute a change of control of Big Flower for purposes of the Reilly
agreement.
Mr. Reilly will have the right to terminate the Reilly agreement in the
event of its material breach by Big Flower or for other "good reason", as
defined in the Reilly agreement. In that event, or if Big Flower terminates
Mr. Reilly's employment without "cause" as defined in the Reilly agreement,
- Mr. Reilly will be entitled to receive a lump sum amount equal to the sum
of (A) two times the sum of his then base salary plus the highest annual
performance bonus Mr. Reilly received in the three years preceding that
termination of employment, plus (B) the present value of all fringe
benefits payable under the remaining term of the Reilly agreement,
- all outstanding equity incentive awards including stock options will
immediately vest and remain exercisable for a period of one year following
the date of that termination or, if earlier, until the end of the option
term, and
- Mr. Reilly would be entitled to receive a payment sufficient to offset the
effects of any excise tax imposed under Section 4999 of the Code.
During the term of the Reilly agreement and if Mr. Reilly terminates his
employment other than for good reason or Big Flower terminates Mr. Reilly's
employment for cause, for a period of one year beyond the expiration of the
employment term, Mr. Reilly will be subject to non-competition and
non-solicitation requirements.
ANGELSON EMPLOYMENT AGREEMENT. Big Flower has entered into an employment
agreement with Mr. Angelson, effective March 21, 1996, under which Mr. Angelson
currently serves as executive vice president--office of the chairman, general
counsel and secretary of the board of directors of Big Flower and as deputy
chairman of XL Ventures. The initial term of the Angelson agreement is three
years, and may be automatically extended for one-year periods, unless either Big
Flower or Mr. Angelson provides notice to the contrary. The commencement of the
first extension occurred on March 21, 1998. Mr. Angelson is required to devote
to Big Flower and its affiliates all of his working time, attention and efforts.
Under the Angelson agreement, Mr. Angelson currently receives:
- a base salary of $540,000 per year,
- an annual bonus targeted at not less than 75% of base salary, assuming
bonus targets under the executive incentive plan are met,
- annual premium payments during the term of employment with respect to a
$2 million split-dollar life insurance policy owned by Mr. Angelson, and
- fringe benefits, including participation in the supplemental executive
retirement plan.
In connection with his entering into the Angelson agreement, Mr. Angelson
was granted an option to purchase 150,000 shares of common stock of Big Flower:
- with a ten-year term,
- at an exercise price of $12.625 per share, the closing price of a share of
Big Flower common stock on the NYSE on the date of grant, and
- vesting in installments of 10% on December 31, 1996, 15% on the first
anniversary of the Angelson agreement and 25% on each of the next three
anniversaries of the Angelson agreement.
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On March 25, 1997, Mr. Angelson was granted an option to purchase 58,300
shares of common stock of Big Flower (a) with a ten-year term and (b) at an
exercise price of $18.125, the closing price of a share of Big Flower common
stock on the NYSE on the date of grant. These options vested in full on
March 25, 1998. For information regarding options granted to Mr. Angelson in
1998, see "Executive Compensation--Options Granted in Fiscal 1998" on page 112.
All of these options will immediately vest upon the occurrence of a "change of
control" of Big Flower, as defined in the Angelson agreement. The merger may
constitute a change of control of Big Flower for purposes of the Angelson
agreement.
Mr. Angelson will have the right to terminate the Angelson agreement in the
event of its material breach by Big Flower or for other "good reason" as defined
in the Angelson agreement. In that event, or if Big Flower terminates
Mr. Angelson's employment without "cause" as defined in the Angelson agreement,
- Mr. Angelson will be entitled to receive a lump sum amount equal to the
sum of (A) two times the sum of his then base salary plus the highest
annual performance bonus Mr. Angelson received in the three years
preceding that termination of employment, plus (B) the present value of
all insurance premium payments and other fringe benefits payable under the
remaining term of the Angelson agreement,
- all outstanding equity incentive awards, including stock options, will
immediately vest and remain exercisable for a period of one year following
the date of that termination, or, if earlier, until the end of the option
term, and
- Mr. Angelson would be entitled to receive a payment sufficient to offset
the effects of any excise tax imposed under Section 4999 of the Code.
During the term of the Angelson agreement, and if Mr. Angelson terminates
his employment other than for good reason or Big Flower terminates
Mr. Angelson's employment for cause, for a period of one year beyond the
expiration of the employment term, Mr. Angelson will be subject to
non-competition and non-solicitation requirements. In connection with the
negotiation on behalf of Big Flower of the merger agreement and related
recapitalization, the Angelson agreement was amended to provide that
Mr. Angelson would report to the independent directors with respect to matters
as to which Mr. Ammon has recused himself and to provide other changes related
to the determination of aspects of Mr. Angelson's compensation, including that
Mr. Angelson will have the right to receive severance payments in the event that
he terminates the Angelson agreement upon or after a change of control of Big
Flower.
RITCHIE EMPLOYMENT ARRANGEMENTS. Big Flower entered into a letter agreement
with Mr. Ritchie on December 13, 1996, under which Mr. Ritchie serves as
executive vice president and chief financial officer of Big Flower. Mr. Ritchie
is required to devote to Big Flower all of his working time, attention and
efforts. In the event that Mr. Ritchie's employment should be terminated by Big
Flower other than for "cause", as defined in the severance agreement discussed
below, prior to a "change in control" of Big Flower, as defined in the severance
agreement discussed below, Mr. Ritchie will be entitled to a payment equal to
one year's base salary. Under the Ritchie agreement, Mr. Ritchie currently
receives:
- a base salary of $450,000 per year,
- an annual bonus targeted at not less than 75% of base salary, assuming
bonus targets under the executive incentive plan are met, and
- fringe benefits, including participation in the supplemental executive
retirement plan.
In connection with his entering into the Ritchie agreement, Mr. Ritchie was
granted an option to purchase 100,000 shares of common stock of Big Flower:
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<PAGE>
- with a ten-year term,
- at an exercise price of $18.00 per share, the closing price of a share of
Big Flower common stock on the NYSE on the date of grant, and
- vesting in installments of 25% on January 6 of each of 1998, 1999, 2000
and 2001.
For information regarding options granted to Mr. Ritchie in 1998, see
"Executive Compensation--Options Granted in Fiscal 1998" on page 112. All of
these options will immediately vest upon the occurrence of a "change in control"
of Big Flower, as defined in the severance agreement discussed below.
In addition, Big Flower has entered into a severance agreement with
Mr. Ritchie, effective January 6, 1997, which provides that if Mr. Ritchie's
employment is terminated by Big Flower without "cause" or by Mr. Ritchie for
"good reason" following a "change in control" of Big Flower, each as defined in
the severance agreement, Mr. Ritchie will receive a lump sum amount equal to two
times the sum of the greater of his annual base salary in effect immediately
prior to the termination of employment and his annual base salary in effect
immediately prior to the change in control, and the greater of the target bonus
for Mr. Ritchie under the executive incentive plan in the year immediately
preceding that in which the termination occurs and the average bonus for the
three years immediately preceding the change in control. In addition:
(1) all outstanding stock incentive awards (including stock options) will
immediately vest and remain exercisable until at least 90 days following
the "change in control," and
(2) Mr. Ritchie would be entitled to two years of continued medical and
other insurance benefits.
The total amount of benefits payable to Mr. Ritchie would be limited to the
extent necessary to preserve Big Flower's deduction under Section 280G of the
Internal Revenue Code. The merger may constitute a change of control of Big
Flower for purposes of the Ritchie agreement and the severance agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None.
BIG FLOWER STOCK PRICE PERFORMANCE GRAPH
The following graphs compare the cumulative total stockholder returns of Big
Flower common stock, the Russell 2000-Registered Trademark- Index, the Russell
Consumer Discretionary Index, the Standard & Poor's 500 Index, and the
Standard & Poor's Advertising and Marketing Services Index. The comparisons
reflected in the graph are not intended to forecast the future performance of
Big Flower common stock and may not be indicative of such future performance.
The graph assumes $100 invested on November 22, 1995, the date of Big Flower's
initial public offering in Big Flower common stock and each of the indices and
that all dividends were reinvested.
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COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN:
BIG FLOWER VS. RUSSELL 2000, RUSSELL CONSUMER DISCRETIONARY INDEX,
S&P 500 AND S&P ADVERTISING AND MARKETING INDEX
TOTAL RETURN TO STOCKHOLDERS
REINVESTED DIVIDENDS
[LOGO]
Big Flower selected the Russell 2000 Index for comparison for 1998 because
Big Flower is listed as a member of that index, and the entities included in
that index more closely resemble the capitalization of Big Flower than the much
larger companies included generally in the S&P 500 Index. Moreover, Big Flower
believes that overall securities' market conditions affecting Big Flower are
better represented when compared with other members of the Russell 2000 Index
then the much larger companies included in the S&P 500 Index. Similarly, Big
Flower selected the Russell Consumer Discretionary Index for comparison for
1998, rather that the S&P Advertising and Marketing Index, as more
representative of companies with comparable market capitalization. As a result
of the addition of these indices, the graph compares the total cumulative
returns of Big Flower's common stock with the Russell 2000 Index, the Russell
Consumer Discretionary Index, the S&P 500 Index and the S&P Advertising and
Marketing Index.
The total percentage return for the Big Flower common stock for fiscal 1998
was approximately
- -8.5%. This compares with the total percentage return for such period of -2.5%
for the Russell 2000 Index, 3.8% for the Russell Consumer Discretionary Index,
28.6% for the S&P 500 Index, and 58.8% for the S&P Advertising and Marketing
Index. These percentages assume that all dividends were reinvested.
RATIFICATION OF APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche LLP to be Big Flower's
independent certified public accountants for its fiscal year ended December 31,
1999. Deloitte & Touche has acted
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as Big Flower's independent certified public accountants since its inception and
as Big Flower Press' independent certified public accountants since July 1993.
Representatives of Deloitte & Touche LLP will be present at the Big Flower
meeting with the opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions.
REQUIRED VOTE
Ratification of the appointment of the independent certified public
accountant requires the affirmative vote of a majority in voting power present
(in person or by proxy) and entitled to vote at the Big Flower meeting. In the
event that Big Flower's stockholders fail to ratify the appointment of
Deloitte & Touche LLP, the selection of Big Flower's independent certified
public accountants will be submitted to Big Flower's board of directors for
reconsideration.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS BIG FLOWER'S INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS.
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FUTURE STOCKHOLDER PROPOSALS
If the merger is not completed, stockholder proposals intended to be
presented at the 2000 annual meeting of Big Flower stockholders pursuant to
Rule 14a-8 promulgated under the Exchange Act must be received by the secretary
of Big Flower no later than January 15, 2000 in order to be included in the
proxy materials sent by management of Big Flower for such meeting. Stockholder
proposals intended to be presented at the 2000 annual meeting of Big Flower
stockholders that are not intended to be included in management's proxy
materials pursuant to Rule 14a-8 must be received by the secretary of Big Flower
not less than 60 days nor more than 90 days prior to the date of the meeting.
WHERE YOU CAN FIND MORE INFORMATION
Big Flower files reports, proxy statements and other information with the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
You may read and copy this information at the following locations of the
Securities and Exchange Commission:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. Further
information on the operation of the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. can be obtained by calling the Securities and
Exchange Commission at 1-800-SEC-0330.
The Securities and Exchange Commission also maintains an internet world wide
web site that contains reports, proxy statements and other information about
issuers, such as Big Flower, who file electronically with the Securities and
Exchange Commission. The address of that site is http://www.sec.gov.
You can also inspect reports, proxy statements and other information about
Big Flower at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
The Securities and Exchange Commission allows Big Flower to "incorporate by
reference" information into this document, which means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is deemed to be part of this document, except for any
information superseded by information in this document. This document
incorporates by reference the documents set forth below that we have previously
filed with the Securities and Exchange Commission. These documents contain
important information about our companies and their finances.
<TABLE>
<CAPTION>
BIG FLOWER COMMISSION FILINGS (FILE NO. 1-11834) PERIOD OR DATE FILED
- ------------------------------------------------ ----------------------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Reports on Form 10-Q Quarters ended March 31, 1999
and June 30, 1999
Current Reports on Form 8-K or 8-K/A Filed on January 19, 1999, March 19, 1999, April 21, 1999,
July 1, 1999, October 12, 1999 and October 18, 1999
</TABLE>
Big Flower also incorporates by reference additional documents that either
company may file with the Securities and Exchange Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 between
the date of this document and the date of the Big Flower meeting. These
documents include periodic reports, such as Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
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APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
BETWEEN
BFH MERGER CORP.
AND
BIG FLOWER HOLDINGS, INC.
DATED AS OF OCTOBER 11, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.01 The Merger.................................................. A-9
SECTION 1.02 Effective Time.............................................. A-9
SECTION 1.03 Effects of the Merger....................................... A-10
SECTION 1.04 Certificate of Incorporation and By-Laws of the
Surviving Corporation....................................... A-10
SECTION 1.05 Directors................................................... A-10
SECTION 1.06 Officers.................................................... A-10
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
SECTION 2.01 Effect on Capital Stock..................................... A-10
SECTION 2.02 Options; Stock Plans........................................ A-12
SECTION 2.03 Modification of Merger Consideration........................ A-13
SECTION 2.04 Payment for Shares.......................................... A-14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01 Organization and Qualification; Subsidiaries................ A-16
SECTION 3.02 Capitalization; Subsidiaries................................ A-16
SECTION 3.03 Authority Relative to this Agreement........................ A-17
SECTION 3.04 No Violations of Law........................................ A-18
SECTION 3.05 No Defaults or Violations Arising from the Merger........... A-18
SECTION 3.06 Absence of Certain Changes.................................. A-19
SECTION 3.07 SEC Reports and Financial Statements........................ A-19
SECTION 3.08 Information................................................. A-19
SECTION 3.09 Litigation.................................................. A-20
SECTION 3.10 Material Contracts.......................................... A-20
SECTION 3.11 Taxes....................................................... A-20
SECTION 3.12 Employee Benefits........................................... A-21
SECTION 3.13 Labor Relations and Employment.............................. A-23
SECTION 3.14 Environmental Matters....................................... A-24
SECTION 3.15 Intellectual Property....................................... A-26
SECTION 3.16 Year 2000 Compliance........................................ A-26
SECTION 3.17 Rights Agreement............................................ A-27
SECTION 3.18 Board Recommendation........................................ A-27
SECTION 3.19 Required Company Vote....................................... A-27
SECTION 3.20 Related Party Transactions.................................. A-28
SECTION 3.21 State Takeover Statutes..................................... A-28
SECTION 3.22 Brokers and Finders......................................... A-28
SECTION 3.23 Opinions of Investment Banking Firms........................ A-28
</TABLE>
A-2
<PAGE>
<TABLE>
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<S> <C> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGECO
SECTION 4.01 Organization and Qualification.............................. A-29
SECTION 4.02 Authority Relative to this Agreement........................ A-29
SECTION 4.03 No Violation................................................ A-29
SECTION 4.04 Information................................................. A-29
SECTION 4.05 Financing................................................... A-30
SECTION 4.06 Delaware Law................................................ A-30
SECTION 4.07 Newly Organized............................................. A-30
ARTICLE V
COVENANTS
SECTION 5.01 Conduct of Business of the Company.......................... A-30
SECTION 5.02 Access to Information....................................... A-32
SECTION 5.03 Efforts..................................................... A-32
SECTION 5.04 Public Announcements........................................ A-34
SECTION 5.05 Indemnification; Directors' and Officers' Insurance......... A-34
SECTION 5.06 Notification of Certain Matters............................. A-35
SECTION 5.07 Rights Agreement............................................ A-35
SECTION 5.08 State Takeover Laws......................................... A-36
SECTION 5.09 No Solicitation............................................. A-36
SECTION 5.10 ISRA Requirements........................................... A-37
SECTION 5.11 Reports..................................................... A-37
SECTION 5.12 Stockholders' Meeting....................................... A-38
SECTION 5.13 Employee Benefit Arrangements............................... A-39
SECTION 5.14 Acquisition of Columbine JDS Systems........................ A-39
SECTION 5.15 Treatment of Certain Investments............................ A-39
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.01 Conditions.................................................. A-40
SECTION 6.02 Conditions to Obligations of MergeCo........................ A-41
SECTION 6.03 Conditions to Obligation of the Company..................... A-42
ARTICLE VII
TERMINATION; AMENDMENTS; WAIVER
SECTION 7.01 Termination................................................. A-42
SECTION 7.02 Effect of Termination....................................... A-43
SECTION 7.03 Fees and Expenses........................................... A-44
SECTION 7.04 Amendment................................................... A-44
SECTION 7.05 Extension; Waiver........................................... A-44
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Non-Survival of Representations and Warranties.............. A-45
SECTION 8.02 Entire Agreement; Assignment................................ A-45
SECTION 8.03 Validity.................................................... A-45
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 8.04 Notices..................................................... A-45
SECTION 8.05 Governing Law............................................... A-46
SECTION 8.06 Descriptive Headings........................................ A-46
SECTION 8.07 Counterparts................................................ A-46
SECTION 8.08 Parties in Interest......................................... A-46
SECTION 8.09 Certain Definitions......................................... A-46
SECTION 8.10 Specific Performance........................................ A-47
</TABLE>
A-4
<PAGE>
SCHEDULES
<TABLE>
<S> <C>
Schedule 2.01(c)(ii)......................... Holders of Retained Shares
Schedule 5.14................................ Acquisition of Columbine JDS Systems, Inc.
Schedule 5.15(a)............................. Treatment of Private Internet Investments
Schedule 5.15(b)............................. Treatment of Public Internet Investments
Schedule 6.02(d)............................. Financing Commitments
</TABLE>
A-5
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
401(k) Plans................................................ 14
Acquisition Transactions.................................... 46
affiliate................................................... 63
Agreement................................................... 1
Aggregate Spread............................................ 6
Bona Fide Proposal.......................................... 48
Business.................................................... 27
Cash Consideration.......................................... 4
Certificate Amendments...................................... 2
Certificates................................................ 10
Code........................................................ 22
Common Shares............................................... 1
Company..................................................... 1
Company Affiliated Group.................................... 20
Company Board............................................... 1
Company Disclosure Schedule................................. 13
Company Representatives..................................... 39
Company Stock Plan.......................................... 14
Company Stockholder Approval................................ 15
Confidentiality Agreement................................... 40
Consent..................................................... 40
control..................................................... 63
DGCL........................................................ 1
Dissenting Shares........................................... 5
Effective Time.............................................. 2
Environmental Laws.......................................... 28
Environmental Liabilities and Costs......................... 28
Environmental Permits....................................... 28
ERISA....................................................... 22
ERISA Affiliate............................................. 23
Excess Shares............................................... 16
Exchange Act................................................ 15
Exchange Agent.............................................. 10
Exchange Fund............................................... 10
Exchanged Option............................................ 7
Exchanged Option Merger Consideration....................... 7
Exchanged Share............................................. 4
Exchanged Share Certificates................................ 16
Evercore.................................................... 7
Financial Statements........................................ 18
Form 10-K................................................... 18
Governmental Entity......................................... 16
Hazardous Substances........................................ 28
HSR Act..................................................... 16
Indemnified Parties......................................... 43
Injunction.................................................. 53
Intellectual Property....................................... 30
</TABLE>
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<TABLE>
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<S> <C>
Interested stockholder...................................... 41
Investment Consideration.................................... 8
Investment Instrument....................................... 52
ISRA........................................................ 29
Junior Preferred Stock...................................... 14
Laws........................................................ 63
LNA......................................................... 48
Material Adverse Effect on MergeCo.......................... 34
Material Adverse Effect on the Company...................... 13
Material Contracts.......................................... 34
MergeCo..................................................... 1
MergeCo Representatives..................................... 40
Merger...................................................... 1
Merger Consideration........................................ 5
Offeror..................................................... 47
Option...................................................... 6
Order....................................................... 53
Original Agreement.......................................... 1
Other Filings............................................... 19
PBGC........................................................ 23
Person...................................................... 63
Persons..................................................... 63
Plans....................................................... 22
Preferred Stock............................................. 14
Proxy Statement............................................. 49
Purchase Agreement.......................................... 8
QUIPS....................................................... 14
Release..................................................... 29
Relevant Period............................................. 9
Relevant Purchaser.......................................... 7
Remedial Action............................................. 29
Representatives............................................. 46
Retained Option............................................. 7
Retained Share.............................................. 5
Rights Agreement............................................ 1
Rights Amendment............................................ 31
SEC......................................................... 18
SEC Reports................................................. 18
Securities Act.............................................. 53
Shares...................................................... 1
Significant Subsidiary...................................... 15
Special Meeting............................................. 49
Subsidiaries................................................ 63
Subsidiary.................................................. 63
Surviving Corporation....................................... 2
Tax Return.................................................. 21
Taxes....................................................... 21
Terminating Company Breach.................................. 58
Terminating MergeCo Breach.................................. 58
Termination Date............................................ 58
</TABLE>
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<TABLE>
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<S> <C>
Termination Fee............................................. 59
THL......................................................... 7
Title IV Plans.............................................. 22
Total Post-Merger Common Shares............................. 4
Trust Agreement............................................. 14
WARN........................................................ 25
Year 2000 Compliant......................................... 31
</TABLE>
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<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated
as of October 11, 1999, between BFH Merger Corp., a Delaware corporation
("MERGECO"), and Big Flower Holdings, Inc., a Delaware corporation (the
"COMPANY").
WHEREAS, the respective Boards of Directors of MergeCo and the Company have
approved the merger of MergeCo with and into the Company, as set forth below
(the "MERGER"), in accordance with the General Corporation Law of the State of
Delaware (the "DGCL").
WHEREAS, MergeCo and the Company previously entered into an Agreement and
Plan of Merger (the "ORIGINAL AGREEMENT"), dated as of June 29, 1999, providing
for the Merger upon certain terms and conditions.
WHEREAS, MergeCo and the Company have agreed to revise the terms of the
Merger and to amend and restate the Original Agreement (as amended) to reflect
these amendments to the terms of the Merger.
WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, in the Merger, the holders of shares of common stock of the Company,
par value $.01 per share (the "COMMON SHARES"), issued and outstanding
immediately prior to the Effective Time (as defined in Section 1.02), including
the associated Rights issued pursuant to, and defined in, the Rights Agreement,
dated as of November 28, 1995, between the Company and The Bank of New York, as
Rights Agent (the "RIGHTS AGREEMENT", which Rights, together with the Common
Shares, are hereinafter referred to as the "SHARES"), will be entitled to either
(i) receive cash in exchange for their Shares, or (ii) retain a certain number
of their Shares and receive cash and possibly certain other consideration in
exchange for the remainder of their Shares.
WHEREAS, the Board of Directors of the Company (the "COMPANY BOARD") has, in
light of and subject to the terms and conditions set forth herein:
(i) determined that (A) the consideration to be paid for each Share in the
Merger is fair to the stockholders of the Company, and (B) the Merger is
advisable and otherwise in the best interests of the Company and its
stockholders, and (ii) resolved to approve and adopt this Agreement and the
transactions contemplated hereby and to recommend approval and adoption by the
stockholders of the Company of this Agreement.
WHEREAS, MergeCo and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger, and also to
prescribe various conditions to the Merger.
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, MergeCo
and the Company agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER. Upon the terms and subject to the satisfaction or
waiver of the conditions hereof, and in accordance with the applicable
provisions of this Agreement and the DGCL, at the Effective Time (as defined in
Section 1.02), MergeCo shall be merged with and into the Company. Following the
Merger, the separate corporate existence of MergeCo shall cease and the Company
shall continue as the surviving corporation (the "SURVIVING CORPORATION").
SECTION 1.02 EFFECTIVE TIME. As soon as practicable after the satisfaction
or waiver of the conditions set forth in Article VI, the Company shall execute,
in the manner required by the DGCL,
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and deliver to the Secretary of State of the State of Delaware, a duly executed
and verified certificate of merger, and the parties shall take such other and
further actions as may be required by Law to make the Merger effective. The time
the Merger becomes effective in accordance with applicable Law is referred to
herein as the "EFFECTIVE TIME."
SECTION 1.03 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and MergeCo shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and MergeCo
shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.04 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION.
(a) The certificate of incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until thereafter amended in
accordance with the provisions thereof and applicable Law.
(b) The by-laws of the Company in effect immediately prior to the Effective
Time shall be the by-laws of the Surviving Corporation until amended in
accordance with the provisions thereof and applicable Law.
SECTION 1.05 DIRECTORS. Subject to applicable Law, the directors of MergeCo
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation and shall hold office until their respective successors
are duly elected and qualified, or their earlier death, resignation or removal.
SECTION 1.06 OFFICERS. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation and
shall hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
SECTION 2.01 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any Shares or any
shares of capital stock of MergeCo:
(a) COMMON STOCK OF MERGECO. All of the shares of common stock of MergeCo,
par value $0.01 per share, issued and outstanding immediately prior to the
Effective Time shall be converted into a number of Common Shares following the
Merger equal to:
(i) the Total Post-Merger Common Shares (defined below), minus
(ii) the number of Retained Shares together with the number of Common
Shares, if any, issued in the Merger in exchange for Options (as defined
in Section 2.02) pursuant to Section 2.03(c).
The "TOTAL POST-MERGER COMMON SHARES" shall be 12,194,449 Common Shares,
which number is based on an assumption that the transactions set forth in
Sections 5.14, 5.15(a) and 5.15(b) will be consummated on the terms set forth in
such Sections; PROVIDED THAT such number of Common Shares shall be subject to
appropriate adjustments if any of the transactions set forth in Sections 5.14,
5.15(a) or 5.15(b) are not consummated on the terms set forth in such Sections;
PROVIDED FURTHER THAT the maximum possible number of Total Post-Merger Common
Shares shall be no more than 14,526,481.
(b) CANCELLATION OF TREASURY STOCK. Each Share that is owned by the Company
shall automatically be cancelled and retired and shall cease to exist, and no
cash or other consideration shall be delivered or deliverable in exchange
therefor.
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(c) TREATMENT OF COMMON SHARES. Each Share issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger, be
treated as follows:
(i) Subject to Section 2.03, each Share held by a Person not listed in
the table set forth on Schedule 2.01(c)(ii), other than Dissenting
Shares (as defined in Section 2.01(d)) and shares owned by any
subsidiary of the Company, (each of such Shares, together with each
of the Shares described in Section 2.01(c)(ii)(B), an "EXCHANGED
SHARE") shall be converted into the right to receive from the Company
after the Merger cash in an amount equal to $31.50 (the "CASH
CONSIDERATION"), and each such Exchanged Share shall no longer be
outstanding, shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any
such Exchanged Shares shall, to the extent such certificate
represents such Exchanged Shares, cease to have any rights with
respect thereto, except the right to receive the Cash Consideration
applicable thereto, upon surrender of such certificate in accordance
with Section 2.04.
(ii) Subject to Section 2.03, in respect of the Shares held by each
Person listed in the table set forth on Schedule 2.01(c)(ii):
(A) that number of such Person's Shares which is set forth in the
column of such table headed "Retained Shares" shall be retained
by such Person as such number of fully paid and nonassessable
Common Shares (each of such Common Shares, a "RETAINED SHARE");
and
(B) each of such Person's Shares which is not a Retained Share shall
be an Exchanged Share and shall be converted into the right to
receive from the Company after the Merger the Cash Consideration
for each such Share, and each such Exchanged Share shall no
longer be outstanding, shall automatically be cancelled and
retired and shall cease to exist, and each holder of a
certificate representing any such Exchanged Shares shall, to the
extent such certificate represents such Exchanged Shares, cease
to have any rights with respect thereto, except the right to
receive the Cash Consideration applicable thereto, upon surrender
of such certificate in accordance with Section 2.04.
The Retained Shares, together with the Cash Consideration, the Exchanged
Option Merger Consideration (as defined in Section 2.02(c)), and any other
consideration agreed to be provided to holders of Shares or Options pursuant to
Section 2.03 in exchange for such Shares or Options, shall be referred to as the
"MERGER CONSIDERATION".
(d) DISSENTING SHARES. Notwithstanding Section 2.01(c), Shares outstanding
immediately prior to the Effective Time and held by a holder who has not voted
in favor of the Merger or consented thereto in writing and who has demanded
appraisal for such Shares in accordance with the DGCL prior to the Effective
Time ("DISSENTING SHARES") shall not be converted into a right to receive the
Cash Consideration relating to such Shares, unless such holder fails to perfect,
withdraws or otherwise loses such holder's right to appraisal. If, after the
Effective Time, such holder fails to perfect, withdraws or loses such holder's
right to appraisal, such Shares shall be treated as if they had been converted
as of the Effective Time into a right to receive the Cash Consideration relating
to such Shares. The Company shall give MergeCo prompt notice of any demands
received by the Company for appraisal of Shares, and MergeCo shall have the
right to participate in all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written consent of
MergeCo, make any payment with respect to, or settle or offer to settle, any
such demands.
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SECTION 2.02 OPTIONS; STOCK PLANS.
(a) With respect to any outstanding option to acquire Common Shares granted
under any stock option or other similar plan of the Company, whether or not
exercisable (each such option, an "OPTION"), it is the intention of the parties
that, subject to Sections 2.02(d) and 2.03(c):
(i) each Option shall be surrendered by the holder thereof prior to the
Effective Time in exchange for that number of Shares equal to the
Aggregate Spread (as defined below) of such Option divided by $31.50,
(ii) the Shares issued to the holder of such Option in such exchange
shall be deemed to be Exchanged Shares and shall be converted into
the right to receive the Cash Consideration in accordance with
Section 2.01(c), and
(iii) no fractional Shares shall be issued in the exchange but the
Company shall pay the holder cash in lieu of the fractional interest.
"AGGREGATE SPREAD" as to any Option shall mean an amount (which shall in no
event be less than zero) equal to $31.50 minus the per Share exercise price of
such Option multiplied by the number of Shares issuable upon exercise of such
Option.
(b) Promptly after the execution of this Agreement, the Company shall use
its best efforts to obtain the consent from the holders of Options to the
treatment of such Options as set forth in Section 2.02(a), unless the Company,
MergeCo and any such holder of an Option or Options agree to a different
treatment of such holder's Option or Options pursuant to Section 2.03(c).
(c) In the event that the Company obtains the legal, valid and binding
consent of the holder of an Option or Options to the treatment of such Option or
Options as set forth in Section 2.02(a), then:
(i) the Company shall, immediately prior to the Effective Time:
(A) take such steps as are necessary to effect the exchange of each
such Option into that number of Shares equal to the Aggregate
Spread of each such Option divided by $31.50, and
(B) shall pay the relevant holder cash in lieu of any fractional
interest of a Share; and
(ii) at the Effective Time, the Shares issued to the holder of such
Option in such exchange shall be deemed to be Exchanged Shares and
shall be converted into the right to receive the Cash Consideration
in accordance with Section 2.01(c).
(d) In the event that, as of the Effective Time:
(i) the Company has not obtained the consent of the holder of an Option
or Options to the treatment of such Option or Options as set forth in
Section 2.02(a), and
(ii) the Company, MergeCo and such holder have not agreed to a different
treatment of such holder's Option or Options pursuant to
Section 2.03(c),
then, as of the Effective Time, by virtue of the Merger and without any
action on the part of such holder of such Option or Options, each such Option
shall be designated as an "EXCHANGED OPTION" and shall be cancelled in exchange
for the right to receive from the Company after the Merger cash in an amount
equal to (such consideration being the "EXCHANGED OPTION MERGER CONSIDERATION"):
(iii) the Cash Consideration less the per share exercise price of such
Exchanged Option, multiplied by
(iv) the number of Common Shares subject to such Exchanged Option.
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(e) Prior to the Effective Time, the Company shall amend the terms of its
equity incentive plans or arrangements, in each case as is necessary to give
effect to the provisions of this Section 2.02 and any other arrangements made in
respect of the Options pursuant to Section 2.03(c).
SECTION 2.03 MODIFICATION OF MERGER CONSIDERATION.
(a) If, prior to the Effective Time, Thomas H. Lee Company ("THL"), Evercore
Capital Partners LP ("EVERCORE") or any of their affiliates (any such entity
being a "RELEVANT PURCHASER") enters into an agreement with any of the Persons
listed on Schedule 2.01(c)(ii) (as amended pursuant to Section 2.03(c)) to
purchase from such Person any of such Person's Exchanged Shares at the Effective
Time in exchange for consideration equal to the Cash Consideration with respect
to such Exchanged Shares (any such agreement, a "PURCHASE AGREEMENT"):
(i) MergeCo and the Company shall modify this Agreement (including,
without limitation, Section 2.01(c) and any schedule attached to this
Agreement) on or prior to such date as appropriate to reflect the
terms of such Purchase Agreement, and
(ii) the Company shall take such other actions reasonably requested by
the Relevant Purchaser so that such Purchase Agreement can be
effected.
(b) The parties agree that, prior to the Effective Time,
Schedule 2.01(c)(ii) may be amended by MergeCo, without the consent of the
Company, in the following manner:
(i) MergeCo and any Person holding Shares may agree at any time prior to
the Effective Time as to:
(A) the number of such Person's Shares which shall be Exchanged
Shares,
(B) the number of such Person's Shares which shall be Retained
Shares, and
(C) with respect to the first Person listed on
Schedule 2.01(c)(ii) on the date hereof only, the number of such
Person's Shares, if any, which shall be exchanged in the Merger
in consideration for an interest in an Investment Instrument (as
defined in Section 5.15) (such per Share interest in an
Investment Instrument being the "INVESTMENT CONSIDERATION" for
such Share),
and MergeCo shall provide the Company with reasonable evidence of any
such agreement.
(ii) Schedule 2.01(c)(ii) shall be amended to reflect such an agreement
reached between MergeCo and a Person holding Shares as follows:
(A) To the extent such Person is not listed on
Schedule 2.01(c)(ii) and such Person has agreed to a number of
such Person's Shares being Retained Shares, such Person shall be
added to Schedule 2.01(c)(ii).
(B) The number of such Person's Shares that such Person and MergeCo
agree shall become Retained Shares shall be inserted in the
column in the table set forth in Schedule 2.01(c)(ii) headed
"Retained Shares" beside such Person's name and shall be treated
in the Merger as set forth in Section 2.01(c)(ii)(A), subject to
further adjustments under Section 2.03(b)(i).
(C) The number of such Person's Shares that such Person and MergeCo
agree shall be Exchanged Shares shall be treated in the Merger as
set forth in Section 2.01(c)(ii)(B), subject to further
adjustments under Section 2.03(b)(i).
(D) With respect to the first Person listed on
Schedule 2.01(c)(ii) on the date hereof only, the number of such
Person's shares that MergeCo and such Person agree shall
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be exchanged in consideration for an interest in the Investment
Instrument shall be treated in the Merger as set forth in such
agreement, subject to further adjustments under
Section 2.03(b)(i).
(c) The parties agree that, prior to the Effective Time, the treatment of a
Person's Options in the Merger may be amended by MergeCo, with the consent of
the Company, such consent not to be unreasonably withheld, if MergeCo and such
Person agree that all or a portion of such Person's Options shall be treated
differently than the Options which are surrendered in exchange for Shares, or
are treated in the Merger as Exchanged Options, each as set forth in
Section 2.02, or a combination of both, and this Agreement shall be amended, if
necessary, to reflect such agreement, PROVIDED THAT the Exchanged Option Merger
Consideration with respect to an Exchanged Option at the Effective Time, as set
forth in Section 2.02(d), shall not in any event be amended. MergeCo shall
provide the Company with reasonable evidence of any such agreement.
SECTION 2.04 PAYMENT FOR SHARES.
(a) APPOINTMENT OF EXCHANGE AGENT AND DEPOSIT OF MERGER CONSIDERATION. From
and after the Effective Time, such bank or trust company as shall be mutually
acceptable to MergeCo and the Company shall act as exchange agent (the "EXCHANGE
AGENT"). At or prior to the Effective Time, the Company and MergeCo shall
deposit, or the Company and MergeCo shall otherwise take all steps necessary to
cause to be deposited, with the Exchange Agent in an account (the "EXCHANGE
FUND") the aggregate Merger Consideration to which holders of Shares and Options
shall be entitled after the Effective Time pursuant to Sections 2.01(c), 2.02
and 2.03 (including, with respect to the aggregate Cash Consideration, the
financing arranged by MergeCo in accordance with Section 5.03(c) which is
necessary to effect the payment of the aggregate Cash Consideration).
Notwithstanding the foregoing, nothing in this Section 2.04(a) is intended to
detract from, or limit, MergeCo's obligations in Section 5.03(c), or impose any
obligation on the Company with respect thereto.
(b) MAILING OF TRANSMITTAL LETTER. Promptly after the Effective Time, the
Surviving Corporation shall cause the Exchange Agent to mail to each record
holder of certificates (the "CERTIFICATES") that immediately prior to the
Effective Time represented Shares a form of letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and instructions for use in surrendering such Certificates and
receiving the Merger Consideration in respect thereof.
(c) DELIVERY OF MERGER CONSIDERATION FOR SHARES UNDER SECTION 2.01(C)(I). In
effecting the delivery of the Cash Consideration in respect of Exchanged Shares
represented by Certificates entitled to the Cash Consideration pursuant to
Section 2.01(c)(i), upon the surrender of each such Certificate, and in
consideration for such Certificate, the Exchange Agent shall pay the holder of
such Certificate the Cash Consideration multiplied by the number of such
Exchanged Shares. Upon such payment by the Exchange Agent, such Certificate
shall forthwith be cancelled and retired, and shall cease to exist.
(d) DELIVERY OF MERGER CONSIDERATION FOR SHARES UNDER SECTION 2.01(C)(II).
In effecting the:
(i) retention of the Retained Shares,
(ii) delivery of the Cash Consideration, and
(iii) delivery of the Investment Consideration, if any,
in respect of the Shares held by a holder listed in the table set forth on
Schedule 2.01(c)(ii), upon surrender of the Certificate or Certificates in
respect of such Shares, the Exchange Agent shall:
(A) in respect of the Shares which are set forth in the column of
such table headed "Retained Shares" relating to such holder,
deliver to such holder a certificate
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representing that number of Retained Shares which such holder has
the right to retain pursuant to Section 2.01(c)(ii)(A),
(B) in respect of such holder's Exchanged Shares, pay such holder the
Cash Consideration multiplied by the number of such holder's
Exchanged Shares.
(C) in respect of the shares, if any, which are being exchanged for
an interest in the Investment Instrument, deliver to such holder
such documents which reflect such holder's interest in the
Investment Instrument.
Upon such actions by the Exchange Agent, each such Certificate so
surrendered shall forthwith be cancelled and retired, and shall cease to exist.
(e) DELIVERY OF MERGER CONSIDERATION FOR OPTIONS UNDER SECTION 2.02(D). In
effecting the delivery of the Exchanged Option Merger Consideration, in respect
of each Person entitled to such consideration in the Merger pursuant to
Section 2.02(d), the Exchange Agent shall pay such Person cash in an amount to
which such Person is entitled pursuant to Section 2.02(d). Upon such payment by
the Exchange Agent, each such Exchanged Option shall be cancelled and shall
cease to exist.
(f) DELIVERY OF MERGER CONSIDERATION FOR OPTIONS UNDER REVISED TREATMENT.
If:
(i) an Option shall be treated differently than that set forth in
Section 2.02 pursuant to Section 2.03(c), and
(ii) the consideration to be received by a holder of an Option is of a
type which is appropriate for the Exchange Agent to deliver to such
holder,
then after the deposit with the Exchange Agent of such consideration
pursuant to Section 2.04(a), the Exchange Agent shall deliver such consideration
to the holder of such Option. Upon such action by the Exchange Agent, each such
Option for which consideration has been delivered to each holder shall be
cancelled and shall cease to exist.
(g) RIGHTS UNTIL SURRENDER. Until surrendered in accordance with Sections
2.04 (c) or (d) above, each Certificate (other than Certificates representing
(i) Shares held by MergeCo or any of its affiliates, (ii) Shares held in the
treasury of the Company, (iii) Shares held by any subsidiary of the Company or
(iv) Dissenting Shares) shall represent solely the right to receive the
aggregate Merger Consideration relating thereto. No interest or dividends shall
be paid or accrued on the Merger Consideration. If the Merger Consideration (or
any portion thereof) is to be delivered to any Person other than the Person in
whose name the Certificate formerly representing Shares surrendered therefor is
registered, it shall be a condition to such right to receive such Merger
Consideration that the Certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the Person surrendering such
Shares shall pay to the Exchange Agent any transfer or other taxes required by
reason of the payment of the Merger Consideration to a Person other than the
registered holder of the Certificate surrendered, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
(h) DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED SHARES. No dividends or
other distributions with respect to Shares with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the Shares represented thereby.
(i) TERMINATION OF EXCHANGE AGENT'S DUTIES. Promptly following the date
which is 180 days after the Effective Time, the Exchange Agent shall deliver to
the Surviving Corporation all cash, Certificates and other documents in its
possession relating to the transactions described in this Agreement, and the
Exchange Agent's duties shall terminate. Thereafter, each holder of a
Certificate formerly representing a Share may surrender such Certificate to the
Surviving Corporation and (subject to applicable
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<PAGE>
abandoned property, escheat and similar Laws) receive in consideration therefor
the aggregate Merger Consideration relating thereto, without any interest or
dividends thereon.
(j) NO TRANSFERS OF SHARES. After the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving Corporation of any Shares
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates formerly representing Shares are presented to the
Surviving Corporation or the Exchange Agent, they shall be surrendered and
cancelled in return for the payment of the aggregate Merger Consideration
relating thereto, as provided in this Article II.
(k) NO LIABILITY. None of MergeCo, the Company or the Exchange Agent shall
be liable to any Person in respect of any Retained Shares (or dividends or
distributions with respect thereto), any cash from the Exchange Fund or any
other Merger Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar Law. If any Certificates shall
not have been surrendered prior to seven years after the Effective Time (or
immediately prior to such earlier date on which any Retained Shares (or any
dividends or distributions with respect thereto), any cash from the Exchange
Fund or any other Merger Consideration would otherwise escheat to or become the
property of any Governmental Entity (as defined in Section 3.03(b)), any such
shares, cash, dividends, distributions or other considerations in respect of
such Certificate shall, to the extent permitted by applicable Law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any Person previously entitled thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to MergeCo as follows:
SECTION 3.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The Company and
each of its Subsidiaries (as defined in Section 8.09), which Subsidiaries are
listed on Section 3.01 of the disclosure schedule delivered to MergeCo by the
Company on the date hereof (the "COMPANY DISCLOSURE SCHEDULE"), is a
corporation, partnership or a limited liability company duly organized, validly
existing and in good standing under the Laws of its state or jurisdiction of
incorporation and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted and
is in good standing in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification and where
failure to be in good standing or to so qualify would have a Material Adverse
Effect on the Company. The term "MATERIAL ADVERSE EFFECT ON THE COMPANY," as
used in this Agreement, means any change in or effect on the business, financial
condition, results of operations or reasonably foreseeable prospects of the
Company or any of its Subsidiaries that would be materially adverse to the
Company and its Subsidiaries taken as a whole. The Company has heretofore made
available to MergeCo a complete and correct copy of its current certificate of
incorporation and by-laws.
SECTION 3.02 CAPITALIZATION; SUBSIDIARIES.
(a) The authorized capital stock of the Company consists of 50,000,000
Common Shares and 10,000,000 shares of preferred stock, par value $.01 per share
("PREFERRED STOCK"), of which 250,000 shares are designated Series A Junior
Preferred Stock, par value $.01 per share ("JUNIOR PREFERRED STOCK").
(b) As of the close of business on October 8, 1999, 19,723,349 Common Shares
were issued and outstanding, all of which are entitled to vote on this
Agreement, and no Common Shares were held in treasury. The Company has no shares
of Preferred Stock issued and outstanding.
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(c) As of October 8, 1999, except as set forth in Section 3.02(c) of the
Company Disclosure Schedule and except for:
(i) 3,606,921 Common Shares reserved for issuance pursuant to options
granted under the Company Restated 1993 Stock Award and Incentive
Plan (the "COMPANY STOCK PLAN") which options are outstanding on the
date hereof,
(ii) 3,937,144 Common Shares subject to issuance upon conversion of the
6% Convertible Quarterly Income Preferred Securities due October 15,
2027 (the "QUIPS") issued pursuant to the Amended and Restated Trust
Agreement (the "TRUST AGREEMENT") dated as of October 14, 1997 among
the Company, The Bank of New York, The Bank of New York (Delaware)
and the Administrative Trustees named therein,
(iii) 250,000 shares of Junior Preferred Stock reserved for issuance upon
exercise of the Rights, and
(iv) 483,150 Common Shares reserved for issuance pursuant to Big Flower
Holdings, Inc. and Subsidiaries Savings Plus 401(k) Plan and 489,645
Common Shares reserved for issuance pursuant to Webcraft, Inc.
Employees Accumulated Savings Trust Plan and pursuant to Webcraft
Employee Savings Trust Plan (collectively, the "401(K) PLANS"),
there are not now, and at the Effective Time there will not be, any existing
options, warrants, calls, subscriptions, or other rights, or other agreements or
commitments, obligating the Company to issue, transfer or sell any shares of
capital stock of the Company or any of its Subsidiaries. Following the Effective
Time, in respect of a Trust Security (as such term is defined in the Trust
Agreement), if a holder of such a Trust Security exercises its conversion right
pursuant to Section 4.3 of the Trust Agreement, the conversion rate will be such
that such holder will be entitled, in respect of such Trust Security, to 1.7344
times the Cash Consideration to which an Exchanged Share is entitled pursuant to
Section 2.01(c)(i).
(d) All issued and outstanding Common Shares are validly issued, fully paid,
nonassessable and free of preemptive rights.
(e) The Significant Subsidiaries of the Company are set forth on
Section 3.02(e)(i) of the Company Disclosure Schedule. All of the outstanding
shares of capital stock of each of the Company's Significant Subsidiaries have
been validly issued and are fully paid and non-assessable and, except as set
forth on Section 3.02(e)(ii) of the Company Disclosure Schedule, are owned by
either the Company or another of its Significant Subsidiaries free and clear of
all liens, charges, claims or encumbrances. A "SIGNIFICANT SUBSIDIARY" of any
Person means any subsidiary or Person that constitutes a significant subsidiary
of such Person within the meaning of Rule 1-02(w) of Regulation S-X promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT").
(f) The information set forth on Section 3.02(f) of the Company Disclosure
Schedule with respect to the Company and its Subsidiaries is true, complete and
correct in all material respects.
SECTION 3.03 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) The Company has the requisite corporate power and authority to execute
and deliver this Agreement and, except for the approval of this Agreement by a
vote of a majority of the issued and outstanding Common Shares (the "COMPANY
STOCKHOLDER APPROVAL"), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Company Board and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than the Company Stockholder Approval). This Agreement has
been duly and validly executed and delivered by the Company, and, assuming this
Agreement constitutes a valid and binding obligation of MergeCo, this Agreement
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms.
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(b) Other than in connection with, or in compliance with, the provisions of
the DGCL with respect to the transactions contemplated hereby, the Exchange Act,
the securities Laws of the various states, ISRA (as defined in Section 3.14(c)
below) and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR ACT"), no authorization, consent or approval of, or filing with, any
Governmental Entity (as defined in this Section 3.03(b)) is necessary for the
consummation by the Company of the transactions contemplated by this Agreement
other than authorizations, consents and approvals the failure to obtain, or
filings the failure to make, which would not, in the aggregate, have a Material
Adverse Effect on the Company. As used in this Agreement, the term "GOVERNMENTAL
ENTITY" means any government or subdivision thereof, domestic, foreign or
supranational or any administrative, governmental or regulatory authority,
agency, commission, tribunal or body, domestic, foreign or supranational.
SECTION 3.04 NO VIOLATIONS OF LAW.
Except as identified in Section 3.04 of the Company Disclosure Schedule:
(a) except for matters relating to Taxes, employee benefit arrangements,
labor relations and employment and environmental matters (which matters are
covered in Sections 3.11, 3.12, 3.13 and 3.14, respectively), the business
operations of the Company and its Subsidiaries have been conducted in compliance
with all applicable federal, state and local statutes, codes, ordinances, rules
and regulations, judgments, decrees, orders, writs and injunctions of the United
States and all other countries and subdivisions thereof to the extent
applicable, and
(b) the Company and its Subsidiaries hold all permits, licenses and
approvals of all Governmental Entities necessary for the conduct of the
businesses of the Company and its Subsidiaries,
except in the case of clause (a) for possible violations, and except in the case
of clause (b) for such permits, licenses and approvals, that would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
SECTION 3.05 NO DEFAULTS OR VIOLATIONS ARISING FROM THE MERGER.
Except as set forth in Section 3.05 of the Company Disclosure Schedule, the
execution and delivery of this Agreement by the Company does not, and the
consummation by the Company of the transactions contemplated by this Agreement
and compliance by the Company with the provisions of this Agreement will not:
(a) constitute a breach of,
(b) conflict with,
(c) result in any violation of,
(d) constitute any default (or an event which, with notice or lapse of time,
or both would constitute a default) under,
(e) constitute a "change of control" under,
(f) require consent from, or the giving of notice to, a third party pursuant
to,
(g) give rise to a right of termination, purchase, repurchase, cancellation
or acceleration of any obligation or to loss of any property, rights or
benefits under,
(h) result in the imposition of any additional obligation under, or
(i) result in the creation of any lien or encumbrance upon any of the
properties or assets of the Company or any of its Subsidiaries, in each
case above as applicable under:
(i) the organizational documents of the Company or any of its
Subsidiaries,
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(ii) any contract, instrument, permit, concession, franchise, license,
loan or credit agreement, note, bond, mortgage, indenture, deed of
trust, lease or other property agreement, partnership or joint
venture agreement or other legally binding agreement, whether oral or
written, to which the Company or any of its Subsidiaries is bound, or
(iii) subject to the government filings and other matters referred to in
Section 3.03(b), any judgment, order, decree, statute, Law,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries or their respective properties or assets,
other than, in the case of clauses (ii) and (iii), any such breaches,
conflicts, violations, defaults, terminations, accelerations, obligations,
rights, encumbrances, liens or adverse consequences resulting from a change of
control or the failure to obtain consents or provide notices that individually
or in the aggregate would not have a Material Adverse Effect on the Company.
SECTION 3.06 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC
Reports (as defined in Section 3.07(a)) filed prior to the date hereof, and
except as set forth in Section 3.06 of the Company Disclosure Schedule, since
the date of the latest balance sheet in the Form 10-K:
(a) there has not been any Material Adverse Effect on the Company, whether
or not arising from transactions in the ordinary course of business, and
(b) the Company has conducted its business only in the ordinary course
consistent with past practice.
SECTION 3.07 SEC REPORTS AND FINANCIAL STATEMENTS. (a) Since January 1,
1998, the Company has filed all forms, reports and documents ("SEC REPORTS")
with the Securities and Exchange Commission ("SEC") required to be filed by it
pursuant to the federal securities Laws and the SEC rules and regulations
thereunder. Copies of all such SEC Reports have been made available to MergeCo
or its affiliates by the Company. None of such SEC Reports (as of their
respective filing dates) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) The audited and unaudited consolidated financial statements of the
Company included in the SEC Reports (collectively, the "FINANCIAL STATEMENTS"),
including without limitation the financial statements included in the Annual
Report on Form 10-K of the Company for the year ended December 31, 1998 (the
"FORM 10-K"), have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as otherwise stated
in such financial statements, including the related notes) and fairly present
the financial position of the Company and its consolidated Subsidiaries as of
the dates thereof and the results of their operations and changes in financial
position for the periods then ended, subject, in the case of the unaudited
financial statements, to year-end audit adjustments. Except as set forth in the
SEC Reports, at the date of the most recent audited financial statements of the
Company included in the SEC Reports, neither the Company nor any of its
Subsidiaries had, and since such date neither the Company nor any of such
Subsidiaries has incurred, any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which, individually or in the
aggregate, would be required to be disclosed in a balance sheet prepared in
accordance with generally accepted accounting principles and would reasonably be
expected to have a Material Adverse Effect on the Company except liabilities
incurred in the ordinary and usual course of business and consistent with past
practice and liabilities incurred in connection with the transactions
contemplated by this Agreement.
SECTION 3.08 INFORMATION. None of the information supplied by the Company in
writing (other than projections of future financial performance) specifically
for inclusion or incorporation by reference in (i) the Proxy Statement or
(ii) any other document to be filed with the SEC or any other
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Governmental Entity in connection with the transactions contemplated by this
Agreement (the "OTHER FILINGS") will:
(a) at the respective times filed with the SEC or other Governmental Entity
and,
(b) in the case of the Proxy Statement, at the date the Proxy Statement or
any amendment or supplement to the Proxy Statement is mailed to stockholders, at
the time of the Special Meeting, and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, no representation is made by the
Company with respect to (i) any forward-looking information which may have been
supplied by the Company, whether or not included in the Proxy Statement or
(ii) statements made in any of the foregoing documents based upon information
supplied by MergeCo.
SECTION 3.09 LITIGATION. Except as set forth on Schedule 3.09 of the Company
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened, against
the Company or any of its Subsidiaries, individually or in the aggregate, which
would have a Material Adverse Effect on the Company or would prevent or
materially delay the consummation of the transactions contemplated by this
Agreement. Except as disclosed in the SEC Reports filed prior to the date of
this Agreement, neither the Company nor any of its Subsidiaries is subject to
any outstanding order, writ, injunction or decree which, individually or in the
aggregate, would have a Material Adverse Effect on the Company or would prevent
or materially delay the consummation of the transactions contemplated hereby.
SECTION 3.10 MATERIAL CONTRACTS.
The Company has heretofore furnished or made available to MergeCo or its
affiliates complete and true copies of all material contracts (together, the
"MATERIAL CONTRACTS"), each of which is listed in Section 3.10 of the Company
Disclosure Schedule. Neither the Company nor any of its Subsidiaries is, or has
received any notice or has any knowledge that any other party is, in default
under any such Material Contract, except for those defaults that would not
reasonably be likely, either individually or in the aggregate, to have a
Material Adverse Effect on the Company; and there has not occurred any event
that, with the lapse of time or the giving of notice or both, would constitute
such a material default.
SECTION 3.11 TAXES.
(a) The Company, each of its Subsidiaries and each affiliated, combined,
consolidated, unitary or aggregate group of which the Company or any of its
Subsidiaries is a member (a "COMPANY AFFILIATED GROUP") (i) has, within the time
and in the manner prescribed by applicable Law, filed all Tax Returns (as
hereinafter defined) required to be filed by it, and all such Tax Returns are
true, complete and correct in all material respects, (ii) has timely paid or
caused to be paid all Taxes (as hereinafter defined) required to be paid except
for Taxes contested in good faith and for which adequate reserves have been
established in the Company's financial statements, and (iii) has made adequate
provision in the Company's financial statements for the payment of all Taxes not
yet due and payable (including deferred Taxes), except in each case where the
failure to file, pay or make adequate provision, as applicable, would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
(b) Except as set forth in Section 3.11(b) of the Company Disclosure
Schedule, there are no outstanding agreements, consents, waivers or requests to
extend (i) the application of the statute of limitations with respect to any
Taxes or Tax Return of the Company, any of its Subsidiaries or any Company
Affiliated Group, or (ii) the time within which to file any Tax Returns of the
Company, any of its Subsidiaries or any Company Affiliated Group, which Tax
Return has not since been timely filed.
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(c) Except as set forth on Section 3.11(c) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries (i) has been a member
of a group filing consolidated returns for federal income tax purposes (except
for any group of which the Company is the common parent or the Subsidiary was
the common parent at the time such Subsidiary was acquired by the Company),
(ii) is a party to a Tax sharing or Tax indemnity agreement or any other
agreement of a similar nature that remains in effect or (iii) has any liability
for Taxes of any party (other than the Company or any of its Subsidiaries) under
Treasury Regulation Section 1.1502-6 or any similar provision of state, local or
foreign Law, as a transferee or successor, by contract or otherwise.
(d) Except as set forth on Section 3.11(d) of the Company Disclosure
Schedule, no audits or other administrative proceedings or court proceedings are
presently pending or threatened with regard to any Taxes or Tax Return of the
Company, any of its Subsidiaries or any Company Affiliated Group (other than
those being contested in good faith and for which adequate reserves have been
established) and no material issues have been raised by any Tax authority in
connection with any Tax or Tax Return.
(e) There are no material Tax liens upon any assets or properties of the
Company or any of its Subsidiaries except for statutory liens for Taxes not yet
due.
(f) The Company, each of its Subsidiaries and each Company Affiliated Group
have complied in all material respects with all applicable rules and regulations
relating to the withholding of Taxes.
(g) For purposes of this Agreement, the term "TAXES" means all taxes,
charges, fees, levies or other assessments, including, without limitation, all
income, gross receipts, excise, property, sales, use, occupation, transfer,
license, ad valorem, gains, profits, gift, estimated, social security,
unemployment, disability, premium, recapture, credit, payroll, withholding,
severance, stamp, capital stock, franchise and other taxes or similar charges of
any kind imposed by any Governmental Entity, including any interest and
penalties on or additions to or in respect of a failure to comply with any
requirement relating to any Tax Return. For purposes of this Agreement, the term
"TAX RETURN" means any report, return or other information or document required
to be supplied to a Tax authority or jurisdiction in connection with Taxes,
including, without limitation, combined, unitary or consolidated returns for any
group of entities.
SECTION 3.12 EMPLOYEE BENEFITS.
(a) Section 3.12(a) of the Company Disclosure Schedule includes a complete
list of all material employee benefit plans and programs providing
benefits to any employee or former employee of the Company and its
subsidiaries sponsored or maintained by the Company or any of its
subsidiaries or to which the Company or any of its subsidiaries
contributes or is obligated to contribute ("PLANS"). Without limiting the
generality of the foregoing, the term "Plans" includes all employee
welfare benefit plans within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended and the regulations
thereunder ("ERISA"), and all employee pension benefit plans within the
meaning of Section 3(2) of ERISA. Each of the Plans that is subject to
Section 302 or Title IV of ERISA or Section 412 of the Internal Revenue
Code of 1986, as amended (the "CODE") is identified on Section 3.12(a) of
the Company Disclosure Schedule (the "TITLE IV PLANS"). Neither the
Company nor any of its Subsidiaries has any commitment or formal plan,
whether legally binding or not, to create any additional material
employee benefit plan or modify or change any existing Plan that would
affect any employee or former employee of the Company or any Subsidiary
in any material respect.
(b) With respect to each Plan, the Company has heretofore delivered or made
available to MergeCo or its affiliates true and complete copies of each of the
following documents:
(i) a copy of the Plan and any amendments thereto (or if the Plan is not
a written Plan, a description of the material terms thereof);
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(ii) a copy of the two most recent annual reports and actuarial reports,
if required under ERISA, and the most recent report prepared with
respect thereto in accordance with Statement of Financial Accounting
Standards No. 87;
(iii) a copy of the most recent Summary Plan Description required under
ERISA with respect thereto;
(iv) if the Plan is funded through a trust or any third party funding
vehicle, a copy of the trust or other funding agreement and the
latest financial statements thereof; and
(v) the most recent determination letter received from the Internal
Revenue Service with respect to each Plan intended to qualify under
section 401 of the Code.
(c) No material liability under Title IV or Section 302 of ERISA or Sections
412 or 4871 of the Code has been incurred by the Company with respect to any
Plan or any "single-employer plan," within the meaning of Section 4001(a)(15) of
ERISA, of any trade or business (whether or not incorporated) which would be
considered one employer with the Company under Section 4001 of ERISA or
Section 414 of the Code (an "ERISA AFFILIATE") that has not been satisfied in
full, and to the knowledge of the Company no condition exists that presents a
material risk to the Company or any ERISA Affiliate of incurring any such
liability, other than liability for premiums due the Pension Benefit Guaranty
Corporation ("PBGC") (which premiums have been paid when due). Without limiting
the generality of the foregoing, none of the Company, its Subsidiaries nor any
ERISA Affiliate of the Company or any of its Subsidiaries has engaged in any
transaction described in Section 4069 or Section 4204 or 4212 of ERISA.
(d) All contributions required to be made with respect to any Plan on or
prior to the Effective Time have been timely made or are reflected on the
Company's balance sheet, except for instances where failure to make such
contributions would not, either individually or in the aggregate, have a
Material Adverse Effect on the Company.
(e) Except as disclosed in Section 3.12(e) of the Company Disclosure
Schedule, No Title IV Plan is a "multiemployer pension plan," as defined in
section 3(37) of ERISA, nor is any Title IV Plan a plan described in
section 4063(a) of ERISA.
(f) Neither the Company nor any Subsidiary has engaged in a transaction with
respect to any Plan or any trust created thereunder in connection with which the
Company or any Subsidiary, could be subject to either a civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to
Section 4975 or 4976 of the Code in an amount which would be material.
(g) Except as set forth in Section 3.12(g) of the Company Disclosure
Schedule, the Company and each of its subsidiaries has complied, and is now in
compliance, in all material respects with all provisions of ERISA, the Code, and
all Laws and regulations applicable to the Plans. With respect to each Plan that
is intended to be a "qualified plan" within the meaning of section 401(a) of the
Code, the IRS has issued a favorable determination letter.
(h) Except as set forth on Section 3.12(a) of the Company Disclosure
Schedule, no Plan provides medical, surgical, hospitalization, death or similar
benefits (whether or not insured) for employees or former employees of the
Company or any Subsidiary for periods extending beyond their retirement or other
termination of service, other than (i) coverage mandated by applicable Law,
(ii) death benefits under any "pension plan," or (iii) benefits the full cost of
which is borne by the current or former employee (or his beneficiary). No
condition exists that would prevent the Company or any Subsidiary from amending
or terminating any Plan providing health or medical benefits in respect of any
active employee of the Company or any Subsidiary.
(i) Except as set forth on Section 3.12(i) of the Company Disclosure
Schedule, or in the SEC Reports, no amounts payable by the Company to Persons
who are "covered persons" within the meaning of Section 162(M) of the Code or
"disqualified individuals" within the meaning of Section 280G of the Code will
fail to be deductible for federal income tax purposes by virtue of
Section 162(M) or 280G of the Code.
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SECTION 3.13 LABOR RELATIONS AND EMPLOYMENT.
(a) Except (x) as disclosed in the SEC Reports filed on or before the date
hereof, (y) as set forth on Section 3.13(a) of the Company Disclosure Schedule,
and (z) for matters which would not (other than in the case of clause (iii) or
(iv) of this sentence) result in a Material Adverse Effect:
(i) there is no labor strike, dispute, slowdown, stoppage or lockout
actually pending, or, to the best knowledge of the Company,
threatened against the Company or any of its Subsidiaries, and
during the past three years there has not been any such action;
(ii) to the best knowledge of the Company, no union claims to represent
the employees of the Company or any of its Subsidiaries;
(iii) neither the Company nor any of its Subsidiaries is a party to or
bound by any collective bargaining or similar agreement with any
labor organization, or work rules or practices agreed to with any
labor organization or employee association applicable to employees
of the Company or any of its Subsidiaries;
(iv) none of the employees of the Company or any of its Subsidiaries is
represented by any labor organization and the Company does not have
any knowledge of any current union organizing activities among the
employees of the Company or any of its Subsidiaries, nor does any
question concerning representation exist concerning such employees;
(v) the Company and its Subsidiaries are, and have at all times been, in
material compliance with all applicable Laws respecting employment
and employment practices, terms and conditions of employment, wages,
hours of work and occupational safety and health, and are not
engaged in any unfair labor practices as defined in the National
Labor Relations Act or other applicable Law, ordinance or
regulation;
(vi) there is no unfair labor practice charge or complaint against the
Company or any of its Subsidiaries pending or, to the knowledge of
the Company, threatened before the National Labor Relations Board
or any similar state or foreign agency;
(vii) there is no grievance arising out of any collective bargaining
agreement or other grievance procedure;
(viii) no charges with respect to or relating to the Company or any of its
Subsidiaries are pending before the Equal Employment Opportunity
Commission or any other agency responsible for the prevention of
unlawful employment practices;
(ix) neither the Company nor any of its Subsidiaries has received notice
of the intent of any federal, state, local or foreign agency
responsible for the enforcement of labor or employment Laws to
conduct an investigation with respect to or relating to the Company
or any of its Subsidiaries and no such investigation is in
progress;
(x) there are no complaints, lawsuits or other proceedings pending or to
the best knowledge of the Company threatened in any forum by or on
behalf of any present or former employee of the Company or any of
its Subsidiaries alleging breach of any express or implied contract
of employment, any Law or regulation governing employment or the
termination thereof or other discriminatory, wrongful or tortious
conduct in connection with the employment relationship.
(b) Except as set forth in Section 3.13(b) of the Company Disclosure
Schedule, to the best knowledge of the Company, since the enactment of the
Worker Adjustment and Retraining Notification ("WARN") Act, there has not been
(i) a "plant closing" (as defined in the WARN Act) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility of the Company or any of its Subsidiaries; or (ii) a
"mass layoff" (as defined in the WARN Act)
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affecting any site of employment or facility of the Company or any of its
Subsidiaries; nor has the Company or any of its Subsidiaries been affected by
any transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state or local Law. To the best
knowledge of the Company, none of the employees of the Company or any of its
Subsidiaries has suffered an "employment loss" (as defined in the WARN Act)
since three months prior to the date of this Agreement.
SECTION 3.14 ENVIRONMENTAL MATTERS. (a) Except as disclosed in Section 3.14
of the Company Disclosure Schedule:
(i) The Company and its Subsidiaries have been and are in compliance
with all applicable Environmental Laws as in effect on the date
hereof, except for such violations and defaults as would not,
individually or in the aggregate, have a Material Adverse Effect on
the Company.
(ii) The Company and its Subsidiaries possess all Environmental Permits
required for the current operation of the Business pursuant to
Environmental Laws as in effect on the date hereof, all such
Environmental Permits are in effect, there are no pending or, to
the best knowledge of the Company, threatened proceedings to revoke
such Environmental Permits and the Company and its Subsidiaries
are, to the best knowledge of the Company, in compliance with all
terms and conditions thereof, except for such failures to possess
or comply with Environmental Permits as would not, individually or
in the aggregate, have a Material Adverse Effect on the Company. In
connection with any pending applications or proceedings for new,
renewal or modified Environmental Permits, the Company has not
received written notice that modifications to the terms, conditions
and requirements of such Environmental Permits may be imposed or
required that, individually or in the aggregate, would have a
Material Adverse Effect on the Company.
(iii) Except for matters which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company, neither
the Company nor any Subsidiary has received any written
notification that the Company or any Subsidiary, as a result of any
of the current or past operations of the Business, or any property
currently or formerly owned or leased in connection with the
Business, is or may be the subject of any proceeding,
investigation, claim, lawsuit or order by any Governmental Entity
or other person, relating to (A) any violation or alleged violation
of Environmental Laws; (B) any Remedial Action; (C) any Release or
threatened Release of Hazardous Substances, whether or not such
Release or threatened Release has occurred or is occurring at
properties currently or formerly owned or operated by the Company
or its Subsidiaries; or (D) any Environmental Liabilities and
Costs.
(iv) Except as would not have a Material Adverse Effect on the Company,
none of the Company and its Subsidiaries has entered into any
written agreement with any Governmental Entity, or is subject to
any Order or decree, by which the Company or any subsidiary has
assumed responsibility or is responsible, either directly or as a
guarantor or surety, for the remediation of any Release of
Hazardous Substances into the environment in connection with the
Business, including for cost recovery with respect to such
Releases.
(v) There is not now and has not been at any time in the past, a Release
of Hazardous Substances for which the Company or any Subsidiary is
required or is reasonably likely to be required to perform a
Remedial Action pursuant to applicable Environmental Laws as
currently in effect, or will incur Environmental Liabilities and
Costs that, with respect to any matter covered by this
Section 3.14(a)(v) would, individually or in the aggregate, have a
Material Adverse Effect on the Company.
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(b) This Section contains the only representations and warranties concerning
the Company or any Subsidiary relating to any Environmental Law, Environmental
Liabilities and Costs, or Environmental Permits.
(c) For purposes of this Agreement:
(i) "BUSINESS" means the current and former businesses of the Company
and its Subsidiaries including, but not limited to, businesses or
Subsidiaries that have been previously sold by the Company, its
Subsidiaries or any predecessors thereto.
(ii) "ENVIRONMENTAL LAWS" shall mean all foreign, federal, state and
local Laws, regulations, rules and ordinances relating to pollution
or protection of the environment or human health and safety as it
relates to Hazardous Substances, including, without limitation,
Laws relating to Releases or threatened Releases of Hazardous
Substances in the environment (including, without limitation,
ambient air, surface water, groundwater, land, surface and
subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, Release,
transport or handling of Hazardous Substances and all Laws and
regulations with regard to record keeping, notification, disclosure
and reporting requirements respecting Hazardous Substances, and all
Laws relating to endangered or threatened species of fish, wildlife
and plants and the management or use of natural resources.
(iii) "ENVIRONMENTAL LIABILITIES AND COSTS" means all damages, natural
resource damages, claims, losses, expenses, costs, obligations, and
liabilities (collectively, "Losses"), whether direct or indirect,
known or unknown, current or potential, past, present or future,
imposed by, under or pursuant to Environmental Laws, including, but
not limited to, all Losses related to Remedial Actions, and all
fees, capital costs, disbursements, penalties, fines and expenses
of counsel, experts, contractors, personnel and consultants.
(iv) "ENVIRONMENTAL PERMITS" means any federal, state, foreign or local
permit, license, registration, consent, certificate, approval or
other authorization necessary for the conduct of the Business as
currently conducted under any Environmental Law.
(v) "HAZARDOUS SUBSTANCES" means any substance that (A) is defined,
listed or identified or otherwise regulated as a "hazardous waste,"
"hazardous material" or "hazardous substance" "toxic substance,"
"hazardous air pollutant," "pollutant" or "contaminant" or words of
similar meaning and regulatory effect under any Environmental Law
(including, without limitation, radioactive substances,
polychlorinated biphenyls, petroleum and petroleum derivatives and
products) or (B) requires investigation, removal or remediation
under applicable Environmental Law.
(vi) "ISRA" means the New Jersey Industrial Site Recovery Act, N.J.S.A.
13:IK-6 ET SEQ.
(vii) "RELEASE" shall mean any release, spill, emission, discharge,
leaking, pumping, injection, deposit, discharge, dispersal,
leaching or migration into the environment (including, without
limitation, ambient air, surface water, groundwater, and surface or
subsurface strata) or into or out of any property, including the
movement of Hazardous Substances through the air, soil, surface
water, groundwater or property, but not including any discharge or
emission in compliance with an Environmental Permit.
(viii) "REMEDIAL ACTION" means all actions required by Governmental Entity
pursuant to Environmental Law or otherwise taken as necessary to
comply with Environmental Law to (A) clean up, remove, treat or in
any other way remediate any Hazardous Substances; (B) prevent the
release of Hazardous Substances so that they do not migrate or
endanger
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or threaten to endanger public health or welfare or the
environment; or (C) perform studies, investigations or monitoring
in respect of any such matter.
SECTION 3.15 INTELLECTUAL PROPERTY.
(a) The Company and its Subsidiaries own or possess valid and adequate
licenses or other legal rights to use all material Intellectual Property as are
necessary to permit the Company and its Subsidiaries to conduct the business as
presently conducted, free and clear of all liens, claims, and encumbrances, and
except for those licenses issued to third parties in the ordinary course of
business, free and clear of all material licenses to third parties.
(b) The conduct of the business as presently conducted does not infringe on
the Intellectual Property rights of any Person except for such infringements
which, individually or in the aggregate, would not have a Material Adverse
Effect on the Company.
(c) To the Company's knowledge, all filings, registrations and issuances
pertaining to the material Intellectual Property owned by the Company and its
Subsidiaries, including any and all patents, registered trademarks and copyright
registrations, are in full force and effect and the Company and its Subsidiaries
have good and marketable title thereto.
(d) To the Company's knowledge, there are no threats of claims or challenges
to the validity or effectiveness of the Intellectual Property as are necessary
to permit the Company and its Subsidiaries to conduct the business as presently
conducted, which individually or in the aggregate would have a Material Adverse
Effect on the Company.
(e) As employed herein, the term "INTELLECTUAL PROPERTY" shall mean:
(i) registered and unregistered trademarks, service marks, slogans,
trade names, logos, Internet domain names and trade dress together
with the goodwill associated therewith;
(ii) patents, patent applications and invention disclosures;
(iii) registered and unregistered copyrights, including, but not limited
to, copyrights in software and databases;
(iv) software programs and databases;
(v) trade secrets, proprietary information and other proprietary
intellectual property rights, and
(vi) agreements pursuant to which the Company or a Subsidiary has
obtained the right to use any of the foregoing.
SECTION 3.16 YEAR 2000 COMPLIANCE.
(a) Except as set forth in Section 3.16 of the Company Disclosure Schedule,
all software, systems and hardware owned or used by the Company and its
Subsidiaries are substantially Year 2000 Compliant and are reasonably expected
to be Year 2000 Compliant by December 31, 1999, except for such software,
systems and hardware the failure of which to be Year 2000 Compliant would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
(b) The Company and its Subsidiaries have taken, or are taking, commercially
reasonable steps to determine whether all material third party software, systems
and hardware used by, for, or on behalf of the Company and its Subsidiaries are
Year 2000 Compliant or are reasonably expected to be Year 2000 Compliant by
December 31, 1999.
(c) As used herein, "YEAR 2000 COMPLIANT" means for all dates and times,
including, without limitation, dates and times before, on and after
December 31, 1999, when used on a stand-alone system or in combination with
other software or systems of the Company and its Subsidiaries, other than any
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errors or malfunctions which are the result of any incorrect date and time
information incorporated into calculations from systems external to the Company
and its Subsidiaries:
(i) the application system consistently functions and receives and
processes dates and times correctly without abnormal results;
(ii) no date related calculations are incorrect (including, without
limitation, age calculations, duration calculations and scheduling
calculations) as a result of the advent of the year 2000;
(iii) all manipulations and comparisons of date-related data produce
correct and consistent results for all valid date values within the
scope of the application;
(iv) there is no century ambiguity;
(v) all reports and displays are sorted correctly; and
(vi) leap years are accounted for and correctly identified (including,
without limitation, that the year 2000 is recognized as a leap
year).
SECTION 3.17 RIGHTS AGREEMENT.
(a) The Company and the Company Board have taken all action to amend the
Rights Agreement (the "RIGHTS AMENDMENT") so that the execution and delivery of
this Agreement (and any amendments thereto by the parties hereto) and the
consummation of the Merger and the transactions contemplated thereby, will not
cause:
(i) the Rights (as defined in the Rights Agreement) to become
exercisable pursuant to Section 11(a)(ii) thereof or otherwise,
(ii) MergeCo or any of its affiliates to constitute an "Acquiring
Person" (as defined in the Rights Agreement),
(iii) a "Distribution Date," a "Triggering Event," or a "Stock
Acquisition Date" (as each term is defined in the Rights Agreement)
to occur, or
(iv) the Rights to otherwise be operative with respect to the
transactions contemplated by this Agreement, and
such amendment will be in full force and effect from and after the date
hereof.
(b) As a result of the Rights Amendment, the Rights will expire as of
immediately before the Effective Time.
SECTION 3.18 BOARD RECOMMENDATION. The Company Board, at a meeting duly
called and held, has:
(a) determined that this Agreement and the transactions contemplated hereby,
taken together, are advisable and in the best interests of the Company and its
stockholders; and
(b) subject to the other provisions hereof, resolved to recommend that the
holders of the Shares approve this Agreement, and the transactions contemplated
hereby, including the Merger.
SECTION 3.19 REQUIRED COMPANY VOTE. The Company Stockholder Approval, being
the affirmative vote of a majority of the Shares, is the only vote of the
holders of any class or series of the Company's securities necessary to approve
this Agreement, the Merger and the other transactions contemplated hereby.
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SECTION 3.20 RELATED PARTY TRANSACTIONS. Except as previously disclosed to
MergeCo in writing or as disclosed in the SEC Reports, no director, officer,
partner, "affiliate" or "associate" (as such terms are defined in Rule 12b-2
under the Exchange Act) of the Company or any of its Subsidiaries, to the
knowledge of the Company:
(i) has outstanding any indebtedness or other similar obligations to the
Company or any of its Subsidiaries in excess of $60,000;
(ii) owns any direct or indirect interest of any kind in (other than a DE
MINIMUS interest), or is a director, officer, employee, partner,
affiliate or associate of, or consultant or lender to, or borrower
from, or has the right to participate in the management, operations
or profits of, any person or entity which is:
(A) a competitor, supplier, customer, distributor, lessor, tenant,
creditor or debtor of the Company or any of its Subsidiaries,
(B) engaged in a business related to the business of the Company or
any of its Subsidiaries,
(C) participating in any transaction to which the Company or any of
its Subsidiaries is a party, or
(iii) is otherwise a party to any contract, arrangement or understanding
with the Company or any of its Subsidiaries except as contemplated by
Section 2.03 and except for any such contract, arrangement or
understanding providing for (A) such Person's employment by the
Company or one of its Subsidiaries, or (B) employee or other fringe
benefits, or (C) options or other rights, granted pursuant to the
Company Stock Plan.
SECTION 3.21 STATE TAKEOVER STATUTES. The Company Board has taken such
action so that no statute, takeover statute or similar statute or regulation of
the State of Delaware, including the provisions of Section 203 of the DGCL (and,
to the knowledge of the Company after due inquiry, of any other state or
jurisdiction), applies to this Agreement, the Merger, or any of the other
transactions contemplated hereby. Except for the Rights Agreement, neither the
Company nor any of its Subsidiaries has any rights plan, preferred stock or
similar arrangement which have any of the aforementioned consequences in respect
of the transactions contemplated hereby.
SECTION 3.22 BROKERS AND FINDERS. Except for the engagement of Goldman,
Sachs & Co. and Berenson Minella & Company, none of the Company, any of its
Subsidiaries, or any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finder's fees in connection with the transactions contemplated by
this Agreement.
SECTION 3.23 OPINIONS OF INVESTMENT BANKING FIRMS. The Company has received
the opinions of Goldman, Sachs & Co. and Berenson Minella & Company, each dated
the date hereof, to the effect that, the Cash Consideration to be received by
the holders of Shares pursuant to the Merger is fair to the Company's
stockholders (other than holders of Retained Shares, as to which Goldman,
Sachs & Co. and Berenson, Minella & Company express no opinion) from a financial
point of view.
SECTION 3.24 CERTAIN LIMITATIONS. Notwithstanding anything in this
Article III to the contrary, the Company makes no representation or warranty
with respect to the specific transactions contemplated by Sections 5.14 and
5.15, or the effects thereof; PROVIDED THAT, to the extent applicable, the
representations and warranties set forth in Sections 3.02(e) and 3.03 shall
apply with respect to such specific transactions and the effects thereof; and
PROVIDED FURTHER THAT, the business, assets and operations which are the subject
of Sections 5.14 and 5.15 shall be treated as part of business, assets and
operations of the Company and its Subsidiaries for all purposes of this
Agreement (including,
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without limitation, Article III) whether or not the transactions contemplated by
Sections 5.14 and 5.15 are consummated or are expected to be consummated.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGECO
MergeCo represents and warrants to the Company as follows:
SECTION 4.01 ORGANIZATION AND QUALIFICATION. MergeCo is a corporation duly
organized, validly existing and in good standing under the Laws of its state or
jurisdiction of incorporation and is in good standing as a foreign corporation
in each other jurisdiction where the properties owned, leased or operated, or
the business conducted, by it require such qualification and where failure to be
in good standing or to so qualify would have a Material Adverse Effect on
MergeCo. The term "MATERIAL ADVERSE EFFECT ON MERGECO", as used in this
Agreement, means any change in or effect on the business, financial condition,
results of operations or reasonably foreseeable prospects of MergeCo or any of
its Subsidiaries that would be materially adverse to MergeCo.
SECTION 4.02 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) MergeCo has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of MergeCo and no other corporate proceedings on the part of
MergeCo are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by MergeCo and, assuming this Agreement constitutes a valid and
binding obligation of the Company, this Agreement constitutes a valid and
binding agreement of MergeCo, enforceable against MergeCo in accordance with its
terms.
(b) Other than in connection with, or in compliance with, the provisions of
the DGCL with respect to the transactions contemplated hereby, the Exchange Act,
the securities Laws of the various states and the HSR Act, no authorization,
consent or approval of, or filing with, any Governmental Entity is necessary for
the consummation by MergeCo of the transactions contemplated by this Agreement
other than authorizations, consents and approvals the failure to obtain, or
filings the failure to make, which would not, in the aggregate, have a Material
Adverse Effect on MergeCo.
SECTION 4.03 NO VIOLATION. Neither the execution or delivery of this
Agreement by MergeCo nor the consummation by MergeCo of the transactions
contemplated hereby will:
(a) constitute a breach or violation of any provision of the certificate of
incorporation or by-laws of MergeCo, or
(b) constitute a breach, violation or default (or any event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in the
creation of any lien or encumbrance upon any of the properties or assets of
MergeCo under, any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument to which MergeCo is a party or by which it
or any of its properties or assets are bound, other than breaches, violations,
defaults, terminations, accelerations or creation of liens and encumbrances
which, in the aggregate, would not have a Material Adverse Effect on MergeCo.
SECTION 4.04 INFORMATION. None of the information supplied by MergeCo in
writing (other than projections of future financial performance) specifically
for inclusion or incorporation by reference in (i) the Proxy Statement or
(ii) the Other Filings will:
(a) at the respective times filed with the SEC or other Governmental Entity
and,
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(b) in the case of the Proxy Statement, at the date the Proxy Statement or
any amendment or supplement to the Proxy Statement is mailed to stockholders, at
the time of the Special Meeting and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, no representation is made by MergeCo
with respect to statements made in any of the foregoing documents based upon
information supplied by the Company.
SECTION 4.05 FINANCING. Schedule 6.02(d) sets forth true and complete copies
of written documentation from third parties which provides for financing in
amounts sufficient to consummate the transactions contemplated hereby as
contemplated by Section 6.02(d). As of the date hereof, none of MergeCo., its
representatives or its affiliates has any reason to believe that the financing
contemplated by such written documentation will not be obtained on the terms and
subject to the conditions set forth in such documentation, or that such
conditions will not be satisfied.
SECTION 4.06 DELAWARE LAW. MergeCo was not immediately prior to the
execution of this Agreement, an "interested stockholder" within the meaning of
Section 203 of the DGCL and neither MergeCo, nor any of its "affiliates" or
"associates" (as such terms are defined in the Rights Agreement) beneficially
owns any Common Shares on the date hereof.
SECTION 4.07 NEWLY ORGANIZED. MergeCo was formed solely for the purpose of
engaging in the Merger and the other transactions contemplated by this Agreement
and has engaged in no other business activities.
ARTICLE III
COVENANTS
SECTION 5.01 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by
this Agreement (including Sections 5.14 and 5.15) or as expressly agreed to in
writing by MergeCo, during the period from the date of this Agreement to the
Effective Time, the Company shall, and shall cause each of its Subsidiaries to,
conduct its operations according to its ordinary and usual course of business
and consistent with past practice and use its and their respective reasonable
best efforts to preserve intact their current business organizations, keep
available the services of their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees,
advertisers, distributors and others having business dealings with them and to
preserve goodwill. Without limiting the generality of the foregoing, and except
as (x) otherwise expressly provided in this Agreement, (y) required by Law, or
(z) set forth on Section 5.01 of the Company Disclosure Schedule, prior to the
Effective Time, the Company shall not, and shall cause its Subsidiaries not to,
without the consent of MergeCo (which consent shall not be unreasonably
withheld):
(a) except (i) with respect to annual bonuses made in the ordinary course of
business consistent with past practice, or (ii) as required by Law, adopt or
amend in any material respect any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, pension,
retirement, employment or other employee benefit agreement, trust, plan or other
arrangement for the benefit or welfare of any director, officer or employee of
the Company or any of its Subsidiaries or increase in any manner the
compensation or fringe benefits of any director, officer or employee of the
Company or any of its Subsidiaries or pay any benefit not required by any
existing agreement or place any assets in any trust for the benefit of any
director, officer or employee of the Company or any of its Subsidiaries not
required by any existing agreement (in each case, except with respect to
employees and directors in the ordinary course of business consistent with past
practice);
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(b) incur any indebtedness for borrowed money in excess of $1,000,000 on an
aggregate basis, other than indebtedness under existing lines of credit drawn to
fund working capital (defined as current assets (excluding cash and cash
equivalents) minus current liabilities, each as determined in accordance with
generally acceptable accounting principles applied on a consistent basis) in the
ordinary course of business and consistent with past practice;
(c) expend funds for capital expenditures (including capitalized software
and lease-buybacks but other than expenditures permitted pursuant to
Section 5.01(i)) that in the aggregate would cause total capital expenditure
(including capitalized software and lease-buybacks but other than expenditures
permitted pursuant to Section 5.01(i)) for the period from January 1, 1999 to
the Effective Time to exceed an amount equal to $115,000,000;
(d) sell, lease, license, mortgage or otherwise encumber or subject to any
lien or otherwise dispose of any of its properties or assets other than
immaterial properties or assets (or immaterial portions of properties or
assets), except in the ordinary course of business consistent with past
practice;
(e) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock (except (A) as
contemplated by the Rights Agreement and (B) for dividends paid by Subsidiaries
to the Company with respect to capital stock), (ii) split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (iii) except as set forth in Section 5.01(e)(iii) of the
Company Disclosure Schedule, purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or other
securities;
(f) except for issuances (i) upon exercise of presently outstanding awards
under the Company Stock Plan, (ii) upon conversion of the QUIPS, (iii) of up to
50,000 Common Shares pursuant to the 401(k) Plans, or (iv) as previously
disclosed in writing to MergeCo or its affiliates, authorize for issuance,
issue, deliver, sell or agree or commit to issue, sell or deliver (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), pledge or otherwise encumber
any shares of its capital stock or the capital stock of any of its Subsidiaries,
any other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities or any other securities or equity equivalents (including
without limitation stock appreciation rights);
(g) amend its certificate of incorporation, by-laws or equivalent
organizational documents or alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or ownership of
any material subsidiary of the Company;
(h) except as provided in Section 5.01(c), make or agree to make any
acquisition of assets which is material to the Company and its Subsidiaries,
taken as a whole, except for (i) purchases of inventory and supplies in the
ordinary course of business or (ii) pursuant to purchase orders entered into in
the ordinary course of business which do not call for payments in excess of
$5,000,000 per annum;
(i) except as previously disclosed to MergeCo in writing, acquire any
business (whether by merger, consolidation, purchase of assets or otherwise) or
acquire any equity interest in any person not an affiliate (whether through a
purchase of stock, establishment of a joint venture or otherwise);
(j) change its principles of accounting in effect at December 31, 1998,
except as required by changes in generally accepted accounting principles or Law
or regulation or as discussed in the SEC Reports, or change any of its methods
of reporting income and deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns of the Company for
the taxable year ending December 31, 1998, except as required by changes in Law
or regulation;
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(k) settle or compromise any shareholder derivative suits arising out of the
transactions contemplated hereby or any other material litigation (whether or
not commenced prior to the date of this Agreement) or settle, pay or compromise
any claims not required to be paid, other than in consultation and cooperation
with MergeCo, and, with respect to any such settlement, with the prior written
consent of MergeCo (which consent will not be unreasonably withheld);
(l) enter into or amend in a manner adverse to MergeCo any new agreement
which has a non-competition, geographical restriction or similar covenant that
would be material to the Company;
(m) make or rescind any material election relating to Taxes, or settle any
material claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes; or
(n) authorize, or commit or agree to take, any of the foregoing actions.
SECTION 5.02 ACCESS TO INFORMATION. From the date of this Agreement until
the Effective Time, the Company shall, and shall cause its Subsidiaries, and
each of their respective officers, directors, employees, counsel, advisors and
representatives (collectively, the "COMPANY REPRESENTATIVES") to, give MergeCo
and their respective officers, employees, counsel, advisors, representatives
(collectively, the "MERGECO REPRESENTATIVES") and representatives of financing
sources identified by MergeCo reasonable access, upon reasonable notice and
during normal business hours, to the offices and other facilities and to the
books and records of the Company and its Subsidiaries and will cause the Company
Representatives and the Company's Subsidiaries to furnish MergeCo and the
MergeCo Representatives and representatives of financing sources identified by
MergeCo with such financial and operating data and such other information with
respect to the business and operations of the Company and its Subsidiaries as
MergeCo and representatives of financing sources identified by MergeCo may from
time to time reasonably request. MergeCo agrees that any information furnished
pursuant to this Section 5.02 shall be subject to the provisions of the letter
agreement dated March 11, 1999 between THL and the Company (the "CONFIDENTIALITY
AGREEMENT").
SECTION 5.03 EFFORTS.
(a) Each of the Company and MergeCo shall, and the Company shall cause each
of its Subsidiaries to, make all necessary filings with Governmental Entities as
promptly as practicable in order to facilitate prompt consummation of the
transactions contemplated by this Agreement. In addition, each of MergeCo and
the Company shall use its reasonable best efforts (including, without
limitation, payment of any required fees) and shall cooperate fully with each
other to:
(i) comply as promptly as practicable with all governmental requirements
applicable to the transactions contemplated by this Agreement,
including the making of all filings necessary or proper under
applicable Laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, but not
limited to, cooperation in the preparation and filing of the Proxy
Statement and any actions or filings related thereto, and any
amendments to any thereof,
(ii) obtain promptly all consents, waivers, approvals, authorizations or
permits of, or registrations or filings with or notifications to (any
of the foregoing being a "CONSENT"), any (x) Governmental Entity
necessary for the consummation of the transactions contemplated by
this Agreement, or (y) third party necessary for the consummation of
the transactions contemplated by Sections 5.14 and 5.15, except for
such Consents the failure of which to obtain would not prevent or
materially delay the consummation of the Merger, and
(iii) take such other reasonable actions to implement the transactions
contemplated hereby on a reasonably prompt basis.
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Subject to the Confidentiality Agreement, MergeCo and the Company shall
furnish to one another such necessary information and reasonable assistance as
MergeCo or the Company may reasonably request in connection with the foregoing.
(b) Without limiting Section 5.03(a), MergeCo and the Company shall each:
(i) promptly make or cause to be made the filings, if required, of such
party under the HSR Act with respect to the Merger or the
transactions contemplated by Sections 5.14 and/or Section 5.15;
(ii) use its reasonable best efforts to avoid the entry of, or to have
vacated or terminated, any decree, order, or judgment that would
restrain, prevent or delay the consummation of the Merger or the
other transactions contemplated by this Agreement, including without
limitation defending through litigation on the merits any claim
asserted in any court by any party; and
(iii) take any and all steps which, in such party's judgment, are
commercially reasonable to avoid or eliminate each and every
impediment under any antitrust, competition, or trade regulation Law
that may be asserted by any Governmental Entity with respect to the
Merger or the other transactions contemplated by this Agreement so as
to enable consummation thereof to occur as soon as reasonably
possible.
Each party hereto shall promptly notify the other party of any communication
to that party from any Governmental Entity and permit the other party to review
in advance any proposed communication to any Governmental Entity. MergeCo and
the Company shall not (and shall cause their respective affiliates and
representatives not to) agree to participate in any meeting with any
Governmental Entity in respect of any filings, investigation or other inquiry
unless it consults with the other party in advance and, to the extent permitted
by such Governmental Entity, give the other party the opportunity to attend and
participate therein. Subject to the Confidentiality Agreement, each party hereto
shall coordinate and cooperate fully with the other party hereto in exchanging
such information and providing such assistance as such other party may
reasonably request in connection with the foregoing and in seeking early
termination of any applicable waiting periods under the HSR Act or in connection
with other Consents. Each of the Company and MergeCo agrees to respond promptly
to and comply fully with any request for additional information or documents
under the HSR Act. Subject to the Confidentiality Agreement, the Company shall
provide MergeCo, and MergeCo shall provide the Company, with copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) between such party or any of its representatives, on the one
hand, and any Governmental Entity or members of its staff, on the other hand,
with respect to this Agreement and the transactions contemplated hereby.
(c) MergeCo shall use its best efforts to cause the financing necessary for
satisfaction of the condition in Section 6.02(d) to be obtained on the terms set
forth in the commitment letters attached as Schedule 6.02(d); PROVIDED, HOWEVER,
THAT MergeCo shall be entitled to:
(i) enter into commitments for equity and debt financing with other
nationally recognized financial institutions, which commitments will
have substantially the same terms as those set forth in the
commitment letters and which commitments may be substituted for such
commitment letters, and
(ii) modify the capital structure set forth in such commitment letters so
long as:
(A) the total committed common equity equals at least $457,584,138
(including (1) the Retained Shares, (2) the portion of any
Options which at the time of the Merger is exchanged for, or
converted into, direct or indirect equity interests, which will
remain outstanding after the Effective Time, of the Company or
its Subsidiaries (including
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Columbine JDS Systems, Inc., whether or not Columbine JDS
Systems, Inc. is sold pursuant to Section 5.14), (3) the funds
utilized by MergeCo or its affiliates with respect to the
transactions contemplated by Sections 5.14 and 5.15),
(B) the aggregate Cash Consideration paid to all stockholders of the
Company is no less than otherwise would have been paid in
accordance with this Agreement, and
(C) such modified financing is no less certain than that set forth in
such commitment letter.
(d) Unless otherwise agreed to by the parties hereto, MergeCo shall obtain
such additional debt financing commitments, or shall provide such additional
equity commitment, as is necessary to obtain commitments for any increased
financing required as a result of any acquisition by the Company and its
Subsidiaries approved by MergeCo pursuant to Section 5.01(i).
(e) Each of the Company and MergeCo agrees to use its best efforts to
promptly hold the Special Meeting (as defined in Section 5.12) and to close the
Merger promptly after the receipt of the Company Stockholder Approval; PROVIDED
THAT this obligation shall not require any party to waive any condition under
Article VI.
SECTION 5.04 PUBLIC ANNOUNCEMENTS. The Company and MergeCo:
(a) agree to consult promptly with each other prior to issuing any press
release or otherwise making any public statement with respect to the Merger and
the other transactions contemplated hereby,
(b) agree to provide to the other party for review a copy of any such press
release or statement, and
(c) shall not issue any such press release or make any such public statement
prior to such consultation and review, unless required by applicable Law or any
listing agreement with a securities exchange.
SECTION 5.05 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) From and after the Effective Time, MergeCo shall and shall cause the
Surviving Corporation to indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of the Company and its
Subsidiaries (the "INDEMNIFIED PARTIES") against all losses, claims, damages,
expenses or liabilities arising out of or related to actions or omissions or
alleged actions or omissions occurring at or prior to the Effective Time:
(i) to the full extent permitted by the DGCL or,
(ii) if the protections afforded thereby to an Indemnified Party are
greater, to the same extent and on the same terms and conditions
(including with respect to advancement of expenses) provided for in
the Company's certificate of incorporation and by-laws and agreements
in effect at the date hereof (to the extent consistent with
applicable Law), which provisions will survive the Merger and
continue in full force and effect after the Effective Time.
Without limiting the foregoing:
(i) MergeCo shall and shall cause the Surviving Corporation to
periodically advance expenses (including attorney's fees) as incurred
by an Indemnified Party with respect to the foregoing to the full
extent permitted under applicable Law, and
(ii) any determination required to be made with respect to whether an
Indemnified Party shall be entitled to indemnification shall, if
requested by such Indemnified Party, be made
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by independent legal counsel selected by the Surviving Corporation
and reasonably satisfactory to such Indemnified Party.
(b) MergeCo agrees that the Company, and, from and after the Effective Time,
the Surviving Corporation, shall cause to be maintained in effect for not less
than six years from the Effective Time the current policies of the directors'
and officers' liability insurance maintained by the Company subject to the
following:
(i) the Surviving Corporation may substitute therefor other policies of
at least the same coverage amounts and which are underwritten by
insurers of at least equal claims paying ratings and which contain
terms and conditions not less advantageous to the beneficiaries of
the current policies; PROVIDED, THAT such substitution shall not
result in any gaps or lapses in coverage with respect to matters
occurring prior to the Effective Time; and
(ii) the Surviving Corporation shall not be required to pay an annual
premium in excess of 250% of the last annual premium paid by the
Company prior to the date hereof and if the Surviving Corporation is
unable to obtain the insurance required by this Section 5.05(b) it
shall obtain as much comparable insurance as possible for an annual
premium equal to such maximum amount; and
(iii) MergeCo and the Surviving Corporation shall be entitled to purchase
and maintain tail insurance coverage for such six year period, which
insurance coverage shall comply with the coverage amount requirement,
and the other requirements, of Section 5.05(b)(i), and the purchase
and maintenance of such tail insurance coverage by MergeCo or the
Surviving Corporation, as the case may be, shall be deemed to fulfill
MergeCo's and the Surviving Corporation's obligations under this
Section 5.05(b).
(c) This Section 5.05 shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
MergeCo and the Surviving Corporation, and shall be enforceable by the
Indemnified Parties.
SECTION 5.06 NOTIFICATION OF CERTAIN MATTERS. MergeCo and the Company shall
promptly notify each other of:
(a) the occurrence or non-occurrence of any fact or event which would be
reasonably likely:
(i) to cause any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect at any time from
the date hereof to the Effective Time, or
(ii) to cause any covenant, condition or agreement under this Agreement
not to be complied with or satisfied, and
(b) any failure of the Company, or MergeCo, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder;
PROVIDED, HOWEVER, THAT no such notification shall affect the
representations or warranties of any party or the conditions to the obligations
of any party hereunder. Each of the Company and MergeCo shall give prompt notice
to the other of any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection with
the transactions contemplated by this Agreement.
SECTION 5.07 RIGHTS AGREEMENT. Subject to the provisions of Section 3.17,
the Company covenants and agrees that it shall not (i) redeem the Rights prior
to the Effective Time, (ii) amend the Rights Agreement, or (iii) take any action
which would allow any Person (as defined in the Rights Agreement) other than
MergeCo to acquire beneficial ownership of 15% or more of the Common
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Shares without causing a "Distribution Date," a "Triggering Event" or a "Stock
Acquisition Date" (as each term is defined in the Rights Agreement) to occur.
Notwithstanding the foregoing, the Company may take any of the actions described
in the preceding sentence, if the Company Board determines in good faith, after
consultation with counsel, that taking such action is necessary for the Company
Board to comply with its fiduciary duties to stockholders under applicable Law.
SECTION 5.08 STATE TAKEOVER LAWS. The Company shall, upon the request of
MergeCo, take all reasonable steps to assist in any challenge by MergeCo to the
validity or applicability to the transactions contemplated by this Agreement,
including the Merger, of any state takeover Law.
SECTION 5.09 NO SOLICITATION.
(a) From and after the date hereof until the termination of this Agreement,
the Company and its Subsidiaries (x) shall not, (y) shall use their best efforts
to cause their respective affiliates not to, and (z) shall instruct their
respective officers, directors, employees, agents or other representatives
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or its Subsidiaries) (the "REPRESENTATIVES") not to:
(i) directly or indirectly solicit, initiate, or encourage (including by
way of furnishing nonpublic information or assistance), or take any
other action to facilitate, any inquiries or proposals from any
person that constitute, or may reasonably be expected to lead to, an
acquisition, purchase, merger, consolidation, share exchange,
recapitalization, business combination or other similar transaction
involving 15% or more of the assets or any securities of, any merger
consolidation or business combination with, or any public
announcement of a proposal, plan, or intention to do any of the
foregoing by, the Company or any of its Subsidiaries (such
transactions being referred to herein as "ACQUISITION TRANSACTIONS"),
(ii) enter into, maintain, or continue discussions or negotiations with
any person in furtherance of such inquiries or to obtain a proposal
for an Acquisition Transaction,
(iii) agree to or endorse any proposal for an Acquisition Transition, or
(iv) authorize or permit the Company's or any of its affiliates'
Representatives to take any such action.
Notwithstanding the foregoing, nothing in this Agreement shall prohibit the
Company Board from:
(A) furnishing information to, and engaging in discussions or
negotiations with, any Person (an "OFFEROR") that makes an
unsolicited and written Bona Fide Proposal (as defined below) to
acquire the Company and/or its Subsidiaries pursuant to a merger,
consolidation, share exchange, tender offer or other similar
transaction, but only to the extent that independent legal
counsel (who may be the Company's regularly engaged outside legal
counsel) advises the Company Board in good faith that furnishing
such information to, or engaging in such discussions or
negotiations with, such Offeror is necessary for the Company
Board to comply with its fiduciary duties to stockholders under
applicable Law; PROVIDED, THAT prior to taking such action, the
Company Board notifies MergeCo of its intentions and obtains an
executed confidentiality agreement from the Offeror and such
other appropriate parties substantially similar to the
Confidentiality Agreement (other than with respect to the
standstill provisions of the Confidentiality Agreement in a
situation where the Offeror has commenced a tender offer to
acquire at least 15% or more of the Common Shares prior to the
date of the furnishing of information, and the discussions or
negotiations, referenced above),
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(B) failing to make or withdrawing or modifying its recommendation
referred to in Section 5.12 if the Company Board, after
consultation with and based upon the advice of independent legal
counsel (who may be the Company's regularly engaged outside legal
counsel), determines in good faith that such action is necessary
for the Company Board to comply with its fiduciary duties to
stockholders under applicable Law, and
(C) disclosing to the Company's shareholders a position contemplated
by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with
respect to any tender offer, or taking any other legally required
action (including, without limitation, the making of public
disclosure as may be necessary or advisable under applicable
securities Laws); and
PROVIDED, FURTHER, THAT the Company's or the Company Board's exercise of its
rights under clause (A), (B) or (C) above shall not constitute a breach by the
Company of this Agreement. For the purposes of this Agreement, "BONA FIDE
PROPOSAL" means a proposal which the Company Board determines in good faith, and
after receipt and consideration of advice from its legal and financial advisors,
is reasonably capable of being consummated by the Person making the proposal,
taking into account regulatory, legal, financial and other relevant matters.
(b) The Company shall promptly notify MergeCo of the receipt of any proposal
for an Acquisition Transaction, the terms and conditions of such proposal and
the identity of the person making it. The Company also shall promptly notify
MergeCo of any change to or modification of such proposal for an Acquisition
Transaction and the terms and conditions thereof.
(c) The Company shall immediately cease and cause its affiliates and its and
their Representatives to cease any and all existing activities, discussions or
negotiations with any parties (other than MergeCo) conducted heretofore with
respect to any of the matters set forth in Section 5.09(a)(i) to (iv) and shall
use its reasonable best efforts to cause any such parties in possession of
confidential information about the Company that was furnished by or on behalf of
the Company to return or destroy all such information in the possession of any
such party (other than MergeCo or its affiliates) or in the possession of any
Representative of any such party.
SECTION 5.10 ISRA REQUIREMENTS. Prior to the Effective Time, the Company
shall commence compliance with the requirements of ISRA applicable to this
transaction by submitting all required filings for each property subject to ISRA
in order to obtain authorizations that will allow the transactions contemplated
by this Agreement to be effected pursuant to N.J.S.A. 13:1K-11.2 or pursuant to
N.J.S.A. 13:1K-11.5, as the case may be. If the Company is unable to obtain an
ISRA authorization for any property subject to ISRA prior to the Effective Time,
then the Company shall seek a letter of non-applicability (a "LNA") if, in the
reasonable judgment of MergeCo and the Company, there is a reasonable
probability of obtaining a LNA in order to effect the transactions contemplated
by this Agreement according to the time schedule desired by MergeCo and the
Company. If it is determined not to seek a LNA, or an application to seek a LNA
is denied, then the Company shall obtain a Remediation Agreement with respect to
such property or properties in order to allow the transactions contemplated by
this Agreement to be effected. The Company shall consult with MergeCo with
respect to its ISRA filings and strategy, including allowing MergeCo to comment
on such filings, and shall provide copies of all correspondence to and from the
DEP with respect to ISRA compliance. MergeCo shall cooperate with the Company in
connection with the ISRA applications and filings by the Company relating to
approval and allow the transactions contemplated by this Agreement to be
effected in a timely manner, including, without limitation, signing any
documents reasonably requested by the Company and providing any information
within the possession, custody or control of MergeCo.
SECTION 5.11 REPORTS. During the period from the date of this Agreement to
the Effective Time, the Company shall provide MergeCo with monthly financial
statements (balance sheet, cash flow
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statement, income statement and, if available, notes thereto), broken out by
operating unit (except as to the cash flow statement, which shall be a
consolidated statement), no later than the fifteenth business day following the
end of each calendar month following the date of this Agreement; PROVIDED, THAT
for calendar months that are also the end of a calendar quarter, the Company may
provide such financial information to MergeCo on the same date such information
is publicly released in accordance with the past practice of the Company.
SECTION 5.12 STOCKHOLDERS' MEETING.
(a) The Company, acting through the Company Board, shall, in accordance with
applicable Law:
(i) duly call, give notice of, convene and hold a special meeting of its
stockholders (the "SPECIAL MEETING") as soon as practicable following
the execution of this Agreement for the purpose of considering and
taking action upon this Agreement;
(ii) prepare and file with the SEC a preliminary proxy statement relating
to this Agreement, and use its best efforts:
(A) to obtain and furnish the information required to be included by
the SEC in a definitive proxy statement (the "PROXY STATEMENT")
and, after consultation with MergeCo, to respond promptly to any
comments made by the SEC with respect to the preliminary Proxy
Statement and cause the Proxy Statement to be mailed to its
stockholders, and
(B) to obtain the necessary approvals of the Merger and this
Agreement by its stockholders; and
(iii) subject to the fiduciary duties of the Company Board as provided in
Section 5.09, the Company Board shall declare that this Agreement is
advisable and recommend that the Agreement and the transactions
contemplated hereby be approved and adopted by the stockholders of
the Company and include in the Proxy Statement a copy of such
recommendations; PROVIDED, HOWEVER, THAT the Company Board shall, if
requested to do so in writing by MergeCo, submit this Agreement to
the Company's stockholders whether or not the Company Board
determines at any time subsequent to declaring its advisability that
this Agreement is no longer advisable and recommends that the
stockholders of the Company reject it.
(b) Unless the Company Board has withdrawn its recommendation of this
Agreement in compliance with Section 5.09, the Company shall use its best
efforts to solicit from stockholders of the Company proxies in favor of the
Merger and shall use its best efforts to take all other action necessary or
advisable to secure the vote or consent of stockholders required by the DGCL to
effect the Merger.
(c) The Company represents that the Proxy Statement will comply in all
material respects with the provisions of applicable federal securities Laws
except that no representation is made by the Company with respect to information
supplied by MergeCo or its affiliates for inclusion in the Proxy Statement. Each
of the Company, on the one hand, and MergeCo, on the other hand, agree promptly
to correct any information provided by either of them for use in the Proxy
Statement if and to the extent that it shall have become false or misleading,
and the Company further agrees to take all steps necessary to cause the Proxy
Statement as so corrected to be filed with the SEC and to be disseminated to the
holders of Shares, in each case, as and to the extent required by applicable
federal securities Laws.
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SECTION 5.13 EMPLOYEE BENEFIT ARRANGEMENTS.
(a) MergeCo agrees that the Company shall honor, and, from and after the
Effective Time, MergeCo shall cause the Surviving Corporation to honor, in
accordance with their respective terms as in effect on the date hereof, the
employment, severance and bonus arrangements to which the Company is a party and
which have been previously disclosed in writing to MergeCo or its affiliates.
(b) MergeCo agrees that for a period of two years following the Effective
Time, the Surviving Corporation shall continue the (i) compensation (including
bonus and incentive awards) programs and plans, and (ii) employee benefit and
welfare plans, programs, contracts, agreements and policies (including insurance
and pension plans), fringe benefits and vacation policies, which are currently
provided by the Company; PROVIDED, THAT notwithstanding anything in this
Agreement to the contrary the Surviving Corporation shall not be required to
maintain any individual plan or program so long as the benefit plan and
agreements maintained by the Surviving Corporation are, in the aggregate, not
materially less favorable than those provided by the Company immediately prior
to the date of this Agreement, and; PROVIDED, FURTHER, THAT this provision shall
terminate with respect to the participation in any plans or programs by
employees of any business transferred to any third party after the Effective
Time.
SECTION 5.14 ACQUISITION OF COLUMBINE JDS SYSTEMS. The Company agrees to
cause Big Flower Digital Services, Inc. to transfer all the outstanding shares
of Columbine JDS Systems, Inc., a Delaware corporation and an indirect
wholly-owned subsidiary of the Company (which shares the Company represents and
warrants to MergeCo are currently owned as of record by Big Flower Digital
Services, Inc.) on substantially the terms and conditions set forth on
Schedule 5.14. Prior to the Merger, the Company shall, and shall cause Big
Flower Digital Services, Inc. to, enter into on a prompt basis any agreements
(including a stock purchase agreement) which MergeCo reasonably requests such
party to enter into with respect to the transactions contemplated in this
Section 5.14 and Schedule 5.14; PROVIDED THAT no such agreement shall result in
any cost or liability to the Company or any of its Subsidiaries if the Merger is
not effected or result in any delay in the Effective Time. The Company agrees to
amend the terms and conditions set forth in Schedule 5.14 in any manner
reasonably requested by MergeCo; PROVIDED THAT no such amendment shall result in
any cost or liability to the Company or any of its Subsidiaries if the Merger is
not effected or result in any delay in the Effective Time or otherwise makes
less likely the consummation of the Merger.
SECTION 5.15 TREATMENT OF CERTAIN INVESTMENTS. The Company and MergeCo
agree:
(a) that an affiliate of MergeCo shall purchase all of the investments in
the businesses set forth in Schedule 5.15(a) on the terms, and subject to the
conditions, set forth in Schedule 5.15(a), and that, prior to the Merger, the
Company shall, and shall cause the owner of the investments set forth in
Schedule 5.15(a) to, enter into on a prompt basis any agreements which MergeCo
reasonably requests such party to enter into with respect to the transactions
contemplated in this Section 5.15(a) and Schedule 5.15(a), PROVIDED THAT no such
agreement shall result in any cost or liability to the Company or any of its
Subsidiaries if the Merger is not effected or result in any delay in the
Effective Time or otherwise makes less likely the consummation of the Merger,
(b) to effect the transactions contemplated in Schedule 5.15(b) on the terms
and subject to the conditions set forth in Schedule 5.15(b), and, prior to the
Merger, the Company shall, and shall cause the owner of the investments set
forth in Schedule 5.15(b) to, enter into on a prompt basis any agreements which
MergeCo reasonably requests such party to enter into with respect to the
transactions contemplated in this Section 5.15(b) and Schedule 5.15(b); PROVIDED
THAT no such agreement shall result in any cost or liability to the Company or
any of its Subsidiaries if the Merger is not effected or result in any delay in
the Effective Time or otherwise make less likely the consummation of the Merger,
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(c) to amend the terms and conditions set forth in Schedules 5.15(a) and
(b) in any manner reasonably requested by MergeCo; PROVIDED THAT no such
amendment shall result in any cost or liability to the Company or any of its
Subsidiaries if the Merger is not effected or result in any delay in the
Effective Time or otherwise make less likely the consummation of the Merger,
(d) that, if reasonably requested by MergeCo, the Company shall take
commercially reasonable actions to implement an Investment Instrument at the
Effective Time, the terms of which shall be established by MergeCo, PROVIDED
THAT no such Investment Instrument shall result in any cost or liability to the
Company or any of its Subsidiaries if the Merger is not effected or result in
any delay in the Effective Time or otherwise make less likely the consummation
of the Merger.
An "INVESTMENT INSTRUMENT" shall mean such securities, instruments or
arrangements which replace a portion of the equity commitment set forth in
Schedule 6.02(d) by means of (x) redeemable stock, (y) prepaid forward
contracts, or (z) some other securities, instruments or arrangements, including,
without limitation, arrangements which include the establishment of an entity or
entities to be funded by (1) a cash contribution or contributions by MergeCo or
any of its affiliates and (2) subject to the Company's existing agreements, a
contribution or contributions by the Company of assets identified by MergeCo, in
each case in exchange for equity interests in such entity or entities.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.01 CONDITIONS. The respective obligations of MergeCo and the
Company to consummate the Merger are subject to the satisfaction, at or before
the Effective Time, of each of the following conditions:
(a) STOCKHOLDER APPROVAL. The stockholders of the Company shall have duly
approved this Agreement and transactions contemplated by this Agreement.
(b) SOLVENCY LETTERS. Each of the Company Board and the Board of Directors
of MergeCo shall have received a solvency letter, in form and substance and from
an independent evaluation firm reasonably satisfactory to each such board, as to
the solvency of each of: (i) the Company, (ii) Big Flower Press Holdings, Inc.,
(iii) Big Flower Digital Services, Inc. and (iv) any other Subsidiary which the
Company or MergeCo reasonably requests the solvency letter to address, and each
of such companies' respective Subsidiaries on a consolidated basis, after giving
effect to the transactions contemplated by this Agreement, including all
financings contemplated hereby.
(c) ORDERS AND INJUNCTIONS. No order shall have been entered in any action
or proceeding before any United States federal or state court or governmental
agency or other United States regulatory or administrative agency or commission
(an "ORDER"), or a preliminary or permanent injunction by a United States court
of competent jurisdiction shall have been issued and remain in effect (an
"INJUNCTION"), which, in either case, would have the effect of (i) preventing
consummation of the Merger, or (ii) imposing material limitations on the ability
of MergeCo effectively to acquire or hold the business of the Company and its
Subsidiaries taken as a whole or to exercise full rights of ownership of the
Common Shares acquired by it; PROVIDED, HOWEVER, THAT in order to invoke this
condition, MergeCo shall have used in its good faith judgment, its commercially
reasonable best efforts to prevent such Order or Injunction or ameliorate the
effects thereof.
(d) ILLEGALITY. There shall not have been any United States federal or state
statute, rule or regulation enacted or promulgated after the date of this
Agreement that could, in the reasonable judgment of MergeCo, result in any of
the adverse consequences referred to in Section 6.01(c).
(e) HSR ACT. Any waiting period (and any extension thereof) under the HSR
Act applicable to the Merger shall have expired or terminated.
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SECTION 6.02 CONDITIONS TO OBLIGATIONS OF MERGECO. The obligations of
MergeCo to effect the Merger are further subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
respects in each case as of the date of this Agreement and as of the Effective
Time as though made on and as of the Effective Time; PROVIDED, HOWEVER, THAT,
with respect to representations and warranties other than Sections 3.02 and
3.03(a) and representations and warranties otherwise qualified by Material
Adverse Effect, for purposes of this Section 6.02(a), such representations and
warranties and statements shall be deemed to be true and correct in all respects
unless the failure or failures of such representations and warranties and
statements to be so true and correct, individually or in the aggregate, would
result in a Material Adverse Effect on the Company. MergeCo shall have received
a certificate signed on behalf of the Company by its Executive Vice
President--Office of the Chairman, or such other executive officer of the
Company reasonably satisfactory to MergeCo to the effect set forth in this
paragraph.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed the obligations required to be performed by it under this Agreement at
or prior to the Effective Time, except for such failures to perform as have not
had or would not, individually or in the aggregate, have a Material Adverse
Effect with respect to the Company or materially adversely affect the ability of
the Company to consummate the transactions contemplated hereby.
(c) NO LITIGATION. There shall not be pending by any Governmental Entity any
suit, action or proceeding (or by any other person any suit, action or
proceeding which has a reasonable likelihood of success):
(i) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this
Agreement or seeking to obtain from MergeCo, the Company or any of
their affiliates any damages that would have a Material Adverse
Effect on the Company,
(ii) seeking to prohibit or limit the ownership or operation by the
Company or any of its Subsidiaries of any material portion of the
business or assets of the Company or any of its Subsidiaries, taken
as a whole, to dispose of or hold separate any material portion of
the business or assets of the Company or any of its Subsidiaries
taken as a whole, as a result of the Merger or any of the other
transactions contemplated by this Agreement, or
(iii) seeking to impose limitations on the ability of MergeCo (or any
designee of MergeCo), to acquire or hold, or exercise full rights of
ownership of, any Common Shares, including, without limitation, the
right to vote Common Shares on all matters properly presented to the
stockholders of the Company.
(d) FINANCING. The Company, its Subsidiaries and MergeCo shall have received
the proceeds of financing pursuant to the commitment letters set forth on
Schedule 6.02(d) on terms and conditions set forth therein (or, as modified in
accordance with Section 5.03(c), on such other terms and conditions, or
involving such other financing sources, as MergeCo and the Company shall
reasonably agree and are not materially more onerous) in amounts sufficient to
consummate the transactions contemplated by this Agreement, including, without
limitation:
(i) to pay, with respect to all Exchanged Shares, the Cash Consideration
pursuant to Section 2.01(c),
(ii) to pay, with respect to all Exchanged Options, the Exchanged Option
Merger Consideration pursuant to Section 2.02, and to make any cash
payments required as a result of a treatment of Options pursuant to
Section 2.03(c) requiring such payments,
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(iii) to refinance the outstanding indebtedness of the Company (other
than that indebtedness which the commitment letters set forth in
Schedule 6.02(d) contemplate will remain outstanding),
(iv) to pay any fees and expenses in connection with the transactions
contemplated by this Agreement or the financing thereof, and
(v) to provide for the working capital needs of the Company following the
Merger.
(e) TOTAL FUNDED INDEBTEDNESS. MergeCo shall be reasonably satisfied that
the total funded indebtedness of the Company on a consolidated basis immediately
prior to the Effective Time (including the current portion of indebtedness but
net of (i) cash, (ii) cash equivalents and (iii) indebtedness in respect of the
QUIPS) is less than an amount equal to $1,028 million (being the $970 million
set forth in Section 6.02(f) of the Original Agreement plus $58 million relating
to indebtedness incurred in consummating certain acquisitions permitted by
Section 5.01(i) between the date of the Original Agreement and the date of this
Agreement) plus indebtedness incurred in consummating subsequent to the date of
this Agreement the acquisitions permitted by Section 5.01(i) which have not
closed prior to the date of this Agreement.
SECTION 6.03 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the
Company to effect the Merger is further subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
MergeCo set forth in this Agreement shall be true and correct in all respects,
in each case as of the date of this Agreement and as of the Effective Time as
though made on and as of the Effective Time; PROVIDED, THAT for purposes of this
Section 6.03(a), with respect to representations and warranties other than
Section 3.02(a) and the representations and warranties otherwise qualified by
Material Adverse Effect, such representations and warranties shall be deemed to
be true and correct in all respects unless the failure or failures of such
representations and warranties to be so true and correct, individually or in the
aggregate, would result in a Material Adverse Effect on MergeCo. The Company
shall have received certificates signed on behalf of MergeCo, by an authorized
officer of MergeCo, to the effect set forth in this paragraph.
(b) PERFORMANCE OF OBLIGATIONS OF MERGECO. MergeCo shall have performed the
obligations required to be performed by it under this Agreement at or prior to
the Effective Time, except for such failures to perform as have not had or could
not reasonably be expected, either individually or in the aggregate, to have a
Material Adverse Effect on MergeCo or adversely affect the ability of MergeCo to
consummate the transactions herein contemplated or perform its obligations
hereunder.
ARTICLE VII
TERMINATION; AMENDMENTS; WAIVER
SECTION 7.01 TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company:
(a) by the mutual written consent of MergeCo and the Company, by action of
their respective Boards of Directors;
(b) by MergeCo or the Company if the Merger shall not have been consummated
on or before the Termination Date (as defined below) and; PROVIDED, THAT neither
MergeCo nor the Company may terminate this Agreement pursuant to this
Section 7.01(b) if such party shall have materially breached this Agreement;
(c) by MergeCo or the Company if any court of competent jurisdiction in the
United States or other United States Governmental Entity has issued an order,
decree or ruling or taken any other
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action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and nonappealable;
PROVIDED, HOWEVER, THAT the party seeking to terminate this Agreement shall have
used its reasonable best efforts to remove or lift such order, decree, ruling or
other action;
(d) by the Company if, prior to the Effective Time, any Person has made a
Bona Fide Proposal relating to an Acquisition Transaction, or has commenced a
tender or exchange offer for the Common Shares, and the Company Board determines
in good faith (i) after consultation with its financial advisors, that such
transaction constitutes a superior offer from a financial point of view to the
offer constituted by this Agreement and (ii) after consultation with counsel,
that the approval of such Bona Fide Proposal and termination of this Agreement
is necessary for the Company Board to comply with its fiduciary duties to the
Company's stockholders under applicable Law; PROVIDED, HOWEVER, THAT
notwithstanding anything in this Agreement to the contrary, the termination of
this Agreement by the Company in compliance with this Section 7.01(d) shall not
be deemed to violate any other obligations of the Company under this Agreement;
(e) by MergeCo if (i) the Company breaches its covenant in Section 5.07, or
(ii) takes an action pursuant to the second sentence of Section 5.07;
(f) by MergeCo, if the Company Board shall have (i) failed to recommend to
the stockholders of the Company that they give the Company Stockholder Approval,
(ii) withdrawn or modified in a manner adverse to MergeCo its approval or
recommendation of this Agreement or the Merger, (iii) shall have approved or
recommended an Acquisition Transaction (other than the Acquisition Transaction
contemplated by this Agreement), (iv) shall have resolved to effect any of the
foregoing or (v) shall have otherwise taken steps to impede the Company
Stockholder Approval;
(g) by either MergeCo or the Company, if the Company Stockholder Approval
shall not have been obtained by reason of the failure to obtain the required
vote upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof;
(h) by MergeCo, upon a material breach of any covenant or agreement on the
part of the Company set forth in this Agreement, or if any representation or
warranty of the Company hereunder shall become untrue or inaccurate, in any case
such that the conditions set forth in Section 6.02(a) or Section 6.02(b) would
not be satisfied (a "TERMINATING COMPANY BREACH"); PROVIDED, THAT if such
Terminating Company Breach is curable by the Company through the exercise of its
reasonable efforts, and the Company continues to exercise such reasonable
efforts, MergeCo may not terminate this Agreement under this Section 7.01(h) if
such Terminating Company Breach has been cured prior to the Termination Date; or
(i) by the Company, upon material breach of any covenant or agreement on the
part of MergeCo set forth in this Agreement, or if any representation or
warranty of MergeCo shall be or become untrue or inaccurate, in any case such
that the conditions set forth in Section 6.03(a) or Section 6.03(b) would not be
satisfied (a "TERMINATING MERGECO BREACH"); PROVIDED, THAT if such Terminating
MergeCo Breach is curable by MergeCo through the exercise of its reasonable
efforts, the Company may not terminate this Agreement under this
Section 7.01(i) if such Terminating MergeCo Breach has been cured prior to the
Termination Date.
"TERMINATION DATE" shall mean the later of (i) October 31, 1999 and
(ii) the date determined by adding to October 31, 1999 the number of days after
September 1, 1999 that the Proxy Statement is first mailed to stockholders;
PROVIDED, HOWEVER, THAT the Termination Date shall not be later than
December 31, 1999.
SECTION 7.02 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 7.01, this Agreement shall forthwith become void
and have no effect, without any liability on the part of any party or its
directors, officers or stockholders, other than the provisions of the last
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<PAGE>
sentence of Section 5.02 and the provisions of this Section 7.02 and
Section 7.03, which shall survive any such termination. Nothing contained in
this Section 7.02 shall relieve any party from liability for any breach of this
Agreement.
SECTION 7.03 FEES AND EXPENSES.
(a) If this Agreement is terminated for any reason other than a material
breach by MergeCo, and the Company has not paid previously to MergeCo the
Termination Fee in accordance with Section 7.03(b), the Company shall promptly
reimburse THL, Evercore and MergeCo, as the case may be, collectively, an
aggregate amount of up to $10 million, for out-of-pocket expenses and fees
(including, without limitation, expenses payable to all banks, investment
banking firms and other financial institutions, (which shall include, without
limitation, fees and expenses of such banks', firms' and institutions' legal
counsel), and all fees and expenses of counsel, accountants, financial printers,
experts and consultants to THL, Evercore and their affiliates), whether incurred
prior to, on or after the date hereof, in connection with the Merger and the
consummation of all transactions contemplated by this Agreement, and the
financing thereof; PROVIDED, THAT the Company shall be entitled to pay MergeCo
the total amount of such out-of-pocket expenses and fees and MergeCo shall be
obligated to forward to THL and Evercore the portion of such amount for
out-of-pocket expenses and fees owing to THL and Evercore in the circumstances.
Except as otherwise specifically provided for herein, whether or not the Merger
is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring such expenses.
(b) If:
(i) this Agreement is terminated pursuant to Section 7.01(d), (e)(i) or
(f), or
(ii) any Person (other than THL, Evercore or any of their affiliates)
shall have made, or proposed, communicated or disclosed in a manner
which is or otherwise becomes public a proposal for an Acquisition
Transaction prior to the Special Meeting, the Stockholder Approval
has not been obtained and, thereafter, this Agreement is terminated,
then the Company shall promptly pay MergeCo a termination fee of $30 million
(the "TERMINATION FEE"), less amounts paid under Section 7.03(a); PROVIDED, THAT
if this Agreement is terminated pursuant to Section 7.01(g) in a situation other
than that set forth in Section 7.03(b)(ii), then the Company shall promptly pay
MergeCo the Termination Fee, but such Termination Fee shall be $10 million, and
such amount shall be credited against any expense reimbursement payable pursuant
to Section 7.03(a); PROVIDED, FURTHER, THAT in no event shall more than one
Termination Fee be payable by the Company under this Section 7.03, and;
PROVIDED, FURTHER, THAT MergeCo shall be obligated to forward to THL and
Evercore that share of such Termination Fee owing to THL and Evercore in the
circumstances.
SECTION 7.04 AMENDMENT. This Agreement may be amended by the Company and
MergeCo at any time before or after any approval of this Agreement by the
stockholders of the Company but, after any such approval, no amendment shall be
made which decreases the Merger Consideration or which adversely affects the
rights of the Company's stockholders hereunder without the approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of all the parties.
SECTION 7.05 EXTENSION; WAIVER. At any time prior to the Effective Time,
MergeCo, on the one hand, and the Company, on the other hand, may, subject to
applicable Law, (i) extend the time for the performance of any of the
obligations or other acts of the other, (ii) waive any inaccuracies in the
representations and warranties contained herein of the other or in any document,
certificate or writing delivered pursuant hereto by the other or (iii) waive
compliance by the other with any of the agreements or conditions. Any agreement
on the part of any party to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
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<PAGE>
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made in this Agreement shall not survive beyond
the Effective Time. Notwithstanding the foregoing, the agreements set forth in
Article II, the last sentence of Section 5.02, Section 5.05 and Section 5.13
shall survive the Effective Time indefinitely (except to the extent a shorter
period of time is explicitly specified therein).
SECTION 8.02 ENTIRE AGREEMENT; ASSIGNMENT.
(a) This Agreement (including the documents and the instruments referred to
herein) and the Confidentiality Agreement constitute the entire agreement and
supersede all prior agreements (including, without limitation, the Original
Agreement, as amended) and understandings, both written and oral, among the
parties with respect to the subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder may be assigned by any of the parties hereto (whether by operation of
Law or otherwise) without the prior written consent of the other party (except
that MergeCo may assign its rights, interest and obligations to any affiliate or
direct or indirect subsidiary of MergeCo without the consent of the Company;
PROVIDED, THAT such assignee is an affiliate of THL and no such assignment shall
relieve MergeCo of any liability for any breach by such assignee). Subject to
the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
SECTION 8.03 VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
SECTION 8.04 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
If to MergeCo:
c/o Thomas H. Lee Company
75 State Street, Ste. 2600
Boston, Massachusetts 02109
Attention: Anthony J. DiNovi
Scott M. Sperling
Facsimile: (617) 227-3514
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Eric L. Cochran, Esq.
Facsimile: (212) 735-2000
A-45
<PAGE>
with a copy to:
Evercore Capital Partners LP.
65 East 55(th) Street, 33(rd) Floor
New York, New York 10022
Attention: Austin M. Beutner
Facsimile: (212) 857-3122
If to the Company:
Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10022
Attention: Mark A. Angelson
Facsimile: (212) 521-1640
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Joseph B. Frumkin, Esq.
Facsimile: (212) 558-3588
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
PROVIDED, THAT notice of any change of address shall be effective only upon
receipt thereof.
SECTION 8.05 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Delaware, without
reference to principles of conflicts or choice of Laws, or any other Law that
would make the Laws of any jurisdiction other than the State of Delaware
applicable hereto.
SECTION 8.06 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 8.07 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 8.08 PARTIES IN INTEREST. Except with respect to Sections 2.01,
2.02, 2.03, 2.04, 5.05 and 5.13 (which are intended to be for the benefit of the
persons identified therein, and may be enforced by such persons), this Agreement
shall be binding upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.
SECTION 8.09 CERTAIN DEFINITIONS. As used in this Agreement:
(a) the term "AFFILIATE", as applied to any person, shall mean any other
person directly or indirectly controlling, controlled by, or under common
control with, that person. For the purposes of this Agreement, "CONTROL"
(including, with correlative meanings, the terms "CONTROLLING," "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH"), as applied to any person, means the
possession, directly or
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<PAGE>
indirectly, of the power to direct or cause the direction of the management and
policies of that person, whether through the ownership of voting securities, by
contract or otherwise;
(b) the term "LAWS" means all (A) constitutions, treaties, statutes, Laws
(including, but not limited to, the common Law), rules, regulations, ordinances,
executive orders or codes of any Governmental Entity, (B) Environmental Permits,
and (C) orders, decisions, injunctions, judgments, awards and decrees of any
Governmental Entity;
(c) the term "PERSON" or "PERSONS" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act); and
(d) the term "SUBSIDIARY" or "SUBSIDIARIES" means, with respect to MergeCo,
the Company or any other person, any corporation, partnership, joint venture or
other legal entity of which MergeCo, the Company or such other person, as the
case may be (either alone or through or together with any other subsidiary),
owns, directly or indirectly, stock or other equity interests the holders of
which are generally entitled to more than 50% of the vote for the election of
the board of directors or other governing body of such corporation or other
legal entity or otherwise controls such corporation or other legal entity.
SECTION 8.10 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at Law or in equity.
IN WITNESS WHEREOF, each of the parties has caused this Amended and Restated
Agreement to be executed on its behalf by its respective officer thereunto duly
authorized, all as of the day and year first above written.
<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
BFH MERGER CORP.
By: /s/ ANTHONY J. DINOVI
-----------------------------------------
Name: Anthony J. DiNovi
Title: Chairman of the Board
</TABLE>
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<PAGE>
SCHEDULE 2.01(C)(II)
HOLDERS OF RETAINED SHARES
<TABLE>
<CAPTION>
NAME RETAINED SHARES
- ---- ---------------
<S> <C>
Theodore Ammon............................... 2,000,000
Acquisition LLC, an entity to be formed
pursuant to Section 5.14 of the
Agreement.................................. 1 or more Shares constituting part of, and
correspondingly reducing, Mr. Ammon's
2,000,000 Retained Shares, such Shares being
obtained by Acquisition LLC pursuant to
Section 5.14 of the Agreement
</TABLE>
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<PAGE>
SCHEDULE 5.14
ACQUISITION OF COLUMBINE JDS SYSTEMS, INC.
NOTE: THE PROVISIONS OF SECTION 5.14 OF THE AMENDED AND RESTATED MERGER
AGREEMENT AND THIS SCHEDULE 5.14 SHALL CONSTITUTE A BINDING AGREEMENT TO
UNDERTAKE THE TRANSACTIONS CONTEMPLATED BY SUCH SECTION 5.14 AND THIS SCHEDULE
5.14 UNLESS DOING SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT PROVISIONS
(INCLUDING SECTIONS 4.12 AND 4.13) OF THE 8 5/8% AND THE 8 7/8% BOND INDENTURES
RELATING TO THE ENTERING INTO OF TRANSACTIONS OF THE TYPE CONTEMPLATED BY SUCH
SECTION 5.14 AND THIS SCHEDULE 5.14, IN WHICH CASE SUCH PROVISIONS SHALL
CONSTITUTE SUCH A BINDING AGREEMENT ONLY UPON COMPLIANCE WITH SUCH SECTIONS OF
THE 8 5/8% AND THE 8 7/8% BOND INDENTURES; PROVIDED THAT, IN SUCH EVENT, BIG
FLOWER AND MERGECO AGREE TO USE THEIR RESPECTIVE BEST EFFORTS TO CAUSE
COMPLIANCE WITH SUCH SECTIONS OF THE 8 5/8% AND THE 8 7/8% BOND INDENTURES ON A
PROMPT BASIS.
<TABLE>
<S> <C>
TRANSACTIONS: At or after the Effective Time, subject to satisfaction of
the conditions set forth below, the following shall occur:
1. Columbine JDS Systems, Inc. ("CJDS") will borrow $135
million (the "LOAN") as follows: $100 million in bank
financing, and $35 million in mezzanine financing from
Thomas H. Lee Equity Fund IV or its affiliate ("THL").
2. CJDS will dividend the proceeds of the Loan, minus $7
million, to its parent, Big Flower Digital Services, Inc.
("BIG FLOWER DIGITAL"), which will dividend these
proceeds to its parent, Big Flower Press Holdings, Inc.
("BFP"), which, if necessary, will dividend these
proceeds to Big Flower Holdings, Inc. ("BIG FLOWER").
3. Contributions will be made to an affiliate of MergeCo
("ACQUISITION LLC") in exchange for interests in
Acquisition LLC. Acquisition LLC will be organized by
Theodore Ammon ("AMMON"), and the members of Acquisition
LLC will be THL, Evercore Capital Partners, or its
affiliate ("EVERCORE"), and Ammon. The contributions will
be in the form of (i) cash in an aggregate amount equal
to $37 million from THL and Evercore, and (ii) shares of
Big Flower common stock from Ammon. THL will have in
excess of 50% of the voting and profits interest in
Acquisition LLC, subject to membership arrangements in
effect at the Effective Time among the members of
Acquisition LLC.
4. Acquisition LLC will form an entity ("ACQUISITION SUB
LLC"), which will receive contributions from Acquisition LLC
in the form of cash in an amount equal to $37 million. In
addition, Acquisition Sub LLC may receive additional
contributions from members of CJDS management in the form
of shares of Big Flower common stock.
5. Acquisition Sub LLC will form an entity ("HOLDCO"), and
will receive shares of HoldCo in exchange for cash in an
amount equal to $37 million. In addition, certain members
of management of CJDS may agree to cancel certain of
their options to purchase Big Flower common stock in
exchange for an
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
unfunded, unsecured obligation of HoldCo to deliver
shares of HoldCo representing approximately 2% of the
aggregate outstanding HoldCo shares to such members of
CJDS management pursuant to a deferred compensation plan
or rabbi trust (the "PLAN/TRUST"). The interests of such
members of CJDS management in the Plan/Trust will be
fully vested.
6. HoldCo will purchase all the outstanding shares of CJDS
(the "SHARES") from Big Flower Digital for $37 million, and
Big Flower Digital will dividend these proceeds to BFP,
which, if necessary, will dividend these proceeds to Big
Flower.
TERMINATION: Right to purchase shares of CJDS will terminate upon
termination of Amended and Restated Merger Agreement.
CONDITIONS TO ACQUISITION: Standard conditions to the closing of this acquisition,
including the following conditions to purchasers'
obligations:
1. Satisfaction of all conditions under the Amended and
Restated Merger Agreement, and simultaneous or prior
occurrence of the Effective Time.
2. Compliance with all relevant provisions of the 8 5/8% and
the 8 7/8% bond indentures, including opinions from a
nationally-recognized financial advisor, and
determinations by the Big Flower board, as appropriate,
pursuant to Sections 4.12 and 4.13 of such indentures.
3. All necessary Hart-Scott filings shall have been made and
all other governmental and other consents and approvals
obtained.
4. No injunction or similar act of any government entity in
effect preventing the transaction.
5. Receipt of an opinion addressed to the Board of Directors
of Big Flower, from a nationally-recognized financial
advisor, in form and substance reasonably satisfactory to
such Board, that the purchase price for CJDS is fair to
Big Flower from a financial point of view.
DEFINED TERMS: Capitalized terms used but not defined in this term sheet
have the meanings given to them in the Amended and Restated
Merger Agreement (the "AMENDED AND RESTATED MERGER
AGREEMENT") between Big Flower and BFH Merger Corp. dated as
of October 11, 1999.
</TABLE>
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<PAGE>
SCHEDULE 5.15(A)
TREATMENT OF PRIVATE INTERNET INVESTMENTS
NOTE: THE PROVISIONS OF SECTION 5.15(A) OF THE AMENDED AND RESTATED MERGER
AGREEMENT AND THIS SCHEDULE 5.15(A) SHALL CONSTITUTE A BINDING AGREEMENT TO
UNDERTAKE THE TRANSACTIONS CONTEMPLATED BY SUCH SECTION 5.15(A) AND THIS
SCHEDULE 5.15(A) UNLESS DOING SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT
PROVISIONS (INCLUDING SECTIONS 4.12 AND 4.13) OF THE 8 5/8% AND THE 8 7/8% BOND
INDENTURES RELATING TO THE ENTERING INTO OF TRANSACTIONS OF THE TYPE
CONTEMPLATED BY SUCH SECTION 5.15(A) AND THIS SCHEDULE 5.15(A), IN WHICH CASE
SUCH PROVISIONS SHALL CONSTITUTE SUCH A BINDING AGREEMENT ONLY UPON COMPLIANCE
WITH SUCH SECTIONS OF THE 8 5/8% AND THE 8 7/8% BOND INDENTURES; PROVIDED THAT,
IN SUCH EVENT, BIG FLOWER AND MERGECO AGREE TO USE THEIR RESPECTIVE BEST EFFORTS
TO CAUSE COMPLIANCE WITH SUCH SECTIONS OF THE 8 5/8% AND THE 8 7/8% BOND
INDENTURES ON A PROMPT BASIS.
<TABLE>
<S> <C>
PURCHASE OF INVESTMENTS: At or after the Effective Time, subject to the conditions
set forth below, an Affiliate of MergeCo ("PURCHASER") shall
purchase the following (together, the "INVESTMENTS"):
(1) each of the investments in the businesses set forth on
the attached Exhibit A (the "CURRENT INVESTMENTS") from the
entity set forth on the attached Exhibit A which holds
such investment and which itself is owned directly or
indirectly by Big Flower, and
(2) each of the investments made by Big Flower and its
subsidiaries in non-public Internet businesses after the
date of the Amended and Restated Merger Agreement (the
"POST-SIGNING INVESTMENTS").
Each purchase of an Investment by Purchaser shall be a
separate and distinct purchase, and shall be subject to the
conditions set forth below. The purchases of a particular
Investment shall not be conditioned on the purchase of any
other Investment.
PURCHASE PRICE OF INVESTMENTS: The purchase price of the Current Investments shall be as
set forth on Exhibit A. The purchase price for each
Post-Signing Investment made by Big Flower and its
subsidiaries shall be the price paid by Big Flower/its
subsidiary for such investment. Each holder of an Investment
will dividend the purchase price it receives to its parent,
with the intention of the parties being that such proceeds
shall be dividended up-stream to Big Flower Press Holdings,
Inc. ("BFP"), which, if necessary, will dividend these
proceeds to Big Flower.
CONDITIONS: The following shall be conditions to the acquisition of each
Investment:
1. Compliance with the transfer provisions of the agreements
relating to such Investment by which the entity holding
such Investment is bound.
2. Satisfaction of all conditions under the Amended and
Restated Merger Agreement, and simultaneous or prior
occurrence of the Effective Time.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
3. In respect of the Current Investments held by CJDS
Ventures, LLC and any Post-Signing Investment held by an
entity owned directly or indirectly by Big Flower Press
Holdings, Inc., compliance with all relevant provisions
of the 8 5/8% and the 8 7/8% bond indentures, including
opinions from a nationally-recognized financial advisor,
and determinations by the Big Flower board, as
appropriate, pursuant to Sections 4.12 and 4.13 of such
indentures.
4. All necessary Hart-Scott filings shall have been made and
all other governmental and other consents and approvals
obtained, including such consents and approvals to
transfer the Investments from the entities which hold the
Investments.
5. No injunction or similar act of any government entity in
effect preventing the acquisition.
6. Receipt of an opinion addressed to the Board of Directors
of Big Flower, from a nationally-recognized financial
advisor, in form and substance reasonably satisfactory to
such Board, that the purchase price for each Investment
is fair to Big Flower from a financial point of view.
CONSEQUENCES OF NO TRANSFER: Subject to the terms and conditions of the Amended and
Restated Merger Agreement, if the transfer of an Investment
cannot be effected as a result of the inability to obtain a
third party consent or approval, Big Flower shall ensure
that Purchaser receives the economic benefit it would have
received had the transfer of such Investment been completed
as intended by this Schedule 5.15(a).
CAPITALIZATION OF PURCHASER: MergeCo shall cause Purchaser to be capitalized with an
amount of cash or a demand note from a solvent entity equal
to at least 10% of the aggregate purchase prices for the
Current Investments.
CONTROL OF PURCHASER: Purchaser shall be controlled by THL.
DEFINED TERMS: Capitalized terms used but not defined in this term sheet
have the meanings given to them in the Amended and Restated
Merger Agreement (the "AMENDED AND RESTATED MERGER
AGREEMENT") between Big Flower Holdings, Inc. ("BIG FLOWER")
and BFH Merger Corp. dated as of October 11, 1999.
</TABLE>
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<PAGE>
EXHIBIT A--INVESTMENTS
<TABLE>
<CAPTION>
NAME OF COMPANY IN
WHICH INVESTMENT NAME OF ENTITY NATURE OF INVESTMENT, AND (IF
HAS BEEN MADE WHICH HOLDS INVESTMENT APPLICABLE) NUMBER OF SHARES COST OF INVESTMENT PURCHASE PRICE
- --------------------------- ---------------------- ------------------------------ ------------------ --------------
<S> <C> <C> <C> <C>
Dawntreader Fund I, LP XL Ventures, LLC 1 partnership unit $250,000 100% of cost
Nutel Corp. XL Ventures, LLC A convertible bridge note $500,000 100% of cost
convertible into a minimum of
8.2% of the equity of Nutel
Corp. and a warrant for 2.68%
of the equity of Nutel Corp.
Solbright, Inc. CJDS Ventures, LLC 1,085,283 shares of Series C $2,876,000 100% of cost
convertible preferred
Galileo Communications Ltd. XL Ventures, LLC 3,000,000 shares of $3,000,000 100% of cost
convertible preferred
InterAdNet, Inc. CJDS Ventures, LLC 335,121 shares of convertible $2,500,000 100% of cost
preferred
Naviant, Inc. XL Ventures, LLC 7,407,407 shares of $10,000,000 100% of cost
convertible preferred
</TABLE>
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<PAGE>
SCHEDULE 5.15(B)
TREATMENT OF PUBLIC INTERNET INVESTMENTS
NOTE: THE PROVISIONS OF SECTION 5.15(B) OF THE AMENDED AND RESTATED MERGER
AGREEMENT AND THIS SCHEDULE 5.15(B) SHALL CONSTITUTE A BINDING AGREEMENT TO
UNDERTAKE THE TRANSACTIONS CONTEMPLATED BY SUCH SECTION 5.15(B) AND THIS
SCHEDULE 5.15(B) UNLESS DOING SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT
PROVISIONS (INCLUDING SECTIONS 4.12 AND 4.13) OF THE 8 5/8% AND THE 8 7/8% BOND
INDENTURES RELATING TO THE ENTERING INTO OF TRANSACTIONS OF THE TYPE
CONTEMPLATED BY SUCH SECTION 5.15(B) AND THIS SCHEDULE 5.15(B), IN WHICH CASE
SUCH PROVISIONS SHALL CONSTITUTE SUCH A BINDING AGREEMENT ONLY UPON COMPLIANCE
WITH SUCH SECTIONS OF THE 8 5/8% AND THE 8 7/8% BOND INDENTURES; PROVIDED THAT,
IN SUCH EVENT, BIG FLOWER AND MERGECO AGREE TO USE THEIR RESPECTIVE BEST EFFORTS
TO CAUSE COMPLIANCE WITH SUCH SECTIONS OF THE 8 5/8% AND THE 8 7/8% BOND
INDENTURES ON A PROMPT BASIS.
<TABLE>
<S> <C>
ACQUISITION OF LLC INTERESTS: At or after the Effective Time, subject to the satisfaction
of the conditions set forth below, an Affiliate of MergeCo
("NEW PARTNER") will contribute cash to each of the LLCs set
forth on the attached Exhibit A, which lists the LLCs
currently holding the public Internet investments (the
"INVESTMENTS"), in exchange for a common interest in each
such LLC (a "COMMON INTEREST") with the terms described
below.
The amount of each cash contribution will equal each LLC's
original cost of its Investment (the "CONTRIBUTIONS") or
such other amount which is determined to be appropriate in
the circumstances.
Each Contribution by New Partner in exchange for a Common
Interest shall be a separate and distinct transaction, and
shall be subject to the conditions set forth below. Each
Contribution with respect to an Investment shall not be
conditioned on any other Contribution with respect to any
other Investment.
TERMS OF NEW PARTNER COMMON INTEREST
CASH DISTRIBUTIONS TO BIG FLOWER In exchange for each Contribution, New Partner's Common
Interest in the applicable LLC will entitle New Partner to
90% of any future gain in the Investments held by such LLC.
In addition, New Partner will be allocated 90% of any future
loss in the Investments.
The Contributions will be distributed by the LLCs to Big
Flower (the "DISTRIBUTIONS"), which currently holds,
directly or through subsidiaries, an interest in each of the
LLCs.
BIG FLOWER'S LLC INTEREST: On a going forward basis, Big Flower would be entitled to
(i) a 5% annual return on the excess of (x) the value of the
interest in each LLC, over (y) the Distribution by such LLC,
and (ii) 10% of any future gain in the Investments less the
amount in (i). In addition, Big Flower would continue to be
entitled to its distributive share of the appreciation in
the Investments prior to the Contributions. Big Flower will
be allocated 10% of any future loss in the Investments.
CONDITIONS: The following shall be conditions to each Contribution in
exchange for a Common Interest:
</TABLE>
A-54
<PAGE>
<TABLE>
<S> <C>
1. Compliance with the provisions of the agreements relating
to such Investment by which the entity holding such
Investment is bound.
2. Satisfaction of all conditions under the Amended and
Restated Merger Agreement, and simultaneous or prior
occurrence of the Effective Time.
3. With respect to the Investment held by Big Flower
Digital, LLC, compliance with all relevant provisions of the
8 5/8% and the 8 7/8% bond indentures, including opinions
from a nationally-recognized financial advisor, and
determinations by the Big Flower board, as appropriate,
pursuant to Sections 4.12 and 4.13 of such indentures.
4. All necessary Hart-Scott filings shall have been made and
all other governmental and other consents and approvals
obtained, including such consents and approvals to the
contributions by New Partner.
5. No injunction or similar act of any government entity in
effect preventing the contribution.
6. Receipt of an opinion addressed to the Board of Directors
of Big Flower, from a nationally-recognized financial
advisor, in form and substance reasonably satisfactory to
such Board, that the Contribution and Distribution in
respect of such Investment is fair to Big Flower from a
financial point of view.
CONSEQUENCES OF NO TRANSFER: Subject to the terms and conditions set forth in the Amended
and Restated Merger Agreement, if a Contribution to an LLC
cannot be effected as a result of the inability to obtain a
third party consent or approval, Big Flower shall ensure
that New Partner receives the economic benefit it would have
received had such Contribution been completed as intended by
this Schedule 5.15(b).
CONTROL OF NEW PARTNER: New Partner shall be controlled, directly or indirectly, by
THL.
DEFINED TERMS: Capitalized terms used but not defined in this term sheet
have the meanings given to them in the Amended and Restated
Merger Agreement (the "AMENDED AND RESTATED MERGER
AGREEMENT") between Big Flower Holdings, Inc. ("BIG FLOWER")
and BFH Merger Corp. dated as of October 11, 1999.
</TABLE>
A-55
<PAGE>
EXHIBIT A--INVESTMENTS
<TABLE>
<CAPTION>
LLCS TO RECEIVE NAME OF INVESTMENTS
CONTRIBUTIONS HELD BY LLC NUMBER OF SHARES OF STOCK COST OF INVESTMENTS
- ----------------------- --------------------- ------------------------------ -------------------
<S> <C> <C> <C>
XL Ventures, LLC Worldgate, Inc. 181,820 shares of common stock $3,000,000
About.com, Inc. 737,864 shares of common stock $4,000,000
Webstakes.com, Inc. 1,666,667 shares of common $7,000,000
stock
Big Flower Digital, LLC 24/7 Media, Inc. 875,352 shares of common $3,333,333
stock, Class A warrants for
437,676 shares of common
stock, and Class B warrants
for 437,676 shares of common
stock
</TABLE>
A-56
<PAGE>
APPENDIX B
[LOGO]
October 11, 1999
Independent Directors of the Board of Directors
Big Flower Holdings, Inc.
3 East 54th Street
New York, NY 10022
Lady and Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders, other than Theodore Ammon and certain other members of the
management of Big Flower Holdings, Inc. (the "Company") set forth on
Schedule 2.01(c)(ii) of the Agreement (as defined below) (the "Management
Investors"), of the outstanding shares of Common Stock, par value $0.01 per
share (the "Shares"), of the Company of the $31.50 per Share in cash to be
received by such holders pursuant to the Amended and Restated Agreement and Plan
of Merger, dated as of October 11, 1999, between BFH Merger Corp. ("MergeCo")
and the Company (the "Agreement"). Pursuant to the Agreement, MergeCo will be
merged with and into the Company (the "Merger") and each issued and outstanding
Share, other than some of the Shares held by the Management Investors, as
provided for in the Agreement, will be converted into the right to receive
$31.50 in cash. The Shares held by the Management Investors which are not
converted into the right to receive $31.50 in cash will be converted into the
right to retain such number of Shares.
Prior to the October 11, 1999 amendment and restatement of the Original
Agreement (as defined below), in the Merger each issued and outstanding Share,
other than some of the Shares held by the Management Investors as provided for
in the Agreement, would have been converted into the right to receive (i) $30 in
cash (the "Original Cash Consideration"), (ii) 0.21 shares of the Company's 10%
Cumulative Exchangeable Redeemable Paid-In-Kind Preferred Stock ("PIK
Preferred"), with those terms as set forth on Schedule 2.01(c)(i)(B)(1) of the
Original Agreement, and (iii) a warrant to purchase a number of Shares with an
exercise price of $0.01 per Share as specified in, and with those terms as set
forth on, Schedule 2.01(c)(i)(B)(2) of the Original Agreement, (the "Warrant"
and together with the Original Cash Consideration and the PIK Preferred, the
"Original Merger Consideration"). For purposes of this opinion, "Original
Agreement" means the Agreement and Plan of Merger, dated June 29, 1999, between
BFH Merger Corp. and the Company, prior to its amendment and restatement on
October 11, 1999.
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<PAGE>
Big Flower Holdings
October 11, 1999
Page Two
We previously delivered to you our opinion dated June 29, 1999, to the effect
that as of such date, and based upon and subject to the various considerations
contained therein, the Original Merger Consideration to be received by the
holders of Shares (other than the Management Investors) pursuant to the Original
Agreement was fair from a financial point of view to such holders.
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement and having
provided certain investment banking services to the Company from time-to-time,
including having acted as a lead-managing underwriter of a public offering of
6,708,524 Shares in June 1997, as a co-managing underwriter of a private
offering of $250,000,000 principal amount of the Company's 8.875% Notes due
July 1, 2007 in June 1997, as a lead-managing underwriter of a private offering
of $115,000,000 principal amount of the Company's 6.00% Convertible QUIPS due
October 15, 2027 in October 1997, as a co-managing underwriter of a private
offering of $100,000,000 principal amount of the Company's 8.875% Notes due
July 1, 2007 in October 1997, and as a co-managing underwriter of a private
offering of $250,000,000 principal amount of the Company's 8.625% Notes due
December 1, 2008 in December 1998. We have also provided from time-to-time, and
are currently providing, numerous investment banking services to Thomas H. Lee
Company and affiliates of Thomas H. Lee Company and expect to provide such
services to Thomas H. Lee Company in the future. MergeCo is an affiliate of
Thomas H. Lee Company. Goldman Sachs provides a full range of financial advisory
and securities services and, in the course of its normal trading activities, may
from time-to-time effect transactions and hold securities, including derivative
securities, of Big Flower for its own account and for the accounts of customers.
As of the date hereof, Goldman Sachs has accumulated a long position of 282,579
Shares against which Goldman Sachs is short 12,500 Shares, and a long position
of $250,000 principal amount of the Company's 6.00% Convertible QUIPS due
October 1, 2027 against which Goldman Sachs is short $27,500 principal amount of
the Company's 6.00% Convertible QUIPS due October 1, 2027.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the four years ended December 31, 1998; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company; certain other
communications from the Company to stockholders; and certain internal financial
analyses and forecasts prepared by the Company's management for the Company,
including revised forecasts prepared by management of the Company on October 1,
1999 (the "Revised Forecasts"). The Revised Forecasts reflect reductions in
projected financial results from the forecasts previously furnished to, and
utilized by, us in connection with our prior opinion dated June 29, 1999. We
also have held discussions with members of the senior management of the Company
regarding the Company's past and current business operations, financial
condition and future prospects, and have held discussions with members of the
senior management of MergeCo regarding the Company's future prospects. In
addition, we have reviewed the reported price and trading activity for the
Shares, compared certain financial and stock market information for the Company
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the commercial printing industry specifically and in other
industries generally and performed such other studies and analyses as we
considered appropriate.
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<PAGE>
Big Flower Holdings
October 11, 1999
Page Three
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion. In that regard, for purposes of this
opinion, you have instructed us to rely on the Revised Forecasts, and
accordingly we have assumed with your consent that the Revised Forecasts have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the Company. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or any of its subsidiaries and we have not been furnished with any such
evaluation or appraisal. Our advisory services and the opinion expressed herein
are provided for the information and assistance of the Independent Directors of
the Board of Directors of the Company in connection with its consideration of
the transaction contemplated by the Agreement and such opinion does not
constitute a recommendation as to how any holder of Shares should vote with
respect to such transaction.
You have advised us that representatives of MergeCo have informed the Company
that, in their opinion, the Merger, based upon the Original Merger
Consideration, would not be completed due to the changes in the Company's recent
financial performance and future prospects, as well as changes in financial
market conditions. You have further advised us that you have concluded that
certainty of consummation of the Merger, based on the Original Merger
Consideration, had been meaningfully diminished and that you have determined
that the Company should pursue the Merger on the terms set forth in the
Agreement. Accordingly in reaching this opinion, with your consent, we have
assumed that the Merger on the terms originally agreed to would not be
consummated and we therefore have not taken into account the financial terms of
the Merger as originally agreed to.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the $31.50 per
Share in cash to be received by the holders of Shares (other than the Management
Investors) pursuant to the Agreement is fair from a financial point of view to
such holders.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- -------------------------------
(GOLDMAN, SACHS & CO.)
B-3
<PAGE>
APPENDIX C
October 11, 1999
The Board of Directors
Big Flower Holdings, Inc.
3 East 54(th) Street
New York, New York 10023
Gentlemen:
Berenson Minella & Company ("Berenson Minella") understands that Big Flower
Holdings, Inc., a Delaware corporation (collectively, with any subsidiaries, the
"Company"), and BFH Merger Corp. intend to enter into an Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement"), whereby control of the
Company will be acquired by a group led by the Thomas H. Lee Company ("THL") and
the Company's Common Stock (as defined below) will cease to be publicly traded
(the "Merger"). Berenson Minella further understands that at the Effective Time
(as defined in the Merger Agreement) of the Merger, and in accordance with the
terms of the Merger Agreement, the public shareholders of the Company will have
their shares of common stock of the Company (the "Common Stock") converted into
the right to receive $31.50 in cash (the "Merger Consideration"). Berenson
Minella further understands that, in accordance with the terms of the Merger
Agreement, in the Merger certain employees and members of management of the
Company will retain a portion of their Common Stock ownership interests (both
directly held and options) such that the aggregate retained amount is
approximately 8% of the outstanding shares of Common Stock, on a fully diluted
basis, prior to the Merger, with the balance being converted into Merger
Consideration as set forth above.
The terms and conditions of the Merger are more fully set forth in the
Merger Agreement. A copy of the most recent draft of the Merger Agreement
reviewed by Berenson Minella, dated October 10, 1999, is attached hereto as
Exhibit A.
You have asked us, as investment bankers, to render an opinion to you as to
whether or not the Merger Consideration is fair, from a financial point of view,
to the holders of the Company's Common Stock other than the members of
management retaining shares of the Company's Common Stock in the merger, as to
whom Berenson Minella did not deliver an opinion, as of the date hereof.
In arriving at our opinion, we have, among other things:
(i) reviewed the latest draft of the Merger Agreement dated October 10,
1999;
(ii) reviewed, and discussed with members of management of the Company,
certain business and financial information relating to the Company that
we deemed relevant, including the Company's recent public filings and
financial statements;
(iii) reviewed, and discussed with members of management of the Company,
certain information, including budgets and financial forecasts
(collectively, the "Forecasts") relating to the businesses, earnings,
cash flows, assets, liabilities and prospects of the Company;
(iv) reviewed the historical stock prices and trading volumes of the
Company's Common Stock;
(v) reviewed certain publicly available information regarding publicly
traded companies we deemed reasonably comparable to the Company;
C-1
<PAGE>
The Board of Directors
Big Flower Holdings, Inc.
October 11, 1999
Page 2
(vi) reviewed certain publicly available information regarding comparable
merger and acquisition transactions we deemed relevant, including,
without limitation, premiums paid in such transactions;
(vii) performed discounted cash flow analyses based on the Forecasts, for the
Company, as applicable;
(viii) participated in certain discussions among management of the Company,
THL and their financial advisors regarding the Company and the Merger;
and
(ix) reviewed such other information, performed such other analyses and
taken into account such other factors as we deemed relevant.
For purposes of rendering our opinion, we have assumed and relied upon the
accuracy and completeness of all information provided to us by and on behalf of
the Company and have not assumed any responsibility for independent verification
of such information or for any independent valuation or appraisal of any assets
of the Company, nor were we furnished with any such valuations or appraisals of
any assets of the Company, nor were we furnished with any such valuations or
appraisals. We did not assume any obligation to, and accordingly did not,
conduct any physical inspection of the properties or facilities of the Company.
We have assumed, without independent investigation, the accuracy of all
representations and statements made by officers and management of the Company.
With respect to the Forecasts furnished to or discussed with us by the Company,
we have assumed, and relied upon, that they were reasonably prepared and reflect
the best currently available estimates and good faith judgments of the Company's
management as to the expected future financial performance of the Company.
Our opinion is necessarily based on economic, market and other conditions,
and information made available to us as of the date hereof. Also, we note that
the Company, by press release dated April 20, 1999, announced publicly that it
was exploring certain strategic alternatives and a substantial number of
financial and strategic buyers were either contacted by, or contacted, the
Company and its financial advisors and studied a potential acquisition of the
Company. The result of this process is an important element in the views stated
herein.
This opinion is provided at the request and for the benefit of the Board of
Directors of the Company in connection with its consideration of the Merger and
shall not be reproduced, summarized, described, relied upon, or referred to, or
furnished to any other person without, in each instance, Berenson Minella's
prior written consent; PROVIDED that, subject to our prior review, the Company
may refer to this opinion in any Proxy Statement or other disclosure statement
delivered to the shareholders of the Company with respect to the Merger, without
such written consent. This opinion does not and will not constitute a
recommendation to the Company to enter into the Merger Agreement. This opinion
is delivered subject to the conditions, scope of engagement, standard of care,
limitations, and understandings set forth herein and in the agreement between
Berenson Minella and the Company, dated June 24, 1999.
This opinion is delivered with the explicit understanding that this opinion
is based on standards of assessment in existence as of the date hereof, and that
standards of assessment may change in the future. Berenson Minella disclaims any
responsibility for any impact any such changes may have on the assessment of the
Merger. Unforeseen future events that could affect the fairness of the Merger
Consideration, from a financial point of view, have not been factored into this
opinion. Berenson
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<PAGE>
The Board of Directors
Big Flower Holdings, Inc.
October 11, 1999
Page 3
Minella disclaims any obligation to update or revise this opinion for events
occurring subsequent to the date hereof, whether foreseen or unforeseen.
This opinion is a fairness opinion only from a financial point of view.
Berenson Minella makes no representations with respect to questions of legal
interpretation or enforceability and expressly disclaims that this opinion may
be construed in any way as a legal opinion, solvency opinion or a tax opinion.
We note that we have acted as financial advisor to the Company in connection
with the Merger and will receive a fee for our services, a significant portion
of which is contingent upon the consummation of the Merger.
Based upon and subject to the foregoing, and subject to the various
assumptions, qualifications, and limitations set forth herein, it is our
opinion, as investment bankers, that, as of the date hereof, the Merger
Consideration is fair to holders of the Company's Common Stock other than the
members of management retaining shares of the Company's Common Stock in the
merger, as to whom Berenson Minella did not deliver an opinion, from a financial
point of view.
Very truly yours,
/s/ BERENSON MINELLA & COMPANY
BERENSON MINELLA & COMPANY
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<PAGE>
APPENDIX D
DELAWARE CODE TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
SECTION 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251 (other than a merger effected pursuant to
Section251(g) of this title), Section252, Section254, Section257, Section258,
Section263 or Section264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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<PAGE>
d. Any combination of the shares of stock depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or Section253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent
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<PAGE>
corporation that are entitled to appraisal rights of the effective date of
the merger or consolidation or (ii) the surviving or resulting corporation
shall send such a second notice to all such holders on or within 10 days
after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given, provided, that, if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
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(h) After determining the stockholders entitled to an appraisal the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled hereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all of
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D-4
<PAGE>
APPENDIX E
TRANSACTIONS INVOLVING BIG FLOWER COMMON STOCK
BY THOMAS H. LEE EQUITY FUND IV, L.P., THL EQUITY ADVISORS IV, LLC,
EVERCORE PARTNERS L.L.C., EVERCORE CAPITAL PARTNERS L.P.,
EVERCORE CAPITAL PARTNERS (NQ) L.P., EVERCORE CAPITAL OFFSHORE
PARTNERS L.P. (CAYMAN), EBF GROUP L.L.C., BIG FLOWER AND
EXECUTIVE OFFICERS AND DIRECTORS OF BIG FLOWER
TRANSACTIONS INVOLVING BIG FLOWER COMMON STOCK BY THE EXECUTIVE OFFICERS AND
DIRECTORS OF BIG FLOWER
None.
PURCHASES OF BIG FLOWER COMMON STOCK BY BIG FLOWER
The following table sets forth purchases of Big Flower common stock by Big
Flower since January 1, 1997.
<TABLE>
<CAPTION>
AVERAGE
QUARTER SHARES PURCHASE
ENDED PURCHASED LOW HIGH PRICE PER SHARE
- ------- --------- -------- -------- ---------------
<S> <C> <C> <C> <C>
3/31/97 129,981 $18.75 $20.00 $19.69
6/30/97 20,634 19.38 19.50 19.39
9/30/97 24,716 22.63 22.75 22.74
12/31/97 108,845 22.00 23.13 22.63
3/31/98 127,982 26.00 28.88 26.45
6/30/98 23,200 30.31 34.56 32.82
9/30/98 50,689 28.88 30.13 29.79
12/31/98 85,000 20.19 24.25 21.86
3/31/99 92,167 24.63 31.63 30.72
6/30/99 8,000 31.00 31.00 31.00
</TABLE>
TRANSACTIONS INVOLVING BIG FLOWER COMMON STOCK BY THOMAS H. LEE EQUITY FUND IV,
L.P., THL EQUITY ADVISORS IV, LLC AND THOMAS H. LEE
None.
TRANSACTIONS INVOLVING BIG FLOWER COMMON STOCK BY EVERCORE PARTNERS L.L.C.,
EVERCORE CAPITAL PARTNERS L.P., EVERCORE CAPITAL PARTNERS (NQ) L.P., EVERCORE
CAPITAL OFFSHORE PARTNERS L.P. (CAYMAN), EBF GROUP L.L.C., ROGER C. ALTMAN,
AUSTIN M. BEUTNER AND DAVID G. OFFENSEND.
In October 1997, Evercore Partners Inc. advised Big Flower Holdings, Inc. on
its acquisition of certain assets and liabilities of Riverside Country
Publishing Company, a division of Gruner+Jahr Printing and Publishing Co.
Evercore Partners Inc. was paid $250,000 for these services.
E-1
<PAGE>
APPENDIX F
INFORMATION RELATING TO EVERCORE PARTNERS L.L.C.,
EVERCORE CAPITAL PARTNERS L.P., EVERCORE CAPITAL PARTNERS (NQ) L.P., EVERCORE
CAPITAL OFFSHORE PARTNERS L.P. (CAYMAN), EBF GROUP L.L.C., THOMAS H. LEE EQUITY
FUND IV, L.P., THL EQUITY ADVISORS IV, LLC AND THEIR RESPECTIVE PRINCIPALS, AND
THE EXECUTIVE OFFICERS AND DIRECTORS OF
BFH MERGER CORP. AND BIG FLOWER
(I)(a) The name and business address of each of Evercore Capital Partners L.P.,
a Delaware Limited Partnership, Evercore Capital Partners (NQ) L.P., a
Delaware Limited Partnership, Evercore Capital Offshore Partners L.P.
(Cayman), a Cayman Islands Exempted Limited Partnership and EBF Group
L.L.C., a Delaware Limited Liability Company are set forth below. The
principal business of each of these entities is making equity and
equity-related investments.
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS
- -------------------------
<S> <C>
Evercore Capital Partners L.P.
65 East 55(th) Street, 33(rd) Floor
New York, New York 10022
Evercore Capital Partners (NQ) L.P.
65 East 55(th) Street, 33(rd) Floor
New York, New York 10022
Evercore Capital Offshore Partners L.P. (Cayman)
65 East 55(th) Street, 33(rd) Floor
New York, New York 10022
EBF Group L.L.C.
65 East 55(th) Street, 33(rd) Floor
New York, New York 10022
</TABLE>
(b) The name and business address of Evercore Partners L.L.C., a Delaware
Limited Liability Company, the general partner of Evercore Capital
Partners L.P., Evercore Capital Partners (NQ) L.P. and Evercore Capital
Offshore Partners L.P. (Cayman) and the managing member of EBF Group
L.L.C., are set forth below. The principal business of Evercore Partners
L.L.C. is making equity and equity-related investments.
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS
- -------------------------
<S> <C>
Evercore Partners L.L.C.
65 East 55th Street, 33rd Floor
New York, New York 10022
</TABLE>
F-1
<PAGE>
(c) The name, business address, present principal occupation or employment and
five-year employment history of the members of Evercore Partners L.L.C.
are set forth below, and each such person is a citizen of the United
States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -----------------------------------------
<S> <C>
Roger C. Altman Roger C. Altman co-founded Evercore
c/o Evercore Partners L.L.C. Partners in 1996. From 1992-1995,
65 East 55th Street, 33rd Floor Mr. Altman served as Deputy Treasury
New York, New York 10022 Secretary. From 1987-1992, Mr. Altman was
Vice Chairman of The Blackstone Group,
where he led the firm's merger advisory
business and originated several principal
investment opportunities. Prior to 1987,
Mr. Altman spent 14 years at Lehman
Brothers where he was a managing
director, Co-head of Investment Banking,
Member of the Management Committee and
Member of the Board of Directors.
Austin M. Beutner Austin M. Beutner co-founded Evercore
c/o Evercore Partners L.L.C. Partners in 1996. From 1994 to 1996,
65 East 55th Street, 33rd Floor Mr. Beutner was Chief Executive Officer
New York, New York 10022 and President of the U.S. Russia
Investment Fund, and in January 1997,
Mr. Beutner was named Vice Chairman of
its Board of Directors. Before his
affiliation with the U.S. Russia
Investment Fund, he was a General Partner
of The Blackstone Group. Mr. Beutner is a
director of American Media Inc.
David G. Offensend David G. Offensend co-founded Evercore
c/o Evercore Partners L.L.C. Partners in 1996. Prior to 1996,
65 East 55th Street, 33rd Floor Mr. Offensend was responsible for the
New York, New York 10022 leveraged acquisition portfolio of Acadia
Partners, an investment vehicle for
Robert M. Bass. Prior to Acadia,
Mr. Offensend spent 6 years managing the
Merchant Banking Group at Lehman
Brothers.
Jeffrey R. Sechrest Jeffrey R. Sechrest joined Evercore in
c/o Evercore Partners L.L.C. 1996 as a partner. Prior to 1996,
65 East 55th Street, 33rd Floor Mr. Sechrest spent 10 years at Lehman
New York, New York 10022 Brothers, most recently as a Managing
Director. At Lehman Brothers,
Mr. Sechrest held several senior
positions, including head of Mergers and
Acquisitions, Media & Telecommunications
and Natural Resources.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -----------------------------------------
<S> <C>
Stacy S. Dick Stacy S. Dick joined Evercore in 1998 as
c/o Evercore Partners L.L.C. a partner. From 1992 to 1998, Mr. Dick
65 East 55th Street, 33rd Floor was an Executive Vice President of
New York, New York 10022 Tenneco Inc., where he was responsible
for leading strategic planning, corporate
development and international development
activities. From 1989-1992, Mr. Dick was
a Managing Director at First Boston
Corporation.
Roger C. Altman 1997 Family Limited N/A
Partnership
c/o Roger C. Altman
Evercore Partners L.L.C.
65 East 55th Street, 33rd Floor
New York, New York 10022
David Glenn Offensend Trust f/b/o N/A
Rebecca Lee Offensend
c/o David G. Offensend
Evercore Partners L.L.C.
65 East 55th Street, 33rd Floor
New York, New York 10022
David Glenn Offensend Trust f/b/o N/A
Christopher David Offensend
c/o David G. Offensend
Evercore Partners L.L.C.
65 East 55th Street, 33rd Floor
New York, New York 10022
</TABLE>
(d) The name, business address, present principal occupation or employment and
five-year employment history of Roger C. Altman, the general partner of
Roger C. Altman 1997 Family Limited Partnership, is set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -----------------------------------------
<S> <C>
Roger C. Altman Roger C. Altman co-founded Evercore
c/o Evercore Partners L.L.C. Partners in 1996. From 1992-1995,
65 East 55th Street, 33rd Floor Mr. Altman served as Deputy Treasury
New York, New York 10022 Secretary. From 1987-1992, Mr. Altman was
Vice Chairman of The Blackstone Group,
where he led the firm's merger advisory
business and originated several principal
investment opportunities. Prior to 1987,
Mr. Altman spent 14 years at Lehman
Brothers where he was a managing
director, Co-head of Investment Banking,
Member of the Management Committee and
Member of the Board of Directors.
</TABLE>
F-3
<PAGE>
(e) The name, business address, present principal occupation or employment and
five-year employment history of David G. Offensend, the trustee of David
Glenn Offensend Trust f/b/o Rebecca Lee Offensend and David Glenn
Offensend f/b/o Christopher David Offensend, is set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -----------------------------------------
<S> <C>
David G. Offensend David G. Offensend co-founded Evercore
c/o Evercore Partners L.L.C. Partners in 1996. Prior to 1996,
65 East 55th Street, 33rd Floor Mr. Offensend was responsible for the
New York, New York 10022 leveraged acquisition portfolio of Acadia
Partners, an investment vehicle for
Robert M. Bass. Prior to Acadia,
Mr. Offensend spent 6 years managing the
Merchant Banking Group at Lehman
Brothers.
</TABLE>
(II) (a) The name, principal business and address of the principal executive
offices of Thomas H. Lee Equity Fund IV, L.P., a Delaware limited
partnership, are set forth below.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
PRINCIPAL EXECUTIVE OFFICES PRINCIPAL BUSINESS
--------------------------- -----------------------------------------
<S> <C>
Thomas H. Lee Equity Fund IV, L.P. Making equity and equity-related
c/o Thomas H. Lee Company investments
75 State Street, Suite 2600
Boston, Massachusetts 02109
</TABLE>
(b) The name, principal business and address of the principal executive
offices of THL Equity Advisors IV, LLC, a Delaware limited liability
company, are set forth below:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
PRINCIPAL EXECUTIVE OFFICES PRINCIPAL BUSINESS
--------------------------- -----------------------------------------
<S> <C>
THL Equity Advisors IV, LLC Managing institutional funds that make
c/o Thomas H. Lee Company equity and equity-related investments
75 State Street, Suite 2600
Boston, Massachusetts 02109
</TABLE>
F-4
<PAGE>
(c) The name, business address, present principal occupation or employment
and five-year employment history of the person who controls THL Equity
Advisors IV, LLC, a United States citizen, are set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -----------------------------------------
<S> <C>
Thomas H. Lee Thomas H. Lee founded Thomas H. Lee
c/o Thomas H. Lee Company Company in 1974 and since that time has
75 State Street, Suite 2600 served as its President. Mr. Lee serves
Boston, Massachusetts 02109 as a director of numerous public and
private corporations including Finlay
Enterprises, Inc., Metris Companies,
Inc., Safelite Glass Corporation, Vail
Resorts, Inc. and Wyndham International,
Inc.
</TABLE>
(III) The name and position of each director and executive officer of BFH Merger
Corp., together with the business address, present principal occupation or
employment and five-year employment history of each director and executive
officer of BFH Merger Corp. are set forth below.
<TABLE>
<CAPTION>
POSITION WITH BFH MERGER CORP., AND
PRESENT PRINCIPAL OCCUPATION AND FIVE-YEAR
NAME EMPLOYMENT HISTORY
- ---- ------------------------------------------
<S> <C>
Anthony J. DiNovi Director of BFH Merger Corp. Anthony J.
c/o Thomas H. Lee Company DiNovi is a Managing Director of Thomas H.
75 State Street, Suite 2600 Lee, and has been employed with Thomas H.
Boston, Massachusetts 02109 Lee Company since 1988.
Scott M. Sperling Director of BFH Merger Corp. Scott M.
c/o Thomas H. Lee Company Sperling is a Managing Director of Thomas
75 State Street, Suite 2600 H. Lee, and has been employed with Thomas
Boston, Massachusetts 02109 H. Lee Company since 1994.
</TABLE>
(IV) The name, business address, present principal occupation or employment and
five-year employment history of each management director and executive
officer of Big Flower Holdings, Inc. who is retaining shares of Big Flower
common stock or options to purchase such shares, in each case in the merger
are set forth below. Unless otherwise indicated, the business
F-5
<PAGE>
address of each such person is 3 East 54th Street, New York, New York 10022
and each such person is a citizen of the United States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -----------------------------------------
<S> <C>
R. Theodore Ammon R. Theodore Ammon has been the Chairman
of the Board of Big Flower since its
inception and was Chief Executive Officer
of Big Flower Press from its inception
until April 1997. Mr. Ammon is also the
Chairman of XL Ventures, Inc., Big
Flower's Internet and new media venture
capital subsidiary. Mr. Ammon is also a
director of Big Flower Press and Big
Flower Digital Services, Inc., a wholly
owned subsidiary of Big Flower.
Mr. Ammon was a General Partner of
Kohlberg Kravis Roberts & Co. (a New York
and San Francisco-based investment firm)
from 1990 to 1992, and an executive of
such firm prior to 1990. Mr. Ammon is
also the Chairman of the Board of 24/7
Media, Inc. and a member of the Board of
Directors of Host Marriott Corporation
and of CAIS Internet, Inc., and serves on
the boards of directors of numerous
privately held corporations. Mr. Ammon is
involved in a number of not-for-profit
organizations and serves as a member of
the Board of Directors of The Municipal
Art Society of New York, The New York
YMCA, and Jazz @ Lincoln Center. He is
also a member of the Board of Trustees of
Bucknell University. Mr. Ammon is
50 years old.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -----------------------------------------
<S> <C>
Edward T. Reilly Edward T. Reilly has been the President
and the Chief Executive Officer and the
director of Big Flower since its
inception. He has also been a director of
Big Flower Press since June 1996, and its
Chief Executive Officer since
April 1997, having also served as its
Chief Operating Officer from March 1996
until April 1997. Additionally, he is a
director of Big Flower's subsidiaries, TC
Advertising, Digital Services and
Webcraft. Prior to joining Big Flower,
Mr. Reilly held a variety of executive
positions with McGraw-Hill, Inc., a
publishing and communications company, in
their Broadcast and Publication groups
from 1968 to 1996, and served as
President of McGraw-Hill Broadcasting
from 1987 to 1996. He is Vice Chairman
and a member of the executive committee
of the Ad Council and serves on the Board
of Trustees of Lynchburg College in
Virginia. Recently, Mr. Reilly was
elected to the Board of Directors of The
National Council of La Raza. In addition,
Mr. Reilly has been active in television
industry affairs, having served as the
Chairman of the Television Bureau of
Advertising and as a member of the Board
of Directors of the National Association
of Broadcasters. He is the former
Chairman of the Association for Maximum
Service Television (MSTV), a trade
association of over 300 television
stations which has been in the forefront
of the effort to facilitate the
industry's transition to high definition
television. Mr. Reilly is 52 years old.
Richard L. Ritchie Richard L. Ritchie has been Executive
Vice President and Chief Financial
Officer of Big Flower since
January 1997. Prior to joining Big
Flower, Mr. Ritchie served as Senior Vice
President and Chief Financial Officer of
Harte-Hanks Communications, Inc. from
1986 to 1996. Mr. Ritchie is 53 years
old.
</TABLE>
F-7
<PAGE>
FOLD AND DETACH HERE
BIG FLOWER HOLDINGS, INC.
3 EAST 54TH STREET NEW YORK, NEW YORK 10022
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mark A. Angelson and Irene B. Fisher, and
each of them, with power of substitution, attorneys and proxies to represent and
vote all shares of Common Stock of Big Flower Holdings, Inc. (the "Company")
held of record by the undersigned on October 22, 1999, at the Annual Meeting of
Stockholders to be held on Tuesday November 23, 1999 at 9:00 a.m. local time at
the Hotel Intercontinental New York, 111 East 48th Street, New York, New York,
and at any adjournments, postponements, continuations or reschedulings thereof.
The undersigned hereby revokes any previous proxies with respect to the matters
covered in this proxy.
The Board of Directors recommends that Big Flower Holdings, Inc.
stockholders vote for adoption of the Merger Agreement.
This proxy, when properly executed, will be voted in the manner specified
below. If this card is properly executed but no vote is specified, this proxy
will be voted for adoption of the Merger Agreement.
Please check the appropriate box on the voting card to RSVP your attendance
at the Annual Meeting on November 23, 1999 at 9:00, a.m. or phone Big Flower
Investor Relations at (212) 521-1600.
You can vote by completing, signing, dating and returning the enclosed proxy
card in the enclosed postage-paid envelope.
(Continued and to be signed on the reverse side)
<PAGE>
BIG FLOWER HOLDINGS, INC.'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ELECTION OF THE NOMINEES NAMED BELOW AND FOR PROPOSALS 1, 2 AND 4.
1. Proposal to adopt the Amended and Restated Agreement and Plan of Merger,
dated as of October 11, 1999, between Big Flower Holdings, Inc. and BFH
Merger Corp.
/ / FOR / / AGAINST / / ABSTAIN
2. 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
adoption of the merger agreement
/ / FOR / / AGAINST / / ABSTAIN
<TABLE>
<S> <C> <C> <C> <C>
3. Election of Directors FOR all nominees listed below / / WITHHOLD AUTHORITY *Exceptions
TO VOTE FOR ALL NOMINEES LISTED / /
BELOW / /
Nominees: Robert M. Kimmett and Newton N. Minnow
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE "EXCEPTIONS" BOX AND WRITE THAT
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
*Exceptions
</TABLE>
4. Proposal to ratify the appointment of Deloitte & Touche LLP as the Company's
independent certified public accountants, as described in the Proxy
Statement.
/ / FOR / / AGAINST / / ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments,
postponements, continuations or rescheduling thereof.
This Proxy should bear your
signature(s) exactly as your name(s)
appear in the label to the left. When
signing as attorney, executor,
administrator, personal representative,
trustee, guardian or corporate officer,
please give full title. For joint
accounts, each joint owner should sign.
CHECK HERE IF YOU PLAN TO ATTEND THE
MEETING: / /
CHANGE OF ADDRESS AND/OR COMMENTS MARK
HERE: / /
Dated: __________________________, 1999
_______________________________________
Signature(s)
_______________________________________
Signature(s)
Please sign, date and return this proxy in the enclosed postage prepaid
envelope.
Votes must be indicated (x) in Black or Blue ink. /X/
