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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to
Section 14(d)(4)
of the Securities Exchange Act of 1934
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Gibson Greetings, Inc.
(Name of Subject Company)
Gibson Greetings, Inc.
(Name of Person(s) Filing Statement)
Common Stock, par value $0.01 per share
(Including the associated Preferred Share Purchase Rights)
(Title of Class of Securities)
374827103
(CUSIP Number of Class of Securities)
Frank J. O'Connell
Chairman of the Board, Chief Executive Officer
and President
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, Ohio 45237
(513) 841-6600
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of the Person(s) Filing Statement)
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Copies to:
Phillip R. Mills
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Gibson Greetings, Inc., a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 2100 Section Road, Cincinnati, Ohio 45237. The class of equity
securities to which this statement relates is the Company's Common Stock, par
value $0.01 per share (the "Common Stock"), including the associated Preferred
Share Purchase Rights (the "Rights") issued pursuant to the Rights Agreement
dated as of September 8, 1999 between the Company and The Bank of New York, as
Rights Agent, as amended by Amendment No. 1 dated as of November 2, 1999 (as so
amended, the "Rights Agreement") (the Common Stock and the Rights are
collectively referred to herein as the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to the tender offer by Granite Acquisition Corp.
("Purchaser"), a Delaware corporation and a wholly owned subsidiary of American
Greetings Corporation, an Ohio corporation ("Parent"), disclosed in a Tender
Offer Statement on Schedule 14D-1, dated November 9, 1999 (the "Schedule
14D-1"), to purchase for cash any and all outstanding Shares at a price of
$10.25 per share of Common Stock, net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in Purchaser's
Offer To Purchase dated November 9, 1999 (the "Offer To Purchase") and the
related Letter of Transmittal (which, together with the Offer To Purchase,
constitute the "Offer"). As set forth in the Offer To Purchase, each of
Purchaser and Parent has its principal executive offices at 10500 American Road,
Cleveland, Ohio 44144.
The Offer is being made pursuant to the Agreement and Plan of Merger,
dated as of November 2, 1999, among the Company, Purchaser and Parent (the
"Merger Agreement"). The Merger Agreement provides, among other things, that as
promptly as practicable after the satisfaction or waiver of the conditions set
forth in the Merger Agreement, Purchaser will be merged with and into the
Company and the Company shall continue as the surviving corporation (the
"Surviving Corporation").
A copy of the Merger Agreement is filed as Exhibit B to this
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
and is incorporated herein by reference in its entirety. The Merger Agreement is
summarized in Item 3 of this Schedule 14D-9.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this Schedule 14D-9, are set forth in Item 1 above. Unless the context
otherwise requires, references to the Company in the Schedule 14D-9 (other than
in the summary of the Merger Agreement below) are to the Company and its
subsidiaries, viewed as a single entity.
(b) Except as described or incorporated by reference herein, to the
knowledge of the Company, as of the date hereof, there exists no material
contract, agreement, arrangement or understanding and no actual or potential
conflict of interest between the Company or its affiliates and (1) the Company's
executive officers, directors or affiliates or (2) Purchaser, its executive
officers, directors or affiliates.
Certain contracts, agreements, arrangements and understandings between the
Company and certain of its directors and executive officers are described in the
Company's Information Statement (the "Information Statement") filed on November
9, 1999, pursuant to Section 14(f) under the Securities and Exchange Act of
1934, as amended (the "Exchange Act") under the heading "Executive
Compensation." The Information Statement is attached as Schedule I hereto. A
copy of the Information Statement is filed as Exhibit A to this Schedule 14D-9
and is incorporated herein by reference.
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Merger Agreement
The Offer
Terms of the Offer. The Merger Agreement provides that each of the
Company's stockholders who tenders Shares in the Offer will receive $10.25 for
each Share tendered, net to the stockholder in cash, subject to any applicable
withholding of taxes. The offer price will be increased by 30% of any after-tax
gain the Company receives on any sale or disposition for cash of its investment
in E-Greetings Network prior to the expiration of the Offer, but only if such
sale or disposition is for an aggregate amount in excess of the then net book
value of the Company's interest in E-Greetings Network. The Merger Agreement
prohibits Purchaser from amending the terms of the Offer without the consent of
the Company.
Commencement of the Offer. The Merger Agreement provides that Parent must
commence the Offer as promptly as practicable after the date of the Merger
Agreement, but in no event later than the fifth business day after the public
announcement of the execution of the Merger Agreement.
Optional Extensions of the Offer. The Merger Agreement permits Purchaser
to extend the Offer if, at the scheduled or extended expiration date of the
Offer, any of the conditions to the Offer have not been satisfied or waived by
Purchaser, until such conditions are satisfied or waived. The Merger Agreement
also permits Purchaser to extend the Offer for any period required by any rule,
regulation, interpretation or position of the Securities and Exchange Commission
or any other period required by applicable law. In each such case, such
extension shall be for a period as specified by the Company. The Merger
Agreement permits the Company, if all of the conditions to the Offer are
satisfied or waived on any scheduled expiration date of the Offer, to require
Purchaser to extend the Offer on one or more occasions for an aggregate period
of not more than 20 business days if, at such time, the number of Shares
tendered (and not withdrawn) pursuant to the Offer, together with the Shares
then owned by Parent and its subsidiaries, represents less than 90% of the
outstanding Shares on a fully-diluted basis. If all of the conditions to the
Offer are satisfied or waived on any scheduled expiration date of the Offer,
Purchaser may extend the Offer on one occasion for a period of not more than 5
business days if, at such time, the number of Shares tendered (and not
withdrawn) pursuant to the Offer, together with the Shares then owned by Parent
and its subsidiaries, represents less than 90% of the outstanding Shares on a
fully-diluted basis, provided that, the Company may prevent such extension by
Purchaser if the Company, in its reasonable judgment, determines that such an
extension could threaten in any way the consummation of the Offer.
Mandatory Extensions of the Offer. The Merger Agreement obligates
Purchaser to extend the Offer if, at the scheduled expiration date of the Offer,
any of the conditions to the Offer have not been satisfied or waived, until such
conditions are satisfied or waived. Notwithstanding the foregoing, Purchaser
shall not be required to extend the Offer beyond 18 months after the date of the
Merger Agreement.
Prompt Payment for Shares after the Expiration of the Offer. The Merger
Agreement obligates Purchaser to pay, as promptly as practicable after
expiration of the Offer, for all Shares validly tendered and not withdrawn.
Board Directors. The Merger Agreement provides that effective upon
acceptance for payment pursuant to the Offer a number of Shares that satisfies
the Minimum Condition by Parent, the Parent shall be entitled to designate the
number of directors, rounded up to the next whole number, on the Company Board
that equals the product of (i) the total number of directors on the Company
Board (giving effect to the election of any additional directors described in
this paragraph) and (ii) the percentage that the number of Shares beneficially
owned by Parent (including Shares accepted for payment) bears to the total
number of Shares outstanding, and the Company has agreed to take all action
necessary to cause Parent's designees (the "Parent Designees") to be elected or
appointed to the Company Board including, without limitation, increasing the
number of directors, and seeking and accepting resignations of its incumbent
directors. At such times, the Company will also use its best efforts to cause
individuals designated by Parent to constitute the number of members, rounded up
to the next whole number on (x) each committee of the Company Board (other than
the Executive Committee or any committee of the Company Board established to
take action under the Merger Agreement) and (y) the board of directors of each
subsidiary of
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the Company (and each committee thereof) that represents the same percentage as
such individuals represent on the Company Board. Notwithstanding the foregoing,
after the Purchaser acquires a majority of the outstanding Common Shares on a
fully-diluted basis, the Company will use its reasonable best efforts to ensure
that at least three members of the Company Board and such boards and committees
of the Company as of November 2, 1999 who are not employees of the Company (the
"Continuing Directors") remain members of the Company Board and such boards and
committees until the Effective Time, provided that, if the number of Continuing
Directors is reduced below three prior to the Effective Time, the remaining such
directors shall be entitled to designate to fill the vacancy a person who is not
an officer, director or designee of Parent or any of its affiliates and who
shall be deemed to be a Continuing Director for all purposes of the Merger
Agreement. Following the election or appointment of the Parent Designees and
prior to the Effective Time, any amendment or termination of the Merger
Agreement, or grant of extension or waiver by the Company will require the
approval of a majority of the Continuing Directors then in office who were not
designated by Parent.
The Merger
The Merger Agreement provides that Purchaser will be merged with and into
the Company (the "Merger"). Under the terms of the Merger Agreement, after the
closing of the Merger, each Share will be converted into the right to receive
the price paid for each Share in the Offer (the "Merger Consideration") payable,
without interest, to the holder of such Share. Notwithstanding the foregoing,
the Merger Consideration will not be payable in respect of (a) Shares held by
the Company or by Parent or any of its subsidiaries, which will be canceled upon
the closing of the Merger, and (b) Shares as to which appraisal rights have been
properly exercised.
Covenants and Representations and Warranties
Best Efforts; Antitrust Approvals. The Merger Agreement provides that
Parent and the Company will use best efforts to consummate the Offer and the
Merger and the other transactions contemplated by the Merger Agreement. The
Merger Agreement also provides that if any administrative or judicial action or
proceeding, including any proceeding by a private party, is instituted (or
threatened to be instituted) challenging any transaction contemplated by the
Merger Agreement as violative of any Antitrust Law (as defined in the Merger
Agreement), each of Parent and the Company shall cooperate in all respects with
each other and use its respective best efforts to contest and resist any such
action or proceeding and to have vacated, lifted, reversed or overturned any
decree, judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by the Merger Agreement,
including, without limitation, vigorously defending in litigation on the merits
any claim asserted in any court by any party through a final and nonappealable
judgment. In addition, the Merger Agreement provides that each of Parent and the
Company shall be required to pursue a resolution with any governmental authority
and, if acceptable to any governmental authority, enter into a settlement,
undertaking, consent decree, stipulation or other agreement with such
governmental authority regarding antitrust matters in connection with the
transactions contemplated by the Merger Agreement (each, a "Settlement").
Neither Parent nor the Company shall be required to enter into any Settlement
that requires Parent and/or the Company to sell or otherwise dispose of assets
of Parent and/or the Company and their respective subsidiaries if such
disposition would have a material adverse effect on the pro forma combined
business of Parent and the Company.
Conduct of Business Pending Merger. The Merger Agreement obligates the
Company, until the Merger becomes effective, to conduct its operations in the
ordinary course consistent with past practice. The Merger Agreement expressly
restricts the ability of the Company to engage in certain transactions, such as
purchases and sales of assets or the issuance of additional securities of the
Company. The Company is not prohibited from selling or otherwise disposing of in
any manner its investment in E-Greetings Network, provided that, if the Company
disposes of its investment in E-Greetings Network and such sale or disposition
is for an aggregate amount less than $30 million or to an affiliate of the
Company, then such disposition must be for an amount at least equal to the fair
market value of the Company's interest in E-Greetings Network that is disposed.
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No Solicitation of Alternative Transactions. The Merger Agreement provides
that, except in the circumstances described below, the Company will not, and
will cause its subsidiaries and the officers, directors, investment bankers,
attorneys, accountants, consultants or other agents or advisors of the Company
and its subsidiaries not to (i) take any action (y) to solicit or (z) for the
primary purpose of initiating or encouraging the submission of any Acquisition
Proposal (as defined below), (ii) engage in substantive discussions or
negotiations with, or disclose any material nonpublic information relating to
the Company or any of its subsidiaries or afford access to the properties, books
or records of the Company or any of its subsidiaries to, any Person who the
Company should reasonably be expected to know is considering making, or has
made, an Acquisition Proposal or (iii) otherwise cooperate in any way with, or
assist or participate in, facilitate or encourage any effort or attempt by any
other Person, in each case, for the primary purpose of making an Acquisition
Proposal or enter into any agreement, arrangement or understanding requiring it
to abandon, terminate or fail to consummate the Offer, the Merger or any other
transaction contemplated by the Merger Agreement. The Company will notify Parent
promptly after receipt by the Company (or any of its advisors) of any
Acquisition Proposal, or any request for nonpublic information relating to the
Company or any of its subsidiaries or for access to the properties, books or
records of the Company or any of its subsidiaries by any Person who the Company
should reasonably be expected to know is considering making, or has made, an
Acquisition Proposal. Notwithstanding the foregoing, the Company may negotiate
or otherwise engage in substantive discussions with, and furnish nonpublic
information to, any Person who delivers an unsolicited Superior Proposal (as
defined below) if (i) the Company has complied with the terms of Section 7.04 of
the Merger Agreement (no solicitation of alternative transactions), (ii) the
Company has notified Parent promptly after its receipt of any Acquisition
Proposal, (iii) the board of directors of the Company (the "Company Board")
determines in its good faith, reasonable judgment, after consultation with and
the receipt of advice from its financial advisor and outside counsel, that
failure to take such action could create a reasonable possibility of a breach of
its fiduciary duties under applicable law and (iv) such person executes a
confidentiality agreement with the Company.
"Acquisition Proposal" means any offer or proposal for, or any indication
of interest in, a merger, consolidation, tender offer, share exchange, business
combination, reorganization, recapitalization or other similar transaction
involving the Company or any of its subsidiaries or any proposal or offer to
acquire, directly or indirectly, any equity interest in, any voting securities
of, or a substantial portion of the assets of, the Company or any of its
subsidiaries, other than the transactions contemplated by the Merger Agreement
and any transaction involving E-Greetings Network.
"Superior Proposal" means any bona fide, unsolicited written Acquisition
Proposal for at least a majority of the outstanding Shares on terms that the
Company Board determines in good faith by a majority vote, on the basis of the
advice of a financial advisor of nationally recognized reputation and taking
into account all the terms and conditions of the Acquisition Proposal, including
any break-up fees, expense reimbursement provisions and conditions to
consummation, is more favorable to all the Company's stockholders than the
Offer, is reasonably capable of obtaining any required financing and is
reasonably capable of being completed.
Indemnification; Directors' and Officers' Insurance. Pursuant to the
Merger Agreement, from and after the Effective Time, Parent will cause the
Surviving Corporation to indemnify the present and former officers and directors
of the Company (each an "Indemnified Person") in respect of acts or omissions
occurring at or prior to the Effective Time to the fullest extent permitted
under Delaware law or other applicable laws or provided in the Company's
certificate of incorporation and bylaws in effect on the date of the Merger
Agreement, provided that, such indemnification shall be subject to any
limitation imposed from time under applicable law. In addition, pursuant to the
Merger Agreement, Parent shall provide the Company with pre-paid, irrevocable
officers' and directors' liability insurance with a nationally recognized
provider with an A.M. Best rating of at least "A," in amounts and for such
periods of time no less favorable than those of such policy in effect on the
date of the Merger Agreement.
Duty to Recommend the Offer and the Merger. The Merger Agreement permits
the Company Board to withdraw, or modify in a manner adverse to Parent, its
recommendation of the Merger Agreement, the Offer or the Merger if the Company
Board determines in its good faith, reasonable judgment, after consultation with
and the receipt of advice from its financial advisor and legal counsel, that a
Superior Proposal exists and that the failure to
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take such action could create a reasonable possibility of a breach by the
Company Board of its fiduciary duties under applicable law.
Employee Benefits. Parent has agreed in the Merger Agreement that, for a
period of one year after the Merger becomes effective, it will maintain for the
benefit of the employees of the Company and any of its subsidiaries compensation
and benefit plans and arrangements (including severance and employment
termination benefits and post-retirement medical and life insurance benefits) as
will provide compensation and benefits which are no less favorable than those
provided to such employees as of the date the Merger became effective under the
Company's employee compensation and benefit plans.
Parent has also agreed in the Merger Agreement that employees of the
Company and any of its subsidiaries who are included in any benefit plan, policy
or arrangement of Parent shall receive credit for service prior to the date the
Merger became effective with the Company and any of its subsidiaries to the same
extent such service was recognized under any similar plan of the Company and any
of its subsidiaries.
Stock Options. The Merger Agreement provides that at or immediately prior
to the time when the Merger becomes effective, each stock option to purchase
Shares outstanding under any employee or director stock option or compensation
plan or arrangement of the Company, whether or not vested or exercisable, shall
be canceled, and the Company shall pay each holder of any such option at or
promptly after the time when the Merger becomes effective for each such option
surrendered an amount in cash determined by multiplying (i) the excess, if any,
of the Merger Consideration over the applicable exercise price of such option by
(ii) the number of Shares such holder could have purchased (assuming full
vesting of all options) had such holder exercised such option in full
immediately prior to the time the Merger becomes effective.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties of each party for a cash acquisition transaction.
Such representations and warranties of the Company are given only as of the date
of the Merger Agreement. The representations and warranties of the Company,
including the representation and warranty relating to material adverse effects
on the Company, is not given as of closing of the Offer or the Effective Time.
Conditions of the Offer
Notwithstanding any other provision of the Offer or the Merger Agreement,
Parent and Purchaser shall not be required to accept for payment any Shares if
prior to the expiration date of the Offer, any of the following conditions
exist:
(a) an injunction shall have been issued and remain in effect which
restrains consummation of the Offer;
(b) the Company shall have breached or failed to perform in all
material respects any of its obligations under the Merger Agreement
required to be performed on or prior to such time or any of the
representations and warranties of the Company under the Merger Agreement
shall fail to be accurate as of the date made, provided that, such breach,
failure to perform or inaccuracy would have, individually or in the
aggregate, a material adverse effect on the Company;
(c) the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") relating to the Merger
shall not have expired or been terminated;
(d) the number of Shares tendered pursuant to the Offer and not
withdrawn, together with the Shares then owned by Parent, represents less
than a majority of the Shares on a fully diluted basis (assuming the
exercise of all outstanding options which are exercisable and in-the-money
at the Offer Price) (the "Minimum Condition"); or
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(e) the Merger Agreement shall have been terminated in accordance
with its terms.
Conditions of the Merger
The obligations of the Company, Parent and Purchaser to consummate the
Merger are subject to the satisfaction of the following conditions:
(a) if required by the Delaware General Corporation Law (the "DGCL"),
the Merger Agreement shall have been approved and adopted by the
stockholders of the Company in accordance with such law;
(b) no injunction shall have been issued and remain in effect which
restrains consummation of the Offer; and
(c) the number of Shares tendered pursuant to the Offer and not
withdrawn, together with the Shares then owned by Parent, satisfies the
Minimum Condition and Purchaser has accepted for payment and paid for such
Shares.
The obligations of Parent and Purchaser to effect the Merger are further
subject to the satisfaction or waiver of the condition that the Company shall
have performed in all material respects its obligations under the Merger
Agreement with respect to the election or appointment of the Parent Designees to
the Company Board.
Termination of the Merger Agreement
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the time the Merger becomes effective (notwithstanding any
approval of the Merger Agreement by the stockholders of the Company):
(a) by mutual written agreement of the Company and Parent;
(b) by either the Company or Parent, if:
(i) the Offer has not been consummated on or before 18 months
after the date of the Merger Agreement, provided that (A) the right
to terminate the Merger Agreement for this reason shall not be
available to any party whose breach of any provision of the Merger
Agreement results in the failure of the Offer to be consummated by
such time and (B) such 18 month period shall be extended for the time
period equal to the time period beyond 10 business days during which
either the Company or Parent shall fail to make an appropriate filing
of a Notification and Report Form pursuant to the HSR Act;
(ii) within 10 days following satisfaction of all other
conditions to the Offer, the Minimum Condition shall not have been
satisfied; provided that, such 10 day period shall be extended for a
period to allow for the extension of the expiration date of the Offer
as required by any rule, regulation, interpretation or position of
the SEC or the staff thereof applicable to the Offer or any period
required by applicable law or to allow for an increase in the Offer
Price;
(iii) a permanent injunction which is final and nonappealable
shall have been issued restraining or otherwise prohibiting
consummation of the Merger or any of the other transactions
contemplated by the Merger Agreement, provided that the party seeking
to terminate the Merger Agreement for this reason shall have used all
efforts to prevent the entry of such permanent injunction; or
(iv) the other party shall have breached or failed to perform in
all material respects any of its obligations to use its best efforts
to consummate the Merger on or prior to such time, provided that,
such party shall have failed to substantially cure such failure to
perform within a reasonable time after being notified of such failure
to perform;
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(c) by Parent, if, prior to the acceptance for payment of the Shares
under the Offer,
(i) the Company Board shall have withdrawn, or modified in a
manner materially adverse to Parent, its approval or recommendation
of the Merger Agreement, the Offer or the Merger, or shall have
recommended an Acquisition Proposal other than by Parent or its
Affiliates;
(ii) the Company Board shall have (i) amended the Rights
Agreement to facilitate an Acquisition Proposal or (ii) terminated or
redeemed the Rights, except in each case (A) as shall be necessary to
render the Rights Agreement inapplicable to the Offer and the Merger
and the other transactions contemplated by the Merger Agreement (or
any other Acquisition Proposal by Parent or its Affiliates) or (B) as
directed by Parent pursuant to the Merger Agreement;
(iii) the Company Board shall take action under Section 203 of
the DGCL or Article VI of the Company's Certificate of Incorporation
to approve any transaction other than the Offer and the Merger and
the other transactions contemplated by the Merger Agreement (or any
other Acquisition Proposal by Parent or its Affiliates); or
(iv) the Company shall have breached or failed to perform any of
its obligations under the Merger Agreement required to be performed
on or prior to such time or any of the representations and warranties
of the Company under the Merger Agreement shall fail to be accurate
as of the date made, provided that, in each such case, (A) the
Company shall have failed to substantially cure such breach, failure
to perform or inaccuracy within a reasonable time after being
notified by Parent of such breach, failure to perform or inaccuracy
and (B) such breach, failure to perform or inaccuracy would have,
individually or in the aggregate, a material adverse effect on the
Company; or.
(d) by the Company, if, prior to the acceptance for payment of the
Shares under the Offer the Company Board shall have recommended, or
entered into an agreement with respect to a Superior Proposal.
Termination of the Merger Agreement by the Company pursuant to paragraph
(d) above shall not be effective unless and until the Company shall have paid to
Parent the fee described below under "Fees and Expenses--Termination Fee Payable
by the Company." Termination of the Merger Agreement by Parent pursuant to
paragraphs (a), (b)(i), (b)(iii), (b)(iv) or (c)(iv) above shall not be
effective unless and until Parent shall have paid to the Company the fee
described below under "Fees and Expenses--Termination Fee Payable by Parent."
Fees and Expenses
Termination Fee Payable by the Company. The Company has agreed to pay
Parent a fee of $7 million after the termination of the Merger Agreement by:
(a) Parent, if the Company Board:
(i) has withdrawn or modified its approval or recommendation of
the Merger, the Offer or the Merger, or recommended an Acquisition
Proposal other than by Parent;
(ii) amended the Rights Agreement to facilitate an Acquisition
Proposal, or terminated or redeemed the Rights; or
(iii) taken action under Section 203 of the DGCL or Article VI
of the Company's Certificate of Incorporation to approve any
transaction other than the Offer or the Merger; or
(b) the Company, if, prior to the acceptance for payment of Shares
under the Offer, the Company Board shall have recommended, or entered into
an agreement with respect to a Superior Proposal,
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provided, in each case, that Parent or Purchaser is not in breach of its
representations and warranties under the Merger Agreement and shall not have
failed to perform in any material respect any of its obligations under the
Merger Agreement.
Termination Fee Payable by Parent. Parent has agreed to pay, or cause to
be paid to, the Company a fee of $20 million after the termination of the
Merger Agreement by:
(a) mutual written agreement of the Company and Parent;
(b) either the Company or Parent, if:
(i) the Offer has not been consummated on or before 18 months
after the date of the Merger Agreement, provided that (A) the right
to terminate the Merger Agreement for this reason shall not be
available to any party whose breach of any provision of the Merger
Agreement results in the failure of the Offer to be consummated by
such time and (B) such 18 month period shall be extended for the time
period equal to the time period beyond 10 business days during which
either the Company or Parent shall fail to make an appropriate filing
of a Notification and Report Form pursuant to the HSR Act;
(ii) a permanent injunction which is final and nonappealable
shall have been issued restraining or otherwise prohibiting
consummation of the Merger or any of the other transactions
contemplated by the Merger Agreement, provided that the party seeking
to terminate the Merger Agreement for this reason shall have used all
efforts to prevent the entry of such permanent injunction;
(iii) the other party shall have breached or failed to perform
in all material respects any of its obligations pursuant to Section
9.01 of the Merger Agreement (obligation of the parties to use their
best efforts to consummate the Merger) on or prior to such time,
provided that, such party shall have failed to substantially cure
such failure to perform within a reasonable time after being notified
of such failure to perform; or
(iv) the Company shall have breached or failed to perform any of
its obligations under the Merger Agreement required to be performed
on or prior to such time or any of the representations and warranties
of the Company under the Merger Agreement shall fail to be accurate
as of the date made, provided that, in each such case, (A) the
Company shall have failed to substantially cure such breach, failure
to perform or inaccuracy within a reasonable time after being
notified by Parent of such breach, failure to perform or inaccuracy
and (B) such breach, failure to perform or inaccuracy would have,
individually or in the aggregate, a material adverse effect on the
Company
provided that, at the time of such termination, the applicable waiting period
under the HSR Act shall not have expired or been terminated and the FTC, DOJ or
any other Person shall not be challenging by litigation or otherwise any of the
transactions contemplated by the Merger Agreement. Parent has delivered $20
million to an escrow account to fund its obligations described in this
paragraph, which amount shall be released to the Company immediately upon the
occurrence of one of the events listed above.
Benefit Program Funded by Parent. Parent has contributed cash in the
amount of $10 million to a Rabbi Trust, which will fund the compensation and
benefits to be provided to employees of the Company and its subsidiaries under
incentive arrangements designed and adopted by the Company. The incentives will
reward certain specified employees of the Company who remain with the Company
through the Effective Time, facilitating the Company's continued operation of
its business in the period before the Effective Time.
Expenses Payable by Parent. Whether or not the transactions contemplated
by the Merger Agreement are consummated, Parent agrees to pay all costs and
expenses incurred by the Company in connection with the Merger Agreement arising
from the Hart-Scott-Rodino review and the Company's obligations contained in
Section 9.01 of
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the Merger Agreement (obligation of the parties to use their best efforts to
consummate the Merger), including, without limitation, all costs and expenses
related to all prior antitrust analyses undertaken by the Company and its
advisors in connection with the transactions contemplated by the Merger
Agreement since October 1, 1998, preparing and filing the Notification and
Report Form pursuant to the HSR Act, responding to a Second Request issued under
the HSR Act, preventing the entry of any injunction, appealing any such
injunction, obtaining all necessary consents, approvals or waivers from any
government authorities, opposing vigorously any litigation or administrative
proceeding relating primarily to antitrust aspects of the Merger Agreement or
the transactions contemplated therein or otherwise complying with any Antitrust
Law, provided that, Parent's obligation to pay such costs and expenses shall not
exceed in the aggregate $2.5 million.
Amendments
Any provision of the Merger Agreement may be amended or waived prior to
the time the Merger becomes effective if, but only if, such amendment or waiver
is in writing and is signed, in the case of an amendment, by each party to the
Merger Agreement or, in the case of a waiver, by each party against whom the
waiver is to be effective, provided that, after the adoption of the Merger
Agreement by the stockholders of the Company and without their further approval,
no such amendment or waiver shall reduce the amount or change the kind of
consideration to be received in exchange for the Shares.
Standstill Agreement; Confidentiality Agreement
Pursuant to the Standstill Agreement, dated as of October 26, 1998,
between Parent and the Company (the "Standstill Agreement"), Parent agreed not
to purchase or agree or offer to purchase ownership of any of the Company's
securities or assets, or solicit, or participate in a solicitation of, any proxy
from shareholders of the Company, unless approved by the Company. If the Merger
Agreement is terminated for any reason, the provisions of the Standstill
Agreement shall apply to Parent in full force and effect for a period of two
years following such termination.
A copy of the Standstill Agreement is filed as Exhibit C to this Schedule
14D-9 and is incorporated herein by reference, and the foregoing summary is
qualified in its entirety by reference therein.
Pursuant to the Confidentiality Agreement, dated as of October 28, 1998,
between Parent and the Company (the "Confidentiality Agreement"), the parties
agreed to provide, among other things, for the confidential treatment of their
discussions regarding a possible acquisition of the Company by Parent and the
exchange of certain confidential information concerning the Company.
A copy of the Confidentiality Agreement is filed as Exhibit D to this
Schedule 14D-9 and is incorporated herein by reference, and the foregoing
summary is qualified in its entirety by reference thereto.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation.
At a meeting held on November 2, 1999, the Company Board, by a unanimous
vote, approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, and determined that the transactions
contemplated by the Merger Agreement, including the Offer and the Merger, are
fair to, and in the best interests of, the Company and its stockholders.
The Board of Directors of the Company recommends that stockholders approve
and adopt the Merger Agreement and the transactions and that the stockholders
accept the Offer and tender all of their Shares pursuant to the Offer.
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Copies of the letter to stockholders communicating the Company Board's
determination and recommendation and of the press release relating thereto are
filed as Exhibits E and G hereto, respectively, and are incorporated herein by
reference.
(b) Background
In March 1995, Mr. Morry Weiss, Chairman and Chief Executive Officer of
Parent, acting on rumors of the possible sale of the Company, publicly announced
Parent's interest in acquiring parts of the Company's business if the Company
were to put itself up for sale. On March 30, 1995, the Executive Committee of
the Company Board met to discuss Parent's public announcement. The Company's
legal advisors informed the Executive Committee of the regulatory issues raised
by a proposed business combination between Parent and the Company. As a result
of this advice, the Company was concerned that regulatory approval of a
transaction with Parent might not be obtained. The Executive Committee sent Mr.
Weiss a letter identifying these issues, and invited Mr. Weiss and his legal
advisors to present a solution to these concerns.
On July 6, 1995, the Company publicly announced that it was exploring the
sale of the Company after receiving preliminary expressions of interest.
On July 14, 1995, the legal advisors of Parent and the Company met to
discuss the regulatory issues that would arise in a proposed business
combination of Parent and the Company. The Company's legal advisors again gave
advice regarding the regulatory issues associated with a business combination of
Parent and the Company. In addition, the Company's representatives expressed
their concerns over sharing competitively sensitive information with Parent and
with the negative impact a failed transaction could have on the Company's
morale, personnel, retention of key customers and competitive position in the
greeting card industry.
On July 20, 1995, the Company's legal advisors met with legal advisors for
another competitor of the Company. The parties discussed the possibility of a
transaction with that other competitor. The Company Board considered these
discussions, but no further action was taken.
On July 21, 1995, the Executive Committee of the Company Board decided to
terminate discussions between Parent and the Company due to regulatory and
business concerns, and on July 24, 1995, the Company publicly announced its
rejection of Parent's offer. Parent subsequently announced the possibility that
it would pursue an unsolicited takeover of the Company, but never initiated one.
Parent sent a letter dated July 25, 1995 to the Company's legal advisor
reaffirming its interest in acquiring the Company. There were no further
contacts between the Company and Parent regarding any possible business
combination following the delivery of the July 25, 1995, letter.
The Company continued to pursue other strategic alternatives, including a
possible sale of the Company, and together with its investment bankers, prepared
an offering memorandum for such sale.
On February 14, 1996, at a Company Board meeting, the Company's investment
bankers informed the Company Board that no suitable buyer for the Company had
been identified. The Company Board determined that at that time the Company's
most viable option was to focus on operating as an independent company and that
the Company was no longer for sale. Parent again publicly announced that it was
interested in acquiring the Company, and would consider an unsolicited takeover
if the Company would not negotiate with Parent.
On February 29, 1996, each director of the Company received a letter from
Parent proposing a business combination between the Company and Parent in which
the Company's shareholders would receive consideration of $18 per share, in cash
or Parent stock. The Executive Committee of the Company Board and two additional
Company Board members met on March 3, 1996, to consider Parent's proposal. The
Executive Committee concluded that at that time the regulatory risks of the
proposed business combination with Parent were too high and authorized Mr.
Albert R. Pezzillo, then Chairman and Chief Executive Officer of the Company, to
reject Parent's proposal.
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On March 4, 1996, Parent publicly announced its interest in acquiring the
Company, without indicating the terms. On March 5, 1996, the Company issued a
press release rejecting Parent's proposal and terminating discussions with
Parent. Parent publicly disclosed the terms of its proposal to acquire the
Company and its continued interest in acquiring the Company on March 6, 1996. On
March 7, 1996, Parent indicated that it would not attempt a hostile takeover of
the Company, but would leave its $18 proposal open until March 19, 1996. The
Company responded that it would not consider Parent's proposal and would focus
on rebuilding its business and remain independent. On March 19, 1996, Parent
announced that its offer to acquire the Company had expired and that it was
abandoning further efforts to acquire the Company.
For the remainder of 1996 through late 1998, the Company focused on
operating as an independent entity, bringing in new management, including Mr.
Frank J. O'Connell, who was appointed Chief Executive Officer and President of
the Company in August 1996. The Company considered various acquisitions, some of
which were pursued unsuccessfully, in an effort to grow the Company. There were
no further contacts between the Company and Parent regarding any possible
business combination until October 1998.
On July 9, 1998, Mr. O'Connell met with the chief executive officer of a
competitor of the Company. Mr. O'Connell and this executive discussed the
possibility of the competitor making an equity investment in the Company. These
discussions led to no further action.
In the third quarter of 1998, the Company's financial performance and
stock price began to decline due to a number of internal and external factors,
many of which continue today. The Company announced its third quarter results on
October 8, 1998, after which the stock price of the Company declined from a
close of $17 1/4 per Share on October 7, 1998, to a close of $10 7/8 per Share
on October 8, 1998. The decline in the Company's financial performance and stock
price altered the competitive position of the Company in the greeting card
industry. Consequently, the Company reconsidered its strategic alternatives,
including a possible business combination with Parent.
Several important changes in the greeting card industry had a significant
negative impact on the Company in the twelve months preceding October 1998 . The
availability of electronic greeting cards sent via the internet increased
substantially. The use of electronic greeting cards, many of which were
available to consumers free of charge, eroded the traditional base of consumers
for the Company's products, who shifted their use of greeting cards to the
electronic sector. This decrease in the Company's sale of everyday products
negatively impacted the Company's financial performance because everyday
products have historically been the Company's most profitable.
The Company lost several key customer accounts in the twelve months
preceding October 1998. These losses were attributed in large part to certain
changes that occurred in the greeting card industry. Specifically, customers
continued to demand large upfront payments from the Company and its competitors
as a condition to entering into or renewing contracts, requiring the Company and
its competitors to pre-fund large payments to key customers. The Company, which
had been less well capitalized than some of its competitors, has had difficulty
in making these upfront payments. When the Company made these payments, the
result was higher costs to service the accounts, making the accounts less
profitable than in the past.
The Company also incurred higher selling and marketing expenses in
response to the changing greeting card industry. The new product programs and
strategies that the Company introduced required larger marketing expenditures.
The Company incurred increased expenses in connection with its efforts to retain
and attract customer accounts, through up-front payments and marketing
promotions.
During the twelve months preceding October 1998, the Company experienced a
lower sell through of its products, resulting in an increased rate of returns.
This higher return rate resulted in part from a decline in seasonal sales.
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In October 1998, Mr. Weiss called Mr. O'Connell to discuss a possible
transaction between Parent and the Company. Mr. O'Connell, after consultation
with the Company's legal and financial advisors, decided to meet with Mr. Weiss
to determine if a proposed business combination between Parent and the Company
was possible given the Company's weakening financial performance and competitive
position in the greeting card industry. At a meeting on October 25, 1998, Mr.
Weiss and Mr. O'Connell discussed in more detail the possible terms of such a
transaction. In connection with these discussions, the parties executed a
standstill agreement, pursuant to which Parent agreed not to purchase or agree
or offer to purchase ownership of any of the Company's securities or assets, or
solicit, or participate in a solicitation of, any proxy from stockholders of the
Company, unless approved by the Company, and a confidentiality agreement, which
included covenants by Parent to maintain the confidentiality of any information
received by Parent regarding the Company.
Following these discussions with Parent, the Company Board directed a
review of the feasibility of a potential business combination with Parent. In
connection with such review, the Company Board held meetings with its senior
management and legal and financial advisors to consider the business and
regulatory issues associated with a potential business combination with Parent.
During these meetings, the Company and its advisors reviewed the regulatory
risks and the Company concluded that Parent would need to assume the regulatory
risks if a transaction were to proceed. In addition, the Company and its
financial advisor considered other possible strategic alternatives available to
the Company, including sales to other parties.
On November 3, 1998, the Company received a letter from Parent proposing a
business combination between the Company and Parent in which the Company's
shareholders would receive consideration of $20 per share (without specifying
whether such consideration would be comprised of cash, Parent stock or some
combination). Parent's proposal offered no specific terms on which Parent would
accept the regulatory risks of a proposed combination. The Company Board was
briefed on the proposal and instructed management and the Company's legal and
financial advisors to consider the proposal, to seek appropriate clarification
from Parent and to report back to the Company Board. Over the next several
weeks, Mr. Weiss and Mr. O'Connell had numerous telephone conversations
regarding a possible business combination between the companies. Mr. O'Connell
reiterated the Company Board's concerns regarding regulatory risks and the
negative impact that a failed business combination would likely have on the
Company's business and stockholder value and requested that Parent clarify its
proposal in terms of protecting the Company and its stockholders against the
risks of a failed transaction.
On December 16, 1998, the Company Board met, together with its legal and
financial advisors, to consider Parent's proposal. At that time, the Shares were
trading at approximately $11 1/16 per Share. The Company Board discussed the
terms of Parent's letter (including the business and regulatory concerns
associated with a combination with Parent) and the strategic and other potential
alternatives to a business combination with Parent. The Company Board determined
that Parent's proposal had not adequately addressed the Company Board's concerns
regarding the allocation of regulatory risk, and the Company was therefore
unwilling to enter into further negotiations with Parent.
Over the ensuing months, the Company, Parent and their respective legal
and financial advisors discussed alternative transaction structures. In
addition, the Company Board considered strategic alternatives with other
possible parties.
On February 18, 1999, the Company announced its financial results for the
fourth quarter and full year ended December 31, 1998. The Company reported lower
net income and earnings per share for each such period in 1998 compared to the
same period a year earlier. The Company cited an increasingly competitive
greeting card industry hurt by declining unit volume among the reasons for its
financial problems. The stock price of the Company declined following this
announcement, dropping from a close of $10 per Share on February 19, 1999, to a
close of $7 per Share on March 18, 1999. In addition, since December 31, 1998,
the Company's liquidity has declined significantly, going from a substantal cash
surplus to a cash deficit as a result of the factors discussed above as well as
normal seasonal variation. As a result of these changes, the Company Board again
reconsidered the strategic alternatives available to the Company.
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In late April 1999, the Company Board received a letter from a private
equity fund that proposed that the fund, together with senior management of the
Company (including Mr. O'Connell), acquire the Company at a price of
approximately $13 per share in cash. The proposal was subject to financing, due
diligence and other conditions. After entering into customary confidentiality
and standstill agreements with the Company, the fund conducted extensive
financial and legal due diligence of the Company and its operations. The Company
Board held a meeting on April 30, 1999, to authorize a Special Committee of the
Board, chaired by Mr. Pezzillo, and including Messrs. Charles Lindberg and
George Gibson, to review the fund's proposal. The Company engaged J.P. Morgan
Securities Inc. ("J.P. Morgan") as its financial advisor pursuant to a letter
agreement dated May 6, 1999 (the "Engagement Letter"). J.P. Morgan began
advising the Company Board on the terms of a possible transaction with the fund,
while also considering other strategic alternatives available to the Company.
On May 6, 1999, the Company announced its financial results for the first
quarter ended March 31, 1999. The Company again reported a net loss for such
period attributed, in part, to lower-than-anticipated sales of everyday products
and higher returns and allowances. The stock price of the Company continued to
decline following this announcement.
On May 14, 1999, while negotiations with the fund were continuing, Mr.
Weiss sent the Company a brief letter proposing a business combination in which
Parent would acquire the Company for $10 per share in cash. The Special
Committee of the Board held a telephonic conference call with J.P. Morgan and
the Company's legal advisor to discuss the proposals of the fund and Parent. Mr.
O'Connell, because of his involvement in the fund's proposal, did not
participate in the conference call. After consultation with both J.P. Morgan and
the Company's legal advisors, the Special Committee considered the risks
involved with each proposal. Specifically, there was concern that the fund would
not be able to obtain the needed financing and that a business combination
between Parent and the Company raised business and regulatory concerns. The
Special Committee also received a preliminary report from its special regulatory
counsel which discussed the regulatory issues involved in a business combination
between Parent and the Company.
The private equity fund was not able to obtain financing on terms
acceptable to it and discussions with it ceased in late May 1999. The Special
Committee, holding numerous meetings and conference calls throughout May with
its legal and financial advisors, continued to consider the strategic
alternatives available to the Company, including a possible business combination
with Parent. The Special Committee continued to express concern over a business
combination with Parent but was willing to hold discussions with Parent if
certain conditions were met. Specifically, based on conversations with its legal
and financial advisors, the Special Committee asserted the need for conditions
in a business combination that would place the regulatory risk on Parent, while
providing the Company with certain legal and economic protections specified by
the Company Board. On May 19, 1999, Mr. Pezzillo sent Mr. Weiss a letter
indicating that the Special Committee would need to receive a more detailed
proposal from Parent which included a regulatory strategy, assurances from
Parent that it would fully assume any regulatory risks and specific terms of a
proposed merger agreement that would maximize the chances for a successful
transaction.
In mid-May 1999, New Valley Corporation, an investment fund led by
Bennett S. LeBow, increased its holdings of the Company's stock to 5.01%. Mr.
LeBow contacted Mr. O'Connell and requested a meeting with the Company Board.
Mr. O'Connell discussed New Valley's investment in the Company with the Company
Board. Mr. O'Connell indicated to Mr. LeBow that the Company Board would be
willing to consider a formal proposal from New Valley, but was not in a
position to hold an informational meeting with New Valley.
The Special Committee, after consultation with its legal and financial
advisors, determined that given the Company's continued poor financial
performance during the first half of 1999, a meeting with Parent to attempt to
resolve the Company's regulatory concerns was warranted. On June 8, 1999, Mr.
Weiss, Mr. O'Connell, Mr. Pezzillo and their respective legal and economic
advisors met to discuss the feasibility and terms of a business combination.
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Discussions continued for the next week, with Parent presenting a new
proposal on June 18, 1999, in which Parent would acquire the Company for $10 per
share in cash, pay the Company a termination fee of $5 million if regulatory
approval were not obtained and fund a $4 million program to retain key employees
of the Company. On June 21, 1999, the Company Board met, together with its legal
and financial advisors, to consider Parent's proposal. The Company Board
determined that the economic protections offered by Parent did not sufficiently
protect the Company in the event that regulatory approval were not obtained and
Parent's proposal was therefore rejected.
On July 19, 1999, the Company released a preliminary analysis of its
results for the second quarter ended June 30, 1999. The Company announced that
it expected a further decline in its financial results with a continued increase
in its loss per share due to weak sales and its on-going restructuring plan. In
addition, the Company announced that it expected to report a loss for the full
year ended December 31, 1999. The stock price of the Company fell from a close
of $6 1/8 per Share on July 16, 1999, to a close of $5 3/16 per Share on July
23, 1999.
Following continued discussions and negotiations, Mr. Weiss telephoned Mr.
O'Connell and Mr. Pezzillo on July 19, 1999, with an updated proposal. The
proposal contemplated a $10 per share cash offer for the Company, a $15 million
termination fee if regulatory approval were not obtained and a $15 million
retention program for the Company funded by Parent. Messrs. O'Connell and
Pezzillo presented the updated proposal from Mr. Weiss to the Company Board on
July 21, 1999. The Company Board determined that several issues, including the
price, the certainty of closing, the termination fee and the retention program,
needed to be clarified before further discussions could take place. Before the
Company Board would consider the proposed price, however, it insisted that
Parent agree to certain conditions designed to maximize the chances for a
successful transaction and to limit the Company's exposure in the event of a
failed transaction. More specifically, Parent would have to agree to commit
fully to obtaining regulatory approval, limited termination rights under the
Merger Agreement, limited closing conditions to the Offer, a non-refundable $15
million retention program and a $15 million termination fee payable in all
circumstances except if the Company Board recommended a superior transaction
with another party pursuant to its fiduciary obligations. Mr. O'Connell sent Mr.
Weiss a letter dated July 26, 1999, detailing these structural requirements for
a business combination.
Mr. Weiss responded with a letter dated July 29, 1999, which addressed
some, but not all, of the Company Board's concerns. On August 3, 1999, the
Company Board met to consider Parent's latest proposal. The Company Board, after
consultation with its financial and legal advisors, determined that Parent still
had not adequately addressed the Company Board's concerns regarding assumption
of regulatory risk and certainty of closing. Mr. O'Connell sent Mr. Weiss a
letter dated August 4, 1999, which rejected Parent's latest proposal.
During August 1999, Mr. Weiss and Mr. O'Connell continued to discuss a
possible business combination. The Company Board, after consultation with its
legal and financial advisors, instructed Mr. O'Connell that it would not
consider another proposal from Parent unless such proposal contained guarantees
on assumption of regulatory risk, certainty of closing of the transaction and
adequate financial safeguards for the Company and its stockholders in the event
of a failed transaction. Mr. O'Connell communicated this position to Mr. Weiss
in a letter dated August 11, 1999.
The parties exchanged numerous written communications during the month of
August that detailed each party's position on a variety of issues. The Company
considered each of these communications with its legal and financial advisors
and periodically with the Company Board or the Executive Committee of the
Company Board. In late August 1999, Mr. Weiss indicated to Mr. O'Connell that
Parent was reevaluating its previously stated proposal to acquire the Company at
a price of $10 per Share. Mr. O'Connell, after conferring with the Company
Board, advised Mr. Weiss that the Company would not consider an offer of less
than $10 per Share.
Mr. Weiss and Mr. O'Connell continued discussions during September 1999,
engaging in numerous telephone calls, exchanging detailed written
communications and meeting with their respective legal and financial advisors.
During this time, New Valley continued to increase its holdings in the Company
to 6.8% and requested a meeting with the Company Board and an active role in
management of the Company. Mr. O'Connell conferred with the
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Company Board and legal and financial advisors as to New Valley's requests. Mr.
O'Connell advised New Valley that its request for a meeting with the Company
Board would only be considered if it was prepared to make a formal proposal
concerning the Company. New Valley never made a formal proposal, written or
oral, to the Company Board.
By mid-September 1999, Parent and the Company had agreed on certain key
contract terms which the Company Board required. The parties also had limited
discussions regarding price. Among the key terms the parties agreed to were: a
non-refundable $15 million retention program funded by Parent; a $15 million
termination fee payable by Parent in all circumstances except if the Company
accepted a superior proposal from another party pursuant to its fiduciary
obligations; limited closing conditions to the Offer and the Merger; and
representations and warranties of the Company given only as of the date of the
Merger Agreement, including the Company's representation and warranty regarding
material adverse effects on the Company's business. At a September 22, 1999,
Company Board meeting, Mr. O'Connell and the Company's legal and financial
advisors updated the Company Board on the status of discussions with Parent. The
Company Board authorized Mr. O'Connell to proceed with further discussions with
Parent regarding a possible business combination, but only if the key terms were
strictly adhered to and Parent agreed to a price per Share of at least $10.
From September 23, 1999 to October 2, 1999, Parent conducted business and
legal due diligence of the Company and its operations.
From October 1, 1999 through October 14, 1999, representatives of Parent
and the Company negotiated the terms of the Merger Agreement. During this
period, the Company determined that a higher termination fee would better
protect the Company and its shareholders in the event of a failed transaction.
Parent and the Company agreed to increase the termination fee to $20 million
while reducing the retention program to $10 million. The parties continued to
have on-going discussions on price. On October 14, 1999, negotiations between
the parties terminated due to differences on key contract terms relating to
allocation of regulatory risk.
On October 24, 1999, Mr. Weiss contacted Mr. O'Connell to inquire if the
parties would be able to settle their outstanding differences. Mr. O'Connell
insisted that no further negotiations would take place unless Parent was
willing to accept all of the regulatory risk of a proposed business
combination. After conferring with senior management and his legal advisors,
Mr. Weiss telephoned Mr. O'Connell later that week and indicated that Parent,
under certain conditions, would accept certain regulatory risks.
Mr. O'Connell discussed Parent's proposal with his legal and financial
advisors and Mr. Pezzillo. All parties agreed that Parent's revised proposal was
unacceptable due to the conditions required by Parent with respect to the
regulatory risk. On October 28, 1999, Mr. O'Connell and Mr. Pezzillo spoke with
Mr. Weiss and rejected Parent's revised proposal. During this telephone call,
the parties continued to discuss the allocation of regulatory risk and were able
to resolve the outstanding issues. The parties tentatively agreed on a price of
$10.25 per Share, which Mr. Weiss confirmed in an October 29, 1999, telephone
call with Mr. O'Connell.
From October 30, 1999, to November 1, 1999, representatives of Parent and
the Company finalized the terms of the Merger Agreement.
At a special meeting held on November 1, 1999, the Board of Directors of
Parent approved the Offer, the Merger and the Merger Agreement.
On November 1, 1999, at a special meeting of the Company Board attended by
senior management and the Company's legal and financial advisors, Mr. O'Connell
updated the directors on the status of the discussions with Parent. The Company
Board was advised of the legal and regulatory aspects of the proposed
transaction and management discussed the Company's prospects under its business
plan as an independent company. Representatives of J.P. Morgan then delivered
their oral opinion to the Company Board (subsequently confirmed in writing)
that, as of such date, the consideration proposed to be received by the
stockholders of the Company in the Offer and in the Merger was fair, from a
financial point of view, to such holders. At the end of the meeting, the Company
Board met in executive session to discuss the proposed transaction further. On
November 2, 1999, at a
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special meeting of the Company Board attended by senior management and the
Company's legal and financial advisors, Mr. O'Connell reported on the favorable
response to the proposed transaction received from one of the Company's key
accounts. Thereafter, after further discussion of the proposed transaction, the
Company Board, by the unanimous vote of all directors, approved the Offer, the
Merger and the Merger Agreement and determined to recommend that the Company's
stockholders accept the Offer and tender their Shares and approve the Merger and
the Merger Agreement, to the extent required by applicable law.
On November 2, 1999, the Company, Parent and Purchaser executed the Merger
Agreement.
On November 9, 1999, Purchaser commenced the Offer.
(c) Reasons for Recommendation.
In reaching its conclusions and recommendation described in section (a)
above, the Company Board considered a number of factors, including the
following:
(i) The Company's business, financial condition, results of
operations, assets, liabilities, business strategy and prospects, as well
as various uncertainties associated with those prospects. Specifically,
the Company Board considered:
(a) the loss during the past 12 to 18 months of key customer
accounts due to the Company's inability to provide upfront payments
required by customers, and the potential for continuing escalation of
upfront payments and customer losses in the future;
(b) the greater financial resources of some of the Company's
competitors, which could cause competitive disadvantages to the
Company;
(c) the contracting greeting cards industry and emergence of the
internet and electronic greeting cards as product substitutes;
(d) the uncertainties in finding new growth initiatives;
(e) the continued decline of the Company as a competitive force
in the greeting card industry; and
(f) the continued decline in the Company's financial
performance, liquidity and stock price.
(ii) The structure of the transaction, which is designed, among other
things, to maximize certainty of closing of the Offer, places a
significant portion of the regulatory risk on Parent and provide the
Company with economic protection in the event of a failed transaction.
(a) Certainty of Closing. The Merger Agreement contains several
provisions that maximize the prospects for a successful closing of
the transaction. There are limited conditions to the closing of the
Offer, the effect of which is to increase the certainty of Parent
closing the Offer. See "Merger Agreement-Conditions of the Offer"
discussed above. The Merger Agreement limits Parent's ability to
terminate the Merger Agreement, the Offer and the transactions
contemplated thereby. See "Merger Agreement-Termination of the Merger
Agreement" discussed above. In addition, although the Merger
Agreement contains customary representations and warranties by the
Company, they need only be true as of the date of the Merger
Agreement, so that changes in circumstances between the date of the
Merger Agreement and the closing of the Offer, including any changes
in the Company's business and financial condition, do not permit
Parent to terminate the transaction, even if such changes have a
material adverse effect on the Company.
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(b) Regulatory Risks. The Merger Agreement allocates a
substantial amount of the regulatory risk to Parent. Parent and the
Company are obligated for a period of 18 months to take all actions
needed to obtain clearance under the applicable antitrust laws. Under
the Merger Agreement, Parent is obligated to vigorously defend in
litigation any claim on the merits asserted in any court by any party
through a final and nonappealable judgment. In addition, Parent must
pursue a resolution with any governmental authority, and if
acceptable to such governmental authority, enter into a settlement,
undertaking, consent decree, stipulation or other agreement with such
governmental authority regarding antitrust matters in connection with
the transactions contemplated by the Merger Agreement. Neither Parent
nor the Company shall be required to enter into a settlement that
requires Parent and/or the Company to sell or otherwise dispose of
assets of Parent and its subsidiaries and/or the Company and its
subsidiaries if such divestiture would have a material adverse effect
on the pro forma combined business of Parent and the Company. See
"Merger Agreement-Covenants and Representations and Warranties-Best
Efforts; Antitrust Approvals" discussed above. Parent has also agreed
to pay up to $2.5 million of the Company's costs and expenses
incurred in connection with the Merger Agreement arising from the HSR
review. See "Merger Agreement-Fees and Expenses-Expenses Payable by
Parent" discussed above.
(c) Economic Protections . The Merger Agreement provides the
Company with certain economic protections if the transaction does not
close. The Company will receive a reverse termination fee of $20
million if the Merger Agreement is terminated, except in limited
circumstances. See "Merger Agreement-Fees and Expenses-Termination
Fee Payable by Parent" discussed above. In addition, Parent has
contributed $10 million to a Rabbi Trust, which will fund
compensation and benefits to be provided to employees of the Company
and its subsidiaries under incentive arrangements designed and
adopted by the Company. The incentives will reward certain specified
employees of the Company who remain with the Company through the
Effective Time, facilitating the Company's continued operation of its
business in the period before the Effective Time.
(iii) The alternatives to the Merger available to the Company,
including, without limitation, continuing to maintain the Company as an
independent company and not engaging in any extraordinary transaction,
which the Company's Board deemed less attractive in light of the
uncertainties associated with each of these alternatives and the timing
and possible values that might be realized by stockholders pursuant to
such alternatives. The Company Board considered strategic alternatives
available to the Company, including sales to financial buyers and to other
competitors of the Company. The Company also considered the synergies that
a business combination between Parent and the Company offered.
(iv) The fact that the $10.25 per Share price to be received by the
Company's stockholders in both the Offer and the Merger represents a
premium of (y) 110.9% over the average closing prices for the Shares for
the 30-trading day period preceding November 3, 1999, the date of public
announcement of the proposed transaction between the Company and Parent,
and (z) 83.4% over the average closing prices for the Shares for the
six-month period preceding November 3, 1999, the date of public
announcement of the proposed transaction between the Company and Parent.
(v) The fact that the consideration to be received by the Company's
stockholders in the Offer and the Merger would be payable in cash, thus
eliminating any uncertainties in valuing the consideration to be received
by the Company's stockholders. In addition, the Company Board considered
the price adjustment that Company shareholders would receive in the event
that the Company sells or disposes for cash of its interest in E-Greetings
Network prior to the expiration of the Offer. See "Merger Agreement--The
Offer--Terms of the Offer" discussed above.
(vi) The oral opinion (subsequently confirmed in writing) of J.P.
Morgan, the Company's financial advisor, that, as of the date thereof and
based upon and subject to various considerations and assumptions set forth
therein, the consideration to be paid to the Company's stockholders
pursuant to the Offer and the Merger is fair, from a financial point of
view, to such stockholders. A copy of the opinion rendered by J.P. Morgan
to the Company's Board, setting forth the procedures followed, the matters
considered, the scope of the review
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undertaken and the assumptions made by J.P. Morgan in arriving at its
opinion, is attached hereto as Annex A and is incorporated herein by
reference. Stockholders are urged to read such opinion in its entirety.
(vii) The financial and other terms and conditions of the Offer, the
Merger and the Merger Agreement including, without limitation, the fact
that the terms of the Merger Agreement will not unduly discourage other
third parties from making proposals subsequent to execution of the Merger
Agreement, will not prevent the Company Board from determining, in the
exercise of its fiduciary duties in accordance with the Merger Agreement,
to provide information to and engage in negotiations with such third
parties and will permit the Company, subject to payment of a $7 million
termination fee, to enter into a transaction with a party that makes a
proposal that would be more favorable to the Company's stockholders than
the Offer and the Merger.
The foregoing discussion of the information and factors considered and
given weight by the Company's Board is not intended to be exhaustive. In view of
the variety of factors considered in connection with its evaluation of the Offer
and the Merger, the Company's Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Company's
Board may have given different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company has retained J.P. Morgan as its exclusive financial advisor in
connection with the Offer and the Merger. Under the terms of the Engagement
Letter, the Company will pay J.P. Morgan as follows: (i) an engagement fee of
$100,000, which was payable on May 6, 1999; (ii) a fee of $600,000, which was
payable on November 2, 1999; and (iii) a success fee of $1,500,000, which is
payable upon consummation of the Offer. The aggregate of such payments will not
exceed $1,500,000. The Company has also agreed in the Engagement Letter to
reimburse J.P. Morgan for all reasonable out-of-pocket expenses (not to exceed
$60,000 without the Company's prior approval), including, without limitation,
the fees and expenses of counsel, and to indemnify J.P. Morgan and certain
related persons against certain liabilities, including certain liabilities under
the federal securities laws, relating to or arising out of its engagement.
Except as set forth above, neither the Company nor any person acting on
its behalf has employed, retained or agreed to compensate any person to make
solicitations or recommendations to stockholders of the Company concerning the
Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) During the past sixty days no transaction in the Shares has been
effected by the Company or, to the best knowledge of the Company, by any
executive officer, director, affiliate or subsidiary of the Company (other than
in the ordinary course of business in connection with the Company's employee
benefit plans and director option plans).
(b) To the best knowledge of the Company, all of the Company's directors
and executive officers currently intend to tender pursuant to the Offer all
Shares held of record or beneficially owned by them (other than Shares issuable
upon exercise of options and Shares, if any, which if tendered could cause such
persons to incur liability under the provisions of Section 16(b) of the
Securities Exchange Act of 1934).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as discussed in this Schedule 14D-9, no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary of the Company, a
purchase, sale or transfer of a material amount of assets by the Company, a
tender offer for or other acquisition of securities by or of the Company or any
material change in the present capitalization or dividend policy of the Company.
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As described in Item 3(b), subject to certain exceptions, the Merger
Agreement provides that the Company will not, and will cause its subsidiaries
and the officers, directors, investment bankers, attorneys, accountants,
consultants or other agents or advisors of the Company and its subsidiaries not
to (i) take any action for the primary purpose of soliciting, initiating or
encouraging the submission of any Acquisition Proposal (as defined below), (ii)
engage in substantive discussions or negotiations with, or disclose any material
nonpublic information relating to the Company or any of its subsidiaries or
afford access to the properties, books or records of the Company or any of its
subsidiaries to, any Person who the Company should reasonably be expected to
know is considering making, or has made, an Acquisition Proposal or (iii)
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage any effort or attempt by any other Person, in each case, for the
primary purpose of making an Acquisition Proposal or enter into any agreement,
arrangement or understanding requiring it to abandon, terminate or fail to
consummate the Merger, the Offer or any other transaction contemplated by the
Merger Agreement.
As described in Item 3(b), the Company may negotiate or otherwise engage
in substantive discussions with, and furnish nonpublic information to, any
Person who delivers a Superior Proposal if (i) the Company has complied with the
terms of Section 7.04 of the Merger Agreement (no solicitation of alternative
transactions), (ii) the Company has notified Parent promptly after its receipt
of any Acquisition Proposal, (iii) the Company Board determines in its good
faith, reasonable judgment, after consultation with and the receipt of advice
from its financial advisor and legal counsel, that failure to take such action
could create a reasonable possibility of a breach of its fiduciary duties under
applicable law and (iv) such person executes a confidentiality agreement with
the Company.
(b) None.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The following information is in addition to the information set forth in
Item 4.
(a) Restated Certificate of Incorporation. Article VI of the Company's
Restated Certificate of Incorporation ("Article VI") provides that the adoption
of any agreement for the merger of the Company with, or any sale or other
disposition of all or substantially all of the assets of the Company to, a
person that is a "Related Person" of the Company requires (i) the affirmative
vote of the holders of "Voting Shares" entitled to exercise not less than 80
percent of the total voting power of outstanding Voting Shares of the Company,
and (ii) the affirmative vote of at least 50 percent of the total voting power
of all outstanding Voting Shares held by stockholders other than the Related
Person. Shares held beneficially by a Related Person include shares beneficially
owned by any affiliate or associate of such person and shares such person or its
affiliates or associates have the right to acquire pursuant to agreement or with
respect to which such person or its affiliates or associates have any agreement,
arrangement or understanding for the purposes of acquiring, holding, voting or
disposing of voting securities of the Company. Article VI thus has the effect of
increasing the voting requirements that would otherwise be required under
applicable law for approval of extraordinary transactions to which it applies.
Under Article VI, (i) an "associate" of a specified person is (A) any
corporation or organization (other than the Company or a majority-owned
subsidiary of the Company) of which such specified person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10 percent or
more of any class of equity securities, (B) any trust or estate in which such
specified person has a substantial beneficial interest or as to which such
specified person serves as a trustee or in a similar fiduciary capacity, and (C)
any relative or spouse of such specified person, or any relative of such spouse,
having the same home as such specified person or who is a director or officer of
the Company or any of its subsidiaries; and (ii) an "affiliate" of a specified
person is any other person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified person.
The enhanced voting requirements of Article VI do not apply to a Business
Combination that has been approved (either before or after the Related Person
became a Related Person) by a majority of the Continuing Directors and therefore
will not apply to the Offer and the Merger.
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The enhanced voting requirements imposed by Article VI also do not apply
to a Business Combination in which all of the following conditions are
satisfied:
(1) The cash or fair market value of the property, securities or
other consideration to be received per share by holders of the Common
Stock in the Business Combination is not less than the greater of (i) the
highest per share price paid such Related Person in acquiring any of its
holding of shares of Common Stock or (ii) an amount which bears the same
or greater percentage relationship to the market price of Common stock
immediately prior to the announcement of such Business Combination as the
highest per share price determined in accordance with (i) above bears to
the market price of Common Stock immediately prior to the announcement of
such business Combination as the highest per share price determined in
accordance with (i) above bears to the market price of Common Stock
immediately prior to the commencement of acquisition of Common Stock by
such Related Person; and
(2) After becoming a Related Person of the Company and prior to the
consummation of such Business Combination, (i) such Related Person shall
not have acquired any newly issued shares of capital stock, directly or
indirectly, from the Company (except upon conversion of convertible
securities acquired by it prior to becoming a Related Person of the
Company or upon compliance with the provisions of Article VI or as a
result of a pro rata stock dividend or stock split) and (ii) shall not
have received the benefit, directly or indirectly (except proportionately
as a stockholder) of any loans, advances, guarantees, pledges or other
financial assistance or tax credits provided by the Company, or made any
major changes in the Company's business or equity capital structure, and
(iii) there shall have been no reduction in the rate of dividends payable
on the Common Stock, except as may have been approved by unanimous vote of
the Board; and
(3) A proxy statement responsive to the requirements of the Exchange
Act, whether or not the Company is then subject to such requirements,
shall be mailed to the public stockholders of the Company for the purpose
of soliciting stockholder approval of such Business Combination setting
forth (i) any recommendation as to the advisability (or inadvisability) of
the Business Combination which the Continuing Directors may choose to
state, and (ii) the opinion of a reputable nationally recognized banking,
investment banking or other firm naturally recognized as qualified to
render such an opinion as to the fairness (or not) of the terms of such
Business Combination, from the point of view of the remaining public
stockholders of the Company.
Article VI may be amended only upon receiving the affirmative vote of the
holders of Voting Shares entitling them to exercise not less than 80 percent of
the total voting power of all outstanding Voting Shares, provided that, if there
is a Related Person at the time of such vote, such 80 percent must include the
affirmative vote of at least 50 percent of the voting power of Voting Shares
held by stockholders other than the Related Person.
The Company has taken all action necessary to exempt the Offer, the
Merger, the Merger Agreement and the transactions contemplated thereby from the
provisions of Article VI.
(b) The Rights Agreement. On September 8, 1999, the Board entered into the
Rights Agreement and declared a dividend of a new Right for each outstanding
share of Common stock. The dividend was paid on September 15, 1999, to the
stockholders of record on September 8, 1999. Each Right entitles the registered
holder to purchase from the company a unit ("Unit") consisting of one
one-hundredth of a share of Series B Preferred Stock, par value $1.00 per share,
of the Company at a price of $25 per Unit, subject to adjustment. The
description and terms of the Rights are set forth in the Rights Agreement.
Simultaneously with the execution of the Merger Agreement, the Company and the
Rights Agent executed an amendment to the Rights Agreement, which renders the
Rights Agreement inapplicable to the Offer and the Merger by providing that (w)
the approval, execution, delivery and performance of the Merger Agreement by the
parties thereto, (x) the consummation by Parent of the tender offer contemplated
by the Merger Agreement, (y) the approval of the Merger Agreement by the
Company's stockholders and (z) the consummation of any of the other transactions
contemplated by the Merger Agreement will not cause the rights issued pursuant
to the Rights Agreement to become exercisable to purchase any securities of the
Company or any other securities.
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The foregoing summary of the Rights is qualified in its entirety by
reference to the Rights Agreement, a copy of which is filed as Exhibit 4 to the
Company's current Report on Form 8-K filed September 13, 1999, and is
incorporated herein by reference.
(c) Section 203. As a Delaware corporation, the Company is subject to
Section 203 ("Section 203") of the Delaware General Corporation Law. Section 203
prohibits a corporation that has voting stock traded on a national securities
exchange, designated on The NASDAQ Stock Market or held of record by more than
2,000 stockholders from engaging in certain business combinations, including a
merger, sale of substantial assets, loan or substantial issuance of stock, with
an interested stockholder (defined as the owner of 15% or more of the
corporation's voting stock), or an interested stockholder's affiliates or
associates, for a three-year period beginning on the date the interested
stockholder acquires 15% or more of the outstanding voting stock of the
corporation. The restrictions on business combinations do not apply if (i) prior
to such date, the board of directors gives prior approval to the business
combination or the transaction in which the 15% ownership level is exceeded,
(ii) the interested stockholder acquires, in the transaction pursuant to which
the interested stockholder becomes the owner of 15% or more of the outstanding
stock, 85% of the corporation's stock (excluding those shares owned by persons
who are directors and also officers as well as employee stock plans in which
employees do not have a confidential right to determine whether shares held
subject to the plan will be tendered in a tender or exchange offer) or (iii) the
business combination is approved by the board of directors and authorized at a
meeting of stockholders by the holders of at least two-thirds of the outstanding
voting stock, excluding shares owned by the interested stockholder. In
accordance with the provisions of the Company's certificate of incorporation and
Section 203, the Company Board has approved the Merger Agreement and Purchaser's
acquisition of Shares pursuant to the Offer and the Merger and the transactions
contemplated by the Merger Agreement and, therefore, the restrictions of Section
203 are inapplicable to the Offer, the Merger and the related transactions.
(d) Ohio Takeover Laws. Sections 1707.01, 1707.041, and 1707.042 of the
Ohio Revised Code (collectively, the "Ohio Take-Over Act") regulate tender
offers for any equity security of a subject company from a resident of Ohio if,
after the purchase, the offeror would directly or indirectly be the beneficial
owner of more than 10% of any class of issued and outstanding equity securities
of such company (a "control bid"). A subject company includes an issuer, such as
the Company, that either has its principal place of business or principal
executive offices locate in Ohio or owns or controls assets located in Ohio that
have a fair market value of at least $1 million, and that has more than 10% of
its beneficial or record equity security holders resident in Ohio, or has more
than 10% of its equity securities owned, beneficially or of record, by residents
in Ohio. A subject company, however, need not be incorporated in Ohio.
The Ohio Take-Over Act prohibits an offeror from making a control bid for
securities of a subject company pursuant to a tender offer until the offeror has
filed specified information with the Ohio Division of Securities (the "Ohio
Division"). In addition, the offeror is required to deliver a copy of such
information to the subject company not later than the offeror's filing with the
Ohio Division and to send or deliver such information and the material terms of
the proposed offer to all offerees in Ohio as soon as practicable after the
offeror's filing with the Ohio Division.
Within five calendar days of such filing, the Ohio division may, by order,
summarily suspend the continuation of the control bid if it determines that the
offeror has not provided all of the specified information or that the control
bid materials provided to offerees do not provide full disclosure of all
material information concerning the control bid. If the Ohio Division summarily
suspends a control bid, it must schedule and hold a hearing within 10 calendar
days of the date on which the suspension is imposed and must make its
determination within three calendar days after the hearing has been completed
but no later than 14 calendar days after the date on which the suspension is
imposed. The Ohio Division may maintain its suspension of the continuation of
the control bid if, based upon the hearing, it determines that all of the
information required to be provided by the Ohio Take-Over Act has not been
provided by the offeror, that the control bid materials provided to offerees do
not provide full disclosure of all material information concerning the control,
or that the control bid is in material violation of any provision of the Ohio
securities laws. If, after the hearing, the Ohio Division maintains the
suspension, the offeror
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has the right to correct the disclosure and other deficiencies identified by the
Ohio Division and to reinstitute the control bid by filing new or amended
information pursuant to the Ohio Take-Over Act.
Purchaser has filed the information required under the Ohio Take-Over Act.
(e) Appraisal Rights. No appraisal rights are available to holders of
Shares in connection with the Offer. However, if the Merger is consummated,
holders of Shares may have certain rights under Section 262 of the DGCL to
dissent and demand appraisal of, and payment in cash for the fair value of,
their Shares. Such rights, if the statutory procedures are complied with, could
lead to a judicial determination of the fair value (excluding any element of
value arising from accomplishment or expectation of the Merger) required to be
paid in cash to such dissenting holders for their Shares. Any such judicial
determination of the fair value of the Shares could be based upon considerations
in addition to the applicable offer price and the market value of the Shares,
including asset values and the investment value of the Shares. The value so
determined could be more or less than the Offer Price.
If any holder of Shares who demand appraisal under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses his or her right to
appraisal, as provided in the DGCL, each of the Shares of such holder will be
converted into the Offer Price in accordance with the Merger Agreement. A
stockholder may withdraw his or her demand for appraisal by delivery to
Purchaser of a written withdrawal of his or her demand for appraisal and
acceptance of the Merger.
(f) Antitrust. Under the HSR Act, and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the United States Department of Justice
(the "Antitrust Division") and the FTC and certain waiting period requirements
have been satisfied. The acquisition of Shares by Purchaser pursuant to the
Offer is subject to such requirements.
Pursuant to the requirements of the HSR Act, Parent and the Company expect
to file the required Notification and Report Forms (the "Forms") with respect to
the Offer and the Merger with the Antitrust Division and the FTC as soon as
reasonably practicable following the date hereof. The statutory waiting period
applicable to the purchase of Shares pursuant to the Offer will expire at 11:59
P.M., New York City time, on the fifteenth day after Purchaser has filed its
Form. However, prior to such date, the Antitrust Division or the FTC may extend
the waiting period by requesting additional information or documentary material
relevant to the acquisition. If such a request is made, the waiting period will
be extended until 11:59 P.M., New York City time, on the tenth day after
substantial compliance by Parent and the Company with such request. Thereafter,
such waiting period can be extended only by court order.
A request is being made pursuant to the HSR Act for early termination of
the waiting period applicable to the Offer. There can be no assurance, however,
that the 15-day HSR Act waiting period will be terminated early.
The Antitrust Division and the FTC frequently scrutinize the legality
under the antitrust laws of transactions such as the acquisition of Shares by
Purchaser pursuant to the Offer. At any time before or after the consummation of
any such transactions, the Antitrust Division or the FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares pursuant to the
Offer or seeking divestiture of the Shares so acquired or divestiture of
substantial assets of Parent or the Company. Private parties (including
individual states) may also bring legal actions under the antitrust laws. There
can be no assurance that a challenge to the Offer on antitrust grounds will not
be made, or if such a challenge is made, what the result will be.
The Merger Agreement also provides that if any administrative or judicial
action or proceeding, including any proceeding by a private party, is instituted
(or threatened to be instituted) challenging any transaction contemplated by the
Merger Agreement as violative of any Antitrust Law (as defined in the Merger
Agreement), each of Parent and the Company shall cooperate in all respects with
each other and use its respective best efforts to contest and resist any such
action or proceeding and to have vacated, lifted, reversed or overturned any
decree, judgment,
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injunction or other order, whether temporary, preliminary or permanent, that is
in effect and that prohibits, prevents or restricts consummation of the
transactions contemplated by the Merger Agreement, including, without
limitation, vigorously defending in litigation on the merits any claim asserted
in any court by any party through a final and nonappealable judgment. In
addition, the Merger Agreement provides that each of Parent and the Company
shall be required to pursue a resolution with any governmental authority and, if
acceptable to any governmental authority, enter into a settlement, undertaking,
consent decree, stipulation or other agreement with such governmental authority
regarding antitrust matters in connection with the transactions contemplated by
the Merger Agreement (each, a "Settlement"). Neither Parent nor the Company
shall be required to enter into any Settlement that requires Parent and/or the
Company to sell or otherwise dispose of assets of Parent and/or the Company and
their respective subsidiaries if such disposition would have a material adverse
effect on the pro forma combined business of Parent and the Company.
The Company conducts business in a number of other foreign countries and
jurisdictions. In connection with the acquisition of the Shares pursuant to the
Offer or the Merger, the laws of certain of those foreign countries and
jurisdictions may require the filing of information with, or the obtaining of
the approval or consent of, governmental authorities in such countries and
jurisdictions. The governments in such countries and jurisdictions might attempt
to impose additional conditions on the Company's operations conducted in such
countries and jurisdictions as a result of the acquisition of the Shares
pursuant to the Offer or the Merger. If such approvals or consents are found to
be required, the parties intend to make the appropriate filings and
applications. In the event such a filing or application is made for the
requisite foreign approvals or consents, there can be no assurance that such
approvals or consents will be granted and, if such approvals or consents are
received, there can be no assurance as to the date of such approvals or
consents.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The following Exhibits are filed herewith:
A. The Company's Information Statement dated November 9, 1999 (attached
as Schedule I hereto).*
B. Agreement and Plan of Merger dated as of November 2, 1999 among the
Company, Purchaser and Parent.
C. Standstill Agreement dated as of October 26, 1998 between Parent and
the Company.
D. Confidentiality Agreement dated as of October 28, 1998 between Parent
and the Company.
E. Letter to the Company's stockholders dated November 9, 1999.*
F. Opinion of J.P. Morgan Securities Inc. dated November 2, 1999
(attached as Annex A hereto).*
G. Press Release of the Company dated November 3, 1999.
- --------------------
* Included in copies mailed to stockholders.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
GIBSON GREETINGS, INC.
Date: November 9, 1999
By: /s/ James T. Wilson
--------------------------------
Name: James T. Wilson
Title: Executive Vice President,
Finance and Operations
and Chief Financial Officer
24
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ANNEX A
[J.P. Morgan letterhead]
November 2, 1999
Board of Directors
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, OH 45237
Attention: Mr. Frank J. O'Connell
Chairman
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Gibson Greetings, Inc. (the "Company") of the
consideration to be paid to them in connection with the proposed Offer and
Merger (each as defined below). Pursuant to the Agreement and Plan of Merger,
dated as of November 2, 1999 (the "Agreement"), among the Company, American
Greetings Corporation (the "Buyer") and Granite Acquisition Corp., a wholly
owned subsidiary of the Buyer ("Merger Subsidiary"), Merger Subsidiary will make
an offer (the "Offer") to purchase for cash any and all of the outstanding
shares of common stock, par value $0.01 per share, of the Company (each, a
"Share") at a price of $10.25 per Share, subject to adjustment as set forth in
the Agreement. Pursuant to the Agreement, following consummation of the Offer,
Merger Subsidiary will be merged with and into the Company (the "Merger" and,
together with the Offer, the "Transaction"), the Company will be the surviving
corporation, and each Share outstanding immediately prior to the effective time
of the Merger (other than Shares to be canceled pursuant to the Agreement and
other than dissenting Shares) will be converted into the right to receive $10.25
in cash or any higher price paid for each Share in the Offer.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii) certain
publicly available information concerning the business of the Company and of
certain other companies engaged in businesses comparable to those of the
Company, and the reported market prices for certain other companies' securities
deemed comparable; (iii) publicly available terms of certain transactions
involving companies comparable to the Company and the consideration received for
such companies; (iv) current and historical market prices of the Shares; (v) the
audited financial statements of the Company for the fiscal year ended December
31, 1998, and the unaudited financial statements of the Company for the period
ended June 30, 1999; (vi) certain agreements with respect to outstanding
indebtedness or obligations of the Company; (vii) certain internal financial
analyses and forecasts prepared by the Company and its management; and (viii)
the terms of other business combinations that we deemed relevant.
In addition, we have held discussions with certain members of the management of
the Company with respect to certain aspects of the Transaction, the past and
current business operations of the Company, the financial condition and future
prospects and operations of the Company, the effects of the Transaction on the
financial condition and future prospects of the Company, and certain other
matters we believed necessary or appropriate to our inquiry. We have reviewed
such other financial studies and analyses and considered such other information
as we deemed appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company or otherwise
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reviewed by us, and we have not assumed any responsibility or liability
therefor. We have not conducted any valuation or appraisal of any assets or
liabilities, nor have any such valuations or appraisals been provided to us. In
relying on financial analyses and forecasts provided to us, we have assumed
that they have been reasonably prepared based on assumptions reflecting the
best currently available estimates and judgments by management as to the
expected future results of operations and financial condition of the Company to
which such analyses or forecasts relate. We have also assumed that the
Transaction will have the tax consequences described in discussions with, and
materials furnished to us by, representatives of the Company, and that the
Offer, Merger and other transactions contemplated by the Agreement will be
consummated as described in the Agreement. We have further assumed that all
material governmental, regulatory or other consents and approvals necessary for
the consummation of the Transaction as contemplated by the Agreement will be
obtained without any meaningful adverse effect on the Company or the Buyer. We
have relied as to all legal matters relevant to rendering our opinion upon the
advice of counsel.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We have acted as financial advisor to the Company with respect to the proposed
Transaction and have received a fee from the Company for our services. We will
also receive an additional fee if the proposed Offer or Merger is consummated.
Please be advised that we have no other financial advisory or other
relationships with the Company or the Buyer. In the ordinary course of their
businesses, J.P. Morgan Securities Inc. and its affiliates may actively trade
the debt and equity securities of the Company or the Buyer for their own account
or for the accounts of customers and, accordingly, they may at any time hold
long or short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the consideration to be paid to the Company's stockholders in the
proposed Transaction is fair, from a financial point of view, to such
stockholders.
This letter is provided solely for the benefit of the Board of Directors of the
Company in connection with and for the purposes of its evaluation of the
Transaction. This opinion does not constitute a recommendation to any
stockholder of the Company as to whether such stockholder should tender Shares
in the Offer or how such stockholder should vote with respect to the Merger.
This opinion may be reproduced in full in any filing by the Company with the
Securities and Exchange Commission in connection with the Offer or the Merger.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: /s/ John S. Sheldon
-------------------------------------
Name: John S. Sheldon
Title: Managing Director
26
<PAGE>
SCHEDULE I
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, Ohio 45237
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
General
This Information Statement is being mailed on or about November 9, 1999,
as part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") to holders of the Common Stock, par value $0.01 per share
(the "Common Stock"), of Gibson Greetings, Inc. (the "Company"), including the
associated Preferred Share Purchase Rights (the "Rights") issued pursuant to
the Rights Agreement dated as of September 8, 1999, between the Company and The
Bank of New York, as Rights Agent, as amended (the Common Stock and the Rights
being collectively referred to herein as the "Shares"). You are receiving this
Information Statement in connection with the possible election of persons
designated by American Greetings Corporation ("Parent") to a majority of the
seats on the Board of Directors of the Company (the "Company Board") pursuant
to the Agreement and Plan of Merger, dated as of November 2, 1999, among the
Company, Granite Acquisition Corp. ("Purchaser") and Parent (the "Merger
Agreement"). Capitalized terms used and not otherwise defined herein shall have
the meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, Purchaser is offering to purchase all
outstanding Shares at a price of $10.25 per Share. The Offer was commenced by
Purchaser on November 9, 1999, and is scheduled to expire at 12:00 midnight
(New York time) on December 8, 1999, unless extended. The Merger Agreement and
Offer are more fully described under Item 3(b) of the Schedule 14D-9, to which
this Information Statement is attached as Schedule I.
The information contained in this Information Statement (including
information incorporated by reference) concerning Parent and Purchaser and the
Parent Designees (as defined below) has been furnished to the Company by Parent
and Purchaser and the Company assumes no responsibility for the accuracy or
completeness of such information.
PARENT DESIGNEES
The Merger Agreement provides that after the closing of the Offer, Parent
will be entitled to designate up to such number of directors, rounded up to the
next whole number, on the Company Board (the "Parent Designees") as will give
Parent representation on the Company Board equal to the product of the total
number of directors on the Company Board multiplied by the percentage that the
aggregate number of Shares beneficially owned by Purchaser following the
closing of the Offer bears to the total number of Shares then outstanding. The
Company has agreed in the Merger Agreement to take all action necessary to
cause the Parent Designees to be elected as directors of the Company,
including, in connection therewith, increasing the size of the Company Board or
securing the resignations of incumbent directors or both. Notwithstanding the
foregoing, until the closing of the Merger, the Company is obligated under the
terms of the Merger Agreement to use its best efforts to ensure that at least
three members of the Company Board who were directors of the Company as of the
date of the Merger Agreement and who are not employees of the Company remain
members of the Company Board.
As of the date of this Information Statement, Parent has not determined
who will be the Purchaser Designees. However, Parent has informed the Company
that it will choose the Parent Designees from the directors and executive
officers of Parent listed in Schedule I of the Purchaser's Offer To Purchase, a
copy of which is being
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<PAGE>
mailed to the Company's stockholders together with the Schedule 14D-9. Parent
has informed the Company that each of the directors and executive officers of
Parent listed in Schedule I to the Offer To Purchase has consented to act as a
director of the Company, if so designated. The information on such Schedule I is
incorporated herein by reference. None of the persons from among whom the Parent
Designees will be selected, or their associates, is a director of, or holds any
position with, the Company. To the knowledge of the Company, except as set forth
in this Schedule, none of the persons from among whom the Parent Designees will
be selected, or their associates, beneficially owns any equity securities, or
rights to acquire any equity securities of the Company or has been involved in
any transactions with the Company or any of its directors or executive officers
that are required to be disclosed pursuant to the rules and regulations of the
Commission. The business address of each such person is c/o American Greetings
Corporation, 10500 American Road, Cleveland, Ohio 44144.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended, and Rule 14f-1 thereunder. You are urged to
read this Information Statement carefully. You are not, however, required to
take any action.
GENERAL INFORMATION REGARDING THE COMPANY
The Shares constitute the only class of voting securities of the Company.
The holders of Common Stock are entitled to one vote per Share. As of November
3, 1999, there were 15,846,663 shares of Common Stock outstanding. Currently,
the Company Board consists of seven members. The Company Board is divided into
three classes and each director serves a term of three years and until his
successor is duly elected and qualified or until his earlier death, resignation
or removal.
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<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors of the Company
The names of the current directors, their ages as of November 3, 1999 and
certain other information about them are set forth below. As indicated above,
some of the current directors may resign effective immediately following the
purchase of Shares by Purchaser pursuant to the Offer.
<TABLE>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT FOR PAST FIVE YEARS AGE
---- ------------------------------------------------------ ---
<S> <C> <C>
CLASS I DIRECTORS:
CHARLES D. LINDBERG Mr. Lindberg is of counsel to the law firm of Taft, Stettinius & Hollister 70
LLP, counsel to the Company. Prior to September 1999, he had been a
partner of that firm for more than the past five years. He has been a
director of the Company since May 1991.
ALBERT R. PEZZILLO Mr. Pezzillo was Chairman of the Board of the Company from February 70
1996 until April 1997. He also served as the Company's Chief Executive
Officer from February until August 1996. He was a business consultant
from 1990 until 1996 after his retirement in 1990 from his position as
Senior Vice President of American Home Products Corporation, a
manufacturer and marketer of ethical pharmaceuticals, medical supplies
and hospital, consumer health care, food and household products. Prior to
joining American Home Products in 1981, he held a variety of executive
positions with Warner Lambert Company and Colgate Palmolive
Company. Mr. Pezzillo became a director of the Company in April 1990.
C. ANTHONY WAINWRIGHT Mr. Wainwright has been Vice Chairman of McKinney and Silver Inc., 65
an advertising agency, since April 1997. From 1995 to 1997, he was
Chairman of the advertising agency, Harris, Drury, Cohen, Inc. He was
Chairman of Compton Partners, Saatchi & Saatchi (formerly Campbell-
Mithun-Esty), a national advertising agency, from 1994 to 1995 and was
Vice Chairman of Campbell-Mithun-Esty from 1989 to 1994. From 1980
until 1989, he was President, Chief Operating Officer and a director of
The Bloom Companies, Inc., a holding company for a national
advertising agency group. Prior to 1980, Mr. Wainwright held various
executive positions with companies in the advertising and marketing
industries. He is also a director of Marketing Services Group, Inc.,
American Woodmark Corporation, Del Webb Corp., Advanced Polymer
Systems and Caribiner International. He has been a director of the
Company since March 1988.
CLASS II DIRECTORS:
GEORGE M. GIBSON Mr. Gibson retired in 1992 from The Procter & Gamble Company, 65
having served as its Vice President - Treasurer from 1987 to 1992 and as
Vice President - Comptroller from 1973 to 1987. He was associated with
Procter & Gamble, a manufacturer of consumer household products, for
over 35 years. Mr. Gibson has been a director of the Company since
April 1996.
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NAME PRINCIPAL OCCUPATION OR EMPLOYMENT FOR PAST FIVE YEARS AGE
---- ------------------------------------------------------ ---
<S> <C> <C>
ROBERT P. KIRBY Mr. Kirby has been Chairman and Chief Executive Officer of 62
Castleberry/Snow's Brands, Inc., an independent meat canner, since
1990. Previously, he served as President and Chief Executive Officer of
Murray Bakery Products, Inc., a manufacturer of cookies, from 1985 to
1988 and as Group Vice President of Borden, Inc., with responsibility for
the Dairy Group, from 1980 to 1984. Mr. Kirby has been a director of the
Company since September 1997.
CLASS III DIRECTORS:
FRANK J. O'CONNELL Mr. O'Connell has been Chairman of the Board of the Company since 56
April 1997 and has been the Company's Chief Executive Officer and
President since August 1996. He was a business consultant from May
1995 to August 1996. He served as President and Chief Executive
Officer of SkyBox International, Inc., a trading card manufacturer, from
July 1991 to May 1995. Prior to joining SkyBox, he was a venture
capital consultant from February 1990 to July 1991 and served as
President of Reebok Brands, North America from February 1988 to
February 1990. He became a director of the Company in August 1996.
He is also a director of Moto Guzzi Corporation.
CHARLOTTE A. ST. MARTIN Ms. St. Martin has been Executive Vice President of Marketing of Loews 54
Hotels since November 1996. From 1989 to November 1996, she served
as Executive Vice President, Operations and Marketing for Loews
Hotels. Previously she served Loews Hotels in a variety of other
executive capacities, including as President of Loews Anatole Hotel for
eight years. Loews Hotels owns and operates 15 hotels nationally and
internationally. Ms. St. Martin is a former President of the Dallas
Convention and Visitors' Bureau. She is also a director of Ryland Group,
Inc. She has been a director of the Company since August 1993.
</TABLE>
COMMITTEES OF THE COMPANY BOARD; MEETINGS
The Board of Directors held 15 meetings in 1998. The Board of Directors
currently has an Executive Committee, an Audit Committee, a Compensation
Committee and a Nominating Committee. The Executive Committee was composed in
1998 of Messrs. Albert R. Pezzillo (Chairman), Frank J. O'Connell and, until
his retirement from the Board in February 1998, Frank Stanton. The Executive
Committee, which held one meeting during 1998, may exercise all of the powers
of the Board, except to the extent restricted by Delaware law. The Audit
Committee deals with financial reporting and control of the Company's assets.
This Committee, consisting in 1998 of George M. Gibson (Chairman), Charles D.
Lindberg and Robert P. Kirby, held four meetings during that year. The
Compensation Committee, composed through June 1998 of C. Anthony Wainwright
(Chairman), Charlotte A. St. Martin and Albert R. Pezzillo, and thereafter of
C. Anthony Wainwright, Charlotte A. St. Martin and George M. Gibson, sets cash
compensation for the Company's executive officers, approves terms and
conditions of employment contracts for the Company's executive officers and
establishes terms and conditions of the Company's bonus and retirement plans.
The Committee also administers the Company's Stock Option and Incentive Plans
(except that option grants to nonemployee directors are made by the full
Board), selects the executive officers to whom awards will be made under the
Plans and, subject to the limitations imposed by the Plans, establishes the
terms and conditions of each award. The Compensation Committee held seven
meetings in 1998. The Nominating Committee, composed in 1998 of Messrs. Gibson
(Chairman) and Wainwright, recommends to the Board for nomination, or to a
class for election in the event of a vacancy, nonemployee directors of the
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Company. The Nominating Committee did not meet during 1998. For 1998, each
director attended at least 75% of the aggregate of the total number of Board of
Directors meetings and the total number of meetings of committees of the Board
on which the director served.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. O'Connell is a member of the Board of Directors of Castleberry/Snow's
Brands, Inc., of which Mr. Kirby is Chairman and Chief Executive Officer. As a
director, Mr. O'Connell is involved in executive compensation decisions for the
executive officers of Castleberry/Snow's Brands, Inc.
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<PAGE>
SECURITY OWNERSHIP OF COMMON STOCK BY CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth, as of November 3, 1999, certain
information with regard to the beneficial ownership of the Company's common
stock by (i) each of the Company's stockholders known to hold more than 5% of
the outstanding shares of common stock, (ii) each director and each executive
officer named on the Summary Compensation Table, individually, and (iii) all
directors and executive officers as a group.
<TABLE>
BENEFICIAL OWNERSHIP
---------------------------------
NUMBER
NAME POSITION OF SHARES(1) PERCENT(2)
- ---------------------------------- ------------------------------------------ ------------ ---------
<S> <C> <C>
The Prudential Insurance
Company of America
Prudential Plaza
Newark, NJ 07102 3,018,160(3) 19.0%
Royce & Associates, Inc.
1414 Avenue of the Americas
New York, NY 10019 1,606,100 10.1%
Lazard Freres & Co. LLC
30 Rockefeller Plaza 1,090,565(4) 6.9%
New Valley Corporation
100 S.E. Second Street
Miami, FL 33131 1,073,800 6.8%
Maxus Investment Group
1301 East Ninth Street
Cleveland, OH 44114 847,123(5) 5.4%
Joseph L. Harrosh
40900 Grimmer Boulevard
Fremont, CA 94538 837,900 5.3%
Frank J. O'Connell Chairman, President and Chief Executive
Officer 1,333,333 8.4%
George M. Gibson Director 10,490
Robert P. Kirby Director 6,387
Charles D. Lindberg Director 14,090
Albert R. Pezzillo Director 34,690
Charlotte A. St. Martin Director 11,490
C. Anthony Wainwright Director 12,590(6)
Gregory A. Brown Senior Vice President, Sales, Card
Division 50,000(7)
Gregory Ionna Executive Vice President, Card Division 71,262
Karen L. Kemp Senior Vice President, Human Resources 30,000
James T. Wilson Executive Vice President, Finance and
Operations, and Chief Financial
Officer 49,999
All directors and executive 1,663,165 10.4%
officers as a group (12
persons)
- --------------------
(1) Except as otherwise noted, each owner has sole voting and dispositive
power over the shares shown. The numbers of shares shown for directors and
executive officers include shares which may be purchased upon exercise of
presently exercisable options and options exercisable within 60 days after
September 3, 1999, in the following amounts: Mr. O'Connell, 1,333,333
shares (all of such options have exercise prices that exceed
</TABLE>
I-6
<PAGE>
$10.25 per Share, the price to be paid in the Offer); Mr. Gibson, 8,000
shares (5,000 of such options have exercise prices that exceed $10.25 per
Share, the price to be paid in the Offer); Mr. Kirby, 6,000 shares (3,000
of such options have exercise prices that exceed $10.25 per Share, the
price to be paid in the Offer); Mr. Lindberg, 12,000 shares (9,000 of such
options have exercise prices that exceed $10.25 per Share, the price to be
paid in the Offer); Mr. Pezzillo, 32,750 shares (29,750 of such options
have exercise prices that exceed $10.25 per Share, the price to be paid in
the Offer); Ms. St. Martin, 10,000 shares (7,000 of such options have
exercise prices that exceed $10.25 per Share, the price to be paid in the
Offer); Mr. Wainwright, 11,000 shares (8,000 of such options have exercise
prices that exceed $10.25 per Share, the price to be paid in the Offer);
Mr. Brown, 50,000 shares (all of such options have exercise prices that
exceed $10.25 per Share, the price to be paid in the Offer); Mr. Ionna,
70,667 shares (53,333 of such options have exercise prices that exceed
$10.25 per Share, the price to be paid in the Offer); Mr. Wilson, 49,999
shares (all of such options have exercise prices that exceed $10.25 per
Share, the price to be paid in the Offer) and all directors and executive
officers as a group, 1,632,083 shares.
(2) Except as indicated, the percentage of shares held by each owner is less
than 1%. The percentage is based on shares outstanding on November 3,
1999.
(3) Based upon a Schedule 13G/A filed with the Securities and Exchange
Commission (the "SEC") dated February 2, 1999, The Prudential Insurance
Company of America has sole power to vote and/or dispose of 3,100 shares
and shared power to vote and/or dispose of 3,015,060 shares.
(4) Based upon a Schedule 13G filed with the SEC dated February 16, 1999,
Lazard Freres & Co. LLC has sole power to vote 803,005 shares and sole
power to dispose of 1,090,565 shares.
(5) Based upon a Schedule 13D filed with the SEC dated April 16, 1999, Maxus
Investment Group has sole power to vote and/or dispose of 56,500 shares
and shared power to vote and/or dispose of 790,623 shares.
(6) Includes 100 shares held by Mr. Wainwright's wife as to which beneficial
ownership is disclaimed. (7) Mr. Brown's employment with the Company ended
on October 1, 1999.
(7) Mr. Brown's employment with the Company ended on October 1, 1999.
I-7
<PAGE>
EXECUTIVE COMPENSATION
Summary of Executive Compensation
The following table sets forth, for the years indicated, amounts of cash
and certain other compensation paid by the Company and its subsidiaries, for
services in all capacities, to (i) Mr. O'Connell and (ii) each of the Company's
four other most highly compensated executive officers during 1998. These persons
are sometimes referred to as the "named executive officers."
SUMMARY COMPENSATION TABLE
<TABLE>
Long-term
Annual Compensation Compensation
------------------------------------------ -------------------------
Restricted
Other Annual Stock Securities All Other
Name and Salary Bonus Compensation Award(s) Underlying Compensation
Principal Position Year ($) ($) ($) ($) Options (#) ($)(1)
- -------------------------------- ---- ------- ------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Frank J. O'Connell(2)........... 1998 462,500 -- -- -- 500,000 25,150
Chief Executive Officer 1997 370,833 -- -- -- -- 4,184
1996 124,744 200,000 15,942 -- 1,000,000 218,601
James T. Wilson(2).............. 1998 250,000 50,000 -- -- 25,000 28,997
Executive Vice President,
Finance and Operations 1997 64,423 50,000 -- -- 125,000 11,728
Gregory Ionna................... 1998 230,000 -- -- -- -- 3,288
Executive Vice President,
Card Division 1996 195,625 145,000 -- -- 55,000 4,308
Gregory A. Brown(2)............. 1998 225,000 -- 41,706(3) -- -- 2,532
Senior Vice President,
Sales, Card Division 1997 139,904 180,000 47,725 -- 100,000 70,358
Karen L. Kemp(2)................ 1998 175,000 -- -- -- -- 1,827
Senior Vice President, 1997 121,378 30,000 80,592 -- 60,000 109,103
Human Resources
- ----------------------
(1) For 1998 includes the following: (i) matching contributions to the
Company's 401(k) Plan on behalf of Messrs. O'Connell ($1,200), Ionna
($1,200), and Brown ($444) in respect of their 1998 contributions to the
Plan; (ii) group term life insurance payments for Messrs. O'Connell
($5,400), Wilson ($3,456), Ionna ($2,088) and Brown ($2,088), and Ms. Kemp
($1,827); (iii) reimbursement of relocation, temporary living and/or
travel expenses for Mr. Wilson ($25,541); and (iv) split-dollar life
insurance payments for Mr. O'Connell ($18,550).
(2) Mr. O'Connell was first employed by the Company in 1996. Messrs. Wilson
and Brown, and Ms. Kemp were first employed by the Company in 1997. Mr.
Brown's employment with the Company ended on October 1, 1999.
(3) Reflects total executive perquisites and related tax gross up payments.
Total perquisites include club membership initiation fee ($15,900) and
personal auto usage ($10,256).
</TABLE>
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<PAGE>
Stock Options
The following table contains information concerning stock option grants to
the named executive officers during the year ended December 31, 1998. None of
the Company's Stock Option or Stock Incentive Plans provides for the grant of
stock appreciation rights ("SARs").
<TABLE>
Option Grants in Last Fiscal Year
Individual Grants(1)
-------------------------------------------------------------------------------------
Number of % of Total
Securities Options Granted Exercise or Grant Date
Underlying to Employees in Base Price Present Value
Name Options Granted Fiscal Year ($/sh) Expiration Date ($)(4)
- ------------------------------ --------------- --------------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Frank J. O'Connell(2)......... 166,667 30.64% $20.75 08/10/08 $ 1,202,085
166,666 30.64% $28.00 08/10/08 $ 788,230
166,667 30.64% $30.00 08/10/08 $ 702,351
James T. Wilson(3)............ 25,000 4.60% $19.63 09/03/08 $ 172,428
Gregory Ionna................. -- -- -- -- --
Gregory A. Brown.............. -- -- -- -- --
Karen L. Kemp................. -- -- -- -- --
- ----------------------
(1) The exercise price of all options may be paid in cash or by the transfer
of shares of the Company's common stock valued at their fair market value
on the date of exercise.
(2) Mr. O'Connell's options vest as follows, by exercise price: $20.75--
immediately upon grant; $28.00-- April 15, 1999; and $30.00-- April 15,
2000. The options are transferable to members of Mr. O'Connell's immediate
family and to specified entities owned by them or for their benefit. Mr.
O'Connell's options become immediately exercisable (a) in the event of a
"change in control" of the Company, as defined in his employment
agreement, (b) if the average closing price for the Company's common stock
over a 20-day period equals or exceeds $35.00 per share or (c) if his
employment terminates due to death, disability or failure to renew his
employment agreement or is terminated by the Company without just cause or
by him for good reason. Under certain circumstances, Mr. O'Connell is
entitled to tax "gross up" payments in connection with the exercise of the
options.
(3) Mr. Wilson's options vest at the rate of one-third per year beginning
September 4, 1999. The options become exercisable in full (a) if any
person becomes, or commences a tender offer which could result in the
person becoming the beneficial owner of more than 30% of the Company's
common stock or (b) unless the survivor or transferee corporation agrees
to continue the option, in the event of the execution of an agreement of
merger, consolidation or reorganization pursuant to which the Company is
not to be the surviving corporation or the execution of an agreement of
sale or transfer of all or substantially all of the assets of the Company.
(4) The Black-Scholes option-pricing model was used to estimate the grant date
present value of the options shown. The Company's use of this model should
not be construed as an endorsement of its accuracy at valuing options. All
stock option valuation models, including Black-Scholes, require a
prediction about the future movement of the stock price. The real value of
an option, if any, depends upon the actual performance of the Company's
stock during the applicable period.
</TABLE>
With respect to each named executive officer, the following table sets
forth information concerning stock option exercises during 1998 and unexercised
options held December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
Number of Value of
Securities Unexercised
Underlying In-the-money
Unexercised Options Options at FY-end
At FY-end (#) ($)
Shares Acquired Exercisable/ Exercisable/
Name On Exercise(#) Value Realize($) Unexercisable Unexercisable
- -------------------------- --------------- --------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Frank J. O'Connell........ -- -- 1,166,667/333,333 --/--
James T. Wilson........... -- -- 41,666/108,334 --/--
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<PAGE>
Number of Value of
Securities Unexercised
Underlying In-the-money
Unexercised Options Options at FY-end
At FY-end (#) ($)
Shares Acquired Exercisable/ Exercisable/
Name On Exercise(#) Value Realize($) Unexercisable Unexercisable
- -------------------------- --------------- --------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Gregory Ionna.............. -- -- 69,001/51,666 36,835/--
Gregory A. Brown........... -- -- 33,333/66,667 --/--
Karen L. Kemp.............. -- -- 20,000/40,000 --/--
</TABLE>
Pension Plans
The Pension Plan Table set forth below shows estimated annual pension
benefits payable to a covered participant under the Company's Retirement Income
Plan (the "Retirement Plan"), a qualified defined benefit pension plan, and
under the Gibson Greetings, Inc. ERISA Makeup Plan (the "Makeup Plan"), a
non-qualified supplemental pension plan providing benefits that would otherwise
be denied participants because of Internal Revenue Code limitations on
qualified plan benefits. Benefits shown are computed as a straight life annuity
for an employee retiring at age 65 in 1999 with no offsets.
PENSION PLAN TABLE
<TABLE>
Years of Service
---------------------------------------------------------------------------------------------------
Remuneration 5 10 15 20 25 30 35 40
- ------------ ------ ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 200,000 14,010 28,020 42,030 56,040 70,050 84,060 98,070 112,080
300,000 21,510 43,020 64,530 86,040 107,550 129,060 150,570 172,080
400,000 29,010 58,020 87,030 116,040 145,050 174,060 203,070 232,080
500,000 36,510 73,020 109,530 146,040 182,550 219,060 255,570 292,080
600,000 44,010 88,020 132,030 176,040 220,050 264,060 308,070 352,080
700,000 51,510 103,020 154,530 206,040 257,550 309,060 360,570 412,080
800,000 59,010 118,020 177,030 236,040 295,050 354,060 413,070 472,080
900,000 66,510 133,020 199,530 266,040 332,550 399,060 465,570 532,080
1,000,000 74,010 148,020 222,030 296,040 370,050 444,060 518,070 592,080
</TABLE>
Benefits under the Retirement and Makeup Plans are based upon the highest
average 60 consecutive months' salary and bonus (as shown on the Summary
Compensation Table) during the 120 months immediately preceding retirement.
Compensation covered by the Plans at the end of 1998 for each named executive
officer (which includes relocation and similar nonrecurring payments) is as
follows: Mr. O'Connell, $725,919; Mr. Wilson, $382,626; Mr. Ionna, $344,735; Mr.
Brown, $446,380; and Ms. Kemp, $317,078. For the purpose of computing a benefit
under the table, on December 31, 1998, Mr. O'Connell had two years of credited
service; Mr. Wilson, one year; Mr. Ionna, 24 years; Mr. Brown, two years; and
Ms. Kemp, two years. Covered compensation amounts differ from amounts shown on
the Summary Compensation Table due to differences in the recognition of
pensionable earnings.
In addition to the Retirement Plan and the Makeup Plan, certain executives
are eligible for benefits under the Company's Supplemental Executive Retirement
Plan (the "SERP"), which was adopted to attract and retain highly qualified
executives by providing retirement benefits at levels which the Company believes
to be competitive. A participant in the SERP who retires at age 65 is entitled
to receive supplemental retirement benefits equal to the difference between (i)
that percentage of the participant's final monthly average earnings (as defined
in the Retirement Plan without regard to certain limitations imposed by the
Internal Revenue Code on qualified plans) determined by crediting 2%, 1-2/3% and
1-1/3% per year, respectively, for each of the first 10, next 10 and next 10
years of credited service, up to a maximum of 30 years of credited service (the
"SERP percentage") and (ii) the aggregate of the participant's monthly benefits
from the Retirement Plan and the Makeup Plan plus supplemental retirement
benefits under any individual agreement with the Company. The SERP provides for
adjustments to the basic benefit formula in the event of a participant's early
retirement, disability retirement, death or other
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<PAGE>
termination of employment. At the normal retirement age each named executive
officer's years of credited service and SERP percentage would be as follows:
Mr. O'Connell, 20 years and 37%; Mr. Wilson, 16 years and 30%; Mr. Ionna, 30
years and 50%; Mr. Brown, 17 years and 32%; and Ms. Kemp, 19 years and 35%. For
SERP purposes, Mr. O'Connell's retirement compensation base is $500,000.
Pursuant to his employment agreement, Mr. O'Connell received, in 1998,
additional credit for five years of service for all purposes under the Company's
retirement plans. He will receive credit for one additional year of deemed
service (up to a maximum of five years) for each year of actual service after
1997. Mr. O'Connell also will receive credit for one year of additional deemed
service in the event of termination of employment due to disability, death or
non-renewal of his employment agreement by the Company and credit for three
years of additional deemed service if the Company terminates his employment
without "just cause" or if he terminates his employment for "good reason" (each
as defined in the employment agreement).
Employment Contracts
Each of the named executive officers has an employment agreement with the
Company. Mr. O'Connell initially had an agreement that ran from August 1996
through December 1999. This agreement provided for a minimum annual salary of
$350,000, subject to increase from time to time, and for annual bonuses based
upon specified increases in the Company's operating income from year to year.
Effective August 1, 1997, Mr. O'Connell's salary was set at $400,000. In August
1998, the Company entered into a new employment agreement with Mr. O'Connell
which expires on December 31, 2002 and automatically renews from year to year
thereafter. Under the new agreement, Mr. O'Connell's base salary was set at
$500,000 effective August 1, 1998, subject to adjustment over the term of the
agreement. Mr. O'Connell is entitled to an annual bonus, in an amount up to 200%
of then-current base salary, based 50% on the percentage increase in the
Company's operating income over the prior year and 50% on the percentage
increase in the Company's revenue over the prior year. Additionally, Mr.
O'Connell was granted an option to purchase 500,000 shares of the Company's
common stock at exercise prices increasing from 100% of fair market value on the
date of grant to 145% of that fair market value.
Under most circumstances which result in Mr. O'Connell's termination of
employment, he will receive payments based upon his "Current Compensation." The
employment agreement defines "Current Compensation" as then-current base salary
plus the average of bonuses earned over the prior two fiscal years, with a
deemed bonus of $500,000 for 1997. In the event of Mr. O'Connell's disability,
he will receive at least one year of Current Compensation. In the event of
either the non-renewal of his employment agreement by the Company or of his
death, he or his spouse or estate will receive one year of Current Compensation.
If his employment is terminated by the Company without "just cause" or
voluntarily by him for "good reason," he will receive three times Current
Compensation. The employment agreement also provides for continuation of various
insurance benefits under these circumstances and for crediting of one or more
extra years under the Company's retirement plans. If, after a change in control,
(a) Mr. O'Connell terminates his employment for "good reason" or (b) his
employment is terminated without "just cause" or because of a failure to renew
his employment agreement, Mr. O'Connell is entitled to receive a tax "gross up"
of up to $5,000,000 on any resulting payments on which an "excess parachutes
payments" tax is imposed.
Mr. Ionna has an employment agreement, entered into during 1996, which had
an original expiration date of March 31, 1999 that has been extended to March
31, 2000 and may be extended further on an indefinite basis by mutual agreement.
The agreement provides for an annual base salary of $230,000 (subject to
increase from time to time) and for participation in the Company's incentive
compensation program. It also provides for severance pay equal to six months'
salary in the event of death, for a payment equal to 2.9 times annual salary
then in effect in the event of termination of employment under certain
circumstances after a change in control of the Company, and for severance pay
equal to two times his then-current base salary in the event that he or the
Company elects not to extend further the agreement.
Each of Messrs. Wilson and Brown and Ms. Kemp has an employment agreement
with the Company. These agreements became effective September 29, 1997, May 19,
1997 and April 22, 1997, respectively; each extends
I-11
<PAGE>
indefinitely until terminated by the Company, or by the executive officer on 30
days' advance notice to the Company. Under the agreements, Mr. Wilson, Mr. Brown
and Ms. Kemp are entitled to annual base salaries, which are subject to
adjustment from time to time, of $250,000, $225,000 and $175,000, respectively.
Each is eligible to receive an annual bonus of up to 112.5% of base salary, as
well as to participate in the Makeup Plan and the SERP. In connection with their
employment agreements, each executive officer also received specified relocation
expense payments or reimbursements and the following additional items of
compensation: Mr. Wilson, a signing bonus of $100,000 ($50,000 after beginning
employment and $50,000 after closing on a home in the greater Cincinnati area)
and options to purchase 125,000 shares of common stock; Mr. Brown, a signing
bonus of $80,000, a guaranteed 1997 annual bonus of at least $100,000 and
options to purchase 50,000 shares of the Company's common stock; and Ms. Kemp, a
signing bonus of $30,000 and options to purchase 30,000 shares of common stock.
If the terms of Mr. Wilson's employment agreement are materially breached by the
Company or his employment is terminated by the Company other than for cause, he
is entitled to a lump sum payment equal to two times the total of his base
salary and any bonus awarded over the prior 12 months. If, within 24 months of a
change in control of the Company, such a breach occurs or Mr. Wilson's
employment is terminated by the Company without cause or by him for good reason,
the lump sum payment will be three times base salary and bonus. If Mr. Brown's
or Ms. Kemp's employment agreement is terminated by the Company other than for
cause (as defined in the agreement), he or she is entitled to a lump sum payment
equal to two years of base salary.
Effective February 1, 1999, the annual salaries of Messrs. Wilson, Ionna
and Brown and Ms. Kemp were increased to $275,000, $260,000, $255,000 and
$195,000, respectively.
The Company's employment agreements also generally provide additional
miscellaneous compensation in the form of some combination of perquisites such
as club membership fees, use of automobiles, insurance benefits and tax and
estate planning services.
Mr. Brown's employment with the Company ended on October 1, 1999.
Components of the Executive Compensation Program
The executive compensation program is composed of four elements: base
salary, annual incentives, long-term incentives, and benefits.
<TABLE>
<S> <C>
Base Salaries...................... Generally, minimum base salaries for the Company's
employment agreements with the Company. Base salaries
are set between the 50th and the 75th percentile of those
provided by other consumer products companies with
which the Company competes for key executive talent.
Executives' salaries are reviewed periodically but not less
frequently than every 15 months, and are subject to
adjustment based on the general movement in salaries in
the job market, as well as the individuals' job
performance, their relative contributions to the Company,
and changes in their job responsibilities and
accountabilities. These reviews are subjective in the sense
that they are not based upon predetermined specific
criteria. Because the Company competes with a wide and
diverse range of consumer products companies for
executive talent, the group of companies used for
compensation comparisons is not the same as that
believed appropriate for a comparison of stockholder
returns in the Performance Graph shown below, although
there may be some overlap between the groups.
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<PAGE>
<S> <C>
Annual Incentives.................. The Company places significant emphasis on achieving
Accordingly, under the Gibson Greetings, Inc.
Management Incentive Plan, specific targeted levels of
pretax operating income are established for each fiscal
year at the corporate, division and strategic business unit
("SBU") levels. A pool for incentive awards is funded
after year-end results are known, with the size of the pool
calculated based upon the achievement of predetermined
percentages of the target levels. Individual awards are
made from this pool, with the size of each award based
on (1) the objective level of corporate or division
profitability, (2) the objective level of the SBU
profitability, and (3) a subjective assessment of the
individual's contributions to the business objectives.
Eligibility for annual incentive awards is limited
to key executives (other than the CEO) and
managers who play important roles in the
achievement of the Company's objectives. In
addition, other managers may receive incentive
awards in a particular year, to reward their
extraordinary results or achievements for that
year. Annual incentive opportunity for the CEO is
prescribed by contract.
Achievement of target incentives (for meeting the
Company's profit objectives) can place executives'
annual cash compensation (that is, base salary
plus annual incentive award) somewhat above the
75th percentile for competitive practice.
Long-Term Incentives............... The Company provides two different types of executives:
(1) stock options (nonqualified and incentive stock
options), which are typically awarded every year, and (2)
restricted stock grants, awarded on a selective basis, and
only to the most senior executives.
Eligibility for long-term incentives is targeted
to key executives and managers who can have a
significant effect on the achievement of the
Company's long-term strategic objectives. The use
of Company stock as a key element of the executive
compensation program is intended to strengthen the
link between the interests of senior management
and the Company's stockholders. Long-term
incentives are granted based upon a subjective
assessment of the individual's performance and
responsibilities.
Benefits........................... The Company's benefits program is composed of The
objective of the program is to provide executives with
reasonable and competitive levels of protection against
the four contingencies (retirement, death, disability, and
ill health) that can interrupt their employment and/or
income.
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<PAGE>
<S> <C>
The Company's retirement income program consists
of two tax-qualified plans: a defined benefit
pension plan and a 401(k) plan that cover all
salaried full-time employees, including the
Company's executives, and two non-tax-qualified
plans for executives (an ERISA "Makeup" plan that
restores defined benefit pension benefits denied
by the federal tax laws, and a supplemental
defined benefit retirement plan).
The group insurance program consists of life,
disability, and health insurance benefit plans
that cover all salaried full-time employees,
including the Company's executives. The employment
agreements of individual executive officers may
also provide for perquisites in the form of
supplemental insurance benefits and/or Company
payment of the premiums relating to insurance
benefits.
</TABLE>
Code Section 162(m) generally limits the Company's tax deduction to $1
million for compensation paid to each of the named executive officers. However,
the statute exempts qualifying performance-based compensation from the deduction
limit if certain conditions are met. The Committee believes that under most
circumstances executive officer compensation will fall within the limitations of
Code Section 162(m), but retains the right to make subjective decisions and to
award compensation that might be subject to the tax deductibility limitation
under Code Section 162(m).
1998 Actions
During 1998, the annual salaries of the Company's named executive officers
(other than the CEO) were maintained at the levels set in their employment
agreements. In February 1999, based upon a review of individual job performances
and competitive conditions in the job market, each person received an increase
in annual salary.
Because the Company did not achieve its targeted operating income levels,
no named executive officer received a bonus under the Company's Management
Incentive Plan for 1998.
In addition to the CEO, one named executive officer received a stock
option grant in 1998.
Because the Company competes with a wide and diverse range of consumer
products companies for executive talent, the group of companies used for
compensation comparison is not the same as that believed appropriate for a
comparison of stockholders returns on the performance graph shown below although
there may be overlap between the groups. Additionally, the formula for Mr.
O'Connell's incentive bonuses was changed from one based solely on operating
income to a formula based 50% on revenue growth and 50% on operating income
growth. The Committee believed that growth in revenue and operating income are
more appropriate metrics for measuring and rewarding short-term performance
results. Because neither target level required by the new employment agreement
was met, Mr. O'Connell received no bonus for 1998.
In connection with his new employment agreement, Mr. O'Connell was granted
options to purchase 500,000 shares of common stock at exercise prices increasing
from 100% of fair market value on the date of grant to 145% of that fair market
value. In determining the size of the option grant, the Committee considered
competitive information as supplied by the compensation expert. For further
information, see "Executive Compensation and Other Information -- Employment
Contracts."
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<PAGE>
Compensation Committee:
C. Anthony Wainwright, Chairman
Charlotte A. St. Martin
Albert R. Pezzillo (until June 1998)
George M. Gibson (June 1998 through present)
CEO Compensation
As discussed above under "Employment Contracts," in August 1998, the
Company entered into a new employment agreement with Mr. O'Connell which extends
until December 31, 2002. Although Mr. O'Connell's prior agreement would have
continued until December 31, 1999, the Committee believed it was in the best
interest of the Company to enter into a new employment agreement with Mr.
O'Connell in order to ensure retention of his services beyond December 1999. The
terms of Mr. O'Connell's new agreement were established after consideration of
the report of an outside compensation consulting firm hired by the Committee
which analyzed components of compensation on a comparative basis. The new
agreement provides for a base salary of $500,000, beginning August 1, 1998, an
increase from the $400,000 salary in effect at that time. The increase in base
salary was made in order to ensure that the CEO's base salary was competitive
with a peer group, which was selected for analysis. Because the Company competes
with a wide and diverse range of consumer products companies for executive
talent, the group of companies used for compensation comparison is not the same
as that believed appropriate for a comparison of stockholders returns on the
performance graph shown below although there may be overlap between the groups.
Additionally, the formula for Mr. O'Connell's incentive bonuses was changed from
one based solely on operating income to a formula based 50% on revenue growth
and 50% on operating income growth. The Committee believed that growth in
revenue and operating income are more appropriate metrics for measuring and
rewarding short-term performance results. Because neither target level required
by the new employment agreement was met, Mr. O'Connell received no bonus for
1998.
In connection with his new employment agreement, Mr. O'Connell was granted
options to purchase 500,000 shares of common stock at exercise prices increasing
from 100% of fair market value on the date of grant to 145% of that fair market
value. In determining the size of the option grant, the Committee considered
competitive information as supplied by the compensation expert. For further
information, see "Executive Compensation and Other Information -- Employment
Contracts."
Compensation of Directors
The Company pays an annual fee of $20,000 for services of directors who
are not employees of the Company and an annual fee of $2,500 per chairmanship to
each committee chairman. In addition, nonemployee directors receive fees of
$1,000 for each Board meeting attended and $900 for each committee meeting
attended, plus reimbursement of expenses. Under the Company's 1996 Nonemployee
Director Stock Plan (the "Stock Plan"), nonemployee directors are required to
take one-half of their annual retainer in shares of the Company's common stock.
Additionally, under the Company's 1989 Stock Option Plan for Nonemployee
Directors, each nonemployee director of the Company, at the close of business on
the day of the Annual Meeting, has received an option to purchase 3,000 shares
of common stock. This plan has now expired. The Company intends to continue
annual option grants to nonemployee directors from the new 1999 Stock Incentive
Plan, assuming stockholder approval of that proposed Plan.
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<PAGE>
In order to continue to attract and retain outstanding individuals to
serve as nonemployee directors of the Company ("Outside Directors"), the Company
has a Retirement Plan for Outside Directors (the "Directors Retirement Plan").
Outside Directors are defined by the Directors Retirement Plan as directors not
employed by the Company or a subsidiary and include former or retired employees
if they are not vested under any other Company retirement plan. In order to
qualify for benefits under the Directors Retirement Plan, an Outside Director
must have served the Company as such for at least nine years. An Outside
Director who qualifies for benefits under the Directors Retirement Plan will
receive an annual benefit, payable quarterly for life, equal to the amount of
the Company's annual directors fee (not including payments for serving as
chairman of a Board committee) paid to Outside Directors on the date on which
the Outside Director's service to the Company ceases (the "Annual Retainer").
Benefits under the Directors Retirement Plan begin upon termination of service
for directors who have reached age 65 and begin at age 65 for those whose
services terminate prior to that age. If an Outside Director who has qualified
for benefits under the Directors Retirement Plan dies before receiving any
benefits, his or her designated beneficiary or estate will receive a payment
equal to five times the Annual Retainer. If an Outside Director dies after the
commencement of benefits but prior to having received them for five years, the
beneficiary or estate will receive an amount equal to five times the Annual
Retainer less any benefits already paid.
I-16
<PAGE>
Performance Graph
The following graph and table compare, over the period shown, the
cumulative total stockholder return of the Company's common stock to the
cumulative total return of companies included in the Standard & Poor's 500 Stock
Index and in a peer group index (1). In each case it is assumed that $100 was
invested on December 31, 1993 and that any dividends were reinvested.
[GRAPHIC OMITTED]
The data below depicts the graphic presentation:
Relative Market Performance
---------------------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Gibson Greetings, Inc. 100.00 71.50 77.56 95.14 106.04 57.57
Peer Group Index 100.00 85.29 89.08 100.05 127.88 132.18
S&P 500 Index 100.00 101.32 139.40 171.40 228.59 293.91
- ---------
(1) The peer group is composed of companies having seasonal businesses that
market consumer products through similar channels of distribution. The
returns of each company have been weighted according to their respective
stock market capitalization for purposes of arriving at a group average.
The members of the group are as follows: Action Industries, Inc., American
Greetings Corporation, A.T. Cross & Co., CSS Industries, Inc., Devon
Group, Inc., C.R. Gibson Co. (until acquired in December 1995), Handleman
Co., Jostens, Inc., Russ Berrie & Co., Inc., Tyco Toys, Inc. and Golden
Books Family Entertainment (name changed from Western Publishing Group,
Inc.).
Section 16(a) Beneficial Ownership Reporting Compliance
For the fiscal year ended December 31, 1998, all reports required to be
filed by Section 16(a) of the Securities Exchange Act of 1934 on behalf of the
Company's directors and officers with respect to initial ownership of, and
changes in beneficial ownership of, the Company's securities, were timely filed.
I-17
EXHIBIT B
AGREEMENT AND PLAN OF MERGER
dated as of
November 2, 1999
among
GIBSON GREETINGS, INC.
AMERICAN GREETINGS CORPORATION
and
GRANITE ACQUISITION CORP.
<PAGE>
TABLE OF CONTENTS
------------
PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions.....................................................2
ARTICLE 2
THE OFFER
SECTION 2.01. The Offer.......................................................6
SECTION 2.02. Company Action..................................................8
SECTION 2.03. Directors.......................................................9
ARTICLE 3
THE MERGER
SECTION 3.01. The Merger.....................................................11
SECTION 3.02. Conversion of Shares...........................................11
SECTION 3.03. Surrender and Payment..........................................12
SECTION 3.04. Dissenting Shares..............................................13
SECTION 3.05. Stock Options..................................................13
SECTION 3.06. Adjustments....................................................14
SECTION 3.07. Withholding Rights.............................................14
SECTION 3.08. Lost Certificates..............................................15
SECTION 3.09. Adjustments to Price...........................................15
ARTICLE 4
THE SURVIVING CORPORATION
SECTION 4.01. Certificate of Incorporation...................................16
SECTION 4.02. Bylaws.........................................................16
SECTION 4.03. Directors and Officers.........................................16
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 5.01. Corporate Existence and Power..................................16
SECTION 5.02. Corporate Authorization........................................17
SECTION 5.03. Governmental Authorization.....................................17
SECTION 5.04. Non-contravention..............................................17
SECTION 5.05. Capitalization.................................................18
SECTION 5.06. Subsidiaries...................................................18
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<PAGE>
PAGE
SECTION 5.07. SEC Filings....................................................19
SECTION 5.08. Financial Statements...........................................20
SECTION 5.09. Absence of Certain Changes.....................................20
SECTION 5.10. No Undisclosed Material Liabilities............................21
SECTION 5.11. Compliance with Laws and Court Orders..........................22
SECTION 5.12. Litigation.....................................................22
SECTION 5.13. Finders' Fees..................................................22
SECTION 5.14. Taxes..........................................................22
SECTION 5.15. Employee Benefit Plans.........................................23
SECTION 5.16. Environmental Matters..........................................24
SECTION 5.17. Antitakeover Statutes, Rights Agreement and Standstill
Agreement...................................................25
SECTION 5.18. Intellectual Property..........................................25
SECTION 5.19. Year 2000 Compliance...........................................26
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
SECTION 6.01. Corporate Existence and Power..................................27
SECTION 6.02. Corporate Authorization........................................27
SECTION 6.03. Governmental Authorization.....................................27
SECTION 6.04. Non-contravention..............................................28
SECTION 6.05. Finders' Fees..................................................28
SECTION 6.06. Financing......................................................28
ARTICLE 7
COVENANTS OF THE COMPANY
SECTION 7.01. Conduct of the Company.........................................29
SECTION 7.02. Stockholder Meeting; Proxy Material............................31
SECTION 7.03. Access to Information..........................................32
SECTION 7.04. No Solicitation; Other Offers..................................32
SECTION 7.05. Notices of Certain Events......................................34
SECTION 7.06. Disclosure Documents...........................................34
SECTION 7.07. Standstill Agreements: Confidentiality Agreements..............35
SECTION 7.08. Rights Agreement; Anti-takeover Provisions.....................35
ARTICLE 8
COVENANTS OF PARENT
SECTION 8.01. Confidentiality................................................36
SECTION 8.02. Obligations of Merger Subsidiary...............................37
SECTION 8.03. Voting of Shares...............................................37
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<PAGE>
SECTION 8.04. Director and Officer Liability.................................37
SECTION 8.05. Employee Benefits..............................................38
SECTION 8.06. Disclosure Documents...........................................39
ARTICLE 9
COVENANTS OF PARENT AND THE COMPANY
SECTION 9.01. Best Efforts...................................................39
SECTION 9.02. Certain Filings................................................42
SECTION 9.03. Public Announcements...........................................42
SECTION 9.04. Further Assurances.............................................42
ARTICLE 10
CONDITIONS TO THE MERGER
SECTION 10.01. Conditions to Obligations of Each Party.......................43
SECTION 10.02. Conditions to Obligations of Parent and Merger
Subsidiary to Effect the Merger.............................43
ARTICLE 11
TERMINATION
SECTION 11.01. Termination...................................................43
SECTION 11.02. Effect of Termination.........................................45
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Notices.......................................................46
SECTION 12.02. Survival of Representations and Warranties....................47
SECTION 12.03. Amendments; No Waivers........................................47
SECTION 12.04. Expenses......................................................47
SECTION 12.05. Successors and Assigns........................................49
SECTION 12.06. Governing Law.................................................49
SECTION 12.07. Dispute Resolution; Jurisdiction..............................49
SECTION 12.08. WAIVER OF JURY TRIAL..........................................50
SECTION 12.09. Counterparts; Effectiveness; Benefit..........................50
SECTION 12.10. Entire Agreement..............................................50
SECTION 12.11. Captions......................................................50
SECTION 12.12. Severability..................................................50
SECTION 12.13. Specific Performance..........................................50
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of November 2, 1999 among Gibson
Greetings, Inc., a Delaware corporation (the "Company"), American Greetings
Corporation, an Ohio corporation ("Parent"), and Granite Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Parent ("Merger
Subsidiary").
The parties hereto agree as follows:
ARTICLE 1
Definitions
SECTION 1.01. Definitions. (a) The following terms, as used herein,
have the following meanings:
"Acquisition Proposal" means any offer or proposal for, or any
indication of interest in, a merger, consolidation, tender offer, share
exchange, business combination, reorganization, recapitalization or other
similar transaction involving the Company or any of its Subsidiaries or any
proposal or offer to acquire, directly or indirectly, any equity interest in,
any voting securities of, or a substantial portion of the assets of, the Company
or any of its Subsidiaries, other than (A) the transactions contemplated by this
Agreement and (B) any transaction involving EGN.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Balance Sheet" means the condensed consolidated balance sheet
of the Company as of June 30, 1999 as read in conjunction with the footnotes
thereto set forth in the Company 10-K.
"Company Balance Sheet Date" means June 30, 1999.
"Company 10-K" means the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1998.
"Company's Knowledge" or any other similar knowledge qualification in
this Agreement means the actual knowledge of: Frank J. O'Connell, Chairman,
Chief Executive Officer and President of the Company, James T. Wilson,
2
<PAGE>
Executive Vice President--Finance and Operations and Chief Financial Officer of
the Company or James E. Thaxton, Vice President--Business Affairs and
Counsel of the Company.
"Delaware Law" means the General Corporation Law of the State of
Delaware.
"EGN" means E-Greetings Network, a California corporation.
"Environmental Claim" means any written claim, demand, suit, action,
proceeding, investigation or notice to the Company or any of its Subsidiaries by
any Person or entity alleging any potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resource damages, or penalties) arising out
of, based on, or resulting from the presence, or Release into the environment,
of any Hazardous Substance at any location, whether owned, leased, operated or
used by the Company or its Subsidiaries.
"Environmental Laws" means all Laws as currently in effect, which
regulate the threatened Releases of Hazardous Substances, or otherwise relating
to the manufacture, generation, processing, distribution, use, storage,
disposal, transport or handling of Hazardous Substances, including the
Comprehensive Environmental Response, Compensation and Liability Act and the
Resource Conservation and Recovery Act.
"Employee Plan" means any material, written "employee benefit plan," as
defined in Section 3(3) of ERISA, or employment, severance or similar contract
or other plan providing for severance benefits, bonuses, profit-sharing, stock
option or other stock related rights or other forms of incentive or deferred
compensation, health, medical or disability benefits which is maintained,
administered or contributed to by the Company or any ERISA Affiliate and covers
any employee or former employee of the Company or any Subsidiary, or with
respect to which the Company or any Subsidiary has any liability.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" of any entity means any other entity that, together
with such entity, would be treated as a single employer under Section 414 of the
Code.
"Hazardous Substance" means (1) pollutants, contaminants, hazardous
wastes, toxic substances, and oil and petroleum products, (2) any substance that
is or contains friable asbestos, urea formaldehyde foam insulation,
polychorinated
3
<PAGE>
biphenyls, petroleum or petroleum-derived substances or wastes, radon gas or
related materials, (3) any substance that requires removal or remediation under
any Environmental Law, or is defined, listed or identified as a "hazardous
waste" or "hazardous substance" thereunder, or (4) any substance that is toxic,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic, or otherwise hazardous; in each case in clauses (1)-(4) above which
is regulated under any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset that it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"Material Adverse Effect" means, with respect to the Company, a
material adverse effect (i) on the business, financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole or (ii) on the
ability of the Company to perform its obligations under or to consummate the
transactions contemplated by this Agreement.
"Minimum Condition" means that number of Shares that are validly
tendered in accordance with the terms of the Offer, prior to the expiration date
of the Offer and not withdrawn, that, together with the Shares then owned by
Parent, represents at least a majority of the Shares then outstanding on a
fully-diluted basis (assuming the exercise of all outstanding options which are
exercisable and in-the-money at the Offer Price).
"1933 Act" means the Securities Act of 1933.
"1934 Act" means the Securities Exchange Act of 1934.
"Operating Subsidiary" shall mean a subsidiary of the Company that is
not a material Subsidiary.
"Parent Material Adverse Effect" means a material adverse effect on the
ability of Parent or Merger Subsidiary to perform its obligations under or to
consummate the transactions contemplated by this Agreement.
4
<PAGE>
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"Rabbi Trust" means the trust established by the Company to fund the
compensation and benefits to be provided to employees of the Company and its
Subsidiaries under incentive arrangements designed and adopted by the Company.
"Release" means any releasing, disposing, discharging, injecting,
spilling, leaking, pumping, dumping, emitting, escaping, emptying, migration,
transporting, placing and the like, including into or upon, any land, soil,
surface water, ground water or air, or otherwise entering into the environment.
"SEC" means the Securities and Exchange Commission.
"Shares" means the shares of common stock, $0.01 par value, of the
Company.
"Subsidiary" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at any time directly or indirectly owned by such Person.
"Title IV Plan" means an Employee Plan subject to Title IV of ERISA
other than any "multiemployer plan", as defined in Section 3(37) of ERISA.
Any reference in this Agreement to a statute shall be to such statute,
as amended from time to time, and to the rules and regulations promulgated
thereunder.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
---- -------
Antitrust Law.......................................... 9.01(b)(iii)
Certificates........................................... 3.03(a)
Closing................................................ 3.01(b)
Closing Date........................................... 3.01(b)
Company Disclosure Documents........................... 7.06(a)
Company Proxy Statement................................ 7.06(a)
Company SEC Documents.................................. 5.07(a)(iv)
Company Securities..................................... 5.05(b)(iii)
Company Stockholder Meeting............................ 7.02(a)
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Term Section
---- -------
Company Subsidiary Securities.......................... 5.06(b)(ii)
Confidentiality Agreement.............................. 7.03
Continuing Directors................................... 2.03(a)(ii)
DOJ.................................................... 9.01(b)(ii)
Disclosure Schedule.................................... 5
Effective Time......................................... 3.01(c)
Escrow Agent........................................... 12.04(d)
Exchange Agent......................................... 3.03(a)
FTC.................................................... 9.01(b)(ii)
GAAP................................................... 5.08
Indemnified Person..................................... 8.04(a)(i)
Liquidation Event...................................... 3.09
Merger................................................. 3.01(a)
Merger Consideration................................... 3.02(a)
Offer.................................................. 2.01(a)
Offer Documents........................................ 2.01(b)(i)(A)
Offer Price............................................ 2.01(a)
Option Holder.......................................... 3.05(a)
Option Spread.......................................... 3.05(a)(ii)
Rights Agreement....................................... 5.17(b)(i)
Schedule 14D-1......................................... 2.01(b)(i)(A)
Schedule 14D-9......................................... 2.02(b)
Standstill Agreement................................... 5.17(b)(ii)
Successor Plan......................................... 8.05(b)
Superior Proposal...................................... 7.04(b)(iii)
Surviving Corporation.................................. 3.01(a)
Tax Return............................................. 5.14(f)
Taxes.................................................. 5.14(f)
Taxing Authority....................................... 5.14(f)
Transferred Employee................................... 8.05(a)
ARTICLE 2
The Offer
SECTION 2.01. The Offer. (a) Provided this Agreement shall not have
been terminated, as promptly as practicable after the date hereof, but in no
event later than five business days following the public announcement of the
terms of this Agreement, Parent shall cause Merger Subsidiary to commence, and
Merger Subsidiary shall commence, an offer (as amended or supplemented in
accordance with this Agreement, the "Offer") to purchase for cash any and all of
the
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outstanding Shares at a price of $10.25 per Share (the "Offer Price"), subject
to adjustment as set forth in Section 3.06 and Section 3.09, net to the seller
in cash. The Offer shall be subject only to the conditions set forth in Annex I
hereto. Merger Subsidiary expressly reserves the right to waive the condition to
the Offer relating to the representations and warranties and covenants of the
Company, provided that no other change in the conditions to the Offer may be
made without the prior written consent of the Company. Notwithstanding the
foregoing, without the consent of the Company, Merger Subsidiary shall have the
right to extend the Offer (i) from time to time if, at the scheduled or extended
expiration date of the Offer, any of the conditions to the Offer shall not have
been satisfied or waived, until such conditions are satisfied or waived or (ii)
for any period required by any rule, regulation, interpretation or position of
the SEC or the staff thereof applicable to the Offer or any period required by
applicable law, provided that, each such extension shall be for such period (not
to exceed 20 business days without the consent of Parent) as may be specified by
the Company. If all of the conditions to the Offer are satisfied or waived on
any scheduled expiration date of the Offer, the Company shall have the right to
require Merger Subsidiary to extend the Offer on one or more occasions for an
aggregate period of not more than 20 business days beyond the latest expiration
date that would otherwise be permitted under clause (i) or (ii) of the previous
sentence, if, on such expiration date, the number of Shares tendered (and not
withdrawn) pursuant to the Offer, together with the Shares then owned by Parent,
represents less than 90% of the then outstanding Shares on a fully-diluted basis
(assuming the exercise of all outstanding options which are exercisable and
in-the-money at the Offer Price), and Merger Subsidiary shall have the right to
extend the Offer on one occasion for a period of not more than 5 business days
pursuant to the provisions of this sentence, provided that, the Company may
prevent such extension by Merger Subsidiary if the Company, in its reasonable
judgment, determines that such an extension could threaten in any way the
consummation of the Offer. If all of the conditions to the Offer are not
satisfied or waived on any scheduled expiration date of the Offer, Merger
Subsidiary shall extend the Offer from time to time until such conditions are
satisfied or waived, provided that, each such extension shall be for such period
(not to exceed 20 business days without the consent of Parent) as may be
specified by the Company and, provided further that, Merger Subsidiary shall not
be required to extend the Offer if this Agreement is terminable pursuant to
Sections 11.01(b)(i) or 11.01(b)(ii) hereof (except that the time periods
referenced in Sections 11.01(b)(i) or 11.01(b)(ii) shall be extended for the
time period equal to the time period beyond ten business days during which
either the Company or Parent shall fail to make an HSR Filing pursuant to
Section 9.01(a)). Merger Subsidiary shall, and Parent shall cause it to, accept
for payment and pay for, as promptly as practicable after the expiration of the
Offer, all Shares properly tendered and not withdrawn pursuant to the Offer that
Merger Subsidiary is obligated to purchase.
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(b) As soon as practicable on the date of commencement of the Offer,
Parent and Merger Subsidiary shall file with (A) the SEC a Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") with respect to the Offer,
which will contain the offer to purchase and form of the related letter of
transmittal and summary advertisement (such Schedule 14D-1 and such documents
included therein pursuant to which the Offer will be made, together with any
supplements or amendments thereto, the "Offer Documents") and (B) the Ohio
Division of Securities and the Company such documents as may be required in
accordance with Section 1707.041 of the General Corporation Law of Ohio (the
"Ohio Law"). Parent and the Company each agrees promptly to correct any
information provided by it for use in the Offer Documents if and to the extent
that such information shall have become false or misleading in any material
respect. Parent and Merger Subsidiary agree to take all steps necessary to cause
the Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer
Documents as so corrected to be disseminated to holders of Shares, in each case
as and to the extent required by applicable federal securities laws. The Company
and its counsel shall be given an opportunity to review and approve the Offer
Documents prior to their being filed with the SEC or disseminated to the holders
of Shares. Parent and Merger Subsidiary shall provide the Company and its
counsel with any comments or other communications, whether written or oral, that
Parent, Merger Subsidiary or their counsel may receive from time to time from
the SEC or its staff with respect to the Offer Documents promptly after receipt
of such comments or other communications.
SECTION 2.02. Company Action. (a) The Company hereby consents to the
Offer and represents that its Board of Directors, at a meeting duly called and
held has (i) unanimously determined that this Agreement and the transactions
contemplated hereby, including the Offer and the Merger, are fair to and in the
best interests of the Company's stockholders, (ii) unanimously approved and
adopted this Agreement and the transactions contemplated hereby, including the
Offer and the Merger (such approval being sufficient to render Section 203 of
Delaware Law, Articles V and VI of the Company's Certificate of Incorporation
and the Rights Agreement inapplicable to this Agreement and the transactions
contemplated hereby, including the Offer and the Merger), (iii) unanimously
resolved to recommend acceptance of the Offer and approval and adoption of this
Agreement and the Merger by its stockholders, provided that, subject to and in
accordance with the provisions of Section 7.04(c), the Board of Directors of the
Company may withdraw, modify or amend such recommendation and (iv) amended the
Rights Agreement as described in Section 5.17 hereof. The Company further
represents that J.P. Morgan Securities Inc. has delivered to the Company's Board
of Directors its opinion that the consideration to be received in the Offer and
the Merger is fair to the holders of Shares from a financial point of view. The
Company will promptly furnish Parent with a list of its stockholders,
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mailing labels and any available listing or computer file containing the names
and addresses of all record holders of Shares and lists of securities positions
of Shares held in stock depositories, in each case true and correct as of the
most recent practicable date, and will provide to Parent such additional
information (including, without limitation, updated lists of stockholders,
mailing labels and lists of securities positions) and such other assistance as
Parent may reasonably request in connection with the Offer. Subject to the
requirements of applicable law, and except for such steps as are necessary to
disseminate the Offer Documents and any other documents necessary to consummate
the Merger, Parent and Merger Subsidiary and each of their Affiliates,
associates, employees, agents and advisors shall hold in confidence the
information contained in any such lists, labels, listings or files, shall use
such information only in connection with the Offer and the Merger and, if this
Agreement shall be terminated and if the Company so requests, shall deliver, and
shall use their reasonable efforts to cause their Affiliates, associates,
employees, agents and advisors to deliver, to the Company all copies and any
extracts or summaries from such information then in their possession or control.
(b) Simultaneously with the filing by Merger Subsidiary of the
Schedule 14D-1 or as promptly thereafter as practicable, the Company shall file
with the SEC and disseminate to holders of Shares, in each case as and to the
extent required by applicable federal securities laws, a Solicitation/
Recommendation Statement on Schedule 14D-9 (together with any amendments or
supplements thereto, the "Schedule 14D-9") that, subject to the provisions of
Section 7.04(c), shall reflect the recommendations of the Company's Board of
Directors referred to above. The Company and Parent each agree promptly to
correct any information provided by it for use in the Schedule 14D-9 if and to
the extent that it shall have become false or misleading in any material
respect. The Company agrees to take all steps necessary to cause the Schedule
14D-9 as so corrected to be filed with the SEC and to be disseminated to holders
of Shares, in each case as and to the extent required by applicable federal
securities laws. Parent and its counsel shall be given an opportunity to review
and comment on the Schedule 14D-9 prior to its being filed with the SEC. The
Company shall provide Parent and its counsel with any comments or other
communications, whether written or oral, that the Company or its counsel may
receive from time to time from the SEC or its staff with respect to the Schedule
14D-9 promptly after receipt of such comments or other communications.
SECTION 2.03. Directors. (a) Effective upon the acceptance for payment
pursuant to the Offer of a number of Shares that satisfies the Minimum
Condition, Parent shall be entitled to designate the number of directors,
rounded up to the next whole number, on the Company's Board of Directors that
equals the product of (i) the total number of directors on the Company's Board
of Directors (giving
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effect to the election of any additional directors pursuant to this Section) and
(ii) the percentage that the number of Shares beneficially owned by Parent
(including Shares accepted for payment) bears to the total number of Shares
outstanding, and the Company shall take all action necessary to cause Parent's
designees to be elected or appointed to the Company's Board of Directors,
including, without limitation, increasing the number of directors, and seeking
and accepting resignations of incumbent directors. At such time, the Company
will also use its best efforts to cause individuals designated by Parent to
constitute the number of members, rounded up to the next whole number, on (i)
each committee of the Board other than the Executive Committee or any committee
of the Board established to take action under this Agreement and (ii) each board
of directors of each Subsidiary of the Company (and each committee thereof) that
represents the same percentage as such individuals represent on the Board of
Directors of the Company. Notwithstanding the foregoing, the Company shall use
its reasonable best efforts to ensure that at least three members of the Board
of Directors and such committees and boards as of the date hereof who are not
employees of the Company (the "Continuing Directors") shall remain members of
the Board of Directors and such committees and boards until the Effective Time,
provided that, if the number of Continuing Directors is reduced below three
prior to the Effective Time, the remaining such Directors shall be entitled to
designate to fill the vacancy a person who is not an officer, director or
designee of Parent or any of its Affiliates and who shall be deemed to be a
Continuing Director for all purposes of this Agreement.
(b) The Company's obligations to appoint Parent's designees to the
Board of Directors shall be subject to Section 14(f) of the 1934 Act and Rule
14f- 1 promulgated thereunder. The Company shall promptly take all actions, and
shall include in the Schedule 14D-9 such information with respect to the Company
and its officers and directors, as Section 14(f) and Rule 14f-1 require in order
to fulfill its obligations under this Section. Parent shall supply to the
Company in writing and be solely responsible for any information with respect to
itself and its nominees, officers, directors and affiliates required by Section
14(f) and Rule 14f-1.
(c) Following the election or appointment of Parent's designees
pursuant to Section 2.03(a) and until the Effective Time, the approval of a
majority of the Continuing Directors of the Company then in office who were not
designated by Parent shall be required to authorize (and such authorization
shall constitute the authorization of the Board of Directors and no other action
on the part of the Company, including any action by any other director of the
Company, shall be required to authorize) any termination of this Agreement by
the Company, any amendment of this Agreement requiring action by the Board of
Directors, any extension of time for performance of any obligation or action
hereunder by Parent
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or Merger Subsidiary and any waiver of compliance with any of the agreements or
conditions contained herein for the benefit of the Company.
ARTICLE 3
The Merger
SECTION 3.01. The Merger. (a) At the Effective Time, Merger Subsidiary
shall be merged (the "Merger") with and into the Company in accordance with
Delaware Law, whereupon the separate existence of Merger Subsidiary shall cease,
and the Company shall be the surviving corporation (the "Surviving
Corporation").
(b) Upon the terms and subject to the conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place at 10:00 a.m. on a
date to be specified by the parties (the "Closing Date") that shall be no later
than the second business day after satisfaction of the conditions set forth
herein, other than those conditions that are to be satisfied at the Closing, but
subject to the satisfaction of such conditions, at the offices of Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York 10017, unless the parties
hereto agree in writing to another time, date or place.
(c) Upon the Closing, the Company and Merger Subsidiary shall file a
certificate of merger with the Delaware Secretary of State and make all other
filings or recordings required by Delaware Law in connection with the Merger.
The Merger shall become effective at such time (the "Effective Time") as the
certificate of merger is duly filed with the Delaware Secretary of State or at
such later time as is specified in the certificate of merger.
(d) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, powers, privileges and franchises and be subject to all
of the obligations, liabilities, restrictions and disabilities of the Company
and Merger Subsidiary, all as provided under Delaware Law.
SECTION 3.02. Conversion of Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Subsidiary or
the Company or the holders of any of the following securities:
(a) except as otherwise provided in Section 3.02(c), Section 3.04,
Section 3.06 or Section 3.09, each Share outstanding immediately prior to the
Effective Time shall be converted into the right to receive $10.25 in cash or
any
11
<PAGE>
higher price paid for each Share in the Offer, without interest (the "Merger
Consideration");
(b) each Share held by the Company as treasury stock or owned by
Parent or any of its Subsidiaries immediately prior to the Effective Time shall
be canceled, and no payment shall be made with respect thereto; and
(c) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock of the Surviving Corporation with the same rights, powers
and privileges as the shares so converted and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.
SECTION 3.03. Surrender and Payment. (a) Prior to the Effective Time,
Parent shall appoint Bank One Corporation as agent (the "Exchange Agent") for
the purpose of exchanging certificates representing Shares (the "Certificates")
for the Merger Consideration. Parent will make available to the Exchange Agent,
as needed, the Merger Consideration to be paid in respect of the Shares.
Promptly after the Effective Time, Parent will send, or will cause the Exchange
Agent to send, to each holder of Shares at the Effective Time a letter of
transmittal and instructions (which shall specify that the delivery shall be
effected, and risk of loss and title shall pass, only upon proper delivery of
the Certificates to the Exchange Agent) for use in such exchange.
(b) Each holder of Shares that have been converted into the right to
receive the Merger Consideration will be entitled to receive, upon surrender to
the Exchange Agent of a Certificate, together with a properly completed letter
of transmittal, the Merger Consideration payable for each Share represented by
such Certificate. Until so surrendered, each such Certificate shall represent
after the Effective Time for all purposes only the right to receive such Merger
Consideration.
(c) If any portion of the Merger Consideration is to be paid to a
Person other than the Person in whose name the surrendered Certificate is
registered, it shall be a condition to such 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 to the Exchange
Agent any transfer or other taxes required as a result of such payment to a
Person other than the registered holder of such Certificate or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no further registration
of transfers of Shares. If, after the Effective Time, Certificates are presented
to the
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Surviving Corporation, they shall be canceled and exchanged for the Merger
Consideration provided for, and in accordance with the procedures set forth, in
this Article.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 3.03(a) (and any interest or other income
earned thereon) that remains unclaimed by the holders of Shares six months after
the Effective Time shall be returned to Parent, and any such holder who has not
exchanged them for the Merger Consideration in accordance with this Section
prior to that time shall thereafter look only to Parent for payment of the
Merger Consideration in respect of such Shares without any interest thereon.
Notwithstanding the foregoing, Parent shall not be liable to any holder of
Shares for any amount paid to a public official pursuant to applicable abandoned
property, escheat or similar laws. Any amounts remaining unclaimed by holders of
Shares six years after the Effective Time (or such earlier date immediately
prior to such time when the amounts would otherwise escheat to or become
property of any governmental authority) shall become, to the extent permitted by
applicable law, the property of Parent free and clear of any claims or interest
of any Person previously entitled thereto.
(f) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 3.03(a) to pay for Shares for which appraisal
rights have been perfected shall be returned to Parent, upon demand.
SECTION 3.04. Dissenting Shares. Notwithstanding Section 3.02, Shares
outstanding immediately prior to the Effective Time and held by a holder who has
not voted in favor of the Merger or consented thereto in writing and who has
demanded appraisal for such Shares in accordance with Delaware Law shall not be
converted into a right to receive the Merger Consideration, unless such holder
fails to perfect, withdraws or otherwise loses its right to appraisal. If, after
the Effective Time, such holder fails to perfect, withdraws or loses its right
to appraisal, such Shares shall be treated as if they had been converted as of
the Effective Time into a right to receive the Merger Consideration. The Company
shall give Parent prompt notice of any demands received by the Company for
appraisal of Shares, and Parent shall have the right to participate in all
negotiations and proceedings with respect to such demands. Except with the prior
written consent of Parent, the Company shall not make any payment with respect
to, or settle or offer to settle, any such demands.
SECTION 3.05. Stock Options. (a) The Company shall take all actions
necessary (which include, but are not limited to, satisfying the requirements of
Rule 16b-3(e) promulgated under Section 16 of the Exchange Act, without
incurring any liability in connection therewith, and seeking any consents
required
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of holders of Options) to provide that at or immediately prior to the Effective
Time, each stock option to purchase Shares (the "Options") outstanding under any
employee or director stock option or compensation plan or arrangement of the
Company (the "Option Plans"), whether or not vested or exercisable, shall be
canceled, and the Company shall pay each holder of any such Option (an "Option
Holder") at or promptly after the Effective Time for each such Option
surrendered an amount in cash determined by multiplying (i) the excess, if any,
of the Merger Consideration over the applicable exercise price of such Option by
(ii) the number of Shares such holder could have purchased (assuming full
vesting of all options) had such holder exercised such Option in full
immediately prior to the Effective Time (the "Option Spread").
(b) Prior to the Effective Time, the Company shall make any amendments
to the terms of such stock option or compensation plans or arrangements deemed
necessary by the Company or Parent to give effect to the transactions
contemplated by Section 3.05(a).
(c) Except as provided herein or as otherwise agreed to by the
parties, (i) the Company shall cause the Option Plans to terminate as of the
Effective Time and (ii) the Company shall ensure that following the Effective
Time, no holder of Options or any participant in the Option Plans will have any
right to acquire any equity securities of the Company, the Surviving Corporation
or any Subsidiary thereof.
SECTION 3.06. Adjustments. If, during the period between the date of
this Agreement and the Effective Time, any change in the outstanding Shares
shall occur, including by reason of any reclassification, recapitalization,
stock split or combination, exchange or readjustment of Shares, or stock
dividend thereon with a record date during such period, the cash payable
pursuant to the Offer, the Merger Consideration and any other amounts payable
pursuant to this Agreement shall be appropriately adjusted.
SECTION 3.07. Withholding Rights. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable to any Person pursuant to this Article such amounts as it is required to
deduct and withhold with respect to the making of such payment under any
provision of federal, state, local or foreign tax law. If the Surviving
Corporation or Parent, as the case may be, so withholds amounts, such amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the Shares in respect of which the Surviving Corporation or Parent, as
the case may be, made such deduction and withholding.
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<PAGE>
SECTION 3.08. Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such Person of a bond, in
such reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will pay, in exchange for such lost, stolen or destroyed
Certificate, the Merger Consideration to be paid in respect of the Shares
represented by such Certificate, as contemplated by this Article 3.
SECTION 3.09. Adjustments to Price. A "Liquidation Event" shall mean
any sale or disposition for cash (including, without limitation, a sale or
disposition by EGN of all or substantially all of its assets followed by a
distribution of the cash proceeds thereof to shareholders of EGN, a merger or
consolidation involving EGN, a purchase of all or substantially all of the stock
of EGN by a third party or the repurchase by EGN of any of its capital stock
from the Company or its Subsidiaries) by the Company or its Subsidiaries of all
or any part of its investment in EGN prior to the expiration date of the Offer.
In the event of a Liquidation Event (or if more than one such Liquidation Event
occurs, with respect to each Liquidation Event), each of the Merger
Consideration, the Offer Price and the Option Spread shall be increased by an
amount equal to 30% of any after-tax gain (after giving full effect to any
capital loss carry-forward available to the Company, the availability of which
is confirmed by the Company's independent accountants) on such Liquidation
Event, calculated in accordance with GAAP, divided by the total number of Shares
then outstanding on a fully diluted basis, assuming for this purpose the
exercise only of outstanding Options, whether or not such Options are then
vested, which are (or, giving effect to the adjustment in the Merger
Consideration contemplated hereby, would be) in-the-money. Parent and Merger
Subsidiary shall make such changes in the Offer Documents necessary to reflect
any increase in the price per Share of the Offer pursuant to this provision,
including extending the expiration date of the Offer as required by applicable
Federal securities laws. The price used to compute any after-tax gain on a
Liquidation Event shall be the cash received by the Company in such sale or
disposition (net of any underwriting discounts and other amounts paid by the
Company in connection with such sale), but only if such cash is for an aggregate
amount in excess of the Company's then net book value of its interest in EGN.
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ARTICLE 4
The Surviving Corporation
SECTION 4.01. Certificate of Incorporation. The certificate of
incorporation of Merger Subsidiary in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law, provided that, at the Effective Time, Article I
of such certificate of incorporation shall be amended to read as follows: "The
name of the corporation is Gibson Greetings, Inc."
SECTION 4.02. Bylaws. The bylaws of Merger Subsidiary in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 4.03. Directors and Officers. From and after the Effective
Time, until successors are duly elected or appointed and qualified in accordance
with applicable law, (i) the directors of Merger Subsidiary at the Effective
Time shall be the directors of the Surviving Corporation and (ii) the officers
of [Merger Subsidiary] at the Effective Time shall be the officers of the
Surviving Corporation.
ARTICLE 5
Representations and Warranties of the Company
The Company represents and warrants to Parent that, except (A) as would
not have, individually or in the aggregate, a Material Adverse Effect on the
Company, (B) as disclosed in the Company SEC Documents filed prior to the date
of this Agreement or (C) as set forth (including an identification by section
reference to the representations and warranties to which such exceptions relate)
on the Disclosure Schedule to this Agreement (the "Disclosure Schedule"):
SECTION 5.01. Corporate Existence and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all corporate powers and all material
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each material
jurisdiction where such qualification is necessary. The Company has heretofore
delivered to Parent true and complete copies of the certificate of incorporation
and bylaws of the Company as currently in effect.
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SECTION 5.02. Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby are within the Company's corporate powers and,
except for the affirmative vote of the holders of a majority of the outstanding
Shares in connection with the consummation of the Merger (if required by law),
have been duly authorized by all necessary corporate action on the part of the
Company. The affirmative vote of the holders of a majority of the outstanding
Shares (if required by law) is the only vote of the holders of any of the
Company's capital stock necessary in connection with the consummation of the
Merger. This Agreement constitutes a valid and binding agreement of the Company.
SECTION 5.03. Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby require no material action by or in
respect of, or material filing with, any governmental body, agency, official or
authority, domestic or foreign, other than (i) the filing of a certificate of
merger with respect to the Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business, (ii) compliance with any applicable
requirements of the HSR Act and other Antitrust Laws, (iii) compliance with any
applicable requirements of the 1933 Act, the 1934 Act and any other applicable
securities or takeover laws, whether federal, state or foreign, and (iv)
compliance with Section 1707.041 of the Ohio Law.
SECTION 5.04. Non-contravention. The execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (i) contravene, conflict
with, or result in any violation or breach of any material provision of the
certificate of incorporation or bylaws of the Company, (ii) assuming compliance
with the matters referred to in Section 5.03, contravene, conflict with, or
result in a violation or breach of any material provision of any applicable law,
statute, ordinance, rule, regulation, judgment, injunction, order or decree,
(iii) to the Company's Knowledge, require any consent by any Person under, or
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
right of termination or cancellation of, any provision of any contract, license,
lease or loan binding upon the Company or any of its Subsidiaries that (A)
provides for annual rentals or payments by or to the Company of $100,000 or more
and (B) is not terminable by the Company or the other party to such agreement on
less than 90 days notice or (iv) result in the creation or imposition of any
Lien on any material asset of the Company or any of its Subsidiaries.
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SECTION 5.05. Capitalization. (a) The authorized capital stock of the
Company consists of 50,000,000 Shares and 5,300,000 shares of preferred stock,
par value $1.00. As of October 29, 1999, there were outstanding (i) 15,846,663
Shares and (ii) no shares of preferred stock. As of October 29, 1999, there were
reserved for issuance, (i) 931,773 Shares under the Company's employee stock
option plans listed on Section 5.15 of the Disclosure Schedule in the amounts
and for the exercise prices stated in such schedule and (ii) no shares of Series
B Preferred Stock, par value $1.00 per share, pursuant to the Rights Agreement.
As of October 29, 1999, 1,291,601 Shares were held in the treasury of the
Company. As of October 29, 1999, there were outstanding compensatory employee
and director stock options to purchase an aggregate of 2,303,085 Shares. All
outstanding shares of capital stock of the Company have been, and all shares
that may be issued pursuant to the compensatory employee and director stock
option plans of the Company will be, when issued in accordance with the
respective terms thereof, duly authorized and validly issued and are fully paid
and nonassessable.
(b) Except for changes since October 29, 1999 resulting from the
exercise of employee stock options outstanding on such date, there are no
outstanding (i) shares of capital stock or voting securities of the Company,
(ii) securities of the Company convertible into or exchangeable for shares of
capital stock or voting securities of the Company or (iii) options or other
rights to acquire from the Company or other obligation of the Company to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company (the items in
clauses (i), (ii) and (iii) being referred to collectively as the "Company
Securities"). There are no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any of the Company
Securities.
SECTION 5.06. Subsidiaries. (a) Each material Subsidiary of the Company
is a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation, has all corporate powers and all
material governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted. Each such Subsidiary is duly
qualified to do business as a foreign corporation and is in good standing in
each material jurisdiction where such qualification is necessary. All material
Subsidiaries of the Company and their respective jurisdictions of incorporation
are identified in the Company 10-K.
(b) All of the outstanding capital stock of, or other voting
securities or ownership interests in, each material Subsidiary and, to the
Company's Knowledge, each Operating Subsidiary of the Company, is owned by the
Company, directly or indirectly, free and clear of any material Lien and free of
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any other material limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other voting
securities or ownership interests). There are no outstanding (i) securities of
the Company or any of its Subsidiaries convertible into or exchangeable for
shares of capital stock or other voting securities or ownership interests in any
material Subsidiary or, to the Company's Knowledge, any Operating Subsidiary of
the Company or (ii) options or other rights to acquire from the Company or any
of its Subsidiaries, or other obligation of the Company or any of its
Subsidiaries to issue, any capital stock or other voting securities or ownership
interests in, or any securities convertible into or exchangeable for any capital
stock or other voting securities or ownership interests in, any material
Subsidiary of the Company (the items in clauses (i) and (ii) being referred to
collectively as the "Company Subsidiary Securities"). There are no outstanding
obligations of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any of the Company Subsidiary Securities.
SECTION 5.07. SEC Filings. (a) The Company has delivered to Parent (i)
the Company's annual reports on Form 10-K for its fiscal years ended December
31, 1996, 1997 and 1998, (ii) its quarterly reports on Form 10-Q for its fiscal
quarters ended March 31, 1999 and June 30, 1999, (iii) its proxy or information
statements relating to meetings of, or actions taken without a meeting by, the
stockholders of the Company held since December 31, 1998, and (iv) all of its
other reports, statements, schedules and registration statements filed with the
SEC since December 31, 1998 (the documents referred to in this Section 5.07(a),
collectively, the "Company SEC Documents".) The Company has filed all forms,
reports and documents required to be filed with the SEC since January 1, 1996
(the "Filed SEC Documents").
(b) As of the filing date, each Filed SEC Document complied as to form
in all material respects with the applicable requirements of the 1933 Act and
the 1934 Act, as the case may be.
(c) As of its filing date (or, if amended or superceded by a filing
prior to the date hereof, on the date of such filing), each Filed SEC Document
filed pursuant to the 1934 Act did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(d) Each Filed SEC Document that is a registration statement, as
amended or supplemented, if applicable, filed pursuant to the 1933 Act, as of
the date such statement or amendment became effective, did not contain any
untrue
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statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
SECTION 5.08. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Filed SEC Documents fairly present in all material
respects, in conformity with generally accepted accounting principles ("GAAP")
applied on a consistent basis (except as may be indicated in the notes thereto),
the consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements), except
that the notes and disclosures therein in the Company's quarterly reports on
Form 10-Q have not been prepared in accordance with GAAP.
SECTION 5.09. Absence of Certain Changes. Since the Company Balance
Sheet Date, the business of the Company and its material Subsidiaries and, to
the Company's Knowledge, its Operating Subsidiaries has been conducted in the
ordinary course consistent with past practices and, except as disclosed to
Parent prior to the date of this Agreement, there has not been:
(a) any event, occurrence, development or state of circumstances or
facts that has had individually or in the aggregate, a Material Adverse Effect
on the Company, except any such event, occurrence, development or state of
circumstances or facts resulting from or arising in connection with (A) changes,
circumstances or conditions affecting the greeting cards industry in general or
(B) changes in general economic, regulatory or political conditions;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company or any of its material
Subsidiaries;
(c) any amendment of any material term of any outstanding security of
the Company or any of its material Subsidiaries;
(d) any incurrence, assumption or guarantee by the Company, or any of
its Subsidiaries of any indebtedness for borrowed money, including capitalized
leases, other than in the ordinary course of business and in amounts and on
terms consistent with past practices;
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(e) any making of any loan, advance or capital contributions to or
investment in any Person, exceeding, individually or in the aggregate, $1
million, other than loans, advances or capital contributions to or investments
in its Subsidiaries made in the ordinary course of business consistent with past
practices or loans or advances to employees of the Company or any of its
Subsidiaries made in the ordinary course of business consistent with past
practice;
(f) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any of its material Subsidiaries and to the
Company's Knowledge, its Operating Subsidiaries relating to its assets or
business (including the acquisition or disposition of any material assets) or
any relinquishment by the Company or any of its material Subsidiaries and to the
Company's Knowledge, its Operating Subsidiaries of any contract or other right,
in either case, material to the Company and its Subsidiaries, taken as a whole,
other than transactions and commitments in the ordinary course of business
consistent with past practices and those contemplated by this Agreement;
(g) any material change in any method of accounting, method of tax
accounting or accounting principles or practice by the Company or any of its
Subsidiaries, except for any such change required by reason of a concurrent
change in GAAP or Regulation S-X under the 1934 Act;
(h) any (i) increase in benefits payable under any existing severance
or termination pay policies or employment agreements exceeding $100,000, (ii)
any entering into any employment, severance deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
director, officer or employee of the Company or any of its Subsidiaries , with
payments thereunder exceeding $100,000, (iii) establishment, adoption or
amendment (except as required by applicable law) of any profit-sharing, thrift,
pension, retirement, deferred compensation, stock option, restricted stock or
other benefit plan or arrangement covering any director, officer or employee of
the Company or any of its Subsidiaries, or (iv) increase in compensation, bonus
or other benefits payable to any director, officer or employee of the Company or
any of its subsidiaries exceeding $100,000, other than in the ordinary course of
business consistent with past practice.
SECTION 5.10. No Undisclosed Material Liabilities. There are no
liabilities or obligations of the Company or any of its Subsidiaries other than:
(a) liabilities or obligations disclosed or provided for in the
Company Balance Sheet or in the notes thereto or in the Company SEC Documents
filed prior to the date of this Agreement;
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(b) liabilities or obligations incurred in the ordinary course
consistent with past practice; and
(c) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated hereby.
SECTION 5.11. Compliance with Laws and Court Orders. The Company and,
to the Company's Knowledge, each of its Subsidiaries is in compliance with, and
is not under investigation with respect to any violation of, any applicable
material law, statute, ordinance, rule, regulation, judgment, injunction, order
or decree.
SECTION 5.12. Litigation. There is no material action, suit,
investigation or proceeding pending against or affecting, the Company, any of
its Subsidiaries, or any of their respective properties before any court or
arbitrator or before or by any governmental body, agency or official, domestic
or foreign.
SECTION 5.13. Finders' Fees. Except for J.P. Morgan Securities Inc., a
copy of whose engagement agreement has been provided to Parent, there is no
investment banker, broker, finder or other intermediary that has been retained
by or is authorized to act on behalf of the Company or any of its Subsidiaries
who might be entitled to any material fee or commission from the Company or any
of its Subsidiaries in connection with the transactions contemplated by this
Agreement.
SECTION 5.14. Taxes. (a) The Company and each of its Subsidiaries have
timely filed or will file or cause to be timely filed all material Tax Returns
required by applicable law to be filed by them prior to or as of the Effective
Time, and all such material Tax Returns are, or will be at the time of filing,
true and complete in all material respects.
(b) The Company and each of its Subsidiaries have paid, or withheld
and remitted to the appropriate taxing authority all taxes shown as due and
payable on the Tax Returns that have been filed.
(c) No federal, state, local or foreign audits, administrative
proceedings or court proceeding are pending with regard to any Taxes or Tax
Returns of the Company and there are no outstanding deficiencies or assessments
asserted or proposed.
(d) There are no outstanding agreements, consents or waivers extending
the statutory period of limitations applicable to the assessment of any Taxes or
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deficiencies against the Company, and the Company is not a party to any
agreement providing for the allocation or sharing of Taxes.
(e) Since January 1, 1990, the Company has not been a member of an
affiliated group filing consolidated or combined Tax Returns other than a
federal income tax group the common parent of which is the Company.
(f) "Taxes" shall mean any and all taxes, charges, fees, levies or
other assessments, including income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, goods and services, service use, license, value added, capital,
net worth, payroll, profits, withholding, franchise, transfer and recording
taxes, fees and charges, and any other taxes, assessment or similar charges
imposed by the Internal Revenue Service or any taxing authority (whether
domestic or foreign including any state, county, local or foreign government or
any subdivision or taxing agency thereof (including a United States possession))
(a "Taxing Authority"), whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest whether
paid or received, fines, penalties or additional amounts attributable to, or
imposed upon, or with respect to, any such taxes, charges, fees, levies or other
assessments. "Tax Return" shall mean any report, return, document, declaration
or other information or filing required to be supplied to any taxing authority
or jurisdiction (foreign or domestic) with respect to Taxes, including
information returns, any documents with respect to or accompanying payments of
estimated Taxes, or with respect to or accompanying requests for the extension
of time in which to file any such report, return, document, declaration or other
information.
SECTION 5.15. Employee Benefit Plans. (a) Section 5.15 of the
Disclosure Schedule contains a true and complete list of the Employee Plans. The
Company has made available to Parent copies of each Employee Plan and all
amendments thereto and, where applicable, the most recent annual reports (Form
5500, including Schedule B thereto), the most recent actuarial valuation report
and the most recent determination letter of the Internal Revenue Service
relating to each Employee Plan.
(b) No "accumulated funding deficiency," as defined in Section 412 of
the Code, has been incurred with respect to any Title IV Plan. No "reportable
event," within the meaning of Section 4043 of ERISA, other than a "reportable
event" that will not have a Material Adverse Effect on the Company, and no event
described in Section 4062 or 4063 of ERISA, has occurred in connection with any
Employee Plan. Neither the Company nor any ERISA Affiliate of the Company has
(i) engaged in, or is a successor or parent corporation to an entity that has
engaged in, a transaction described in Sections 4069 or 4212(c) of ERISA or (ii)
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incurred any liability under Title IV of ERISA arising in connection with the
termination of, or a complete or partial withdrawal from, any plan covered or
previously covered by Title IV of ERISA that could become a liability of the
Company, any Subsidiary of the Company, Parent or any of their ERISA Affiliates
after the Effective Time.
(c) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code is the subject of a favorable qualification determination
letter issued by the Internal Revenue Service and to the Company's Knowledge
nothing has occurred that would adversely affect that determination.
(d) Each Employee Plan has been maintained in substantial compliance
with its terms and with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code.
(e) (i) No Employee Plan provides any benefits or compensation which
would be triggered by the transactions contemplated herein and (ii) no
compensation or benefits payable in connection with the transactions
contemplated herein will constitute an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code.
(f) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement. To the Company's Knowledge there is no
organizing effort or representation dispute with respect to any employee of the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries is involved in or, to the Company's Knowledge, threatened with any
labor dispute (other than individual grievances arising in the ordinary course),
work stoppage, labor strike or slowdown.
SECTION 5.16. Environmental Matters. (a) (i) No written notice, order,
complaint or penalty has been received by the Company or any Subsidiary arising
out of any Environmental Laws and there are no Environmental Claims pending
or, to the Company's Knowledge, threatened.
(ii) The Company and each Subsidiary have all environmental permits
necessary for their operations to comply with all applicable
Environmental Laws and are in compliance with the terms of such
permits.
(iii) The operations of the Company and each Subsidiary are in
compliance with the terms of applicable Environmental Laws.
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(b) Except as set forth in this Section 5.16, no representations or
warranties are being made with respect to matters arising under or relating to
environmental matters.
SECTION 5.17. Antitakeover Statutes, Rights Agreement and Standstill
Agreement. (a) The Company has taken all action necessary to exempt the Offer,
the Merger, this Agreement, and the transactions contemplated hereby from the
provisions of Section 203 of Delaware Law and Articles V and VI of the Company's
Certificate of Incorporation, and, accordingly, neither such provisions nor
other antitakeover or similar statute or regulation applies or purports to apply
to any such transactions.
(b) The Company will take all action necessary to (i) render the
Rights Agreement dated as of September 8, 1999 between the Company and The Bank
of New York (the "Rights Agreement") inapplicable to the Offer, the Merger and
the other transactions contemplated hereby, (ii) ensure that (y) neither Parent
nor any of its Subsidiaries nor any of its permitted assignees or transferees is
an Acquiring Person (as defined in the Rights Agreement) pursuant to the Rights
Agreement and (z) a Stock Acquisition Date, Triggering Event or Distribution
Date (in each case as defined in the Rights Agreement) does not occur by reason
of the execution of this Agreement, the commencement or completion of the Offer,
the consummation of the Merger or the other transactions contemplated hereby and
(iii) render the provisions of the Standstill Agreement dated as of October 26,
1998, between Parent and the Company (the "Standstill Agreement") inapplicable
to the Offer, the Merger, this Agreement and the transactions contemplated
hereby. If this Agreement is terminated for any reason, then the provisions of
the Rights Agreement and the Standstill Agreement will apply to Parent in full
force and effect as if the provisions of this Section 5.17(b) had never been
agreed to, with the provisions of the Standstill Agreement remaining in full
force and effect for a period of two years after such termination.
SECTION 5.18. Intellectual Property.
(a) The Company or its Subsidiaries own or have the valid right to use
all material intellectual property used by it in connection with its business,
including: (i) trademarks and service marks (registered or unregistered) and
trade names, and all goodwill associated therewith; (ii) patents, patentable
inventions, discoveries, improvements, ideas, know-how, processes and computer
programs, software and databases (including source code); (iii) trade secrets
and the right to limit the use or disclosure thereof; and (iv) copyrights in all
works, including software programs and mask works (collectively "Intellectual
Property").
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(b) To the Company's Knowledge, the conduct of the businesses of the
Company as currently conducted does not conflict with or infringe in any
material respect any proprietary right of any third party. There is no claim,
suit, action or proceeding pending or, to the Company's Knowledge, threatened
against the Company (i) alleging any such conflict or infringement with any
third party's proprietary rights, or (ii) challenging the ownership or use of
the Intellectual Property.
SECTION 5.19. Year 2000 Compliance. (a) To the Company's
Knowledge, the material Subsidiaries of the Company are Year 2000 Compliant.
Section 5.19 of the Disclosure Schedule contains, to the Company's Knowledge,
the current status of the Company's Year 2000 readiness.
(b) The term "Year 2000 Compliance" means, with respect to the
material Subsidiaries of the Company,
(i) the functions, calculations and other computer processes of all
equipment, computer hardware, software and systems of the material
Subsidiaries of the Company, including, but not limited to, internal
and outsourced systems and embedded computer features within other
systems and equipment of the material Subsidiaries of the Company
(collectively, "Processes"), perform properly in an accurate and
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the date of input, whether
before, on or after January 1, 2000 and whether or not the dates are
affected by leap years;
(ii) the equipment, computer hardware, software and systems accept,
calculate, compare, sort, extract, sequence and otherwise process data
inputs and date values, and return and display date values, in an
accurate and consistent manner regardless of the dates used, whether
before, on or after January 1, 2000;
(iii) the equipment, computer hardware, software and systems will
function properly without interruptions or manual interventions caused
by the date in time on which the Processes are actually performed or by
the date of input to the software, whether before, on or after January
1, 2000;
(iv) the equipment, computer hardware, software and systems accept
and respond to two-digit year data input in the Processes in a manner
that resolves any ambiguities as to the century in a defined,
predetermined and appropriate manner; and
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(v) the equipment, computer hardware, software and systems store
and display data information in the Processes in ways that are accurate
and unambiguous as to the determination of the century.
Notwithstanding any other provision of this Agreement to the contrary,
to the extent the Company is able to show that Parent knows of facts as of the
date hereof that constitute an inaccuracy or breach of the representations and
warranties made by the Company not to be true as of the date given, Parent shall
have no right or remedy with respect to such inaccuracy and such facts shall be
deemed to be exceptions to such representations and warranties.
ARTICLE 6
Representations and Warranties of Parent and Merger Subsidiary
Parent and Merger Subsidiary represent and warrant to the Company that:
SECTION 6.01. Corporate Existence and Power. Each of Parent and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
corporate powers and all material governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as now
conducted, except for those licenses, authorizations, permits, consents and
approvals the absence of which would not have, individually or in the aggregate,
a Parent Material Adverse Effect. Since the date of its incorporation, Merger
Subsidiary has not engaged in any activities other than in connection with or as
contemplated by this Agreement or in connection with arranging any financing
required to consummate the transactions contemplated hereby.
SECTION 6.02. Corporate Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Parent and Merger Subsidiary and have
been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and binding agreement of each of Parent and Merger
Subsidiary.
SECTION 6.03. Governmental Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby require no material action by or in respect of, or material filing with,
any governmental body, agency, official or authority, domestic or foreign, other
than
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(i) the filing of a certificate of merger with respect to the Merger with the
Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which Parent is qualified to do business, (ii)
compliance with any applicable requirements of the HSR Act, (iii) compliance
with any applicable foreign antitrust, requirements of the 1933 Act, the 1934
Act and any other applicable securities or takeover laws, whether federal, state
or foreign, or (iv) compliance with Section 1707.041 of the Ohio Law.
SECTION 6.04. Non-contravention. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby do not and will not (i) contravene, conflict with, or result in any
violation or breach of any material provision of the certificate of
incorporation or bylaws of Parent or Merger Subsidiary, (ii) assuming compliance
with the matters referred to in Section 6.03, contravene, conflict with, or
result in any violation or breach of any provision of any law, rule, regulation,
judgment, injunction, order or decree or (iii) require any consent by any Person
under any provision of any agreement binding upon Parent or Merger Subsidiary,
except in the case of clauses (ii) and (iii) for conflicts, violations, breaches
or defaults, or the failure to obtain such consents, that individually or in the
aggregate would not be reasonably expected to have a Parent Material Adverse
Effect.
SECTION 6.05. Finders' Fees. Except for Wasserstein & Perella, whose
fees will be paid by Parent, there is no investment banker, broker, finder or
other intermediary that has been retained by or is authorized to act on behalf
of Parent who might be entitled to any material fee or commission from the
Company or any of its Subsidiaries upon consummation of the transactions
contemplated by this Agreement.
SECTION 6.06. Financing. Parent has and will make available to Merger
Subsidiary, sufficient cash, available lines of credit or other sources of
immediately available funds necessary to purchase all of the Shares outstanding
on a fully-diluted basis and to pay all related fees and expenses pursuant to
the Offer.
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ARTICLE 7
Covenants of the Company
The Company agrees that:
SECTION 7.01. Conduct of the Company. From the date hereof until the
Effective Time, the Company and its Subsidiaries shall conduct their business
and affairs in the ordinary course consistent with past practice and shall use
their reasonable best efforts to preserve intact their business organizations
and relationships with third parties. Without limiting the generality of the
foregoing, from the date hereof until the Effective Time, except as set forth in
Schedule 7.01 (including an identification by section reference to the covenants
to which such exceptions relate):
(a) The Company will not amend its certificate of incorporation or
bylaws;
(b) The Company will not declare, set aside or pay any dividend or
other distribution payable in cash, stock or property with respect to its
capital stock; and neither the Company nor any of its Subsidiaries will (i)
issue, sell, transfer, pledge, dispose of or encumber any additional shares of,
or securities convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of any
class of the Company or any of its Subsidiaries, other than issuances of Shares
pursuant to securities, options, warrants, calls, commitments or rights that
have been granted at the date hereof and are or become exercisable prior to the
Effective Time and previously disclosed to Parent in writing or as set forth in
the Company SEC Documents or (ii) redeem, purchase or otherwise acquire directly
or indirectly any of its capital stock; provided that, this subsection (b) shall
not prohibit the Company from (A) issuing shares, options or warrants to acquire
up to 100,000 shares of capital stock of any class of the Company pursuant to
its 1999 Incentive Stock Option Plan for a period of 10 business days following
the date of this Agreement, provided that, no such issuances shall be made to
the Chief Executive Officer or Chief Financial Officer of the Company or (B)
taking any action pursuant to the Company's obligations to The Ink Group NZ
Limited or The Ink Group Publishers PTY Limited regarding any put rights held by
such entities;
(c) The Company will not (i) incur any long-term indebtedness (whether
evidenced by a note or other instrument, pursuant to a financing lease,
sale-leaseback transaction, or otherwise) or incur short-term indebtedness other
than under lines of credit existing on the date hereof other than, in each case,
to operate the Company's business in the ordinary course or (ii) except in the
ordinary course of business consistent with past practice, enter into, amend,
terminate,
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renew or fail to use reasonable efforts to renew in any material respect any
material contract;
(d) Except pursuant to employment contracts in effect on the date
hereof, neither the Company nor any of its Subsidiaries will (i) grant any
increase in the compensation or benefits payable or to become payable by the
Company or any of its Subsidiaries to any employee; (ii) adopt, enter into,
amend or otherwise increase, or accelerate the payment or vesting of the
amounts, benefits or rights payable or accrued or to become payable or accrued
under any bonus, incentive compensation, deferred compensation, severance,
termination, change in control, retention, hospitalization or other medical,
life, disability, insurance or other welfare, profit sharing, stock option,
stock appreciation right, restricted stock or other equity based, pension,
retirement or other employee compensation or benefit plan, program agreement or
arrangement; or (iii) enter into or amend in any material respect any employment
or collective bargaining agreement or, except in accordance with the existing
written policies of the Company or existing contracts or agreements, grant any
severance or termination pay to any officer, director or employee of the Company
or any of its Subsidiaries, provided that clauses (i), (ii) and (iii) shall not
prohibit the Company from taking any action hereunder pursuant to its program
established by the Rabbi Trust and the related plan;
(e) Neither the Company nor its Subsidiaries will change the
accounting principles used by it unless required by GAAP (or, if applicable with
respect to Subsidiaries, foreign generally accepted accounting principles);
(f) Neither the Company nor any of its Subsidiaries will acquire by
merging or consolidating with, by purchasing an equity interest in or a portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof,
otherwise acquire any assets of any other Person (other than the purchase of
assets from suppliers or vendors in the ordinary course of business consistent
with past practice) for an amount in excess of $10 million, individually or in
the aggregate, other than (A) any investment by the Company in EGN necessary to
maintain the Company's pro rata investment in EGN or (B) any exercise by the
Company of its warrants in EGN;
(g) Neither the Company nor any of its Subsidiaries will sell, lease,
exchange, transfer or otherwise dispose of, or agree to sell, lease, exchange,
transfer or otherwise dispose of, any of its assets except (i) pursuant to
existing contracts or commitments and (ii) in the ordinary course of business
consistent with past practice, except that the Company may dispose of in any
manner and at any time all or a portion of its interest in EGN, provided that,
if the Company disposes of EGN and such disposition is (A) for an aggregate
amount less than
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$30 million or (B) to an Affiliate of the Company, then such disposition shall
be for an amount at least equal to fair market value of the Company's interest
in EGN that is disposed;
(h) The Company and its Subsidiaries will not mortgage, pledge,
hypothecate, grant any security interest in, or otherwise subject to any other
lien on any of its properties or assets, except in connection with the
incurrence of indebtedness permitted under Section 7.01(c);
(i) Neither the Company nor its Subsidiaries will compromise, settle,
grant any waiver or release relating to or otherwise adjust any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), including any Litigation, except for any such
compromise, settlement, waiver, release or adjustment in the ordinary course of
business consistent with past practice and involving a payment by the Company or
any of its Subsidiaries not in excess of $250,000 in the aggregate following
prior notice to and consultation with Parent; and
(j) Neither the Company nor any of its Subsidiaries will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing.
SECTION 7.02. Stockholder Meeting; Proxy Material. (a) The Company
shall cause a meeting of its stockholders (the "Company Stockholder Meeting") to
be duly called and held as soon as reasonably practicable after consummation of
the Offer for the purpose of voting on the approval and adoption of this
Agreement and the Merger, unless Delaware Law does not require a vote of
stockholders of the Company for consummation of the Merger. Subject to Section
7.04(c), the Board of Directors of the Company shall recommend approval and
adoption of this Agreement and the Merger by the Company's stockholders. In
connection with such meeting, the Company will (i) promptly prepare and file
with the SEC, will use its best efforts to have cleared by the SEC and will
thereafter mail to its stockholders as promptly as practicable the Company Proxy
Statement, which shall contain the recommendation of the Board of Directors, and
all other proxy materials for such meeting, (ii) use its best efforts to obtain
the necessary approvals by its stockholders of this Agreement and the
transactions contemplated hereby and (iii) otherwise comply with all legal
requirements applicable to such meeting.
(b) If Parent, Merger Subsidiary or any other Subsidiary of Parent
shall acquire at least 90% of the outstanding Shares pursuant to the Offer or
otherwise, the parties hereto agree, at the request of Parent, to take all
necessary and appropriate action to cause the Merger to be effective as soon as
practicable after
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the acceptance for payment and purchase of Shares pursuant to the Offer without
a meeting of stockholders of the Company in accordance with Delaware Law.
SECTION 7.03. Access to Information. From the date hereof until the
Effective Time and subject to applicable law and the Confidentiality Agreement
dated as of October 28, 1998 between the Company and Parent (the
"Confidentiality Agreement"), the Company shall (i) furnish on a periodic basis
to Parent, its counsel, financial advisors, auditors and other authorized
representatives financial and operating data, (ii) give Parent reasonable access
to Frank J. O'Connell, Chairman, Chief Executive Officer and President of the
Company, James T. Wilson, Executive Vice President--Finance and Operations and
Chief Financial Officer of the Company and James E. Thaxton, Vice
President--Business Affairs and Counsel of the Company, (iii) furnish Parent
with all documents and analyses relating to the requirements of and approvals
needed under the HSR Act to effect a closing of the transaction and (iv) update
Parent on any material changes that develop with respect to information or
documents previously provided to Parent, provided that, except as otherwise
provided in this Agreement, including without limitation Section 9.01(b) hereof,
in no event shall the Company be required to provide information or documents
that (A) it deems to be of a competitively sensitive nature and (B) are subject
to any attorney-client, work product or other privilege that the Company or any
Subsidiary may have. Any action taken pursuant to this Section shall be
conducted in such manner as not to interfere unreasonably with the conduct of
the business of the Company and its Subsidiaries.
SECTION 7.04. No Solicitation; Other Offers. (a) From the date hereof
until the acceptance for payment by Merger Subsidiary of the Shares tendered
into the Offer or the earlier termination hereof, the Company will not, and will
cause its Subsidiaries and the officers, directors, investment bankers,
attorneys, accountants, consultants or other agents or advisors of the Company
and its Subsidiaries not to (i) take any action (y) to solicit or (z) for the
primary purpose of initiating or encouraging the submission of any Acquisition
Proposal, (ii) engage in substantive discussions or negotiations with, or
disclose any material nonpublic information relating to the Company or any of
its Subsidiaries or afford access to the properties, books or records of the
Company or any of its Subsidiaries to, any Person who the Company should
reasonably be expected to know is considering making, or has made, an
Acquisition Proposal or (iii) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage any effort or attempt by any other
Person, in each case, for the primary purpose of making any Acquisition Proposal
or enter into any agreement, arrangement or understanding requiring it to
abandon, terminate or fail to consummate the Offer, the Merger or any other
transaction contemplated by this Agreement. The Company will notify Parent
promptly after receipt by the
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Company (or any of its advisors) of any Acquisition Proposal, or any request for
nonpublic information relating to the Company or any of its Subsidiaries or for
access to the properties, books or records of the Company or any of its
Subsidiaries by any Person who the Company should reasonably be expected to know
is considering making, or has made, an Acquisition Proposal. The Company shall,
and shall cause its Subsidiaries and the directors, officers and other agents of
the Company and its Subsidiaries to, cease immediately and cause to be
terminated all discussions and negotiations with any Persons conducted prior to
the date hereof with respect to any Acquisition Proposal. Nothing contained in
this Agreement shall prevent the Board of Directors of the Company from
complying with Rule 14e-2 under the 1934 Act with respect to any Acquisition
Proposal.
(b) Notwithstanding the foregoing, prior to the acceptance for payment
by Merger Subsidiary of the Shares tendered in the Offer the Company may, if it
gives Parent notice of its intention to do so, negotiate or otherwise engage in
substantive discussions with, and furnish nonpublic information to, any Person
who delivers an unsolicited Superior Proposal if (i) the Company has complied
with the terms of this Section 7.04, including, without limitation, the
requirement in Section 7.04(a) that it notify Parent promptly after its receipt
of any Acquisition Proposal, (ii) the Board of Directors of the Company
determines in its good faith, reasonable judgment, after consultation with and
the receipt of advice from its financial advisor and outside counsel, that
failure to take such action could create a reasonable possibility of a breach of
the fiduciary duties of the Board of Directors under applicable law, and (iii)
such Person executes a confidentiality agreement with the Company not more
favorable to the recipient of such information than the Confidentiality
Agreement. For purposes of this Agreement, "Superior Proposal" means any bona
fide, unsolicited written Acquisition Proposal for at least a majority of the
outstanding Shares on terms that the Board of Directors of the Company
determines in good faith by a majority vote, on the basis of the advice of a
financial advisor of nationally recognized reputation and taking into account
all the terms and conditions of the Acquisition Proposal, including any break-up
fees, expense reimbursement provisions and conditions to consummation, (A) is
more favorable to all the Company's stockholders than as provided hereunder, (B)
is reasonably capable of obtaining any required financing and (C) is reasonably
capable of being completed.
(c) The Board of Directors of the Company shall be permitted to
withdraw, or modify in a manner adverse to Parent, its recommendation to its
stockholders referred to in Sections 2.02 and 7.02 hereof if the Board of
Directors determines in its good faith, reasonable judgment, after consultation
with and the receipt of advice from its financial advisor and outside counsel,
that an Acquisition Proposal is a Superior Proposal and that failure to take
such action
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could create a reasonable possibility of a breach of the fiduciary duties of the
Board of Directors under applicable law.
SECTION 7.05. Notices of Certain Events. (a) The Company shall
promptly notify Parent of:
(i) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement; and
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement.
(b) The Company shall give prompt notice to Parent at any time the
Company has Knowledge that any representation or warranty contained in this
Agreement was inaccurate in any material respect as of the date made.
SECTION 7.06. Disclosure Documents. (a) Each document required to be
filed by the Company with the SEC or required to be distributed or otherwise
disseminated to the Company's stockholders in connection with the transactions
contemplated by this Agreement (the "Company Disclosure Documents"), including,
without limitation, the Schedule 14D-9, the proxy or information statement of
the Company (the "Company Proxy Statement"), if any, to be filed with the SEC in
connection with the Merger, and any amendments or supplements thereto, when
filed, distributed or disseminated, as applicable, will comply as to form in all
material respects with the applicable requirements of the 1934 Act.
(b) (i) The Company Proxy Statement, as supplemented or amended, if
applicable, at the time such Company Proxy Statement or any amendment or
supplement thereto is first mailed to stockholders of the Company and at the
time such stockholders vote on adoption of this Agreement, and (ii) any Company
Disclosure Document (other than the Company Proxy Statement), at the time of the
filing of such Company Disclosure Document or any supplement or amendment
thereto and at the time of any distribution or dissemination thereof, will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The representations
and warranties contained in this Section 7.06(b) will not apply to statements or
omissions included in the Company Disclosure Documents based upon information
furnished to the Company by Parent.
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(c) The information with respect to the Company or any of its
Subsidiaries that the Company furnishes to Parent for use in the Offer
Documents, at the time of the filing thereof, at the time of any distribution or
dissemination thereof and at the time of the consummation of the Offer, will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
SECTION 7.07. Standstill Agreements: Confidentiality Agreements. During
the period from the date of this Agreement through the Effective Time, the
Company will not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement for the benefit of the Company or any of
its Subsidiaries, other than the Confidentiality Agreement pursuant to its terms
or by written Agreement of the parties thereto, provided that, the Company may
take such action if the Board of Directors determines in its good faith,
reasonable judgment, after consultation with and the receipt of advice from its
financial advisor and outside counsel, that failure to do so would create a
reasonable possibility of a breach of the fiduciary duties of the Board of
Directors under applicable law, and provided further that this Section 7.07
shall not apply to any confidentiality agreement that is not related to, or does
not arise from, an Acquisition Proposal.
SECTION 7.08. Rights Agreement; Anti-takeover Provisions. The Company's
Board of Directors will take all further action (in addition to that referred to
in Section 5.17 hereof) reasonably requested in writing by Parent (including
redeeming the Rights immediately prior to the Effective Time or further amending
the Rights Agreement) in order to render the Rights Agreement inapplicable to
the Offer and the Merger and the other transactions contemplated hereby to the
extent provided herein and in the Rights Agreement. Except as provided above
with respect to the Offer, the Merger and the other transactions contemplated
hereby or approved in writing by Parent, the Board of Directors of the Company
will not (i) amend the Rights Agreement, (ii) redeem the Rights or (iii) take
any action with respect to, or make any determination under, the Rights
Agreement to facilitate an Acquisition Proposal, provided that, the Company may
take such action if the Board of Directors determines in its good faith,
reasonable judgment, after consultation with and the receipt of advice from its
financial advisor and outside counsel, that failure to do so would create a
reasonable possibility of a breach of its fiduciary duties under applicable law.
In addition, except as otherwise provided in this Agreement, the Company will
not approve an Acquisition Proposal, other than the Offer, the Merger and the
other transactions contemplated by this Agreement, for purposes of Section 203
of Delaware Law or Article VI of the Company's Certificate of Incorporation,
provided that, the Company may take such action if the Board of Directors
determines in its good
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faith, reasonable judgment, after consultation with and the receipt of advice
from its financial advisor and outside counsel, that failure to do so would
create a reasonable possibility of a breach of its fiduciary duties under
applicable law.
ARTICLE 8
Covenants of Parent
Parent agrees that:
SECTION 8.01. Confidentiality. Prior to the Effective Time and after
any termination of this Agreement and for two years thereafter, Parent will
hold, and will use its best efforts to cause its officers, directors, employees,
accountants, counsel, consultants, advisors and agents (including, without
limitation, any economists employed by Parent to assist in its antitrust review
of the Offer, the Merger and the transactions contemplated thereby) to hold, in
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law, all confidential documents and information
concerning the Company or any of its Subsidiaries furnished to Parent or its
Affiliates in connection with the transactions contemplated by this Agreement,
including, without limitation, the stockholder lists furnished by the Company
pursuant to Section 2.02, except to the extent that such information can be
shown to have been (i) previously known on a nonconfidential basis by Parent,
(ii) in the public domain through no fault of Parent or (iii) later lawfully
acquired by Parent from sources other than the Company, provided that Parent may
disclose such information to its officers, directors, employees, accountants,
counsel, consultants, advisors and agents in connection with the transactions
contemplated by this Agreement so long as Parent informs such Persons of the
confidential nature of such information and directs them to treat it
confidentially. Parent and its Affiliates shall satisfy their obligation to hold
any such information in confidence if they exercise the same care with respect
to such information as a reasonable Person would take to preserve the
confidentiality of their own similar information under similar circumstances. If
this Agreement is terminated, Parent and its Affiliates will, and will use their
best efforts to cause their officers, directors, employees, accountants,
counsel, consultants, advisors and agents to, destroy or deliver to the Company,
upon request, all documents and other materials, and all copies thereof, that
Parent or its Affiliates obtained, or that were obtained on their behalf, from
the Company or any of its Subsidiaries in connection with this Agreement and
that are subject to such confidence. Notwithstanding anything herein to the
contrary, the terms of the Confidentiality Agreement executed by Parent shall
remain in full force and effect.
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SECTION 8.02. Obligations of Merger Subsidiary. Parent will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
SECTION 8.03. Voting of Shares. Parent agrees to vote all Shares
beneficially owned by it in favor of adoption of this Agreement at the Company
Stockholder Meeting.
SECTION 8.04. Director and Officer Liability. (a) Parent shall cause
the Surviving Corporation, and the Surviving Corporation hereby agrees, to do
the following:
(i) For six years after the Effective Time, the Surviving
Corporation shall indemnify and hold harmless the present and former
officers and directors of the Company (each an "Indemnified Person") in
respect of acts or omissions occurring at or prior to the Effective
Time to the fullest extent permitted by Delaware Law or any other
applicable laws or provided under the Company's certificate of
incorporation and bylaws in effect on the date hereof, provided that
such indemnification shall be subject to any limitation imposed from
time to time under applicable law.
(ii) For six years after the Effective Time, the Surviving
Corporation shall provide officers' and directors' liability insurance
in respect of acts or omissions occurring prior to the Effective Time
covering each such Indemnified Person currently covered by the
Company's officers' and directors' liability insurance policy on terms
with respect to coverage and amount no less favorable than those of
such policy in effect on the date hereof.
(iii) If Parent, the Surviving Corporation or any of its successors
or assigns (A) consolidates with or merges into any other Person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (B) transfers or conveys all or
substantially all of its properties and assets to any Person, then, and
in each such case, to the extent necessary, proper provision shall be
made so that the successors and assigns of Parent or the Surviving
Corporation, as the case may be, shall assume the obligations set forth
in this Section 8.04.
(iv) The rights of each Indemnified Person under this Section 8.04
shall be in addition to any rights such Person may have under the
certificate of incorporation or bylaws of the Company or any of its
Subsidiaries, or under Delaware Law or any other applicable laws. These
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rights shall survive consummation of the Merger and are intended to
benefit, and shall be enforceable by, each Indemnified Person.
(b) Parent shall, prior to the Effective Time, provide the Company
with pre-paid, irrevocable officers' and directors' liability insurance with a
nationally recognized insurance provider with an A.M. Best rating of at least
"A", in amounts and for such periods of time as specified in Section
8.04(a)(ii).
SECTION 8.05. Employee Benefits. (a) For a period of one year after the
Effective Time, Parent will maintain or cause to be maintained employee
compensation and benefit plans and arrangements for the benefit of each
individual who is an employee of the Company or its Subsidiaries as of the
Effective Time (each a "Transferred Employee") that are no less favorable to
such Transferred Employee than the compensation and benefits provided to the
Transferred Employee by the Company and its Subsidiaries immediately prior to
the Effective Time. Without limiting the generality of the foregoing, (i) for a
period of one year after the Effective Time, Parent will maintain or cause to be
maintained severance and employment termination benefits no less favorable to
each Transferred Employee than the severance and employment termination benefits
provided under the plans, policies and practices of the Company and its
Subsidiaries, immediately prior to the Effective Time, and (ii) for a period of
one year after the Effective Time Parent will maintain or cause to be maintained
for the benefit of each eligible current and former employee of the Company and
its Subsidiaries (and his or her eligible domestic partner) the post-retirement
medical and life insurance benefits maintained by the Company and its
Subsidiaries immediately prior to the Effective Time and shall make such
benefits available to each such individual on a basis no less favorable to such
individual than the basis on which such benefits were provided to similarly
situated individuals immediately prior to the Effective Date.
(b) If Transferred Employees or former employees of the Company or its
Subsidiaries are included in any benefit plan, policy, or arrangement of Parent
or its Affiliates such individuals shall receive credit for service prior to the
Effective Time with the Company and its Subsidiaries and their respective
predecessors for all purposes to the same extent such service was recognized
under any similar Employee Plan of the Company or its Subsidiaries, except that
such service shall not be counted for purposes of benefit accruals under any
defined benefit pension plan to the extent that it would result in a duplication
of vested benefits accrued by any such individual under any Employee Plan of the
Company or its Subsidiaries. If Transferred Employees or former employees of the
Company or its Subsidiaries (or their domestic partners or dependents) are
included in any medical, dental or health plan other than the plans they
participated in at the Effective Time (a "Successor Plan"), any such Successor
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Plan shall waive pre-existing conditions, to the extent such conditions were not
applicable under the Employee Plans of the Company and its Subsidiaries, and
shall provide that any expenses incurred prior to such change shall be taken
into account under the deductible and out-of-pocket maximums under such
Successor Plan.
SECTION 8.06. Disclosure Documents. (a) The information with respect to
Parent and any of its Subsidiaries that Parent furnishes to the Company in
writing specifically for use in any Company Disclosure Document will not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading (i) in the case of the
Company Proxy Statement, as supplemented or amended, if applicable, at the time
such Company Proxy Statement or any amendment or supplement thereto is first
mailed to stockholders of the Company and at the time such stockholders vote on
adoption of this Agreement, and (ii) in the case of any Company Disclosure
Document other than the Company Proxy Statement, at the time of the filing of
such Company Disclosure Document or any supplement or amendment thereto and at
the time of any distribution or dissemination thereof.
(b) The Offer Documents, when filed, distributed or disseminated, as
applicable, will comply as to form in all material respects with the applicable
requirements of the 1934 Act and, at the time of the filing thereof, at the time
of any distribution or dissemination thereof and at the time of consummation of
the Offer, will not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading, provided
that this representation and warranty will not apply to statements or omissions
included in the Offer Documents based upon information furnished to Parent or
Merger Subsidiary by the Company.
ARTICLE 9
Covenants of Parent and the Company
The parties hereto agree that:
SECTION 9.01. Best Efforts. (a) Subject to the terms and conditions of
this Agreement, Company and Parent will use their best efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement including, without limitation, using
their best
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efforts to cause the conditions to the Offer to be satisfied as soon as
reasonably possible and, subject to the terms and conditions of this Agreement,
consummating the Offer as soon as possible after such conditions are satisfied
or waived. In furtherance and not in limitation of the foregoing, each of Parent
and Company agrees to make an appropriate filing of a Notification and Report
Form pursuant to the HSR Act (an "HSR Filing") with respect to the transactions
contemplated hereby as promptly as practicable and in any event within ten
business days of the date hereof and to supply as promptly as practicable any
additional information and documentary material that may be requested pursuant
to the HSR Act and to take all other actions necessary to cause the expiration
or termination of the applicable waiting periods under the HSR Act as soon as
practicable.
(b) In connection with the efforts referenced in Section 9.01(a) to
obtain all requisite approvals and authorizations for the transactions
contemplated by this Agreement under the HSR Act or any other Antitrust Law,
each of Parent and Company shall use its reasonable best efforts to (i)
cooperate in all respects with each other in connection with any filing or
submission and in connection with any investigation or other inquiry, including
any proceeding initiated by a private party, (ii) keep the other party informed
in all material respects of any material communication received by such party
from, or given by such party to, the Federal Trade Commission (the "FTC"), the
Antitrust Division of the Department of Justice (the "DOJ") or any other
governmental authority and of any material communication received or given in
connection with any proceeding by a private party, in each case regarding any of
the transactions contemplated hereby and (iii) permit the other party to review
any material communication given by it to, and consult with each other in
advance of any meeting or conference with, the FTC, the DOJ or any such other
governmental authority or, in connection with any proceeding by a private party.
Subject to the Confidentiality Agreement, Section 8.01 of this Agreement, and
any attorney-client, work product or other privilege, each of the parties hereto
will coordinate and cooperate fully with the other parties hereto in exchanging
such information and providing such assistance as such other parties may
reasonably request in connection with the foregoing and in seeking early
termination of any applicable waiting periods under the HSR Act. Any
competitively sensitive information that is disclosed pursuant to this Section
9.01 will be limited to each of Parent's and the Company's respective counsel
and economists pursuant to a separate customary confidentiality agreement. For
purposes of this Agreement, "Antitrust Law" means the Sherman Act, as amended,
the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, and all other federal, state and foreign, if any, statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines and other
laws that are designed or intended to prohibit, restrict or regulate actions
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having the purpose or effect of monopolization or restraint of trade or
lessening of competition through merger or acquisition.
(c) In furtherance and not in limitation of the covenants of the
parties contained in Section 9.01(a) and 9.01(b), each of Parent and the Company
shall use its best efforts to resolve such objections if any, as may be asserted
with respect to the transactions contemplated hereby under any Antitrust Law. In
connection with the foregoing, if any administrative or judicial action or
proceeding, including any proceeding by a private party, is instituted (or
threatened to be instituted) challenging any transaction contemplated by this
Agreement as violative of any Antitrust Law, each of Parent and the Company
shall cooperate in all respects with each other and use its respective best
efforts to contest and resist any such action or proceeding and to have vacated,
lifted, reversed or overturned any decree, judgment, injunction or other order,
whether temporary, preliminary or permanent, that is in effect and that
prohibits, prevents or restricts consummation of the transactions contemplated
by this Agreement, including, without limitation, vigorously defending in
litigation on the merits any claim asserted in any court by any party through a
final and nonappealable judgment.
(d) If any objections are asserted with respect to the transactions
contemplated hereby under any Antitrust Law or if any suit is instituted by any
government authority or any private party challenging any of the transactions
contemplated hereby as violative of any Antitrust Law, each of Parent and the
Company shall use its best efforts to resolve such objections or challenge as
such governmental authority or private party may have to such transactions under
such Antitrust Law so as to permit consummation of the transactions contemplated
by this Agreement. In furtherance and not in limitation of the foregoing, each
of Parent and the Company (and, to the extent required by any governmental
authority, its respective Subsidiaries and Affiliates over which it exercises
control) shall be required to pursue a resolution with any governmental
authority and, if acceptable to any governmental authority, enter into a
settlement, undertaking, consent decree, stipulation or other agreement with
such governmental authority regarding antitrust matters in connection with the
transactions contemplated by this Agreement (each, a "Settlement").
Notwithstanding anything else contained in this Agreement, neither Parent nor
the Company shall be required to enter into any Settlement that requires Parent
and/or the Company to sell or otherwise dispose of assets of Parent and its
Subsidiaries and/or the Company and its Subsidiaries (any such action, a
"Divestiture") if such Divestiture would have a material adverse effect on the
pro forma combined business of Parent and the Company.
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(e) The Company hereby acknowledges that Parent will lead the process
to obtain all necessary waivers, consents and approvals, and to effect all
necessary filings under the Antitrust Law, and that Parent's reasonable
determination after consultation with the Company as to the appropriate course
of action to obtain such waivers, consents and approvals will be final, provided
that, the foregoing shall not limit in any respect any of the parties'
obligations under this Agreement.
SECTION 9.02. Certain Filings. The Company and Parent shall cooperate
with one another (i) in connection with the preparation of the Company
Disclosure Documents and the Offer Documents, (ii) in determining whether any
action by or in respect of, or filing with, any governmental body, agency,
official, or authority is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by this
Agreement and (iii) in taking such actions or making any such filings,
furnishing information required in connection therewith or with the Company
Disclosure Documents or the Offer Documents and seeking timely to obtain any
such actions, consents, approvals or waivers.
SECTION 9.03. Public Announcements. Parent and the Company will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement or the transactions contemplated hereby and,
except as may be required by applicable law or any listing agreement with any
national securities exchange, will not issue any such press release or make any
such public statement prior to such consultation.
SECTION 9.04. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
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ARTICLE 10
Conditions to the Merger
SECTION 10.01. Conditions to Obligations of Each Party. The
obligations the Company, Parent and Merger Subsidiary to consummate the Merger
are to the satisfaction of the following conditions:
(a) if required by Delaware Law, this Agreement shall have been
approved and adopted by the stockholders of the Company in accordance with such
law;
(b) no injunction shall have been issued and remain in effect which
restrains consummation of the Offer; and
(c) the number of Shares tendered pursuant to the Offer and not
withdrawn, together with the Shares then owned by Parent, satisfies the Minimum
Condition and the Merger Subsidiary has accepted for payment and paid for such
Shares.
SECTION 10.02. Conditions to Obligations of Parent and Merger
Subsidiary to Effect the Merger. The obligations of Parent and Merger Subsidiary
to effect the Merger are further subject to the satisfaction or waiver of the
following condition prior to the Effective Time:
(a) The Company shall have performed in all material respects its
obligations under Section 2.03(a) with respect to the election or appointment of
Parent's designees to the Company's Board of Directors.
ARTICLE 11
Termination
SECTION 11.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the stockholders of the
Company):
(a) by mutual written agreement of the Company and Parent;
(b) by either the Company or Parent, if:
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(i) the Offer has not been consummated on or before 18 months after
the date hereof, provided that (A) the right to terminate this
Agreement pursuant to this Section 11.01(b)(i) shall not be available
to any party whose breach of any provision of this Agreement results in
the failure of the Offer to be consummated by such time and (B) such 18
month period shall be extended for the time period equal to the time
period beyond ten business days during which either the Company or
Parent shall fail to make an HSR Filing pursuant to Section 9.01(a);
(ii) within 10 days following satisfaction of all other conditions
to the Offer, the Minimum Condition shall not have been satisfied,
provided that, such 10 day period shall be extended for a period to
allow for the extension of the expiration date of the Offer pursuant
clause (ii) of the fourth sentence of Section 2.01(a) or pursuant to
Section 3.09 to allow for an increase in the Offer Price;
(iii) a permanent injunction which is final and nonappealable shall
have been issued restraining or otherwise prohibiting consummation of
the Merger or any of the other transactions contemplated by this
Agreement, provided that the party seeking to terminate this Agreement
pursuant to this Section 11.01(b)(iii) shall have used all efforts to
prevent the entry of such permanent injunction; or
(iv) the other party shall have breached or failed to perform in
all material respects any of its obligations pursuant to Section 9.01
hereof on or prior to such time, provided that, such party shall have
failed to substantially cure such failure to perform within a
reasonable time after being notified of such failure to perform;
(c) by Parent, if, after the date hereof and prior to the acceptance
for payment of the Shares under the Offer:
(i) the Board of Directors of the Company shall have withdrawn, or
modified in a manner materially adverse to Parent, its approval or
recommendation of this Agreement, the Offer or the Merger, or shall
have recommended an Acquisition Proposal other than by Parent or its
Affiliates;
(ii) the Board of Directors of the Company shall have (i) amended
the Rights Agreement to facilitate an Acquisition Proposal or (ii)
terminated or redeemed the Rights, except in each case (A) as shall be
necessary to render the Rights Agreement inapplicable to the Offer and
the Merger and the other transactions contemplated hereby (or any other
44
<PAGE>
Acquisition Proposal by Parent or its Affiliates) or (B) as directed by
Parent pursuant to Section 7.08;
(iii) the Board of Directors of the Company shall take action under
Section 203 of Delaware Law or Article VI of the Company's Certificate
of Incorporation to approve any transaction other than the Offer and
the Merger and the other transactions contemplated hereby (or any other
Acquisition Proposal by Parent or its Affiliates); or
(iv) the Company shall have breached or failed to perform any of
its obligations under this Agreement required to be performed on or
prior to such time or any of the representations and warranties of the
Company under this Agreement shall fail to be accurate as of the date
made, provided that, in each such case, (A) the Company shall have
failed to substantially cure such breach, failure to perform or
inaccuracy within a reasonable time after being notified by Parent of
such breach, failure to perform or inaccuracy and (B) such breach,
failure to perform or inaccuracy would have, individually or in the
aggregate, a Material Adverse Effect on the Company;
(d) by the Company, if, prior to the acceptance for payment of the
Shares under the Offer the Board of Directors of the Company shall have
recommended, or entered into an agreement with respect to a Superior Proposal
pursuant to Section 7.04.
The party desiring to terminate this Agreement pursuant to this Section 11.01
(other than pursuant to Section 11.01(a)) shall give notice of such termination
to the other party. Termination by the Company pursuant to Section 11.01(d)
shall not be effective unless and until the Company shall have paid to Parent
the fee described in Section 12.04(c) hereof. Termination by Parent pursuant to
Sections 11.01(a), 11.01(b)(i), 11.01(b)(iii), 11.01(b)(iv) or 11.01(c)(iv)
shall not be effective unless and until Parent shall have paid, or caused the
Escrow Agent to pay, to Company the fee described in Section 12.04(d).
SECTION 11.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 11.01, this Agreement shall become void and of no effect
with no liability on the part of any party (or any stockholder, director,
officer, employee, agent, consultant or representative of such party) to the
other party hereto, provided that, if such termination shall result from the (i)
failure of either party to fulfill a condition to the performance of the
obligations of the other party or (ii) failure of either party to perform a
covenant hereof, such party shall be fully liable for any and all liabilities
and damages incurred or suffered by the other party as a result of such failure
or breach. The provisions of Sections 8.01, 12.04,
45
<PAGE>
12.06, 12.07 and 12.08 shall survive any termination hereof pursuant to Section
11.01.
ARTICLE 12
Miscellaneous
SECTION 12.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile transmission)
and shall be given,
if to Parent or Merger Subsidiary, to:
American Greetings Corporation
One American Road
Cleveland, Ohio 44144
Fax: (216) 252-6777
Attn: General Counsel
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, OH 44144
Fax: (216) 579-0212
Attn: Lyle G. Ganske
if to the Company, to:
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, Ohio 45237
Fax: (513) 841-6921
Attn: Chief Executive Officer
46
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with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Fax: (212) 450-4800
Attn: Phillip R. Mills
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5 p.m. in the place of
receipt and such day is a business day in the place of receipt. Otherwise, any
such notice, request or communication shall be deemed not to have been received
until the next succeeding business day in the place of receipt.
SECTION 12.02. Survival of Representations and Warranties. The
representations and warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time or the termination of this Agreement, except for the agreements
set forth in Article 3, Sections 8.01, 8.04 (which shall only survive the
Effective Time),11.02, 12.04, 12.06, 12.07 and 12.08.
SECTION 12.03. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived prior to the Effective Time if, but only if,
such amendment or waiver is in writing and is signed, in the case of an
amendment, by each party to this Agreement or, in the case of a waiver, by each
party against whom the waiver is to be effective, provided that, after the
adoption of this Agreement by the stockholders of the Company and without their
further approval, no such amendment or waiver shall reduce the amount or change
the kind of consideration to be received in exchange for the Shares.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 12.04. Expenses. (a) Except as otherwise provided in this
Section, all costs and expenses incurred in connection with this Agreement shall
be paid by the party incurring such cost or expense.
47
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(b) Whether or not the transactions contemplated by this Agreement are
consummated, subject to the last sentence of this Section 12.04(b), Parent
agrees to pay all costs and expenses incurred by the Company or its Subsidiaries
in connection with this Agreement arising from the Hart-Scott-Rodino review and
the Company's obligations contained in Section 9.01 hereof, including, without
limitation, all costs and expenses related to prior antitrust analyses
undertaken by the Company and its advisors in connection with the transactions
contemplated hereby since October 1, 1998, preparing and filing the Notification
and Report Form pursuant to the HSR Act, responding to a Second Request issued
under the HSR Act, preventing the entry of any injunction, appealing any such
injunction, obtaining all necessary consents, approvals or waivers from any
government authorities, opposing vigorously any litigation or administrative
proceeding relating primarily to antitrust aspects of this Agreement or the
transactions contemplated hereby or otherwise complying with any Antitrust Law.
Parent shall promptly pay such costs and expenses as they are incurred by the
Company, provided that, Parent's obligation to pay such costs and expenses shall
not exceed in the aggregate $2.5 million.
(c) The Company agrees to pay Parent a fee in immediately available
funds equal to $7 million concurrently with the termination of this Agreement by
Parent pursuant to the provisions of Section 11.01(c)(i), 11.01(c)(ii) or
11.01(c)(iii) or by the Company pursuant to the provisions of Section 11.01(d),
provided that Parent or Merger Subsidiary is not in breach of its
representations and warranties under this Agreement and shall not have failed to
perform in all material respects each of its obligations under this Agreement.
(d) Parent agrees to pay, or cause to be paid to, the Company a fee in
immediately available funds equal to $20 million simultaneously with the
termination of this Agreement as a result of the occurrence of any of the events
set forth in Sections11.01(a), 11.01(b)(i), 11.01(b)(iii), 11.01(b)(iv) or
11.01(c)(iv), provided that, at the time of such termination, the applicable
waiting period under the HSR Act shall not have expired or been terminated and
the FTC, DOJ or any other Person shall not be challenging by litigation or
otherwise any of the transactions contemplated hereby. Concurrently with the
signing of this Agreement, Parent shall deliver such $20 million termination fee
to The Bank of New York (the "Escrow Agent") to be held, invested and disbursed
by the Escrow Agent as provided in the Escrow Agreement dated as of November 2,
1999 between the Company and the Escrow Agent.
(e) Concurrently with the signing of this Agreement, Parent agrees to
contribute cash in the amount of $10 million to the Rabbi Trust.
48
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SECTION 12.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto, except that Parent or Merger
Subsidiary may transfer or assign, in whole or from time to time in part, to one
or more of its Affiliates, the right to purchase all or a portion of the Shares
pursuant to the Offer, but no such transfer or assignment will relieve Parent or
Merger Subsidiary of its obligations under the Offer or prejudice the rights of
tendering stockholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
SECTION 12.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware, without regard to
the conflicts of law rules of such state.
SECTION 12.07. Dispute Resolution; Jurisdiction. (a) If a dispute
relating to this Agreement arises between the parties, the following procedure
shall be implemented before either party pursues other available remedies
(except that such procedure shall not apply to any equitable remedy). The
parties shall hold a meeting promptly, attended by the persons with
decision-making authority regarding the dispute, to attempt in good faith to
negotiate a resolution of the dispute. If not resolved at such meeting, the
parties shall continue to attempt in good faith to negotiate a resolution of the
dispute for 30 days after such meeting. The parties agree to participate in good
faith in such negotiations related thereto. If within 30 days after such meeting
the parties have not succeeded in negotiating a resolution of the dispute, then
the parties may seek to resolve the dispute by litigation in an appropriate
court of jurisdiction.
(b) Any suit, action or proceeding seeking to enforce any provision
of, or based on any matter arising out of or in connection with, this Agreement
or the transactions contemplated hereby may be brought in any federal court
located in the State of Delaware or any Delaware state court, and each of the
parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
that it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient form.
Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of process
on such party as provided in Section 12.01 shall be deemed effective service of
process on such party.
49
<PAGE>
SECTION 12.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 12.09. Counterparts; Effectiveness; Benefit. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
Except as provided in Section 8.04, no provision of this Agreement is intended
to confer any rights, benefits, remedies, obligations, or liabilities hereunder
upon any Person other than the parties hereto and their respective successors
and assigns.
SECTION 12.10. Entire Agreement. This Agreement, the Confidentiality
Agreement, the Escrow Agreement, the Rabbi Trust and the Standstill Agreement
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersedes all prior agreements and understandings,
both oral and written, between the parties with respect to the subject matter of
this Agreement.
SECTION 12.11. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
SECTION 12.12. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated so
long as the economic or legal substance of the transactions contemplated hereby
is not affected in any manner materially adverse to any party. Upon such a
determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
SECTION 12.13. Specific Performance. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
or to
50
<PAGE>
enforce specifically the performance of the terms and provisions hereof in any
federal court located in the State of Delaware or any Delaware state court, in
addition to any other remedy to which they are entitled at law or in equity.
51
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
GIBSON GREETINGS, INC.
By: /s/ Frank O'Connell
----------------------------------
Name: Frank O'Connell
Title: Chairman, President and Chief
Executive Officer
AMERICAN GREETINGS CORPORATION
By: /s/ Morry Weiss
----------------------------------
Name: Morry Weiss
Title: Chairman and Chief Executive
Officer
GRANITE ACQUISITION CORP.
By: /s/ Morry Weiss
----------------------------------
Name: Morry Weiss
Title: President
<PAGE>
ANNEX I
Notwithstanding any other provision of the Offer or this Agreement,
Parent and Merger Subsidiary shall not be required to accept for payment any
Shares if prior to the expiration date of the Offer, any of the following
conditions exist:
(a) an injunction shall have been issued and remain in effect which
restrains consummation of the Offer;
(b) the Company shall have breached or failed to perform in all
material respects any of its obligations under this Agreement required to be
performed on or prior to such time or any of the representations and warranties
of the Company under this Agreement shall fail to be accurate as of the date
made, provided that, such breach, failure to perform or inaccuracy would have,
individually or in the aggregate, a Material Adverse Effect on the Company;
(c) the applicable waiting period under the HSR Act relating to the
Merger shall not have expired or been terminated;
(d) the number of Shares tendered pursuant to the Offer and not
withdrawn, together with the Shares then owned by Parent, represents less than a
majority of the Shares outstanding on a fully-diluted basis (assuming the
exercise of all outstanding options which are exercisable and in-the-money at
the Offer Price); or
(e) this Agreement shall have been terminated in accordance with its
terms.
EXHIBIT C
GIBSON GREETINGS, INC.
2100 Section Road
Cincinnati, OH45237
October 26, 1998
American Greetings Corporation
10500 American Road
Cleveland, OH 44144
Attention: Mr. Morry Weiss
Dear Sirs:
You have asked to meet with us to in order to explore your views on a
possible business combination between Gibson Greetings, Inc. (the "Company") and
American Greetings Corporation ("American Greetings"). Our willingness to
consider and respond to your proposal is premised on your assurance that your
intentions with respect to the Company are entirely friendly and that you do not
intend to take any action in furtherance of any business combination proposal
with the Company, without the prior written approval of the Company.
Accordingly, American Greetings agrees that without the prior written
consent of the Company, it will not, and will not permit any of its affiliates
to (i) purchase or otherwise acquire, or agree or offer to purchase or otherwise
acquire, beneficial ownership of any securities of the Company: (ii) make,
disclose or encourage public speculation about any offer or proposal for, or any
indication of interest in, a merger or other business combination involving the
Company or any subsidiary of the Company or the acquisition of any equity
interest in, or a substantial portion of the assets of, the Company or any
subsidiary of the Company; (iii) solicit, or become a participant in any
solicitation of, any proxy from any holder of securities of the Company or agree
or announce its intention to vote with any person undertaking a solicitation;
(iv) form, join or in any way participate in a group with respect to any
securities of the Company; or (v) propose any amendment to this Agreement that
is or may be required to be publicly disclosed.
<PAGE>
2 October 25, 1998
This Agreement shall be binding on American Greetings for a period of
two years from the date hereof. However, American Greetings and the Company each
agree that it will not at anytime, whether during or after such two-year period,
disclose the existence and contents of this letter or the fact of or contents of
any discussions between the Company and its representatives and American
Greetings and its representatives, except as may be required by law.
This letter agreement shall be governed by, and construed in accordance
with, the laws of the State of New York. American Greetings agrees that the
Company would be irreparably injured by a breach of this agreement and that, in
such event, the Company shall be entitled, in addition to any and all other
remedies, to injunctive relief and specific performance.
If the foregoing reflects our mutual understanding, please sign and
return the duplicate copy of this letter.
Very truly yours,
Gibson Greetings, Inc.
By: /s/ Frank O'Connell
---------------------------
Name: Frank O'Connell
Title: President & CEO
Accepted and agreed:
American Greetings Corporation
By: /s/ Morry Weiss
-------------------------
Name: Morry Weiss
Title: Chairman & CEO
EXHIBIT D
GIBSON GREETINGS, INC.
2100 Section Road
Cincinnati, OH 45237
October 29, 1998
American Greetings Corporation
1 American Road
Cleveland, OH 44144
Attention: Mr. Morry Weiss
Dear Sirs:
In connection with your consideration of a possible business
combination with Gibson Greetings, Inc. (together with its subsidiaries, the
"Company"), we may furnish you with certain nonpublic information about the
business and operations of the Company. Such information, written or oral,
together with analyses, compilations, studies or other documents prepared by you
or your affiliates, officers, directors, employees, agents or representatives
(collectively, "Representatives") which contain or otherwise reflect such
information, is hereinafter referred to as "Confidential".
In consideration of your being provided with the Confidential
Information, you agree that the Confidential Information will be kept
confidential and shall not be disclosed, in whole or in part, to any person
other than your Representatives who need to know such Confidential Information
for the purpose of evaluating the proposed combination. You agree to inform each
of your Representatives of the nonpublic nature of the Confidential Information
and to direct such persons to treat such Confidential Information in accordance
with the terms of this agreement.
You will not use or allow the use of the Confidential Information for
any purpose except to evaluate the proposed combination. Without the prior
written consent of the Company, neither you nor your Representatives will
disclose to any person the fact that the Confidential Information has been made
available to you, except as otherwise required by law.
<PAGE>
American Greetings Corporation 2 October 29, 1998
The Confidential Information, except for that portion which consists of
analyses, compilations, studies or other documents prepared by you or your
Representatives, will be returned to the Company immediately upon the Company's
request. That portion of the Confidential Information which consists of
analyses, compilations, studies or other documents prepared by you or your
Representatives will be destroyed immediately upon the Company's request.
In the event you or anyone to whom you transmit the Confidential
Information is requested or required (by oral questions, interrogatories,
requests for information or documents, subpoenas, civil investigative demand or
similar process) to disclose any of the Confidential Information, you will
provide the Company with prompt notice so that the Company may seek a protective
order or other appropriate remedy and/or waive your compliance with the
provisions of this agreement. In the event that such protective order or other
remedy is not obtained, or the Company waives your compliance with the
provisions of this agreement, you will furnish only that portion of the
Confidential Information which is legally required, in the reasonable opinion of
your counsel, and will exercise your best efforts to obtain a protective order
or other reliable assurance that confidential treatment will be accorded the
Confidential Information.
You also agree that for a period of two years from the date of this
agreement, neither you nor any of your affiliates will, without the prior
written consent of the Company, directly or indirectly solicit for employment or
hire any officer, director, or employee of the Company, except that you shall
not be precluded from hiring any such officer, director or employee who (i)
responds to any public advertisement placed by you, (ii) initiates the request
for employment with you, or (iii) has been terminated by the Company prior to
commencement of employment discussions between you and such officer, director or
employee.
The term "Confidential Information" does not include any information
(i) that was publicly available prior to the date of this agreement or
thereafter becomes publicly available without any violation of this agreement on
the part of you or any of your Representatives, (ii) that was available to you
on a nonconfidential basis prior to its disclosure to you by the Company or its
Representatives or becomes available to you from a person other than the Company
and its Representatives who is not, to the best of your knowledge, subject to
any legally binding obligation to keep such information confidential, or (iii)
that was independently developed by you as evidenced by your records.
No failure or delay by the Company in exercising any right, power or
privilege hereunder shall operate as a waiver thereof or preclude any other or
2
<PAGE>
American Greetings Corporation 3 October 29, 1998
further exercise thereof or the exercise of any other right, power or privilege
hereunder.
You agree that the Company would be irreparably injured by a breach of
this agreement by you or your Representatives and that, in such event, the
Company shall be entitled, in addition to any and all other remedies, to
injunctive relief and specific performance.
The Company and its Representatives make no representations or
warranties, express or implied, with respect to the Confidential Information,
except for any particular representations and warranties which may be made to a
purchaser in a definitive purchase agreement when, as, and if finally executed,
and subject to such limitations and restrictions as may be specified in such
agreement. You agree that neither the Company nor any of its Representatives
shall have any liability to you or your Representatives resulting from the
selection or use of the Confidential Information by you or your Representatives.
Except as otherwise provided, this agreement will be binding upon you
and your Representatives for a period of three years from the date hereof. This
agreement shall be governed by, and construed in accordance with, the laws of
the State of Ohio.
Very truly yours,
GIBSON GREETINGS, INC.
By: /s/ Frank O'Connell
----------------------------------
Name: Frank O'Connell
Title: Chairman, President and
Chief Executive Officer
Accepted and agreed:
AMERICAN GREETINGS CORPORATION
By: /s/ Morry Weiss
----------------------------
Name: Morry Weiss
Title: Chairman & CEO
3
EXHIBIT E
[Gibson Greetings logo]
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, Ohio 45237
November 9, 1999
Dear Stockholders:
On November 2, 1999, Gibson Greetings, Inc. and American Greetings
Corporation entered into an Agreement and Plan of Merger pursuant to which a
subsidiary of American Greetings is today commencing a tender offer to purchase
all outstanding shares of Gibson Greetings common stock for $10.25 per share,
net to the seller in cash. Following the purchase of shares in the tender offer,
any remaining shares of Gibson Greetings common stock will be acquired in a
second step merger at the same per share price.
Your Board of Directors, by the unanimous vote of all directors, has
determined that the tender offer and the merger are fair to and in the best
interests of Gibson Greetings and its stockholders and has approved the Merger
Agreement, the tender offer and the merger. Your Board of Directors recommends
that you accept the tender offer by tendering your shares in the tender offer.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors referred to in the attached Schedule 14D-9
(that is being filed today with the Securities and Exchange Commission). Among
other things, the Board of Directors considered the opinion of J.P. Morgan
Securities Inc., its financial advisor, that the cash consideration to be
received by Gibson Greetings stockholders pursuant to the tender offer and the
merger is fair, from a financial point of view, to such stockholders.
Accompanying this letter, in addition to the attached Schedule 14D-9
relating to the tender offer, is the Offer To Purchase, together with related
materials, including a Letter of Transmittal to be used for tendering your
shares. Completion of the tender offer and the merger are subject to a number of
conditions that are discussed in the Offer To Purchase.
These documents set forth the terms and conditions of the tender offer and
provide instructions as to how to tender your shares. We urge you to read the
enclosed materials carefully.
On behalf of the management and the Board of Directors of Gibson
Greetings, Inc., we thank you for your support.
Sincerely,
Frank J. O'Connell
Chairman of the Board, Chief
Executive Officer and
President
EXHIBIT F
[J.P. Morgan letterhead]
November 2, 1999
Board of Directors
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, OH 45237
Attention: Mr. Frank J. O'Connell
Chairman
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Gibson Greetings, Inc. (the "Company") of the
consideration to be paid to them in connection with the proposed Offer and
Merger (each as defined below). Pursuant to the Agreement and Plan of Merger,
dated as of November 2, 1999 (the "Agreement"), among the Company, American
Greetings Corporation (the "Buyer") and Granite Acquisition Corp., a wholly
owned subsidiary of the Buyer ("Merger Subsidiary"), Merger Subsidiary will make
an offer (the "Offer") to purchase for cash any and all of the outstanding
shares of common stock, par value $0.01 per share, of the Company (each, a
"Share") at a price of $10.25 per Share, subject to adjustment as set forth in
the Agreement. Pursuant to the Agreement, following consummation of the Offer,
Merger Subsidiary will be merged with and into the Company (the "Merger" and,
together with the Offer, the "Transaction"), the Company will be the surviving
corporation, and each Share outstanding immediately prior to the effective time
of the Merger (other than Shares to be canceled pursuant to the Agreement and
other than dissenting Shares) will be converted into the right to receive $10.25
in cash or any higher price paid for each Share in the Offer.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii) certain
publicly available information concerning the business of the Company and of
certain other companies engaged in businesses comparable to those of the
Company, and the reported market prices for certain other companies' securities
deemed comparable; (iii) publicly available terms of certain transactions
involving companies comparable to the Company and the consideration received for
such companies; (iv) current and historical market prices of the Shares; (v) the
audited financial statements of the Company for the fiscal year ended December
31, 1998, and the unaudited financial statements of the Company for the period
ended June 30, 1999; (vi) certain agreements with respect to outstanding
indebtedness or obligations of the Company; (vii) certain internal financial
analyses and forecasts prepared by the Company and its management; and (viii)
the terms of other business combinations that we deemed relevant.
In addition, we have held discussions with certain members of the management of
the Company with respect to certain aspects of the Transaction, the past and
current business operations of the Company, the financial condition and future
prospects and operations of the Company, the effects of the Transaction on the
financial condition and future prospects of the Company, and certain other
matters we believed
<PAGE>
- 2 -
necessary or appropriate to our inquiry. We have reviewed such other financial
studies and analyses and considered such other information as we deemed
appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company or otherwise reviewed by us, and
we have not assumed any responsibility or liability therefor. We have not
conducted any valuation or appraisal of any assets or liabilities, nor have any
such valuations or appraisals been provided to us. In relying on financial
analyses and forecasts provided to us, we have assumed that they have been
reasonably prepared based on assumptions reflecting the best currently available
estimates and judgments by management as to the expected future results of
operations and financial condition of the Company to which such analyses or
forecasts relate. We have also assumed that the Transaction will have the tax
consequences described in discussions with, and materials furnished to us by,
representatives of the Company, and that the Offer, Merger and other
transactions contemplated by the Agreement will be consummated as described in
the Agreement. We have further assumed that all material governmental,
regulatory or other consents and approvals necessary for the consummation of the
Transaction as contemplated by the Agreement will be obtained without any
meaningful adverse effect on the Company or the Buyer. We have relied as to all
legal matters relevant to rendering our opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We have acted as financial advisor to the Company with respect to the proposed
Transaction and have received a fee from the Company for our services. We will
also receive an additional fee if the proposed Offer or Merger is consummated.
Please be advised that we have no other financial advisory or other
relationships with the Company or the Buyer. In the ordinary course of their
businesses, J.P. Morgan Securities Inc. and its affiliates may actively trade
the debt and equity securities of the Company or the Buyer for their own account
or for the accounts of customers and, accordingly, they may at any time hold
long or short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the consideration to be paid to the Company's stockholders in the
proposed Transaction is fair, from a financial point of view, to such
stockholders.
This letter is provided solely for the benefit of the Board of Directors of the
Company in connection with and for the purposes of its evaluation of the
Transaction. This opinion does not constitute a recommendation to any
stockholder of the Company as to whether such stockholder should tender Shares
in the Offer or how such stockholder should vote with respect to the Merger.
This opinion may be reproduced in full in any filing by the Company with the
Securities and Exchange Commission in connection with the Offer or the Merger.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: /s/ John S. Sheldon
---------------------------------
Name: John S. Sheldon
Title: Managing Director
EXHIBIT G
[GIBSON GREETINGS, INC. LETTERHEAD AND LOGO]
CONTACT: Adam Friedman Jim King
Adam Friedman Associates Manager, Investor and
(212) 391-7596 Media Relations
[email protected] American Greetings
(216) 252-4864
James T. Wilson Dale A. Cable
Gibson Greetings, Inc. Vice President, Treasurer
(513) 841-6926 (216) 252-7300
FOR IMMEDIATE RELEASE
GIBSON GREETINGS ANNOUNCES AGREEMENT
TO BE ACQUIRED BY AMERICAN GREETINGS
American Greetings Offers $10.25 Per Share in Cash
CINCINNATI, OH, November 3, 1999 - Gibson Greetings, Inc. (NASDAQ: GIBG) today
announced an agreement to be acquired by American Greetings (NYSE: AM) for
$10.25 per share in cash for Gibson stock, for a total of approximately $163
million, based on the number of common shares outstanding. The acquisition will
be completed as soon as possible subject to regulatory matters.
"The offer by American Greetings represents the best opportunity for Gibson to
enhance shareholder value," said Frank O'Connell, chairman and chief executive
officer of Gibson Greetings. "We also are happy American Greetings values the
150-year heritage of Gibson and the value of our brand in the marketplace."
O'Connell added: "Our most valued asset is the commitment and dedication of our
Associates, who we will rely on to continue providing retailers with the same
quality of service during this transaction. We know that American Greetings
values them highly and they are a major resource that will enable the Company to
grow and expand."
<PAGE>
American Greetings plans to continue to use the Gibson name to extend its
current branding strategy into other emerging retail channels. The acquisition
also should result in improved productivity for the current retail customers of
Gibson Greetings.
"This is an exciting opportunity to expand our greeting card business into
another channel with a proven brand name, Gibson. This will benefit our
consumers, retailers, shareholders, and Associates," said Morry Weiss, chairman
and chief executive officer of American Greetings.
Gibson Greetings, Inc., an industry innovator in the greeting card business, is
pursuing a strategy of marketing relationship-fostering products that provide
strong entertainment value. Gibson distributes more than 24,000 individual
relationship communication products (over 5,000 new products last year),
including greeting cards, gift wrap, party goods, licensed products and Silly
Slammers. E-mail greetings featuring Gibson content are available through the
privately held Egreetings Network (www.egreetings.com), in which Gibson holds a
minority equity interest. Gibson cards are also available through the Internet
from Sparks.com (www.sparks.com), a leading online provider of greeting cards.
For more information on Gibson Greetings, please visit our web site at
www.gibsongreetings.com or the Silly Slammers site at www.sillyslammers.com.
American Greetings is the world's largest publicly held creator, manufacturer
and distributor of greeting cards and social expression products. With
headquarters in Cleveland, Ohio, American Greetings employs more than 21,000
associates around the world and has one of the largest creative studios in the
world. For more information on the Company, visit their site on World Wide Web
at www.americangreetings.com.
(Except for historical information contained herein, this press release contains
forward-looking statements that involve risks and uncertainties that could cause
results to differ materially from those projected. These include economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices as described in the Company's
SEC reports. The Company assumes no obligation to update the information in this
release.)
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