<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE YANKEE CANDLE COMPANY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <S> <C>
MASSACHUSETTS 5947 04 259 1416
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
102 CHRISTIAN LANE
WHATELY, MASSACHUSETTS 01093
(413) 665-8306
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
ROBERT R. SPELLMAN
THE YANKEE CANDLE COMPANY, INC.
102 CHRISTIAN LANE
WHATELY, MASSACHUSETTS 01093
(413) 665-8306
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
LOIS HERZECA, ESQ. WINTHROP B. CONRAD, JR., ESQ.
FRIED, FRANK, HARRIS, SHRIVER & DAVIS POLK & WARDWELL
JACOBSON 450 LEXINGTON AVENUE
ONE NEW YORK PLAZA NEW YORK, NEW YORK 10017
NEW YORK, NEW YORK 10004 (212) 450-4000
(212) 859-8000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE
TO BE REGISTERED OFFERING PRICE (1) AMOUNT OF REGISTRATION FEE (2)
<S> <C> <C>
Common stock, $.01 par value per share....... $200,000,000 $55,600
<FN>
(1) A portion of the proposed maximum aggregate offering price represents shares that are to be offered
outside the United States but that may be resold from time to time in the United States. Such shares
are not being registered for the purpose of sales outside the United States.
(2) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the registration fee.
</FN>
</TABLE>
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains two separate prospectuses. The first
prospectus relates to a public offering in the United States and Canada of an
aggregate of shares of common stock. The second prospectus relates
to a concurrent offering outside the United States and Canada of an aggregate of
shares of common stock. The prospectuses for each of the U.S. offering and
the international offering will be identical with the exception of an alternate
front cover page for the international offering. Such alternate page appears in
this registration statement immediately following the complete prospectus for
the U.S. offering.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE AND THE SELLING STOCKHOLDERS ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS
NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1999
SHARES
[LOGO]
THE YANKEE CANDLE COMPANY, INC.
COMMON STOCK
-----------------
THE YANKEE CANDLE COMPANY, INC. IS OFFERING SHARES AND THE SELLING
STOCKHOLDERS ARE OFFERING SHARES. THIS IS OUR INITIAL PUBLIC
OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES.
WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL
BE
BETWEEN $ AND $ PER SHARE.
-------------------
WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "YCC."
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-----------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS YANKEE CANDLE STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE....................... $ $ $ $
TOTAL........................... $ $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
OUR SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP
TO AN ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO.
INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON , 1999.
-------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
, 1999
<PAGE>
[PICTURES OF PRODUCTS]
EDGAR ARTWORK DESCRIPTIONS
Outside Pull-Out of Prospectus:
Caption: A Sampling of Yankee Candle-Registered Trademark- Product Lines
Six pictures of a full line of Yankee Candle-Registered Trademark- products
featuring the Macintosh-Registered Trademark- fragrance.
Upper left hand corner:
Caption: Experience the Fragrance
- Picture showing jar candles, scented candles in decorative glass jars of
22 oz., 14.5 oz and 3.7 oz. sizes. The picture also includes a "peel and
sniff" scent label featuring Macintosh-Registered Trademark- apple
fragrance.
Upper right hand corner:
Caption: Samplers-Registered Trademark-
Picture showing an assortment of votive candles.
Middle right:
Caption: Wax Potpourri Tarts-Registered Trademark-
- Picture showing an assortment of scented wax without wicks that releases
its fragrance when melted and warmed in a potpourri pot.
Lower left hand corner:
Caption: Scented Pillars
- Picture showing three sizes of grooved scented pillars.
Lower center:
Caption Scented Tapers
- Picture showing three sizes of scented tapers.
Lower right hand corner:
Caption: Scented Tea Lights
- Picture showing an assortment of small, colored and scented candles in
clear cups.
Inside Pull-Out of Prospectus:
Caption: Yankee Candle-Registered Trademark- Retail Locations
Top:
Caption: Flagship Store, South Deerfield, Massachusetts
- View of our flagship retail store.
Middle left
- View of retail store.
Middle right:
- View of retail store.
Bottom
Caption: Yankee Candle-Registered Trademark- Vertical Display System for
Wholesale Dealers
- View of our 12-foot hutch.
Inside Front Cover of Prospectus:
Caption: Yankee Candle-Registered Trademark- Distribution Points
- Map of distribution points, indicating (1) wholesale sites, (2) current
retail sites and (3) signed/negotiated leases for new retail sites for
1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................... 1
Risk Factors..................................... 6
Use of Proceeds.................................. 10
Dividend Policy.................................. 10
Certain Information.............................. 10
Capitalization................................... 11
Dilution......................................... 12
Selected Financial and Other Data................ 13
Unaudited Pro Forma Consolidated Condensed
Financial Statements........................... 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 19
<CAPTION>
PAGE
-----
<S> <C>
Business of Yankee Candle........................ 26
Management....................................... 36
Principal and Selling Stockholders............... 45
Description of the Credit Agreement.............. 48
Description of Capital Stock..................... 49
Shares Eligible for Future Sale.................. 52
United States Federal Tax Considerations for
Non-United States Holders...................... 53
Underwriters..................................... 57
Legal Matters.................................... 60
Experts.......................................... 61
Where You Can Find More Information.............. 61
Index to Consolidated Financial
Statements..................................... F-1
</TABLE>
-------------------
The Yankee Candle Company, Inc. was incorporated in Massachusetts in 1976.
Our principal executive offices are located at 102 Christian Lane, Whately,
Massachusetts 01093 and our telephone number at that address is (413) 665-8306.
Our World Wide Web site address is www.yankeecandle.com. The information in the
website is not incorporated by reference.
-------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We and the selling stockholders are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of common stock.
-------------------
Until , 1999, all dealers that buy, sell or trade Yankee Candle's
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This delivery requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SOME OF THE INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF INVESTING
IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS."
YANKEE CANDLE
We are the leading designer, manufacturer, wholesaler and retailer of
premium scented candles in the growing giftware industry. We have a 30-year
history of offering our distinctive products and marketing them as affordable
luxuries and consumable gifts. Our current products are available in up to 150
fragrances and include a wide variety of jar candles,
Samplers-Registered Trademark-, pillars, tapers and other candle products,
marketed primarily under our trade names Housewarmer-Registered Trademark- and
Country Kitchen-Registered Trademark-, as well as a wide range of candle
accessories.
We sell our candles through our wholesale customers who have approximately
12,000 gift store locations nationwide and through our rapidly expanding retail
base of 68 company-owned and operated stores in 23 states. Our 90,000 square
foot flagship store in South Deerfield, Massachusetts attracts an estimated 2.5
million visitors a year. We also sell our products through our direct mail
catalogs, Internet website (www.yankeecandle.com), international distributors
and our distribution center located in the United Kingdom.
We have experienced 27% annual revenue growth over the last five years and,
in 1998, our sales reached $184.5 million. We believe our strong growth is based
on the high quality of our products, the efficiency of our manufacturing
operations and the strength of our retail and wholesale sales capabilities.
Michael Kittredge founded our business in 1969 and, together with our
dedicated management team, has built Yankee Candle into a leader in the premium
scented candle market. Most of our current senior managers have been with us for
17 years. In April 1998, Yankee Candle was recapitalized and the Forstmann
Little partnerships and Yankee Candle management became the owners of a 90%
equity interest. Since the 1998 recapitalization, we have reinvested our capital
to actively pursue our wholesale and retail growth strategies. To facilitate
this growth, we have added several key employees, expanded our production
capacity, upgraded our warehouse management and information systems, and opened
our distribution center in the United Kingdom.
INDUSTRY OVERVIEW
We operate in the rapidly growing scented candle segment of the giftware
industry. Independent industry sources estimate that:
- the domestic giftware industry has grown 12% per year since the early
1990's to reach $47 billion in 1997,
- the domestic market for candles has grown 10 to 15% per year since the
early 1990's to reach $2.1 billion in 1998, and
- the scented candle segment, in which we compete, represents the fastest
growing part of the candle and home fragrancing industry.
The scented candle market is expected to continue to grow based on favorable
consumer trends including increased purchases for home decor and gifts and the
year-round usage of scented candles as an affordable luxury.
1
<PAGE>
OUR COMPETITIVE STRENGTHS
WE HAVE A STRONG BRAND IDENTITY AS THE LEADING PREMIUM CANDLE COMPANY WITH A
LOYAL CUSTOMER BASE. Since 1993 we have consistently been ranked number one in
sales in the domestic candle category and in the top two for product re-orders
across all giftware categories by GiftBeat, a giftware industry newsletter. We
also had 74% of our retail customers rank us as better than other candle brands
according to Unity Marketing.
WE HAVE A WELL-ESTABLISHED, NATIONAL WHOLESALE CUSTOMER BASE. Our brand
name, the popularity and profitability of our merchandise and our successful
product display system have made us the top-selling product for many of our
wholesale customers, 65% of whom have been our customers for over five years.
WE HAVE A DEMONSTRATED ABILITY TO CARRY OUT OUR RETAIL EXPANSION. Our strong
wholesale presence and nationally recognized brand have enabled us to
successfully roll-out our retail stores. All but one of our retail stores have
been profitable beginning in their first year of operation. As of April 10,
1999, we had 68 retail stores in 23 states. Since 1996 we have experienced 38%
annual growth in retail sales and comparable store growth of over 16%.
WE DESIGN, MANUFACTURE AND DISTRIBUTE OUR OWN PRODUCTS. This enables us to
ensure the highest quality products, prompt delivery to our wholesale customers
and retail stores and high margins, all of which give us a significant advantage
over our competitors.
OUR CHAIRMAN AND SENIOR MANAGEMENT HAVE A COMBINED 80 YEARS OF EXPERIENCE IN
THE CANDLE INDUSTRY AND OVER 90 YEARS OF EXPERIENCE IN THE RETAIL SECTOR. Three
of our top four executives have each been with Yankee Candle for 17 years and
many of our key managers in manufacturing, site selection and product
development have tenures of over 15 years with our company.
OUR GROWTH STRATEGY
WE PLAN TO RAPIDLY EXPAND OUR RETAIL STORE BASE. To date, we have opened six
stores in 1999 and we plan to open approximately 34 additional stores by the end
of the year. We believe that the transferability of our retailing format, our
proven record of successfully opening new stores, our continuing investment in
training and management information systems and our focus on high visibility
retail locations in premium malls all contribute to our ability to rapidly and
successfully expand our retail stores.
WE PLAN TO CONTINUE TO GROW OUR SALES THROUGH OUR WHOLESALE DISTRIBUTION
CHANNEL. We are committed to continuing to grow our wholesale business, which
grew by over 22% annually over the last three years. We plan to add new
locations, increase the average order size and re-order frequency of our
existing customers and invest significant capital in new promotional programs,
improved telemarketing systems and enhanced customer service.
WE PLAN TO EXPAND OUR INTERNATIONAL SALES. We currently sell our products
through international distributors and, in June 1998, we established our own
European wholesale subsidiary in order to take advantage of the growing European
candle market.
WE PLAN TO EXPAND OUR DIRECT MAIL CATALOG AND INTERNET OPERATIONS. We expect
our sales to grow through our direct mail catalog and Internet website as a
result of demographic and lifestyle changes in the consumer population.
WE PLAN TO CONTINUE TO INTRODUCE NEW PRODUCTS. As a product and market
innovator in the premium scented candle segment of the giftware industry, we
maintain a strong in-house product design and development team and plan to
introduce 12 new fragrances and several new candle lines in 1999.
THE 1998 RECAPITALIZATION AND THE REORGANIZATION IN CONNECTION WITH THIS
OFFERING
In April 1998, we completed a recapitalization of Yankee Candle. As a result
of the 1998 recapitalization and a reorganization occurring in connection with
this offering, two partnerships affiliated with Forstmann Little & Co. will own
approximately % of our common stock and directors, officers and employees of
Yankee Candle, including Michael Kittredge, will own the balance immediately
prior to the closing of this offering. After giving effect to this offering, the
Forstmann Little partnerships will own % of our common stock and the other
existing stockholders will own %.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by:
Yankee Candle................. shares
The selling stockholders...... shares
-------
Total....................... shares
-------
-------
Common stock to be outstanding
after the offering............ shares
Use of proceeds................. The net proceeds to Yankee Candle from the offering are
estimated to be approximately $ million. We will use the
net proceeds from the offering, together with proceeds of
$220 million from a new credit facility and available cash,
to redeem $320 million aggregate principal amount of Yankee
Candle's outstanding subordinated debentures.
Proposed NYSE symbol............ YCC
</TABLE>
-------------------
Unless we specifically state otherwise, the information in this prospectus
does not take into account the sale of up to shares of common stock which
the underwriters have the option to purchase from the selling stockholders to
cover over-allotments.
The number of shares of our common stock that will be outstanding
immediately after the offering listed above includes shares of common
stock ( shares if the over-allotment option is exercised) which are
expected to be issued in connection with the offering upon exercise of
outstanding stock options and which shares will be sold in the offering. The
number does not include shares issuable upon the exercise of additional
outstanding stock options at March 31, 1999, with a weighted average exercise
price of $ .
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
Before the recapitalization on April 27, 1998, Yankee Candle was an S
Corporation for federal and state income tax purposes. As a result, our taxable
earnings were taxed directly to our then existing sole stockholder. Since the
1998 recapitalization, Yankee Candle has been a C Corporation subject to federal
and state income taxes.
The data set forth for the following items assumes that Yankee Candle was
subject to federal and state income taxes and was taxed as a C Corporation at
the effective tax rates that would have applied for all periods:
- pro forma provision (benefit) for income taxes,
- pro forma net income (loss), and
- pro forma earnings per share (basic and diluted).
Pro forma statement of operations data, as adjusted for the 1998
recapitalization, the refinancing of the subordinated debentures and the
offering, also gives effect to the 1998 recapitalization, the refinancing and
the offering as if they had occurred on January 1, 1998. The balance sheet data,
as adjusted for the refinancing and the offering, gives effect to the
refinancing and the offering as if they had occurred on December 31, 1998.
The pro forma basic earnings per common share is calculated based on
weighted-average common shares outstanding of for the two years
ended December 31, 1996 and 1997 and for the year ended December 31,
1998. Pro forma diluted earnings per common share is calculated based on
weighted-average diluted shares outstanding of for the two years
ended December 31, 1996 and 1997 and for the year ended December 31,
1998. Pro forma basic and diluted earnings per common share, as adjusted for the
1998 recapitalization, the refinancing and the offering are calculated based on
weighted-average basic and diluted shares outstanding of and ,
respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................................ $ 112,199 $ 144,103 $ 184,477
Cost of goods sold............................................... 53,207 62,069 79,105
--------- --------- ---------
Gross profit..................................................... 58,992 82,034 105,372
Selling expenses................................................. 23,244 26,935 30,546
General and administrative expenses.............................. 21,687 27,031 19,753
Bonus related to the 1998 recapitalization....................... -- -- 61,263
--------- --------- ---------
Income (loss) from operations.................................... 14,061 28,068 (6,190)
Interest income.................................................. (165) (151) (219)
Interest expense................................................. 1,913 2,154 16,268
Other (income) expense........................................... 221 334 737
--------- --------- ---------
Income (loss) before provision for income taxes.................. 12,092 25,731 (22,976)
Provision for income taxes....................................... 410 1,360 9,656
--------- --------- ---------
Net income (loss)................................................ $ 11,682 $ 24,371 $ (32,632)
--------- --------- ---------
--------- --------- ---------
Pro forma provision (benefit) for income taxes................... 4,830 10,686 (8,731)
--------- --------- ---------
Pro forma net income (loss)...................................... $ 7,262 $ 15,045 $ (14,245)
--------- --------- ---------
--------- --------- ---------
Pro forma basic earnings per share...............................
Pro forma diluted earnings per share.............................
PRO FORMA STATEMENT OF OPERATIONS DATA, AS ADJUSTED FOR THE
1998 RECAPITALIZATION, THE REFINANCING AND THE OFFERING:
Net income....................................................... $ 23,551
Interest expense................................................. 16,569
Basic earnings per common share..................................
Diluted earnings per common share................................
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OTHER DATA:
Number of retail stores (at period end)..................................... 34 47 62
Comparable store growth..................................................... 18.4% 16.4% 16.5%
Gross profit margin......................................................... 52.6% 56.9% 57.1%
Adjusted EBITDA margin(1)(2)(3)............................................. 24.5% 29.2% 32.1%
Depreciation and amortization............................................... $ 3,094 $ 3,581 $ 4,662
Capital expenditures........................................................ 10,076 9,173 9,433
CASH FLOW DATA:
EBITDA(1)................................................................... $ 16,934 $ 31,315 $ (2,865)
Adjusted EBITDA(2).......................................................... 27,439 42,127 59,251
Net cash flows from operating activities.................................... 17,230 30,035 (11,578)
Net cash flows from investing activities.................................... (10,987) (9,961) (9,305)
Net cash flows from financing activities.................................... (9,112) (13,541) 43,917
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
<S> <C> <C> <C> <C>
1998
AS ADJUSTED FOR
1998 THE REFINANCING
1996 1997 ACTUAL AND THE OFFERING
--------- --------- --------- ------------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 844 $ 7,377 $ 30,411 $ 17,411
Working capital (excluding cash and cash
equivalents)........................................ 1,817 (12,487) 493 2,587
Total assets.......................................... 59,550 73,096 275,345 263,929
Total debt............................................ 12,045 25,264 320,000 220,000
Total stockholders' equity (deficit).................. 37,180 34,791 (68,591) 19,993
- ------------------------------
<FN>
(1) EBITDA represents earnings before interest, income taxes, depreciation and amortization. For this
purpose, amortization does not include amortization of deferred financing costs of $600 in 1998, which
amount is included in interest expense. EBITDA is presented because it is a widely accepted financial
indicator used by certain investors and analysts to analyze and compare companies on the basis of
operating performance. EBITDA as presented may not be comparable to similarly titled measures reported
by other companies since not all companies necessarily calculate EBITDA in an identical manner and
therefore is not necessarily an accurate means of comparison between companies. EBITDA is not intended
to represent cash flows for the period or funds available for management's discretionary use nor has
it been represented as an alternative to operating income as an indicator of operating performance and
should not be considered in isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(2) Adjusted EBITDA reflects adjustments to eliminate (a) the bonus of $61,263 in 1998 related to the 1998
recapitalization, (b) other (income) expense, (c) non-cash stock based compensation, and (d)
compensation and benefits, net of current annual compensation and benefits of $350, paid to the former
sole stockholder of the S Corporation of $10,284 and $10,478 for 1996 and 1997, respectively. The
comparable amounts for 1994 and 1995 of $8,342 and $7,144 are not reflected above but are included in
the adjusted EBITDA calculation in "Selected Financial and Other Data." Adjusted EBITDA does not
reflect adjustments to eliminate commissions paid through March 1998 to independent manufacturer
representatives, which were replaced by a direct sales force. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for further discussion.
(3) Adjusted EBITDA margin reflects adjusted EBITDA as a percentage of net sales.
</FN>
</TABLE>
5
<PAGE>
RISK FACTORS
INVESTING IN OUR COMMON STOCK WILL PROVIDE YOU WITH AN EQUITY OWNERSHIP
INTEREST IN YANKEE CANDLE. AS A STOCKHOLDER OF YANKEE CANDLE, YOU MAY BE EXPOSED
TO RISKS INHERENT IN OUR BUSINESS AND TO GENERAL ECONOMIC AND MARKET CONDITIONS.
THE VALUE OF YOUR INVESTMENT MAY INCREASE OR DECREASE. YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING FACTORS AS WELL AS OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS BEFORE DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK.
WE MAY NOT BE ABLE TO GROW OUR BUSINESS AS PLANNED.
We intend to continue to pursue a business strategy of increasing sales and
earnings by expanding our retail and wholesale operations both in the United
States and internationally. Our retail growth strategy depends in large part on
our ability to open new stores in both existing and new geographic markets.
Since we are planning to open more stores each year than we have in the past, we
may not be able to achieve our planned growth or sustain our financial
performance. Our ability to implement our growth strategy successfully will also
be dependent in part on factors beyond our control, including changes in
consumer preferences and in our competitive environment. Our ability to
anticipate changes in the candle and giftware industries, and identify industry
trends will be critical factors in our ability to remain competitive.
We expect that, as we grow, it will become more difficult to maintain our
growth rate. We cannot assure you that we will continue to grow at a rate
comparable to our historic growth rate or that our historic financial
performance will continue as we grow.
WE FACE SIGNIFICANT COMPETITION IN THE GIFTWARE INDUSTRY, WHICH COULD ADVERSELY
IMPACT US.
We compete generally for the disposable income of consumers with other
producers in the $47 billion giftware industry. The giftware industry is highly
competitive with a large number of both large and small participants. Our
products compete with other scented and unscented candle products and with other
gifts within a comparable price range, like boxes of candy, flowers, wine, fine
soap and related merchandise. Our retail stores compete with franchised candle
store chains, specialty candle stores and gift and houseware retailers. Some of
our competitors are part of large, diversified companies which have greater
financial resources and a wider range of product offerings than we do.
OUR SUCCESS DEPENDS ON OUR SENIOR EXECUTIVE OFFICERS, THE LOSS OF WHOM COULD
DISRUPT OUR BUSINESS.
Our success is substantially dependent upon the retention of our senior
executive officers. We do not have employment agreements with any of our senior
executive officers, except our Chief Financial Officer. If our senior executive
officers become unable or unwilling to participate in the business of Yankee
Candle, our future business and financial performance could be materially
affected.
BECAUSE WE ARE NOT A DIVERSIFIED COMPANY AND ARE DEPENDENT UPON ONE INDUSTRY, WE
HAVE LESS FLEXIBILITY IN REACTING TO UNFAVORABLE CONSUMER TRENDS, ADVERSE
ECONOMIC CONDITIONS OR BUSINESS CYCLES.
THE LOSS OF OUR MANUFACTURING FACILITY WOULD DISRUPT OUR OPERATIONS.
We rely exclusively on our manufacturing facility in Whately, Massachusetts
to produce our candle products. Because most of our machinery is designed or
customized by us to manufacture our products and because we have strict quality
control standards for our products, the loss of our manufacturing facility, due
to natural disaster or otherwise, would materially affect our operations.
6
<PAGE>
WE MAY EXPERIENCE A DECLINE IN OUR RETAIL COMPARABLE STORE SALES, WHICH COULD
CAUSE THE PRICE OF OUR COMMON STOCK TO DROP.
Our comparable store sales from our retail business have contributed
significantly to our overall sales growth. Our retail comparable store sales
could be adversely impacted by competition or our inability to execute our
business strategy. If our retail comparable store sales declined for any reason,
we could experience a loss in our revenues and income, which could lower the
price of our common stock.
SEASONAL AND QUARTERLY FLUCTUATIONS IN OUR BUSINESS COULD AFFECT THE MARKET FOR
OUR COMMON STOCK.
Our revenues and operating results vary from quarter to quarter. We have
historically realized higher revenues and operating income in our fourth
quarter, particularly in our retail business which is becoming a larger portion
of our sales. We believe that this has been due primarily to an increase in
giftware industry sales during the holiday season of the fourth quarter. As a
result of this seasonality, we believe that quarter to quarter comparisons of
our operating results are not necessarily meaningful and that these comparisons
cannot be relied upon as indicators of future performance. In addition, we may
also experience quarterly fluctuations in our revenues and income depending on
how many new retail stores we open in a particular quarter. These quarterly
fluctuations that we may report in the future may not match the expectations of
market analysts and investors. This could cause the trading price of our common
stock to fluctuate.
WE ARE CONTROLLED BY FORSTMANN LITTLE AND OUR MANAGEMENT, WHOSE INTERESTS MAY
CONFLICT WITH THOSE OF OTHER STOCKHOLDERS.
Following the offering, the Forstmann Little partnerships and our management
will together own approximately % of our outstanding common stock on a fully
diluted basis and will continue to control us. Accordingly, they will be able
to:
- elect our entire board of directors,
- control our management and policies, and
- determine, without the consent of our other stockholders, the outcome of
any corporate transaction or other matter submitted to our stockholders
for approval, including mergers, consolidations and the sale of all or
substantially all of our assets.
They will also be able to prevent or cause a change in control of Yankee
Candle and will be able to amend our Articles of Organization and By-Laws at any
time. The interests of the Forstmann Little partnerships and our management also
may conflict with the interests of the other holders of common stock.
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY AFTER THE OFFERING AND YOU COULD
LOSE A SIGNIFICANT PART OF YOUR INVESTMENT AS A RESULT.
Prior to this offering, there has been no public market for our common
stock. We intend to list our common stock on the NYSE. We do not know how the
common stock will trade in the future. The initial public offering price will be
determined through negotiations among the underwriters, the selling stockholders
and us. You may not be able to resell your shares at or above the initial public
offering price due to fluctuations in the market price of our common stock.
These fluctuations may result from a number of factors, including:
- the perceived prospects of Yankee Candle,
- changes in our operating results,
- differences between our actual financial and operating results and those
expected by investors and research analysts,
7
<PAGE>
- changes in research analysts' recommendations or projections, and
- changes in market conditions of the candle and giftware industries.
In addition, the stock market in general has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These broad market and industry fluctuations may adversely affect the
trading price of our common stock, regardless of our actual operating
performance.
EXISTING STOCKHOLDERS MAY SELL THEIR COMMON STOCK, WHICH COULD ADVERSELY AFFECT
THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of common stock into the public
market after this offering, or the perception that these sales could occur,
could materially and adversely affect our stock price. As of March 31, 1999,
there were shares of common stock outstanding, excluding shares to be sold
in this offering. After the offering, persons who currently hold common stock
will be entitled to register their common stock under the Securities Act of 1933
at our expense. These shares may also be sold under Rule 144 of the Securities
Act, depending on the holding period of such securities and subject to
significant restrictions in the case of shares held by persons deemed to be
affiliates of Yankee Candle.
PROVISIONS IN OUR CORPORATE DOCUMENTS AND MASSACHUSETTS LAW COULD DELAY OR
PREVENT A CHANGE IN CONTROL OF YANKEE CANDLE.
Certain provisions of our Articles of Organization and By-Laws may
discourage, delay or prevent a merger or acquisition involving Yankee Candle
that our stockholders may consider favorable. These provisions include:
- authorizing the issuance of preferred stock, the terms of which may be
determined at the sole discretion of the board of directors,
- providing for a classified board of directors, with staggered three-year
terms, and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at meetings.
Certain provisions of Massachusetts law may also discourage, delay or
prevent someone from acquiring or merging with us. For a description of these
provisions you should read "Description of Capital Stock."
YEAR 2000 FAILURES MAY ADVERSELY IMPACT OUR OPERATIONS.
Our business could be adversely affected by information technology issues
related to the Year 2000. The Year 2000 issue is a broad business issue, whose
impact extends beyond traditional computer hardware and software to possible
failure of our plant systems, as well as to third parties. If any of our systems
are not Year 2000 compliant or if our customers or suppliers fail to achieve
Year 2000 compliance, we may experience the following adverse consequences:
- our customers may be unable to place orders with us due either to our
system failures or to those of our customers,
- we may be unable to bill our customers and maintain adequate production
scheduling, inventory cost accounting and other elements of our business
that are dependent upon computer systems, and
- we may be unable to deliver our products on a timely basis.
8
<PAGE>
The ability of third parties with whom we do business to address adequately
their Year 2000 issues is outside our control. For a description of our Year
2000 compliance efforts you should read "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance."
PURCHASERS OF OUR COMMON STOCK WILL EXPERIENCE SUBSTANTIAL DILUTION IN THE NET
TANGIBLE BOOK VALUE PER SHARE OF THEIR INVESTMENT.
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS WHICH COULD DIFFER FROM
ACTUAL FUTURE RESULTS.
Some of the matters discussed in this prospectus include forward-looking
statements. Statements that are predictive in nature, that depend upon or refer
to future events or conditions or that include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates," "thinks" and similar
expressions are forward-looking statements. These statements involve known and
unknown risks, uncertainties and other factors, including the factors described
above, that may cause our actual results and performance to be materially
different from any future results or performance expressed or implied by these
forward-looking statements. Although we believe that these statements are based
upon reasonable assumptions, we cannot assure you that our goals will be
achieved. These forward-looking statements are made as of the date of this
prospectus, and we assume no obligation to update or revise them or provide
reasons why actual results may differ.
9
<PAGE>
USE OF PROCEEDS
The net proceeds to Yankee Candle from the sale of the shares of
common stock offered, after deducting estimated expenses of $ and
underwriting discounts and commissions, are estimated to be approximately
$ million. We will use these net proceeds, together with $220 million of
bank borrowings under a new credit facility and available cash, to redeem $320
million aggregate principal amount of Yankee Candle's outstanding subordinated
debentures evidenced by its 6 3/4% Series A Debentures due May 31, 2009, 6 3/4%
Series B Debentures due May 31, 2010 and 6 3/4% Series C Debentures due May 31,
2011. After the application of the net proceeds of the offering and additional
bank borrowings, none of these debentures will remain outstanding. The
indebtedness under the debentures was incurred in connection with the 1998
recapitalization to redeem common stock of Yankee Candle, repay existing
indebtedness, pay bonuses related to the 1998 recapitalization and pay
transaction fees and expenses. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Management--Relationships
and Transactions with Yankee Candle."
Yankee Candle will not receive any proceeds from the sale of common stock in
the offering by the selling stockholders. In connection with the offering,
certain directors, officers and employees of Yankee Candle are expected to
exercise stock options to purchase, in the aggregate, approximately shares of
common stock from Yankee Candle for an aggregate exercise price of approximately
$ . All of those shares are expected to be sold by selling stockholders in
the offering.
DIVIDEND POLICY
Yankee Candle does not intend to pay any cash dividends in the foreseeable
future but instead intends to retain earnings, if any, for the future operation
and expansion of the business. Any determination to pay dividends in the future
will be at the discretion of the board of directors and will be dependent upon
results of operations, financial condition, contractual restrictions,
restrictions imposed by applicable law and other factors deemed relevant by the
board of directors. In addition, Yankee Candle's new credit agreement will
contain limitations on its ability to declare or pay cash dividends on the
common stock. See "Description of the Credit Agreement." Future indebtedness may
also prohibit or restrict Yankee Candle's ability to pay dividends and make
distributions to stockholders.
CERTAIN INFORMATION
All information in this prospectus relating to the number of shares of our
common stock or options is based upon information as of March 31, 1999, as
adjusted to reflect a reorganization in connection with this offering as
described in "Description of Capital Stock." Unless otherwise specifically
stated, all information in this prospectus assumes the issuance and sale of
common stock in the offering at $ per share, the mid-point of the
range of the initial public offering prices on the cover page of this
prospectus.
This prospectus includes statistical data regarding the candle and giftware
industries which was obtained from industry publications, including reports
generated by Unity Marketing, Kline & Company, Inc. and GiftBeat. These industry
organizations generally indicate that they have obtained information from
sources believed to be reliable, but do not guarantee the accuracy and
completeness of their information. While we believe these industry publications
to be reliable, we have not independently verified their data.
As used in this prospectus, (a) the term "comparable store growth" means the
growth in sales, expressed as a percentage, on a year-to-year basis for our
retail stores (excluding our flagship South Deerfield store) which have been
open for at least a full year and (b) the term "sales per square foot" is based
on the net sales and total gross square footage of our stores open for at least
a full year.
10
<PAGE>
CAPITALIZATION
The following table sets forth our pro forma debt and capitalization as of
December 31, 1998, and as adjusted to give effect to the refinancing and this
offering.
<TABLE>
<CAPTION>
AS ADJUSTED FOR
THE REFINANCING
ACTUAL AND THE OFFERING
----------- -------------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Long-term debt:
6 3/4% subordinated debentures.......................................... $ 320,000 $ --
Term loan............................................................... -- 150,000
Revolving credit loan................................................... -- 70,000
----------- ----------
Total long-term debt.................................................. 320,000 220,000
----------- ----------
----------- ----------
Stockholders' equity (deficit):
Common stock, $.01 par value per share, 1,000 shares authorized and
issued, 500 shares outstanding, actual; issued and outstanding, pro
forma................................................................. -- --
Additional paid-in capital.............................................. 127,590 219,590
Treasury stock.......................................................... (212,448) (212,448)
Retained earnings....................................................... 19,048 15,632
Capital subscription receivable......................................... (1,084) (1,084)
Unearned stock compensation............................................. (1,698) (1,698)
Accumulated other comprehensive income.................................. 1 1
----------- ----------
Total stockholders' equity (deficit).................................. (68,591) 19,993
----------- ----------
----------- ----------
Total capitalization.................................................. $ 251,409 $ 239,993
----------- ----------
----------- ----------
</TABLE>
11
<PAGE>
DILUTION
At December 31, 1998, we had a pro forma net tangible book deficit of
$ million or $ per share of common stock. Pro forma net tangible book
value per share is determined by dividing our tangible net book value (total
tangible assets less total liabilities) by the total number of shares of common
stock outstanding. After giving effect to the sale of the shares of common
stock offered by us hereby, at $ , the mid-point of the range of the
initial public offering prices set forth on the cover page of this prospectus,
and after deducting estimated underwriting discounts and commissions and
offering expenses payable by us, our adjusted net tangible book value would have
been approximately $ , or $ per share of common stock. This represents
an immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors
purchasing shares of common stock in the offering. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Pro forma net tangible book deficit per share
before the offering.............................. $
Increase in pro forma net tangible book value per
share attributable to new investors..............
---------
Pro forma net tangible book value per share after the
offering......................................................
---------
Dilution per share to new investors............................. $
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1998, the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid by our existing
stockholders and to be paid by new investors in the offering at $ , the
mid-point of the range of the initial public offering prices set forth on the
cover page of this prospectus, and before deduction of estimated underwriting
discounts and commissions and offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................................. % $ % $
New investors.......................................... % %
---------- ----- ------------ -----
Total............................................ % $ %
---------- ----- ------------ -----
---------- ----- ------------ -----
- ------------------------
<FN>
(1) Does not reflect the sale of shares of common stock by the selling stockholders in the offering.
</FN>
</TABLE>
This table assumes the sale of shares of common stock by Yankee Candle
to certain of the selling stockholders pursuant to existing option agreements
for an aggregate option exercise price of $ .
Sales by the selling stockholders in the offering will reduce the number of
shares of common stock held by existing stockholders to or approximately
% of the total number of shares of common stock outstanding after the offering
and will increase the number of shares of common stock held by new investors to
or approximately % of the total number of shares of common stock
outstanding after the offering.
12
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
You should read the selected historical financial and other data below in
conjunction with the "Consolidated Financial Statements" and the "Unaudited Pro
Forma Consolidated Condensed Financial Statements" and the accompanying notes to
each. You should also read "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The historical financial data as of
December 31, 1997 and 1998 and for the years ended December 31, 1996, 1997 and
1998 have been derived from the audited consolidated financial statements and
the accompanying notes included elsewhere in this prospectus. The historical
financial data as of December 31, 1994, 1995 and 1996 and for the years ended
December 31, 1995 and 1994 have been derived from audited financial statements
for such period, which are not contained in this prospectus.
Before the recapitalization on April 27, 1998, Yankee Candle was an S
Corporation for federal and state income tax purposes. As a result, our taxable
earnings were taxed directly to our then existing sole stockholder. Since the
1998 recapitalization, Yankee Candle has been a C Corporation subject to federal
and state income taxes.
The data set forth for the following items assumes that Yankee Candle was
subject to federal and state income taxes and was taxed as a C Corporation at
the effective tax rates that would have applied for all periods:
- pro forma provision (benefit) for income taxes,
- pro forma net income (loss), and
- pro forma earnings per share (basic and diluted).
The pro forma basic earnings per common share is calculated based on
weighted-average common shares outstanding of for the four years ended
December 31, 1997 and for the year ended December 31, 1998. Pro
forma diluted earnings per common share is calculated based on weighted-average
diluted shares outstanding of for the four years ended December 31, 1997
and for the year ended December 31, 1998.
EBITDA, adjusted EBITDA and adjusted EBITDA margin are defined in footnotes
(1), (2) and (3) to "Summary Consolidated Financial and Other Data."
13
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 69,848 $ 94,777 $ 112,199 $ 144,103 $ 184,477
Cost of goods sold.................................... 32,758 45,724 53,207 62,069 79,105
--------- --------- --------- --------- ---------
Gross profit.......................................... 37,090 49,053 58,992 82,034 105,372
Selling expenses...................................... 14,227 19,789 23,244 26,935 30,546
General and administrative expenses................... 15,165 15,450 21,687 27,031 19,753
Bonus related to the 1998 recapitalization............ -- -- -- -- 61,263
--------- --------- --------- --------- ---------
Income (loss) from operations......................... 7,698 13,814 14,061 28,068 (6,190)
Interest income....................................... (43) (49) (165) (151) (219)
Interest expense...................................... 818 1,824 1,913 2,154 16,268
Other (income) expense................................ (46) 1,168 221 334 737
--------- --------- --------- --------- ---------
Income (loss) before provision for income taxes....... 6,969 10,871 12,092 25,731 (22,976)
Provision for income taxes............................ 190 316 410 1,360 9,656
--------- --------- --------- --------- ---------
Net income (loss)..................................... $ 6,779 $ 10,555 $ 11,682 $ 24,371 $ (32,632)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma provision (benefit) for income taxes........ 2,411 4,115 4,830 10,686 (8,731)
--------- --------- --------- --------- ---------
Pro forma net income (loss)........................... $ 4,558 $ 6,756 $ 7,262 $ 15,045 $ (14,245)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma basic earnings per share....................
Pro forma diluted earnings per share..................
OTHER DATA:
Number of retail stores (at period end)............... 14 26 34 47 62
Gross profit margin................................... 53.1% 51.8% 52.6% 56.9% 57.1%
Adjusted EBITDA margin................................ 24.7% 24.4% 24.5% 29.2% 32.1%
Depreciation and amortization......................... $ 1,195 $ 2,186 $ 3,094 $ 3,581 $ 4,662
Capital expenditures.................................. 13,585 10,845 10,076 9,173 9,433
CASH FLOW DATA:
EBITDA................................................ $ 8,939 $ 14,832 $ 16,934 $ 31,315 $ (2,865)
Adjusted EBITDA....................................... 17,235 23,144 27,439 42,127 59,251
Net cash flows from operating activities.............. 7,664 9,298 17,230 30,035 (11,578)
Net cash flows from investing activities.............. (13,285) (11,214) (10,987) (9,961) (9,305)
Net cash flows from financing activities.............. 2,985 3,944 (9,112) (13,541) 43,917
BALANCE SHEET DATA (AS OF END OF YEAR):
Cash and cash equivalents............................. $ 1,684 $ 3,713 $ 844 $ 7,377 $ 30,411
Working capital (excluding cash and cash
equivalents)........................................ 3,247 4,977 1,817 (12,487) 493
Total assets.......................................... 38,932 56,397 59,550 73,096 275,345
Total debt............................................ 11,441 18,018 12,045 25,264 320,000
Total stockholders' equity (deficit).................. 19,545 28,623 37,180 34,791 (68,591)
</TABLE>
14
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed financial
statements have been derived by the application of pro forma adjustments to our
historical consolidated financial statements included elsewhere in this
prospectus. The unaudited pro forma consolidated condensed statement of
operations for the year ended December 31, 1998 gives effect to the 1998
recapitalization, the refinancing and the offering as if such transactions were
consummated on January 1, 1998. The unaudited pro forma consolidated condensed
balance sheet as of December 31, 1998 gives effect to the refinancing and the
offering as if such transactions had occurred on December 31, 1998. The pro
forma adjustments are described in the accompanying notes to the unaudited pro
forma consolidated condensed balance sheet and to the unaudited pro forma
consolidated condensed statement of operations.
The unaudited pro forma consolidated condensed financial statements should
not be considered indicative of actual results that would have been achieved had
the 1998 recapitalization, the refinancing and the offering been consummated on
the dates or for the period indicated and do not purport to indicate balance
sheet data or results of operations as of any future date or for any future
period. The unaudited pro forma consolidated condensed financial statements
should be read in conjunction with our historical consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE 1998
RECAPITALIZATION,
THE REFINANCING
ACTUAL AND THE OFFERING PRO FORMA
----------- ------------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales.......................................................... $ 184,477 $ 184,477
Cost of sales...................................................... 79,105 79,105
----------- -----------
Gross profit....................................................... 105,372 105,372
Operating Expenses:
Selling expenses................................................... 30,546 30,546
General and administrative expenses................................ 19,753 19,753
Bonus related to the recapitalization.............................. 61,263 (61,263) (1) --
----------- ------- -----------
Income (loss) from operations...................................... (6,190) 55,073
Other (income) expense:
Interest income.................................................... (219) (219)
Interest expense................................................... 16,268 301(2) 16,569
Other expense...................................................... 737 737
----------- ------- -----------
Income (loss) before provision for income taxes.................... (22,976) 37,986
Pro forma provision (benefit) for income taxes..................... (8,731) 23,166(3) 14,435
----------- -----------
Pro forma net income (loss)........................................ $ (14,245) $ 23,551(4)
----------- -----------
----------- -----------
Pro forma basic earnings (loss) per common share................... $ $
Pro forma diluted earnings (loss) per common share................. $ $
Weighted average basic shares outstanding..........................
Weighted average diluted shares outstanding........................
</TABLE>
The pro forma financial data shown above have been derived by the
application of pro forma adjustments to Yankee Candle's historical consolidated
statement of operations for the year ended
15
<PAGE>
December 31, 1998. Our pro forma presentation reflects the 1998
recapitalization, the concurrent conversion of Yankee Candle from an S
Corporation to a C Corporation for federal income tax purposes, the refinancing
of the subordinated debentures and the offering. Such adjustments have been
applied to derive the pro forma consolidated statement of operations as if such
transactions had occurred on January 1, 1998 and include only those adjustments
that were or are directly attributable to the transactions and that are
anticipated to have a continuing impact. Material non-recurring charges that
resulted directly from the 1998 recapitalization and the refinancing have been
excluded from the pro forma presentation.
<TABLE>
<S> <C> <C> <C>
<FN>
(1) To eliminate the bonus related to the 1998 recapitalizaton........................ $(61,263)
---------
---------
(2) To adjust interest expense to reflect the following:
(a) Interest expense on the 6 3/4% subordinated debentures; no such
interest expense has been included, giving effect to the repayment of
the 6 3/4% subordinated debentures with the proceeds from the
refinancing and the offering........................................... $ 0
(b) Interest expense on the $150,000 term loan and $70,000 revolving credit
loan under the new credit facility, as if the refinancing had occurred
on January 1, 1998, at an assumed weighted average interest rate of
6.6%................................................................... 14,520
(c) Interest expense on working capital borrowings......................... 569
(d) Amortization of deferred financing costs giving effect to the 1998
recapitalization and the refinancing as if they had occurred on January
1, 1998................................................................ 1,209
(e) Facility fee on the new credit facility................................ 271
---------
Pro forma interest expense............................................. 16,569
Historical interest expense (including interest on the 6 3/4%
subordinated debentures and amortization of deferred financing
costs)................................................................. (16,268)
---------
Total adjustment....................................................... $ 301
---------
---------
A 0.125% increase or decrease in the assumed weighted average interest
rate with respect to the new credit facility would change pro forma
interest expense by $275. Pro forma net income would change by $171.
(3) To adjust the pro forma provision for income taxes for the tax effect of the
above-noted pro forma adjustments, which aggregated $60,962, at the 38% effective
marginal income tax rate in effect for 1998....................................... $ 23,166
(4) Pro forma net income (loss) does not include an extraordinary loss of
approximately $3,416 ($5,510 non-cash charge less the associated income tax
benefit of $2,094) resulting from the write-off of deferred financing costs
related to the 6 3/4% subordinated debentures. This amount will be charged to
earnings in the quarter in which the 6 3/4% subordinated debentures are repaid.
</FN>
</TABLE>
16
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR
THE REFINANCING
AND THE
ACTUAL OFFERING PRO FORMA
-------- --------------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents................................................ $ 30,411 $(13,000)(1) $ 17,411
Accounts receivable...................................................... 8,546 8,546
Inventory................................................................ 12,482 12,482
Prepaid expenses and other current assets................................ 855 855
Deferred tax assets...................................................... 1,542 2,094(5) 3,636
-------- --------------- ---------
Total current assets................................................... 53,836 (10,906) 42,930
Property, plant and equipment (net)........................................ 48,315 48,315
Marketable securities...................................................... 856 856
Classic vehicles........................................................... 874 874
Deferred financing costs................................................... 6,566 (510)(2) 6,056
Deferred tax assets........................................................ 164,474 164,474
Other assets............................................................... 424 -- 424
-------- --------------- ---------
Total assets........................................................... $275,345 $(11,416) $263,929
-------- --------------- ---------
-------- --------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................................... $ 13,287 $ 13,287
Accrued interest......................................................... 1,895 1,895
Accrued payroll.......................................................... 4,768 4,768
Other accrued liabilities................................................ 2,982 2,982
-------- --------------- ---------
Total current liabilities.............................................. 22,932 22,932
Deferred compensation obligation........................................... 1,004 1,004
Subordinated debentures.................................................... 320,000 (320,000)(3) --
Term loan.................................................................. -- 150,000(3) 150,000
Revolving credit loan...................................................... -- 70,000(3) 70,000
-------- --------------- ---------
Total liabilities...................................................... 343,936 (100,000) 243,936
Stockholders' equity (deficit):
Common stock............................................................. -- -- --
Additional paid-in capital............................................... 127,590 92,000(4) 219,590
Treasury stock........................................................... (212,448) (212,448)
Retained earnings........................................................ 19,048 (3,416)(5) 15,632
Capital subscription receivable.......................................... (1,084) (1,084)
Unearned stock compensation.............................................. (1,698) -- (1,698)
Accumulated other comprehensive income................................... 1 1
-------- --------------- ---------
Total stockholders' equity (deficit)................................... (68,591) 88,584 19,993
-------- --------------- ---------
Total liabilities and stockholders' equity (deficit)................... $275,345 $(11,416) $263,929
-------- --------------- ---------
-------- --------------- ---------
The pro forma consolidated financial data shown above have been derived by the application of pro forma
adjustments to Yankee Candle's historical consolidated balance sheet as of December 31, 1998.
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C> <C>
Our pro forma presentation reflects the refinancing of the subordinated debentures and the offering. Such
adjustments have been applied to derive the pro forma consolidated balance sheet as if such transactions had
occurred on December 31, 1998 and include only those adjustments that are directly attributable to the transactions.
<FN>
(1) Sources of cash from the refinancing and the offering are as follows:
</FN>
</TABLE>
<TABLE>
<S> <C>
Sources of Funds:
Proceeds to Yankee Candle from the offering....................... $ 100,000
New borrowings in connection with the refinancing:
Term loan....................................................... 150,000
Revolving credit loan........................................... 70,000
---------
Total sources................................................. $ 320,000
---------
---------
Uses of Funds:
Repayment of 6 3/4% subordinated debentures..................... $ 320,000
Deferred financing costs........................................ 5,000
Estimated offering fees and expenses............................ 8,000
---------
Total uses.................................................... 333,000
---------
---------
Net adjustment to cash........................................ $ (13,000)
---------
---------
<FN>
(2) To reflect the write-off of $5,510 deferred financing costs associated
with the repayment of the 6 3/4% subordinated debentures and to reflect
deferred financing costs of $5,000 related to the refinancing.
(3) To reflect the repayment of the 6 3/4% subordinated debentures with the
proceeds of the refinancing and the offering.
(4) To reflect the proceeds of the offering of $92,000, net of estimated
expenses of $8,000.
(5) To reflect the extraordinary loss of approximately $3,416 ($5,510
non-cash charges less the associated income tax benefit of $2,094)
resulting from the write-off of deferred financing costs related to the
repayment of the 6 3/4% subordinated debentures.
</FN>
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We are the leading designer, manufacturer, wholesaler and retailer of
premium scented candles in the growing giftware industry. We have experienced
strong sales growth with net sales increasing to $184.5 million in 1998 from
$69.8 million in 1994, a compound annual growth rate of over 27%. The following
discussion provides further information regarding our two primary distribution
channels, performance measures and quarterly operating results.
THE WHOLESALE CHANNEL
Our wholesale distribution strategy targets small, independent,
credit-worthy gift store retailers. We distribute our products through our
extensive wholesale customer base which has approximately 12,000 gift store
locations throughout the United States. Our wholesale base is broad with no
individual buying group accounting for more than 2% of our sales. Accordingly,
there is little likelihood of a concentration of credit risk with any individual
account.
In 1997, we began our transition from a sales force of independent
manufacturer representatives to an in-house direct sales force. We completed
this process in early 1998. We believe that the conversion to an in-house sales
force has strengthened our competitive position by allowing us to communicate
directly with our customers and better serve them through enhanced inventory
management, order accuracy, response time, marketing and display programs. It
has also enabled us to reduce costs.
From 1996 to 1998, sales from our wholesale division grew from $69.3 million
to $103.3 million, a compound annual growth rate of 22%.
RETAIL STORES
Our retail stores are an important and fast growing distribution channel and
represent an increasing percentage of our total sales. We have increased our
retail locations over the past three years from 26 stores on January 1, 1996 to
62 stores on December 31, 1998, and believe that we have significant future
expansion opportunities. Prior to 1998, our store base was concentrated
primarily in the northeastern United States, and during 1998 we successfully
opened stores in eight states: Arizona, Colorado, Georgia, Florida, Kansas,
Michigan, Virginia and Texas. As of April 10, 1999, 45 of our stores were
located in malls and 23 were in non-mall locations in a total of 23 states.
Our stores, excluding the South Deerfield store, averaged 1,643 square feet
as of December 31, 1998. In 1998, our retail stores that were open for the full
year achieved average sales per square foot of over $650 and sales per selling
square foot were approximately 25% higher. Moreover, our retail stores generated
comparable store sales growth of 18.4% in 1996, 16.4% in 1997 and 16.5% in 1998.
From 1996 to 1998, sales from our retail division, which includes our retail
store, catalog and Internet operations, grew from $42.9 million to $81.2
million, a compound annual growth rate of 38%.
PERFORMANCE MEASURES
We measure the performance of our retail and wholesale segments through an
operating margin calculation, which specifically identifies not only gross
profit on the sales of products through the two channels but also costs and
expenses specifically identifiable to a given segment. Accordingly, the cost of
our in-house direct sales force (and, in the past, the cost of independent
manufacturer representatives) devoted to our wholesale channel are included in
the calculation of this channel's operating margin. In addition, the cost of
employees dedicated to retail site selection, store management, employee
training and many other retail specific activities are allocated to the retail
division.
19
<PAGE>
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
We have experienced, and may experience in the future, fluctuations in our
quarterly operating results. There are numerous factors that can contribute to
these fluctuations; however, the principal factors are seasonality and new store
openings.
SEASONALITY. We have historically realized higher revenues and operating
income in our fourth quarter, particularly in our retail business which is
becoming a larger portion of our sales. We believe that this has been due
primarily to an increase in giftware industry sales during the holiday season of
the fourth quarter. The table below shows a breakdown of our 1996, 1997 and 1998
sales by quarter. We anticipate our sales will continue to be seasonal in
nature.
<TABLE>
<CAPTION>
SALES BREAKDOWN BY QUARTER
------------------------------------------
Q1 Q2 Q3 Q4
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996............................. 19.2% 17.1% 24.0% 39.7%
1997............................. 18.3% 17.5% 23.9% 40.3%
1998............................. 19.1% 15.7% 23.6% 41.6%
</TABLE>
NEW STORE OPENINGS. The timing of our new store openings may also have an
impact on our quarterly results. First, we incur certain one-time expenses
related to opening each new store. These expenses, which consist primarily of
salaries, supplies and marketing costs, average approximately $15,000 per store
and are expensed as incurred. Second, most store expenses vary proportionately
with sales, but there is a fixed cost component. This typically results in lower
store profitability when a new store opens because new stores generally have
lower sales than mature stores. Due to both of these factors, during periods
when new store openings as a percentage of the base are higher, operating profit
may decline in dollars and/or as a percentage of sales. As the store base
matures, the fixed cost component of selling expenses is spread over an
increased level of sales, resulting in a decrease in selling and other expenses
as a percentage of sales.
RESULTS OF OPERATIONS
DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
NET SALES. Net sales increased 28.0% to $184.5 million in 1998 from $144.1
million in 1997. This growth was achieved by increasing the number of our retail
stores, from 47 to 62, and increasing sales in existing retail stores and to
wholesale customers.
Wholesale sales increased 21.7% to $103.3 million in 1998 from $84.9 million
in 1997. This growth was achieved primarily by increasing sales to existing
customers. We believe that wholesale sales growth has been and will continue to
be positively impacted by our increased promotional spending, the addition of
new wholesale locations and the transition from independent manufacturer
representatives to an in-house direct sales force.
Retail sales increased 37.2% to $81.2 million in 1998 from $59.2 million in
1997. This growth was achieved through the addition of 15 new stores, and
increased sales in existing stores. Comparable store sales increased 16.5% over
the corresponding period in 1997. There were 47 stores included in our
comparable store base at the end of 1998, and 13 of these stores were included
for less than a full year.
GROSS PROFIT. Gross profit increased 28.5% to $105.4 million in 1998 from
$82.0 million in 1997. This increase was almost entirely attributable to the
increase in sales. As a percentage of sales, gross profit was relatively
consistent from year to year, increasing slightly to 57.1% in 1998 from 56.9% in
1997. We began to make significant investments in our manufacturing operations
in 1998 and anticipate favorable benefits from these investments in 1999 and
future years.
20
<PAGE>
SELLING EXPENSES. Selling expenses increased 13.4% to $30.5 million in 1998
from $26.9 million in 1997. These expenses are related to both our wholesale and
retail operations and consist of payroll, advertising, occupancy and other
operating costs. Excluding the commission paid to independent manufacturer
representatives, selling expenses increased 44.7% to $28.5 million in 1998 from
$19.7 million in 1997 to support our direct sales efforts on the wholesale side
of our business as well as our new retail stores. As a percentage of sales,
selling expenses, excluding commissions paid to independent manufacturer
representatives, were 15.4% in 1998 and 13.7% in 1997. The increase in selling
expense in dollars and as a percentage of sales was primarily related to
investment in our in-house direct wholesale sales force and to the continued
growth in the number of our retail stores, which increased from 47 in 1997 to 62
in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses,
which consist primarily of personnel-related costs incurred in support
functions, decreased 26.7% to $19.8 million in 1998 from $27.0 million in 1997.
The decrease is entirely attributable to a decrease in compensation paid to the
former sole stockholder. Excluding this compensation, general and administrative
expenses increased 22.2% to $19.8 million, or 10.7% of sales, in 1998 from $16.2
million, or 11.2% of sales, in 1997. This increase was primarily caused by
post-recapitalization consulting expenses of $1.8 million related to our systems
and growth strategy, and to investments in building our organizational
infrastructure. We also had non-cash compensation expenses of $116,000 in 1998
related to certain share and option awards and expect to have non-cash
compensation expenses of $1.1 million and $677,000 in 1999 and 2000,
respectively.
BONUS RELATED TO 1998 RECAPITALIZATION. Bonus payments are reflected as a
separate cost within operating expenses and totaled $61.3 million. These
payments were made to selected members of management and were wholly related to
the 1998 recapitalization and are non-recurring in nature.
INCOME (LOSS) FROM OPERATIONS. Due to the non-recurring bonus charge, we
incurred a loss from operations of $6.2 million for 1998. This compares to
income from operations of $28.1 million in 1997. Excluding the non-recurring
bonus charge, we would have reported operating income of $55.1 million in 1998.
OPERATING MARGINS. Operating margins for our wholesale operations were
$45.1 million or 43.7% of wholesale sales in 1998 compared to $31.2 million or
36.7% of wholesale sales in 1997. The wholesale operating margin increase was
primarily attributable to the expense savings realized from the transition from
independent manufacturer representatives to an in-house direct sales force.
Operating margins for retail operations were $23.3 million or 28.7% of retail
sales in 1998 compared to $18.1 million or 30.6% of retail sales in 1997. The
retail operating margin decrease was primarily attributable to the lower
operating margin contribution rate of our 15 new stores during their early
maturation period.
NET OTHER INCOME (EXPENSE). Net other expense was $16.8 million in 1998
compared to $2.3 million in 1997. The primary component of this expense was
interest expense which was $16.3 million in 1998 and $2.2 million in 1997. In
connection with the 1998 recapitalization, we borrowed $320.0 million, which
resulted in significantly higher interest expense in 1998.
INCOME TAXES. The income tax provision for 1998 was $9.7 million despite
our pre-tax loss. This contrasts to a provision of $1.4 million on significant
financial statement profits in 1997. We were an S corporation until the 1998
recapitalization and were only required to pay taxes at the state level. All
other income taxes were paid directly by our sole stockholder. In 1998, we
reported a pre-tax loss because of the bonus charge described above under
"--Bonus related to 1998 recapitalization." Our sole stockholder received the
benefit of that deduction. Starting in May 1998 we were taxed as a regular
corporation. The tax provision of $9.7 million applies to pre-tax income from
the date of the 1998 recapitalization to the end of the year.
NET INCOME. The net loss for 1998 was $32.6 million, which included the
$61.3 million non-recurring bonus charge for which no tax benefit could be
realized. Excluding this charge, net income for 1998 would
21
<PAGE>
have been $28.7 million. If the 1997 net income of $24.4 million were restated
to reflect pro forma income tax, net income for 1997 would have been $15.0
million.
DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996
NET SALES. Net sales increased 28.4% to $144.1 million in 1997 from $112.2
million in 1996. This growth was achieved by increasing the number of retail
stores, from 34 to 47, increasing sales in existing retail stores and to
wholesale customers and an increase in prices of approximately 2%.
Wholesale sales increased 22.5% to $84.9 million in 1997 from $69.3 million
in 1996. This growth was achieved primarily through increased sales to existing
customers. We believe that wholesale sales growth was positively impacted by a
rebound from severe weather problems in the midwestern and southern United
States in 1996 which restrained dealer retail volume in 1996, increased
marketing activities in 1997 and the decision to discontinue the services of
independent manufacturer representatives, which stimulated commission-based
sales at the end of 1997.
Retail sales increased 38.0% to $59.2 million in 1997 from $42.9 million in
1996. This growth was achieved through the addition of 13 new stores and
increased sales in existing stores. Comparable store sales increased 16.4% over
the corresponding period in 1996. There were 34 stores included in our
comparable store base at the end of 1997, and eight of these stores were
included for less than a full year.
GROSS PROFIT. Gross profit increased 39.0% to $82.0 million, or 56.9% of
sales, in 1997 from $59.0 million or 52.6% of sales in 1996. The increase in
gross profit dollars was primarily due to the increase in sales. The increase in
gross profit margin was primarily due to the increase in retail sales as a
percentage of total sales, improved manufacturing efficiency compared to 1996
and the previously mentioned increase in prices. Retail sales achieve a higher
gross profit than wholesale sales, so an increase in retail sales as a
percentage of total sales increased the gross profit dollars and margin.
SELLING EXPENSES. Selling expenses increased 15.9% to $26.9 million in 1997
from $23.2 million in 1996. These expenses are related to both our wholesale and
retail operations and consist of payroll, advertising, occupancy and other
operating costs. These expenses also included commissions paid to independent
manufacturer representatives. We commenced the transition from independent
manufacturer representatives to an in-house direct sales force in 1997.
Excluding the commissions paid to independent manufacturer representatives,
selling expenses increased 36.8% to $19.7 million in 1997 from $14.4 million in
1996. As a percentage of sales, selling expenses excluding commissions paid to
independent manufacturer representatives were 13.7% in 1997 and 12.8% in 1996.
The increase in selling expense in dollars and as a percentage of sales was
primarily related to continued growth in the number of retail stores we operated
from 34 in 1996 to 47 in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses,
which consist primarily of personnel-related costs incurred in support
functions, increased 24.4% to $27.0 million in 1997 from $21.7 million in 1996.
Excluding compensation paid to the former sole stockholder, general and
administrative expenses would have increased to 11.2% of sales in 1997 from 9.9%
of sales in 1996 as we continued to invest in our support infrastructure.
OPERATING MARGINS. Operating margins for our wholesale operations were
$31.2 million or 36.7% of wholesale sales in 1997 compared to $18.5 million or
26.7% of wholesale sales in 1996. The wholesale operating margin increase was
achieved due to the previously discussed increase in sales, improvement in gross
margin rate and spreading of selling expenses over a larger sales base.
Operating margins for retail operations were $18.1 million or 30.6% of retail
sales in 1997 compared to $13.2 million or 30.7% of retail sales in 1996.
22
<PAGE>
NET OTHER INCOME (EXPENSE). Net other expense was $2.3 million in 1997
compared to $2.0 million in 1996. The primary component of the expense was
interest expense, which was $2.2 million in 1997 and $1.9 million in 1996.
INCOME TAX. The income tax provision for 1997 was $1.4 million compared to
a tax provision of $410,000 in 1996. Both of these amounts constitute less than
5% of pre-tax income in each year. We were an S corporation in both 1997 and
1996. Therefore, we were only taxable at the state level and there were no
federal income taxes that we had to recognize.
NET INCOME. Net income increased 108.5% to $24.4 million in 1997 from $11.7
million in 1996. This increase was due to a significant increase in revenue
combined with improved gross margin and lower selling expenses.
LIQUIDITY AND CAPITAL RESOURCES
We have consistently generated positive cash flow from operations, excluding
the $61.3 million non-recurring bonus charge in 1998. This positive cash flow
has been sufficient, in the past, to allow us to grow our business. In 1996,
1997 and the first four months of 1998, Yankee Candle was an S Corporation. Any
excess cash was distributed to the sole stockholder either in the form of
compensation or S Corporation distributions. Those outflows totaled
approximately $13.8 million in 1996, $37.6 million in 1997 and $17.5 million in
1998, with the 1998 outflows occurring in the first four months. We believe
that, in the future, the absence of those distributions will facilitate our
expansion plans as we plan to invest our free cash flow in the business.
The 1998 recapitalization resulted in a step up in basis of our assets for
tax purposes of approximately $462.0 million. This step up will reduce our
future taxes by approximately $176.0 million. On an annual basis, this results
in tax savings of approximately $11.7 million per year for the next 15 years
assuming sufficient income to realize the full benefit of this deduction.
Our 1998 capital expenditures were $9.4 million. These funds were spent
primarily to open 15 new retail stores, and invest in information systems and
new manufacturing equipment to increase our production volume and the efficiency
of our shipping operations. The average capital expenditure for each new retail
store was approximately $250,000. Total capital expenditures in 1996 and 1997
were relatively consistent with 1998 at $10.1 million and $9.2 million,
respectively. There were 13 store openings in 1997 and eight store openings in
1996.
We anticipate that capital expenditures in 1999 will total approximately
$22.0 million. These funds will primarily be spent to open 40 new retail stores,
open a new distribution center in the western region of the United States, to
better support our wholesale customers and expanding retail store base and to
invest in new manufacturing equipment and information systems.
In connection with the 1998 recapitalization, we borrowed $320.0 million by
issuing 6 3/4% subordinated debentures and entered into an agreement to borrow
under a $60.0 million revolving credit facility. These borrowings were used
primarily to redeem our stock and pay one-time bonuses in connection with the
1998 recapitalization. Interest payments under the subordinated debentures were
the primary reason for our increased interest expenses. At December 31, 1998,
there were no borrowings under the revolving credit facility.
We plan to refinance all of our existing debt with the proceeds of this
offering and approximately $220.0 million of borrowings under a new $300.0
million credit facility expected to be entered into prior to the consummation of
this offering. We will have an extraordinary loss of approximately $3.4 million
($5.5 million of non-cash charges less the associated income tax benefit of $2.1
million) resulting from the write-off of deferred financing costs related to the
repayment of our 6 3/4% subordinated debentures. This amount will be charged to
earnings in the quarter in which the debt is repaid. See "Description of the
Credit Agreement."
23
<PAGE>
We believe that cash flow from operations and funds available under our new
credit facility will be sufficient for our foreseeable working capital needs,
planned capital expenditures and debt service obligations.
IMPACT OF INFLATION
We do not believe inflation has a significant impact on our operations. The
prices of our products have not varied based on the movement of the consumer
price index. The majority of our material and labor costs are not materially
affected by inflation.
FUTURE ACCOUNTING PRONOUNCEMENTS
We are required to adopt the provision of Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities"
beginning January 1, 2000. This accounting standard requires us to identify
derivative financial statements according to a complex definition and account
for these instruments at fair value. We are beginning to assess the impact of
this accounting standard on our financial statements, but, at this time, we do
not expect it to have a material impact on our financial statements.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. The Year 2000 issue affects virtually all companies and organizations.
We have established a project team to coordinate and address Year 2000
issues. This team is focusing its efforts on three areas:
- information systems software and hardware,
- facilities and distribution equipment, and
- third-party relationships.
We have undertaken a systematic program to identify all of the areas where
we believe we are exposed to Year 2000 issues. A complete inventory of all of
our information technology systems and our facilities and distribution equipment
is close to completion and has included an assessment of all date dependent
equipment within our infrastructure. We have requested certification from all
software and hardware vendors on information technology applications and systems
we currently possess. We have also developed a formal plan to test and expose
information technology systems software that will not support dates in 2000.
This includes the "leap year bug" February 29, 2000 and September 9, 1999. This
formal testing program is scheduled for completion in July 1999. We also plan to
test our facilities, manufacturing and distribution equipment during our annual
shutdown in June 1999. We have circulated questionnaires to our third party
information technology vendors. In addition, we have begun to circulate letters
to other third parties that we consider to be important to our business.
Based on the assessment efforts to date, we do not believe that the Year
2000 issue will have a material adverse effect on our financial condition or
results of operations. We believe that we will have the ability to process
transactions, whether they involve paying our employees, procuring material from
vendors or invoicing our customers, using our existing data processing systems.
We believe that our manufacturing processes are not subject to substantial Year
2000 risk because, if a piece of equipment fails because of a date dependency,
alternative product routings within our plant can be made. Our ability to obtain
product is dependent on third parties. While we do have primary vendors for our
raw materials, we believe that the materials being provided are readily
available from other vendors. Therefore, should a
24
<PAGE>
specific vendor fail because of a Year 2000 compliance, the materials being
delivered by this vendor can be readily replaced. Our substantial network of
wholesalers and our growing number of retail locations have led us to conclude
that exposures resident in our ultimate sales channels are not material.
Our assessment of our Year 2000 compliance is based on numerous assumptions
about future events, including third party modification plans and other factors.
However, we cannot guarantee that this assessment is correct and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties.
We do not expect the costs associated with our Year 2000 efforts to be
substantial. We believe we have only approximately $155,000 remaining to be
spent in 1999 to conclude our Year 2000 compliance plan. Our aggregate estimate
does not include time and costs that we may incur as a result of the failure of
any third parties, including suppliers, to become Year 2000 compliant or costs
to implement any contingency plans.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risks relate primarily to changes in interest rates. We bear this
risk in two specific ways. First, we have debt outstanding. At the end of 1998,
we had $320.0 million of debt in the form of three series of 6 3/4% subordinated
debentures. Because this borrowing had a fixed interest rate, neither our
statement of operations nor our cash flows had exposures to changes in interest
rates. Our revolving credit facility, which had average borrowings of $7.6
million during 1998 and was zero at the end of the year had a variable interest
rate, which exposed our statement of operations and cash flows to changes in
interest rates. It is our intention, through this offering and through the
proceeds of a new $300.0 million bank facility, to repay the subordinated
debentures. Because the new facility will carry a variable interest rate pegged
to market indices, our statement of operations and our cash flows will be
exposed to changes in interest rates. This facility is intended to fund
operating needs if necessary.
The second component of interest rate risk involves the short-term
investment of excess cash. Such risk impacts fair values, earnings and cash
flows. Excess cash is primarily invested in overnight repurchase agreements
backed by U.S. Government securities. These are considered to be cash
equivalents and are shown that way on our balance sheet. Our average balance in
such securities was approximately $4.5 million over the past year. Earnings from
these cash equivalents totaled $173,000 for the year ended December 31, 1998.
We buy a variety of raw materials for inclusion in our products. The only
raw material that we consider to be of a commodity nature is wax. Wax is a
petroleum-based product. However, its market price has not historically
fluctuated with the movement of oil prices. Rather, over the past five years wax
prices have moved with inflation.
At this point in time, our operations outside of the United States are
immaterial. Accordingly, we are not exposed to substantial risks arising from
foreign currency exchange rates.
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<PAGE>
BUSINESS OF YANKEE CANDLE
We are the leading designer, manufacturer, wholesaler and retailer of
premium scented candles in the growing giftware industry. We have a 30-year
history of offering our distinctive products and marketing them as affordable
luxuries and consumable gifts. Our current products are available in up to 150
fragrances and include a wide variety of jar candles,
Samplers-Registered Trademark-, pillars, tapers and other candle products,
marketed primarily under our trade names Housewarmer-Registered Trademark- and
Country Kitchen-Registered Trademark-, as well as a wide range of candle
accessories.
We sell our candles through our wholesale customers who have approximately
12,000 gift store locations nationwide and through our rapidly expanding retail
base of 68 company-owned and operated stores in 23 states. Our 90,000 square
foot flagship store in South Deerfield, Massachusetts offers a unique retail and
entertainment experience and is a major tourist destination, attracting an
estimated 2.5 million visitors a year. We also sell our products through our
direct mail catalogs, Internet website (www.yankeecandle.com), international
distributors and our distribution center located in the United Kingdom.
We have experienced 27% annual revenue growth over the last five years and,
in 1998, our sales reached $184.5 million. We believe our strong growth is based
on the high quality of our products, the efficiency of our manufacturing
operations and the strength of our retail and wholesale sales capabilities.
Michael Kittredge founded our business in 1969 and, together with our
dedicated management team, has built Yankee Candle into a leader in the premium
scented candle market. Most of our current senior managers have been with us for
17 years. In April 1998, Yankee Candle was recapitalized and the Forstmann
Little partnerships and Yankee Candle management became the owners of a 90%
equity interest. Since the 1998 recapitalization, we have reinvested our capital
to actively pursue our wholesale and retail growth strategies. To facilitate our
growth, we have added several key employees, expanded our production capacity,
upgraded our warehouse management and information systems, and opened our
distribution center in the United Kingdom.
INDUSTRY OVERVIEW
We operate in the rapidly growing scented candle segment of the giftware
industry. Unity Marketing, an independent market research firm specializing in
the giftware industry, estimates that the domestic giftware industry has grown
12% per year since the early 1990's to reach $47 billion in 1997. Unity
Marketing also estimates that the domestic market for candles has grown 10 to
15% per year since the early 1990's to reach $2.1 billion in 1998. The scented
candle segment, in which we compete, represents the fastest growing part of the
candle and home fragrancing industry. According to Kline & Company, an
international consulting firm, the market for scented candles in 1997 was $1.5
billion.
The scented candle market is expected to continue to grow based on the
following positive industry factors:
- Favorable consumer trends, including the aging of baby boomers and
increased spending on home decor. Consumers are drawn to candles because
they create a relaxing home environment.
- Consumers are increasingly buying candles as an attractive gift item.
According to Unity Marketing, 77% of candle customers bought candles as
gifts in 1998.
- Consumers are increasingly burning candles year round because of their
affordable prices and broad range of scents and styles.
We believe consumers are becoming increasingly sophisticated about the
quality and fragrance of candles they purchase. According to Unity Marketing,
the prime consumer market for candles are women between the ages of 25 and 54
with annual household incomes of over $25,000. We believe that 85% of our
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<PAGE>
candle consumers are women and that men represent a growing and undeveloped
consumer market segment.
OUR COMPETITIVE STRENGTHS
WE HAVE A STRONG BRAND IDENTITY AS THE LEADING PREMIUM CANDLE COMPANY WITH A
LOYAL CUSTOMER BASE.
We have long been recognized as the leading brand in the premium scented
candle market. We have been ranked number one in sales since 1993 in the
domestic candle category by GiftBeat, a giftware industry newsletter. We have
also been consistently ranked in the top two for product re-orders across all
giftware categories during the same period by GiftBeat. Our Country
Kitchen-Registered Trademark- and Housewarmer-Registered Trademark- lines were
introduced in 1974 and 1987, respectively, and have become the leading brands in
the premium scented candle market. Our high quality products use premium
fragrance oils and highly-refined paraffin wax, and create long-lasting
enjoyment and strong customer loyalty. We reinforce our brand identity with our
decorative product packaging and labeling, realistic fragrances, clearly
recognizable display cases and frequent trade advertising. We believe that we
have high consumer satisfaction, with 74% of our retail customers ranking Yankee
Candle as better than other candle brands, according to a recent Unity Marketing
study. Our customers also spend more on candles, with over 60% of our customers
purchasing more than $50 of candles in 1998 while only 18% of national customers
spent that amount on candles. We believe that the Yankee Candle brand name will
continue to serve as a strong platform for launching new product lines and
product extensions.
WE HAVE A WELL-ESTABLISHED, NATIONAL WHOLESALE CUSTOMER BASE.
We distribute Yankee Candle products through our extensive wholesale
customer base which has approximately 12,000 gift store locations nationwide and
provides us with a strong presence throughout the United States. As a result of
our brand name, the popularity and profitability of our merchandise and our
successful product display system, we are the top selling product for many of
our wholesale accounts. Our wholesale customers are extremely loyal, with over
65% of them having been customers for over five years. Our wholesale base is
also broad, with no individual wholesale buying group accounting for more than
2% of our total sales. We market our wholesale products through our own direct
sales force which enhances our customer communication and enables us to better
serve our customers through superior order accuracy and response times.
WE HAVE A DEMONSTRATED ABILITY TO CARRY OUT OUR RETAIL EXPANSION.
Our strong wholesale presence and nationally recognized brand have enabled
us to successfully roll-out our own retail stores. As of April 10, 1999, we had
68 retail stores located in 23 states. We have experienced 38% annual growth in
retail sales since 1996 and, in 1998, our retail division generated over $80
million in sales. As shown below, our stores have enjoyed strong comparable
store growth of over 16% for the last three years.
<TABLE>
<CAPTION>
COMPARABLE STORE GROWTH
- -------------------------------
1996 1997 1998
- --------- --------- ---------
<S> <C> <C>
18.4% 16.4% 16.5%
</TABLE>
Our retail stores are primarily located in high-end malls and, to a lesser
extent, strip centers and tourist destinations and are designed with a
distinctive and consistent "Yankee Candle" appearance. In 1998, our retail
stores achieved average sales per square foot of over $650. All but one of our
retail stores have been profitable beginning in their first year of operation.
To support our retail stores, we have made significant investments in
infrastructure, training and information systems. As a result of these
investments, we opened nine stores from September 30 to December 31, 1998. This
is a store opening rate comparable to our plan to open approximately 40 new
stores in 1999.
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WE DESIGN, MANUFACTURE AND DISTRIBUTE OUR OWN PRODUCTS.
We design, develop and manufacture our candle products and control their
distribution. This enables us to ensure the highest quality products, prompt
delivery to our wholesale customers and retail stores and high margins. In
addition, our retail network allows us to control our brand image and
positioning and conduct extensive product testing. By first testing our products
at our retail stores, we can ensure that only our best-selling products are
distributed nationwide to our wholesale customers. We believe that our ability
to manufacture and distribute our own products provides us with a significant
advantage over our competitors.
OUR SENIOR MANAGEMENT TEAM HAS SIGNIFICANT EXPERIENCE IN THE CANDLE
INDUSTRY.
Our chairman and senior management have a combined 80 years of experience in
the candle industry and over 90 years of experience in the retail sector. Our
President and Chief Executive Officer, as well as our Senior Vice President of
Retail Operations and Senior Vice President of Wholesale Operations, have each
been with Yankee Candle for 17 years. During this time, our senior management
has established a record of strong and consistent growth in sales and operating
profit. In addition to our senior management team, our key managers in
manufacturing, site selection and product development have significant
experience in the candle industry, many with tenures of over 15 years with
Yankee Candle. We believe that the strong commitment of all our employees will
allow us to continue to execute our strategy and grow our business.
OUR GROWTH STRATEGY
WE PLAN TO RAPIDLY EXPAND OUR RETAIL STORE BASE.
We believe that we have substantial opportunities for growth by expanding
our retail store base. In 1999, we have already opened six new stores and we
plan to open approximately 34 additional stores by the end of the year, which we
expect will increase our retail presence to approximately 30 states. We believe
that we have a highly successful retail store format that reinforces our brand
awareness, generates strong sales per square foot and can be readily transferred
to new markets. Our distinctive store design is flexible and can be reconfigured
to accommodate a variety of location types. In opening new stores, we will
continue to target high visibility retail locations in premium malls with strong
demographics and high sales per square foot. We believe that the transferability
of our retailing format, our record of successfully opening new stores and our
continuing investment in training, management information systems, distribution
centers and other operating support infrastructure, provide us with a strong
foundation for rapid expansion.
WE PLAN TO CONTINUE TO GROW OUR SALES THROUGH OUR WHOLESALE DISTRIBUTION
CHANNEL.
Our nationwide wholesale base of independent gift store retailers represents
a large and stable source of sales growth. Over the last three years, our
wholesale business grew by over 22% annually and, in 1998, accounted for
approximately 56% of our total sales. We are committed to continuing to grow our
wholesale business and are investing significant capital in new promotional
programs, improved telemarketing systems and enhanced customer service. We
expect to grow our wholesale sales by adding new locations, while increasing the
average order size and re-order frequency of our existing customers. We are
targeting new and underdeveloped domestic markets, particularly in the south and
west. We also believe that our existing wholesale customers are favorably
impacted by our retail expansion. By further increasing our brand awareness, our
retail stores expand our markets and increase overall sales of our products in
both our wholesale and retail divisions.
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<PAGE>
WE PLAN TO EXPAND OUR INTERNATIONAL SALES.
We are predominately a U.S. business but have long-term international
expansion opportunities. We currently sell our products through international
distributors. In addition, we established our own European wholesale subsidiary
in June 1998 and began product shipments in January 1999. The European candle
market is currently a $1 billion and growing industry and presents an important
opportunity for our long-term growth.
WE PLAN TO EXPAND OUR DIRECT MAIL CATALOG AND INTERNET OPERATIONS.
We market our products through our direct mail catalogs and our Internet
website at www.yankeecandle.com. In 1998, our direct mail business, which is a
part of our retail division, grew by over 60% and generated over $2 million of
sales. Our website, which was introduced in 1996 and was upgraded for retail
transactions in 1997, began generating revenues in late 1997. We continually
upgrade our website and catalog offerings in order to provide existing and new
customers with convenient purchase options. We expect both of these businesses
to continue to grow over the next several years as a result of demographic and
lifestyle changes in the consumer population, including the aging of the baby
boomers, decreased shopping time and the need for shopping convenience.
WE PLAN TO CONTINUE TO INTRODUCE NEW PRODUCTS.
Yankee Candle has a long history as a product and market innovator in the
premium scented candle segment of the giftware industry. We have a strong
in-house product design and development team and plan to continue to invest in
new products and packaging. We are able to successfully launch new product lines
by first testing products at our retail stores. In 1999, we plan to introduce 12
new fragrances, six of which were introduced in January. In addition to new
fragrances, we recently introduced in our retail stores a FINE FRAGRANCES candle
line with frosted-glass packaging, and an aromatherapy candle line. Both of
these products are designed to appeal to existing customers and to attract new
customers. We will continue to use our strong brand name and our significant
manufacturing and distribution capabilities to successfully introduce new
products.
PRODUCTS
We develop and introduce new products and fragrances throughout the year. We
currently offer over 1,000 SKU's of Yankee Candle manufactured products. Most of
our products are marketed under the trade names
Housewarmer-Registered Trademark- and Country Kitchen-Registered Trademark- and
include the following product styles:
- Jar Candles--scented candles in decorative glass jars; available in 22
oz., 14.5 oz. and 3.7 oz. sizes.
- Samplers-Registered Trademark---votive candles for sampling different
fragrances.
- Scented Tapers--the oldest candle style, dipped more than 30 times.
- Scented Ionic-Registered Trademark-Pillars (grooved).
- Standard Pillars (smooth)--both scented and unscented.
- Wax Potpourri Tarts-Registered Trademark---scented wax without wicks that
releases its fragrance when melted and warmed in a potpourri pot.
- Scented Tea Lights--small, colored and scented candles in clear cups made
for home fragrancing.
- Tart-Registered Trademark-Warmers--white unscented candles in aluminum
cups made for potpourri pots.
- Kindle Candles-Registered Trademark---unscented wax in a paper cup for use
in a fireplace or campfire as a firestarter.
These candle products are available in a wide range of fragrances and
colors. We currently maintain approximately 150 fragrances in our retail stores,
with our 53 best-selling fragrances available nationwide
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<PAGE>
to our wholesale customers. In addition to distinctive fragrances, we promote
our brand through consistent product packaging and labeling. The Yankee Candle
name is typically embossed on the top of our glass containers and is clearly
displayed on every product label. We also package our products in attractive
gift baskets and holders for sale in our retail stores. We offer glassware
accessories and other candle-related accessories at our retail stores in a
variety of sizes and shapes.
We seek to maintain a moderate price of under $20.00 for almost all of our
products in order to reinforce our customers' perception of our products as
highly affordable. As a result, our retail prices range from $0.89 for Wax
Potpourri Tarts-Registered Trademark- to $19.50 for 22 oz. jar candles. Since
1995, we have only increased our prices, on average, by 2.1% per year. We had no
price increase in 1998 and implemented a 2.3% price increase in January 1999.
RETAIL STORES
Our retail stores are an important and fast growing distribution channel and
represent an increasing percentage of our overall sales. From 1996 to 1998,
sales from our retail division, which includes our retail stores, catalog and
Internet operations, have grown at a compound annual rate of 38% from $42.9
million in 1996 to $81.2 million in 1998 and increased from 38% to 44% of our
total sales. Moreover, Yankee Candle retail stores generated comparable store
growth of 18.4% in 1996, 16.4% in 1997 and 16.5% in 1998. In 1998, our retail
stores achieved average sales per square foot of over $650.
As of April 10, 1999, we had 68 retail stores in 23 states and expect to
open approximately 34 stores during the rest of 1999. By the end of 1999, we
expect to have a retail presence in approximately 30 states. Yankee Candle has
established a strong retail presence in the northeast and is rapidly expanding
nationwide. In opening new stores we target new retail locations in highly
visible areas in premium malls and, to a lesser extent, strip centers and
tourist destinations. Of our 68 retail stores, 45 are located in malls and 23
are located in non-malls. Since we opened our flagship retail store in 1983, we
have closed only one location, which was profitable when closed. All but one of
our retail stores have been profitable in their first year of operation.
We design each of our retail stores with a warm, home-like atmosphere to
attract customers and provide a convenient shopping experience. Each store has
candle displays sorted by color, fragrance type and product category. Our store
design uses rich wood and other traditional elements to convey a high quality
image that complements our product and company identity. The display fixtures
hold sufficient inventory to support fast turning sales at peak season. The
target size of our retail stores is 1,500 to 2,000 square feet, with an average
size of approximately 1,650 square feet. Our retail stores typically offer
Yankee Candle products in 150 fragrances, including our 53 most popular
fragrances. A typical retail store has 1,000 SKU's of candles and 350 SKU's of
candle accessories.
Superior customer service and a knowledgeable employee base are key elements
of our retail strategy. We emphasize formal employee training, particularly with
respect to product quality, candle manufacturing and the heritage of Yankee
Candle. We also have a well-developed, 14-day training program for managers and
assistant managers and an 8-hour training program for sales associates. Our high
customer service standards are an integral part of our ongoing success. Each
store is responsible for implementing and maintaining these customer service
standards.
YANKEE CANDLE'S FLAGSHIP STORE
Our flagship store is the world's largest candle and Christmas store with
over 90,000 square feet of retail and entertainment space. This store promotes
Yankee Candle's image and culture and is an important testing ground for our new
product introductions. The store carries over 24,000 SKU's of gift items
supplied by over 750 vendors, and generates approximately 65% of its revenues
from the sale of Yankee Candle products. Located in South Deerfield,
Massachusetts, this store is a major tourist destination, attracting an
estimated 2.5 million visitors annually. The store provides visitors with a
total
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<PAGE>
shopping and entertainment experience, and includes the Yankee Candlemaking
Museum, the Yankee Candle Car Museum and a 240-seat restaurant.
DIRECT MAIL CATALOG AND INTERNET
As part of our retail division, we market our products through our direct
mail catalogs and Internet website. We expect both businesses to grow over the
next several years as a result of demographic and lifestyle changes in the
consumer population, including the aging of baby boomers, decreased shopping
time and a need for shopping convenience. In 1998, our direct mail business grew
by over 60% and generated over $2 million of sales. Our direct mail catalog
features all wholesale products and promotes the Deerfield flagship store as a
destination. We typically send out five to six catalogs per year. We believe
there are significant opportunities to grow the catalog business by adding
additional products and accessories, increasing our telephone hours and
expanding our mailing list. Our catalog is currently only sent to our existing
customers. We have the potential to rent or purchase lists from third parties.
We introduced our website in 1996 and upgraded it for retail transactions in
1997. The website, www.yankeecandle.com, offers browsers the opportunity to
preview the Deerfield store, learn more about Yankee Candle's history and
purchase on-line the same range of products available to our wholesale accounts.
The website began generating revenues in late 1997 and is expected to grow as we
continue to invest in website design and navigation features and explore banner
advertising and cross marketing opportunities with e-commerce and giftware
Internet service providers.
WHOLESALE DISTRIBUTION
Our wholesale strategy focuses on a nationwide base of small, independent
and credit-worthy gift store retailers. The wholesale business is a critical
part of our growth strategy and lays the foundation for the successful expansion
of our retail business by establishing a national brand. From 1996 to 1998,
sales from our wholesale accounts have grown at a compound annual rate of 22%
from $69.3 million in 1996 to $103.3 million in 1998, and changed from 62% to
56% of our total sales. Our wholesale customers currently have approximately
12,000 gift store locations nationwide and are located in all 50 states. In
1998, the northeast region accounted for 30% of domestic wholesale revenues, the
midwest 35%, the south 21% and the west 14%. As a result of our strong brand
name, the popularity and profitability of our products and our emphasis on
customer service, our wholesale customers are extremely loyal with over 65% of
them having been customers for over five years. No individual wholesale buying
group accounts for more than 2% of our total sales and almost 90% of our
wholesale accounts are located in non-mall locations. We are targeting future
wholesale locations in new and underdeveloped markets, particularly in the
southern and western United States.
We have developed a successful approach to wholesale distribution which has
established Yankee Candle as the top selling brand for many of our wholesale
customers. We actively seek to increase the average size and frequency of
wholesale orders through our innovative product display system, promotional
programs, new products and telemarketing initiatives. We promote a "Shop Within
A Shop" display system to our wholesale customers which presents our products
vertically by fragrance and horizontally by color in a distinctive wood hutch.
Yankee Candle recommends that dealers invest in an 8- to 12-foot display system
which holds $5,300 to $8,000 of Yankee Candle products at suggested retail
prices. This display system maximizes sales and profitability by providing
strong visual impact, shopping and restocking ease, and optimum space
efficiency. We have also implemented a number of promotional programs to
increase the square footage dedicated to Yankee Candle products as well as the
breadth of Yankee Candle products offered by our wholesale customers. For
example, we promote a FRAGRANCE OF THE MONTH program, with featured fragrance
suggestions for each month. This program encourages dealers to increase their
re-order schedule to 12 times per year and implement a customer promotion that
has already proven successful in our retail stores. The promotion encourages
consumers to try different fragrances and return to the stores more frequently
in order to buy the FRAGRANCE OF THE MONTH. In addition to specific
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<PAGE>
promotions, we advise our wholesale customers on an ongoing basis regarding
product knowledge, display suggestions, promotional ideas and geographical
consumer preferences.
We have a selective dealer approval process, designed to create consistent
nationwide standards for all Yankee Candle dealers. As a result of our high
credit standards for dealers, we had bad debt expense of only 0.1% in 1998.
We use a dedicated in-house direct sales force to service our wholesale
accounts. In 1998, we eliminated our network of independent manufacturer
representatives and completed a major shift to a direct sales force. This has
enabled Yankee Candle to gain greater control over the sales process, to provide
customers with better and more accurate information, faster order turn-around
and improved customer service, and to create more consistent merchandising
nationwide and reduce costs.
INTERNATIONAL OPERATIONS
We intend to expand internationally. We currently sell products through
international distributors and our company-owned distribution center in the
United Kingdom. In June 1998, we established Yankee Candle Europe, our European
subsidiary, and hired the former managing director of one of the largest United
Kingdom candle manufacturers to lead our international expansion program. In
addition, we opened a new 27,000 square foot distribution center in Bristol,
England and product shipments began in January 1999. We currently sell our
products directly to stores in the United Kingdom and sell through distributors
in Austria, Benelux, Denmark, Germany, Norway, Sweden and Switzerland.
NEW PRODUCT DEVELOPMENT
We have a long history as a product and market innovator in the premium
candle segment of the giftware industry. We have a strong in-house product
design and development team comprised of artists, fragrance specialists,
designers, packagers and buyers who work collaboratively to design new products
that are attractive to customers and can be manufactured cost-effectively. New
products are typically developed in less than a year. In January 1999, we
introduced six new fragrances: Berry Bramble-TM-, Mountain Lake-TM-, Storm
Watch-TM-, Vineyard-TM-, Lemon Lime and Hydrangea. We plan to introduce six
additional new fragrances during the remainder of 1999. In addition, we recently
introduced a FINE FRAGRANCES candle line with frosted-glass packaging, and an
aromatherapy candle line. Other new product ideas include new product sizes, new
packaging and variations of existing fragrances.
PRODUCT MANUFACTURING
Approximately 90% of our sales are generated by products we manufacture at
our 294,000 square foot facility in Massachusetts. As a manufacturer, we are
able to closely monitor the quality of our products and control our production
costs. We believe this is an important competitive advantage as it enables us to
ensure high quality products and maintain affordable pricing.
Our products are manufactured using filled, molded, extruded, compressed or
dipped manufacturing methods. The majority of our products are filled products
which are produced by pouring colored, scented liquid wax into a glass container
with a wick. Pillars are made by extrusion, in which wax is pressed around a
wick through a die. Tapers are produced through a dipping process and
Tarts-Registered Trademark- and Samplers-Registered Trademark- are made by
compression.
Yankee Candle uses high quality fragrances, premium-grade, highly refined
paraffin waxes, and superior wicks and dyes to create premium products. Our
manufacturing processes are designed to ensure the highest quality and quantity
of candle fragrance, wick quality and placement, color, fill level, shelf life
and burn rate. We are continuously engaged in efforts to maximize our quality
and minimize our costs by using efficient production and distribution methods
and technological advancements.
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SUPPLIERS
We maintain strong, established relationships with our principal fragrance
and petroleum-based wax suppliers. We use the highest-quality suppliers in our
industry and maintain back-up suppliers who are able to provide services and
materials of similar quality. We have developed, jointly with our suppliers,
several proprietary fragrances, which are exclusive to Yankee Candle. Raw
materials used in the manufacturing process, including wax, glassware, hutches
and packaging materials are readily available from multiple sources at
comparable prices. In 1998, no single supplier represented more than 10% of our
total supply purchases, except for ARC International which provided us with
glassware and represented 14% of our total supply purchases.
ORDER PROCESSING AND DISTRIBUTION
We currently have two warehouse and distribution facilities located within a
four mile radius in Deerfield and Whately, Massachusetts, and one warehouse and
distribution center in Bristol, England for products shipped to Europe. We
intend to open another facility in the fall of 1999 in Salt Lake City, Utah for
the warehousing and distribution of products to our retail stores and wholesale
accounts located in the western United States. This facility is expected to be
between 80,000 and 100,000 square feet in size.
We utilize computer systems to maintain efficient order processing from the
time a product enters the system through shipping and ultimate payment
collection from customers. We implemented uniform computer and communication
software systems allowing for on-line information access between our
headquarters and retail stores. We upgraded our information systems in 1998 to
further improve order processing and enhance inventory management and accuracy.
As part of these upgrades, we adopted a software package that allows us to
forecast demand for our products and efficiently plan our production schedules.
We also implemented a pick-to-light system which allows Yankee Candle employees
at our warehouse to receive information directly from the order collection
center and quickly identify, by way of blinking lights, the products and
quantity necessary for a particular order. To accurately track shipments and
provide better service to customers, we also use handheld optical scanners and
bar coded labels. We believe this software for the processing and shipment of
orders from the warehouse greatly improves our overall customer service through
enhanced order accuracy and reduced turnaround time.
The products sold by Yankee Candle in the United States are generally
shipped by United Parcel Service, Roadway Package Systems or other freight
carriers. We also lease a fleet of four trucks primarily used to ship products
to select company-owned retail stores. Our products are usually shipped to our
retail stores twice a week during the off-season and up to five times a week
during the holiday season. In 1998, our order lead time to our wholesale
customers, from order placement to shipment of goods, was typically three
business days during the first three calendar quarters and less than five
business days during the fourth quarter. During the first three quarters of
1998, we shipped 99.5% of all orders requested complete and over 92% complete in
the fourth quarter. We believe that our timely and accurate distribution is an
important differentiating factor between us and our competitors.
INTELLECTUAL PROPERTY
Yankee Candle has obtained 31 U.S. trademark registrations, including Yankee
Candle-Registered Trademark-, Country Kitchen-Registered Trademark-,
Housewarmer-Registered Trademark-, Samplers-Registered Trademark-, Wax Potpourri
Tarts-Registered Trademark- and Kindle Candles-Registered Trademark-, and has
pending 10 trademark applications with respect to its products. Trademark
registrations allow us to use those trademarks on an exclusive basis in
connection with our products. If we continue to use our trademarks, and make all
required filings and payments, these trademarks can continue in perpetuity. We
also register many of our trademarks in foreign countries.
We believe that our trademarks are valuable assets and we intend to maintain
and renew our trademarks and their registrations and to vigorously defend them
against trademark infringement.
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COMPETITION
We compete generally for the disposable income of consumers with other
producers in the giftware industry. The giftware industry is highly competitive
with a large number of both large and small participants. Yankee Candle products
compete with other scented and unscented candle products and with other gifts
within a comparable price range, like boxes of candy, flowers, wine, fine soap
and related merchandise. Yankee Candle's competitors distribute their products
through independent gift retailers, department stores, mass market stores and
mail order houses.
The candle market overall is highly fragmented. According to Unity
Marketing, 72% of all candle companies have less than $10 million in sales.
Premium market candle manufacturers include Colonial Candles, owned by Blyth
Industries, Inc., A.I. Root and Village Candle. The most important factors
affecting sales of candles are scent, price, burn quality, packaging, color and
shape.
Yankee Candle's retail store competitors include franchised candle chains,
such as Wicks n' Sticks and Candleman, although these two chains are also our
wholesale customers. Our other retail competition includes specialty candle
stores, as well as gift and houseware retailers.
We believe we are the leading premium scented candle company in the United
States and the only major candle company with a strong combination of
manufacturing, wholesale and retail operations. The principal bases of
competition for candles and other comparably priced giftware include brand
loyalty, quality, perceived value, design, product display, consumer appeal,
service and price. We believe our competitive position is enhanced by a variety
of factors, including our national premium brand image, high quality reputation
among consumers and retailers, distinctive retail stores, extensive wholesale
distribution base, knowledgeable employees, effective display and product
presentation, affordable pricing, our low cost, highly automated manufacturing
operations and strong and growing presence in both wholesale and retail
segments. Some of our competitors are part of large, diversified companies
having greater financial resources and a wider range of product offerings than
Yankee Candle.
EMPLOYEES
At March 1, 1999, we employed approximately 1,100 full-time employees and
500 part-time employees. All of these employees are non-union, and we believe
that our labor relations are good. We also use between 200 and 250 seasonal
workers hired through temporary employment agencies.
LEGAL PROCEEDINGS
We are involved from time to time in various legal proceedings incidental to
our business. We believe that none of these legal proceedings will have a
material adverse impact on our results of operations, cash flow or financial
condition.
ENVIRONMENTAL MATTERS
We are subject to various federal, state, local and foreign laws and
regulations governing the generation, storage, use, emission, discharge,
transportation and disposal of hazardous materials and the health and safety of
our employees. In addition, we are subject to environmental laws which may
require investigation and cleanup of any contamination at facilities we own or
operate or at third party waste disposal sites we use. These laws could impose
liability even if we did not know of, or were not responsible for, the
contamination.
We have in the past and will in the future incur costs to comply with
environmental laws. We are not, however, currently aware of any costs or
liabilities relating to environmental matters, including any claims or actions
under environmental laws or obligations to perform any cleanups at any of our
facilities or any third party waste disposal sites, that are expected to have a
material adverse effect on our operations, cash
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flow or financial condition. It is possible, however, that material
environmental costs or liabilities may arise in the future.
FACILITIES
Yankee Candle owns facilities totaling 537,600 square feet, located on 82
acres, within a four mile radius in Deerfield and Whately, Massachusetts, as
described in the table below:
<TABLE>
<CAPTION>
TYPE OF FACILITY LOCATION SIZE
- -------------------------------------------------------------------- -------------------------- ----------------
<S> <C> <C>
Manufacturing, wholesale distribution and offices Whately, Mass 294,000 sq. ft.
Flagship retail store, car museum and restaurant South Deerfield, Mass. 90,000 sq. ft.
Retail warehouse and distribution center South Deerfield, Mass. 60,000 sq. ft.
Retail support South Deerfield, Mass 48,000 sq. ft.
Marketing and design building Whately, Mass. 16,000 sq. ft.
Employee health and fitness center South Deerfield, Mass. 12,000 sq. ft.
Retail offices South Deerfield, Mass. 11,000 sq. ft.
Wholesale telemarketing South Deerfield, Mass. 6,600 sq. ft.
</TABLE>
In addition, we have a 27,000 square foot leased distribution facility in
Bristol, England and plan to open a new 80,000 to 100,000 square foot leased
distribution facility in Salt Lake City, Utah in September 1999.
We believe that these facilities are suitable and adequate and have
sufficient capacity to meet our current needs.
Other than the Deerfield flagship store and three smaller retail locations,
we lease our other retail stores. Initial store leases for mall locations range
from eight to ten years. For non-mall locations, most leases are five years,
with a five-year renewal option.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information regarding the executive
officers and directors of Yankee Candle as of April 15, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Michael J. Kittredge................................. 47 Chairman of the Board and Director (Class II)
Michael D. Parry..................................... 47 President, Chief Executive Officer and Director
(Class III)
Robert R. Spellman................................... 51 Senior Vice President of Finance and Chief Financial
Officer
Gail M. Flood........................................ 39 Senior Vice President of Retail Operations
Stephen T. Williams.................................. 48 Senior Vice President of Wholesale Operations
Theodore J. Forstmann................................ 59 Director (Class I)
Nicholas C. Forstmann................................ 52 Director (Class II)
Sandra J. Horbach.................................... 38 Director (Class III)
Steven B. Klinsky.................................... 42 Director (Class I)
Michael S. Ovitz..................................... 52 Director (Class I)
Emily Woods.......................................... 37 Director (Class III)
</TABLE>
MICHAEL J. KITTREDGE is the Chairman of the Board. Mr. Kittredge is the
founder of Yankee Candle. He served as a Director until April 1998. Mr.
Kittredge was appointed a Director of Yankee Candle Holdings in July 1998 and
reappointed a Director of Yankee Candle in April 1999. He has been honored
several times by the United States Small Business Administration (S.B.A.), once
in 1985 as the winner of the "Entrepreneurial Success Award," and again in 1986
as the "Businessman of the Year" for Massachusetts and the New England region.
In 1996, Mr. Kittredge received USA Today's and Ernst & Young's Retail
Entrepreneur of the Year Award.
MICHAEL D. PARRY is a Director, the President and Chief Executive Officer.
Mr. Parry joined Yankee Candle in 1982 as General Manager, and was appointed
Vice President in January 1989 and President in July 1996. Mr. Parry has served
as a Director of Yankee Candle since May 1998 and a Director of Yankee Candle
Holdings since July 1998. He was promoted to his current position of Chief
Executive Officer in November 1998. Since 1989, he has been in charge of all of
our operations including general oversight of wholesale and retail activities
and manufacturing and distribution.
ROBERT R. SPELLMAN is the Senior Vice President of Finance and Chief
Financial Officer. Prior to joining Yankee Candle in November 1998, Mr. Spellman
was Senior Vice President of Finance of Staples, Inc. from 1988 through 1994,
and Chief Financial Officer of Star Markets Company, Inc. from 1994 through
1998.
GAIL M. FLOOD is the Senior Vice President of Retail Operations. Ms. Flood
joined Yankee Candle in 1982 as Retail Store Manager. Since 1988, she has been
in charge of our retail operations. She was appointed Vice President of Retail
Operations in July 1996, and promoted to her current position in November 1998.
STEPHEN T. WILLIAMS is the Senior Vice President of Wholesale Operations.
Mr. Williams joined Yankee Candle in 1982, and held a number of different
positions in a variety of areas including Production, Packaging and Shipping
prior to being appointed National Sales Manager in 1987. In July 1996, Mr.
Williams was made Vice President of Wholesale Operations, and was promoted to
Senior Vice President in November 1998. Since 1987, he has been in charge of our
wholesale operations.
THEODORE J. FORSTMANN has served as a Director of Yankee Candle Holdings
since July 1998 and a Director of Yankee Candle since April 1999. Mr. Forstmann
has been a general partner of FLC XXIX
36
<PAGE>
Partnership, L.P., the general partner of Forstmann Little & Co., since he
co-founded Forstmann Little & Co. in 1978. He is Chairman of the Board and Chief
Executive Officer of Gulfstream Aerospace Corporation. Theodore J. Forstmann and
Nicholas C. Forstmann are brothers.
NICHOLAS C. FORSTMANN has been a Director of Yankee Candle Holdings since
July 1998 and a Director of Yankee Candle since April 1999. He has been a
general partner of FLC XXIX Partnership, L.P. since he co-founded Forstmann
Little & Co. in 1978. He is also a director of Gulfstream Aerospace Corporation.
SANDRA J. HORBACH has been a Director of Yankee Candle Holdings since March
1998 and a Director of Yankee Candle since May 1998. She has been a general
partner of FLC XXIX Partnership, L.P. since 1993. She is also a director of
Gulfstream Aerospace Corporation.
STEVEN B. KLINSKY has been a Director of Yankee Candle Holdings since July
1998 and a Director of Yankee Candle since April 1999. He has been a general
partner of FLC XXIX Partnership, L.P. since December 1986. He is also a director
of General Semiconductor, Inc.
MICHAEL S. OVITZ has been a Director of Yankee Candle Holdings since
November 1998 and a Director of Yankee Candle since April 1999. He is an
independent businessman and investor. He recently co-founded Artists Management
Group, a management/production/multi-media company. From October 1995 to
December 1996, Mr. Ovitz was President of The Walt Disney Company. From 1975 to
1995, Mr. Ovitz served as chairman of Creative Artists Agency, which he
co-founded. Mr. Ovitz is also a director of Livent, Inc.
EMILY WOODS has been a Director of Yankee Candle Holdings since July 1998
and a Director of Yankee Candle since April 1999. She is the Chairman of J. Crew
Group, Inc., which she co-founded in 1983. She is also a director of Beringer
Wine Estates.
THE BOARD OF DIRECTORS
Yankee Candle's By-Laws provide for a classified board of directors
consisting of three classes. Each class will consist, as nearly as possible, of
one-third of the total number of directors constituting the entire board. The
term of the initial Class I directors will terminate on the date of the 2000
annual meeting of stockholders; the term of the initial Class II directors will
terminate on the date of the 2001 annual meeting of stockholders; and the term
of the initial Class III directors will terminate on the date of the 2002 annual
meeting of stockholders. Beginning in 2000, at each annual meeting of
stockholders, successors to the class of directors whose term expires at that
annual meeting will be elected for a three-year term and until their respective
successors are elected and qualified. A director may only be removed with cause
by the affirmative vote of the holders of a majority of the outstanding shares
of capital stock entitled to vote in the election of directors. The Forstmann
Little partnerships have a contractual right to elect two directors until such
time as they no longer own any shares of Yankee Candle common stock.
Directors who are neither executive officers of Yankee Candle nor general
partners in the Forstmann Little partnerships have been granted options to
purchase common stock in connection with their election to the board of Yankee
Candle Holdings. Directors do not receive any fees for serving on Yankee
Candle's board, but are reimbursed for their out-of-pocket expenses arising from
attendance at meetings of the board and committees. See "--Outside Director
Stock Options."
The board has three committees: Executive, Compensation and Audit. The
Executive Committee consists of Michael D. Parry, Theodore J. Forstmann and
Sandra J. Horbach. The Compensation Committee consists of Theodore J. Forstmann,
Sandra J. Horbach and Nicholas C. Forstmann. The Audit Committee consists of
Steven B. Klinsky and Emily Woods.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of Yankee Candle's Board of
Directors are Theodore J. Forstmann, Nicholas C. Forstmann and Sandra J.
Horbach, each of whom has served on the Committee since April 1999. Yankee
Candle did not have a Compensation Committee, or committee performing comparable
functions, in 1998. Since the 1998 recapitalization, all 1998 compensation
decisions for Yankee Candle executive officers were made by the Compensation
Committee of Yankee Candle Holdings Corp., consisting of Theodore J. Forstmann
and Sandra J. Horbach. Each of Theodore J. Forstmann, Nicholas C. Forstmann and
Sandra J. Horbach are general partners in partnerships affiliated with the
Forstmann Little partnerships. See "--Relationships and Transactions with Yankee
Candle" for a description of certain transactions between the Forstmann Little
partnerships and Yankee Candle in connection with the 1998 recapitalization.
None of the members of the Yankee Candle Holdings or the Yankee Candle
Compensation Committees have been officers or employees of Yankee Candle or its
subsidiaries.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation for
the year ended December 31, 1998 paid by us for services to each person who
served as our Chief Executive Officer during 1998 and our three other most
highly paid executive officers who were serving as executive officers at
December 31, 1998.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
OTHER ANNUAL ALL OTHER
BASE SALARY BONUS COMPENSATION(4) COMPENSATION
----------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
Michael J. Kittredge
Chairman of the Board................................. $ 342,000 $ -- $ -- $21,016(5)
Michael D. Parry
President and Chief Executive Officer................. 216,539 76,502 -- (6)
Robert R. Spellman(2)
Senior Vice President of Finance and Chief Financial
Officer............................................... 30,962(3) 11,500(3) -- 575,173(7)
Gail M. Flood
Senior Vice President of Retail Operations............ 149,616 58,628 -- (6)
Stephen T. Williams
Senior Vice President of Wholesale Operations......... 139,616 55,000 -- (6)
</TABLE>
- ------------------------
(1) Yankee Candle does not have any executive officers other than those named in
the summary compensation table. Mr. Kittredge served as Yankee Candle's
Chief Executive Officer until November 1998.
(2) Mr. Spellman became an employee of Yankee Candle in November 1998.
(3) Reflects the portion of Mr. Spellman's annual base salary and annual bonus
that he actually earned in 1998.
(4) Unless otherwise indicated, the aggregate amount of perquisites and other
personal benefits was less than $50,000 or 10% of the total of annual salary
and bonus reported for that named executive officer.
(5) Includes premiums of $1,016 paid for life insurance, and a matching
contribution of $20,000 under the Yankee Candle Company Executive Deferred
Compensation Plan.
38
<PAGE>
(6) Includes a matching contribution of $20,000 under the Yankee Candle Company
Executive Deferred Compensation Plan for each of Messrs. Parry and Williams
and Ms. Flood, and a special bonus of $9,433,962 paid in connection with the
1998 recapitalization for each of Messrs. Parry and Williams and Ms. Flood,
and premiums paid for life insurance in the amounts of $582,000, $313,000
and $132,000 for Messrs. Parry and Williams and Ms. Flood, respectively.
(7) Includes premiums of $173,000 paid for life insurance, a one-time signing
bonus of $500,000 and a one-time payment of $75,000 paid in connection with
a bonus forfeited by Mr. Spellman upon separation of his prior employment.
OPTION GRANTS
None of the executive officers named in the summary compensation table have
options to purchase common stock, but each has significant ownership interests
in Yankee Candle. See "Principal and Selling Stockholders."
EMPLOYMENT AGREEMENT
On October 22, 1998, we entered into an employment agreement with Robert R.
Spellman. The following are the key terms of his employment agreement:
- employment as Senior Vice President and Chief Financial Officer,
- base salary of $230,000 per year,
- eligibility to receive a target bonus equal to 35% of base salary under
the executive bonus plan,
- right to purchase shares of common stock, and
- a one-time signing bonus of $500,000. If Mr. Spellman leaves voluntarily
or is terminated for cause prior to May 9, 2000, he must repay this
signing bonus.
39
<PAGE>
YANKEE CANDLE HOLDINGS STOCK OPTION PLAN
The Yankee Candle Holdings Corp. Employee Stock Option Plan provides for the
granting of options to purchase shares of common stock of Yankee Candle Holdings
to any employee of Yankee Candle Holdings or its subsidiaries. These options are
not intended to qualify as incentive stock options. The plan is currently
administered by the Compensation Committee of the board of directors of Yankee
Candle Holdings.
In connection with the liquidation of Yankee Candle Holdings prior to the
closing of the offering, the options to acquire Yankee Candle Holdings common
stock will become options to acquire Yankee Candle common stock on the same
terms as the existing options, other than changes to the exercise price and the
number of shares subject to options to preserve the economics of the existing
options. The plan will be administered by the Compensation Committee of the
board of Yankee Candle. The plan authorizes the issuance of shares of
common stock with adjustments in the case of changes in capitalization affecting
the options. Assuming the conversion of all outstanding Yankee Candle Holdings
options into Yankee Candle options, options to purchase shares of common
stock have been granted to date under the plan. The description below assumes
that the liquidation has occurred and that the options are exercisable for
Yankee Candle common stock. See "Description of Capital Stock."
STOCK OPTION AGREEMENTS. Options are granted pursuant to stock option
agreements. One-fifth of the options generally vest and become exercisable on
each of the first, second, third, fourth and fifth anniversaries of the grant
date. Unvested options expire on the date of the optionee's termination of
employment and vested options expire after the termination of employment as
described below.
Each option expires on the earliest of:
- the tenth anniversary of the date of grant,
- if the optionee's employment is terminated for any reason, including death
or disability of the optionee, the 60(th) day following the delivery of a
notice to the optionee by Yankee Candle, during which 60-day period the
optionee may exercise the vested portion of the option, and
- the exercise in full of the option.
These options are generally exercisable only by an optionee during the
optionee's lifetime and are not transferable.
The stock option agreements provide that Yankee Candle will notify the
optionee prior to a total sale or a partial sale. A total sale includes:
(1) the merger or consolidation of Yankee Candle into another corporation,
other than a merger or consolidation in which Yankee Candle is the
surviving corporation and which does not result in a capital
reorganization, reclassification or other change in the then outstanding
common stock,
(2) the liquidation of Yankee Candle,
(3) the sale to a third party of all or substantially all of Yankee Candle's
assets, or
(4) the sale to a third party of common stock, other than through one or
more public offerings;
but only if, in the case of the events described in (1), (2) and (4), the
Forstmann Little partnerships cease to own shares of the voting stock of the
business.
A partial sale means a sale by the Forstmann Little partnerships of all or a
portion of their shares of common stock, including through a public offering, to
a third party, other than a total sale. This offering constitutes a partial
sale.
40
<PAGE>
The optionee may exercise options only for purposes of participating in the
partial sale, whether or not the options were otherwise exercisable, with
respect to the excess, if any, of:
- the number of shares with respect to which the optionee would be entitled
to participate in the partial sale under the stockholder's agreement
described below, over
- the number of shares previously issued upon exercise of the options and
not previously disposed of in a partial sale.
Upon receipt of a notice of a total sale, the optionee may exercise all or
part of the options, whether or not such options were otherwise exercisable.
In connection with a total sale, Yankee Candle may redeem the unexercised
portion of the options in lieu of permitting the optionee to exercise the
options. Any unexercised portion of an option will terminate upon the completion
of a total sale, unless Yankee Candle provides for its continuation.
In the event a total sale or partial sale is not completed, any option
exercised in connection with the sale will be exercisable only to the extent it
would have been exercisable if notice of the sale had not been given. The stock
option agreements provide that, if the Forstmann Little partnerships sell shares
of common stock in a bona fide arm's-length transaction, at the election of
Yankee Candle, an optionee may be required to
- proportionately exercise the optionee's options and to sell all of the
shares of common stock purchased under the exercise in the same
transaction and on the same terms as the shares sold by the Forstmann
Little partnerships, or
- forfeit the portion of the option required to be exercised.
The optionee has no independent right to require Yankee Candle to register
the shares of common stock underlying the options under the Securities Act.
The stock option agreements permit Yankee Candle to terminate all of an
optionee's options if the optionee engages in prohibited or competitive
activities.
The number and class of shares underlying, and the terms of, outstanding
options may be adjusted in certain events, such as a merger, consolidation,
stock split or stock dividend.
STOCKHOLDER'S AGREEMENT. Upon exercise of an option under the plan, an
optionee is required to enter into a stockholder's agreement with Yankee Candle
in the form then in effect. The stockholder's agreement provides that,
generally, the shares issued upon exercise of the options may not be sold,
assigned or otherwise transferred. The description below summarizes the terms of
the form of the stockholder's agreement currently in effect.
If one or more partial sales result in the Forstmann Little partnerships
owning, in the aggregate, less than 20% of the then outstanding voting stock of
Yankee Candle, the stockholder is entitled to transfer his or her shares of
common stock free of the restrictions and rights contained in the stockholder's
agreement.
The stockholder's agreement provides that the stockholder may participate
proportionately in any sale by the Forstmann Little partnerships of all or a
portion of their shares of common stock to any person who is not a partner or
affiliate. In addition, the stockholder shall be entitled to, and may be
required to, participate proportionately in a public offering of shares of
common stock by the Forstmann Little partnerships, by selling the same
percentage of the stockholder's shares that the Forstmann Little partnerships
are selling of their shares. The sale of shares of common stock in such a
transaction must be for the same price and otherwise on the same terms and
conditions as the sale by the Forstmann Little partnerships. If the Forstmann
Little partnerships sell or exchange all or a portion of their common stock in a
bona fide arm's-length transaction, the Forstmann Little partnerships may
require the stockholder to sell a proportionate amount of his or her shares for
the same price and on the same terms and conditions
41
<PAGE>
as the sale of common stock by the Forstmann Little partnerships and, if
stockholder approval of the transaction is required, to vote his or her shares
in favor of the sale or exchange.
OUTSIDE DIRECTOR STOCK OPTIONS
Two directors, Mr. Michael Ovitz and Ms. Emily Woods, have options which
were granted pursuant to individual stock option agreements. The date of these
director option agreements and the date of grant, for Ms. Woods was June 26,
1998 and for Mr. Ovitz was November 30, 1998. Upon the liquidation of Yankee
Candle Holdings prior to the closing of this offering, these director options
will become options to acquire shares of Yankee Candle common stock on the same
terms as the existing options, other than the exercise price and number of
shares subject to option which will be adjusted to preserve the economics of the
existing options. Each of the director optionees will have options to purchase
shares of common stock at $ per share. These options are not intended
to qualify as incentive stock options and were not issued pursuant to the plan.
One-third of the options generally becomes exercisable on each of the first,
second and third anniversaries of the date of the grant. Each option expires on
the earliest of:
- the tenth anniversary of the date of grant,
- 30 days after the date the director optionee ceases to serve as a director
of Yankee Candle, and
- the exercise in full of the option.
The director optionees may not sell or otherwise transfer their options.
The director option agreements provide that Yankee Candle will notify the
director optionees prior to a total sale or a partial sale. Upon receipt of a
notice of a partial sale, a director optionee may exercise his or her options
only for purposes of participating in the partial sale, whether or not the
options were otherwise exercisable, with respect to the excess, if any, of:
- the number of shares with respect to which the director optionee would be
entitled to participate in the partial sale under the director
stockholder's agreements described below, over
- the number of shares previously issued upon exercise of the options and
not previously disposed of in a partial sale.
Upon receipt of a notice of a total sale, a director optionee may exercise
all or part of the options, whether or not the options were otherwise
exercisable.
In connection with a total sale, Yankee Candle may redeem the unexercised
portion of the director optionee's options. Any unexercised portion of a
director optionee's options will terminate upon the completion of a total sale,
unless Yankee Candle provides for continuation of the options.
In the event a total sale or partial sale is not completed, any option which
a director optionee had exercised in connection with the sale will be
exercisable after the sale only to the extent it would have been exercisable if
notice of the sale had not been given. This offering constitutes a partial sale.
The director option agreements provide that, if the Forstmann Little
partnerships sell shares of common stock in a bona fide arm's-length
transaction, at the election of Yankee Candle, a director optionee may be
required to:
- proportionately exercise the director optionee's options and to sell all
of the shares of common stock purchased under the exercise in the same
transaction and on the same terms as the shares sold by the Forstmann
Little partnerships, or
- forfeit the portion of the option required to be exercised.
42
<PAGE>
The director optionees have no independent right to require Yankee Candle to
register the shares of common stock underlying the options under the Securities
Act.
The number and class of shares underlying and the terms of outstanding
options may be adjusted in certain events, such as a merger, consolidation,
stock split or stock dividend.
DIRECTOR STOCKHOLDER'S AGREEMENTS. Upon exercise of a director option, a
director optionee is required to enter into a director stockholder's agreement
with Yankee Candle in the form then in effect. The form of director
stockholder's agreement currently in effect is substantially the same as the
form of employee stockholder's agreement currently in effect.
STOCK AGREEMENTS
In connection with the recapitalization, 12 members of Yankee Candle
management were awarded the right to purchase, and actually purchased, stock of
Yankee Candle Holdings on April 27, 1998. In October 1998 an additional member
of management was awarded the right to purchase, and agreed to purchase, stock
of Yankee Candle Holdings. He purchased these shares in February 1999. These
members of management entered into stock agreements relating to these shares of
common stock of Yankee Candle Holdings. See "--Relationships and Transactions
with Yankee Candle."
After the liquidation of Yankee Candle Holdings prior to the closing of this
offering, the restrictions of the subscription agreements will apply to the
stockholder's ownership of Yankee Candle common stock and, in connection with
the receipt of the Yankee Candle common stock, the stockholders will enter into
new stock agreements covering the Yankee Candle common stock with the same terms
as the original agreement except for adjustments that are necessary to preserve
the economics of the original stock agreements. The description below assumes
that the new subscription agreements have been executed.
The stock agreements contain transfer provisions substantially similar to
those in the form of stockholder's agreement that the employee optionees and
director optionees must execute upon exercise of options under the plan.
Upon termination of employment, Yankee Candle has a right, at its option, to
purchase all of the unvested shares of common stock held by a stockholder. The
stock vests at a rate of 20% per year, beginning after one year. The
stockholders have no independent right to require Yankee Candle to register
their shares of common stock under the Securities Act.
THE YANKEE CANDLE 1999 STOCK OPTION AND AWARD PLAN
The board of directors of Yankee Candle adopted the 1999 Stock Option and
Award Plan on April 15, 1999, and the stockholders approved it on April , 1999.
The stock plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the IRS Code and stock options which do not so
qualify, stock appreciation rights, restricted stock, performance units and
performance shares, phantom stock awards and share awards. Yankee Candle's and
its subsidiaries' eligible directors, officers, employees (including future
employees who have received written offers of employment) and consultants are
eligible to receive grants under the stock plan. The stock plan is designed to
comply with the requirements for "performance-based compensation" under Section
162(m) of the IRS Code, and the conditions for exemption from the short-swing
profit recovery rules under Rule 16b-3 under the Exchange Act.
The stock plan is administered by a committee that consists of at least two
nonemployee outside board members. The Compensation Committee of the board
currently serves as the committee. Generally, the committee has the right to
grant options and other awards to eligible individuals and to determine the
terms and conditions of options and awards, including the vesting schedule and
exercise price of options and awards. The stock plan authorizes the issuance of
5% of the outstanding shares of common stock determined on a fully diluted basis
as of , 1999, with adjustment in the case of changes in capitalization
affecting the options.
43
<PAGE>
The stock plan provides that the term of any option may not exceed ten
years, except in the case of the death of an optionee in which event the option
may be exercised for up to one year following the date of death even if it
extends beyond ten years from the date of grant. If a participant's employment,
or service as a director, is terminated following a change in control, any
options or stock appreciation rights become immediately and fully vested at that
time and will remain outstanding until the earlier of the six-month anniversary
of termination and the expiration of the option term.
RELATIONSHIPS AND TRANSACTIONS WITH YANKEE CANDLE
On April 27 1998, Yankee Candle recapitalized. Pursuant to the 1998
recapitalization, Yankee Candle redeemed approximately 500 shares of Yankee
Candle common stock owned by Michael Kittredge for an aggregate redemption price
of approximately $200.0 million. Mr. Kittredge also sold approximately 450
shares of Yankee Candle common stock to Yankee Candle Holdings Corp., a
corporation newly formed by the Forstmann Little partnerships and a group of
executives of Yankee Candle, for approximately $180.0 million. The 1998
recapitalization and related transactions were consummated pursuant to a
recapitalization agreement, dated as of March 25, 1998, between Forstmann Little
& Co. Subordinated Debt and Equity Management Buyout Partnership-VI, L.P., which
is one of the Forstmann Little partnerships, Yankee Candle Holdings, Yankee
Candle and Michael Kittredge. At the same time and as part of the 1998
recapitalization, Chandler's Restaurant, Inc., a subsidiary of Yankee Candle,
acquired the assets of the restaurant business located at Yankee Candle's South
Deerfield flagship retail location from Mr. Kittredge.
Immediately after the 1998 recapitalization, Yankee Candle Holdings owned
90% of Yankee Candle's common stock and Mr. Kittredge owned 10% of Yankee
Candle's common stock.
Yankee Candle financed the redemption of shares from Mr. Kittredge, the
repayment of existing indebtedness and the payment of the expenses of the 1998
recapitalization and certain employee bonuses by borrowing $2.5 million under a
$60.0 million revolving credit facility and by issuing an aggregate of $320.0
million of subordinated debentures to Forstmann Little & Co. Subordinated Debt
and Equity Management Buyout Partnership-VI, L.P. That partnership immediately
distributed the subordinated debentures to its limited partners. The
subordinated debentures are divided into three equal series, due on May 31,
2009, May 31, 2010 and May 31, 2011. The subordinated debentures provide for an
interest rate of 6 3/4% and provide for interest to be paid semi-annually. As of
March 31, 1999, Yankee Candle had paid $12.8 million in interest. The
subordinated debentures may be prepaid by Yankee Candle at any time without
premium, penalty or any charge. Yankee Candle will prepay all of the
subordinated debentures with the proceeds of this offering, the proceeds of a
new credit facility and available cash.
Yankee Candle Holdings purchased shares of common stock from Mr. Kittredge
for approximately $180.0 million. This purchase was financed with the proceeds
from the sale of shares of Yankee Candle Holdings common stock to the Forstmann
Little partnerships and senior management of Yankee Candle, including Mr. Parry,
Ms. Flood, Mr. Williams and nine other persons.
On September 14, 1998, January 22, 1999 and January 26, 1999, Yankee Candle
Holdings repurchased shares of Yankee Candle Holdings common stock from
employees who resigned from Yankee Candle for an aggregate purchase price of
$750,000. To finance the repurchases, Yankee Candle Holdings borrowed funds from
Yankee Candle pursuant to intercompany notes. The notes carried an interest rate
of 5% and were repaid in full on February 3, 1999.
As a result of an award in October 1998 to purchase stock, Mr. Spellman on
February 3, 1999 invested approximately $1.0 million in Yankee Candle Holdings
by purchasing shares of Yankee Candle Holdings common stock. Yankee Candle lent
Mr. Spellman $750,000 to help finance his investment. The loan to Mr. Spellman
carries an interest rate of 7%. The loan provides for full recourse to Mr.
Spellman and is secured. In addition, Mr. Spellman has entered into a pledge
agreement pledging, among other things, his shares of Yankee Candle Holdings
common stock. The loan will be secured by Mr. Spellman's shares of
44
<PAGE>
new Yankee Candle common stock after the offering. The loan matures five years
from the date it was made and must be prepaid in full in certain circumstances,
including following a termination of employment. In addition, Mr. Spellman must
apply his after-tax proceeds of a sale of common stock to reduce the principal
amount of, and accrued interest on, the loan.
Yankee Candle Holdings used the proceeds of Mr. Spellman's investment to
repay all outstanding intercompany notes and used the remainder to make a
capital contribution to Yankee Candle.
Mr. Harry Flood was our Chief Financial Officer until November 1998. In
connection with the 1998 recapitalization, he received a special bonus of
$9,433,962. His aggregate compensation in 1998 was $236,212. He is Ms. Flood's
husband.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Yankee Candle's common stock immediately prior to the consummation
of this offering, giving effect to the reorganization occurring in connection
with this offering, and as adjusted to reflect the sale of the shares of common
stock pursuant to this offering. The table includes:
- each person who is known to Yankee Candle to be the beneficial owner of
more than 5% of the outstanding common stock,
- each other director of Yankee Candle,
- each other executive officer named in the summary compensation table,
- all directors and executive officers of Yankee Candle as a group, and
- the other selling stockholders participating in the offering.
45
<PAGE>
Except as otherwise indicated, the persons or entities listed below have
sole voting and investment power with respect to all shares of common stock
beneficially owned by them, except to the extent such power may be shared with a
spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING (1) NUMBER OF OFFERING (1)
------------------------ SHARES ------------------------
NAME NUMBER PERCENT OFFERED (1) NUMBER PERCENT
- --------------------------------------------------------------- ----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
Forstmann Little & Co. Equity Partnership-V, L.P.(2)...........
Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership-VI, L.P.(2)...............................
Michael J. Kittredge...........................................
OTHER DIRECTORS:
Theodore J. Forstmann(2).......................................
Nicholas C. Forstmann(2).......................................
Steven B. Klinsky(2)...........................................
Sandra J. Horbach(2)...........................................
Michael D. Parry...............................................
Michael S. Ovitz...............................................
Emily Woods....................................................
OTHER NAMED EXECUTIVE OFFICERS:
Gail M. Flood..................................................
Robert R. Spellman.............................................
Stephen T. Williams............................................
All Directors and Executive Officers as a Group (11 persons)...
ADDITIONAL SELLING STOCKHOLDERS:
additional selling stockholders, each of whom is selling
less than shares in the offering and will beneficially
own less than 1% of the outstanding common stock after the
offering.....................................................
</TABLE>
- ------------------------
* The percentage of shares of common stock beneficially owned does not exceed
one percent of the outstanding shares of common stock.
(1) For purposes of this table, information as to the shares of common stock
assumes that the underwriters' over-allotment option is not exercised. In
addition, a person or group of persons is deemed to have "beneficial
ownership" of any shares of common stock when such person or persons has the
right to acquire them within 60 days after the date of this prospectus. For
purposes of computing the percentage of outstanding shares of common stock
held by each person or group of persons named above, any shares which such
person or persons have the right to acquire within 60 days after the date of
this prospectus is deemed to be outstanding but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person. Each selling stockholder other than the Forstmann Little
partnerships has the right to participate with the Forstmann Little
partnerships in the offering and may participate in the offering with
respect to their options regardless of whether they beneficially own the
shares subject to the options for purposes of this table. Information about
the shares being offered, beneficial ownership after the offering and the
selling stockholders is subject to change pending final confirmation of
selling stockholder participation in the offering, prior to pricing of the
offering.
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(2) The general partner of Forstmann Little & Co. Equity Partnership-V, L.P., a
Delaware limited partnership ("Equity-V"), is FLC XXX Partnership, L.P., a
New York limited partnership of which Messrs. Theodore J. Forstmann,
Nicholas C. Forstmann and Steven B. Klinsky, Ms. Sandra J. Horbach, Messrs.
Thomas H. Lister, Winston W. Hutchins and Erskine B. Bowles are general
partners. The general partner of Forstmann Little & Co. Subordinated Debt
and Equity Management Buyout Partnership-VI, L.P., a Delaware limited
partnership ("MBO-VI"), is FLC XXIX Partnership, L.P., a New York limited
partnership of which Messrs. Theodore J. Forstmann, Nicholas C. Forstmann
and Steven B. Klinsky, Ms. Sandra J. Horbach, Messrs. Thomas H. Lister,
Winston W. Hutchins and Erskine B. Bowles are general partners. Accordingly,
each of the individuals named above (other than Mr. Lister and Mr. Bowles
for the reasons described below) may be deemed the beneficial owners of
shares owned by MBO-VI and Equity-V and, for purposes of this table, such
beneficial ownership is included. Mr. Lister and Mr. Bowles do not have any
voting or investment power with respect to, or any economic interest in, the
shares of common stock held by MBO-VI or Equity-V; and, accordingly, Mr.
Lister and Mr. Bowles are not deemed to be the beneficial owners thereof.
Theodore J. Forstmann and Nicholas C. Forstmann are brothers. FLC XXX
Partnership, L.P. is a limited partner of Equity-V. None of the other
limited partners in each of MBO-VI and Equity-V is otherwise affiliated with
Yankee Candle, or Forstmann Little & Co. The address of Equity-V and MBO-VI
is c/o Forstmann Little & Co., 767 Fifth Avenue, New York, New York 10153.
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DESCRIPTION OF THE CREDIT AGREEMENT
Concurrently with the closing of this offering, we expect to terminate our
existing revolving credit facility and enter into a new credit facility with a
syndicate of banks and other financial institutions led by The Chase Manhattan
Bank, as sole administrative agent, and Chase Securities Inc., as the sole and
exclusive lead arranger and sole book manager. The credit facility is expected
to consist of $150 million of term loans and a $150 million revolving credit
facility.
All of the term loans and the loans under the revolving credit facility will
bear interest, at our option, at either of the following rates:
- the highest of (a) the rate from time to time publicly announced by The
Chase Manhattan Bank in New York as its prime rate, (b) the secondary
market rate for three-month certificates of deposit from time to time plus
1% and (c) the federal funds rate from time to time plus 1/2 of 1%, in
each case plus an applicable margin which is (1) .50% for the first six
months after the closing of this offering and (2) after these first six
months, based on a pricing grid depending on our leverage ratio at that
time;
- a Eurodollar rate plus an applicable margin which is (a) 1.50% for the
first six months after the closing of this offering and (b) after these
first six months, based on a pricing grid depending on our leverage ratio
at that time.
We will also pay a commitment fee for the daily average unused commitment
under the revolving credit facility. The commitment fee will be (a) 0.375% for
the first six months after the closing of this offering and (b) after this
period, based on a pricing grid depending on our specified leverage ratio at
that time. The commitment fee will be payable quarterly in arrears and upon the
final maturity of the revolving credit facility. In addition, we will pay fees
for each letter of credit issued under the credit facility.
Beginning , term loans under the credit facility will amortize in
annual installments. The revolving credit facility will mature five years after
the closing of this offering.
The credit facility will be subject to mandatory prepayment with the net
proceeds of certain asset sales and issuances of debt obligations.
The credit facility will contain covenants and provisions that restrict,
among other things, our ability to change the business we are conducting,
declare dividends, grant liens, incur additional indebtedness, exceed a
specified leverage ratio, fall below a minimum interest coverage ratio and make
capital expenditures. We expect to be in compliance with these covenants
immediately after the closing of this offering.
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DESCRIPTION OF CAPITAL STOCK
OVERVIEW
Immediately before the closing of this offering, Yankee Candle will be
reorganized as follows:
- Yankee Candle Holdings will transfer all of its assets, consisting
principally of shares of Yankee Candle common stock, no par value, to
Yankee Candle in exchange for shares of Yankee Candle common stock,
par value $.01 per share,
- Yankee Candle Holdings will be liquidated, and the shares of Yankee
Candle common stock will be distributed to the Yankee Candle Holdings
stockholders, whose Yankee Candle Holdings shares will be canceled, and
- the remaining outstanding shares of Yankee Candle common stock, no par
value, will be exchanged for shares of Yankee Candle common stock par
value $.01 per share.
After this reorganization, Yankee Candle's authorized capital stock will
consist of shares of common stock, $.01 par value per share, and
shares of preferred stock, $.01 par value per share.
After the reorganization, and before the closing of this offering, based on
share information as of March 31, 1999, there will be shares of common
stock outstanding and no shares of preferred stock outstanding. After the
closing of this offering, there will be shares of common stock
outstanding.
After the closing of this offering, the Forstmann Little partnerships and
our management will beneficially own approximately % of the outstanding
common stock, % on a fully diluted basis. As long as the Forstmann Little
partnerships and our management continue to own in the aggregate more than 50%
of Yankee Candle's outstanding shares of common stock, they will collectively
have the power to
- elect the entire board of directors of Yankee Candle,
- determine, without the consent of Yankee Candle's other stockholders, the
outcome of any corporate transaction or other matter submitted to the
stockholders for approval, including mergers, consolidations and the sale
of all or substantially all of Yankee Candle's assets,
- prevent or cause a change in control of Yankee Candle, and
- approve substantially all amendments to our Articles of Organization and
By-Laws.
The Forstmann Little partnerships have a contractual right to elect two
directors until such time as they no longer own any shares of Yankee Candle
common stock.
The following summary of certain provisions of the common stock, preferred
stock, Articles of Organization and By-Laws of Yankee Candle is not intended to
be complete and is qualified by reference to the provisions of applicable law
and to Yankee Candle's Articles of Organization and By-Laws included as exhibits
to the registration statement of which this prospectus is a part.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the outstanding shares of common
stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of common stock are entitled to receive
ratably such dividends, if any, as may be declared by the board of directors out
of legally available funds. Upon the liquidation, dissolution or winding-up of
Yankee Candle, holders of common stock are entitled to receive ratably the net
assets of Yankee Candle available for distribution after the payment of all
liabilities of Yankee Candle and the payment of any required amounts to the
holders of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares
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of common stock are, and the shares sold in this offering will be, when issued
and paid for, validly issued, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of holders of shares of any series of
preferred stock that Yankee Candle may designate and issue in the future.
PREFERRED STOCK
The board of directors is authorized, subject to any limitations prescribed
by law, without further stockholder approval, to establish from time to time one
or more classes or series of preferred stock covering up to an aggregate of
shares of preferred stock, and to issue such shares of preferred
stock. Each class or series of preferred stock will cover such number of shares
and will have such preferences, voting powers, qualifications and special or
relative rights or privileges as is determined by the board of directors, which
may include, among others, dividend rights, liquidation preferences, voting
rights, conversion rights, preemptive rights and redemption rights.
The purpose of authorizing the board of directors to establish preferred
stock is to eliminate delays associated with a stockholders vote on the creation
of a particular class or series of preferred stock. The rights of the holders of
common stock will be subject to the rights of holders of any preferred stock
issued in the future. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of discouraging, delaying or preventing an
acquisition of Yankee Candle at a price which many stockholders find attractive.
These provisions could also make it more difficult for stockholders of Yankee
Candle to effect certain corporate actions, including the election of directors.
Yankee Candle has no present plans to issue any shares of preferred stock.
ARTICLES OF ORGANIZATION, BY-LAWS AND MASSACHUSETTS LAW
Yankee Candle's Articles of Organization and By-Laws and Massachusetts law
contain specific provisions that could be deemed to have anti-takeover effects
that discourage, delay or prevent an acquisition of Yankee Candle and make it
more difficult for stockholders of Yankee Candle to effect certain corporate
actions, including the election of directors.
Massachusetts law provides that stockholders may take action without a
meeting only by the unanimous written consent of all stockholders entitled to
vote. Yankee Candle's By-Laws require Yankee Candle to call a special meeting of
stockholders only at the request of stockholders holding at least 50% of the
outstanding voting stock of Yankee Candle, or a lesser percentage as may be
required by law. Any stockholder who wishes to solicit requests to call a
special meeting must comply with the procedures specified in the By-Laws.
Yankee Candle's By-Laws provide that nominations for directors may not be
made by stockholders at any annual or special meeting of stockholders unless the
stockholder intending to make a nomination notifies Yankee Candle of the
nomination a specified number of days in advance of the meeting and furnishes to
Yankee Candle specified information regarding the stockholder and the intended
nominee. The By-Laws also require advance notice of any proposal to be brought
by a stockholder before any annual or special meeting of stockholders and the
provision of specified information to Yankee Candle regarding the stockholder
and the proposal.
Yankee Candle will be subject to the provisions of Section 50A of Chapter
156B of the Massachusetts General Laws following this offering, which requires
that Yankee Candle have a classified, also called staggered, board of directors.
This statute requires that the classified board consist of three classes, as
nearly equal in size as possible, and provides that directors may be removed
only for cause, as defined in the statute. Yankee Candle's By-Laws contain
provisions that implement a classified board of directors. See
"Management--Directors and Executive Officers."
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Yankee Candle will be subject to the provisions of Chapter 110F of the
Massachusetts General Laws, an anti-takeover law, following this offering. In
general, this statute prohibits Yankee Candle from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person becomes an interested
stockholder, unless either:
- prior to that date, the board of directors approved either the business
combination or the transaction in which the person became an interested
stockholder,
- the interested stockholder acquires, in the transaction in which that
person becomes an interested stockholder, at least 90% of the outstanding
voting stock of Yankee Candle, excluding shares held by certain affiliates
and employee benefit plans of Yankee Candle, or
- the business combination is approved by the board of directors and by the
holders of two-thirds of the outstanding voting stock of Yankee Candle,
excluding shares held by the interested stockholder, voting at a meeting.
In general, an "interested stockholder" is a person who owns 5%, 15% in the
case of a person eligible to file a Schedule 13G under the Securities Exchange
Act with respect to those shares, or more of the outstanding voting stock of
Yankee Candle; or who is an affiliate or associate of Yankee Candle and was the
owner of 5%, 15% in the case of a person eligible to file a Schedule 13G, or
more of the outstanding voting stock within the prior three years. A "business
combination" generally includes a merger, consolidation, stock or asset sale,
and any other transaction with the interested stockholder resulting in a
financial benefit, except proportionately as a stockholder of Yankee Candle, to
the interested stockholder. Yankee Candle may at any time amend its Articles of
Organization or By-Laws, by a vote of the holders of a majority of its voting
stock, to elect not to be governed by Chapter 110F. Such an amendment would not
be effective for 12 months and would not apply to a business combination with
any person who became an interested stockholder prior to the date of the
amendment.
Yankee Candle's By-Laws include a provision that excludes Yankee Candle from
the applicability of Chapter 110D of the Massachusetts General Laws. In general,
this statute provides that any stockholder who acquires 20% or more of the
outstanding voting stock of a corporation subject to this statute may not vote
that stock unless the disinterested stockholders of the corporation so
authorize. In addition, the statute permits a corporation to provide in its
Articles of Organization or By-Laws that the corporation may redeem for fair
value all of the shares acquired in a control share acquisition if the
interested stockholder does not deliver a control share acquisition statement or
if the interested stockholder delivers a control share acquisition statement but
the stockholders of the corporation do not authorize voting rights for those
shares. The board of directors may amend the By-Laws at any time to subject
Yankee Candle to this statute prospectively.
Yankee Candle's Articles of Organization provide that certain transactions,
such as the sale, lease or exchange of all or substantially all of Yankee
Candle's assets and the merger or consolidation of Yankee Candle with another
corporation, may be authorized by vote of a majority of the outstanding voting
stock, or if there are two or more classes of voting stock, by a majority of
each class, rather than by two-thirds as is otherwise provided by Massachusetts
law.
Yankee Candle's Articles of Organization provide that no director of Yankee
Candle shall be personally liable for monetary damages to Yankee Candle or to
its stockholders for a breach of fiduciary duty as a director. This provision
does not eliminate or limit liability:
- for any breach of the director's duty of loyalty to Yankee Candle or its
stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- under Section 61 or 62 of Chapter 156B of the Massachusetts General Laws,
dealing with liability for unauthorized distributions and loans to
corporate insiders, or
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- for any transaction from which the director derived an improper personal
benefit.
Yankee Candle's Articles of Organization also provide for the
indemnification of Yankee Candle's directors and officers to the fullest extent
permitted by Massachusetts law, including under circumstances in which
indemnification would otherwise be discretionary. In addition, Yankee Candle has
entered into indemnity agreements with each of its directors and officers
providing similar benefits.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be BankBoston,
NA, a Massachusetts banking corporation.
SHARES ELIGIBLE FOR FUTURE SALE
RULE 144 SECURITIES
Upon the consummation of the offering, Yankee Candle will have shares
of common stock outstanding. Of these shares, only the shares of
common stock sold in the offering will be freely tradable without registration
under the Securities Act and without restriction by persons other than
"affiliates" of Yankee Candle. The shares of common stock held by the
Forstmann Little partnerships and Yankee Candle's directors and executive
officers after the offering will be "restricted" securities under the meaning of
Rule 144 under the Securities Act and may not be sold in the absence of
registration under the Securities Act, unless an exemption from registration is
available, including exemptions pursuant to Rule 144 or Rule 144A under the
Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of either
of the following:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately the number of shares outstanding immediately after
this offering, or
- the average weekly trading volume of the common stock on the NYSE during
the four calendar weeks preceding the filing of a notice on Form 144 with
respect to such sale.
Sales under Rule 144 are also subject to specified manner of sale provisions
and notice requirements and to the availability of current public information
about Yankee Candle.
Under Rule 144(k), a person who is not deemed to have been one of Yankee
Candle's "affiliates" at any time during the 90 days preceding a sale, and who
has beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an "affiliate," is
entitled to sell its shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering. The sale of these shares, or the perception that
sales will be made, could adversely effect the price of Yankee Candle's common
stock after the offering because a greater supply of shares would be, or would
be perceived to be, available for sale in the public market.
Each of Yankee Candle, the selling stockholders and our directors and
executive officers have agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, it will not, during
the period ended 180 days after the date of this prospectus, sell shares of
common stock or take related actions, subject to limited exceptions, all as
described under "Underwriters."
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REGISTRATION RIGHTS
Yankee Candle and the Forstmann Little partnerships have entered into a
registration rights agreement, pursuant to which Yankee Candle has granted to
the Forstmann Little partnerships six demand rights to cause Yankee Candle to
file a registration statement under the Securities Act covering resales of all
shares of common stock held by the Forstmann Little partnerships, and to cause
the registration statement to become effective. The registration rights
agreement also grants "piggyback" registration rights permitting the Forstmann
Little partnerships to include its registrable securities in a registration of
securities by Yankee Candle. Under the agreement, Yankee Candle will pay the
expenses of such registrations.
In addition, pursuant to the stockholder's and subscription agreements,
Yankee Candle is granting "piggyback" registration rights to all of its
employees and directors who have purchased shares of common stock and/or that
have been awarded options to purchase shares of common stock. These registration
rights are exercisable only upon registration by Yankee Candle of shares of
common stock held by the Forstmann Little partnerships. The holders of common
stock entitled to these registration rights are entitled to notice of any
proposal to register shares held by the Forstmann Little partnerships and to
include their shares in such registration. Yankee Candle will pay the expenses
of these piggyback registrations.
UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of material U.S. federal income and
estate tax consequences of the ownership and disposition of our common stock
applicable to Non-U.S. Holders. A "Non-U.S. Holder" is a person other than:
- an individual who is a citizen or resident of the United States,
- a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or of any state,
other than a partnership treated as foreign for U.S. federal income tax
purposes,
- an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of source, and
- a trust subject to the primary supervision of a court within the United
States and the control of one or more U.S. persons.
An individual may, with certain exceptions, be treated as a resident alien,
instead of a non-resident alien, by being present in the United States for at
least 31 days in the calendar year and for a total of at least 183 days during a
three-year period ending in the current calendar year--counting for these
purposes all of the days present in the current year, one-third of the days
present in the last year, and one-sixth of the days present in the
second-to-last year. Resident aliens are subject to tax as if they were U.S.
citizens.
This discussion does not consider:
- U.S. state and local or non-U.S. tax consequences,
- facts and circumstances that may be relevant to a particular Non-U.S.
Holder, including, if it is a partnership, the consequences of some
determinations being made at the partner level,
- the tax consequences to a Non-U.S. Holder's shareholders, partners or
beneficiaries,
- special tax rules that may apply to a Non-U.S. Holder that is, for
example, a bank, an insurance company, a dealer in securities or a trader
in securities that elects mark-to-market accounting treatment, or
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- special tax rules that may apply when our common stock is held as part of
a "straddle," "hedge" or "conversion transaction."
The following discussion is based on provisions of the U.S. Internal Revenue
Code of 1986, as amended, applicable Treasury regulations, and administrative
and judicial interpretations as of the date of this prospectus, all of which may
change retroactively or prospectively. The following summary is for general
information. If you are a Non-U.S. Holder, you should consult a tax advisor on
the U.S. federal tax consequences of holding and disposing of our common stock,
as well as any tax consequences under the laws of any U.S. state or local or
non-U.S. taxing jurisdiction.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of common stock generally will be
subject to withholding of U.S. federal income tax at a 30% rate or a lower rate
that an applicable income tax treaty may specify. Non-U.S. Holders should
consult their tax advisors on their entitlement to benefits under a relevant
income tax treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct of
a trade or business in the U.S. are generally subject to U.S. federal income tax
on a net income basis at regular graduated rates, but are not generally subject
to the 30% withholding tax, if the Non-U.S. Holder files the appropriate IRS
form with the payer. Any U.S. trade or business income received by a Non-U.S.
Holder that is a corporation may, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or a lower rate that an applicable
income tax treaty may specify.
Dividends paid prior to 2000 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
that country for purposes of the withholding discussed above and for purposes of
determining the applicability of an income tax treaty rate. For dividends paid
after 1999:
- a Non-U.S. Holder of common stock that claims the benefit of an income tax
treaty rate generally will be required to satisfy applicable certification
and other requirements,
- in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of the
partnership, and the partnership will be required to provide a U.S.
taxpayer identification number and other information, and
- look-through rules will apply to tiered partnerships.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit of
any excess amounts withheld by filing an appropriate claim for a refund with the
IRS.
DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:
- the gain is U.S. trade or business income, in which case the branch
profits tax described above may also apply to a corporate Non-U.S. Holder,
- the Non-U.S. Holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the United States for 183 or more days in the taxable
year of the disposition and meets certain other requirements,
- the Non-U.S. Holder is subject to tax under provisions of U.S. tax law
applicable to certain U.S. expatriates, or
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- Yankee Candle is or has been a "U.S. real property holding corporation"
for U.S. federal income tax purposes at any time during the shorter of the
five-year period ending on the date of disposition and the Non-U.S.
Holder's holding period for the common stock.
The tax relating to stock in a "U.S. real property holding corporation" does
not apply to a Non-U.S. Holder whose holdings, actual and constructive, at all
times during the applicable period, amount to 5% or less of the common stock,
provided that the common stock is regularly traded on an established securities
market. Generally, a corporation is a "U.S. real property holding corporation"
if the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property interests
and its other assets used or held for use in a trade or business. Yankee Candle
believes that it has not been and is not, and does not anticipate becoming, a
"U.S. real property holding corporation" for U.S. federal income tax purposes.
FEDERAL ESTATES TAXES
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes and may be subject to U.S. federal estate
tax, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Yankee Candle must report annually to the IRS and to each Non-U.S. Holder
the amount of the dividends paid to that holder and any tax withheld with
respect to those dividends. The information reporting requirements apply
regardless of whether withholding is required. Copies of the information returns
reporting those dividends and withholding may also be made available, under an
applicable income tax treaty or agreement, to the tax authorities in the
Non-U.S. Holder's country of residence.
Under certain circumstances, the IRS requires information reporting and
backup withholding at a rate of 31% on certain payments on common stock. Under
currently applicable law, Non-U.S. Holders of common stock generally will be
exempt from information reporting and backup withholding on dividends paid prior
to 2000 to an address outside the U.S. For dividends paid after 1999, however, a
Non-U.S. Holder of common stock that fails to certify its Non-U.S. Holder status
under applicable Treasury regulations may be subject to backup withholding at a
rate of 31% on payments of dividends.
The payment of the proceeds of the disposition of common stock by or through
the U.S. office of a broker generally will be subject to information reporting
and backup withholding at a rate of 31% unless the holder certifies its status
as a Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of common stock by or through a non-U.S. office of a non-U.S. broker will not be
subject to backup withholding or information reporting unless the non-U.S.
broker has certain U.S. relationships that make it a "U.S. related person." In
the case of the payment of proceeds from disposition of common stock by or
through a non-U.S. office of a broker that is a U.S. person or a "U.S. related
person," information reporting, but not backup withholding, on the payment
applies unless the broker has documentary evidence in its files that the holder
is a Non-U.S. Holder and that certain conditions are met or that the holder
otherwise is entitled to an exemption. For this purpose, a "U.S. related person"
is:
- a "controlled foreign corporation" for U.S. federal income tax purposes,
- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment, or for that part of the period that the broker has been in
existence, is derived from activities that are effectively connected with
the conduct of a U.S. trade or business, or
- effective after 1999, a foreign partnership (A) at least 50% of the
capital or profits interest in which is owned by U.S. persons, or (B) that
is engaged in a U.S. trade or business.
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Effective after 1999, backup withholding will apply to a payment of
disposition proceeds if the broker has actual knowledge that the holder is a
U.S. person. Non-U.S. Holders should consult their own tax advisors on the
application of information withholding and backup withholding to them.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded or credited against the holder's U.S. federal
income tax liability, if any, if the holder provides the required information to
the IRS.
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UNDERWRITERS
We intend to offer our common stock in the United States through a number of
U.S. underwriters as well as elsewhere through international managers. Under the
terms and subject to the conditions of the underwriting agreement dated the date
of this prospectus, the U.S. underwriters named below, for whom Morgan Stanley &
Co. Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated are acting as U.S. representatives, and the international
underwriters named below, for whom Morgan Stanley & Co. International Limited,
Goldman Sachs International and Merrill Lynch International are acting as
international representatives, have severally agreed to purchase, and we and the
selling stockholders have severally agreed to sell to them, the respective
number of shares of our common stock set forth opposite the names of the
underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------------------ ----------
<S> <C>
U.S. underwriters:
Morgan Stanley & Co. Incorporated...................................................................
Goldman, Sachs & Co.................................................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................................................
Subtotal........................................................................................
International underwriters:
Morgan Stanley & Co. International Limited..........................................................
Goldman Sachs International.........................................................................
Merrill Lynch International.........................................................................
Subtotal........................................................................................
Total...........................................................................................
</TABLE>
The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively referred
to as the underwriters and the representatives, respectively. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of our common stock offered hereby are subject
to the approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to purchase all of the shares of our
common stock except those covered by the U.S. underwriters' over-allotment
option described below if any are purchased.
In the agreement between U.S. and international underwriters, each U.S.
underwriter has represented and agreed that, with specific exceptions:
- it is not purchasing any shares for the account of anyone other than a
U.S. or Canadian person, and
- it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the shares
outside the United States or Canada or to anyone other than a U.S. or
Canadian person.
In the agreement between U.S. and international underwriters, each
international underwriter has represented and agreed that, with specific
exceptions:
- it is not purchasing any shares for the account of any U.S. or Canadian
person, and
- it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the shares
in the United States or Canada or to any U.S. or Canadian person.
For any underwriter that is both a U.S. underwriter and an international
underwriter, these representations and agreements made by it in its capacity as
a U.S. underwriter apply only to it in its capacity as a U.S. underwriter and
those made by it in its capacity as an international underwriter apply only to
it in its
57
<PAGE>
capacity as an international underwriter. The limitations described above do not
apply to stabilization transactions or to other transactions specified in the
agreement between U.S. and international underwriters. As used in this
prospectus, U.S. or Canadian person means any national or resident of the United
States or Canada, or any corporation, pension, profit-sharing or other trust or
other entity organized under the laws of the United States or Canada or of any
political subdivision thereof, other than a branch located outside the United
States and Canada of any U.S. or Canadian person. U.S. or Canadian person
includes any U.S. or Canadian branch of a person who is otherwise not a U.S. or
Canadian person. All shares of common stock to be purchased by the underwriters
under the underwriting agreement are referred to as shares.
In the agreement between U.S. and international underwriters, sales of
shares may be made between the U.S. underwriters and international underwriters.
The price of any shares so sold will be the public offering price set forth on
the cover page of this prospectus, in U.S. dollars, less an amount not greater
than $ per share.
In the agreement between U.S. and international underwriters, each U.S.
underwriter has represented that it has not offered or sold, and has agreed not
to offer or sell, any shares in any province or territory of Canada or to, or
for the benefit of, any resident of any province or territory of Canada in
contravention of the securities laws of Canada. Each U.S. underwriter has
represented that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which the offer or sale is made. Each U.S.
underwriter has further agreed to send to any dealer who purchases from it any
of the shares a notice stating in substance that, by purchasing the shares, the
dealer agrees that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which the offer or sale is made. Each dealer
will deliver to any other dealer to whom it sells any of the shares a notice
containing substantially the same Canadian selling restrictions.
In the agreement between U.S. and international underwriters, each
international underwriter has represented and agreed that:
- it has not offered or sold and, prior to the date six months after the
closing date for the sale of the shares to the international underwriters,
will not offer or sell, any shares to persons in the United Kingdom except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments for the purposes of their businesses
or otherwise in circumstances which have not resulted and will not result
in an offer to the public in the United Kingdom within the meaning of the
public offers of Securities Regulations 1995,
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986, and
- it has and will distribute any document relating to the shares in the
United Kingdom only to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 (as amended) or is a person to whom such document
may otherwise lawfully be distributed.
In the agreement between U.S. and international underwriters, each
international underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell in Japan or to or for the account of
any resident of Japan, any of the shares. This limitation does not apply to
Japanese international underwriters or dealers and offers or sales pursuant to
any exemption from the registration requirements of the Securities and Exchange
Law and otherwise in compliance with applicable provisions of Japanese law. Each
international underwriter has further agreed to send to any dealer who purchases
from it any of the shares a notice stating that, by purchasing the shares, the
dealer agrees that any offer or sale of the shares in Japan will be made only to
Japanese international underwriters or dealers or under an exemption from the
registration requirements of the Securities and Exchange Law and otherwise in
58
<PAGE>
compliance with applicable provisions of Japanese law. Each dealer will send to
any other dealer to whom it sells any of the shares a notice containing
substantially the same Japanese selling restrictions.
The underwriters initially propose to offer part of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus. The underwriters may also offer the shares to securities dealers at
a price that represents a concession not in excess of $ per share under the
public offering price. Any underwriter may allow and dealers may reallow, a
concession not in excess of $ per share to other underwriters or to securities
dealers. After the initial offering of the shares, the offering price and other
selling terms may from time to time be changed by the representatives.
The selling stockholders have granted to the U.S. underwriters an option,
exercisable for 30 days from the date of this prospectus to purchase up to an
aggregate of additional shares at the public offering price set forth on the
cover page of this prospectus, less underwriting discounts and commissions. The
U.S. underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares
offered pursuant to this prospectus. To the extent this option is exercised,
each U.S. underwriter will become obligated, subject to specified conditions, to
purchase about the same percentage of additional shares as the number set forth
next to the U.S. underwriter's name in the preceding table bears to the total
number of shares set forth next to the names of all U.S. underwriters in the
preceding table. If the U.S. underwriters' option is exercised in full, the
total price to the public for this offering would be $ , the total
underwriters' discounts and commissions would be $ and total proceeds to Yankee
Candle and the selling stockholders would be $ .
The underwriters have informed us and the selling stockholders that they do
not intend sales to discretionary accounts to exceed five percent of the total
number of shares offered by them.
We intend to apply for the listing of our common stock on the NYSE under the
symbol "YCC," subject to official notice of issuance. The underwriters intend to
sell shares to a minimum of beneficial owners in lots of or more so as to
meet the distribution requirements of this listing.
At our request and request of the selling stockholders, the underwriters
will reserve up to shares to be sold in the offering and offered hereby
for sale, at the initial public offering price, to our directors, officers and
employees and others, generally in the United States. This directed share
program will be administered by Morgan Stanley & Co. Incorporated. The number of
shares available for sale to the general public will be reduced to the extent
these individuals purchase the reserved shares. Any reserved shares which are
not so purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered in this prospectus.
Each of Yankee Candle, the selling stockholders and all of our directors and
executive officers has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, it will not, during
the period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock,
whether any transaction described above is to be settled by delivery of shares
of common stock or other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the reorganization in connection with this offering,
- the sale of the shares to the underwriters,
59
<PAGE>
- the issuance by us of shares of common stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date
of this prospectus of which the underwriters have been advised in writing,
- the granting of stock options and/or restricted stock units pursuant to
our existing employee benefit plans and to directors in connection with
their initial appointment to the board of directors, provided that these
options, other than director options, do not become exercisable and such
units do not vest during such 180-day period, and
- transactions by any person other than us relating to shares of common
stock or other securities acquired in open market or other transactions
after the completion of the offering.
In order to facilitate the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
shares of common stock. Specifically, the underwriters may agree to sell or
allot more shares than the shares of our common stock we have agreed to
sell to them. This over-allotment would create a short position in our common
stock for the underwriters' account. To cover any over-allotments or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. The underwriters have
reserved the right to reclaim selling concessions in order to encourage
underwriters and dealers to distribute the common stock for investment, rather
than for short-term profit taking. Increasing the proportion of the offering
held for investment may reduce the supply of common stock available for
short-term trading. Any of these activities may stabilize or maintain the market
price of the common stock above independent market levels. The underwriters are
not required to engage in these activities and may end any of these activities
at any time.
From time to time, certain of the underwriters have provided, and may
continue to provide, investment banking services to us and the Forstmann Little
partnerships.
We, the selling stockholders and the underwriters have agreed to indemnify
each other against a variety of liabilities, including liabilities under the
Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
among us, the selling stockholders and the U.S. representatives. Among the
factors to be considered in determining the initial public offering price will
be the future prospects of us and our industry in general, sales, earnings and
certain other financial and operating information of ours in recent periods, and
the price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of ours. The estimated initial public offering price range set
forth on the cover page of this prospectus is subject to change as a result of
market conditions and other factors.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for Yankee Candle by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), New York, New York, and Hale
and Dorr LLP, Boston, Massachusetts as to matters of Massachusetts law and for
the underwriters by Davis Polk & Wardwell, New York, New York. Fried, Frank,
Harris, Shriver & Jacobson has in the past provided, and may continue to
provide, legal services to Forstmann Little and its affiliates.
60
<PAGE>
EXPERTS
The consolidated financial statements of The Yankee Candle Company, Inc. as
of December 31, 1998 and for the year ended December 31, 1998 included in this
prospectus and the related financial statement schedule included elsewhere in
this Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the registration statement, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
The financial statements and schedule of The Yankee Candle Company, Inc. at
December 31, 1997, and for the year then ended, appearing in this prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given on the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of The Yankee Candle Company, Inc. for
the year ended December 31, 1996 included in this prospectus and the related
financial statement schedule included elsewhere in this Registration Statement
have been audited by Fisk, Bilton, Smith & Co., P.C., independent auditors, as
stated in their reports appearing herein and elsewhere in the registration
statement, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
Our current auditors are Deloitte & Touche LLP, who replaced Ernst & Young
LLP as our auditors after the 1998 recapitalization in May 1998. Fisk, Bilton,
Smith & Co., P.C. were our auditors until early 1997.
There were no disagreements between either (i) Ernst & Young LLP and our
management at the decision-making level during the period of their engagement or
(ii) Fisk, Bilton, Smith & Co., P.C. and our management at the decision-making
level during the period of their engagement, which disagreements, if not
resolved to the satisfaction of either Ernst & Young LLP or Fisk, Bilton, Smith
& Co., P.C., would have caused either to make reference to the subject matter of
the disagreements in connection with their reports. In addition, there were no
reportable events during the respective engagement periods of Ernst & Young LLP
and Fisk, Bilton, Smith & Co., P.C.
Prior to their respective appointments, neither we nor anyone on our behalf
consulted Deloitte & Touche LLP or Ernst & Young LLP regarding the application
of accounting principles to a specified transaction or the type of audit opinion
that might be rendered on our financial statements, and neither Deloitte &
Touche LLP nor Ernst & Young LLP provided a written or oral report or advice
that our management concluded was an important factor considered by us in
reaching a decision on the issue.
WHERE YOU CAN FIND MORE INFORMATION
Yankee Candle has filed with the Securities and Exchange Commission a
registration statement on Form S-1, which includes amendments, exhibits,
schedules and supplements, under the Securities Act of 1933 and the rules and
regulations under the Securities Act, for the registration of the common stock
offered by this prospectus. Although this prospectus, which forms a part of the
registration statement, contains all material information included in the
registration statement, parts of the registration statement have been omitted
from this prospectus as permitted by the rules and regulations of the
Commission. For further information with respect to Yankee Candle and the common
stock offered by this prospectus, please refer to the registration statement.
Statements contained in this prospectus as to the contents of any contracts or
other document referred to in this prospectus are not necessarily complete and,
where such contract or other document is an exhibit to the registration
statement, each such statement is qualified in all respects by the provisions of
such exhibit, to which reference is now made. The registration statement can be
inspected and copied at prescribed rates at the public reference facilities
maintained by the
61
<PAGE>
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The public may obtain information regarding
the Washington, D.C. Public Reference Room by calling the Commission at
1-800-SEC-0330. In addition, the registration statement is publicly available
through the Commission's site on the Internet's World Wide Web, located at:
http://www.sec.gov. Following the offering, Yankee Candle's future public
filings are expected to be available for inspection at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
After the offering, we will be subject to the full informational
requirements of the Securities Exchange Act of 1934, as amended. To comply with
such requirements, we will file periodic reports, proxy statements and other
information with the Commission.
Our logo and certain titles of our products mentioned in this prospectus are
our trademarks.
62
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Reports...................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998....................... F-5
Consolidated Statement of Operations for the years ended December 31, 1996, 1997 F-6
and 1998.........................................................................
Consolidated Statements of Stockholders' Equity for the years ended December 31, F-7
1996, 1997 and 1998..............................................................
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 F-8
and 1998.........................................................................
Notes to Consolidated Financial Statements......................................... F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Yankee Candle Company, Inc.
Whately, Massachusetts
We have audited the accompanying consolidated balance sheet of The Yankee
Candle Company, Inc. and subsidiaries as of December 31, 1998 and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 1998 financial statements present fairly, in all
material respects, the financial position of The Yankee Candle Company, Inc. and
subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 31, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
The Yankee Candle Company, Inc.
We have audited the accompanying balance sheet of The Yankee Candle Company,
Inc. as of December 31, 1997, and the related statements of operations and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Yankee Candle Company,
Inc. at December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 6, 1998
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Yankee Candle Company, Inc.
We have audited the accompanying statement of operations, stockholders'
equity (deficit) and cash flows of The Yankee Candle Company, Inc. for the year
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of The Yankee Candle Company,
Inc. for the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ FISK, BILTON, SMITH & CO., P.C.
West Springfield, Massachusetts
March 4, 1997
F-4
<PAGE>
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................................ $ 7,377 $ 30,411
Accounts receivable, less allowance of $360 in 1997 and $450 in 1998, respectively....... 6,933 8,546
Inventory................................................................................ 10,212 12,482
Prepaid expenses and other current assets................................................ 496 855
Deferred tax assets...................................................................... 158 1,542
--------- ----------
Total current assets................................................................... 25,176 53,836
PROPERTY, PLANT AND EQUIPMENT (NET)........................................................ 43,912 48,315
MARKETABLE SECURITIES...................................................................... 386 856
CLASSIC VEHICLES........................................................................... 1,589 874
DEFERRED FINANCING COSTS................................................................... -- 6,566
NOTE RECEIVABLE--RELATED PARTY............................................................. 1,573 --
DEFERRED TAX ASSETS........................................................................ -- 164,474
OTHER ASSETS............................................................................... 460 424
--------- ----------
TOTAL ASSETS........................................................................... $ 73,096 $ 275,345
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank loans............................................................................... $ 17,080 $ --
Accounts payable......................................................................... 6,275 13,287
Accrued interest......................................................................... 124 1,895
Accrued payroll.......................................................................... 3,666 4,768
Accrued income taxes..................................................................... 954 --
Other accrued liabilities................................................................ 1,313 2,982
Current portion of long-term debt........................................................ 874 --
--------- ----------
Total current liabilities.............................................................. 30,286 22,932
--------- ----------
DEFERRED COMPENSATION OBLIGATION........................................................... 540 1,004
LONG-TERM DEBT--Less current portion....................................................... 7,310 320,000
DEFERRED TAX LIABILITIES................................................................... 169 --
COMMITMENTS AND CONTINGENCIES (Notes 10 and 12)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01, par value, 1,000 shares authorized and issued; 1,000 and 500 shares
outstanding at 1997 and 1998, respectively............................................. -- --
Additional paid-in capital............................................................... 62 127,590
Treasury stock, 500 shares at 1998....................................................... -- (212,448)
Retained earnings........................................................................ 34,729 19,048
Capital subscription receivable.......................................................... -- (1,084)
Unearned stock compensation.............................................................. -- (1,698)
Accumulated other comprehensive income................................................... -- 1
--------- ----------
Total stockholders' equity (deficit)................................................... 34,791 (68,591)
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)................................... $ 73,096 $ 275,345
--------- ----------
--------- ----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1997 1998
---------- ------------ --------------
<S> <C> <C> <C>
NET SALES.............................................................. $ 112,199 $ 144,103 $ 184,477
COST OF SALES.......................................................... 53,207 62,069 79,105
---------- ------------ --------------
Gross profit..................................................... 58,992 82,034 105,372
---------- ------------ --------------
OPERATING EXPENSES:
Selling expenses..................................................... 23,244 26,935 30,546
General and administrative expenses.................................. 21,687 27,031 19,753
Bonus related to the Recapitalization................................ -- -- 61,263
---------- ------------ --------------
44,931 53,966 111,562
---------- ------------ --------------
INCOME (LOSS) FROM OPERATIONS.......................................... 14,061 28,068 (6,190)
---------- ------------ --------------
OTHER (INCOME) EXPENSE:
Interest income...................................................... (165) (151) (219)
Interest expense..................................................... 1,913 2,154 16,268
Other expense........................................................ 221 334 737
---------- ------------ --------------
Total other expense.............................................. 1,969 2,337 16,786
---------- ------------ --------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES................................................................ 12,092 25,731 (22,976)
PROVISION FOR INCOME TAXES............................................. 410 1,360 9,656
---------- ------------ --------------
NET INCOME (LOSS)...................................................... $ 11,682 $ 24,371 $ (32,632)
---------- ------------ --------------
---------- ------------ --------------
PRO FORMA INFORMATION (UNAUDITED):
HISTORICAL INCOME (LOSS) BEFORE
PROVISION (BENEFIT) FOR INCOME TAXES............................... $ 12,092 $ 25,731 $ (22,976)
PRO FORMA PROVISION (BENEFIT) FOR INCOME TAXES....................... $ 4,830 $ 10,686 $ (8,731)
---------- ------------ --------------
PRO FORMA NET INCOME (LOSS).......................................... $ 7,262 $ 15,045 $ (14,245)
---------- ------------ --------------
---------- ------------ --------------
PRO FORMA BASIC EARNINGS (LOSS) PER SHARE............................ $ 7,262.07 $ 15,044.99 $ (21,469.48)
---------- ------------ --------------
---------- ------------ --------------
PRO FORMA DILUTED EARNINGS (LOSS) PER SHARE.......................... $ 7,262.07 $ 15,044.99 $ (21,469.48)
---------- ------------ --------------
---------- ------------ --------------
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING............................ 1,000 1,000 663.5
---------- ------------ --------------
---------- ------------ --------------
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING.......................... 1,000 1,000 663.5
---------- ------------ --------------
---------- ------------ --------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CAPITAL
------------------------ PAID-IN TREASURY RETAINED SUBSCRIPTION
SHARES AMOUNT CAPITAL STOCK EARNINGS RECEIVABLE
----------- ----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996..................... 1,000 $ -- $ 62 $ -- $ 28,561 $ --
Distributions to stockholder............... -- -- -- -- (3,125) --
Net income/comprehensive income............ -- -- -- -- 11,682 --
----- --- ----------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1996................... 1,000 -- 62 -- 37,118 --
Distributions to stockholder............... -- -- -- -- (26,760) --
Net income/comprehensive income............ -- -- -- -- 24,371 --
----- --- ----------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1997................... 1,000 -- 62 -- 34,729 --
Distributions to stockholder............... -- -- -- -- (34,102) --
Transfer of accumulated deficit to
additional paid-in capital at termination
of S-Corporation status.................. -- -- (51,053) -- 51,053 --
Redemption of common stock................. -- -- -- (212,448) -- --
Recognition of deferred tax asset.......... -- -- 175,683 -- -- --
Capital subscription receivable............ -- -- 1,084 -- -- (1,084)
Unearned stock compensation................ -- -- 1,814 -- -- --
Amortization of unearned stock
compensation............................. -- -- -- -- -- --
Comprehensive income (loss):
Net loss................................. -- -- -- -- (32,632) --
Foreign currency translation gain........ -- -- -- -- -- --
Comprehensive income (loss)................ -- -- -- -- -- --
----- --- ----------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1998................... 1,000 $ -- $ 127,590 $ (212,448) $ 19,048 $ (1,084)
----- --- ----------- ----------- ---------- ------------
----- --- ----------- ----------- ---------- ------------
<CAPTION>
ACCUMULATED
OTHER
UNEARNED COMPREHENSIVE COMPREHENSIVE
STOCK COMPENSATION INCOME INCOME TOTAL
-------------------- ------------------- --------------- -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996..................... $ -- $ -- $ 28,623
Distributions to stockholder............... -- -- (3,125)
Net income/comprehensive income............ -- -- $ 11,682 11,682
------- --- --------------- -----------
--- ---------------
BALANCE, DECEMBER 31, 1996................... -- -- 37,180
Distributions to stockholder............... -- -- (26,760)
Net income/comprehensive income............ -- -- 24,371 24,371
------- --- --------------- -----------
--- ---------------
BALANCE, DECEMBER 31, 1997................... -- -- 34,791
Distributions to stockholder............... -- -- (34,102)
Transfer of accumulated deficit to
additional paid-in capital at termination
of S-Corporation status.................. -- -- --
Redemption of common stock................. -- -- (212,448)
Recognition of deferred tax asset.......... -- -- 175,683
Capital subscription receivable............ -- -- --
Unearned stock compensation................ (1,814) -- --
Amortization of unearned stock
compensation............................. 116 -- 116
Comprehensive income (loss):
Net loss................................. -- -- (32,632) (32,632)
Foreign currency translation gain........ -- 1 1 1
--- ---------------
Comprehensive income (loss)................ -- -- $ (32,631) --
------- --- --------------- -----------
--- ---------------
BALANCE, DECEMBER 31, 1998................... $ (1,698) $ 1 $ (68,591)
------- -----------
------- -----------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................... $ 11,682 $ 24,371 $ (32,632)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization............................................. 3,094 3,581 4,662
Provision for loss on classic vehicles.................................... 400 46 --
Unrealized gain on marketable equity securities........................... -- (37) (92)
Non-cash stock compensation............................................... -- -- 116
Deferred taxes............................................................ -- (35) 9,656
(Gain) loss on disposal of fixed assets and classic vehicles.............. (14) 460 (146)
Changes in assets and liabilities:
Accounts receivable--net................................................ (501) (983) (1,613)
Inventory............................................................... 2,450 (1,064) (2,270)
Prepaid expenses and other assets....................................... (351) 1,005 (323)
Accounts payable........................................................ (606) 1,105 7,012
Accrued expenses and other liabilities.................................. 1,076 1,586 4,052
---------- ---------- ----------
Net cash provided by (used in) operating activities................... 17,230 30,035 (11,578)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment....................................................... (10,076) (9,173) (9,433)
Acquisition of classic vehicles............................................. (327) (455) --
Acquisition of trademarks................................................... (6) (17) --
Loans to stockholder........................................................ (608) (204) --
Proceeds from sale of equipment............................................. 30 22 506
Proceeds from sale of classic vehicles...................................... -- 215 --
Purchase of marketable equity securities for deferred compensation plan..... -- (349) (378)
---------- ---------- ----------
Net cash used in investing activities................................. (10,987) (9,961) (9,305)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under bank credit agreements.................... (4,547) 14,080 (31,097)
Proceeds from long-term borrowings.......................................... 1,599 -- 320,000
Principal payments on long-term debt........................................ (3,038) (861) (8,183)
Deferred financing costs.................................................... -- -- (7,115)
Redemption of common stock.................................................. -- -- (212,448)
Distributions to stockholder................................................ (3,126) (26,760) (17,240)
---------- ---------- ----------
Net cash provided by (used in) financing activities................... (9,112) (13,541) 43,917
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... (2,869) 6,533 23,034
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................................. 3,713 844 7,377
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR........................................ $ 844 $ 7,377 $ 30,411
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................................. $ 1,968 $ 2,078 $ 14,497
---------- ---------- ----------
---------- ---------- ----------
Income taxes.............................................................. $ 352 $ 485 $ 8,730
---------- ---------- ----------
---------- ---------- ----------
Noncash distributions to sole stockholder................................... $ 16,862
----------
----------
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. HISTORY, RECAPITALIZATION AND FINANCING
The Yankee Candle Company, Inc. (the "Company") and its subsidiaries is a
leading designer, manufacturer, wholesaler and retailer of premium scented
candles in the growing giftware industry. The Company has a 30-year history of
offering Yankee Candle products and marketing them as affordable luxuries and
consumable gifts. The Company's current products are available in numerous
fragrances and include a wide variety of jar candles,
Samplers-Registered Trademark-, pillars, tapers and other candle products
marketed under the trade names Housewarmer-Registered Trademark- and Country
Kitchen-Registered Trademark-, as well as candle accessories. The Company sells
such products to its wholesale customers who have gift store locations
nationwide and through its retail base of 62 company-owned and operated stores
in 20 states as of December 31, 1998.
On March 25, 1998, the Company entered into a Recapitalization and Stock
Purchase Agreement with Yankee Candle Holdings Corp. ("Holdings"), Michael
Kittredge ("MK"), and affiliates of Forstmann Little & Co. ("FL&Co."). On April
27, 1998 in connection with the Recapitalization, the Company (i) redeemed (the
"Redemption") a portion of its common stock held by MK for approximately
$200,000; (ii) paid transaction fees and expenses, including financing fees, of
approximately $19,550; (iii) repaid existing indebtedness of approximately
$49,300; and (iv) paid bonuses related to the Recapitalization of approximately
$61,300. In addition, Holdings acquired shares of common stock from MK for
approximately $180,000. This purchase was financed by the issuance of Holdings'
common stock to FL&Co. and senior management (together with the Redemption, the
"Recapitalization"). Upon completion of the Recapitalization, Holdings owned 90%
of the common stock and MK retained 10% of the common stock of the Company.
The Redemption and related transactions described above were financed
through the issuance of $320,000 of subordinated debentures (the "Subordinated
Debentures"). In addition, the Company entered into a credit agreement with a
consortium of banks that provided for a $60,000 revolving credit facility. The
Company borrowed $2,500 under this revolving credit facility.
The Company incurred financing costs of approximately $7,100 which were
recorded as deferred financing costs. In addition, the Company incurred
approximately $12,450 of transaction costs related to the Recapitalization which
were charged to treasury stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
ACCOUNTING ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION--The Company recognizes revenue from sale of merchandise
at the time of sale. Revenue from merchandise credits and gift certificates
issued is deferred until they are redeemed.
CASH AND CASH EQUIVALENTS--The Company considers all short-term
interest-bearing investments with original maturities of three months or less to
be cash equivalents. Such investments are classified by the
F-9
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company as "held to maturity" securities under the provisions of Statement of
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS No. 115). These securities are stated at cost, adjusted
for amortization of discounts and premiums to maturity.
MARKETABLE SECURITIES--The Company classifies the marketable securities held
in its deferred compensation plan as "trading" securities under SFAS No. 115. In
accordance with the provisions of this statement, the investment balance is
stated at fair market value, based on quoted market prices. Unrealized gains and
losses are reflected in earnings; realized gains and losses are computed using
the specific identification method. As the assets held in the deferred
compensation plan reflect amounts due to employees, but available for general
creditors of the Company in the event the Company becomes insolvent, the Company
has recorded the investment balance as a non-current asset and has established a
corresponding other long-term liability entitled "deferred compensation
obligation" on the balance sheet.
The marketable securities held in this plan consist of investments in mutual
funds at December 31, 1997 and 1998. Unrealized gains included in earnings
during the years ended December 31, 1997 and 1998 were $37 and $92,
respectively. Gains of $9 and $30 were realized during 1997 and 1998,
respectively.
ACCOUNTS RECEIVABLE--Accounts receivable primarily represents amounts due
from wholesale customers.
INVENTORIES--Inventories are stated at the lower of cost or market on a
last-in, first-out ("LIFO") basis. In 1998, the liquidation of certain LIFO
layers decreased cost of sales by $383.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost and are depreciated on the straight-line method based on the estimated
useful lives of the various assets. The estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................... 5 to 40
years
Computer equipment............................................ 5 years
Furniture and fixtures........................................ 5 to 10
years
Equipment..................................................... 10 years
Leased vehicles............................................... 5 years
</TABLE>
Leasehold improvements are amortized using the straight-line method over the
lesser of the estimated life of the improvement or the remaining life of the
lease. Expenditures for normal maintenance and repairs are charged to expense as
incurred.
DEFERRED FINANCING COSTS--The Company amortizes deferred financing costs
using the effective interest method over the life of the related debt.
Accumulated amortization was $0 and $548 at December 31, 1997 and 1998,
respectively.
TRADEMARKS--Trademarks are recorded at cost and amortized over 15 years.
Cost of trademarks, included in other assets at December 31, 1997 and 1998, was
$227 and $231, respectively. Accumulated amortization was $54 and $69, at
December 31, 1997 and 1998, respectively.
CLASSIC VEHICLES--The Company has invested in certain vehicles, which it
displays in its car museum. These vehicles are stated at cost, with no provision
for depreciation, since their useful lives are indeterminable and their values
fluctuate with the classic vehicle market. When management believes that a
permanent decline in value has occurred, the assets are written down to their
fair value. During the years
F-10
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ended December 31, 1996, 1997 and 1998, the value of these vehicles was written
down by $400, $46, and $0, respectively.
ADVERTISING--The Company expenses the costs of advertising as they are
incurred. Advertising expense was $733, $1,306 and $1,986 for the years ended
1996, 1997 and 1998, respectively.
IMPAIRMENT ACCOUNTING--The Company reviews the recoverability of its
long-lived assets when events or changes in circumstances occur that indicate
that the carrying value of the assets may not be recoverable. This review is
based on the Company's ability to recover the carrying value of the assets from
the expected undiscounted future cash flows. If an impairment is indicated, the
Company measures the loss based on the fair value of the asset using various
valuation techniques. If an impairment loss exists, the amount of the loss will
be recorded in the consolidated statements of operations. It is possible that
future events or circumstances could cause these estimates to change.
PRO FORMA ADJUSTMENTS--The Company had, until the Recapitalization, elected
to be treated as an S Corporation for federal and state income tax purposes.
Under this previous election, income for federal income tax purposes was not
taxed at the corporate level but was taxed to MK.
On April 27, 1998, the Company's tax status changed from an S Corporation to
a C Corporation. The income statement reflects a provision for income taxes for
federal and state purposes for the period the Company was a C Corporation and a
provision for state taxes for the periods the Company was an S Corporation. The
pro forma financial information shows the effect on the historical financial
statements as if the Company had been taxed as a C Corporation during 1996, 1997
and 1998 instead of an S Corporation until April 27, 1998.
INCOME TAXES--The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse. The provision for income taxes in the consolidated statements of
operations is the actual computed tax obligation or receivable for the period,
plus or minus the change during the period in deferred income tax assets and
liabilities.
NEWLY ISSUED ACCOUNTING STANDARDS--During 1998, SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued by the Financial
Accounting Standards Board. This statement is effective for periods beginning
after June 15, 1999. The Company is currently evaluating the impact, if any, of
this statement.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The estimated fair values of all
financial instruments, excluding the Subordinated Notes (see Note 6),
approximate their carrying amounts in the consolidated balance sheets due to (i)
the short-term maturity of certain instruments or (ii) the floating interest
rate associated with certain instruments which have the effect of repricing such
instruments regularly.
The Company believes that it is not practicable to estimate the fair market
value of the Subordinated Notes because of (i) the fact that they were issued in
connection with the Recapitalization as an investment unit, (ii) the
related-party nature of the Subordinated Notes, (iii) the lack of comparable
securities and (iv) the lack of a credit rating of the Company by an established
rating agency.
F-11
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE--Statement of Financial Accounting Standards No. 128
"Earnings Per Share," requires two presentations of earnings per share--"basic"
and "diluted." Basic earnings per share is computed by dividing income available
to common stockholders (the numerator) by the weighted-average number of common
shares (the denominator) for the period. The computation of diluted earnings per
share is similar to basic earnings per share, except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potentially dilutive common shares had been issued.
The denominator in the calculation is based on the following weighted
average number of common shares:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Basic.................................................................................. 1,000 1,000 663.5
Diluted................................................................................ 1,000 1,000 663.5
</TABLE>
The Company has issued no options nor are there any other common stock
equivalents that would cause the basic and diluted share numbers to differ.
PRIOR-YEAR RECLASSIFICATIONS--Certain 1996 and 1997 amounts have been
reclassified to conform with the 1998 presentation.
3. INVENTORIES
The components of inventory were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Finished goods.......................................................... $ 7,735 $ 9,967
Work-in-process......................................................... 45 126
Raw materials and packaging............................................. 3,242 2,816
--------- ---------
11,022 12,909
Less LIFO reserve....................................................... (810) (427)
--------- ---------
$ 10,212 $ 12,482
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Land and improvements.................................................... $ 3,351 $ 3,971
Buildings and improvements............................................... 33,385 36,120
Computer equipment....................................................... 3,429 4,584
Furniture and fixtures................................................... 4,037 5,471
Equipment................................................................ 9,039 9,445
Leased vehicles.......................................................... 1,836 814
Construction-in-process.................................................. 893 1,815
--------- ---------
Total.................................................................... 55,970 62,220
Less accumulated depreciation and amortization........................... (12,058) (13,905)
--------- ---------
$ 43,912 $ 48,315
--------- ---------
--------- ---------
</TABLE>
5. CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100. Uninsured balances aggregated $8,534 and $28,177 at
December 31, 1997 and 1998, respectively.
The Company extends credit to its wholesale customers. No single customer
accounted for more than 2% of total sales during any year presented nor did any
such customer account for more than 7% of the outstanding receivable balance at
either December 31, 1997 or 1998.
F-13
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. LONG-TERM DEBT
Long term debt is summarized as follows at December 31:
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
6 3/4% Subordinated Debentures; due 2009-2011........................... $ -- $ 320,000
Mortgage loan with interest fixed at 8% through April, 2004, converting
to prime for the remaining term, payable in a monthly installment of
$59 plus interest, with a final payment of the unpaid balance in April
2009.................................................................. 7,933 --
Term note with monthly principal and interest installments of $16 to
maturity in June 1999................................................. 251 --
--------- ----------
8,184 320,000
Less current portion.................................................... 874 --
--------- ----------
Noncurrent portion...................................................... $ 7,310 $ 320,000
--------- ----------
--------- ----------
</TABLE>
In connection with the Recapitalization, the Company issued $320,000 of
Subordinated Debentures that were distributed to limited partners of FL&Co. The
Subordinated Debentures bear interest at 6 3/4%, which is payable semiannually
in May and November commencing on November 30, 1998. The Subordinated Debentures
are payable in three equal annual installments of approximately $106,700
beginning May 31, 2009.
In April 1998, the Company entered into a credit agreement with a consortium
of banks (the "Credit Agreement"). The Credit Agreement provides for a revolving
credit facility of $60,000. A portion of the revolving credit facility, in an
amount not to exceed $15,000, may be used, to the extent available, for standby
and commercial letters of credit. The credit facility under the Credit Agreement
terminates April 27, 2002, with any outstanding amounts due on that date. There
were no borrowings at December 31, 1998. Outstanding letters of credit at
December 31, 1998 were $500.
The Company is required to pay a commitment fee on the average daily
unutilized portion of the revolving-credit facility at a rate of 3/8% per annum.
The Company may elect to set the interest rate on all or a portion of revolving
credit loans at a rate per annum equal to (a) 1% plus the greater of (i) Prime
Rate, (ii) Federal Funds Rate plus 1/2% or (iii) CD Rate plus 1% or (b) the
Eurodollar Rate plus 2%.
The Credit Agreement includes restrictions as to, among other things, the
amount of additional indebtedness, contingent obligations, liens, investments,
asset sales, capital expenditures and dividends, and requires the maintenance of
minimum levels of interest coverage. None of the restrictions contained in the
Credit Agreement are expected to have a significant effect on the ability of the
Company to operate. As of December 31, 1998, the Company was in compliance with
all financial and operating covenants under the Credit Agreement.
The mortgage loan and the term note were prepaid in April 1998 in
conjunction with the Recapitalization. In addition, the Company's short-term
borrowings under a line of credit were prepaid and the line of credit was
terminated in April 1998.
F-14
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. PROVISION FOR INCOME TAXES
Prior to the Recapitalization, the Company was taxed as an S Corporation for
federal and state income tax purposes. Generally, there is no federal income tax
on earnings of an S Corporation; however, some states impose a tax on taxable
earnings. There was no federal income tax provision in 1996 and 1997; but there
was a provision for state income taxes in those years.
Income tax expense consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Federal:
Current.......................................................... $ -- $ -- $ --
Deferred......................................................... -- -- 8,894
--------- --------- ---------
Total Federal.................................................. -- -- 8,894
--------- --------- ---------
State:
Current.......................................................... 410 1,395 --
Deferred......................................................... -- (35) 762
--------- --------- ---------
Total State.................................................... 410 1,360 762
--------- --------- ---------
Total Income Tax Provision..................................... $ 410 $ 1,360 $ 9,656
--------- --------- ---------
--------- --------- ---------
</TABLE>
In connection with the Recapitalization, an election was made for federal
and state income tax purposes to value the assets and liabilities of the Company
at fair value. As a result of such election, there is a difference between the
financial reporting and tax bases of the Company's assets and liabilities. This
difference was accounted for by recording a deferred tax asset of approximately
$175,700 with a corresponding credit to additional paid-in capital. The deferred
tax asset will be realized as these differences, including tax goodwill, are
deducted, principally over a period of 15 years. In the opinion of management,
the Company will have sufficient profits in the future to realize the deferred
tax asset.
The tax effect of significant items comprising the Company's net deferred
tax assets (liabilities) as of December 31, are as follows:
<TABLE>
<CAPTION>
1997 1998
------------------------ ------------------------
<S> <C> <C> <C> <C>
CURRENT NONCURRENT CURRENT NONCURRENT
----------- ----------- ----------- -----------
Deferred tax assets:
Basis differential resulting from tax
election..................................... $ -- $ -- $ -- $ 164,204
Net operating loss carryforward................ -- -- -- 1,382
Deferred compensation arrangements............. -- -- 341 --
Employee benefits.............................. 117 -- 917 --
Other.......................................... 41 -- 284 --
Deferred tax liabilities
Fixed assets................................... -- (169) -- (1,112)
----- ----------- ----------- -----------
$ 158 $ (169) $ 1,542 $ 164,474
----- ----------- ----------- -----------
----- ----------- ----------- -----------
</TABLE>
F-15
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. PROVISION FOR INCOME TAXES (CONTINUED)
At December 31, 1998, the Company had $3,636 of net operating loss
carryforwards available for both federal and state purposes.
A reconciliation of the statutory federal income tax rate and the effective
rate of the provision for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Statutory federal income tax rate...................................... 35% 35% 35%
State income taxes--net of federal income tax benefit.................. 3 3 3
S Corporation income................................................... (35) (35) (80)
Other.................................................................. -- 2 --
--- --- ---
3% 5% (42)%
--- --- ---
--- --- ---
</TABLE>
8. PROFIT SHARING PLAN
The Company maintains a profit sharing/salary reduction plan under section
401(k) of the Internal Revenue Code. Employer contributions amounted to $111,
$137 and $347 for 1996, 1997 and 1998, respectively. The Company, at its
discretion, may also make annual profit sharing contributions to the plan. There
were no profit sharing contributions in 1996, 1997 or 1998.
9. DEFERRED COMPENSATION
The Company has a deferred compensation agreement with seven key employees,
three of whom retired during 1998. Under this agreement, the Company will match
certain elective salary deferrals of eligible employees' compensation up to a
maximum of $20. Employer contributions amounted to $68, $140 and $133 for 1996,
1997 and 1998, respectively. Benefits under the plan (which are determined based
on the value of the investments held in the employee's name by the Company) will
be paid in a lump sum upon termination of the plan or termination of employment.
10. CONTINGENCIES
The Company is engaged in various lawsuits, either as plaintiff or
defendant, involving alleged patent infringement and breaches of contract. In
the opinion of management, based upon advice of counsel, the ultimate outcome of
these lawsuits will not have a material adverse effect on the Company's
financial condition, results of operations, or cash flows.
11. STOCKHOLDERS' EQUITY
CAPITAL STOCK--As of December 31, 1997 and 1998, the Company had 1,000
shares of common stock (par value $.01) authorized and issued. In connection
with the 1998 recapitalization, the Company redeemed approximately 500 shares of
common stock from MK. These shares were held in treasury at December 31, 1998.
As discussed in Note 1, Holdings currently owns 90% of the outstanding
common stock of the Company. In connection with the 1998 recapitalization,
common stock of Holdings was purchased by
F-16
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. STOCKHOLDERS' EQUITY (CONTINUED)
management. The Company made loans to certain members of management to aid them
in the purchase of this common stock. These loans are reflected also in
Stockholders' Equity under the caption "Capital subscription receivable," carry
an interest rate of 7%, are secured by the shares and provide for full recourse
to the borrower. In addition, rights to purchase common stock of Holdings were
granted to a member of management in October 1998 and he committed to purchase
such shares in November 1998. This common stock was purchased in 1999. A
subscription receivable for this common stock is reflected in Stockholders'
Equity as "Capital subscription receivable." In addition, Holdings granted
options to purchase common stock to key employees and directors of the Company.
The options granted are "nonqualified" for tax purposes. For financial reporting
purposes, the award of the right to purchase stock and the grant of options, in
certain cases, were considered to be below the fair value of the stock at the
time of grant. The fair value was determined based on an appraisal conducted by
an independent appraisal firm as of the relevant dates. The differences between
fair value and the purchase price or the exercise price is being charged to
compensation expense over the relevant vesting period. In 1998, such expense
aggregated $116.
Options granted and outstanding represent approximately 1% of Holdings'
equity interest in the Company. A summary of the status of option grants made by
Holdings in its own stock (which would become equity interests in the Company
upon an initial public offering) as of December 31, 1998 and changes during the
period ending on that date is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
PRICE
OPTIONS PER SHARE
----------- ----------
<S> <C> <C>
Outstanding at December 31, 1997........................................ -- $ --
Granted................................................................. 1,750 1,038.46
Forfeited............................................................... -- --
----------- ----------
Outstanding at December 31, 1998........................................ 1,750 $ 1,038.46
----------- ----------
----------- ----------
</TABLE>
Employee option grants were made pursuant to the Yankee Candle Holdings
Stock Option Plan (the "Plan").
Effective with the adoption of the Plan, the Company elected to use the
disclosure provisions of SFAS No. 123 "Accounting for Stock Based Compensation."
The Company accounts for employee options or share awards under the intrinsic
value method prescribed by APB Opinion No. 25 with pro forma disclosures of net
earnings and earnings per share, as if the fair value method of accounting
defined in SFAS No. 123 had been applied. SFAS No. 123 establishes a fair value
based method of accounting for stock-based employee compensation plans; however,
it also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Under the fair value method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Under the intrinsic value method,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock.
F-17
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. STOCKHOLDERS' EQUITY (CONTINUED)
Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant. The following weighted average assumptions were used for grants
under the Plan in 1998 to allow for the computation of pro forma results of
operations: volatility of 20%, dividend yield of 0%, risk-free interest rate of
4.54% and expected lives of 5 years. The fair value of options granted during
1998 was between $289.61 and $1,094.01 for options issued with an exercise price
of $1,038.46.
If compensation cost for stock option grants had been determined based on
the fair value on the grant dates for the year ended December 31, 1998
consistent with the method prescribed by SFAS No. 123, the Company's pro forma
net loss would have been $(13,264) or $(19,992.36) per share.
The following table summarizes information about Holdings stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE OPTIONS OPTIONS AVERAGE
PRICE OUTSTANDING EXERCISABLE REMAINING LIFE
- ---------- ------------- --------------- -----------------
<S> <C> <C> <C>
$ 1,038.46 1,750 -- 9.46
</TABLE>
12. COMMITMENTS
The Company leases most store locations and several vehicles. Most store
leases provide for base rentals plus contingent rentals thereafter, which are a
function of sales volume. In addition, the Company is required to pay real
estate taxes, maintenance and other operating expenses applicable to the leased
premises. Furthermore, several store leases contain rent escalation clauses.
The aggregate annual future minimum lease commitments under operating leases
as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1999............................................................................... $ 3,355
2000............................................................................... 3,263
2001............................................................................... 3,177
2002............................................................................... 3,004
2003............................................................................... 2,732
Thereafter......................................................................... 8,551
-----------
Total minimum lease payments....................................................... $ 24,082
-----------
-----------
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
approximately $2,886, $3,062 and $3,997, respectively.
At December 31, 1998, the Company has purchase commitments of $306
outstanding for various capital projects related to the acquisition of new
equipment and construction of new retail stores.
F-18
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. SEGMENTS OF ENTERPRISE AND RELATED INFORMATION
The Company has segmented its operations in a manner that reflects how its
chief operating decision-maker (the "CEO") currently reviews the results of the
Company and its subsidiaries' businesses. The Company has two reportable
segments--retail and wholesale. The identification of these segments results
from management's recognition that while the product produced is similar, the
type of customer for the product and services and the methods used to distribute
the product are different.
The CEO evaluates both its retail and wholesale operations based on an
"operating earnings" measure. Such measure gives recognition to specifically
identifiable operating costs such as cost of sales, selling, and depreciation
and amortization charges. Administrative charges are generally not allocated to
specific operating segments and are accordingly reflected in the
unallocated/corporate/other category as are such costs relating to items such as
LIFO reserves, etc. Other components of the statement of operations which are
classified below operating income are also not allocated by segments. The
Company does not account for or report assets, capital expenditures or
depreciation and amortization by segment to the CEO.
The following are the relevant data for the years ended December 31:
<TABLE>
<CAPTION>
BALANCE PER
UNALLOCATED/ CONSOLIDATED
CORPORATE/ FINANCIAL
1996 RETAIL WHOLESALE OTHER STATEMENTS
- --------------------------------------------------------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales................................................ $ 42,909 $ 69,290 $ -- $ 112,199
Operating earnings (loss)................................ 13,156 18,508 (17,604) 14,061
Unallocated costs........................................ -- -- (1,969) (1,969)
------------
Earnings (loss) before taxes............................. -- -- -- $ 12,092
------------
------------
1997
Net sales................................................ $ 59,227 $ 84,876 $ -- $ 144,103
Operating earnings (loss)................................ 18,118 31,188 (21,238) 28,068
Unallocated costs........................................ -- -- (2,337) (2,337)
------------
Earnings (loss) before taxes............................. -- -- -- $ 25,731
------------
------------
1998
Net sales................................................ $ 81,210 $ 103,267 $ -- $ 184,477
Operating earnings (loss)................................ 23,343 45,102 (74,635) (6,190)
Unallocated costs........................................ -- -- (16,786) (16,786)
------------
Earnings (loss) before taxes............................. -- -- -- $ (22,976)
------------
------------
</TABLE>
F-19
<PAGE>
[PICTURE OF PRODUCTS]
EDGAR ARTWORK DESCRIPTIONS
Inside Back Cover of Prospectus:
Caption: A Sampling of Yankee Candle-Registered Trademark- fragrances.
- Upper left hand corner: Picture showing a full line of Yankee
Candle-Registered Trademark- products with "Honeydew Melon" fragrance.
- Upper right hand corner: Picture showing a full line of Yankee
Candle-Registered Trademark- products with "Mountain Lake" fragrance.
- Lower left hand corner: Picture showing a full line of Yankee
Candle-Registered Trademark- products with "Fresh Lilac" fragrance.
- Lower right hand corner: Picture showing a full line of Yankee
Candle-Registered Trademark- products with "Gardenia" fragrance.
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of common stock registered hereby,
all of which expenses, except for the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee, and the New York Stock Exchange listing application fee, are estimated.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................. $ 55,600
National Association of Securities Dealers, Inc. filing fee..................... 20,500
New York Stock Exchange listing application fee.................................
Printing and engraving fees and expenses........................................
Legal fees and expenses.........................................................
Accounting fees and expenses....................................................
Blue Sky fees and expenses......................................................
Transfer Agent and Registrar fees and expenses.................................. 15,000
Miscellaneous expenses..........................................................
---------
Total.....................................................................
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Organization provide that the directors and officers of
Yankee Candle shall be indemnified by Yankee Candle to the fullest extent
authorized by Massachusetts law, as it now exists or may in the future be
amended, against all expenses and liabilities reasonably incurred in connection
with service for or on behalf of Yankee Candle, EXCEPT with respect to any
matter that such director or officer has been adjudicated not to have acted in
good faith in the reasonable belief that his action was in the best interests of
Yankee Candle or, to the extent such matter relates to service with respect to
an employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan.
Yankee Candle has entered into agreements to indemnify its directors and
officers in addition to the indemnification provided for in the Articles of
Organization. These agreements, among other things, indemnify Yankee Candle's
directors and officers to the fullest extent permitted by Massachusetts law for
certain expenses (including attorneys' fees), judgments, fines, penalties and
settlement amounts incurred by such person arising out of or in connection with
such person's service as a director or officer of Yankee Candle or an affiliate
of Yankee Candle.
Policies of insurance are maintained by Yankee Candle under which its
directors and officers are insured, within the limits and subject to the
limitations of the policies, against certain expenses in connection with the
defense of, and certain liabilities which might be imposed as a result of,
actions, suits or proceedings to which they are parties by reason of being or
having been such directors or officers.
The form of Underwriting Agreement filed as Exhibit 1.1 hereto provides for
the indemnification of the registrant, its controlling persons, its directors
and certain of its officers by the underwriters against certain liabilities,
including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the three years preceding the filing of this registration statement,
Yankee Candle has not sold shares of its common stock without registration under
the Securities Act of 1933, except as described below.
II-1
<PAGE>
Immediately before the closing of this offering, Yankee Candle will be
reorganized as follows:
- Yankee Candle Holdings will transfer all of its assets consisting
principally of shares of Yankee Candle common stock, no par value,
to Yankee Candle in exchange for shares of Yankee Candle common
stock, par value $.01 per share.
- Yankee Candle Holdings will be liquidated, and the shares of Yankee
Candle common stock will be distributed to the Yankee Candle Holdings
stockholders, whose Yankee Candle Holdings shares will be canceled, and
- The remaining outstanding shares of Yankee Candle common stock, no
par value, will be exchanged for shares of Yankee Candle common
stock, par value $.01 per share.
Registration under the Securities Act will not be required for issuances of
Yankee Candle common stock pursuant to this reorganization, since the shares
will be issued to a small group of existing Yankee Candle and Yankee Candle
Holdings stockholders in a transaction not involving a public offering. These
issuances will be exempt from registration under the Securities Act pursuant to
Section 4(2).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are filed with this registration statement.
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement, by and among The Yankee Candle Company, Inc., the selling stockholders
named therein and the underwriters named therein.**
2.1 Recapitalization Agreement, dated as of March 25, 1998, as amended, by and among Yankee Candle Holdings
Corp., The Yankee Candle Company, Inc., Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership-VI, L.P. and Michael J. Kittredge.*
2.2 Asset Purchase Agreement, dated as of April 1, 1998, by and among The Yankee Candle Company, Inc.,
Chandler's Tavern, Inc. and Michael J. Kittredge.*
3.1 Form of Restated Articles of Organization of The Yankee Candle Company, Inc.**
3.2 Form of Restated By-Laws of The Yankee Candle Company, Inc.**
4.1 Form of Common Stock Certificate.**
5.1 Opinion of Hale and Dorr LLP.**
10.1 Form of outside director Stock Option Agreement.**
10.2 Form of Stockholder's Agreement between The Yankee Candle Company, Inc. and outside directors.**
10.3 Form of Employee Stockholder's Agreement.**
10.4 The Yankee Candle Company, Inc. Employee Stock Option Plan and form of Stock Option Agreement.**
10.5 The Yankee Candle Company, Inc. 1999 Stock Option and Award Plan.**
10.6 Stockholder's Agreement, dated April 27, 1998, by and between The Yankee Candle Company, Inc. and Michael
J. Kittredge.*
10.7 Form of Stockholder's Agreement between The Yankee Candle Company, Inc. and employees.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------------
<C> <S>
10.8 Registration Rights Agreement, dated as of , among The Yankee Candle Company, Inc., Forstmann Little
& Co. Equity Partnership-V, L.P. and Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership-VI, L.P.**
10.9 Form of Indemnification Agreement between The Yankee Candle Company, Inc. and its directors and executive
officers.**
10.10 Credit Agreement, dated as of , 1999, among The Yankee Candle Company, Inc., The Chase Manhattan
Bank, as sole administrative agent, and the banks and other financial institutions party thereto.**
10.11 Recourse Secured Promissory Note, dated February 3, 1999, by Robert R. Spellman and Stock Pledge
Agreement, dated as of February 3, 1999, by and between The Yankee Candle Company, Inc. and Robert R.
Spellman.*
10.12 Employment Agreement, dated as of October 22, 1998, as amended on February 9, 1999, between The Yankee
Candle Company, Inc. and Robert R. Spellman.*
10.13 Form of Management Rights Letter between The Yankee Candle Company, Inc. and the partnerships affiliated
with Forstmann Little & Co.**
23.1 Consent of Hale and Dorr LLP (included in the opinion filed as Exhibit 5.1).**
23.2 Consent of Deloitte and Touche LLP.*
23.3 Consent of Ernst & Young LLP.*
23.4 Consent of Fisk, Bilton, Smith & Co., P.C.*
24 Powers of Attorney (included on signature page).
27 Financial Data Schedules.*
99.1 Report of Independent Auditors on Schedule.*
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules
SUPPLEMENTAL SCHEDULE VALUATION AND QUALIFYING AMOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND DEDUCTIONS BALANCE AT
DESCRIPTION YEAR EXPENSES FROM RESERVES END OF YEAR
- ---------------------------------------------------------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts......................... $ 367,000 $ (33,727) $ 26,273 $ 307,000
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts......................... $ 307,000 $ 93,677 $ 40,677 $ 360,000
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts......................... $ 360,000 $ 181,946 $ 91,946 $ 450,000
</TABLE>
All the other schedules are omitted because they are not required, are not
applicable or the information is included in the selected consolidated financial
data or notes contained in this registration statement.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by the director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Whately, State of
Massachusetts, on the 15th day of April, 1999.
THE YANKEE CANDLE COMPANY, INC.
By: /s/ MICHAEL D. PARRY
-----------------------------------------
Michael D. Parry
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael P. Parry, Robert R. Spellman and Sandra
J. Horbach his or her true and lawful attorneys-in-fact and agents, each acting
alone, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
to this registration statement, including post-effective amendments and a
registration statement registering additional securities pursuant to Rule 462
(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and to other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, and hereby ratifies and confirms all
his said attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ MICHAEL D. PARRY President, Chief Executive April 15, 1999
- ------------------------------ Officer and Director
Michael D. Parry (principal executive
officer)
/s/ ROBERT R. SPELLMAN Senior Vice President of April 15, 1999
- ------------------------------ Finance and Chief
Robert R. Spellman Financial Officer
(principal financial and
accounting officer)
/s/ MICHAEL J. KITTREDGE Director April 15, 1999
- ------------------------------
Michael J. Kittredge
/s/ THEODORE J. FORSTMANN Director April 15, 1999
- ------------------------------
Theodore J. Forstmann
II-5
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ NICHOLAS C. FORSTMANN Director April 15, 1999
- ------------------------------
Nicholas C. Forstmann
/s/ SANDRA J. HORBACH Director April 15, 1999
- ------------------------------
Sandra J. Horbach
/s/ STEVEN B. KLINSKY Director April 15, 1999
- ------------------------------
Steven B. Klinsky
Director
- ------------------------------
Michael S. Ovitz
/s/ EMILY WOODS Director April 15, 1999
- ------------------------------
Emily Woods
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement, by and among The Yankee Candle Company, Inc., the selling
stockholders named therein and the underwriters named therein.**
2.1 Recapitalization Agreement, dated as of March 25, 1998, as amended, by and among Yankee Candle
Holdings Corp., The Yankee Candle Company, Inc., Forstmann Little & Co. Subordinated Debt and
Equity Management Buyout Partnership-VI, L.P. and Michael J. Kittredge.*
2.2 Asset Purchase Agreement, dated as of April 1, 1998, by and among The Yankee Candle Company,
Inc., Chandler's Tavern, Inc. and Michael J. Kittredge.*
3.1 Form of Restated Articles of Organization of The Yankee Candle Company, Inc.**
3.2 Form of Restated By-Laws of The Yankee Candle Company, Inc.**
4.1 Form of Common Stock Certificate.**
5.1 Opinion of Hale and Dorr LLP**
10.1 Form of outside director Stock Option Agreement.**
10.2 Form of Stockholder's Agreement between The Yankee Candle Company, Inc. and outside directors.**
10.3 Form of Employee Stockholder's Agreement.**
10.4 The Yankee Candle Company Inc. Employee Stock Option Plan and form of Stock Option Agreement.**
10.5 The Yankee Candle Company, Inc. 1999 Stock Option and Award Plan.**
10.6 Stockholder's Agreement, dated April 27, 1998, by and between The Yankee Candle Company, Inc. and
Michael J. Kittredge.*
10.7 Form of Stockholder's Agreement between The Yankee Candle Company, Inc. and employees.**
10.8 Registration Rights Agreement, dated as of , among The Yankee Candle Company, Inc.,
Forstmann Little & Co. Equity Partnership-V, L.P. and Forstmann Little & Co. Subordinated Debt
and Equity Management Buyout Partnership-VI, L.P.**
10.9 Form of Indemnification Agreement between The Yankee Candle Company, Inc. and its directors and
executive officers.**
10.10 Credit Agreement, dated as of , 1999, among The Yankee Candle Company, Inc., The Chase
Manhattan Bank, as sole administrative agent, and the banks and other financial institutions
party thereto.**
10.11 Recourse Secured Promissory Note, dated February 3, 1999, by Robert R. Spellman, and Stock Pledge
Agreement, dated as of February 3, 1999, by and between The Yankee Candle Company, Inc. and
Robert R. Spellman.*
10.12 Employment Agreement, dated as of October 22, 1998, as amended on February 9, 1999, between The
Yankee Candle Company, Inc. and Robert R. Spellman.*
10.13 Form of Management Rights Letter between The Yankee Candle Company, Inc. and the partnerships
affiliated with Forstmann Little and Co.**
23.1 Consent of Hale and Dorr LLP (included in the opinion filed as Exhibit 5.1).**
23.2 Consent of Deloitte and Touche LLP.*
23.3 Consent of Ernst & Young LLP.*
23.4 Consent of Fisk, Bilton, Smith & Co., P.C.*
24 Powers of Attorney (included on signature page).
27 Financial Data Schedules.*
99.1 Report of Independent Auditors on Schedule.*
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
Exhibit 2.1
Execution Copy
================================================================================
RECAPITALIZATION AGREEMENT
================================================================================
Among
FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY
MANAGEMENT BUYOUT PARTNERSHIP-VI, L.P.,
YANKEE CANDLE HOLDINGS CORP.,
THE YANKEE CANDLE COMPANY, INC.,
and
MICHAEL KITTREDGE
Dated March 25, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS........................................................1
1.01 Definitions...........................................................1
1.02 Other Defined Terms...................................................9
ARTICLE II RECAPITALIZATION TRANSACTIONS....................................11
2.01 Aggregate Recapitalization Price.....................................11
2.02 Recapitalization Transactions........................................12
2.03 Closing..............................................................14
2.04 Purchase Price Adjustment............................................14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER....................17
3.01 Organization.........................................................17
3.02 Authority............................................................17
3.03 Capitalization; Title to Shares......................................18
3.04 Organizational Documents and Records.................................18
3.05 Subsidiaries and Portfolio Interests.................................19
3.06 Financial Statements.................................................19
3.07 Compliance with Laws; Permits........................................19
3.08 Consents; No Violations..............................................20
3.09 Commitments..........................................................20
3.10 Absence of Undisclosed Liabilities...................................23
3.11 Absence of Certain Changes...........................................23
3.12 Brokers and Finders; Fees............................................23
3.13 Real Estate..........................................................23
3.14 Sufficiency of Assets................................................24
3.15 Tangible Property....................................................24
3.16 Inventory............................................................25
3.17 Accounts and Notes Receivable; Commissions...........................25
3.18 Litigation and Orders................................................26
3.19 Intellectual Properties..............................................26
3.20 Tax Returns, Audits and Liabilities..................................27
3.21 Insurance............................................................28
3.22 Employee Benefits....................................................29
3.23 Suppliers and Customers..............................................33
3.24 Products.............................................................33
3.25 Environmental Matters................................................33
3.26 Interest in Competitors, Etc.........................................35
3.27 Customs and Trade Regulation.........................................35
3.28 Intercompany Transactions............................................36
3.29 Banking Facilities...................................................36
-i-
<PAGE>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................37
4.01 Organization.........................................................37
4.02 Authority............................................................37
4.03 Consents; No Violation...............................................37
4.04 Brokers and Finders..................................................38
4.05 Financing............................................................38
ARTICLE V COVENANTS.........................................................38
5.01 No Solicitation......................................................38
5.02 Interim Operations...................................................38
5.03 Access and Information...............................................41
5.04 Compliance with Antitrust Laws; Regulatory and Other Consents........41
5.05 Best Efforts.........................................................42
5.06 Employee Matters.....................................................42
5.07 Notice...............................................................42
5.08 Cash Management......................................................43
5.09 Tax Provisions.......................................................43
5.10 Non-Competition Agreement............................................46
5.11 Further Assurances...................................................47
5.12 Closing Resolutions..................................................47
5.13 Amendment to the Company's Articles of Organization..................47
5.14 Pre-Closing Transactions.............................................48
5.15 Acquisition of Rights to Confidentiality.............................48
5.16 Chandler's Tavern, Inc...............................................49
ARTICLE VI CONDITIONS.......................................................49
6.01 Conditions to the Obligations of MBO-VI, the Purchaser and
the Seller ..........................................................49
6.02 Conditions to the Obligations of MBO-VI and the Purchaser............49
6.03 Conditions to the Obligations of the Seller..........................51
ARTICLE VII TERMINATION PRIOR TO THE EFFECTIVE TIME.........................51
7.01 Termination..........................................................51
7.02 Effect on Obligations................................................52
7.03 Right to Proceed.....................................................52
ARTICLE VIII INDEMNIFICATION................................................53
8.01 Survival.............................................................53
8.02 Indemnification for the Benefit of the Seller........................53
8.03 Indemnification by the Seller........................................54
8.04 Materiality..........................................................55
8.05 Indemnification Procedures...........................................56
ARTICLE IX MISCELLANEOUS....................................................57
9.01 Entire Agreement.....................................................57
9.02 Successors and Assigns...............................................57
9.03 Counterparts.........................................................58
-ii-
<PAGE>
9.04 Construction.........................................................58
9.05 Acknowledgment.......................................................58
9.06 Modification and Waiver..............................................58
9.07 Severability.........................................................59
9.08 Specific Performance.................................................59
9.09 Public Announcements.................................................59
9.10 Expenses.............................................................59
9.11 Notices..............................................................59
9.12 Governing Law........................................................60
-iii-
<PAGE>
EXHIBITS
Exhibit 1.01 Retained Assets
Exhibit 2.02(a) Form of Escrow Agreement
Exhibit 2.02(f) Form of Employee Stockholder's Agreement
Exhibit 5.02(a) Capital Expenditure Forecast
Exhibit 5.02(b)(vi) Bonus Payments
Exhibit 5.02(b)(viii) Forecasts of Inventory, Receivables, Payables,
and Liabilities
Exhibit 5.16 Form of Asset Purchase Agreement
Exhibit 6.02(d) Form of Stockholder's Agreement
Exhibit 6.02(i) Form of Non-Competition Agreement
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Schedules
Schedule Section
- -------- -------
2.01(b) Existing Indebtedness
2.02(a) Account Designated by Company for Wire Transfer
2.02(b) Account Designated by Seller for Wire Transfer
2.02(f) Employee Bonus Payments
3.03(a) Capitalization; Title to Shares
3.05 Subsidiaries and Portfolio Interests
3.06 Financial Statements
3.07 Compliance with Law; Permits
3.08 Consents; No Violations
3.09 Commitments
3.10 Undisclosed Liabilities
3.11 Certain Changes
3.13(a) Owned Real Property
3.13(b) Leased Real Property
3.13(c) Real Property; No violations
3.15 Tangible Property
3.17 Accounts Receivable; Commissions
3.18 Litigation; Orders
3.19 Intellectual Property
3.20 Tax Returns, Audits and Liabilities
3.21(a) Insurance
3.21(b) Certain Claims
3.22(a) Employee Benefits
3.23 Major Suppliers; Major Customers
3.24 Products
3.25(a) Environmental Matters
3.26 Interests in Competitors, Etc.
3.27 Customs and Trade Regulation
3.28 Intercompany Transactions
3.29 Banking Facilities
5.02(b)(ix) Affiliate Transactions
5.10 Exceptions to Non-Compete
6.02 Required Consents
6.02(i) List of Individuals Executing Non-Competition Agreements
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RECAPITALIZATION AGREEMENT (the "Agreement"), dated as of March 25,
1998, by and among FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY
MANAGEMENT BUYOUT PARTNERSHIP-VI, L.P., a Delaware limited partnership
("MBO-VI"), YANKEE CANDLE HOLDINGS CORP., a Delaware corporation (the
"Purchaser"), THE YANKEE CANDLE COMPANY, INC., a Massachusetts corporation (the
"Company") and MICHAEL KITTREDGE, an individual resident in the State of Florida
(the "Seller").
WHEREAS, the Seller owns all the issued and outstanding shares of
common stock, no par value per share (the "Common Stock"), of the Company;
WHEREAS, the Seller, the Purchaser, MBO-VI and the Company desire to
effect a recapitalization of the Company on the terms and subject to the
conditions set forth herein; and
WHEREAS, it is intended that the transactions contemplated hereby
qualify as a recapitalization for financial reporting purposes.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, MBO-VI, the Purchaser, the
Company and the Seller hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 Definitions. The following terms, as used herein, shall have
the following meanings:
"1997 Balance Sheet" shall mean the balance sheet of the
Company as of December 31, 1997, a copy of which is attached in Schedule 3.06.
"1997 Balance Sheet Date" shall mean December 31, 1997.
"Affiliate" shall mean any Person directly or indirectly
controlling, controlled by, or under common control with the Person of which it
is an Affiliate.
"Ancillary Documents" shall mean all Commitments, certificates
and other documents delivered simultaneously with this Agreement or to be
delivered at the Closing in connection with the transactions contemplated hereby
including, without limitation, the Escrow Agreement, the Notes, the
Non-Competition Agreements, the Employee Stockholder's Agreements and the
Stockholder's Agreement.
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"Books and Records" shall mean all the books of account and
other financial records pertaining to the Company.
"Business" shall mean the business conducted by the Company,
relating to the design, production, marketing, distribution and sale (at retail
or wholesale) of candles and related products (including, without limitation,
tapers, votives, pillars, wax potpourri and other seasonal products), as well as
all operations currently carried on by the Company at its South Deerfield,
Massachusetts "flagship" location.
"Business Day" shall mean any day excluding Saturday, Sunday
and any day on which banks in the State of New York are authorized or required
by Law or other governmental action to close.
"Cash" shall mean the amount, as of the close of business on
the day immediately preceding the Closing Date, that would be classified as cash
on a balance sheet prepared in accordance with U.S. GAAP, except that
Outstanding Checks shall not be deducted in determining the amount of Cash and
Cash shall not include amounts classified as "Register Cash", and "Petty Cash",
"GSB Trustee Account", "GSB Flex Plan" and "Investments -- NQP" on the "Summary
Trial Balance as of December 1997".
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the applicable regulations thereunder.
"Commitments" shall mean all leases, sales orders, purchase
orders and other contracts, agreements, arrangements, understandings and
commitments of any nature whatsoever, whether written or oral, and including all
amendments thereof and supplements thereto.
"Company Employee Plan" shall mean each Employee Plan (other
than an Employee Agreement) which is now or previously has been sponsored,
maintained, contributed to, or required to be contributed to, or with respect to
which any withdrawal liability (within the meaning of Section 4201 of ERISA) has
been incurred, by the Company or any ERISA Affiliate for the benefit of any
Employee, and pursuant to which the Company or any ERISA Affiliate has or may
have any liability, contingent or otherwise.
"Company Material Adverse Effect" shall mean any adverse
effect or change in the business, condition (financial or otherwise), assets,
net assets, Liabilities, properties, operations, results of operations or
prospects of the Company that is material to the Company or the Business.
"Competitive Activity" shall mean engaging in any of the
following activities: (i) serving as a director of any Competitor; (ii) directly
or indirectly
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(x) controlling any Competitor or (y) owning any equity or debt interests in any
Competitor (other than equity or debt interests which are publicly traded and do
not exceed 5% of the particular class of interests then outstanding) (it being
understood that, if any such interests in any Competitor are owned by an
investment vehicle or other entity in which the Seller owns an equity interest,
a portion of the interests in such Competitor owned by such entity shall be
attributed to the Seller, such portion determined by applying the percentage of
the equity interest in such entity owned by the Seller to the interests in such
Competitor owned by such entity); (iii) directly or indirectly soliciting,
diverting, taking away, appropriating or otherwise interfering with any of the
customers or suppliers of the Company or any Affiliate controlled by the
Company; or (iv) employment by (including serving as an officer of), or
providing consulting services to, any Competitor.
"Competitor" shall mean any Person that is engaged in a
business similar to the Business, without regard to size (including giftware and
related merchandise) or is engaged in owning, operating or acquiring directly or
indirectly (through a corporation, trust, partnership or other Person) one or
more entities engaged in a business similar to the Business, without regard to
size (including giftware and related merchandise).
"control" (and the correlative term "controlling") shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of any Person, whether through the
ownership of equity interests, by contract or otherwise.
"Copyrights" shall have the meaning ascribed to such term in
the definition of Intellectual Property.
"Employee" shall mean each current, former, or retired
employee, officer, consultant, independent contractor, agent or director of the
Company.
"Employee Agreement" shall mean each management, employment,
severance, consulting, non-compete, confidentiality, or similar agreement or
contract between the Company and any Employee pursuant to which the Company has
or may have any liability contingent or otherwise.
"Employee Plan" shall mean each plan, program, policy, payroll
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, performance awards, stock or stock-related awards,
fringe benefits or other employee benefits of any kind, whether formal or
informal, funded or unfunded, written or oral and whether or not legally
binding, including, without limitation, each "employee benefit plan," within the
meaning of Section 3(3) of ERISA and each "multi-employer plan"
within the meaning of Sections 3(37) or 4001(a)(3) of ERISA.
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"Encumbrance" shall mean any lien, pledge, charge, assessment,
security interest, mortgage, claim, option, easement, imperfection of title,
tenancy or other legal or equitable right of others, or other encumbrance of any
character whatsoever (including, without limitation, any right of first
refusal).
"Environmental Costs" shall mean, without limitation, any
actual or potential cleanup costs, remediation, removal, or other response costs
(including without limitation costs to cause the Company or any Subsidiary, or
any of the Company's or any Subsidiary's properties or assets, to come into
compliance with Environmental Laws), investigation costs (including without
limitation fees of consultants, counsel, and other experts in connection with
any environmental investigation, testing, audits or studies), losses,
liabilities or obligations (including, without limitation, liabilities or
obligations under any lease or other contract), payments, damages (including,
without limitation, any actual, punitive, consequential and/or business
interruption damages under any statutory laws, common law cause of action or
contractual obligations, and any damages (a) of third parties for personal
injury or property damage, or (b) to natural resources), civil or criminal fines
or penalties, judgments, amounts paid in settlement and fees (including, without
limitation, fees of consultants, counsel, and other experts in connection with
any action or proceeding), arising out of, relating to, or resulting from any
Environmental Matter.
"Environmental Laws" shall mean, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
ss.ss. 9601 et seq., the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. ss.ss. 11001 et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. ss.ss. 6901 et seq., the Toxic Substances Control Act, 15 U.S.C.
ss.ss. 2601 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7
U.S.C. ss.ss. 136 et seq., the Clean Air Act, 42 U.S.C. ss.ss. 7401 et seq., the
Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C. ss.ss. 1251 et
seq., the Safe Drinking Water Act, 42 U.S.C. ss.ss. 300f et seq., the
Occupational Safety and Health Act, 29 U.S.C. ss.ss. 641, et seq., the Hazardous
Materials Transportation Act, 49 U.S.C. ss.ss. 1801, et seq., as any of the
above statutes have been or may be amended from time to time, all rules and
regulations promulgated pursuant to any of the above statutes, and any other
foreign, federal, state or local law, statute, ordinance, rule or regulation
governing Environmental Matters, as the same have been or may be amended from
time to time, including any common law cause of action (including, without
limitation, nuisance and trespass causes of action) providing any right or
remedy relating to Environmental Matters, all indemnity agreements and other
contractual obligations (including without limitation leases, asset purchase
agreements and merger agreements) relating to Environmental Matters, and all
applicable judicial and administrative decisions, orders, and decrees relating
to Environmental Matters.
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<PAGE>
"Environmental Matters" shall mean any matter arising out of,
relating to, or resulting from pollution, contamination, protection of the
environment, human health or safety, or health or safety of employees, and any
matter relating to emissions, discharges, disseminations, releases or threatened
releases of Hazardous Substances into the air (indoor or outdoor), surface
water, groundwater, soil, buildings, facilities, real or personal property or
fixtures, or otherwise arising out of, relating to, or resulting from the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, handling, release or threatened release of Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the applicable regulations thereunder.
"ERISA Affiliate" shall mean each business or entity which is
a member of a "controlled group of corporations," under "common control" or an
"affiliated service group" with the Company within the meaning of Sections
414(b), (c) or (m) of the Code, or required to be aggregated with the Company
under Section 414(o) of the Code, or is under "common control" with the Company,
within the meaning of Section 4001(a)(14) of ERISA.
"Governmental Entity" shall mean any foreign or domestic
(federal, state or local) government, governmental instrumentality or
governmental or other regulatory or administrative authority, agency or
commission or court.
"Hazardous Substances" shall mean any pollutants,
contaminants, substances, materials, wastes, constituents, compounds, chemicals,
natural or man-made elements or forces (including, without limitation, petroleum
or any by-products or fractions thereof, any form of natural gas, lead, asbestos
or asbestos-containing materials ("ACM"), building construction materials and
debris, polychlorinated biphenyls ("PCBs") or PCB-containing equipment, radon
and other radioactive elements, electromagnetic field and other types of
radiation, sonic forces, infectious, carcinogenic, mutagenic, or etiologic
agents, pesticides, defoliants, explosives, flammables, corrosives and urea
formaldehyde foam insulation) that are regulated by, or may now or in the future
form the basis of liability under, any Environmental Laws.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Income Tax" or "Income Taxes" shall mean any federal, state,
local or foreign Tax or Taxes (i) based upon, measured by, or calculated with
respect to, net income or net receipts, proceeds or profits, or (ii) based upon,
measured by, or calculated with respect to multiple bases (including, but not
limited to, corporate franchise or occupation Taxes) if such Tax may be based
upon, measured by, or calculated with respect to one or more bases described in
(i) above.
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"Intellectual Property" shall mean (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof
("Patents"), (b) all trademarks, service marks, trade dress, logos, trade names
and corporate names, together with all translations, adaptations, derivations
and combinations thereof and including all goodwill associated therewith, and
all applications, registrations and renewals in connection therewith
("Trademarks"), (c) all copyrightable works, all copyrights and all
applications, registrations and renewals in connection therewith ("Copyrights"),
(d) all mask works and all applications, registrations and renewals in
connection therewith, (e) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all other
proprietary rights, (h) all copies and tangible embodiments thereof (in whatever
form or medium) and (i) all licenses or agreements in connection with the
foregoing.
"IRS" shall mean the Internal Revenue Service.
"knowledge" shall mean, with respect to the Company, the
knowledge of the Seller, Michael D. Parry, Harry J. Flood, Stephen T. Williams,
Nancy E. Spanbauer, Gail M. Flood, Ann Morrissey, Judith Kundl, Esq., Steve
Richardson and James Pittitieri.
"Law" shall mean any foreign or domestic (federal, state or
local) law, statute, ordinance, rule or regulation or body of law or Order.
"Leased Real Property" shall mean the real property leased by
the Company, as tenant, together with, to the extent leased by the Company, all
buildings and other structures, facilities or improvements currently or
hereafter located thereon, all fixtures, systems, equipment and items of
personal property of the Company attached or appurtenant thereto, and all
easements, licenses, rights and appurtenances relating to the foregoing.
"Liability" shall mean any debt, liability or obligation,
whether known or unknown, asserted or unasserted, accrued, absolute, contingent
or otherwise, whether due or to become due.
"Litigation" shall mean any claim, demand, notice, action,
suit, proceeding, arbitration, investigation, audit, inquiry or hearing by or
before any Governmental Entity or private arbitration tribunal.
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"Multiemployer Plan" shall mean any Pension Plan which is a
"multiemployer plan," as defined in Section 3(37) or 4001(a)(3) of ERISA.
"Order" shall mean any judgment, order, injunction, ruling,
decree, stipulation or award of any Governmental Entity or private arbitration
tribunal.
"Owned Real Property" shall mean the real property owned by
the Company, together with all buildings and other structures, facilities or
improvements currently or hereafter located thereon, all fixtures, systems,
equipment and items of personal property of the Company attached or appurtenant
thereto and all easements, licenses, rights and appurtenances relating to the
foregoing.
"Patents" shall have the meaning ascribed thereto in the
definition of Intellectual Property.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall refer to each Company Employee Plan which
is an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA (the term "Pension Plan" as used herein shall not refer to a Multiemployer
Plan).
"Permit" shall mean any license, permit, consent,
registration, certificate, franchise, approval, order or other authorization of
any Governmental Entity.
"Permitted Encumbrances" shall mean: (a) liens for Taxes,
assessments and charges and other claims, the validity of which are being
contested in good faith and for which appropriate reserves in accordance with
U.S. GAAP have been recorded on the Company's balance sheet; (b) imperfections
of title or Encumbrances the existence of which, individually or in the
aggregate (i) do not materially impair the value of, or materially interfere
with the use of, the asset subject thereto or have a Company Material Adverse
Effect or (ii) pose a threat of forfeiture or reversion of title to any of the
Owned Real Property (other than the risk of forfeiture due to the failure to pay
Taxes not yet due); (c) inchoate mechanics' and materialmen's liens for
construction in progress incurred in the ordinary course of business; and (d)
workmen's, repairmen's warehousemen's and carriers' lien arising in the ordinary
course of business, but in the cases of clauses (c) and (d), only liens that
secure amounts not yet overdue.
"Person" shall mean an individual, a corporation, a limited
liability company, a partnership, an association, a trust or any other entity or
organization, including a Governmental Entity.
"Pre-Closing Tax Periods" shall mean all taxable periods, or
portions of periods, of the Company (and any predecessors thereto) ending on or
before the Closing Date.
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"Purchaser's Accountant" shall mean Deloitte & Touche LLP.
"Retained Assets" shall mean those assets listed on Exhibit
1.01 hereto.
"Return" shall mean any report, return, statement, claim,
estimate, declaration, notice, form or other information supplied or required to
be supplied to a taxing authority in connection with Taxes.
"Seller's Accountant" shall mean Ernst & Young, LLP.
"Shareholder's Equity" shall mean the total assets of the
Company minus the total liabilities of the Company, in each case as reflected on
the Closing Balance Sheet.
"Subsidiary" shall mean, with respect to any Person, any other
Person more than 10% of whose outstanding capital stock or equity interests is
owned directly or indirectly by such Person.
"Tax" or "Taxes" means taxes of any kind, levies or other like
assessments, customs, duties, imposts, charges or fees, including, without
limitation, Income Taxes, gross receipts, ad valorem, value added, excise, real
or personal property, asset, sales, use, license, payroll, transaction, capital,
net worth and franchise taxes, estimated taxes, withholding, employment, social
security, workers compensation, utility, severance, production, unemployment
compensation, occupation, premium, excise, severance, windfall profits, taxes
imposed as a transferee or successor, pursuant to a Tax indemnity or other
contract or pursuant to any Tax Law (including, without limitation, Code Section
6901 and analogous provisions of state, local and foreign Law), transfer and
gains taxes or other governmental taxes imposed by or payable to the United
States, or any state, county, local or foreign government or subdivision or
agency thereof, and in each instance such term shall include any interest,
penalties or additions to tax attributable to any such Tax.
"Trademarks" shall have the meaning ascribed thereto in the
definition of Intellectual Property.
"U.S. GAAP" shall mean generally accepted accounting
principles required to be followed by registrants under the rules, regulations
and pronouncements of the United States Securities and Exchange Commission and
interpretations thereof by the staff of the Securities and Exchange Commission.
"Welfare Plan" shall mean each Company Employee Plan that
is an "employee welfare benefit plan" within the meaning of Section 3(1) of
ERISA.
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1.02 Other Defined Terms.
(a) The following terms shall have the meanings defined for such
terms in the sections set forth below:
Term: Section:
---- -------
"Actual Overdraft" 5.08
"Affiliated Transaction" 3.28
"Aggregate Recapitalization Price" 2.01(a)
"Agreement" Preamble
"Antitrust Division" 5.04(a)
"Asset Purchase Agreement" 5.17
"Bonus Payments" 2.01(b)(ii)
"Chandler's Tavern" 5.17
"Class B Shares" 2.02(f)
"Closing" 2.03
"Closing Balance Sheet" 2.04(b)
"Closing Date" 2.03
"Closing Deficit" 2.04(e)
"Common Stock" Recitals
"Company" Preamble
"Company Balance Sheets" 3.06
"Confidentiality Agreement" 7.02
"Credit Agreement" 2.02(c)
"Disbursement Accounts" 5.08
"Employee Bonus Payments 2.01(b)
"Environmental Permits" 3.25(a)(ii)
"Escrow Agent" 2.02(a)
"Escrow Agreement" 2.02(a)
"Estimated Overdraft" 5.08
"Existing Indebtedness" 2.01(b)
"Facilities" 3.25(a)(vii)
"Final Balance Sheet" 2.04(c)
"Final Shareholders' Equity" 2.04(a)
"Final Total Assets" 2.04(a)
"Final Total Liabilities" 2.04(a)
"Financial Statements" 3.06
"Fleet" 5.14(b)
"Fleet Lease" 5.14(b)
"FTC" 5.04(a)
"GECC" 5.14(a)
"GECC Lease" 5.14(a)
"Gulfstream" 5.14(b)
"Gulfstream Contract" 5.14(b)
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"HMO" 3.22(k)
"Indebtedness Payment" 2.01(b)(i)
"Indemnification Claim Notice" 8.05(a)
"Indemnified Party" 8.05(a)
"Indemnifying Party" 8.05(a)
"Independent Accounting Firm" 2.04(c)
"Losses" 8.02(a)
"MADSP" 5.09(b)
"Major Customers" 3.23
"Major Suppliers" 3.23
"MBO - VI" Preamble
"Notes" 2.02(d)
"Notice" 9.11
"Obligations" 5.15
"Outstanding Checks" 5.15
"Products" 3.24
"Purchaser" Preamble
"Purchaser's Objection" 2.04(c)
"Purchaser Indemnified Party" 8.03(a)
"Recapitalization Shares" 2.02(b)
"Redeemed Shares" 2.02(a)
"Redemption Price" 2.02(a)
"Regulatory Agencies" 5.04(a)
"Requesting Party" 5.11
"Required Consent" 5.04(b)
"Reserve" 3.16
"Section 338(h)(10) Elections" 5.09(b)
"Seller" Preamble
"Seller Indemnified Party" 8.02(a)
"Settlement Account" 5.08
"Shareholder Note Receivable" 2.01(a)
"Shareholder's Equity Schedule" 2.04(b)
"Stockholder's Agreement 6.02(d)
"Tangible Property" 3.15
"Tax Indemnified Parties 5.09
"Termination Date" 7.01(b)
"Transaction Expense Payments" 2.01(b)(iii)
"Transfer Purchase Price" 2.02(b)
"Transferred Shares" 2.02(b)
"Withheld Amount" 2.02(b)
"Withheld Redemption Amount" 2.02(a)
"Withheld Transfer Amount" 2.02(b)
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(b) Any accounting term not defined in this Article I shall
have the meaning given to it under U.S. GAAP.
ARTICLE II
RECAPITALIZATION TRANSACTIONS
2.01 Aggregate Recapitalization Price.
(a) The "Aggregate Recapitalization Price" payable at the
Closing in connection with the consummation of the transactions described in
Sections 2.02(a) and 2.02(b) hereof shall be an amount in cash equal to (i) $500
million, minus (ii) the sum of (A) the Indebtedness Payment plus (B) the Bonus
Payments plus (C) the Transaction Expense Payments (each of the foregoing terms
as defined in Section 2.01(b)) plus (D) as of the Closing Date, the outstanding
principal of, accrued and unpaid interest on, any prepayment penalties or
premiums on, and any other amounts payable with respect to, the Demand
Promissory Note, dated December 29, 1995, in an original principal amount of
$760,699.76 (and an existing principal amount, as of February 28, 1998, of
$1,636,400) made by the Seller in favor of the Company (the "Shareholder Note
Receivable") the amount of which Shareholder Note Receivable will be set forth
in a certificate of the Company delivered to the Purchaser at least three
Business Days prior to the Closing. The Aggregate Recapitalization Price shall
be subject to adjustment pursuant to Section 2.04.
(b) For purposes of this Agreement, the following terms shall
have the meanings set forth below:
(i) "Indebtedness Payment" shall mean an amount in cash
equal to, as of the Closing Date, the outstanding principal of, accrued
and unpaid interest on, any prepayment penalties or premiums on, and any
other amounts payable with respect to, all indebtedness of the Company
under the credit facilities listed in Schedule 2.01(b) (the "Existing
Indebtedness").
(ii) "Bonus Payments" shall mean an amount in cash equal
to the sum of (A) $60,377,358.47 plus (B) $875,471.70, which amount
represents the employeer's portion of the hospital insurance tax.
(iii) "Transaction Expense Payments" shall mean the
aggregate amount of fees and expenses payable to Geneva Corporate Finance,
Inc., Ernst & Young, LLP and Peabody & Brown by the Company in connection
with
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the transactions contemplated hereby, which amount (and the fees and
expenses of each such entity which comprise such amount) shall be set
forth in a certificate of the Seller delivered to the Purchaser at least
three Business Days prior to the Closing.
2.02 Recapitalization Transactions. Upon the terms and subject to
the conditions of this Agreement, at the Closing, the following transactions
will take place simultaneously:
(a) The Seller shall sell to the Company, and the Company
shall redeem, 615.3846 shares of Common Stock (the "Redeemed Shares") for an
aggregate purchase price (the "Redemption Price"), payable in cash, equal to the
product of (i) a fraction, the numerator of which is the number of shares of
Common Stock being redeemed pursuant to this Section 2.02(a) and the denominator
of which is the aggregate number of Recapitalization Shares and (ii) the
Aggregate Recapitalization Price.
The Company shall pay to the Seller the Redemption Price
net of a sum of $6.4 million in cash (the "Withheld Redemption Amount"), by wire
transfer in immediately available funds to an account designated by the Seller
in Schedule 2.02(a).
The Company shall deposit the Withheld Redemption Amount
with The Chase Manhattan Bank, N.A. (the "Escrow Agent") on the Closing Date, to
be held and disposed of by the Escrow Agent in accordance with the Escrow
Agreement, in the form attached herewith as Exhibit 2.02(a) (the "Escrow
Agreement"), entered into by and among the Seller, the Company, the Purchaser
and the Escrow Agent, dated the Closing Date. In exchange for the payment of the
Redemption Price, net of the Withheld Redemption Amount, the Seller shall
deliver to the Company stock certificates evidencing the Redeemed Shares duly
endorsed in blank or accompanied by stock powers duly executed in blank.
(b) The Seller shall sell to the Purchaser, and the Purchaser
shall purchase, 346.1538 shares of Common Stock (the "Transferred Shares", and
together with the Redeemed Shares, the "Recapitalization Shares") for an
aggregate purchase price (the "Transfer Purchase Price"), payable in cash, equal
to the product of (i) a fraction, the numerator of which is the number of shares
of Common Stock being sold pursuant to this Section 2.02(b) and the denominator
of which is the aggregate number of Recapitalization Shares and (ii) the
Aggregate Recapitalization Price.
The Purchaser shall pay to the Seller the Transfer
Purchase Price, net of a sum of $3.6 million in cash (the "Withheld Transfer
Amount", and together with the Withheld Redemption Amount, the "Withheld
Amount"), by wire transfer in immediately available funds to an account
designated by the Seller in Schedule 2.02(b) of the Disclosure Schedule.
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The Purchaser shall deposit the Withheld Transfer Amount
with the Escrow Agent on the Closing Date, to be held and disposed of by the
Escrow Agent in accordance with the Escrow Agreement. In exchange for the
payment of the Transfer Purchase Price, the Seller shall deliver to the
Purchaser stock certificates evidencing the Transferred Shares duly endorsed in
blank or accompanied by stock powers duly executed in blank.
(c) The Company shall enter into a credit agreement with The
Chase Manhattan Bank N.A. to provide working capital to the Company and for
other corporate purposes following the Closing (the "Credit Agreement").
(d) The Company shall issue and sell to MBO-VI, and MBO-VI
shall purchase from the Company, Series A Subordinated Notes, Series B
Subordinated Notes and Series C Subordinated Notes (the "Notes").
MBO-VI shall pay to the Company by wire transfer in
immediately available funds the purchase price for the Notes and the Company
shall deliver to MBO-VI Series A Subordinated Notes, Series B Subordinated Notes
and Series C Subordinated Notes, in each case, dated the Closing Date and
registered in MBO-VI's name, in the principal amounts designated by MBO-VI in
writing prior to the Closing.
(e) The Company shall prepay in full all outstanding
indebtedness and other obligations of the Company as of the Closing Date under
the Existing Indebtedness. All such Existing Indebtedness shall be prepaid in
full, the Company shall receive a release, in form and substance reasonably
satisfactory to the Purchaser, executed by all lenders thereunder evidencing
such repayment and the termination of all Encumbrances and guarantees related
thereto and all right, title and interest in any Intellectual Property
previously assigned to any lender in connection with Existing Indebtedness shall
be reconveyed to the Company.
(f) The Company shall pay to each individual listed in
Schedule 2.02(f), after deducting any required withholding Taxes and other
amounts reflected on such Schedule, by wire transfer in immediately available
funds, the amount set forth opposite such individual's name under the column
entitled "Net to Recipient" on Schedule 2.02(f), minus the amount payable by
each such individual pursuant to the immediately succeeding sentence. Each
such individual shall purchase from the Purchaser, and the Purchaser shall
issue and sell to each such individual, for a per share purchase price of
$346.154, the number of shares of Series B Common Stock of the Purchaser, par
value $.01 per share ("Class B Shares") for the aggregate purchase price, in
each case set forth opposite such individual's name on Schedule 2.02(f), upon
the terms and subject to the conditions set forth in the Stockholder's
Agreement in the form attached hereto as Exhibit 2.02(f) (the "Employee
Stockholder's Agreement").
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(g) The parties thereto shall execute and deliver the
Ancillary Documents.
(h) The Shareholder Note Receivable shall be marked "canceled"
and shall cease to be outstanding.
2.03 Closing. The consummation of the transactions contemplated by
this Agreement shall take place at a closing (the "Closing") to be held at the
offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New
York, New York at 10:00 A.M. New York time, on the fifth Business Day following
the satisfaction or waiver of all conditions to the obligations of the parties
set forth in Article VI, or at such other place or at such other time or on such
other date as the Seller and the Purchaser mutually agree upon in writing (the
day on which the Closing takes place being the "Closing Date").
2.04 Purchase Price Adjustment.
(a) For purposes of this Section 2.04, the following terms
shall have the meanings set forth below:
(i) "Final Shareholder's Equity" means Final Total
Assets minus Final Total Liabilities.
(ii) "Final Total Assets" means total assets of the
Company as reflected on the Final Balance Sheet.
(iii) "Final Total Liabilities" means total liabilities
of the Company as reflected on the Final Balance Sheet.
(b) Within 90 Business Days following the Closing, the
Seller shall prepare, or cause to be prepared, and deliver to the Purchaser a
balance sheet (the "Closing Balance Sheet") which shall set forth the assets
and liabilities of the Company as of the close of business on the day
immediately preceding the Closing Date and a schedule setting forth the
calculation of Shareholder's Equity as of such day (the "Shareholder's Equity
Schedule"). The Closing Balance Sheet shall be prepared in accordance with
U.S. GAAP, determined as if the day immediately preceding the Closing Date
were the Company's normal year end and applied on a consistent basis with the
Financial Statements and a physical inventory shall be taken as of the close
of business on the day immediately preceding the Closing Date in a manner
consistent with past practice, except that (i) no reserves, liabilities,
asset valuation allowances or similar items reflected on the 1997 Balance
Sheet shall be reversed or shall be reallocated to cover any other reserve,
liability, asset valuation allowance or similar item required to be provided
for on the Closing Balance Sheet, (ii) except for assets acquired after March
31, 1998,
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any asset required to be included in the March 31, 1998 projected balance
sheet (the amounts reflected in such balance sheet having been projected on a
pro forma basis in conformity with the rules set forth in this Section
2.04(b)) to the extent not included, shall not be included in the Closing
Balance Sheet, (iii) no Existing Indebtedness shall be included in the
Closing Balance Sheet, (iv) no LIFO inventory reserve shall be included in
the Closing Balance Sheet, (v) no Retained Asset or related Liabilities shall
be included in the Closing Balance Sheet, (vi) no deferred financing fee
shall be included in the Closing Balance Sheet, (vii) no Cash or Outstanding
Checks shall be included in the Closing Balance Sheet, (viii) no deferred
income tax asset or deferred income tax liability shall be included in the
Closing Balance Sheet, (ix) no Income Tax asset or Income Tax Liability shall
be included in the Closing Balance Sheet, (x) no deferred interest expense
shall be included in the Closing Balance Sheet, (xi) no Transaction Expense
Payments or Employee Bonus Payments shall be included in the Closing Balance
Sheet, (xii) the manufactured inventory of the Company will be costed using
the standard costs used by the Company in costing its December 31, 1997
inventory plus $400,000, (xiii) no asset for the Shareholder Note Receivable
from the Seller shall be included in the Closing Balance Sheet, (xiv) the
assets acquired, net of any reserves, liabilities, asset valuation allowances
or similar items assumed or to which such assets are subject, from Chandler's
Tavern shall be included in the Closing Balance Sheet, at Chandler's Tavern's
historic cost less reserves, allowances and accumulated depreciation and
amortization and similar items, (xv) the reserves or liabilities created by
reason of the Fringe Benefit/Payroll Surcharge Expense accrual provision
shall not be reversed, and (xvi) Classic Vehicles will be recorded at
$984,457 in the Closing Balance Sheet.
(c) The Purchaser and the Purchaser's Accountants shall,
within 20 Business Days after the delivery by the Seller of the Closing
Balance Sheet and the Shareholder's Equity Schedule, complete their review of
the Closing Balance Sheet and the Shareholder's Equity Schedule. In the event
that the Purchaser determines that the Closing Balance Sheet has not been
prepared on the basis set forth in Section 2.04(b) or disagrees with the
calculation contained in the Shareholder's Equity Schedule, the Purchaser
shall inform the Seller in writing (the "Purchaser's Objection"), setting
forth a description in reasonable detail of the basis of his objection and
the adjustments to the Closing Balance Sheet or the Shareholder's Equity
Schedule which the Purchaser believes should be made, on or before the last
day of such 20-day period. The Seller shall then have 20 Business Days to
review and respond to the Purchaser's Objection. During such 20-day review
period and the subsequent 10-day period referred to below, the parties shall
seek in good faith to resolve any differences which they may have with
respect to any matter specified in the Purchaser's Objection. If the
Purchaser and the Seller are unable to resolve all of their disagreements
with respect to the Purchaser's Objection within 10 Business Days following
the completion of the Seller's review of the Purchaser's Objection, they
shall refer their remaining differences to the dispute resolution department
of Price Waterhouse LLP's New York City office or other nationally recognized
firm of independent public accountants as to which the Purchaser
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and the Seller mutually agree (or, in the event the parties cannot agree, as
chosen by the American Arbitration Association) (for purposes of this Section
2.04, such accounting firm, the "Independent Accounting Firm"), which shall
determine on the basis of the standards set forth in Sections 2.04(a) and
(b), and only with respect to the remaining differences so submitted, whether
and to what extent, if any, the Closing Balance Sheet or the Shareholder's
Equity Schedule requires adjustment. The parties shall instruct the
Independent Accounting Firm to deliver its written determination to the
Purchaser and the Seller no later than the 20th Business Day after the
remaining differences underlying the Purchaser's Objection are referred to
the Independent Accounting Firm. The Independent Accounting Firm's
determination shall be conclusive and binding upon the Seller and the
Purchaser, and shall be based solely on presentations by the Purchaser and
the Seller and not by independent review. The Independent Accounting Firm
shall address only those issues in dispute, and may not assign a value to any
item greater than the greatest value for such item claimed by either party or
less than the smallest value for such item claimed by either party. The fees,
costs and expenses of the Independent Accounting Firm (i) shall be borne by
the Company in the proportion that the aggregate dollar amount of such
disputed items so submitted that are unsuccessfully disputed by the Purchaser
(as finally determined by the Independent Accounting Firm) bears to the
aggregate dollar amount of such items so submitted and (ii) shall be borne by
the Seller in the proportion that the aggregate dollar amount of such
disputed items so submitted that are successfully disputed by the Purchaser
(as finally determined by the Independent Accounting Firm) bears to the
aggregate dollar amount of such items so submitted. The Seller and the
Purchaser shall make available to the Independent Accounting Firm all
relevant books and records and any work papers (including those of the
parties' respective accountants) relating to the 1997 Balance Sheet and the
Closing Balance Sheet and all other items reasonably requested by the
Independent Accounting Firm. In acting under this Agreement, the Independent
Accounting Firm shall be entitled to the privileges and immunities of
arbitrators in accordance with the American Bar Association rules. The "Final
Balance Sheet" shall be and the related Final Shareholder's Equity shall be
determined from (i) the Closing Balance Sheet, in the event that (x) the
Purchaser's Objection is not delivered to the Seller during the 20-day period
specified above or (y) the Purchaser and the Seller so agree, (ii) the
Closing Balance Sheet adjusted in accordance with the Purchaser's Objection,
in the event that (x) the Seller does not respond to the Purchaser's
Objection within the 20-day period following receipt by the Seller of the
Purchaser's Objection or (y) the Seller agrees with the Purchaser's
Objection, or (iii) the Closing Balance Sheet as adjusted by either (x) the
mutual agreement of the Purchaser and the Seller or (y) the Independent
Accounting Firm.
(d) The Seller shall provide the Purchaser and the Purchaser's
Accountants reasonable access to the books and records of the Company, to any
other information, including work papers of the Seller's Accountants, and to any
employees of the Company to the extent reasonably necessary for the Purchaser to
prepare the Purchaser's Objection, if any, to respond to any objections the
Seller has with respect to
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the Purchaser's Objection and, if applicable, to present the Purchaser's
Objection to the Independent Accounting Firm.
(e) If the Final Shareholder's Equity is less than $60,600,000
(such deficit, the "Closing Deficit"), then the Seller shall pay to the Company
an amount in cash equal to the Closing Deficit.
(f) Any amount payable pursuant to Section 2.04(e) shall be
paid together with interest thereon at an annual rate equal to the reference
rate from time to time of The Chase Manhattan Bank N.A. from and including the
Closing Date to but not including the date of payment, promptly, but in any
event within five Business Days, following issuance of the Final Balance Sheet,
by wire transfer of immediately available funds to a bank account or accounts
designated by the Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser as follows:
3.01 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts and has the requisite corporate power and authority to carry on
its business as it is now being conducted. The Company is duly qualified and
licensed as a foreign corporation to do business, and is in good standing (and
has paid all relevant franchise or analogous Taxes), in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified and in good standing would not, individually or in the aggregate, have
or result in a Company Material Adverse Effect.
3.02 Authority. Each of the Seller and the Company has the
requisite right, power and authority (and, in the case of the Seller, legal
capacity) to enter into this Agreement and any Ancillary Documents to which
he or it, as the case may be, is a party and to carry out its obligations
hereunder and thereunder. This Agreement has been, and each of the Ancillary
Documents to which he or it, as the case may be, is a party has been or will
be, duly and validly executed and delivered by each of the Seller and the
Company and constitutes, and each of the Ancillary Documents to which he or
it, as the case may be, is a party constitutes or will upon execution and
delivery constitute, a valid and binding obligation of such Person,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws affecting creditors rights generally or by
general principles of equity. All corporate proceedings or other actions on
the part of the
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Company necessary to authorize this Agreement or any of the Ancillary
Documents to which it is a party and the transactions contemplated hereby or
thereby have been taken.
3.03 Capitalization; Title to Shares.
(a) The authorized capital stock of the Company consists of
1,000 shares of Common Stock, of which 1,000 shares are issued and outstanding
and owned of record and beneficially by the Seller. Except as set forth on
Schedule 3.03(a), all the issued and outstanding shares of Common Stock are
validly issued, fully paid and nonassessable and are owned free and clear of all
Encumbrances. Except for this Agreement and except as set forth on Schedule
3.03(a), there are no shares of capital stock of the Company authorized, issued
or outstanding, and there are no outstanding subscriptions, options, warrants,
rights, stock-based or stock-related awards or convertible or exchangeable
securities or other Commitments to which the Company or the Seller is a party or
by which the Company or the Seller may be bound of any character relating to, or
obligating the Company or the Seller to issue, grant, award, transfer or sell,
any issued or unissued shares of the Company's capital stock or other securities
of the Company. There are no voting trusts, proxies or other agreements or
understandings to which the Company or the Seller is a party with respect to the
voting of capital stock of the Company.
(b) The Seller has full individual power and authority to
deliver the Redeemed Shares to the Company pursuant to Section 2.02(a) and
the Transferred Shares to the Purchaser pursuant to Section 2.02(b), and to
transfer to the Company or the Purchaser, as applicable, upon the Closing,
good and valid title to such Redeemed Shares or Transferred Shares, as
applicable, free and clear of all Encumbrances, without obtaining the consent
or approval of any third party and such Redeemed Shares and Transferred
Shares are without restriction on the right of transfer thereof. Upon such
Seller's delivery of such Redeemed Shares and Transferred Shares at the
Closing, the Company or the Purchaser, as applicable, will acquire good and
valid title to such Redeemed Shares or Transferred Shares, as applicable,
free and clear of all Encumbrances. The Seller is not a "foreign person"
within the meaning of Treasury Regulation ss. 1.1445-2(b)(2)(i) and the
Seller will furnish the Purchaser at Closing an affidavit described in
Treasury Regulation ss. 1.1445-2(b)(2)(iii).
3.04 Organizational Documents and Records. The Purchaser has been
provided with true and complete copies of the Articles of Organization and
By-laws of the Company, as amended and in effect on the date hereof. The
stock books of the Company, which have been made available to the Purchaser
for its inspection, are true and complete, and the minute books of the
Company, as previously made available to the Purchaser, contain records
accurate in all material respects of all meetings of and resolutions of, or
written consents by, the shareholders or Board of Directors (or committee
thereof) of the Company since the date of corporate organization.
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3.05 Subsidiaries and Portfolio Interests. The Company does not
have and has never had any Subsidiary, and, except as set forth on Schedule
3.05, the Company does not own and has never owned directly or indirectly any
interest in any corporation, partnership, joint venture or other business
association or Person.
3.06 Financial Statements. Schedule 3.06 sets forth the balance
sheets of the Company as of December 31, 1997, December 31, 1996 and December
31, 1995 (collectively, the "Company Balance Sheets"), and the related
statements of income and retained earnings and cash flows for the periods then
ended, including the notes thereto, audited by Fisk, Bilton, Smith & Co., P.C.
or Ernst & Young, LLP as indicated therein (collectively, the "Financial
Statements"). The Financial Statements (i) are in accordance with the books and
records of the Company, (ii) fairly present the financial position, results of
operations and cash flows of the Company as of the respective dates and for the
respective periods referred to therein and (iii) were prepared in accordance
with U.S. GAAP, applied on a basis consistent with that of prior years or
periods. The books of account and other financial and corporate records of the
Company are complete and correct in all material respects.
3.07 Compliance with Laws; Permits. Except as set forth on
Schedule 3.07, the Company is in compliance with all Laws, except where
instances of noncompliance, individually or in the aggregate, would not have
or result in a Company Material Adverse Effect. Except as set forth on
Schedule 3.07, since January 1, 1992, the Company has not received any notice
of any alleged violation of Law applicable to it. A complete and correct list
of Permits held by the Company is set forth on Schedule 3.07, and a true and
complete copy of each such Permit has previously been made available to the
Purchaser for its inspection. Except as set forth on Schedule 3.07, the
Company has all Permits required for the conduct of its business as presently
conducted and the ownership, lease or operation of its properties, except for
those Permits the absence of which would not result in a Company Material
Adverse Effect. All of such Permits are valid and in full force and effect,
and the Company has duly performed and is in material compliance with all of
its obligations under such Permits. No event has occurred with respect to
such Permits which allows, or after notice or lapse of time or both would
allow, the suspension, limitation, revocation, non-renewal or termination
thereof or would result in any other material impairment of the rights of the
holder thereof in and under any of such Permits, and no terminations thereof
or proceedings to suspend, limit, revoke or terminate any material Permit
have been threatened.
3.08 Consents; No Violations. Except as set forth on Schedule 3.08,
neither the execution, delivery or performance of this Agreement or the
Ancillary Documents by the Company or the Seller nor the consummation of the
transactions contemplated hereby or thereby will (a) conflict with, or result in
a breach or a violation of, any provision of the Articles of Organization or
By-laws of the Company;
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(b) constitute, with or without notice or the passage of time or both, a
breach, violation or default, create an Encumbrance, or give rise to any
right of termination, modification, cancellation, prepayment, suspension,
limitation, revocation or acceleration, under (i) any Law, or (ii) any Permit
or Commitment of either the Seller or the Company, or to which they or either
of them or any of their, his or its properties is subject, except, with
respect to the matters set forth in clause (ii), for breaches, violations,
defaults, Encumbrances, or rights of termination, modification, cancellation,
prepayment, suspension, limitation, revocation or acceleration, which,
individually or in the aggregate, would not have or result in a Company
Material Adverse Effect or adversely affect the ability of any of them to
consummate the transactions contemplated hereby; or (c) except for any
required filing under the HSR Act, require any consent, approval or
authorization of, notification to, filing with, or exemption or waiver by,
any Governmental Entity or either other Person on the part of either of the
Seller or the Company.
3.09 Commitments. (a) Schedule 3.09 sets forth a true and complete
list of all of the following Commitments to which (i) the Company is a party
and/or (ii) the Seller is a party in connection with the Business, or, in either
case, by or to which the Company or any of its properties may be bound or
subject:
(i) Commitments for the sale of any real or personal
(tangible or intangible) properties other than in the ordinary course of
business, or for the grant of any option or preferential rights to
purchase any such properties;
(ii) Commitments for the construction, modification or
repair of any building, structure or facility or for the incurrence of any
capital expenditures or for the acquisition of fixed assets, in each case
providing for aggregate payments in excess of $100,000 or to achieve
compliance with any Environmental Laws;
(iii) Commitments relating to the acquisition by the
Company of any operating business or the capital stock of any other Person
that have not been consummated or that have been consummated but contain
representations, covenants, guaranties, indemnities or other obligations
that remain in effect;
(iv) Commitments pursuant to which any party is required
to purchase or sell a stated portion of its requirements or output to
another party;
(v) Commitments relating to any Litigation;
(vi) Commitments relating to the lending or borrowing of
money, including loan agreements, guarantees of Liabilities of any Person,
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performance bonds, letters of credit, bankers acceptances and similar
instruments or arrangements;
(vii) Commitments under which the Company agrees to
indemnify any Person;
(viii) Commitments containing covenants of the Company
or any successor thereto or the Seller not to compete, do business in any
line of business or in any geographical area or with any Person, or to
disclose certain information, or covenants of any other Person not to
compete with the Company in any line of business or in any geographical
area or disclose information concerning the Company;
(ix) Commitments pursuant to which the Company (A)
leases, subleases, licenses or otherwise has the right to use any personal
property or (B) is the lessor of any personal property;
(x) Commitments in respect of licenses or Commitments
relating to Intellectual Properties;
(xi) Commitments in respect of any joint venture,
partnership or other similar arrangement (including, without limitation,
any joint development agreement);
(xii) Commitments with any Governmental Entity,
including without limitation, the United States Department of Treasury
Customs Service;
(xiii) Commitments relating to clean-up, abatement or
other actions in connection with the remediation of any liabilities
relating to Hazardous Materials;
(xiv) Commitments relating to general or special powers
of attorney (whether as grantor or grantee);
(xv) Commitments relating to outstanding letters of
credit or performance bonds or creating any obligation or liability as
guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise
in respect of the obligation of any Person, except as endorser or maker of
checks or letters of credit endorsed or made in the ordinary course of
business;
(xvi) Commitments (other than those specified in any of
clauses (i) through (xv) of this paragraph (a)) which relate to or affect
the Business or any of the assets or properties of the Company in any way,
except those
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(A) which are specifically not required to be scheduled pursuant to the
provisions of any of clauses (i) through (xv) of this paragraph (a),
(B) which are cancellable by the Company on 90 days' or less notice
without any penalty or other financial obligation and which involve
payments of less than $100,000 in such 90 day period, or (C) which
involve annual aggregate payments of $100,000 or less, and, in any
case, are not material to the business or financial condition of the
Company; and
(xvii) Commitments currently in negotiation by the
Company of a type which if entered into would be required to be listed on
Schedule 3.09 or to be disclosed on any other Schedule hereto.
(b) Except as set forth on Schedule 3.09, all of the
Commitments referred to in the preceding paragraph (a) are valid, binding, in
full force and effect and enforceable in accordance with their terms against
the Company and the Seller (as the case may be), and to the knowledge of the
Company and the Seller, against the respective counterparties to such
Commitments. Complete copies (or, if oral, full written descriptions) of all
Commitments required to be so listed, including all amendments thereto, and
complete copies of all standard form Commitments used by the Company in the
conduct of the Business, have been delivered to the Purchaser. Except as set
forth on Schedule 3.09, (i) there is no breach, violation or default and no
event which, with notice or lapse of time or both, would constitute a breach,
violation or default, or give rise to any Encumbrance or right of
termination, modification, cancellation, prepayment, suspension, limitation,
revocation or acceleration under, any Commitment listed on Schedule 3.09,
except for breaches, violations and defaults, or Encumbrances or rights of
termination, modification, cancellation, prepayment, suspension, limitation,
revocation or acceleration which, individually or in the aggregate, do not
and will not have a Company Material Adverse Effect and (ii) neither the
Company nor, to the knowledge of the Company and the Seller, any other party
to any of the Commitments listed on Schedule 3.09 is in material arrears in
respect of the performance or satisfaction of the terms and conditions on its
part to be performed or satisfied under any of such Commitments and no
material waiver or material indulgence has been granted by any of the parties
thereto.
3.10 Absence of Undisclosed Liabilities. Except as set forth on
Schedule 3.10 or incurred in connection with the transactions contemplated
hereby, the Company is not subject to any Liabilities other than (i) Liabilities
reflected, reserved against or otherwise disclosed in the 1997 Balance Sheet and
(ii) Liabilities arising since the date of the 1997 Balance Sheet in the
ordinary course of business consistent (in amount and kind) with past practice
and which do not, individually or in the aggregate, have a Company Material
Adverse Effect.
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3.11 Absence of Certain Changes. Except as set forth on Schedule
3.11 or as contemplated by this Agreement, since the 1997 Balance Sheet Date:
(i) the business of the Company has been conducted in the ordinary course of
business, (ii) the Company has not (a) suffered any change, event or development
or series of changes, events or developments which has or could reasonably be
expected to have a Company Material Adverse Effect, (b) suffered any damage,
destruction or casualty loss to its physical properties (whether or not covered
by insurance) which has or could reasonably be expected to result in a Company
Material Adverse Effect, or (c) been the subject of any investigation by a
Governmental Entity or Litigation threatened or commenced since such date which
could have a Company Material Adverse Effect, and (iii) to the knowledge of the
Company and the Seller, there has not been any transaction, act, circumstance or
event that if it occurred on or after the date of this Agreement without the
prior consent of the Purchaser would constitute a breach of Section 5.02(b).
3.12 Brokers and Finders; Fees. Except for Geneva Corporate Finance,
Inc., neither the Company nor the Seller has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated hereby.
3.13 Real Estate.
(a) Schedule 3.13(a) sets forth a list of all the Owned Real
Property. With respect to the Owned Real Property, (i) the Company has good and
marketable title in fee simple to the Owned Real Property, free and clear of all
Encumbrances except (A) as disclosed in Schedule 3.13(a) and (B) Permitted
Encumbrances, (ii) there are no outstanding options or rights of first refusal
in favor of any other party to purchase the Owned Real Property or any portion
thereof or interest therein, (iii) there are no leases, subleases, licenses,
options, rights, concessions or other agreements, affecting any portion of the
Owned Real Property, (iv) all existing water, sewer, gas, electricity, telephone
and other utilities required for the construction, use, occupancy, operation and
maintenance of the Owned Real Property are adequate in all material respects for
the use, occupancy, operation and maintenance thereof, as currently conducted or
currently exists, and (v) the Company has all rights of access necessary for
ingress to and egress from the Owned Real Property from or to public streets.
(b) Schedule 3.13(b) sets forth a list of all Leased Real
Property. The Seller has made available to the Purchaser true and complete
copies of all leases and subleases relating to the Leased Real Property. With
respect to the Leased Real Property, (i) the Company has good and valid
leasehold estates in the Leased Real Property, free and clear of all
Encumbrances except Permitted Encumbrances, (ii) all existing water, sewer, gas,
electricity, telephone and other utilities required for the construction, use,
occupancy, operation and maintenance of the Leased Real Property are adequate
for the use, occupancy, operation and maintenance thereof, as currently
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conducted or currently exists, and (iii) the Company has all rights of access
necessary for ingress to and egress from the Leased Real Property. Except as set
forth on Schedule 3.13(b), (A) each such lease or sublease is legal, valid,
binding and enforceable and in full force and effect and (B) the consummation of
the transactions contemplated by this Agreement will not cause a material breach
or require any third party consent under any such lease or sublease.
(c) Except as set forth on Schedule 3.13(c), (i) neither
the Seller nor the Company has, since January 1, 1992, received written
notice of any pending or, to the knowledge of the Company and the Seller,
threatened condemnation or eminent domain proceedings or their local
equivalent with respect to the Owned Real Property or the Leased Real
Property, (ii) the Owned Real Property, the use and occupancy thereof by the
Company, and the conduct of the Business thereon and therein do not violate
any deed restrictions, applicable law consisting of building codes, zoning,
subdivision or other land use or similar laws the violation of which would
adversely affect the use, value or occupancy of any such property or the
conduct of the Business thereon, (iii) neither the Seller nor the Company
has, since January 1, 1992, received written notice of a material violation
of the restrictions or Laws described in the foregoing clause (ii), and (iv)
none of the structures or improvements on any of the Owned Real Property
encroaches upon real property of another Person, and no structure or
improvement of another Person encroaches upon any of the Owned Real Property
or Leased Real Property, which would materially interfere with the use
thereof in the ordinary course of business.
3.14 Sufficiency of Assets. The assets, rights, and properties
owned, leased or licensed by the Company constitute all assets, rights, and
properties used or held for use in the conduct of the Business as presently
conducted.
3.15 Tangible Property. Except as set forth on Schedule 3.15, to the
knowledge of the Company and the Seller, the buildings, facilities, machinery,
equipment, furniture, leasehold and other improvements, fixtures, vehicles,
structures, any related items and other tangible property required to properly
operate the Business, or material to the financial condition or prospects of the
Company (the "Tangible Property") are in good operating condition and repair
(normal wear and tear excepted), free of any material structural or engineering
defects, are being maintained and replaced in accordance with past practice, and
are suitable for their current use. The Company has good and marketable title
to, or a valid leasehold interest in or contractual right to use, all Tangible
Property, free and clear of all Encumbrances except (A) as disclosed in Schedule
3.15 and (B) Permitted Encumbrances.
3.16 Inventory. All of the Company's inventory reflected on the
1997 Balance Sheet is (or was prior to the sale thereof) substantially
suitable, usable, or (in the case of finished goods and products) salable at
market prices in the ordinary course of
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business, except to the extent reserved against (after giving effect to the
elimination of $610,000 of the LIFO reserve) on the 1997 Balance Sheet (the
"Reserve"). The markdowns and provisions for obsolescence and shrinkage
reflected in the income statements which are part of the Financial Statements
have been adequately provided for in accordance with U.S. GAAP. The Reserve,
reflected on the 1997 Balance Sheet, has been determined in accordance with
U.S. GAAP and is adequate to provide for obsolete, excess, slow moving,
defective, damaged or missing inventory. The quantity of the Company's
inventory on hand or in transit at the Closing Date will be at levels
substantially customary for the Company for that time of year or, if at
greater than customary levels, then substantially consistent with the
requirements of then outstanding sales Commitments or current sales
projections of the Company, subject to reserves reflected on the Closing
Balance Sheet.
3.17 Accounts and Notes Receivable; Commissions. The accounts and
notes receivable reflected on the 1997 Balance Sheet and those accounts and
notes receivable of the Company acquired or created after the date of the 1997
Balance Sheet through the Closing Date, (a) were, are and shall be bona fide
accounts and notes receivable created in the ordinary and usual course of
business in connection with bona fide transactions and consistent with past
practice, including past practice with respect to the provision of extended
payment terms, (b) have been collected in full or, except as set forth on
Schedule 3.17, are current and will be collectible when due at their face
amounts, except to the extent of the allowance for doubtful accounts, as
allocated to uncollectible accounts, reflected on the 1997 Balance Sheet. Sales
discounts, cash and anticipation discounts, freight allowances, and returns and
allowances reflected on the income statements which are part of the Financial
Statements were granted or arose in the ordinary course of business, consistent
with past practices and provision for such items together with the provision for
uncollectible accounts have been determined in accordance with U.S. GAAP. The
allowance for doubtful accounts reflected on the 1997 Balance Sheet has been
fairly determined consistent with past practices and is adequate to provide, in
accordance with U.S. GAAP, for sales discounts, cash and anticipation discounts,
freight allowances, uncollectible accounts and returns and allowances related to
sales occurring prior to the date of such balance sheet. Commissions reflected
on the income statements which are part of the Financial Statements were granted
or arose in the ordinary course of business, consistent with past practices and
have been fairly determined consistent with past practices in accordance with
U.S. GAAP. Commissions payable reflected on the 1997 Balance Sheet have been
fairly determined consistent with past practices in accordance with U.S. GAAP
and are adequate to provide for commissions payable at such date.
3.18 Litigation and Orders. Except as set forth on Schedule 3.18:
(a) There is no Litigation pending or, to the knowledge of
the Company or the Seller, threatened against, affecting or involving the
Company or any of
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its rights or properties, or which seek to prevent or challenge the
transactions contemplated hereby; and
(b) No product liability, Litigation or Order against or
involving the Company or any products sold, designed or manufactured by the
Company has been settled, adjudicated or otherwise disposed of since January 1,
1992.
3.19 Intellectual Properties. Schedule 3.19 sets forth a correct
and complete list of all registered Intellectual Property and all
Intellectual Property which is material to the Business, in each case, which
is owned or possessed by the Company or used in the conduct of the Business.
Except as set forth on Schedule 3.19, the Company owns or possesses adequate
licenses to (without the making of any payment to others or the obligation to
grant rights to others in exchange) all Intellectual Property necessary to
the conduct of the Business as presently conducted. Each item of Intellectual
Property owned or used by the Company immediately prior to the Closing will
be owned or available for use by the Company on identical terms and
conditions immediately subsequent to the Closing. The Company has taken all
necessary and desirable action to maintain and protect each item of
Intellectual Property that it owns or uses and which is material to the
Business. The validity, ownership, enforceability, use or legality of the
Intellectual Property is not being questioned or opposed in any claim,
demand, Litigation or Order to which the Company, or any Person who has
granted a license of Intellectual Property to the Company, is a party or
subject, nor, to the knowledge of either the Company or the Seller, is any
such claim, demand or Litigation threatened. The conduct of the Business as
currently conducted does not infringe, conflict with, interfere with,
infringe upon, misappropriate or otherwise come into conflict with any
Intellectual Property rights of third parties, and the Company has not within
the past six years received any charge, complaint, claim, demand or notice
alleging any such interference, infringement, misappropriation or violation
(including any claim that the Company must license or refrain from using any
Intellectual Property rights of any third party). All licenses of
Intellectual Property granted by the Company to others are legal, valid,
binding, enforceable and in full force and effect and no party to the license
is in breach or default, and no event has occurred which with notice or lapse
of time would constitute a breach or default or permit termination,
modification or acceleration thereunder, nor has any party repudiated any
provision thereof. All Patents, patent applications, rights to inventions and
other Intellectual Property heretofore owned or held by the Seller or any
Employee and used in the Business in any manner have been duly and
effectively transferred to the Company. The consummation of the transactions
contemplated hereby will not alter or impair the rights and interests of the
Company in any of the items listed on Schedule 3.19. With respect to each
item of Intellectual Property required to be identified in Schedule 3.19, the
Company possesses all right, title and interest in and to the item, free and
clear of any Encumbrance or other restriction. The computer software owned or
used by, or licensed to, the Company is adequate for its current use.
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3.20 Tax Returns, Audits and Liabilities. Except as set forth on
Schedule 3.20, the Company has (i) timely filed in accordance with all
applicable Laws (taking into account valid extensions), all Returns required
to be filed by it, (ii) paid all Taxes shown to have become due pursuant to
such Returns, and (iii) paid all Taxes (other than those being contested in
good faith, all of which are disclosed on Schedule 3.20) for which a notice
of, or assessment or demand for, payment has been received or which are
otherwise due and payable. All Returns filed by the Company with respect to
Taxes were true, correct and complete as of the date on which they were filed
or as subsequently amended to the date hereof. Except as set forth on
Schedule 3.20, complete copies of (i) federal Income Tax Returns for the
Company and (ii) state, local and foreign Income Tax and other Returns of the
Company, that have been filed from and after December 31, 1993 through the
date hereof, have been delivered or made available to the Purchaser prior to
the date hereof. Prior to the date hereof, the Company has provided to the
Purchaser copies of all revenue agent's reports and other written assertions
of deficiencies or other Liabilities for Taxes of the Company with respect to
past periods for which the limitations period has not run. Except as set
forth on Schedule 3.20, (A) there is no Litigation or assessment pending or,
to the knowledge of the Company or the Seller proposed or threatened with
respect to any Liability for Tax that relates to the Company, (B) all amounts
required to be collected or withheld by the Company with respect to Taxes
have been duly collected or withheld and any such amounts that are required
to be remitted to any taxing authority have been duly remitted, (C) no
extension of time within which to file any Return that relates to the Company
has been requested, which Return has not since been filed, (D) there are no
waivers or extensions of any applicable statute of limitations for the
assessment or collection of Taxes with respect to any Return that relates to
the Company which remain in effect, (E) there are no tax rulings, requests
for rulings, or closing agreements relating to the Company which could affect
its liability for Taxes for any period after the Closing, (F) all federal,
state, local and foreign Income Tax Returns of the Company with respect to
taxable periods through the year ended December 31, 1993 have been examined
and closed or are Returns with respect to which the applicable statute of
limitations has expired without extension or waiver, (G) no power of attorney
has been granted by the Company with respect to any matter relating to Taxes
which is currently in force, (H) the Company is not a party to, nor is it
bound by, any Tax allocation or Tax sharing agreement or arrangement and has
no current contractual obligation to indemnify any other Person with respect
to Taxes, (I) no taxing authority in a jurisdiction where the Company or any
shareholder of the Company does not file Returns has made a claim, assertion
or threat that the Company is or may be subject to taxation by such
jurisdiction, (J) the states, territories and jurisdictions (whether foreign
or domestic) in which the Company has filed income, franchise, sales and use
Tax Returns for taxable periods ending after December 31, 1993 are set forth
on Schedule 3.20, (K) the Company and the Seller do not have knowledge of any
fact or condition which, if known to any taxing authority having
jurisdiction, would likely result in the issuance of a notice of proposed
deficiency or similar notice of intention to assess
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Taxes against the Company, and no issue has arisen in any examination of the
Company by any taxing authority that if raised with respect to the period so
examined would result in a material deficiency for any other period not so
examined, if upheld, (L) any adjustment of Taxes of the Company made by the
IRS in any examination which is required to be reported to the appropriate
state, local or foreign taxing authorities has been reported, and any
additional Taxes due with respect thereto have been paid except for amounts
that the Company is contesting in good faith, as set forth on Schedule 3.20,
and (M) none of the assets of the Company (1) is property that is required to
be treated as being owned by any other person pursuant to the "safe harbor
lease" provisions of Section 168(f)(8) of the Internal Revenue Code of 1954,
(2) is "tax-exempt use property" within the meaning of Code Section 168(h),
or (3) directly or indirectly secures any debt the interest of which is tax
exempt under Code Section 103(a). For federal Income Tax purposes, the
Company is, since its formation has been, and will be until the Closing
Date, properly qualified as an "S corporation" under Code Section 1361(a),
and the Company is, since its formation has been, and will be until the
Closing Date so properly qualified for state and local Income Tax purposes
pursuant to analogous state or local provisions in the jurisdictions set
forth on Schedule 3.20.
3.21 Insurance. Schedule 3.21(a) sets forth a list of all
policies or binders of fire, liability, product liability, workers
compensation, vehicular and other insurance held by or on behalf of the
Company or the Business, including the amounts of such insurance and annual
premiums with respect thereto. Such policies and binders are in full force
and effect. The Company has obtained and maintained in full force and effect
insurance with responsible and reputable insurance companies or associations
in such amounts, on such terms, with such deductibles, and covering such
risks, including fire and other risks insured against by extended coverage,
as is customarily carried by reasonably prudent Persons conducting businesses
or owning assets similar to those of the Company, and has maintained in full
force and effect liability insurance against claims for personal injury or
death or property damage occurring in connection with the activities of the
Company or any properties owned, occupied or controlled by the Company in
such amount as is customarily carried by reasonably prudent Persons
conducting businesses or owning assets similar to those of the Company. The
Company may terminate each of its insurance policies or binders at or after
the date hereof and would incur no penalties or other costs in doing so. None
of such policies or binders was obtained through the use of false or
misleading information or the failure to provide the insurer with all
material information requested in order to evaluate the liabilities and
risks. There is no default with respect to any provision contained in any
such policy or binder, nor has the Company failed to give any notice or
present any claim under any such policy or binders in due and timely fashion.
There are no billed but unpaid premiums past due under any such policy or
binder, the failure of which to be paid would result in the cancellation of
such policy or binder. Except as set forth on Schedule 3.21(b), (i) there are
no outstanding Company claims in excess of normal retentions that are not
covered under any such policies or binders and there has not
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occurred any event that might reasonably form the basis of any claim in
excess of normal retentions that is not covered against or relating to the
Company that is not covered by any of such policies or binders and (ii) no
notice of cancellation or non-renewal of any such policies or binders has
been received by the Company.
3.22 Employee Benefits.
(a) Schedule 3.22(a) contains a true and complete list of each
Company Employee Plan and each Employee Agreement. Neither the Company nor
any ERISA Affiliate has any plan or commitment, whether legally binding or
not, to establish any new Company Employee Plan, to enter into any Employee
Agreement or to modify or to terminate any Company Employee Plan or Employee
Agreement (except to the extent required by Law or to conform any such
Company Employee Plan or Employee Agreement to the requirements of any
applicable Law, in each case as previously disclosed to the Purchaser, or as
required by this Agreement), nor has any intention to do any of the foregoing
been communicated to Employees.
(b) The Company has provided, or has caused to be provided,
to the Purchaser (i) current, accurate and complete copies of all documents
embodying or relating to each Company Employee Plan and each Employee
Agreement, including all amendments thereto, written interpretations thereof
and trust or funding agreements with respect thereto; (ii) the two (2) most
recent annual actuarial valuations, if any, prepared for each Company Benefit
Plan; (iii) the two (2) most recent annual reports (Series 5500 and all
schedules thereto), if any, required under ERISA in connection with each
Company Employee Plan or related trust; (iv) a statement of alternative form
of compliance pursuant to Department of Labor Regulation ss.2520.104-23, if
any, filed for each Company Employee Plan which is an "employee pension
benefit plan" as defined in Section 3(2) of ERISA for a select group of
management or highly compensated employees; (v) the most recent determination
letter received from the IRS, if any, for each Company Employee Plan and
related trust which is intended to satisfy the requirements of Section 401(a)
of the Code; (vi) if the Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets; (vii) the
most recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
Company Employee Plan; and (viii) all material communications to any Employee
or Employees relating to each Company Employee Plan.
(c) With respect to each Company Employee Plan (i) the Company
and each ERISA Affiliate have performed all obligations required to be performed
by them under each Company Employee Plan and Employee Agreement and neither the
Company nor any ERISA Affiliate is in default under or in violation of, any
Company Employee Plan, (ii) each Company Employee Plan has been established and
maintained in accordance with its terms and in compliance with all applicable
laws,
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statutes, orders, rules and regulations, including but not limited to ERISA
and the Code, including without limiting the foregoing, the timely filing of
all required reports, documents and notices, where applicable, with the IRS
and the Department of Labor; (iii) each Company Employee Plan intended to
qualify under Section 401 of the Code is, and since its inception has been,
so qualified and a determination letter has been issued by the IRS to the
effect that each such Company Employee Plan is so qualified and that each
trust forming a part of any such Company Employee Plan is exempt from tax
pursuant to Section 501(a) of the Code and no circumstances exist which would
adversely affect this qualification or exemption; (iv) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Section 406
of ERISA, has occurred with respect to any Company Employee Plan; (v) no
action or failure to act and no transaction or holding of any asset by, or
with respect to, any Company Employee Plan has or may subject the Company or
any ERISA Affiliate or any fiduciary to any tax, penalty or other liability,
whether by way of indemnity or otherwise; (vi) there are no actions,
proceedings, arbitrations, suits or claims pending, or to the knowledge of
the Company or any ERISA Affiliate, threatened or anticipated (other than
routine claims for benefits) against the Company or any ERISA Affiliate or
any administrator, trustee or other fiduciary of any Company Employee Plan
with respect to any Company Employee Plan or Employee Agreement, or against
any Company Employee Plan or against the assets of any Company Employee Plan;
(vii) no event or transaction has occurred with respect to any Company
Employee Plan that would result in the imposition of any tax under Chapter 43
of Subtitle D of the Code; (viii) each Company Employee Plan can be amended,
terminated or otherwise discontinued without liability to the Company or any
ERISA Affiliate; (ix) the Company and each ERISA Affiliate have made all
payments with respect to all periods through the date hereof, and will make a
pro-rata payment for the period ending as of the Closing Date, in each case
which are required by each Company Employee Plan, each related trust, each
collective bargaining agreement or by-law to be made to, or with respect to
each Company Employee Plan (including all insurance premiums or intercompany
charges with respect to each Company Employee Plan); (x) no Company Employee
Plan is under audit or investigation by the IRS, the Department of Labor or
the PBGC, and to the knowledge of the Company or any ERISA Affiliate, no such
audit or investigation is pending or threatened; and (xi) no liability under
any Company Employee Plan has been funded nor has any such obligation been
satisfied with the purchase of a contract from an insurance company as to
which the Company has received notice that such insurance company is
insolvent or is in rehabilitation or any similar proceeding.
(d) Neither the Company nor any ERISA Affiliate presently
sponsors, maintains, contributes to, nor is the Company or any ERISA Affiliate
required to contribute to, nor has the Company or any ERISA Affiliate ever
sponsored, maintained, contributed to, or been required to contribute to, a
Pension Plan which is subject to Title IV of ERISA.
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(e) At no time since September 25, 1980 has the Company or any
ERISA Affiliate contributed to or been required to contribute to, or incurred
any withdrawal liability (within the meaning of Section 4201 of ERISA) to any
Multiemployer Plan.
(f) Neither the Company nor any ERISA Affiliate (i) maintains
or contributes to any Company Employee Plan which provides, or has any
liability to provide, life insurance, medical, severance or other employee
welfare benefits to any Employee upon his retirement or termination of
employment, except as may be required by Section 4980B of the Code; or (ii)
has ever represented, promised or contracted (whether in oral or written
form) to any Employee (either individually or to Employees as a group) that
such Employee(s) would be provided with life insurance, medical, severance or
other employee welfare benefits upon their retirement or termination of
employment, except to the extent required by Section 4980B of the Code.
(g) The execution of, and performance of the transactions
contemplated by, this Agreement will not (either alone, in the aggregate or
upon the occurrence of any additional or subsequent events) (i) constitute an
event under any Company Employee Plan, Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee, or (ii)
result in the triggering or imposition of any restrictions or limitations on
the right of the Company or the Purchaser to amend or terminate any Company
Employee Plan and receive the full amount of any excess assets remaining or
resulting from such amendment or termination, subject to applicable taxes. No
payment or benefit which will or may be made by the Company, the Purchaser,
the Seller or any of their respective affiliates with respect to any Employee
will be characterized as an "excess parachute payment," within the meaning of
Section 280G(b)(1) of the Code.
(h) The Company (i) is in compliance with all applicable
federal, state and local laws, rules and regulations (domestic and foreign)
respecting employment, employment practices, labor, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by Law or by agreement to be withheld from
the wages, salaries and other payments to Employees; (iii) is not liable for
any arrears of wages or any taxes or any penalty for failure to comply with
any of the foregoing; and (iv) is not liable for any payment to any trust or
other fund or to any governmental or administrative authority, with respect
to unemployment compensation benefits, social security or other benefits for
Employees.
(i) No work stoppage or labor strike against the Company by
Employees is pending or threatened. The Company (i) is not involved in or
threatened with any labor dispute, grievance, or litigation relating to labor
matters involving any
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Employees, including, without limitation, violation of any federal, state or
local labor, safety or employment laws (domestic or foreign), charges of
unfair labor practices or discrimination complaints; (ii) has not engaged in
any unfair labor practices within the meaning of the National Labor Relations
Act or the Railway Labor Act; or (iii) is not presently, nor has it been in
the past a party to, or bound by, any collective bargaining agreement or
union contract with respect to Employees and no such agreement or contract is
currently being negotiated by the Company or any of its Affiliates. No
Employees are currently represented by any labor union for purposes of
collective bargaining and no activities the purpose of which is to achieve
such representation of all or some of such Employees are threatened or
ongoing.
(j) No Company Employee Plan or Employee Agreement is funded
by a trust described in Section 501(c)(9) of the Code.
(k) With respect to each Welfare Plan, all claims incurred
(including claims incurred but not reported) by Employees thereunder for which
the Company is, or will become, liable are (i) insured pursuant to a contract of
insurance whereby the insurance company bears any risk of loss with respect to
such claims; (ii) covered under a contract with a health maintenance
organization (an "HMO") pursuant to which the HMO bears the liability for such
claims, or (iii) reflected as a liability or accrued for on the 1997 Balance
Sheet.
(l) The Company has no liability, contingent or otherwise, to,
or with respect to any Employee Plan (other than the Company Employee Plans and
Employee Agreements which are listed on Schedule 3.22(a)), which is now or
previously has been sponsored, maintained, contributed to, or required to be
contributed to, by any Subsidiary or any ERISA Affiliate.
(m) To the knowledge of the Company or the Seller, no key
Employee or group of Employees had, immediately prior to the date hereof, any
plans to terminate employment with the Company.
3.23 Suppliers and Customers. Schedule 3.23 sets forth a list of (i)
the suppliers of $1,000,000 or more in materials or services to the Company
during the last twelve months ("Major Suppliers") and (ii) the wholesale
customers of $200,000 or more in products or services of the Company during the
last twelve months (the "Major Customers"). Except as set forth on Schedule
3.23, no Major Supplier, Major Customer or other customers purchasing, in the
aggregate, during the last twelve months, $500,000 or more in products or
services of the Company has during the last twelve months decreased materially
or, to the knowledge of the Company or the Seller, threatened to decrease or
limit materially its provision of services or supplies to the Company. Neither
the Company nor the Seller has any knowledge of any termination, cancellation or
limitation of, or any material modification or change in, the business
relationships of the
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Company, with any Major Supplier, Major Customer or such other customers. To
the knowledge of the Company and the Seller, there will not be any such
change in relations with material suppliers or customers of the Company or
triggering of any right of termination, cancellation or penalty or other
payment in connection with, as a result of transactions contemplated by this
Agreement which could have or result in a Company Material Adverse Effect.
3.24 Products. Except as set forth on Schedule 3.24, there are no
statements, citations or decisions by any Governmental Entity stating that any
product manufactured, sold, designed, distributed or marketed at any time by the
Company ("Products") is defective or unsafe or fails to meet any standards
promulgated by any Governmental Entity. Except as set forth on Schedule 3.24,
there is no (i) fact relating to any Product that, to the knowledge of the
Company or the Seller, may impose upon the Company a duty to recall any Product
or a duty to warn customers of a defect in any Product, (ii) latent or overt
design, manufacturing or other defect in any Product that could reasonably be
expected to have a Company Material Adverse Effect or (iii) material Liability
for warranty claims or returns with respect to any Product.
3.25 Environmental Matters. (a) Except as set forth on Schedule
3.25(a):
(i) the Company has been operated at all times, and is,
in compliance with all applicable Environmental Laws, including all
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in all
applicable Environmental Laws;
(ii) the Company has obtained, is in compliance with,
and has made all appropriate filings for issuance or renewal of, all
permits, licenses, authorizations, registrations and other governmental
consents required by any applicable Environmental Laws ("Environmental
Permits"), including, without limitation, those regulating the use,
storage, treatment, transportation, release, emission or disposal of
Hazardous Substances, and all such Environmental Permits are in full force
and effect;
(iii) there are no claims, notices, civil, criminal or
administrative actions, suits, hearings, investigations, inquiries or
proceedings pending or threatened against the Company or any of its
predecessors, and no requests from any Governmental Entity to perform any
investigatory or remedial activity have been made to the Company or any of
its predecessors, that are based on or related to any actual or alleged
release of Hazardous Substances or any other Environmental Matters or the
failure to have any required Environmental Permits;
(iv) there are no past or present conditions, events,
circumstances, facts, activities, practices, incidents, actions or
omissions that
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(x) may give rise to any liability or other obligation under any
Environmental Laws that may require the Company to incur any
Environmental Costs, (y) may form the basis of any claim, action, suit,
proceeding, hearing, investigation or inquiry against the Company or
any of its predecessors that may require the Company to incur any
Environmental Costs, or (z) may interfere with or prevent continued
compliance by the Company with Environmental Laws and/or Environmental
Permits;
(v) there are no, and have never been any, underground
or aboveground storage tanks, incinerators or surface impoundments at, on,
under, about, or within any of the Company's owned, leased or operated
real property;
(vi) the Company has not received any notice (written or
oral) or other communication that the Company or any of its predecessors
is or may be a potentially responsible party or otherwise liable in
connection with any waste disposal site allegedly containing, or other
location used for the disposal of, any Hazardous Substances. Schedule
3.25(a) contains a list of all sites or locations used by or on behalf of
the Company or any of its predecessors for the disposal of any waste
containing Hazardous Substances; and
(vii) there have been no releases (i.e., any past or
present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, disposing or
dumping) of Hazardous Substances by the Company or any of its predecessors
on, at, upon, into or from any facilities or properties owned, leased or
operated by any of them ("Facilities") and such Facilities are free of all
contamination arising from, relating to, or resulting from any release
discharge or emission of Hazardous Substances, other than such releases
and contamination that are permitted by, and could not result in any
liability under, Environmental Laws.
(b) The Seller has delivered to the Purchaser true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by the Seller or the Company pertaining to
Hazardous Substances at, on, about, under or within any real property owned,
leased, operated or controlled by any predecessor of the Company, or concerning
compliance by the Seller, the Company, or any other Person for whose conduct
they are or may be held responsible, with Environmental Laws.
3.26 Interest in Competitors, Etc. Except as set forth on Schedule
3.26, to the knowledge of the Company or the Seller, neither the Seller nor any
Employee of the Company, and no spouse or lineal descendant of any such Person,
and no Person controlled by one or more of the foregoing Persons shall, on and
immediately after the Closing:
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(a) own, directly or indirectly, any equity or debt
interest in (excepting less than 5% stockholdings for investment purposes in
securities of publicly held and traded companies), or serve as an officer,
director, employee or consultant of, any Person which is a Competitor,
lessor, lessee, supplier, distributor, sales agent or customer of the Company;
(b) own, directly or indirectly, in whole or in part, any
property that the Company uses in the conduct of its business; or
(c) have any cause of action or other claim whatsoever
against, or owe any amount to, the Company, except for claims for accrued
salary, bonus, commissions, and vacation pay and accrued benefits under employee
benefit plans.
3.27 Customs and Trade Regulation. Except as set forth on Schedule
3.27:
(a) There is no dispute, audit, investigation, inquiry or
other Litigation pending or, to the knowledge of the Company or the Seller,
threatened involving the Company with respect to customs duties or other customs
Liabilities (including, without limitation, fees, fines, penalties, forfeitures,
liquidated damages claims and notices of redelivery imposed by or owed to the
U.S. Customs Service) in regard of merchandise imported by the Company into the
United States or exported by the Company;
(b) There is no dispute, audit, investigation, inquiry or
other Litigation pending or, to the knowledge of the Company or the Seller,
threatened against, affecting or involving the Company with respect to the
provision to overseas suppliers of merchandise imported into the United States
of "assists" (within the meaning of 19 U.S.C. 1401a) or other property or
services the value of which was not declared in customs entries;
(c) The Company does not have on deposit, and is not
depositing, any "antidumping" duty with respect to merchandise imported by it
into the United States;
(d) The Company has all Permits, and is in compliance with all
of its obligations under such Permits and all Laws, applicable, in each case, to
the importation or exportation of merchandise; and
(e) To the knowledge of the Company and the Seller, the
Company has not paid and is not obligated to pay any amounts in excess of bona
fide selling price to any unaffiliated third party with respect to any
merchandise or services purchased or sold by it.
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3.28 Intercompany Transactions. Schedule 3.28 sets forth (a) all
transactions between the Company and the Seller or any of their respective
Affiliates since January 1, 1997, (b) all assets, properties and services of
the Company used by the Seller or any of their respective Affiliates, or vice
versa, at any time since January 1, 1997 and (c) all Commitments between the
Company and the Seller or any of their respective Affiliates, or vice versa
(any such transaction being an "Affiliated Transaction"). All ongoing
Affiliated Transactions will be terminated at or prior to the Closing, except
for Affiliated Transactions contemplated by this Agreement or the Ancillary
Documents.
3.29 Banking Facilities. Schedule 3.29 sets forth:
(a) each bank, savings and loan or similar financial
institution in which the Company has an account, lockbox collection account,
escrow deposit or safety deposit box and the numbers of such accounts or boxes
maintained by the Company thereat; and
(b) the names of all persons authorized to draw on each such
account or to have access to any such escrow or safety deposit box facilities.
Such accounts and escrow or safety box facilities are
only used by the Company. The individual bank accounts and safety deposit boxes
used by the Seller for its own account not related to the Business are not
commingled with those of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as follows:
4.01 Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite right, power and authority to carry on its business as it
is now being conducted and to perform its obligations under this Agreement and
any Ancillary Documents to which it is a party.
4.02 Authority. The Purchaser has the requisite corporate power
to enter into this Agreement and any Ancillary Documents to which it is a
party and to carry out its obligations hereunder and thereunder. The
execution and delivery of this Agreement and any Ancillary Document to which
it is a party and the consummation of the transactions contemplated hereby
and thereby have been, with respect to this Agreement, and will be, with
respect to such Ancillary Documents, duly authorized by the Purchaser, and no
other proceedings on the part of the Purchaser are, with respect to this
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Agreement, and will be, with respect to such Ancillary Documents, necessary
to authorize this Agreement or such Ancillary Documents and the transactions
contemplated hereby and thereby. This Agreement has been, and each Ancillary
Document to which the Purchaser is a party will be, duly and validly executed
and delivered by the Purchaser and constitute or will constitute, as the case
may be, a valid and binding obligation of the Purchaser, enforceable against
it in accordance with its terms, except as such enforceability may be limited
by applicable, bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally or by general principles of equity.
4.03 Consents; No Violation. Neither the execution, delivery and
performance of this Agreement by the Purchaser nor the consummation of the
transactions contemplated hereby will (a) conflict with, or result in any breach
or violation of, any provision of the Certificate of Incorporation or By-laws of
the Purchaser; (b) constitute, with or without the passage of time, a breach,
violation or default, create an Encumbrance, or give rise to any right of
termination, modification, cancellation, prepayment or acceleration, under (i)
any Law, or (ii) any Commitment or Permit of the Purchaser, or to which the
Purchaser or any of its properties is subject, except, with respect to the
matters set forth in clause (ii), for breaches, violations, defaults,
Encumbrances, or rights of termination, modification, cancellation, prepayment
or acceleration which would not, individually or in the aggregate, adversely
affect the ability of the Purchaser to consummate the transactions contemplated
hereby; or (c) except for any required filing under the HSR Act, require any
consent, approval or authorization of, notification to, filing with, or
exemption or waiver by, any Governmental Entity, on the part of the Purchaser,
other than consents, approvals, authorizations, notifications, filings,
exemptions or waivers which, if not obtained or made would not, individually or
in the aggregate, materially adversely affect the ability of the Purchaser to
consummate the transactions contemplated hereby.
4.04 Brokers and Finders. Except for Merrill, Lynch & Co., the
Purchaser has not employed any broker or finder or incurred any liability for
any brokerage fees, commissions or finders' fees in connection with the
transactions contemplated hereby.
4.05 Financing. On the Closing Date, the Purchaser will have
sufficient funds to consummate the transactions contemplated hereby.
ARTICLE V
COVENANTS
5.01 No Solicitation. From the date of this Agreement until the
Closing, other than in connection with the transactions contemplated hereby,
neither the Seller
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nor the Company shall solicit, propose or facilitate (including by way of
providing information regarding the Business or the Company to any Person),
directly or indirectly, any inquiries, discussions or proposals for, continue
or enter into negotiations looking toward, or enter into or consummate any
agreement or understanding in connection with any proposal regarding any
purchase or other acquisition of all or any portion of the Business (other
than the ordinary course of business sale of inventory or replacement of
assets), the Company or any of the equity securities (whether newly issued or
currently outstanding) of the Company, or any merger, business combination or
recapitalization involving the Business or the Company, and the Seller will
cause the Company's officers, directors, representatives, agents and
Affiliates to refrain from any of the above.
5.02 Interim Operations.
(a) Unless the Purchaser otherwise agrees in writing and
except as otherwise expressly contemplated by this Agreement (including Section
5.14 hereof), between the date of this Agreement and the Closing, the Seller
will cause the Company to (i) conduct the Business only in the ordinary course
and consistent with past practice; (ii) use reasonable best efforts to preserve
and maintain its properties and the current relationships of the Company with
its customers, suppliers, distributors, agents, officers and employees and other
persons with which the Company has significant business relationships; (iii) use
reasonable best efforts to maintain all of the assets owned or used by the
Business in the ordinary course of business consistent with past practice; (iv)
continue capital expenditures in accordance with the timing and amounts forecast
for capital expenditures as set forth on Exhibit 5.02(a) hereto; (v) maintain
insurance in full force and effect with respect to the Business with responsible
companies, comparable in amount, scope and coverage to that in effect on the
date of this Agreement; (vi) use reasonable best efforts to preserve the
goodwill and ongoing operations of the Business; (vii) maintain the Books and
Records in the usual, regular and ordinary manner, on the basis consistent with
prior years; and (viii) perform and comply in all material respects with their
obligations under the Commitments.
(b) Except as expressly contemplated by this Agreement,
between the date of this Agreement and the Closing, the Seller will cause the
Company not to do any of the following without the prior written consent of the
Purchaser:
(i) create any Encumbrance on any properties or assets
(whether tangible or intangible) of the Company;
(ii) (A) except for inventory in the ordinary course of
business sell, assign, transfer, lease or otherwise dispose of or agree to
sell, assign, transfer, lease or otherwise dispose of any assets of the
Company or (B) cancel any indebtedness owed to the Company;
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(iii) acquire (by merger, consolidation, or acquisition
of stock or assets) any Person;
(iv) (A) issue any debt securities, (B) incur any
additional indebtedness (other than Existing Indebtedness), (C) assume,
grant, guarantee or endorse, or make any other accommodation or
arrangement making the Company responsible for, the Liabilities of any
other Person or (D) make any loans, advances or capital contributions to,
or investments in any Person;
(v) change any method of accounting or accounting
practice used by the Company, other than such changes required by U.S.
GAAP and changes of tax accounting methods to the extent the Code requires
conformity of financial and tax accounting methods; provided that the
Seller shall give the Purchaser prompt written notice of any such change;
(vi) (A) enter into or adopt or amend any existing
agreement or arrangement relating to severance, (B) enter into or adopt or
amend any existing severance plan, (C) enter into or adopt or amend any
Company Employee Plan or Employee Agreement (including, without
limitation, the plans, programs, agreements and arrangements referred to
in Section 3.22) or (D) grant any increases in compensation, except
compensation increases associated with promotions and annual reviews in
the ordinary course of business and the payment of bonuses to the
individuals in the amounts listed on Exhibit 5.02(b)(vi) hereto;
(vii) make, revoke or change any Tax election,
compromise or settle any federal, state, local, foreign or other Tax
liability or make any payment under any Tax sharing, allocation or
indemnity agreement;
(viii) accelerate or delay the purchase of raw
materials, the manufacture, shipment or sale of inventory, the collection
of accounts or notes receivable or the payment of accounts or notes
payable or accrued liabilities or expenses or otherwise operate the
Business, in each case, in a manner that would be inconsistent with past
practices or the forecast of inventory, accounts and notes receivable,
accounts and notes payable and accrued liabilities and expenses previously
provided to the Purchaser and attached hereto as Exhibit 5.02(b)(viii);
(ix) except as set forth in Schedule 5.02(b)(ix) engage
in any transaction with the Seller or any of his Affiliates;
(x) enter into, modify, terminate, amend or grant any
waiver in respect of any Commitment;
(xi) allow the lapse of any of the Company's rights of
ownership or use of any Intellectual Property right;
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(xii) repurchase, redeem or otherwise acquire or
exchange any share of Common Stock, issue or sell any additional shares of
the capital stock of, or other equity interests in, the Company, or
securities convertible into or exchangeable for such shares or equity
interests, or issue or grant any options, warrants, calls, subscription
rights or other rights of any kind to acquire additional shares of such
capital stock, such other equity interests or such securities;
(xiii) amend the Company's articles of incorporation or
bylaws or equivalent organization documents;
(xiv) declare, set aside, make or pay any dividend or
other distribution (whether in cash, stock or property or any combination
thereof); or
(xv) take any action that is reasonably likely to result
in the representations and warranties set forth in Articles III becoming
false or inaccurate in any material respect as of the Closing Date; or
(xvi) agree to take any of the actions specified in this
Section 5.02(b).
5.03 Access and Information. (a) From the date hereof until the
Closing, each of the Company and the Seller shall, and shall cause the Company's
officers, directors, employees and agents to, afford to the Purchaser and its
officers, directors, employees, counsel, accountants, advisors, representatives
and agents access to the officers, employees, agents, customers, suppliers,
properties, offices and other facilities, and to the Company's Books and Records
(including, without limitation, Returns and work papers of its independent
auditors) and Commitments, and shall furnish the Purchaser and such others all
financial, operating, technical and other data and information which the
Purchaser, through its officers, employees, representatives or agents, may from
time to time reasonably request.
(b) Without limiting the generality of the foregoing, the
Purchaser shall have the right to (i) inspect records, reports, permits,
applications, monitoring results, studies, correspondence data and any other
information or documents relevant to Environmental Matters, (ii) inspect all
buildings and equipment at the Owned and Leased Real Properties, and (iii)
conduct tests of the soil surface or subsurface waters at, in, on, beneath or
about the Owned and Leased Real Properties as may be recommended by an
environmental consultant engaged by the Purchaser; provided that in each
case, such tests and inspections shall be conducted only (x) during regular
business hours and upon reasonable notice and (y) in a manner that will not
unduly disrupt or interfere with the operation of the business of the Company.
(c) In connection with the continuing operation of the
business of the Company between the date of this Agreement and the Closing, the
Company shall
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use all reasonable best efforts to consult in good faith on a regular and
frequent basis with representatives of the Purchaser to report material
operational developments and the general status of ongoing operations. The
Seller acknowledges that any such consultation shall not constitute a waiver
by the Purchaser of any rights it may have under this Agreement and that the
Purchaser shall not have any liability or responsibility for any actions of
the Company or any of its officers, directors, employees, agents or
Affiliates with respect to matters which are the subject of such
consultations.
5.04 Compliance with Antitrust Laws; Regulatory and Other Consents.
(a) Each of the Purchaser and the Seller shall cooperate with the other in
making filings under the HSR Act and shall use its best efforts to take, or
cause to be taken, all actions necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by this
Agreement, including using its best efforts to resolve such objections, if any,
as the Antitrust Division of the Department of Justice (the "Antitrust
Division") or the Federal Trade Commission (the "FTC") or state antitrust
enforcement or other Governmental Entities (collectively, the "Regulatory
Agencies") may assert under the antitrust laws with respect to the transactions
contemplated hereby. In the event an action is instituted by any Person
challenging the transactions contemplated hereby as violative of the antitrust
laws, each of the Purchaser and the Seller shall use its best efforts to resist
or resolve such action.
(b) The parties agree to cooperate in obtaining any consents
of any third parties (in addition to the Antitrust Division, the FTC or other
parties or agencies, whose consents or approvals are covered elsewhere herein)
required in connection with the transactions contemplated hereunder (each, a
"Required Consent"). The parties agree that in the event such a Required Consent
is not obtained prior to the Closing and the Closing occurs, the Seller will,
subsequent to the Closing, cooperate with the Purchaser and the Company in
attempting to obtain the Required Consent.
5.05 Best Efforts. Subject to the terms and conditions in this
Agreement, each of the parties hereto shall use its reasonable best efforts
to take promptly, or cause to be taken, all actions and to do promptly, or
cause to be done, all things necessary, proper or advisable under applicable
Laws to consummate and make effective the transactions contemplated hereby.
Each of the corporate parties agrees to provide all necessary cooperation in
connection with the arrangement of the borrowings under the Credit Agreement,
including without limitation, the execution and delivery of any commitment
letters, underwriting or placement agreements, pledge and security documents,
other definitive financing documents, or other requested certificates or
documents.
5.06 Employee Matters. The Purchaser shall cause the Company (i)
to continue in effect, until December 31, 1998, The Yankee Candle Company,
Inc. 401(k) and Profit Sharing Plan and (ii) to honor the Company's
obligations under each of the Company Employee Plans and deferred
compensation agreements listed on
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Schedule 3.22(a) (or such amended or alternative Plans and agreements which
are substantially comparable in the aggregate to the Plans and agreements
listed on Schedule 3.22(a)), in accordance with their respective terms.
5.07 Notice. Each party shall give prompt written notice to the
other of (a) the occurrence, or failure to occur, of any event which occurrence
or failure would be likely to cause any representation or warranty of the Seller
or the Purchaser, as the case may be, contained in this Agreement to be untrue
or inaccurate in any material respect at any time from the date hereof to the
Closing or that will or may result in the failure to satisfy any of the
conditions specified in Article VI, and (b) any failure of any party hereto to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder.
5.08 Cash Management. As part of the cash management program of
the Company, the Company maintains disbursement checking accounts (the
"Disbursement Accounts") from which checks and drafts in respect of the
Business are drawn and are funded by the Company. No later than one Business
Day prior to the Closing Date, the Company shall deliver to the Purchaser a
written estimate (the "Estimated Overdraft") of the checks and drafts in
respect of the Business that will have been written on the Disbursement
Accounts but not presented for payment as of the close of business on the day
immediately preceding the Closing Date (the "Outstanding Checks"). At the
Closing, the Seller shall transfer to a separate interest bearing account
(the "Settlement Account"), opened by the Company at the Company's bank where
the Disbursement Accounts are open, an amount equal to the Estimated
Overdraft. The Settlement Account shall be exclusively used to pay any
Outstanding Checks presented for payment after the Closing. Within ten
Business Days after the Closing, the Company shall advise the Purchaser and
the Seller in writing as to the actual amount of the Outstanding Checks that
have been duly honored for payment (the "Actual Overdraft"). If the Actual
Overdraft exceeds the Estimated Overdraft, the Seller shall pay to the
Purchaser, within two Business Days of receipt of such advice, the amount of
such excess. Within two Business Days of the determination of the Actual
Overdraft, the Company shall close the Settlement Account and pay to the
Seller the balance, if any, of such account, as reflected on the closing
statement delivered by the Company's bank. Such closing statement shall be
accompanied by a certificate signed by an authorized officer of the Company
stating that the Settlement Account has been exclusively used to pay for
Outstanding Checks. The Seller will be responsible for any Outstanding Checks
subsequently presented for payment. The Seller shall be responsible to fund
the Disbursement Accounts in amounts sufficient to pay all checks and drafts
in respect of the Business that are written but not presented for payment
prior to the close of business on the day immediately preceding the Closing
Date. In the event that Outstanding Checks are presented for payment
following the determination of the Actual Overdraft, the Company shall send a
notice to the Seller of the amount of such Outstanding Checks funded by the
Company and duly honored for payment, and the Seller shall pay to the
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Company two Business Days after receipt of such notice the amount set forth
in such notice.
5.09 Tax Provisions. (a) The Seller shall indemnify and hold
harmless, without duplication, the Purchaser and the Company (collectively, the
"Tax Indemnified Parties") from and against any and all Liabilities and Losses
of the Company or the Purchaser based upon, resulting from or arising out of (i)
Taxes relating to Pre-Closing Tax Periods, including, without limitation, any
and all Taxes attributable to the Section 338(h)(10) Elections and any other
elections pursuant to Code Section 338 or analogous provisions of state or local
law that are made or deemed to be made automatically as a result of the Section
338(h)(10) Elections, but only to the extent the amount of the Liability
(including, without limitation, Losses with respect thereto) for any such Tax
exceeds the amount of the reserves (if any) for such Tax reflected on the Final
Balance Sheet; (ii) the failure of the Seller to perform its obligations
pursuant to Section 5.09(d); and (iii) the ineffectiveness or invalidity of the
Section 338(h)(10) Elections (including, without limitation, the invalidity or
ineffectiveness of the Section 338(h)(10) Elections resulting, in whole or in
part, from the inability of the Company or the purchase of the Transferred
Shares to qualify for treatment under Section 338(h)(10)), unless such
ineffectiveness or invalidity is the result of (i.e., would not have occurred
but for) (1) Purchaser's failure to timely and properly prepare and file such
forms as are necessary to make the Section 338(h)(10) Elections, except to the
extent that such failure is caused by Seller, or (2) the inaccuracy or
incompleteness of information provided by Purchaser in connection with such
forms, except to the extent caused by Seller. In the case of any Tax relating to
a taxable period of the Company that includes but does not end on the Closing
Date, the portion of such Tax relating to the portion of such taxable period
which ends on the Closing Date shall be computed for purposes of clause (i) of
this Section 5.09(a) in a manner which is consistent with the same computation
undertaken for purposes of the preparation of the Final Balance Sheet.
(b) (i) With respect to the purchase and sale of the
Transferred Shares, the Seller shall join with the Purchaser in making a
timely election under Section 338(h)(10) of the Code, and the regulations
promulgated thereunder, and any corresponding elections under state, local
or foreign tax law ("Section 338(h)(10) Elections"). Seller shall
cooperate with Purchaser to take all actions necessary and appropriate
(including timely preparing and filing such additional forms, Returns,
elections, schedules and other documents separately or jointly with
Purchaser) as may be required to effect and preserve timely Section
338(h)(10) Elections in accordance with Code Section 338(h)(10), and the
regulations promulgated thereunder, and any corresponding provisions of
state, local or foreign tax law. Seller shall report the purchase by Buyer
of the Transferred Shares in a manner consistent with the Section
338(h)(10) Elections and shall take no position inconsistent therewith in
any Return or audit or any proceeding before any taxing authority.
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(ii) The Seller shall prepare and deliver to the
Purchaser, prior to the Closing, a validly executed IRS form 8023-A (and,
as applicable, analogous forms required pursuant to state, local or
foreign tax law) providing for a Section 338(h)(10) election with respect
to the purchase and sale of the Transferred Shares, with such portions of
the forms as relate to the Company and the Seller properly completed. The
Purchaser shall be responsible for the filing of such forms. The Seller
shall be responsible for the preparation of the Company's federal and
state Income Tax Returns for the taxable years which end on or prior to
the Closing Date and such Income Tax Returns shall be prepared in a manner
consistent with the prior practice of the Company. The Seller shall
provide the Purchaser with an opportunity to review and comment on such
Income Tax Returns at least 10 days prior to the date that such Returns
are due to be filed (taking into account extensions of the due date
thereof). Any Tax due with respect to such Income Tax Returns or, in the
case of any Income Tax Returns for taxable years which include the Closing
Date, the portions of such Tax relating to Pre-Closing Tax Periods
(including in each case payments of estimated Tax) shall be paid by the
Seller to the Company on the later of two days before the first date on
which such Tax becomes due and payable without interest or penalties or
two days after the Purchaser's request for such payment, and upon receipt
by the Company shall be promptly paid over by the Company to the relevant
taxing authority. If the amount due pursuant to the immediately preceding
sentence is not paid by the Seller by the due date specified therein, the
same shall carry interest, without duplication of interest included in the
definition of Taxes, from (and including) such due date to (but not
including) the date of payment at an annual rate equal to the reference
rate from time to time of the Chase Manhattan Bank N.A. The parties shall
cooperate with each other to timely prepare and file such Income Tax
Returns and such forms and the Seller shall promptly execute and deliver
to the Purchaser such documents or forms as are required in connection
with such Returns and the Section 338(h)(10) Elections.
(iii) The Purchaser shall reasonably determine the
"modified aggregate deemed sales price" ("MADSP") of the assets of the
Company and shall reasonably allocate the MADSP among the assets of the
Company, in each case in accordance with Code Section 338 and the
regulations promulgated thereunder, and any comparable provisions of
state, local or foreign law, as appropriate. Such determination of MADSP
and allocations shall be set forth on a schedule to be prepared by the
Purchaser and delivered to the Seller within 180 days of the Closing for
the Seller's review and comment. The Seller and the Purchaser (x) shall be
bound by, (y) shall file all Returns on a basis consistent with, and (z)
shall take no position in any Return or audit or proceeding before any
taxing authority which is inconsistent with, such determination of MADSP
and such allocations.
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(c) After the Closing Date, the Seller shall make reasonably
available to the Purchaser, and the Purchaser shall make reasonably available to
the Seller, all information, records or documents within their possession or
control relating to Tax Liabilities or potential Tax Liabilities of the Company
with respect to Pre-Closing Tax Periods, and shall preserve all such
information, records and documents until the expiration of any applicable
statute of limitations or extensions thereof. The Seller shall afford the
Purchaser, and the Purchaser shall afford the Seller, the right to take extracts
therefrom and to make copies thereof to the extent reasonably necessary to
permit the Purchaser or the Seller to prepare Returns, to conduct negotiations
with tax authorities, and to implement the provisions of, and to investigate any
claims between the parties arising under this Agreement. The Seller and the
Purchaser shall also cooperate, in all other respects, with each other as is
reasonably necessary for the Purchaser or the Seller to prepare such Returns,
conduct any such negotiations, and investigate any such claims referred to
herein.
(d) All transfer, transfer gains, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties,
interest, additions to tax, and costs and expenses relating to such Taxes)
incurred in connection with the purchase and sale of Common Stock under this
Agreement shall be borne 50% by the Seller and 50% by the Purchaser. The Seller,
at his own expense, shall file all necessary Returns and other documentation
with respect to all such transfer, transfer gains, documentary, sales, use,
stamp, registration and other Taxes and fees. The Purchaser shall cooperate with
the Seller in the preparation of such Returns.
(e) (i) Subject to the provisions of this subsection (e) of
this Section 5.09, the Seller shall have the right, at his own expense,
to control, manage and be responsible for any audit, contest, claim,
proceeding or inquiry with respect to Taxes of the Company for any
Pre-Closing Tax Period and shall have the right to settle or contest in
his discretion any such audit, contest, claim, proceeding or inquiry;
provided, however, that (i) the Seller shall not have the right to
control any such proceeding unless he first acknowledges in writing his
obligation to fully indemnify the Tax Indemnified Parties for the Taxes
at issue in the proceeding; (ii) no settlement or disposition of any
such proceeding shall be made without the Purchaser's prior written
consent, which shall not be unreasonably withheld, if the same
reasonably could be expected to affect the Company's liability for Tax
in any taxable period or portion of a taxable period ending after the
Closing Date and (iii) the Purchaser shall have the right to attend and
participate in, at its own expense, any such proceeding controlled by
the Seller pursuant to this Section 5.09(e) (it being understood that
the Purchaser shall not unreasonably withhold its consent if Seller
requests that certain limited meetings with agents of a Taxing
authority be held without Purchaser's representative in attendance,
provided that Purchaser is kept fully informed with respect to any such
meeting).
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(ii) The Company shall, at its own expense, control,
manage and solely be responsible for any audit, contest, claim, proceeding
or inquiry with respect to Taxes for any taxable year or period ending
after the Closing Date, and shall have the exclusive right to settle or
contest any such audit, contest, claim, proceeding or inquiry without the
consent of any other party.
(f) The Company shall promptly pay over to the Seller any
refunds of Income Tax received with respect to Pre-Closing Periods, net of any
Income Tax imposed on the Company as the result of the receipt of such refunds.
5.10 Non-Competition Agreement. The Seller agrees that for a
period of ten years immediately following the Closing, the Seller shall not,
without the prior written consent of the Company, (a) engage in any
Competitive Activity anywhere in the world (including, without limitation,
anywhere in the United States of America) or (b) directly or indirectly
solicit for employment, including, without limitation, recommending to any
subsequent employer the solicitation for employment of, any employee of the
Company (other than the Seller's secretary or administrative assistant or any
other Person listed on Schedule 5.10). Notwithstanding the foregoing, the
Seller may, directly or indirectly, through a corporation or other business
entity own, operate, invest in or become employed or engaged by a luxury
automobile dealership, winery or vineyard, or a retail gift shop ancillary to
any of the foregoing, provided that, if such gift shop sells candles or other
home fragrancing products, such products must be manufactured solely by the
Company. The parties hereto acknowledge and agree that (x) the Seller will
receive substantial and valuable benefits under this Agreement in
consideration of the covenants and agreements of the Seller set forth in this
Section 5.10, (y) the Purchaser would not have executed and delivered this
Agreement, or agreed to consummate the transactions contemplated hereby upon
the terms and conditions set forth in this Agreement, if the Seller had not
entered into the covenants and agreements set forth in this Section 5.10 and
(z) the parties intend that such agreements and covenants be enforceable and
that it would be grossly inequitable if a court or judicial tribunal were to
not enforce such covenants and agreements to the fullest extent provided
herein.
5.11 Further Assurances. After the Closing, each of the parties
hereto will, at the request of any other party hereto (a "Requesting Party"),
execute, acknowledge and deliver to such Requesting Party, at the sole expense
of such Requesting Party, all such further assignments, conveyances,
endorsements, deeds, powers of attorney, consents and other documents and take
such other action as a Requesting Party may reasonably request to consummate the
transactions contemplated hereby.
5.12 Closing Resolutions. Simultaneously with the Closing, (a) each
of the directors of the Company in office on the date hereof (or appointed after
the date
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hereof but prior to the Closing Date) shall resign effective immediately on
the Closing Date, (b) the Seller shall (i) pursuant to Article VIII of the
Company's bylaws amend Article III, Section 2 of the Company's bylaws to
permit stockholders of the Company to appoint directors and (ii) designate
three directors who are nominees of the Purchaser to fill the vacancies
created thereby, and (c) the newly appointed members of the board of
directors shall authorize the redemption of the Redeemed Shares and the
issuance of the Notes to MBO-VI, in each case, as contemplated by this
Agreement and the execution, delivery and performance of the Credit Agreement.
5.13 Amendment to the Company's Articles of Organization. Prior to
the Closing, the Seller shall have caused the Company to amend its articles of
organization and to take the corporate actions necessary to authorize such
amendment, to delete the restrictions on the transfer of shares of Common Stock
set forth in Article 5 thereof.
5.14 Pre-Closing Transactions. (a) At or prior to the Closing,
the Company shall assign to the Seller or an entity controlled by the Seller,
and the Seller or such entity shall assume, all rights and obligations under
that certain Aircraft Lease Agreement, dated as of February 6, 1996, between
General Electric Capital Corporation ("GECC") and the Company (the "GECC
Lease") and the Company shall receive a release, in form and substance
satisfactory to the Purchaser, executed by GECC consenting to such assignment
and assumption, releasing the Company of all obligations in connection with
the GECC lease and terminating all Encumbrances and guarantees, if any,
related thereto.
(b) At or prior to the Closing, the Company shall assign to
the Seller or an entity controlled by the Seller, and the Seller or such entity
shall assume, all rights and obligations under that certain (i) Outfitted
Gulfstream IV-SP Sales Agreement, together with all Riders and Addendums
thereto, dated as of December 5, 1997, by and between the Company and Gulfstream
Aerospace Corporation ("Gulfstream") (the "Gulfstream Contract") and (ii)
Aircraft Lease Agreement, together with all associated Commitments (including,
without limitation, commitments in respect of indebtedness to Fleet Capital
Corporation and all associated security interests), dated as of January 28, 1998
between Fleet National Bank ("Fleet") and the Company (the "Fleet Lease"), and,
the Company shall receive releases, in form and substance satisfactory to
Purchaser, consenting to such assignments and assumptions, and releasing the
Company of all obligations in connection with the Gulfstream Contract and the
Fleet Lease and terminating all Encumbrances and guarantees, if any, related
thereto.
(c) At or prior to the Closing, the Company shall transfer the
Retained Assets to the Seller. On the Closing Date, the Company shall make
distributions to the Seller of Cash and deliver to the Purchaser a certificate
of the Company setting forth the amount of Cash distributed to the Seller
between January 1, 1998 and the Closing Date and supporting calculations.
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5.15 Acquisition of Rights to Confidentiality. At the Closing, the
Seller shall assign to the Company, to the extent assignable, all rights of the
Seller under any confidentiality agreements between the Seller and Persons other
than the Purchaser that were entered into in connection with or relating to the
possible purchase or sale of all or any portion of the Business (other than the
ordinary course of business sale of inventory or replacement of assets), the
Company or any equity securities of the Company, or any merger, business
combination or recapitalization involving the Business or the Company,
including, without limitation, the right to enforce all terms of such
confidentiality agreements. At the Closing, the Seller shall, and shall cause
Geneva Corporate Finance Inc. to, deliver to the Purchaser the original executed
copies of all such confidentiality agreements. If the Seller's rights under any
confidentiality agreement are not assignable, the Seller shall cooperate with
the Purchaser in taking any action reasonably requested by the Purchaser,
including instituting litigation, to enforce for the benefit of the Purchaser
any and all rights of the Seller against a third party thereto.
5.16 Chandler's Tavern, Inc. (a) Within five Business Days after
the date hereof, the Purchaser shall, and the Seller shall cause Chandler's
Tavern, Inc., a Massachusetts corporation ("Chandler's Tavern") wholly-owned
by the Seller to, duly execute and deliver the Asset Purchase Agreement
substantially in the form attached hereto as Exhibit 5.16 (the "Asset
Purchase Agreement").
(b) Within one Business Day after the Closing Date, the Purchaser
shall, and the Seller shall cause Chandler's Tavern to, consummate the
transactions contemplated by the Asset Purchase Agreement.
ARTICLE VI
CONDITIONS
6.01 Conditions to the Obligations of MBO-VI, the Purchaser and
the Seller. The obligations of MBO-VI, the Purchaser and the Seller to
consummate the transactions contemplated hereby shall be subject to the
satisfaction (or waiver by each of MBO-VI, the Purchaser, and the Seller) at
or prior to the Closing of each of the following conditions:
(a) No Law of any Governmental Entity shall be in effect which
prohibits any party from consummating the transactions contemplated hereby.
(b) The waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or been
terminated.
6.02 Conditions to the Obligations of MBO-VI and the Purchaser. The
obligations of MBO-VI and the Purchaser to consummate the transactions
contemplated
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hereby shall be subject to the satisfaction (or waiver by MBO-VI
and the Purchaser) at or prior to the Closing of each of the following
conditions:
(a) (i) The representations and warranties of the Seller
contained in this Agreement shall be true and correct in all material respects
as of the Closing, with the same force and effect as if made as of the Closing
(or, in the case of representations and warranties of the Seller which address
matters only as of a particular date, as of such date), disregarding all
references in such representations and warranties to "materially", "material
adverse change", "Company Material Adverse Effect", "in all material respects"
or similar expressions; (ii) the covenants and agreements contained in this
Agreement to be complied with by the Company or the Seller at or prior to the
Closing shall have been complied with in all material respects; and (iii) the
Purchaser shall have received a certificate of the Seller as to the matters set
forth in clauses (i) and (ii) above signed by the Seller.
(b) All consents, approvals, orders or clearances of any
Governmental Entity or any other Person, the granting of which is required
for the consummation of the transactions contemplated hereby, including those
listed in Schedule 6.02, shall have been obtained in form and substance
reasonably satisfactory to the Purchaser.
(c) (i) No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, injunction or
other Order which is in effect and (x) has the effect of making the transactions
contemplated by this Agreement illegal or otherwise restraining or prohibiting
consummation of such transactions or (y) would materially restrict or interfere
with the operation of the Business after the Closing or would have a Company
Material Adverse Effect, and (ii) there shall be no Litigation pending that is
reasonably expected to be successful before any Governmental Entity of competent
jurisdiction seeking a remedy that would have the effect of the foregoing.
(d) The Seller and the Company shall have duly executed and
delivered to the Purchaser the Stockholder's Agreement, dated as of the Closing
Date, by and between the Seller and the Company, substantially in the form
attached hereto as Exhibit 6.02(d) (the "Stockholder's Agreement") and each
individual listed in Schedule 2.02(f) and each other individual acquiring Class
B Shares at the Closing shall have duly executed and delivered to the Purchaser
the Employee Stockholder's Agreement with respect to such individual.
(e) Each of the Seller, the Purchaser, the Company and the
Escrow Agent shall have duly executed and delivered the Escrow Agreement.
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(f) The Seller shall have prepared and delivered to the
Purchaser a validly executed IRS form 8023-A (and, as applicable, analogous
forms required pursuant to state, local or foreign tax law) pursuant to Section
5.09(b)(ii).
(g) No change (or any condition, event or development
involving a prospective change) shall have occurred or be threatened in the
business, properties, assets, Liabilities, capitalization, stockholders' equity,
financial condition, operations, licenses, results of operations or prospects of
the Company which is reasonably likely to be materially adverse to the Company.
(h) Each of GECC, Gulfstream and Fleet shall have duly
executed and delivered to the Company the consents, releases and other documents
referred to in Section 5.14(a) and (b).
(i) Each of the individuals listed in Schedule 6.02(i) shall
have executed and delivered to the Company a Non-Competition Agreement in the
form attached hereto as Exhibit 6.02(i).
6.03 Conditions to the Obligations of the Seller. The obligations of
the Seller to consummate transactions contemplated hereby shall be subject to
the satisfaction (or waiver by the Seller) at or prior to the Closing of the
following conditions:
(a) (i) The representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material respects
as of the Closing, with the same force and effect as if made as of the Closing
(or, in the case of representations and warranties of the Purchaser which
address matters only as of a particular date, as of such date), disregarding all
references in such representations and warranties to "materially", "material
adverse change", "in all material respects" or similar expressions; (ii) the
covenants and agreements contained in this Agreement to be complied with by the
Purchaser at or prior to the Closing shall have been complied with in all
material respects; and (iii) the Seller shall have received a certificate of the
Purchaser as to the matters set forth in clauses (i) and (ii) above signed by a
duly authorized officer of the Purchaser.
(b) No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any Order which is in effect and has the effect
of making the transactions contemplated by this Agreement illegal or otherwise
restraining or prohibiting consummation of such transactions.
(c) The Company shall have duly executed and delivered the
Stockholder's Agreement.
(d) Each of the Purchaser, the Company and the Escrow Agent
shall have duly executed and delivered the Escrow Agreement.
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ARTICLE VII
TERMINATION PRIOR TO THE EFFECTIVE TIME
7.01 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing Date:
(a) by mutual written consent of the Purchaser and the Seller;
or
(b) by either the Seller or the Purchaser by giving written
notice to the other party, if any Governmental Entity with jurisdiction over
such matters shall have issued an Order restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
unappealable; provided, however, that the provisions of this Section 7.01(b)
shall not be available to a party unless such party shall have complied with
its obligations under Section 5.04 or otherwise used its reasonable best
efforts to oppose any such Order or to have such Order vacated or made
inapplicable to the transactions contemplated by this Agreement; or
(c) by either the Purchaser or the Seller by giving written
notice to the other party if the Closing shall not occurred on or prior
to April 30, 1998 (the "Termination Date"), provided that if the Closing
shall not have occurred on or prior to the Termination Date solely as a
result of the failure of the Seller to satisfy the condition set forth in
Section 6.02(b), the Termination Date shall automatically, and without any
further action by the parties hereto, be extended to May 31, 1998, and
provided further that the terminating party is not in breach of its
obligations under this Agreement; or
(d) by written notice given by the Seller or the Purchaser to
the other party, if there shall have been a breach by the Purchaser or the
Seller, as the case may be, of its representations, warranties, covenants or
agreements contained herein and such breach would, if not cured, cause the
conditions contained in Section 6.02 or 6.03, as applicable, not to be satisfied
and such breach has not been cured to the reasonable satisfaction of the other
party within 15 Business Days after receiving written notice thereof.
7.02 Effect on Obligations. Termination of this Agreement pursuant
to this Article VII shall terminate all obligations of the parties hereunder,
except for the obligations under Sections 5.15, 9.10 and 9.11 hereof and under
that certain Confidentiality Agreement, dated as of January 14, 1998, by and
between Forstmann Little & Co. and Geneva Corporate Finance, Inc. (the
"Confidentiality Agreement"); provided, however, that nothing herein shall
relieve the defaulting or breaching party from any Liability to any other party
hereto.
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7.03 Right to Proceed. Anything in this Agreement to the contrary
notwithstanding, if the condition specified in Section 6.02(a)(i) has not
been satisfied at the Closing, the Purchaser and MBO-VI shall have the right
to proceed with the transactions contemplated hereby; if the condition
specified in Section 6.03(a)(i) hereof has not been satisfied at the Closing,
the Seller shall have the right to proceed with the transactions contemplated
hereby; and if any such right to proceed is exercised with actual knowledge,
acquired after the date hereof, of the unsatisfied condition, the party
exercising such right shall be deemed to have waived such unsatisfied
condition and any such representation or warranty the failure of which to be
true and correct as contemplated by Section 6.02(a)(i) or 6.03(a)(i), as
applicable, has been so waived shall be deemed amended to reflect those facts
of which the Purchaser or the Seller, as applicable, has actual knowledge,
which facts shall be set forth with specificity in a writing to be executed
by the waiving party.
ARTICLE VIII
INDEMNIFICATION
8.01 Survival. The representations and warranties of the parties
hereto contained herein or in any Ancillary Document shall expire on the last
day of the eighteenth month following the Closing Date, except that the
representations and warranties set forth in Sections 3.20, 3.22 and 3.25 of
this Agreement shall survive the Closing Date until the expiration of the
applicable statute of limitations (including any extensions thereof) and the
representations and warranties set forth in Section 3.03 of this
Agreement shall survive indefinitely. After the expiration of such
periods, any claim by a party hereto based upon any such representation or
warranty shall be of no further force and effect, except to the extent a
party has asserted a claim in accordance with this Article VIII for breach of
any such representation or warranty prior to the expiration of such period,
in which event any representation or warranty to which such claim relates
shall survive with respect to such claim until such claim is resolved as
provided in this Article VIII. The covenants and agreements of the parties
hereto shall survive the Closing until performed in accordance with their
terms, provided that the Seller's indemnification obligations set forth in
Section 8.03(a)(iii) shall survive until the fifth anniversary of the Closing
Date, except to the extent a Purchaser Indemnified Party has asserted a claim
in accordance with this Article VIII pursuant to Section 8.03(a)(iii) prior
to the fifth anniversary of the Closing Date, in which event the Seller's
indemnification obligations with respect to such claim shall survive until
such claim is resolved as provided in this Article VIII.
8.02 Indemnification for the Benefit of the Seller. (a) The
Company agrees to indemnify, from and after the Closing Date, the Seller
against and hold him harmless, from
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and against all Liabilities, losses, damages, claims, costs, interest,
judgments, fines, amounts paid in settlement and expenses (including
reasonable attorney's fees) (collectively, "Losses") incurred by him
based upon, resulting from or arising out of (i) the breach of any
representation or warranty of the Purchaser contained in this Agreement or
any of the Ancillary Documents, (ii) the breach of any covenant or agreement
of the Purchaser contained in this Agreement or any of the Ancillary Documents.
Anything in Section 8.02 to the contrary notwithstanding, no claim may be
asserted nor may any action be commenced against the Company, unless prompt
written notice of such claim or action is received by the Purchaser
describing in reasonable detail the facts and circumstances with respect to
the subject matter of such claim or action, provided that the failure of the
Seller to give the Company prompt notice as provided herein shall not relieve
the Company of any of its obligations hereunder except to the extent that the
Company is prejudiced thereby.
(b) No claim may be made against the Company for
indemnification pursuant to Section 8.02(a)(i), unless the aggregate
liability of the Company pursuant to Section 8.02(a)(i) of the Asset Purchase
Agreement, exceeds $5,000,000, and the Company shall then only be liable for
Losses under this Agreement in excess of such $5,000,000 amount. The maximum
amount recoverable, in the aggregate, under Section 8.02(a)(i) of the Asset
Purchase Agreement for breaches of representations and warranties shall be
$50,000,000.
(c) The Seller acknowledges and agrees that, except to the
extent any Losses are incurred by such party resulting from any fraudulent
misrepresentation by the Purchaser, the Seller's sole and exclusive remedy
with respect to any and all claims based upon, resulting from or arising out
of the breach of any representation or warranty of the Purchaser contained in
this Agreement or any Ancillary Document shall be pursuant to the
indemnification provisions of this Article VIII.
8.03 Indemnification by the Seller. (a) The Seller agrees to
indemnify, defend and hold harmless the Company and the Purchaser and each of
their respective Affiliates,
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officers, directors, employees, members, agents, successors, transferees and
assigns (each of the foregoing a "Purchaser Indemnified Party") from and
against all Losses incurred by any of them based upon, resulting from or
arising out of (i) the breach of any representation or warranty of the Seller
contained in this Agreement or any of the Ancillary Documents, (ii) the
breach of any covenant or agreement of the Seller contained in this Agreement
or any of the Ancillary Documents, (iii) Environmental Costs in excess of
$250,000, whenever incurred, based upon, arising from or related to any
conditions, events, circumstances, facts, activities, practices, incidents,
actions or omissions occurring or existing on or prior to the Closing Date
(x) at, on, under, about, within or migrating from or onto any property
currently or formerly owned, leased or operated by the Company or any of its
predecessors, or (y) otherwise related to the Company, or any other related
entity of the Company or any of its subsidiaries, or any divested entity,
business, facility or property of the Company or any of their predecessors or
related entities, in each case regardless of whether such Environmental Costs
are known, unknown, disclosed, undisclosed, fixed or contingent, and in each
case including, without limitation, any such Environmental Costs arising from
the use, storage, handling, treatment, processing, disposal, generation,
transportation or release of any Hazardous Substances at any on-site or
off-site location on or prior to the Closing Date or (iv) the GECC Lease, the
Gulfstream Contract, the Fleet Lease and any other Retained Asset. Anything
in Section 8.03 to the contrary notwithstanding, no claim may be asserted nor
may any action be commenced against the Seller for breach of any
representation or warranty contained in this Agreement or any of the
Ancillary Documents, unless prompt written notice of such claim or action is
received by the Seller describing in reasonable detail the facts and
circumstances with respect to the subject matter of such claim or action;
provided that the failure of the Company to give the Seller prompt notice as
provided herein shall not relieve the Seller of its obligations hereunder,
except to the extent that the Seller is prejudiced thereby.
(b) No claim may be made against the Seller for
indemnification pursuant to Section 8.03(a)(i), unless the aggregate
liability of the Seller, when aggregated with the aggregate liability of the
"Seller" (as defined therein) pursuant to Section 8.03(a)(i) of the Asset
Purchase Agreement, exceeds $5,000,000, and the Seller shall then only be
liable for Losses under this Agreement in excess of $5,000,000. The maximum
amount recoverable, in the aggregate, under Section 8.03(a)(i) hereof and
Section 8.03(a)(i) of the Asset Purchase Agreement for breaches of
representations and warranties shall be $50,000,000.
(c) The Company and the Purchaser each acknowledge and
agree that, except to the extent any Losses are incurred by such party
resulting from any fraudulent misrepresentation by the Seller, the Company's
and the Purchaser's sole and exclusive remedy with respect to any and all
claims based upon, resulting from or arising out of the breach of any
representation or warranty of the Seller contained in this Agreement or any
Ancillary Document shall be pursuant to the indemnification provisions of
this Article VIII.
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8.04 Materiality. The Company Material Adverse Effect, and
materiality (or correlative meaning) qualifications included in the
representations, warranties and covenants shall have no effect on any
provisions in this Article VIII concerning the indemnities of the Seller or
the Company with respect to such representations, warranties and covenants,
each of which is given as though there were no Company Material Adverse
Effect or materiality qualification for purposes of such indemnities.
8.05 Indemnification Procedures. (a) A Purchaser Indemnified
Party or the Seller, as the case may be (for purposes of this Section 8.05,
an "Indemnified Party"), shall give the indemnifying party under Section 8.02
or 8.03, as applicable (for purposes of this Section 8.05, an "Indemnifying
Party"), prompt written notice (the "Indemnification Claim Notice") of any
claim, assertion, event or proceeding by or in respect of a third party of
which such Indemnified Party has knowledge concerning any Loss as to which
such Indemnified Party may request indemnification hereunder; provided that
failure of the Indemnified Party to give the Indemnifying Party prompt notice
as provided herein shall not relieve the Indemnifying Party of any of its
obligations hereunder except to the extent that the Indemnifying Party is
prejudiced thereby. The Indemnifying Party shall have the right to direct,
through counsel of its own choosing, which counsel shall be reasonably
satisfactory to the Indemnified Party, the defense or settlement of any claim
or proceeding the subject of indemnification hereunder at its own expense. If
the Indemnifying Party elects to assume the defense of any such claim or
proceeding, the Indemnified Party may participate in such defense, but in
such case the expenses of the Indemnified Party shall be paid by the
Indemnified Party. The Indemnified Party shall, upon reasonable notice,
provide the Indemnifying Party with access to its records and personnel
relating to any such claim, assertion, event or proceeding during normal
business hours and shall otherwise cooperate with the Indemnifying Party in
the defense or settlement thereof, and the Indemnifying Party shall reimburse
the Indemnified Party for all its reasonable out-of-pocket expenses in
connection therewith. If the Indemnifying Party elects to direct the defense
of any such claim or proceeding, the Indemnified Party shall not pay, or
permit to be paid, any part of any claim or demand arising from such asserted
liability unless the Indemnifying Party consents in writing (which consent
shall not be unreasonably withheld) to such payment or unless the
Indemnifying Party withdraws from or fails to maintain the defense of such
asserted liability or unless a final judgment from which no appeal may be
taken by or on behalf of the Indemnifying Party is entered against the
Indemnified Party for such liability. No settlement in respect of any third
party claim may be effected by the Indemnifying Party without the Indemnified
Party's prior written consent (which consent shall not be unreasonably
withheld) unless the settlement involves a full and unconditional release of
the Indemnified Party. If the Indemnifying Party shall fail to undertake or
maintain any such defense within 30 days of receipt of the Indemnification
Claim Notice, the Indemnified Party shall have the right to undertake the
defense or settlement thereof, at the Indemnifying Party's expense. If the
Indemnified Party assumes
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the defense of any such claim or proceeding pursuant to this Section 8.05 it
may conduct such defense as it reasonably deems appropriate (without regard
to the availability of indemnification hereunder), and the Indemnifying Party
shall be responsible for and pay all costs and expenses of such defense,
including its compromise or settlement, if the Indemnifying Party consents
thereto (which consent shall not be unreasonably withheld).
(b) Notwithstanding the foregoing, with respect to any claim
or demand that the Indemnifying Party is defending, the Indemnified Party shall
have the right to retain separate counsel to represent it and the Indemnifying
Party shall pay the fees and expenses of such separate counsel if there are
conflicts that make it reasonably necessary for separate counsel to represent
the Indemnified Party and the Indemnifying Party.
(c) The parties agree to treat any indemnification payments
made by the Seller pursuant to Section 5.09(a) or 8.03 for all Tax purposes
as adjustments to the Redemption Price or Transfer Purchase Price or as
capital contributions, as appropriate. As security for the payment of the
indemnities owed by the Seller, each Purchaser Indemnified Party shall have
recourse first to the Withheld Amount in accordance with the terms of the
Escrow Agreement, then, once the Withheld Amount and any interest thereon
have been fully used, to the Seller, who shall be liable for any such
indemnities.
(d) The amounts for which an Indemnifying Party shall be
liable under Sections 8.02 and 8.03 of this Agreement shall be net of any
insurance proceeds received by the Indemnified Party in connection with the
circumstances giving rise to the right of indemnification.
(e) The obligation of the Indemnifying Party pursuant to
Section 8.02(a)(i) or 8.03(a)(i) shall be limited to actual damages and shall
not include lost profits or consequential damages whether arising in contract,
tort (including negligence and strict liability), warranty, statute or
otherwise; provided that any lost profits or consequential damages recovered by
a third party (including any governmental or quasi-Governmental Entities)
against a party entitled to indemnity pursuant to this Article VIII shall be
included in the damages recoverable under such indemnity.
ARTICLE IX
MISCELLANEOUS
9.01 Entire Agreement. This Agreement, the Ancillary Documents and
the Confidentiality Agreement constitute the sole understanding of the parties
with respect to the subject matter hereof and thereof and supersede all prior
agreements among the parties with respect to the subject matter hereof and
thereof.
9.02 Successors and Assigns. Except as otherwise expressly provided
herein, the terms and provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties
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hereto; provided, however, that no party hereto will assign its rights or
delegate its obligations under this Agreement without the express prior
written consent of each other party hereto, except that all or any of the
rights of the parties hereto may be assigned to any corporation newly-formed
and wholly owned by the Purchaser for the purpose of effecting the
transactions contemplated hereby, provided that no such assignment shall
relieve the Purchaser of any of its liabilities hereunder. Nothing in this
Agreement, express or implied, is intended to, or shall, confer on any Person
(other than, with respect to Section 9.13 hereof, Geneva Corporate Finance,
Inc.), other than any of the parties hereto, any rights, benefits or remedies
of any nature whatsoever under or by reason of this Agreement.
9.03 Counterparts. This Agreement may be executed in counterparts,
each of which shall for all purposes be deemed to be an original and all of
which shall constitute the same instrument.
9.04 Construction. The headings of the Articles, Sections and
paragraphs of this Agreement are inserted for convenience only and shall not be
deemed to constitute part of this Agreement or to affect the construction
hereof. All section and article references are to this Agreement, unless
otherwise expressly provided. As used in this Agreement, (a) "hereof",
"hereunder", "herein" and words of like import shall be deemed to refer to this
Agreement in its entirety and not just a particular section of this Agreement,
and (b) unless the context otherwise requires, words in the singular number or
in the plural number shall each include the singular number or the plural
number, words of the masculine gender shall include the feminine and neuter,
and, when the sense so indicates, words of the neuter gender shall refer to any
gender.
9.05 Acknowledgment. The Seller acknowledges that the
representations and warranties contained in this Agreement, any Ancillary
Document and in any certificate or other document delivered to MBO-VI or the
Purchaser shall not be deemed waived or otherwise affected by any
investigation by MBO-VI or the Purchaser, or their respective officers,
directors, employees, counsel, accountants, advisors, representatives and
agents.
9.06 Modification and Waiver. No amendment, modification or
alteration of the terms or provisions of this Agreement shall be binding
unless the same shall be in writing and duly executed by the Company, the
Seller, MBO-VI and the Purchaser. Any of the terms or provisions of this
Agreement may be waived in writing at any time by the party which is entitled
to the benefits of such waived terms or provisions. No waiver of any of the
provisions of this Agreement shall be deemed to or shall constitute a waiver
of any other provision hereof (whether or not similar). No delay on the part
of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
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9.07 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement (including, without limitation, Section 5.10) is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
9.08 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
(including, without limitation, Section 5.10) 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 (including, without limitation, Section 5.10) 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.
9.09 Public Announcements. Prior to the Closing, none of MBO-VI,
the Purchaser, the Company or the Seller shall make any press release with
respect to this Agreement or the transactions contemplated hereby, except as
may be required by Law (in which case, the nature of the statement shall be
described to each other party prior to dissemination to the public) or as
otherwise agreed to by the Seller and the Purchaser.
9.10 Expenses. Except as otherwise provided in this Section 9.10,
each of the parties hereto shall pay all costs and expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby, in each
case including, without limiting the generality of the foregoing, fees and
expenses of such Person's own financial consultants, advisors, brokers,
accountants and counsel. The Seller agrees that all costs and expenses
incurred by him or the Company in connection with this Agreement and the
transaction contemplated hereby, including, without limitation, those fees and
expenses enumerated in the previous sentence, to the extent not included in
the calculation of Transaction Expense Payments, will be paid by the Seller
and will not be allocated to the Company.
9.11 Notices. Any notice, request, instruction or other document to
be given hereunder (a "Notice") by any party hereto to any other party shall be
in writing and delivered personally, sent by a recognized worldwide or
nationwide (whichever is applicable) overnight delivery service with charges
prepaid, sent by registered or certified mail with postage prepaid, or sent by
facsimile transmission:
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<PAGE>
if to MBO-VI or the Purchaser to:
Yankee Candle Holdings Corp.
c/o Forstmann Little & Co.
767 Fifth Avenue, 44th Floor
New York, New York 10153
Facsimile: (212) 759-9059
Confirmation: (212) 355-5656
Attention: Sandra J. Horbach
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Facsimile: (212) 859-4000
Confirmation: (212) 859-8000
Attention: Robert C. Schwenkel, Esq.
if to the Seller or the Company to:
The Yankee Candle Company, Inc.
102 Christian Lane
Whately, Massachusetts 01093
Facsimile: (413) 665-4171
Confirmation: (413) 665-8306
Attention: Harry J. Flood
with a copy to:
Peabody & Brown
101 Federal Street
Boston, Massachusetts 02110
Facsimile: (617) 345-1300
Confirmation: (617) 345-1000
Attention: Charles F. Claeys, Esq.
or at such other address for a party as shall be specified by like Notice. Any
Notice which is delivered in the manner provided herein shall be deemed to have
been duly given to the party to whom it is directed upon actual receipt by such
party, except that any Notice delivered by facsimile transmission shall be
deemed to have been given upon confirmation of transmission; provided that
Notice so delivered is promptly followed by duplicate Notice to that same party
sent by registered or certified mail, postage prepaid.
9.12 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York applicable
to agreements made and to be performed wholly within such jurisdiction. Each
of the parties hereby irrevocably and unconditionally consents to submit to
the jurisdiction of the courts of the State of New York and of the United
States of America, in each case located in the County of New York, for any
Litigation arising out of or relating to this Agreement and the transactions
contemplated hereby, and further agrees that service of any process,
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summons, notice or document by U.S. registered mail to its respective address
set forth in this Agreement shall be effective service of process for any
Litigation brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any Litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of New York or the United
States of America, in each case, located in the County of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead
or claim in any such court that any such Litigation brought in any such court
has been brought in an inconvenient forum.
9.13 Representations and Warranties. The Purchaser acknowledges
that none of the Seller, Geneva Corporate Finance, Inc. or the Company has
made any representation or warranty, expressed or implied, as to the Company,
not included in this Agreement, the Schedules hereto or the Ancillary
Documents. Without limiting the foregoing, the Purchaser acknowledges that
none of the Seller, Geneva Corporate Finance, Inc. or the Company has made
any representations or warranty, express or implied, with respect to the
Confidential Business Review concerning the Company prepared by Geneva
Corporate Finance, Inc. or any projections or forward looking statements
contained therein.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be duly executed on its behalf as of the date first above written.
FORSTMANN LITTLE & CO.
SUBORDINATED DEBT AND EQUITY
MANAGEMENT BUYOUT PARTNERSHIP
VI, L.P.
By: FLC XXIX Partnership
its general partner
By: /s/ Sandra J. Horbach
----------------------------------
Name: Sandra J. Horbach
Title: a general partner
YANKEE CANDLE HOLDINGS CORP.
By: /s/ Sandra J. Horbach
----------------------------------
Name: Sandra J. Horbach
Title: President
THE YANKEE CANDLE COMPANY, INC.
By: /s/ Harry J. Flood
----------------------------------
Name: Harry J. Flood
Title: Treasurer
/s/ Michael Kittredge
----------------------------------
Michael Kittredge
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<PAGE>
GUARANTEE
Each of MBO-VI and Forstmann Little & Co. Equity Partnership-V, L.P.
("EP-V") agrees to cause Yankee Candle Holdings Corp. (including any assignee of
Yankee Candle Holdings Corp.) to fully perform and observe its covenants and
other obligations under the foregoing Recapitalization Agreement and shall be
entitled to enforce directly any benefit of the Recapitalization Agreement
accruing to Yankee Candle Holdings Corp. The foregoing agreement of each of
MBO-VI and EP-V shall terminate at the Closing.
Dated: March 25, 1998
FORSTMANN LITTLE & CO. SUBORDINATED DEBT
AND EQUITY MANAGEMENT BUYOUT
PARTNERSHIP-VI, L.P.
By: FLC XXIX Partnership,
its general partner
By: /s/ Sandra J. Horbach
-------------------------------
Sandra J. Horbach,
a general partner
FORSTMANN LITTLE & CO. EQUITY
PARTNERSHIP-V, L.P.
By: FLC XXX Partnership,
its general partner
By: /s/ Sandra J. Horbach
-------------------------------
Sandra J. Horbach,
a general partner
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<PAGE>
Exhibit 2.2
Execution Copy
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
Among
CHANDLER'S TAVERN, INC.
THE YANKEE CANDLE COMPANY, INC.,
and
MICHAEL KITTREDGE
Dated April 1, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS........................................................1
SECTION 1.01. Certain Defined Terms......................................1
SECTION 1.02. Other Defined Terms........................................3
SECTION 1.03. Incorporation by Reference.................................3
ARTICLE II PURCHASE AND SALE.................................................4
SECTION 2.01. Sale and Purchase of the Acquired Assets...................4
SECTION 2.02. Excluded Assets............................................5
SECTION 2.03. Assumption of Liabilities..................................6
SECTION 2.04. Excluded Liabilities.......................................6
SECTION 2.05. Purchase Price.............................................7
SECTION 2.06. Allocation of Purchase Price...............................7
SECTION 2.07. Assignment of Commitments, Rights and
Obligations.............................................8
SECTION 2.08. Payment of Taxes and Fees..................................8
SECTION 2.09. Notices of Sale............................................8
SECTION 2.10. The Closing................................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER....................9
SECTION 3.01. Incorporation by Reference.................................9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................10
SECTION 4.01. Incorporation by Reference................................10
ARTICLE V COVENANTS ........................................................10
SECTION 5.01 Access and Information.....................................10
SECTION 5.02 Notices and Consents.......................................10
SECTION 5.03 Best Efforts...............................................11
SECTION 5.04 Notice.....................................................11
SECTION 5.05 Tax Provisions.............................................11
SECTION 5.06 Further Assurances.........................................11
SECTION 5.07 Guarantee..................................................12
ARTICLE VI CONDITIONS.......................................................12
SECTION 6.01 Conditions to the Obligations of the Purchaser
and the Seller.........................................12
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SECTION 6.02 Conditions to the Obligations of the Purchaser.............13
SECTION 6.03 Conditions to the Obligations of the Seller................14
ARTICLE VII TERMINATION PRIOR TO THE EFFECTIVE TIME.........................14
SECTION 7.01 Termination................................................14
SECTION 7.02 Effect on Obligations......................................15
SECTION 7.03 Right to Proceed...........................................15
ARTICLE VIII INDEMNIFICATION................................................15
SECTION 8.01 Survival...................................................15
SECTION 8.02 Indemnification for the Benefit of the Seller
and Kittredge..........................................16
SECTION 8.03 Indemnification by the Seller..............................17
SECTION 8.04 Materiality................................................18
SECTION 8.05 Indemnification Procedures.................................18
ARTICLE IX MISCELLANEOUS....................................................19
SECTION 9.01 Entire Agreement..........................................19
SECTION 9.02 Successors and Assigns.....................................20
SECTION 9.03 Counterparts...............................................20
SECTION 9.04 Construction...............................................20
SECTION 9.05 Acknowledgement............................................20
SECTION 9.06 Modification and Waiver....................................20
SECTION 9.07 Severability...............................................21
SECTION 9.08 Specific Performance.......................................21
SECTION 9.09 Public Announcements.......................................21
SECTION 9.10 Expenses...................................................21
SECTION 9.11 Notices....................................................21
SECTION 9.12 Governing Law..............................................23
SECTION 9.13 Bulk Transfer Laws.........................................23
ii
<PAGE>
ASSET PURCHASE AGREEMENT, dated as of April 1, 1998 among THE YANKEE
CANDLE COMPANY, INC., a Massachusetts corporation (the "Purchaser"), CHANDLER'S
TAVERN, INC., a Massachusetts corporation (the "Seller") and MICHAEL KITTREDGE,
an individual resident in the state of Florida ("Kittredge").
WHEREAS, the Seller is engaged in the business of conducting,
managing, operating and carrying on a bar and restaurant and owns the assets and
liabilities relating to the conduct of such business (the "Business"); and
WHEREAS, upon the terms and subject to the conditions set forth
herein, the Seller desires to sell to the Purchaser, and the Purchaser desires
to purchase from the Seller, the Business, including all of the assets used or
held for use in the conduct of the Business, other than the Excluded Assets (as
defined herein) and the Purchaser desires to assume from the Seller certain
liabilities and obligations of the Seller arising out of or relating to the
conduct of the Business.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, the Purchaser and the Seller
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Agreement" or "this Agreement" means this Asset Purchase Agreement,
dated as of April 1, 1998, among the Seller, the Purchaser and Kittredge
(including the Disclosure Schedule) and all amendments hereto made in accordance
with the provisions of Section 9.06.
"Benefit Plan" means each plan, program, policy, payroll practice,
contract, agreement or other arrangement providing for compensation, retirement
benefits, severance, termination pay, performance awards, stock or stock-related
awards, fringe benefits or other employee benefits of any kind, whether formal
or informal, funded or unfunded, written or oral and whether or not legally
binding, including, without limitation, each "employee benefit plan" and each
"multi-employer plan" within the meaning of Section 3(3) and Section 3(37) or
4001(a)(3), respectively, of the Employee Retirement Income Security Act of
1974, as amended, and any regulations promulgated or proposed thereunder.
"Books and Records" means all the books of account and other
financial records pertaining to the Business.
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"Code" means the Internal Revenue Code of 1986, as amended, and the
applicable regulations thereunder.
"Company Employee Plan" means each Employee Plan (other than an
Employee Agreement) which is now or previously has been sponsored, maintained,
contributed to, or required to be contributed to, or with respect to which any
withdrawal liability (within the meaning of Section 4201 of ERISA) has been
incurred, by the Seller or any ERISA Affiliate for the benefit of any Employee,
and pursuant to which the Seller or any ERISA Affiliate has or may have any
liability, contingent or otherwise.
"Disclosure Schedule" means the Disclosure Schedule attached hereto,
dated as of the date hereof, and forming a part of this Agreement.
"Employee" means each current, former or retired employee, officer,
consultant, independent contractor, agent or director of the Business.
"Employee Agreement" means each management, employment, severance,
consulting, non-compete, confidentiality, or similar agreement or contract
between the Seller or any of its Affiliates and any Employee pursuant to which
the Seller has or may have any liability, contingent or otherwise.
"Environmental Claims" means any and all actions, suits, demands,
demand letters, claims, complaints, liens, notices of noncompliance or
violation, notices of liability or potential liability, investigations,
proceedings, consent orders or consent agreements relating in any way to any
Environmental Law, any Environmental Permit or any Hazardous Substances, or
arising from any actual or alleged injury or threat of injury to health, safety
or the environment.
"knowledge" means, with respect to the Seller, the knowledge of
Kittredge, Michael D. Parry, Harry J. Flood, Stephen T. Williams, Nancy E.
Spanbauer, Gail M. Flood, Ann Morrissey, Judith Kundl, Esq., Steve Richardson
and James Pittitieri.
"Leased Real Property" means the real property leased by the Seller
in connection with the conduct of the Business, as tenant, together with, to the
extent leased by the Business, all buildings and other structures, facilities or
improvements currently or hereafter located thereon, all fixtures, systems,
equipment and items of personal property of the Business attached or appurtenant
thereto, and all easements, licenses, rights and appurtenances relating to the
foregoing.
"Seller Material Adverse Effect" means any adverse effect or change
in the business, condition (financial or otherwise), assets, net assets,
Liabilities, properties, operations, results of operations or prospects of the
Seller or the Business that is material to the Seller or the Business.
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SECTION 1.02. Other Defined Terms. The following terms shall have the
meanings defined for such terms in the sections set forth below:
Term: Section:
----- --------
Acquired Assets 2.01
Ancillary Documents 2.10(b)
Assumed Liabilities 2.03
Business Recitals
Closing 2.10(a)
Closing Date 2.10(a)
Commitments 2.01(c)
Confidentiality Agreement 7.02
Excluded Assets 2.02
Excluded Liabilities 2.04
Indemnification Claim Notice 8.05(a)
Indemnified Party 8.05(a)
Indemnifying Party 8.05(a)
Kittredge Preamble
Licenses 2.01(e)
Losses 8.02(a)
Notice 9.11
Permits 2.01(f)
Proprietary Rights 2.01(d)
Purchase Price 2.05
Purchaser Preamble
Purchaser Indemnified Party 8.03(a)
Requesting Party 5.09
Seller Preamble
Seller Indemnified Party 8.02(a)
Tangible Property 2.01(b)
SECTION 1.03. Incorporation by Reference. Any capitalized term used
herein, but not defined herein, shall have the meaning assigned such term in the
Recapitalization Agreement, dated as of March 25, 1998, by and among Forstmann
Little & Co. Subordinated Debt and Equity Management Buyout Partnership-VI,
L.P., the Purchaser, Yankee Candle Holdings Corp. and Kittredge (the
"Recapitalization Agreement") provided, that all references in the
Recapitalization Agreement to the "Company" (as such term is defined in the
Recapitalization Agreement) shall be deemed to be references to the "Seller"(as
such term is defined herein) and all references to the "Seller" (as such term is
defined in the Recapitalization Agreement) shall be deleted.
3
<PAGE>
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Sale and Purchase of the Acquired Assets. Upon the terms and
subject to the conditions set forth in this Agreement, at the Closing, the
Seller shall sell, transfer, assign, convey and deliver to the Purchaser, and
the Purchaser shall purchase and acquire from the Seller, all of the Seller's
right, title to and interest in and to the assets and properties used or held
for use in the conduct of the Business (the "Acquired Assets"), except as
provided in Section 2.02, including, without limitation:
(a) all Leased Real Property, including, without limitation, the
Leased Real Property listed in Section 2.01(a) of the Disclosure Schedule;
(b) all items of tangible personal property owned by the Seller and
used in connection with the Business, including, without limitation, buildings,
facilities, furniture, fixtures, leasehold and other improvements, equipment,
machinery, materials, supplies, motor vehicles, and inventory listed in Section
2.01(b) of the Disclosure Schedule, or acquired by the Seller after the date of
such Schedule and on or before the Closing Date without breach of this Agreement
(collectively, the "Tangible Property");
(c) all contracts, agreements, commitments, understandings, purchase
orders, sales orders, leases, documents and instruments to which the Seller is a
party and which relate to the Business, including, without limitation, those
listed in Section 2.01(c) of the Disclosure Schedule, or entered into by the
Seller after the date of such Schedule and on or before the Closing Date without
breach of this Agreement (collectively, the "Commitments");
(d) all trademarks, trademark rights, trade names, trade name
rights, patents, patent rights, inventions, copyrights, service marks, all
registrations and applications pending therefor, trade secrets, know-how,
designs, marketing materials, slogans, processes and operating rights, in each
case, owned or possessed by the Seller and used in connection with the Business,
including, without limitation, those listed in Section 2.01(d) of the Disclosure
Schedule, or acquired by the Seller or coming into existence after the date of
such Schedule and on or before the Closing Date without breach of this Agreement
(collectively, the "Proprietary Rights");
(e) all licenses granted by or to the Seller in connection with
the Business and all other agreements to which the Seller is a party which
relate to any items described in Section 2.01(d), including, without
limitation, those listed in Section 2.01(e) of the Disclosure Schedule, or
granted by or to or entered into by the Seller after the date of such
Schedule and on or before the Closing Date without breach of this Agreement
(collectively, the "Licenses");
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(f) all approvals, authorizations, consents, certificates, licenses,
permits, franchises, tariffs, orders and other registrations of any Governmental
Entity held by the Seller in connection with the Business and required by any
Law or Governmental Entity, for the conduct of the Business, including, without
limitation, those listed in Section 2.01(f) of the Disclosure Schedule, or
granted to or obtained by the Seller after the date of such Schedule and on or
before the Closing Date (collectively, the "Permits");
(g) all warranties to the Seller from the Seller's vendors and
suppliers with respect to goods or services supplied to the Seller in connection
with the Business, including, without limitation, those listed in Section
2.01(g) of the Disclosure Schedule;
(h) all causes of action and other similar rights of the Seller
relating to the Business, including, without limitation, those listed in Section
2.01(h) of the Disclosure Schedule, and all such items arising or acquired after
the date of such Schedule and on or before the Closing Date;
(i) all cash, cash deposits and other cash equivalents, accounts
receivable, prepaid expenses and similar items of the Seller;
(j) all operating data and records necessary to the operation of the
Business, including, without limitation, financial, Tax, accounting and credit
records, correspondence, budgets and other similar documents and records;
(k) all goodwill and going concern value of the Business; and
(l) all other physical and tangible assets now owned directly by the
Seller in connection with the Business or acquired after the date hereof and on
or before the Closing Date without breach of this Agreement.
SECTION 2.02. Excluded Assets.
Notwithstanding anything herein to the contrary, from and after the
Closing, the Seller shall retain all of its right, title and interest in and to
the following assets (the "Excluded Assets"):
(a) any assets described in Section 2.01 that are transferred or
otherwise disposed of by the Seller prior to the Closing in the ordinary course
of business without breach of this Agreement;
(b) the Seller's corporate seal, minute books, charter documents and
corporate stock record books and the Returns and Tax records that the Seller is
required by law to retain; and
(c) all consideration received by, and all rights of, the Seller
pursuant to this Agreement.
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SECTION 2.03. Assumption of Liabilities. As of the Closing, the Purchaser
shall assume and thereafter pay, perform or discharge the liabilities and
obligations of the Seller relating to the Business which are set forth on
Section 2.03 of the Disclosure Schedule, as they shall exist immediately prior
to the Closing, but only those and no others (collectively, the "Assumed
Liabilities").
SECTION 2.04. Excluded Liabilities. Notwithstanding anything herein to the
contrary, except for the Assumed Liabilities expressly assumed by the Purchaser
under Section 2.03 hereof, the Purchaser shall not and does not assume, agree to
pay, perform or discharge any liability or obligation of the Seller or the
Business, regardless of whether such liability or obligation is fixed or
contingent, asserted or unasserted, and whether arising prior to, on or after
the Closing Date (collectively, the "Excluded Liabilities"). Without limiting
the generality of the foregoing, the Excluded Liabilities shall, except as
otherwise expressly provided in Section 2.03, include:
(i) any and all liabilities related to any of the Excluded
Assets;
(ii) any indebtedness for borrowed money or any other
indebtedness evidenced by notes or other instruments, including principal,
interests and fees;
(iii) any indebtedness to any current or former stockholder or
other Affiliate of the Seller;
(iv) any liability, claim or obligation of the Seller in
respect of any Taxes, or any reporting requirement or estimated Tax
payable with respect thereto, whether arising out of or relating to
events, state of facts or transactions occurring or existing on, prior
to, or after the Closing Date, including, without limitation, any Taxes
relating to the Business or any of the Acquired Assets with respect to
taxable periods or portions thereof ending on or prior to the Closing
Date, any Taxes relating to the transactions contemplated hereby, and
any Taxes relating to the transfer or disposition of Excluded Assets;
(v) any liabilities or obligations arising from any breach, or
from any fact or transaction involving a breach, of any covenant,
agreement, representation or warranty of the Seller contained herein or
arising from, out of, or in connection with, the transactions contemplated
hereby;
(vi) any liabilities in respect of which the Seller shall be
in default on the Closing Date;
(vii) all employee benefit, compensation, pension, welfare,
severance and other employee-related liabilities and obligations
associated with any Employee, including without limitation, any liability
or obligation under any
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Benefit Plan or Employee Agreement, whether arising out of or
relating to any event or state of facts occurring or existing before,
on or after the Closing Date;
(viii) any liabilities or obligations arising from any
litigation, investigation or other proceeding pending or threatened in
respect of the Seller, the Business or any of the Acquired Assets on or
prior to the Closing Date or subsequently asserted after the Closing Date
which is attributable to facts existing, or events or omissions occurring,
on or prior to the Closing Date, including, without limitation, any
Environmental Claim;
(ix) any liabilities or obligations of the Seller with respect
to any lessor, lessee, supplier, customer, lender or other third-party
arising by reason of a claim that the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby
constitutes a breach, termination or impairment of, or gives a right to
payment under, any contract, arrangement or understanding;
(x) any liabilities or obligations incurred by the Seller on
or after the Closing Date; and
(xi) any liabilities or obligations incurred by the Business
prior to the Closing outside the ordinary course of business and all
debts, liabilities or obligations whatsoever, that do not arise out of or
relate to the Business or the Acquired Assets, including all costs and
expenses incurred by the Seller in connection with this Agreement, and the
transactions contemplated hereby and thereby.
SECTION 2.05. Purchase Price. As consideration for the sale by the Seller
of the Acquired Assets hereunder, the purchase price to be paid to the Seller
for the Acquired Assets (the "Purchase Price") shall be:
(i) the assumption by the Purchaser of the Assumed Liabilities, and
(ii) the payment to the Seller at the Closing of an amount in cash
equal to $1.00 (the "Purchase Price").
SECTION 2.06. Allocation of Purchase Price. The Purchase Price shall be
allocated among the Acquired Assets and other relevant items as reasonably
determined by the Purchaser by notice to the Seller within 180 days following
the Closing. The Seller and the Purchaser each agree to report the sale and
purchase of the Acquired Assets for all federal, state, local and foreign Tax
purposes in a manner consistent with such allocation and agree to take no
position inconsistent with such allocation. Upon any payment of any
indemnification obligations hereunder resulting in an adjustment of the
7
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Purchase Price, the purchase price allocation shall be adjusted by the
Purchaser appropriately by notice to the Seller within 90 days after such
payment.
SECTION 2.07. Assignment of Commitments, Rights and Obligations.
Anything in this Agreement to the contrary notwithstanding, this Agreement
shall not constitute an agreement to assign any Commitment if an attempted
assignment thereof, without the consent of a third party thereto, would in
any way materially and adversely affect the rights of the Purchaser
thereunder or the right of the Purchaser to conduct all or any part of the
Business in the manner and on the terms presently enjoyed by the Seller. If
any such third party consent is sought but not obtained, the Seller shall, at
its expense, cooperate with the Purchaser in any reasonable arrangement
designed (a) to provide the Purchaser the benefits under any such Commitment,
including, without limitation, (i) compliance by the Seller on the
Purchaser's behalf and at the Seller's expense with any such Commitment and
(ii) enforcement for the benefit of the Purchaser of any and all rights of
the Seller against a third party thereto arising out of the breach or
cancellation by such third party or otherwise, or (b) to enable the Seller to
meet its obligations, if any, under any such Commitment, or to limit, to the
greatest extent reasonably possible, any liability of the Seller arising from
its failure to perform any such Contract. The Purchaser shall not be required
to accept or enter into, as a substitute for performance by the Seller under
this Agreement, any arrangement which would impose any additional cost,
expense or liability on the Purchaser or would deprive the Purchaser of any
benefits or profits contemplated by this Agreement.
SECTION 2.08. Payment of Taxes and Fees. All transfer, transfer gains,
sales, use, stamp, registration, documentary or other similar Taxes (and any
costs and expenses related to such Taxes) payable in connection with the
transactions contemplated hereby shall be borne 50% by the Seller and 50% by the
Purchaser. The Seller, at its own expense, will prepare and file any Returns and
other filings relating thereto. The Seller shall pay when due any and all other
Taxes which become payable, and all fees and charges incurred by it, in
connection with the transactions contemplated hereby. The Purchaser will
cooperate with the Seller in the preparation of such Returns and filings.
SECTION 2.09. Notices of Sale. The Seller (as reasonably requested by the
Purchaser) will, from time to time, prepare and mail notices to the other party
under each of the Commitments sold, transferred, assigned, delivered and
conveyed to the Purchaser pursuant to this Agreement advising such other party
that such Commitments have been assigned to the Purchaser and directing such
other party to send to the Purchaser all future payments on account, notices and
correspondence relating to the foregoing.
SECTION 2.10. The Closing.
(a) The Closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Fried, Frank, Harris, Shriver &
Jacobson, One New York
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Plaza, New York, N.Y. 10004, commencing at 10:00 a.m. (New York time) on the
later of the first Business Day after the (i) day in which the last of the
conditions set forth in Article VI are satisfied or waived, or (ii) closing
of the transactions contemplated by the Recapitalization Agreement, or at
such other place, date and time as the parties may agree in writing (the date
of the Closing shall be the "Closing Date").
(b) At the Closing, the Seller shall execute and deliver, or
cause to be delivered, to the Purchaser such deeds, bills of sale,
endorsements, assignments, licenses and other instruments, certificates and
documents reasonably satisfactory in form and substance to the Purchaser and
its counsel (the "Ancillary Documents") as shall be reasonably necessary to
vest in the Purchaser as of the Closing Date good and marketable title to the
Acquired Assets free and clear of any Encumbrances (including, without
limitation, the Bill of Sale and Instrument of Assignment and Assumption in
the form attached hereto as Exhibit A). Simultaneously with such delivery,
the Seller shall take all additional steps as may reasonably be necessary to
put the Purchaser in possession and operating control of the Acquired Assets.
(c) At the Closing, the Purchaser shall (i) execute and deliver to
the Seller the Bill of Sale and Instrument of Assignment and Assumption and (ii)
pay to the Seller the Purchase Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE SELLER
SECTION 3.01. Incorporation by Reference. Except as otherwise provided on
Schedule 3.01 hereto, the Seller represents and warrants, as to itself and,
where applicable, Kittredge, as to each matter set forth in Article III of the
Recapitalization Agreement, which Article is incorporated fully herein by this
reference as though restated herein in full, provided that (i) the Seller makes
no representation or warranty as to Sections 3.01, 3.03, 3.04 or 3.24 of the
Recapitalization Agreement as incorporated herein, (ii) all references in the
Recapitalization Agreement to the "Company" (as such term is defined in the
Recapitalization Agreement) in such representations and warranties as
incorporated herein shall be deemed to be references to the "Seller" (as such
term is defined herein), and all references to the "Seller" (as such term is
defined in the Recapitalization Agreement) in such representations and warrants
as incorporated herein shall be deleted and (iii) to the extent a term is
defined in this Agreement and in the Recapitalization Agreement, the definition
of such term as set forth in this Agreement shall govern.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.01. Incorporation by Reference. The Purchaser represents and
warrants to the Seller as to each matter set forth in Article IV of the
Recapitalization Agreement, which Article is incorporated fully herein by
this reference as though restated herein in full, provided that (i) the
Purchaser makes no representation or warranty as to Section 4.04, (ii) the
reference to the "State of Delaware" in Section 4.01 shall be deemed to be a
reference to the "Commonwealth of Massachusetts" and (iii) to the extent a
term is defined in this Agreement and in the Recapitalization Agreement, the
definition of such term as set forth in this Agreement shall govern.
ARTICLE V
COVENANTS
SECTION 5.01 Access and Information. From the date hereof until the
Closing, the Seller shall, and shall cause its officers, directors, employees
and agents to, afford to the Purchaser and its officers, directors, employees,
counsel, accountants, advisors, representatives and agents access to the
officers, employees, agents, customers, suppliers, properties, offices and other
facilities, and to the Seller's Books and Records (including, without
limitation, Returns and work papers of its independent auditors) and
Commitments, and shall furnish the Purchaser and such others all financial,
operating, technical and other data and information which the Purchaser, through
its officers, employees, representatives or agents, may from time to time
reasonably request.
SECTION 5.02 Notices and Consents
(a) Each of the parties hereto shall use all reasonable efforts
to cause the transactions contemplated by this Agreement and the Ancillary
Documents to be consummated, including, without limitation, cooperating with
each other and using all reasonable efforts promptly to prepare and file all
necessary documentation, to effect all applications, notices, petitions and
filings, and to obtain as promptly as practicable all permits, consents,
approvals, waivers, registrations, memberships and authorizations of all
third parties and Governmental Entities which are necessary or advisable to
consummate the transactions contemplated hereby and thereby.
(b) The parties hereto agree that they will consult with one
another with respect to the obtaining of all permits, consents, approvals and
authorizations of all Governmental Entities and other third parties necessary
or advisable to consummate the transactions contemplated by this Agreement
and the Ancillary Documents, and each party will keep the other apprised of
the status of matters relating to completion of the transactions contemplated
herein and therein. The party responsible for a filing shall
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promptly deliver to the other party hereto evidence of the filing of all
applications, filings, registrations, memberships and notifications relating
thereto (except for any confidential portions thereof), and any supplement,
amendment or item of additional information in connection therewith (except
for any confidential portions thereof). The party responsible for a filing
shall also promptly deliver to the other party hereto a copy of each notice,
order, opinion and other item of correspondence received by the filing party
in respect of any such filing (except for any confidential portions thereof).
(c) The parties hereto shall promptly advise each other upon
receiving any communication from any Governmental Entities or other third party
whose consent or approval is required for consummation of the transactions
contemplated hereby which causes such party to believe that there is a
reasonable likelihood that any such consent or approval will not be obtained or
that the receipt of such consent or approval will be materially delayed or that
the transaction contemplated hereby will become subject to additional conditions
imposed by such Governmental Entities or other third party.
SECTION 5.03 Best Efforts. Subject to the terms and conditions in this
Agreement, each of the parties hereto shall use its reasonable best efforts to
take promptly, or cause to be taken, all actions and to do promptly, or cause to
be done, all things necessary, proper or advisable under applicable Laws to
consummate and make effective the transactions contemplated hereby.
SECTION 5.04 Notice. Each party shall give prompt written notice to the
other of (a) the occurrence, or failure to occur, of any event which occurrence
or failure would be likely to cause any representation or warranty of the Seller
or the Purchaser, as the case may be, contained in this Agreement to be untrue
or inaccurate in any material respect at any time from the date hereof to the
Closing or that will or may result in the failure to satisfy any of the
conditions specified in Article VI, and (b) any failure of any party hereto to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder.
SECTION 5.05 Tax Provisions. The Seller covenants and agrees to timely pay
all Income Taxes due with respect to the sale of the Business and Acquired
Assets contemplated by this Agreement, and to promptly provide Purchaser with
evidence of such payment of such Income Taxes and payment of any other Taxes
payable in connection with the transactions contemplated hereby.
SECTION 5.06 Further Assurances. After the Closing, each of the parties
hereto will, at the request of any other party hereto (a "Requesting Party"),
execute, acknowledge and deliver to such Requesting Party, at the sole
expense of such Requesting Party, all such further assignments, conveyances,
endorsements, deeds, powers of attorney, consents and other documents and
take such other action as a
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Requesting Party may reasonably request to consummate the transactions
contemplated hereby.
SECTION 5.07 Guarantee. Kittredge hereby unconditionally and irrevocably
guarantees to the Purchaser the prompt and complete payment (and performance, in
the case of non-pecuniary obligations) of all the Obligations (as defined below)
in full, when and as the same shall become due (including amounts and
performance that would become due but for the operation of the automatic stay
under Section 362(a) of the United States Bankruptcy Code, Title 11, United
States Code, as amended). "Obligations" means all agreements, Commitments,
obligations and Liabilities of the Seller under this Agreement (including,
without limitation, Section 8.03 hereof) and the Ancillary Documents. Kittredge
further agrees to pay any and all expenses (including fees and disbursements of
counsel) which may be paid or incurred by any Person in collecting any or all of
the Obligations or enforcing this guarantee in respect of such Obligations. This
guarantee constitutes a guarantee of payment when due and not of collection, and
Kittredge specifically agrees that it shall not be necessary or required that
any Person exercise any right, asset any claim or demand or enforce any remedy
whatsoever against the Seller (or any other Person) before or as a condition to
the obligations of Kittredge hereunder. The parties hereto acknowledge and agree
that (x) Kittredge will receive substantial and valuable benefits under this
Agreement in consideration of the covenants and agreements of Kittredge set
forth in this Section 5.07, (y) the Purchaser would not have executed and
delivered this Agreement, or agreed to consummate the transactions contemplated
hereby upon the terms and conditions set forth in this Agreement, if Kittredge
had not entered into the covenants and agreements set forth in this Section 5.07
and (z) the parties intend that such agreements and covenants be enforceable and
that it would be grossly inequitable if a court or judicial tribunal were to not
enforce such covenants and agreements to the fullest extent provided herein.
ARTICLE VI
CONDITIONS
SECTION 6.01 Conditions to the Obligations of the Purchaser and the
Seller. The obligations of the Purchaser and the Seller to consummate the
transactions contemplated hereby shall be subject to the satisfaction (or waiver
by each of the Purchaser and the Seller) at or prior to the Closing of each of
the following conditions:
(a) No Law of any Governmental Entity shall be in effect which
prohibits any party from consummating the transactions contemplated hereby.
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(b) The consummation of the transactions contemplated under the
Recapitalization Agreement shall have occurred.
SECTION 6.02 Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to consummate the transactions contemplated hereby
shall be subject to the satisfaction (or waiver by the Purchaser) at or prior to
the Closing of each of the following conditions:
(a) (i) The representations and warranties of the Seller
contained in this Agreement shall be true and correct in all material respects
as of the Closing, with the same force and effect as if made as of the Closing
(or, in the case of representations and warranties of the Seller which address
matters only as of a particular date, as of such date), disregarding all
references in such representations and warranties to "materially", "material
adverse change", "Seller Material Adverse Effect", "in all material respects" or
similar expressions; (ii) the covenants and agreements contained in this
Agreement to be complied with by Kittredge or the Seller at or prior to the
Closing shall have been complied with in all material respects; and (iii) the
Purchaser shall have received a certificate of the Seller as to the matters set
forth in clauses (i) and (ii) above signed by the Seller.
(b) All consents, approvals, orders or clearances of any
Governmental Entity or any other Person, the granting of which is required for
the consummation of the transactions contemplated hereby, including those listed
in Schedule 6.02, shall have been obtained in form and substance reasonably
satisfactory to the Purchaser.
(c) (i) No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, injunction or
other Order which is in effect and (x) has the effect of making the transactions
contemplated by this Agreement illegal or otherwise restraining or prohibiting
consummation of such transactions or (y) would materially restrict or interfere
with the operation of the Business after the Closing or would have a Seller
Material Adverse Effect, and (ii) there shall be no Litigation pending that is
reasonably expected to be successful before any Governmental Entity of competent
jurisdiction seeking a remedy that would have the effect of the foregoing.
(d) The Purchaser shall be satisfied, in its reasonable
discretion, with the results of its legal and business due diligence
investigation of the Seller and the Business.
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SECTION 6.03 Conditions to the Obligations of the Seller. The obligations
of the Seller to consummate transactions contemplated hereby shall be subject to
the satisfaction (or waiver by the Seller) at or prior to the Closing of the
following conditions:
(a) (i) The representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material respects
as of the Closing, with the same force and effect as if made as of the Closing
(or, in the case of representations and warranties of the Purchaser which
address matters only as of a particular date, as of such date), disregarding all
references in such representations and warranties to "materially", "material
adverse change", "in all material respects" or similar expressions; (ii) the
covenants and agreements contained in this Agreement to be complied with by the
Purchaser at or prior to the Closing shall have been complied with in all
material respects; and (iii) the Seller shall have received a certificate of the
Purchaser as to the matters set forth in clauses (i) and (ii) above signed by a
duly authorized officer of the Purchaser.
(b) No Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any Order which is in effect and has the effect of making
the transactions contemplated by this Agreement illegal or otherwise restraining
or prohibiting consummation of such transactions.
ARTICLE VII
TERMINATION PRIOR TO THE EFFECTIVE TIME
SECTION 7.01 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing Date:
(a) by mutual written consent of the Purchaser and the Seller; or
(b) by either the Seller or the Purchaser by giving written notice
to the other party, if any Governmental Entity with jurisdiction over such
matters shall have issued an Order restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and unappealable;
provided, however, that the provisions of this Section 7.01(b) shall not be
available to a party unless such party shall have complied with its obligations
under Section 5.02; or
(c) by either the Purchaser or the Seller by giving written
notice to the other party if the Recapitalization Agreement shall be
terminated pursuant to Article VII hereof; or
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(d) by written notice given by the Seller or the Purchaser to the
other party, if there shall have been a breach by the Purchaser or the Seller,
as the case may be, of its representations, warranties, covenants or agreements
contained herein and such breach would, if not cured, cause the conditions
contained in Section 6.02 or 6.03, as applicable, not to be satisfied and such
breach has not been cured to the reasonable satisfaction of the other party
within 15 Business Days after receiving written notice thereof.
SECTION 7.02 Effect on Obligations. Termination of this Agreement pursuant
to this Article VII shall terminate all obligations of the parties hereunder,
except for the obligations under Sections 5.07, 9.10 and 9.11 hereof and under
that certain Confidentiality Agreement, dated as of January 14, 1998, by and
between Forstmann Little & Co. and Geneva Corporate Finance, Inc. (the
"Confidentiality Agreement"); provided, however, that nothing herein shall
relieve the defaulting or breaching party from any Liability to any other party
hereto.
SECTION 7.03 Right to Proceed. Anything in this Agreement to the contrary
notwithstanding, if the condition specified in Section 6.02(a)(i) has not been
satisfied at the Closing, the Purchaser shall have the right to proceed with the
transactions contemplated hereby; if the condition specified in Section
6.03(a)(i) hereof has not been satisfied at the Closing, the Seller shall have
the right to proceed with the transactions contemplated hereby; and if any such
right to proceed is exercised with actual knowledge, acquired after the date
hereof, of the unsatisfied condition, the party exercising such right shall be
deemed to have waived such unsatisfied condition and any such representation or
warranty the failure of which to be true and correct as contemplated by Section
6.02(a)(i) or 6.03(a)(i), as applicable, has been so waived shall be deemed
amended to reflect those facts of which the Purchaser or the Seller, as
applicable, has actual knowledge, which facts shall be set forth with
specificity in a writing to be executed by the waiving party.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01 Survival. The representations and warranties of the
parties hereto contained herein or in any Ancillary Document shall expire on
the last day of the eighteenth month following the Closing Date, except that
the representations and warranties set forth in Sections 3.20, 3.22 and 3.25
of this Agreement shall survive the Closing Date until the expiration of the
applicable statute of limitations (including any extensions thereof). After
the expiration of such periods, any claim by a party hereto based upon any
such representation or warranty shall be of no further force and effect,
except to the extent a party has asserted a claim in accordance with this
Article VIII for breach of any such representation or warranty prior to the
expiration of such period, in
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which event any representation or warranty to which such claim relates shall
survive with respect to such claim until such claim is resolved as provided
in this Article VIII. The covenants and agreements of the parties hereto
shall survive the Closing until performed in accordance with their terms,
provided that the Seller's indemnification obligations set forth in Section
8.03(a)(v) shall survive until the fifth anniversary of the Closing Date,
except to the extent a Purchaser Indemnified Party has asserted a claim in
accordance with this Article VIII pursuant to Section 8.03(a)(v) prior to the
fifth anniversary of the Closing Date, in which event the Seller's
indemnification obligations with respect to such claim shall survive until
such claim is resolved as provided in this Article VIII.
SECTION 8.02 Indemnification for the Benefit of the Seller and Kittredge.
(a) The Purchaser agrees to indemnify, from and after the Closing
Date, the Seller and Kittredge (each a "Seller Indemnified Party") against and
hold it or him harmless from and against all Liabilities, losses, damages,
claims, costs, interest, judgments, fines, amounts paid in settlement and
expenses (including reasonable attorney's fees) (collectively, "Losses")
incurred by it or him based upon, resulting from or arising out of (i) the
breach of any representation or warranty of the Purchaser contained in this
Agreement or any of the Ancillary Documents or (ii) the breach of any covenant
or agreement of the Purchaser contained in this Agreement or any of the
Ancillary Documents. Anything in Section 8.02 to the contrary notwithstanding,
no claim may be asserted nor may any action be commenced against the Purchaser,
unless prompt written notice of such claim or action is received by the
Purchaser describing in reasonable detail the facts and circumstances with
respect to the subject matter of such claim or action, provided that the failure
of the Seller to give the Purchaser prompt notice as provided herein shall not
relieve the Purchaser of any of its obligations hereunder except to the extent
that the Purchaser is prejudiced thereby.
(b) No claim may be made against the Purchaser for
indemnification pursuant to Section 8.02(a)(i), unless the aggregate
liability of the Purchaser, when aggregated with the aggregate liability of
the Purchaser pursuant to Section 8.02(a)(i) of the Recapitalization
Agreement, exceeds $5,000,000, and the Purchaser shall then only be liable
for Losses under this Agreement in excess of such $5,000,000 amount. The
maximum amount recoverable, in the aggregate under Section 8.02(a)(i) hereof
and Section 8.02(a)(i) of the Recapitalization Agreement for breaches of
representations and warranties shall be $50,000,000.
(c) The Seller and Kittredge each acknowledge and agree that, except
to the extent any Losses are incurred by such party resulting from any
fraudulent misrepresentation by the Purchaser, the Seller's and Kittredge's sole
and exclusive remedy with respect to any and all claims based upon, resulting
from or arising out of the breach of any representation or warranty of the
Purchaser contained in this Agreement or any
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Ancillary Document shall be pursuant to the indemnification provisions of
this Article VIII.
SECTION 8.03 Indemnification by the Seller.
(a) The Seller agrees to indemnify, defend and hold harmless the
Purchaser and each of its Affiliates, officers, directors, employees,
members, agents, successors, transferees and assigns (each of the foregoing a
"Purchaser Indemnified Party") from and against all Losses incurred by any of
them based upon, resulting from or arising out of (i) the breach of any
representation or warranty of the Seller contained in this Agreement or any
of the Ancillary Documents, (ii) the breach of any covenant or agreement of
the Seller contained in this Agreement or any of the Ancillary Documents,
(iii) the failure of the Seller to pay, perform or discharge, when due, any
of the Excluded Liabilities, (iv) any of the Excluded Assets, (v)
Environmental Costs in excess of $250,000, whenever incurred, based upon,
arising from or related to any conditions, events, circumstances, facts,
activities, practices, incidents, actions or omissions occurring or existing
on or prior to the Closing Date (x) at, on, under, about, within or migrating
from or onto any property currently or formerly owned, leased or operated by
the Seller or any of its predecessors, or (y) otherwise related to the
Seller, or any other related entity of the Seller or any of its subsidiaries,
or any divested entity, business, facility or property of the Seller or any
of their predecessors or related entities, in each case regardless of whether
such Environmental Costs are known, unknown, disclosed, undisclosed, fixed or
contingent, and in each case including, without limitation, any such
Environmental Costs arising from the use, storage, handling, treatment,
processing, disposal, generation, transportation or release of any Hazardous
Substances at any on-site or off-site location on or prior to the Closing
Date. Anything in Section 8.03 to the contrary notwithstanding, no claim may
be asserted nor may any action be commenced against the Seller for breach of
any representation or warranty contained in this Agreement or any of the
Ancillary Documents, unless prompt written notice of such claim or action is
received by the Seller describing in reasonable detail the facts and
circumstances with respect to the subject matter of such claim or action;
provided that the failure of the Purchaser to give the Seller prompt notice
as provided herein shall not relieve the Seller of its obligations hereunder,
except to the extent that the Seller is prejudiced thereby.
(b) No claim may be made against the Seller for indemnification
pursuant to Section 8.03(a)(i), unless the aggregate liability of the Seller,
when aggregated with the aggregate liability of the "Seller" (as defined
therein) pursuant to Section 8.03(a)(i) of the Recapitalization Agreement,
exceeds $5,000,000, and the Seller shall then only be liable for Losses in
excess of $5,000,000. The maximum amount recoverable, in the aggregate under
Section 8.03(a)(i) hereof and Section 8.03(a)(i) of the Recapitalization
Agreement for breaches of representations and warranties shall be $50,000,000
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(c) The Purchaser acknowledges and agrees that, except to the
extent any Losses are incurred by such party resulting from any fraudulent
misrepresentation by the Seller or Kittredge, the Purchaser's sole and
exclusive remedy with respect to any and all claims based upon, resulting
from or arising out of the breach of any representation or warranty of the
Seller contained in this Agreement or any Ancillary Document shall be
pursuant to the indemnification provisions of this Article VIII.
SECTION 8.04 Materiality. The Seller Material Adverse Effect and
materiality (or correlative meaning) qualifications included in the
representations, warranties and covenants shall have no effect on any provisions
in this Article VIII concerning the indemnities of the Seller with respect to
such representations, warranties and covenants, each of which is given as though
there were no Seller Material Adverse Effect or materiality qualification for
purposes of such indemnities.
SECTION 8.05 Indemnification Procedures.
(a) A Purchaser Indemnified Party or Seller Indemnified Party, as
the case may be (for purposes of this Section 8.05, an "Indemnified Party"),
shall give the indemnifying party under Section 8.02 or 8.03, as applicable
(for purposes of this Section 8.05, an "Indemnifying Party"), prompt written
notice (the "Indemnification Claim Notice") of any claim, assertion, event or
proceeding by or in respect of a third party of which such Indemnified Party
has knowledge concerning any Loss as to which such Indemnified Party may
request indemnification hereunder; provided that failure of the Indemnified
Party to give the Indemnifying Party prompt notice as provided herein shall
not relieve the Indemnifying Party of any of its obligations hereunder except
to the extent that the Indemnifying Party is prejudiced thereby. The
Indemnifying Party shall have the right to direct, through counsel of its own
choosing, which counsel shall be reasonably satisfactory to the Indemnified
Party, the defense or settlement of any claim or proceeding the subject of
indemnification hereunder at its own expense. If the Indemnifying Party
elects to assume the defense of any such claim or proceeding, the Indemnified
Party may participate in such defense, but in such case the expenses of the
Indemnified Party shall be paid by the Indemnified Party. The Indemnified
Party shall, upon reasonable notice, provide the Indemnifying Party with
access to its records and personnel relating to any such claim, assertion,
event or proceeding during normal business hours and shall otherwise
cooperate with the Indemnifying Party in the defense or settlement thereof,
and the Indemnifying Party shall reimburse the Indemnified Party for all its
reasonable out-of-pocket expenses in connection therewith. If the
Indemnifying Party elects to direct the defense of any such claim or
proceeding, the Indemnified Party shall not pay, or permit to be paid, any
part of any claim or demand arising from such asserted liability unless the
Indemnifying Party consents in writing (which consent shall not be
unreasonably withheld) to such payment or unless the Indemnifying Party
withdraws from or fails to maintain the defense of such asserted liability or
unless a final judgment from which no appeal may be taken by or on behalf of
the Indemnifying Party
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is entered against the Indemnified Party for such liability. No settlement in
respect of any third party claim may be effected by the Indemnifying Party
without the Indemnified Party's prior written consent (which consent shall
not be unreasonably withheld) unless the settlement involves a full and
unconditional release of the Indemnified Party. If the Indemnifying Party
shall fail to undertake or maintain any such defense within 30 days of
receipt of the Indemnification Claim Notice, the Indemnified Party shall have
the right to undertake the defense or settlement thereof, at the Indemnifying
Party's expense. If the Indemnified Party assumes the defense of any such
claim or proceeding pursuant to this Section 8.05 it may conduct such defense
as it reasonably deems appropriate (without regard to the availability of
indemnification hereunder), and the Indemnifying Party shall be responsible
for and pay all costs and expenses of such defense, including its compromise
or settlement, if the Indemnifying Party consents thereto (which consent
shall not be unreasonably withheld).
(b) Notwithstanding the foregoing, with respect to any claim or
demand that the Indemnifying Party is defending, the Indemnified Party shall
have the right to retain separate counsel to represent it and the Indemnifying
Party shall pay the fees and expenses of such separate counsel if there are
conflicts that make it reasonably necessary for separate counsel to represent
the Indemnified Party and the Indemnifying Party.
(c) The parties agree to treat any indemnification payments made by
the Seller pursuant to Section 8.03 for all Tax purposes as adjustments to the
Purchase Price.
(d) The amounts for which an Indemnifying Party shall be liable
under Sections 8.02 and 8.03 of this Agreement shall be net of any insurance
proceeds received by the Indemnified Party in connection with the
circumstances giving rise to the right of indemnification.
(e) The obligation of the Indemnifying Party pursuant to Section
8.02(a)(i) or 8.03(a)(i) shall be limited to actual damages and shall not
include lost profits or consequential damages whether arising in contract, tort
(including negligence and strict liability), warranty, statute or otherwise;
provided that any lost profits or consequential damages recovered by a third
party (including any governmental or quasi-Governmental Entities) against a
party entitled to indemnity pursuant to this Article VIII shall be included in
the damages recoverable under such indemnity.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Entire Agreement. This Agreement, the Ancillary Documents and
the Confidentiality Agreement constitute the sole understanding of the parties
with
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respect to the subject matter hereof and thereof and supersede all prior
agreements among the parties with respect to the subject matter hereof and
thereof.
SECTION 9.02 Successors and Assigns. Except as otherwise expressly
provided herein, the terms and provisions of this Agreement shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto; provided, however, that no party hereto
will assign its rights or delegate its obligations under this Agreement without
the express prior written consent of each other party hereto, except that all or
any of the rights of the Purchaser may be assigned to any corporation
newly-formed and wholly owned by the Purchaser for the purpose of effecting the
transactions contemplated hereby, provided that no such assignment shall relieve
the Purchaser of any of its liabilities hereunder. Nothing in this Agreement,
express or implied, is intended to, or shall, confer on any Person, other than
any of the parties hereto, any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
SECTION 9.03 Counterparts. This Agreement may be executed in counterparts,
each of which shall for all purposes be deemed to be an original and all of
which shall constitute the same instrument.
SECTION 9.04 Construction. The headings of the Articles, Sections and
paragraphs of this Agreement are inserted for convenience only and shall not be
deemed to constitute part of this Agreement or to affect the construction
hereof. All section and article references are to this Agreement, unless
otherwise expressly provided. As used in this Agreement, (a) "hereof",
"hereunder", "herein" and words of like import shall be deemed to refer to this
Agreement in its entirety and not just a particular section of this Agreement,
and (b) unless the context otherwise requires, words in the singular number or
in the plural number shall each include the singular number or the plural
number, words of the masculine gender shall include the feminine and neuter,
and, when the sense so indicates, words of the neuter gender shall refer to any
gender.
SECTION 9.05 Acknowledgement. Each of Kittredge and the Seller
acknowledges that the representations and warranties contained in this
Agreement, any Ancillary Document and in any certificate or other document
delivered to the Purchaser shall not be deemed waived or otherwise affected by
any investigation by the Purchaser, or their respective officers, directors,
employees, counsel, accountants, advisors, representatives and agents.
SECTION 9.06 Modification and Waiver. No amendment, modification or
alteration of the terms or provisions of this Agreement shall be binding unless
the same shall be in writing and duly executed by the Seller, Kittredge and the
Purchaser. Any of the terms or provisions of this Agreement may be waived in
writing at any time by the party which is entitled to the benefits of such
waived terms or provisions. No waiver of
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any of the provisions of this Agreement shall be deemed to or shall
constitute a waiver of any other provision hereof (whether or not similar).
No delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof.
SECTION 9.07 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
SECTION 9.08 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.
SECTION 9.09 Public Announcements. Prior to the Closing, none of the
Purchaser, Kittredge or the Seller shall make any press release with respect to
this Agreement or the transactions contemplated hereby, except as may be
required by Law (in which case, the nature of the statement shall be described
to each other party prior to dissemination to the public) or as otherwise agreed
to by the Seller and the Purchaser.
SECTION 9.10 Expenses. Each of the parties hereto shall pay all costs and
expenses incurred by it in connection with this Agreement and the transactions
contemplated hereby, in each case including, without limiting the generality of
the foregoing, fees and expenses of such Person's own financial consultants,
advisors, brokers, accountants and counsel.
SECTION 9.11 Notices. Any notice, request, instruction or other document
to be given hereunder (a "Notice") by any party hereto to any other party shall
be in writing and delivered personally, sent by a recognized worldwide or
nationwide (whichever is applicable) overnight delivery service with charges
prepaid, sent by registered or certified mail with postage prepaid, or sent by
facsimile transmission:
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if to the Purchaser to:
Yankee Candle Holdings Corp.
c/o Forstmann Little & Co.
767 Fifth Avenue, 44th Floor
New York, New York 10153
Facsimile: (212) 759-9059
Confirmation: (212) 355-5656
Attention: Sandra J. Horbach
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Facsimile: (212) 859-4000
Confirmation: (212) 859-8000
Attention: Robert C. Schwenkel, Esq.
if to the Seller or Kittredge to:
Yankee Candle Company, Inc.
102 Christian Lane
Whately, Massachusetts 01093
Facsimile: (413) 665-4171
Confirmation: (413) 665-8306
Attention: Harry J. Flood
with a copy to:
Peabody & Brown
101 Federal Street
Boston, Massachusetts 02110
Facsimile: (617) 345-1300
Confirmation: (617) 345-1000
Attention: Charles F. Claeys, Esq.
or at such other address for a party as shall be specified by like Notice. Any
Notice which is delivered in the manner provided herein shall be deemed to have
been duly given to the party to whom it is directed upon actual receipt by such
party, except that any Notice delivered by facsimile transmission shall be
deemed to have been given upon
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confirmation of transmission; provided that Notice so delivered is promptly
followed by duplicate Notice to that same party sent by registered or
certified mail, postage prepaid.
SECTION 9.12 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York applicable
to agreements made and to be performed wholly within such jurisdiction. Each
of the parties hereby irrevocably and unconditionally consents to submit to
the jurisdiction of the courts of the State of New York and of the United
States of America, in each case located in the County of New York, for any
Litigation arising out of or relating to this Agreement and the transactions
contemplated hereby, and further agrees that service of any process, summons,
notice or document by U.S. registered mail to its respective address set
forth in this Agreement shall be effective service of process for any
Litigation brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any Litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of New York or the United
States of America, in each case, located in the County of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead
or claim in any such court that any such Litigation brought in any such court
has been brought in an inconvenient forum.
SECTION 9.13 Bulk Transfer Laws. The parties hereby waive compliance with
the provisions of any so-called bulk transfer law in any jurisdictioon in
connection with the transactions contemplated hereby. The Seller shall indemnify
and hold harmless the Purchaser and its Affiliates for and against all Losses,
including Losses attributable to any and all Taxes, which may be incurred by
reason of such waiver.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be duly executed on its behalf as of the date first above written.
THE YANKEE CANDLE COMPANY, INC.
By: /s/ Harry Flood
----------------------
Name: Harry Flood
Title: CFO/Treasurer
CHANDLER'S TAVERN, INC.
By: /s/ Gail Flood
----------------------
Name: Gail Flood
Title: President
/s/ Michael Kittredge
-------------------------------
MICHAEL KITTREDGE
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GUARANTEE
Each of MBO-VI and Forstmann Little & Co. Equity Partnership-V, L.P.
("EP-V") agrees to cause Yankee Candle Holdings Corp. (including any assignee of
Yankee Candle Holdings Corp.) to fully perform and observe its covenants and
other obligations under the foregoing Asset Purchase Agreement and shall be
entitled to enforce directly any benefit of the Asset Purchase Agreement
accruing to Yankee Candle Holdings Corp. The foregoing agreement of each of
MBO-VI and EP-V shall terminate at the Closing.
Dated: April 1, 1998
FORSTMANN LITTLE & CO. SUBORDINATED DEBT
AND EQUITY MANAGEMENT BUYOUT
PARTNERSHP-VI, L.P.
By: /s/ Sandra J. Horbach
-------------------------------------
General Partner
FORSTMANN LITTLE & CO. EQUITY
PARTNERSHP-V, L.P.
By: /s/ Sandra J. Horbach
-------------------------------------
General Partner
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Exhibit 10.6
STOCKHOLDER'S AGREEMENT, dated as of April 27, 1998, between Yankee
Candle Company, Inc. and the undersigned (the "Stockholder").
WHEREAS, the Stockholder is a party to a Recapitalization Agreement,
dated March 25, 1998, by and among the Stockholder, Yankee Candle Holdings Corp.
and Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership-VI, L.P., a Delaware limited partnership ("MBO-VI"), and the
Company, as amended (the "Recapitalization Agreement"); and
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the closing of the transactions contemplated by the
Recapitalization Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions.
1.1 Definitions; Rules of Construction.
(a) The following terms, as used herein, shall have the
following meanings:
"Act" shall mean the Securities Act of 1933, as amended.
"Affiliate" shall mean, with respect to any Person, any other
Person which, directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person.
"Affiliate Securities" shall mean any securities issued by an
Affiliate of the Company.
"Agreement" shall mean this Stockholder's Agreement, as
amended, supplemented or modified from time to time in accordance with the terms
hereof.
"Book Value of Parent" shall mean the sum of (x) the total
assets minus the total liabilities of Parent on a consolidated basis, plus
(y) the amount of any reduction in stockholders' equity resulting from the
application of EITF Issue Summary No. 88-16, Basis in Leveraged Buyouts, as
of the Valuation Date, plus (z) the amount of accumulated amortization of
that portion of the purchase price paid for Parent by Equity-V and MBO-VI
that was allocated to goodwill, excluding other acquired identified
intangible assets. For purposes of calculating the Book Value of Parent and
the Book Value Per Share, (i) all options and other rights to acquire equity
interests in Parent outstanding immediately prior to the date of the
Repurchase Notice or exercised between the Valuation Date and the date of the
Repurchase Notice shall be deemed to
<PAGE>
have been exercised on the Valuation Date, and (ii) the number of outstanding
shares on the Valuation Date shall be increased by the number of shares
subject to each such option or other right and the assets of Parent shall be
increased by the aggregate exercise price payable in respect of the exercise
of each such option or other right (with respect to clauses (i) and (ii), in
the case of any such option or other right, unless the effect thereof would
be to increase the Book Value Per Share).
"Book Value Per Share" shall mean the amount which would be
payable on the Valuation Date in respect of one share of Class C Common Stock in
the event of a dissolution, liquidation or winding-up of the affairs of the
Company if the amount of assets available for distribution in the event of such
dissolution, liquidation or winding-up with respect to all shares of capital
stock of the Company outstanding (or deemed to be outstanding, as set forth
above in the definition of "Book Value of Parent") on the Valuation Date were
equal to the Book Value of Parent. In the event there has been a Stock Dividend
of Parent after the Valuation Date and prior to the Election Date, the number of
shares outstanding for purposes of determining Book Value Per Share shall be the
number of shares that would have been outstanding immediately after the Stock
Dividend on the Valuation Date had the Stock Dividend occurred on the Valuation
Date.
"Capital Transaction" shall mean, with respect to any
corporation or other entity, any Stock Dividend, recapitalization (including,
without limitation, any special dividend or distribution), reclassification,
spin-off, partial liquidation or similar capital adjustments (including, without
limitation, through merger or consolidation) of such corporation or other
entity.
"Class A Common Stock" shall mean the Class A Common Stock,
par value $0.01 per share, of Parent. There shall be included within the term
Class A Common Stock any Class A Common Stock now or hereafter authorized to be
issued, and any and all securities of any kind whatsoever of the Company which
may be issued after the date hereof in respect of, or in exchange for, shares of
Class A Common Stock pursuant to a Capital Transaction of Parent or otherwise
"Class C Common Stock" shall mean the Class C Common Stock,
par value $0.01 per share, of Parent. There shall be included within the term
Class C Common Stock any Class C Common Stock now or hereafter authorized to be
issued, and any and all securities of any kind whatsoever of the Company which
may be issued after the date hereof in respect of, or in exchange for, shares of
Class C Common Stock pursuant to a Capital Transaction of Parent or otherwise.
Without limiting the generality of the foregoing, all references herein to the
Class C Common Stock shall include, and the provisions hereof (including,
without limitation, Sections 3 and 4 hereof) shall also
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be applicable to, the Class A Common Stock for which the Class C Common Stock
shall be exchanged pursuant to the Parent Certificate of Incorporation.
"Common Stock" shall mean the Common Stock, par value $0.01
per share, of the Company. There shall be included within the term Common Stock
any Common Stock now or hereafter authorized to be issued, and any and all
securities of any kind whatsoever of the Company which may be issued after the
date hereof in respect of, or in exchange for, shares of Common Stock pursuant
to a Capital Transaction of the Company or otherwise. Without limiting the
generality of the foregoing, all references herein to Common Stock shall
include, and the provisions hereof (including, without limitation, Section 3
hereof) shall also be applicable to, the Class C Common Stock for which the
Common Stock may be exchanged pursuant hereto.
"Company" shall mean Yankee Candle Company, Inc., a
Massachusetts corporation, and shall include any successor thereto by merger,
consolidation, acquisition of substantially all the assets thereof, or
otherwise.
"Competitive Activity" shall mean engaging in any of the
following activities: (i) serving as a director of any Competitor; (ii) directly
or indirectly (X) controlling any Competitor or (Y) owning any equity or debt
interests in any Competitor (other than equity or debt interests which are
publicly traded and do not exceed 5% of the particular class of interests then
outstanding) (it being understood that, if any such interests in any Competitor
are owned by an investment vehicle or other entity in which the Stockholder owns
an equity interest, a portion of the interests in such Competitor owned by such
entity shall be attributed to the Stockholder, such portion determined by
applying the percentage of the equity interest in such entity owned by the
Stockholder to the interests in such Competitor owned by such entity); (iii)
directly or indirectly soliciting, diverting, taking away, appropriating or
otherwise interfering with any of the customers or suppliers of the Company or
any Affiliate of the Company; or (iv) employment by (including serving as an
officer or director of), or providing consulting services to, any Competitor.
For purposes of this definition, the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of any Competitor, whether through the ownership of
equity or debt interests, by contract or otherwise. Notwithstanding the
foregoing, the term "Competitive Activity" shall not include the direct or
indirect ownership or operation of, investment in, or employment or engagement
by a Person that is a Competitor solely because such Person is a luxury
automobile dealership, winery and/or vineyard, and/or a retail gift shop
ancillary to any of the foregoing, provided that if such gift shop sells candles
or other home fragrancing products, such products are manufactured solely by the
Company or its Affiliates.
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"Competitor" shall mean any Person that is engaged in a
business similar to the Business (as defined in the Recapitalization
Agreement), without regard to size (including giftware and related
merchandise) or is engaged in owning, operating or acquiring directly or
indirectly (through a corporation, trust, partnership or other Person) one or
more entities engaged in a business similar to the Business, without regard
to size (including giftware and related merchandise).
"Equity-V" shall mean Forstmann Little & Co. Equity
Partnership-V, L.P., a Delaware limited partnership.
"Expenses of Sale" shall mean all expenses incurred by the
Parent Companies in connection with the sale of the shares of the selling
stockholders pursuant to Section 3.2, 3.3, 3.4, 3.5, 3.6 or 3.7 hereof to the
extent that such expenses are not paid or reimbursed by the Company.
"Legal Representative" shall mean the guardian, executor,
administrator or other legal representative of the Stockholder. All references
herein to the Stockholder shall be deemed to include references to the
Stockholder's Legal Representative, if any, unless the context otherwise
requires.
"Litigation" shall mean any actions, suits or proceedings
arising out of or relating to this Agreement and the transactions contemplated
hereby.
"Parent Certificate of Incorporation" shall mean the Restated
Certificate of Incorporation of Parent, as in effect from time to time.
"Parent" shall mean Yankee Candle Holdings Corp., a Delaware
corporation, and shall include any successor thereto by merger, consolidation,
acquisition of substantially all the assets thereof, or otherwise.
"Parent Companies" shall mean the collective reference to
Parent, Equity-V, MBO-VI and their respective successors and assigns.
"Permitted Transferee" shall have the meaning ascribed to such
term in Section 3.1(b) hereof.
"Person" shall mean an individual, a corporation, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Prohibited Activity" shall have the meaning ascribed to such
term in Section 4.1 hereof.
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"Release Date" shall mean the date on which Parent and its
Affiliates shall cease to own in the aggregate directly or indirectly at least
20 percent of the then outstanding securities of the Company having the power to
vote in the election of directors of the Company.
"Representative" shall have the meaning ascribed to such term
in Section 6.13(b) hereof.
"Repurchase Notice" shall have the meaning ascribed to such
term in Section 4.2 hereof.
"Sale Obligations" shall mean any liabilities and obligations
(including liabilities and obligations for indemnification, amounts paid into
escrow and post-closing adjustments) incurred by the selling stockholders in
connection with the sale of their shares pursuant to Section 3.2, 3.3, 3.4, 3.5,
3.6 or 3.7 hereof.
"Section 3.2 Notice" shall have the meaning ascribed to such
term in Section 3.2(a) hereof.
"Section 3.3 Notice" shall have the meaning ascribed to such
term in Section 3.3(a) hereof.
"Stock Dividend" shall mean, with respect to any corporation
or other entity, any stock split, stock dividend, reverse stock split or similar
transaction which changes the number of outstanding shares of capital stock of
such corporation or other entity.
"Third Party" shall mean any Person other than any Parent
Company or any Affiliate or partner or stockholder of any Parent Company or any
Affiliate of such partner or stockholder.
"Transaction" shall mean any sale pursuant to Section 3.2,
3.3, 3.4, 3.5, 3.6 or 3.7 hereof.
"Valuation Date" shall mean the last day of the fiscal year of
Parent immediately preceding the fiscal year in which Parent is repurchasing
shares of Common Stock from the Stockholder pursuant to Section 4.2 hereof.
(b) In this Agreement, unless the context otherwise requires,
words in the singular number or in the plural number shall each include the
singular number and the plural number.
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2. Scope of Agreement. The provisions of this Agreement shall apply to any and
all shares of Common Stock currently owned and owned in the future by the
Stockholder.
3. Rights and Restrictions on Common Stock.
3.1 No Sale or Transfer.
(a) The Stockholder shall not sell, transfer, assign,
exchange, pledge, encumber or otherwise dispose of any shares of Common Stock
or grant any option or right to purchase such shares or any legal or
beneficial interest therein, except in accordance with the provisions of this
Agreement.
(b) The Stockholder may transfer any shares of Common Stock by
will, but only to:
(i) any spouse, parent, child (whether natural or
adopted), brother or sister of the Stockholder, or
(ii) any corporation or partnership which is controlled
by any spouse, parent, child (whether natural or
adopted), brother or sister of the Stockholder
(the person or persons to which shares of Common Stock are transferred in
accordance with this Section 3.1(b) being herein referred to as the "Permitted
Transferee"); provided, that, for any transfer to the Permitted Transferee to be
effective hereunder, the Permitted Transferee shall agree in writing to be bound
by all the terms of this Agreement applicable to the Stockholder (including,
without limitation, Sections 3 and 6.13(b) hereof) as if the Permitted
Transferee originally had been a party hereto; and provided, further, that all
of the stockholders of any Permitted Transferee that is a corporation and all of
the partners of any Permitted Transferee that is a partnership shall agree in
writing not to transfer any shares they then own or may hereafter acquire in the
corporate Permitted Transferee or any partnership interests they then own or may
hereafter acquire in the partnership Permitted Transferee except to a person
described in paragraph (i) or (ii) above that has made the same agreement in
writing to the Company, so long as the corporate or partnership Permitted
Transferee shall own any shares of Common Stock. Any reference herein to the
Stockholder shall be to the Permitted Transferee from and after the date the
transfer is effected in accordance with this Section 3.1(b). Without limiting
the generality of the foregoing, the provisions of Section 4.2 hereof shall be
likewise applicable to any Permitted Transferee, commencing upon the date that
such Person becomes a Permitted Transferee, for the respective periods they
would have applied to the Stockholder.
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<PAGE>
3.2 Participation in Sale of Common Stock. The Stockholder, at
the Stockholder's option, may participate proportionately (and the Parent
Companies shall allow the Stockholder to participate proportionately) in any
sale (other than a public offering of Common Stock, which shall be governed
by Section 3.3 hereof) of all or a portion of the shares of Common Stock
owned by the Parent Companies to any Third Party. The Company shall notify
the Stockholder in writing of the Parent Companies' intention to effect such
a sale to a Third Party and the nature and per share amount of consideration
to be paid by such Third Party, at least 10 days, or such shorter time as the
Company deems practicable, before the closing of any such proposed sale of
shares of Common Stock (the "Section 3.2 Notice"), and the Stockholder shall
notify the Company in writing within five days after receipt of the Section
3.2 Notice of his intention to participate in such sale, including the number
of shares of Common Stock with respect to which he will so participate. Any
failure by the Stockholder to so notify the Company within such five-day
period shall be deemed an election by the Stockholder not to participate in
such sale with respect to any of his shares. Any sale of shares of Common
Stock by the Stockholder pursuant to this Section 3.2 shall be for the same
consideration per share, on the same terms and subject to the same conditions
as the sale of shares of Common Stock owned by the Parent Companies. If the
Stockholder sells any shares of Common Stock pursuant to this Section 3.2,
the Stockholder shall pay and be responsible for the Stockholder's
proportionate share of the Expenses of Sale and the Sale Obligations.
3.3 Public Offering of Common Stock.
(a) If the Parent Companies propose to sell all or any portion
of the shares of Common Stock owned by the Parent Companies in a public
offering, the Stockholder shall be entitled and required to participate in such
public offering by selling in the public offering the same percentage of the
Stockholder's shares of Common Stock as the Parent Companies propose to sell of
their shares in the public offering (determined on the basis of the aggregate
number of shares of Common Stock owned, and the aggregate number of such shares
being sold, by the Parent Companies). The Company shall notify the Stockholder
in writing of the Parent Companies' intention to effect such public offering at
least 10 days, or such shorter time as the Company deems practicable, before the
filing with the Securities and Exchange Commission of the registration statement
relating to such public offering (the "Section 3.3 Notice") and shall cause the
Stockholder's shares to be sold in such public offering to be included therein.
The Stockholder shall pay and be responsible for the Stockholder's proportionate
share of the Expenses of Sale and the Sale Obligations, including, without
limitation, indemnifying the underwriters of such public offering, on a
proportionate basis, to the same extent as the Parent Companies are required to
indemnify such underwriters. In connection with any such public offering, the
Company shall furnish to the Stockholder such number of copies of any
registration statement, and the prospectus
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included in such registration statement, opinions of the Company's counsel
and "cold comfort" letters from the Company's independent public accountants
as the Stockholder may reasonably request.
(b) In connection with any proposed public offering of
securities of the Company, whether by the Parent Companies or the Company or
otherwise, the Stockholder agrees (i) to supply any information reasonably
requested by the Company in connection with the preparation of a registration
statement and/or any other documents relating to such public offering, and
(ii) to execute and deliver any agreements and instruments reasonably
requested by the Company to effectuate such public offering, including,
without limitation, an underwriting agreement, a custody agreement and a
"hold back" agreement pursuant to which the Stockholder will agree not to
sell or purchase any securities of the Company (whether or not such
securities are otherwise governed by this Agreement) for such period of time
following the public offering as is requested by the Parent Companies or the
underwriters for such public offering. If the Company requests that the
Stockholder take any of the actions referred to in clause (i) or (ii) of the
previous sentence, the Stockholder shall take such action promptly but in any
event within five days following the date of such request.
3.4 Required Participation in Sale of Common Stock by the Parent
Companies. Notwithstanding any other provision of this Agreement to the
contrary, if any of the Parent Companies shall propose to sell (including by
exchange, in a business combination or otherwise) all or any portion of their
shares of Common Stock in a bona fide arm's-length transaction, the Parent
Companies, at their option, may require that the Stockholder sell the same
percentage of the Stockholder's shares of Common Stock as the Parent Companies
propose to sell of their shares in the transaction (determined on the basis of
the aggregate number of shares of Common Stock owned, and the aggregate number
of such shares then being sold, by the Parent Companies) on the same terms and
subject to the same conditions in the same transaction and, if stockholder
approval of the transaction is required and the Stockholder is entitled to vote
thereon, that the Stockholder vote the Stockholder's shares in favor thereof. If
the Stockholder sells any shares pursuant to this Section 3.4, the Stockholder
shall pay and be responsible for the Stockholder's proportionate share of the
Expenses of Sale and the Sale Obligations.
3.5 Participation in Sale of Class A Common Stock. The Stockholder,
at the Stockholder's option, may participate proportionately (and the Parent
Companies shall allow the Stockholder to participate proportionately) in any
sale (other than a public offering of Class A Common Stock, which shall be
governed by Section 3.6 hereof) of all or a portion of the shares of Class A
Common Stock owned by any of the Parent Companies to any Third Party by (a)
exchanging the Stockholder's shares of Common Stock for shares of Class C Common
Stock (if such exchange has not already been made) on a one-for-one basis, (b)
exchanging the same percentage of the Stockholder's shares of
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Class C Common Stock (such shares of Class C Common Stock having been
received in exchange for the Stockholder's Common Stock) as the Parent
Companies propose to sell of their shares to the Third Party (determined on
the basis of the aggregate number of such shares of Class A Common Stock
owned, and the aggregate number of such shares being sold, by the Parent
Companies) for shares of Class A Common Stock in accordance with the Class C
Exchange Rate, as defined in Subsection 5(d) of Section A of Article Fourth
of the Parent Certificate of Incorporation (the "Exchange Rate"), and (c)
selling the Class A Common Stock received in such exchange to the Third
Party. Parent shall notify the Stockholder in writing of the Parent
Companies' intention to effect such a sale to a Third Party, the identity of
the Third Party and the nature and per share amount of consideration to be
paid by the Third Party, and shall set forth its calculation of the Exchange
Rate, at least 10 days, or such shorter time as Parent deems practicable,
before the closing of any such proposed sale of shares of Class A Common
Stock. Any sale of shares of Class A Common Stock by the Stockholder pursuant
to this Section 3.5 shall be for the same consideration per share, on the
same terms and subject to the same conditions as the sale of shares of Class
A Common Stock owned by the Parent Companies. Parent shall, immediately prior
to, and contingent upon, the consummation of such sale, exchange such shares
of Class C Common Stock for Class A Common Stock in accordance with the
Exchange Rate. If the Stockholder sells any shares pursuant to this Section
3.5, the Stockholder shall pay and be responsible for the Stockholder's
proportionate share of the Expenses of Sale and the Sale Obligations.
3.6 Participation in Public Offering of Class A Common Stock.
(a) If the Parent Companies propose to sell all or any portion
of the shares of Class A Common Stock owned by the Parent Companies in a public
offering, the Stockholder shall be entitled and required to participate in such
public offering in the manner specified by the investment banking firm engaged
to manage the underwriting of such public offering, including (i) by exchanging
(directly or indirectly) the Stockholder's shares of Common Stock for shares of
Class A Common Stock, provided that after such exchange the Stockholder shall
hold an equity interest in Parent equal to the Stockholder's equity interest in
the Company immediately prior to such exchange, and selling in the public
offering the same percentage of the Stockholder's shares of Class A Common Stock
as the Parent Companies propose to sell of their shares in the public offering
(determined on the basis of the aggregate number of shares of Class A Common
Stock owned, and the aggregate number of such shares being sold, by the Parent
Companies), or (ii) by selling in the public offering the same percentage of the
Stockholder's shares of Common Stock as the Parent Companies propose to sell of
their shares of Class A Common Stock in the public offering (determined on the
basis of the aggregate number of shares of Class A Common Stock owned, and the
aggregate number of such shares being sold, by the Parent Companies). Parent
shall notify the Stockholder in writing of the Parent Companies' intention to
effect such public offering at least 10
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days, or such shorter time as Parent deems practicable, before the filing
with the Securities and Exchange Commission of the registration statement
relating to such public offering and shall cause the Stockholder's shares to
be sold in such public offering to be included therein. If the Stockholder
sells any shares pursuant to this Section 3.6, the Stockholder shall pay and
be responsible for the Stockholder's proportionate share of the Expenses of
Sale and the Sale Obligations, including, without limitation, indemnifying
the underwriters of such public offering, on a proportionate basis, to the
same extent as the Parent Companies are required to indemnify such
underwriters. In connection with any such public offering, the Parent
Companies shall furnish to the Stockholder such number of copies of any
registration statement, and the prospectus included in such registration
statement, opinions of the Parent Companies' counsel and "cold comfort"
letters from the Parent Companies' public accountants as the Stockholder may
reasonably request.
(b) In connection with any proposed public offering of
securities of Parent, whether by any of the Parent Companies (including Parent)
or otherwise, the Stockholder agrees (i) to supply any information reasonably
requested by Parent in connection with the preparation of a registration
statement and/or any other documents relating to such public offering, and (ii)
to execute and deliver any agreements and instruments reasonably requested by
Parent to effectuate such public offering, including, without limitation, an
underwriting agreement, a custody agreement and a "hold back" agreement pursuant
to which the Stockholder will agree not to sell or purchase any securities of
Parent (whether or not such securities are otherwise governed by this Agreement)
for the same period of time following the public offering as is agreed to by the
Parent Companies with respect to themselves. If Parent requests that the
Stockholder take any of the actions referred to in clause (i) or (ii) of the
previous sentence, the Stockholder shall take such action promptly but in any
event within five days following the date of such request.
3.7 Required Participation in Sale of Class A Common Stock by the
Parent Companies. Notwithstanding any other provision of this Agreement to the
contrary, if the Parent Companies shall propose to sell (including by exchange,
in a business combination or otherwise) all or any portion of their shares of
Class A Common Stock in a bona fide arm's-length transaction, and if the
investment banking firm advising the Parent Companies on such sale advises the
Parent Companies to do so, the Parent Companies may require that the Stockholder
(a) exchange the Stockholder's shares of Common Stock for shares of Class C
Common Stock (if such exchange has not already been made) on a one-for-one
basis, (b) exchange the same percentage of the Stockholder's shares of Class C
Common Stock as the Parent Companies propose to sell of their shares in the
transaction (determined on the basis of the aggregate number of shares of Class
A Common Stock owned, and the aggregate number of such shares being sold, by the
Parent Companies) for shares of Class A Common Stock in accordance with
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the Exchange Rate, and (c) sell all the Class A Common Stock received in such
exchange for the same consideration per share, on the same terms and subject
to the same conditions in the same transaction. If stockholder approval of
the transaction is required and the Stockholder is entitled to vote thereon,
the Stockholder shall vote the Stockholder's shares in favor thereof. Parent
shall calculate the Exchange Rate and shall, immediately prior to, and
contingent upon, the consummation of the transaction exchange such shares of
Class C Common Stock for Class A Common Stock in accordance with the Exchange
Rate. If the Stockholder sells any shares pursuant to this Section 3.7, the
Stockholder shall pay and be responsible for the Stockholder's proportionate
share of the Expenses of Sale and the Sale Obligations.
3.8 Termination of Restrictions and Rights. Notwithstanding any
other provision of this Agreement to the contrary, but subject to the
restrictions of all applicable federal and state securities laws, including the
restrictions in this Agreement relating thereto, from and after the Release Date
any and all shares of Common Stock owned by the Stockholder (a) may be sold,
transferred, assigned, exchanged, pledged, encumbered or otherwise disposed of
(and the Stockholder may grant any option or right to purchase such shares or
any legal or beneficial interest therein, or may continue to hold such shares),
free of the restrictions contained in this Agreement and (b) shall no longer be
entitled to any of the rights contained in this Agreement. Without limiting the
generality of the foregoing, from and after the Release Date, the provisions of
Sections 3 and 4 hereof (other than this Section 3.8 and Sections 4.1(a), 4.1(b)
and 4.1(c) hereof) shall terminate and have no further force or effect.
4. Prohibited Activities.
4.1 Prohibition Against Certain Activities. The Stockholder agrees
that (a) the Stockholder will not disclose or furnish to any other Person or use
for the Stockholder's own or any other Person's account any confidential or
proprietary knowledge or information or any other information which is not a
matter of public knowledge and which was obtained during the Stockholder's
employment with, or other performance of services for, the Company or any
Affiliate thereof or any predecessor of any of the foregoing, no matter from
where or in what manner the Stockholder may have acquired such knowledge or
information, and the Stockholder shall retain all such knowledge and information
in trust for the benefit of the Company, its Affiliates and the successors and
assigns of any of them, (b) the Stockholder will not directly or indirectly
solicit for employment, including without limitation recommending to any Third
Party the solicitation for employment of, any employee of the Company or any
Affiliate of the Company, (c) the Stockholder will not publish any statement or
make any statement (under circumstances reasonably likely to become public or
that the Stockholder might reasonably expect to become public) critical of the
Company or any Affiliate of the Company, or in any way adversely affecting or
otherwise maligning the business or
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reputation of any of the foregoing entities, and (d) the Stockholder will not
breach the provisions of Section 3.1 hereof (any activity prohibited by
clause (a), (b), (c) or (d) of this Section 4.1 being referred to as a
"Prohibited Activity").
4.2 Right to Purchase Shares. The Stockholder understands and
agrees that (a) if the Stockholder engages in any Prohibited Activity, or (b)
if, at any time, the Stockholder engages in any Competitive Activity, or (c)
if, at any time, the Stockholder is convicted of a crime against the Company
or any of its Affiliates, then, in addition to any other rights and remedies
available to the Company and its Affiliates, Parent shall be entitled, at its
option, exercisable by written notice (the "Repurchase Notice") to the
Stockholder, to purchase all of the shares of Common Stock then held by the
Stockholder.
4.3 Purchase Price; Closing. Upon receipt of the Repurchase Notice,
the Stockholder shall exchange all of the Stockholder's shares of Common Stock
for shares of Class C Common Stock (if such exchange has not already been made)
on a one-for-one basis. The purchase price per share of the shares of Class C
Common Stock purchased pursuant to this Article 4 shall be equal to the lesser
of (a) $519,999.17 (adjusted to reflect any Capital Transaction of the Company
effected after the date hereof and prior to the date of the exchange of the
Stockholder's Common Stock for Class C Common Stock, and further adjusted to
reflect any Capital Transaction of Parent effected after the date of such
exchange and prior to the date of the Repurchase Notice) and (b) the Book Value
Per Share. The closing of such purchase shall take place at the principal office
of Parent 10 days following the date of the Repurchase Notice, except that if
Parent is prohibited from repurchasing any shares of Common Stock pursuant to
this Article 4 by any contractual obligation of the Company or any of its
Affiliates or by applicable law, the closing of such purchase shall take place
on the first practicable date on which Parent is permitted to purchase such
shares. At such closing, the Stockholder shall sell, convey, transfer, assign
and deliver to Parent all right, title and interest in and to the shares of
Class C Common Stock being purchased by Parent, which shall constitute (and, at
the closing, the Stockholder shall certify the same to Parent in writing) good
and unencumbered title to such shares, free and clear of all liens, security
interests, encumbrances and adverse claims of any kind and nature (other than
those in favor of the Company and the Parent Companies pursuant to this
Agreement), and shall deliver to Parent the certificates representing the shares
duly endorsed for transfer, or accompanied by appropriate stock transfer powers
duly executed, and with all necessary transfer tax stamps affixed thereto at the
expense of the Stockholder, and Parent shall deliver to the Stockholder, in full
payment of the purchase price payable pursuant to this Section 4.3 for the
shares of Common Stock purchased, a check payable to the order of the
Stockholder in the amount of the aggregate purchase price for the shares
purchased. Notwithstanding anything herein to the contrary, from and after the
date of the Repurchase Notice, the Stockholder shall not have any rights
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with respect to any shares of Class C Common Stock which the Stockholder is
required to sell to Parent pursuant to this Section 4 (including any rights
pursuant to Section 3.2, 3.3, 3.5 or 3.6 hereof), except to receive the
purchase price therefor.
4.4 Transaction Proceeds. Notwithstanding anything to the
contrary set forth in Section 3.2, 3.3, 3.4, 3.5, 3.6 or 3.7 hereof, if at
the time of a Transaction in which the Stockholder is participating, Parent
is entitled to purchase the Stockholder's shares of Common Stock pursuant to
this Article 4, and if the purchase price per share for a purchase pursuant
to this Article 4 would be less than the proceeds per share to the
Stockholder from such Transaction, then the Stockholder shall be entitled to
receive only the aggregate purchase price payable under this Article 4, with
the balance of the proceeds of sale in the Transaction being remitted to the
other stockholders of the Company or Parent, as the case may be,
participating in such Transaction pro rata in accordance with their
respective participation in such Transaction.
5. Stock Certificate Legend and Investment Representations; Other
Representations.
5.1 Legend. All certificates representing shares of Common Stock
acquired hereunder or hereafter by the Stockholder (unless registered under the
Act) shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or any
securities regulatory authority of any state, and may not be sold,
transferred, assigned, exchanged, pledged, encumbered or otherwise
disposed of except in compliance with all applicable securities laws
and except in accordance with the provisions of a Stockholder's
Agreement with the Company, a copy of which is available for
inspection at the offices of the Company."
5.2 Representations of the Stockholder. The Stockholder represents
and warrants that: (a) the Stockholder understands that (i) the shares of Common
Stock have not been and will not be registered under the Act; (ii) the shares of
Common Stock cannot be sold, transferred, assigned, exchanged, pledged,
encumbered or otherwise disposed of unless they are registered under the Act or
an exemption from registration is available; and (iii) the ownership of Common
Stock hereunder does not entitle the Stockholder to participate in any other
equity program of the Company, whether now existing or hereafter established;
(b) the Stockholder has acquired the shares of Common Stock for investment for
the Stockholder's own account and not with a view to the distribution thereof;
(c) the Stockholder will not, directly or indirectly, sell, transfer, assign,
exchange, pledge, encumber or otherwise dispose of any shares of Common
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Stock except in accordance with this Agreement; (d) the Stockholder has, or
the Stockholder together with the Stockholder's advisers, if any, have, such
knowledge and experience in financial and business matters that the
Stockholder is, or the Stockholder together with the Stockholder's advisers,
if any, are, and will be capable of evaluating the merits and risks relating
to owning shares of Common Stock; (e) the Stockholder is able to bear the
economic risk of a total loss of the Stockholder's investment in the Company;
and (f) the Stockholder has adequate means of providing for the Stockholder's
current needs and foreseeable personal contingencies and has no need for the
Stockholder's investment in the Common Stock to be liquid.
6. Miscellaneous.
6.1 Distributions. In the event of any dividend, distribution or
exchange paid or made in respect of the Common Stock consisting of Affiliate
Securities, (a) the restrictions and rights with respect to the Common Stock
that are contained in this Agreement shall be applicable to the Affiliate
Securities without further action of the parties (with the references to Common
Stock being deemed references to the Affiliate Securities and the references to
the Company being deemed references to the Affiliate), and (b) as a condition
precedent to the receipt of the Affiliate Securities by the Stockholder, the
Stockholder shall enter into a stockholder's agreement containing substantially
equivalent terms with respect to the Affiliate Securities (but reflecting the
economics of the dividend, distribution or exchange and the capitalization of
the Affiliate) as are contained herein. The Board of Directors of the Company,
in good faith, shall determine such terms and its determination shall be final
and binding on the Stockholder.
6.2 Further Assurances. Each party hereto shall do and perform or
cause to be done and performed all further acts and things and shall execute and
deliver all other agreements, certificates, instruments, and documents as any
other party hereto reasonably may request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
6.3 Governing Law. This Agreement and the rights and obligations of
the parties hereto shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
6.4 Specific Performance. The parties hereto acknowledge that there
will be no adequate remedy at law for a violation of any of the provisions of
this Agreement and that, in addition to any other remedies which may be
available, all of the provisions of this Agreement shall be specifically
enforceable in accordance with their respective terms.
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6.5 Invalidity of Provisions. The invalidity or unenforceability
of any provision of this Agreement in any jurisdiction shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement, including
that provision, in any other jurisdiction. If any provision of this Agreement
is held unlawful or unenforceable in any respect, such provision shall be
revised or applied in a manner that renders it lawful and enforceable to the
fullest extent possible.
6.6 Notice. All notices and other communications hereunder shall be
in writing and, unless otherwise provided herein, shall be deemed to have been
given when received by the party to whom such notice is to be given at its
address set forth below, or such other address for the party as shall be
specified by notice given pursuant hereto:
(a) If to the Company, to:
Yankee Candle Company, Inc.
c/o Forstmann Little & Co.
767 Fifth Avenue, 44th Floor
New York, New York 10153
Attention: Ms. Sandra J. Horbach
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Robert C. Schwenkel, Esq.
(b) If to the Stockholder, to the address set forth below
the Stockholder's signature, and if to the Legal
Representative, to such Person at the address of which
the Company is notified in accordance with this Section
6.6.
6.7 Binding Effect. This Agreement shall inure to the benefit of and
shall be binding upon the parties hereto and their respective heirs, legal
representatives, successors and assigns. In addition, each of the Parent
Companies shall be a third party beneficiary of this Agreement and shall be
entitled to enforce this Agreement.
6.8 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of the party against whom
enforcement of such amendment, modification or supplement is sought.
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<PAGE>
6.9 Headings; Execution in Counterparts. The headings and captions
contained herein are for convenience only and shall not control or affect the
meaning or construction of any provision hereof. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
and which together shall constitute one and the same instrument.
6.10 Entire Agreement. This Agreement constitutes the entire
agreement, and supersedes all prior agreements and understandings, oral and
written, between the parties hereto with respect to the subject matter hereof.
6.11 Withholding. The Company shall have the right to deduct from
any amount payable under this Agreement any taxes or other amounts required by
applicable law to be withheld. The Stockholder agrees to indemnify the Company
against any Federal, state and local withholding taxes for which the Company may
be liable in connection with the Stockholder's ownership or disposition of any
Common Stock.
6.12 No Right to Continued Employment. This Agreement shall not
confer upon the Stockholder any right with respect to continuance of employment
by the Company or any Affiliate thereof, nor shall it interfere in any way with
the right of the Company or any Affiliate thereof to terminate the Stockholder's
employment at any time.
6.13 Possession of Certificates; Power of Attorney.
(a) In order to provide for the safekeeping of the
certificates representing the shares of Common Stock held by the Stockholder and
to facilitate the enforcement of the terms and conditions hereof, (i) the
Company shall retain physical possession of all certificates representing shares
of Common Stock issued to the Stockholder, and (ii) concurrently with the
Stockholder's execution and delivery to the Company of this Agreement, the
Stockholder shall deliver to the Company an undated stock power, duly executed
in blank, for each such certificate. The Stockholder shall be relieved of any
obligation otherwise imposed by this Agreement to deliver certificates
representing shares of Common Stock if the same are in the custody of the
Company. After the Release Date, upon written request by the Stockholder
therefor, the Company shall deliver to the Stockholder any certificates in the
Company's custody representing the Stockholder's shares of Common Stock.
(b) The Stockholder hereby irrevocably appoints the Parent
Companies and each of them (individually and collectively, the "Representative")
the Stockholder's true and lawful agent and attorney-in-fact, with full powers
of substitution, to act in the Stockholder's name, place and stead, to do or
refrain from
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doing all such acts and things, and to execute and deliver all such
documents, as the Representative shall deem necessary or appropriate in
connection with a public offering of securities of the Company or Parent, or
the exchange of Common Stock for Class C Common Stock pursuant hereto, or a
sale pursuant to Section 3.2, 3.4, 3.5, 3.7 or 4.2 hereof, including, without
in any way limiting the generality of the foregoing, in the case of a sale
pursuant to Section 3.2, 3.4, 3.5 or 3.7 hereof, to execute and deliver on
behalf of the Stockholder a purchase and sale agreement and any other
agreements and documents that the Representative deems necessary in
connection with any such sale, and in the case of a public offering, to
execute and deliver on behalf of the Stockholder an underwriting agreement, a
"hold back" agreement, a custody agreement, and any other agreements and
documents that the Representative deems necessary in connection with any such
public offering, and in the case of any sale pursuant to Section 3.2, 3.4,
3.5 or 3.7 hereof and any public offering pursuant to Section 3.3(a) or
3.6(a) hereof, to receive on behalf of the Stockholder the proceeds of the
sale or public offering of the Stockholder's shares, to hold back from any
such proceeds any amount that the Representative deems necessary to reserve
against the Stockholder's share of any Expenses of Sale and Sale Obligations
and to pay such Expenses of Sale and Sale Obligations. The Stockholder hereby
ratifies and confirms all that the Representative shall do or cause to be
done by virtue of its appointment as the Stockholder's agent and
attorney-in-fact. In acting for the Stockholder pursuant to the appointment
set forth in this Section 6.13(b), the Representative shall not be
responsible to the Stockholder for any loss or damage the Stockholder may
suffer by reason of the performance by the Representative of its duties under
this Agreement, except for loss or damage arising from willful violation of
law or gross negligence by the Representative in the performance of its
duties hereunder. The appointment of the Representative shall be deemed
coupled with an interest and as such shall be irrevocable and shall survive
the death, incompetency, mental illness or insanity of the Stockholder, and
any person dealing with the Representative may conclusively and absolutely
rely, without inquiry, upon any act of the Representative as the act of the
Stockholder in all matters referred to in this Section 6.13(b).
6.14 Consent to Jurisdiction. Each party hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of New York and of the United States of America, in each case
located in the County of New York, for any Litigation (and agrees not to
commence any Litigation except in any such court), and further agrees that
service of process, summons, notice or document by U.S. registered mail to such
party's respective address set forth in Section 6.6 hereof shall be effective
service of process for any Litigation brought against such party in any such
court. Each party hereby irrevocably and unconditionally waives any objection to
the laying of venue of any Litigation in the courts of the State of New York or
of the United States of America, in each case located in the County of New York,
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any Litigation brought in any
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such court has been brought in an inconvenient forum.
6.15 Amendments to Parent Certificate of Incorporation. For as
long as the Stockholder owns any shares of Common Stock or Class C Common
Stock, Parent shall not amend or repeal, and shall not take any action in
furtherance of amending or repealing, Section A of Article Fourth of the
Parent Certificate of Incorporation in any manner that adversely affects the
rights of the Class C Common Stock without the Stockholder's prior written
consent. For purposes of this Section 4 only, the terms "Common Stock" and
"Class C Common Stock" shall mean, respectively, the Common Stock, par value
$0.01 per share, of the Company and the Class C Common Stock, par value $0.01
per share, of Parent, and such terms shall not include, for purposes of this
Section 4 only, securities issued in respect of, or in exchange for, the
Common Stock or Class C Common Stock.
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IN WITNESS WHEREOF, this Agreement has been signed by or on behalf
of each of the parties hereto, all as of the date first above written.
STOCKHOLDER YANKEE CANDLE COMPANY, INC.
/s/ Michael Kittredge By: /s/ Harry J. Flood
- ---------------------------------- -----------------------
Name: Michael Kittredge Name: Harry J. Flood
Address: 203 South Beach Road Title: Treasurer
Hobe Sound, Florida 33455
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The undersigned hereby agree to be bound by the provisions of Sections 3.2
through 3.7 and Section 6.15 of the foregoing Agreement.
YANKEE CANDLE HOLDINGS CORP.
By: /s/ Thomas H. Lister
----------------------------------------
Thomas H. Lister
Vice President
The undersigned hereby agree to be bound by the provisions of Sections 3.5, 3.6,
3.7 of the foregoing Agreement.
FORSTMANN LITTLE & CO. EQUITY PARTNERSHIP-V,
L.P.
By: FLC XXX Partnership,
its general partner
By: /s/ Sandra J. Horbach
------------------------------------
Sandra J. Horbach,
a general partner
FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND
EQUITY MANAGEMENT BUYOUT PARTNERSHIP-VI, L.P.
By: FLC XXIX Partnership,
its general partner
By: /s/ Sandra J. Horbach
------------------------------------
Sandra J. Horbach,
a general partner
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Exhibit 10.11
RECOURSE SECURED PROMISSORY NOTE
("RECOURSE NOTE")
$750,000.00 February 3, 1999
FOR VALUE RECEIVED, the undersigned (the "Stockholder") hereby
promises to pay to the order of The Yankee Candle Company, Inc., a Massachusetts
corporation (the "Company"), or to the legal holder of this Recourse Note at the
time of payment, on the Maturity Date (as hereinafter defined), the principal
sum of Seven Hundred Fifty Thousand Dollars ($750,000) in lawful money of the
United States of A merica, and to pay simple interest at a rate of 7 percent per
annum (the "Interest Rate") (computed on the basis of a 365 or 366 day year, as
the case may be) on the unpaid principal amount hereof from and after the date
of this Recourse Note until the entire principal amount hereof has been paid in
full. Accrued but unpaid interest shall be paid upon payment (including
prepayment) of the principal amount hereof.
The proceeds of the loan evidenced by this Recourse Note shall be
used as partial payment for the purchase by the Stockholder of shares (the
"Financed Stock") of Class B Nonvoting Common Stock (the "Class B Common
Stock"), par value $.01 per share, of the Company's parent, Yankee Candle
Holdings Corp. ("Holdings"). In connection with the Stockholder's purchase of
shares of Class B Common Stock, the Stockholder and Holdings are entering into a
Stockholder's Agreement, dated as of the date hereof, which sets forth certain
rights and restrictions pursuant to which the Stockholder holds such shares (the
"Stockholder's Agreement"). Payment of the principal of and interest on this
Recourse Note is secured pursuant to the terms of a Stock Pledge Agreement,
dated as of the date hereof, between the Stockholder and the Company (the
"Pledge Agreement"), reference to which is made for a description of the
collateral provided thereby and the rights of the Company and any other holder
of this Recourse Note in respect of such collateral.
<PAGE>
The "Maturity Date" shall mean the earliest of (i) the fifth
anniversary of the date hereof, (ii) the 180th day following the date (the
"Termination Date") on which the Stockholder's employment with the Company
terminates for any reason, (iii) the date of the Closing (as defined in the
Stockholder's Agreement); provided , that if upon such termination of
employment Holdings does not, pursuant to Section 3.2 of the Stockholder's
Agreement, purchase all of the Stockholder's Unvested Shares (as defined in
the Stockholder's Agreement), then the Stockholder may, by written notice to
the Company, defer until the first anniversary of the Termination Date
(subject to mandatory prepayment as set forth in Section 1 below) payment of
an amount equal to the Pro Rata Portion of the Loan (as defined below) minus
the aggregate amount received by the Stockholder from Holdings for the
purchase by Holdings of the Stockholder's Unvested Shares (whether or not
they constitute Financed Stock) (if such difference is a positive number).
The "Pro Rata Portion of the Loan" shall mean the amount equal to the
outstanding principal amount hereof immediately prior to the Termination Date
multiplied by a fraction, the numerator of which is equal to the total number
of Unvested Shares of the Stockholder on the Termination Date (whether or not
such shares constitute Financed Stock) and the denominator of which is the
total number of shares of Class B Common Stock purchased by the Stockholder
on the date hereof (whether or not such shares constitute Financed Stock).
If the date set for payment of principal or interest hereunder is a
Saturday, Sunday or legal holiday, then such payment shall be made on the next
succeeding business day.
This Recourse Note is subject to the following further terms and
conditions:
1. Mandatory Prepayments. If at any time the Stockholder receives
(a) any cash proceeds from the sale, transfer, redemption or other disposition
(individually and collectively, a "Sale") of any of the Stockholder's shares of
Class B Common Stock or from the Sale of any shares or other property received
in exchange for or otherwise in respect of any of the Stockholder's shares of
Class B Common Stock (in each case, whether or not constituting Financed Stock)
(individually and collectively, the "Sold Shares"), including, without
limitation, any Sale by the Stockholder of Unvested Shares to the Company or to
Holdings, or (b) any cash payments, cash dividends or other cash distributions
in respect of any of the Stockholder's shares of Class B Common Stock or in
respect of any shares or other property received in exchange for or otherwise in
respect of any of the Stockholder's shares of Class B Common Stock (in each
case, whether or not constituting Financed Stock) (collectively
"Distributions"), the Stockholder shall promptly apply the Net Proceeds (as her
einafter defined) thereof to the prepayment of the outstanding principal amount
of this Recourse Note, together with accrued and unpaid interest on the
principal amount being prepaid.
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The term "Net Proceeds" shall mean the total cash proceeds
received from the Sale of the Sold Shares or the total amount of the
Distribution, as applicable (individually and collectively, a "Cash
Payment"), less (except in the case of a sale of Unvested Shares to the
Company or to Holdings) an amount equal to the sum of (i) the federal income
tax liability that would be payable in respect of the income or gain
recognized upon such Sale or in respect of such Distribution, as the case may
be, after giving effect to a deduction for any state income tax liability
described in clause (ii) below, assuming a tax rate equal to the maximum
federal income tax rate on long term or short term, as applicable, capital
gains, or applicable to the Distribution, as the case may be, in effect at
the time, (ii) any state income tax liability that would be payable in
respect of such income or gain, as the case may be, assuming the maximum
state income tax rate applicable to such stockholder with respect to such
Sale or Distribution, as the case may be, in effect at the time and (iii) the
Stockholder's proportionate share of any "Expenses of Sale" (as defined in
the Stockholder's Agreement) related to such Sale.
Concurrently with any prepayment (including by set-off as set forth
below) of any portion of the principal amount of this Recourse Note pursuant to
this Section 1 or Section 2 hereof, the Company (or other holder of this
Recourse Note) shall make a notation of such payment hereon. If full payment of
all unpaid principal of and accrued and unpaid interest on this Recourse Note is
made, this Recourse Note shall be canceled and delivered to the Stockholder.
If at any time, or from time to time, after the date hereof, the
Stockholder shall become entitled to receive from the Company or any affiliate
of the Company (or other holder of this Recourse Note) any Cash Payment, then
and in each case the Company or such affiliate (or other holder of this Recourse
Note) shall only be obligated to pay to the Stockholder an amount equal to such
Cash Payment less the Net Proceeds thereof, and the Company (or other holder of
this Recourse Note) shall set off the amount of the Net Proceeds of such Cash
Payment against (and such set-off shall satisfy the Stockholder's obligations
hereunder to apply such amount to the prepayment of) the outstanding principal
amount of and/or accrued and unpaid interest on this Recourse Note, as
applicable.
2. Payment and Prepayment. All payments and prepayments of principal
of and interest on this Recourse Note shall be made to the Company or its order
(or to any other holder of this Recourse Note or such holder's order), in lawful
money of the United States of America at the principal offices of the Company
(or at such other place as the holder hereof shall notify the Stockholder in
writing). The Stockholder may, at the Stockholder's option, prepay this Recourse
Note in whole or in part at any time or from time to time without penalty or
premium. Any prepayments of any portion of the principal amount of this Recourse
Note shall be accompanied by payment of all interest accrued but unpaid on the
principal amount being prepaid.
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<PAGE>
3. Events of Default. Upon the occurrence of any of the following
events ("Events of Default"):
(a) Failure to pay any principal of this Recourse Note
(including as required under Section 1 hereof) when due; or
(b) Failure to pay any interest under this Recourse Note when
due which shall remain unremedied for ten days following the date
when such interest was due hereunder; or
(c) Failure to comply with any of the terms of the
Stockholder's Agreement,
then, and in any such event, the holder of this Recourse Note may declare, by
notice of default given to the Stockholder, the entire principal amount of this
Recourse Note to be forthwith due and payable, whereupon the entire principal
amount of this Recourse Note outstanding and any accrued and unpaid interest
hereunder shall become due and payable without presentment, demand, protest,
notice of dishonor and all other demands and notices of any kind, all of which
are hereby expressly waived. Upon the occurrence of an Event of Default, the
accrued and unpaid interest hereunder shall thereafter bear the same rate of
interest as on the principal hereunder, but in no event shall such interest be
charged which would violate any applicable usury law. If an Event of Default
shall occur hereunder, the Stockholder shall pay costs of collection, including
reasonable attorneys' fees, incurred by the holder in the enforcement hereof.
No delay or failure by the holder of this Recourse Note in the
exercise of any right or remedy shall constitute a waiver thereof, and no single
or partial exercise by the holder hereof of any right or remedy shall preclude
other or future exercise thereof or the exercise of any other right or remedy.
4. Miscellaneous.
(a) The provisions of this Recourse Note shall be governed by
and construed in accordance with the laws of the State of New York, without
regard to the conflicts of law rules thereof. The provisions of Section 6.14 of
the Stockholder's Agreement are incorporated by reference herein.
(b) All notices and other communications hereunder shall be in
writing and will be deemed to have been duly given if delivered or mailed in
accordance with the Stockholder's Agreement.
-4-
<PAGE>
(c) The headings contained in this Recourse Note are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
IN WITNESS WHEREOF, this Recourse Note has been duly executed and
delivered by the Stockholder on the date first above written.
/s/ Robert R. Spellman
-------------------------------
Robert R. Spellman
-5-
<PAGE>
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT dated as of February 3, 1999 is made
and entered into by and between The Yankee Candle Company, Inc., a Massachusetts
corporation (the "Company"), and Robert R. Spellman (the "Pledgor").
RECITALS
A. Simultaneously herewith the Pledgor is purchasing shares of Class
B Nonvoting Common Stock (the "Shares"), par value $.01 per share, of the
Company's parent, Yankee Candle Holdings Corp. ("Holdings"), and, to partially
finance the purchase of some or all of such shares, simultaneously herewith the
Pledgor is delivering to the Company a Recourse Secured Promissory Note of the
Pledgor (the "Recourse Note").
B. As a condition to such purchase, the Pledgor and Holdings are
entering into a Stockholder's Agreement, dated as of the date hereof (the
"Stockholder's Agreement"), which sets forth certain rights and restrictions
pursuant to which the Pledgor holds the Shares.
C. The Pledgor wishes to grant further security and assurance to the
Company in order to secure all of the Pledgor's obligations under the Recourse
Note, including, without limitation, the prompt payment when due of the
principal of and interest on the Recourse Note (collectively, the
"Obligations"), by pledging to the Company, simultaneously with the Pledgor's
delivery of the Recourse Note, (i) the Shares and (ii) any Net Proceeds (as
defined in the Recourse Note).
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Pledge. The Pledgor hereby delivers to the Company the Shares
and the certificate evidencing the same (together with any securities to be
delivered to the Pledgor pursuant to Section 2(b) hereof, the "Pledged
Securities"), and hereby grants to the Company a first priority security
interest in the Pledged Securities, in the Net Proceeds and in any other
property to be delivered to the Pledgor pursuant to Section 2(b) hereof
(collectively, the "Pledged Collateral") as collateral security for the
prompt and complete payment when due (whether at the stated maturity,
acceleration or otherwise) of the Obligations.
<PAGE>
The Pledgor hereby delivers to the Company appropriate undated
security transfer powers duly executed in blank for the Shares and will deliver
appropriate undated security transfer powers duly executed in blank for any
additional Pledged Securities to be pledged hereunder from time to time
hereafter.
The Pledgor shall immediately upon request by the Company and in
confirmation of the security interests hereby created, execute and deliver to
the Company such further instruments, deeds, transfers, assurances and
agreements in form and substance as the Company shall request, including any
financing statements and amendments thereto, or any other documents required
under New York law or any other applicable law, to protect the security
interests created hereunder.
2. Administration of Security. The following provisions shall govern
the administration of the Pledged Collateral:
(a) So long as no Event of Default has occurred and is continuing
(as used herein, "Event of Default" shall mean the occurrence of any Event of
Default under the Recourse Note), the Pledgor shall be entitled to act with
respect to the Pledged Collateral in any manner not inconsistent with this Stock
Pledge Agreement, the Stockholder's Agreement or the Recourse Note.
(b) If while this Stock Pledge Agreement is in effect, the
Pledgor shall become entitled to receive or shall receive any debt or equity
security certificate (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital, or issued in connection
with any reorganization), option or right, or any other property, whether as
a dividend or distribution or other issuance in respect of, in substitution
of, or in exchange for any Pledged Securities, or any non-cash proceeds from
any sale, transfer or other disposition (collectively, a "Sale") of any
Pledged Securities or any non-cash proceeds from any Sale of any such
non-cash proceeds or other Pledged Collateral, the Pledgor agrees to accept
the same as the Company's agent and to hold the same in trust on behalf of
and for the benefit of the Company and to deliver the same forthwith to the
Company in the exact form received, with the endorsement of the Pledgor when
necessary and/or appropriate undated security transfer powers duly executed
in blank, to be held by the Company, subject to the terms of this Stock
Pledge Agreement, as additional collateral security for the Obligations.
Notwithstanding the foregoing, it is agreed that the Pledgor may exercise any
option or right received as contemplated in the preceding sentence, and the
Company will exercise any such option or right upon receipt of written
instructions to that effect and any required payments or documents from the
Pledgor, and the securities received upon such
-2-
<PAGE>
exercise of any such option or right shall thereafter be held by the Company
as contemplated by the preceding sentence.
(c) Subject to any Sale by the Company of the Pledged Collateral
pursuant to this Stock Pledge Agreement and subject to the terms of the
Stockholder's Agreement, the Pledged Collateral shall be returned to the Pledgor
upon payment in full of all Obligations.
(d) The Company's sole duty with respect to the custody, safekeeping
and physical preservation of any of the Pledged Collateral in its possession
shall be to deal with them in the same manner as the Company deals with similar
securities and property for its own account. Neither the Company nor any of its
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon any of the Pledged Collateral or for any delay in doing
so or shall be under any obligation to sell or otherwise dispose of any of the
Pledged Collateral upon the request of the Pledgor or otherwise.
3. Remedies in Case of an Event of Default.
(a) In case an Event of Default shall have occurred and be
continuing, the Company shall have in each case all of the remedies of a
secured party under the New York Uniform Commercial Code, and, without
limiting the generality of the foregoing, shall have the right, in its sole
discretion, to sell, resell, assign and deliver all or, from time to time,
any part of the Pledged Collateral, or any interest in or option or right to
purchase any part thereof, on any securities exchange on which the Pledged
Securities or any of them may be listed (in the case of Pledged Securities),
at any private sale or at public auction, with or without demand of
performance or other demand, advertisement or notice of the time or place of
sale or adjournment thereof or otherwise (except that the Company shall give
ten days' notice to the Pledgor of the time and place of any sale pursuant to
this Section 3), for cash, on credit or for other property, for immediate or
future delivery, and for such price or prices and on such terms as the
Company shall, in its sole discretion, determine, the Pledgor hereby waiving
and releasing any and all right or equity of redemption whether before or
after sale hereunder. At any such sale the Company may bid for and purchase
the whole or any part of the Pledged Collateral so sold free from any such
right or equity of redemption. The Company shall apply the proceeds of any
such sale first to the payment of all costs and expenses, including
reasonable attorneys' fees, incurred by the Company in enforcing its rights
under this Stock Pledge Agreement, and second to the payment of accrued and
unpaid interest on and then of unpaid principal of the Recourse Note, and
thereafter to the payment of any other Obligations, and the Pledgor shall
continue to be liable for any deficiency.
-3-
<PAGE>
(b) The Pledgor recognizes that the Company may be unable to
effect a public sale of all or a part of any Pledged Securities constituting
part of the Pledged Collateral by reason of certain prohibitions contained in
the Securities Act of 1933 or in the rules and regulations promulgated
thereunder or in applicable state securities or "blue sky" laws, but may be
compelled to resort to one or more private sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire the
Pledged Securities for their own account, for investment and not with a view to
the distribution or resale thereof. The Pledgor agrees that private sales so
made may be at prices and on other terms less favorable to the seller than if
the Pledged Securities were sold at public sale, and that the Company has no
obligation to delay the sale of the Pledged Securities for the period of time
necessary to permit the registration of the Pledged Securities for public sale
under the Securities Act of 1933 and under applicable state securities or "blue
sky" laws. The Pledgor agrees that a private sale or sales made under the
foregoing circumstances shall be deemed to have been made in a commercially
reasonable manner.
(c) If any consent, approval or authorization of any state,
municipal or other governmental department, agency or authority should be
necessary to effectuate any sale or disposition by the Company pursuant to this
Section 3 of the Pledged Collateral, the Pledgor will execute all such
applications and other instruments as may be required in connection with
securing any such consent, approval or authorization and will otherwise use the
Pledgor's best efforts to secure the same.
(d) In case an Event of Default shall have occurred and be
continuing, without limiting the generality of paragraph (a) of this Section 3,
the Company shall have the right, in its sole discretion, on behalf of the
Pledgor, to instruct the party which is liable to pay any Cash Payment (as
defined in the Recourse Note) that any Net Proceeds shall be paid directly to
the Company for the account of the Pledgor, to the extent of the Obligations.
4. Pledgor's Obligations Not Affected. The obligations of the
Pledgor under this Stock Pledge Agreement shall remain in full force and
effect without regard to, and shall not be impaired or affected by: (a) any
subordination, amendment or modification of or addition or supplement to the
Stockholder's Agreement, the Recourse Note, or any assignment or transfer of
any thereof; (b) any exercise or non-exercise by the Company or any affiliate
of the Company of any right, remedy, power or privilege under or in respect
of this Stock Pledge Agreement, the Stockholder's Agreement, the Recourse
Note, or any waiver of any such right, remedy, power or privilege; (c) any
waiver, consent, extension, indulgence or other action or inaction in respect
of this Stock Pledge Agreement, the Stockholder's Agreement, the Recourse
Note, or any assignment or transfer of
-4-
<PAGE>
any thereof; or (d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like, of the Company, whether
or not the Pledgor shall have notice of any of the foregoing.
5. Transfer by Pledgor. The Pledgor will not sell, assign, transfer
or otherwise dispose of, grant any option with respect to, or mortgage, pledge
or otherwise encumber any of the Pledged Collateral or any interest therein
except as provided in the Stockholder's Agreement. In the event of a sale,
assignment, transfer or other disposition of Pledged Securities pursuant to the
Stockholder's Agreement, the Pledged Securities so sold, assigned, transferred
or otherwise disposed of shall be released from the pledge hereunder and the
proceeds shall be applied as set forth in the Recourse Note and in this Stock
Pledge Agreement.
6. Attorney-in-Fact. The Company is hereby appointed the
attorney-in-fact of the Pledgor for the purpose of carrying out the provisions
of this Stock Pledge Agreement and taking any action and executing any
instrument which the Company reasonably may deem necessary or advisable to
accomplish the purposes hereof, including, without limitation, the execution of
the agreements, financing statements and other instruments described in Section
1 hereof, which appointment as attorney-in-fact is irrevocable as one coupled
with an interest.
7. Termination. Upon payment in full of all Obligations and upon the
due performance of and compliance with and subject to all the provisions of the
Stockholder's Agreement and the Recourse Note, this Stock Pledge Agreement shall
terminate and the Pledgor shall be entitled to the return of such of the Pledged
Collateral as has not theretofore been sold, released or otherwise applied
pursuant to the provisions of this Stock Pledge Agreement, and the Company shall
file UCC-3 termination statements terminating its security interest in any
Pledged Collateral with respect to which any financing statement had been filed
by the Company.
8. Notices. All notices or other communications required or
permitted to be given hereunder shall be delivered as provided in the
Stockholder's Agreement.
9. Binding Effect, Successors and Assigns. This Stock Pledge
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
10. Miscellaneous. The Company and its assigns shall have no
obligation in respect of the Pledged Collateral under this Stock Pledge
Agreement, except to hold and dispose of the same in accordance with the
terms of this Stock Pledge Agreement. Neither this Stock Pledge Agreement nor
any provision hereof
-5-
<PAGE>
may be amended, modified, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against which enforcement of
the amendment, modification, waiver, discharge or termination is sought. The
captions in this Stock Pledge Agreement are for convenience of reference only
and shall not define or limit the provisions hereof. This Stock Pledge
Agreement shall be governed by and construed and enforced in accordance with
the laws of the State of New York, without regard to the conflicts of law
rules thereof. The provisions of Section 6.14 of the Stockholder's Agreement
are incorporated by reference herein.
IN WITNESS WHEREOF, the parties hereto have caused this Stock Pledge
Agreement to be executed and delivered on the date first above written.
THE YANKEE CANDLE COMPANY, INC.
By: /s/ Michael D. Parry
----------------------------
Title: President
PLEDGOR
/s/ Robert R. Spellman
-------------------------------
Name: Robert R. Spellman
-6-
<PAGE>
Exhibit 10.12
YANKEE CANDLE CO.
P.O. Box 110
Route 5
Southdeerfield
MASS 01373-0110
October 22, 1998
Mr. Robert Spellman
89 Far Reach road
Westwood, MA 02090
Dear Bob:
I am very pleased to confirm our offer for you to join Yankee Candle
Company, Inc. (the "Company") as Senior Vice President and Chief Financial
Officer and as a member of the Executive Committee. As we discussed, you will
join the Company on a full-time basis no later than Monday, November 9, 1998.
The details of the employment offer are as follows:
1. Your base salary will be $230,000 per year.
2. As a member of the Executive Committee, you will be included in the
Company's executive bonus plan which is based on performance and provides
additional cash compensation of up to 35% of base salary. Your 1998 bonus
will be pro-rated based on your employment start date and will include an
additional $75,000.
3. You will receive a one-time signing bonus of $500,000 upon joining the
Company. If you leave voluntarily or are terminated for cause, as defined
in paragraph 8, before eighteen months of employment with the Company, you
must repay the Company this signing bonus.
4. Subject to the commencement of your employment, you will be granted the
opportunity, on terms and conditions set forth in a Stockholder's
Agreement, to invest in Yankee Candle Holdings Corp. through the purchase
of 2,889 shares of Class B Common Stock at $346.15 per share for an
aggregate purchase price of approximately $1,000,000. The Company will
provide you with a loan for $750,000 of the purchase price which will
accrue at an annual rate of 7%.
5. You will receive a car allowance to lease and insure a car up to $1,000
per month.
6. The Company will provide you reasonable relocation and living expenses
through July 1999, as you transition from Westwood, MA to a new residence
in the Deerfield, MA area, including the rental of a furnished apartment
in the Deerfield, MA area.
7. Yankee benefits will be provided to you and your eligible dependents
including medical plan coverage, dental plan coverage and optional 401K
investment, subject to satisfying the applicable eligibility requirements.
As a member of the Executive Committee you will also be eligible in 1999
to participate in the Company's deferred
<PAGE>
compensation plan to the extent the plan is being offered to other
Executive members. Beginning in January 1999, you will be eligible for
three weeks annual vacation.
8. The Company will, at the Company's expense, take out a term life insurance
policy for you which will provide your family with no less than $1,000,000
of pre-tax proceeds upon your death, provided that you pass a physical and
therefore such policy can be obtained at reasonable standard rates. If you
are still employed by the Company and you die prior to the completion of
your first eighteen months of employment with the Company, the Company
will not require the repayment of your $500,000 bonus.
9. In the event the Company terminates your employment for any reason other
than for cause, the Company agrees to pay you $1,000,000, subject to a
two-year non-compete agreement covering the candle industry. "Termination
for cause" shall be deemed to occur only if the Company terminates you for
willful misconduct injurious to the Company or if you are convicted of a
felony.
10. If you have been employed by the Company for at least five years and there
has not been an event which triggers an exchange of Class B Common Stock
into Class A Common Stock in accordance with the provisions of the
Stockholder's Agreement, you will have the right for a period of 60 days
after that five year period to put your stock back to Yankee Candle
Holdings Corp. subject to the terms outlined in the Stockholder's
Agreement at a value of twice your per share cost, minus any principal and
interest on loans outstanding.
Should you have any questions regarding the above items, please do not
hesitate to call me or Sandra Horbach. If all of the above comports with your
understanding of our agreement, please sign and return one copy to me and retain
one copy for your records.
I am very excited to welcome you as a partner and as a member of the
Yankee Candle team and look forward to working with you to make Yankee Candle an
even more successful company.
With warm regards,
/s/ Michael D. Parry
Michael D. Parry
Accepted: /s/ Robert R. Spellman
-----------------------
Robert R. Spellman
-2-
<PAGE>
[letterhead of
The Yankee Candle Company, Inc.]
February 9, 1999
Mr. Robert R. Spellman
The Yankee Candle Company, Inc.
102 Christian Lane
Whately, MA 01093
Dear Bob:
References is made to the letter agreement ("Letter Agreement"), dated
October 22, 1998 between you and The Yankee Candle Company, Inc. and its
affiliates (the "Company"). This letter is to confirm and clarify our agreement
regarding your severance as set forth in Paragraph 9 of the Letter Agreement.
Should your employment with the Company be terminated by the Company during your
first five years of employment, for any reason other than a Termination for
Cause (as defined below), the Company will pay you $1,000,000, (i) less any
amounts you have realized (before taxes) from the sale or other disposition of
shares of Class B Common Stock prior to the date of your termination, and (ii)
if there has been a public offering of shares of Class A Common Stock, less any
unrealized appreciation (based on the market price of the stock) in the Vested
Shares that you hold at the time of your termination.
As provided in the Letter Agreement, payment of such severance is subject
to your executing a two-year non-compete covering the candle industry. A
"Termination for Cause" shall be deemed to occur only if (i) the Company
terminates you for willful misconduct injurious to the Company, or (ii) you are
convicted of a felony. If a Termination for Cause occurs, you shall not be
entitled to receive any severance payments from the Company.
This letter agreement supersedes all prior agreements you may have with
the Company regarding the subject matter hereof. Capitalized terms used but not
defined herein shall have the meanings given to them in the Stockholder's
Agreement to be entered into between you and Yankee Candle Holdings Corp.
<PAGE>
If the foregoing accurately reflects your understanding of the agreement
between the Company and you, please sign this letter and the enclosed copy and
return one of them to us.
Very truly yours,
THE YANKEE CANDLE COMPANY, INC.
By: /s/ Michael D. Parry
----------------------------
Agreed to and accepted as of
the date first above written:
/s/ Robert R. Spellman
- -----------------------------
Robert R. Spellman
-2-
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
Board of Directors and Stockholders
The Yankee Candle Company, Inc. and subsidiaries
We consent to the use in this Registration Statement of The Yankee Candle
Company, Inc. and subsidiaries ("Company") on Form S-1 of our report dated March
31, 1999 relating to the financial statements of the Company as of and for the
year ending December 31, 1998, appearing in the Prospectus, which is a part of
this Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
Our audit of the financial statements referred to in our aforementioned report
also included the financial statement schedule of the Company for the year ended
December 31, 1998, included in Item 16(b). This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audit. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 15, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 6, 1998, in the Registration Statement (Form S-1)
and related Prospectus of The Yankee Candle Company, Inc. for the registration
of shares of its common stock.
/s/ Ernst & Young LLP
Boston, Massachusetts
April 15, 1999
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
Board of Directors and Stockholders
The Yankee Candle Company, Inc. and subsidiaries
We consent to the use in this Registration Statement of The Yankee Candle
Company, Inc. and subsidiaries ("Company") on Form S-1 of our report dated March
4, 1997 relating to the financial statements of the Company for the year ending
December 31, 1996, appearing in the Prospectus, which is a part of this
Registration Statement, and to the references to us under the heading "Experts"
in such Prospectus.
Our audit of the financial statements referred to in our aforementioned report
also included the financial statements schedule of the Company relating to the
year ending December 31, 1996, listed in Item 16(b). This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audit. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ Fisk, Bilton, Smith & Co., P.C.
West Springfield, Massachusetts
April 15, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements as of December 31, 1997 and 1998 and for the three
years in the period ended December 31, 1998 and is qualified in its entirety
by reference to such fiancial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998
<CASH> 0 7,377 30,411
<SECURITIES> 0 0 0
<RECEIVABLES> 0 6,933 8,546
<ALLOWANCES> 0 (360) (450)
<INVENTORY> 0 10,212 12,482
<CURRENT-ASSETS> 0 25,176 53,836
<PP&E> 0 43,912 48,315
<DEPRECIATION> 0 (12,058) (13,905)
<TOTAL-ASSETS> 0 73,096 275,345
<CURRENT-LIABILITIES> 0 30,286 22,932
<BONDS> 0 7,310 320,000
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 0 34,791 (68,591)
<TOTAL-LIABILITY-AND-EQUITY> 0 73,096 275,345
<SALES> 112,119 144,103 184,477
<TOTAL-REVENUES> 112,119 144,103 184,477
<CGS> 53,207 62,069 79,105
<TOTAL-COSTS> 53,207 62,069 79,105
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,913 2,154 16,268
<INCOME-PRETAX> 12,092 25,731 (22,976)
<INCOME-TAX> 410 1,360 9,656
<INCOME-CONTINUING> 11,682 24,371 (32,632)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 11,682 24,371 (32,632)
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
<PAGE>
Exhibit 99.1
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
We have audited the financial statements of The Yankee Candle Company, Inc.
as of December 31, 1997 and for the year then ended, and have issued our
report thereon dated March 6, 1998 (included elsewhere in this Registration
Statement). Our audit also included the 1997 financial statement schedule
listed in Item 16(b) of this Registration Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
March 6, 1998
