<PAGE>
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SCHEDULE 14A
(RULE 14A-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 2)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Confidential, for Use of the
[_] Preliminary Proxy Statement Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SEAMAN FURNITURE COMPANY, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share
2) Aggregate number of securities to which transaction applies:
4,536,839
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set for the amount on which the filing fee is
calculated and state how it was determined):
The filing fee was determined based upon (a) 4,536,839 issued and
outstanding shares of Common Stock, par value $0.01 per share (the "Common
Stock") of Seaman Furniture Company, Inc. as of September 2, 1997,
excluding 3,632,311 shares of Common Stock which will be owned by SFC
Merger Company for which no consideration will be paid upon consummation of
the transaction; and (b) the Merger Consideration of $25.05 per share of
Common Stock (the "Merger Consideration"), plus $8,840,630 payable to
holders of options to purchase shares of Common Stock in exchange for the
cancellation of such options. The payment of the filing fee, calculated in
accordance with Regulation 240.0-11 under the Securities Exchange Act of
1934, as amended, equals one-fiftieth of one percent of the value of the
shares of Common Stock (and options to purchase shares of Common Stock) for
which the Merger Consideration will be paid.
4) Proposed maximum aggregate value of transaction:
$31,499,057
5) Total fee paid:
$9,546
[_] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$9,546
2) Form, Schedule or Registration Statement No.:
Schedule 13E-3
3) Filing Party:
Seaman Furniture Company, Inc. and affiliates
4) Date Filed:
September 5, 1997
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<PAGE>
Exhibit (d)(4)
SEAMAN FURNITURE COMPANY
INCORPORATED
CORPORATE OFFICE: 300 CROSSWAYS PARK DRIVE, WOODBURY, NY 11797
November 21, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
(including any adjournment or postponement thereof, the "Special Meeting") of
Seaman Furniture Company, Inc. (the "Company") to be held on December 23, 1997
at 9:00 a.m., New York time at the offices of Jones, Day, Reavis & Pogue, 599
Lexington Avenue, 37th Floor, New York, New York 10022.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger dated as of
August 13, 1997, as amended on September 4, 1997 (the "Merger Agreement"), by
and between the Company and SFC Merger Company, a Delaware corporation
("Newco"), providing for the merger (the "Merger") of Newco with and into the
Company, with the Company continuing as the surviving corporation (the
"Surviving Corporation"). A copy of the Merger Agreement is attached to, and a
description of such agreement is included in, the accompanying Proxy Statement
as Appendix A.
Pursuant to the Merger Agreement, all holders of shares of the common stock,
par value $0.01 per share, of the Company ("Common Stock"), other than Newco,
will be entitled to receive $25.05 in cash (the "Merger Consideration") in
exchange for each outstanding share of Common Stock held by them at the
effective time of the Merger, except dissenting stockholders who have
perfected their rights in accordance with Delaware law. See Exhibit C to the
Proxy Statement for the text of Section 262 of the Delaware General
Corporation Law which governs the rights of dissenting stockholders of
corporations incorporated in Delaware. The receipt of cash for Common Stock
pursuant to the Merger will be a taxable transaction to the Company's
stockholders, other than Newco, for Federal income tax purposes under the
Internal Revenue Code of 1986, as amended, and also may be a taxable
transaction under applicable state, local, foreign and other tax laws.
All of the capital stock of Newco is beneficially owned by M. D. Sass
Associates, Inc. ("M.D. Sass"), T. Rowe Price Recovery Fund, L.P. ("T. Rowe
Price") and Carl Marks Management Co., L.P. ("Carl Marks," and, together with
M.D. Sass and T. Rowe Price, the "Funds"). As of November 17, 1997 (the
"Record Date"), three of the six members of the Company's Board of Directors
(the "Board") were affiliated with the Funds. As of the Record Date, M.D.
Sass, T. Rowe Price and Carl Marks beneficially owned 1,726,361, 967,900 and
938,050, respectively, shares of Common Stock (representing approximately 38%,
21% and 21%, respectively, of the outstanding Common Stock).
Pursuant to the Delaware General Corporation Law, the affirmative vote of
holders of at least a majority of all of the outstanding shares of Common
Stock is required to approve and adopt the Merger Agreement. The Funds have
advised the Company that they will vote their aggregate 3,632,311 shares of
Common Stock, representing approximately 80% of the outstanding Common Stock,
in favor of the Merger Agreement. Accordingly, the adoption of the Merger
Agreement by the Company's stockholders is expected to occur irrespective of
whether or the manner in which the Company's other stockholders vote their
shares of Common Stock.
Newco was recently formed by the Funds in order to enable them indirectly to
acquire through the Merger all of the outstanding Common Stock not already
owned by the Funds (the "Public Stock"). Immediately prior to the effective
time of the Merger, the Funds will contribute to Newco the 3,632,311 shares of
Common Stock of the Company that they, in the aggregate, beneficially own. If
the Merger is consummated, (i) the Funds will be the sole stockholders of the
Company, and (ii) members of executive management, including the President
<PAGE>
and Chief Executive Officer who is also a director of the Company, as holders
of certain stock options in the Company, will receive cash and options to
purchase common stock of the Surviving Corporation. It is expected that,
following the Merger, the Funds will cause the Surviving Corporation to
declare a dividend in the aggregate amount of approximately $67 million to be
distributed pro rata to the Funds based on their relative ownership of the
Surviving Corporation. For a more detailed discussion of these conflicts of
interest, see the section of the Proxy Statement captioned "Special Factors--
Conflict of Interests of the Funds, Executive Management and Certain Members
of the Board of Directors of the Company in the Merger."
Due to these inherent conflicts of interest, the Board appointed a Special
Committee of the Board (the "Special Committee"), comprised of two directors
of the Company who are neither officers of the Company nor affiliated with any
of the Funds (but who will receive cash in exchange for their stock options
upon consummation of the Merger), to analyze and consider the appropriateness
of the Merger and to make recommendations in respect thereof to the Board. In
connection with its review and consideration of the proposed Merger, the
Special Committee retained Wasserstein Perella & Co., Inc. ("Wasserstein
Perella") to act as its financial advisor. Wasserstein Perella has delivered
its written opinion dated August 13, 1997 to the Special Committee to the
effect that, as of the date of such opinion, the Merger Consideration of
$25.05 in cash per share of Common Stock to be received in the Merger by the
Company's stockholders (other than the Funds, certain members of senior
management of the Company and their respective affiliates) (the "Public
Stockholders") is fair to the Public Stockholders from a financial point of
view. A copy of Wasserstein Perella's opinion is attached as Appendix B to,
and a description of such opinion is included in, the accompanying Proxy
Statement.
The Special Committee has unanimously approved the Merger as being in the
best interests of the Company and the Public Stockholders and, upon the
recommendation of the Special Committee, the Board (with all Funds-affiliated
and management directors abstaining) has also unanimously approved the Merger
as being in the best interests of the Company and the Public Stockholders. The
Board recommends that you vote FOR approval and adoption of the Merger
Agreement.
Attached is a Notice of Special Meeting of Stockholders and a Proxy
Statement containing a discussion of the background of, reasons for and terms
of the Merger. We urge you to read this material carefully. Whether or not you
plan to attend the Special Meeting, we ask that you sign and return the
enclosed proxy as promptly as possible. If you attend the Special Meeting,
your proxy may be revoked if you elect to vote in person. Your prompt
cooperation will be greatly appreciated.
Very truly yours,
/s/ Alan Rosenberg
Alan Rosenberg
President and Chief Executive
Officer
2
<PAGE>
SEAMAN FURNITURE COMPANY, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 23, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of SEAMAN
FURNITURE COMPANY, INC. (the "Company"), a Delaware corporation, will be held
on December 23, 1997 at 9:00 a.m., New York time, at the offices of Jones,
Day, Reavis & Pogue, 599 Lexington Avenue, 37th Floor, New York, New York
10022, for the following purposes:
(1) To consider and vote upon the adoption of an Agreement and Plan of
Merger dated as of August 13, 1997, as amended on September 4, 1997 (the
"Merger Agreement"), by and between the Company and SFC Merger Company, a
Delaware corporation ("Newco"), providing for the merger (the "Merger") of
Newco with and into the Company, with the Company continuing as the
surviving corporation; and
(2) To transact such other business as may properly come before the
Meeting or any postponements or adjournments thereof.
Please read carefully the accompanying Proxy Statement. A copy of the Merger
Agreement is attached as Appendix A thereto. The Proxy Statement and
Appendices thereto form a part of this Notice.
Only holders of Common Stock of record on the books of the Company at the
close of business on November 17, 1997 are entitled to notice of, and to vote
at, the Meeting and any adjournment thereof. A list of such stockholders will
be available from November 24, 1997 until prior to the meeting, as required by
law, at the office of the Company located at 300 Crossways Park Drive,
Woodbury, New York. This list will also be available at the Meeting. The stock
transfer books will not be closed.
Under Delaware law, appraisal rights will be available to holders of common
stock of the Company. In order for stockholders to exercise such appraisal
rights, they must follow the procedures prescribed by Delaware law, which are
attached as Appendix C to, and summarized in "Rights of Dissenting
Stockholders" in, the accompanying Proxy Statement.
You are cordially invited to the meeting. Whether or not you plan to attend
the meeting, we ask that you sign and return the enclosed proxy as promptly as
possible. If you attend the meeting, your proxy will be revoked if you elect
to vote in person. The proxy is solicited by and on behalf of the Board of
Directors.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. UPON APPROVAL OF
THE MERGER, YOU WILL BE SENT INSTRUCTIONS REGARDING THE PROCEDURES TO EXCHANGE
YOUR EXISTING CERTIFICATES EVIDENCING COMMON STOCK OF THE COMPANY FOR THE
CONSIDERATION TO BE PAID.
By Order of the Board of Directors
/s/ Steven H. Halper
STEVEN H. HALPER
Secretary
Woodbury, New York
November 21, 1997
<PAGE>
SEAMAN FURNITURE COMPANY, INC.
300 CROSSWAYS PARK DRIVE, WOODBURY, NEW YORK 11797
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 23, 1997
The enclosed proxy is solicited by and on behalf of the Board of Directors
(the "Board of Directors" or "Board") of Seaman Furniture Company, Inc. (the
"Company") for use at the Special Meeting of Stockholders to be held on
December 23, 1997, at 9:00 a.m., New York time, at the offices of Jones, Day,
Reavis & Pogue, 599 Lexington Avenue, 37th Floor, New York, New York 10022 and
any adjournment thereof (the "Meeting"). The matters to be considered and
acted upon at the Meeting are described in the foregoing Notice of Special
Meeting of Stockholders and this Proxy Statement. This Proxy Statement and the
related form of proxy are being mailed on or about November 21, 1997 to all
stockholders of record on November 17, 1997. Shares of the Company's common
stock, $.01 par value (the "Common Stock"), represented by proxies, will be
voted as hereinafter described or as otherwise specified by the stockholder.
Any proxy given by a stockholder may be revoked by the stockholder at any
time, prior to the voting of the proxy, by delivering a written notice to the
Secretary of the Company, by executing and delivering a later-dated proxy or
by attending the Meeting and voting in person.
At the Meeting, holders of the Common Stock on November 17, 1997 (the
"Record Date") will consider and vote upon the adoption of an Agreement and
Plan of Merger dated as of August 13, 1997, as amended on September 4, 1997
(the "Merger Agreement"), by and between the Company and SFC Merger Company, a
Delaware corporation ("Newco"). The Merger Agreement provides, subject to the
approval of the stockholders of the Company at the Meeting and subject to the
satisfaction or waiver of certain other conditions, that: (a) Newco will be
merged with and into the Company (the "Merger"), with the Company continuing
as the surviving corporation (the "Surviving Corporation") of the Merger; (b)
each share of Common Stock that is outstanding at the Effective Time (as
hereinafter defined) of the Merger, excluding shares of Common Stock held by
Newco, and other than shares as to which dissenters' rights are perfected in
accordance with Delaware law, will be converted into the right to receive
$25.05 per share in cash, without interest, subject to applicable back-up
withholding taxes (the "Merger Consideration"); and (c) each existing option
(whether vested or unvested) to purchase shares of Common Stock shall be
terminated in exchange for a cash payment equal to $25.05 per share of Common
Stock purchasable thereunder less the exercise price with respect thereto,
other than certain options of officers of the Company which will be cancelled
and reissued as options of equivalent or greater value in the Surviving
Corporation.
Newco was recently formed by M.D. Sass Associates, Inc., ("M.D. Sass"), T.
Rowe Price Recovery Fund, L.P. ("T. Rowe Price") and Carl Marks Management
Co., L.P. ("Carl Marks," and, together with M.D. Sass and T. Rowe Price, the
"Funds") solely to enable them to acquire through the Merger all of the
outstanding shares of Common Stock not already owned by the Funds (the "Public
Stock"). All of the capital stock of Newco is beneficially owned by the Funds.
In addition, after the Merger approximately 19.3% of the Surviving
Corporation's common stock, on a fully diluted basis, will be reserved for
issuance to certain current officers and employees of the Company, including
senior management, upon exercise of options.
As of the Record Date, three of the six members of the Board were affiliated
with the Funds and one member is the Chief Executive Officer of the Company.
As of the Record Date, M.D. Sass, T. Rowe Price and Carl Marks beneficially
owned 1,726,361, 967,900 and 938,050, respectively, shares of Common Stock
(representing approximately 38%, 21% and 21%, respectively, of the outstanding
shares of Common Stock). Immediately prior to the Effective Time, the Funds
will contribute to Newco the 3,632,311 shares of Common Stock of the Company
that they, in the aggregate, beneficially own.
Pursuant to the Delaware General Corporation Law (the "DGCL"), the
affirmative vote of holders of at least a majority of all of the outstanding
shares of Common Stock is required to approve and adopt the Merger Agreement.
The Funds have advised the Company that they will vote their 3,632,311 shares
of Common Stock,
i
<PAGE>
representing approximately 80% of the outstanding Common Stock, in favor of
the Merger Agreement. Accordingly, the adoption of the Merger Agreement by the
Company's stockholders is expected to occur irrespective of whether or the
manner in which the Company's other stockholders vote their shares of Common
Stock.
The Board of Directors appointed a Special Committee of the Board (the
"Special Committee"), comprised of two directors of the Company who are
neither officers of the Company nor affiliated with any of the Funds (but who
will receive cash in exchange for their stock options upon consummation of the
Merger), to analyze and consider the appropriateness of the Merger and to make
recommendations in respect thereof to the Board. Based upon the unanimous
recommendation of the Special Committee, the Board of Directors (with the
Funds-affiliated and management directors abstaining due to inherent conflicts
of interests) unanimously approved the Merger as being fair to, and in the
best interests of, the Company and holders of the Common Stock (other than the
Funds, certain members of senior management of the Company and their
respective affiliates) (the "Public Stockholders") and is recommending to the
Company's stockholders that they approve the Merger Agreement.
All shares of Common Stock represented by properly executed proxies received
prior to or at the Meeting and not revoked will be voted in accordance with
the instructions indicated in such proxies. If no instructions are indicated,
such proxies will be voted FOR the Merger Agreement and in the discretion of
the persons named in the proxy with respect to such other matters as may
properly come before the Meeting. A stockholder may revoke his or her proxy at
any time prior to its use by delivering to the Secretary of the Company a
signed notice of revocation or a later-dated and signed proxy or by attending
the Meeting and voting in person. See "Special Factors--Conflict of Interests
of the Funds, Executive Management and Certain Members of the Board of
Directors of the Company in the Merger."
The persons named as proxies in the enclosed proxy are Alan Rosenberg,
President and Chief Executive Officer of the Company, and Steven H. Halper,
Executive Vice President, Chief Operating Officer and Secretary of the
Company. The costs of preparing, assembling and mailing the proxy, this Proxy
Statement and the other material enclosed and all clerical and other expenses
of solicitation will be shared equally by the Company and Newco; provided,
however, if the Merger is not consummated for certain reasons, the Company or
Newco, as the case may be, will be required to reimburse the other for its
share of the costs of the solicitation. In addition to the solicitation of
proxies by use of the mails, directors, officers and employees of the Company,
without receiving additional compensation, may solicit proxies by telephone,
telecopier or personal interview. The Company also will request brokerage
houses and other custodians, nominees and fiduciaries to forward soliciting
material to the beneficial owners of Common Stock held of record by such
custodians and will reimburse such custodians for their expenses in forwarding
soliciting materials.
Proposals of security holders intended to be presented at the next annual
meeting had to be received by the Company by April 28, 1997 for inclusion in
the Company's proxy statement and form of proxy relating to that meeting. Any
such proposal had to comply with the requirements of Rule 14a-8 promulgated
pursuant to the Securities Exchange Act of 1934.
----------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
----------------
The Board of Directors knows of no additional matters that will be presented
for consideration at the Meeting. Execution of the accompanying proxy,
however, confers on the designated proxy holders discretionary authority to
vote the shares of Common Stock covered thereby in accordance with their best
judgment on such other business, if any, that may properly come before, and
all matters incident to the conduct of, the Meeting or any adjournments or
postponements thereof.
The date of this Proxy Statement is November 21, 1997.
ii
<PAGE>
AVAILABLE INFORMATION
The Company and Newco have filed with the Securities and Exchange Commission
(the "SEC") a Rule 13E-3 Transaction Statement on Schedule 13E-3 (including
any amendments thereto, the "Schedule 13E-3") under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), with respect to the Merger. This
Proxy Statement does not contain all of the information set forth in the
Schedule 13E-3 and the exhibits thereto, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. The Company is subject
to the informational requirements of the Exchange Act and, in accordance
therewith, files reports, proxy statements and other information with the SEC.
The Schedule 13E-3 and the exhibits thereto, as well as such reports, proxy
statements and other information filed by the Company, can be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices at Suite 1300, Seven World Trade Center, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
Copies of such materials also can be obtained at prescribed rates from the
Public Reference Section of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC maintains an Internet site on the World Wide
Web at "http://www.sec.gov." which contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the SEC.
This Proxy Statement incorporates by reference documents which are not
presented herein or delivered herewith. These documents other than exhibits to
such documents, are available, without charge, to any person to whom this
Proxy Statement is delivered, on written or oral request, to: the Company at
its offices located at 300 Crossways Park Drive, Woodbury, NY 11797,
Attention: Corporate Secretary (telephone number (516) 496-9560).
Except as otherwise indicated herein, all information appearing in this
Proxy Statement concerning the Company has been supplied by the Company, and
all information appearing in this Proxy Statement concerning Newco and the
Funds has been supplied by the Funds or is based upon publicly available
documents on file with the SEC and other public records. The Company assumes
no responsibility for the accuracy or completeness of the information
furnished by the Funds or contained in such documents and records other than
those filed by the Company or for any failure of the Funds to disclose events
that may have occurred and may affect the significance or accuracy of such
information and that are unknown to the Company. Likewise, the Funds assume no
responsibility for the accuracy or completeness of the information furnished
by the Company or contained in such documents and records other than those
provided by the Funds or for any failure by the Company to disclose events
that may have occurred and that may affect the significance or accuracy of
such information and that are unknown to Newco.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN
CONNECTION WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.
iii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement and prior to
the date of the Meeting shall be deemed to be incorporated by reference into
this Proxy Statement and to be a part hereof from the date of filing of such
documents.
In addition, the Company's Annual Report on Form 10-K/A for the Fiscal Year
Ended April 30, 1997 is attached as Appendix D to this Proxy Statement and,
together with the Quarterly Report on Form 10-Q for the Fiscal Quarter Ended
July 31, 1997 and each of the Current Reports on Form 8-K dated July 10, 1997,
August 15, 1997 and September 5, 1997, respectively, shall be deemed to be
incorporated herein by reference and made a part hereof.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any
statement so modified shall not be deemed to constitute a part hereof except
as so modified or superseded.
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
AVAILABLE INFORMATION..................................................... iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... iv
SUMMARY................................................................... 1
THE PARTIES............................................................... 8
The Company............................................................. 8
Newco................................................................... 8
THE MEETING............................................................... 8
Time, Date and Place.................................................... 8
Voting Rights........................................................... 8
Required Vote........................................................... 9
SPECIAL FACTORS........................................................... 10
Background of the Merger................................................ 10
Purpose of and Reasons for the Merger................................... 12
Determination of Fairness of the Merger by the Special Committee and the
Board of Directors..................................................... 13
Position of the Funds and Executive Management as to Fairness........... 16
Opinion of Financial Advisor to the Special Committee................... 19
Conflict of Interests of the Funds, Executive Management and Certain
Members of the Board of Directors of the Company in the Merger......... 24
Certain Effects of the Merger........................................... 25
Future Plans of the Company............................................. 26
RIGHTS OF DISSENTING STOCKHOLDERS......................................... 27
ESTIMATED FEES AND EXPENSES; SOURCES OF FUNDS............................. 30
RECENT DEVELOPMENTS....................................................... 31
THE MERGER AGREEMENT...................................................... 31
The Merger.............................................................. 31
Effective Time.......................................................... 31
Certificate of Incorporation and By-Laws of the Surviving Corporation... 31
Directors and Officers of the Surviving Corporation..................... 32
Conversion of Securities in the Merger; Treatment of Options............ 32
Payment for and Surrender of Company Common Shares...................... 34
Closing of Stock Transfer Records....................................... 35
Representations and Warranties.......................................... 35
Alternative Proposals................................................... 35
Interim Operations of the Company....................................... 35
Certain Filings and Other Actions....................................... 37
Access to Information................................................... 37
Conditions.............................................................. 39
Termination............................................................. 40
Expenses................................................................ 41
Amendment............................................................... 41
Certain U.S. Federal Income Tax Consequences of the Merger.............. 41
Accounting Treatment of the Merger...................................... 42
Regulatory Approvals.................................................... 42
MARKET INFORMATION........................................................ 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 44
Security Ownership of Certain Beneficial Owners......................... 44
Security Ownership of Management........................................ 45
</TABLE>
v
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<TABLE>
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PAGE
NO.
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<S> <C>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 46
OPTION CANCELLATION INFORMATION.......................................... 46
PURCHASES OF COMMON STOCK BY AND OTHER TRANSACTIONS WITH CERTAIN PERSONS. 47
TRANSACTION OF OTHER BUSINESS............................................ 47
INDEPENDENT ACCOUNTANTS.................................................. 47
Appendix A--Agreement and Plan of Merger dated as of August 13, 1997, as
amended on September 4, 1997
Appendix B--Opinion of Wasserstein Perella & Co., Inc.
Appendix C--Text of Section 262 of the Delaware General Corporation Law
Appendix D--Annual Report on Form 10-K/A for the Fiscal Year Ended April
30, 1997
</TABLE>
vi
<PAGE>
SUMMARY
The following summary is subject to and qualified in its entirety by
reference to the more detailed information contained elsewhere in this Proxy
Statement, including in the Appendices attached hereto and in the documents
incorporated by reference herein (the "Proxy Statement"). Unless defined
herein, capitalized terms used in this summary have the meanings ascribed to
them elsewhere in this Proxy Statement. This Proxy Statement contains certain
statements of a forward-looking nature that involve risks and uncertainties
including but not limited to economic and competitive factors outside the
control of the Company. These factors more specifically include: competition
from other retail stores, continuing strong economic conditions, especially in
the northeastern United States, and the Company's ability to identify consumer
preferences with regard to its merchandise mix, as well as other factors
discussed in or incorporated by reference into this Proxy Statement.
Stockholders are cautioned that such statements are only predictions and that
the actual events or results may differ materially. Forward-looking statements
are typically identified by the words "believe," "expect", "anticipate",
"intend", "estimate" and similar expressions. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of their dates.
Stockholders are urged to read carefully the Proxy Statement, the Appendices
hereto and the documents referred to herein in their entirety.
TIME, DATE AND PLACE......
The Meeting of the stockholders of the Company will
be held on December 23, 1997 at 9:00 a.m., New York
time, at the offices of Jones, Day, Reavis & Pogue,
599 Lexington Avenue, 37th Floor, New York, New
York 10022. See "The Meeting--Time, Date and
Place."
PURPOSES OF THE MEETING... To (i) consider and vote upon the adoption of the
Merger Agreement (attached as Appendix A hereto)
and (ii) to consider and vote upon such other
matters as may properly come before the Meeting or
any postponements or adjournments thereof.
VOTING RIGHTS.............
The close of business on November 17, 1997 has been
fixed as the Record Date for determining holders of
Common Stock entitled to notice of and to vote at
the Meeting. Each share of Common Stock outstanding
on the Record Date is entitled to one vote at the
Meeting. As of the Record Date, 4,536,839 shares of
Common Stock were outstanding and held of record by
251 holders. The presence, in person or by proxy,
of the holders of a majority of the shares of
Common Stock entitled to vote at the Meeting is
necessary to constitute a quorum for the
transaction of business of the Meeting.
Any proxy given by a stockholder may be revoked by
the stockholder at any time, prior to the voting of
the proxy, by delivering a written notice to the
Secretary of the Company, by executing and
delivering a later-dated proxy or by attending the
meeting and voting in person. Unless contrary
instructions are indicated on the proxy card, all
shares of Common Stock represented by valid proxies
will be voted FOR the Merger Agreement. See "The
Meeting--Voting Rights."
REQUIRED VOTE............. The affirmative vote of holders of at least a
majority of all of the outstanding shares of Common
Stock is required to approve and adopt
1
<PAGE>
the Merger Agreement. The Funds have advised the
Company that they will vote the 3,632,311 shares of
Common Stock (representing approximately 80% of the
outstanding Common Stock) that they, in the
aggregate, beneficially own in favor of the Merger
Agreement. Accordingly, the adoption of the Merger
Agreement by the Company's stockholders is expected
to occur irrespective of whether or the manner in
which the Company's other stockholders vote their
shares of Common Stock. See "The Meeting--Required
Vote."
EFFECTIVE TIME OF THE The Merger is expected to become effective as of
MERGER................... the date and time (the "Effective Time") of the
filing of an appropriate Certificate of Merger with
the Secretary of State of the State of Delaware,
which is anticipated to occur as soon as
practicable after the approval and adoption of the
Merger Agreement by the Company's stockholders and
the satisfaction or waiver of the other conditions
to the Merger stated in the Merger Agreement. See
"The Merger Agreement--Effective Time."
BACKGROUND OF THE MERGER.. For a description of the events leading to the
approval and adoption of the Merger Agreement by
the Board, see "Special Factors--Background of the
Merger."
RECOMMENDATION OF THE
BOARD OF DIRECTORS....... The Board of Directors (with the Funds-affiliated
and management directors abstaining due to inherent
conflicts of interests) has determined that the
Merger is fair to, and in the best interests of,
the Company and the Public Stockholders and
unanimously recommends a vote FOR approval and
adoption of the Merger Agreement. See "Special
Factors--Determination of Fairness of the Merger by
the Special Committee and the Board of Directors"
and "--Conflict of Interests of the Funds,
Executive Management and Certain Members of the
Board of Directors."
OPINION OF FINANCIAL
ADVISOR TO THE SPECIAL The Special Committee retained Wasserstein Perella
COMMITTEE................ & Co., Inc. ("Wasserstein Perella") to act as its
financial advisor in connection with the Merger. On
August 13, 1997, Wasserstein Perella delivered its
opinion to the Special Committee, to the effect
that, as of such date and subject to the
qualifications and assumptions set forth therein,
the Merger Consideration of $25.05 in cash per
share of Common Stock to be received by the Public
Stockholders in the Merger is fair to such
stockholders from a financial point of view. A copy
of Wasserstein Perella's written opinion, which
sets forth the assumptions made, matters considered
and limitations on the review undertaken in
connection with the opinion, is attached hereto as
Appendix B (the "Wasserstein Perella Opinion") and
is incorporated herein by reference. PUBLIC
STOCKHOLDERS ARE URGED TO, AND SHOULD, READ SUCH
OPINION CAREFULLY IN ITS ENTIRETY. See "Special
Factors--Opinion of Financial Advisor to the
Special Committee."
2
<PAGE>
CONFLICT OF INTERESTS OF
THE FUNDS AND CERTAIN
MEMBERS OF THE BOARD OF
DIRECTORS OF THE COMPANY
IN THE MERGER............
If the Merger is consummated, (i) M.D. Sass, T.
Rowe Price and Carl Marks will be the sole
stockholders of the Surviving Corporation, owning
47.5%, 26.7% and 25.8%, respectively, of the common
stock in the Surviving Corporation; (ii) it is
expected that M.D. Sass, T. Rowe Price and Carl
Marks will cause the Surviving Corporation to
declare a dividend in the aggregate amount of $67
million pro rata based on their relative ownership
in the Surviving Corporation following the Merger;
(iii) as holders of certain stock options in the
Company, Mr. Alan Rosenberg, a director, President
and Chief Executive Officer of the Company, Mr.
Steven H. Halper, Chief Operating Officer and
Secretary of the Company and Mr. Peter McGeough,
Chief Administrative and Financial Officer of the
Company, will receive $3,022,849, $2,185,355 and
$2,185,355, respectively, on the same terms as will
all other optionholders of the Company, and, as
executive management of the Surviving Corporation,
will receive options to purchase approximately
6.5%, 5.5% and 5.5%, respectively, on a fully
diluted basis, of the common stock of the Surviving
Corporation; and (iv) Mr. McGeough will receive
$150,300 upon payment of the Merger Consideration
for the 6,000 shares of Common Stock which he
beneficially owns.
In addition, it is anticipated that the Surviving
Corporation will enter into employment agreements
with Mr. Rosenberg, Mr. Halper and Mr. McGeough on
terms comparable to their current employment
agreements with the Company.
Accordingly, the Funds and the above-mentioned
officers of the Company have a direct economic
interest in the Merger. In light of these inherent
conflicts of interest, the Board of Directors of
the Company appointed the Special Committee
comprised solely of directors who are not
affiliated with the Funds and are not officers of
the Company. In addition, the Funds-affiliated and
management directors abstained from voting on the
Merger. See "Special Factors--Conflict of interests
of the Funds, Executive management and Certain
Members of the Board of Directors of the Company in
the Merger."
CERTAIN EFFECTS OF THE Following the Merger, the Funds will own 100% of
MERGER................... the Surviving Corporation's outstanding shares of
common stock. The Funds and management (to the
extent they exercise options to purchase stock of
the Surviving Corporation) will be the sole
beneficiaries of any future earnings and growth of
the Surviving Corporation (until shares of common
stock, if any, are issued to other stockholders),
and the Public Stockholders will no longer benefit
from any increases in the value of the Company or
any payment of dividends on the shares of Common
Stock and will no longer bear the risk of any
decreases in value of the Company. As a result of
the Merger, (i) the Surviving Corporation will be
privately held, (ii) there will be no public market
for the Common Stock, (iii) the Common Stock will
cease to be quoted on the Nasdaq National Market,
and (iv) the registration of the Common Stock under
3
<PAGE>
the Exchange Act will be terminated and the Company
will no longer be required to file periodic reports
with the SEC. All employee benefit and compensation
plans of the Surviving Corporation will be
substantially the same as the Company's present
benefit plans for a period of at least one year,
but the Surviving Corporation may determine to
amend present benefit plans or to initiate
additional employee benefit plans in the future.
See "Special Factors--Certain Effects of the
Merger."
FUTURE PLANS FOR THE It is expected that, immediately following the
COMPANY.................. Merger, the business and operations of the Company
will be continued by the Company, as the Surviving
Corporation in the Merger, substantially as they
are currently being conducted. However, the Funds
and the management of the Surviving Corporation
will continue to evaluate the Company's business
and operations after the consummation of the Merger
and make such changes as are deemed appropriate.
It is expected that, immediately following the
Merger, the Funds will cause the Surviving
Corporation to declare a dividend in the aggregate
amount of approximately $67 million to be
distributed pro rata to the Funds. See "Special
Factors--Future Plans of the Company."
MERGER AGREEMENT.......... The Company and Newco have entered into a Merger
Agreement, dated as of August 13, 1997, providing
for the merger of Newco with and into the Company,
with the Company being the Surviving Corporation. A
copy of the Merger Agreement, as amended on
September 4, 1997, is attached hereto as Appendix
A. Under the terms of the Merger Agreement, each
share of the Common Stock outstanding immediately
prior to the Effective Time (other than shares of
Common Stock held by Newco, all of which will be
cancelled, and other than shares of Common Stock
held by dissenting stockholders who perfect their
statutory appraisal rights under Delaware law) will
be converted into the right to receive $25.05 in
cash, without interest. Immediately prior to the
Effective Time, the Funds will contribute all of
their respective shares of the Common Stock to
Newco in exchange for shares of the common stock of
Newco. Upon consummation of the Merger, the shares
of the Common Stock held by Newco will be cancelled
and the common stock of Newco owned by the Funds
will be converted into all of the outstanding
common stock of the Surviving Corporation. Thus, as
a result of the Merger, the Surviving Corporation
will become wholly-owned by the Funds. See "Special
Factors--Conflict of Interests of the Funds,
Executive Management and Certain Members of the
Board of Directors of the Company in the Merger,"
and "Security Ownership of Certain Beneficial
Owners and Management."
DISSENTERS' RIGHTS........ Under Delaware law, stockholders who do not vote in
favor of the Merger and file demands for appraisal
prior to the stockholder vote on the Merger
Agreement, upon the consummation of the Merger,
have the right to obtain a cash payment for the
"fair value" of their shares
4
<PAGE>
of Common Stock (excluding any element of value
arising from the accomplishment or expectation of
the Merger). In order to exercise such rights, a
stockholder must comply with all of the procedural
requirements of Section 262 ("Section 262") of the
General Corporation Law of the State of Delaware, a
description of which is provided in "Rights of
Dissenting Stockholders" herein and the full text
of which is attached to this Proxy Statement as
Appendix C. Such "fair value" will be determined in
judicial proceedings, the result of which cannot be
predicted. Failure to take any of the steps
required under Section 262 may result in a loss of
such dissenter's rights. See "Rights of Dissenting
Stockholders."
CERTAIN U.S. FEDERAL
INCOME TAX CONSEQUENCES The receipt of cash for Public Stock pursuant to
OF THE MERGER............ the Merger will be a taxable transaction to the
Public Stockholders for U.S. Federal income tax
purposes under the Internal Revenue Code of 1986,
as amended (the "Code"), and may be a taxable
transaction for foreign, state and local income tax
purposes as well. Public Stockholders should
consult their own tax advisors regarding the U.S.
Federal income tax consequences of the Merger, as
well as any tax consequences under state, local or
foreign laws. See "The Merger Agreement--Certain
U.S. Federal Income Tax Consequences of the
Merger."
ACCOUNTING TREATMENT OF
THE MERGER............... The Merger will be accounted for as a "purchase",
as such term is used under generally accepted
accounting principles, for accounting and financial
reporting purposes. See "The Merger Agreement--
Accounting Treatment of the Merger."
ESTIMATED FEES AND
EXPENSES; SOURCES OF It is currently expected that approximately
FUNDS.................... $22,658,426 will be required to pay the Merger
Consideration to the Public Stockholders,
approximately $8,840,630 will be paid to holders of
options to purchase Common Stock (which constitutes
the difference between the Merger Consideration and
the option exercise prices less the value being
retained in the Surviving Corporation), and
approximately $2,500,000 will have been incurred
for expenses of the Company, Newco and the Funds in
connection with the Merger Agreement and the
transactions contemplated thereby. Such funds will
be furnished from proceeds generated by the sale of
the Company's accounts receivable to Household Bank
(Nevada), N.A. It is further expected that,
following the Merger, the Funds will cause the
Surviving Corporation to declare a dividend in the
aggregate amount of approximately $67 million to be
distributed pro rata to the Funds. Such funds will
be furnished from the remaining proceeds of the
accounts receivable sale and borrowings under a
line of credit from Heller Business Credit, a
division of Heller Financial, Inc. See "Estimated
Fees and Expenses; Sources of Funds."
RECENT DEVELOPMENTS....... On August 5, 1997, the Company consummated the sale
of substantially all of its customer accounts
receivable to Household Bank (Nevada), N.A. for net
proceeds of approximately $70 million. See "Recent
Developments."
5
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Company's Consolidated Financial Statements, accompanying notes and other
financial information included in the Company's Annual Report on Form 10-K/A
for the Fiscal Year Ended April 30, 1997, attached hereto as Appendix D and
incorporated herein by reference.
<TABLE>
<CAPTION>
SEVEN MONTH FIVE MONTH
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30, SEPTEMBER 30,
1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ------------ -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Net Sales........................................... $251,175 $229,505 $215,857 $170,348 $92,472 $ 70,104
Net Finance Charge Income........................... 12,809 14,036 12,364 7,865 4,475 4,015
-------- -------- -------- -------- ------- --------
Total............................................. 263,984 243,541 228,221 178,213 96,947 74,119
-------- -------- -------- -------- ------- --------
OPERATING COSTS & EXPENSES:
Cost of sales, including Buying and Occupancy costs. 167,430 152,982 138,038 112,648 61,561 48,343
Selling, General and Administrative................. 87,206 83,094 74,691 60,159 33,778 29,393
-------- -------- -------- -------- ------- --------
Total............................................. 254,636 236,076 212,729 172,807 95,339 77,736
-------- -------- -------- -------- ------- --------
Income (Loss) from Operations....................... 9,348 7,465 15,492 5,406 1,608 (3,617)
Interest Expense.................................... (2,247) (1,748) (1,707) (1,854) (973) (374)
Interest Income..................................... 65 878 561 694 224 283
Reorganization Charges.............................. -- -- -- -- (117) (7,916)
-------- -------- -------- -------- ------- --------
Income (Loss) before Income Tax and Extraordinary
Credits............................................ 7,166 6,595 14,346 4,246 742 (11,624)
Income Tax (Expense)/Benefit........................ (3,081) (2,700) (5,738) 2,694 -- --
-------- -------- -------- -------- ------- --------
Income (Loss) before Extraordinary Credits.......... 4,085 3,895 8,608 6,940 742 (11,624)
Extraordinary Credits............................... -- -- -- -- -- 353,569
-------- -------- -------- -------- ------- --------
Net Income.......................................... $ 4,085 $ 3,895 $ 8,608 $ 6,940 $ 742 $341,945
- --------------------------------------------------
======== ======== ======== ======== ======= ========
</TABLE>
6
<PAGE>
The following table sets forth for the periods indicated certain items in
selected financial data as a percentage of sales, and the percentage change of
such items from the indicated prior period.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF NET SALES INCREASE (DECREASE)
--------------------------------------------------------- ---------------------
YEAR ENDED APRIL
30,
-----------------
YEAR YEAR YEAR YEAR SEVEN MONTH FIVE MONTH 1997 1996 1995
ENDED ENDED ENDED ENDED PERIOD ENDED PERIOD ENDED VS VS VS
4/30/97 4/30/96 4/30/95 4/30/94 4/30/93 9/30/92 1996 1995 1994
------- ------- ------- ------- ------------ ------------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Net Sales............... 100.0 100.0 100.0 100.0 100.0 100.0 9.4 6.3 26.7
Net Finance Charge
Income................. 5.1 6.1 5.7 4.6 4.8 5.7 -8.7 13.5 57.2
Cost of sales,
including Buying and
Occupancy costs....... 66.7 66.7 63.9 66.1 66.5 69.0 9.4 10.8 22.5
Selling, General and
Administrative........ 34.7 36.2 34.6 35.3 36.5 41.9 4.9 11.3 24.2
Income (Loss) from
Operations............ 3.7 3.3 7.2 3.2 1.7 -5.2 25.2 -51.8 186.6
Interest Expense....... -0.9 -0.8 -0.8 -1.1 -1.1 -0.5 28.5 2.4 -7.9
Interest Income........ 0.0 0.4 0.3 0.4 0.2 0.4 -92.6 56.5 -19.2
Reorganization Charges. -- -- -- -- -0.1 -11.3 -- -- --
Income (Loss) before
Income Tax and
Extraordinary Credits.. 2.8 3.0 6.7 2.5 0.8 -16.6 8.7 -54.0 237.9
Income Tax
(Expense)/Benefit..... -1.2 -1.2 -2.7 1.6 -- -- 14.1 -52.9 313.0
Income (Loss) before
Extraordinary Credits.. 1.6 1.7 4.0 4.1 0.8 -16.6 4.9 -54.8 24.0
Extraordinary Credits... -- -- -- -- -- 504.3 -- -- --
Net Income.............. 1.6 1.7 4.0 4.1 0.8 487.8 4.9 -54.8 24.0
</TABLE>
<TABLE>
<CAPTION>
AT AT AT AT AT
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash & Cash Equivalents...... $ 6,423 $ 3,436 $ 20,431 $ 23,512 $ 26,353
Other Current Assets......... 103,808 101,142 80,585 68,207 54,455
Current Liabilities.......... 42,724 37,631 43,350 35,841 25,635
Working Capital.............. 67,507 66,947 57,666 55,878 55,173
Total Assets................. 161,222 159,251 153,334 136,586 113,436
Long-term Debt............... 12,878 20,085 12,328 12,915 13,278
Stockholders' Equity......... $105,620 $101,535 $ 97,656 $ 87,830 $ 74,523
OTHER DATA:
Ratio of Earnings to Fixed
Charges..................... 1.4 0.5
Book Value Per Share of
Common Stock................ $ 23.28 $ 22.37
</TABLE>
7
<PAGE>
THE PARTIES
THE COMPANY
The Company believes that it is the largest regional specialty furniture
retailer in the northeastern United States in terms of sales and that it has
the leading market position in the greater New York metropolitan area. The
Company currently operates a chain of 41 stores. Of these, 27 are in the New
York, New Jersey and Connecticut tri-state area, eight are in the Philadelphia
metropolitan area and six are in the Cleveland/Akron, Ohio metropolitan area.
The Company's stores sell a variety of living room, bedroom, dining room and
other home furniture and accessories in contemporary, traditional, country and
casual styles.
The Company is a Delaware corporation with its principal executive offices
located at 300 Crossways Park Drive, Woodbury, New York 11747, and its
telephone number is (516) 496-9560. For a further discussion of the Company,
its business and its current financial condition, see "Recent Developments" and
Appendix D (the Company's Annual Report on Form 10-K/A for the Fiscal Year
Ended April 30, 1997) which is attached hereto and incorporated herein by
reference.
NEWCO
Newco is a Delaware corporation recently organized by the Funds solely for
the purpose of effecting the Merger. Newco is wholly-owned by the Funds. Newco
has no material assets, and will have no material assets other than 3,632,311
shares of Common Stock (representing approximately 80% of the outstanding
shares of Common Stock, as of the Record Date) which will be contributed to
Newco by the Funds immediately prior to the Merger. Newco has not engaged in
any activities except in connection with the Merger and will cease to exist
upon the consummation of the Merger. Newco's address is c/o Resurgence Asset
Management, L.L.C., 1185 Avenue of the Americas, 18th Floor, New York, New York
10036, and its telephone number is (212) 843-8975.
THE MEETING
TIME, DATE AND PLACE
The Meeting of the stockholders of the Company will be held on December 23,
1997 at 9:00 a.m., New York time, at the offices of Jones, Day, Reavis & Pogue,
599 Lexington Avenue, 37th Floor, New York, New York 10022.
VOTING RIGHTS
Only holders of shares of Common Stock of record at the close of business on
November 17, 1997, will be entitled to vote at the Meeting. On November 17,
1997, the Company had 4,536,839 outstanding shares of Common Stock, each such
share entitling the holder thereof to one vote on the Merger. Holders of shares
of Common Stock are not entitled to cumulative voting rights. The presence at
the Meeting, in person or by proxy, of the holders of a majority of the shares
of Common Stock entitled to vote shall constitute a quorum at the Meeting.
Votes abstaining from voting and broker non-votes (shares held by brokers and
other nominees or fiduciaries that are present at the Meeting but not voted on
a particular matter) are counted for quorum purposes, but since they are not
cast "for" a particular matter, they will have the same effect as negative
votes or votes "against" a particular matter. Any proxy given by a stockholder
may be revoked by the stockholder at any time, prior to the voting of the
proxy, by delivering a written notice to the Secretary of the Company, by
executing and delivering a later-dated proxy or by attending the Meeting and
voting in person.
Unless contrary instructions are indicated on the proxy card, all shares of
Common Stock represented by valid proxies will be voted FOR the Merger, and
will be voted at the discretion of the proxies in respect of such other
business, if any, as may properly be brought before the Meeting. As of the date
hereof, the Board of
8
<PAGE>
Directors knows of no other business that will be presented for consideration
at the Meeting other than the matters referred to herein. If a stockholder
gives specific voting instructions by checking the boxes on the proxy card, the
shares of Common Stock will be voted in accordance with such instructions. If,
however, other matters are properly brought before the Meeting, it is the
intention of the persons named in the accompanying proxy to vote the shares
represented thereby in accordance with their best judgment and discretionary
authority to do so is included in the proxy. The affirmative vote of the
holders of a majority of the Common Stock, represented at the Meeting or any
adjournment thereof and actually voted, would be required with respect to any
such matter brought to a stockholder vote.
The persons named as proxies are Alan Rosenberg, President and Chief
Executive Officer of the Company, and Steven H. Halper, Executive Vice
President, Chief Operating Officer and Secretary of the Company. The costs of
preparing, assembling and mailing the proxy, this Proxy Statement and the other
material enclosed and all clerical and other expenses of solicitation will be
shared equally by the Company and Newco; provided, however, if the Merger is
not consummated for certain reasons, the Company or Newco, as the case may be,
will be required to reimburse the other for its share of the costs of the
solicitation. In addition to the solicitation of proxies by use of the mails,
directors, officers and employees of the Company, without receiving additional
compensation, may solicit proxies by telephone, telecopier or personal
interview. The Company also will request brokerage houses and other custodians,
nominees and fiduciaries to forward soliciting material to the beneficial
owners of Common Stock held of record by such custodians and will reimburse
such custodians for their expenses in forwarding soliciting materials.
REQUIRED VOTE
Pursuant to the DGCL, the affirmative vote of holders of at least a majority
of all of the outstanding shares of Common Stock is required to approve and
adopt the Merger Agreement. The Funds have advised the Company that they will
vote their 3,632,311 shares of Common Stock (representing approximately 80% of
the outstanding Common Stock) in favor of the Merger Agreement. Accordingly,
the adoption of the Merger Agreement by the Company's stockholders is expected
to occur irrespective of whether or the manner in which the Company's other
stockholders vote their shares of Common Stock.
9
<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE MERGER
The Company emerged from the protection of Chapter 11 of the United States
Bankruptcy Code on October 12, 1992. As a result of the bankruptcy
proceedings, the Funds received shares of Common Stock representing
approximately 51% of the then outstanding Common Stock on an aggregate basis
in exchange for claims held respectively by each of the Funds. Since that
time, two of the Funds have made market purchases and/or dispositions from
time to time in the independent exercise of its discretion. As of the Record
Date, the Funds beneficially owned approximately 80% of the outstanding Common
Stock. Thus, the Funds collectively have the power to decide all matters
submitted for stockholder approval.
From time to time during the past several years, one or more of the Funds
informally and individually discussed with investment banks whether there
might be any interest by third parties in a possible transaction involving the
Company. No such third party was identified.
In February 1995, the Funds considered the sale of a portion of the shares
of Common Stock beneficially owned by them pursuant to a secondary public
offering. In connection with the Funds' consideration of a possible public
offering, the Funds engaged a financial advisor to consider the potential
impact of a sale by the Funds of a portion of their Common Stock pursuant to a
public offering on the Company and the Public Stockholders. Upon final
consideration and advice from the financial advisor, the Funds determined not
to sell their shares of Common Stock at that time.
On October 28, 1996, presentations were made to the Board of Directors by
Wheat First Butcher Singer ("Wheat First") and two other investment banks with
respect to strategic alternatives available to the Company, including the
possibility of a recapitalization. The purpose of such meetings, which were
suggested to the Company by the Funds, was to obtain an independent
determination of the value of the Common Stock in light of the absence of an
active trading market and to identify strategic alternatives to the Company.
Issues relating to the sale or merger of the Company, potential strategic
buyers, a secondary offering of stock, a stock repurchase program and a
recapitalization were discussed. The investment banks indicated to the Board
of Directors that it was not likely that a strategic buyer would be interested
in the Company at that time. They also did not recommend (i) either a stock
repurchase program or a recapitalization because either alternative would have
negatively impacted the liquidity of the Common Stock and would have
exacerbated the lack of an active trading market or (ii) a secondary offering
because the Company's earnings at that time would not have resulted in a price
per share which would reflect the perceived value of the Company. The Board of
Directors believed that, while a transaction involving a financial buyer was
the most likely strategic alternative available to the Company at that time,
no financial buyer would attempt to buy the Company without the committed
participation of management of the Company and when approximately 80% of the
Common Stock was owned by the Funds.
Although the Company did not engage any of these financial advisors, the
Company and each of the Funds continued to consider strategic alternatives to
maximize the ultimate value of the Company to the stockholders. It was not
until the Funds formed Newco and proposed a merger transaction to the Company
in July of 1997, discussed below, that the Board of Directors believed that a
practical strategic alternative had become available to the Company.
In January 1997, the Company determined to investigate the sale of its
customer accounts receivable. At a meeting of the Board of Directors on
January 15, 1997, the negotiation of sale documentation with Household Bank
(Nevada), N.A. was approved. At such time, the Board of Directors believed
that the sale of customer accounts receivable would enable the Company to
achieve an important strategic goal of improving the Company's future
liquidity by increasing cash flow through the immediate receipt (generally
within two days) of cash from the credit card servicing company upon a credit
card sale instead of the deferred receipt of cash from the customer over a
longer payment period. Additionally, the Board of Directors anticipated that,
once the proceeds from the sale of the accounts receivable were received and
the Company's liquidity was improved, the Board of Directors would have
greater flexibility in considering future plans for the Company. By the time
the
10
<PAGE>
sale of the customer accounts receivable was consummated on August 5, 1997 and
the Company received the proceeds of approximately $70 million therefrom, the
Funds and Executive Management had met with the Board of Directors and
proposed a merger transaction. Other business reasons for selling the customer
receivables were primarily as follows: (a) by not owning the receivables,
management is able to focus primarily on optimizing the retail business
instead of being concurrently involved in managing the activities of a
financial operation; (b) the risk of fluctuations, particularly significant
increases, in account write-offs has been eliminated; (c) the Company is able
to offer more credit promotions (which have become more critical to sales in
the furniture retail industry in recent times), particularly payment deferred
promotions, without negatively impacting the Company's cash flow; and (d) the
Company is able to aggressively market its proprietary credit card to achieve
greater penetration as a percent of total sales, without negatively impacting
cash flow; greater penetration of its credit card into the Company's markets
will provide a detailed database of customer information which can be used by
the Company to generate repeat business and to market a demographically
similar base of consumers.
In February 1997, the Funds engaged Wheat First to provide a valuation of
the Common Stock. The purpose of such engagement was to assist the Funds in
assessing each of their investments in the Company. Wheat First valued, on a
going concern basis and as of February 25, 1997, the Common Stock in a range
from $22.00 to $26.00 per share. As the basis for such valuation, Wheat First
conducted discussions with members of senior management with respect to the
business, operating results and financial prospects of the Company, reviewed
financial data of the Company, historical prices and trading activity of the
Common Stock, tax returns filed by the Company, reports and other documents
filed by the Company with the SEC, and considered such other financial,
economic and market criteria as it deemed relevant.
During the period from about February 1997 through July 7, 1997, the Funds
and the Company's senior management had numerous telephone conferences
discussing whether or not to proceed with an acquisition of the equity
interests in the Company not already owned by them, the amount of the
consideration to be paid, the ownership of the Surviving Corporation and the
financing of any such transaction. As a result of these conferences, it was
decided to proceed with the Merger, that a tender offer followed by a merger
could be more time consuming and expensive than the Merger and that the amount
of the consideration offered to be paid should be $24.00 per share. Subsequent
to these telephone conferences, on July 8, 1997, a proposal was made by the
Funds and the Company's senior management to the Board of Directors.
On July 8, 1997, the Funds formed Newco. Immediately prior to the Effective
Time, the Funds will contribute to it all Common Stock held by them,
representing approximately 80% of the Common Stock outstanding, in exchange
for additional shares in Newco.
On July 8, 1997, a special meeting of the Board of Directors was held during
which the Funds and senior management proposed a merger transaction to the
Board of Directors and Wheat First made a presentation outlining certain terms
of the proposed Merger and the proposed merger consideration of $24.00 per
share. At this meeting, the Board of Directors appointed Messrs. Barry J.
Alperin and Leo Peraldo, the two directors of the Company who are neither
officers of the Company nor affiliated with any of the Funds (but who will
receive cash in exchange for their stock options upon consummation of the
Merger), to serve on the Special Committee to analyze and consider the
appropriateness of the Merger and to make recommendations in respect thereof
to the Board. The Board authorized the Special Committee to negotiate the
Merger and engage its own financial and legal advisors for the transaction at
the Company's expense. Thereafter, the Special Committee met with and retained
Wasserstein Perella as its financial advisor and, in addition, retained
independent legal counsel.
On July 9, 1997, the Company issued a press release regarding the pending
negotiations with respect to the Merger proposal.
By letter agreement dated July 17, 1997, the Special Committee confirmed its
retention of Wasserstein Perella to provide certain investment banking advice
and services in connection with the Merger, including rendering its opinion as
to the fairness from a financial point of view of the consideration to be
received by the Public Stockholders in such transaction.
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Thereafter and continuing into early August, the transaction and related
matters were discussed and negotiated at various meetings between
representatives of the Special Committee and Newco and between counsel to the
Special Committee and counsel to Newco. During this time period, Wasserstein
Perella received operational, financial and other business information
concerning the Company. In addition, the Special Committee met with
Wasserstein Perella to discuss the terms of the proposed merger agreement on
July 17 and July 30.
On August 1, 1997, representatives of Wheat First and Wasserstein Perella
met to review Wasserstein Perella's basic assumptions underlying their
valuation methodology. On August 4, 1997, Mr. Kim Z. Golden, on behalf of
Newco, and Mr. Alperin, on behalf of the Special Committee, met to discuss the
terms of the Merger Agreement and the consideration to be paid to the Public
Stockholders. Mr. Alperin indicated that, although Wasserstein Perella had not
completed its due diligence, the Special Committee would not approve the
transaction at the $24.00 price per share that had been proposed by Newco. On
August 8, 1997, Mr. Golden informed Mr. Alperin that Newco would increase the
consideration to $25.05 per share provided the other terms of a merger
agreement could be agreed upon.
During the period from August 8, 1997, through August 12, 1997, Messrs.
Golden and Alperin engaged in numerous telephone conversations to discuss the
terms of the proposed merger agreement. Mr. Alperin consulted on a regular
basis with Mr. Peraldo as to the ongoing discussions.
On the morning of August 13, 1997, the Special Committee met to consider the
proposed transaction. The Special Committee reviewed and discussed the terms
of the transaction. Representatives of Wasserstein Perella presented certain
financial and other analyses and delivered Wasserstein Perella's opinion,
later confirmed in writing, that as of August 13, 1997, the $25.05 per share
cash consideration to be received by the Public Stockholders in the Merger is
fair to such stockholders from a financial point of view. After discussion,
the Special Committee agreed to recommend to the Board the approval of the
Merger Agreement and the transactions contemplated thereby, provided that
counsel to the Special Committee could successfully conclude negotiations with
respect to the terms of the merger agreement. On the afternoon of August 13,
1997, a substantially complete form of the proposed merger agreement was
delivered to the directors of the Company.
At a special meeting held late in the afternoon on August 13, 1997, the
Board of Directors met to consider the proposed transaction. A presentation
was made by the Special Committee. The Board of Directors reviewed and
discussed the terms of the transaction. Representatives of Wasserstein Perella
presented certain financial and other analyses and delivered Wasserstein
Perella's opinion, later confirmed in writing, that, as of August 13, 1997,
the $25.05 per share cash consideration to be received by the Public
Stockholders in the Merger is fair to such stockholders from a financial point
of view. After discussion, the Special Committee recommended to the Board the
approval of the Merger Agreement and the transactions contemplated thereby.
The Board of Directors (with all Funds-affiliated and management directors
abstaining due to inherent conflicts of interests) unanimously adopted a
resolution approving the Merger Agreement and voted to recommend approval of
the Merger Agreement to the Company's stockholders. See "--Conflict of
Interests of the Funds, Executive Management and Certain Members of the Board
of Directors of the Company in the Merger."
Later on August 13, 1997, the parties executed and delivered the Merger
Agreement. On the morning of August 14, 1997, the transaction was publicly
announced.
On September 4, 1997, the parties executed an amendment to the Merger
Agreement to amend the provisions governing the treatment of certain employee
stock options to purchase the Common Stock. Additionally, the forms of the
certificate of incorporation and by-laws for the Surviving Corporation, which
are annexed as exhibits to the Merger Agreement, were also amended.
PURPOSE OF AND REASONS FOR THE MERGER
The principal purposes for the Merger are: (a) for the Funds to acquire all
of the equity interest in the Company represented by the Public Stock; (b) to
eliminate potential conflicts between the interests of Public
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Stockholders and the interests of the Funds; (c) to give the Public
Stockholders the opportunity to dispose of their shares of Common Stock at a
fair value; (d) to eliminate the potential volatility in the value of the
Common Stock occasioned by the lack of an active trading market for the Common
Stock; (e) to allow the Company to continue to operate as an independent
retailer of furniture; and (f) to allow the Funds to reduce a portion of their
equity investment in the Surviving Corporation by causing the Surviving
Corporation to declare a $67 million dividend, to be distributed pro rata to
the Funds based on their relative ownership of the Surviving Corporation
following the Merger. Other than as set forth herein, the Funds have no reason
for proposing the Merger at this particular time (as opposed to any other
time) and are unaware of any material development affecting the future value
of the Common Stock which is not described in this Proxy Statement.
As a result of the proposed Merger, the Surviving Corporation, whose common
stock will be entirely owned by the Funds, will continue the business of the
Company. The resulting ownership position of the Funds will permit the Funds
to manage the Surviving Corporation on behalf of the Funds without concern for
the positions of minority or unaffiliated holders of Common Stock, and it will
permit the Funds to receive all of the cash flow of the Company in excess of
the cash flow required to service indebtedness or for operations of the
Company.
The proposed Merger will eliminate the potential conflicts between the
interests of the Funds and the Public Stockholders. The management of the
Company considers the short-range desires of the Public Stockholders for
earnings due to its impact on the market price of the Common Stock, which is
not a concern of a privately-held company. As a private company, the Company
can be managed with a greater emphasis on long-term growth than on short-term
profits. In addition, as a public company, conflicts may also arise over the
divergent interests of the Funds and the Public Stockholders in respect of the
management of the Company, as well as in the nature and amount of the
compensation of management and the methods of financing the activities of the
Company.
The assumption by the Company of the status of a private company will allow
the Company to eliminate the time devoted by its management and certain other
employees to matters which relate exclusively to the Company being a public
company. Additionally, the Company will be able to reduce certain other costs
which relate to being a public company, including the following: the costs of
certain accounting, auditing and SEC counsel activities, the cost of
preparing, printing and mailing corporate reports and proxy statements, the
expense of a transfer agent and the cost of investor relations activities. The
Company estimates that these costs approximated $150,000 for each of the last
two years, exclusive of unquantifiable management time.
In connection with the Merger and the discussions relating thereto, the
Funds have advised the Company that, relating to the structure of the Merger,
it did not consider any alternative that would have allowed the Public
Stockholders to maintain an equity interest in the Company. The Funds
considered a cash tender offer for all of the Public Stock to be followed by a
merger, as one alternative structure to the proposed Merger. The Funds
ultimately rejected this alternative in the belief that a tender offer
transaction followed by a merger could be more time consuming and expensive
than the proposed Merger. If the tender offer did not result in at least 90%
of the outstanding shares of Common Stock being tendered, a short-form merger
under Delaware law could not have been effected, and the tender offer would
have had to have been followed by a long-form merger to achieve the purposes
stated herein.
The possible detriment to the Company and the Public Stockholders if the
proposed Merger transaction is not consummated is that the Funds might choose
to sell their interests in the Company or vote their shares to cause the
Company to merge with a third party which might cause a negative impact on the
employees, customers and suppliers of the Company and might cause the Company
to lose business momentum as a result of the Company integrating with a party
that is not already familiar with the Company's business and operations.
DETERMINATION OF FAIRNESS OF THE MERGER BY THE SPECIAL COMMITTEE AND THE BOARD
OF DIRECTORS
At its August 13, 1997 meeting, the Special Committee unanimously determined
(i) that the Merger, including the Merger Consideration, is fair, from a
financial point of view, to, and in the best interests of, the Company and the
Public Stockholders of the Company and (ii) to recommend that the Board of
Directors
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approve the Merger Agreement. At its August 13, 1997 meeting, the Board of
Directors, by unanimous vote (with Funds-affiliated and management directors
abstaining due to inherent conflicts of interests) and after receiving the
recommendation of the Special Committee, determined that the Merger, including
the Merger Consideration, is fair, from a financial point of view, to, and in
the best interests of, the Company and the Public Stockholders and resolved to
recommend to the Public Stockholders that they approve and adopt the Merger
Agreement and the transactions contemplated thereby and that they accept the
Merger Consideration in exchange for their shares of Common Stock. See "--
Conflict of Interests of the Funds, Executive Management and Certain Members
of the Board of Directors."
In making its determination with respect to the fairness, from a financial
point of view, of the Merger, including the Merger Consideration, and in
determining to recommend approval of the Merger Agreement and the transactions
contemplated thereby to the full Board, the Special Committee considered a
number of factors. All of the material factors so considered are set forth
below. In making its determination with respect to the fairness, from a
financial point of view, of the Merger, including the Merger Consideration,
and in approving the Merger Agreement, the full Board (except for the Funds-
affiliated and management directors) considered a number of factors. All of
the material factors so considered are set forth below. In its consideration
of the following material factors, the Special Committee met with Wasserstein
Perella on four separate occasions and had numerous other discussions with
Wasserstein Perella and between themselves. At each meeting, one or more of
the material factors were discussed among the members of the Special Committee
and whichever of its advisors were then present. In addition, the members of
the Special Committee met with Wasserstein Perella and representatives of the
Funds and Wheat First to discuss the Merger.
(i) The Special Committee and the Board considered the historical market
prices and recent trading activity of the Common Stock and the fact that the
Merger Consideration would enable the Public Stockholders to realize a premium
over the prices at which the Common Stock has traded in the last year
(including the ten business day average of reported closing prices for the
Common Stock ending with the day prior to the date of the Company's press
release reporting the Merger (the "Public Announcement Date") which was
$19.34); and the Merger Consideration represents a 29.5% premium over the ten
business day average price and a 29.0% premium over the average of the closing
prices during the 120 business days prior to the Public Announcement Date).
The historical market prices of the Common Stock for the past year were deemed
relevant because they indicate the arms-length trading prices of the Common
Stock for that period as determined in the open market. In the judgment of the
Special Committee and the Board, the fact that the Merger Consideration
represents a premium over such prices is a significant factor in the
determination of fairness.
(ii) The Special Committee and the Board considered the oral opinion
(subsequently confirmed in writing) of Wasserstein Perella to the effect that,
as of the date of such opinion, the Merger Consideration of $25.05 in cash per
share of Common Stock to be received by the Public Stockholders in the Merger
is fair to such stockholders from a financial point of view, and also
considered the analyses underlying such opinion. See "Opinion of Financial
Advisor to the Special Committee." A copy of the Wasserstein Perella Opinion,
setting forth the assumptions made, matters considered and limitations on the
review undertaken in connection with such opinion, is attached as Appendix B
to this Proxy Statement and should be read carefully in its entirety.
(iii) The Special Committee and the Board considered information with
respect to the financial condition, results of operations, business and
prospects of the Company, as well as the risks involved in achieving such
prospects, the current state of the specialty furniture retail industry,
including the Special Committee's views regarding the cyclical nature of the
business, and the economic and market conditions affecting the Company and
such industry, especially in the northeastern United States where a
significant portion of the Company's revenues are derived. In that regard, the
Special Committee noted that the northeastern United States was the last
region to rebound in the last economic upturn and may be the first to suffer
in any future economic decline.
(iv) The Special Committee also evaluated the Merger Consideration in light
of the following factors: price, ability to consummate the proposed
transaction, the significant percentage of Common Stock owned by the Funds,
the proposed structure of the transaction and anticipated closing date, the
amount of equity being invested
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<PAGE>
by the Funds, the impact on the Company of a delay or further uncertainty both
with respect to the market for the Common Stock and the Company's employees,
and the fiduciary obligations of the Special Committee and the Board to the
Public Stockholders.
(v) The Special Committee also noted that, subsequent to the announcement of
the transaction on July 9, 1997, no other parties expressed an interest in
buying the Company. At the Special Committee's request, Wasserstein Perella
contacted certain potential strategic and financial buyers to ascertain
whether any of them would have an interest in acquiring the Company. None of
the parties contacted by Wasserstein Perella indicated any interest in
pursuing a transaction involving the Company.
(vi) The Special Committee considered the risks to the Company and the
Public Stockholders of entering into the Merger Agreement with Newco,
including (a) Newco being a newly-formed corporation without any significant
assets, other than the Common Stock, prior to consummation of the Merger, (b)
Newco's ability to consummate the Merger being dependent upon the Company's
ability to obtain the credit facility from Heller and (c) the provisions of
the Merger Agreement requiring the Company in certain circumstances to
reimburse Newco for its out-of-pocket expenses in the event that the Merger is
not consummated.
(vii) The Special Committee also considered the fact that consummation of
the Merger would preclude the Public Stockholders from having the opportunity
to participate in the future growth prospects of the Surviving Corporation.
Accordingly, in reaching its conclusion to approve the Merger Agreement, the
Special Committee considered management's projections of future sales and
earnings of the Company and determined that the future prospects of the
Company are adequately reflected in the Merger Consideration. See "Opinion of
Financial Advisor to the Special Committee." In addition, the Special
Committee recognized that the Funds will have the opportunity to benefit from
any increases in the value of the Surviving Corporation following the Merger.
See "--Conflicts of Interests of the Funds, Executive Management and Certain
Members of the Board of Directors of the Company in the Merger." Furthermore,
the Special Committee considered the fact that it is expected that the Funds
will cause the Surviving Corporation to declare a dividend in the aggregate
amount of approximately $67 million to be distributed pro rata to the Funds
following the Merger and concurs with Wasserstein Perella's analysis that such
dividend was not relevant in evaluating the fairness of the Merger
Consideration from a financial point of view to the Public Stockholders. See
"--Opinion of Financial Advisor to the Special Committee" and "--Future Plans
of the Company." The Special Committee discussed distributing the proceeds
from the sale of the accounts receivable ratably to all the Company's
stockholders pursuant to a recapitalization as an alternative to the Merger,
but noted that the Funds would be entitled to receive approximately 80% of
such distribution in any event based on their percentage ownership of the
outstanding Common Stock and such distribution would not address the issues to
be resolved by the Merger as set forth above. See "--Purposes of and Reasons
for the Merger."
(viii) The Special Committee also considered the fact that the Merger would
afford the Public Stockholders an opportunity to dispose of their Common Stock
at fair value without the possible diminution of value resulting from the lack
of an active trading market and without payment of potentially
disproportionate brokerage fees. To the Company's knowledge, no active trading
market has developed for the Common Stock since the Company emerged from
bankruptcy in 1992. The Company has in the past received inquiries from
stockholders regarding the willingness of the Company to purchase their shares
of Common Stock due to the lack of trading activity and burdensome transaction
costs.
(ix) The Special Committee considered that it had been advised by the Funds
that, if the Merger were not consummated, they would consider their other
alternatives. In response to inquiries from representatives of the Special
Committee, the Funds informed such representatives that their alternatives
included, inter alia, a tender offer for the Common Stock owned by the Public
Stockholders.
(x) In addition to the above, the Special Committee and the Board of
Directors discussed and considered whether there were other alternatives to
the Merger and determined that there were no other viable alternatives.
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In view of the various factors considered by the Special Committee in
connection with its evaluation of the Merger and the Merger Consideration, the
Special Committee did not find it necessary to quantify or otherwise attempt
to assign relative importance to the specific factors considered in making its
determination, nor did it evaluate whether such factors were of equal
importance. However, based upon these factors, the evaluation of all the
relevant information provided to them by the Company's financial advisor and
taking into account the existing trading ranges for the Common Stock, the
Special Committee determined that the Merger, including the Merger
Consideration, was fair from a financial point of view, to the Public
Stockholders. The Special Committee believes that the Merger was considered in
a manner that was procedurally fair to the Public Stockholders.
The following members of the Board of Directors are affiliated with the
Funds: James B. Rubin, Kim Z. Golden and Robert C. Ruocco. See "--Conflict of
Interests of the Funds, Executive Management and Certain Members of the Board
of Directors of the Company in the Merger." None of these directors
participated on the Special Committee. In addition, such directors abstained
from voting on the Merger due to an inherent conflict of interest. Alan
Rosenberg, the Company's President and Chief Executive Officer and a director
of the Company, was not a member of the Special Committee because of his
position as an executive officer of the Company and his interests in the
Surviving Corporation and also abstained from voting on the Merger. See "--
Conflict of Interests of the Funds, Executive Management and Certain Members
of the Board of Directors of the Company in the Merger."
The Company believes that the manner in which the Merger is to be
implemented is procedurally fair to the Public Stockholders based on the
following factors: (i) the Special Committee was formed to promote and protect
the interests of the Public Stockholders; (ii) the Special Committee was
comprised solely of members of the Board of Directors who are neither
affiliated with the Funds nor officers of the Company (but who will receive
cash in exchange for their stock options upon consummation of the Merger);
(iii) the Special Committee retained an independent financial advisor,
Wasserstein Perella, and independent legal counsel; and (iv) the negotiations
between Newco and the Special Committee of the terms of the Merger Agreement
were conducted on an arm's-length basis. The Merger is not required under
applicable law or the Company's governing documents to be conditioned upon
approval by a majority vote of the Public Stockholders.
POSITION OF THE FUNDS AND EXECUTIVE MANAGEMENT AS TO FAIRNESS
The Funds and Messrs. Halper, McGeough and Rosenberg (the "Executive
Management") retained Wheat First to act as its financial advisor in
connection with the Merger. Wheat First is a nationally recognized investment
banking firm regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. Wheat First regularly publishes research reports regarding
the furniture retailing industry and the businesses and securities of publicly
owned companies in that industry, including the Company's.
At the July 8, 1997 meeting of the Board of Directors, Wheat First made a
presentation outlining certain terms of the proposed Merger and proposed
merger consideration of $24.00 per share. In connection with its presentation
to the Board of Directors, Wheat First provided the members of the Board of
Directors with written materials summarizing such information, procedures and
analyses. A copy of the materials provided to the Board of Directors on July
8, 1997 is attached as an exhibit to the Schedule 13E-3. See "Available
Information." The materials are also available for inspection and copying at
the principal offices of the Company during the Company's regular business
hours by any interested holder of Common Stock or such holder's representative
who has been so designated in writing. The summary set forth below does not
purport to be a complete description of Wheat First's analyses as set forth in
the exhibit to the Schedule 13E-3.
Wheat First reviewed certain publicly available business and financial
information relating to the Company and certain other information provided to
it, including the following: (i) the Company's Annual Reports to Stockholders,
Annual Reports on Form 10-K (as amended, if applicable) and related financial
information for
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the three fiscal years ended April 30, 1997, 1996 and 1995; (ii) the Company's
Quarterly Reports on Form 10-Q and related financial information for the
quarters ended January 31, 1997, October 31, 1996, and July 31, 1996; (iii)
the Company's Proxy Statement dated September 25, 1996; (iv) certain publicly
available information with respect to historical market prices and trading
activities for the Company's Common Stock and for certain publicly traded
companies which Wheat First deemed relevant; (v) certain publicly available
information with respect to certain furniture retailing companies and the
financial terms of certain other mergers and acquisitions which Wheat First
deemed relevant; (vi) the proposed terms of the Merger Agreement; (vii) other
financial information concerning the businesses and operations of the Company,
including certain audited financial information and certain internal financial
analyses and forecasts for the Company prepared by the senior management of
the Company; and (viii) such financial studies, analyses, inquiries and other
matters as it deemed necessary. In addition, Wheat First met with members of
the senior management of the Company to discuss the business and prospects of
the Company. Wheat First's total valuation of the Company contemplated the
receipt by the Company of the proceeds of approximately $70 million from the
sale of the accounts receivable. Additionally, as the proposed dividend of $67
million payable to the Funds would be a post-Merger event, Wheat First did not
believe such dividend to be relevant to its analysis.
In connection with its review, Wheat First relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it
or publicly available, including the representations and warranties of the
Company included in the Merger Agreement, and Wheat First relied upon the
management of the Company as to the reasonableness and achievability of their
respective financial and operational forecasts and projections, and the
assumptions and bases therefor, and assumed that such forecasts and
projections will be realized in the amounts and in the time periods currently
estimated by management. Wheat First also assumed that the Merger will be
consummated in accordance with the terms and conditions of the Merger
Agreement in due course without unnecessary delay.
Additionally, Wheat First considered certain financial and stock market data
pertaining to the Company and compared that data with similar data for certain
publicly held furniture retailing companies and considered the financial terms
of certain other comparable transactions that recently have been announced or
effected, as further discussed below.
Wheat First performed a variety of financial analyses. Notwithstanding the
separate factors summarized below, Wheat First believes that its analyses
should be considered in their entirety and that selecting portions of its
analyses and only certain of the factors considered by it, without considering
all analyses and factors, could create an incomplete view of the evaluation
process. The ranges of valuations resulting from any particular analysis
described below should not be taken to be Wheat First's view of the actual
value of the Company.
In performing its analyses, Wheat First made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of the Company. The analyses
performed by Wheat First are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than those
suggested by such analyses. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
such businesses actually may be sold.
The following is a summary of the analyses performed by Wheat First:
Peer Group Performance Analysis: Wheat First analyzed certain market,
balance sheet, and performance data for the Company and compared this
information to comparable data for seven furniture retailing publicly traded
companies (the "Peer Group"). The comparisons were based on financial data as
of and for the twelve-month period ended April 30, 1997, for the Company and
the twelve months prior reporting periods for each of the Peer Group
companies. This analysis showed, among other things, that, the Company's gross
margin was 36.6% compared to 40.1% for the Peer Group; the earnings before
interest, tax depreciation and amortization expense ("EBITDA") margin for the
Company was 5.5% compared to an EBITDA margin for the Peer Group
17
<PAGE>
of 8.7%; the Company's EBIT margin was 3.5% compared to 7.0% for the Peer
Group; and the Company's net income margin was 1.5% compared to 3.6% for the
Peer Group.
Peer Group Trading Analysis: Wheat First performed an analysis of market
valuation, as of July 3, 1997, of the Company and the Peer Group companies.
The following comparisons were based on financial data as of and for the
twelve-month period ended April 30, 1997, for the Company and the twelve
months prior reporting periods for each of the Peer Group companies. This
analysis revealed the following: (i) an enterprise value over sales multiple
of 0.5 for the Company and a median multiple of 0.9 for the Peer Group
companies; (ii) an enterprise value over EBITDA multiple of 8.9 for the
Company and a median multiple of 9.2 for the Peer Group companies; (iii) an
enterprise value over EBIT multiple of 13.8 for the Company and a median
multiple of 14.4 for the Peer Group companies; and (iv) an equity value over
net income multiple of 29.8 for the Company and a median multiple of 24.2 for
the Peer Group companies.
Comparable Acquisitions Analysis: Wheat First performed an analysis of
purchase prices in thirty furniture retail transactions announced since 1994.
Multiples of revenue, EBITDA, earnings before interest and tax expense
("EBIT"), and net income were compared to the multiples implied by the
consideration offered to the Company in the proposed Merger.
The following comparisons of the implied consideration based on $24.00 per
share offered by Newco to the Company were based on financial data as of and
for the twelve-month period ended April 30, 1997, for the Company and the
twelve months reporting period prior to the announcement of each transaction
for each acquired in the selected transactions: (i) an enterprise value over
sales multiple of 0.5 for the Company and a median multiple in comparable
transactions of 0.5; (ii) an enterprise value over EBITDA multiple of 8.9 for
the Company and a median multiple in comparable transactions of 7.4; (iii) an
enterprise value over EBIT multiple of 13.8 for the Company and a median
multiple in comparable transactions of 11.6; and (iv) an equity value over net
income multiple of 29.8 for the Company and a median multiple in comparable
transactions of 19.3.
No company or transaction used as a comparison in the above analysis is
identical to the Company or the Merger. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading of the
companies used for comparison in the above analysis.
Wheat First's analysis is based solely upon the information available to
Wheat First and the economic, market and other circumstances as they existed
at the time of its analysis. Events occurring after that date could materially
affect the assumptions and conclusions.
As compensation for Wheat First's services, the Funds agreed to pay Wheat
First a financial advisory fee equal to $500,000 payable as follows: $200,000
at the signing of the definitive agreement and $300,000 upon the date of
closing of the Merger. The Funds also agreed to reimburse Wheat First for its
reasonable out-of-pocket expenses incurred in connection with the activities
contemplated by its engagement, regardless of whether the Merger is
consummated. The Funds agreed to indemnify Wheat First against certain
liabilities under federal securities laws. The Funds and Executive Management
selected Wheat First to serve as its financial advisor in connection with the
Merger on the basis of Wheat First's expertise. In the ordinary course of its
business, Wheat First and its affiliates may actively trade in the equity
securities of the Company for its account and the accounts of its customers,
and therefore may from time to time hold long or short positions in such
securities.
The Funds, Newco and each member of Executive Management expressly adopts
Wheat First's analyses as summarized above, and based on such analyses believe
that the proposed Merger transaction as a whole is fair to the Public
Stockholders. In analyzing whether the Merger Consideration offered to the
Public Stockholders constitutes fair value, the Funds and each member of
Executive Management relied primarily on the analyses performed and the
resulting report prepared by Wheat First, described above. Based on Wheat
First's analyses, the Funds and each member of Executive Management proposed a
Merger to the Board of Directors for consideration of $24 per share, which
they considered to be a fair price per share. After negotiations with the
Special Committee, the consideration was raised to $25.05. Also, as noted
above, representatives of the Funds
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and Mr. Rosenberg are also members of the Board of Directors of the Company,
and in analyzing the transaction, they took into account the same information
and factors described above. See "--Determination of Fairness of the Merger by
the Special Committee and the Board of Directors." As they expressly adopt
Wheat First's analysis as summarized above, neither the Funds, Newco nor any
of the members of Executive Management considered the likelihood that the
Funds will cause the Surviving Corporation to declare a dividend in the
aggregate amount of $67 million to be distributed pro rata to the Funds
following the Merger to be relevant to their evaluation of the fairness of the
Merger transaction to the Public Stockholders.
The Funds, Newco and each member of Executive Management believe that the
manner in which the Merger was considered by the Company was procedurally fair
to the Public Stockholders based on the following factors: (i) the Special
Committee was formed to promote and protect the interests of the Public
Stockholders; (ii) the Special Committee was comprised solely of members of
the Board of Directors who are neither affiliated with the Funds nor officers
of the Company (but who will receive cash in exchange for their stock options
upon consummation of the Merger); (iii) the Special Committee retained an
independent financial advisor, Wasserstein Perella, and independent legal
counsel; and (iv) the negotiations between Newco and the Special Committee of
the terms of the Merger Agreement were conducted on an arm's-length basis.
The foregoing should not, however, be construed as a recommendation by the
Funds, Newco and Executive Management to the Public Stockholders to vote to
approve the Merger Agreement. Because of potential conflicts of interest, none
of the Funds, Newco, or Messrs. Rosenberg, Halper or McGeough makes a
recommendation with respect to approval of the Merger. The Funds, Newco and
Executive Management did not assign specific relative importance to the
analyses and factors considered in reaching its belief as to fairness.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
The Special Committee retained Wasserstein Perella to provide certain
investment banking advice and services in connection with the Merger,
including rendering its opinion as to the fairness from a financial point of
view of the consideration to be received by the Public Stockholders in such
transaction.
On August 13, 1997, at the meeting of the Special Committee and at the
subsequent meeting of the Board of Directors, Wasserstein Perella delivered
its oral opinion, confirmed by Wasserstein Perella's written opinion, dated
August 13, 1997, to the effect that, as of the date of such opinion and based
upon the assumptions specified in the Wasserstein Perella Opinion, the Merger
Consideration of $25.05 in cash per share of Common Stock to be received by
the Public Stockholders in the Merger is fair to such stockholders from a
financial point of view. Wasserstein Perella also presented a summary of the
analyses described below at the August 13, 1997 meeting of the Special
Committee.
A copy of the Wasserstein Perella Opinion is attached as Appendix B to this
Proxy Statement. Stockholders are urged to read the Wasserstein Perella
Opinion in its entirety for information with respect to the procedures
followed, assumptions made, matters considered and limits of the review by
Wasserstein Perella, in rendering the Wasserstein Perella Opinion. References
to the Wasserstein Perella Opinion herein and the summary of the Wasserstein
Perella Opinion set forth below are qualified by reference to the full text of
the Wasserstein Perella Opinion, which is incorporated herein by reference.
The Wasserstein Perella Opinion is directed only to the fairness from a
financial point of view to the Public Stockholders of the Merger Consideration
and it does not address any other aspect of the Merger. The Wasserstein
Perella Opinion does not constitute a recommendation to any stockholder with
respect to whether to vote in favor of the Merger and should not be relied
upon by any stockholder as such.
In connection with arriving at its opinion, Wasserstein Perella reviewed,
among other things, (i) certain publicly available business and financial
information relating to the Company, including publicly available consolidated
financial statements of the Company, in each case, for recent years and
interim periods that were available at the relevant times; (ii) certain
internal financial and operating information provided by the
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Company's management (either orally or in writing), including financial
forecasts, analyses and projections; (iii) certain publicly available
information concerning the public trading prices of the Common Stock and the
stock of certain other companies having publicly traded securities in
businesses believed by Wasserstein Perella to be relevant or comparable in
certain respects to that of the Company; and (iv) the financial terms of
certain recent acquisitions and business combination transactions in the
furniture retailing industry specifically, and in other industries generally,
which Wasserstein Perella believed to be reasonably comparable to the Merger
or otherwise relevant to its inquiry.
Wasserstein Perella had discussions with the Company's management concerning
the business, operations, assets, financial condition and future prospects of
the Company and its subsidiaries. Wasserstein Perella also performed such
studies, analyses and investigations as it considered appropriate for purposes
of arriving at and preparing the Wasserstein Perella Opinion. The Company's
management did not review such studies, analyses and investigations.
Wasserstein Perella was not provided with any valuations of the Company
prepared by, or on behalf of, the Company's management or the Funds. No
special instructions were given to Wasserstein Perella relating to its review,
and no limitations were imposed with respect to investigations made or
procedures followed by Wasserstein Perella in rendering the Wasserstein
Perella Opinion. Wasserstein Perella was not requested to recommend or
negotiate the amount of consideration to be paid in the Merger; it was
requested solely to evaluate the fairness of the consideration as determined
by negotiation between the Funds and the Company.
In conducting its review and analysis and in formulating its opinion,
Wasserstein Perella assumed and relied upon the accuracy and completeness of
all financial and other information provided to or discussed with Wasserstein
Perella or publicly available, and Wasserstein Perella did not assume any
responsibility for independent verification of any of such information.
Wasserstein Perella also relied upon the reasonableness and accuracy of the
financial projections, forecasts and analyses provided to Wasserstein Perella
by, or on behalf of, the Company, and Wasserstein Perella assumed, with the
consent of the Special Committee, that such projections, forecasts and
analyses were reasonably prepared in good faith and on bases reflecting the
best currently available judgments and estimates of the Company's management.
The Wasserstein Perella Opinion was prepared and delivered based upon
conditions as they existed and could be evaluated by Wasserstein Perella as of
the date thereof and based upon the Merger Agreement in the form provided to
Wasserstein Perella prior to rendering the Wasserstein Perella Opinion. The
Wasserstein Perella Opinion is based on the assumption that the transactions
contemplated by the Merger Agreement (in the form provided to Wasserstein
Perella) will be consummated on the terms set forth therein. Neither the
Special Committee nor the Company has requested Wasserstein Perella to update
or reaffirm the Wasserstein Perella Opinion, and Wasserstein Perella has no
obligation to do so.
At the August 13, 1997 meeting of the Special Committee, Wasserstein Perella
reviewed with the members of the Special Committee certain financial, industry
and market information with respect to the Company and the procedures used in
preparing, and the analyses underlying, the Wasserstein Perella Opinion. In
connection with its presentation to the Special Committee, Wasserstein Perella
provided the members of such Committee with written materials summarizing such
information, procedures and analyses. A copy of the materials provided to the
Special Committee on August 13, 1997 is attached as an exhibit to the Schedule
13E-3. See "Available Information." The materials are also available for
inspection and copying at the principal offices of the Company during the
Company's regular business hours by any interested holder of Common Stock or
such holder's representative who has been so designated in writing. The
summary set forth below does not purport to be a complete description of the
Wasserstein Perella Opinion or Wasserstein Perella's analysis as set forth in
the exhibit to the Schedule 13E-3. Interested stockholders are encouraged to
review the Wasserstein Perella Opinion in its entirety and to obtain a copy of
the Wasserstein Perella materials for a more complete description of the
procedures used and the analysis underlying the Wasserstein Perella Opinion.
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The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial and comparative
analysis and the application of those methods to the particular circumstances,
and therefore such an opinion is not readily susceptible to summary
description. Furthermore, in arriving at its opinion and making its
presentation to the Special Committee, Wasserstein Perella did not attribute
any particular weight to any analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Wasserstein Perella believes that its
analyses must be considered as a whole and that considering any portions of
such analyses and of the factors considered, without considering all analyses
and factors, could create a misleading or incomplete view of the process
underlying its opinion. In performing its analysis for the Wasserstein Perella
Opinion, Wasserstein Perella relied on numerous assumptions made by the
Company's management and made numerous judgments of its own with regard to the
Company's performance, industry performance, general business and economic
conditions and other matters, many of which are beyond the Company's ability
to control. Any estimates contained in such analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested in the Wasserstein Perella materials. In
addition, analyses relating to values of companies do not purport to be
appraisals or to reflect the prices at which companies may actually be sold.
Since such estimates are inherently subject to uncertainty, none of the
Company, Wasserstein Perella or any other person assumes responsibility for
their accuracy.
In delivering the Wasserstein Perella Opinion and making its presentation to
the Special Committee, representatives of Wasserstein Perella considered and
discussed various financial and other matters that it deemed relevant. General
valuation considerations deemed to be relevant by Wasserstein Perella include,
without limitation, those outlined in the Wasserstein Perella materials, such
as: (i) the Funds' ownership in the aggregate of approximately 80% of the
outstanding shares of Common Stock and their effective control of the Company;
(ii) the trading history of the publicly traded shares of Common Stock; (iii)
the sale by the Company on August 5, 1997 of substantially all of its customer
accounts receivable to Household Bank (Nevada), N.A. for net proceeds of
approximately $70 million (the "Receivables Sale"); (iv) the lack of publicly
available analysts' research regarding the Company (other than from Wheat
First); (v) the lack of indications of interest in pursuing an acquisition of
the Company from potential strategic and financial buyers contacted by
Wasserstein Perella; (vi) the uncertain outlook for the Company's operations
in the Cleveland, Ohio market; (vii) the cyclicality of the retail furniture
industry; (viii) the summary financial projections for the Company prepared by
the Company's management in connection with the Merger (the "Management Case")
and provided to Wasserstein Perella; (ix) certain store-by-store analyses
developed by Wasserstein Perella which contemplated both an "upside" scenario
(the "Upside Case") and a "downside" scenario (the "Downside Case"); and (x)
the Funds' ability to pursue certain alternatives to a negotiated transaction.
The financial analyses underlying the Wasserstein Perella Opinion are
outlined in the Wasserstein Perella materials and are summarized below. The
materials contain reference ranges for implied values per share of Common
Stock, which were, in turn, derived from reference ranges of total enterprise
value for the Company, based on Wasserstein Perella's judgment of the data
analyzed. Wasserstein Perella performed three types of analyses in determining
the total enterprise value of the Company: a Comparable Companies analysis, a
Comparable Acquisitions analysis, and a Discounted Cash Flow analysis. In each
case, Wasserstein Perella gave effect to the Receivables Sale as if it
occurred at the beginning of the Company's 1997 fiscal year. For the
Comparable Companies analysis and the Comparable Acquisitions analysis, this
resulted in the following adjustments to the Company's results of operation
for, and financial condition as of the end of, such fiscal year: net debt was
decreased by $70.0 million, earnings before interest, taxes, depreciation and
amortization ("EBITDA") and earnings before interest and taxes ("EBIT") were
reduced by $1.9 million, net income was increased by $1.3 million (reflecting
the $1.9 million decrease in EBITDA offset by interest income of $4.2 million
on the incremental cash balance, the net amount being tax-affected at 43%) and
book value was increased by $1.3 million (to reflect the $1.3 million increase
in net income for the period). For the Discounted Cash Flow analysis, net debt
of the Company as of the end of fiscal 1997 was decreased by $70.0 million.
The adjustments to net debt, EBITDA and EBIT were provided by the Company's
management, while the adjustments to net
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income and book value were estimated by Wasserstein Perella. The materials
also contain a control premium analysis performed by Wasserstein Perella.
Comparable Companies Analysis. Using publicly available information,
Wasserstein Perella compared selected financial data of the Company with
similar data of selected companies, the securities of which are publicly
traded and which are engaged in businesses that Wasserstein Perella believed
to be comparable in certain respects to that of the Company. Specifically,
Wasserstein Perella included in its review Ethan Allen Interiors, Inc.,
Haverty Furniture Companies, Inc., Heilig-Meyers Co., Levitz Furniture, Inc.,
Pier 1 Imports, Inc. and Roberds Inc. (the "Comparable Companies"). For each
of the Comparable Companies, Wasserstein Perella calculated the following
market trading multiples based on latest twelve months ("LTM") data as of July
29, 1997 and estimates for each of their respective next fiscal years ("Next
FY"): "Adjusted Market Value" (defined as total shares of common stock
outstanding times the closing price per share as of July 29, 1997 minus cash
and cash equivalents plus total debt, capitalized leases, preferred stock and
minority interest) as a multiple of EBITDA and EBIT; and "Market Value"
(defined as total shares outstanding times the closing price per share as of
July 29, 1997) as a multiple of net income and book value. Financial data with
respect to Next FY was based upon publicly available research analysts reports
and Wasserstein Perella estimates. Although Wasserstein Perella believes that
a control premium may be inappropriate in determining a value of a minority
interest in a company, such as the Public Stockholders' interest in the
Company, Wasserstein Perella noted that its Comparable Companies analysis was
prepared both with and without giving effect to any control premium that is
inherent in the acquisition of a controlling interest in a company. Based on
its application of the appropriate range of multiples to the relevant
financial information of the Company, Wasserstein Perella arrived at an
implied price per share of Common Stock of $21.39 to $30.58 and, as adjusted
to incorporate assumed control premiums (net of excess cash) of 20%, 30% and
40%, of $23.10 to $34.12, $23.95 to $35.90 and $24.81 to $37.67, respectively.
Because of inherent differences between the businesses, operations and
prospects of the Company and the businesses, operations and prospects of the
companies included in the Comparable Companies analysis, Wasserstein Perella
believed it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis, and accordingly also made qualitative
judgments concerning differences between the financial and operating
characteristics of the Company and the companies in the group of Comparable
Companies that would affect the public trading values of the Company and such
companies.
Comparable Acquisitions Analysis. Using publicly available information,
Wasserstein Perella compared selected financial data of the Company with
similar data of nine companies that have been acquired in the past ten years
and were engaged in businesses that Wasserstein Perella believed to be
relevant or comparable in certain respects to that of the Company (the
"Comparable Acquired Companies"). For each of the Comparable Acquired
Companies, Wasserstein Perella calculated the multiple of, among other things,
the "Adjusted Purchase Price" (defined as total shares of common stock
outstanding times the acquisition price per share minus cash and cash
equivalents plus total debt, capitalized leases, and preferred stock) to
sales, EBITDA and EBIT, and the "Equity Purchase Price" (defined as total
shares outstanding times the acquisition price per share) to net income and
book value for each such Comparable Acquired Company. Assuming it was publicly
available, all such multiples were based upon data for the Comparable Acquired
Companies for the LTM period prior to the time of announcement of the
respective acquisition. Based on the acquisition multiples for the Comparable
Acquired Companies, Wasserstein Perella arrived at an implied price per share
of Common Stock of $24.15 to $31.50. Wasserstein Perella believes that the
Adjusted Purchase Prices and Equity Purchase Prices for the Comparable
Acquired Companies include a control premium that is inherent in the
acquisition of a controlling interest in a company. Such implied price per
share of Common Stock would, therefore, incorporate a control premium that
Wasserstein Perella believes may be inappropriate in determining a value of a
minority interest in a company, such as the Public Stockholders' interest in
the Company. After adjusting such implied price per share to eliminate assumed
control premiums (net of excess cash) of 20%, 30% and 40%, Wasserstein Perella
arrived at an implied price per share of Common Stock of $22.27 to $28.39,
$21.54 to $27.20 and $20.92 to $26.17, respectively.
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Because the reasons for and circumstances surrounding each of the
acquisitions analyzed were specific to each acquisition, and because of
inherent differences between the businesses, operations and prospects of the
Company and the Comparable Acquired Companies, Wasserstein Perella believed it
was inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis, and accordingly also made qualitative judgments
concerning differences between the structures, terms and characteristics of
these acquisitions and the Merger and between the financial and operating
characteristics of the Company and the companies in the group of Comparable
Acquired Companies that would affect the acquisition values of the Company and
such acquired companies.
Discounted Cash Flow Analysis. Wasserstein Perella performed a discounted
cash flow analysis of the Company. The discounted cash flow analysis is based
on three sets of financial projections for the Company for the fiscal years
1998 through 2002: the Management Case, the Downside Case and the Upside Case.
The Management Case was derived from summary financial projections for the
Company prepared by the Company's management in connection with the Merger and
provided to Wasserstein Perella. The Downside Case and the Upside Case were
derived from the Management Case by modifying certain assumptions of the
Management Case. In performing its discounted cash flow analysis, Wasserstein
Perella considered various assumptions and applied valuation parameters that
it deemed appropriate to the Management Case, the Downside Case and the Upside
Case.
Wasserstein Perella reviewed with the Company's management the prospects and
risks associated with the Company's business to derive what it believes are
appropriate discount rates and terminal year EBITDA multiples. Based on this
review, Wasserstein Perella applied discount rates ranging from 10% to 16% and
terminal year EBITDA multiples of 5.0 through 8.0 to arrive at a range of
implied enterprise values for the Company and, in turn, implied prices per
share of Common Stock. Such terminal year EBITDA multiples reflect a sale of
the Company at the end of fiscal 2002. Wasserstein Perella believes that the
enterprise values implied by this methodology reflect, in part, a control
premium that, as discussed above, may be inappropriate in determining the
value of the Public Stockholders' interest in the Company. For the Management
Case, Wasserstein Perella arrived at an implied price per share of Common
Stock of $27.83 to $38.84 and, as adjusted to eliminate assumed control
premiums (net of excess cash) of 20%, 30% and 40%, of $25.33 to $34.51, $24.37
to $32.85 and $23.55 to $31.42, respectively. For the Downside Case,
Wasserstein Perella arrived at an implied price per share of Common Stock of
$24.81 to $33.53 and, as adjusted to eliminate assumed control premiums (net
of excess cash) of 20%, 30% and 40%, of $22.82 to $30.09, $22.06 to $28.76 and
$21.40 to $27.62, respectively. For the Upside Case, Wasserstein Perella
arrived at an implied price per share of Common Stock of $30.87 to $44.61 and,
as adjusted to eliminate assumed control premiums (net of excess cash) of 20%,
30% and 40%, of $27.87 to $39.32, $26.72 to $37.29 and $25.73 to $35.54,
respectively.
Control Premium Analysis. Using publicly available information, Wasserstein
Perella compared purchase price premiums for the Company based on stock
trading prices one day, one week and four weeks before the date of original
announcement of the acquisition transaction with similar data for selected
management buyout transactions (the "Selected Buyout Transactions") and for
selected transactions in which a majority stockholder or stockholders
purchased the remaining publicly held shares (the "Selected Minority Purchase
Transactions"). For the Selected Buyout Transactions, the mean transaction
premiums one day, one week and four weeks before the date of original
announcement of a transaction were 43.3%, 49.5% and 52.1%, respectively, while
the median transaction premiums were 38.5%, 40.6% and 45.1%, respectively. For
the Selected Minority Purchase Transactions, the mean transaction premiums one
day, one week and four weeks before the date of original announcement of a
transaction were 31.2%, 33.9% and 37.0%, respectively, while the median
transaction premiums were 22.6%, 23.6% and 28.8%, respectively. The
transaction premiums for the Company based on a price of $25.05 per share and
the relevant stock trading prices one day, one week and four weeks before the
date of original announcement of a possible transaction with the Funds were
27.6%, 33.6% and 27.2%, respectively.
In addition to the above outlined analyses, Wasserstein Perella performed
such other valuation analyses as it deemed appropriate in determining the
fairness from a financial point of view to the Public Stockholders of the
Merger Consideration. Wasserstein Perella concluded that, in its judgment,
including the full range of its
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analyses described above, the Merger Consideration was fair from a financial
point of view to the Public Stockholders. In reaching its conclusion that the
Merger Consideration was fair from a financial point of view to the Public
Stockholders, Wasserstein Perella included, among other things, the
contemplated receipt by the Company of the proceeds of the sale of the
accounts receivable in its total valuation of the Company. As the proposed
dividend of $67 million payable to the Funds would be a post-Merger event,
Wasserstein Perella did not believe such dividend to be relevant to its
analysis.
Wasserstein Perella is an investment banking firm engaged, among other
things, in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings and
secondary distributions of listed and unlisted securities and private
placements. Wasserstein Perella was selected to render its opinion regarding
the fairness of the consideration to be received by the Public Stockholders in
the Merger because it is a nationally recognized investment banking firm and
because of its experience in the valuation of companies, particularly in the
retail industry.
Terms of Wasserstein Perella's Engagement. Pursuant to the terms of an
engagement letter, dated as of July 17, 1997, the Company paid Wasserstein
Perella a retainer fee of $100,000 upon execution of the engagement letter.
The Company paid Wasserstein Perella an additional fee of $407,900 upon
Wasserstein Perella's rendering of an opinion to the Special Committee as to
the fairness of the Merger Consideration to the Public Stockholders. Such
$407,900 additional fee would also have been due and payable upon Wasserstein
Perella informing the Special Committee of its inability to render the
opinion. The Company also agreed to reimburse Wasserstein Perella for its out-
of-pocket expenses, including reasonable fees and disbursements of its
counsel. The Company agreed to indemnify Wasserstein Perella and its
affiliates, their respective directors, officers, partners, agents and
employees and each person, if any, controlling Wasserstein Perella or any of
its affiliates against certain liabilities and expenses, including certain
liabilities under the federal securities laws, relating to or arising out of
such engagement.
CONFLICT OF INTERESTS OF THE FUNDS, EXECUTIVE MANAGEMENT AND CERTAIN MEMBERS
OF THE BOARD OF DIRECTORS OF THE COMPANY IN THE MERGER
Currently, as the holders of an aggregate of approximately 80% of the
outstanding Common Stock, the Funds, acting together, effectively have the
power to determine the membership of the entire Board of Directors of the
Company. As of the Record Date, three individuals (James B. Rubin, Kim Z.
Golden and Robert C. Ruocco) who are affiliated with the Funds serve on the
Company's Board of Directors. In addition, as a result of their significant
ownership in the Company, the Funds, acting together, effectively have the
power to decide other matters submitted for stockholder approval.
If the Merger is consummated, M.D. Sass, T. Rowe Price and Carl Marks will
be the sole stockholders of the Surviving Corporation. It is expected that
following the Merger, the Funds will cause the Surviving Corporation to
declare a dividend in the aggregate amount of approximately $67 million to be
distributed pro rata to the Funds based on their relative ownership of the
Surviving Corporation. See "--Future Plans of the Company."
The members of Executive Management, Mr. Rosenberg, who is also a director,
Mr. Halper and Mr. McGeough, own certain stock options that will entitle them
to cash payments in the amounts of $3,022,849, $2,185,355 and $2,185,355,
respectively, on the same terms as will all other optionholders of the
Company. Additionally, as executive management of the Surviving Corporation,
Messrs. Rosenberg, Halper and McGeough will receive options to purchase
approximately 6.5%, 5.5% and 5.5%, respectively, on a fully diluted basis, in
the Surviving Corporation. See "Option Cancellation Information." Accordingly,
the Funds and the members of Executive Management, have a direct economic
interest in the Merger.
This creates a conflict of interest for the members of the Company's Board
of Directors who are affiliated with the Funds and Mr. Rosenberg in making the
determination whether the Merger is in the best interests of the Company and
the Public Stockholders. In light of these inherent conflicts of interest, the
Board of Directors of the Company appointed the Special Committee comprised
solely of Board members who are not affiliated with
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the Funds and are not officers of the Company (but who will receive cash in
exchange for their stock options upon consummation of the Merger). In
addition, the Funds-affiliated and management directors abstained from
evaluating and voting on the Merger.
Mr. McGeough also beneficially owns 6,000 shares representing 0.13% of
Common Stock, which Mr. McGeough will vote in favor of the Merger Agreement.
See "Security Ownership of Certain Beneficial Owners and Management--Security
Ownership of Management." No recommendation has been made by Mr. McGeough to
the Public Stockholders to vote to approve the Merger Agreement. If the Merger
is consummated, Mr. McGeough will receive $150,300 in respect of such shares.
In addition, it is anticipated that the Surviving Corporation will enter
into employment agreements with Mr. Rosenberg, Mr. Halper and Mr. McGeough on
terms comparable to their current employment agreements with the Company.
Additionally, Messrs. Alperin and Peraldo, the two directors who are neither
affiliates of the Funds nor officers of the Company and are the members of the
Special Committee, currently have options to purchase Common Stock. If the
Merger is consummated, Messrs. Alperin and Peraldo will each receive $66,880.
See "Option Cancellation Information."
In making its determination with respect to the Merger Proposal in
accordance with its fiduciary duties to the Public Stockholders, the Special
Committee and the Board of Directors considered the actual conflicts of
interest of certain of the Board's members, along with the other matters
described under "--Determination of Fairness of the Merger by the Special
Committee and the Board of Directors."
CERTAIN EFFECTS OF THE MERGER
Following the Merger, the Funds will own 100% of the Surviving Corporation's
outstanding capital stock, and will have a 100% interest in the net book value
and net earnings of the Surviving Corporation ($84,559,372 and $3,270,451,
respectively, which is approximately 80% of the Company's net book value and
net earnings based on the audited financial statements of the Company as of
April 30, 1997). The Funds will be the sole beneficiary of any future earnings
and growth of the Surviving Corporation (until shares of capital stock, if
any, are issued to other stockholders, or options of officers or directors in
the Surviving Corporation are exercised) and will have the ability to benefit
from any divestitures, strategic acquisitions or other corporate opportunities
that may be pursued by the Company in the future. Upon the consummation of the
Merger, the Public Stockholders will cease to have any ownership interest in
the Company or rights as stockholders. The Public Stockholders will no longer
benefit from any increases in the value of the Company or the payment of
dividends on the Common Stock and will no longer bear the risk of any
decreases in value of the Company.
As a result of the Merger, the Surviving Corporation will be privately held
and there will be no public market for its common stock. Upon consummation of
the Merger, the Common Stock will cease to be quoted on the Nasdaq National
Market. In addition, registration of the Common Stock under the Exchange Act
will be terminated, and accordingly, the Company will no longer be required to
file periodic reports with the SEC.
The Company believes that the Merger will be treated for Federal income tax
purposes as a redemption of the Common Stock held by the Public Stockholders
and, therefore, will not give rise to gain, loss or other income to the
Company or to Newco. The Company will be entitled to deduct amounts paid in
cancellation of options. At present, certain of the Company's tax loss
carryforwards and certain other tax benefits of the Company are subject to an
annual limitation equal to $3,040,000 on the amount of such tax attributes
that can be utilized by the Company. The consummation of the Merger will not
cause the Company's tax loss carryforwards or certain other tax benefits or
such annual limitations to be further limited. However, future transactions
with respect to common stock of the Surviving Corporation by the Surviving
Corporation, the Funds or other stockholders of the Surviving Corporation and
changes in the composition of the Funds could result in additional
limitations.
All employee benefit and compensation plans of the Surviving Corporation
will be substantially the same as the Company's present benefit plans for a
period of at least one year. The Surviving Corporation may determine to
initiate additional employee benefit plans in the future to compensate and
motivate key employees.
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FUTURE PLANS OF THE COMPANY
It is expected that, following the Merger, the business and operations of
the Company will be continued by the Company, as the Surviving Corporation in
the Merger, substantially as they are currently being conducted. However, the
Funds and the management of the Surviving Corporation will continue to
evaluate the Company's business and operations after the consummation of the
Merger and make such changes as are deemed appropriate. The Company's
corporate headquarters is expected to remain at its current location in
Woodbury, New York.
Except as otherwise indicated in this Proxy Statement, the Funds do not have
any present plans or proposals subsequent to the Merger which relate to or
would result in an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company, a sale or transfer of a
material amount of assets of the Company or any material change in the
Company's corporate structure. However, it is expected that following the
Merger, the Funds will cause the Surviving Corporation to declare a dividend
in the aggregate amount of approximately $67 million (the "Dividend") to be
distributed pro rata to the Funds. While the payment of the Dividend, the
payment of the Merger Consideration, the payment of expenses of the Merger
transaction and other anticipated balance sheet adjustments which will impact
stockholders' equity are expected to result in a stockholders' equity of
approximately $5 million in the Surviving Corporation, the Funds and the
Executive Management believe that an inherent value of approximately $28.8
million is being contributed to the Surviving Corporation, based on, in the
case of the Funds, the approximately $24 million difference between the value
of their shares in the Company prior to the Merger (approximately $91 million
based on a per share price of $25.05) and the anticipated Dividend and, in the
case of senior management, the approximately $4.8 million of in-the-money
value (based on a per share price of $25.05) for options which are not being
cashed out in the Merger but are being cancelled and for which senior
management is being issued new options in the Surviving Corporation entitling
senior management to purchase shares representing 19.3% of the common stock of
the Surviving Corporation on a fully diluted basis at exercise prices ranging
from $1.00 to $32.19 per share. The actual amount of the Dividend as well as
the actual amount of the in-the-money value for options which are not being
cashed out in the Merger will be determined after the Effective Time and will
depend on the actual transaction expenses and availability of borrowings to
the Surviving Corporation. See "Estimated Fees and Expenses; Sources of
Funds."
26
<PAGE>
RIGHTS OF DISSENTING STOCKHOLDERS
The following summary does not purport to be a complete statement of the
provisions of Delaware law relating to the appraisal rights of stockholders
and is qualified in its entirety by reference to the provisions of Section 262
of the Delaware General Corporation Law set forth in full as Appendix C to
this Proxy Statement.
Holders of record of shares of Common Stock (each a "Share") who comply with
the applicable procedures summarized herein will be entitled to appraisal
rights under Section 262 of the Delaware General Corporation Law. A person
having a beneficial interest in shares of Common Stock held of record in the
name of another person, such as a broker or nominee, must act promptly to
cause the record holder to follow the steps summarized below properly and in a
timely manner to perfect appraisal rights.
ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY TO A "STOCKHOLDER" ARE TO
THE RECORD HOLDER OF SHARES OF COMMON STOCK AS TO WHICH APPRAISAL RIGHTS ARE
ASSERTED. VOTING AGAINST, ABSTAINING FROM VOTING OR FAILING TO VOTE ON
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT WILL NOT CONSTITUTE A DEMAND FOR
APPRAISAL WITHIN THE MEANING OF SECTION 262 OF THE DELAWARE GENERAL
CORPORATION LAW.
Stockholders who follow the procedures set forth in Section 262 may receive,
in lieu of the $25.05 cash per share of Common Stock to be paid in the Merger,
a cash payment equal to the "fair value" of their Shares, exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, if any, as determined by the Court of
Chancery. Such fair value is to be determined by judicial appraisal and could
be more than, the same as, or less than, the Merger Consideration. The
statutory right of appraisal granted by Section 262 is subject to strict
compliance with the procedures set forth below. Failure to follow any of these
procedures may result in a termination or waiver of appraisal rights under
Section 262.
To be entitled to receive payment of the fair value of the shares of Common
Stock, a stockholder (i) must file a written demand for appraisal of his or
her shares of Common Stock with the Company prior to the voting by
stockholders on the Merger Agreement at the Meeting (such demand must
reasonably inform the Company of the identity of the stockholder and that the
stockholder intends thereby to demand an appraisal of his or her shares of
Common Stock); (ii) must not vote his or her shares of Common Stock in favor
of approval and adoption of the Merger Agreement; and (iii) must have his or
her shares of Common Stock valued in an appraisal proceeding, as described
below. A proxy or vote against approval and adoption of the Merger Agreement
will not satisfy the requirement that a stockholder file a written demand for
appraisal as set forth above. The requirement of a written demand is separate
from, and should not be confused with, the requirement that a stockholder not
vote in favor of approval and adoption of the Merger Agreement. A failure to
vote on the Merger Agreement will not be construed as a vote in favor of
approval and adoption of the Merger Agreement and will not constitute a waiver
of a stockholder's rights of appraisal. A stockholder who returns a signed
proxy indicating that he or she abstains from voting will similarly not waive
his or her rights of appraisal. However, because a proxy signed and left blank
will, unless properly revoked, be voted in favor of approval and adoption of
the Merger Agreement, a stockholder who returns a signed proxy left blank will
waive his or her rights of appraisal. Therefore, a stockholder electing to
exercise appraisal rights who votes by proxy must not leave his or her proxy
blank, but must either vote against approval and adoption of the Merger
Agreement or abstain from voting.
A holder of shares of Common Stock wishing to exercise such holder's
appraisal rights must be the record holder of such shares of Common Stock on
the date the written demand for appraisal is made and must continue to hold
such Shares of record until the Effective Time of the Merger. Accordingly, a
holder of shares of Common Stock who is the record holder of shares of Common
Stock on the date the written demand for appraisal is made, but who thereafter
transfers such Shares prior to the Effective Time of the Merger, will lose any
right to appraisal in respect of such shares of Common Stock.
27
<PAGE>
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder
or record, fully and correctly, as such holder's name appears on such holder's
stock certificates. If the shares of Common Stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and if the shares of Common Stock
are owned of record by more than one person as in a joint tenancy or tenancy
in common, the demand should be executed by or on behalf of all joint owners.
An authorized agent, including an agent for two or more joint owners, may
execute a demand for appraisal on behalf of a holder of record; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is agent for such owner or owners. A
record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares
held for one or more beneficial owners while not exercising such rights with
respect to the shares held for other beneficial owners; in such case, the
written demand should set forth the number of shares as to which appraisal is
sought, and where no number of shares of Common Stock is expressly mentioned
the demand will be presumed to cover all shares of Common Stock held in the
name of the record owner. Stockholders who hold their shares of Common Stock
in brokerage accounts or other nominee forms and who wish to exercise
appraisal rights are urged to consult with their brokers to determine the
appropriate procedures for the making of a demand for appraisal by such a
nominee.
If the Merger Agreement is approved and adopted by the stockholders, the
Company or the Surviving Corporation, as the case may be, will send a notice,
either before the Effective Time or within ten days thereafter, stating that
appraisal rights are available to each stockholder who has filed an adequate
written demand for appraisal with the Company and who has not voted in favor
of approval and adoption of the Merger Agreement. Within 120 days after the
Effective Time, the Company or any stockholder seeking appraisal rights may
file a petition in the Court of Chancery demanding a determination of the
value of the shares of Common Stock of all stockholders seeking appraisal
rights. The Company is under no obligation, and has no present intention, to
file such a petition, and all stockholders seeking to exercise appraisal
rights should initiate all necessary action with respect to the perfection of
their appraisal rights within the time periods and in the manner prescribed in
Section 262. Within 120 days after the Effective Time, any stockholder who has
complied with the provisions of Section 262, upon written request, shall be
entitled to receive from the Company a statement setting forth the aggregate
number of Shares not voted in favor of approval and adoption of the Merger
Agreement and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares of Common Stock. Such
written statement must be mailed to any such stockholder within ten days after
his or her written request for such a statement is received by the Company or
within ten days after expiration of the period for delivery of demands for
appraisal under Section 262(d), whichever is later.
If a petition for appraisal is timely filed, the Court of Chancery will
conduct a hearing on such petition to determine whether the stockholders
seeking appraisal rights have complied with Section 262 and have thereby
become entitled to appraisal rights. The Court of Chancery will then determine
the fair value of the shares of Common Stock exclusive of any element of value
arising from the expectation or accomplishment of the Merger, but including a
fair rate of interest, if any, to be paid on the amount determined to be the
fair value. In determining fair value, the Court of Chancery is to take into
account all relevant factors. Stockholders considering appraisal should bear
in mind that the fair market value of their Shares determined under Section
262 could be more than, the same as, or less than, the consideration they will
receive pursuant to the Merger Agreement if they do not seek appraisal of
their shares of Common Stock, and that the written opinion of Wasserstein
Perella set forth as Annex B hereto is not necessarily an opinion regarding
fair value under Section 262. The Delaware Supreme Court has stated that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court"
should be considered in the appraisal proceedings.
The Chancery Court will determine the amount of interest, if any, to be paid
upon the amounts to be received by persons whose Shares have been appraised.
The costs of the appraisal proceeding may be assessed against one or more
parties to the proceeding as the Court of Chancery may consider equitable.
Upon application
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<PAGE>
by a stockholder, the Court of Chancery may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceedings (including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts) to be charged pro rata against the value of all
of the Shares entitled to an appraisal.
A stockholder will fail to perfect his or her right of appraisal if he or
she (i) does not deliver a written demand for appraisal to the Company prior
to the vote for approval and adoption of the Merger Agreement, (ii) votes his
or her Shares in favor of approval and adoption of the Merger Agreement, (iii)
does not file a petition for appraisal within 120 days after the Effective
Time, or (iv) delivers to the Company both a written withdrawal of his or her
demand for appraisal and an acceptance of the terms of the Merger Agreement,
except that any such attempt to withdraw such demand not made within 60 days
after the Effective Time requires the written approval of the Company. If any
stockholder who properly demands appraisal of such stockholder's shares of
Common Stock under Section 262 fails to perfect, or effectively withdraws or
loses, such stockholder's right to appraisal as provided in (iii) or (iv)
above, the shares of Common Stock of such stockholder will be converted into
the right to receive the Merger Consideration receivable with respect to such
shares of Common Stock in accordance with the Merger Agreement.
If an appraisal proceeding is properly instituted, such proceeding may not
be dismissed as to any stockholder who has perfected his or her right of
appraisal without the approval of the Court of Chancery, and any such approval
may be conditioned on such terms as the Court of Chancery deems just.
After the Effective Time, no stockholder who has demanded appraisal rights
will be entitled to vote his or her Shares for any purpose or to receive
dividends on, or other distributions in respect of, such shares of Common
Stock (except dividends or distributions payable to stockholders as of a
record date prior to the Effective Time).
Delaware courts have decided that the statutory appraisal remedy, depending
on factual circumstances, may or may not be a dissenter's exclusive remedy.
Several decisions by the Delaware courts have held that a controlling
stockholder of a company involved in a merger has a fiduciary duty to the
other stockholders which requires that the merger be "entirely fair" to such
other stockholders. In determining whether a merger is fair to minority
stockholders, the Delaware courts have considered, among other things, the
type and amount of consideration to be received by stockholders and whether
there was fair dealing among the parties. The Delaware Supreme Court stated in
Weinberger v. UOP, Inc., 457 A.2d 701, 714 (1983), that although the remedy
ordinarily available in a merger that is found not to be "fair" to minority
stockholders is the right to appraisal described above, such appraisal remedy
may not be adequate "in certain cases, particularly where fraud,
misrepresentation, self-dealing, deliberate waste of corporate assets, or
gross and palpable overreaching are involved," and that in such cases the
Chancery Court would be free to fashion any form of appropriate relief.
FAILURE BY A STOCKHOLDER TO FOLLOW THE STEPS REQUIRED BY DELAWARE LAW FOR
PERFECTING RIGHTS OF APPRAISAL MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN VIEW
OF THE COMPLEXITY OF THESE PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW,
STOCKHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND EXERCISING THEIR RIGHTS UNDER SECTION 262 SHOULD
CONSULT THEIR LEGAL ADVISORS.
All written communications from stockholders with respect to the exercise of
appraisal rights should be mailed to Seaman Furniture Company, 300 Crossways
Park Drive, Woodbury, New York 11797, Attention: Secretary.
29
<PAGE>
ESTIMATED FEES AND EXPENSES; SOURCES OF FUNDS
Estimated fees and expenses incurred or to be incurred by the Company, Newco
and the Funds in connection with the Merger Agreement and the transactions
contemplated thereby are approximately as follows:
<TABLE>
<S> <C>
Payment of Merger Consideration (1)............................. $22,658,426
Consideration payable to option holders (2)..................... 8,840,630
Financial advisory fees and expenses (3)........................ 1,100,000
Legal fees and expenses (4)..................................... 750,000
Accounting fees and expenses.................................... 100,000
SEC filing fees................................................. 9,546
Printing and mailing expenses................................... 20,000
Paying Agent fees and expenses.................................. 10,000
Miscellaneous Expenses.......................................... 210,500
-----------
Total......................................................... 33,699,102
===========
</TABLE>
--------
(1) Includes payment for all outstanding shares of Common Stock other than
those owned by Newco and the Company's Subsidiaries.
(2) Consists of cash consideration equal to $25.05 per share less the
exercise price of options (which ranges from $5.01 to $21.00 per share)
held by current employees and directors of the Company, to purchase
shares of Common Stock of the Company (exclusive of shares the value
for which are being retained in the Surviving Corporation). See "Option
Cancellation Information" for such consideration to be paid to the
Company's executive officers.
(3) Includes the fees and estimated expenses of Wasserstein Perella and
Wheat First. See "Special Factors--Opinion of Financial Advisor to the
Special Committee; Summary of Financial Analyses" and""--Position of
the Funds and Executive Management as to Fairness."
(4) Includes the estimated fees and expenses of legal counsel for the
Special Committee, legal counsel for Wasserstein Perella and legal
counsel for the Funds.
The total amount required to pay the Merger Consideration, the consideration
to be paid to option holders, and the expenses incident to the Merger
Agreement and the consummation of the transactions contemplated thereby will
be paid from the proceeds generated by the sale of substantially all of the
Company's accounts receivable to Household Bank (Nevada), N.A. on August 5,
1997. Additional proceeds from such sale of the accounts receivable and
borrowings under a line of credit from Heller Financial, Inc. will be used by
the Surviving Corporation to pay a special dividend to the Funds. See "Special
Factors--Future Plans for the Company."
The Company entered into a commitment letter dated August 27, 1997 with
Heller Business Credit, a division of Heller Financial, Inc., to provide a
five-year term loan in an aggregate principal amount of $10 million at an
interest rate equal to Heller's floating "base rate" or LIBOR plus 2.00% and a
five-year revolving credit facility in an aggregate principal amount of up to
$25 million at an interest rate equal to Heller's "base rate" plus 0.75% or
LIBOR plus 2.75%. The obligations under both of these loan facilities will be
collateralized by eligible inventory, general intangibles and leasehold
interests of the Company. It is expected that final documentation for such
loan will be consummated at the Effective Time and that the Company will have
availability of up to $16 million under the revolving credit line subject to
inventory levels. There are currently no plans to repay such loans prior to
maturity.
Each party will pay its own expenses relating to the Merger whether or not
the Merger is consummated, except that the expenses incurred in connection
with printing and mailing the Proxy Statement will be shared equally by the
Company and Newco. In addition, in certain circumstances, one party may be
responsible for the payment of expenses of the other party. See "The Merger
Agreement--Expenses."
30
<PAGE>
RECENT DEVELOPMENTS
On August 5, 1997, the Company consummated the sale of substantially all of
its customer accounts receivable to Household Bank (Nevada), N.A.
("Household") for net proceeds of approximately $70 million. In connection
therewith, the Company also entered into a Merchant Agreement with Household,
dated August 1, 1997 with an effective date of August 5, 1997, pursuant to
which Household will provide revolving credit financing to individual
qualified customers of the Company through issuance of a credit card. The
Company has terminated its Service Agreement with SPS Payment Systems, Inc.
which had provided services since April 1994 with regard to the Company's
proprietary credit card program.
The Company also terminated on July 30, 1997 its Revolving Credit and
Security Agreement with BNY Financial Corporation and Fleet Bank, N.A., which
agreement was collateralized primarily by the Company's customer accounts
receivable.
The Company entered into a commitment letter dated August 27, 1997 with
Heller Business Credit, a division of Heller Financial, Inc., to provide a
five-year term loan in an aggregate principal amount of $10 million and a
five-year revolving credit facility in an aggregate principal amount of up to
$25 million collateralized by eligible inventory, general intangibles and
leasehold interests of the Company. It is expected that final documentation
for the loan will be consummated at the Effective Time and that the Company
will have availability of up to $16 million under the revolving credit line
subject to inventory levels.
THE MERGER AGREEMENT
The following discussion is a summary of the material provisions of the
Merger Agreement. This summary and all other discussions of the terms and
conditions of the Merger and the Merger Agreement included elsewhere in this
Proxy Statement are qualified in their entirety by reference to the Merger
Agreement, a copy of which is attached as Appendix A to this Proxy Statement
and incorporated by reference herein. Capitalized terms used but not defined
herein have the meanings ascribed to such terms in the Merger Agreement.
THE MERGER
On the terms and subject to the conditions of the Merger Agreement, at the
Effective Time (as defined herein) Newco will be merged with and into the
Company in accordance with the applicable provisions of the DGCL and the
separate corporate existence of Newco will thereupon cease and the Company
will be the surviving corporation (as such, the "Surviving Corporation") under
the corporate name it possesses immediately prior to the Effective Time. The
Merger will have the effects specified in the DGCL.
EFFECTIVE TIME
Within two business days after the date on which the last of the conditions
set forth in the Merger Agreement is satisfied or waived, Newco and the
Company will cause a certificate of merger to be filed with the Secretary of
State of the State of Delaware as provided in the DGCL. Upon completion of
such filing, the Merger will become effective in accordance with the DGCL. The
time and date on which the Merger becomes effective is herein referred to as
the "Effective Time."
CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION
The Merger Agreement provides that the certificate of incorporation and by-
laws of the Surviving Corporation to be in effect from and after the Effective
Time until amended in accordance with their terms and the DGCL will be the
certificate of incorporation and by-laws, respectively, of the Company
immediately prior to the Effective Time, as amended and restated, to be in the
forms attached to the Merger Agreement as Exhibits A and B, respectively.
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<PAGE>
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
The Merger Agreement provides that the initial directors of the Surviving
Corporation will be the members of the Board of Directors of the Company
immediately prior to the Effective Time and the officers of the Surviving
Corporation will consist of the officers of the Company immediately prior to
the Effective Time. Such persons will continue as directors or officers, as
the case may be, of the Surviving Corporation until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation, or removal in accordance with the certificate of incorporation
and by-laws of the Surviving Corporation.
CONVERSION OF SECURITIES IN THE MERGER; TREATMENT OF OPTIONS
The Merger Agreement provides that, at the Effective Time, (i) each share of
Common Stock (collectively, the "Company Common Shares") issued and
outstanding immediately prior to the Effective Time, other than as described
in clause (iii) and other than Dissenting Shares (as defined below), will, by
virtue of the Merger and without any action on the part of the holders
thereof, be converted into the right to receive $25.05 per share in cash (the
"Merger Consideration"); (ii) all Company Common Shares to be converted into
the Merger Consideration pursuant to clause (i) will, by virtue of the Merger
and without any action on the part of the holders thereof, cease to be
outstanding, be cancelled and retired and cease to exist, and each holder of a
certificate previously representing any such Company Common Shares will
thereafter cease to have any rights with respect to such Company Common
Shares, except the right to receive for each of the Company Common Shares,
upon the surrender of such certificate in accordance with the terms of the
Merger Agreement, the Merger Consideration, without any interest thereon;
(iii) each Company Common Share issued and outstanding and owned by the
Company as treasury stock or owned by any of Newco or any of the Company's
Subsidiaries (as defined below) immediately prior to the Effective Time will,
by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be cancelled and retired without payment of
any Merger Consideration therefor and cease to exist; (iv) each share of Class
A common stock, par value $.01 per share, and Class B common stock, par value
$0.01 per share, or any fraction of a share of such class of common stock, of
Newco issued and outstanding immediately prior to the Effective Time will, by
virtue of the Merger and without any action on the part of Newco or the holder
thereof, be converted into one share of Class A or Class B common stock, par
value $0.01 per share, respectively, of the Surviving Corporation or any
fraction thereof ("Surviving Common Shares"); and (v) all notes and other debt
instruments of the Company which are outstanding at the Effective Time shall
continue to be outstanding subsequent to the Effective Time as debt
instruments of the Surviving Corporation, subject to their respective terms
and provisions. The word "Subsidiary," when used with respect to any party,
means any corporation or other organization, whether incorporated or
unincorporated, of which such party directly or indirectly owns or controls at
least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the board of directors or others
performing similar functions.
At the Effective Time, each outstanding option, whether exercisable or
unexercisable, to purchase Company Common Shares (each, an "Option") shall be
treated as follows:
(i) Each unexpired Option to purchase Company Common Shares that is
outstanding and exercisable at the Effective Time and has an exercise price
of $25.05 or less ("In-the-Money"), other than those held by Messrs.
Halper, McGeough and Rosenberg, will no longer be exercisable for the
purchase of Company Common Shares but shall entitle each holder thereof, in
cancellation and in settlement therefor, to payment in cash (subject to
applicable withholding payments, the "Cash Payment") at the Effective Time
equal to the product of (x) the total number of Company Common Shares
subject to such Option which is vested and (y) the excess of the Merger
Consideration over the exercise price per Company Common Share subject to
such Option.
(ii) Each unexpired Option to purchase Company Common Shares that is
outstanding and In-the-Money but not exercisable at the Effective Time,
held by members of middle management specified in the Merger Agreement
("Mid-Management"), will no longer be exercisable for the purchase of
Company Common Shares but shall entitle each holder thereof in cancellation
and in settlement therefor, to the Cash
32
<PAGE>
Payment at the Effective Time equal to the product of (x) the total number
of Company Common Shares subject to such Option and (y) the excess of the
Merger Consideration over the exercise price per Company Common Share
subject to such Option.
(iii) Each unexpired Option to purchase Company Common Shares that is
outstanding and In-the-Money but not exercisable at the Effective Time,
other than those held by Messrs. Halper, McGeough and Rosenberg and by
members of Mid-Management, will no longer be exercisable for the purchase
of Company Common Shares but shall entitle the holder thereof at the
Effective Time, in cancellation and settlement therefor, to the issuance of
immediately exercisable options to purchase, on substantially the same
terms and conditions as were applicable under such Option immediately prior
to the Effective Time, options to purchase in the aggregate 8,245 Surviving
Common Shares, with an exercise price of $1.00 per Surviving Common Share,
based upon an assigned In-the-Money value of $244,796.00 in the aggregate.
(iv) Each unexpired Option to purchase Company Common Shares that is
outstanding and In-the-Money, other than those with an exercise price of
$24.50 per share, whether or not exercisable at the Effective Time, held by
Messrs. Halper, McGeough and Rosenberg, will no longer be exercisable for
the purchase of Company Common Shares but shall entitle each of Messrs.
Halper, McGeough and Rosenberg, in cancellation and in settlement thereof
at the Effective Time, to (A) the issuance of immediately exercisable
options to purchase 48,184, 48,184 and 58,200 Surviving Common Shares,
respectively, with an exercise price of $1.00 per Surviving Common Share,
and (B) the payment of $2,185,355, $2,185,355 and $3,022,849 in cash,
respectively.
(v) Each unexpired Option to purchase Company Common Shares that is
outstanding with an exercise price of $24.50 per share, whether or not
exercisable at the Effective Time, held by Messrs. Halper, McGeough and
Rosenberg, will no longer be exercisable for the purchase of Company Common
Shares but shall entitle each of Messrs. Halper, McGeough and Rosenberg, in
cancellation and in settlement thereof at the Effective Time, to the
issuance of options to purchase 3,182, 3,182 and 3,636 Surviving Common
Shares, respectively, with an exercise price of $28.17 per Surviving Common
Share.
(vi) Each unexpired Option to purchase Company Common Shares that is
outstanding with an exercise price of $28.00 per share, whether or not
exercisable at the Effective Time, held by Messrs. Halper, McGeough and
Rosenberg, will no longer be exercisable for the purchase of Company Common
Shares but shall entitle each of Messrs. Halper, McGeough and Rosenberg, in
cancellation and in settlement thereof at the Effective Time, to the
issuance of options to purchase 3,182, 3,182 and 3,636 Surviving Common
Shares, respectively, with an exercise price of $32.19 per Surviving Common
Share.
(vii) Each of the provisions of clauses (iii), (iv), (v) and (vi) above,
assume (x) the issuance of one million Surviving Common Shares on a fully
diluted basis including the stock options described above and (y) an
inherent value of $28.8 million in the Surviving Corporation. Such inherent
value is based upon the assumption that at the Effective Time (A) the
amount of the dividend to be paid will be $67,000,000, (B) the Company will
have available cash of $75,000,000, (C) borrowings available from Heller
will aggregate $26,000,000, and (D) expenses of the transaction will be
$2,500,000. Any change in any of the assumptions or the number of issued
Surviving Common Shares will result in a proportionate change in the
exercise price, number of options and cash received, as the case may be.
(viii) Each Cash Payment to be paid to each holder of an outstanding
Option pursuant to this Section will be paid at the Effective Time. The
Surviving Corporation will not issue any fractional Surviving Common Shares
upon the exercise of any Option and any right in respect thereof will,
without further action, be forfeited.
(ix) After the Effective Time, Newco will issue to each holder of an
Option to be issued pursuant to the terms of the Merger Agreement a
document evidencing the foregoing agreement.
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<PAGE>
PAYMENT FOR AND SURRENDER OF COMPANY COMMON SHARES
At the Effective Time, Newco or the Surviving Corporation, as the case may
be, will deposit with such bank or trust company designated by Newco and
reasonably acceptable to the Company (the "Paying Agent"), for the benefit of
the holders of Company Common Shares, cash equal to the total aggregate Merger
Consideration (being hereinafter referred to as the "Payment Fund"). The
Paying Agent will, pursuant to irrevocable instructions, deliver the Merger
Consideration out of the Payment Fund, and, except as described herein, the
Payment Fund will not be used for any other purpose. The Company will act as
paying agent with respect to payments to holders of Options pursuant to
Section 3.1(f).
Promptly after the Effective Time, the Paying Agent will mail to each holder
of record (other than the Company, Newco or any of the Company's Subsidiaries)
of a certificate or certificates which immediately prior to the Effective Time
represented outstanding Company Common Shares (the "Certificates") (i) a form
of letter of transmittal (which will specify that delivery will be effected,
and risk of loss and title to the Certificates will pass, only upon proper
delivery of the Certificates to the Paying Agent) and (ii) instructions for
use in effecting the surrender of the Certificates for payment therefor. Upon
surrender of Certificates for cancellation to the Paying Agent, together with
such letter of transmittal duly executed and any other required documents, the
holder of such Certificates will be entitled to receive for each of the
Company Common Shares represented by such Certificates the Merger
Consideration, and the Certificates so surrendered will promptly be cancelled.
Until so surrendered, Certificates will represent solely the right to receive
the Merger Consideration. No dividends or other distributions that are
payable, if any, after the Effective Time to holders of record of Certificates
will be paid to persons entitled by reason of the Merger to receive the Merger
Consideration until such persons surrender their Certificates. Upon such
surrender, there will be paid to the registered holders of Certificates
surrendered such dividends or other distributions, if any, on the appropriate
payment date.
In no event will the persons entitled to receive such dividends or other
distributions be entitled to receive interest on such dividends or other
distributions. If any Merger Consideration is to be paid to a person whose
name is a name other than that in which the Certificate surrendered in
exchange therefor is registered, it will be a condition of such exchange that
the Certificate so surrendered be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange pay to the
Paying Agent any transfer or other taxes required by reason of the payment of
such Merger Consideration in a name other than that of the registered holder
of the Certificate surrendered, or establish to the satisfaction of the Paying
Agent that such tax has been paid or is not applicable. In the event 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, the Paying Agent will issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration deliverable in
respect thereof as determined in accordance with the Merger Agreement,
provided that the person to whom the Merger Consideration is paid shall, as a
condition precedent to the payment thereof, give the Surviving Corporation a
bond in such sum as it may direct or otherwise indemnify the Surviving
Corporation in a manner satisfactory to it against any claim that may be made
against the Surviving Corporation with respect to the Certificate claimed to
have been lost, stolen or destroyed.
Any portion of the Payment Fund or the cash made available to the Paying
Agent pursuant to the Merger Agreement which remains unclaimed by the former
stockholders of the Company for 180 days after the Effective Time will be
delivered to the Surviving Corporation and any former stockholders of the
Company will thereafter look only to the Surviving Corporation for payment of
their claim for the Merger Consideration for the Company Common Shares.
Neither Newco, the Surviving Corporation nor the Paying Agent shall be
liable to any holder of Company Common Shares for such shares (or dividends or
distributions with respect thereto) or cash from the Payment Fund (or from the
Surviving Corporation after the Payment Fund has terminated) delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. At such time as any amounts remaining unclaimed by holders of any
such shares would otherwise escheat to or become property of any governmental
or regulatory authority, domestic or foreign (a "Governmental Entity"), such
amounts shall, to the extent permitted by applicable law, become the property
of the Surviving Corporation free and clear of any claims or interest of any
such holders or their successors, assigns or personal representatives
previously entitled thereto.
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CLOSING OF STOCK TRANSFER RECORDS
At the Effective Time, the stock transfer books of the Company will be
closed and there shall be no further registration of transfers of shares of
Company Common Stock thereafter or on the records of the Company.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. These include representations and warranties by the Company
with respect to corporate existence, good standing, corporate authority,
authorization, validity and effect of the Merger Agreement, capitalization,
Subsidiaries and interests in other entities, conflicts, required filings and
consents, state takeover statutes, finder's fees and brokerage commissions,
and the receipt of a fairness opinion of the financial advisor. Newco has also
made certain representations and warranties with respect to corporate
existence, good standing, corporate authority, authorization, validity and
effect of the Merger Agreement, capitalization, Subsidiaries, conflicts,
finder's fees and brokerage commissions and the formation of Newco pursuant to
the Merger Agreement.
ALTERNATIVE PROPOSALS
Under the Merger Agreement, the Company has agreed to cease any existing
activities, discussions or negotiations with any parties conducted
theretofore. The Company has agreed that, prior to the Effective Time, neither
it nor any of its Subsidiaries will, nor will it or any of its Subsidiaries
permit their respective officers, directors, employees, agents and
representatives (including, without limitation, any investment banker,
attorney or accountant retained by it or any of its Subsidiaries) to,
initiate, solicit or encourage, directly or indirectly, any Alternative
Proposal (as defined below) or, except as set forth below, engage in any
negotiations concerning, or provide any confidential information or data to,
or have any discussions with, any person relating to an Alternative Proposal,
or otherwise facilitate any effort or attempt to make or implement an
Alternative Proposal. An "Alternative Proposal" means, other than the
transactions contemplated by the Merger Agreement, the receipt by the Company
of any inquiries or the making or implementation of any proposal or offer
(including without limitation any proposal or offer to its stockholders) with
respect to a merger, acquisition, consolidation or similar transaction
involving any purchase of all or any significant portion of the assets of the
Company or any of its Subsidiaries. Notwithstanding the foregoing, in the
event the Company receives an unsolicited written proposal or written offer
with respect to an Alternative Proposal, the Board of Directors of the Company
shall be entitled, solely to the extent it has been advised (i) by its outside
counsel that a failure to do so would violate its fiduciary obligations under
applicable law and (ii) by its financial advisor that the Alternative Proposal
is financially superior to the Merger and the transactions contemplated
thereby, to review and participate in negotiations concerning such proposal
and furnish relevant information concerning the Company to the offeror;
provided that (A) the Company shall have furnished, or concurrently with the
provision of such information to such offeror shall furnish, Newco with all
such information provided to such offeror and (B) the offeror executes a
confidentiality agreement with the Company. The Company shall notify Newco
promptly of any such unsolicited Alternative Proposal, or any inquiry or
contact with any person with respect thereto. In addition, in the event (i)
the Company enters into negotiations with respect to an unsolicited
Alternative Proposal or (ii) the Company's Board of Directors shall withdraw
its approval of the Merger Agreement and the transactions contemplated thereby
or its recommendation to the stockholders of the Company to approve the same,
then the Company shall immediately deliver an additional notice of such events
to Newco. Nothing in the Merger Agreement relating to Alternative Proposals
will (x) permit the Company to terminate the Merger Agreement, (y) permit the
Company to enter into any agreement with respect to an Alternative Proposal
for as long as the Merger Agreement remains in effect (it being agreed that
for as long as the Merger Agreement remains in effect, the Company will not
enter into any agreement with any person that provides for, or in any way
facilitates, an Alternative Proposal except as otherwise permitted in the
Merger Agreement), or (z) affect any other obligation of the Company under the
Merger Agreement.
INTERIM OPERATIONS OF THE COMPANY
Pursuant to the Merger Agreement, the Company has agreed that, prior to the
Effective Time, except as contemplated by any other provision of the Merger
Agreement, the Company (i) will, and will cause each of its
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Subsidiaries to, conduct its operations in the ordinary and normal course,
consistent with past practice; (ii) will use its reasonable best efforts, and
will cause each of its Subsidiaries to use its reasonable best efforts, to
preserve intact their business organizations and goodwill, keep available the
services of their respective officers and employees, and maintain satisfactory
relationships with those persons having business relationships with them;
(iii) will not amend its certificate of incorporation or by-laws or comparable
governing instruments; (iv) will, upon the occurrence of any event or change
in circumstances as a result of which any representation or warranty of the
Company contained in the Merger Agreement would be untrue or incorrect if such
representation or warranty were made immediately following the occurrence of
such event or change in circumstance, promptly (and in any event within two
business days of an executive officer of the Company obtaining knowledge
thereof) notify Newco thereof; (v) will promptly deliver to Newco true and
correct copies of any report, statement, or schedule filed by the Company with
the SEC subsequent to the date of the Merger Agreement; (vi) will not (a)
except pursuant to the exercise of options, warrants, or other rights be
subscribed for, securities or rights convertible into or exchangeable for, or
contracts, commitments or arrangements by which the Company is or may be
required to sell additional shares of the Company's capital stock ("Company
Equity Rights"), in each case existing on the date of the Merger Agreement and
disclosed pursuant to the Merger Agreement, issue any shares of its capital
stock, effect any stock split, or otherwise change its capitalization as it
existed on the date of the Merger Agreement, (b) grant, confer, or award any
option, warrant, conversion right, or other Company Equity Rights not existing
on the date of the Merger Agreement, (c) grant, confer, or award any bonuses
or other forms of incentive compensation to any officer, director, or key
employee except for cash bonuses or incentives consistent with past practice
or under any existing agreement, (d) increase any compensation under any
employment agreement with any of its present or future officers, directors, or
employees, except for normal increases for officers and employees consistent
with past practice or the terms of such employment agreement, (e) grant any
severance or termination pay to, or enter into any employment, severance or
termination agreement with any officer, director, or employee or amend any
such agreement in any material respect other than severance arrangements
consistent with past practice with respect to officers and employees
terminated by the Company, or (f) adopt any new employee benefit plan or
program (including any stock option, stock benefit, or stock purchase plan) or
amend any existing employee benefit plan or program in any material respect;
(vii) will not (a) declare, set aside, or pay any dividend or make any other
distribution or payment with respect to any shares of its capital stock or
other ownership interests or (b) directly or indirectly redeem, purchase, or
otherwise acquire any shares of its capital stock or capital stock of any of
its Subsidiaries, or make any commitment for any such action; (viii) will not,
and will not permit any of its Subsidiaries to, sell, lease, or otherwise
dispose of any of its assets (including capital stock of Subsidiaries) or
acquire any business or assets, except for (a) any purchase of inventory in
the ordinary course of business, (b) a sale of a portion or all of the
approximately 16 acres of undeveloped land located in Bridgeport, New Jersey,
or (c) in the ordinary course of business and for an amount not exceeding
$1,000,000 in the aggregate; (ix) will not incur any material amount of
indebtedness for borrowed money or make any loans, advances, or capital
contributions to, or investments (other than non-controlling investments in
the ordinary course of business) in, any other person other than a wholly
owned Subsidiary of the Company, or issue or sell any debt securities, other
than borrowings under existing lines of credit in the ordinary course of
business other than the senior credit facility being negotiated with Heller
Business Credit, a division of Heller Financial, Inc. ("Heller"), in the
aggregate principal amount of up to $35,000,000; (x) will not, except pursuant
to and in accordance with the capital budget disclosed to Newco prior to the
date of the Merger Agreement, authorize, commit to, or make capital
expenditures; (xi) will not mortgage or otherwise encumber or subject to any
lien any properties or assets except for such of the foregoing as are in the
ordinary course of business and would not be reasonably likely to have,
individually or in the aggregate, a material adverse effect on the business,
assets, results of operations, or financial condition of the Company and its
Subsidiaries taken as a whole (a "Material Adverse Effect"); (xii) will not
enter into or agree to enter into any contract without the prior written
consent of Newco unless such contract is entered into by the Company for (a)
the sale of the Company's accounts receivable to Household Bank (Nevada), N.A.
("Household"), (b) any purchase of inventory undertaken in the ordinary course
of business, (c) the sale of accounts receivable that are more than 180 days
past due, or (d) any other contract in the ordinary course of business and the
total payments by the Company contemplated thereby do not exceed $1,000,000
and have a term of no longer than one year; (xiii) will maintain insurance
consistent with past practices for its businesses and properties; (xiv) will
not make any change
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to its accounting (including tax accounting) methods, principles, or
practices, except as may be required by generally accepted accounting
principles and except, in the case of tax accounting methods, principles, or
practices, in the ordinary course of business of the Company or any of its
Subsidiaries; and (xv) will not take or agree in writing or otherwise to take
any action which would make any of the representations or warranties of the
Company contained in the Merger Agreement untrue or incorrect or prevent the
Company from performing or cause the Company not to perform its covenants
contained in the Merger Agreement.
CERTAIN FILINGS AND OTHER ACTIONS
The Company and Newco have agreed, subject to the terms and conditions
provided in the Merger Agreement, that they will use all reasonable efforts to
cooperate with one another in (a) determining which filings are required to be
made prior to the Effective Time with, and which consents, approvals, permits
or authorizations are required to be obtained prior to the Effective Time
from, governmental or regulatory authorities of the United States, the several
states and foreign jurisdictions in connection with the execution and delivery
of the Merger Agreement and the consummation of the transactions contemplated
thereby and (b) timely making all such filings and timely seeking all such
consents, approvals, permits or authorizations, including this Proxy Statement
and information required by Schedule 13E-3; and (c) use all reasonable efforts
to take, or cause to be taken, all other action and do, or cause to be done,
all other things necessary, proper or appropriate to consummate and make
effective the transactions contemplated by the Merger Agreement. If, at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purpose of the Merger Agreement, the proper officers and
directors of the parties will take all such necessary action.
ACCESS TO INFORMATION
The Company has agreed that, from the date of the Merger Agreement to the
Effective Time, it will (a) allow all designated officers, attorneys,
accountants and other representatives of Newco reasonable access at all
reasonable times upon reasonable notice to the offices, records and files,
correspondence, audits and properties, as well as to all information relating
to commitments, contracts, titles and financial position, or otherwise
pertaining to the business and affairs, of the Company and its Subsidiaries,
as the case may be, (b) furnish to Newco, Newco's counsel, financial advisors,
auditors and other authorized representatives such financial and operating
data and other information as such persons may reasonably request, (c)
instruct the employees, counsel and financial advisors of the Company to
cooperate with the other in the other's investigation of the business of it
and its Subsidiaries and (d) keep Newco fully apprised and informed of all
significant developments with respect to the assets, business activities,
financial condition, earnings and prospects of the Company and its
Subsidiaries. Newco will be permitted to make extracts from or to make copies
of such books and records as may be reasonably necessary.
Insurance; Indemnity. The Merger Agreement provides that, from and after the
Effective Time, the Surviving Corporation will indemnify, defend and hold
harmless, to the fullest extent that the Company would be required under its
certificate of incorporation, by-laws, indemnification agreements with its
officers and directors (the "Indemnification Agreements") and applicable law,
each person who is now or was during the past six months prior to the date of
the Merger Agreement an officer or director of the Company (individually, an
"Indemnified Party" and collectively, the "Indemnified Parties"), against all
losses, claims, damages, liabilities, costs or expenses (including attorneys'
fees), judgments, fines, penalties and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation arising
out of or pertaining to acts or omissions, or alleged acts or omissions, by
them in their capacities as such occurring at or prior to the Effective Time.
In the event of any such claim, action, suit, proceeding or investigation (an
"Action"), any Indemnified Party wishing to claim indemnification will
promptly notify the Surviving Corporation thereof (provided that failure to so
notify the Surviving Corporation will not affect the obligations of the
Surviving Corporation to provide indemnification except to the extent that the
Surviving Corporation shall have been prejudiced as a result of such failure).
With respect to any Action for which indemnification is requested, the
Surviving Corporation will be entitled to participate therein at its own
expense and, except as otherwise provided below, to the extent that it may
wish, the Surviving Corporation may assume the defense thereof, with counsel
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reasonably satisfactory to the Indemnified Party. After notice from the
Surviving Corporation to the Indemnified Party of its election to assume the
defense of an Action, the Surviving Corporation will not be liable to the
Indemnified Party for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof, other than as
provided below. The Surviving Corporation will not settle any Actions without
the consent of the Indemnified Party where such settlement includes an
admission of civil or criminal liability on behalf of an officer or director
or requires any payment to be made by the Indemnified Party. The Indemnified
Party will have the right to employ counsel in any Action, but the fees and
expenses of such counsel incurred after notice from the Surviving Corporation
of its assumption of the defense thereof will be at the expense of the
Indemnified Party, unless (i) the employment of counsel by the Indemnified
Party has been authorized by the Surviving Corporation in writing, (ii) the
Indemnified Party will have reasonably concluded upon the advice of counsel
that there may be a conflict of interest between the Indemnified Party and the
Surviving Corporation in the conduct of the defense of an Action, or (iii) the
Surviving Corporation shall not in fact have employed counsel to assume the
defense of an Action, in each of which cases the reasonable fees and expenses
of counsel selected by the Indemnified Party will be at the expense of the
Surviving Corporation. Notwithstanding the foregoing, the Surviving
Corporation will not be liable for any settlement effected without its written
consent and the Surviving Corporation will not be obligated pursuant to the
Merger Agreement to pay the fees and disbursements of more than one counsel
(including local counsel) for all Indemnified Parties in any single Action,
except to the extent two or more of such Indemnified Parties have conflicting
interests in the outcome of such action. In the event of any conflict between
the provisions of the Indemnification Agreements and the indemnification
provisions of the Merger Agreement, the provisions of the Indemnification
Agreements shall prevail.
For a period of four years after the Effective Time, the Surviving
Corporation will maintain officers' and directors' liability insurance
covering the Indemnified Parties who are currently covered, in their
capacities as officers and directors, by the Company's existing officers' and
directors' liability insurance policies on terms substantially no less
advantageous to the Indemnified Parties than such existing insurance;
provided, however, that the Surviving Corporation will not be required in
order to maintain or procure such coverage to pay premiums on an annualized
basis in excess of 200% of the current annual premium paid by the Company for
its existing coverage (the "Cap") (which current annual premium the Company
represents and warrants to be approximately $135,000); and provided, further,
that if equivalent coverage cannot be obtained, or can be obtained only by
paying an annual premium in excess of the Cap, the Surviving Corporation will
only be required to obtain as much coverage as can be obtained by paying
premiums on an annualized basis equal to the Cap.
Employee Benefits. The Merger Agreement provides that, notwithstanding
anything to the contrary contained therein, from and after the Effective Time
the Surviving Corporation will have sole discretion over the hiring,
promotion, retention and firing of employees of the Surviving Corporation.
Notwithstanding the immediately preceding sentence, the Surviving Corporation
will (i) satisfy all obligations of the Company or any of its Subsidiaries
under any existing severance agreement between the Company or any of its
Subsidiaries and any of their officers or employees and (ii) until the
expiration of one year after the Effective Time, satisfy all obligations of
the Company or any of its Subsidiaries under their current respective
severance policies. The Surviving Corporation will provide for the benefit of
employees of the Surviving Corporation who were employees of the Company
immediately prior to the Effective Time "employee benefit plans" within the
meaning of Section 3(3) of ERISA (a) until the expiration of one year after
the Effective Time, that are, in the aggregate, substantially comparable to
the "employee benefit plans" provided to such individuals by the Company or
any Subsidiary on the date of the Merger Agreement, and (b) thereafter that
are, at the election of the Surviving Corporation, either (i) in the
aggregate, substantially comparable to the "employee benefit plans" provided
to such individuals by the Company or any Subsidiary on the date of the Merger
Agreement or (ii) in the aggregate, substantially comparable to the "employee
benefit plans" provided to similarly situated employees of the Surviving
Corporation or its Subsidiaries who were not employees of the Company or any
Subsidiary immediately prior to the Effective Time; provided, however, that
notwithstanding the foregoing (A) nothing in the Merger Agreement will be
deemed to require the Surviving Corporation to modify the benefit formulas
under any pension, profit sharing or savings plan of the Company or any
Subsidiary in a manner that
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increases the aggregate expenses thereof as of the date of the Merger
Agreement in order to comply with the requirements of ERISA or the Code, (B)
employee stock ownership, stock bonus, stock option and similar equity-based
plans, programs and arrangements of the Company or any of its Subsidiaries are
not encompassed within the meaning of the term "employee benefit plans," and
(C) nothing in the Merger Agreement will obligate the Surviving Corporation to
continue any particular "employee benefit plan" for any period after the
Effective Time.
CONDITIONS
Conditions to Each Party's Obligation To Effect the Merger. Under the Merger
Agreement, the respective obligations of each party to effect the Merger will
be subject to the fulfillment of the following conditions: (i) the Merger
Agreement and the transactions contemplated thereby shall have been approved
in the manner required by applicable law by the holders of the issued and
outstanding shares of capital stock of the Company; (ii) neither of the
parties thereto shall be subject to any order or injunction of a court of
competent jurisdiction which prohibits the consummation of the transactions
contemplated by the Merger Agreement. In the event any such order or
injunction shall have been issued, each party agrees to use its reasonable
best efforts to have any such injunction lifted; (iii) the Company shall have
(a) consummated the sale of its accounts receivable to Household and (b)
executed definitive documentation in connection with the senior credit
facility with Heller and shall have sufficient availability thereunder to
consummate the Merger; and (iv) all consents, authorizations, orders and
approvals of (or filings or registrations with) any Governmental Entity
required in connection with the execution, delivery and performance of the
Merger Agreement shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be filed after
the Effective Time and except where the failure to have obtained or made any
such consent, authorization, order, approval, filing or registration would not
have a material adverse effect on the business, financial condition or results
of operations of the Surviving Corporation following the Effective Time.
Conditions to Obligation of the Company To Effect the Merger. Under the
Merger Agreement, the obligation of the Company to effect the Merger will be
subject to the fulfillment of the following additional conditions: (i) (a) the
representations and warranties of Newco contained in the Merger Agreement
shall have been true and correct in all material respects as of the date of
the Merger Agreement and (b) the representations and warranties of Newco
contained in the Merger Agreement and in any document delivered in connection
therewith shall be true and correct in all material respects as of the Closing
Date, except (I) for changes specifically permitted by the Merger Agreement
and (II) that those representations and warranties which address matters only
as of a particular date shall remain true and correct in all material respects
as of such date; (ii) Newco shall have performed or complied in all material
respects with all agreements and conditions contained in the Merger Agreement
required to be performed or complied with by it on or prior to the Closing
Date; (iii) Newco shall have delivered to the Company a certificate, dated the
date of the Closing, signed by the President or any Vice President of Newco,
certifying as to the fulfillment of the conditions specified in clauses (i)
and (ii) above; and (iv) Newco shall have obtained all material consents,
waivers, approvals, authorizations or orders and made all filings required in
connection with the authorization, execution and delivery of the Merger
Agreement by Newco and the consummation by each of the transactions
contemplated by the Merger Agreement.
Conditions to Obligation of Newco to Effect the Merger. Under the Merger
Agreement, the obligations of Newco to effect the Merger will be subject to
the fulfillment of the following additional conditions: (i) (a) the
representations and warranties of the Company contained in the Merger
Agreement shall have been true and correct in all material respects as of the
date of the Merger Agreement and (b) the representations and warranties of the
Company contained in the Merger Agreement and in any document delivered in
connection therewith shall be true and correct in all material respects as of
the Closing Date, except (I) for changes specifically permitted by the Merger
Agreement and (II) that those representations and warranties which address
matters only as of a particular date shall remain true and correct in all
material respects as of such date; (ii) the Company shall have performed or
complied in all material respects with all agreements and conditions contained
in the Merger Agreement required to be performed or complied with by it on or
prior to the Closing Date, unless such failure to perform or comply is due to
any act by, or omission of, any member of the Funds or senior management;
(iii)
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the Company shall have delivered to Newco a certificate, dated the date of the
Closing, signed by the President or any Vice President of the Company,
certifying as to the fulfillment of the conditions specified in clauses (i)
and (ii) above; (iv) from the date of the Merger Agreement through the
Effective Time, there shall not have occurred any material adverse change in
the business, properties, financial condition or results of operation of the
Company or any of its Subsidiaries; (v) the Company shall have obtained all
material consents, waivers, approvals, authorizations or orders and made all
filings required in connection with the authorization, execution and delivery
of the Merger Agreement by the Company and the consummation by it of the
transactions contemplated thereby; and (vi) the Company or the Board of
Directors of the Company shall have taken any action needed to be taken to
provide that options issued pursuant to the Company Stock Plan will be treated
as described under "The Merger Agreement--Conversion of Securities in the
Merger; Treatment of Options."
TERMINATION
Termination by Mutual Consent. The Merger Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the
Merger by the stockholders of the Company or Newco, by the mutual written
consent of the Company and Newco or by mutual action of their respective Board
of Directors.
Termination by Either the Company or Newco. The Merger Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger (i) by either the Company or Newco if (a) any Governmental
Entity shall have issued any injunction or taken any other action permanently
restraining, enjoining or otherwise prohibiting the consummation of the Merger
or such injunction or other action shall have become final and nonappealable,
or (b) any required approval of the stockholders of the Company shall not have
been obtained by reason of the failure to obtain the required vote upon a vote
held at a duly held meeting of stockholders or at any adjournment thereof or
(ii) by either the Company or Newco, so long as such party has not breached
its obligations under the Merger Agreement, if the Merger shall not have been
consummated on or before December 31, 1997; provided, that the right to
terminate the Merger Agreement under this clause (ii) shall not be available
to any party to the Merger Agreement whose failure to fulfill any obligation
under the Merger Agreement has been the cause of or resulted in the failure of
the Merger to occur on or before such date.
Termination by the Company. The Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the
Merger by the Company (i) if there has been a material breach of the Merger
Agreement on the part of Newco with respect to any of its covenants,
representations or warranties contained therein and such breach has not been
cured within 10 business days after written notice thereof from the Company or
(ii) as required to discharge the fiduciary obligations of the Company's Board
of Directors under applicable law as advised in writing by counsel and/or its
financial advisors.
Termination by Newco. The Merger Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after the approval by the matters presented in connection with the Merger by
Newco if (i) there has been a material breach of the Merger Agreement on the
part of the Company with respect to any of its covenants, representations or
warranties contained therein and such breach has not been cured within 10
business days after written notice thereof from Newco; or (ii) the Board of
Directors of the Company (a) shall have withdrawn or modified, in any manner
which is adverse to Newco, its recommendation or approval of the Merger or the
Merger Agreement or shall have resolved to do so or (b) shall have recommended
to the stockholders of the Company any Alternative Proposal or any transaction
described in the definition of Alternative Proposal, or shall have resolved to
do so.
Effect of Termination and Abandonment. In the event of termination of the
Merger Agreement by either the Company or Newco, the Merger Agreement shall
become void and there shall be no liability or obligation on the part of Newco
or the Company or their respective affiliates, officers, directors or
stockholders (except (i) with respect to the obligations of the parties to the
Merger Agreement with respect to the payment of expenses
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and (ii) to the extent that such termination results from the willful breach
by a party to the Merger Agreement of any of its representations or
warranties, or any of the covenants and agreements contained in the Merger
Agreement). If the Merger Agreement is terminated pursuant to the clause (i)
(due to any act by or omission of, any member of the special committee) or
(ii) under "The Merger--Termination by Newco" or clause (ii) under "The
Merger--Termination by the Company," and such termination was not due to any
act by, or omission of, any member of the Funds or any member of senior
management (not including the act of termination), then the Company shall pay
(or reimburse) all fees, costs and expenses (including fees and expenses of
accountants, attorneys and other advisors to Newco) incurred by or on behalf
of Newco in connection with the Merger, the Merger Agreement and the
transactions contemplated thereby.
EXPENSES
The Merger Agreement provides that, whether or not the Merger is
consummated, all costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated by the Merger Agreement will be
paid by the party incurring such expenses except as otherwise expressly
provided in the Merger Agreement and except that the expenses incurred in
connection with printing and mailing this Proxy Statement will be shared
equally by the Company and Newco. In addition, in the event that the Merger
Agreement is terminated by Newco because the Company has breached any of its
representations or warranties contained therein and/or failed to fulfill or
perform any of its covenants or agreements contained therein, and such breach
or failure is due to any act by or omission of, the Funds or any member of
senior management, then Newco shall pay (or reimburse) all fees, costs and
expenses (including fees, and expenses of accountants, attorneys and other
advisors to the Company) incurred by the Company in connection with the
Merger, the Merger Agreement and the transactions contemplated thereby.
AMENDMENT
The Merger Agreement may be amended by the parties thereto at any time
before or after approval of matters presented in connection with the Merger by
the stockholders of the Company but after any such stockholder approval, no
amendment will be made which by law requires the further approval of such
stockholders without obtaining such further approval. The Merger Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties thereto.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes certain United States Federal income tax
consequences of the Merger to stockholders of the Company other than the
Funds. It is based upon laws, regulations (whether final, temporary, or
proposed), rulings and judicial decisions now in effect, all of which are
subject to change, possibly with retroactive effect. It does not address all
aspects of Federal income taxation that may be relevant to a particular
stockholder in light of that stockholder's personal circumstances, nor does it
address Federal income tax consequences to types of taxpayers subject to
special treatment under the Federal income tax laws (e.g., life insurance
companies, tax exempt organizations, foreign taxpayers, securities dealers,
and persons who have entered into hedging transactions with respect to the
Common Stock or who hold the Common Stock as part of a conversion transaction
or straddle), nor does it address any aspect of state, local, foreign or other
tax laws. It is assumed that the shares of Common Stock are held as capital
assets by a United States person (i.e., a citizen or resident of the United
States or a domestic corporation). The Company has not requested any ruling
from the Internal Revenue Service with respect to the Merger.
The receipt of cash for Common Stock pursuant to the Merger will be a
taxable transaction to the Public Stockholders for Federal income tax purposes
under the Internal Revenue Code of 1986, as amended (the "Code"), and also may
be a taxable transaction under applicable state, local, foreign and other tax
laws. In general, for Federal income tax purposes, a stockholder will
recognize gain (or loss) equal to the amount by which the cash received in
exchange for the Common Stock exceeds (or is exceeded by) the tax basis for
such Common Stock. Such gain or loss will be capital gain or loss. In the case
of individuals and certain other
41
<PAGE>
noncorporate taxpayers, such gain will be subject to maximum Federal income
tax rates of 20% for Common Stock held for more than 18 months and 28% for
Common Stock held for more than one year but for not more than 18 months. The
same maximum rates apply for purposes of the alternative minimum tax.
The foregoing discussion may not be applicable to stockholders who acquired
their Common Stock pursuant to the exercise of options or other compensation
arrangements or who are not citizens or residents of the United States or who
are otherwise subject to special tax treatment under the Code.
Cash payments to stockholders pursuant to the Merger may be subject to a
backup withholding tax at a rate of 31% on the gross amount of such payments
unless the stockholder has complied with certain reporting and/or
certification procedures. The Letter of Transmittal, which will be sent to the
former stockholders of the Company following the Effective Time if the Merger
is consummated, will include a substitute Form W-9 on which stockholders can
provide the information required to avoid the backup withholding provisions of
Federal income tax law. Any amount withheld from a stockholder under the
backup withholding rules will be allowed as a credit against such
stockholder's Federal income tax liability and may entitle the stockholder to
a refund, provided that the required information is timely furnished to the
Internal Revenue Service. Stockholders should consult their tax advisors
regarding the application of information reporting and backup withholding in
their particular circumstances and the availability of an exemption therefrom
if the stockholders cannot or do not make the certifications required by the
substitute Form W-9.
THE FOREGOING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER IS INCLUDED FOR GENERAL INFORMATION ONLY. EACH STOCKHOLDER IS URGED
TO CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER IN VIEW OF THE STOCKHOLDER'S
OWN PARTICULAR CIRCUMSTANCES.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for as a "purchase", as that term is used under
generally accepted accounting principles, for accounting and financial
reporting purposes.
REGULATORY APPROVALS
No federal or state regulatory approvals are required to be obtained, nor
are any regulatory requirements required to be complied with, in connection
with consummation of the Merger by any party to the Merger Agreement.
MARKET INFORMATION
The Common Stock is traded on the Nasdaq National Market. The following
table sets forth (as reported by Nasdaq National Market) for the periods
indicated the prices of the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW CLOSE
FISCAL 1998 ------ ------ ------
<S> <C> <C> <C>
1st Quarter............................................. 23 1/2 18 1/2 23
<CAPTION>
HIGH LOW CLOSE
FISCAL 1997 ------ ------ ------
<S> <C> <C> <C>
4th Quarter............................................. 20 1/4 19 19 1/2
3rd Quarter............................................. 21 1/4 18 1/4 20
2nd Quarter............................................. 21 1/4 16 7/8 18 1/2
<CAPTION>
HIGH LOW CLOSE
FISCAL 1996 ------ ------ ------
<S> <C> <C> <C>
4th Quarter............................................. 19 3/4 15 18 1/2
3rd Quarter............................................. 19 1/2 17 1/2 18 3/8
2nd Quarter............................................. 19 3/4 16 3/4 19 3/4
1st Quarter............................................. 21 18 3/4 18 3/4
</TABLE>
42
<PAGE>
These quotations reflect inter-dealer prices, without retail markups,
markdowns or commissions.
On July 7, 1997, the last full trading day on which shares of stock traded
prior to the public announcement of the proposed Merger, the only trade was
made at $19.75 share of Common Stock. On November 12, 1997, the most recent
date on which shares of stock traded prior to the printing of this Proxy
Statement, the last reported sales price quoted by Nasdaq was $23.00 per share
of Common Stock. As of the Record Date, there were 251 holders of record of
Common Stock of the Company. The Company's stockholders are urged to obtain a
current market quotation for the Common Stock.
The Merger Consideration represents a 26.8% premium over the closing sale
price on July 7, 1997, the last date in which the Common Stock traded prior to
the public announcement of the Merger.
The Company has never paid any cash dividends on its Common Stock.
43
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following tables furnish information as of August 15, 1997 as to: (i)
shares of Company Common Stock beneficially owned by any person owning
beneficially more than five percent (5%) of the outstanding shares; and (ii)
shares of Company Common Stock beneficially owned by each director of the
Company and shares of Company Common Stock beneficially owned by all directors
and officers of the Company, as a group. (Except as indicated hereinafter, all
such shares are beneficially owned directly by the person indicated in the
table.)
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
------------------- ----------------------- --------
<S> <C> <C>
M.D. Sass Associates, Inc. .................. 1,726,361(2) 38.1%(2)
c/o Sass Lamle Rubin & Co.
1185 Ave. of the Americas
New York, NY 10036
T. Rowe Price Recovery Fund, L.P. ........... 967,900(3) 21.3%(3)
100 Pratt Street
Baltimore, MD 21202
Carl Marks Management Co., L.P. ............. 938,050(4) 20.7%(4)
135 E. 57th St.
New York, NY 10022
</TABLE>
- --------
(1) Each beneficial owner has sole voting and investment power, with respect
to the shares listed, unless otherwise indicated.
(2) M.D. Sass Associates, Inc. exercises voting power and investment power
over these shares on behalf of certain client accounts and accounts
managed by its affiliates with which such powers are shared. Additionally,
M.D. Sass employees and affiliates have an indirect beneficial interest in
certain of the client entities which own these shares. M.D. Sass disclaims
beneficial ownership of shares owned by its clients. James B. Rubin shares
voting and investment power in the above shares as a principal in M.D.
Sass's restructured securities activities and with respect to shares
included in the above total held by him as trustee for a defined
contribution plan. Mr. Rubin disclaims beneficial ownership of these
shares.
(3) Represents shares owned of record and beneficially by T. Rowe Price
Recovery Fund, L.P. ("Recovery Fund") directly. T. Rowe Price Recovery
Fund Associates, Inc. ("Associates"), as the general partner of Recovery
Fund, has the power to vote and dispose of such shares, and Kim Golden, as
Executive Vice President of Associates, has the authority to act on behalf
of Associates as to the voting and disposition of such shares.
Accordingly, Associates and Mr. Golden share investment power with
Recovery Fund as to the shares and may be deemed to be beneficial owners
of the shares owned directly by Recovery Fund. Each of Associates and Mr.
Golden disclaims beneficial ownership of the shares.
(4) Represents 891,250 shares beneficially owned directly by two investment
partnerships, of which Carl Marks is sole General Partner. The two general
partners of Carl Marks, Messrs. Andrew M. Boas and Robert C. Ruocco, share
the power to direct the voting and disposition of such shares.
Accordingly, such shares may be deemed to be beneficially owned by both
Carl Marks and by Messrs. Boas and Ruocco. In addition, an account managed
by an affiliate of Carl Marks owns beneficially 46,800 shares of Common
Stock, which shares may also be deemed to be beneficially owned by Messrs.
Boas and Ruocco.
44
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
NME AND ADDRESSA AMOUNT AND NATURE OF PERCENT
OFBENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------- ----------------------- --------
<S> <C> <C>
Barry J. Alperin............................ 8,000(2) 0.2%(2)
Kim Z. Golden............................... 967,900(3) 21.3%(3)
Steven H. Halper............................ 178,056(4) 3.4%(4)
Peter McGeough.............................. 184,056(5) 3.5%(5)
Leo Peraldo................................. 8,000(6) 0.2%(6)
Alan Rosenberg.............................. 228,520(7) 4.4%(7)
James B. Rubin.............................. 1,726,361(8) 38.1%(8)
Robert C. Ruocco............................ 938,050(9) 20.7%(9)
Total Shares Owned by Directors and
Executive Officers as a Group
(13 individuals)........................... 4,323,145(10) 93.4%(10)
</TABLE>
- --------
(1) Each beneficial owner has sole voting and investment power with respect
to the shares listed, unless otherwise indicated.
(2) All of the 8,000 shares beneficially owned by Mr. Alperin are shares to
which Mr. Alperin has the right to acquire beneficial ownership through
the exercise of stock options.
(3) These securities are owned by the Recovery Fund; voting and dispositive
power is exercised through its sole general partner, Associates, which is
a wholly owned subsidiary of T. Rowe Price Associates, Inc. Mr. Golden is
Executive Vice President of Associates. Mr. Golden expressly disclaims
beneficial ownership of such securities.
(4) All of the 178,056 shares beneficially owned by Mr. Halper are shares to
which Mr. Halper has the right to acquire beneficial ownership through
the exercise of stock options.
(5) Of the 184,056 shares beneficially owned by Mr. McGeough, 178,056 shares
are shares as to which Mr. McGeough has the right to acquire beneficial
ownership through the exercise of stock options, and 2,000 are owned by
Mr. McGeough's spouse, of which Mr. McGeough expressly disclaims
beneficial ownership.
(6) All of the 8,000 shares beneficially owned by Mr. Peraldo are shares to
which Mr. Peraldo has the right to acquire beneficial ownership through
the exercise of stock options.
(7) All of the 228,520 shares beneficially owned by Mr. Rosenberg are shares
as to which Mr. Rosenberg has the right to acquire beneficial ownership
through the exercise of stock options.
(8) Shares voting power and investment power with affiliated persons and
entities under common control for the benefit of clients owning these
shares. Mr. Rubin expressly disclaims beneficial ownership of such
shares. M.D. Sass employees and affiliates have an indirect beneficial
interest in the certain client entities which own the shares.
(9) Consists of shares beneficially owned by Carl Marks and an affiliated
advisory firm of which Mr. Ruocco is a general partner and an executive
officer, respectively. See Note 4 to table of Security Ownership of
Certain Beneficial Owners and Management.
(10) See the information in the footnotes set forth above. The percentages for
the executive officers and messrs. Alperin and Peraldo are calculated on
a fully diluted basis, assuming exercise of all options exercisable
within 60 days, whereas, because the remaining directors do not
beneficially own options, the percentages for these directors are
calculated as if such options have not been exercised.
45
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
OPTION CANCELLATION INFORMATION
The following table sets forth certain information regarding the number of
shares of Common Stock covered by outstanding vested and unvested options to
purchase Common Stock held by executive officers and directors of the Company
to be canceled in connection with the Merger and the consideration to be paid
to each of such executive officers and directors as a result thereof. Pursuant
to the Merger Agreement, each existing option (whether vested or unvested) to
purchase Common Stock shall be terminated in exchange for either (i) a cash
payment equal to $25.05 per share of Common Stock purchasable thereunder less
the exercise price with respect thereto or (ii) options of equivalent value in
the Surviving Corporation.
<TABLE>
<CAPTION>
SURVIVING
TOTAL CASH CORPORATION
OPTIONS OPTIONS VALUE TO BE OPTIONS TO
VESTED NOT VESTED RECEIVED BE RECEIVED*
------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Barry J. Alperin.................... 8,000 -- $ 66,880 0
Coleen A. Colreavy.................. 15,584 5,416 166,766 2,305
Steven H. Halper.................... 178,056 68,610 2,185,355 54,548
Peter McGeough...................... 178,056 68,610 2,185,355 54,548
Leo Peraldo......................... 8,000 -- 66,880 0
Alan Rosenberg...................... 228,520 83,703 3,022,849 65,473
Robert N. Webber.................... 15,334 5,666 91,270 2,388
Other Management.................... 108,762 43,278 1,055,275 13,552
------- ------- ---------- -------
Total............................. 740,312 275,283 $8,840,630 192,814
======= ======= ========== =======
</TABLE>
- --------
* Assumes issuance of one million Surviving Common Shares on a fully-diluted
basis and an inherent value of $28.8 million in the Surviving Corporation.
See "Special Factors--Future Plans of the Company."
46
<PAGE>
PURCHASES OF COMMON STOCK BY AND OTHER
TRANSACTIONS WITH CERTAIN PERSONS
Neither the Company, the Funds, any affiliate thereof nor, to the Company's
knowledge, any of the executive officers or directors of the Company have
purchased Common Stock within sixty days of the date of this Proxy Statement.
The following table summarizes all purchases of Common Stock by affiliates
of the Company and the Company from April 30, 1995 to the present:
<TABLE>
<CAPTION>
RANGE OF AVERAGE
PRICE PER PRICE
NUMBER OF SHARE PAID
NAME OF SHARES PAID BY DURING
PURCHASER QUARTER PURCHASED PURCHASER QUARTER
--------- ------------- --------- ------------- -------
<S> <C> <C> <C> <C>
Seaman Furniture Company, Inc. .. Fiscal 1998--
1st Quarter 202 19.750 19.500
M.D. Sass Associates, Inc. ...... Fiscal 1997--
2nd Quarter 21,777 18.500-19.250 18.927
Fiscal 1997--
1st Quarter 41,500 17.875-18.875 18.468
Fiscal 1996--
4th Quarter 47,950 15.500-18.750 17.716
Fiscal 1996--
3rd Quarter 4,000 18.875 18.925
Fiscal 1996--
2nd Quarter 33,597 17.500-18.875 18.877
Carl Marks Management Co., L.P. . Fiscal 1997--
2nd Quarter 21,777 18.500-19.250 18.927
Fiscal 1997--
1st Quarter 16,500 17.875-18.750 18.468
Fiscal 1996--
4th Quarter 47,950 15.500-18.750 17.716
Fiscal 1996--
3rd Quarter 4,000 18.125-18.875 18.925
Fiscal 1996--
2nd Quarter 40,176 17.500-18.875 18.877
Peter McGeough................... Fiscal 1996--
2nd Quarter 2,000 17.500 18.877
</TABLE>
TRANSACTION OF OTHER BUSINESS
The Board of Directors knows of no other matters which may be presented at
the Meeting, but if other matters do properly come before the Meeting, it is
intended that the persons named in the Proxy will vote, pursuant to their
discretionary authority, according to their best judgment in the interest of
the Company.
INDEPENDENT ACCOUNTANTS
The financial statements of the Company as of April 30, 1997 and for the
year then ended included in the Company's Annual Report on Form 10-K/A for the
Fiscal Year Ended April 30, 1997 attached as Appendix D to this Proxy
Statement have been audited by Deloitte & Touche L.L.P., independent
accountants, as stated in their report appearing therein.
It is expected that representatives of Deloitte & Touche L.L.P. will be
present at the Meeting, and will have an opportunity to respond to appropriate
questions of stockholders and to make a statement if they so desire.
47
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
SFC MERGER COMPANY
AND
SEAMAN FURNITURE COMPANY, INC.
----------------
DATED AS OF AUGUST 13, 1997
----------------
AS AMENDED ON SEPTEMBER 4, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1. The Merger........................................................... 1
1.1 The Merger...................................................... 1
1.2 The Closing..................................................... 1
1.3 Effective Time.................................................. 1
1.4 Company Actions................................................. 2
2. Certificate of Incorporation, By-laws, Directors and Officers of the
Surviving Corporation ................................................. 2
2.1 Certificate of Incorporation and By-laws of Surviving
Corporation..................................................... 2
2.2 Directors and Officers of Surviving Corporation................. 2
3. Conversion of Securities............................................. 2
3.1 Conversion of Securities........................................ 2
3.2 Dissenting Stockholders......................................... 4
3.3 Payment for and Surrender of Company Common Shares.............. 5
3.4 Stock Transfer Books............................................ 6
4. Representations and Warranties of the Company........................ 6
4.1 Existence; Good Standing; Corporate Authority................... 6
4.2 Authorization, Validity and Effect of Agreement................. 6
4.3 Capitalization.................................................. 6
4.4 Subsidiaries.................................................... 7
4.5 No Conflict; Required Filings and Consents...................... 7
4.6 No Brokers...................................................... 7
4.7 State Takeover Statutes......................................... 7
4.8 Opinion of Financial Advisor.................................... 7
5. Representations and Warranties of Newco.............................. 8
5.1 Existence; Good Standing; Corporate Authority................... 8
5.2 Authorization, Validity and Effect of Agreement................. 8
5.3 Subsidiaries.................................................... 8
5.4 No Conflict; Required Filings and Consents...................... 8
5.5 No Brokers...................................................... 8
5.6 Newco........................................................... 9
6. Covenants............................................................ 9
6.1 Alternative Proposals........................................... 9
6.2 Conduct of Business by the Company.............................. 9
6.3 Conduct of Business by Newco.................................... 11
6.4 Meeting of Stockholders......................................... 11
6.5 Filings, Other Action........................................... 11
6.6 Access to Information; Confidentiality.......................... 11
6.7 Publicity....................................................... 12
6.8 Further Action.................................................. 12
6.9 Expenses........................................................ 12
6.10 Insurance; Indemnity............................................ 12
6.11 Employee Benefits............................................... 13
6.12 Conveyance Taxes................................................ 13
7. Conditions........................................................... 14
7.1 Conditions to Each Party's Obligation To Effect the Merger...... 14
7.2 Conditions to Obligation of Company To Effect the Merger........ 14
7.3 Conditions to Obligation of Newco To Effect the Merger.......... 14
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
8. Termination............................................................ 15
8.1 Termination....................................................... 15
8.2 Effect of Termination............................................. 16
8.3 Extension; Waiver................................................. 16
8.4 Payment of Fees and Expenses...................................... 16
9. General Provisions..................................................... 16
9.1 Nonsurvival of Representations, Warranties and Agreements......... 16
9.2 Notices........................................................... 17
9.3 Assignment; Binding Effect........................................ 17
9.4 Entire Agreement.................................................. 17
9.5 Amendment......................................................... 17
9.6 Governing Law..................................................... 17
9.7 Counterparts...................................................... 17
9.8 Headings.......................................................... 17
9.9 Interpretation.................................................... 18
9.10 Waivers........................................................... 18
9.11 Incorporation of Schedules........................................ 18
9.12 Severability...................................................... 18
9.13 Enforcement of Agreement.......................................... 18
</TABLE>
A-ii
<PAGE>
LIST OF SCHEDULES
Schedule 3.1(f)--Options
Schedule 3.1(f)(ii)--Members of Middle Management
Schedule 4.4--Company Subsidiaries
LIST OF EXHIBITS
Exhibit A--Form of Amended and Restated Certificate of Incorporation
Exhibit B--Form of Amended and Restated By-Laws
A-iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Action..................................................................... 16
Agreement.................................................................. 1
Blue Sky Laws.............................................................. 9
Cap........................................................................ 17
Cash Payment............................................................... 4
Certificate of Merger...................................................... 2
Certificates............................................................... 6
Closing.................................................................... 1
Closing Date............................................................... 2
Code....................................................................... 9
Company.................................................................... 1
Company Common Share....................................................... 3
Company Equity Rights...................................................... 8
Company Material Adverse Effect............................................ 9
Company Preferred Shares................................................... 8
Company Stock Plans........................................................ 8
Consideration.............................................................. 3
DGCL....................................................................... 1
Dissenting Stockholders.................................................... 5
Effective Time............................................................. 2
Exchange Act............................................................... 2
Governmental Entity........................................................ 9
Heller..................................................................... 14
Household.................................................................. 14
In-the-Money............................................................... 4
Indemnification Agreements................................................. 16
Indemnified Party.......................................................... 16
Merger..................................................................... 1
Mid-Management............................................................. 4
Newco...................................................................... 1
Newco Material Adverse Effect.............................................. 11
Option..................................................................... 4
Paying Agent............................................................... 6
Payment Fund............................................................... 6
Proxy Statement............................................................ 2
SEC........................................................................ 2
Securities Act............................................................. 9
Senior Management Ownership................................................ 4
Stockholders' Meeting...................................................... 15
Subsidiary................................................................. 7
Surviving Common Shares.................................................... 4
Surviving Corporation...................................................... 1
</TABLE>
A-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (this "Agreement"), dated as of August 13, 1997
and amended on September 4, 1997, by and between SFC MERGER COMPANY, a
Delaware corporation ("Newco"), and SEAMAN FURNITURE COMPANY, INC., a Delaware
corporation (the "Company").
RECITALS
A. M.D. Sass Associates, Inc., T. Rowe Price Recovery Fund, L.P. and Carl
Marks Management Co., majority stockholders of the Company, and Alan
Rosenberg, Steven Halper and Peter McGeough, members of executive management
of the Company (collectively, each being a member of the "Buyout Group"), have
formed Newco.
B. Each of the Boards of Directors of the Company and Newco (in the case of
the Company, based upon the recommendation of a special committee of its
independent directors) has determined that a business combination between the
Company and Newco is in the best interests of its respective companies and
stockholders, whereby Newco will merge with and into the Company (the
"Merger"), with the Company being the surviving corporation, all upon the
terms and subject to the conditions of this Agreement.
C. Each of the Company and Newco desires to provide for the consummation of
the Merger and certain other transactions relating thereto, on the terms and
subject to the conditions set forth herein.
1. THE MERGER
1.1 The Merger. (a) On the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined below), Newco will be merged with
and into the Company in accordance with the applicable provisions of the
General Corporation Law of the State of Delaware (the "DGCL"), and the
separate corporate existence of Newco will thereupon cease. The Company will
be the surviving corporation in the Merger (as such, the "Surviving
Corporation") under the corporate name it possesses immediately prior to the
Effective Time.
(b) At the Effective Time, the corporate existence of the Company with all
its rights, privileges, powers and franchises will continue unaffected and
unimpaired by the Merger. The Merger will have the effects specified in the
relevant provisions of the DGCL.
1.2 The Closing. (a) Unless this Agreement shall have been terminated
pursuant to the provisions of Article 8, the closing of the transactions
contemplated by this Agreement (the "Closing") will take place at the offices
of Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York, at
10:00 a.m., local time, within two business days following the date on which
the last of the conditions (excluding conditions that by their terms cannot be
satisfied until the Closing Date (as defined below)) set forth in Article 7 is
satisfied or waived in accordance herewith, or at such other place, time or
date as the parties may agree, but in any case will occur on the last day of a
calendar month. The date on which the Closing occurs is hereinafter referred
to as the "Closing Date".
(b) Notwithstanding any approval of this Agreement by the stockholders of
the Company and Newco, no agreement between the parties hereto to change the
place, time or date of the Closing will require the approval of the
stockholders of the Company.
1.3 Effective Time. On the Closing Date, Newco and the Company will cause a
certificate of merger (the "Certificate of Merger"), executed in accordance
with the relevant provisions of the DGCL, to be filed with the Secretary of
State of the State of Delaware as provided in Section 251 of the DGCL. Upon
completion of such filing, the Merger will become effective in accordance with
the DGCL. The time and date on which the Merger becomes effective is herein
referred to as the "Effective Time."
A-1
<PAGE>
1.4 Company Actions. The Company hereby consents to the Merger and
represents that (a) its Board of Directors (at a meeting duly called and
held), based upon the recommendation of a special committee of independent
directors, has (i) determined by the unanimous vote of the directors (with all
Buyout Group-affiliated directors abstaining upon advice of Buyout Group's
counsel) that the Merger is fair to, and in the best interests of, the holders
of Company Common Shares (as defined below), (ii) approved this Agreement and
the transactions contemplated hereby, including the Merger, and (iii)
determined to recommend approval and adoption of this Agreement to the
stockholders of the Company and (b) Wasserstein Perella & Co., Inc. ("WP") has
delivered to the special committee of the Board of Directors of the Company
its opinion that the consideration to be received by the holders of Company
Common Shares pursuant to the Merger is fair to the holders of Company Common
Shares (other than Newco and members of the Buyout Group) from a financial
point of view, subject to the assumptions and qualifications contained in such
opinion. The Company shall file with the Securities and Exchange Commission
(the "SEC"), a preliminary and final definitive proxy statement (including
certain information described in Schedule 13E-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and required to be set forth in
such proxy statements (such preliminary and final definitive proxy statement,
collectively, the "Proxy Statement") pursuant to Rule 13e-3(e)(1) under the
Exchange Act). The Company agrees to provide Newco and its counsel with any
comments the Company or its counsel may receive from the SEC with respect to
such Proxy Statement promptly after the receipt of such comments and shall
provide Newco and its counsel an opportunity to participate, including by way
of discussions with the SEC, in the response of the Company to such comments.
2. CERTIFICATE OF INCORPORATION, BY-LAWS, DIRECTORS
AND OFFICERS OF THE SURVIVING CORPORATION
2.1 Certificate of Incorporation and By-laws of Surviving Corporation. (a)
The certificate of incorporation of the Surviving Corporation to be in effect
from and after the Effective Time until amended in accordance with its terms
and the DGCL will be the certificate of incorporation of the Company
immediately prior to the Effective Time, as amended and restated in the form
of Exhibit A.
(b) The by-laws of the Surviving Corporation to be in effect from and after
the Effective Time until amended in accordance with their terms and the DGCL
will be the by-laws of the Company immediately prior to the Effective Time, as
amended and restated in the form of Exhibit B.
2.2 Directors and Officers of Surviving Corporation. (a) The members of the
initial Board of Directors of the Surviving Corporation will be the members of
the Board of Directors of the Company immediately prior to the Effective Time,
each of whom will serve on the Board of Directors of the Surviving Corporation
in accordance with the certificate of incorporation and by-laws of the
Surviving Corporation until his/her successor has been duly elected or
appointed and qualified or until his/her earlier death, resignation or removal
in accordance with the certificate of incorporation and the by-laws of the
Surviving Corporation.
(b) The officers of the Surviving Corporation as of the Effective Time will
be the officers of the Company immediately prior to the Effective Time. Each
such person will continue in such office of the Surviving Corporation until
his/her successor has been duly elected or appointed and qualified or until
his/her earlier death, resignation or removal in accordance with the
certificate of incorporation and the by-laws of the Surviving Corporation.
3. CONVERSION OF SECURITIES
3.1 Conversion of Securities. (a) At the Effective Time, each share of
Common Stock, par value $0.01 per share, of the Company (each a "Company
Common Share" and collectively, the "Company Common Shares") issued and
outstanding immediately prior to the Effective Time, other than as described
in Sections 3.1(c) and 3.2 hereof, will, by virtue of the Merger and without
any action on the part of the holders thereof, be converted into the right to
receive $25.05 per share in cash (the "Consideration").
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(b) At the Effective Time, all Company Common Shares to be converted into
the Consideration pursuant to this Section 31 will, by virtue of the Merger
and without any action on the part of the holders thereof, cease to be
outstanding, be cancelled and retired and cease to exist, and each holder of a
certificate previously representing any such Company Common Shares will
thereafter cease to have any rights with respect to such Company Common
Shares, except the right to receive for each of the Company Common Shares,
upon the surrender of such certificate in accordance with Section 3.3, the
Consideration, without any interest thereon.
(c) At the Effective Time, each Company Common Share issued and outstanding
and owned by the Company as treasury stock or owned by any of Newco or any of
the Company's Subsidiaries immediately prior to the Effective Time will, by
virtue of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, be cancelled and retired without payment of any
Consideration therefor and cease to exist.
(d) At the Effective Time, each share of Class A common stock, par value
$0.01 per share, and Class B common stock, par value $0.01 per share, or any
fraction of a share of such class of common stock, of Newco issued and
outstanding immediately prior to the Effective Time will, by virtue of the
Merger and without any action on the part of Newco or the holder thereof, be
converted into one share of common stock, par value $0.01 per share, of the
Surviving Corporation, or any fraction thereof ("Surviving Common Shares").
(e) All notes and other debt instruments of the Company which are
outstanding at the Effective Time shall continue to be outstanding subsequent
to the Effective Time as debt instruments of the Surviving Corporation,
subject to their respective terms and provisions.
(f) Subject to the satisfaction of the obligations of the Company with
respect thereto in Section 7.3(f), at the Effective Time, each outstanding
option, whether exercisable or unexercisable, to purchase Company Common
Shares (each, an "Option") described in Schedule 3.1(f) shall be treated as
follows:
(i) Each unexpired Option to purchase Company Common Shares that is
outstanding and exercisable at the Effective Time and has an exercise price
of $25.05 or less ("In-the-Money"), other than those held by Messrs.
Halper, McGeough and Rosenberg, will no longer be exercisable for the
purchase of Company Common Shares but shall entitle each holder thereof, in
cancellation and in settlement therefor, to payment in cash (subject to
applicable withholding payments, the "Cash Payment") at the Effective Time
equal to the product of (x) the total number of Company Common Shares
subject to such Option which is vested and (y) the excess of the
Consideration over the exercise price per Company Common Share subject to
such Option.
(ii) Each unexpired Option to purchase Company Common Shares that is
outstanding and In-the-Money but not exercisable at the Effective Time,
held by members of middle management set forth on Schedule 3.1(f)(ii)
("Mid-Management"), will no longer be exercisable for the purchase of
Company Common Shares but shall entitle each holder thereof, in
cancellation and in settlement therefor, to the Cash Payment at the
Effective Time equal to the product of (x) the total number of Company
Common Shares subject to such Option and (y) the excess of the
Consideration over the exercise price per Company Common Share subject to
such Option.
(iii) Each unexpired Option to purchase Company Common Shares that is
outstanding and In-the-Money but not exercisable at the Effective Time,
other than those held by Messrs. Halper, McGeough and Rosenberg and by
members of Mid-Management, will no longer be exercisable for the purchase
of Company Common Shares but shall entitle the holder thereof at the
Effective Time, in cancellation and settlement therefor, to the issuance of
immediately exercisable options to purchase, on substantially the same
terms and conditions as were applicable under such Option immediately prior
to the Effective Time, options to purchase in the aggregate 8,245 Surviving
Common Shares, with an exercise price of $1.00 per Surviving Common Share,
based upon an assigned In-the-Money value of $244,796.00 in the aggregate.
(iv) Each unexpired Option to purchase Company Common Shares that is
outstanding and In-the-Money, other than those with an exercise price of
$24.50 per share, whether or not exercisable at the Effective Time, held by
Messrs. Halper, McGeough and Rosenberg, will no longer be exercisable for
the
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purchase of Company Common Shares but shall entitle each of Messrs. Halper,
McGeough and Rosenberg, in cancellation and in settlement thereof at the
Effective Time, to (A) the issuance of immediately exercisable options to
purchase 48,184, 48,184 and 58,200 Surviving Common Shares respectively,
with an exercise price of $1.00 per Surviving Common Share, and (B) the
payment of $2,185,355, $2,185,355 and $3,022,849 in cash, respectively.
(v) Each unexpired Option to purchase Company Common Shares that is
outstanding with an exercise price of $24.50 per share, whether or not
exercisable at the Effective Time, held by Messrs. Halper, McGeough and
Rosenberg, will no longer be exercisable for the purchase of Company Common
Shares but shall entitle each of Messrs. Halper, McGeough and Rosenberg, in
cancellation and in settlement thereof at the Effective Time, to the
issuance of options to purchase 3,182, 3,182 and 3,636 Surviving Common
Shares, respectively, with an exercise price of $28.17 per Surviving Common
Share.
(vi) Each unexpired Option to purchase Company Common Shares that is
outstanding with an exercise price of $28.00 per share, whether or not
exercisable at the Effective Time, held by Messrs. Halper, McGeough and
Rosenberg, will no longer be exercisable for the purchase of Company Common
Shares but shall entitle each of Messrs. Halper, McGeough and Rosenberg, in
cancellation and in settlement thereof at the Effective Time, to the
issuance of options to purchase 3,182, 3,182 and 3,636 Surviving Common
Shares, respectively, with an exercise price of $32.19 per Surviving Common
Share.
(vii) Each of the provisions of Sections 3.1(f) (iii),(iv), (v) and (vi),
assume (x) the issuance of one million Surviving Common Shares on a fully
diluted basis including the stock options contemplated by this Section
3.1(f) and (y) an inherent value of $28.8 million in the Surviving
Corporation. Such inherent value is based upon the assumption that at the
Effective Time (A) the amount of the dividend to be paid will be
$67,000,000, (B) the Company will have available cash of $75,000,000, (C)
borrowings available from Heller will aggregate $26,000,000, and (D)
expenses of the transaction will be $2,500,000. Any change in any of the
assumptions or the number of issued Surviving Common Shares will result in
a proportionate change in the exercise price, number of options and cash
received, as the case may be.
(viii) Each Cash Payment to be paid to each holder of an outstanding
Option pursuant to this Section will be paid at the Effective Time. The
Surviving Corporation will not issue any fractional Surviving Common Shares
upon the exercise of any Option and any right in respect thereof will,
without further action, be forfeited.
(ix) After the Effective Time, Newco will issue to each holder of an
Option to be issued pursuant to the terms of this Section 3.1 a document
evidencing the foregoing agreement.
3.2 Dissenting Stockholders. Notwithstanding any other provisions of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and which are held by stockholders who
shall have not voted in favor of the Merger or consented thereto in writing
and who shall have demanded properly in writing appraisal for such shares in
accordance with Section 262 of the DGCL (collectively, the "Dissenting
Stockholders") shall not be converted into or represent the right to receive
the Consideration. Such Dissenting Stockholders instead shall be entitled to
receive payment of the appraised value of such Company Common Shares held by
them in accordance with the provisions of such Section 262, except that shares
of Company Common Stock that are held by a Dissenting Stockholder who shall
have failed to perfect or who effectively shall have withdrawn or lost his or
her rights to appraisal of such shares of Company Common Shares under such
Section 262 shall thereupon be deemed to have been converted into and to have
become exchangeable, as of the Effective Time, for the right to receive,
without any interest thereon, the Consideration upon surrender in the manner
provided in Section 3.3, of the Certificate or Certificates that, immediately
prior to the Effective Time, evidenced such Company Common Shares. The Company
shall give Newco (A) prompt notice of any written demands for appraisal,
withdrawals of demands for appraisal and any other related instruments
received by the Company, and (B) the opportunity to direct all negotiations
and proceedings with respect to demands for appraisal. The Company will not
voluntarily make any payment with respect to any demands for appraisal and
will not, except with the prior written consent of Newco, settle or offer to
settle any demand.
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3.3 Payment for and Surrender of Company Common Shares. (a) At the Effective
Time, Newco or the Surviving Corporation, as the case may be, will deposit
with such bank or trust company designated by Newco and reasonably acceptable
to the Company (the "Paying Agent"), for the benefit of the holders of Company
Common Shares, cash equal to the total aggregate Consideration referred to in
Section 31 (being hereinafter referred to as the "Payment Fund"). The Paying
Agent will, pursuant to irrevocable instructions, deliver the Consideration
contemplated by Section 31 out of the Payment Fund, and, except as provided in
this Section 3.3, the Payment Fund will not be used for any other purpose. The
Company will act as paying agent with respect to payments to holders of
Options pursuant to Section 3.1(f).
(b) Promptly after the Effective Time, the Paying Agent will mail to each
holder of record (other than holders of certificates for Company Common Shares
referred to in Section 31) of a certificate or certificates which immediately
prior to the Effective Time represented outstanding Company Common Shares (the
"Certificates") (i) a form of letter of transmittal (which will specify that
delivery will be effected, and risk of loss and title to the Certificates will
pass, only upon proper delivery of the Certificates to the Paying Agent) and
(ii) instructions for use in effecting the surrender of the Certificates for
payment therefor. Upon surrender of Certificates for cancellation to the
Paying Agent, together with such letter of transmittal duly executed and any
other required documents, the holder of such Certificates will be entitled to
receive for each of the Company Common Shares represented by such Certificates
the Consideration, and the Certificates so surrendered will promptly be
cancelled. Until so surrendered, Certificates will represent solely the right
to receive the Consideration. No dividends or other distributions that are
payable, if any, after the Effective Time to holders of record of Certificates
will be paid to persons entitled by reason of the Merger to receive the
Consideration until such persons surrender their Certificates. Upon such
surrender, there will be paid to the registered holders of Certificates
surrendered such dividends or other distributions, if any, on the appropriate
payment date. In no event will the persons entitled to receive such dividends
or other distributions be entitled to receive interest on such dividends or
other distributions. If any Consideration is to be paid to a person whose name
is a name other than that in which the Certificate surrendered in exchange
therefor is registered, it will be a condition of such exchange that the
Certificate so surrendered be properly endorsed and otherwise in proper form
for transfer and that the person requesting such exchange pay to the Paying
Agent any transfer or other taxes required by reason of the payment of such
Consideration in a name other than that of the registered holder of the
Certificate surrendered, or establish to the satisfaction of the Paying Agent
that such tax has been paid or is not applicable. In the event 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, the Paying Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Consideration deliverable in respect thereof as
determined in accordance with this Agreement, provided that the person to whom
the Consideration is paid shall, as a condition precedent to the payment
thereof, give the Surviving Corporation a bond in such sum as it may direct or
otherwise indemnify the Surviving Corporation in a manner satisfactory to it
against any claim that may be made against the Surviving Corporation with
respect to the Certificate claimed to have been lost, stolen or destroyed.
(c) Any portion of the Payment Fund or the cash made available to the Paying
Agent pursuant to Section 3.3(a) which remains unclaimed by the former
stockholders of the Company for 180 days after the Effective Time will be
delivered to the Surviving Corporation and any former stockholders of the
Company will thereafter look only to the Surviving Corporation for payment of
their claim for the Consideration for the Company Common Shares.
(d) Neither Newco, the Surviving Corporation nor the Paying Agent shall be
liable to any holder of Company Common Shares for such shares (or dividends or
distributions with respect thereto) or cash from the Payment Fund (or from the
Surviving Corporation after the Payment Fund has terminated) delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. At such time as any amounts remaining unclaimed by holders of any
such shares would otherwise escheat to or become property of any Governmental
Entity (as defined below), such amounts shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation free and
clear of any claims or interest of any such holders or their successors,
assigns or personal representatives previously entitled thereto.
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(e) The Paying Agent shall invest any cash included in the Payment Fund, as
directed by the Surviving Corporation, on a daily basis. Any interest and
other income resulting from such investments shall be paid to the Surviving
Corporation.
3.4 Stock Transfer Books. At the Effective Time, the stock transfer books of
the Company will be closed and there shall be no further registration of
transfers of shares of Company Common Stock thereafter or on the records of
the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Newco as follows:
4.1 Existence; Good Standing; Corporate Authority. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware. The Company has all requisite corporate power and authority
to own, operate and lease its properties and carry on its business as now
conducted. As used in this Agreement, the word "Subsidiary" when used with
respect to any party means any corporation or other organization, whether
incorporated or unincorporated, of which such party directly or indirectly
owns or controls at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the board
of directors or others performing similar functions.
4.2 Authorization, Validity and Effect of Agreement. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby to be executed and
delivered by it, and, subject to receipt of necessary stockholder approval, to
consummate the transactions contemplated hereby and thereby. Subject only to
the approval of this Agreement, the Merger and the transactions contemplated
hereby by the holders of a majority of the outstanding Company Common Shares,
this Agreement, the Merger and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action. This Agreement has been duly and validly executed by the
Company and constitutes, and all agreements and documents contemplated hereby
to be executed and delivered by the Company (when executed and delivered
pursuant hereto) will constitute, the valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to creditors' rights generally and
(ii) the availability of injunctive relief and other equitable remedies.
4.3 Capitalization. The authorized capital stock of the Company consists of
15,000,000 Company Common Shares and 1,000,000 shares of preferred stock, par
value $0.01 per share (the "Company Preferred Shares"). As of July 1, 1997,
(a) 4,536,839 Company Common Shares were issued and outstanding and 467,736
shares were held in the Company's treasury, (b) no Company Preferred Shares
were outstanding or held in the Company's treasury, (c) no Company Common
Shares or Company Preferred Shares were held by Subsidiaries of the Company,
(d) 1,500,000 Company Common Shares were reserved for future issuance pursuant
to outstanding stock options granted under the Company's Amended and Restated
1992 Stock Option Plan (the "Company Stock Plan") and 1,017,095 shares were
reserved for future grants under such plans, and (e) Schedule 3.1(f) is a true
and complete list of persons who have received options granted pursuant to
Company Stock Plan, the amounts of such grants and the grant prices thereof.
Except as set forth in this Section 4.3, there are no outstanding options,
warrants, calls, subscriptions, bonds, debentures, notes or other obligations
the holders of which have the right to vote or which are convertible into or
exercisable for securities having the right to vote with the stockholders of
the Company on any matter. Since such date, (i) no additional shares of
capital stock of the Company have been issued, except pursuant to the Company
Stock Plan or pursuant to the exercise of options thereunder and (ii) no
options, warrants or other rights to subscribe for, securities or rights
convertible into or exchangeable for, or contracts, commitments or
arrangements by which the Company is or may be required to issue or sell
additional shares of the Company's capital stock (collectively, "Company
Equity Rights") have been granted.
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4.4 Subsidiaries. Schedule 4.4 sets forth a complete and accurate list of
the Subsidiaries of the Company and indicates for each such Subsidiary the
jurisdiction of incorporation or organization. The Company owns, directly or
indirectly, each of the outstanding shares of capital stock (or other
ownership interests having by their terms ordinary voting power to elect a
majority of directors or others performing similar functions with respect to
such Subsidiary) of each of the Company's Subsidiaries (except for directors'
qualifying shares).
4.5 No Conflict; Required Filings and Consents. (a) The execution and
delivery of this Agreement by the Company do not, and the consummation by the
Company of the transactions contemplated hereby will not, (i) conflict with or
violate the certificate of incorporation or by-laws or equivalent
organizational documents of the Company or any of its Subsidiaries, or (ii)
subject to making the filings and obtaining the approvals identified in
Section 45, conflict with or violate any law, rule, regulation, order,
judgment or decree (whether United States or foreign) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected, except, in the case
of clause (ii), for any such conflicts or violations which would not prevent
or delay consummation of any of the transactions contemplated hereby in any
material respect, or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect, and would not,
individually or in the aggregate, have a material adverse effect on the
business, assets, results of operations or financial condition of the Company
and its Subsidiaries taken as a whole (a "Company Material Adverse Effect").
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement and the consummation by the Company of the
transactions contemplated hereby will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign (each a
"Governmental Entity") by either the Company or any of its Subsidiaries,
except (i) for (A) applicable requirements, if any, of the Exchange Act, the
Securities Act of 1933, as amended (the "Securities Act"), and state
securities or "blue sky" laws ("Blue Sky Laws"), (B) the filing of the
Certificate of Merger pursuant to the DGCL, (C) filings and consents as may be
required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval, triggered by
the Merger or the other transactions contemplated by this Agreement, and (D)
applicable requirements, if any, of the Internal Revenue Code of 1986, as
amended (the "Code"), and state, local and foreign tax laws, and (ii) where
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent the Company from
performing its obligations under this Agreement in any material respect, and
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
(c) The affirmative vote of the holders of a majority of the outstanding
Company Common Shares is the only vote of the holders of any class or series
of capital stock of the Company necessary to approve this Agreement and the
transactions contemplated hereby on behalf of the Company.
4.6 No Brokers. The Company has not entered into any contract, arrangement
or understanding with any person or firm which may result in the obligation of
the Company or Newco to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby,
except that the Company has retained WP as its financial advisors, the
arrangements with which have been disclosed in writing to Newco prior to the
date hereof. Other than the foregoing arrangements, none of the executive
officers of the Company is aware of any claim for payment of any finder's
fees, brokerage or agent's commissions or other like payments in connection
with the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
4.7 State Takeover Statutes. The provisions of Section 203 of the DGCL are
inapplicable to the Merger, this Agreement and the transactions contemplated
hereby.
4.8 Opinion of Financial Advisor. The Company has received the opinion of WP
to the effect that, as of the date hereof, the consideration to be received by
the holders of Company Common Shares in the Merger is fair to such holders
(other than Newco and the Buyout Group) from a financial point of view and a
complete and correct signed copy of such opinion has been, or promptly upon
receipt thereof will be, delivered to Newco.
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5. REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants to the Company as of the date of this
Agreement as follows:
5.1 Existence; Good Standing; Corporate Authority. Newco is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware. The copies of the certificate of incorporation and by-laws of Newco
previously made available to the Company are true and correct.
5.2 Authorization, Validity and Effect of Agreement. Newco has the requisite
corporate power and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby to be executed and delivered by
it and to consummate the transactions contemplated hereby and thereby. This
Agreement, the Merger and the consummation by Newco of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of Newco and by the stockholders of Newco, and no other corporate
action on the part of Newco is necessary to authorize this Agreement or the
Merger or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed by Newco and constitutes, and all
agreements and documents contemplated hereby to be executed and delivered by
Newco (when executed and delivered pursuant hereto) will constitute, the valid
and binding obligations of Newco enforceable against it in accordance with
their respective terms, subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to creditors' rights
generally and (ii) the availability of injunctive relief and other equitable
remedies.
5.3 Subsidiaries. Newco does not own any Subsidiaries.
5.4 No Conflict; Required Filings and Consents. (a) The execution and
delivery of this Agreement by Newco do not, and the consummation by Newco of
the transactions contemplated hereby will not, (i) conflict with or violate
the certificate of incorporation or by-laws of Newco, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree (whether United
States or foreign) applicable to Newco or by which any property or asset of
Newco is bound or affected, or (iii) 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, result in the loss of a material benefit under, or give to
others any right of termination, amendment, acceleration, increased payments
or cancellation of, or result in the creation of a lien or other encumbrance
on any property or asset of Newco pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Newco is a party or by which Newco or any
property or asset of Newco is bound or affected, except in the case of clauses
(ii) and (iii), for any such conflicts, violations, breaches, defaults or
other occurrences which would not prevent or delay consummation of any of the
transactions contemplated hereby in any material respect, or otherwise prevent
Newco from performing its obligations under this Agreement in any material
respect, and would not, individually or in the aggregate, have a material
adverse effect on the business, assets, results of operations or financial
condition of Newco (a "Newco Material Adverse Effect").
(b) The execution and delivery of this Agreement by Newco do not, and the
performance of this Agreement and the consummation of the transactions
contemplated hereby by it will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for (A) applicable requirements, if any, of
the Exchange Act, the Securities Act and Blue Sky Laws, and required approvals
and consents of other Governmental Entities (whether domestic or foreign) and
the rules and regulations thereunder, (B) the filing of a certificate of
merger pursuant to the DGCL, (C) such filings and consents as may be required
under any environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or the
transactions contemplated by this Agreement, and (D) applicable requirements,
if any, of the Code and state, local and foreign tax laws, and (ii) where
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay consummation of
any of the transactions contemplated hereby in any material respect, or
otherwise prevent Newco from performing its obligations under this Agreement
in any material respect, and would not, individually or in the aggregate, have
a Newco Material Adverse Effect.
5.5 No Brokers. Newco has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of
the Company or Newco to pay any finder's fees, brokerage or
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agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby, except that Newco has retained Wheat, First Securities, Inc. as its
financial advisers. Other than the foregoing arrangements, none of the
executive officers of the Company is aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
5.6 Newco. Newco was formed solely for the purpose of engaging in the
transactions contemplated hereby. Except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated hereby, Newco has not incurred any obligations or
liabilities or engaged in any business or activities of any type or kind
whatsoever or entered into any agreements or arrangements with any person or
entity.
6. COVENANTS
6.1 Alternative Proposals. Upon execution of this Agreement, the Company
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore. Prior to
the Effective Time, the Company agrees (a) that neither it nor any of its
Subsidiaries will, nor will it or any of its Subsidiaries permit their
respective officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) to, initiate, solicit or encourage,
directly or indirectly, any Alternative Proposal (as defined below) or, except
as set forth below, engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Alternative Proposal, or otherwise facilitate any effort or
attempt to make or implement an Alternative Proposal. An "Alternative
Proposal" means, other than the transactions contemplated hereby, the receipt
by the Company of any inquiries or the making or implementation of any
proposal or offer (including without limitation any proposal or offer to its
stockholders) with respect to a merger, acquisition, consolidation or similar
transaction involving any purchase of all or any significant portion of the
assets of the Company or any of its Subsidiaries. Notwithstanding the
foregoing, in the event the Company receives an unsolicited written proposal
or written offer with respect to an Alternative Proposal, the Board of
Directors of the Company shall be entitled, solely to the extent it has been
advised (i) by its outside counsel that a failure to do so would violate its
fiduciary obligations under applicable law and (ii) by its financial advisor
that the Alternative Proposal is financially superior to the Merger and the
transactions contemplated thereby, to review and participate in negotiations
concerning such proposal and furnish relevant information concerning the
Company to the offeror; provided that (A) the Company shall have furnished, or
concurrently with the provision of such information to such offeror shall
furnish, Newco with all such information provided to such offeror and (B) the
offeror executes a confidentiality agreement with the Company. The Company
shall notify Newco promptly of any such unsolicited Alternative Proposal, or
any inquiry or contact with any person with respect thereto. In addition, in
the event (i) the Company enters into negotiations with respect to an
unsolicited Alternative Proposal or (ii) the Company's Board of Directors
shall withdraw its approval of this Agreement and the transactions
contemplated hereby or its recommendation to the stockholders of the Company
to approve the same, then the Company shall immediately deliver an additional
notice of such events to Newco. Nothing in this Section 61 will (x) permit the
Company to terminate this Agreement, (y) permit the Company to enter into any
agreement with respect to an Alternative Proposal for as long as this
Agreement remains in effect (it being agreed that for as long as this
Agreement remains in effect, the Company will not enter into any agreement
with any person that provides for, or in any way facilitates, an Alternative
Proposal except as otherwise permitted herein), or (z) affect any other
obligation of the Company under this Agreement.
6.2 Conduct of Business by the Company. Prior to the Effective Time, except
as contemplated by any other provision of this Agreement, unless Newco has
previously consented in writing thereto, the Company:
(a) will, and will cause each of its Subsidiaries to, conduct its
operations in the ordinary and normal course, consistent with past
practice;
(b) will use its reasonable best efforts, and will cause each of its
Subsidiaries to use its reasonable best efforts, to preserve intact their
business organizations and goodwill, keep available the services of their
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respective officers and employees and maintain satisfactory relationships
with those persons having business relationships with them;
(c) will not amend its certificate of incorporation or by-laws or
comparable governing instruments;
(d) will, upon the occurrence of any event or change in circumstances as
a result of which any representation or warranty of the Company contained
in Article 4 would be untrue or incorrect if such representation or
warranty were made immediately following the occurrence of such event or
change in circumstance, promptly (and in any event within two business days
of an executive officer of the Company obtaining knowledge thereof) notify
Newco thereof;
(e) will promptly deliver to Newco true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement;
(f) will not (i) except pursuant to the exercise of Company Equity Rights
and other contractual rights existing on the date hereof and disclosed
pursuant to this Agreement, issue any shares of its capital stock, effect
any stock split or otherwise change its capitalization as it existed on the
date hereof, (ii) grant, confer or award any option, warrant, conversion
right or other Company Equity Rights not existing on the date hereof to
acquire any shares of its capital stock, (iii) grant, confer or award any
bonuses or other forms of incentive compensation to any officer, director
or employee, except for cash bonuses or incentives consistent with past
practice or under any existing agreement, (iv) increase any compensation
under any employment agreement with any of its present or future officers,
directors or employees, except for normal increases for officers and
employees consistent with past practice or the terms of such employment
agreement, (v) grant any severance or termination pay to, or enter into any
employment, severance or termination agreement with any officer, director
or employee or amend any such agreement in any material respect, except for
severance arrangements consistent with past practice with respect to
officers and employees terminated by the Company, or (vi) adopt any new
employee benefit plan or program (including any stock option, stock benefit
or stock purchase plan) or amend any existing employee benefit plan or
program in any material respect;
(g) will not (i) declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of its capital stock or
other ownership interests or (ii) directly or indirectly redeem, purchase
or otherwise acquire any shares of its capital stock or capital stock of
any of its Subsidiaries, or make any commitment for any such action;
(h) will not, and will not permit any of its Subsidiaries to, sell, lease
or otherwise dispose of any of its assets (including capital stock of
Subsidiaries) or to acquire any business or assets, except for (i) any
purchase of inventory undertaken in the ordinary course of business, (ii) a
sale of a portion or all of the approximately 16 acres of undeveloped land
located in Bridgeport, New Jersey, or (iii) in the ordinary course of
business and for an amount not exceeding $1,000,000 in the aggregate;
(i) will not incur any material amount of indebtedness for borrowed money
or make any loans, advances or capital contributions to, or investments
(other than non-controlling investments in the ordinary course of business)
in, any other person other than a wholly owned Subsidiary of the Company,
or issue or sell any debt securities, other than borrowings under existing
lines of credit in the ordinary course of business other than the senior
credit facility being negotiated with Heller Business Credit, a division of
Heller Financial, Inc. ("Heller"), in the aggregate principal amount of up
to $35,000,000;
(j) will not, except pursuant to and in accordance with the capital
budget previously disclosed in writing to Newco, authorize, commit to or
make capital expenditures;
(k) will not mortgage or otherwise encumber or subject to any lien any
properties or assets except for such of the foregoing as are in the
ordinary course of business and would not be reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect;
(l) will not enter into or agree to enter into any contract without the
prior written consent of Newco unless such contract is entered into by the
Company for (i) the sale of the Company's accounts receivable to Household
Bank (Nevada), N.A. ("Household"), (ii) any purchase of inventory
undertaken in the ordinary course of business, (iii) the sale of accounts
receivable that are more than 180 days past due; or
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(iv) any other contract in the ordinary course of business and the total
payments by the Company contemplated thereby do not exceed $1,000,000 and
have a term of no longer than one year;
(m) will maintain insurance consistent with past practices for its
businesses and properties;
(n) will not make any change in its accounting (including tax accounting)
methods, principles or practices, except as may be required by generally
accepted accounting principles and except, in the case of tax accounting
methods, principles or practices, in the ordinary course of business of the
Company or any of its Subsidiaries; and
(o) will not take or agree in writing or otherwise to take any action
which would make any of the representations or warranties of the Company
contained in this Agreement untrue or incorrect or prevent the Company from
performing or cause the Company not to perform its covenants hereunder.
6.3 Conduct of Business by Newco. Prior to the Effective Time, except as
contemplated by any other provision of this Agreement, unless the Company has
previously consented in writing thereto, Newco:
(a) will not amend its certificate of incorporation or by-laws (other
than by-law amendments which are not material to Newco or to the
consummation of the transactions contemplated by this Agreement);
(b) will, upon the occurrence of any event or change in circumstances as
a result of which any representation or warranty of any of Newco contained
in Article 5 would be untrue or incorrect if such representation or
warranty were made immediately following the occurrence of such event or
change in circumstance, promptly (and in any event within two business days
of an executive officer of Newco obtaining knowledge thereof) notify the
Company thereof; and
(c) will not take or agree in writing or otherwise to take any action
which would make any of the representations or warranties of Newco
contained in this Agreement untrue or incorrect or prevent Newco from
performing or cause Newco not to perform its covenants hereunder.
6.4 Meeting of Stockholders. The Company will take all action necessary in
accordance with applicable law and its certificate of incorporation and by-
laws to convene a meeting of its stockholders (the "Stockholders' Meeting") as
promptly as practicable after the date hereof to consider and vote upon the
adoption of this Agreement and the approval of the Merger, the other
transactions contemplated hereby and such other related matters as it deems
appropriate. The Board of Directors of the Company will recommend such
adoption and approval and the Company and the Board will each take all lawful
action to solicit such approval, including, without limitation, timely mailing
the Proxy Statement; provided, however, that the Board of Directors of the
Company may withdraw, modify or change such recommendation if the Company
receives an Alternative Proposal and the Board believes based upon
consultation with its outside counsel and its financial advisor that a failure
to do so would violate its fiduciary duties to the stockholders of the Company
imposed by law.
6.5 Filings, Other Action. Subject to the terms and conditions herein
provided, the parties will: (a) use all reasonable efforts to cooperate with
one another in (i) determining which filings are required to be made prior to
the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several
states and foreign jurisdictions in connection with the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
and (ii) timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations, including the Proxy Statement and
information required by Schedule 13E-3; and (b) use all reasonable efforts to
take, or cause to be taken, all other action and do, or cause to be done, all
other things necessary, proper or appropriate to consummate and make effective
the transactions contemplated by this Agreement. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors of the parties
will take all such necessary action.
6.6 Access to Information; Confidentiality. From the date hereof to the
Effective Time, the Company will (a) allow all designated officers, attorneys,
accountants and other representatives of Newco reasonable access at all
reasonable times upon reasonable notice to the offices, records and files,
correspondence, audits and
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properties, as well as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to the business and
affairs, of the Company and its Subsidiaries, as the case may be, (b) furnish
to Newco, Newco's counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as
such persons may reasonably request, (c) instruct the employees, counsel and
financial advisors of the Company to cooperate with the other in the other's
investigation of the business of it and its Subsidiaries and (d) keep Newco
fully apprised and informed of all significant developments with respect to
the assets, business activities, financial condition, earnings and prospects
of the Company and its Subsidiaries. Newco will be permitted to make extracts
from or to make copies of such books and records as may be reasonably
necessary. Newco shall keep such information confidential, subject to the
requirements of any governmental or other authorities, except with respect to
information that is ascertainable from public or published information or
trade sources.
6.7 Publicity. The initial press release relating to the execution of this
Agreement will be a joint press release and thereafter the Company and Newco
will, subject to their respective legal obligations (including requirements of
stock exchanges and other similar regulatory bodies), consult with each other,
and use reasonable efforts to agree upon the text of any press release, before
issuing any such press release or otherwise making public statements with
respect to the transactions contemplated hereby and in making any filings with
any Governmental Entity or with any national securities exchange with respect
thereto.
6.8 Further Action. Each party hereto will, subject to the fulfillment at or
before the Effective Time of each of the conditions of performance set forth
herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger.
6.9 Expenses. Except as provided in Article 8, whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby will be paid by the party incurring
such expenses except as expressly provided herein and except that the expenses
incurred in connection with printing and mailing the Proxy Statement, will be
shared equally by the Company and Newco.
6.10 Insurance; Indemnity. (a) From and after the Effective Time, the
Surviving Corporation will indemnify, defend and hold harmless, to the fullest
extent that the Company would be required under its certificate of
incorporation, by-laws, indemnification agreements with its officers and
directors (the "Indemnification Agreements") and applicable law, each person
who is now or was during the past six months prior to the date hereof an
officer or director of the Company (individually, an "Indemnified Party" and
collectively, the "Indemnified Parties"), against all losses, claims, damages,
liabilities, costs or expenses (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation arising out of or pertaining to acts or
omissions, or alleged acts or omissions, by them in their capacities as such
occurring at or prior to the Effective Time. In the event of any such claim,
action, suit, proceeding or investigation (an "Action"), any Indemnified Party
wishing to claim indemnification will promptly notify the Surviving
Corporation thereof (provided that failure to so notify the Surviving
Corporation will not affect the obligations of the Surviving Corporation to
provide indemnification except to the extent that the Surviving Corporation
shall have been prejudiced as a result of such failure). With respect to any
Action for which indemnification is requested, the Surviving Corporation will
be entitled to participate therein at its own expense and, except as otherwise
provided below, to the extent that it may wish, the Surviving Corporation may
assume the defense thereof, with counsel reasonably satisfactory to the
Indemnified Party. After notice from the Surviving Corporation to the
Indemnified Party of its election to assume the defense of an Action, the
Surviving Corporation will not be liable to the Indemnified Party for any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof, other than as provided below. The
Surviving Corporation will not settle any Actions without the consent of the
Indemnified Party where such settlement includes an admission of civil or
criminal liability on behalf of an officer or director or requires any payment
to be made by the Indemnified Party. The Indemnified Party will have the right
to employ counsel in any Action, but the fees and expenses of such counsel
incurred after notice from the Surviving Corporation of its assumption of the
defense thereof will be at the expense of the Indemnified Party, unless
(i) the employment of counsel by the Indemnified Party has been authorized by
the Surviving Corporation in writing,
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(ii) the Indemnified Party will have reasonably concluded upon the advice of
counsel that there may be a conflict of interest between the Indemnified Party
and the Surviving Corporation in the conduct of the defense of an Action, or
(iii) the Surviving Corporation shall not in fact have employed counsel to
assume the defense of an Action, in each of which cases the reasonable fees
and expenses of counsel selected by the Indemnified Party will be at the
expense of the Surviving Corporation. Notwithstanding the foregoing, the
Surviving Corporation will not be liable for any settlement effected without
its written consent and the Surviving Corporation will not be obligated
pursuant to this Section 6.10(a) to pay the fees and disbursements of more
than one counsel (including local counsel) for all Indemnified Parties in any
single Action, except to the extent two or more of such Indemnified Parties
have conflicting interests in the outcome of such action. In the event of any
conflict between the provisions of the Indemnification Agreements and this
Section 6.10, the provisions of the Indemnification Agreements shall prevail.
(b) For a period of four years after the Effective Time, the Surviving
Corporation will maintain officers' and directors' liability insurance
covering the Indemnified Parties who are currently covered, in their
capacities as officers and directors, by the Company's existing officers' and
directors' liability insurance policies on terms substantially no less
advantageous to the Indemnified Parties than such existing insurance;
provided, however, that the Surviving Corporation will not be required in
order to maintain or procure such coverage to pay premiums on an annualized
basis in excess of 200% of the current annual premium paid by the Company for
its existing coverage (the "Cap") (which current annual premium the Company
represents and warrants to be approximately $135,000); and provided, further,
that if equivalent coverage cannot be obtained, or can be obtained only by
paying an annual premium in excess of the Cap, the Surviving Corporation will
only be required to obtain as much coverage as can be obtained by paying
premiums on an annualized basis equal to the Cap.
(c) The provisions of this Section 6.10 will survive the consummation of the
Merger and expressly are intended to benefit each of the Indemnified Parties.
6.11 Employee Benefits. Notwithstanding anything to the contrary contained
herein, from and after the Effective Time, the Surviving Corporation will have
sole discretion over the hiring, promotion, retention and firing of employees
of the Surviving Corporation. Notwithstanding the immediately preceding
sentence, the Surviving Corporation will (i) satisfy all obligations of the
Company or any of its Subsidiaries under any existing severance agreement
between the Company or any of its Subsidiaries and any of their officers or
employees and (ii) until the expiration of one year after the Effective Time,
satisfy all obligations of the Company or any of its Subsidiaries under their
current respective severance policies. The Surviving Corporation will provide
for the benefit of employees of the Surviving Corporation who were employees
of the Company immediately prior to the Effective Time "employee benefit
plans" within the meaning of Section 3(3) of ERISA (a) until the expiration of
one year after the Effective Time, that are, in the aggregate, substantially
comparable to the "employee benefit plans" provided to such individuals by the
Company or any Subsidiary on the date hereof, and (b) thereafter that are, at
the election of the Surviving Corporation, either (i) in the aggregate,
substantially comparable to the "employee benefit plans" provided to such
individuals by the Company or any Subsidiary on the date hereof or (ii) in the
aggregate, substantially comparable to the "employee benefit plans" provided
to similarly situated employees of the Surviving Corporation or its
Subsidiaries who were not employees of the Company or any Subsidiary
immediately prior to the Effective Time; provided, however, that
notwithstanding the foregoing (A) nothing herein will be deemed to require the
Surviving Corporation to modify the benefit formulas under any pension, profit
sharing or savings plan of the Company or any Subsidiary in a manner that
increases the aggregate expenses thereof as of the date hereof in order to
comply with the requirements of ERISA or the Code, (B) employee stock
ownership, stock bonus, stock option and similar equity-based plans, programs
and arrangements of the Company or any of its Subsidiaries are not encompassed
within the meaning of the term "employee benefit plans" hereunder, and (C)
nothing herein will obligate the Surviving Corporation to continue any
particular "employee benefit plan" for any period after the Effective Time.
6.12 Conveyance Taxes. The Company and Newco will cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales,
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use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees and any similar taxes which become
payable in connection with the transactions contemplated by this Agreement
that are required or permitted to be filed on or before the Effective Time and
each party will pay any such tax or fee which becomes payable by it on or
before the Effective Time.
7. CONDITIONS
7.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligations of each party to effect the Merger will be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved in the manner required by applicable law by the holders of
the issued and outstanding shares of capital stock of the Company.
(b) Neither of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement. In the
event any such order or injunction shall have been issued, each party
agrees to use its reasonable best efforts to have any such injunction
lifted.
(c) The Company shall have (i) consummated the sale of its accounts
receivable to Household and (ii) executed definitive documentation in
connection with the senior credit facility with Heller and shall have
sufficient availability thereunder to consummate the Merger.
(d) All consents, authorizations, orders and approvals of (or filings or
registrations with) any Governmental Entity required in connection with the
execution, delivery and performance of this Agreement shall have been
obtained or made, except for filings in connection with the Merger and any
other documents required to be filed after the Effective Time and except
where the failure to have obtained or made any such consent, authorization,
order, approval, filing or registration would not have a material adverse
effect on the business, financial condition or results of operations of the
Surviving Corporation following the Effective Time.
7.2 Conditions to Obligation of Company To Effect the Merger. The obligation
of the Company to effect the Merger will be subject to the fulfillment at or
prior to the Closing Date of the following additional conditions:
(a) (i) The representations and warranties of Newco contained in this
Agreement shall have been true and correct in all material respects as of
the date hereof and (ii) the representations and warranties of Newco
contained in this Agreement and in any document delivered in connection
herewith shall be true and correct in all material respects as of the
Closing Date, except (A) for changes specifically permitted by this
Agreement and (B) that those representations and warranties which address
matters only as of a particular date shall remain true and correct in all
material respects as of such date.
(b) Newco shall have performed or complied in all material respects with
all agreements and conditions contained in this Agreement required to be
performed or complied with by it on or prior to the Closing Date.
(c) Newco shall have delivered to the Company a certificate, dated the
date of the Closing, signed by the President or any Vice President of
Newco, certifying as to the fulfillment of the conditions specified in
Section 7.2(a) and (b).
(d) Newco shall have obtained all material consents, waivers, approvals,
authorizations or orders and made all filings required in connection with
the authorization, execution and delivery of this Agreement by Newco and
the consummation by each of the transactions contemplated hereby.
7.3 Conditions to Obligation of Newco To Effect the Merger. The obligation
of Newco to effect the Merger will be subject to the fulfillment at or prior
to the Closing Date (or such other date as may be specified below) of the
following additional conditions:
(a) (i) The representations and warranties of the Company contained in
this Agreement shall have been true and correct in all material respects as
of the date hereof and (ii) the representations and warranties
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of the Company contained in this Agreement and in any document delivered in
connection herewith shall be true and correct in all material respects as
of the Closing Date, except (A) for changes specifically permitted by this
Agreement and (B) that those representations and warranties which address
matters only as of a particular date shall remain true and correct in all
material respects as of such date.
(b) The Company shall have performed or complied in all material respects
with all agreements and conditions contained in this Agreement required to
be performed or complied with by it on or prior to the Closing Date, unless
such failure to perform or comply is due to any act by, or omission of, any
member of the Buyout Group.
(c) The Company shall have delivered to Newco a certificate, dated the
date of the Closing, signed by the President or any Vice President of the
Company, certifying as to the fulfillment of the conditions specified in
Section 7.3(a) and (b).
(d) From the date of this Agreement through the Effective Time, there
shall not have occurred any material adverse change in the business,
properties, financial condition or results of operation of the Company or
any of its Subsidiaries.
(e) The Company shall have obtained all material consents, waivers,
approvals, authorizations or orders and made all filings required in
connection with the authorization, execution and delivery of this Agreement
by the Company and the consummation by it of the transactions contemplated
hereby.
(f) The Company or the Board of Directors of the Company shall have taken
any action needed to be taken to provide that options issued pursuant to
the Company Stock Plan will be treated as provided in Section 3.1(f)
hereof.
8. TERMINATION
8.1 Termination. Notwithstanding the provisions of Article 7, this Agreement
may be terminated and the Merger may be abandoned at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of the Company or Newco:
(a) by mutual written consent of the Company and Newco, or by mutual
action of their respective Boards of Directors;
(b) by either the Company or Newco if (i) any Governmental Entity shall
have issued any injunction or taken any other action permanently
restraining, enjoining or otherwise prohibiting the consummation of the
Merger or such injunction or other action shall have become final and
nonappealable, or (ii) any required approval of the stockholders of the
Company shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of stockholders or at
any adjournment thereof;
(c) by either the Company or Newco, so long as such party has not
breached its obligations hereunder, if the Merger shall not have been
consummated on or before December 31, 1997; provided, that the right to
terminate this Agreement under this Section 8.1(c) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of or resulted in the failure of the Merger to occur on
or before such date;
(d) by the Company if there has been a material breach of this Agreement
on the part of Newco with respect to any of its covenants, representations
or warranties contained herein and such breach has not been cured within 10
business days after written notice thereof from the Company;
(e) by Newco if there has been a material breach of this Agreement on the
part of the Company with respect to any of its covenants, representations
or warranties contained herein and such breach has not been cured within 10
business days after written notice thereof from Newco;
(f) by the Company as required to discharge the fiduciary obligations of
its Board of Directors under applicable law as advised in writing by
counsel and/or its financial advisor;
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(g) by Newco if the Board of Directors of the Company (i) shall have
withdrawn or modified, in any manner which is adverse to Newco, its
recommendation or approval of the Merger or this Agreement or shall have
resolved to do so or (ii) shall have recommended to the stockholders of the
Company any Alternative Proposal or any transaction described in the
definition of Alternative Proposal, or shall have resolved to do so.
8.2 Effect of Termination. (a) In the event of termination of this Agreement
by either the Company or Newco as provided in Section 8.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on
the part of Newco or the Company or their respective affiliates, officers,
directors or stockholders except (i) with respect to this Section 8.2, Section
8.3, 8.4 and Section 6.9 and except for the provisions of Sections 9.3, 9.4,
9.6, 9.8, 9.9, 9.12, and 9.13 and (ii) to the extent that such termination
results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, in
each case, as set forth in this Agreement.
(b) If this Agreement is terminated pursuant to Sections 8.1(e) (due to any
act by, or omission of, any member of the special committee), (f) or (g), and
such termination was not due to any act by, or omission of, any member of the
Buyout Group (not including the act of termination), then the Company shall
pay (or reimburse) all fees, costs and expenses (including fees and expenses
of accountants, attorneys and other advisors to Newco) incurred by or on
behalf of Newco in connection with the Merger, this Agreement and the
transactions contemplated thereby and hereby.
(c) The parties agree that the agreements contained in this Section 8.2 are
an integral part of the transactions contemplated by this Agreement and
constitute liquidated damages and not a penalty. If one party fails to
promptly pay to the other any fee due under Section 8.2(b), in addition to any
amounts paid or payable pursuant to such section, the defaulting party shall
pay the costs and expenses (including legal fees and expenses) in connection
with any action, including the filing of any lawsuit or other legal action,
taken to collect payment, together with interest on the amount of any unpaid
fee at the publicly announced prime rate of Citibank, N.A. from the date such
fee was required to be paid.
8.3 Extension; Waiver. At any time prior to the Effective Time, and subject
to applicable law, the parties hereto, by action taken or authorized by their
respective Boards of Directors, may, to the extent legally allowed: (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto; (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto; and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
8.4 Payment of Fees and Expenses. In the event that this Agreement is
terminated by Newco because the Company has breached any of its
representations or warranties hereunder and/or failed to fulfill or perform
any of its covenants or agreements hereunder, and such breach or failure is
due to any act by, or omission of, any member of the Buyout Group, then Newco
shall pay (or reimburse) all fees, costs and expenses (including fees and
expenses of accountants, attorneys and other advisors to the Company) incurred
by the Company in connection with the Merger, this Agreement and the
transactions contemplated thereby and hereby.
9. GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement will be deemed to the extent
expressly provided herein to be conditions to the Merger and will not survive
the Merger, provided, however, that the agreements contained in Article 3,
Section 6.9 and this Article 9 will survive the Merger and Sections 6.10,
6.11, 8.2 and 8.4 will survive termination.
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<PAGE>
9.2 Notices. Any notice required to be given hereunder will be sufficient if
in writing, and sent by facsimile transmission or by courier service (with
proof of service), hand delivery or certified or registered mail (return
receipt requested and first-class postage prepaid), addressed as follows:
If to Newco: If to the Company:
SFC Merger Company Seaman Furniture Company
c/o Resurgence Asset Management 300 Crossways Park Drive
1185 Avenue of the Americas--18th Woodbury, New York 11797
Fl. Attention: Barry J. Alperin
New York, New York 10036 Fax No.: 516/682-1610
Attention: James B. Rubin
Fax No.: 212/768-8078
With copies to:
With copies to:
Shereff, Friedman, Hoffman &
Jones, Day, Reavis & Pogue Goodman, LLP
599 Lexington Avenue 919 Third Avenue
New York, New York 10022 New York, New York 10022
Attention: John J. Hyland, Esq. Attention: Charles I. Weissman, Esq.
Fax No.: 212/755-7306 Fax No.: 212/758-9526
or to such other address as any party will specify by written notice so given,
and such notice will be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
9.3 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder will be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon and will inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except for the provisions of
Section 6.10 and 6.11, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective heirs, successors, executors, administrators and assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
9.4 Entire Agreement. This Agreement, the Exhibits, the Schedules and any
documents delivered by the parties in connection herewith constitute the
entire agreement between the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings between the parties with
respect thereto. No addition to or modification of any provision of this
Agreement will be binding upon any party hereto unless made in writing and
signed by all parties hereto.
9.5 Amendment. This Agreement may be amended by the parties hereto at any
time before or after approval of matters presented in connection with the
Merger by the stockholders of the Company but after any such stockholder
approval, no amendment will be made which by law requires the further approval
of such stockholders without obtaining such further approval. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
9.6 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws.
9.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered will be an
original, but all such counterparts will together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
9.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and will be given no substantive or
interpretive effect whatsoever.
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<PAGE>
9.9 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number will include the plural and
vice versa, and words denoting any gender will include all genders and words
denoting natural persons will include corporations and partnerships and vice
versa.
9.10 Waivers. Except as provided in this Agreement, no action taken pursuant
to this Agreement, including, without limitation, any investigation by or on
behalf of any party, will be deemed to constitute a waiver by the party taking
such action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder will not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision
hereunder.
9.11 Incorporation of Schedules. The Schedules attached hereto and referred
to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
9.12 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction will, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision will be
interpreted to be only so broad as is enforceable.
9.13 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
was not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties will be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any Delaware Court, this being
in addition to any other remedy to which they are entitled at law or in
equity.
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
Seaman Furniture Company, Inc.
/s/ Steven H. Halper
By: _________________________________
Name: Steven H. Halper
Title: Executive Vice President
SFC Merger Company
/s/ Alan Rosenberg
By: _________________________________
Name: Alan Rosenberg
Title: President
A-18
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
Certificate of Incorporation of
Seaman Furniture Company, Inc.
The undersigned, being the President of Seaman Furniture Company, Inc., does
hereby certify that this Amended and Restated Certificate of Incorporation was
duly adopted in accordance with Sections 242 and 245 of the General
Corporation Law of the State of Delaware and that the date of filing the
original certificate of incorporation with the Secretary of State of Delaware
was June 3, 1985 and further certifies as follows:
ARTICLE I
Name
Section 1.1. Name. The name of the corporation is Seaman Furniture Company,
Inc. (the "Company").
ARTICLE II
Registered Office and Registered Agent
Section 2.1. Office and Agent. The address of the Company's registered
office in the State of Delaware is Corporation Trust Center, 1209 Orange
Street, in the City of Wilmington, County of New Castle, Delaware 19801. The
name of the Company's registered agent at such address is The Corporation
Trust Company.
ARTICLE III
Corporate Purpose
Section 3.1. Purpose. The purpose of the Company is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
Capitalization
Section 4.1. Authorized Capital Stock. The Company is authorized to issue
three classes of capital stock, designated Class A Voting Common Stock, Class
B Non-Voting Common Stock and Preferred Stock. The total number of shares of
capital stock that the Company is authorized to issue is 1,500,000 shares,
consisting of 500,000 shares of Class A Common Stock, par value $0.01 per
share, 900,000 shares of Class B Common Stock, par value $0.01 per share, and
100,000 shares of Preferred Stock, par value $0.01 per share.
Section 4.2. Class A Common Stock. The holders of Class A Common Stock will
be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders for each share of Common Stock held of record by such holder as
of the record date for such meeting.
Section 4.3. Class B Common Stock. The holders of Class B Common Stock will
not be entitled to vote at any meeting.
Section 4.4. Preferred Stock. The Preferred Stock may be issued in one or
more series. The Board of Directors of the Company (the "Board") is hereby
authorized to issue the shares of Preferred Stock in such
A-1-1
<PAGE>
series and to fix from time to time before issuance the number of shares to be
included in any such series and the designation, relative powers, preferences,
and rights and qualifications, limitations, or restrictions of all shares of
such series. The authority of the Board with respect to each such series will
include, without limiting the generality of the foregoing, the determination
of any or all of the following:
(a) the number of shares of any series and the designation to distinguish
the shares of such series from the shares of all other series;
(b) the voting powers, if any, and whether such voting powers are full or
limited in such series;
(c) the redemption provisions, if any, applicable to such series,
including the redemption price or prices to be paid;
(d) whether dividends, if any, will be cumulative or noncumulative, the
dividend rate of such series, and the dates and preferences of dividends on
such series;
(e) the rights of such series upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the Company;
(f) the provisions, if any, pursuant to which the shares of such series
are convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or classes of
stock, or any other security, of the Company or any other corporation or
other entity, and the price or prices or the rates of exchange applicable
thereto;
(g) the right, if any, to subscribe for or to purchase any securities of
the Company or any other corporation or other entity;
(h) the provisions, if any, of a sinking fund applicable to such series;
and
(i) any other relative, participating, optional, or other special powers,
preferences, rights, qualifications, limitations, or restrictions thereof;
all as may be determined from time to time by the Board and stated in the
resolution or resolutions providing for the issuance of such Preferred Stock
(collectively, a "Preferred Stock Designation").
ARTICLE V
Amendments to By-Laws
Section 5.1. Amendments to By-Laws. Except as otherwise provided by law or
by the By-Laws or this Certificate of Incorporation, the By-Laws may be
amended in any respect or repealed at any time, either (a) by the holders of a
majority of the stock issued and outstanding and entitled to vote, or (b) at
any meeting of the Board, provided that no amendment adopted by the Board may
vary or conflict with any amendment adopted by the stockholders.
ARTICLE VI
Meetings of Stockholders
Section 6.1. Elections of Directors. Elections of directors need not be by
written ballot except and to the extent provided in the By-Laws of the
Company.
ARTICLE VII
Liability of a Director
Section 7.1. Director Liability. To the full extent permitted by the
Delaware General Corporation Law or any other applicable laws currently or
hereafter in effect, no Director of the Company will be personally liable
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<PAGE>
to the Company or its stockholders for or with respect to any acts or
omissions in the performance of his or her duties as a Director of the
Company. Any repeal or modification of this Article VII will not adversely
affect any right or protection of a Director of the Company existing prior to
such repeal or modification.
ARTICLE VIII
Indemnification
Section 8.1. Indemnification. Each person who is or was or had agreed to
become a Director or officer of the Company, and each such person who is or
was serving or who had agreed to serve at the request of the Board or an
officer of the Company as an employee or agent of the Company or as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other entity, whether for profit or not for profit
(including the heirs, executors, administrators, or estate of such person),
will be indemnified by the Company to the full extent permitted by the
Delaware General Corporation Law or any other applicable law as currently or
hereafter in effect and will be entitled to advancement of expenses in
connection therewith. The right of indemnification and of advancement of
expenses provided in this Article VIII (a) will not be exclusive of any other
rights to which any person seeking indemnification or advancement of expenses
may otherwise be entitled, including without limitation pursuant to any
contract approved by a majority of the Whole Board (whether or not the
Directors approving such contract are or are to be parties to such contract or
similar contracts), and (b) will be applicable to matters otherwise within its
scope whether or not such matters arose or arise before or after the adoption
of this Article VIII. Without limiting the generality or the effect of the
foregoing, the Company may adopt By-Laws, or enter into one or more agreements
with any person, which provide for indemnification and/or advancement of
expenses greater or different than that provided in this Article VIII or the
Delaware General Corporation Law. Any amendment or repeal of, or adoption of
any provision inconsistent with, this Article VIII will not adversely affect
any right or protection existing hereunder, or arising out of the facts
occurring, prior to such amendment, repeal, or adoption and no such amendment,
repeal, or adoption will affect the legality, validity, or enforceability of
any contract entered into or right granted prior to the effective date of such
amendment, repeal, or adoption.
IN WITNESS WHEREOF, the undersigned has executed this Amended and Restated
Certificate of Incorporation and affirmed that the statements made herein are
true under penalties of perjury this day of , 1997.
_____________________________________
Alan Rosenberg
President
_____________________________________
Robert Webber
Vice President
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<PAGE>
EXHIBIT B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
BY-LAWS
OF
SEAMAN FURNITURE COMPANY, INC.
AS OF , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I
Offices
1.01 Registered Office.................................................. 1
1.02 Other Offices...................................................... 1
ARTICLE II
Meeting of Stockholders
2.01 Time and Place of Meetings......................................... 1
2.02 Annual Meeting..................................................... 1
2.03 Special Meetings................................................... 1
2.04 Notice of Meetings................................................. 1
2.05 Quorum............................................................. 1
2.06 Voting............................................................. 2
2.07 Stockholders' Consent in Lieu of Meeting........................... 2
ARTICLE III
Board of Directors
3.01 Function........................................................... 2
3.02 Number, Election, and Terms........................................ 2
3.03 Vacancies and Newly Created Directorships.......................... 2
3.04 Removal............................................................ 3
3.05 Resignation........................................................ 3
3.06 Regular Meetings................................................... 3
3.07 Special Meetings................................................... 3
3.08 Quorum............................................................. 3
3.09 Written Action..................................................... 3
3.10 Participation in Meetings by Telephone Conference.................. 3
3.11 Compensation....................................................... 3
3.12 Rules.............................................................. 4
ARTICLE IV
Notices
4.01 Generally.......................................................... 4
4.02 Waivers............................................................ 4
ARTICLE V
Officers
5.01 Generally.......................................................... 4
5.02 Compensation....................................................... 4
5.03 Term of Office, Resignation and Removal............................ 4
5.04 Authority and Duties............................................... 5
ARTICLE VI
Stock
6.01 Certificates....................................................... 5
6.02 Transfers.......................................................... 5
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
6.03 Lost, Stolen, or Destroyed Certificates............................ 5
6.04 Record Dates....................................................... 5
6.05 Classes of Stock................................................... 5
ARTICLE VII
Indemnification
7.01 Damages and Expenses............................................... 6
7.02 Insurance, Contracts, and Funding.................................. 6
ARTICLE VIII
General
8.01 Fiscal Year........................................................ 6
8.02 Seal............................................................... 6
8.03 Reliance upon Books, Reports, and Records.......................... 7
8.04 Time Periods....................................................... 7
8.05 Amendments......................................................... 7
8.06 Certain Defined Terms.............................................. 7
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
SEAMAN FURNITURE COMPANY, INC.
ARTICLE I
Offices
Section 1.01. Registered Office. The registered office of Seaman Furniture
Company, Inc. in the State of Delaware shall be at the principal office of The
Corporation Trust Company in the City of Wilmington, County of New Castle, and
the registered agent in charge thereof shall be The Corporation Trust Company.
Section 1.02. Other Offices. The Company may also have an office or offices
at any other place or places within or without the State of Delaware as the
Board may from time to time determine or the business of the Company may from
time to time require.
ARTICLE II
Meetings of Stockholders
Section 2.01. Time and Place of Meetings. All meetings of the stockholders
for the election of Directors or for any other purpose will be held at such
time and place, within or without the State of Delaware, as may be designated
by the Board or, in the absence of a designation by the Board, the President,
or the Secretary, and stated in the notice of meeting. The Board may postpone
and reschedule any previously scheduled annual or special meeting of the
stockholders.
Section 2.02. Annual Meeting. An annual meeting of the stockholders will be
held in the third week of September or on such other date and time as may be
designated from time to time by the Board, at which meeting the stockholders
will elect by a plurality vote the Directors to succeed those whose terms
expire and will transact such other business as may properly be brought before
the meeting.
Section 2.03. Special Meetings. Special meetings of the stockholders may be
called by the Board, and may be called by (a) the President, or (b) the
Secretary within 10 calendar days after receipt of the written request of the
holders of a majority of the stock issued and outstanding and entitled to
vote. Any such request must be sent to the President or the Secretary and must
state the purpose or purposes of the proposed meeting. Special meetings of
holders of the outstanding Preferred Stock, if any, may be called in the
manner and for the purposes provided in the applicable Preferred Stock
Designation.
Section 2.04. Notice of Meetings. Written notice of every meeting of the
stockholders, stating the place, date, and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, will be given not less than 10 nor more than 60 calendar days before
the date of the meeting to each stockholder of record entitled to vote at such
meeting, except as otherwise provided herein or by law. When a meeting is
adjourned to another place, date, or time, written notice need not be given of
the adjourned meeting if the place, date, and time thereof are announced at
the meeting at which the adjournment is taken; provided, however, that if the
adjournment is for more than 30 calendar days, or if after the adjournment a
new record date is fixed for the adjourned meeting, written notice of the
place, date, and time of the adjourned meeting must be given in conformity
herewith. At any adjourned meeting, any business may be transacted which
properly could have been transacted at the original meeting.
Section 2.05. Quorum. Except as otherwise provided by law or a Preferred
Stock Designation, the holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or
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<PAGE>
represented by proxy, will constitute a quorum at all meetings of the
stockholders for the transaction of business thereat. If, however, such quorum
is not present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, will have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present or
represented.
Section 2.06. Voting. Except as otherwise provided by law, by the
Certificate of Incorporation or a Preferred Stock Designation, each
stockholder will be entitled at every meeting of the stockholders to one vote
for each share of stock having voting power standing in the name of such
stockholder on the books of the Company on the record date for the meeting and
such votes may be cast either in person or by written proxy. Every proxy must
be duly executed and filed with the Secretary. A stockholder may revoke any
proxy that is not irrevocable by attending the meeting and voting in person or
by filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary. The vote upon any question
brought before a meeting of the stockholders may be by voice vote, unless
otherwise required by the Certificate of Incorporation or these By-Laws or
unless the President or the holders of a majority of the outstanding shares of
all classes of stock entitled to vote thereon present in person or by proxy at
such meeting otherwise determine. Every vote taken by written ballot will be
counted by the inspectors of election. When a quorum is present at any
meeting, the affirmative vote of the holders of a majority of the stock
present in person or represented by proxy at the meeting and entitled to vote
on the subject matter and which has actually been voted will be the act of the
stockholders, except in the election of Directors or when a different vote is
required as otherwise provided in these By-Laws, the Certificate of
Incorporation, a Preferred Stock Designation, or by law.
Section 2.07. Stockholders' Consent in Lieu of Meeting. Any action required
by the General Corporation Law of the State of Delaware to be taken at any
annual or special meeting of stockholders, and any action which may be taken
at any annual or special meeting of stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the recordholders of
shares having not less than the minimum number of votes necessary to authorize
or take such action at a meeting at which the recordholders of all shares
entitled to vote thereon were present and voted.
ARTICLE III
Board of Directors
Section 3.01. Function. The business and affairs of the Company will be
managed under the direction of its Board.
Section 3.02. Number, Election, and Terms. (a) Subject to the rights, if
any, of the Preferred Stock to elect additional Directors under circumstances
specified in a Preferred Stock Designation, the Board shall consist of three
or more members. The authorized number of Directors may be determined from
time to time only by a vote of a majority of the Whole Board. The Directors,
including those who may be elected by the holders of any series of the
Preferred Stock, shall be elected at the annual meeting of the stockholders,
except as provided in Section 3.03 of this Article, and each Director elected
shall hold office until his successor is elected and qualified, except as
required by law.
(b) Notwithstanding anything contained in the Certificate of Incorporation
or these By-Laws to the contrary, the term of any Director who is also an
officer of the Company will terminate automatically, without any further
action on the part of the Board or such Director, upon the termination for any
reason of such Director in his or her capacity as an officer of the Company.
Section 3.03. Vacancies and Newly Created Directorships. Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, newly created directorships resulting from any increase in the
number of Directors and any
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vacancies on the Board resulting from death, resignation, disqualification,
removal, or other cause which occur between annual meetings of the
stockholders will be filled by the affirmative vote of a majority of the
remaining Directors then in office, even though less than a quorum of the
Board, by a sole remaining Director or by the holders of a majority of the
stock issued and outstanding and entitled to vote. Any Director elected in
accordance with the preceding sentence will hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor is elected
and qualified or such Director's earlier death, resignation, disqualification,
or removal. No decrease in the number of Directors constituting the Board will
shorten the term of an incumbent Director.
Section 3.04. Removal. Subject to the rights, if any, of the holders of any
series of Preferred Stock to elect additional Directors under circumstances
specified in a Preferred Stock Designation, any Director may be removed from
office with or without cause by the holders of a majority of the voting stock
or by the affirmative vote of the Whole Board and only for cause.
Section 3.05. Resignation. Any Director may resign at any time by giving
written notice of his or her resignation to the President or the Secretary.
Any resignation will be effective upon actual receipt by any such person or,
if later, as of the date and time specified in such written notice.
Section 3.06. Regular Meetings. Regular meetings of the Board may be held
immediately after the annual meeting of the stockholders and at such other
time and place either within or without the State of Delaware as may from time
to time be determined by the Board. Notice of regular meetings of the Board
need not be given.
Section 3.07. Special Meetings. Special meetings of the Board may be called
by the President on one day's notice to each Director by whom such notice is
not waived, given either personally or by mail, telephone, telegram, telex,
facsimile, or similar medium of communication, and will be called by the
President in like manner and on like notice on the written request of a
majority of the total number of Directors then in office. Special meetings of
the Board may be held at such time and place either within or without the
State of Delaware as is determined by the Board or specified in the notice of
any such meeting.
Section 3.08. Quorum. At all meetings of the Board, a majority of the total
number of Directors then in office will constitute a quorum for the
transaction of business. Except for the designation of committees as
hereinafter provided and except for actions required by these By-Laws or the
Certificate of Incorporation to be taken by a majority of the Whole Board, the
act of a majority of the Directors present at any meeting at which there is a
quorum will be the act of the Board. If a quorum is not present at any meeting
of the Board, the Directors present thereat may adjourn the meeting from time
to time to another place, time, or date, without notice other than
announcement at the meeting, until a quorum is present.
Section 3.09. Written Action. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes or proceedings of the Board or Committee.
Section 3.10. Participation in Meetings by Telephone Conference. Members of
the Board or any committee designated by the Board may participate in a
meeting of the Board or any such committee, as the case may be, by means of
telephone conference or similar means by which all persons participating in
the meeting can hear each other, and such participation in a meeting will
constitute presence in person at the meeting.
Section 3.11. Compensation. The Board may establish the compensation for,
and reimbursement of the expenses of, Directors for membership on the Board
and on committees of the Board, attendance at meetings of the Board or
committees of the Board, and for other services by Directors to the Company or
any of its majority-owned subsidiaries.
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<PAGE>
Section 3.12. Rules. The Board may adopt rules and regulations for the
conduct of meetings and the oversight of the management of the affairs of the
Company.
ARTICLE IV
Notices
Section 4.01. Generally. Except as otherwise provided by law, these By-Laws,
or the Certificate of Incorporation, whenever by law or under the provisions
of the Certificate of Incorporation or these By-Laws, notice is required to be
given to any Director or stockholder, it will not be construed to require
personal notice, but such notice may be given in writing, by mail, addressed
to such Director or stockholder, at the address of such Director or
stockholder as it appears on the records of the Company, with postage thereon
prepaid, and such notice will be deemed to be given at the time when the same
is deposited in the United States mail. Notice to Directors may also be given
by telephone, telegram, telex, facsimile, or similar medium of communication
or as otherwise may be permitted by these By-Laws.
Section 4.02. Waivers. Whenever any notice is required to be given by law or
under the provisions of the Certificate of Incorporation or these By-Laws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time of the event for which notice is to
be given, will be deemed equivalent to such notice. Attendance of a person at
a meeting will constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
ARTICLE V
Officers
Section 5.01. Generally. The officers of the Company will be elected by the
Board and will consist of a President (who, if the Board so specifies, may but
will not be required to be also the Chief Executive Officer), a Secretary, and
a Treasurer. The Board of Directors may also choose any or all of the
following: one or more Vice Presidents (who may be given particular
designations with respect to authority, function, or seniority), and such
other officers as the Board may from time to time determine. Notwithstanding
the foregoing, by specific action the Board may authorize the President to
appoint any person to any office other than President, Secretary, or
Treasurer. Any number of offices may be held by the same person. Any of the
offices may be left vacant from time to time as the Board may determine. In
the case of the absence or disability of any officer of the Company or for any
other reason deemed sufficient by a majority of the Board, the Board may
delegate the absent or disabled officer's powers or duties to any other
officer or to any Director.
Section 5.02. Compensation. The compensation of all officers and agents of
the Company who are also Directors of the Company will be fixed by the Board
or by a committee of the Board. The Board may fix, or delegate the power to
fix, the compensation to an officer of other officers and agents of the
Company to an officer of the Company.
Section 5.03. Term of Office, Resignation and Removal. The officers of the
Company will hold office until their successors are elected and qualified or
their earlier death, resignation or removal. Any officer may resign at any
time by giving written notice of his or her resignation to the President or
the Secretary. Any resignation will be effective upon actual receipt by any
such person or, if later, as of the date and time specified in such written
notice. Any officer may be removed at any time by the affirmative vote of a
majority of the Whole Board. Any vacancy occurring in any office of the
Company may be filled by the Board or by the President as provided in By-Law
5.01.
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Section 5.04. Authority and Duties. Each of the officers of the Company will
have such authority and will perform such duties as are customarily incident
to their respective offices or as may be specified from time to time by the
Board.
ARTICLE VI
Stock
Section 6.01. Certificates. Certificates representing shares of stock of the
Company will be in such form as from time to time may be determined by the
Board, subject to applicable legal requirements. Each such certificate will be
numbered and its issuance recorded in the books of the Company, and such
certificate will exhibit the holder's name and the number of shares and will
be signed by, or in the name of, the Company by the President and the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer, and will also be signed by, or bear the facsimile signature of, a
duly authorized officer or agent of any properly designated transfer agent of
the Company. Any or all of the signatures and the seal of the Company, if any,
upon such certificates may be facsimiles, engraved, or printed. Such
certificates may be issued and delivered notwithstanding that the person whose
facsimile signature appears thereon may have ceased to be such officer at the
time the certificates are issued and delivered.
Section 6.02. Transfers. Upon surrender to the Company or the transfer agent
of the Company of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment, or authority to transfer, it will
be the duty of the Company to issue, or to cause its transfer agent to issue,
a new certificate to the person entitled thereto, cancel the old certificate,
and record the transaction upon its books.
Section 6.03. Lost, Stolen, or Destroyed Certificates. The Secretary may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Company alleged to have
been lost, stolen, or destroyed, upon the making of an affidavit of that fact,
satisfactory to the Secretary, by the person claiming the certificate of stock
to be lost, stolen, or destroyed. As a condition precedent to the issuance of
a new certificate or certificates, the Secretary may require the owners of
such lost, stolen, or destroyed certificate or certificates to give the
Company a bond in such sum and with such surety or sureties as the Secretary
may direct as indemnity against any claims that may be made against the
Company with respect to the certificate alleged to have been lost, stolen, or
destroyed or the issuance of the new certificate.
Section 6.04. Record Dates. (a) In order that the Company may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the Board may fix a record date, which will not be
more than 60 nor less than 10 calendar days before the date of such meeting.
If no record date is fixed by the Board, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
will be at the close of business on the calendar day next preceding the day on
which notice is given, or, if notice is waived, at the close of business on
the calendar day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of the stockholders will apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
(b) In order that the Company may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion, or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date will not be
more than 60 calendar days prior to such action. If no record date is fixed,
the record date for determining stockholders for any such purpose will be at
the close of business on the calendar day on which the Board adopts the
resolution relating thereto.
Section 6.05. Classes of Stock. The designations, preferences, and relative
participating, optional or other special rights of the various classes of
stock or series thereof, and the qualifications, limitations, or
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restrictions thereof, will be set forth in full or summarized on the face or
back of the certificates which the Company issues to represent its stock or,
in lieu thereof, such certificates will set forth the office of the Company
from which the holders of certificates may obtain a copy of such information.
ARTICLE VII
Indemnification
Section 7.01. Damages and Expenses. (a) Without limiting the generality or
effect of Article VIII of the Certificate of Incorporation, the Company will
to the fullest extent permitted by applicable law as then in effect indemnify
any person (an "Indemnitee") who is or was involved in any manner (including
without limitation as a party or a witness) or is threatened to be made so
involved in any threatened, pending, or completed investigation, claim,
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (including without limitation any action, suit, or proceeding by
or in the right of the Company to procure a judgment in its favor) (a
"Proceeding") by reason of the fact that such person is or was or had agreed
to become a Director, officer, employee, or agent of the Company, or is or was
serving at the request of the Board or an officer of the Company as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, whether for profit or not for
profit, or anything done or not by such person in any such capacity, against
all expenses (including attorneys' fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such Proceeding. Such indemnification will be a contract right and will
include the right to receive payment in advance of any expenses incurred by an
Indemnitee in connection with such Proceeding upon receipt of an undertaking
by or on behalf of such person to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Company as
authorized by this By-Law 7.01 or otherwise.
(b) The right of indemnification provided in this By-Law 7.01 will not be
exclusive of any other rights to which any person seeking indemnification may
otherwise be entitled, and will be applicable to Proceedings commenced or
continuing after the adoption of this By-Law 7.01, whether arising from acts
or omissions occurring before or after such adoption.
(c) The indemnification and advancement of expenses provided by, or granted
pursuant to, this By-Law 7.01 shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors, and
administrators of such person.
Section 7.02. Insurance, Contracts, and Funding. The Company may purchase
and maintain insurance to protect itself and any Indemnitee against any
expenses, judgments, fines, and amounts paid in settlement or incurred by any
Indemnitee in connection with any Proceeding referred to in By-Law 7.01 or
otherwise, to the fullest extent permitted by applicable law as then in
effect. The Company may enter into contracts with any person entitled to
indemnification under By-Law 7.01 or otherwise, and may create a trust fund,
grant a security interest, or use other means (including without limitation a
letter of credit) to ensure the payment of such amounts as may be necessary to
effect indemnification as provided in By-Law 7.01.
ARTICLE VIII
General
Section 8.01. Fiscal Year. The fiscal year of the Company shall be fixed
from time to time by the Board.
Section 8.02. Seal. The Board may adopt a corporate seal and use the same by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
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Section 8.03. Reliance upon Books, Reports, and Records. Each Director, each
member of a committee designated by the Board, and each officer of the Company
will, in the performance of his or her duties, be fully protected in relying
in good faith upon the records of the Company and upon such information,
opinions, reports, or statements presented to the Company by any of the
Company's officers or employees, or committees of the Board, or by any other
person or entity as to matters the Director, committee member, or officer
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Company.
Section 8.04. Time Periods. In applying any provision of these By-Laws that
requires that an act be done or not be done a specified number of days prior
to an event or that an act be done during a period of a specified number of
days prior to an event, calendar days will be used unless otherwise specified,
the day of the doing of the act will be excluded, and the day of the event
will be included.
Section 8.05. Amendments. Except as otherwise provided by law or by the
Certificate of Incorporation or these By-Laws, these By-Laws may be amended in
any respect or repealed at any time, either (a) by the holders of a majority
of the stock issued and outstanding and entitled to vote, or (b) at any
meeting of the Board, provided that no amendment adopted by the Board may vary
or conflict with any amendment adopted by the stockholders.
Section 8.06. Certain Defined Terms. Terms used herein with initial capital
letters that are not otherwise defined are used herein as defined in the
Certificate of Incorporation.
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APPENDIX B
[LETTERHEAD OF WASSERSTEIN PERELLA & CO]
August 13, 1997
Committee of Independent Directors
Seaman Furniture Company, Inc.
300 Crossways Park Drive
Woodbury, NY 11797
Members of the Committee:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the holders of the common stock, par value $0.01
per share (the "Shares"), of Seaman Furniture Company, Inc. (the "Company") of
the consideration to be received by such holders pursuant to the terms of the
Agreement and Plan of Merger, dated as of August 13, 1997 (the "Merger
Agreement"), between the Company and SFC Merger Company ("Newco"). The Merger
Agreement provides for, among other things, the merger of Newco with and into
the Company pursuant to which each outstanding Share will be converted into
the right to receive $25.05 in cash (the "Merger"). The terms and conditions
of the Merger are set forth in more detail in the Merger Agreement.
In connection with rendering our opinion, we have reviewed drafts of the
Merger Agreement, and for purposes hereof, we have assumed that the final form
of the Merger Agreement will not differ in any material respect from the
drafts provided to us. We have also reviewed and analyzed certain publicly
available business and financial information relating to the Company for
recent years and interim periods to date, as well as certain internal
financial and operating information, including financial forecasts, analyses
and projections prepared by or on behalf of the Company and provided to us for
purposes of our analysis, and we have met with management of the Company to
review and discuss such information and, among other matters, the Company's
business, operations, assets, financial condition and future prospects.
We have reviewed and considered certain financial and stock market data
relating to the Company, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to the Company or
one or more of its businesses or assets, and we have reviewed and considered
the financial terms of certain recent acquisitions and business combination
transactions in the furniture retailing industry specifically, and in other
industries generally, that we believe to be reasonably comparable to the
Merger or otherwise relevant to our inquiry. We have also performed such other
studies, analyses, and investigations and reviewed such other information as
we considered appropriate for purposes of this opinion.
In our review and analysis and in formulating our opinion we have assumed
and relied upon the accuracy and completeness of all the financial and other
information provided to or discussed with us or publicly available, and we
have not assumed any responsibility for independent verification of any of
such information. We have also relied upon the reasonableness and accuracy of
the financial projections, forecasts and analyses provided to us, and we have
assumed, with your consent, that such projections, forecasts and analyses were
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the Company's management. We express no
opinion with respect to such projections, forecasts and analyses or the
assumptions upon which they are based. In addition, we have not reviewed any
of the books and records of the
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Company, or assumed any responsibility for conducting a physical inspection of
the properties or facilities of the Company, or for making or obtaining an
independent valuation or appraisal of the assets or liabilities of the
Company, and no such independent valuation or appraisal was provided to us. We
have assumed that the transactions described in the Merger Agreement will be
consummated on the terms set forth therein, without material waiver or
modification. Our opinion is necessarily based on economic and market
conditions and other circumstances as they exist and can be evaluated by us as
of the date hereof.
We are acting as financial advisor to the Committee of Independent Directors
of the Company (the "Committee") in connection with the proposed Merger and
will receive a fee for our services, a portion of which is contingent on the
consummation of a transaction. We will also receive a fee for rendering this
opinion. In the ordinary course of our business, we may actively trade
securities of the Company for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion addresses only the fairness from a financial point of view to
the shareholders of the Company (other than M.D. Sass Associates, Inc., T.
Rowe Price Recovery Fund, L.P., Carl Marks Management Co. L.P., certain
members of senior management of the Company, and their respective affiliates)
of the consideration to be received by such shareholders in the Merger, and we
do not express any views on any other terms of the Merger. Specifically, our
opinion does not address the underlying business decision to effect the
transactions contemplated by the Merger Agreement.
It is understood that this letter is for the benefit and use of the
Committee in its consideration of the Merger. Except for inclusion in its
entirety in a proxy statement relating to the Merger or as may otherwise be
required by law or by a court of competent jurisdiction, this letter may not
be quoted, used or reproduced for any other purpose without our prior written
consent. This opinion does not constitute a recommendation to any shareholder
with respect to how such holder should vote with respect to the Merger, and
should not be relied upon by any shareholder as such.
Based upon and subject to the foregoing, including the various assumptions
and limitation set forth herein, it is our opinion that as of the date hereof,
the $25.05 per Share cash consideration to be received by the shareholders of
the Company in the Merger is fair to such shareholders (other than M.D. Sass
Associates, Inc., T. Rowe Price Recovery Fund, L.P., Carl Marks Management Co.
L.P., certain members of senior management of the Company, and their
respective affiliates) from a financial point of view.
Very truly yours,
/s/ Wasserstein Perella & Co. Inc.
_____________________________________
WASSERSTEIN PERELLA & CO., INC.
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APPENDIX C
(S)(S) 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
compiled with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S) 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251 (other than a merger effected pursuant to
(S) 251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or
(S) 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S) 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation
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of the certificates representing such stock. The Court's decree may be
enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of
any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (8 Del. C. 1953, (S) 262; 56
Del. Laws, c. 50; 56 Del. Laws, c. 186, (S) 24; 57 Del. Laws, c. 148,
(S)(S) 27-29; 59 Del. Laws, c. 106, (S) 12; 60 Del. Laws, c. 371, (S)(S) 3-12;
63 Del. Laws, c. 25, (S) 14; 63 Del. Laws, c. 152, (S)(S) 1,2; 64 Del. Laws,
c. 112, (S)(S) 46-54; 66 Del. Laws, c. 136, (S) 30-32; 66 Del. Laws, c. 352,
(S) 9; 67 Del. Laws, c. 376, (S)(S) 19, 20; 68 Del. Laws, c. 337, (S)(S) 3,4;
69 Del. Laws, c. 61, (S) 10; 69 Del. Laws, c. 262, (S)(S) 1-9; 70 Del. Laws,
c. 79, (S) 16; 70 Del. Laws, c. 186, (S) 1; 70 Del. Laws, c. 299, (S)(S) 2,3;
70 Del. Laws, c. 349, (S) 22.)
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APPENDIX D
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-21226
SEAMAN FURNITURE COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2751205
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
300 CROSSWAYS PARK DRIVE 11797
WOODBURY, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 496-9560
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ----------------------
<S> <C>
Common Stock, $.01 Par Value Nasdaq National Market
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the securities exchange act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [_]
As of July 15, 1997, the aggregate market value of voting stock held by non-
affiliates of the registrant was $20,578,012 based on the last reported sale
price of the registrant's Common Stock on the Nasdaq National Market System.
4,536,839 SHARES OF COMMON STOCK WERE OUTSTANDING ON JULY 15, 1997.
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ITEM 1. BUSINESS
GENERAL
Seaman Furniture Company, Inc. (the "Company" or "Seaman's") believes that
it is the largest regional specialty furniture retailer in the northeastern
United States in terms of sales and that it has the leading market position in
the greater New York metropolitan area. The Company currently operates a chain
of 41 stores. Of these, 27 are in the New York, New Jersey and Connecticut
Tri-State Area, 8 are in the Philadelphia metropolitan area and 6 are in the
Cleveland/Akron, Ohio metropolitan area. The move into the Cleveland/Akron
area, was the Company's first expansion beyond the Northeast. Seaman's stores
sell a variety of living room, bedroom, dining room and other home furniture
and accessories in contemporary, traditional, country and casual styles. The
Company was incorporated in Delaware in June 1985 as a successor to the
business founded by Julius Seaman, who opened the first "Seaman's" store in
Brooklyn, New York in 1933.
Seaman's retailing philosophy targets the broad sector of middle-income,
value-oriented consumers by providing value pricing, quality products,
enhanced customer service, quick delivery and in-store credit. This philosophy
is conveyed to consumers through Seaman's high-impact television, radio and
newspaper advertising.
MARKETING AND MERCHANDISING
Seaman's retailing philosophy is driven by its "narrow and deep"
merchandising strategy. The basis of this strategy is to carry and display in
each store a similar variety of furniture styles and models in a carefully
limited selection of fabrics, colors and finishes pre-selected by Seaman's
buyers. The "narrow and deep" merchandising strategy allows the Company to
purchase merchandise in large quantities at substantial savings to the Company
and, ultimately, the customer. The ability to purchase items in large
quantities also enables the Company to work with its suppliers to customize
merchandise so that the Company can offer items that are often exclusive to
its trading area. Seaman's also is able to offer quick delivery of merchandise
to its customers since less than 2% of Seaman's sales are special order items,
with the balance being items that are usually stocked in Seaman's warehouses.
Pricing decisions, including the timing and amount of promotions and
markdowns, are made centrally by Seaman's management and its buyers.
"The Package(R)" is an important element of Seaman's merchandising strategy.
In the 1970s, Seaman's stores implemented "The Package(R)" concept, which
encourages the purchase of a collection of complementary furniture items at a
significant savings compared to the already competitive prices of the
individual items in the collection. In the stores, furniture is displayed in
model room settings that present the furniture as coordinated collections in a
home environment, which enables customers to more easily envision the
furniture in their own homes, in addition to encouraging the purchase of
multiple pieces of furniture in one transaction. Seaman's mass media
advertising campaigns emphasize the value in this merchandising concept. The
majority of the dollar value of all merchandise sold over each of the last
three fiscal years was sold as part of a package of merchandise.
The Company carries contemporary, high-fashion, European-style furniture,
traditional, country and casual styles of furniture in its stores in order to
attract a base of customers with different style preferences. The Company's
store design strategy emphasizes this product mix by tailoring the environment
of each model room setting to the style of the furniture and by creating
distinct sales areas for each style of furniture. The Company currently
displays substantially the same merchandise mix in all of its stores. However,
it makes changes in a particular region's stores' merchandise mix based on
local nuances and preferences reported to the Company by regional and store
management.
The Company believes that it maintains relatively low inventories of
merchandise in relation to its sales by use of its inventory control system in
particular through use of the radio frequency, bar-code system in its 2
largest warehouses. Seaman's buyers monitor inventory regularly to maintain
levels required by its most recent sales trends. Daily computer reports are
available that show, among other things, sales by category and style of
furniture, which help the Company understand local preferences and market
conditions. The Company takes advantage of rapid merchandise turnover to
continually update and refresh the styles, fabrics, colors and finishes
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available. Seaman's average inventory turnover, including store display
samples, is approximately five times per year, which the Company believes is
among the highest in its industry.
All of Seaman's stores are generally open seven days a week. Each location
is staffed with trained management and sales personnel who are familiar with
the Company's merchandise, promotions and credit programs. Management
personnel are compensated on a salary and potential bonus basis, and sales
personnel are compensated on a salary and commission basis.
The Company provides a one-year limited warranty on all of the furniture it
sells. Pursuant to this limited warranty, the Company generally replaces or
repairs any defective merchandise or offers a merchandise certificate or
refund at the customer's option. The Company generally requires that its
suppliers stand behind its warranty. The Company could bear the cost, however,
if a supplier did not honor the warranty obligation.
STORE REDESIGN AND RENOVATION
The Company has been redesigning and renovating its existing stores and
designing its new stores to provide a more attractive in-store atmosphere.
This has been achieved by professionally redesigning and redecorating selling
space in existing stores and designing new stores in order to improve the
consumer's shopping experience and to enhance the appearance of displayed
merchandise. Seaman's design strategy focuses on partitioning store selling
space to create multiple room settings that include furniture, lamps and other
accessories suggesting how merchandise might look in the customer's home.
Since May 1993, the Company has invested approximately $4.9 million to
renovate its existing stores, and expects to invest approximately $1 million
on store renovations through fiscal 1998. Currently, 35 of Seaman's 41 stores
have been renovated or were initially designed under these new guidelines, and
the Company expects to complete the redesign and renovation of 3 more stores
in fiscal 1998.
COMPETITION
All aspects of the retail furniture business are highly competitive.
Business practices such as credit availability, its terms and selection of
merchandise vary widely among the Company's competitors. The Company believes
that the principal areas of competition with respect to its business are
price, delivery time and selection, and that it competes effectively in these
areas. The Company's competitors include individual furniture stores,
department and discount stores and chain stores, some of which have been
established in the same geographic areas as the Company's stores for long
periods of time. Some of the Company's competitors derive revenue from sales
of products other than furniture.
SUPPLIERS
The Company purchases all of its merchandise directly from approximately 170
domestic and foreign suppliers. The Company does not manufacture any of the
furniture it sells. Over the last three fiscal years, no supplier has provided
the Company with merchandise representing more than 6.5% of the Company's
purchases, and the Company is not dependent upon any single supplier for
merchandise. In fiscal 1997, the Company purchased approximately 80% of its
merchandise from 40 of its suppliers. The Company is diversified in all of its
product categories, with a minimum of at least three suppliers in all primary
categories. Although the Company has no long-term contracts or commitments
with any supplier, the Company has had long-term relationships with many of
its suppliers and believes that it is viewed as a valued customer due to its
prompt payment history, its low rate of merchandise returns because of its use
of clearance centers to liquidate slow-selling merchandise and its practice of
purchasing merchandise in large quantities. This ability to purchase items in
large quantities also enables the Company to work with its suppliers to
customize its merchandise in order to offer items that are often exclusive to
its trading area. While management believes that alternative sources of supply
are available for all merchandise purchased, purchases from these alternative
sources may be more costly both with respect to price and payment terms.
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Foreign suppliers provide the Company with approximately 30% of its
merchandise. The Company imports merchandise principally from suppliers in
Canada, Italy and the Far East. All of the Company's purchases from foreign
suppliers are based on U.S. dollar values and are paid in U.S. dollars without
adjustments for currency rate fluctuations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
WAREHOUSING, DISTRIBUTION AND DELIVERY
Seaman's purchasing strategy of pre-selecting and stocking specific
merchandise in its warehouses together with the size of its warehouses enables
the Company to take advantage of purchasing efficiencies and to store large
amounts of certain merchandise in order to ensure quick delivery. The majority
of items sold in Seaman's stores are delivered to the customer within two
weeks of the date of the written sale, or in some instances within a few days.
The Company believes that such quick delivery provides it with a distinct
advantage in its competitive markets.
The Company operates three warehouses to store its inventories of
merchandise which are located in Woodbridge, New Jersey (the "Woodbridge
warehouse"), Central Islip, New York (the "Islip warehouse") and Cleveland,
Ohio (the "Cleveland warehouse"). The Woodbridge warehouse, which is
approximately 450,000 square feet, is a leased facility. It services Seaman's
seven New Jersey stores, its eight Philadelphia area stores and five of its
New York stores. Approximately 39% of Seaman's sales in fiscal 1997 were
delivered from this facility. The Islip warehouse is owned and operated by the
Company and has approximately 248,000 square feet that services Seaman's
stores in Connecticut and its remaining New York stores. Approximately 30% of
the Company's sales in fiscal 1997 were delivered from this facility. The
Cleveland warehouse, which is a leased facility, is approximately 100,000
square feet and services the Ohio stores. Approximately 5% of Seaman's sales
were delivered from this facility. The term on this lease expires on May 30,
1998. See "Properties". The balance of the inventory is stored with and
delivered from either a public warehouse or certain suppliers who store and
deliver goods for the Company. The Company believes that these warehouses will
be sufficient to support Seaman's deliveries in its existing market areas over
the next two fiscal years.
In April 1996 the Company converted its Islip warehouse to a full radio
frequency inventory control system ("RF System"). The Company converted its
Woodbridge warehouse to a similar RF System in August 1996. The Company has no
plans to convert its Cleveland warehouse to an RF System in the near future.
Merchandise is delivered from the Woodbridge, Islip and Cleveland warehouses
to customers by two delivery companies, which acting as agents for the
Company, also collect cash balances due from customers. The Company has
written contracts with the delivery companies whereby the amounts paid by the
Company to these companies vary depending on the volume of merchandise
delivered and the distance traveled. The contracts with these delivery
companies are material to the Company. If one of the delivery companies were
to cease doing business with the Company, the second delivery company could
replace it or another delivery company could be found without a material
impact on the delivery process. It would be difficult, however, to replace
both delivery companies at the same time due to the start-up time necessary to
familiarize a new delivery company with the Company's operations.
The Company also permits customers to pick up some merchandise directly from
its stores, clearance centers and warehouses. Certain merchandise,
particularly store display items, discontinued styles and clearance items, is
delivered directly from Seaman's stores and clearance centers by small
independent truckers.
ADVERTISING AND PROMOTIONS
The Company believes it enjoys widespread name recognition in the greater
New York and Philadelphia metropolitan market areas, primarily due to
intensive, ongoing mass media advertising campaigns utilizing the Company's
trademarks "Seaman's(R)," "See Seaman's First(R)," "Seaman's Plus(R)" and "The
Package(R)." Advertising and sales promotions are important parts of Seaman's
overall merchandising strategy, emphasizing
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the reputation of the Company as a quality retailer and the value of "The
Package(R)" concept of merchandising. See "Business--Marketing and
Merchandising." Approximately 59% of Seaman's advertising budget for fiscal
1997 was for advertising in major New York, Philadelphia and Cleveland
metropolitan area newspapers and for the distribution of color circulars in
newspapers, while the majority of the remaining 41% was for local television
and radio advertising. Historically, the Company has not used direct mail as a
significant part of its advertising programs.
The Company continues to offer and advertise credit and product promotions
on a regular basis. Seaman's product promotions usually offer discounted
prices on specific individual items and on items that are merchandised
together in "The Package(R)" approach.
One of Seaman's most successful promotions has been its "No/No/No" campaign,
which offers qualifying customers the use of the Company's proprietary credit
card with no down payment (exclusive of sales tax and delivery charges),
deferred payments and interest free terms for a specified period, generally
three to four months, on certain purchases. These promotions not only serve to
bolster sales but have the added effects of providing additional customers for
its proprietary credit card program and an increased possibility that
customers will become repeat customers through continued use of their Seaman's
credit card. See "Business--Credit Operations."
INFORMATION SYSTEMS
The Company operates a computer system which was installed in July 1994. The
system integrates Seaman's financial, purchasing and inventory functions and
enables management to access credit, sales and inventory information quickly,
while providing many operating efficiencies for the Company. The Company
installed an RF System in its Islip warehouse in April 1996 and completed
installation of a similar system in its Woodbridge warehouse in August 1996.
CREDIT OPERATIONS
The Company offers its customers the option to make purchases using cash,
the Company's proprietary credit card or other major credit and charge cards
(MasterCard, Visa, Optima and Discover credit cards and the American Express
card). Generally, the Company requires a deposit covering sales tax and
delivery charges when a sale is made, with the balance payable upon or prior
to delivery of the merchandise.
The Company had provided in-house credit for its customers since the early
1980s. On August 5, 1997, the Company consummated the sale of substantially
all of its customer accounts receivable to Household Bank (Nevada), N.A.
("Household") for net proceeds of approximately $70 million. In connection
therewith, the Company also entered into a Merchant Agreement with Household,
dated August 1, 1997 with an effective date of August 5, 1997, pursuant to
which Household will provide revolving credit financing to individual
qualified customers of the Company through the issuance of a Seamans
proprietary credit card. The Company's proprietary credit card is offered to
qualified customers for the purchase of merchandise at any of Seaman's stores.
The Company currently offers special credit terms to its cardholders on a
promotional basis, such as no down payment on the furniture, deferred payments
and interest free promotions under the "No/No/No" program. See "Business--
Advertising and Promotions." Those customers who are approved for credit and
utilize the Company's own proprietary credit card, may spend up to their
approved credit limit on furniture purchases with a nominal down-payment.
Convenient, in-store credit approvals for Seaman's customers are processed in
a matter of minutes.
SEASONALITY AND CYCLICALITY
The Company's business generally is not subject to significant seasonal
variations. However, the Company's business is significantly influenced by the
general economy, consumer confidence and disposable income, and the housing
markets in the areas where its stores are located.
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TRADEMARKS
The Company's name is well established in the greater New York and
Philadelphia metropolitan markets served by the Company's stores, and
management believes that the reputation of that trade name is important. The
Company and its subsidiaries do not have any material patents or trademarks,
except for the Company's trademarks "The Package(R)," "See Seaman's First(R),"
"Seaman's Plus(R)" and "Fabric Bond." The Company is in the process of
registering an additional trademark, "The Sensible Way to a Beautiful Home."
EMPLOYEES
As of April 30, 1997, the Company had 1,104 full-time employees. Four
collective bargaining agreements with Local 875 of the International
Brotherhood of Teamsters ("Local 875") are currently in force. Contracts
covering the employment of the New York, New Jersey, Connecticut and
Philadelphia sales staff, the New York, New Jersey, Connecticut, Philadelphia
store porters and certain Islip and Woodbridge warehouse staff are due to
expire on January 2, 2000, March 1, 2000, December 29, 1998 and August 15,
2000, respectively. Except for the Islip union members, who receive health
coverage from a Company sponsored plan under the collective bargaining
agreements with Local 875 the Company contributes to the union's welfare and
pension funds. For its nonunion employees, the Company provides health,
dental, life and disability insurance coverage. The Company also has a defined
contribution 401(k) savings plan covering nonunion employees. The Company has
never had a strike or work stoppage.
1988 LEVERAGED BUYOUT AND SUBSEQUENT REORGANIZATION
Following an initial public offering of Seaman's common stock in 1985 and a
secondary offering in 1986, the Company was taken private in a leveraged
buyout (the "LBO") by affiliates of Kohlberg Kravis Roberts & Co., L.P. in
1988, incurring debt of approximately $360 million. The Company experienced a
considerable, unanticipated decline in sales volume, operating income and
liquidity in the years 1989 through 1991 due, among other things, to changes
in business philosophy (including cutting merchandise margins, de-emphasizing
"The Package(R)" concept and expanding Seaman's emphasis on sales events in
its advertising) and the debt burden that resulted from the LBO, and was
exacerbated further by a significant economic recession in the United States
that was especially severe in the northeastern United States. Thereafter, the
Company filed for bankruptcy protection under Chapter 11 ("Chapter 11") of the
United States Bankruptcy Code in January 1992. The Company emerged from
Chapter 11 proceedings in October 1992, with its outstanding indebtedness
having been reduced from approximately $360 million to approximately $13
million. As part of its Chapter 11 proceedings, the Company adopted "fresh
start reporting." Current senior management of the Company was appointed by
the Board of Directors immediately following Seaman's emergence from Chapter
11 proceedings.
PROPOSAL TO TAKE THE COMPANY PRIVATE
SFC Merger Company, a Delaware corporation controlled by a group consisting
of the Company's senior management and majority stockholders, M.D. Sass
Associates, Inc., T. Rowe Price Recovery Fund, L.P., and Carl Marks Management
Co. L.P., executed a merger agreement (the "Merger Agreement") with the
Company on August 13, 1997. The Merger Agreement provides for, among other
things, cash consideration of $25.05 per share for each share of the Company's
outstanding common stock. Under the terms of the Merger Agreement, the Company
will survive the merger and be owned by the majority stockholders and the
current senior management of the Company. The Merger Agreement was approved by
a special committee of the Board of Directors of the Company consisting of two
independent directors. The special committee received a fairness opinion from
Wasserstein Perella & Co, Inc. The Merger Agreement is subject to certain
conditions, including financing and stockholder approval.
ITEM 2. PROPERTIES
The Company currently operates 41 stores: 27 stores in the New York, New
Jersey and Connecticut Tri-State Area, 8 stores in the Philadelphia
metropolitan area and 6 stores in the Cleveland/Akron metropolitan area.
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Most of Seaman's stores are located near heavily populated areas, shopping
malls or other retail operations and are near major highways or other major
thoroughfares. Seaman's stores range in size from approximately 10,000 to
47,000 square feet, and most of each store is devoted to selling space. The
average selling space per store is approximately 23,000 square feet. No store
accounted for more than 10% of the Company's net sales for fiscal 1997.
The opening of the stores in the Cleveland/Akron area was the Company's
initial expansion beyond the Northeast. The Cleveland stores range in size
from approximately 23,000 square feet to 37,000 square feet.
All of Seaman's stores are leased. See Note 7 of the Notes to Consolidated
Financial Statements for information with respect to specific leases. The
terms for the 41 leases expire at various times in the years from 1998 through
2023 with many having options to renew for additional periods. There can be no
assurances that the leases that expire will be renewed or renegotiated on the
same terms.
As discussed above, the Company operates three warehouse facilities: the
Woodbridge, New Jersey warehouse, the Central Islip, New York warehouse and
the Cleveland, Ohio warehouse. The Woodbridge warehouse, which is
approximately 450,000 square feet, is leased. This lease expires in 2002 with
an option to renew for eight additional years. The Islip warehouse, which is
approximately 248,000 square feet, is owned by the Company and was financed,
in part, by a $6.0 million industrial revenue bond which was issued by the
Town of Islip, New York. On November 8, 1996, the Company prepaid the
industrial revenue bond, which had an outstanding principal balance of
approximately $3.7 million, with proceeds received from Fleet Bank N.A. in the
amount of approximately $6.2 million pursuant to a Mortgage Note ("Note")
issued by the Company to Fleet. The Note, payable monthly and maturing on
November 8, 2003, is secured by a Mortgage, Security Agreement and Assignment
of Lease Rights covering the Company's Central Islip Warehouse. The balance of
the proceeds was used to reduce the outstanding borrowing under the Loan
Agreement (as hereinafter defined). The Cleveland warehouse, which is
approximately 100,000 square feet, is leased on a year to year basis. The
Company believes that the Islip, Woodbridge and Cleveland warehouses have
sufficient capacity to support Seaman's near term planned expansion in the
current market areas they serve. See "Business--Warehousing, Distribution and
Delivery."
The Company's executive offices are located in a 40,000 square foot leased
facility located in Woodbury, New York. This lease expires in 2002 with an
option to renew for five additional years. The Company believes that its
executive offices are sufficient to accommodate current anticipated growth.
The Company also owns approximately 16 acres of undeveloped land located in
Bridgeport, New Jersey, which property is being marketed for sale.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is involved in legal proceedings and
litigation incidental to the normal course of the Company's business. The
Company believes that the ultimate disposition of these proceedings and
litigation will not materially adversely affect the Company's financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MARKETS
The Company's common stock, par value $0.01 per share (the "Common Stock")
became listed on the Nasdaq National Market on June 8, 1993. Prior to that it
was quoted on the National Quotation System's "pink sheets." The common stock
closed at $22 3/4 on July 15, 1997.
The following table sets forth (as reported by Nasdaq National Market) for
the periods indicated the prices of the common stock.
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FISCAL 1997 HIGH LOW CLOSE
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4th Quarter........... 20 1/4 19 19 1/2
3rd Quarter........... 21 1/4 18 1/4 20
2nd Quarter........... 21 1/4 16 7/8 18 1/2
1st Quarter........... 19 3/8 16 1/4 16 3/4
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FISCAL 1996 HIGH LOW CLOSE
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4th Quarter........... 19 3/4 15 18 1/2
3rd Quarter........... 19 1/2 17 1/2 18 3/8
2nd Quarter........... 19 3/4 16 3/4 19 3/4
1st Quarter........... 21 18 3/4 18 3/4
</TABLE>
These quotations reflect inter-dealer prices, without retail markups,
markdowns or commissions.
The number of record holders of the Company's Common Stock as of July 15,
1997 was 259. Pursuant to the Company's Amended and Restated Stock Option
Plan, 1,015,595 shares of the Common Stock are subject to outstanding options
at April 30, 1997. See "The Company's Proxy Statement for 1997 Annual
Stockholders Meeting."
The Company has never paid any cash dividends on its stock.
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ITEM 6. FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
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PROFORMA
YEAR YEAR YEAR YEAR TWELVE-MONTH
ENDED ENDED ENDED ENDED PERIOD ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1997 1996 1995 1994 1993(1)
--------- --------- --------- --------- ------------
(AMOUNTS IN THOUSANDS)
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Revenues:
Net Sales............... $251,175 $229,505 $215,857 $170,348 $162,576
Net Finance Charge In-
come................... 12,809 14,036 12,364 7,865 8,490
-------- -------- -------- -------- --------
Total............... 263,984 243,541 228,221 178,213 171,066
-------- -------- -------- -------- --------
Operating Costs & Ex-
penses:
Cost of sales,
including Buying and
Occupancy costs...... 167,430 152,982 138,038 112,648 109,904
Selling, General and
Administrative....... 87,206 83,094 74,691 60,159 63,171
-------- -------- -------- -------- --------
Total............... 254,636 236,076 212,729 172,807 173,075
-------- -------- -------- -------- --------
Income (Loss) from
Operations........... 9,348 7,465 15,492 5,406 (2,009)
Interest Expense...... (2,247) (1,748) (1,707) (1,854) (1,347)
Interest Income....... 65 878 561 694 507
Reorganization
Charges.............. -- -- -- -- (8,033)
-------- -------- -------- -------- --------
Income (Loss) before
Income Tax and
Extraordinary Credits.. 7,166 6,595 14,346 4,246 (10,882)
Income Tax
(Expense)/Benefit...... (3,081) (2,700) (5,738) 2,694 --
-------- -------- -------- -------- --------
Income (Loss) before
Extraordinary Credits.. 4,085 3,895 8,608 6,940 (10,882)
Extraordinary Credits... -- -- -- -- 353,569
-------- -------- -------- -------- --------
Net Income.............. $ 4,085 $ 3,895 $ 8,608 $ 6,940 $342,687
======== ======== ======== ======== ========
</TABLE>
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(1) Combines arithmetically the five month period ended September 30, 1992 and
the seven month period ended April 30, 1993. The 1993 twelve-month period
includes five months of activities while the Company operated as a Debtor-
in-Possession and seven months of activities after emergence from Chapter
11 and debt discharge.
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The following table sets forth for the periods indicated certain items in
selected financial data as a percentage of sales, and the percentage change of
such items from the indicated prior period.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES PERCENTAGE INCREASE (DECREASE)
------------------------------- -----------------------------------
YEAR ENDED APRIL 30,
PROFORMA ----------------------
YEAR YEAR YEAR YEAR TWELVE-MONTH 1997 1996 1995
ENDED ENDED ENDED ENDED PERIOD ENDED VS VS VS
4/30/97 4/30/96 4/30/95 4/30/94 4/30/93(1) 1996 1995 1994
------- ------- ------- ------- ------------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net Sales............... 100.0 100.0 100.0 100.0 100.0 9.4 6.3 26.7
Net Finance Charge In-
come................... 5.1 6.1 5.7 4.6 5.2 (8.7) 13.5 57.2
Cost of sales,
including Buying and
Occupancy costs...... 66.7 66.7 63.9 66.1 67.6 9.4 10.8 22.5
Selling, General and
Administrative....... 34.7 36.2 34.6 35.3 38.9 4.9 11.3 24.2
Income (Loss) from
Operations........... 3.7 3.3 7.2 3.2 (1.3) 25.2 (51.8) 186.6
Interest Expense...... (0.9) (0.8) (0.8) (1.1) (0.8) 28.5 2.4 (7.9)
Interest Income....... 0.0 0.4 0.3 0.4 0.3 (92.6) 56.5 (19.2)
Reorganization
Charges.............. -- -- -- -- (4.9) -- -- --
Income (Loss) before
Income Tax and
Extraordinary
Credits.............. 2.8 3.0 6.7 2.5 (6.7) 8.7 (54.0) 237.9
Income Tax
(Expense)/Benefit...... (1.2) (1.2) (2.7) 1.6 -- 14.1 (52.9) 313.0
Income (Loss) before
Extraordinary Credits.. 1.6 1.7 4.0 4.1 (6.7) 4.9 (54.8) 24.0
Extraordinary Credits... -- -- -- -- 217.5 -- -- --
Net Income.............. 1.6 1.7 4.0 4.1 210.8 4.9 (54.8) 24.0
</TABLE>
- --------
(1) Combines arithmetically the five month period ended September 30, 1992 and
the seven month period ended April 30, 1993. The 1993 twelve-month period
includes five months of activities while the Company operated as a Debtor-
in-Possession and seven months of activities after emergence from Chapter
11 and debt discharge.
<TABLE>
<CAPTION>
AT AT AT AT AT
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash & Cash Equivalents....... $ 6,423 $ 3,436 $ 20,431 $ 23,512 $ 26,353
Other Current Assets.......... 103,808 101,142 80,585 68,207 54,455
Current Liabilities........... 42,724 37,631 43,350 35,841 25,635
Working Capital............... 67,507 66,947 57,666 55,878 55,173
Total Assets.................. 161,222 159,251 153,334 136,586 113,436
Long-term Debt................ 12,878 20,085 12,328 12,915 13,278
Stockholders' Equity.......... $105,620 $101,535 $ 97,656 $ 87,830 $ 74,523
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ITEM 7.
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with "Selected
Consolidated Financial Information," the Consolidated Financial Statements and
Notes thereto and the other information included elsewhere in this Form 10-
K/A.
The Company's fiscal year ends on April 30. Fiscal years are identified
according to the calendar year in which they end. For example, the fiscal year
ended April 30, 1997 is referred to as "fiscal 1997."
OVERVIEW
The Company is engaged in a single line of business, the retail sale of
residential furniture, and the Company's revenues are principally derived from
such sales. The Company also has a proprietary credit card program which is
operated to promote its furniture business. For fiscal 1997, net finance
charge income from the Company's credit card operations represented 5.1% of
net sales, however, as of August 5, 1997 when the Company sold its customer
accounts receivables, the Company will not generate finance income from sales
using the proprietary credit card. See "--Subsequent Events."
The Company's most significant category of operating expenses is the cost of
sales, which includes the cost of goods sold, warehousing, distribution and
delivery (net of delivery charges to customers) expenses, rent and
depreciation for the stores and buying staff expenses, including payroll. The
category of selling, general and administrative expenses is the other
significant element in the Company's cost structure. This includes store
(excluding rent and depreciation) expenses, advertising, corporate
administration (excluding buying staff) expenses and the costs of the credit
card program.
The Company imports a substantial amount of merchandise directly from
foreign suppliers. Imported merchandise represented approximately 30% to 35%
of the Company's purchases during the periods discussed herein. The Company
pays for all of such imported merchandise in U.S. dollars based on U.S. dollar
prices fixed at the time of the Company's order. The Company does not issue
open purchase orders as to price and therefore does not bear foreign currency
exchange rate fluctuation risk in connection with such import purchases; that
risk is borne by the Company's suppliers. While foreign currency exchange
rates affect the U.S. dollar prices that suppliers quote to the Company, the
Company is not obligated to purchase merchandise if a supplier seeks to
increase the price established at the time of the Company's order. The Company
is able to purchase replacement merchandise from both domestic and foreign
suppliers.
In connection with the LBO in February 1988, the Company incurred debt of
approximately $360 million, which influenced both strategic and day-to-day
management decisions. The Company then experienced a considerable,
unanticipated decline in sales volume, operating income and liquidity in the
years 1989 through 1991 due, inter alia, to changes in business philosophy
(including, for example, reducing retail gross margin, de-emphasizing "The
Package(R)" concept and expanding Seaman's emphasis on sales events in its
advertising) and the debt burden that resulted from the LBO. The Company's
situation was exacerbated by a significant economic recession that was
especially severe in the northeastern United States. Although the LBO debt was
restructured in November 1989, in December 1991 the Company was facing
possible cross-defaults under its senior and subordinated debt obligations
and, in January 1992, filed for Chapter 11 bankruptcy protection. See
"Business--1988 LBO and Subsequent Reorganization." Shortly after filing for
bankruptcy protection, the Company closed 15 of its then 37 stores. The
Company emerged from Chapter 11 proceedings in October 1992 with its
outstanding indebtedness having been reduced from approximately $360 million
to approximately $13 million. As part of its Chapter 11 proceedings, the
Company also adopted "fresh start reporting." Current senior management of the
Company was appointed by the Board of Directors immediately following the
Company's emergence from Chapter 11.
11
<PAGE>
For the five months ended September 30, 1992 (during which the Company
operated under Chapter 11 bankruptcy protection), the Company incurred an
operating loss of $3.6 million; for the seven months ended April 30, 1993
(after the Company had emerged from its Chapter 11 proceedings), the Company
had an operating profit of $1.6 million. For fiscal 1994, the Company's
operating profit was $5.4 million, for fiscal 1995 it was $15.5 million, for
fiscal 1996 it was $7.5 million, and for fiscal 1997 it was $9.3 million.
RESULTS OF OPERATIONS
Fiscal Year Ended April 30, 1997 Compared to Fiscal Year Ended April 30, 1996
Net sales for fiscal 1997 of $251.2 million increased by $21.7 million (or
9.4%) compared to net sales for fiscal year 1996. The increase resulted
primarily from the full fiscal year sales of nine new stores opened at various
times during fiscal 1996. Comparable store sales for fiscal 1997 were $233.7
million, an increase of $4.2 million (or 1.8%) compared to comparable store
sales of $229.5 million for fiscal 1996.
Net finance charge income of $12.8 million for fiscal 1997 decreased by $1.2
million (or 8.7%) from fiscal 1996, primarily due to an increased amount of
deferred interest credit promotions in fiscal 1997. Proprietary credit card
sales have grown from 30% of total sales in fiscal 1994 to 39% in fiscal 1997,
having peaked at 46% of total sales in fiscal 1995.
As a result of the foregoing increases, total revenues for fiscal 1997 were
$264 million, an increase of $20.4 million (or 8.4%) over the comparable prior
year period.
Cost of sales increased by $14.4 million (or 9.4%) between the two periods,
principally due to the increase in net sales.
Selling, general and administrative expenses increased by $4.1 million (or
4.9%) between the two periods, principally due to the increase in the number
of stores that were operating throughout fiscal 1997.
As a result of the foregoing, income from operations was $9.3 million for
fiscal 1997 compared to $7.5 million for fiscal 1996.
Net interest expense of $2.2 million for fiscal 1997 increased $1.3 million
(150.8%) from $870,000 for fiscal 1996. This is primarily attributed to
decreased interest income due to the Company's lower cash balances during the
fiscal year despite having a higher cash balance at year end and to increased
interest expense associated with the revolving credit line entered into in
April 1996 and increased capital lease interest expense.
The provision for income taxes for fiscal 1997 is based upon an effective
income tax rate of 43% as compared to 41% for fiscal 1996. As of April 30,
1997, the Company had a long-term deferred tax asset of $10.8 million and a
current deferred tax asset of $5.0 million. The long-term deferred tax asset
is primarily related to operating losses that occurred following the LBO.
There are limitations on the time periods during which these deferred tax
assets can be used and on the amounts that the Company can use each year. See
Note 4 of Notes to Consolidated Financial Statements.
As a result of the foregoing, the Company's net income for fiscal 1997 was
$4.1 million compared to net income of $3.9 million for fiscal 1996.
Fiscal Year Ended April 30, 1996 Compared to Fiscal Year Ended April 30, 1995
Net sales for fiscal 1996 of $229.5 million increased by $13.6 million (or
6.3%) compared to net sales for fiscal year 1995. The increase resulted from
the opening of nine new stores commencing in September 1995. Comparable store
sales for fiscal 1996 were $204.8 million, a decrease of $11.1 million (or -
5.1%) compared to comparable store sales of $215.9 million for fiscal 1995.
Management believes that this decrease is primarily attributable to the weak
sales environment in the furniture industry and severe winter weather
conditions in the Company's markets.
12
<PAGE>
Net finance charge income of $14.0 million for fiscal 1996 increased by $1.7
million (or 13.5%) from fiscal 1995, primarily due to an increase in the
average accounts receivable balance in fiscal 1996 compared to fiscal 1995.
Since the Company instituted the "Seaman's Plus(R)" credit card in April 1994,
proprietary credit sales grew from 30% of total sales in fiscal 1994 to 46% in
fiscal 1995 and have more recently leveled off at 40% in fiscal 1996.
As a result of the foregoing increases, total revenues for fiscal 1996 were
$243.5 million, an increase of $15.3 million (or 6.7%) over the comparable
prior year period.
Cost of sales increased by $14.9 million (or 10.8%) between the two periods,
principally due to the increase in net sales, the opening of nine new stores
and a warehouse, and decreased gross margins due to the competitive retail
environment.
Selling, general and administrative expenses increased by $8.4 million (or
11.3%) between the two periods, principally due to the opening of nine stores
and an increase in the allowance for bad debts due to the higher customer
accounts receivable balance. The Company also incurred increased advertising
expenses due to its entrance into a new market.
As a result of the foregoing, income from operations was $7.5 million for
fiscal 1996 compared to $15.5 million for fiscal 1995.
Net interest expense of $870,000 for fiscal 1996 decreased as compared to
fiscal 1995 due to increased interest income attributed to higher cash
balances. The Company's interest expense primarily consists of interest on its
capital leases and on the mortgage it holds for its Islip warehouse.
The provision for income taxes for fiscal 1996 is based upon an effective
income tax rate of 41%. As of April 30, 1996, the Company had a long-term
deferred tax asset of $11.9 million and a current deferred tax asset of $5.7
million. The long-term deferred tax asset is primarily related to operating
losses that occurred following the LBO. There are limitations on the time
periods during which these deferred tax assets can be used and on the amounts
that the Company can use each year. See Note 4 of Notes to Consolidated
Financial Statements.
As a result of the foregoing, the Company's net income for fiscal 1996 was
$3.9 million compared to net income of $8.6 million for fiscal 1995.
Fiscal Year Ended April 30, 1995 Compared to Fiscal Year Ended April 30, 1994
Net sales for fiscal 1995 of $215.9 million increased by $45.5 million (or
26.7%) compared to net sales for fiscal year 1994. Of such increase, $16.1
million resulted from the opening of five new stores commencing in September
1994 and the balance was primarily attributable to the implementation of new
management strategies, including a redirected advertising focus and an
increased emphasis on the Company's credit card operations, including the
implementation of the "Seaman's Plus(R)" credit card. Comparable store sales
for fiscal 1995 were $198.2 million, an increase of $28.3 million (or 16.7%)
compared to comparable store sales of $169.9 million for fiscal 1994.
Management believes that this increase is primarily attributable to the
redirected advertising focus, customer acceptance of the "Seaman's Plus(R)"
credit card, the ongoing store redesign and renovation program and the use of
a broadened merchandise mix in the Company's stores.
Finance charge income of $12.4 million for fiscal 1995 increased by $4.5
million (or 57.2%) from fiscal 1994, primarily due to an increase in sales
made on the "Seaman's Plus(R)" credit card of $16.0 million in fiscal 1995
compared to fiscal 1994. Sales made on the "Seaman's Plus(R)" credit card
increased to approximately 46% of net sales in fiscal 1995 from approximately
30% of net sales in fiscal 1994.
As a result of the foregoing increases, total revenues for fiscal 1995 were
$228.2 million, an increase of $50.0 million (or 28.1%) over the comparable
prior year period.
13
<PAGE>
Cost of sales increased by $25.4 million (or 22.5%) between the two periods,
principally due to the increase in net sales, but decreased as a percentage of
net sales from 66.1% for fiscal 1994 to 63.9% for fiscal 1995. The decrease as
a percentage of net sales was primarily due to the Company's operating
leverage, which supported the increase in net sales without corresponding
increases in fixed operating costs (in particular, warehousing expenses), and
an improvement in retail gross margin.
Selling, general and administrative expenses increased by $14.5 million (or
24.2%) between the two periods, principally due to the opening of five stores
and an increase in the allowance for bad debts due to the higher customer
accounts receivable balance. As a percentage of net sales, however, selling,
general and administrative expenses decreased from 35.3% for fiscal 1994 to
34.6% for fiscal 1995. The decrease as a percentage of net sales was
principally due to operating leverage, in particular with respect to
advertising and corporate administration expenses. Additionally, the Company
maintained cost controls while continuing to increase its net sales volume.
As a result of the foregoing, income from operations improved to $15.5
million for fiscal 1995 compared to $5.4 million for fiscal 1994.
Net interest expense of $1.2 million for fiscal 1995 remained constant as
compared to fiscal 1994. The Company's interest expense primarily consists of
interest on its capital leases and on the mortgage it holds for its Islip
warehouse.
The provision for income taxes for fiscal 1995, is based upon an effective
income tax rate of 40%. As of April 30, 1995, the Company had a long-term
deferred tax asset of $13.4 million and a current deferred tax asset of $5.6
million. The long-term deferred tax asset is primarily related to operating
losses that occurred following the LBO. There are limitations on the time
periods during which these deferred tax assets can be used and on the amounts
that the Company can use each year. In fiscal 1994, the Company recorded a
non-recurring income tax benefit of $4.2 million, which was principally a
result of the utilization of tax operating loss carryforwards. See Note 7 of
Notes to Consolidated Financial Statements.
As a result of the foregoing, the Company's net income for fiscal 1995 was
$8.6 million compared to net income of $6.9 million for fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1997, the Company had working capital of $67.5 million. The
Company's principal sources of liquidity are earnings before income taxes,
depreciation and amortization, and prior to its termination on July 30, 1997,
borrowings, if any, under the $40 million Revolving Credit and Security
Agreement (the "Loan Agreement") with the Bank of New York Commercial
Corporation and Fleet Bank, N.A. (as Successor-by-Merger to NatWest Bank N.A.)
as lenders (the "Lenders"). The Company's principal uses of cash are working
capital needs, capital expenditures and debt service obligations, including
capitalized lease costs.
The Company's cash and cash equivalents increased in fiscal 1997 but had
decreased in fiscal 1996, 1995 and 1994. The Company's working capital
increased from $66.9 million at April 30, 1996 to $67.5 million at April 30,
1997. Cash and cash equivalents increased from $3.4 million at April 30, 1996
to $6.4 million at April 30, 1997. As of April 30, 1997, the Company had
stockholders' equity of $105.6 million. The Company's largest asset at such
date was accounts receivable of $68.9 million (net of bad debt reserves). At
April 30, 1997, $2 million was outstanding under the Loan Agreement consisting
primarily of letters of credit. At April 30, 1997, the Company had $12.9
million in long term debt, consisting of capitalized lease obligations and a
mortgage in connection with its Central Islip, New York warehouse facility.
See "Properties."
The Company entered into the $40 million Loan Agreement on April 29, 1996.
The term of the Loan Agreement was three years. The Company granted to the
Lenders a security interest in the Company's customer receivables and all
General Intangibles as defined in the Loan Agreement. The Loan Agreement
contained
14
<PAGE>
covenants and provisions which are customary for a secured revolving credit
facility. The funds available under the Loan Agreement were primarily for
capital expenditures and general corporate purposes. The Company terminated
the Loan Agreement on July 30, 1997 in connection with the sale of its
customer accounts receivables.
At the same time that the Company entered into the Loan Agreement, it
redeemed certain receivables- backed securities designated "8.10% Class A
Credit Card Participation Certificates, Series 1995-1" in the amount of $20
million, from a third party investor not affiliated with the Company. These
Certificates were issued in April 1995 by the Seaman Furniture Credit Card
Master Trust which was originated by Seaman Receivables Corporation, a wholly
owned special purpose finance subsidiary of the Company.
Capital expenditures during fiscal 1994, fiscal 1995, fiscal 1996 and fiscal
1997 were $4.5 million, $6.5 million, $8 million and $2.9 million,
respectively. Capital expenditures during fiscal 1995, 1996 and 1997 were
principally for new store openings, store renovations and a radio frequency
system for the Islip and Woodbridge warehouses. See "Business--Store Redesign
and Renovation."
Unless a customer is making a purchase using the Company's proprietary
credit card, the Company generally requires customers to make a down payment
(generally 30% of the sales price) at the time an order is placed, with the
balance payable upon or prior to delivery of the merchandise. The percentage
of sales paid with cash, check or major credit cards (for which customers are
generally required to provide a down payment absent a special promotion) has
changed from approximately 54% in fiscal 1995 to approximately 60% in fiscal
1996 and 1997. The balance of the Company's sales for each of such periods was
financed internally from working capital on the Company's proprietary credit
card.
Customer deposits at April 30, 1995, April 30, 1996 and April 30, 1997 were
$7.5 million, $9.3 million and $8.5 million, respectively. The relatively low
level of customer deposits on a given date compared to net sales for a period
reflects both the Company's quick delivery policy and customer use of the
Company's proprietary credit card. If the Company generates more sales with
the Company's proprietary credit card, the level of customer deposits is not
expected to change in tandem with changes in net sales.
When the Company opens a new store in an existing market, it is able to
leverage its fixed costs for advertising and corporate administration to cover
the new store. While its fixed costs for distribution may not increase (if
there is existing warehouse capacity), increased expansion even in existing
markets will ultimately lead to increased distribution costs. As the Company
opens stores in new markets, however, the Company's fixed costs for
distribution, advertising and corporate administration are likely to increase
as existing warehousing facilities are not likely to be able to service new,
geographically distant markets; existing advertising programs will not promote
the Company and its merchandise in such new markets; and new personnel will
likely be needed to manage the new market areas. However, additional expansion
in a new market area should not result in greater fixed costs as the new
warehouse facilities, advertising programs and administrative framework should
be sufficient to support reasonable, planned expansion in such markets. In
addition, as the Company expands into urban areas that are less populated than
the greater New York metropolitan area, and as the Company opens stores in
suburban areas in new and existing markets, the Company expects average sales
per store and sales per square foot of selling space to be less than that of
existing stores due to differences in population density and size of local
market.
SUBSEQUENT EVENTS
On August 5, 1997, the Company consummated the sale of substantially all of
its customer accounts receivable to Household for net proceeds of
approximately $70 million. In connection therewith, the Company also entered
into a Merchant Agreement with Household, dated August 1, 1997 with an
effective date of August 5, 1997, pursuant to which Household will provide
revolving credit financing to individual qualified customers of the Company
through issuance of the Company's proprietary credit card and will provide
services to existing credit customers. The Company has terminated its Service
Agreement with SPS Payment Systems, Inc. which had provided services since
April 1994 with regard to the Company's proprietary credit card program.
15
<PAGE>
The Company entered into a commitment letter dated July 31, 1997 with Heller
Business Credit, a division of Heller Financial, Inc., to provide a five-year
term loan for $10 million and a five-year revolving credit facility for $25
million collateralized by eligible inventory of the Company (the "Heller Loan
Facility"). It is expected that final documentation for the loan will be
consummated at the effective time of the merger.
The Company currently expects that the borrowings under the Heller Loan
Facility will be sufficient to meet the Company's planned capital
expenditures, long-term debt (composed of capital lease obligations and
principal on the Company's mortgage and repayments on the term loan) and
currently anticipated working capital requirements through the end of fiscal
1999 without consideration of uncertainties surrounding the Merger Agreement.
See "Business--Proposal to take the Company Private."
ADOPTION OF "ACCOUNTING FOR STOCK-BASED COMPENSATION" ("SFAS 123")
The Company continues to account for the Option Plan using the intrinsic
value method in accordance with Accounting Principles Board No. 25,
"Accounting For Stock Issued To Employees" and its related interpretations.
Effective fiscal 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting For Stock-Based
Compensation" ("SFAS 123"), which uses a fair value method of accounting. The
adoption did not have a material effect on the Company's financial statements.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
With the exception of the historical information contained in this report,
the matters described herein contain forward-looking statements that involve
risk and uncertainties including but not limited to economic and competitive
factors outside of the control of the Company. These factors more specifically
include: competition from other retail stores, continuing strong economic
conditions, especially in the northeastern United States and the Company's
ability to identify consumer preferences with regard to its merchandise mix.
Forward-looking statements are typically identified by the words "believe,"
"expect," "anticipate," "intend," "estimate," and similar expressions. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of their dates.
INFLATION
Inflation has not had a material impact on the Company's operating and
occupancy costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Exhibits, which appears on Page F-1
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE>
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS OF THE REGISTRANT
DIRECTORS
Barry J. Alperin, 57, a Director of the Company since November 23, 1992, is
a private consultant. He was Vice Chairman of Hasbro, Inc. from 1990 until his
retirement on July 31, 1995, and a member of its Board of Directors from 1988
until May 1996. Mr. Alperin was Chief Operating Officer and Executive Vice
President of Hasbro, Inc. from 1989 to 1990, and from 1985 to 1988 he was a
Senior Vice President--Corporate. Prior to that, he was a Partner with the law
firm of Fenwick, Davis & West in New York. Mr. Alperin has an L.L.B. from
Harvard Law School, an M.B.A. from the Amos Tuck School of Business, and a
B.A. from Dartmouth College. He is also a director of Henry Schein, Inc.
Leo Peraldo, 62, has been a Director of the Company since October 14, 1992.
He is currently President of Family & Business Insurance Center, Inc. He was
the Vice President of Finance for Klaussner Furniture Industries, Inc., one of
the major furniture manufacturers in the United States until December 31, 1992
when he retired. He has over twenty years experience in the furniture
industry. Mr. Peraldo has a B.S. degree from Texas Christian University.
Alan Rosenberg, 47, has been the President and Chief Executive Officer of
the Company and a Director of the Company since October 14, 1992. From June
1992 until his current appointment with the Company, Mr. Rosenberg worked for
Ametex Fabrics, a division of Masco Industries. Prior to that, he had been
employed by the Company since 1971. He was a buyer from 1971 to 1980, Soft
Lines Merchandise Manager from 1980 to 1985, Vice President--Soft Lines from
1985 to 1990, and Senior Vice President--General Merchandise Manager from 1990
to June 1992. Mr. Rosenberg holds a B.S. Degree from the State University of
New York at Albany.
James B. Rubin, 43, has been a Director of the Company since June 28, 1994,
and is Co-Chairman and Chief Investment Officer of Resurgence Asset
Management, L.L.C. ("Resurgence"), a successor company to M.D. Sass
Associates, Inc.'s restructured securities division, Sass Lamle Rubin & Co.,
of which he was co-founder in 1989. Previously, he was principal of J.B. Rubin
& Company, an investment management and financial advisory firm. From 1985 to
1986, Mr. Rubin was Senior Financial Analyst with Smith Vasilou Management
Company, an investment firm specializing in troubled companies. Mr. Rubin
graduated from Cornell University in 1975 with an undergraduate degree in
Industrial Engineering. He is also a director of Computervision Corporation
and Corporate Renaissance Group, Inc.
Kim Z. Golden, 42, a Director of the Company since October 14, 1992, is an
Executive Vice President of T. Rowe Price Recovery Fund Associates, Inc.
("Associates"). Prior to joining Associates in 1991, Mr. Golden was a Vice
President in the Corporate Finance Department at Chemical Bank ("Chemical").
From 1986 to 1991, he served in various capacities at Chemical, emphasizing
valuation, leveraged buyouts, and mergers and acquisitions. Prior to joining
the Corporate Finance Department in 1986, he was a Managing Consultant in
Chemical's Foreign Exchange Advisory Service, advising Fortune 100 companies
on international financial risk management. From 1979 to 1981, Mr. Golden
worked in the Office of International Monetary Affairs at the United States
Treasury Department. Mr. Golden has a B.A. and a B.Mus. from Oberlin College
and an M.P.A. from the Woodrow Wilson School of Public and International
Affairs, Princeton University.
Robert C. Ruocco, 38, a Director of the Company since October 14, 1992, has
been, since 1993, a general partner of Carl Marks Management Co., L.P. ("Carl
Marks"), an investment advisory firm, which acts as general partner to various
investment partnerships, and an executive officer of an investment advisory
affiliate of Carl Marks. From July 1989 through 1992, Mr. Ruocco was employed
by M.J. Whitman, L.P., a registered broker dealer, prior to which he was a
Vice President in the Corporate Finance Division of Chemical Bank,
specializing in restructurings and reorganizations. Mr. Ruocco served in
various capacities at Chemical Bank beginning in November 1984 and began his
professional career in August 1980, when he joined the management training
program at Manufacturers Hanover Trust Company. He graduated from Dartmouth
College in 1980 with an A.B. Degree in Economics.
17
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth information relating to each of the executive
officers and other significant employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <C>
Alan Rosenberg.......... 47 President, Chief Executive Officer and Director
Steven H. Halper........ 52 Executive Vice President--Chief Operating Officer and Secretary
Peter McGeough.......... 43 Executive Vice President--Chief Administrative and Financial Officer
Donald S. Leibowitz..... 47 Vice President--Operations
Thomas A. Martinez...... 50 Vice President--Merchandising
Coleen A. Colreavy...... 32 Vice President--Corporate Controller and Chief Accounting Officer
Robert N. Webber........ 42 Vice President--General Counsel and Assistant Secretary
</TABLE>
Alan Rosenberg has been the President and Chief Executive Officer of the
Company and a Director of the Company since October 14, 1992. From June 1992
until his current appointment with the Company, Mr. Rosenberg worked for
Ametex Fabrics, a division of Masco Industries. Prior to that, he had been
employed by the Company since 1971. He was a buyer from 1971 to 1980, Soft
Lines Merchandise Manager from 1980 to 1985, Vice President--Soft Lines from
1985 to 1990, and Senior Vice President--General Merchandise Manager from 1990
to June 1992. Mr. Rosenberg holds a B.S. degree from the State University of
New York at Albany.
Steven H. Halper, Executive Vice President--Chief Operating Officer and
Secretary of the Company. He has been Executive Vice President--Chief
Operating Officer since October 14, 1992, and has been Secretary since
September 1, 1993. From March 1992 until October 1992, Mr. Halper was a
consultant to the furniture industry. Prior to that, he had been employed by
the Company since 1968. He was General Merchandise Manager of the Company from
1976 until 1984 and was elected Senior Vice President--Operations and
Secretary in June 1985. He holds a B.S. degree from the Wharton School of
Business, University of Pennsylvania.
Peter McGeough, Executive Vice President--Chief Administrative and Financial
Officer of the Company, has been employed in that capacity since October 14,
1992. From June 1992 until October 1992, Mr. McGeough was Vice President--
Controller at Brooks Fashion Stores, a specialty retailer. Mr. McGeough was
Vice President--Finance of the Company from April 1990 to June 1992. Prior to
that, he was Vice President--Controller at Brooks Fashion Stores and Vice
President--Finance at Fortunoff's, a home furnishings retailer. He has a B.A.
(honors) and M.A. (honors) from University College, Dublin, Ireland.
Donald S. Leibowitz has been Vice President--Operations since November 2,
1992. From June 1992 until his appointment on November 2, 1992, he was Vice
President of Operations for Pergament Home Centers. Prior to that, Mr.
Leibowitz had been employed by the Company since September 1988. Mr. Leibowitz
was Vice President of Operations at Folz Vending and spent fourteen years with
Abraham & Strauss, a division of Federated Department Stores. Mr. Leibowitz
holds a B.S. degree from Long Island University.
Thomas A. Martinez, Vice President--Merchandising, has been employed by the
Company since April 13, 1991. From February 1989 to April 1991, he worked in
the furniture industry as an import specialist; from March 1987 to February
1989, he was Vice President of Purchasing for Norman Harvey Associates. Mr.
Martinez was a buyer for the Company from March 1981 to March 1987. Prior to
that, he was a buyer for Sachs New York, a furniture retailer, and spent seven
years as an over-the-counter trader and an arbitrage trader for First
Manhattan Securities. He attended Mercy College in Dobbs Ferry, where he
majored in Marketing.
Coleen A. Colreavy, Vice President--Corporate Controller and Chief
Accounting Officer, has been employed by the Company since March 1989. She
became Corporate Controller in January 1993. Ms. Colreavy previously held the
positions of Assistant Controller, Budget Manager and Financial Reporting
Manager. Prior to joining the Company, she was employed by the accounting firm
of Touche Ross. Ms. Colreavy is a certified public accountant and holds a B.S.
(honors) from St. John's University.
18
<PAGE>
Robert N. Webber, Vice President--General Counsel and Assistant Secretary,
has been employed in that capacity since March 1, 1995. From September 1993
until February 1995, Mr. Webber was on retainer with the Company while
attending an L.L.M. program at Pace University Law School. Prior to that, he
had been employed by the Company since 1983. He was the Assistant General
Counsel of the Company from 1983 until March 1989, when he was elected Vice
President--General Counsel and was elected Secretary in 1992. He holds J.D.
and L.L.M. degrees from Pace University Law School and a B.A. from New York
University.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's knowledge, based solely on a review of the copies of the
reports furnished to the Company and written representations of all directors
and executive officers that no other reports were required with respect to
their beneficial ownership of Common Stock during the fiscal year ended April
30, 1997, the Company's directors and executive officers and all beneficial
owners of more than 10% of the Common Stock outstanding complied with all
applicable filing requirements under Section 16(a) of the Securities and
Exchange Act of 1934 with respect to their beneficial ownership of Common
Stock during the fiscal year ended April 30, 1997, except with respect to the
following filings: Mr. Rosenberg, Mr. Halper and Mr. McGeough each failed to
file a report on Form 5 relating to four transactions on a timely basis,
Mr.Webber and Ms. Colreavy each failed to file a report on Form 5 relating to
two transactions on a timely basis, and Mr. Alperin and Mr. Peraldo failed to
file a report on Form 5 relating to one transaction on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation awarded to, earned by or
paid to the Chief Executive Officer and the four other most highly compensated
executive officers during the fiscal year ended April 30, 1997 for services
rendered in all capacities to the Company.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------- ------------
SHARES
UNDERLYING
OPTIONS
OTHER ANNUAL (NUMBER OF
NAME YEAR SALARY($) BONUS($)(1) COMP.($)(2) SHARES)
- ---- ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Alan Rosenberg........... 1997 309,514 0 31,598 0
President & CEO 1996 300,216 0 21,124 60,000
1995 283,669 325,000 17,065 20,000
Steven Halper............ 1997 242,592 0 7,401 0
COO & Executive Vice
President 1996 235,216 0 8,449 52,500
1995 216,574 275,000 7,866 17,500
Peter McGeough........... 1997 242,592 0 9,583 0
CFO & Executive Vice
President 1996 235,216 0 8,180 52,500
1995 216,574 275,000 10,267 17,500
Thomas Martinez.......... 1997 138,908 8,000 3,224 0
Vice President--Merchan-
dising 1996 133,971 0 3,316 6,000
1995 127,755 35,000 4,892 9,000
Donald Leibowitz......... 1997 128,682 7,500 4,372 0
Vice President--Opera-
tions 1996 123,890 0 3,138 6,000
1995 117,107 33,000 4,981 8,000
</TABLE>
- --------
(1) Bonuses earned for each of fiscal 1997 and 1995 were paid in fiscal 1998
and 1996 respectively. Stock options earned for each of fiscal 1996 and
1995 were granted in fiscal 1997 and 1996, respectively.
(2) For Messrs. Rosenberg, Halper, McGeough, Martinez, and Leibowitz, "Other
Annual Compensation" includes monies paid to each for automobile expenses,
life insurance, and medical insurance.
19
<PAGE>
COMPENSATION OF DIRECTORS
Each director of the Company, who is not an executive officer or principal
stockholder or is not a representative of a principal stockholder of the
Company or any of its subsidiaries nor affiliated with a stockholder, is paid
an annual base retainer fee of $25,000 and a fee of $1,500 for each sub-
committee meeting attended. Each director, who represents a principal of the
Company or any of its subsidiaries or affiliated with such a stockholder, is
paid an annual base retainer fee of $10,000. Members of the Board of
Directors, who are also employees of the Company or any of its subsidiaries,
receive no additional compensation for service on the Board.
The Amended and Restated 1992 Stock Option Plan provides that options to
purchase Common Stock may be issued to directors who are not employees of the
Company. See "Executive Compensation--The Company's Amended and Restated 1992
Stock Option Plan."
OPTION GRANTS IN LAST FISCAL YEAR
None.
FISCAL YEAR END OPTION VALUES
The following table sets forth certain information regarding the total
number of stock options held by each of the named executive officers, and the
aggregate value of such stock options, on April 30, 1997. No options were
exercised by any of the named executives during the fiscal year ended April
30, 1997.
AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE MONEY OPTIONS AT
AT FISCAL YEAR END FISCAL YEAR END (1)
--------------------------------- ---------------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
---- --------------- ------------ --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Alan Rosenberg.......... -- -- 228,520 83,703 2,753,345 536,666
Steven Halper........... -- -- 178,056 68,610 2,082,502 402,489
Peter McGeough.......... -- -- 178,056 68,610 2,082,502 402,489
Thomas Martinez......... -- -- 22,500 7,000 123,550 0
Donald Liebowitz........ -- -- 18,434 6,666 94,150 0
</TABLE>
- --------
(1) The closing price of the Company's Common Stock on the Nasdaq National
Market on April 30, 1997 was $19.50 and is used in calculating the value
of unexercised options.
EMPLOYMENT AGREEMENTS
The Company renewed the Employment Agreements (collectively, the "Employment
Agreements") with each of Messrs. Rosenberg, Halper and McGeough (each
individually an "Executive" and, collectively, the "Executives"), each having
a three (3) year term which commenced as of May 1, 1995 (the "Commencement
Date") and ends as of April 30, 1998, with automatic renewals for consecutive
terms of one year each, unless terminated by either party at least 90 days
prior to the end of the existing term. Mr. Rosenberg's annual salary during
the first year of the Employment Agreement was $300,000; Mr. Halper's annual
salary during the first year was $235,000; and Mr. McGeough's annual salary
during the first year was $235,000. The Employment Agreements provide that, on
each anniversary of the Commencement Date, each Executive's annual salary
shall be increased by an amount determined by multiplying the Executive's
annual salary for the preceding year by the percentage increase of the
consumer price index for that year. The Executives shall be eligible for a
minimum bonus (the "Minimum Bonus") for each completed fiscal year of his
employment. This Minimum Bonus is calculated pursuant to a matrix established
by the Board. The matrix sets forth various potential bonus amounts
20
<PAGE>
based on the Company's financial results. The Employment Agreements provide
that the Board establish a new matrix prior to each April 30 for the next
succeeding fiscal year. Additionally, prior to the first anniversary of the
Commencement Date, and prior to each such anniversary thereafter, the Board of
Directors is obligated to review the salary and benefits of each Executive
payable under the Employment Agreements and, in its discretion, after
consideration of an Executive's performance, the profitability and financial
position of the Company, and any other factors they deem appropriate, the
Board of Directors may, by a majority vote, agree in its absolute sole
discretion to increase the salary of an Executive by more than the consumer
price index increase and/or to pay a bonus greater than the Minimum Bonus. Mr.
Rosenberg's current annual salary is $317,030; Mr. Halper's current annual
salary is $248,422; and Mr. McGeough's current annual salary is $248,422.
The Company, at its expense, provides each of the Executives, so long as
they remain employed by the Company, with an automobile. It also provides the
Executives with coverage under all employee benefit plans (excluding any
bonus, profit sharing or similar programs) in accordance with the terms
thereof, which the Company makes available to its senior executives, and
provides the Executives with supplemental medical insurance to cover the cost
of any co-payment obligations. For as long as an Executive is insurable, the
Company will provide and pay for term life insurance, payable to the
Executive's designated beneficiary, which is in addition to any other life
insurance available to employees of the Company. In the case of Mr. Rosenberg,
the life insurance is in the amount of $1,000,000. For each of Messrs. Halper
and McGeough, it is in the amount of $750,000.
The Employment Agreements provide that the Company grant options to purchase
up to 60,000 shares of Common Stock of the Company to Mr. Rosenberg and
options to purchase up to 52,500 shares of Common Stock of the Company to each
of Messrs. Halper and McGeough. Originally, these options were to vest in
equal amounts on each of May 1, 1996, May 1, 1997 and May 1, 1998 at exercise
prices of $24.00, $29.00 and $35.00 per share respectively. Upon the
recommendation of the Compensation Committee, the Board of Directors approved
the cancellation of these options on July 25, 1996. The Board of Directors had
approved the issuance of an identical number of new options to the Executives
at strike prices of $21.00, $24.50 and $28.00 per share, vesting in equal
amounts over three (3) years commencing May 1, 1997, a year later than the
original grants were to begin vesting.
The Company may terminate an Executive's employment at any time for any
reason. If an Executive's employment is terminated other than (i) for Cause
(as defined in the Employment Agreements; however, see "Change in Control"
also in the Employment Agreements), (ii) as a result of the Executive's death
or (iii) as a result of the Executive's permanent disability, or if the
Executive terminates his employment for Good Reason (as hereinafter defined),
prior to the termination date of the Employment Agreements, he shall be
entitled to continue to receive his then current salary for a period of two
years following termination, in addition to continued coverage under the
various benefit programs.
Good Reason is defined in the Employment Agreements as any one of the
following events occurring and the Company failing to cure within ten days:
(i) any material breach by the Company of any provision of the Agreements;
(ii) any material diminution by the Company of the Employee's duties or
responsibilities; or (iii) any Change in Control.
Change of Control is defined in the Employment Agreements as any time
certain affiliates of M.D. Sass Associates, Inc., T. Rowe Price Recovery Fund,
L.P. and Carl Marks Management Co., L.P. and any of their affiliates, or any
one or more of them, do not constitute or do not have the right to constitute
at least two members of the Board of Directors or any person or "group"
becomes a beneficial owner of more than 50% of the voting stock of the
Company.
CHANGE IN CONTROL ARRANGEMENTS
The Company entered into severance agreements dated February 24, 1997 with
Messrs. Martinez and Liebowitz (the "Severance Agreements") by which the named
executive officer party to the agreement would
21
<PAGE>
receive one year's, nine months or six months of his annual salary if there
were a Termination within 180, 181-270 or 271-365 days, respectively, after
the effective date of a Change of Control.
In addition, the Severance Agreements provide that the Company will pay the
named executive officer, in accordance with the Company's severance policy, a
severance payment of one week's salary for each year of service with the
Company, provided that in no event will the total amount of such service based
payment and the severance payment discussed above exceed one year's salary for
such executive officer. Also, the Company will continue the employee benefits
for that officer for three months, including health, medical and hospital
insurance and automobile expense allowance, upon such Termination. All stock
options granted to the named executive officer will immediately vest, to the
extent they are unvested, upon such termination.
The Severance Agreements become operative upon a Change of Control and
terminate one year from each Change of Control.
Change of Control is defined in the Severance Agreements to mean (i) the
Company is merged, consolidated or reorganized into or with another
corporation or person, and as a result none of M.D. Sass Associates, Inc.,
T. Rowe Price Recovery Fund, L.P. or Carl Marks Management Co., L.P., nor any
of their respective affiliates, individually or in the aggregate, has the
power to elect a majority of the board of directors of the surviving
corporation and another person has such right; or (ii) the Company sells or
otherwise transfers all or substantially all of its assets to another
corporation or other legal person, and as a result of such sale or transfer
none of M.D. Sass Associates, Inc., T. Rowe Price Recovery Fund, L.P. or Carl
Marks Management Co., L.P., nor any of their respective affiliates,
individually or in the aggregate, has the power to elect a majority of the
board of directors of the purchasing entity immediately after such sale or
transfer.
Termination is defined by the Severance Agreements as, if after a Change of
Control (i) employment is terminated other than for "Cause" (as defined in the
Severance Agreement), or (ii) salary is reduced or there is a material
reduction in the duties attached to the executive officer's position with the
Company and the executive officer terminates his employment with the Company.
THE COMPANY'S AMENDED AND RESTATED 1992 STOCK OPTION PLAN
The purpose of the Amended and Restated 1992 Stock Option Plan is to attract
and retain officers and key employees for the Company by providing to such
persons incentives and rewards for superior performance. The total number of
shares of the Company's Common Stock that may be issued under options granted
pursuant to the Stock Option Plan is 1,500,000.
Options granted under the Stock Option Plan are nonqualified stock options.
No option shall be exercisable more than 10 years from the date of grant, nor
are they transferable. The option price may be equal to, greater than or less
than the fair market value of the Common Stock, as determined by the
Compensation Committee, which administers the Amended and Restated 1992 Stock
Option Plan. The Board may adjust the option price and the number or kind of
shares covered by outstanding options if it determines it is necessary to
prevent dilution or enlargement of the rights of optionees that could
otherwise result from any (a) stock dividend, stock split, combination of
shares or other change in the capital structure of the Company or (b) merger,
consolidation, spin-off, reorganization, or other corporate transaction or
event having an effect similar to any of the foregoing.
At the discretion of the Compensation Committee, any stock option agreement
may provide that if an optionee desires to sell any shares of Common Stock
owned pursuant to an exercise of any option, he or she must give written
notice to the Company, which shall constitute an offer to sell to the Company,
the shares set forth in the notice on the same terms as the proposed sale.
Also, the Compensation Committee may require any stock option agreement to
provide that, upon an optionee's ceasing to be an employee of the Company for
any reason, including death or retirement, it shall have the right to
repurchase from the optionee any Common Stock of the Company then owned and to
surrender for cancellation any unexercised options upon payment of the
purchase price. The Amended and Restated 1992 Stock Option Plan also provides
that, in the event of
22
<PAGE>
termination of employment by reason of death, disability, retirement, or any
leave of absence approved by the Company, the Compensation Committee may waive
or modify any limitation or requirement with respect to any award under the
Amended and Restated 1992 Stock Option Plan.
With respect to the Common Stock repurchased by the Company, the purchase
price shall be determined by (a) multiplying the number of shares of Common
Stock being repurchased by the Company by (b) the Current Market Price (as
defined below) per share of Common Stock as of the date of the notice. With
respect to the surrender of options, the purchase price shall be determined by
(a) multiplying the number of shares of Common Stock subject to such options
or portion thereof being surrendered to the Company by (b) the difference
between the Current Market Price per share of Common Stock as of the date of
the notice and the option exercise price per share of Common Stock as of the
date of the notice. "Current Market Price" shall mean, in respect of any share
of Common Stock on any particular date, the average of the daily market prices
for the previous 10 consecutive business days for a listing on the National
Market System or the previous 30 days for a listing on the Nasdaq National
Market. In the event there is no market for the shares or the Compensation
Committee, in its sole discretion, determines that, on account of the lack of
trading volume, the Current Market Price cannot be determined from the daily
market prices, the Current Market Price shall mean the amount determined by an
investment banker selected by the optionee from a list of at least three
disinterested qualified investment bankers provided by the Compensation
Committee.
The Board may amend the Amended and Restated 1992 Stock Option Plan from
time to time except that any increase in the number of shares of Common Stock
issued under the Amended and Restated 1992 Stock Option Plan (except for the
adjustments allowed regarding dilution or enlargement of an optionee's rights)
or a change in who is eligible to receive options or otherwise cause Rule 16b-
3 of the Securities Exchange Act of 1934 to cease to be applicable to the
Amended and Restated 1992 Stock Option Plan requires stockholder approval.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
There were no Compensation Committee interlocks or insider participation in
compensation during the last fiscal year.
23
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables furnish information as of August 15, 1997 as to: (i)
shares of Company Common Stock beneficially owned by any person owning
beneficially more than five percent (5%) of the outstanding shares; and (ii)
shares of Company Common Stock beneficially owned by each director of the
Company and shares of Company Common Stock beneficially owned by all directors
and officers of the Company, as a group. (Except as indicated hereinafter, all
such shares are beneficially owned directly by the person indicated in the
table.)
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
------------------- ----------------------- --------
<S> <C> <C>
M.D. Sass Associates, Inc. ................... 1,726,361(2) 38.1%(2)
c/o Resurgence Asset Management, L.L.C.
1185 Ave. of the Americas
New York, NY 10036
T. Rowe Price Recovery Fund, L.P. ............ 967,900(3) 21.3%(3)
100 E. Pratt Street
Baltimore, MD 21202
Carl Marks Management Co., L.P. .............. 938,050(4) 20.7%(4)
135 E. 57th St.
New York, NY 10022
</TABLE>
- --------
(1) Each beneficial owner has sole voting and investment power, with respect
to the shares listed, unless otherwise indicated.
(2) M.D. Sass Associates, Inc. exercises voting power and investment power
over these shares on behalf of certain client accounts and accounts
managed by its affiliates with which such powers are shared. Additionally,
M.D. Sass employees and affiliates have an indirect beneficial interest in
certain of the client entities which own these shares. M.D. Sass disclaims
beneficial ownership of shares owned by its clients. James B. Rubin shares
voting and investment power in the above shares as a principal in M.D.
Sass's restructured securities activities and with respect to shares
included in the above total held by him as trustee for a defined
contribution plan. Mr. Rubin disclaims beneficial ownership of these
shares.
(3) Represents shares owned of record and beneficially by T. Rowe Price
Recovery Fund, L.P. ("Recovery Fund") directly. Associates, as the general
partner of Recovery Fund, has the power to vote and dispose of such
shares, and Kim Golden, as Executive Vice President of Associates, has the
authority to act on behalf of Associates as to the voting and disposition
of such shares. Accordingly, Associates and Mr. Golden share investment
power with Recovery Fund as to the shares and may be deemed to be
beneficial owners of the shares owned directly by Recovery Fund. Each of
Associates and Mr. Golden disclaims beneficial ownership of the shares.
(4) Represents 891,250 shares beneficially owned directly by two investment
partnerships, of which Carl Marks is sole General Partner. The two general
partners of Carl Marks, Messrs. Andrew M. Boas and Robert C. Ruocco, share
the power to direct the voting and disposition of such shares.
Accordingly, such shares may be deemed to be beneficially owned by both
Carl Marks and by Messrs. Boas and Ruocco. In addition, an account managed
by an affiliate of Carl Marks owns beneficially 46,800 shares of Common
Stock, which shares may also be deemed to be beneficially owned by Messrs.
Boas and Ruocco.
24
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
NME AND ADDRESSA AMOUNT AND NATURE OF PERCENT
OFBENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------- ----------------------- --------
<S> <C> <C>
Barry J. Alperin............................. 8,000 (2) .2% (2)
Kim Z. Golden................................ 967,900 (3) 21.3% (3)
Steven H. Halper............................. 178,056 (4) 3.4% (4)
Peter McGeough............................... 184,056 (5) 3.5% (5)
Leo Peraldo.................................. 8,000 (6) .2% (6)
Alan Rosenberg............................... 228,520 (7) 4.4% (7)
James B. Rubin............................... 1,726,361 (8) 38.1% (8)
Robert C. Ruocco............................. 938,050 (9) 20.7% (9)
Total Shares Owned by Directors and Executive
Officers as a Group (13 individuals)........ 4,323,145(10) 93.4%(10)
</TABLE>
- --------
(1) Each beneficial owner has sole voting and investment power with respect
to the shares listed, unless otherwise indicated.
(2)All of the 8,000 shares beneficially owned by Mr. Alperin are shares to
which Mr. Alperin has the right to acquire beneficial ownership through
the exercise of stock options.
(3) These shares are owned by the Recovery Fund; voting and dispositive power
is exercised through its sole general partner, Associates, which is a
wholly owned subsidiary of T. Rowe Price Associates, Inc. Mr. Golden is
Executive Vice President of Associates. Mr. Golden expressly disclaims
beneficial ownership of such shares.
(4) All of the 178,056 shares beneficially owned by Mr. Halper are shares to
which Mr. Halper has the right to acquire beneficial ownership through
the exercise of stock options.
(5) Of the 184,056 shares beneficially owned by Mr. McGeough, 178,056 shares
are shares as to which Mr. McGeough has the right to acquire beneficial
ownership through the exercise of stock options, and 2,000 are owned by
Mr. McGeough's spouse, of which Mr. McGeough expressly disclaims
beneficial ownership.
(6) All of the 8,000 shares beneficially owned by Mr. Peraldo are shares to
which Mr. Peraldo has the right to acquire beneficial ownership through
the exercise of stock options.
(7) All of the 228,520 shares beneficially owned by Mr. Rosenberg are shares
as to which Mr. Rosenberg has the right to acquire beneficial ownership
through the exercise of stock options.
(8) Shares voting power and investment power with affiliated persons and
entities under common control for the benefit of clients owning these
shares. Mr. Rubin expressly disclaims beneficial ownership of such
shares. M.D. Sass employees and affiliates have an indirect beneficial
interest in the certain client entities which own the shares.
(9) Consists of shares beneficially owned by Carl Marks and an affiliated
advisory firm of which Mr. Ruocco is a general partner and an executive
officer, respectively. See Note 4 to table of Security Ownership of
Certain Beneficial Owners and Management.
(10) See the information in the footnotes set forth above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
25
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K
(a) Financial Statements
See Index to Financial Statements and Schedules which appears on page F-1
hereof.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on July 10, 1997 regarding the
proposal by the Company's senior management and majority stockholders to take
the Company private for $24 a share pursuant to Item 5 of Form 8-K.
The Company filed a report on Form 8-K on August 15, 1997 regarding the sale
of the customer accounts receivables pursuant to Item 2 of Form 8-K and the
execution of the Merger Agreement pursuant to Item 5 of Form 8-K.
(c) Exhibits
The exhibits listed on the Exhibit Index following the signature page hereof
are filed herewith in response to this Item.
26
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Seaman Furniture Company, Inc.
/s/ Alan Rosenberg
By: _________________________________
ALAN ROSENBERG, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Alan Rosenberg President, Chief October 23,
- ------------------------------------- Executive Officer 1997
ALAN ROSENBERG and Director
/s/ Peter McGeough Executive Vice October 23,
- ------------------------------------- President, Chief 1997
PETER MCGEOUGH Financial and
Administrative
Officer
/s/ Steven H. Halper Executive Vice October 23,
- ------------------------------------- President, Chief 1997
STEVEN H. HALPER Operating Officer
and Secretary
/s/ Coleen A. Colreavy Vice President, October 23,
- ------------------------------------- Corporate 1997
COLEEN A. COLREAVY Controller and
Chief Accounting
Officer
/s/ Barry J. Alperin Director October 23,
- ------------------------------------- 1997
BARRY J. ALPERIN
/s/ Kim Z. Golden Director October 23,
- ------------------------------------- 1997
KIM Z. GOLDEN
/s/ Leo Peraldo Director October 23,
- ------------------------------------- 1997
LEO PERALDO
Director
- -------------------------------------
JAMES B. RUBIN
Director
- -------------------------------------
ROBERT C. RUOCCO
27
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
ENDED APRIL 30, 1997, 1996 AND 1995
AND INDEPENDENT AUDITORS' REPORT
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
FINANCIAL STATEMENTS:
Independent Auditors' Report........................................ F-2
Consolidated Balance Sheets, for the Years Ended April 30, 1997 and
1996............................................................... F-3
Statements of Consolidated Operations, for the Years Ended April 30,
1997, 1996 and 1995................................................ F-4
Statements of Stockholders' Equity, for the Years Ended April 30,
1997, 1996 and 1995................................................ F-5
Statements of Consolidated Cash Flows, for the Years Ended April 30,
1997, 1996 and 1995................................................ F-6
Notes to Consolidated Financial Statements.......................... F-7
SCHEDULES:
</TABLE>
SCHEDULES OMITTED
Schedules not filed herewith are omitted because of the absence of conditions
under which they are required or because the information called for is shown in
the financial statements or notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Seaman Furniture Company, Inc.:
We have audited the accompanying consolidated balance sheets of Seaman
Furniture Company, Inc. and Subsidiaries (collectively, the "Company") as of
April 30, 1997 and 1996 and the related statements of consolidated operations,
stockholders' equity and consolidated cash flows for each of the three fiscal
years in the period ended April 30, 1997. These consolidated financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Company at April 30, 1997 and 1996 and the results of their operations
and their cash flows for the three fiscal years in the period ended April 30,
1997 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
June 27, 1997, except for Note 9, for which the date of our report is August
13, 1997
F-2
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
APRIL 30, 1997 AND 1996 (IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES 1997 1996
----- -------- --------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................ 2 $ 6,423 $ 3,436
Accounts receivable (less allowance for doubtful
accounts of $8,104 and $8,983, respectively)........ 2,6,9 68,916 65,716
Merchandise inventories.............................. 2 28,782 27,796
Prepaid expenses and other current assets............ 1,133 1,921
Deferred income tax benefit.......................... 4 4,977 5,709
-------- --------
Total current assets............................. 110,231 104,578
Property and Equipment--at cost: 2
Land............................................... 2,324 2,724
Buildings and improvements......................... 15,145 15,145
Furniture, fixtures and office equipment........... 13,519 13,199
Leaseholds and leasehold improvements.............. 17,084 15,992
-------- --------
Total............................................ 48,072 47,060
Less--Accumulated depreciation and amortization.... (16,681) (13,909)
-------- --------
Property and equipment--net........................ 31,391 33,151
Property Financed by Capital Leases (less accumulated
amortization of $3,777 and $3,366, respectively).... 2,3 4,727 5,138
Deferred Income Tax Benefit.......................... 4 10,834 11,935
Other Assets (principally deposits).................. 4,039 4,449
-------- --------
Total............................................ $161,222 $159,251
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable--trade.............................. $ 13,167 $ 11,022
Accrued expenses and other........................... 19,947 16,670
Current portion of long-term debt.................... 3 1,123 673
Customer deposits.................................... 2 8,487 9,266
-------- --------
Total current liabilities........................ 42,724 37,631
-------- --------
Long-Term Debt....................................... 3 12,878 20,085
-------- --------
Commitments and Contingencies........................ 7
Stockholders' Equity:
Common stock--$.01 par value; authorized 15,000,000
shares; issued 5,004,575 shares at April 30, 1997... 50 50
Additional paid-in capital........................... 5 86,817 86,817
Retained earnings.................................... 24,310 20,225
-------- --------
111,177 107,092
Less: Treasury Stock, at cost (467,534 shares at
April 30, 1997 and 1996)............................ (5,557) (5,557)
-------- --------
Stockholders' equity--net............................ 105,620 101,535
-------- --------
Total............................................ $161,222 $159,251
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995
(IN THOUSANDS EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
NOTES APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1995
----- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Net sales................... 2 $ 251,175 $ 229,505 $ 215,857
Net finance charge income... 12,809 14,036 12,364
---------- ---------- ----------
Total..................... 263,984 243,541 228,221
---------- ---------- ----------
Operating Costs and
Expenses:
Cost of sales, including
buying and occupancy cost.. 167,430 152,982 138,038
Selling, general and
administrative............. 2 87,206 83,094 74,691
---------- ---------- ----------
Total..................... 254,636 236,076 212,729
---------- ---------- ----------
Income from Operations...... 9,348 7,465 15,492
Interest Expense............ (2,247) (1,748) (1,707)
Interest Income............. 65 878 561
---------- ---------- ----------
Income Before Provision for
Income Taxes............... 7,166 6,595 14,346
Provision for Income Taxes.. 4 (3,081) (2,700) (5,738)
---------- ---------- ----------
Net Income.................. $ 4,085 $ 3,895 $ 8,608
========== ========== ==========
Net Income Per Common Share. 2 $ 0.82 $ 0.78 $ 1.68
========== ========== ==========
Weighted average common and
common equivalent shares
outstanding................ 4,991,875 4,979,152 5,129,441
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK
--------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balances at May 1, 1994......... 5,002,500 $50 $82,594 $ 7,722 $(2,536)
Issued common stock............. 2,075 19
Repurchase of treasury stock.... (3,005)
Reversal of Valuation Allowance
for deferred tax assets
originating prior to emergence
from Chapter 11................ 4,204
Net income for the year ended
April 30, 1995................. 8,608
-------
Balances at April 30, 1995...... 5,004,575 50 86,817 16,330 (5,541)
Repurchase of treasury stock.... (16)
Net income for the year ended
April 30, 1996................. 3,895
-------
Balances at April 30, 1996...... 5,004,575 50 86,817 20,225 (5,557)
Net income for the year ended
April 30, 1997................. 4,085
-------
Balances at April 30, 1997...... 5,004,575 $50 $86,817 $24,310 $(5,557)
========= === ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE YEAR ENDED APRIL 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Operating Activities:
Net income....................... $ 4,085 $ 3,895 $ 8,608
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation, amortization and
writedown of land............. 5,118 4,156 3,143
Deferred income taxes.......... 1,833 1,369 613
Provision for bad debts........ 9,797 12,716 8,739
Changes in certain assets and
liabilities:
Accounts receivable........... (12,997) (7,367) (35,954)
Merchandise inventories....... (986) (4,373) (4,021)
Prepaid expenses and other
assets........................ 1,198 (1,415) (1,820)
Accounts payable.............. 2,145 422 1,367
Accrued expenses and other.... 3,277 (7,991) 5,336
Customer deposits............. (779) 1,764 890
-------- -------- --------
Net cash provided by (used in)
operating activities............ 12,691 3,176 (13,099)
-------- -------- --------
Investing Activities:
Purchase of equipment............ (2,947) (7,998) (6,472)
-------- -------- --------
Financing Activities:
Securitization of accounts
receivable...................... -- (20,000) 20,000
Borrowings (Repayments) under
Debt obligations................ 1,659 (587) (505)
Purchase of Treasury Stock....... -- (16) (3,005)
(Repayments) Borrowings on lines
of credit....................... (8,416) 8,430 --
-------- -------- --------
Net cash (used in) provided by
financing activities............ (6,757) (12,173) 16,490
-------- -------- --------
Net Increase (Decrease) in Cash
and Cash Equivalents............ 2,987 (16,995) (3,081)
Cash and Cash Equivalents,
Beginning of Period............. 3,436 20,431 23,512
-------- -------- --------
Cash and Cash Equivalents, End of
Period.......................... $ 6,423 $ 3,436 $ 20,431
======== ======== ========
Supplemental Disclosures:
Interest paid.................... $ 870 $ 448 $ 401
======== ======== ========
Income taxes paid................ $ 983 $ 2,220 $ 3,596
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Seaman Furniture Company, Inc. (the "Company"), a Delaware corporation, is
one of the largest regional specialty furniture retailers in the Northeastern
United States. As of April 30, 1997, the Company operated a chain of 38 stores
in the greater New York, Philadelphia and Cleveland metropolitan areas. The
Company was incorporated in 1985 as a successor to the business founded by
Julius Seaman, who started the business in Brooklyn in 1933.
2. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of Seaman Furniture Company, Inc. and its
wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Sales and Customer Deposits--Sales are recorded upon the delivery of
merchandise to customers. Customer deposits are recorded as a liability until
delivery of the merchandise to customers or until the deposit is forfeited.
Income from forfeited deposits is recorded using estimates determined from the
Company's experience with prior forfeitures.
Cash Equivalents--Cash equivalents consist of highly liquid investments
primarily in commercial paper and certificates of deposit, all of which have a
maturity of three months or less. All securities, which are held to maturity,
are stated at cost, adjusted for previous amortized or discount accreted, if
any. The Company has the intent and ability to hold such securities to
maturity. As of April 30, 1997 and 1996, the Company did not hold any
available-for-sale securities. Interest earned on investment securities is
included in interest income.
Accounts Receivable--Accounts receivable consist principally of interest-
bearing amounts due from retail customers under financing agreements which
provide for monthly payments over various terms, substantially all of which
are between 24 and 33 months. Accounts receivable installments due in more
than one year are included in current assets in accordance with standard
industry practices. It is not practicable to determine the amount of such
installments.
The activity in the allowance for doubtful accounts for each of the periods
presented follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Balance, beginning of period... $ 8,983 $ 8,786 $ 5,494
Provision...................... 9,797 12,716 8,739
Write-offs..................... (13,039) (14,558) (6,987)
Recoveries..................... 2,363 2,039 1,540
-------- -------- -------
Balance, end of period......... $ 8,104 $ 8,983 $ 8,786
======== ======== =======
</TABLE>
Finance Charge Income
Gross finance charge revenue and the related expense are as follows:
<TABLE>
<CAPTION>
APRIL 30,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Finance charge revenues............................. $12,980 $16,078 $12,495
Finance expenditures................................ 171 2,042 131
------- ------- -------
Net finance charge income........................... $12,809 $14,036 $12,364
======= ======= =======
</TABLE>
F-7
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Merchandise Inventories--The Company values its inventories under the first-
in, first-out cost flow assumption.
Property and Equipment--Property and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation of buildings and
improvements and furniture, fixtures and office equipment is computed using
the straight-line method over their estimated useful lives which are:
buildings and improvements, 30 to 31.5 years and furniture, fixtures and
office equipment, 5 to 10 years. Leaseholds and leasehold improvements are
amortized over the terms of the related leases or their estimated useful
lives, whichever are shorter. In 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting For the Impairment of Long-Lived Assets and For Long-Lived Assets
To Be Disposed Of". SFAS 121 prescribes the accounting treatment for long-
lived assets, identifiable intangibles and goodwill related to those assets
when there are indications that the carrying values of those assets may not be
recoverable. The adoption of SFAS 121 did not have a material effect on the
Company's results of operations or its financial position at April 30, 1997.
Property Financed by Capital Leases--Property financed by capital leases is
amortized on the straight-line basis over the shorter of their estimated
useful lives or the remaining terms of the leases.
Income Taxes--The Company follows the provisions of Statement of Financial
Accounting Standards No. 109. "Accounting for Income Taxes" ("SFAS No. 109"),
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
company's financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the differences between the
financial accounting and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Operating Leases--Rent expense relating to stores which are classified as
operating leases due to the terms of the respective leases is recognized on
the straight-line method.
Store Opening Expenses--Expenses (other than those relating to capital
improvements) associated with new store openings are charged to operations in
the period in which such expenses are incurred.
Net Income Per Share--Net income per share is based on the weighted average
number of common and common equivalent shares outstanding during the period.
Employee stock options are considered to be common stock equivalents and,
accordingly, the calculation includes approximately 454,834, 442,111 and
455,981 common stock equivalent shares using the treasury stock method for the
years ended April 30, 1997, 1996 and 1995, respectively. Also, the weighted
average common and common equivalent shares outstanding used to calculate net
income per share were 4,991,875, 4,979,152, and 5,129,441 for fiscal 1997,
1996 and 1995, respectively.
Pervasiveness of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Reclassifications--Certain reclassifications have been made to prior
consolidated financial statements to conform with the April 30, 1997
presentation.
Disclosure of Fair Value of Financial Instruments--Management of the Company
believes that the fair value of the Company's financial instruments
approximates their recorded value due to the short maturities of these
instruments as of April 30, 1997 and 1996.
F-8
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT
Long-Term Debt--At April 30, 1997 and 1996, long-term debt, consisted of the
following in thousands of dollars:
<TABLE>
<CAPTION>
APRIL 30,
---------------
1997 1996
------- -------
<S> <C> <C>
Industrial Revenue Bonds (A).............................. $ -- $ 3,962
Fleet Mortgage (A)........................................ 5,819 --
Revolving Credit Agreement (B)............................ 14 8,430
Capital Leases (C)........................................ 8,168 8,366
------- -------
Total................................................. 14,001 20,758
------- -------
Less:
Current portion......................................... 1,123 673
------- -------
Long-term debt........................................ $12,878 $20,085
======= =======
</TABLE>
- --------
(A) Fleet Mortgage/Industrial Revenue Bond--On November 8, 1996, the Company
entered into a $6,187,500 mortgage loan with a bank to refinance a
$6,000,000 Town of Islip Development Bond ("IDA") held by the bank.
Approximately $3,738,000 was outstanding on the IDA as of the transaction
date. The Company is obligated to pay equal monthly installments of
approximately $73,660 through November 1, 2003. The interest rate on such
agreement was 8.49 percent at April 30, 1997. The loan is collateralized
by land and a building in Central Islip, NY with a carrying value of
approximately $11 million at April 30, 1997.
(B) Revolving Term Loan Agreement--On April 26, 1996, the Company entered into
a revolving term loan agreement with two banks, under which the banks were
committed to lend up to $40 million to the Company. The Company is
obligated to pay a commitment fee of .25 percent per annum of the unused
balance under these agreements. Borrowings under these agreements bear
interest at variable rates based upon the net income of the Company, as
defined in the agreement. Interest on these borrowings was 9.0 percent at
April 30, 1997. The Company granted to the Lenders a security interest in
the Company's customer receivables and all general intangibles as defined
in the Loan Agreement.
The loan agreements contain certain covenants which include (i) maintenance
of certain financial ratios; (ii) maintenance of certain amounts of net
income, working capital and net worth; (iii) limitations on capital
expenditures; (iv) limitations on the payment of dividends; (v) limitations
on other indebtedness; (vi) restrictions on the disposal of assets; and
(vii) limitations on corporate reorganizations. At April 30, 1997, the
Company was in compliance with each of the covenants mentioned above.
(C) Capital Leases--The obligations relative to capital leases at April 30,
1997 relate to two store leases and are payable in varying monthly
installments.
Long-Term Maturities--Long-term obligations are scheduled to mature as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, AMOUNT
-------------------- -------
<S> <C>
1998............................................................. $ 2,376
1999............................................................. 2,513
2000............................................................. 2,593
2001............................................................. 2,656
2002............................................................. 2,723
Thereafter....................................................... 16,586
-------
Total.......................................................... 29,447
Less interest on capital leases.................................. 15,447
-------
Total.......................................................... $14,000
=======
</TABLE>
F-9
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAXES
The Company records deferred tax assets or liabilities at the end of each
period which is determined using the currently enacted tax rate expected to
apply to taxable income in the periods in which the deferred tax asset or
liability is expected to be settled or realized.
The income tax provision is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Current:
Federal....................... $1,067 $ 911 $3,821
State & Local................. 553 420 1,304
Deferred........................ 1,461 1,369 613
------ ------ ------
Total....................... $3,081 $2,700 $5,738
====== ====== ======
</TABLE>
The Company's effective income tax rate differs from the Federal statutory
rate. The reasons for this difference are as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1995
--------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rate......... $ 2,436 34.0 $ 2,243 34.0 $ 4,878 34.0
Increases (reductions) due to:
State & local taxes--net of
Federal income tax benefit.. 645 9.0 457 7.0 860 6.0
-------- ------ -------- ------ -------- ------
Effective rate............. $ 3,081 43.0 $ 2,700 41.0 $ 5,738 40.0
======== ====== ======== ====== ======== ======
</TABLE>
The significant elements of gross deferred tax assets and liabilities at
April 30, 1997 and 1996 are as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
APRIL 30, 1997 APRIL 30, 1996
DEFERRED TAX DEFERRED TAX
ASSETS/(LIABILITIES) ASSETS/(LIABILITIES)
-------------------- --------------------
<S> <C> <C>
Allowance for doubtful accounts... $ 3,734 $ 4,193
Allowances for obsolete and slow-
moving inventories............... 1,300 1,489
Customer deposit forfeitures...... 5 72
Other............................. (62) (45)
------- -------
Total current portion........... 4,977 5,709
------- -------
Capital leases.................... 1,421 1,367
Accelerated depreciation.......... (570) (1,132)
Other............................. 815 487
Net operating loss carryforwards.. 9,168 11,213
------- -------
Noncurrent portion................ 10,834 11,935
------- -------
Total........................... $15,811 $17,644
======= =======
</TABLE>
At April 30, 1997, the Company had Federal tax loss carryforwards
aggregating approximately $21 million, which expire in 2007. Net operating
loss carryforwards of approximately $3 million were utilized during the fiscal
year ended April 30, 1997.
F-10
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. SHAREHOLDERS' EQUITY
The Company's amended and restated Certificate of Incorporation provides
that the authorized capital stock of the Company consists of 15 million shares
of Common Stock, par value $.01 per share.
The holders of the common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. Holders of
common stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor.
Stock Options
The Company has a compensatory stock option plan (the "Plan") which provides
for the issuance of incentive or non-qualified stock options to certain senior
executives and other executives. The aggregate options which may be granted
under the Plan is 1,500,000. The Plan is administered by the Compensation
Committee of the Company's Board of Directors.
Under the Plan, the Company grants options at the approximate fair market
value. The Company's stock options become exercisable over varying terms, as
specified by the Compensation Committee. The options granted to certain senior
executives (see Note 7) are exercisable in full any time after the granting
date. The options granted to other executives vest over a two- or three-year
period. Stock options are subject to forfeiture in certain circumstances.
The Company continues to account for the Option Plan using the intrinsic
value method in accordance with Accounting Principles Board No. 25,
"Accounting For Stock Issued To Employees" and its related interpretations.
Effective with fiscal 1997, the Company is subject to the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting For Stock-
Based Compensation" ("SFAS 123"). SFAS 123 established a fair value method of
calculating compensation expense related to stock-based compensation plans,
and requires the disclosure of the pro forma effects of recording such
expense. Under SFAS 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with the
following assumptions:
<TABLE>
<S> <C>
Volatility Rate................................................... 5%
Risk-Free Interest Rate........................................... 9%
Dividend Rate..................................................... 0%
Expected Term of Option In Years.................................. 5 years
</TABLE>
On a pro forma basis, net income and earnings per common share for fiscal
1997 and 1996 would have been $3,941 and $.79 and $3,895 and $.78,
respectively.
F-11
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of activity under the Company's stock option plans for the year
ended April 30, 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER EXERCISE AVERAGE
OF SHARES PRICE RANGE PRICE
--------- --------------- --------
<S> <C> <C> <C>
Balance--May 1, 1993........................ 555,555 $5.01 $5.01
Granted..................................... 37,000 $9.00 9.00
--------- --------------- -----
Balance--April 30, 1994..................... 592,555 $ 5.01 --$9.00 5.26
========= =============== =====
Granted..................................... 93,000 $12.50 --$18.75 13.41
Exercised................................... (2,075) $9.00 9.00
--------- --------------- -----
Balance--April 30, 1995..................... 683,480 $ 5.01 --$18.75 6.36
========= =============== =====
Granted..................................... 322,500 $20.50 --$35.00 25.02
Exercised................................... (10,041) $ 9.00 --$12.50 10.14
Canceled.................................... (19,734) $20.50 20.50
--------- --------------- -----
Balance--April 30, 1996..................... 976,205 $ 5.01 --$35.00 12.20
========= =============== =====
Granted..................................... 213,000 $18.125--$28.00 23.13
Exercised................................... (2,400) $9.00 9.00
Cancelled................................... (169,710) $20.50 --$35.00 29.09
--------- --------------- -----
Balance--April 30, 1997..................... 1,017,095 $ 5.01 --$28.00 11.68
========= =============== =====
Options exercisable--April 30, 1997......... 603,044 $ 5.01 --$20.50 $7.42
========= =============== =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE
- ------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$5.01--9.00.............. 581,305 5.5 $ 5.19 488,714 $ 5.22
$12.50--18.75............ 83,200 7.2 $13.52 59,796 $13.74
$18.125--24.50........... 352,590 8.7 $22.09 54,534 $20.15
--------- -------
1,017,095 603,044
========= =======
</TABLE>
6. SALE OF ACCOUNTS RECEIVABLE
In April 1995, the Company entered into an agreement with a third party to
sell, with limited recourse, $20 million of its eligible, as defined, trade
accounts receivable. The rate associated with that agreement was 8.1 percent
per annum. In April 1996, the Company redeemed and terminated the 1995 series
of Class A Securitization Certificates in the amount of $20 million.
F-12
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is obligated under various noncancelable operating leases
covering stores and two warehouses which provide for minimum rentals plus, in
certain instances, real estate taxes, other expenses and additional rentals
based on sales levels. Future minimum lease payments under these operating
leases are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30, AMOUNT
--------------------- --------
<S> <C>
1998........................................................... $ 14,134
1999........................................................... 14,321
2000........................................................... 13,999
2001........................................................... 13,576
2002........................................................... 13,001
2003--2007...................................................... 37,485
2008--2012...................................................... 14,389
2013--2017...................................................... 4,875
2018--2022...................................................... 2,232
2023........................................................... 155
--------
Total.......................................................... $128,167
========
</TABLE>
Rent Expense
Rent expense for operating leases aggregated approximately $13,697,000,
$13,197,000, $10,883,000 (net of sub-lease income of approximately $507,000,
$541,000 and $495,000) for the years ended April 30, 1997, 1996 and 1995,
respectively. These amounts include additional rental payments of
approximately zero, $12,000 and $51,000, respectively, which are based on
store sales.
Retirement Plans
The Company has a defined contribution pension plan which is qualified under
Section 401(k) of the Internal Revenue Code. Such plan is available to
substantially all employees not covered by collective bargaining agreements.
The Company may make contributions to match a portion of participant
contributions.
The Company also participates in a multi-employer union-sponsored pension
plan.
Information concerning benefits and assets available to pay benefits for
this plan is not available. Under the Employee Retirement Income Security Act
of 1974, as amended, an employer, upon withdrawal from a multi-employer plan,
is required to continue funding its proportionate share of the plan's unfunded
vested benefits, if any. The Company has no current intention of withdrawing
from the plan.
Total expenses related to these plans aggregated approximately $1,751,000,
$1,658,000 and $1,497,000, respectively, for the years ended April 30, 1997,
1996 and 1995.
Litigation
The Company is involved in various proceedings incidental to the normal
course of their business. Management does not expect that any of such
proceedings will have a material adverse effect on the Company's consolidated
financial position or results of operations.
F-13
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Employment Agreements
The Company, in May 1995, renewed its three-year employment agreements with
certain senior executives of the Company. Such employment agreements, all of
which terminate in April 1998, required first year annual compensation in the
aggregate of $770,000 with annual increases subject to a Consumer Price Index
formula, as defined in the agreements, or the discretion of the Board of
Directors.
Also, such executives were granted 165,000, 55,000 and 30,000 options during
fiscal 1997, 1996 and 1995, respectively to purchase shares of common stock
issuable pursuant to the 1992 Stock Option Plan, which was adopted by the
Company. Such options vest over a three-year period.
In addition, during a prior year, such executives were granted 555,555
options (at the then fair values) to purchase shares of common stock issuable
pursuant to the 1992 Stock Option Plan, which was adopted by the Company. Such
options vest at the sole discretion of the Board of Directors, but in any
event, no later than ten years from the date of grant. Approximately one-half
of such options were issued and fully vested at the date of grant. Subsequent
thereto, an additional 23,150 and 162,035 options became vested in June 1994
and May 1995, respectively. At April 30, 1997, 92,591 options remained
unvested.
8. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED FIRST SECOND THIRD FOURTH
APRIL 30, 1997 QUARTER QUARTER QUARTER QUARTER TOTAL
-------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Sales............................... $62,659 $63,722 $63,294 $61,500 $251,175
Gross Margin........................ $20,361 $21,138 $21,249 $20,997 $ 83,745
Net Income.......................... $ 445 $ 1,059 $ 968 $ 1,613 $ 4,085
Net Income Per Share................ $ 0.09 $ 0.21 $ 0.19 $ 0.33 $ 0.82
<CAPTION>
YEAR ENDED FIRST SECOND THIRD FOURTH
APRIL 30, 1996 QUARTER QUARTER QUARTER QUARTER TOTAL
-------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Sales............................... $57,468 $57,966 $56,292 57,779 $229,505
Gross Margin........................ $19,927 $19,885 $18,048 $18,663 $ 76,523
Net Income.......................... $ 1,534 $ 1,504 $ 335 $ 522 $ 3,895
Net Income Per Share................ $ 0.31 $ 0.30 $ 0.07 $ 0.10 $ 0.78
</TABLE>
Quarterly and total year earnings per share are calculated independently
based on the weighted average number of shares and share equivalents
outstanding during each period.
9. SUBSEQUENT EVENTS
On July 30, 1997, the Company terminated its Revolving Credit and Security
Agreement with BNY Financial Corporation and Fleet Bank, N.A. The Company
wrote off costs of approximately $358,000 which were previously capitalized in
connection with such agreement.
On August 5, 1997, the Company consummated the sale of substantially all of
its customer accounts receivable for net proceeds of approximate $70 million.
On August 13, 1997, the Company executed a merger agreement with SFC Merger
Company. ("Newco"), an entity owned by the majority shareholders of the
Company. Under the terms of the merger agreement, Newco will purchase the
outstanding shares of common stock of the Company for cash consideration of
$25.05 per share. The merger is subject to certain conditions, including
financing and stockholder approval.
F-14
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SUPPLEMENTAL INFORMATION
Advertising expense for the years ended April 30, 1997, 1996 and 1995 was
approximately $23,581,000, $23,273,000, and $20,097,000, respectively.
* * * * * *
F-15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
----------- -----------
<C> <S>
*2.1 First Amended Joint Plan of Reorganization dated July 21, 1992.
2.2 Agreement and Plan of Merger dated as of August 13, 1997 by and
between the Company and SFC Merger Company (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K filed
by the Company on August 13, 1997).
*3.1 Amended and Restated Certificate of Incorporation effective as of
February 12, 1993.
*3.2 Amended and Restated By-Laws effective as of February 12, 1993.
4.1(a) Article IV and VI of the Amended and Restated Certificate of
Incorporation (incorporated by reference to Exhibit 3.1 filed as
part of the Registration Statement on Form 10 filed by the Company
on February 13, 1993) and Articles II and VI of the Amended and
Restated By-Laws (incorporated by reference to Exhibit 3.2 filed
as part of the Registration Statement on Form 10 filed by the
Company on February 13, 1993).
4.3 Amended and Restated 1992 Stock Option Plan (incorporated by
reference to Exhibit 4.3 filed as part of the Registration
Statement on Form S-8 filed by the Company on February 4, 1994).
**10.1 (a) Delivery Service Agreement dated as of September 12, 1994
between the Company and Merchants Home Delivery Service, Inc.
(b) Delivery Service Agreement dated as of May 12, 1993 between
the Company and Joseph Eletto Transfer, Inc.
**10.2 Lease Agreement dated June 14, 1991 between the Company and Mack
Woodbridge Industrial.
***10.3 (a) Employment Agreement dated as of May 1, 1995 between the
Company and Alan Rosenberg.
(b) Employment Agreement dated as of May 1, 1995 between the
Company and Steven H. Halper.
(c) Employment Agreement dated as of May 1, 1995 between the
Company and Peter McGeough.
*10.4 1992 Stock Option Plan.
10.5 Form of Nonqualified Stock Option Agreement.
10.6 **(a) Agreement dated as of August 16, 1994 between the Company
and Local 875 affiliated with the International Brotherhood
of Teamster, Warehousemen and Helpers of America.
**(b) Agreement dated as of January 1995 between the Company and
Local 875 affiliated with the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America
(unsigned).
(c) Agreement dated as of January 3, 1997 between the Company
and Local 875 affiliated with the International Brotherhood
of Teamsters, Warehousemen and Helpers of America.
(d) Agreement dated as of March 1, 1997 between the Company and
Local 875 affiliated with the International Brotherhood of
Teamsters, Warehousemen and Helpers of America (unsigned).
*10.7 Form of Indemnification Agreement.
10.8 Pooling and Servicing Agreement dated as of March 15, 1995, among
Seaman Receivables Corporation, as transferor, Seaman Furniture
Company, Inc. as servicer, and The Bank of New York, as trustee.
(Incorporated by reference to Exhibit 10.1 filed as part of the
Current Report on Form 8-K filed by the Company on April 22, 1995.)
10.9 Revolving credit and Security Agreement dated as of April 29, 1995
with the Bank of New York Credit Corp. and NatWest Bank N.A. as
Co-Lenders. (Incorporated by reference to Exhibit 7 filed as part
of the current report on form 8-11 filed by the Company 5/14/96.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- -----------
<C> <S>
10.10 Form of Severance Agreement dated as of February 24, 1997 entered
into between the Company and Lawrence A. Winslow, Donald S.
Liebowitz, Robert N. Webber, Coleen A. Colreavy, Thomas A. Martinez,
William J. Kelly, Mario Tomiatti and Maria Infante.
****10.11 Purchase and Sale Agreement dated as of August 1, 1997 by and
between the Company and Household Bank (Nevada), N.A., a national
banking association.
21 Subsidiaries
</TABLE>
- --------
* Incorporated by reference to the exhibit with the corresponding exhibit
number filed as part of the Registration Statement on Form 10 filed by
the Company on February 13, 1993.
** Incorporated by reference to the exhibit with the corresponding exhibit
number filed as part of the 10-K filed by the Company on July 28, 1995.
*** Incorporated by reference to the exhibit with the corresponding exhibit
number filed as part of the 10-K filed by the Company on July 30, 1996.
**** Incorporated by reference to the exhibit with the corresponding exhibit
number filed as part of the 10-KA filed by the Company on September 29,
1997. Confidential treatment requested pursuant to Rule 24b-2.
<PAGE>
SEAMAN FURNITURE COMPANY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Alan Rosenberg and Steven H. Halper and/or
any one of them acting singly, with full power of substitution, as the proxy or
proxies of the undersigned to attend the Special Meeting of Stockholders of
Seaman Furniture Company, Inc., to be held on December 23, 1997, at 9:00 a.m.,
New York time, at the offices of Jones, Day, Reavis & Pogue, 599 Lexington
Avenue, 37th Floor, New York, New York 10022 and any adjournments or
postponements thereof, to vote all shares of stock that the undersigned would
be entitled to vote if personally present in the manner indicated below and on
the reverse side, and with discretionary authority to vote on any other matters
properly brought before the meeting or any adjournments or postponements
thereof, all as set forth in the accompanying Proxy Statement.
This proxy or proxies may be revoked by the undersigned at any time, prior to
the voting of the proxy, by delivering a written notice to the Secretary of the
Company, by executing and delivering a later-dated proxy or by attending the
meeting and voting in person.
PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF
MERGER, dated as of August 13, 1997, as amended on September
4, 1997, by and between Seaman Furniture Company, Inc., a
Delaware corporation, and SFC Merger Corporation, a Delaware
corporation.
[_] FOR [_] AGAINST [_] ABSTAIN
The Board of Directors recommends a vote FOR the Proposal and in the
discretion of the proxies on all other matters properly brought before the
meeting.
<PAGE>
In the absence of instructions to the contrary, the shares represented will
be voted in accordance with the Board's recommendation to approve the Agreement
and Plan of Merger.
Date: , 1997
Signature: _____________________________
Signature: _____________________________
NOTE: Please date this proxy and sign
your name exactly as it appears hereon.
When there is more than one owner each
should sign. When signing as an
attorney, administrator, executor,
guardian, or trustee, please add your
title as such. If executed by a
corporation, this proxy should be
signed by a duly authorized officer. If
a partnership, please sign in
partnership name by authorized persons.
Please date, sign and return this proxy
card in the enclosed envelope. No
postage required if mailed in the
United States.
