SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED
PURSUANT TO RULE 13d-1(a) AND
AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a)
(AMENDMENT NO. ______) 1
Happy Kids Inc.
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(Name of Issuer)
Common Stock, $.01 par value
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(Title of Class of Securities)
411391 10 5
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(CUSIP Number)
Richard S. Mattessich
Buchanan Ingersoll Professional Corporation
500 College Road East
Princeton, New Jersey 08540
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(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
July 12, 1999
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(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following
box. |_|
Note. Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 11 Pages)
- --------
1 The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
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CUSIP No. 411391 10 5 13D Page 2 of 11 Pages
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1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Jack Mark Benun
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)|X|
(b)|_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS * BK; 00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2 (e) |_|
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
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NUMBER OF
SHARES 7 SOLE VOTING POWER 6,587,500
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BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER None
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EACH
REPORTING 9 SOLE DISPOSITIVE POWER 3,293,750
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PERSON WITH 10 SHARED DISPOSITIVE POWER None
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,587,500
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 63.49%
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14 TYPE OF REPORTING PERSON* IN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
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CUSIP No. 411391 10 5 13D Page 3 of 11 Pages
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1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Mark Jack Benun
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)|X|
(b)|_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS * BK; 00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d)or 2(e) |_|
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
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NUMBER OF
SHARES 7 SOLE VOTING POWER None
---------------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER None
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EACH
REPORTING 9 SOLE DISPOSITIVE POWER 3,293,750
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PERSON WITH 10 SHARED DISPOSITIVE POWER None
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,293,750
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 31.74%
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14 TYPE OF REPORTING PERSON* IN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
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CUSIP No. 411391 10 5 13D Page 4 of 11 Pages
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1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Isaac Maurice Levy
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)|X|
(b)|_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS * BK; 00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2 (e) |_|
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
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NUMBER OF
SHARES 7 SOLE VOTING POWER 1,162,500
---------------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER None
---------------------------------------------------------------
EACH
REPORTING 9 SOLE DISPOSITIVE POWER 1,162,500
--------------------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER None
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,162,500
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 11.20%
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14 TYPE OF REPORTING PERSON* IN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 13D
Statement of
Jack Mark Benun
Mark Jack Benun
and
Isaac Maurice Levy
Pursuant to Section 13(d)
of the Securities Act of 1934
in respect of
Happy Kids Inc.
This Report on Schedule 13D relates to the common stock, par value $.01
per share, of Happy Kids Inc., a New York corporation. Jack Mark Benun, Mark
Jack Benun and Isaac Maurice Levy (each, a "Reporting Person") constitute a
"group" for purposes of Rule 13d-5 under the Securities Act of 1934, as amended
(the "Exchange Act"), with respect to their respective beneficial ownership of
such common stock and are collectively referred to herein as the "Reporting
Group."
The summary description of certain documents contained in this Report are
qualified in their entirety by reference to the complete texts of such documents
filed as Exhibits hereto and incorporated herein by reference. Information
contained herein with respect to each Reporting Person is given solely by such
Reporting Person, and no other Reporting Person has responsibility for the
accuracy or completeness of information supplied by such other Reporting Person.
ITEM 1. SECURITY AND ISSUER.
The title of the class of equity securities to which this statement
relates is common stock, $.01 par value (the "Common Stock") of Happy
Kids Inc., a New York corporation (the "Company"). The address of the
Company's principal executive offices is 100 West 33rd Street, Suite
1100, New York, New York 10001.
ITEM 2. IDENTITY AND BACKGROUND.
REPORTING PERSON: JACK M. BENUN:
(a) The name of the person filing this report is Jack Mark Benun;
(b) The business address of Mr. J. Benun is c/o Happy Kids Inc.,
100 West 33rd Street, New York, New York 10001;
(c) The present principal occupation or employment of Mr. J. Benun
is President and Chief Executive Officer of Happy Kids Inc., a
New York corporation, located at 100 West 33rd Street, New
York, New York 10001;
Page 5 of 11 Pages
<PAGE>
(d) During the last five years, Mr. J. Benun has not been
convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors);
(e) During the last five years, Mr. J. Benun was not a party to a
civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which proceeding he was
or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any
violation with respect to such laws; and
(f) Mr. J. Benun is a citizen of the United States.
REPORTING PERSON: MARK J. BENUN:
(a) The name of the person filing this report is Mark Jack Benun;
(b) The business address of Mr. M. Benun is c/o Happy Kids Inc.,
100 West 33rd Street, New York, New York 10001;
(c) The present principal occupation or employment of Mr. M. Benun
is Executive Vice President of Happy Kids Inc., a New York
corporation, located at 100 West 33rd Street, New York, New
York 10001;
(d) During the last five years, Mr. M. Benun has not been
convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors);
(e) During the last five years, Mr. M. Benun was not a party to a
civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which proceeding he was
or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any
violation with respect to such laws; and
(f) Mr. M. Benun is a citizen of the United States.
REPORTING PERSON: ISAAC M. LEVY:
(a) The name of the person filing this report is Isaac Maurice
Levy;
(b) The business address of Mr. Levy is c/o Happy Kids Inc., 100
West 33rd Street, New York, New York 10001;
(c) The present principal occupation or employment of Mr. Levy is
Senior Vice President of Happy Kids Inc., a New York
corporation, located at 100 West 33rd Street, New York, New
York 10001;
(d) During the last five years, Mr. Levy has not been convicted in
a criminal proceeding (excluding traffic violations or similar
misdemeanors);
(e) During the last five years, Mr. Levy was not a party to a
civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which proceeding he was
or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any
violation with respect to such laws; and
(f) Mr. Levy is a citizen of the United States.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
On July 12, 1999, the Company's Board of Directors (the "Board")
received for consideration a proposal (the "Proposal") from H.I.G.
Capital, L.L.C., a private investment firm ("Buyer"), to recapitalize
the Company in a going-private transaction (the "Proposed
Transaction"). Certain terms and conditions of the Proposed Transaction
are set forth in that certain Letter of Intent dated July 9, 1999,
entered into by and among the Buyer and each of
Page 6 of 11 Pages
<PAGE>
the Reporting Persons (the "Letter of Intent"). As contemplated under
the Letter of Intent, an entity to be formed by the Buyer ("Newco")
would be merged with and into the Company (the "Merger"). Upon
consummation of the Merger, each share of the Company's Common Stock
then held by the public (other than shares held by the Reporting
Persons) would be converted into the right to receive $11.50 payable
entirely in cash, without any interest thereon. The Reporting Group,
which presently owns approximately 74.69% of the Company's Common Stock
in the aggregate, would continue to own approximately 23.61% of the
Company's Common Stock in the aggregate upon consummation of the Merger
and would receive, in the aggregate, approximately $49.25 million in
connection with their sale of shares of the Company's Common Stock.
Each outstanding option to purchase the Company's Common Stock, whether
or not then exercisable, would be cancelled upon consummation of the
Merger and the holders thereof would be compensated accordingly. The
Merger is conditioned upon, among other things, the approval of the
Company's Board of Directors, the approval of two-thirds of all of the
Company's shareholders, negotiation and execution of a definitive
acquisition agreement, the receipt of financing on acceptable terms in
amounts sufficient to effect the Merger, and other customary
conditions. It is expected that, in the event the Merger is
consummated, the registration of the Company's Common Stock pursuant to
Section 12 of the Exchange Act would be terminated and the Common Stock
would cease to be listed on the Nasdaq National Market.
The Reporting Persons have calculated that approximately $79.7 million
would be required to pay the aggregate consideration due to all
shareholders and option holders of the Company (including each member
of the Reporting Group) upon consummation of the Merger.
The Reporting Persons expect the Buyer to make an equity investment and
arrange to borrow sufficient funds from banks and other financial
institutions and/or to obtain additional funds through the issuance and
sale of debt securities of Newco to effect the Merger and to pay the
requisite consideration in connection therewith. Although the Reporting
Persons and Buyer have had preliminary discussions with financial
institutions regarding such funding, no such commitment or undertaking
has been formalized to date. It is expected that in connection with the
consummation of the Merger, the Company would assume, guarantee or
otherwise become liable for, contractually or by operation of law,
Newco's obligations under any borrowings of Newco or debt securities
sold by Newco. Following the consummation of the Merger, the Company's
available cash resources will be utilized to pay certain of the costs
of the Merger or retire or amortize certain obligations incurred to
effect the Merger.
As of the date hereof, the Company's Board of Directors, which has
formed a Special Committee to evaluate the Proposal, has not responded
to the Proposal. Although the Reporting Group, which, in the aggregate,
currently beneficially owns 74.69% of the Company's Common Stock
outstanding has agreed to support the Proposal, there can be no
assurance that the Board of Directors of the Company will accept the
Proposal or, if accepted, that the conditions set forth in such
Proposal, including the obtaining of requisite financing, will be
satisfied, that a mutually acceptable definitive acquisition agreement
will be entered into, or that the Proposed Transaction will be
consummated.
ITEM 4. PURPOSE OF TRANSACTION.
The information contained in Item 3 above is incorporated herein by
reference. Upon consummation of the Merger, the Reporting Group would
own, in the aggregate, approximately 23.61% of the Company's Common
Stock, as compared to the approximately 74.69% ownership of such Common
Stock currently held in the aggregate by the Reporting
Page 7 of 11 Pages
<PAGE>
Group. The aggregate cash consideration to be received by the Reporting
Group upon consummation of the Merger and in connection with their sale
of shares of the Company's Common Stock is approximately $49.25
million.
Other than in connection with the Proposed Transaction set forth in
this Schedule 13D, the Reporting Persons have no present plans or
proposals which relate to or would result in:
(a) The acquisition by any person of additional securities of the
Company, or the disposition of securities of the Company;
(b) An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of
its subsidiaries;
(c) A sale or transfer of a material amount of assets of the
Company or of any of its subsidiaries;
(d) Any change in the present board of directors or management of
the Company, including any plans or proposals to change the
number or term of directors or to fill any existing vacancies
on the board;
(e) Any material change in the present capitalization or dividend
policy of the Company;
(f) Any other material change in the Company's business or
corporate structure;
(g) Changes in the Company's charter, bylaws or instruments
corresponding thereto or other actions which may impede the
acquisition of control of the Company by any person;
(h) Causing a class of securities of the Company to be delisted
from a national securities exchange or to cease to be
authorized to be quoted in an inter-dealer quotation system of
a registered national securities association;
(i) A class of equity securities of the Company becoming eligible
for termination of registration pursuant to Section 12(g)(4)
of the Act; or
(j) Any action similar to any of those enumerated in this Item.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) - (b) The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999 reports that as of April 30, 1999, there
were outstanding 10,375,693 shares of Common Stock. As of the
date hereof, the Reporting Persons beneficially own an
aggregate of 7,750,000 shares of Common Stock, or
approximately 74.69% of the shares of Common Stock deemed
outstanding. Of these shares: (i) Jack M. Benun beneficially
owns 6,587,500 shares of Common Stock. Such amount includes
3,293,750 shares of Common Stock owned of record by Mark J.
Benun and 300,000 shares of Common Stock owned of record by
the Jack M. Benun Family, L.P., of which Jack M. Benun is the
general partner with a one-percent interest, and each of Jack
M. Benun's three daughters is a limited partner with a 33%
interest. Jack M. Benun has the sole power to vote or to
direct the vote of all such shares of Common Stock. Except for
the 3,293,750 shares of Common Stock owned of record by Mark
J. Benun, as to which Jack M. Benun has no power with respect
to disposal or directing the disposition of such shares, Jack
M. Benun has the sole power to dispose or to direct the
disposition of all such shares; (ii) Mark J. Benun
beneficially owns 2,293,750 shares of Common Stock. Pursuant
to a Voting Agreement dated January 1, 1998, Jack M. Benun has
the sole power to vote or to direct the vote of all such
3,293,750 shares during Jack M. Benun's
Page 8 of 11 Pages
<PAGE>
lifetime. Mark J. Benun has the sole power to dispose or to
direct the disposition of all such 3,293,750 shares; and (iii)
Isaac M. Levy beneficially owns 1,162,500 shares of Common
Stock. Mr. Levy has the sole power to vote or to direct the
vote of and has the sole power to dispose or to direct the
disposition of all such 1,162,500 shares. The shares of Common
Stock beneficially owned by Jack M. Benun constitute
approximately 63.49% of the outstanding shares of Common
Stock. The shares of Common Stock beneficially owned by Mark
J. Benun constitute approximately 31.74% of the outstanding
shares of Common Stock. The shares of Common Stock
beneficially owned by Isaac M. Levy constitute 11.20% of the
outstanding shares of Common Stock. By virtue of their status
as a "group" for purposes of Rule 13d-5, each of Jack M.
Benun, Mark J. Benun and Isaac M. Levy may be deemed to have
shared voting and dispositive power over the shares owned by
the other person. (c) None. (d) None. (e) None.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH THE
ISSUER.
The information set forth in Item 4 and Item 5 of this Schedule 13D is
hereby incorporated by reference herein.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
1. Letter of Intent, dated July 9, 1999, entered into by and
among H.I.G. Capital, L.L.C., Jack M. Benun, Mark J. Benun and
Isaac M. Levy.
2. Press Release of the Company, dated July 12, 1999.
Page 9 of 11 Pages
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of his knowledge and belief,
each of the undersigned certifies that the information set forth in this
statement is true, complete and correct.
July 22, 1999 /s/ Jack M. Benun
--------------------------
Jack M. Benun
July 22, 1999 /s/ Mark J. Benun
--------------------------
Mark J. Benun
July 22, 1999 /s/ Isaac M. Levy
--------------------------
Isaac M. Levy
The original statement shall be signed by each person on whose behalf
the statement is filed or his authorized representative. If the statement is
signed on behalf of a person by his authorized representative (other than an
executive officer or general partner of the filing person), evidence of the
representative's authority to sign on behalf of such person shall be filed with
the statement, provided, however, that a power of attorney for this purpose
which is already on file with the Commission may be incorporated by reference.
The name and any title of each person who signs the statement shall be typed or
printed beneath his signature.
Attention. Intentional misstatements or omissions of fact
constitute Federal criminal violations (See 18 U.S.C. 1001.).
Page 10 of 11 Pages
<PAGE>
EXHIBIT INDEX
1. Letter of Intent, dated July 9, 1999, entered into by and
among H.I.G. Capital, L.L.C., Jack M. Benun, Mark J. Benun
and Isaac M. Levy.
2. Press Release of the Company, dated July 12, 1999.
Page 11 of 11 Pages
Exhibit 99.1
H.I.G. Capital, LLC
1001 Brickell Bay Drive
27th Floor
Miami, Florida 31137
July 9, 1999
Jack M. Benun
Mark J. Benun
Isaac Levy
c/o Happy Kids Inc.
100 West 33rd Street
Suite 1100
New York, NY 10001
Gentlemen:
We are interested in discussing with you our proposal to recapitalize (the
"Transaction") Happy Kids Inc. (the "Company").
1. THE TRANSACTION. The terms of our proposed transaction are set forth in the
attached Summary of Terms.
2. PAYMENT EVENT FEE. In consideration of the time and effort expended in
connection with pursuing the Transaction, Jack M. Benun, Mark J. Benun and Isaac
Levy (the "Majority Shareholders") agree to make the payments provided in this
letter agreement. As long as HIG (the "Investor") shall not have materially
breached any of its obligations under the Letter Agreement, the Majority
Shareholders jointly and severally agree to pay to the Investor a fee of
$1,500,000 within ten days of a Payment Event. A "Payment Event" shall mean (x)
the denial of the Investor's request for an opportunity to present a proposal to
the Board of Directors of the Company (the "Board") relating to the Transaction
or (y) the failure of the Board to recommend and approve (and continuously
recommend and approve) the Investor's proposal (assuming such proposal is
consistent with the Summary of Terms attached hereto) relating to the
Transaction within sixty days of such proposal. In addition to the above, the
Majority Shareholders jointly and severally agree to pay to the Investor an
Alternate Transaction Fee at the closing of an Alternate Transaction. An
"Alternate Transaction" shall mean a transaction that closes within twelve
months of the date of this letter wherein any of the Majority Shareholders sell
shares in the Company to a party other than the Investor or an affiliate of the
Investor. The "Alternative Transaction Fee" shall mean the product of (i) 90%,
multiplied by (ii) the total number of shares Sold by the Majority Shareholders
in an Alternate Transaction, multiplied by (iii) the difference between the
price per share to be received plus any other consideration to be received in
any form (including without limitation earn-out payments, bonus payments, excess
compensation payments, etc.) by the Majority Shareholders in an Alternate
Transaction and the price per share to be received by the Majority Shareholders
in this proposed Transaction.
3. EXPENSES. Prior to the execution of a definitive merger agreement, the
Majority Shareholders and the Investor shall bear their own costs and expenses
incurred in connection
<PAGE>
Happy Kids, Inc.
July 9, 1999
Page 2
with the transactions described in this letter except to the extent set forth in
the following sentence. In consideration of the time and effort expended in
connection with pursuing the transactions described in this letter, the Majority
Shareholders agree that in the event a proposal is made by the Investor to the
Board of Directors of the Company consistent with the terms of the attached
Summary of Terms, and the Board of Directors does not accept such proposal and
does not enter into a definitive agreement, the Majority Shareholders will pay
the Investor the amount of the Investor's reasonable direct, out-of-pocket
expenses incurred in connection with this Transaction.
4. EXCLUSIVITY. In consideration of the time and resources that we will devote
to the transactions contemplated hereby, the Majority Shareholders agree that,
until the earlier of (a) 90 days after we receive a copy of this letter
agreement executed by the Majority Shareholders, or (b) the date on which we
notify you in writing that we are no longer interested in pursuing a transaction
(the earlier such date being the "Termination Date"), the Majority Shareholders
will not, and will cause their affiliates, representatives and agents not to,
directly or indirectly, solicit, initiate, enter into or participate in
discussions or transactions with, or encourage or provide any information to,
any corporation, partnership or other entity or group (other than us and our
designees) concerning any sale of stock by the stockholders of, or any merger,
recapitalization, spin-off or sale of securities or substantial assets of, or
any similar transaction or alternative to the Transaction involving, the Company
or any of its subsidiaries (an "Acquisition Proposal"). Each of you represent
that neither you nor any of your affiliates are a party to, or bound by any
agreement with respect to, any such transaction other than as contemplated by
this letter.
5. The Majority Shareholders shall immediately notify the Investor upon receipt
of any Acquisition Proposal, or any modification of, or amendment to, any
Acquisition Proposal, or any request for public or non-public information
relating to the Company or any of its subsidiaries in connection with an
Acquisition Proposal or for access to the properties, books or records of the
Company or any subsidiary by any person or entity that has made, or informs the
Board of Directors of the Company or such subsidiary that it is considering
making, an Acquisition Proposal. Such notice to the Investor shall be made both
orally and in writing, and shall indicate whether the Company is providing, or
intends to provide, such person or entity with access to information concerning
the Company.
6. PUBLIC DISCLOSURE. The parties agree that no public disclosure of this letter
agreement will be made by any party hereto prior to the execution of a
definitive Merger Agreement, unless otherwise mutually agreed to by the parties
in writing, except for any public disclosure which a party in good faith
believes is required by law or regulation (in which case such party shall give
prior notice to the other parties of such belief and all parties hereto will
jointly prepare such disclosure).
7. NATURE OF THIS LETTER AGREEMENT. This letter agreement is a statement of
proposed points and understandings justifying the expenditure of time, effort
and expense in an attempt to negotiate and execute a Merger Agreement but will
not constitute a binding obligation on the
<PAGE>
Happy Kids, Inc.
July 9, 1999
Page 3
part of any party, except that Sections 2, 3, 4 and 5 hereof will be binding
from the date of your execution hereof and shall constitute the sole agreement
of the parties. The transactions referred to in this letter agreement are
subject in their entirety to the negotiation, execution and delivery by the
parties (or their affiliates) and the Company to each other of a mutually
satisfactory definitive agreement and related documentation, which will set
forth all the terms and conditions contemplated between the parties thereto. The
parties acknowledge that this letter agreement supercedes the letter agreements
between the parties dated May 12, 1999 and June 30, 1999, and upon your
execution of this letter agreement the May 12, 1999 and June 30, 1999 letter
agreements shall have no force and effect.
8. Except for the Majority Shareholders' agreements and Obligations set forth in
Sections 2 and 3 above, all of the Majority Shareholders' agreements and
obligations under this letter agreement shall terminate and be of no further
force and effect after the Termination Date, but such termination shall not
relieve any party for liability for a breach of those portions of this letter
which are legally binding.
* * * * *
<PAGE>
Happy Kids, Inc.
July 9, 1999
Page 4
If the foregoing is in accordance with your understanding, please sign
this letter in the space indicated below and return it to us, whereupon certain
provisions of this letter will become a binding agreement between the Majority
Shareholders and the Investor, and also send an original executed counterpart of
this letter agreement to us by overnight courier.
Very truly yours,
H.I.G. CAPITAL, LLC
By: /s/ John R. Black
---------------------
Name: John R. Black
Title: Vice President
The foregoing is hereby agreed to
and accepted as of July 9, 1999:
THE MAJORITY SHAREHOLDERS:
/s/ Jack M. Benun
-------------------
Jack M. Benun
/s/ Mark J. Benun
-------------------
Mark J. Benun
/s/ Isaac Levy
-------------------
Isaac Levy
<PAGE>
Happy Kids, Inc.
July 8, 1999
Page 5
SUMMARY OF TERMS
PAYMENT TO THE PUBLIC. The Investor currently contemplates
entering into a Merger Agreement which
would provide, upon consummation of the
Transaction, for a cash payment to the
public shareholders and option holders
(other than the Majority Shareholders)
of the Company of $11.50 per share upon
consummation of the Transaction. These
figures assume that the Company has
2,739,026 shares of Common Stock issued
to the public and issuable upon exercise
of outstanding options issued to the
public.
PAYMENT TO MAJORITY SHAREHOLDERS. With respect to the Common Stock held by
the Majority Shareholders the Majority
Shareholders would receive collectively
a total of $49.25 million in cash (the
"Majority Shareholder Cash Portion") and
would retain common stock equal to
approximately 23.61% of the common
equity of the Company after the
Transaction is completed (the
"Closing").
EMPLOYMENT AGREEMENTS. At the Closing, the Majority
Shareholders would enter into three year
employment contracts with the Company,
which would include customary terms and
conditions, including noncompetition and
nonsolicitation provisions. The
contracts would also provide for cash
bonus payments to the Majority
Shareholders, tied to certain financial
performance targets, of up to $5 million
in aggregate per year for two years. In
the third year, the Majority
Shareholders bonuses would be paid by
issuance of Company stock options for up
to 4% of the issued and outstanding
common equity. The exercise price of
such options shall be the fair market
value of the Company's common stock
immediately after the Closing.
INDEBTEDNESS. At the Closing, the Company would
refinance all of its existing
indebtedness, and will repay by wire
transfer of funds at such time the
approximately
<PAGE>
Happy Kids, Inc.
July 8, 1999
Page 6
$5.57 million owed collectively to the
Majority Shareholders.
LICENSE FEES. It would be a condition to Closing that
payments to licensors in connection with
obtaining such licensors' consent to a
change in control of the Company not
exceed, in the aggregate, $1 million.
BDO SEIDMAN FEES. The Company would bear its own expenses,
including any payments made to BDO
Seidman LLP; provided, however, that
such payments to BDO Seidman, LLP, shall
not exceed 1% of the aggregate
transaction price.
FINANCING WARRANTS. In the event that the providers of debt
financing are issued warrants or other
equity securities, these securities
would not dilute the 23.61% of the
Company's common equity owned by the
Majority Shareholders following the
Closing.
MANAGEMENT PARTICIPATION. The Company would adopt a new stock
option plan to enable management (other
than the Majority Shareholders) to
acquire up to 5% of the common stock of
the Company.
INDEMNIFICATION. After the Closing, the Company would
continue to indemnify its officers and
directors on the same terms as it is
required to do so prior to the Closing.
In the event that an officer or director
of the Company is sued in connection
with this Transaction in his capacity as
a shareholder, the Company would
continue to indemnify such officer or
director after the Closing.
Exhibit 99.2
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Contact: Investor Relations: Cheryl Schneider / Shannon Moody / Kiron Bloom
Press: Michael McMullan
Morgen-Walke Associates
212-850-5600
HAPPY KIDS INC. ANNOUNCES PROPOSAL FROM H.I.G. CAPITAL, L.L.C.
New York, NY (July 12, 1999). Happy Kids Inc., a New York corporation (the
"Company" or "Happy Kids") (Nasdaq NM: HKID) today announced that its Board of
Directors (the "Board") received for consideration a proposal from H.I.G.
Capital, L.L.C., a private investment firm ("HIG"), to recapitalize the Company
in a going-private transaction (the "Proposal"). Pursuant to the Proposal, HIG
has offered to purchase the Company's publicly-held common stock, $0.01 par
value (the "Common Stock"), for $11.50 per share and to purchase certain of the
shares of Common Stock held by the Company's majority shareholders, consisting
of Messrs. Jack M. Benun, Mark J. Benun and Isaac Levy (the "Majority
Shareholders"). The Majority Shareholders, who currently own 74.69% of the
Company's current shares outstanding, have agreed to support the Proposal and
will maintain an active role in the future management and direction of the
Company. The Board has formed a special committee, consisting of its two
independent directors, Messrs. Marvin Azrak and Stephen I. Kahn (the "Special
Committee"), to evaluate the Proposal. The Proposal is subject to the
recommendation of the Special Committee and, if so recommended, will be
submitted to the Company's shareholders for their approval.
Happy Kids is a New York-based designer and marketer of custom-designed,
licensed and branded children's apparel. The Company's major licenses include;
"B.U.M. Equipment," "AND 1," "World Wrestling Federation," Nickelodeon's
"Rugrats," National Football League, National Basketball Association, Major
League Baseball and National Hockey League, as well as certain Warner Brothers'
properties, such as Looney Tunes, and Saban's Power Rangers, among other
licenses. Happy Kids' clothing line includes knit and woven tops, bottoms,
overalls, swimwear and outerwear, playwear and activewear for newborns, infants,
toddlers, boys and girls.
HIG, with over $500 million of capital under management, has a significant
interest in over 20 companies operating in a number of industries, with
aggregate revenues in excess of $2 billion.
Certain matters discussed in this press release are "forward-looking
statements" (statements which are not historical) made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Happy
Kids' actual results could differ materially from those expressed or indicated
by forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, dependence on license agreements,
dependence on private label relationships, dependence on contract manufactures,
reliance on key customers, dependence on access to credit facilities, risks
associated with significant growth, competition, seasonality of sales,
cyclicality and trends in the apparel industry, import restrictions and other
risks associated with international business, and other factors not within the
Company's control. Investors are cautioned that all forward-looking statements
involve risks and uncertainties, including those risks and uncertainties
detailed in the Company's filings with the Securities and Exchange Commission.
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