SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ]Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Rauch Industries, Inc.
(Name of Registrant as Specified In Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
RAUCH INDUSTRIES, INC.
6048 S. York Road
Gastonia, North Carolina 28052
January 26, 1996
TO OUR STOCKHOLDERS:
You are cordially invited to attend a Special Meeting of the
Shareholders to be held at 10:00 a.m. on Thursday, February 15, 1996 (the
"Meeting") at the corporate offices of Rauch Industries, Inc., 6048 South York
Road, Gastonia, North Carolina. The purpose of the Meeting is to vote on a
proposed plan of merger (the "Plan of Merger") pursuant to which, Rauch
Industries, Inc. ("Rauch") will be merged with SYR Acquisition, Inc., an
indirect, wholly owned subsidiary of Syratech Corporation (the "Merger"). Under
the terms of the Plan of Merger, you will be entitled to receive $13.00 per
share (the "Merger Consideration") in cash for each of your shares of common
stock, par value $1.00 per share, of Rauch. Details of the Merger and related
transactions as well as other important information appear in the attached Proxy
Statement which is first being mailed to shareholders on or about January 26,
1996. A copy of the Merger Agreement is attached as Exhibit A to the Proxy
Statement.
The Board of Directors has carefully considered the terms and
conditions of the Merger and has obtained the opinion of Wasserstein Perella &
Co., Inc.("Wasserstein Perella"), an internationally recognized investment
banking firm, that, as of the date of its opinion, the Merger Consideration to
be received in the Merger is fair to the shareholders of Rauch from a financial
point of view. The full text of the opinion of Wasserstein Perella, dated
December 7, 1995, which sets forth the assumptions made, matters considered and
limits on the review undertaken, is attached as Exhibit C to the accompanying
Proxy Statement and is incorporated therein by reference. Shareholders are urged
to read such opinion carefully and in its entirety. The Board believes the Plan
of Merger to be fair to the Company's shareholders and has approved the
transaction by unanimous vote. Upon consummation of the Merger, shareholders
will no longer have an equity interest in Rauch.
A shareholder who follows the procedures specified in Chapter 55,
Article 13 of the North Carolina Business Corporation Act has the right to
dissent from the Merger and will be entitled to receive payment of the "fair
value" of such shares rather than the amount of the Merger Consideration stated
above. The full text of Chapter 55, Article 13 is attached as Exhibit B to the
accompanying Proxy Statement.
Whether or not you plan to attend the Meeting on February 15, 1996, it
is important that your shares be represented. To ensure that your vote will be
received and counted, please sign, date and mail the enclosed proxy at your
earliest convenience.
The record date for purposes of determining shareholders entitled to
notice of and to vote at the Meeting was January 16, 1996.
We urge you to read the enclosed Proxy Statement and related
information carefully.
Sincerely yours,
Marshall A. Rauch
Chairman
<PAGE>
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 15, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of
Rauch Industries, Inc. ("Rauch") will be held at 10:00 a.m. on Thursday,
February 15, 1996 (the "Meeting") at the corporate offices of Rauch at 6048
South York Road, Gastonia, North Carolina for the following purposes:
1. To consider and vote upon a proposed Plan of Merger pursuant to
which (i) SYR Acquisition, Inc., a North Carolina corporation that is an
indirect, wholly-owned subsidiary of Syratech Corporation, will be merged with
and into Rauch, and (ii) each share of common stock, par value $1.00 per share,
of Rauch will be changed into the right to receive $13.00 in cash (the "Merger
Consideration"); and
2. To transact such other and further business as may properly come
before the Meeting.
The Board of Directors has fixed January 16, 1996 as the record date
for the determination of shareholders entitled to notice of and to vote at the
Meeting or any adjournments thereof.
A shareholder who follows the procedures specified in Chapter 55,
Article 13 of the North Carolina Business Corporation Act has the right to
dissent from the Merger and will be entitled to receive the payment of the "fair
value" of such shares rather than the amount of the Merger Consideration stated
above. The full text of Chapter 55, Article 13 is attached as Exhibit B to the
accompanying Proxy Statement.
Whether or not you plan to attend the Meeting, you are urged to
complete, sign, date and return the enclosed proxy promptly in the envelope
provided. Returning your proxy does not deprive you of your right to attend the
Meeting and to vote your shares in person. This proxy may be revoked at any time
prior to its exercise by giving notification of your intent to revoke this proxy
to the Secretary of Rauch in writing at any time prior to the voting of the
proxy or by attending the Meeting and voting in person.
Gastonia, North Carolina MARSHALL A. RAUCH
January 26, 1996 Chairman of the Board
<PAGE>
TABLE OF CONTENTS
TO PROXY STATEMENT
<TABLE>
<CAPTION>
<S> <C>
Introduction......................................................................................................1
General ................................................................................................1
Proposal to be Considered at the Special Meeting.........................................................1
Voting Rights; Vote Required for Approval................................................................1
Rights of Dissenting Shareholders........................................................................2
Proxies ................................................................................................2
Company Auditors.........................................................................................3
Summary .........................................................................................................3
The Merger...............................................................................................3
Requisite Shareholder Approval...........................................................................4
Approval by the Board of Directors; Reasons for the Merger...............................................4
Opinion of Financial Advisor.............................................................................4
Effects of the Merger....................................................................................5
Interests of Certain Persons in the Merger...............................................................5
Accounting Treatment.....................................................................................6
Federal Income Tax Consequences..........................................................................6
Effective Time; Payment for Shares, Etc..................................................................6
Conditions to the Merger.................................................................................7
Termination..............................................................................................7
No Solicitation; Break-up Fee and Expenses...............................................................8
Dissenters' Rights.......................................................................................9
Financing of the Merger..................................................................................9
Market Price and Dividends...............................................................................9
Summary Financial Information...........................................................................10
Business of Rauch.......................................................................................10
Approval by the Board of Directors;
Reasons for, and Fairness of, the Merger.......................................................................11
Background of the Merger................................................................................11
Approval by the Special Committee and Board of Directors................................................13
Opinion of Financial Advisor............................................................................14
Effects of the Merger............................................................................................21
Interests of Certain Persons in the Merger.......................................................................22
Accounting Treatment.............................................................................................23
i
<PAGE>
Federal Income Tax Consequences..................................................................................23
Shareholders of Rauch...................................................................................23
Holders of Options and Stock Appreciation Rights........................................................23
Rauch ...............................................................................................23
Financing the Merger.............................................................................................24
The Merger Agreement.............................................................................................24
General ...............................................................................................24
Effective Time..........................................................................................25
Payment for Shares......................................................................................25
Conditions to the Merger................................................................................25
Covenants and Additional Agreements.....................................................................26
Indemnification.........................................................................................27
Termination.............................................................................................27
Expenses ...............................................................................................27
Rights of Dissenting Shareholders................................................................................28
Market Price And Dividends.......................................................................................31
Selected Financial Data..........................................................................................33
Management's Discussion and Analysis of Financial Condition and Results of
Operations.....................................................................................................34
Financial Condition and Liquidity.......................................................................34
Results of Operations...................................................................................37
Information Concerning Rauch.....................................................................................39
Business of Rauch.......................................................................................39
Seasonal Character of Business..........................................................................41
Employees...............................................................................................42
Competition.............................................................................................42
Property ...............................................................................................43
Legal Proceedings.......................................................................................43
Common Stock Owned by Officers, Directors and Certain Shareholders of Rauch......................................44
Directors and Officers of the Company
and the Surviving Corporation..................................................................................46
Information Concerning Syratech and SYR..........................................................................46
Other Matters....................................................................................................46
ii
<PAGE>
Proposals by Security Holders Intended to be Presented at
the 1996 Annual Meeting of Shareholders.........................................................................47
Additional Information...........................................................................................47
Index to Financial Statements....................................................................................48
Exhibit A - Agreement.........................................................................................A - 1
Exhibit B - Text of Chapter 55, Article 13 of The General Statutes
of North Carolina concerning Rights of Dissenting Shareholders..............................................B - 1
Exhibit C - Opinion of Wasserstein Perella & Co., Inc.........................................................C - 1
Exhibit D - Directors and Executive Officers of the Company and
the Surviving Corporation....................................................................................D - 1
</TABLE>
iii
<PAGE>
RAUCH INDUSTRIES, INC.
6048 S. York Road
Gastonia, NC 28052
(704) 867-5333
January 26, 1996
PROXY STATEMENT
INTRODUCTION
General
This Proxy Statement and the accompanying Proxy and voting instruction
card are first being mailed on or about January 26, 1996 to the holders of
record of the common stock, par value $1.00 per share (the "Common Stock") of
Rauch Industries, Inc. ("Rauch" or the "Company"), on January 16, 1996 in
connection with the solicitation of proxies by the Board of Directors of Rauch
for use at a special meeting of the shareholders of the Company to be held on
Thursday, February 15, 1996 and at any adjournment or postponement thereof (the
"Special Meeting"), at the time and location set forth in the accompanying
notice.
Proposal to be Considered at the Special Meeting
At the Special Meeting, the shareholders of the Company will consider
and vote upon a proposal to approve a plan of merger (the "Plan of Merger"),
pursuant to an Agreement, dated December 7, 1995 (the "Merger Agreement"), among
Syratech Corporation, a Delaware corporation ("Syratech"), SYR Acquisition,
Inc., a newly-formed North Carolina corporation that is an indirect wholly-owned
subsidiary of Syratech ("SYR" or "Mergersub"), and the Company. Each outstanding
share of Common Stock (other than shares owned by dissenting shareholders) will
be converted into the right to receive $13.00 in cash.
Voting Rights; Vote Required for Approval
Only shareholders of record at the close of business on January 16,
1996 are entitled to notice of and to vote at the Special Meeting. On January
16, 1996 there were 3,695,563 shares of the Company's Common Stock outstanding,
and 256 holders of record are entitled to vote such shares. Each holder of
Common Stock is entitled to cast one vote in person or by proxy at the Special
Meeting. The presence, in person or by proxy, at the Special Meeting of the
holders of a majority of the total outstanding Common Stock entitled to vote is
necessary to constitute a quorum at the Special Meeting. Abstentions and broker
non-votes (where a broker or other record holder submits a proxy but does not
have authority to vote a customer's Common Stock) will be considered present for
purposes of establishing a quorum.
Under the North Carolina Business Corporation Act ("NCBCA"), the Plan
of Merger must be approved by the holders of at least a majority of the
outstanding Common Stock. Members of the Rauch family (consisting of Marshall A.
Rauch and members of his
<PAGE>
immediate family), holding in the aggregate 1,972,147 shares of Common Stock,
representing approximately 53.37% of the outstanding Common Stock, have informed
the Company that it is their present intention to vote in favor of the Plan of
Merger. Assuming that there is no change of intention, members of the Rauch
family will have sufficient voting power to approve the Plan of Merger under the
NCBCA without the approval of any other shareholders of the Company.
Rights of Dissenting Shareholders
Holders of Common Stock who do not vote in favor of the Merger
Agreement and comply with the provisions of Article 13 of the NCBCA have the
right to receive cash payment for the "fair value" of their Common Stock. Any
shareholder contemplating the exercise of dissenters' rights should carefully
review Article 13 of the NCBCA, particularly the procedural steps required to
perfect dissenters' rights, a description of which is provided under "Rights of
Dissenting Shareholders." A shareholder who fails fully to comply with such
procedural requirements will lose such holder's dissenter's rights and will
receive the Merger Consideration for the Common Stock held by such shareholder.
See "Rights of Dissenting Shareholders" and Exhibit B "Text of Chapter 55,
Article 13 of the General Statutes of North Carolina Concerning Rights of
Dissenting Shareholders." The obligation of each of the parties to the Merger
Agreement to consummate the Merger is subject to, among other conditions, the
satisfaction or waiver of the condition that the aggregate number of shares of
Common Stock as to which holders exercise dissenters' rights does not exceed
250,000. None of the parties to the Merger Agreement has determined whether it
will waive this condition if the holders of more than 250,000 shares of Common
Stock seek dissenters' rights. If the holders of more than 250,000 shares of
Common Stock should seek dissenters' rights and the parties to the Merger
Agreement do not waive this condition, the Merger Agreement would terminate and
it is expected that Rauch would continue to operate as an independent entity. If
the Merger Agreement is terminated under such circumstances, each party would
bear its own expenses with respect to the terminated transaction. See "The
Merger Agreement -- Conditions to Consummation of the Merger."
A list of the shareholders of the Company is available for inspection
at the offices of the Company and will also be available at the Special Meeting.
Proxies
Proxies will be voted in accordance with the choice specified thereon,
and if no choice is specified, they will be voted FOR the proposal to approve
the Plan of Merger and, in the discretion of the persons named in the proxy, on
such other matters as may properly be presented at the Special Meeting.
Abstentions and broker non-votes will have the effect of a vote against the Plan
of Merger. IF, AFTER YOU SEND IN YOUR PROXY, YOU CHANGE YOUR MIND AND DECIDE TO
ATTEND THE SPECIAL MEETING IN PERSON OR YOU DESIRE TO REVOKE YOUR PROXY FOR ANY
OTHER REASON, YOU MAY DO SO BY GIVING NOTIFICATION OF SUCH INTENT TO THE
2
<PAGE>
SECRETARY OF THE COMPANY IN WRITING AT ANY TIME PRIOR TO THE
VOTING OF THE PROXY OR BY ATTENDING THE SPECIAL MEETING AND
VOTING IN PERSON.
The cost of solicitation of proxies will be paid by the Company. In
addition to solicitation by mail, directors, officers and regular employees of
the Company may solicit proxies by telephone, telegram, or by personal
interviews. Such persons will receive no additional compensation for such
services. The Company will reimburse brokers and certain other persons for their
charges and expenses in forwarding proxy material to the beneficial owners of
Common Stock held of record by such persons.
All information appearing in this Proxy Statement concerning the
Company has been supplied by the Company, and all information appearing in this
Proxy Statement concerning Syratech and SYR has been supplied by Syratech and
SYR.
Company Auditors
Representatives of Coopers & Lybrand L.L.P., Rauch's auditors, will
attend the Special Meeting, will have an opportunity to make a statement if they
desire to do so, and will be able to respond to appropriate shareholder
questions.
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement. This summary is not intended to be a complete
statement of all material features of the proposed Merger (and related
transactions) described below and is qualified in its entirety by more detailed
information contained elsewhere in this Proxy Statement including the exhibits
attached hereto.
The Merger
Pursuant to the approval of the Board of Directors of Rauch, Rauch has
entered into a Merger Agreement, dated as of December 7, 1995, whereby SYR, an
indirect wholly owned subsidiary of Syratech, will be merged with and into Rauch
(the "Merger"). Rauch will be the surviving corporation (the "Surviving
Corporation") and become a wholly-owned subsidiary of Syratech. Each outstanding
share of Common Stock, other than shares owned by any shareholders who perfect
their dissenters' rights under Article 13 of the NCBCA, will be converted into
the right to receive $13.00 in cash (the "Merger Consideration"), and each
outstanding share of common stock of SYR will be converted into and exchanged
for one share of Common Stock. A copy of the Merger Agreement is attached as
Exhibit A to this Proxy Statement.
Upon consummation of the Merger, Syratech will own all of the
outstanding shares of Common Stock. See "The Merger Agreement" and Exhibits A
and B attached hereto.
3
<PAGE>
Requisite Shareholder Approval
Approval of the Plan of Merger requires the favorable vote of a
majority of the outstanding shares of Common Stock. Members of the Rauch family
(consisting of Mr. Marshall A. Rauch and members of his immediate family) hold,
in the aggregate, 1,972,147 shares, or 53.37% of the outstanding Common Stock.
Mr. Rauch and his family have informed the Company that it is their present
intention to vote in favor of the Plan of Merger. Assuming that there is no
change of intention, members of the Rauch family will have sufficient voting
power to approve the Plan of Merger without the approval of any other
shareholders of the Company.
Approval by the Board of Directors; Reasons for the Merger
A special committee of the Board of Directors of the Company,
consisting solely of directors of the Company who are not employed by the
Company (the "Special Committee"), has determined, based in part upon the
opinion of Wasserstein Perella & Co., Inc. ("Wasserstein Perella"), that the
Merger and the Merger Consideration are fair to, and in the best interests of,
the Company and its shareholders. After considering the recommendation of the
Special Committee, the Board of Directors has unanimously approved and adopted
the Merger Agreement (and Plan of Merger contained therein) and recommends that
the shareholders vote FOR the proposal to approve the Plan of Merger. In
approving the Plan of Merger and Merger Agreement, the Special Committee and the
Board of Directors of Rauch each considered the following factors: (i)
information relating to the business, assets, management, competitive position
and prospects of Rauch, (ii) the financial condition, cash flows and results of
operations of Rauch both on an historical and on a prospective basis, (iii)
historical market prices and trading information with respect to the Common
Stock, (iv) the relatively small "public float" and the low trading volume of
the Common Stock, (v) the fact that the Merger Consideration for the Common
Stock represents a substantial premium of approximately 35% over the closing
sale price for the Common Stock on December 6, 1995 (the last trading day prior
to the announcement of the Merger), (vi) the fact that the terms of the Merger
Agreement were negotiated on an arm's-length basis, (vii) management's
evaluation of claims under the Company's insurance policy with regard to the
destruction of its Cramerton, North Carolina facility and management's estimates
of the proceeds payable thereunder, and (viii) the opinion, analyses and
presentations of Wasserstein Perella described under "Approval by the Board of
Directors; Reasons for, and Fairness of, the Merger -Opinion of Financial
Advisor."
Opinion of Financial Advisor
The Special Committee engaged Wasserstein Perella, an internationally
recognized investment banking firm, to render an opinion as to the fairness of
the Merger Consideration to the holders of Common Stock from a financial point
of view. Wasserstein Perella has delivered to Rauch its written opinion dated
December 7, 1995, the date of the Merger Agreement, to the effect that as of
such date, based upon the assumptions made, matters
4
<PAGE>
considered and limits of the review, all of which are set forth in such opinion,
the Merger Consideration to be received by the shareholders of Rauch in the
Merger is fair to such shareholders from a financial point of view. Such opinion
is attached as Exhibit C hereto and should be read by holders of the Common
Stock in its entirety. For additional information concerning Wasserstein
Perella's opinion and the fee received by Wasserstein Perella in connection with
this transaction, see "Approval by the Board of Directors; Reasons for, and
Fairness of, the Merger -- Opinion of Financial Advisor" and Exhibit C.
Effects of the Merger
After the Merger is consummated, Syratech will own all of the
outstanding capital stock of Rauch and the present holders of Common Stock will
no longer have any equity interest in Rauch, will not share in the earnings and
growth of Rauch, and will no longer have rights to vote on corporate matters.
Instead, each such holder of Common Stock will have the right either to receive
the Merger Consideration for each share of Common Stock held or to exercise
dissenters' rights under Chapter 13 of the NCBCA. Once the Merger is effective,
Common Stock will no longer be traded on the American Stock Exchange,
registration of Common Stock under the Securities Exchange Act of 1934 (the
"Exchange Act") will terminate, and Rauch will cease filing periodic reports
with the Securities and Exchange Commission ("SEC"). Following the Merger, Rauch
will no longer be subject to the proxy rules under the Exchange Act and Rauch's
officers and directors will no longer be subject to certain filing requirements
and the short-swing profit provisions of the Exchange Act.
In connection with the Merger, the Company's outstanding stock options
and stock appreciation rights will also be cancelled and each holder thereof
will receive cash for each such share subject to an option or stock appreciation
right equal to the excess of the Merger Consideration over the exercise or
strike price per share.
Interests of Certain Persons in the Merger
At the Effective Time (as defined below) of the Merger, each share of
Common Stock, other than those shares owned by any dissenting shareholders, will
be converted into the right to receive the Merger Consideration in cash. As of
January 15, 1996, officers and directors of Rauch beneficially owned an
aggregate of 1,560,553 shares of Common Stock which, if the Merger is
consummated, will be converted into the right to receive the Merger
Consideration, or an aggregate of $20,287,189 in cash. As of January 15, 1996,
officers and directors also held options to purchase an aggregate of 158,000
shares of Common Stock and stock appreciation rights in respect of 22,500 shares
of common stock. In connection with the Merger, these options and stock
appreciation rights will be cancelled, and each holder thereof will receive cash
for each share subject to an option or stock appreciation right in an amount
equal to the excess of the Merger Consideration over the exercise or strike
price per share. As a result, such officers and directors will receive an
aggregate of $962,845 upon cancellation of such options and stock appreciation
rights. See "Common Stock Owned by Officers, Directors and Certain Shareholders
of Rauch."
5
<PAGE>
Mr. Marshall A. Rauch, chairman of the Company, and the Company's other
executive officers (other than Ingrid Rauch Sturm) are anticipated to continue
as officers of Rauch following the Merger. Moreover, it is a condition to the
obligation of Syratech and SYR that on or before the consummation of the Merger,
the Company shall have entered into employment and noncompetition agreements
with Marc F. Rauch, Marshall A. Rauch, Peter D. Rauch and Donald G. Walser.
Under the proposed employment agreements, it will be a condition to the
obligations of Marc F. Rauch, Peter D. Rauch and Donald G. Walser to continue to
observe the noncompetition covenants contained therein that on or promptly
following the effective date of the Merger, Syratech shall grant to them options
to purchase shares of common stock of Syratech at the market price thereof on
the effective date of the Merger. See "Interests of Certain Persons in the
Merger."
Under its bylaws, Rauch's current officers, directors, employees and
agents will be indemnified by Rauch following consummation of the Merger against
certain liabilities, including certain liabilities, if they should arise, in
connection with the Merger. In the Merger Agreement, Syratech agreed to cause
Rauch to maintain such indemnification obligations with respect to events
occurring prior to the Merger for a period of three years after the Merger. The
Merger Agreement also provides, in general, that the Company shall maintain
directors' and officers' liability insurance with respect to actions prior to
the Merger for a period of three years after the Effective Time of the Merger.
Marshall A. Rauch has been asked to serve on the Board of Directors of
Syratech which will be the indirect sole shareholder of Rauch following the
Merger.
Accounting Treatment
For accounting purposes, the Merger shall be treated as a purchase by
Syratech of all of the outstanding Common Stock.
Federal Income Tax Consequences
Generally, if the Merger is consummated, Rauch shareholders will
recognize taxable gain or loss for federal income tax purposes equal to any
difference between cash received pursuant to the Merger (or in respect of
dissenting shares) and the tax basis of the Common Stock exchanged. Each
shareholder should consult his tax advisor as to the particular consequences of
the Merger to him, including the application of state, local and other tax laws.
See "Federal Income Tax Consequences."
Effective Time; Payment for Shares, Etc.
The Merger will become effective upon the filing of Articles of Merger
with the Secretary of State of the State of North Carolina (the "Effective
Time"). The filing will occur after all conditions to the Merger contained in
the Merger Agreement have been satisfied or waived. The Company anticipates that
the Merger will be consummated promptly following
6
<PAGE>
the Special Meeting. As soon as practicable after the Merger becomes effective,
instructions regarding procedures for delivery of stock certificates and receipt
of the Merger Consideration will be mailed to shareholders and payment will be
made upon delivery of stock certificates and other required documents.
Shareholders should not deliver stock certificates to the Company or the
Exchange Agent (as defined below) prior to the Effective Time. Payments in
cancellation of outstanding stock options and stock appreciation rights will be
made immediately prior to the Effective Time. See "The Merger Agreement --
Payment for Shares" for additional information concerning such procedures.
Conditions to the Merger
The respective obligations of the Company, Syratech and Mergersub to
effect the Merger are subject to the satisfaction at or prior to the Effective
Time of the following conditions, among others: (a) approval and adoption of the
Merger Agreement by the holders of a majority of the outstanding Common Stock;
(b) Wasserstein Perella shall not have withdrawn or modified its opinion that
the cash consideration to be received by holders of the Common Stock is fair to
such holders from a financial point of view; (c) the absence of any injunction
or similar order prohibiting or restricting the consummation of the Merger; (d)
the termination or expiration of all waiting periods relating to the Merger
under applicable law, and the receipt of all other required authorizations; (e)
the performance of and compliance with, in all material respects, all agreements
and obligations contained in the Merger Agreement required to be performed or
complied with at or prior to the Effective Time; (f) holders of no more than
250,000 shares of Common Stock shall have elected to exercise dissenters' rights
and not have voted in favor of the Plan of Merger, and (g) the correctness in
all material respects of all representations and warranties of the parties to
the Merger Agreement. The obligations of Syratech and Mergersub to consummate
the Merger is further subject to the execution by the Company and four of its
present officers (three of whom are members of the Rauch family) of employment
and non-competition agreements. See "The Merger Agreement -- Conditions to the
Merger" and Exhibit A.
Termination
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time: (i) by the mutual written consent of Syratech,
Mergersub and Rauch, or (ii) by Syratech or Rauch if (a) the Merger is not
consummated before February 15, 1996 (extended by the parties to February 22,
1996) (unless the failure to consummate the Merger by such date is due to a
breach or violation of the Merger Agreement by the party seeking to terminate),
(b) there shall be a final and non-appealable order, judgment, decree or
injunction prohibiting the consummation of the transactions contemplated by the
Merger Agreement, or (c) there has been a material breach of the Merger
Agreement by either Syratech or Mergersub, on the one hand, or Rauch, on the
other (subject to certain notice and cure rights in respect of such breach), or
(d) if Rauch receives, or there shall have been publicly announced an offer or
proposal by a person other than Syratech or Mergersub to acquire Rauch or its
assets on terms that are stated or expected to yield to the holders of
7
<PAGE>
Common Stock value in excess of $13.00 per share (an "Economically Superior
Offer") and the Board of Directors of Rauch (A) decides either to accept or to
recommend to the holders of Common Stock that they accept such Economically
Superior Offer, or (B) as a consequence of the actual or anticipated receipt of
such Economically Superior Offer shall cease to recommend to the holders of
Common Stock that they approve the Plan of Merger. See "The Merger Agreement --
Termination" and Exhibit A.
No Solicitation; Break-up Fee and Expenses
The Company has agreed that it will not (a) initiate contact with,
solicit or encourage any inquiries or proposals by (or authorize or permit
anyone acting on its behalf so to do), or (b) enter into any discussions or
negotiations or agreements with, or disclose directly or indirectly any
information not customarily disclosed concerning its business and properties to,
or afford any access to its properties, books and records to, any corporation,
partnership, person or other entity or group in connection with any possible
proposal (an "Acquisition Proposal") regarding a sale of the Company's capital
stock or a merger, consolidation, or sale of all or a substantial portion of the
assets of the Company or any subsidiary of the Company which is material to the
Company and the Company's subsidiaries taken as a whole, or any similar
transaction. If, however, after receipt of an inquiry or proposal not initiated,
solicited or encouraged in violation of the foregoing clause (a), the Company's
Board, upon advice of the Company's counsel, determines in good faith that the
fiduciary duties of the directors require them to take or authorize action
otherwise prohibited by the foregoing clause (b), the Board shall have the right
to take or authorize the taking of such action, and the Company shall be
permitted to act in a manner consistent with such authorization. The Company's
Board is also free to take any position with respect to a third party
Acquisition Proposal, which, upon the advice of the Company's counsel, is
required by applicable law.
In the event the Merger is not consummated after receipt by the Company
from, or public announcement by, an Affected Offeror (as defined below) and/or
one or more affiliates of an Affected Offeror of an Economically Superior Offer
pertaining to an acquisition of the Company or a substantial portion of the
assets of the Company, and control of the Company or a substantial portion of
its assets is transferred to such Affected Offeror and/or one or more affiliates
of such Affected Offeror within twelve months of the making of such offer,
Syratech shall be entitled to receive payment from the Company of liquidated
damages in the amount of $2.4 million. "Affected Offeror" means any person or
entity with whom or with which, directly or through representatives, the Company
shall, on or after December 7, 1995 and prior to February 15, 1996, have had
contacts, discussions or negotiations (or to whom or to which the Company shall
during such period have provided information) looking toward the possible
acquisition of the Company (by merger or otherwise) or a substantial portion of
its assets. See "The Merger Agreement -- Termination" and "-- Expenses."
8
<PAGE>
Dissenters' Rights
Under North Carolina law, holders of Common Stock who file the required
written notice prior to the Special Meeting will have the right to be paid the
"fair value" of their shares as determined by Rauch in lieu of cash payments
pursuant to the Plan of Merger. Holders of Common Stock who do not agree with
the determination of "fair value" made by Rauch are entitled to inform Rauch of
their estimate of "fair value" and to have their shares of Common Stock
appraised by a North Carolina court and to receive payment of the "fair value"
of such shares as determined by such court rather than the amount of the Merger
Consideration. Such dissenters' right will be lost, however, if a shareholder
votes in favor of the Plan of Merger or if the procedural requirements of the
North Carolina Business Corporation Act are not fully and precisely satisfied.
(A shareholder who submits a proxy in favor of the Merger may revoke the proxy,
as provided above, and assert his dissenters' right by following the procedural
requirements set forth in the NCBCA.) See "Rights of Dissenting Shareholders"
and Exhibit B attached hereto.
Financing of the Merger
The total amount of funds required to pay the Merger Consideration to
holders of Common Stock and to pay related fees and expenses in connection with
the Merger is expected to approximate $51.3 million. The Merger Consideration
will be provided by Syratech out of its working capital. Each party to the
Merger Agreement will pay its own expenses. See "The Merger Agreement --
Expenses"; "Financing of the Merger."
Market Price and Dividends
On December 6, 1995, the last business day prior to the public
announcement of the Merger, the closing sale price per share of Common Stock as
reported on the American Stock Exchange was $9.63. As of January 25, 1996, the
closing sale price per share of Common Stock as reported on the American Stock
Exchange was $12.63. Shareholders of Rauch are urged to obtain current market
quotations for the Common Stock.
On November 3, 1995, the Board of Directors approved a dividend of $.02
per share of Common Stock to be paid on December 15, 1995 to shareholders of
record as of December 1, 1995.
For additional information concerning market prices and dividends paid
by the Company on the Common Stock since January 1, 1990, see "Market Price and
Dividends."
9
<PAGE>
Summary Financial Information
For certain selected financial data concerning the Company for the
three years ended December 31, 1994 and for the nine months ended September 30,
1994 and September 30, 1995, see "Selected Financial Data."
Business of Rauch
Rauch is the oldest producer of glass and satin Christmas tree
ornaments in the United States. Its principal business is the design,
manufacture and wholesale distribution of Christmas decorations, primarily glass
and satin Christmas tree ornaments and aerosols, as well as imports.
Rauch's products are retailed throughout the United States in chain,
department, drug, variety, food and specialty stores. The sale of these
Christmas decorations accounted for approximately 95% of its net sales in 1994.
Rauch distributes its products nationwide, through displays in showrooms and
sales offices in seventeen major cities and in Europe. See "Information
Concerning Rauch."
[END OF SUMMARY]
10
<PAGE>
APPROVAL BY THE BOARD OF DIRECTORS;
REASONS FOR, AND FAIRNESS OF, THE MERGER
Background of the Merger
The Common Stock has been publicly traded since 1983, when Rauch
completed its initial public offering. The Common Stock was traded on the NASDAQ
National Market System until 1993 when it qualified for listing and trading on
the American Stock Exchange. Mr. Marshall A. Rauch and members of his immediate
family have been the majority stockholders of the Company since prior to its
initial public offering.
In May, 1995, Syratech contacted Rauch and indicated its interest in
pursuing a strategic acquisition of Rauch to take advantage of perceived
synergies between the companies, particularly with respect to their marketing
and distribution activities. During the period prior to October, 1995, the two
companies exchanged certain publicly available information, along with certain
other financial data generated from such publicly available information and
internally generated projected financial and operating data relating to the
potential synergies between the two companies (such forecasted financial data
consisting of gross margins and operating expenses for the combined operations
of the two companies) and information concerning proceeds from the settlement of
insurance claims described elsewhere herein, and continued to explore strategic
alternatives, although no offers or proposals for a particular form of
transaction were made. On October 14, 1995, members of management of Rauch met
in Boston, Massachusetts with Syratech management to continue their discussions.
During such meeting, Syratech confirmed its interest in a cash acquisition of
Rauch and proposed a cash purchase price for all outstanding shares of the
Common Stock of $13.00 per share. In response, Marshall Rauch, the Company's
chairman, indicated that he would communicate such offer to Rauch's Board of
Directors.
On November 3, 1995, the Rauch Board of Directors held a regularly
scheduled meeting. At that meeting, Mr. Rauch reported Syratech's offer to
acquire the Company at a purchase price of $13.00 per share. The Board discussed
the price, structure and terms of the proposed transaction, the timing for such
a transaction, and other considerations. Mr. Rauch also informed the Board that
Syratech was proposing that the Company enter into employment agreements with
and grant stock options to certain members of management. See "Interests of
Certain Persons in the Merger." As a result of such proposed employment
agreements and stock options, the Board determined at such November 3, 1995
meeting to appoint a Special Committee, consisting of the Company's outside
directors, to consider Syratech's offer and, in connection therewith, to promote
and protect the interests of all the Company's shareholders.
Thereafter, between November 3, 1995, and November 22, 1995, the
Special Committee held several meetings, both in person and telephonically to
consider whether the Board should entertain any offer for the sale of the
Company at this time, whether the Board should seek other potential purchasers
of the Company, and the nature and sufficiency of
11
<PAGE>
Syratech's offer. In connection with these considerations, the Special Committee
determined at a telephonic meeting held on November 7, 1995, to retain a
financial advisor. After meeting with two firms, it selected Wasserstein Perella
as the Special Committee's financial advisor in connection with the proposed
transaction and to advise the Special Committee as to the fairness of Syratech's
offer to the shareholders of the Company from a financial point of view.
On November 15, 1995, the Special Committee convened in Charlotte,
North Carolina to receive reports from Wasserstein Perella concerning its
analysis to date and from counsel concerning negotiations of a proposed merger
agreement with Syratech. Also at that meeting, the Special Committee requested
and received a report from Marshall Rauch concerning his prior discussions and
contacts with Syratech. Following such reports, the Special Committee, in
executive session, unanimously concluded that it would seek to negotiate the
terms of the proposed transaction with Syratech. On November 17, 1995, a
representative of the Special Committee met with Syratech to seek to negotiate
terms of the proposed transaction.
On November 22, the Special Committee again met to make a determination
concerning Syratech's proposal. At that meeting, the Special Committee was
briefed concerning the negotiations of November 17 and thereafter, including the
agreement by Syratech to reduce the size of the break-up fee payable to Syratech
by the Company under certain circumstances (from $2.5 million plus expenses to
$2.4 million including expenses). Also at that meeting, the Special Committee
received the report of Wasserstein Perella in which Wasserstein Perella
indicated that it had concluded its analysis and had determined, subject to its
review of the final form of agreement with Syratech, that the Merger
Consideration offered by Syratech in the proposed transaction was fair for the
shareholders of Rauch from a financial point of view. Wasserstein Perella also
indicated that it was prepared, subject to review of the agreement, to deliver a
written opinion to such effect. Following this report, the Special Committee
unanimously adopted a resolution approving the sale of the Company to Syratech
and recommending such transaction to the full Board.
Immediately following such November 22 meeting of the Special
Committee, the full Board convened a meeting to receive the report of the
Special Committee concerning the transaction and to consider full Board action
in that regard. Before taking such action, however, the Board was informed by
Syratech that certain "due diligence" issues relating to Syratech's review of
environmental information provided by Rauch had arisen that required the
parties' attention. As a result, the Board determined to recess the meeting to a
later date pending further discussions with Syratech.
On December 7, 1995, having been informed by Syratech that Syratech had
completed, and was satisfied with, its own review of environmental conditions
and was prepared to proceed with the transaction as originally negotiated as of
November 22, the Special Committee and the full Board reconvened. At its
meeting, the Special Committee received an updated report and an updated oral
opinion by Wasserstein Perella (confirmed by written opinion received later that
day) that the Merger Consideration was fair to the shareholders of
12
<PAGE>
Rauch from a financial point of view. Having also been informed by counsel that
the form of merger agreement had been negotiated and was prepared for signature,
the Special Committee then also ratified and confirmed its November 22
resolutions approving the proposed transaction. The Board then, likewise, upon
receipt of the report of the Special Committee, unanimously adopted a resolution
approving the transaction with Syratech and recommending such transaction to the
Company's shareholders.
Thereafter, and based on the foregoing, on December 7, 1995, the
parties executed and delivered the Merger Agreement and issued a joint press
release announcing the proposed transaction.
Approval by the Special Committee and Board of Directors
The Special Committee and the Board of Directors of Rauch have
concluded that the Merger is in the best interest of the shareholders of Rauch
and each has unanimously approved the Plan of Merger and the Merger Agreement.
In making their determinations with respect to the Plan of Merger, the
Special Committee and the Board of Directors each considered the following
factors: (i) information relating to the business, assets, management,
competitive position and prospects of Rauch, (ii) the financial condition, cash
flows and results of operations of Rauch, both on an historical and on a
prospective basis, (iii) historical market prices and trading information with
respect to the Common Stock, (iv) the relatively small "public float" and the
low trading volume of the Common Stock, (v) the fact that the Merger
Consideration for the Common Stock represents a substantial premium of
approximately 35% over the closing sale price for the Common Stock on December
6, 1995 (the last trading day prior to the announcement of the Merger), (vi) the
fact that the terms of the Merger Agreement were negotiated on an arm'slength
basis, (vii) Company management's evaluation of claims under the Company's
insurance policy with regard to the destruction of its Cramerton, North Carolina
facility and management's estimates of the proceeds payable thereunder, and
(viii) the opinion, analyses and presentations of Wasserstein Perella described
under "-- Opinion of Financial Advisor" below. In connection with the foregoing,
the Special Committee and the Board considered the fact that the Company had not
conducted a general solicitation of other potential bidders for the Company, but
concluded, based on the nature of the industry and their knowledge of other
possible strategic bidders, that any such solicitation effort was unlikely to
result in the Company's receiving an offer that was economically superior to
that of Syratech. The Special Committee and the Board also considered the
Board's ability under the Merger Agreement, in the exercise of its fiduciary
duties, to provide information concerning the Company in response to unsolicited
inquiries or proposals by Third Parties (defined below), to consider competing
bids made by Third Parties, and to terminate the Merger Agreement if, prior to
the effective time of the Merger, the Company receives, or there shall be
publicly announced, an offer or proposal by a person or entity other than
Syratech or SYR (each, a "Third Party"; and collectively, "Third Parties") to
acquire the Company or its assets on terms that are stated or expected to yield
to the shareholders of the Company value in excess of $13.00 per share
13
<PAGE>
(subject to payment by the Company to Syratech of liquidated damages of $2.4
million, under certain circumstances, in the event that a transaction with such
Third Party (or affiliate thereof) is concluded within twelve months of the
making of such offer).
The foregoing factors were noted and discussed by individual directors
during the course of the Board's deliberations. However, neither the Special
Committee nor Board attached any relative weight to the various factors
considered in reaching their decision, and the Special Committee and Board did
not articulate how each factor specifically supported their ultimate decision.
Taking all of the foregoing factors as a whole, the Special Committee and Board
concluded that Syratech's offer represented the highest currently available
price for the Company (and the highest price likely to become available in the
near future), that it was a fair price and represented a substantial premium
over prices likely to be available in the public market for the foreseeable
future, and that the Merger was more attractive to Rauch's shareholders than
continuation of the Company as an independent publicly owned entity.
The Rauch Board, therefore, unanimously approved the Plan of Merger and
the Merger Agreement and the transactions contemplated thereby.
Opinion of Financial Advisor
Wasserstein Perella was retained by the Special Committee to render an
opinion as to the fairness from a financial point of view of the consideration
to be received by the shareholders of the Company (the "Shareholders") in the
Merger. In connection with the preparation of its opinion, Wasserstein Perella
was not authorized to solicit, nor did it solicit, third party indications of
interest for the acquisition of all or any part of the Company. No other
limitations were imposed by the Special Committee or the Company upon the scope
of Wasserstein Perella's investigation or otherwise with respect to Wasserstein
Perella's engagement.
On December 7, 1995, Wasserstein Perella rendered to the Special
Committee its oral opinion, which was confirmed by a written opinion dated
December 7, 1995, to the effect that, as of such date, the Merger Consideration
is fair to such Shareholders from a financial point of view. A copy of the
opinion of Wasserstein Perella, which sets forth the assumptions made, matters
considered, and scope and limits on the review undertaken, is attached as
Exhibit C to this Proxy Statement and is incorporated herein by reference. The
summary of Wasserstein Perella's opinion set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of such opinion. Holders
of the Common Stock are urged to read the opinion in its entirety. Except for
the Wasserstein Perella opinion, the Company, the management of the Company, and
the Special Committee have neither solicited nor received from any outside party
any report, opinion, or appraisal that is materially related to the proposed
Merger.
Wasserstein Perella's opinion is directed only to the fairness from a
financial point of view of the Merger Consideration to be received by the
Shareholders and does not address the
14
<PAGE>
Special Committee's underlying business decision to recommend the transaction.
Nor does the opinion constitute a recommendation to the Special Committee or to
any Shareholder with respect to the approval of the transaction. Although
Wasserstein Perella evaluated the fairness from a financial point of view of the
Merger Consideration, Wasserstein Perella was not asked to recommend, and did
not recommend, the specific consideration payable in connection therewith.
In arriving at its opinion, Wasserstein Perella (i) reviewed certain
publicly available business and financial information relating to the Company
for recent years and interim periods to date, (ii) reviewed the Merger
Agreement, (iii) reviewed certain internal financial and operating information,
including the financial forecasts and projections described below, provided to
it by the Company, (iv) met with management of the Company to review and discuss
such information and the Company's business, operations, assets, financial
condition and future prospects, (v) considered certain financial and stock
market data of the Company, and compared that data with similar data for certain
other companies, the securities of which are publicly traded, which it deemed
similar or comparable to the Company, (vi) considered the financial terms of
certain recent acquisition or business combination transactions in certain
industries it deemed relevant and (vii) performed such other studies, analyses,
inquiries and investigations as it considered appropriate.
The management of the Company prepared certain projections of the
Company's sales, gross margins and operating expenses for the years 1995 through
2000. The projections, which reflected management's best good faith estimate of
the Company's performance over such time period, were then furnished by the
management of the Company to Wasserstein Perella for use in its analyses. The
Company does not as a matter of course publicly disclose internal budgets,
plans, projections or forecasts as to future revenues, earnings or other
financial information. The projections (i) were not prepared with a view to
compliance with standards established by the American Institute of Certified
Public Accountants, (ii) are not intended to be presented in a manner consistent
with financial statements prepared in accordance with generally accepted
accounting principles and (iii) have not been audited, compiled or otherwise
examined by the Company's independent accountants. Because the assumptions used
in the projections are inherently subject to uncertainty, there will be
differences between actual and projected results and such differences may be
material. Accordingly, the projections are not necessarily indicative of current
values or future performance and neither the Company nor Wasserstein Perella
assumes any responsibility for the accuracy of such projections.
In its review and analysis and in formulating its opinion, Wasserstein
Perella assumed and relied upon the accuracy and completeness of all the
financial and other information provided to it (including, without limitation,
information from the management of the Company regarding the financial
projections and information from the management of the Company and its counsel
regarding the receipt and use by the Company of insurance proceeds from the fire
at the Company's Cramerton facility) or publicly available. Wasserstein Perella
did not assume any responsibility for independently verifying any of such
information. In
15
<PAGE>
addition, Wasserstein Perella did not assume any responsibility for conducting a
physical inspection of the properties or facilities of the Company or for making
or obtaining an independent valuation or appraisal of the assets or liabilities
of the Company.
During the course of its evaluation, Wasserstein Perella performed a
variety of financial and comparative analyses, including those described below.
The summary of Wasserstein Perella's analyses set forth below does not purport
to be a complete description of the analyses underlying Wasserstein Perella's
opinion. The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary description. In arriving at its opinion, Wasserstein Perella did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Wasserstein Perella believes that its analyses
must be considered as a whole and that selecting portions of its analyses and of
the factors considered by it, without considering all analyses and factors,
could create a misleading or incomplete view of the processes underlying such
analyses and its opinion. Further, Wasserstein Perella's opinion is necessarily
based on economic and market conditions and other circumstances as they existed
and could be evaluated by Wasserstein Perella as of the date such opinion was
rendered. With respect to the comparable publicly traded company analysis and
comparable acquisition analysis summarized below, no public company or
acquisition utilized as a comparison is identical to the Company or the proposed
Merger, respectively, and such analyses necessarily involve complex
considerations and judgments concerning the differences in financial and
operating characteristics of the companies and other factors that could affect
the acquisition or the values of the Company or Common Stock. In its analyses,
Wasserstein Perella made numerous assumptions with respect to the general
business, economic, market and financial conditions, and other matters,
including, among others, the amount of insurance proceeds, if any, to be
received by the Company in connection with the fire at its Cramerton facility,
many of which are beyond the control of the Company. Any estimates contained in
such analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable than
those suggested by such analyses. Accordingly, because such estimates are
inherently subject to uncertainty, none of the Company, Wasserstein Perella, or
any other person assumes responsibility for their accuracy.
The following is a summary of certain analyses performed by Wasserstein
Perella in connection with the oral opinion, subsequently confirmed in writing,
that Wasserstein Perella presented to the Special Committee at the meeting held
on December 7, 1995.
Valuation of the Company. In arriving at its opinion as to the fairness
of the Merger Consideration to the Shareholders, Wasserstein Perella performed
(i) discounted cash flow analyses, (ii) a comparable publicly traded company
analysis and (iii) a comparable acquisition analysis. In performing the
foregoing analyses, Wasserstein Perella relied upon certain estimates provided
to it by the Company with respect to (i) the net insurance proceeds to the
Company, if any, as a result of the fire at the Company's Cramerton facility and
(ii) projected gross margins for the Company's Rauch division during the years
1995 through
16
<PAGE>
2000. Using the Company's estimates of the foregoing factors, Wasserstein
Perella developed four scenarios under which it determined the Company's
aggregate imputed equity value range. Each of the first two scenarios (the "Base
Insurance Case" and the "Upside Insurance Case") is premised upon an assumption
regarding the amount of the insurance proceeds from the fire at the Cramerton
facility and the amount of the Company's total capital expenditures to
reconstruct the facility. The assumptions upon which the Base Insurance Case and
the Upside Insurance Case are premised reflect the best good faith estimates of
the management of the Company of the likely settlement of the insurance claim
and were provided by the Company to Wasserstein Perella specifically for use in
connection with its engagement by the Special Committee. Wasserstein Perella
then applied two different sets of margin assumptions to each of the Base
Insurance Case and the Upside Insurance Case. These margin assumptions reflected
the gross margins at the Company's Rauch division being: (i) 22.0% in 1995,
22.5% in 1996, 23.5% in 1997, 24.5% in 1998, 25.5% in 1999 and 25.5% in 2000
(the "Base Margin Case") and (ii) 28.3% during the years 1995 through 2000 (the
"Upside Margin Case"). In performing its discounted cash flow analyses,
Wasserstein Perella utilized the projections reflected in each of the following
four separate scenarios: (i) the Base Margin Case and the Upside Insurance Case,
(ii) the Base Margin Case and the Base Insurance Case, (iii) the Upside Margin
Case and the Upside Insurance Case and (iv) the Upside Margin Case and the Base
Insurance Case. However, with respect to the comparable publicly traded company
analysis and the comparable acquisition analysis, Wasserstein Perella utilized
only the projections reflected in (i) the Upside Insurance Case and the Base
Margin Case and (ii) the Base Insurance Case and the Base Margin Case.
Wasserstein Perella utilized only the Base Margin Case in such analyses because
the management of the Company informed Wasserstein Perella that the Base Margin
projections were the most likely margin environment for the Company for the near
future. In each of the comparable publicly traded company analysis and the
comparable acquisition analysis, Wasserstein Perella based values reflecting the
Company's latest twelve month ("LTM") operating and financial results upon the
Company's actual historical operating and financial results supplied to it by
the Company.
Discounted Cash Flow Analysis. Wasserstein Perella performed a
discounted cash flow analysis pursuant to which ranges of equity value for the
Company were estimated by (i) adding (x) the present value of the Company's free
cash flows for the period from fiscal year 1996 to fiscal year 2000 and the
estimated insurance proceeds from the fire at the Cramerton facility, plus (y)
the present value of the Company's fiscal year-end 2000 terminal value to arrive
at in enterprise value for the Company and (ii) subtracting from such an
enterprise value the Company's net debt balance. Wasserstein Perella based its
free cash flow estimates upon the projections that were prepared for and
supplied to Wasserstein Perella by the management of the Company, as described
above. Other key assumptions in Wasserstein Perella's analysis include (i)
discount rates of 10%, 11% and 12% based on a weighted average cost of capital
analysis reflecting several assumptions regarding factors such as the inflation
rate, interest rates, the inherent business risk of the Company and the cost of
capital, (ii) terminal values based on multiples of projected earnings before
interest expense and income tax ("EBIT") for the Company in the year 2000 of
7.0x, 8.0x, 9.0x and 10.0x, (iii) the Company's net debt balance being $21.0
million (the Company's estimated weighted average
17
<PAGE>
net debt balance for fiscal year 1995, which Wasserstein Perella used due to the
highly seasonal nature of the Company's business) and (iv) the number of shares
of Common Stock outstanding being 3,695,563. Based on the foregoing assumptions
and the assumptions reflected in the Base Margin Case and the Upside Insurance
Case, Wasserstein Perella calculated an aggregate imputed equity value range for
the Company under its discounted cash flow analysis of $37.0 million to $51.7
million, or $10.00 per share to $14.00 per share. Using the assumptions
reflected in Base Margin Case and the Base Insurance Case in its discounted cash
flow analysis, Wasserstein Perella calculated an aggregate imputed equity value
range for the Company of $25.9 million to $37.0 million, or $7.00 per share to
$10.00 per share. Based on the assumptions reflected in the Upside Margin Case
and the Upside Insurance Case, Wasserstein Perella calculated an aggregate
imputed equity value range for the Company under its discounted cash flow
analysis of $51.7 million to $62.8 million, or $14.00 per share to $17.00 per
share. Using the assumptions reflected in the Upside Margin Case and the Base
Insurance Case in its discounted cash flow analysis, Wasserstein Perella
calculated an aggregate imputed equity value range for the Company of $40.7
million to $51.7 million, or $11.00 per share to $14.00 per share.
In determining the aggregate imputed equity value range for the Company
using its discounted cash flow analysis (with an exit multiple of fiscal year
2000 EBIT of 9.0x and an 11% discount rate), Wasserstein Perella performed
sensitivity analyses on its results by varying (i) the amount of the insurance
proceeds to the Company between $20.0 million and $40.0 million and (ii) assumed
price increases per year between 0% annually and 8% annually for each of the
four separate margin and insurance proceeds scenarios. Applying the foregoing
parameters, Wasserstein Perella's sensitivity analyses with respect to its
discounted cash flow analyses indicated the following results: (i) with respect
to the Base Margin Case and the Upside Insurance Case, the valuation range was
from $8.59 per share to $20.08 per share; (ii) with respect to the Base Margin
Case and the Base Insurance Case, the valuation range was from $7.69 per share
to $19.17 per share; (iii) with respect to the Upside Margin Case and the Upside
Insurance Case, the valuation range was from $12.93 per share to $26.15 per
share; and (iv) with respect to the Upside Margin Case and the Base Insurance
Case, the valuation range was from $12.02 per share to $25.25 per share.
Analysis of Selected Comparable Publicly Traded Companies. Wasserstein
Perella compared certain historical and projected operating and financial
information for the Company to the corresponding publicly available operating
and financial information for ten publicly traded companies that Wasserstein
Perella considered reasonably comparable to the Company for purposes of its
analysis (the "Comparable Companies"). The Comparable Companies analyzed by
Wasserstein Perella were: American Greetings Corp.; Celebrity, Inc.; CSS
Industries, Inc.; Department 56, Inc.; Empire of Carolina, Inc.; Equity
Marketing Inc.; Lewis Galoob Toys, Inc.; Stanhome Inc.; Syratech Corporation;
and Tyco Toys, Inc. With respect to each of the Comparable Companies,
Wasserstein Perella analyzed, among other things, the market value of the equity
of the Comparable Company and its enterprise value (the market value of its
equity plus the book value of its net debt), and certain historical and
forecasted operating and financial data for such Comparable Company, including:
(i) LTM net income,
18
<PAGE>
(ii) book value, (iii) LTM sales, (iv) LTM earnings before interest expense,
income tax depreciation and amortization ("EBITDA"), (v) LTM EBIT, (vi) next
fiscal year estimated ("NFY") net income, (vii) NFY book value (in selected
cases), (viii) NFY sales, (ix) NFY EBITDA and (x) NFY EBIT. Wasserstein Perella
also analyzed for each of the Comparable Companies (i) certain book and market
ratios (including debt as a percentage of equity (D/E) and debt as a percentage
of equity plus debt (D/(D+E)), (ii) LTM EBITDA as a multiple of LTM interest
expense, (iii) LTM EBIT as a multiple of LTM interest expense, (iv) free cash
flow as a multiple of LTM interest expense, (v) LTM return on assets and (vi)
LTM return on equity. NFY results for the Comparable Companies were used when
available and were based on recent equity analyst reports. From the financial
data set forth in clauses (i) through (x) and clauses (i) through (vi) above,
Wasserstein Perella derived multiples or percentages, as applicable, with
respect to the Comparable Companies and applied a range of such multiples or
percentages to the Company's historical operating results and financial data and
to the Company's NFY results and data under each of the Upside Insurance Case
and the Base Insurance Case. Based on the comparable publicly traded company
analysis of the Company's LTM results and NFY results under the Upside Insurance
Case, Wasserstein Perella indicated an aggregate imputed equity value range of
$29.6 million to $44.3 million, or $8.00 per share to $12.00 per share. Based on
this analysis of the Company's LTM results and NFY results under the Base
Insurance Case, Wasserstein Perella indicated an aggregate imputed equity value
range of $22.2 million to $33.3 million, or $6.00 per share to $9.00 per share.
Analysis of Selected Comparable Acquisitions. Wasserstein Perella also
reviewed the publicly available financial terms of the following acquisition
transactions in relevant industries (the "Acquisition Comparables"): the
acquisition of Cleo Inc. by CSS Industries, Inc.; the acquisition of Decorel
Inc. by Newell Co.; the acquisition of Decor Concepts, Inc. by Rubbermaid
Incorporated; the acquisitions of Illustrative Concepts Inc. and Topstone
Industries Inc. by CSS Industries, Inc.; the acquisition of Buddy L Inc. by
Empire of Carolina, Inc.; the acquisition of Marchor Inc. by Empire of Carolina,
Inc.; the acquisition of Faber-Castell Corp. by Newell Co.; the acquisition of
Aldik Artificial Flower Co. Inc. by Celebrity, Inc.; the acquisition of Cluett
Corporation by Celebrity, Inc.; the acquisition of Newell Co. by Lee-Rowan Co.;
the acquisition of Goody Products, Inc. by Newell Co.; the acquisition of The
Paper Factory of Wisconsin, Inc. by Gibson Greetings, Inc.; and the acquisition
of Berwick Industries, Inc. by CSS Industries, Inc. Wasserstein Perella analyzed
the purchase price (when available) attributable to the equity interest of the
target company paid in each transaction as a multiple of book value and LTM net
income. Wasserstein Perella also analyzed the aggregate purchase price (as
adjusted to include the target company's debt, if any) (when available) paid in
each transaction as a multiple of LTM sales, LTM EBITDA and LTM EBIT.
Wasserstein Perella then calculated the aggregate imputed equity value range for
the Company by applying (i) a range of multiples for the Acquisition Comparables
of LTM sales, LTM EBITIDA and LTM EBIT to the Company's LTM and NFY results with
respect to sales, EBITDA and EBIT and (ii) a range of multiples of book value
and LTM net income for the Acquisition Comparables to the Company's current and
NFY book value and LTM and NFY results with respect to net income. Wasserstein
Perella
19
<PAGE>
performed the foregoing calculations twice, once based upon the Company's LTM
results and NFY results of operations assuming the Upside Insurance Case and the
other based upon the Company's LTM results and NFY results of operations under
the Base Insurance Case. Based on the comparable acquisition analysis of the
Company's LTM results and NFY results under the Upside Insurance Case,
Wasserstein Perella indicated an aggregate imputed equity value range of $37.0
million to $51.7 million, or $10.00 per share to $14.00 per share. Based on this
analysis of the Company's LTM results and NFY results under the Base Insurance
Case, Wasserstein Perella indicated an aggregate imputed equity value range of
$29.6 million to $40.7 million, or $8.00 per share to $11.00 per share. Due to
the limited availability of data deemed by Wasserstein Perella to be comparable
to the results of operations of the Company or to the proposed Merger,
Wasserstein Perella gave little weight to the comparable acquisition analysis in
its overall valuation of the Company.
Following its presentation to the Special Committee of the results of
the foregoing analyses, Wasserstein Perella indicated an overall aggregate
imputed equity value reference range for the Company, based upon its discounted
cash flow analysis, comparable publicly traded company analysis and comparable
acquisition analysis, of approximately $35.1 million to $51.7 million, or $9.50
per share to $14.00 per share.
Between the time of the November 22, 1995 meeting of the Special
Committee and the December 7, 1995 meeting at which it rendered its oral opinion
to the Special Committee, Wasserstein Perella reviewed with management of the
Company the Company's recent and current financial condition, operating
information and future prospects and any further information regarding the
Company that it deemed relevant to its valuation analyses.
Based upon the results of the valuation methodologies presented by
Wasserstein Perella at the November 22, 1995 meeting of the Special Committee,
as described above, and the assumptions of Wasserstein Perella with respect to
general business and economic conditions and other matters, including
Wasserstein Perella's subjective judgment, Wasserstein Perella determined that,
as of the date of its opinion, the Merger Consideration to be received by the
Shareholders pursuant to the Merger is fair from a financial point of view to
the Shareholders.
Pursuant to the terms of Wasserstein Perella's engagement, the Company
has paid Wasserstein Perella for its services in connection with the Merger an
aggregate financial advisory fee of $200,000. The Company also has agreed to
reimburse Wasserstein Perella for travel and other out-of-pocket expenses
incurred by Wasserstein Perella in performing its services, including fees and
expense of its legal counsel, and to indemnify Wasserstein Perella and related
persons against certain liabilities, including liabilities under the federal
securities laws, arising out of Wasserstein Perella's engagement.
Wasserstein Perella has advised the Company that, in the ordinary
course of business, it may actively trade the debt and equity securities of the
Company for its own account and for the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
20
<PAGE>
Wasserstein Perella is an internationally recognized investment banking
firm and was selected by the Company based on Wasserstein Perella's experience
and expertise. As part of its business, Wasserstein Perella regularly engages in
the valuation of businesses and their securities in connection with mergers and
acquisitions and valuations for corporate and other purposes.
EFFECTS OF THE MERGER
After consummation of the Merger, Syratech will own indirectly 100% of
the outstanding capital stock of Rauch and will be entitled to all the benefits
that result from such ownership. Such benefits include complete management and
investment discretion with regard to the future conduct of Rauch's business and
the benefit of all profits generated by the operations of Rauch and any increase
in the value of Rauch. Similarly, Syratech's ownership of the capital stock of
Rauch after the Merger will mean that Syratech will bear the risk of any
decrease in the value of Rauch. The present holders of Common Stock will no
longer have any equity interest in Rauch, will not share in the future earnings
and growth of Rauch, the risks associated with achieving such earnings and
growth, or the potential to realize greater value for the Common Stock through
divestitures, strategic acquisitions or other corporate opportunities that may
be pursued by the Company in the future. Moreover, they will no longer have any
rights to vote on corporate matters. At the Effective Time, each share of Common
Stock held by such persons will be converted into the right to receive the
Merger Consideration in cash, which will be paid promptly after delivery of
certificates for such shares and other required documents. See "The Merger
Agreement -- Payment for Shares, Etc." In lieu of the right to receive the
Merger Consideration, such persons may exercise the dissenters' rights described
under "Rights of Dissenting Shareholders."
After the Merger is consummated, shares of Common Stock will no longer
be traded on the American Stock Exchange, registration of Common Stock under the
Exchange Act will terminate, and Rauch will cease filing periodic reports with
the SEC. Following the Merger, Rauch will no longer be subject to the proxy
rules of the Exchange Act and Rauch's directors and officers will no longer be
subject to certain filing requirements and the short-swing profit recovery
provisions of the Exchange Act. The Company's outstanding stock options and
stock appreciation rights will be cancelled immediately prior to consummation of
the Merger.
The Articles of Incorporation (and also the bylaws, subject to certain
changes required by the Merger Agreement) of SYR in effect immediately prior to
the Effective Time shall be the Articles of Incorporation and By-Laws of the
Surviving Corporation until thereafter amended in accordance with the provisions
thereof and the NCBCA. The directors of SYR immediately prior to the Effective
Time shall be the directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and By-Laws of the Surviving
Corporation, and the officers of the Company immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, in each case until
their respective successors are duly elected and qualified. See Exhibit D.
21
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
At the Effective Time, each share of Common Stock, other than those
shares owned by any dissenting shareholders, will be converted into the right to
receive the Merger Consideration in cash. As of January 15, 1996, officers and
directors of Rauch beneficially owned an aggregate of 1,560,553 shares of Common
Stock which, if the Merger is consummated, will be converted into the right to
receive the Merger Consideration, or an aggregate of $20,287,189 in cash. As of
January 15, 1996, officers and directors also held options to purchase an
aggregate of 158,000 shares of Common Stock and stock appreciation rights in
respect of 22,500 shares of common stock. In connection with the Merger, these
options and stock appreciation rights will be cancelled, and each holder thereof
will receive cash for each share subject to an option or stock appreciation
right in an amount equal to the excess of the Merger Consideration over the
exercise or strike price per share. As a result, such officers and directors
will receive an aggregate of $962,845 upon cancellation of such options and
stock appreciation rights. See "Common Stock Owned by Officers, Directors and
Certain Shareholders of Rauch."
Mr. Marshall A. Rauch, chairman of the Company, and the Company's other
executive officers (other than Ingrid Rauch Sturm) will continue as officers of
Rauch following the Merger. Moreover, it is a condition to the obligation of
Syratech and SYR that on or before the consummation of the Merger, the Company
shall have entered into employment and noncompetition agreements with Marc F.
Rauch, Marshall A. Rauch, Peter D. Rauch and Donald G. Walser. Each of the
agreements is to have a term of three years and is to provide for an annual base
salary of $300,000, except that the agreement with Mr. Walser is to provide for
an annual base salary of $220,000. Each of such persons will be subject to a
post-employment covenant not to compete of three years' duration. In the case of
Marc F. Rauch, Peter D. Rauch and Donald G. Walser, the obligations under their
covenants not to compete will be conditioned upon their receipt at or promptly
after the Effective Time of options to purchase shares of common stock of
Syratech at prices equal to the fair market value of such stock on the effective
date of the Merger. Marc F. Rauch and Peter D. Rauch are each to receive an
option to purchase 50,000 such shares, and Mr. Walser is to receive an option to
purchase 20,000 such shares. No options will be granted to Marshall A. Rauch.
Under its bylaws, Rauch's current officers, directors, employees and
agents will be indemnified by Rauch following consummation of the Merger against
certain liabilities, including certain liabilities, if they should arise, in
connection with the Merger. In the Merger Agreement, Syratech agreed to cause
Rauch to maintain such indemnification obligations with respect to events
occurring prior to the Merger for a period of three years after the Merger. The
Merger Agreement also provides, in general, that the Company shall maintain
directors' and officers' liability insurance with respect to actions prior to
the Merger for a period of three years after the Effective Time of the Merger.
Marshall A. Rauch has been asked to serve on the Board of Directors of
Syratech which will be the indirect sole shareholder of Rauch following the
Merger.
22
<PAGE>
ACCOUNTING TREATMENT
For accounting purposes, the Merger shall be treated as a purchase by
Syratech of all of the outstanding Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL
INFORMATION ONLY. EACH SHAREHOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE MERGER TO HIM, INCLUDING CONSEQUENCES UNDER
APPLICABLE STATE, LOCAL AND OTHER TAX LAWS. THE COMPANY HAS NOT SOUGHT AN
OPINION OF COUNSEL WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER.
The following description of the federal income tax consequences of the
Merger is included solely for the general information of shareholders.
Shareholders of Rauch
Generally, the exchange of shares of Common Stock for cash pursuant to
the Merger or the exercise of dissenters' rights will constitute a taxable sale
of stock by Rauch shareholders. Consequently, each such shareholder will
generally recognize gain or loss equal to the difference between the amount of
cash so received and his tax basis in the shares exchanged for cash. If the
exchanged shares are capital assets in the hands of a shareholder, such
shareholder will recognize a capital gain or loss. Such capital gain or loss
will be long-term with respect to shares held for more than one year at the time
of consummation of the Merger and short-term with respect to shares held for one
year or less.
Holders of Options and Stock Appreciation Rights
Each holder of an option granted under any of the Company's stock
option plans that is cancelled in the Merger will recognize ordinary income to
the extent that the amount of cash received upon cancellation of such holders'
option(s) exceeds his tax basis in the option(s). Each holder of a SAR (as
defined below) granted by the Company which is cancelled in the Merger will
recognize ordinary income to the extent that the amount of cash received upon
cancellation of such holder's SAR exceeds the strike price of such SAR.
Rauch
The Merger of SYR into Rauch should not result in the recognition of
any gain or loss by Rauch.
23
<PAGE>
FINANCING THE MERGER
The total amount of funds required to pay the Merger Consideration to
holders of Common Stock and to pay related fees and expenses in connection with
the Merger is approximately $51.3 million. The consummation of the Merger by
Syratech is not conditioned upon Syratech obtaining financing for any amount
payable to holders of Common Stock pursuant to the Merger Agreement. The
consideration payable pursuant to the Merger Agreement will come from cash and
cash equivalents of Syratech.
THE MERGER AGREEMENT
General
Rauch, Syratech and Mergersub have entered into the Merger Agreement,
which provides that, subject to compliance with certain covenants and
conditions, Mergersub will be merged with and into Rauch, which will be the
Surviving Corporation. All references in this Proxy Statement to the terms and
conditions in the Merger Agreement are qualified in their entirety by reference
to the Merger Agreement, a copy of which is attached hereto as Exhibit A.
At the Effective Time, the holders of outstanding shares of Common
Stock, except shares held by any dissenting shareholders, will be entitled to
receive the Merger Consideration in cash, without interest, for each share of
Common Stock held by them, and each outstanding share of common stock of SYR
will be converted into one share of Common Stock of the Surviving Corporation.
Also, prior to the Effective Time, Rauch will make all necessary and
appropriate adjustments to, and shall use its best efforts to obtain all
necessary consents such that at the Effective Time all outstanding options to
purchase Common Stock granted pursuant to all of Rauch's stock option plans and
all outstanding stock appreciation rights (each, a "SAR") will be fully vested
and cancelled and holders of such options and SAR's will receive a cash payment
equal to the excess of the Merger Consideration over (a) the exercise price per
share of such option or (b) the strike price per share of each SAR. As of
December 7, 1995, there were options outstanding to purchase an aggregate of
172,750 shares of Common Stock and there were outstanding SAR's with respect to
22,500 shares.
Shareholders who have not voted to approve the Plan of Merger and who
otherwise comply with the provisions of the NCBCA regarding dissenters' rights
have the right to payment of the fair value of their shares of Common Stock,
with no rights as shareholders in the Surviving Corporation. See "Rights of
Dissenting Shareholders." After the Merger, holders of Common Stock who become
entitled to receive cash will possess no interest in, or rights as shareholders
of, the Surviving Corporation. See "Effects of the Merger."
24
<PAGE>
Effective Time
The Effective Time will be as of the time and date of the filing of the
Articles of Merger with the Secretary of State in accordance with the NCBCA. It
is presently anticipated that the Articles of Merger will be filed with the
Secretary of State of North Carolina and that the Merger will become effective
as soon as practicable after the Plan of Merger is approved by the shareholders
at the Special Meeting and after the conditions to the consummation of the
Merger have been satisfied or duly waived.
Payment for Shares
The Merger Agreement provides that, as of the Effective Time, each
outstanding share of Common Stock (other than shares held by any dissenting
shareholders) will be converted into a right to receive the Merger Consideration
in cash. The Merger Agreement provides that, at the closing, Syratech will
deposit in trust with Wachovia Bank of North Carolina, N.A., as Exchange Agent
(the "Exchange Agent"), an unconditional irrevocable Letter of Credit drawn on
NationsBank, N.A. (South) in favor of the Exchange Agent, as beneficiary,
pursuant to which the Exchange Agent will have the right to draw on demand, as
needed, an aggregate amount equal to the product of (a) the number of shares of
Common Stock issued and outstanding at the Effective Time (other than shares
held by any dissenting shareholders) and (b) the Merger Consideration. Promptly
after the Effective Time, the Exchange Agent shall mail to each shareholder of
record as of the Effective Time a form of letter of transmittal, together with
instructions for use in effecting the surrender of the certificates for Common
Stock and other documentation to the Exchange Agent. The Exchange Agent will
promptly send or deliver to each holder of Common Stock as soon as practicable
after receipt of the stock certificate or certificates and properly completed
transmittal documentation, a check equal to the Merger Consideration multiplied
by the number of shares surrendered by such shareholder, after giving effect to
any required tax withholdings. No interest will be paid or accrued on the
amounts payable upon the surrender of stock certificates. No drawings on the
Letter of Credit will be permitted after one hundred and eighty three (183) days
following the Effective Time of the Merger, and shareholders shall thereafter
look to the Surviving Corporation for payment of the Merger Consideration,
without any interest thereon.
Conditions to the Merger
The respective obligations of Rauch, Syratech and Mergersub to
consummate the Merger are subject to the fulfillment of certain conditions
including, among others, the following: (i) the performance in all material
respects of all agreements made by the other parties to the Merger Agreement;
(ii) the absence of any order or injunction of a court of competent jurisdiction
precluding the consummation of the transactions contemplated by the Merger
Agreement; (iii) the representations and warranties made by the other parties in
the Merger Agreement being true and correct except as otherwise contemplated or
permitted by the Merger Agreement and except for any matters which, in the
aggregate, do not have a material adverse effect (as provided in the Merger
Agreement); (iv) Wasserstein Perella shall
25
<PAGE>
not have withdrawn or modified its opinion that the Merger Consideration is fair
to the Shareholders from a financial point of view; (v) the Shareholders of
Rauch shall have approved the Merger in accordance with applicable laws; (vi)
holders of no more than 250,000 shares of Common Stock shall have elected to
exercise rights of dissenting shareholders and not have voted for approval of
the Plan of Merger; and (vii) the expiration or termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act").
The obligations of Syratech and Mergersub are also subject to Rauch
entering into employment and non-competition agreements with Marc F. Rauch,
Marshall A. Rauch, Peter D. Rauch and Donald G. Walser.
Other than compliance with the federal securities laws and filings
under the HSR Act, no federal or state regulatory requirements must be complied
with or approval obtained in connection with the Merger. See "The Merger
Agreement -- Conditions to the Merger."
Required notifications under the HSR Act were made on December 13,
1995. On December 26, 1995, the FTC notified Rauch and Syratech that the waiting
period required by the HSR Act had been terminated.
Covenants and Additional Agreements
Operational Covenants. In the Merger Agreement, Rauch has agreed, among
other things, that prior to the Effective Time, Rauch will conduct its
operations according to its ordinary and usual course of business, consistent
with past practice, and Rauch and each of its subsidiaries will use its
reasonable best efforts to preserve intact its business organization, to keep
available the services of its officers and employees and to maintain
satisfactory relationships with licensors, licensees, suppliers, contractors,
distributors, customers and others having a business relationship with it.
Acquisition Proposals. Rauch has agreed in the Merger Agreement that it
will not, and will not permit any of its subsidiaries, or any officers,
directors, employees, agents or representatives of Rauch or any of Rauch's
subsidiaries, directly or indirectly, without the written consent of Syratech,
to (a) initiate contact with, solicit or encourage any inquiries or proposals
by, or (b) enter into any discussions or negotiations or agreements with, or
disclose directly or indirectly any information not customarily disclosed
concerning its business and properties to, or afford any access to its
properties, books and records, except to the extent required by fiduciary
obligations under applicable laws, to any corporation, partnership, person or
other entity or group concerning any transaction involving the sale of Common
Stock or a merger, consolidation, or sale of all or a substantial portion of the
assets of Rauch or any subsidiary of Rauch which is material to Rauch and
Rauch's subsidiaries taken as a whole. Rauch has further agreed that it will
promptly notify Syratech of the terms of any such proposal or contact.
26
<PAGE>
Additional Agreements. Rauch, Syratech and Mergersub have agreed (i) to
make any applicable regulatory filings and, thereafter, any other required
submissions with respect to the Merger and (ii) to use all reasonable efforts to
cooperate with each other, take all action and do all other things necessary,
proper or appropriate under the Merger Agreement and all applicable laws and
regulations to consummate and make effective the transactions contemplated by
the Merger Agreement.
Indemnification
Under the Rauch bylaws, Rauch's current officers, directors, employees
and agents will be indemnified by Rauch, following consummation of the Merger
against certain liabilities, including certain liabilities, if they should
arise, in connection with the Merger. In the Merger Agreement, Syratech agreed
to cause Rauch to maintain such indemnification obligations with respect to
events occurring prior to the Merger for a period of three years after the
Merger. The Merger Agreement also provides, in general, that the Company shall
maintain directors' and officers' liability insurance with respect to actions
prior to the Merger for a period of three years after the Effective Time.
Termination
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time: (i) by the mutual written consent of Syratech,
Mergersub and Rauch, or (ii) by Syratech or Rauch if (a) the Merger is not
consummated before February 15, 1996 (extended by the parties to February 22,
1996) (unless the failure to consummate the Merger by such date is due to a
breach or violation of the Merger Agreement by the party seeking to terminate),
(b) there shall be a final and non-appealable order, judgment, decree or
injunction prohibiting the consummation of the transactions contemplated by the
Merger Agreement, or (c) there has been a material breach of the Merger
Agreement by either Syratech or Mergersub, on the one hand, or Rauch, on the
other (subject to certain notice and cure rights in respect of such breach), or
(d) if Rauch receives, or there shall have been a publicly announced offer or
proposal by a person other than Syratech or SYR to acquire Rauch or its assets
on terms that are stated or expected to yield to the holders of Common Stock
value in excess of $13.00 per share and the Board of Directors of Rauch (A)
decides either to accept or to recommend to the holders of Common Stock that
they accept such Economically Superior Offer, or (B) as a consequence of the
actual or anticipated receipt of such Economically Superior Offer shall cease to
recommend to the holders of Common Stock that they approve the Plan of Merger.
See "The Merger Agreement -- Termination" and Exhibit A.
Expenses
The Merger Agreement provides that in the event the Merger is not
consummated due to the failure by any party, despite its good faith efforts, to
satisfy all conditions to close, then all expenses (including, without
limitation, reasonable legal fees and expenses, investment
27
<PAGE>
banking fees and fees and expenses of accountants) incurred by them in
connection with the transactions contemplated by the Merger Agreement (the
"Expenses") will be borne by the party incurring such Expenses. In the event the
Merger is not consummated after receipt by the Company from, or public
announcement by, an Affected Offeror (as defined below) and/or one or more
affiliates of an Affected Offeror of an Economically Superior Offer pertaining
to an acquisition of the Company or a substantial portion of the assets of the
Company, and control of the Company or a substantial portion of its assets is
transferred to such Affected Offeror and/or one or more affiliates of such
Affected Offeror within twelve months of the making of such offer, Syratech
shall be entitled to receive payment from the Company of liquidated damages in
the amount of $2.4 million. The term "Affected Offeror" means any person or
entity with whom or with which, directly or through representatives, the Company
shall, on or after December 7, 1995 and prior to February 15, 1996, have had
contacts, discussions or negotiations (or to whom or to which the Company shall
during such period have provided information) looking toward the possible
acquisition of the Company (by merger or otherwise) or a substantial portion of
its assets, whether such contacts, discussions or negotiations took place (or
such information was provided) in violation of, or as contemplated by, the
Merger Agreement, or otherwise.
The Company has also agreed to pay the first $100,000 of fees and
disbursements invoiced by the environmental consultant retained to perform
environmental due diligence on behalf of Syratech and SYR. Any fees and
disbursements of such consultant in excess of $100,000 are to be shared equally
by the Company and Syratech.
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders of Rauch who (i) hold shares of Common Stock on the date
of making demand and continuously hold such shares through the Effective Time,
and (ii) follow the procedures specified in Article 13 of the NCBCA ("Article
13") (such shareholder referred to herein as a "Dissenting Shareholder") will be
entitled to receive payment of the "fair value" of their shares of Common Stock,
as estimated by Rauch, plus interest accrued to the date of payment. If a
Dissenting Shareholder is not satisfied with the offer made by Rauch and no
agreement as to the "fair value" of the Common Stock can be reached, the
Dissenting Shareholder may petition a North Carolina court to determine the fair
value of such shares. The procedures set forth in Article 13 should be strictly
complied with. Failure to follow any of such procedures may result in a
termination or waiver of appraisal rights under Article 13.
THE FOLLOWING DISCUSSION OF THE PROVISIONS OF ARTICLE 13 IS NOT
INTENDED TO BE A COMPLETE STATEMENT OF ITS PROVISIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT SECTION, A COPY OF WHICH IS
ATTACHED AS EXHIBIT B HERETO.
Under Section 21 of Article 13, a shareholder of Rauch electing to
exercise dissenters' rights must both:
28
<PAGE>
(1) prior to the vote on the proposal relating to the Plan of
Merger give Rauch, and Rauch must actually receive, notice of intent to
demand payment for his shares if the proposal relating to the Plan of
Merger is adopted (the "Written Notice"). The Written Notice should be
delivered either in person to the Corporate Secretary of Rauch or by
mail (certified mail, return receipt requested, being the recommended
form of transmittal) to the Corporate Secretary, at Rauch, Post Office
Box 609, Gastonia, North Carolina 28053-0609, and
(2) not vote in favor of the proposal relating to the Plan
of Merger.
The Written Notice must be made by or for the holder of record of
Common Stock registered in his name. Accordingly, the Written Notice should be
executed by or for such shareholder of record, fully and correctly, as such
shareholder's name appears on his stock certificates. If the stock is owned of
record in a fiduciary capacity, such as by a trustee, guardian or custodian,
execution of the Written Notice should be made in such capacity, and if the
stock is owned of record by more than one person as in a joint tenancy or
tenancy in common, such demand should be executed by or for all joint owners. An
authorized agent, including one of two or more joint owners, may execute the
Written Notice for a shareholder of record. However, the agent must identify the
record owner or owners and expressly disclose the fact that in executing the
demand he is acting as agent for the record owner. A beneficial owner of Common
Stock may submit a Written Notice exercising dissenters' rights as to shares
held in his behalf if he dissents with respect to all shares of which he is the
beneficial owner and he submits to Rauch the record shareholders' written
consent to the dissent no later than the time the beneficial owner submits his
Written Notice.
Within ten days after the approval of the Plan of Merger, Rauch must
send, by registered or certified mail, return receipt requested, a written
dissenters' notice (the "Dissenters' Notice") to all holders of Common Stock who
submit a Written Notice and do not vote in favor of the Plan of Merger at the
Special Meeting. The Dissenters' Notice will state where a demand for payment
must be sent, supply a form for demanding payment, state where and when
certificates of Common Stock should be deposited, set a date by which Rauch must
receive the payment demand (which date may not be fewer than thirty nor more
than sixty days after the date the Dissenters' Notice is mailed), and be
accompanied by a copy of Article 13.
Upon the earlier of the approval of the Plan of Merger or the
Dissenting Shareholder's compliance with the Dissenters' Notice, Rauch will
offer to pay (the "Offer of Payment") to each Dissenting Shareholder who
complied with the Dissenters' Notice an amount estimated by Rauch to be the fair
value of the shares held by such Dissenting Shareholder, plus interest accrued
to the date of payment. The Offer of Payment will be accompanied by Rauch's
Balance Sheet as of December 31, 1994, Rauch's Statements of Income and Cash
Flows for the year ended December 31, 1994, financial statements for the quarter
ended September 30, 1995, a statement of Rauch's estimate of the fair value of
the Common Stock held by such Dissenting Shareholder, an explanation of how the
interest was calculated, a
29
<PAGE>
statement of the Dissenting Shareholder's right to make a Payment Demand (as
defined and described below) and a copy of Article 13. Rauch will pay such
offered amount to any Dissenting Shareholder who agrees in writing to accept
such payment in full satisfaction of his demand.
A Dissenting Shareholder who believes that the amount offered by Rauch
for the Common Stock is less than the fair value of such shares or that the
interest is incorrectly calculated or, if Rauch fails to make payment to a
Dissenting Shareholder who accepted the Offer of Payment, such Dissenting
Shareholder may reject the Offer of Payment and notify Rauch in writing of his
own estimate of the fair value of the Common Stock plus the interest due, and
demand payment of his estimate (a "Payment Demand"). A Dissenting Shareholder
waives his right to payment under Article 13 and resumes his status as a
nondissenting shareholder unless such Dissenting Shareholder notifies Rauch of a
Payment Demand within thirty days after the Offer of Payment or within thirty
days after Rauch fails to make a payment after the Offer of Payment was
accepted.
If a Dissenting Shareholder notifies Rauch of his Payment Demand and
Rauch and the Dissenting Shareholder are unable to agree on the fair value of
the Common Stock, the Dissenting Shareholder may petition a court and commence a
proceeding to determine the fair value of the Common Stock and accrued interest
(a "Valuation Proceeding"). Once Rauch is served with a petition relating to a
Valuation Proceeding, Rauch must pay the Dissenting Shareholder the amount of
the Offer of Payment. If the Dissenting Shareholder does not commence a
Valuation Proceeding within sixty days of the Payment Demand, such Dissenting
Shareholder has an additional thirty days to accept in writing Rauch's Offer of
Payment or withdraw the Written Notice and resume the status of a nondissenting
shareholder. A Dissenting Shareholder who takes no action within such thirty day
period shall be deemed to have withdrawn the Written Notice and demand for
payment and resumed the status of a nondissenting shareholder.
If a Valuation Proceeding is commenced, the court has the discretion to
make all Dissenting Shareholders whose demands remain unsettled parties to the
Valuation Proceeding. The court may appoint one or more persons as appraisers to
receive evidence and recommend a decision on the question of fair value.
The court, in a Valuation Proceeding, shall determine all costs of the
proceeding, including reasonable compensation and expenses of appraisers
appointed by the court and shall assess the costs as it finds equitable. If the
court finds that services of counsel for a Dissenting Shareholder were of a
substantial benefit to other similarly situated Dissenting Shareholders, the
court may, in its discretion, order that all or a portion of the attorneys' fees
be paid out of the amounts awarded to the Dissenting Shareholders who were
benefited.
Although Rauch believes that the Merger Consideration to be paid in the
Merger is fair, it cannot make any representation as to the outcome of the
appraisal of fair value as
30
<PAGE>
determined by a court of North Carolina, and shareholders should recognize that
such an appraisal could result in a determination of a lower, higher or
equivalent value.
Any shareholder of Rauch who has duly demanded an appraisal in
compliance with Article 13 will not, after the Effective Time, be entitled to
vote his shares for any purpose nor be entitled to the payment of any dividends
or other distributions on his shares (other than those payable to shareholders
of record as of a date prior to the Effective Time).
MARKET PRICE AND DIVIDENDS
The Common Stock trades on the American Stock Exchange under the symbol
"RCH." The Common Stock has been traded on the American Stock Exchange since
1993. The following table sets forth the high and low closing sale prices for
the periods indicated as reported by the American Stock Exchange.
1995 High Low
---- ---- ---
First Quarter 9-1/2 8-1/2
Second Quarter 9-3/16 8-1/2
Third Quarter 10-1/8 9-1/16
Fourth Quarter 12-3/4 9-11/16
1994 High Low
---- ---- ---
First Quarter 10-1/8 8-5/8
Second Quarter 9-7/8 8-5/8
Third Quarter 10-1/4 8-7/8
Fourth Quarter 10 8-1/2
1993 High Low
---- ---- ---
First Quarter 8-3/8 6-7/8
Second Quarter 11-3/8 6-7/8
Third Quarter 11-1/8 10-1/8
Fourth Quarter 10-3/4 9-5/8
On November 3, 1995, the Board of Directors approved a dividend of $.02
per share of Common Stock to be paid on December 15, 1995 to shareholders of
record on December 1, 1995. Dividends of $.08, $.06 and $.04 per share were paid
to shareholders in the years 1994, 1993 and 1992 respectively. No cash dividends
were paid in calendar years 1990 and 1991.
As of January 16, 1996, there were approximately 943 participants
in security position listings, as defined in Rule 17Ad-8 under the Exchange
Act, for Common Stock. As of January 16, 1996, the Company had approximately 256
shareholders of record of the Common Stock.
31
<PAGE>
On December 6, 1995, the last business day prior to the public
announcement of the Merger, the closing sale price per share of Common Stock as
reported on the American Stock Exchange was $9.63. As of January 25, 1996, the
most recent date for which a price is available, the closing sale price per
share of Common Stock as reported on the American Stock Exchange was $12.63.
Shareholders of Rauch are urged to obtain current market quotations for the
Common Stock.
32
<PAGE>
SELECTED FINANCIAL DATA
(in thousands except per share amounts)
The summary financial data for the five years ended December 31, 1994
is prepared from the audited financial statements of the Company. The data for
the nine months ended September 30, 1994 and 1995 is prepared from the unaudited
financial statements which, in the opinion of management, reflect all
adjustments necessary to fairly present the financial position and results of
operations for the respective periods. The summary financial data should be read
in conjunction with the consolidated financial statements and notes thereto set
forth elsewhere herein.
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31 Ended September 30
1994 1993 1992 1991 1990 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $45,035,247 $44,693,521 $40,704,059 $37,801,677 $37,117,511 $32,840,034 $26,382,385
Cost of sales 35,749,187 32,547,864 29,288,999 26,287,155 26,163,672 25,104,916 19,604,602
Selling, general and
administrative expenses 8,788,100 7,719,675 6,754,338 6,833,125 6,388,124 6,965,286 5,268,271
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income 497,960 4,425,982 4,660,722 4,681,397 4,565,715 769,832 1,509,512
Interest expense (787,821) (309,331) (354,998) (476,180) (830,807) (785,473) (334,481)
Other income 77,596 724,702 111,687 154,203 142,191 107,163 58,568
Gain from insurance
settlement -- -- -- -- -- 6,274,730 --
Income (loss) ________ _________ ________ ________ ________ ________
-------------
before income taxes (212,265) 4,841,353 4,417,411 4,359,420 3,877,099 6,366,252 1,233,599
Provision (benefit)
for income taxes (161,500) 1,715,000 1,571,000 1,573,000 1,368,000 2,282,057 437,849
----------- ---------- ---------- ---------- ---------- ---------- ---------
Net income (loss)
before cumulative effect
of accounting change (50,765) 3,126,353 2,846,411 2,786,420 2,509,099 4,084,195 795,750
Cumulative effect
of accounting change -- 64,310 -- -- -- -- --
------------- ----------- ------------- ------------- ------------- ------------- ---------
Net income (loss) $ (50,765) $ 3,190,663 $ 2,846,411 $ 2,786,420 $ 2,509,099 $ 4,084,195 $ 795,750
============ ============ ============ ============ =========== =========== ==========
Per Share Data:
Net income (loss)
before cumulative effect
of accounting change $ .01) $ .84 $ .77 $ .75 $ .68 $ 1.11 $ .22
Cumulative effect
of accounting change -- .02 -- -- -- -- --
--------------- ------------------------------ -------------- --------------- ------------- -----------
Net income (loss) $ (.01) $ .86 $ .77 $ .75 $ .68 $ 1.11 $ .22
=============== ============== ============== ============= ============= ============ ============
Cash dividends per
common share $ .08 $ .09 $ .06 -- --
============== ============== ==============
Working capital $24,535,415 $23,819,063 $22,499,040 $18,169,699 $16,920,779 32,076,585 25,118,303
Total assets 42,744,327 42,155,300 33,494,078 29,725,897 28,247,879 73,229,299 59,137,591
Long-term debt 4,375,000 1,556,820 1,956,820 601,820 2,721,820 11,600,000 4,500,000
Shareholders' equity 25,936,404 26,270,618 23,314,136 20,615,550 17,829,130 29,798,864 26,856,832
</TABLE>
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
On October 19, 1994, a fire destroyed the Company's 677,000 square-foot
warehousing and manufacturing facility located in Cramerton, North Carolina. The
building warehoused a substantial portion of the Company's finished goods
inventory for the 1994 Christmas season in anticipation of shipment to
customers. The Company had insurance on the building, equipment and raw
materials at replacement value. The finished goods inventory was insured at net
selling price. The Company also carried business interruption insurance. The
Company contends that its insurance coverage limits total recovery in one policy
year to an amount not to exceed approximately $63,015,358. To date, the Company
has received $19.9 million from the insurance carrier and has settled the
inventory and equipment portions of the claims against the insurance carrier.
As of September 30, 1995, the Company's balance sheet reflects an
amount recoverable from the insurance carrier totaling $5,395,894. This amount
represents the net book value of the property destroyed and business
interruption costs incurred relating to the unpaid portions of the Company's
claims. The final resolution of the unpaid portions of the Company's insurance
claim is dependent upon future events, the outcome of which are not fully
determinable at the present time. Accordingly, no additional amount due from the
insurance carrier has been recorded as of September 30, 1995.
The Company has undertaken not to settle or reach any agreement or
understanding to settle any unsettled portions of its claim against its
insurance carrier based on the Cramerton fire, including, specifically but
without limitation, the portion of the claim that is its property damage claim
for the destruction of its 677,000 square foot building and the portion of its
claim based on business interruption, unless (i) the Company shall have received
from its insurance carrier a settlement offer recommended by its independent
insurance adjuster, which the Company wishes to accept, (ii) the Company shall
have given notice to Syratech and SYR of the terms and conditions of the
settlement offer, (iii) five business days shall have elapsed following receipt
of such notice by Syratech and SYR and (iv) neither Syratech nor SYR shall have
objected to acceptance by the Company of such settlement offer.
Although the final outcome of the Company's pending insurance claims
are not yet determinable, management believes that, notwithstanding the
Cramerton fire, the Company is in sound financial condition. Working capital at
September 30, 1995 and at December 31, 1994, 1993, and 1992 was $32.1 million,
$24.5 million, $23.8 million, and $22.5 million, respectively. The Company has
retained the majority of its earnings during the last several years in order to
build inventory early in the year for the shipping season which runs from August
to October. The early build-up of inventory has allowed the Company to keep a
steady work force and better control costs.
34
<PAGE>
Cash and cash equivalents decreased by $8.3 million at year-end 1994 as
compared to year-end 1993. The decrease was due to the decrease in fourth
quarter sales resulting from the fire discussed above. The increase in cash and
cash equivalents from 1992 to 1993 was $2.1 million. This increase was due to a
planned effort on the Company's part not to pay down its short-term line of
credit until after the end of 1993 as a result of the pending acquisition of
Holiday Products, Inc. ("Holiday").
Accounts receivable at year-end 1994 exceeded such receivables at
year-end 1993 by $4.9 million. Holiday receivables at year-end 1994 were $2.0
million and at year-end 1993 were $1.0 million. The balance of the increase at
year end 1994 was due to the fact that certain of the Company's larger customers
did not pay amounts owing on their accounts until after year-end. The increase
at year-end 1993 as compared to year-end 1992 was due to the increase in sales
volume from 1992 to 1993. Accounts receivable were $28.0 million at September
30, 1995 as compared with $24.3 million at September 30, 1994. Rochard, Inc.
("Rochard") receivables at September 30, 1995 were $.6 million. The increase in
nonRochard receivables for the period was due to increased shipments by the
Company for the quarter and for the first nine months of 1995.
Inventories at December 31, 1994 decreased by $2.1 million from the
December 31, 1993 levels. The decrease in inventory in 1994, despite an $800,000
increase in Holiday inventories over this period, was attributable to the
Cramerton fire which occurred on October 19, 1994. Inventories at December 31,
1992 were $11.2 million as compared to $12.2 million at year-end 1993. This
increase was due to the addition of the Holiday inventories of $1.0 million to
the consolidated balance sheet at year-end. Inventories at September 30, 1995
were $28.0 million as compared to $27.6 million at September 30, 1994. This is
an increase of $.4 million. Rochard inventories of $.8 million offset a decline
in parent company inventories attributable to the aforementioned fire and
increased shipments as compared with the prior year.
Net property, plant and equipment increased by $1.2 million at
September 30, 1995 as compared to September 30, 1994. Acquisitions of a
manufacturing and warehouse facility in El Paso, Texas, along with the purchase
of new machinery and data processing equipment offset the $1.1 million in
Cramerton property and equipment that was destroyed in the fire described above.
The Company's investment in property and equipment for 1994 was $3.5
million. Property and equipment with a cost of $2.8 million and a book value of
$1.1 million was removed from these accounts and reflected as an amount
recoverable from the insurance company as a result of the Cramerton fire. The
increase in property and equipment from year-end 1992 to year-end 1993 was $1.2
million. This increase in 1993 is a result of the acquisition of Holiday, which
contributed $.6 million, and the expansion of the corporate offices in Gastonia,
N.C., which contributed another $.6 million. Management believes that the
Company's capital expenditure needs in the near term can be financed internally,
along with available long-term financing from outside sources.
35
<PAGE>
Since the Cramerton fire, the Company has rented a 240,000 square-foot
warehouse in Charlotte, N.C. This warehouse, along with the new 200,000
square-foot warehouse the Company completed in October 1994, provided sufficient
capacity for the 1995 shipping season.
In December 1994, the Company entered into a letter of intent to
acquire F.C. Young & Company, Inc., a privately held manufacturer of tinsel and
garland. Such transaction has been delayed as a result of the Company's entering
into the Merger Agreement and its status is uncertain.
Accounts payable at September 30, 1995 were $5.2 million as compared to
$4.1 million at September 30, 1994. This is an increase of $1.1 million. Rochard
payables at September 30, 1995 were $.3 million.
The outstanding balances of the Company's short-term debt decreased by
$1.1 million at year-end 1994 as compared to year-end 1993, and increased by
$5.4 million from December 31, 1992 to December 31, 1993. The 1992 to 1993
increase is partly attributable to the planned effort on the Company's part not
to pay off its short-term debt until after year-end 1993. This short-term debt
was paid in full within a few days after year-end. The large increase from 1992
to 1993 was also attributable to the Company's using its short-term line of
credit to provide the initial funding for the $1.2 million purchase of Holiday.
The Company remains strong financially. Book value per common share at
September 30, 1995 was $8.06 as compared to $7.27 at September 30, 1994.
The Company derives over 90% of its revenue from the manufacture of
Christmas decorations. Approximately 90% of the Company's shipments occur in the
third and fourth quarters. Because of the seasonal nature of the Company's
business, large amounts of short-term debt are required to finance inventory and
receivables until after year-end. The inventory cycle continues until the
shipping season (August through October). During that period, inventory is
converted into receivables which are collected primarily in December and
January. Short-term debt is then paid off, with the excess cash invested in
certificates of deposit or government instruments.
Total orders received at September 30, 1995 were approximately $58.6
million as compared to $57.2 million at the same time last year. Total orders
received in 1995 were approximately $61.6 million against $60.1 million for
1994. Rochard orders included in the 1995 orders at September 30, 1995 and as of
year end were $3.1 million and $4.5 million, respectively.
Management has made plans to rent space needed by the Company for 1996
with a view to rebuilding as soon as possible. Although cost increases have
resulted from the fire at the Company's Cramerton facility and its efforts to
implement alternative shipping arrangements in response thereto, the fire should
not materially affect the Company's ability to ship merchandise as usual in
1996.
36
<PAGE>
During 1994 the Company increased its long-term debt to $5.0 million.
The proceeds were used to fund its new 200,000 square-foot warehouse referred to
above, a 10,000 squarefoot office addition, and the Holiday acquisition.
On May 31, 1995 the Company signed a new loan agreement (the "Loan
Agreement") with its bank giving it a $40 million revolving line of credit. The
term portion of the facility is in the amount of $12,800,000.
The revolving portion of the Company's Loan Agreement gives the Company
funds on a short-term basis for its normal operations. The term loan was used to
refinance the Company's prior term facility and to provide the Company with
permanent working capital. Those loans account for the difference in the current
notes payable and long-term debt on the balance sheet.
The Loan Agreement prohibits the merger of the Company with any other
entity without the prior consent of the bank. Such consent has been obtained
with respect to the Merger Agreement. The Loan Agreement limits the declaration
and payment of dividends to net income of the preceding year and contains
various operating covenants, the most restrictive being a limitation on leasing
activities. The Loan Agreement also requires the Company to maintain certain
financial covenants and ratios establishing tangible net worth, current ratio,
working capital, total liabilities to tangible net worth, and fixed charge
coverage requirements.
Results of Operations
Three Months Ended September 30, 1995 Compared to Three Months Ended
September 30, 1994.
Net sales for the quarter ended September 30, 1995 were $25,946,994 as
compared to $23,191,623 for the quarter ended September 30, 1994. This is an
increase of $2,755,371 or 12%. As of April 1, 1995, the Company acquired
Rochard. Rauch began reporting the financial condition and results of operations
of Rochard and Rauch on a consolidated basis as of that date. The Company's
third quarter 1995 sales results, therefore, include Rochard's net sales for the
quarter of $1,258,755.
Selling, general and administrative expenses for the quarter were
$3,454,626 as compared to $2,732,707 for the third quarter of 1994. This is an
increase of $721,919 or 26%. Included in selling, general and administrative
expenses for the quarter is $682,126 associated with Rochard's operations.
Interest expense for the quarter was $415,848 as compared to $232,627 for the
comparable quarter of 1994. This is an increase of $183,221 or 79%. Such
increase is a result of increased borrowings for operations and capital
expenditures required due to the Cramerton fire described below and for the
Rochard acquisition.
37
<PAGE>
Other income for the quarter ended September 30, 1995 was $47,522 as
compared to $10,844 for the same quarter of 1994. This income consists primarily
of rental, interest, and commission income.
Net income for the quarter ended September 30, 1995 was $4,081,031, or
$1.10 per share, as compared to $1,958,931, or $.53 per share, for the
corresponding quarter in 1994 as the Company settled with its insurance carrier
on the equipment portion of its claim stemming from the fire at its facility in
Cramerton, North Carolina and reported a gain of $4.36 million on this portion
of the claim. The gain from the insurance settlement more than offset cost
increases from the Cramerton fire as well as increases in payroll and benefits
and other manufacturing costs.
Comparison of 1994, 1993 and 1992.
The Company's net sales for 1994 were $45.0 million compared to $44.7
million in 1993. The slight increase is attributable entirely to sales by the
Company's wholly owned subsidiary Holiday Products, Inc., which was acquired by
the Company as of December 31, 1993. Holiday's sales for 1994 were $6.9 million,
offsetting lost sales incurred by the Company as a result of the fire at its
Cramerton, North Carolina facility discussed above and in Note 2 to the Notes to
Financial Statements set forth elsewhere herein. The Company estimates that it
incurred sales losses during 1994 as a result of such fire (due to the resulting
loss of inventory and shipping capacity and without regard to any recovery of
insurance proceeds) of approximately $10 million. The Company's net sales for
1993 increased $4.0 million or 9.8% over 1992 sales. The increase in sales in
1993 was due to a general increase in all product categories.
The Company's gross profit percentages in 1994, 1993, and 1992 were
20.6%, 27.2%, and 28.0%, respectively. The decrease in the Company's gross
profit percentage over this three year period resulted from a decrease in
selling prices in the Company's promotional lines and an increase in labor and
manufacturing costs. The severity of the decrease in 1994 was attributable to
the fire at the Company's Cramerton, North Carolina facility.
Selling, general and administrative expenses were $8.8 million in 1994,
$7.7 million in 1993 and $6.8 million in 1992. As a percentage of net sales,
these expenses amount to 19.5% in 1994, 17.3% in 1993, and 16.6% in 1992. In all
three years commissions, freight and salaries were the major components of this
expense category, with commissions and freight bearing a direct relationship to
sales.
The Company's LIFO reserve increased by $186,000 in 1994, and decreased
by $110,000 in 1993 and $232,000 in 1992. The increase in 1994 resulted from an
increase in manufacturing costs. The decrease in the LIFO reserve in 1993 and
1992 resulted from lower raw material prices.
38
<PAGE>
INFORMATION CONCERNING RAUCH
Business of Rauch
History
The predecessor of Rauch was organized in 1952 as a partnership named
Pyramid Mills, which was incorporated in 1961 as Pyramid Mills Company, Inc., a
North Carolina corporation. In 1973, Pyramid Dye Corporation, a dyer for Pyramid
Mills products, merged into Pyramid Mills Company, Inc. and the surviving
corporation changed its name to Rauch Industries, Inc. On December 31, 1993,
Rauch (through a wholly owned subsidiary) completed its acquisition of
substantially all of the net assets of Holiday located in Coventry, Rhode
Island. Rauch's executive offices and a portion of its manufacturing facilities
are located on a 20-acre site at 6048 South York Road, Gastonia, North Carolina
28053. Rauch operates a manufacturing facility on a 14-acre site at 1008 E.
Ozark Avenue, Gastonia, North Carolina 28053. Rauch also had a manufacturing
facility located on a 34-acre site about eleven miles from its South York Road
property in Cramerton, North Carolina. On October 19, 1994, this facility was
destroyed by a fire. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for more information. In addition, Rauch
leases a portion of a manufacturing facility (previously operated by Holiday) in
West Warwick, Rhode Island and owns a 125,000 square foot facility in El Paso,
Texas.
General
Rauch is the oldest producer of glass and satin Christmas tree
ornaments in the United States. Its principal business is the design,
manufacture and wholesale distribution of Christmas decorations, primarily glass
and satin Christmas tree ornaments and aerosols, as well as imports. It is
common practice in the Christmas decorations industry to refer to any decorated
ornaments molded from expandable polystyrene, i.e., any unbreakable ornaments,
as "satin" or as "satin and glitter" ornaments. The word "satin" is used to
refer to acetate or polyester yarn which, when wound on an ornament, has a
"satin" appearance. Beginning in 1994, Rauch designed, manufactured and
distributed to wholesalers the Christmas stocking, Christmas tree skirt and
Santa Claus hat product lines previously carried by Holiday.
Rauch's products are retailed throughout the United States in chain,
department, drug, variety, food and specialty stores. The sale of these
Christmas decorations accounted for approximately 95% of its net sales in 1994.
Rauch distributes its products nationwide, through displays in showrooms and
sales offices in seventeen major cities: New York, Chicago, Dallas, Minneapolis,
Denver, St. Louis, Portland, San Francisco, Los Angeles, Seattle, Atlanta,
Columbus, Greensboro, Kansas City, Miami, Bedford, Mass., and Fairfax, Va., and
in Europe. Most are sold under Rauch's Pyramid, Victoria, Magic and Holiday
labels through twenty-three groups of manufacturers' representatives. A portion
of Rauch's sales is made directly by the Company, some under private labels.
39
<PAGE>
Christmas Industry
The Christmas decorations segment of the Christmas industry is the only
material industry segment in which Rauch operates.
Patents and Trademarks
Rauch has four registered trademarks. Some of its designs are
copyrighted in the United States and under the International Copyright
Convention and the Inter-American Copyright Union. Rauch believes its operations
are not dependent upon any single patent, patent application, patent license,
trademark or copyright.
Customers
In its Christmas decorations lines, Rauch sells to approximately 4,100
customers. For the fiscal year ended December 31, 1994 Wal-Mart accounted for
16.8% of Rauch's net sales, and Target Stores (Dayton Hudson Corporation)
accounted for 15.6% of Rauch's net sales. No other customer accounted for as
much as 10% of Rauch's net sales. The largest fifteen customers accounted for
approximately 55% of 1994 net sales. None of these fifteen accounts is related
to or affiliated with Rauch or, to the knowledge of Rauch, with each other.
Although there is no certainty in this regard, Rauch expects each of Wal-Mart
and Target to account for more than 10% of Rauch's net sales in 1995 and 1996.
Raw Materials
To produce Christmas decorations, Rauch purchases four basic raw
materials -- (i) expandable polystyrene ("EPS") for unbreakable ornaments, (ii)
glass ornament blanks, and (iii) acetate or polyester yarn materials including
boxes and packaging. To produce Christmas stockings, tree skirts, Santa Claus
hats and suits, Holiday purchases non-woven and knitted pile fabric. Rauch has
not experienced difficulty in obtaining raw materials or other supplies from its
suppliers and does not anticipate any such difficulty in the foreseeable future.
Osram Sylvania supplied 100% of Rauch's glass needs in 1995, and Rauch expects
Osram Sylvania to continue to supply a large portion of its glass needs in the
foreseeable future. Rauch imports ornament hangers, small glass and satin balls,
assorted tree and off-the-tree decorations from Taiwan, Hong Kong, Mexico and
Colombia. Total imports accounted for approximately 4.7% of 1994 net sales.
Manufacturing
Production of decorations is partially automated. Glass ornament blanks
are processed on Rauch's automated equipment which mirror-surfaces (or
"silvers") the inside of the ornaments, dips them in paint, bakes the paint or
finish and cuts the tops. Each glass ornament is then capped. Unbreakable
ornaments are molded from EPS into various shapes. Once molded and sanded, most
unbreakable EPS ornaments are tightly wound with acetate thread on Rauch's
automated equipment to give the ornament a "satin" look.
40
<PAGE>
At this stage, many plain glass ornaments and satin unbreakable
ornaments are packaged and sold without further processing. Some, however, are
decorated on Rauch's semi-automatic equipment with glitter, ink, PVC bands
("picture balls") or offset printing.
Rauch manufactures its line of the stockings, tree skirts and Santa
hats and suits by cutting non-woven and knitted pile fabric into the necessary
patterns on cutting tables. This material is then sewn by automated sewing
machines and further decorated.
Prior to the fire at its Cramerton, North Carolina facility, the
Company also manufactured garland and icicle products for sale to retailers.
Equipment used in the production process for these lines was destroyed in the
fire, and the Company has elected to date not to continue such lines.
Production is continuous throughout the year, increasing substantially
in the third and fourth quarters. Rauch's facilities and equipment are utilized
twelve months a year, and certain departments operate on a three-shift basis at
various times of the year. Rauch believes it has excess capacity in both plant
facilities and equipment.
New Product Lines
Rauch did not introduce any new product lines in 1995 other than
Rochard's porcelain glassware and china lines.
Seasonal Character of Business
The seasonal nature of the Christmas industry significantly affects the
timing of orders, manufacturing, shipping, collection of accounts receivable and
management of Rauch's working capital.
Although manufacturing continues throughout the year, there is normally
an interval of nine to twelve months between planning, design and manufacturing
and the time of shipping. This interval requires Rauch to carry large
inventories. Booking of orders typically begins in February of each year and the
majority of orders are usually booked by the end of July. Customers are invoiced
and sales are recorded on Rauch's books when shipments are made. A substantial
majority of shipments are concentrated in the latter half of each calendar year.
For example, 1994 net sales by quarter were as follows:
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
$233,138 $2,957,624 $23,191,623 $18,652,862
Because of the pronounced seasonality of Rauch's sales, Rauch normally
experiences an operating loss during the first two quarters of each fiscal year.
41
<PAGE>
Rauch's year-round operations require a continuous supply of working
capital, but competition in the Christmas industry dictates the granting of
extended invoice terms. Rauch's invoice payment terms generally are from six
months to nine months after shipment. Most accounts receivable are collected
during a two-month period from the beginning of each December through January of
the following year. To accommodate the resulting irregular flow of cash
receipts, Rauch has relied on short-term borrowings.
Rauch's experience with collection of its accounts receivable has
varied significantly in recent years (net write-offs (recoveries) for 1994,
1993, 1992, 1991 and 1990), were $341,740, 47,116, (13,890), $297,823, and
$387,874 respectively). Accounts receivable are partially insured as added
protection against credit risks incurred because of extended invoice terms.
Because of the seasonality of Rauch's business described above, the
backlog of unfilled orders at December 31, 1995 is not material.
Employees
At December 31, 1995, the Company employed approximately 750 full-time
persons. At its facilities near Gastonia, North Carolina, the Company employs
between 400 and 800 employees throughout the year. Prior to the fire at its
Cramerton, North Carolina facility, the Company employed between 225 and 400
employees at that location throughout the year. Following the fire, all
Cramerton employees were offered positions at the Company's Gastonia locations.
The Company also employs between 60 and 150 employees at its El Paso, Texas
facilities and between 10 and 20 employees at its West Warwick, Rhode Island
facility. Peak employment occurs in late summer and fall when some departments
operate three-shifts. Most production employees are compensated on piece rate
and incentive pay scales. No labor unions represent employees of the Company,
and the Company believes its relationship with its employees is good. It should
be noted, however, that the Company has recently been the subject of efforts by
UNITE (the "Union") to organize the Company's employees. A scheduled Union
election was postponed because the Union filed unfair labor practice charges
against the Company with the National Labor Relations Board. These charges
relate to allegations of threats and promises by Company officials and the
termination of certain employees. A trial relating to such charges is currently
scheduled for April. The Company believes the charges are without merit and,
unless there is an early resolution, intends to defend them vigorously.
Competition
The Christmas decorations industry is highly competitive in terms of
quality (including style and design), price and service (principally delivery).
Foreign imports provide another source of competition, but the Company is unable
to determine the volume of these imports with any degree of accuracy. The
Company believes imports have heretofore been competitive only in the limited
market for higher priced decorated Christmas tree ornaments, and not in the
broad satin, glass, and aerosols market where the cost of freight, tariffs and
duties has made it difficult for imports to compete with prices of domestic
goods. Should foreign currencies be devalued, or should the exchange rates of
foreign currencies against the dollar decline, the competitive advantage over
foreign competition could be lost.
42
<PAGE>
Property
The Company owns 450,000 square feet of manufacturing, warehousing and
office area in Gastonia, North Carolina. Of this space, 199,800 square feet are
contained in modern, one-story brick and block buildings which are heated and
air conditioned where appropriate, with full sprinkler coverage. A 300,000
gallon water tank is located on the property. In October 1994, the Company
completed a new 200,000 square-foot warehouse facility located in Gastonia,
North Carolina. Also, until October 1994, the Company owned and operated a
677,000 square foot facility in Cramerton, North Carolina used for storage and
manufacturing.
On October 19, 1994, a fire destroyed the Company's Cramerton facility
along with the equipment and substantial finished goods inventory housed
therein. The Company had insurance on the building, equipment and raw materials
at replacement value (along with coverage for finished goods and business
interruption), subject to coverage limits in any one policy year of
approximately $63 million. The Company currently plans to rebuild the Cramerton
facility at its original location.
Since the Cramerton fire, the Company has rented a 240,000 square-foot
warehouse in Charlotte, North Carolina. This warehouse, along with the new
Gastonia warehouse completed by the Company in October 1994 provided sufficient
capacity for the 1995 shipping season.
The Company also leases 107,000 square feet of manufacturing,
warehousing, and office area in El Paso, Texas and 10,000 square feet of
manufacturing and office space in West Warwick, Rhode Island and owns a 125,000
square foot facility in El Paso, Texas.
All manufacturing operations are currently conducted at the plants in
Gastonia, and at the El Paso and West Warwick facilities. The Company owns all
major equipment utilized in its business. The Company believes its facilities
and equipment, as currently in operation, are well maintained, in good operating
condition and adequate for its present level of operations.
Legal Proceedings
As of December 10, 1995, there were no material legal proceedings
against or involving the Company.
43
<PAGE>
COMMON STOCK OWNED BY
OFFICERS, DIRECTORS AND CERTAIN SHAREHOLDERS OF RAUCH
The following table sets forth certain information as of January 15,
1996, with respect to Common Stock regarding: (i) each person who, to the best
of Rauch's knowledge, is the beneficial owner of more than five percent (5%) of
the Common Stock, and (ii) shares of Common Stock beneficially owned by each
director and named executive officer of Rauch:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT & NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) (5) PERCENT
------------------- ---------------------------- -------
<S> <C> <C>
Charles S. Meyer 10,000 (2)
3 First National Plaza
Chicago, IL 60602
Dr. Stella Nkomo ----- ----
6008 Bismark Place
Charlotte, NC 28211
Marc F. Rauch(4) 414,000(3) 11.2%
P. O. Box 609
Gastonia, NC 28053
Marshall A. Rauch(4) 437,757(3) 11.8%
P. O. Box 609
Gastonia, NC 28053
Peter D. Rauch(4) 373,496(3) 10.1%
P. O. Box 609
Gastonia, NC 28053
Roger S. Silverstein 11,500 (2)
500 W. Overland Street
El Paso, Texas 79901
Ingrid Rauch Sturm (4) 426,753(3) 11.5%
P. O. Box 609
Gastonia, NC 28053
Donald G. Walser 28,333(6) (2)
P. O. Box 609
Gastonia, NC 28053
Charles E. Ziegler, Sr. 2,745 (2)
P. O. Box 1398
Gastonia, NC 28053
Directors & Officers 1,718,553(3) 46.5%
as a Group (12 persons)
44
<PAGE>
T. Rowe Price Associates, Inc. (7) 219,253 5.9%
100 East Pratt Street
Baltimore, MD 21202
Harris Associates Investment Trust (8) 225,525 6.1%
Series Designated The Oakmark Fund
Two North LaSalle Street, #500
Chicago, IL 60602
Quest Advisory Corp. (9) 221,350 6.0%
Quest Management Company
Charles M. Royce
1414 Avenue of the Americas
New York, NY 10019
Stephanie Rauch (4) 448,641 12.1%
P.O. Box 609
Gastonia, N.C. 28053
</TABLE>
(1) The nature of beneficial ownership is direct unless otherwise indicated
by footnote. Beneficial ownership as shown in the table arises from
sole voting power and sole investment power unless otherwise indicated
by footnote.
(2) Less than 1% of the total outstanding Common Stock.
(3) Includes shares held in Rauch's ESOP plan.
(4) Marshall A. Rauch is the father of Marc F. Rauch, Peter D. Rauch,
Ingrid Rauch Sturm and Stephanie Rauch.
(5) Includes options to purchase 7,750, 105,250, 7,750, 11,500, 7,750,
7,750 and 155,500 shares of Common Stock that have been granted
pursuant to the Company's 1989 Stock Option Plan to Marc F. Rauch,
Marshall A. Rauch, Peter D. Rauch, Roger S. Silverstein, Ingrid Rauch
Sturm, Donald G. Walser and all directors and officers as a group
respectively, whether or not currently exercisable.
(6) Excludes stock appreciation rights granted with respect to 22,500
shares of Common Stock
(7) According to a Schedule 13-G filed with the Company on or about
February 16, 1995, these securities are owned by various individual and
institutional investors including T. Rowe Price Small Cap Value Fund,
Inc. (which owns 219,253 shares, representing 5.9% of shares
outstanding), for which T. Rowe Price Associates, Inc. ("Price
Associates") serves as investment advisor with power to direct
investments and/or vote the securities. Although for purposes of the
reporting requirements of the Exchange Act, and regulations thereunder,
Price Associates is deemed to be a beneficial owner of such securities,
Price Associates expressly disclaims that it is, in fact, the
beneficial owner of such securities.
(8) According to a Schedule 13-G filed with the Company on or about
February 14, 1994, Harris Associates Investment Trust, Series
Designated The Oakmont Fund, ("Harris Associates"), holds shares of the
Company's Common Stock as indicated above. A Schedule 13-G was not
filed by Harris Associates for the 1994 calendar year.
(9) According to a joint Schedule 13-G filed with the Company on or about
January 30, 1995, Quest Advisory Corp. ("Quest") and Quest Management
Company ("QMC") hold shares of the Company's Common Stock as indicated
above. Mr. Charles M. Royce, who is also a party to such Schedule 13-G
filing, may be deemed to be a controlling person of Quest and QMC and,
as such, may be deemed to beneficially own the shares of Common Stock
beneficially owned by Quest and QMC. Mr. Royce does not own any shares
of Common Stock outside of Quest and QMC and disclaims beneficial
ownership of the shares held by Quest and QMC.
The transactions contemplated by the Merger Agreement and described in this
Proxy Statement will, when and if consummated, result in a change of control of
Rauch. See "Effects of the Merger," and "The Merger Agreement."
45
<PAGE>
DIRECTORS AND OFFICERS OF THE COMPANY
AND THE SURVIVING CORPORATION
The present executive officers and directors of the Company and the
proposed directors of the Surviving Corporation (i.e. Rauch) are listed on
Exhibit D. The present executive officers of the Company will continue as
executive officers of the Surviving Corporation.
INFORMATION CONCERNING SYRATECH AND SYR
Syratech was incorporated under the laws of the State of Delaware on April
1, 1986. Its common stock is traded on the New York Stock Exchange. Syratech
designs, manufactures, imports and distributes a wide variety of tabletop and
giftware products, including sterling silver, silverplated and stainless steel
flatware; sterling silver, silverplated and brass holloware as well as seasonal
merchandise. Flatware consists of knives, forks, spoons, serving pieces and
similar utensils. The holloware and giftware items sold by Syratech include
trays, casseroles, coffee and tea services, goblets, pitchers, candlesticks and
candelabra, picture frames, cosmetic accessories, vanity pieces, Christmas and
other seasonal merchandise. Syratech sells its tabletop and giftware products
under numerous tradenames, including such well established names as WALLACE
SILVERSMITH(R), INTERNATIONAL(R), TOWLE(R), TUTTLE(R), 1847 ROGERS BROS.(R), WM.
ROGERS & SON(R), LEONARD(R), SUPREME CUTLERY(R), WESTMORELAND(R), MELANNCO(R),
and INTERNATIONAL CHRISTMAS(R). Syratech sells a diverse range of products
through similar channels of distribution, including exclusive retail specialty
stores, jewelry stores, department stores, home centers, catalogue showrooms,
mass merchants, and warehouse clubs. Syratech also sells to premium and
incentive markets, drug stores, supermarket chains and mail order companies.
SYR was incorporated under the laws of the State of North Carolina on
November 3, 1995 for the sole purpose of entering into the Merger Agreement and
merging into the Company. It has not transacted any other business. It is an
indirect wholly-owned subsidiary of Syratech.
The executive office of both Syratech and SYR is located at 175 McClellan
Highway, East Boston, MA 02128-9114; telephone (617) 561-2200.
OTHER MATTERS
Management does not intend to present any other matters at the meeting and
is not aware that other matters will be presented by any other person. If other
matters should come before the meeting, action will be taken with respect
thereto in accordance with the best judgment of the proxy holders, and
discretionary authority to do so is included in the proxy.
46
<PAGE>
PROPOSALS BY SECURITY HOLDERS INTENDED
TO BE PRESENTED AT THE 1996 ANNUAL MEETING OF SHAREHOLDERS
December 4, 1995 was the date by which proper proposals of eligible
security holders intended to be presented at the 1996 annual meeting of
shareholders were required to be received by the Company at its executive
offices for inclusion in the Company's proxy statement and form of proxy
relating to such meeting. If the Plan of Merger is not approved or the Merger
Agreement is otherwise terminated or abandoned, the 1996 annual meeting of
shareholders may be postponed in which event a new date for submission of such
proposals will be set and announced.
ADDITIONAL INFORMATION
Rauch is subject to the informational requirements of the Exchange Act and
in accordance therewith files reports, proxy statements and other documents and
information with the SEC. Rauch's officers, directors and principal shareholders
are also presently subject to filing requirements, as well as certain trading
restrictions, imposed under the Exchange Act. Such reports, proxy statements and
other documents and information are available for inspection and copying at the
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of such material may be
obtained at prescribed rates from the SEC Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549.
Marshall A. Rauch
Chairman
47
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Consolidated Statements of Operations for F-1
the Three Years Ended December 31, 1994
Consolidated Balance Sheets at F-2
December 31, 1994 and 1993
Consolidated Statements of Shareholders' F-4
Equity for the Three Years Ended
December 31, 1994
Consolidated Statements of Cash Flows F-5
for the Three Years Ended
December 31, 1994
Notes to Audited Consolidated Financial Statements F-6
Statement of Management Responsibility F-13
Report of Independent Public Accountants F-14
Consolidated Statements of Income for the Three F-15 Months Ended
September 30, 1995 and 1994 and for the Nine Months Ended September 30,
1995 and 1994 (unaudited)
Consolidated Balance Sheets at September 30, 1995 (unaudited) F-16
and December 31, 1994
Consolidated Statements of Cash Flows for the F-18 Three Months Ended
September 30, 1995 and 1994 and for the Nine Months Ended September 30,
1995 and 1994 (unaudited)
Notes to Unaudited Consolidated Financial Statements F-19
</TABLE>
48
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net Sales $45,035,247 $44,693,521 $40,704,059
----------- ----------- -----------
Cost of sales 35,749,187 32,547,864 29,288,999
Selling, general and administrative expenses 8,788,100 7,719,675 6,754,338
----------- ----------- -----------
44,537,287 40,267,539 36,043,337
Operating income 497,960 4,425,982 4,660,722
Interest expense (787,821) (309,331) (354,998)
Other income (including interest) 77,596 724,702 111,687
----------- ----------- ----------
Income (loss) before income taxes (212,265) 4,841,353 4,417,411
----------- ----------- ----------
Provision (benefit) for income taxes:
Current 16,500 1,722,000 1,680,000
Deferred (178,000) (7,000) (109,000)
---------- ------------- ------------
(161,500) 1,715,000 1,571,000
---------- ----------- -----------
Net income (loss) before
cumulative effect of accounting change (50,765) 3,126,353 2,846,411
Cumulative effect of accounting change --- 64,310 ---
------------- ------------- -----------
Net income (loss) $ (50,765) $ 3,190,663 $ 2,846,411
============ ============ ============
Net income (loss) before cumulative effect of
of accounting change $ (.01) $ .84 $ .77
Cumulative effect of accounting change _________ .02 __________
--------------
Net income (loss) per common share $ (.01) $ .86 $ .77
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F - 1
<PAGE>
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,695,120 $10,034,577
Accounts receivable (net of allowance for uncollectible
accounts of $235,000 and $205,000) 20,167,583 15,272,655
Recoverable from insurance carrier (Note 2) 3,552,095
Inventories 10,104,166 12,229,825
Deferred income taxes 474,000 268,000
Prepaid taxes and other 788,374 182,868
------------ ------------
Total current assets 36,781,338 37,987,925
----------- -----------
Property and equipment, at cost:
Land and improvements 309,939 310,366
Buildings 4,309,644 3,292,949
Machinery and equipment 7,861,461 8,048,148
Construction in progress 469,383 592,185
----------- ------------
12,950,427 12,243,648
Less accumulated depreciation 7,314,260 8,451,072
----------- ------------
5,636,167 3,792,576
Other assets 326,822 374,799
------------ ------------
Total assets $42,744,327 $42,155,300
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F - 2
<PAGE>
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 661,820 $ 400,000
Notes payable, bank 9,405,000 10,500,000
Accounts payable, trade 1,344,626 1,490,536
Accrued liabilities 834,477 1,023,872
Accrued income taxes 754,454
--------------- ------------
Total current liabilities 12,245,923 14,168,862
------------ -----------
Long-term debt 4,375,000 1,556,820
------------ ------------
Deferred income taxes 187,000 159,000
------------- ------------
Shareholders' equity:
Common stock, $1.00 par value; authorized,
10,000,000 shares; issued 3,754,423 shares 3,754,490 3,754,490
Additional paid-in capital 3,151,572 3,151,572
Retained earnings 19,146,377 19,480,591
------------ ------------
26,052,439 26,386,653
Less treasury common stock at cost, 58,860 shares 116,035 116,035
------------ -------------
Total shareholders' equity 25,936,404 26,270,618
----------- ------------
Total liabilities and shareholders' equity $42,744,327 $42,155,300
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F - 3
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
Additional
Preferred Common Paid In Retained Treasury
Stock Stock Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1992 $188,800 $3,754,490 $3,151,572 $13,806,643 $(285,955) $20,615,550
Net income for the year 2,846,411 2,846,411
Dividends paid ($.06 per share) ______ ________ ________ (147,825) _______ (147,825)
----------- -----------
Balances, December 31, 1992 188,800 3,754,490 3,151,572 16,505,229 (285,955) 23,314,136
Net income for the year 3,190,663 3,190,663
Dividends paid ($.09 per share) (234,181) (234,181)
Retirement of preferred
treasury stock 188,800 ________ ________ 18,880 169,920 _________
------- ----------- ---------
Balances, December 31, 1993 3,754,490 3,151,572 19,480,591 (116,035) 26,270,618
Net loss for the year (50,765) (50,765)
Dividends paid ($.08 per share) ______ ________ ________ (283,449) ________ (283,449)
----------- -----------
Balances, December 31, 1994 $ -- $3,754,490 $3,151,572 $19,146,377 $(116,035) $25,936,404
========= ========= ========= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F - 4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (50,765) $3,190,663 $2,846,411
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 519,866 482,081 697,291
Gain on sale of equipment (5,790)
Cumulative effect of accounting change (64,310)
Deferred income taxes (178,000) (7,000) (109,000)
Recoverable from insurance carrier (2,425,934)
Changes in operating assets and liabilities:
Accounts receivable (4,894,928) (3,668,115) 320,618
Inventories 2,125,659 441,614 (3,772,678)
Prepaid expenses (605,506) 148,859 (51,960)
Accounts payable (145,910) 30,020 518,280
Accrued liabilities (189,395) 214,729 (347,140)
Accrued income taxes (754,454) 147,846 (80,660)
Other assets 47,977 (258,447) (85,368)
----------- --------- ------------
Net cash provided by (used in) operating activities (6,551,390) 657,940 (69,996)
----------- --------- ------------
Cash flows from investing activities:
Proceeds from sale of equipment 35,150
Purchase of property and equipment (3,489,618) (636,634) (265,643)
Acquisition of new business, net of cash acquired (1,226,508)
Loans to affiliate (4,616,994)
Repayment of loans by affiliate _________ 3,226,870 __________
-----------
Net cash used in investing activities (3,489,618) (3,253,266) (230,493)
----------- ----------- -------------
Cash flows from financing activities:
Dividends paid (283,449) (234,181) (147,825)
Payments on long-term debt (480,000) (400,000) (465,000)
Proceeds from long-term debt 3,560,000
Repayments of notes payable (39,940,000) (28,339,000) (22,434,000)
Proceeds from notes payable 38,845,000 33,708,000 23,978,000
---------- ------------ ----------
Net cash provided by financing activities 1,701,551 4,734,819 931,175
----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents (8,339,457) 2,139,493 630,686
Cash and cash equivalents at beginning of year 10,034,577 7,895,084 7,264,398
---------- ------------ ---------
Cash and cash equivalents at end of year $1,695,120 $10,034,577 $7,895,084
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F - 5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Basis of Presentation - The consolidated financial statements include
the accounts of Rauch Industries, Inc. and its subsidiaries, Northstar
Corporation and RI Acquisition, Inc. In consolidation, all significant
intercompany balances are eliminated.
I. Accounting Policies
Income Recognition - Sales are invoiced and income is recognized in the
financial statements when merchandise is shipped.
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined by the last-in, first-out (LIFO) method.
Property, Equipment and Depreciation - Property and equipment are
carried at cost. Depreciation is computed primarily using the straight-line
method. The estimated useful lives of the respective assets used in computing
depreciation are as follows:
Buildings 15-40 years
Machinery and equipment 3-10 years
Expenditures for maintenance and repairs are charged directly to the
appropriate operating account at the time the expense is incurred. Expenditures
determined to represent additions and betterments are capitalized.
Statements of Cash Flows - Cash and cash equivalents include all highly
liquid investments purchased with an original maturity of three months or less.
Cash paid during the year for interest (net of capitalized interest of
$50,000 in 1994) and income taxes was as follows:
1994 1993 1992
---- ---- ----
Interest $830,000 $ 402,000 $ 374,000
Income taxes $770,000 $1,652,000 $1,760,000
Concentration of Credit Risk and Financial Instruments - Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of temporary cash investments and trade receivables.
The Company places its temporary cash investments with high credit quality
financial institutions. At December 31, 1994, substantially all cash and cash
equivalents were maintained by a single major financial institution. The Company
markets its products primarily to customers in the retail sector. The Company
closely monitors the creditworthiness of its customers and generally requires no
collateral from its customers. Insurance is maintained to reduce overall credit
risk. The Company's ability to collect outstanding trade receivables is
dependent upon the retail economic environment. The Company does not believe
that it is dependent on any single customer. Sales to two customers accounted
for approximately 32% of sales in 1994, 27% of
F - 6
<PAGE>
sales in 1993, and 26% of sales in 1992. Accounts receivable from two customers
accounted for approximately 56%, 35% and 33% of total accounts receivable at
December 31, 1994, 1993 and 1992, respectively.
Income Taxes - The Company records income taxes under Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in either the
financial statements or tax returns, but not both. Deferred tax liabilities and
assets are determined based on the difference between financial statement and
tax bases of assets and liabilities using enacted tax rates in effect for the
year in which the difference is expected to reverse.
Earnings Per Common Share - Earnings per common share is based on the
weighted average number of shares outstanding each year (3,695,563 in 1994, 1993
and 1992).
II. Recoverable from Insurance Carrier
On October 19, 1994, a fire destroyed the Company's 677,000 square-foot
facility located in Cramerton, North Carolina. The building warehoused a
substantial portion of the Company's finished goods inventory for the 1994
Christmas season in anticipation of shipment to customers. The building was also
used to manufacture garland and non-woven fabric. The Company had insurance on
the building, equipment and raw materials at replacement value. The finished
goods inventory was insured at net selling price. In addition, the Company also
carried business interruption insurance. The Company's insurance coverage limits
total recovery in one policy year to an amount not to exceed approximately
$60,000,000.
During December 1994, the Company received a $10,000,000 advance on the
settlement. As of December 31, 1994, the Company has an amount recoverable from
the insurance carrier totaling $3,552,095. This amount represents the net book
value of the property destroyed and business interruption costs incurred less
the advance received on the settlement. The final resolution of the insurance
claim is dependent upon future events, the outcome of which are not fully
determinable at the present time. Accordingly, no additional amount due from the
insurance carrier has been recorded as of December 31, 1994.
III. Inventories
Inventories are summarized as follows at December 31, 1994 and 1993:
1994 1993
---- ----
Inventories at first-in, first-out (FIFO) cost $ $
Raw Materials 5,224,846 6,099,938
Work-in-process 2,032,965 813,538
Finished goods 3,150,433 5,433,970
------------ ------------
10,408,244 12,347,446
F - 7
<PAGE>
Less, reduction from FIFO to LIFO cost 304,078 117,621
------------ ------------
$10,104,166 $12,229,825
The Company is dependent on a single supplier of raw material glass.
IV. Accrued Liabilities
Accrued liabilities are summarized as follows at December 31, 1994 and
1993:
1994 1993
---- ----
Salaries and wages $342,541 $ 357,123
Profit sharing and ESOP 160,000
Other 491,936 506,749
--------- -----------
$834,477 $1,023,872
======== ==========
V. Long-Term Debt and Notes Payable
A summary of long-term debt at December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Term note payable under bank loan agreement, due in quarterly
installments of $125,000, plus a final payment in 1999,
with interest approx-
imately at the bank's certificate of deposit rate $4,875,000 $1,575,000
Industrial revenue bond, due in quarterly
installments of $55,000 to 1995 with interest at
75% of the prime rate 161,820 381,820
----------- -----------
5,036,820 1,956,820
Less amounts due within one year 661,820 400,000
----------- -----------
$4,375,000 $1,556,820
========== ==========
</TABLE>
The Company has a bank loan agreement allowing long-term borrowings up
to $5.0 million and short-term borrowings up to $36 million. Short-term
borrowings bear interest at approximately the bank's certificate of deposit
rate. Maximum short-term borrowings outstanding at any time during the year was
$30.8 million in 1994, $22.4 million in 1993, and $13.0 million in 1992. Daily
average borrowings were $10.6 million in 1994, $7.0 million in 1993, and $4.3
million in 1992 at daily weighted average interest rates of 5.8%, 4.0% and 4.3%
respectively. The bank's certificate of deposit rate and prime rate was 6.4% and
8.5%, respectively at December 31, 1994.
The bank loan agreement limits the declaration and payment of dividends
to net income of the preceding year and contains various covenants, the most
restrictive being a limitation on leasing activities.
F - 8
<PAGE>
Future maturities of long-term debt are $661,820 in 1995, $500,000 in
1996, 1997, and 1998, $2,875,000 in 1999.
VI. Employee Benefit Plans
The Company maintains a 401(k) profit-sharing plan covering
substantially all employees with more than one year of continuous service.
Qualified employees may contribute up to 15% of their eligible compensation to
the plan. The Company matches 50% of this contribution up to $520 per employee,
with the balance of the contribution matched at 25%. In addition, discretionary
contributions may be made by the Company. Company contributions were
approximately $57,000 for 1994, $165,000 for 1993, and $157,000 for 1992.
The Company has an Employee Stock Ownership Plan covering substantially
all employees with more than one year of continuous service. No contributions
were made to the Plan in 1994. Contributions to the plan were $50,000 for 1993
and 1992.
VII. Income Taxes
The provision for income taxes consists of the following:
1994 1993 1992
---- ---- ----
Current:
Federal $ 15,000 $1,536,000 $1,474,000
State 1,500 186,000 206,000
------- --------- ---------
16,500 1,722,000 1,680,000
------- --------- ---------
Deferred:
Federal (179,000) (17,000) (97,000)
State 1,000 10,000 (12,000)
----------- ----------- -----------
(178,000) (7,000) (109,000)
----------- ------------ ----------
$(161,500) $1,715,000 $1,571,000
========== ========== ==========
The following schedule summarizes the principle differences between
income taxes at the federal statutory rate and that reflected in the financial
statements:
Statutory federal tax rate (34.0)% (34.0)% (34.0)%
State income taxes, net of federal tax benefit 0.5 (2.5) (2.9)
Targeted jobs credit (5.4) -- --
Contributions (34.1) -- --
Tax exempt interest (4.5) -- --
Other 1.4 0.6 1.3
---- ---- ----
(76.1)% (35.9)% (35.6)%
====== ====== ======
F - 9
<PAGE>
The following is a summary of deferred tax assets and liabilities at
December 31, 1994 and 1993:
Deferred tax assets
Accounts receivable $ 90,000 $75,000
Inventory 149,000 137,000
Contribution carryover 183,000 --
Accrued expenses 52,000 56,000
-------- --------
474,000 268,000
Deferred tax liabilities: depreciation 187,000 159,000
-------- --------
Net deferred income taxes $287,000 $109,000
======== ========
VIII. Acquisitions
On December 31, 1993, the Company completed the purchase of
substantially all the net assets of Holiday Products, Inc. ("Holiday"), a
privately held manufacturer of Christmas related products. The purchase price
consisted of approximately $1.2 million in cash, assumption of liabilities
totalling $0.5 million, and the forgiveness of debt owed from Holiday to the
Company in the amount of approximately $1.5 million. The acquisition has been
accounted for as a purchase, and the acquired net assets of Holiday are included
in the Company's balance sheet at December 31, 1993. The purchase price has been
allocated to the assets and liabilities of Holiday based on their estimated
respective fair values.
During 1993, the Company contributed to Holiday's sales by making its
sales force available to sell its products and providing Holiday with showroom
space. It also checked the credit of customers for Holiday. For these services,
Holiday paid the Company a fee of $658,000 which is included in other income in
1993. The Company also provided financing for Holiday for which the Company
recognized approximately $92,000 of interest income.
As part of the acquisition, the Company signed a non-compete agreement
with the former president of Holiday.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operation as if Holiday had been acquired as of the
beginning of the periods presented:
1993
(Unaudited)
Sales $51,324,000
Net income 3,191,000
Net income per share .86
During 1994, the Company entered into a letter of intent to acquire
F.C. Young & Company, Inc., a privately held manufacturer of tinsel and garland
for $4,000,000. The letter of intent is subject to the resolution of certain
matters.
F - 10
<PAGE>
IX. Stock Options
The shareholders approved a stock option plan which reserved 202,500
shares of common stock for grant to key personnel. Under the plan, the option
price may not be less than the fair market value of the stock at the time the
options are granted. The period during which options are exercisable is fixed by
the Board of Directors at the time of grant, but is not to exceed ten years plus
one month. During 1994, options for 137,000 shares were granted under the plan.
As of December 31, 1994, options for 174,500 shares had been granted, none of
which were exercised. Of the options outstanding as of December 31, 1994, 17,625
shares are exercisable at $7.67 per share and 6,800 shares are exercisable at
$9.50 per share.
X. Supplementary Income Statement Information
The statements of income include maintenance and repairs charged to
costs and expenses of $811,000 in 1994, $832,000 in 1993, and $743,700 in 1992.
Costs incurred for product research and development were $334,700 in 1994,
$302,400 in 1993, and $301,600 in 1992.
XI. Unaudited Quarterly Financial Data
Quarterly results of operations are as follows:
<TABLE>
<CAPTION>
Quarter in 1994
First Second Third Fourth
<S> <C> <C> <C> <C>
Net sales $ 233,138 $2,957,624 $23,191,623 $18,652,862
Cost of sales (165,596) (2,262,257) (17,176,749) (16,144,585)
Selling, general and administrative expenses (1,278,820) (1,256,744) (2,732,707) (3,519,829)
----------- ----------- ----------- -----------
Operating income (loss) (1,211,278) (561,377) 3,282,167 (1,011,552)
Other income (expense) 442,972 166,502 (1,323,236) 165,037
----------- ----------- ----------- ---------
Net income (loss) $ (768,306) $ (394,875) $ 1,958,931 $ (846,515)
============ = ========== ============ ============
Net income (loss) per common share $ (.21) $ (.10) $ .53 $ (.23)
============== ============== ============== ==============
Weighted average number of common
shares outstanding 3,695,563 3,695,563 3,695,563 3,695,563
============ =========== =========== ===========
Quarter in 1993
First Second Third Fourth
Net sales $ 95,005 $2,548,539 $21,673,962 $20,376,015
Cost of sales (26,640) (1,875,654) (15,484,723) (15,160,847)
Selling, general and administrative expenses (1,058,703) (1,148,734) (2,779,177) (2,733,061)
----------- ----------- ----------- -----------
Operating income (loss) (990,338) (475,849) 3,410,062 2,482,107
Other income (expense) 356,980 171,419 (1,142,189) (685,839)
----------- ----------- ----------- -----------
Net income (loss) before cumulative effect
of accounting change (633,358) (304,430) 2,267,873 1,796,268
Cumulative effect of accounting change 64,310
----------- --------- --------- ---------
F - 11
<PAGE>
Net income (loss) $ (569,048) $ (304,430) $ 2,267,873 $ 1,796,268
=========== ========== =========== ===========
Per common share:
Net income (loss) before cumulative effect
of accounting change $ (.17) $ (.08) $ .61 $ .48
Cumulative effect of accounting change .02
------------- -------- -------- --------
Net income (loss) per share $ (.15) $ (.08) $ .61 $ .48
============= ============ ============ ===========
Weighted average number of common
shares outstanding 3,695,630 3,695,630 3,695,630 3,695,630
========= ========= ========= =========
</TABLE>
F - 12
<PAGE>
Statement of Management Responsibility
Management is primarily responsible for the preparation, accuracy and
integrity of the financial information presented in this annual report. The
financial statements have been prepared in accordance with generally accepted
accounting principles and, of necessity, include amounts that are based on
management's best estimates and judgments.
The Company maintains a system of internal accounting control designed
to provide reasonable assurance of the reliability of financial records and the
safeguard of assets. The controls are based on established policies and
procedures, are implemented by qualified people and are monitored by a financial
review program and internal and independent audits.
The independent accountants were engaged to perform an audit of the
consolidated financial statements which provides an objective review of
management's responsibility to report operating results and financial position.
They review and make tests as appropriate of the data included in the financial
statements and this report.
The Board of Directors, through its Audit Committee, is responsible for
an oversight role with respect to the Company's financial statements and
internal controls. The Audit Committee meets periodically with management and
independent accountants to discuss auditing, accounting and financial matters.
The independent accountants and internal auditors have direct access to the
Audit Committee to discuss the scope and results of their work as well as any
other matters concerning internal accounting controls and financial reporting.
Marshall A. Rauch Donald G. Walser
Chairman of the Board Executive Vice President-
Finance and Administration
F - 13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholders and Board of Directors
Rauch Industries, Inc.
Gastonia, North Carolina
We have audited the accompanying balance sheets of Rauch Industries,
Inc. as of December 31, 1994 and 1993, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1994. 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 audits.
We conducted our audits 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 audits provide 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 Rauch Industries,
Inc. as of December 31, 1994 and 1993, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Charlotte, North Carolina
March 2, 1995
F - 14
<PAGE>
RAUCH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net Sales $ 25,946,994 $ 23,191,623 $ 32,840,034 $ 26,382,385
Cost of sales 20,121,648 17,176,749 25,104,916 19,604,602
Selling, general and administrative 3,454,626 2,732,707 6,965,286 5,268,271
------------- ------------ ------------ -------------
Income from operations 2,370,720 3,282,167 769,832 1,509,512
------------- ------------ ------------ -------------
Interest expense (415,848) (232,627) (785,473) (334,481)
Other income 47,522 10,844 107,163 58,568
Gain from insurance settlement 4,358,993 -0- 6,274,730 -0-
------------- -------------- ------------ ------------
3,990,667 (221,783) 5,596,420 (275,913)
------------- ------------- ------------ -------------
Income before provision for
income tax 6,361,387 3,060,384 6,366,252 1,233,599
Provision for income tax 2,280,356 1,101,453 2,282,057 437,849
------------- ------------ ------------ ------------
Net income $ 4,081,031 $ 1,958,931 $ 4,084,195 $ 795,750
============ ============ ============ ============
Per common share:
Net income $ 1.10 $ 0.53 $ 1.11 $ 0.22
============== ============= ============== =============
Weighted average number of shares
outstanding 3,695,563 3,695,563 3,695,563 3,695,563
============ =========== ============ ===========
</TABLE>
F - 15
<PAGE>
RAUCH INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, September 30,
1995 1994 December 31,
(unaudited) (unaudited) 1994
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ -0- $ -0- $ 1,695,120
Accounts receivable 27,957,328 24,308,358 20,167,583
Recoverable from insurance carrier 5,395,894 -0- 3,552,095
Inventories at LIFO 27,963,191 27,562,733 10,104,166
Prepaid expenses 403,587 600,971 355,943
Deferred income taxes 474,000 268,000 474,000
Refundable income taxes -0- -0- 432,431
-------------- -------------- -----------
Total current assets 62,194,000 52,740,062 36,781,338
----------- ----------- -----------
Property and equipment, at cost 15,153,285 15,113,467 12,950,427
Less: accumulated depreciation 7,699,770 8,844,320 7,314,260
----------- ----------- -----------
7,453,515 6,269,147 5,636,167
----------- ----------- -----------
Other assets 385,951 128,382 326,822
Excess of cost over net assets of companies acquired 3,195,833 -0- -0-
----------- ----------- -----------
Total assets $73,229,299 $59,137,591 $42,744,327
=========== =========== ===========
</TABLE>
F - 16
<PAGE>
RAUCH INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, September 30,
1995 1994 December 31,
(unaudited) (unaudited) 1994
<S> <C> <C> <C>
Current liabilities:
Cash overdraft $1,559,641 $1,494,692 $ -0-
Current portion of long-term debt 1,200,000 716,820 661,820
Notes payable-bank 19,437,000 19,492,000 9,405,000
Accounts payable-trade 5,166,534 4,122,282 1,344,626
Accrued liabilities 2,097,015 1,327,416 834,477
Accrued income taxes 657,245 468,549 -0-
----------- ----------- --------
Total current liabilities 30,117,435 27,621,759 12,245,923
---------- ---------- ----------
Long-term debt 11,600,000 4,500,000 4,375,000
---------- ----------- -----------
Deferred income taxes 1,713,000 159,000 187,000
----------- ----------- -----------
Shareholders' equity:
Common stock 3,754,490 3,754,490 3,754,490
Additional paid-in capital 3,151,572 3,151,572 3,151,572
Retained earnings 23,008,837 20,066,805 19,146,377
Treasury stock (116,035) (116,035) (116,035)
------------ ------------ ------------
29,798,864 26,856,832 25,936,404
---------- ---------- ----------
Total liabilities and shareholders' equity $73,229,299 $59,137,591 $42,744,327
=========== =========== ===========
</TABLE>
F - 17
<PAGE>
RAUCH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1995 September 30, 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,084,195 $ 795,750
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 379,201 393,248
Amortization 74,415 -0-
Loss on sale of equipment 18,812 -0-
Deferred income taxes 1,526,000 -0-
Recoverable from insurance carrier (1,843,799) -0-
Changes in operating assets and liabilities (18,913,251) (22,137,329)
(Increase) decrease in other assets (56,824) 246,417
Net cash used in operating activities (14,731,251) (20,701,914)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (2,223,194) (2,869,819)
Proceeds from sale of equipment 28,500 -0-
Acquisition of new business (4,000,000) -0-
---------- ----------
Net cash used in investing activities (6,194,694) (2,869,819)
------------ ------------
Cash flows from financing activities
Payment of dividends (221,735) (209,536)
Increase in cash overdraft 1,657,380 1,494,692
Payments on long-term debt (411,820) (300,000)
Repayments of notes payable (16,599,000) (19,748,000)
Proceeds from notes payable 34,806,000 32,300,000
---------- ----------
Net cash provided by financing activities 19,230,825 13,537,156
----------- -----------
Net decrease in cash and cash equivalents (1,695,120) (10,034,577)
Cash and cash equivalents beginning of the period 1,695,120 10,034,577
---------- ----------
Cash and cash equivalents end of the period $ -0- $ -0-
============= ==========
</TABLE>
F - 18
<PAGE>
RAUCH INDUSTRIES, INC.
Notes to Unaudited Consolidated Financial Statements
NOTE A - Basis of Presentation
The accompanying financial statements have been prepared in accordance with the
instructions to Form 10-Q. Although they are unaudited, Rauch believes that all
adjustments necessary for a fair presentation of the results of operations have
been made.
NOTE B - Seasonal Nature of Business
Rauch's business is seasonal in nature. Therefore, the results of the operations
for interim periods are not necessarily indicative of the results for the fiscal
year taken as a whole.
F - 19
<PAGE>
EXHIBIT A
AGREEMENT
AGREEMENT, dated as of December 7, 1995, among SYRATECH
CORPORATION, a Delaware corporation ("Parent"), SYR ACQUISITION, INC., a North
Carolina corporation and an indirect wholly-owned subsidiary of Parent
("Mergersub"), and RAUCH INDUSTRIES, INC., a North Carolina corporation (the
"Company").
In consideration of the mutual covenants and agreements set
forth herein, Parent, Mergersub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. (a) Upon the terms and subject to the
conditions hereof, in accordance with the provisions of this Agreement and the
North Carolina Business Corporation Act (the "NCBCA"), at the Effective Time (as
defined in Section 1.5), Mergersub shall be merged with and into the Company
(the "Merger"), and the Company shall be the surviving corporation (hereinafter
sometimes called the "Surviving Corporation") and shall continue its corporate
existence under the laws of North Carolina. At the Effective Time, the separate
existence of Mergersub shall cease.
(b) The Surviving Corporation shall retain the name
of the Company and shall possess all the rights, privileges, immunities, powers
and purposes of Mergersub and the Company and shall by operation of law assume
and be liable for all the liabilities, obligations and penalties of the Company
and Mergersub.
A - 1
<PAGE>
1.2 Articles of Incorporation. The Articles of Incorporation
of Mergersub in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
in accordance with the provisions thereof and the NCBCA.
1.3 By-Laws. The By-Laws of Mergersub in effect immediately
prior to the Effective Time shall be the By-Laws of the Surviving Corporation
until thereafter amended, altered or repealed in accordance with the provisions
thereof and the NCBCA. Following the Effective Time, such By-Laws shall contain
the provisions required by Sec tion 5.8(a) hereof which shall not be amended,
altered, repealed or modified except as provided in said Section 5.8(a).
1.4 Directors and Officers. The directors of Mergersub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, in each case until their respective successors are duly
elected and qualified.
1.5 Effective Time. The Merger shall become effective at the
time that Articles of Merger are filed with the Secretary of State of North
Carolina in accordance with the provisions of Section 55-11-05 of the NCBCA. The
Articles of Merger shall be prepared, executed and, on the Closing Date, filed
in accordance with Section 55-11-05 of the NCBCA as soon as practicable after
the Closing. The date and time when the Merger shall become effective is herein
referred to as the "Effective Time."
A - 2
<PAGE>
ARTICLE II
CONVERSION OF SHARES
2.1 Shares. (a) Each issued and outstanding share of common
stock, par value $1.00 per share (each, a "Share"; and all such shares,
collectively, the "Shares"), of the Company immediately prior to the Effective
Time (except for Dissenting Shares, as hereinafter defined) shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into the right to receive $13.00, net to the holder, in cash (the
"Merger Consideration"), without interest thereon, upon surrender of the
certificate representing such Share. Each Share so converted shall cease to be
outstanding and shall be deemed canceled.
(b) Each Share held in the Company's treasury
immediately prior to the Effective Time shall, by virtue of the Merger, be
canceled and retired and cease to exist, without any conversion thereof.
(c) The holders of the certificates representing
Shares shall cease to have any rights as shareholders of the Company, except
such rights, if any, as they may have pursuant to the NCBCA, and, except as
aforesaid, their sole right shall be the right to receive the Merger
Consideration as aforesaid.
2.2 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Shares that are outstanding immediately prior to the
Effective Time and are held by shareholders who shall have properly exercised
rights of dissenting shareholders, if any, with respect thereto under Sections
55-13-01 et seq of the NCBCA ("Dissenting Shares") shall not be converted into
or be exchangeable for the right to receive the Merger Consideration, but the
holders thereof shall be entitled to payment of the fair value of such Shares,
determined in
A - 3
<PAGE>
accordance with the provisions of Sections 55-13-01 et seq of the NCBCA;
provided, however, that any Dissenting Shares held by a shareholder who shall
thereafter withdraw his or her demand to be paid the fair value of such Shares
or waive or lose his or her right to such payment as provided in Sections
55-13-01 et seq of the NCBCA shall be deemed converted, as of the Effective
Time, into the Merger Consideration without interest thereon; and in such event
Parent shall cause the Surviving Corporation to make payment of the Merger
Consideration to such shareholder.
2.3 Mergersub Stock. Each share of Common Stock, par value
$1.00 per share, of Mergersub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and exchanged for one share of Common
Stock, par value $1.00 per share, of the Surviving Corporation (the "Surviving
Corporation Stock").
2.4 Exchange of Shares. (a) At the Closing, Parent shall
deposit in trust with Wachovia Bank and Trust Company, N.A., Winston-Salem,
North Carolina (the "Exchange Agent") an unconditional irrevocable Letter of
Credit drawn on NationsBank of Georgia, N.A. in favor of the Exchange Agent, as
beneficiary, pursuant to which the Exchange Agent will have the right to draw on
demand, as needed, an aggregate amount equal to the product of (i) the number of
Shares issued and outstanding at the Effective Time (other than Dissenting
Shares), and (ii) the Merger Consideration. The Exchange Agent shall, pursuant
to irrevocable instructions, make the payments provided for in Section 2.1(a) of
this Agreement from the permitted drawings under the Letter of Credit.
(b) Promptly after the Effective Time the Exchange Agent shall
mail to each record holder of Shares as of the Effective Time, a form of letter
of transmittal (which
A - 4
<PAGE>
shall be reasonably acceptable to Mergersub and the Company and which shall,
inter alia, specify that delivery shall be effected, and risk of loss and title
to the Certificates (as defined below) shall pass, only upon proper delivery of
the Certificates to the Exchange Agent) and instructions for use in effecting
the surrender of the certificates that immediately prior to the Effective Time
represented Shares (each a "Certificate"; and, collectively, the "Certificates")
in exchange for payment therefor. Upon surrender to the Exchange Agent of a
Certificate (or the satisfaction of the prerequisites specified in the form of
letter of transmittal for payment in respect of lost, stolen or destroyed
Certificates), together with such letter of transmittal duly executed, the
Exchange Agent shall promptly send or deliver to the holder of such Certificate
in exchange therefor a check in an amount equal to the product of the number of
Shares represented by such Certificate and the Merger Consideration, and such
Certificate shall forth with be canceled. No interest will be paid or accrued on
the cash payable upon the surrender of the Certificates. If payment is to be
made to a person other than the person in whose name the Certificate surrendered
is registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such payment shall pay any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of the Certificate surrendered or establish to the
satisfaction of the Exchange Agent and the Surviving Corporation that such tax
has been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 2.4, each Certificate (other than Certificates
representing Dissenting Shares in respect of which dissenting shareholders'
rights are perfected) shall represent for all purposes only the right to receive
the Merger Consideration in cash multiplied by the number of shares evidenced by
such Certificate, without any interest thereon.
A - 5
<PAGE>
(c) At the Effective Time the Company's stock
transfer books shall be closed and after the Effective Time there shall be no
transfers of the Shares on the stock transfer books of the Surviving
Corporation. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be canceled and exchanged for the Merger
Consideration as provided in this Article II.
(d) No drawings on the Letter of Credit will be
permitted at any time after the 183rd day following the Effective Time. Any
shareholders of the Company who have not theretofore complied with Section
2.4(b) shall thereafter look only to the Surviving Corporation for payment of
their claim for the Merger Consideration per Share, without any interest
thereon.
2.5 Adjustments. If, between the date of this Agreement and
the Effective Time, the Shares shall have been changed into a different number
of shares or a different class by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, or
a stock dividend thereon shall be declared with a record date within such
period, the amount into which the Shares will be converted in the Merger shall
be correspondingly adjusted.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent and
Mergersub as follows:
3.1 Organization and Qualification. The Company and each of
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and each has
all requisite corporate power and
A - 6
<PAGE>
authority to own or lease and operate its properties and to carry on its
business as now being conducted on the date hereof. Each of the Company and its
material subsidiaries (the "Material Subsidiaries") listed in Section 3.1 of the
disclosure schedule executed by the Company, Parent and Mergersub on the date
hereof (the "Disclosure Schedule") is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary, except for such jurisdictions where the failure to be
so duly qualified or licensed and in good standing will not have a material
adverse effect on the business, operations or financial condition of the Company
and its subsidiaries taken as a whole. The Company has heretofore delivered to
Parent true and complete copies of its Articles of Incorporation and By-Laws as
currently in effect.
3.2 Capitalization. The authorized capital stock of the
Company consists of: (a) 10,000,000 Shares, of which, on November 22, 1995,
there were 3,695,563 Shares issued and outstanding, 202,500 Shares reserved for
issuance under stock option plans, and 58,860 Shares held in the Company's
treasury, and (b) 60,000 shares of preferred stock, par value $10.00 per share,
of which no shares are issued or outstanding. All issued and outstanding Shares
are duly authorized, validly issued, fully paid, and non-assessable and are free
of preemptive rights. Except for the options listed in Section 3.2 of the
Disclosure Schedule, being options to acquire not more than 172,750 Shares
pursuant to the Company's stock option plans, all of which are presently
outstanding, there are no existing options, warrants, calls, subscriptions, or
other rights or other agreements or commitments whatsoever obligating the
Company or any of its subsidiaries to issue, transfer, deliver or sell or cause
to be issued, transferred, delivered or sold any additional shares of capital
stock of the Company or any of
A - 7
<PAGE>
its subsidiaries, or obligating the Company or any of its subsidiaries to grant,
extend or enter into any such agreement or commitment. Except for the 22,500
stock appreciation rights held by Donald G. Walser as more fully described on
page 13 of the Company's 1995 Proxy Statement, there are no outstanding stock
appreciation rights, phantom stock rights or similar arrangements that have been
granted or issued by the Company to, or in favor of, any other person. Since
December 31, 1994, except as set forth in Section 3.2 of the Disclosure
Schedule, no options have been granted and, since December 31, 1994, no capital
stock of the Company has been issued except pursuant to the exercise of options
granted prior to December 31, 1994.
3.3 Authority. The Company has all requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
approved and validly authorized and adopted by the Board of Directors of the
Company, and no other corporate proceedings on the part of the Company are
necessary to consummate the transactions so contemplated (other than the
approval and adoption of the Plan of Merger and the Merger by the shareholders
of the Company). This Agreement has been duly executed, certified and
acknowledged and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that the Merger cannot be effected unless the Plan of Merger
(as hereinafter defined) is approved by the shareholders of the Company in
accordance with Section 55-11-03 of the NCBCA.
3.4 Filings and Reports. The Company has previously delivered
to Parent true and complete copies of (a) its Annual Reports on Form 10-K (and
each of its Annual
A - 8
<PAGE>
Reports to Shareholders) for the fiscal years ended December 31, 1994, 1993 and
1992, respectively, as filed with the Securities and Exchange Commission (the
"Commission"), (b) proxy statements relating to all meetings of the Company's
shareholders (whether annual or special) during 1995, 1994 and 1993, and (c) all
other reports, statements and registration statements (including current reports
on Form 8-K and quarterly reports on Form 10-Q) filed by it with the Commission
since January 1, 1992 (all of the items referred to in clauses (a), (b) and (c)
of this sentence being hereinafter sometimes collectively called the "Company
Reports"). As of their respective filing or mailing dates the Company Reports
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circum stances under which they were
made, not misleading. The audited and unaudited consolidated financial
statements of the Company included in the Company Reports have all been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as stated in such financial statements) and fairly
present the financial position of the Company and its consolidated subsidiaries
as of the dates thereof and the results of their operations and changes in
financial position of the Company and its consolidated subsidiaries for the
periods then ended, subject, in the case of the unaudited financial statements,
to normal year-end audit adjustments which for fiscal 1995 shall not be
materially adverse.
3.5 Absence of Certain Changes or Events. Except as has been
previously disclosed in publicly available Commission filings, the 1995 Proxy
Statement or as set forth in Section 3.5 of the Disclosure Schedule, since
December 31, 1994 there has not been any material adverse change in the
businesses, properties, financial condition or results of operations of the
Company and its subsidiaries taken as a whole which has affected, or is
A - 9
<PAGE>
reasonably likely to affect, materially and adversely the businesses, properties
or the financial condition or results of operations of the Company and its
subsidiaries taken as a whole; and the Company and its subsidiaries have
conducted their respective businesses only in the ordinary course consistent
with past practice.
3.6 Information. The proxy or information statement of the
Company required to be mailed to the Company's shareholders in connection with
the Merger (the "Proxy Statement") will comply as to form in all material
respects with the applicable requirements of the Exchange Act and the rules and
regulations thereunder and will not, at the time of first mailing thereof and
the meeting of shareholders to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein, in order to make the statements made therein, in
light of the circumstances under which they are made, not misleading, except
that no representation is made by the Company with respect to information
supplied by Parent or any affiliates of Parent for inclusion in the Proxy
Statement.
3.7 Compensation; Employee Benefits. Except as disclosed in
the Company Reports or as otherwise disclosed in Section 3.7 of the Disclosure
Schedule, there are no (i) material employment, severance, consulting or other
compensation agreements between the Company or any of its subsidiaries and any
officer, director or employee of the Company or any of its subsidiaries, or (ii)
bonus, profit-sharing, severance, termination, stock option, pension,
retirement, deferred or contingent compensation or other employee benefit
agreements, trusts, plans or other arrangements for the benefit of any director,
officer or employee of the Company or any of its subsidiaries.
A - 10
<PAGE>
3.8 Consents and Approvals; No Violation. Except for
applicable requirements of the Exchange Act and the filing and recordation of
appropriate merger documents as required by the NCBCA and the filings required
under and in compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act") and filings under state securities, "Blue Sky" laws, to the
best knowledge of the Company, no filing with, and no permit, authorization,
consent or approval of, any governmental body is necessary for the consummation
by the Company of the transactions contemplated by this Agreement. Except as
disclosed in Section 3.8 of the Disclosure Schedule, the execution and delivery
by the Company of this Agreement, and the performance by the Company of its
obligations hereunder will not (a) subject to the obtaining of the requisite
approval by the Company's shareholders of the Plan of Merger, conflict with or
result in a breach of any of the provisions of its Articles of Incorporation or
By-Laws or (b) subject to the obtaining of the governmental and other consents
referred to herein, and except with respect to the antitrust laws (as to which
each party has satisfied itself), contravene any law, rule or regulation of any
state or of the United States or any political subdivision thereof or therein,
or any order, writ, judgment, injunction, decree, determination or award
currently in effect, by which the Company or its properties are bound, which,
singly or in the aggregate, would have a material adverse effect on the Company
and its subsidiaries taken as a whole.
3.9 Litigation. Except as heretofore disclosed in the Company
Reports, or as set forth in Section 3.9 of the Disclosure Schedule, as of the
date hereof, there are no claims, actions, proceedings, or investigations
pending or, to the best knowledge of the Company, threatened, involving or
affecting the Company or any of its subsidiaries or any of their properties or
assets or, to the best of the Company's knowledge, any employee,
A - 11
<PAGE>
consultant, director or officer in his or her capacity as such, of the Company
or any of its subsidiaries before any court or governmental or regulatory
authority or body which, if adversely decided, could materially and adversely
affect the financial condition, business, or operations of the Company and its
subsidiaries taken as a whole. As of the date hereof, neither the Company nor
any of its subsidiaries nor any property or assets of any of them is subject to
any order, judgment, injunction or decree that materially and adversely affects
the financial condition, business, or operations of the Company and its
subsidiaries taken as a whole.
3.10 Environmental Matters. Except as disclosed in Section
3.10 of the Disclosure Schedule, none of the properties or facilities now or
heretofore used by the Company or any of its subsidiaries has been used to
manufacture, treat, store or dispose of any hazardous substance or toxic
substance (as those terms or terms similar thereto are used in Environmental
Laws, as hereinafter defined), and all such properties are free of all such
substances. Except as disclosed in Section 3.10 of the Disclosure Schedule, the
Company is in compliance with all laws, regulations and other federal, state and
local governmental requirements, and all applicable judgments, orders, writs,
motions, decrees, permits, licenses, approvals, consents or injunctions relating
(i) to the generation, management, handling, transportation, treatment,
disposal, storage, delivery, discharge, release or emission of any waste,
pollutant or toxic or hazardous substance (including, without limitation,
asbestos, radioactive material and pesticides) utilized by the Company and/or
its subsidiaries in their respective businesses or (ii) to any other actions,
omissions or conditions affecting the environment applicable to the Company or
its subsidiaries or their respective businesses as a result of any hazardous or
toxic substance used by the Company or any of its subsidiaries in
A - 12
<PAGE>
their respective businesses or otherwise placed upon or at any of the facilities
now or heretofore owned or operated by the Company or any of its subsidiaries
(collectively, "Environmental Laws"). Except as described in Section 3.10 of the
Disclosure Schedule, neither the Company nor any of its subsidiaries (nor any
officer, director or managerial or supervisory employees of any of them) has
received or been made aware of any complaint, notice, order, or citation of any
actual, threatened or alleged noncompliance by the Company or any of its
subsidiaries with any of the Environmental Laws; and there is no proceeding,
suit or investigation pending (or, to the knowledge of the Company or any such
officer, director or managerial or supervisory employee, threatened) against the
Company or any of its subsidiaries, with respect to any violation or alleged
violation of any Environmental Law, and neither the Company nor any of its
subsidiaries (nor any officer, director or managerial or supervisory employee of
any thereof) is aware of any reason for the institution of any such proceeding,
suit or investigation. Notwithstanding the foregoing provisions of this Section
3.10, the Company shall not be, or be deemed to be, in breach of the
representations and warranties contained in this Section 3.10 unless the
aggregate exposure for costs, damages and expenses that could be incurred by
reason of the existence of facts or conditions that are contrary to the
representations and warranties herein contained could reasonably be expected to
exceed $250 thousand; and, moreover, a breach of the representations and
warranties contained in this Section 3.10 shall not give rise to a claim for
money damages.
3.11 Cramerton Fire Insurance Recovery. On October 19, 1994, a
fire destroyed the Company's 677,000 square foot facility located in Cramerton,
North Carolina (the "Cramerton Fire"). The maximum amount that the Company can
recover from the insurance carrier by reason of the Cramerton Fire is $63.015
million, i.e., the amount that the
A - 13
<PAGE>
Company contends is the policy limit. To date, the Company has received $19.9
million from the insurance carrier and has settled the inventory and equipment
portions of the claim against its insurance carrier. No other portion of its
claim against the insurance carrier on account of the Cramerton Fire has been
settled, no advance payment (other than an advance payment approximating $900
thousand) on account of unsettled portions of the claim has been received, and
no agreement as to the terms of settlement of any unsettled portion of its claim
has been reached. Without limiting the generality of the foregoing, neither the
portion of its property damage claim for the destruction of its 677,000 square
foot building nor the portion of its claim based on business interruption has
been settled or is the subject of any agreement or understanding as to the
amounts that will be paid in settlement thereof.
3.12 Prohibited Actions. Except as set forth in Section 3.12
of the Disclosure Schedule, since January 1, 1995, the Company has not taken or
allowed others to take on its behalf, or suffered to happen or exist, any
action, inaction or condition that would be inconsistent with the undertakings
of the Company contained in Section 5.1 of this Agreement if taken, allowed or
suffered on or after the date of this Agreement.
3.13 Section 341(f) Election. Neither the Company nor any of
its subsidiaries has made an election under Section 341(f) of the Internal
Revenue Code of 1986 (the "Code").
3.14 Broker's Fees. Neither the Company nor its subsidiaries
has employed any broker or finder or incurred any liability for any broker's
fees, commissions or finder's fees in connection with any of the transactions
contemplated by this Agreement.
A - 14
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGERSUB
Parent and Mergersub hereby jointly and severally represent
and warrant to the Company that:
4.1 Organization and Qualification.
(a) Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Parent
has the requisite corporate power and authority to own or lease and operate its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified and in good standing in each jurisdiction in
which the nature of the business conducted by it or the character or location of
the properties owned, leased or operated by it, makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a material adverse effect on the business, condition (financial
or otherwise), properties, assets or results of operations of Parent and its
subsidiaries taken as a whole or on the ability of Parent to consummate or cause
the consummation of the transactions contemplated by this Agreement.
(b) Mergersub is a corporation duly organized,
validly existing and in good standing under the laws of North Carolina.
Mergersub has not engaged, and prior to the Effective Time, Mergersub will not
have engaged, in any business since it was incorporated other than in connection
with the transactions contemplated by this Agreement. Parent owns, indirectly
(through a wholly-owned subsidiary), all of the outstanding capital stock of
Mergersub.
A - 15
<PAGE>
4.2 Authority. Each of Parent and Mergersub has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly approved by the respective Boards of Directors of Parent and Mergersub
and by Parent's wholly-owned subsidiary as the sole stockholder of Mergersub and
no other corporate proceedings on the part of Parent (or its wholly-owned
subsidiary that is the sole stockholder of Mergersub) or Mergersub are necessary
to consummate the transactions so contemplated. This Agreement has been duly
executed and delivered by each of Parent and Mergersub and constitutes a valid
and binding obligation of each of Parent and Mergersub, enforceable against
Parent and Mergersub in accordance with its terms.
4.3 Proxy Statement. None of the information supplied or to be
supplied by Parent or Mergersub expressly for inclusion in the Proxy Statement
or in any amendments thereof or supplements thereto will, at the time of (i) the
first mailing thereof and (ii) the meeting of shareholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.4 Broker's Fees. Neither Parent nor Mergersub nor any of
Parent's other direct or indirect subsidiaries or affiliates has employed any
broker or finder or incurred any liability for any broker's fees, commissions or
finder's fees in connection with any of the transactions contemplated by this
Agreement.
4.5 Consents and Approvals; No Violations. Except for any
applicable requirements of the Exchange Act and the filing and recordation of
appropriate merger docu-
A-16
<PAGE>
ments as required by the NCBCA and the filings required under and in compliance
with the HSR Act and filings under state securities or "Blue Sky" laws, to the
best knowledge of the Parent or the Mergersub, no filing with, and no permit,
authorization, consent or approval of, any governmental body is necessary for
the consummation by the Parent or the Mergersub of the transactions contemplated
by this Agreement. Except as disclosed in Section 4.5 of the Disclosure
Schedule, the execution and delivery by Parent and Mergersub of this Agreement
and the performance of the transactions contemplated hereby will not (i) violate
any provision of the Certificate or Articles of Incorporation, as applicable, or
By-Laws of the Parent or Mergersub, (ii) violate any statute, rule, regulation,
order, writ, judgment, injunction, decree, determination or award of any
governmental body or authority by which either the Parent or Mergersub or any of
their respective properties is bound, or (iii) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default under, any license, franchise, permit, indenture, agreement or other
instrument to which either the Parent or Mergersub is a party, or by which
either of them or their respective properties is bound.
ARTICLE V
COVENANTS
5.1 Conduct of Business of the Company. Except as listed in
Section 5.1 of the Disclosure Schedule or as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time, the
Company and its subsidiaries will each conduct its operations according to its
ordinary and usual course of business, consistent with past practice, and the
Company and each of its subsidiaries will each use its reasonable best efforts
to preserve intact its business organization, to keep available the services of
its officers
A - 17
<PAGE>
and employees and to maintain satisfactory relationships with licensors,
licensees, suppliers, contractors, distributors, customers and others having
business relationships with it. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, prior
to the Effective Time, neither the Company nor any of its subsidiaries will,
without the prior written consent of the Parent:
(a) amend its Articles of Incorporation or By-laws
except as otherwise provided in Section 5.8 below;
(b) authorize for issuance, issue, sell, deliver or
agree or commit to issue, sell or deliver (whether through the issuance or
granting of additional options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any securities convertible into
shares of stock of any class, or any stock appreciation rights, shadow stock or
similar instruments;
(c) split, combine or reclassify any shares of its
capital stock, declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock (other than the dividend of Two Cents per share declared on
November 3, 1995 and payable on December 15, 1995 to share holders of record as
of the close of business on December 1, 1995) or, except as otherwise provided
in Section 5.9, redeem or otherwise acquire any shares of its own capital stock
or that of any of its subsidiaries;
(d) except as disclosed in Section 5.1(d) of the
Disclosure Schedule, as described in the Company Reports or as contemplated by
this Agreement (including, without limitation, the provisions of paragraph (d)
of Section 6.3 hereof), (i) increase in any manner the compensation, bonus,
profit-sharing, stock option, pension, retirement, deferred
A - 18
<PAGE>
compensation, employment or other plan, agreement, trust, fund or arrangement
for the benefit of any of its directors, officers or other employees; (ii) pay
or agree to pay any pension, retirement allowance or other employee benefit not
required by any existing plan, agreement or arrangement to any such director,
officer or employee, whether past or present; or (iii) commit itself to any
additional pension, profit sharing, bonus, incentive, deferred compensation,
stock purchase, stock option, stock appreciation right, group insurance,
severance pay, retirement or other employee benefit plan, agreement or
arrangement, or to any employment or consulting agreement, or any guaranty of
any such plan, agreement or arrangement, with or for the benefit of any person
or persons (including, without limitation, the employment agreements
specifically referred to in Section 5.1(d) of the Disclosure Schedule, subject,
however, to the release of covenant provisions therein set forth), or amend or
agree to amend any of such plans or any of such agreements or arrangements in
existence on the date hereof;
(e) create, incur or assume any short-term or
long-term debt in excess of the amount of short-term or long-term debt, as the
case may be, currently outstanding, except in the ordinary course of business;
(f) assume, guarantee, endorse or otherwise become
liable for the obligations of any other person (other than wholly-owned
subsidiaries of the Company) except (i) in the ordinary course of business
consistent with past practices, and (ii) short-term loans to employees not
exceeding $25 thousand in the aggregate for all employees to whom such loans are
made or $2.5 thousand for any one employee;
(g) make any loans, advances or capital contributions
to, or investments in, any other person (other than customary loans or advances
to subsidiaries made
A - 19
<PAGE>
in the ordinary course of business consistent with past practices); provided,
that transactions resulting in trade payables in the ordinary course of business
consistent with past practice shall not be prohibited hereby;
(h) purchase, lease or sell any significant
properties, assets or, except as otherwise provided in Section 5.9, securities
(including, without limitation, the purchase or lease of any properties, assets
or securities to which specific reference is made in Sec tion 5.1(h) of the
Disclosure Schedule, subject, however, to the release of covenant provisions
therein set forth) or make any other changes in their operations that would be
material to the Company and its subsidiaries taken as a whole;
(i) settle or reach any agreement or understanding,
whether written or oral, to settle any claim to which reference is made in
Section 5.1(i) of the Disclosure Schedule, subject, however, to the release of
covenant provisions therein set forth; or
(j) agree to do any of the foregoing.
5.2 Access to Information.
(a) Between the date of this Agreement and the
Effective Time, the Company will give Parent and its authorized representatives
access during normal business hours to all plants, offices, warehouses and other
facilities and to all books and records of the Company and its subsidiaries,
will permit Parent to make such inspections during normal business hours as it
may require and will cause its officers and those of its subsidiaries to furnish
Parent with such financial and operating data and other information with respect
to the business and properties of the Company and its subsidiaries as Parent may
from time to time request; provided, however, that all such activities under
this Section 5.2 shall be conducted in
A - 20
<PAGE>
such manner so as to avoid, to the extent practicable, disruption of the
business of the Company.
(b) Parent will hold and will cause its consultants,
advisors and subsidiaries to hold in strict confidence, unless compelled to
disclose by judicial or administrative process, or, in the opinion of its
counsel, by other requirements of law, all documents and information concerning
the Company and its subsidiaries furnished to Parent in connection with the
transactions contemplated by this Agreement before or after the date hereof
(except to the extent that such information or documents were (i) generally
available to the public other than as a result of a disclosure by Parent or its
representatives, (ii) available to Parent on a non-confidential basis prior to
disclosure to Parent by the Company or its representatives, or (iii) available
to Parent on a non-confidential basis from a source other than the Company or
its representative, provided that such source is not known, and by reasonable
effort could not be known, by Parent or its representatives to be bound by a
confidentiality agreement with the Company or its representatives or otherwise
prohibited from transmitting the information to Parent by a contractual, legal
or fiduciary obligation) and will not release or disclose such information to
any other person, except its auditors, attorneys, financial advisors and other
consultants and advisors who reasonably require such information in connection
with this Agreement, provided that such person shall have first been advised of
the confidentiality provision of this Section 6.2. If the transactions
contemplated by this Agreement are not consummated, such confidence shall be
maintained, except to the extent such information can be shown to have been (i)
generally available to the public other than as a result of a disclosure by
Parent or its representative, (ii) available to Parent on a non-confidential
basis prior to disclosure to Parent by the Company or its representatives,
A - 21
<PAGE>
(iii) available to Parent on a non-confidential basis from a source other than
the Company or its representatives, provided that such source is not known, and
by reasonable effort could not be known by Parent or its representatives to be
bound by a confidentiality agreement with the Company or its representatives or
otherwise prohibited from transmitting the information to Parent by a
contractual, legal or fiduciary obligation, and, if requested by the Company,
Parent will, and will cause its agents, representatives and advisors to, return
to the Company or destroy all copies of written information furnished by the
Company to Parent or such agents, auditors, consultants, representatives or
advisors.
5.3 Public Announcement. Parent, Mergersub and the Company
will consult with each other before issuing any press release or otherwise
making any public statements with respect to the Merger and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by law or by obligations pursuant to any listing
agreement with any securities exchanges.
5.4 Shareholder Approval.
(a) As soon as practicable following the execution of
this Agreement, the Company shall file with the Commission under the Exchange
Act, and shall use its best efforts to have cleared by the Commission, the Proxy
Statement with respect to the meeting of the Company's shareholders referred to
in this Section 5.4.
(b) Promptly after clearance by the Commission of the
Proxy Statement referred to in Section 5.4(a) above, the Company will take all
action necessary in accordance with applicable law to convene a meeting of its
shareholders to consider and vote upon the Plan of Merger.
A - 22
<PAGE>
5.5 Certain Filings, Consents and Arrangements. Parent,
Mergersub and the Company shall (a) promptly make their respective filings, and
shall thereafter use their best efforts to promptly make any required
submissions, under the HSR Act with respect to the Merger and the transactions
contemplated by this Agreement and (b) cooperate with one another in promptly
(i) determining whether any other filings are required to be made or consents,
approvals, permits or authorizations are required to be obtained under any other
federal, state or foreign law or regulation or any consents, approvals or
waivers are required to be obtained from other parties to loan agreements or
other contracts material to the Company's business in connection with the
consummation of the Merger and the transactions contemplated by this Agreement
and (ii) making any such filings, furnishing information required in connection
therewith and otherwise using their best efforts to take all actions and do all
things necessary, proper or advisable to obtain in a timely manner any such
consents, permits, authorizations, approvals or waivers including, without
limitation, agreeing to divest such of the Company's or Parent's assets or
businesses as may be necessary to comply with, or ameliorate the effect of, any
applicable statute, law, rule or regulation which would prohibit or restrict
consummation of the Merger. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and/or directors of Parent and the Surviving
Corporation shall take such necessary action.
5.6 Best Efforts. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to satisfy
all conditions requiring action by it and to consummate and make
A - 23
<PAGE>
effective the transactions contemplated by this Agreement. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of each
corporation which is a party to this Agreement shall take all such necessary
action.
5.7 No Solicitation. Neither the Company nor any of its
subsidiaries, officers, directors, employees, agents or representatives
(including, without limitation, invest ment bankers, attorneys and accountants)
or any of the officers, directors, employees, agents or representatives of any
of the subsidiaries of the Company shall, directly or indirectly, without the
written consent of Parent, (a) initiate contact with, solicit or encourage any
inquiries or proposals by (or authorize or permit anyone acting on its behalf so
to do), or (b) enter into any discussions or negotiations or agreements with, or
disclose directly or indirectly any information not customarily disclosed
concerning its business and properties to, or afford any access to its
properties, books and records to, any corporation, partnership, person or other
entity or group in connection with any possible proposal (an "Acquisition
Proposal") regarding a sale of the Company's capital stock or a merger,
consolidation, or sale of all or a substantial portion of the assets of the
Company or any subsidiary of the Company which is material to the Company and
the Company's subsidiaries taken as a whole, or any similar transaction;
provided, however, that, if after receipt of an inquiry or proposal not
initiated, solicited or encouraged in violation of clause (a) of this Section
5.7, the Board of Directors, upon the advice of the Company's counsel,
determines in good faith that the fiduciary duties of the directors require them
to take or authorize the taking of any action that would otherwise be prohibited
by clause (b) of this Section 5.7, the Board of Directors shall have the right
to take or authorize the taking of such action, and the Company shall be
permitted to act
A - 24
<PAGE>
consistent with such authorization; and provided, moreover, that the Company's
Board of Directors shall be free to take any position with respect to a third
party Acquisition Proposal, which, upon the advice of the Company's counsel, is
required by applicable law. The Company will promptly communicate to Parent the
terms of any proposal or contact it may receive in respect of any such
transaction. The Company agrees not to release any third party from any
confidentiality or standstill agreement to which the Company is a party.
5.8 Indemnification and Insurance.
(a) The by-laws of the Surviving Corporation shall
contain the provisions with respect to indemnification set forth in Section 5 of
Article IX of the By-Laws of the Company (as in effect at all times since
January 1, 1995 except that prior to the Effective Time the By-Laws of the
Company may be amended to permit the Company to pay expenses incurred by a
director in defending a proceeding in advance of the final disposition of such
proceeding as authorized by, and subject to, the provisions of Section 55-8-53
of the NCBCA), which provisions shall not be amended, altered, repealed or
otherwise modified for a period of three years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who at
or prior to the Effective Time were employees, agents, directors or officers of
the Company, except if such amendment is required by law.
(b) Parent shall cause the Surviving Corporation to
indemnify and hold harmless the Company's directors and officers (including,
without limitation, for the reimbursement of their expenses) pursuant and
subject to the terms and conditions of Section 5 of Article IX of the By-Laws of
the Company as in effect at all times since January 1, 1995 subject to the
amendment permitted pursuant to Section 5.8(a) above.
A - 25
<PAGE>
(c) For not less than three years from the Effective
Time, Parent shall cause the Surviving Corporation to maintain in effect, if
available, directors' and officers' insurance covering those persons who are
currently covered by the Company's directors' and officers' insurance and which
is substantially equivalent in terms of coverage and amount as the Company has
in effect on the date hereof (the "Present Coverage"); provided, however, that
Parent's only obligation under this Section 5.8(c) shall be to cause the
Surviving Corporation to obtain and maintain in effect directors' and officers'
insurance providing the lesser of (a) the Present Coverage or (b) the greatest
coverage available from a reputable insurer at an annual cost not exceeding 150%
of the amount budgeted by the Company prior to January 1, 1995 for such
insurance for its current fiscal year.
5.9 Company Stock Options. Prior to the Effective Time, the
Company shall make all necessary and appropriate adjustments to, and shall use
its best efforts to obtain all necessary consents with respect to, all options
to acquire Shares (the "Options") which have been granted pursuant to the
Company's option plans and are outstanding immediately prior to the Effective
Time and also all outstanding Stock Appreciation Rights (each an "SAR") to
provide for the immediate full vesting, cancellation and settlement thereof
immediately prior to the Effective Time, and the Company shall thereupon make a
cash payment to the holder of each such Option or SAR in an amount equal to the
difference between (i) the Merger Consideration and the per Share exercise price
of such Option, multiplied by the number of Shares covered by such Option, and
(ii) the Merger Consideration and the per share strike price of each such SAR,
subject in each case to any required withholding of taxes.
A - 26
<PAGE>
5.10 Appraisal Rights. The Company shall not settle or
compromise any claim of dissenting shareholders in respect of the Merger prior
to the Effective Time without the prior written consent of Parent.
5.11 Notice of Actions and Proceedings. The Company shall
promptly notify Parent and Purchaser of any claim, actions, proceedings or
investigations commenced or, to the best of its knowledge, threatened in
writing, involving or affecting the Company or any of its subsidiaries or any of
their property or assets, or, to the best of its knowledge, any employee,
consultant, director or officer, in his or her capacity as such, of the Company
or any of its subsidiaries which, if pending on the date hereof, would have been
required to have been disclosed in Section 3.9 of the Disclosure Schedule, or
which relates to the consumma tion of the Merger.
5.12 Notification of Certain Other Matters. The Company shall
give prompt notice to Parent and Mergersub of (a) any notice of, or other
communication relating to, a default or event which, with notice or lapse of
time or both, would become a default, received by the Company or any of its
subsidiaries subsequent to the date of this Agreement and prior to the Effective
Time, under any agreement, indenture or instrument material to the financial
condition, properties, business or results of operations of the Company and its
subsidiaries taken as a whole to which the Company or any of its subsidiaries is
a party or is subject, (b) any notice or other communication from any third
party alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement, (c) any notice
or other communication from any regulatory authority in connection with the
transactions contemplated hereby; and (d) any material adverse change in
A - 27
<PAGE>
the financial condition, properties, businesses or operations of the Company and
its subsidiaries taken as a whole.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 Conditions to Obligations of the Company, Parent and
Mergersub. The obligations of the Company, Parent and Mergersub to consummate
the Merger are subject to the satisfaction, at or prior to the Closing, of each
of the following conditions:
(a) Wasserstein, Perella & Co. shall not have
withdrawn or modified its opinion that the cash consideration to be received by
the shareholders of the Company pursuant to the merger is fair to such
shareholders from a financial point of view;
(b) the shareholders of the Company shall have duly
approved the Merger in accordance with applicable law;
(c) the consummation of the Merger shall not be
precluded by any order or injunction of a court of competent jurisdiction (each
party agreeing to use reasonable efforts to have any such order reversed or
injunction lifted);
(d) any applicable waiting period under the HSR Act
shall have expired or been terminated; and
(e) Holders of no more than 250,000 Shares shall have
elected to exercise rights of dissenting shareholders and not have voted in
favor of the Plan of Merger.
6.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment, at or prior to the Closing, of the following additional
conditions:
A - 28
<PAGE>
(a) Parent and Mergersub shall have performed in all
material respects their agreements contained in this Agreement required to be
performed at or prior to the Effective Time;
(b) the representations and warranties of Parent and
Mergersub set forth in this Agreement shall be true and correct at and as of the
date hereof and at and as of the Effective Time as if made at and as of such
date, except as otherwise contemplated or permitted by this Agreement and except
for any matters which, in the aggregate, do not have a material adverse effect
on the ability of Parent and Mergersub to consummate the Merger; and
(c) Parent and Mergersub shall have delivered to the
Company a certificate, signed on behalf of each of Parent and Mergersub by an
executive officer thereof, to the effect set forth in paragraphs (a) and (b) of
this Section 6.2 and attesting to the fact that the Letter of Credit referred to
in Section 2.4 has been issued and is available for deposit with the Exchange
Agent.
6.3 Conditions to Obligations of Parent and Mergersub to
Effect the Merger. The obligation of Parent and Mergersub to effect the Merger
shall be subject to the fulfillment, at or prior to the Closing, of the
following additional conditions:
(a) the Company shall have performed in all material
respects its agreements contained in this Agreement required to be performed at
or prior to the Effective Time, except for any breaches which do not have a
material adverse effect on the Company's ability to meet its obligations under
this Agreement taken as a whole or do not have a material adverse effect on the
financial condition, properties, business or operations of the Company and its
subsidiaries taken as a whole;
A - 29
<PAGE>
(b) the representations and warranties of the Company
set forth in this Agreement shall have been true and correct at and as of the
date hereof and at and as of the Effective Time as if made at and as of such
date, except for any matters which, in the aggregate, do not have a material
adverse effect on the financial condition, properties, business or operations of
the Company and its subsidiaries taken as a whole;
(c) the Company shall have delivered to Parent and
Mergersub a certificate signed on behalf of the Company by an executive officer
thereof to the effect set forth in paragraphs (a) and (b) of this Section 6.3;
and
(d) the Company shall have entered into employment
and non- competition agreements with Marc F. Rauch, Marshall A. Rauch, Peter D.
Rauch and Donald G. Walser, such agreements to be in the forms and have the
terms more fully described in Section 6.3(d) of the Disclosure Schedule.
ARTICLE VII
CLOSING
7.1 Time and Place. The closing of the Merger (the "Closing")
shall take place at the offices of Paul, Weiss, Rifkind, Wharton & Garrison,
1285 Avenue of the Americas, New York, New York, as soon as practicable
following satisfaction of the closing conditions set forth in Article VI. The
date on which the Closing actually occurs is herein referred to as the "Closing
Date."
7.2 Filings at the Closing. At the Closing the Parent,
Mergersub and the Company shall cause the Articles of Merger to be filed and
recorded in accordance with the
A - 30
<PAGE>
provisions of Section 55-11-05 of the NCBCA and shall take any and all other
lawful actions and do any and all other lawful things necessary to cause the
Merger to become effective.
ARTICLE VIII
TERMINATION AND ABANDONMENT
8.1 Termination. This Agreement may be terminated and the
Merger contemplated herein may be abandoned at any time prior to the filing of
the Articles of Merger by (a) the mutual consents of Parent, Mergersub and the
Company or (b) either Parent or the Company if (i) the Merger has not been
consummated prior to February 15, 1996 (unless the failure to consummate the
Merger by such date is due to a breach or violation of this Agreement by the
party seeking to terminate), (ii) any permanent order, judgment, decree or
injunction prohibiting consummation of the transactions contemplated hereby
shall have become final and non-appealable, (iii) there has been a material
breach by either the Parent or Mergersub, on the one hand, or the Company on the
other, of any of their respective representations, warranties, covenants or
obligations set forth herein, but such termination shall not be effective unless
and until the non-breaching party has given written notice to the breaching
party of such breach and of its intention to terminate this Agreement in
accordance with the provisions hereof and the breaching party fails to cure such
breach within ten (10) calendar days of such notice (a "Terminating Breach") or
(iv) the Company shall have received, or there shall have been publicly
announced, an offer or proposal by a person or entity other than Parent or
Mergersub to acquire the Company or its assets on terms that are stated or
expected to yield to the shareholders of the Company value in excess of $13 per
Share (an "Economically Superior Offer"), and the Company's Board of Directors
A - 31
<PAGE>
(A) shall have determined either to accept, or to recommend to the Company's
shareholders that they accept, such Economically Superior Offer or (B) as a
consequence of the actual or anticipated receipt or announcement of such
Economically Superior Offer, shall cease to recommend to the shareholders that
they approve the Plan of Merger. Any action by the Company to terminate this
Agreement pursuant to this Section 8.1 shall be taken only by the persons who
are directors of the Company on the date hereof.
8.2 Procedure and Effect of Termination. In the event of
termination and abandonment of the Merger by any party pursuant to Section 8.1,
written notice thereof shall forthwith be given to the others and this Agreement
shall terminate and the Merger shall be abandoned, without further action by any
of the parties hereto. Mergersub agrees that any termination by the Parent shall
be conclusively binding upon it, whether given expressly on its behalf or not,
and the Company shall have no further obligation with respect to Mergersub. If
this Agreement is terminated as provided herein no party hereto shall have any
liability or further obligation to any other party to this Agreement, except as
otherwise provided in the second sentence of Section 9.2, and except that any
termination of this Agreement pursuant to Section 8.1(iii) hereof shall be
without prejudice to the rights (including, without limitation, the right to
assert a claim for money damages) of the non-breaching party hereto arising out
of a Terminating Breach (other than a Terminating Breach of the representations
and warranties contained in Section 3.10, which breach shall not give rise to a
claim for money damages) and except that the provisions of Section 5.2(b) shall
survive.
A - 32
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.1 No Survival of Representations and Warranties. Each and
every representation and warranty of the parties herein shall expire with, and
be terminated and extinguished by, the Merger, or (except as otherwise provided
in Section 8.1 and/or Section 8.2) the termination of the Merger pursuant to
Section 8.1. This Section 9.1 shall have no effect upon any other agreement,
covenant or obligation of the parties hereunder, whether to be performed before
or after the Closing.
9.2 Expenses. In the event the Merger is not consummated due
to the failure by any party, despite its good faith efforts, to satisfy all
conditions to close, then all expenses (including, without limitation,
reasonable legal fees and expenses, investment banking fees and fees and
expenses of accountants) incurred by them in connection with the transactions
contemplated hereby (the "Expenses") will be borne by the party incurring such
Expenses. In the event the Merger is not consummated after receipt by the
Company from, or public announcement by, an Affected Offeror (as defined below)
and/or one or more affiliates of an Affected Offeror of an Economically Superior
Offer pertaining to an acquisition of the Company or a substantial portion of
the assets of the Company, and control of the Company or a substantial portion
of its assets is transferred to such Affected Offeror and/or one or more
affiliates of such Affected Offeror within twelve months of the making of such
offer, Parent shall be entitled to receive payment from the Company of
liquidated damages in the amount of $2.4 million. As used herein, the term
"Affected Offeror" shall mean any person or entity with whom or with which,
directly or through representatives, the Company shall, on or after the date of
this Agreement and prior to February 15, 1996, have had contacts, discussions or
A - 33
<PAGE>
negotiations (or to whom or to which the Company shall during such period have
provided information) looking toward the possible acquisition of the Company (by
merger or otherwise) or a substantial portion of its assets, whether such
contacts, discussions or negotiations took place (or such information was
provided) in violation of, or as contemplated by, Section 5.7 of this Agreement,
or otherwise.
9.3 All provisions of this Agreement (other than the
provisions of Articles I and II hereof (which together shall constitute the Plan
of Merger within the meaning of Article 11 of the NCBCA)) are, and shall be,
binding upon Parent, Mergersub and the Company in accordance with their terms
whether or not the Plan of Merger is approved by the shareholders of the
Company.
9.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if sent by confirmed facsimile
transmission or if delivered personally or by courier or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice; provided that notices of a change of address shall be effective only
upon receipt thereof):
(a) if to the Parent or Mergersub, to
Syratech Corporation
175 McClellan Highway
East Boston, Massachusetts 02128-9114
Attention: Chief Financial Officer
Fax: 617-561-0275
A - 34
<PAGE>
with copies to
Faye A. Florence, Esq.
Vice President, Secretary and
General Counsel
Syratech Corporation
175 McClellan Highway
East Boston, Massachusetts 02128-9114
Fax: 617-568-1361
and
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: James L. Purcell, Esq.
Fax: 212-373-2145
(b) if to the Company, to
Rauch Industries, Inc.
6048 South York Road
Gastonia, North Carolina 28053-0609
Fax: 704-864-2081
with a copy to
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
201 South College Street
Charlotte, North Carolina 28244
Attention: Mark R. Bernstein, Esq.
Fax: (704) 334-4706
9.5 Assignment; Parties in Interest. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties hereto without the prior written consent
of the other parties.
A - 35
<PAGE>
9.6 Governing Law. All matters (including, but not limited to,
the construction, validity, interpretation and enforcement of this Agreement)
shall be governed by, and construed and enforced in accordance with, the laws of
the State of North Carolina regardless of the laws that might otherwise govern
under applicable principles of conflicts of law, except that all parties agree
that the laws (including common law) of the State of Delaware shall govern the
validity and enforceability of the provisions of Section 9.2 of this Agreement.
9.7 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.8 Interpretation. The Article and Section headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, (i) the term
"person" shall mean and include an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof; (ii) the terms "affiliate" and "associate" shall
have the meanings set forth in Rule 12b-2 of the General Rules and Regulations
promulgated under the Exchange Act; and (iii) the term "subsidiary" of any
specified corporation shall mean any corporation of which the outstanding
securities having ordinary voting power to elect a majority of the board of
directors are directly or indirectly owned by such specified corporation.
9.9 Entire Agreement. This Agreement, including the exhibits
and Disclosure Schedule hereto and the documents and instruments referred to
herein,
A - 36
<PAGE>
embodies the entire agreement and understanding of the parties hereto in respect
of the subject matter contained herein. There are no restrictions, promises,
representations, warranties, covenants, or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements (except for the confidentiality agreement heretofore executed by the
Parent and the Company) and the understandings between the parties with respect
to such subject matter.
9.10 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to injunctive relief to prevent breaches of this Agreement and enforce
specifically the terms and provisions hereof in any United States District Court
or any state court in Delaware, New York or North Carolina having jurisdiction,
this being in addition to any other remedy to which they are entitled at law or
in equity.
A - 37
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be signed by their respective duly authorized officers on the date first above
written.
SYRATECH CORPORATION
By: /s/ Leonard Florence
Chairman of the Board
SYR ACQUISITION, INC.
By: /s/ Leonard Florence
Chairman of the Board
RAUCH INDUSTRIES, INC.
By: /s/ Marshall A. Rauch
Chairman of the Board
A - 38
<PAGE>
EXHIBIT B
TEXT OF CHAPTER 55, ARTICLE 13 OF
THE GENERAL STATUTES OF NORTH CAROLINA
CONCERNING RIGHTS OF DISSENTING STOCKHOLDERS
(Section Mark) 55-13-01. Definitions
In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under G.S. 55-13-02 and who exercises that right when and in the manner
required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate action
until the date of payment, at a rate that is fair and equitable under all the
circumstances, giving due consideration to the rate currently paid by the
corporation on its principal bank loans, if any, but not less that the rate
provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
(Section Mark) 55-13-02. Right to dissent.
(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation
(other than a parent corporation in a merger under G.S.
55-11-04) is a party unless (i) approval by the
B - 1
<PAGE>
shareholders of that corporation is not required under G.S.
55-11-03(g) or (ii) such shares are then redeemable by the
corporation at a price not greater than the cash to be
received in exchange for such shares;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, unless such shares are then redeemable by the
corporation at a price not greater than the cash to be
received in exchange for such shares.;
(3) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than as
permitted by G.S. 55-12-01, including a sale in dissolution,
but not including a sale pursuant to court order or a sale
pursuant to a plan by which all or substantially all of the
net proceeds of the sale will be distributed in cash to the
shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially
and adversely affects rights in respect of a dissenter's
shares because it (i) alters or abolishes a preferential right
of the shares; (ii) creates, alters, or abolishes a right in
respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the shares;
(iii) alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities; (iv)
excludes or limits the right of the shares to vote on any
matter, or to cumulate votes; (v) reduces the number of shares
owned by the shareholder to a fraction of a share if the
fractional share so created is to be acquired for cash under
G.S. 55-6-04; or (vi) changes the corporation into a nonprofit
corporation or cooperative organization;
(5) Any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain
payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares under
this Article may not challenge the corporate action creating his entitlement,
including without limitation a merger solely or partly in exchange for cash or
other property, unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
(Section Mark) 55-13-03. Dissent by nominees and beneficial owners.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if:
B - 2
<PAGE>
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder.
(Section Mark) 55-13-20. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this Article and be accompanied by a copy of this Article.
(b) If corporate action creating dissenters' rights under G.S. 55-13-02 is
taken without a vote of shareholders, the corporation shall no later than 10
days thereafter notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this section,
such failure shall not invalidate any corporate action taken; but any
shareholder may recover from the corporation any damage which he suffered from
such failure in a civil action brought in his own name within three years after
the taking of the corporate action creating dissenters' rights under G.S.
55-13-02 unless he voted for such corporate action.
(Section Mark) 55-13-21. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must
actually receive, before the vote is taken written notice of
his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for his shares under this Article.
(Section Mark) 55-13-22. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by
registered or certified mail, return receipt requested, a written dissenters'
notice to all shareholders who satisfied the requirements of G.S. 55-13-21.
B - 3
<PAGE>
(b) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60
days after the date the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
(Section Mark) 55-13-23. Duty to demand payment.
(a) A shareholder sent to a dissenters' notice described in G.S. 55-13-22
must demand payment and deposit his share certificates in accordance with the
terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this Article.
(Section Mark) 55-13-24. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action.
(Section Mark) 55-13-25. Offer of payment.
(a) As soon as the proposed corporate action is taken, or upon receipt of a
payment demand, the corporation shall offer to pay each dissenter who complied
with G.S. 55-13- 23 the amount the corporation estimates to be the fair value of
his shares, plus interest accrued to the date of payment, and shall pay this
amount to each dissenter who agrees in writing to accept it in full satisfaction
of his demand.
(b) The offer of payment must be accompanied by:
B - 4
<PAGE>
(1) The corporation's most recent available balance sheet as of
the end of a fiscal year ending not more than 16 months before
the date of offer of payment, an income statement for that
year, a statement of cash flows for that year, and the latest
available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to payment under G.S.
55-13-28; and
(5) A copy of this Article.
(Section Mark) 55-13-26. Failure to take action.
(a) If the corporation does not take the proposed action within 60 days after
the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under G.S.
55-13-22 and repeat the payment demand procedure.
(Section Mark) 55-13-27: Reserved for future codification purposes.
(Section Mark) 55-13-28. Procedure if shareholder dissatisfied with
corporation's offer or failure to perform.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate or reject the corporation's offer under G.S. 55-13-25 and demand
payment of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under G.S.
55-13-25 is less than the fair value of his shares or that the
interest due is incorrectly calculated;
(2) The corporation fails to make payment to a dissenter who
accepts the corporation's offer under G.S. 55-13-25 within 30
days after the dissenter's acceptance; or
(3) The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within
60 days after the date set for demanding payment.
(b) A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing (i) under subdivision
(a)(1) within 30 days after the corporation offered payment for his shares or
(ii) under subdivisions (a)(2) and (a)(3) within 30 days after the corporation
has failed to perform timely. A dissenter who fails to notify the corporation of
his demand under subsection (a) within such 30-day period shall be deemed to
have withdrawn his dissent and demand for payment.
B - 5
<PAGE>
(Section Mark) 55-13-30. Court action.
(a) If a demand for payment under G.S. 55-13-28 remains unsettled, the
dissenter may commence a proceeding within 60 days after the date of his payment
demand under G.S. 55-13-28 and petition the court to determine the fair value of
the shares and accrued interest. Upon service upon it of the petition filed with
the court, the corporation shall pay to the dissenter the amount offered by the
corporation under G.S. 55-13-25.
(a) If the dissenter does not commence the proceeding within the 60-day
period, the dissenter shall have an additional 30 days to either (i) accept in
writing the amount offered by the corporation under G.S. 55-13-25, upon which
the corporation shall pay such amount to the dissenter in full satisfaction of
his demand, or (ii) withdraw his demand for payment and resume the status of a
nondissenting shareholder. A dissenter who takes no action within such 30-day
period shall be deemed to have withdrawn his dissent and demand for payment.
(b) Reserved for future codification purposes.
(c) The court shall have the discretion to make all dissenters (whether or
not residents of this State) whose demands remain unsettled parties to the
proceeding as in action against their shares and all parties must be served with
a copy of the petition. Nonresidents may be served by registered or certified
mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them or in any amendment to it. The parties are entitled to the same discovery
rights as parties in other civil proceedings. However, in a proceeding by a
dissenter in a public corporation, there is no right to a trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to judgment for
the amount, if any, by which the court finds the fair value of his shares, plus
interest, exceeds the amount paid by the corporation.
B - 6
<PAGE>
(Section Mark) 55-13-31. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court, and shall assess the costs as it
finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters
if the court finds the corporation did not substantially
comply with the requirements of G.S. 55-13-20 through
55-13-28; or
(2) Against either the corporation or a dissenter, in favor of
either or any other party, if the court finds that the party
against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
B - 7
<PAGE>
EXHIBIT C
December 7, 1995
Special Committee of the
Board of Directors
Rauch Industries, Inc.
P. O. Box 609
Gastonia, North Carolina 28053
Ladies and Gentlemen:
You have asked us to advise you with respect to the fairness from a financial
point of view to the stockholders of Rauch Industries, Inc. (the "Company") of
the consideration to be received by such holders pursuant to the terms of the
Agreement, dated as of December 7, 1995 (the "Merger Agreement"), among the
Company, Syratech Corporation, a Delaware corporation ("Acquiror"), and Syr
Acquisition, Inc., a North Carolina corporation ("Sub"). The Merger Agreement
provides for a merger of Sub with and into the Company pursuant to which each
outstanding share of common stock, par value $1.00 per share, of the Company
will be converted into the right to receive $13.00 in cash (the "Merger). The
terms and conditions of the Merger are set forth in more detail in the Merger
Agreement.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company for recent years and
interim periods to date, as well as the Merger Agreement. We have also reviewed
certain internal financial and operating information, including financial
forecasts and projections, provided to us by the Company, and we have met with
management of the Company to review and discuss such information and the
Company's business, operations, assets, financial condition and future
prospects.
We have also considered certain financial and stock market data of the
Company, and we have compared that data with similar data for certain other
companies, the securities of which are publicly traded, which we believe may be
similar or comparable to the Company, and we have considered the financial terms
of certain recent acquisition or business combination transactions in certain
industries we deem relevant. We also performed such other studies, analyses,
inquiries and investigations as we considered appropriate.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all the financial and other
information provided to us (including, without limitation, information from the
management of the Company
C - 1
<PAGE>
Special Committee
December 7, 1995
Page 2
and its counsel regarding the receipt and use by the Company of insurance
proceeds from the fire at the Company's Cramerton facility) or publicly
available, and we have not assumed any responsibility for independently
verifying any of such information. We have assumed, with your consent, that the
financial forecasts and projections provided to us by the Company were prepared
in good faith and on bases reflecting the best currently available judgments and
estimates of the Company's management. In addition, we have not assumed any
responsibility for conducting a physical inspection of the properties or
facilities of the Company or for making or obtaining an independent valuation or
appraisal of the assets or liabilities of the Company. Our opinion is
necessarily based on economic and market conditions and other circumstances as
they exist and can be evaluated by us as of the date hereof.
Additionally, we have not been authorized to and have not solicited
alternative offers for the Company or its assets, or investigated any other
alternative transactions which my be available to the Company.
It is understood that this letter is for the benefit and use of the Special
Committee and the Board of Directors of the Company in its consideration of the
Merger Agreement. The letter does not constitute a recommendation to any
shareholder with respect to whether to vote in favor of the Merger.
Based upon and subject to the foregoing, including the various assumption and
limitations set forth herein, it is our opinion that as of the date hereof the
$13.00 per share cash consideration to be received by the stockholders of the
Company pursuant to the Merger is fair from a financial point of view to such
stockholders.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
C - 2
<PAGE>
EXHIBIT D
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
AND THE SURVIVING CORPORATION
Directors and Executive Officers of the Company.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
---- --- -------------------- --------------
<S> <C> <C> <C>
Charles S. Meyer 43 Chairman, LaSalle Capital Group, 1992
Inc., Private Investment Banking
Dr. Stella Nkomo 47 Professor of Management, 1994
University of N.C. at Charlotte
Roger S. Silverstein 45 President, Holiday Products, Inc., 1994
the Company's wholly owned
subsidiary
Ingrid Rauch Sturm 47 Senior Vice President--Speciality 1980
Sales and Secretary of the
Company
Marc F. Rauch 45 President -- Sales of the Company 1980
Marshall A. Rauch 72 Chairman of the Board and Chief 1961
Executive Officer of the Company
Peter D. Rauch 42 President -- Manufacturing of the 1980
Company
Donald G. Walser 54 Executive Vice President and 1978
Treasurer of the Company
Charles E. Zeigler, 69 Retired Chairman of the Board 1983
Sr. and Chief Executive Officer of
Public Service Company of North
Carolina, Inc. (natural gas utility)
</TABLE>
Charles S. Meyer is a graduate of Colorado College. He is in the
private investment business at LaSalle Capital Group, Inc. which he founded in
1984. In conjunction with this activity, Mr. Meyer serves as Chairman or
director of a number of private companies in which he has an investment. Mr.
Meyer is also a director of Defelcta-Shield Corporation, a NASDAQ traded
company.
Dr. Stella M. Nkomo holds a MBA from the University of Rhode Island
and a Ph.D in Business Administration from the University of Massachusetts. She
has been
D - 1
<PAGE>
a faculty member of the Belk College of Business Administration of the
University of North Carolina at Charlotte since 1983. She has served on the
Board of the Charlotte Speech and Hearing Center and chaired the Strategic
Planning Committee of the United Way of Mecklenburg and Union Counties.
Marc F. Rauch is a graduate of the University of North Carolina at
Chapel Hill. He has been with the Company for twenty-four years and is currently
President -- Sales.
Marshall A. Rauch attended Duke University and served in World War
II. He is the founder and chairman of the Company and, until 1994, had been its
only President. Mr. Rauch was a Senator in the North Carolina state legislature
where he served for 24 years.
Peter D. Rauch attended Lenoir Rhyne College. He has been with the
Company since 1975 and is currently President -- Manufacturing.
Ingrid Rauch Sturm is a graduate of the University of North Carolina
at Chapel Hill. She has been with the Company since 1980 and is currently Senior
Vice President -- Specialty Sales.
Roger S. Silverstein is a graduate of the University of Denver and
the Thunderbird Graduate School of International Management. He has been
President of Holiday Products, Inc., a Christmas stocking manufacturer, since
1975.
Donald G. Walser is a certified public accountant and a graduate of
Pfeiffer College. He has been with the Company twenty-two years and is Executive
Vice President -- Finance and Administration and Treasurer. He was formerly in
public accounting. He also serves on the Board of Directors of Mid-South
Insurance Company, Fayetteville, N.C., a publicly traded company.
Charles E. Zeigler, Sr. attended North Carolina State University and
is a retired Major in the Air Force Reserve. He is retired Chairman of the Board
and Chief Executive Officer of Public Service Company of North Carolina, Inc., a
publicly traded company. Mr. Ziegler also serves on the Board of Directors of
the Gastonia First Union National Bank.
Directors and Executive Officers of the Surviving Corporation.
The Merger Agreement provides that at the Effective Time (i) the
officers of the Company (see above) shall be the officers of the Surviving
Corporation and (ii) the directors of SYR will become the directors of the
Surviving Corporation, replacing its present directors of the Company. The
directors of SYR are:
D - 2
<PAGE>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
---- --- -------------------- --------------
Leonard Florence 64 Chairman of the Board and Chief 1995
Executive Officer of Syratech
E. Merle Randolph 63 Vice President, Chief Financial 1995
Officer and Treasurer of Syratech
Melvin L. Levine 64 Vice President of Purchasing of 1995
Syratech
Leonard Florence has been Chairman of the Board, and Chief Executive
Officer of Syratech since September 1986, and has also been President and a
director of certain of its subsidiaries since their respective dates of
organization. Mr. Florence served as President of Syratech from 1986 to 1994 and
was reelected as President in 1995. Mr. Florence has been an executive in the
tabletop and giftware products industry for more than 35 years. Mr. Florence is
also a member of the Board of Overseers of the School of Dental Medicine of
Tufts University and a director of the Cardinal Cushing School and Training
Center. Mr. Florence holds honorary doctorate degrees from Tufts University,
Merrimack College, King's College and Stonehill College.
E. Merle Randolph has been Vice President, Chief Financial Officer
and Treasurer of Syratech since September 1986. He became a director of Syratech
in May 1989. Mr. Randolph is also an officer of certain of Syratech's
subsidiaries. For 17 years prior to joining Syratech, Mr. Randolph was employed
in various financial positions by Rockwell International Corporation.
Melvin L. Levine has been a Vice President of Syratech and certain
of its subsidiaries since September 1986. Mr. Levine has been an executive in
the tabletop and giftware products industry for more than 35 years. He became a
director of Syratech in May 1989. Mr. Levine is also an officer and director of
certain of Syratech's subsidiaries.
D - 3
<PAGE>
(Coopers & Lybrand letterhead)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the proxy statement for Rauch Industries,
Inc. dated January 26, 1996, our report dated March 2, 1995, on our audits
of the financial statements of Rauch Industries, Inc. as of December 31,
1994 and 1993, and for the years ended December 31, 1994, 1993 and 1992.
(Signature of Coopers & Lybrand L.L.P.)
Charlotte, North Carolina Coopers & Lybrand L.L.P.
January 26, 1996
<PAGE>
****************************************************************************
APPENDIX
PROXY RAUCH INDUSTRIES, INC.
Gastonia, North Carolina
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF STOCKHOLDERS ON FEBRUARY 15, 1996
UNMARKED PROXIES WILL BE VOTED FOR THE PROPOSAL INDICATED BELOW.
The undersigned hereby appoints Marshall A. Rauch and Donald G. Walser,
and each of them as attorney or attorneys-in-fact with the powers the
undersigned would possess if personally present to vote all of the stock
of the undersigned in Rauch Industries, Inc. at the special meeting of the
stockholders to be held on February 15, 1996 at 10:00 a.m., and at any
adjournments thereof, upon the matter set forth below and in the notice
and proxy statement for the meeting, copies of which have been received
by the undersigned; and, in their discretion upon all other matters which
may come before the meeting.
(1) The proposal to approve the Plan of Merger set forth and described in the
accompanying proxy statement.
FOR: [ ] AGAINST: [ ] ABSTAIN: [ ]
The shares represented by the proxy will be
voted in accordance with the specifications
made by the undersigned herein. If no direction
is given, the shares will be voted FOR the
proposal indicated above. Please sign below
and return this proxy in the enclosed envelope
as soon as possible, even though you plan to
attend this meeting.
THIS PROXY MAY BE REVOKED BY ATTENDING THE
MEETING AND NOTIFYING THE SECRETARY OF THE
COMPANY AT ANY TIME PRIOR TO THE VOTING.
To help our preparation for the meeting, please
check here if you plan to attend [ ]
Date:
Signature
Signature If Held Jointly
NOTE: Please date and sign exactly as name appears hereon. When signing as
attorney, executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign full corporate name by
authorized officer.
