<PAGE>
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as
permitted by Rule 14a-
6(e)(2))
[ ] 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
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2) Aggregate number of securities to which transaction applies:
4,536,839
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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-fifteenth 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.
[ ] 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.
-------------------------------------------------
4) Date Filed:
September 5, 1997
-------------------------------------------------
<PAGE>
__________ ___, 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 __________ __, 1997
at __:00 a.m., New York time at the Huntington Hilton, 598 Broadhollow Road,
Melville, New York 11747.
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.
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 _________ ___, 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.
<PAGE>
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, 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,
Alan Rosenberg
President and Chief Executive Officer
3
<PAGE>
SEAMAN FURNITURE COMPANY, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ___________ __, 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
_________, _________ __, 1997 at __:00 a.m., New York time, at the Huntington
Hilton, 598 Broadhollow Road, Melville, New York 11747, 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 _________ ___, 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 ________ ___, 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.
<PAGE>
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
STEVEN H. HALPER
Secretary
Woodbury, New York
_________ __, 1997
2
<PAGE>
SEAMAN FURNITURE COMPANY, INC.
300 CROSSWAYS PARK DRIVE, WOODBURY, NEW YORK 11797
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _________ ___, 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
__________ ___, 1997, at __:00 a.m., New York time, at the Huntington Hilton,
598 Broadhollow Road, Melville, New York 11747 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 _________ ___, 1997 to all stockholders of record on
___________ ___, 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 __________ ___, 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
<PAGE>
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, 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, 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) 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.
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
(ii)
<PAGE>
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 ________ __, 1997.
(iii)
<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.
(iv)
<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 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.
(v)
<PAGE>
TABLE OF CONTENTS
Page No.
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AVAILABLE INFORMATION.....................................................(iv)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................(v)
SUMMARY.................................................................... 1
THE PARTIES................................................................ 9
The Company.......................................................... 9
Newco................................................................ 9
THE MEETING................................................................ 9
Time, Date and Place................................................. 9
Voting Rights........................................................ 9
Required Vote........................................................ 10
SPECIAL FACTORS............................................................ 11
Background of the Merger............................................. 11
Purpose of and Reasons for the Merger................................ 14
Determination of Fairness of the Merger by the Special
Committee and the Board of Directors................................. 15
Position of the Funds and Executive Management as to Fairness........ 18
Opinion of Financial Advisor to the Special Committee................ 21
Conflict of Interests of the Funds, Executive Management
and Certain Members of the Board of Directors of the
Company in the Merger................................................ 27
Certain Effects of the Merger........................................ 28
Future Plans of the Company.......................................... 28
RIGHTS OF DISSENTING STOCKHOLDERS.......................................... 29
ESTIMATED FEES AND EXPENSES; SOURCES OF FUNDS.............................. 33
RECENT DEVELOPMENTS........................................................ 34
THE MERGER AGREEMENT....................................................... 35
The Merger........................................................... 35
Certificate of Incorporation and By-Laws of the Surviving
Corporation.......................................................... 35
Directors and Officers of the Surviving Corporation.................. 35
Conversion of Securities in the Merger; Treatment of Options......... 36
Payment for and Surrender of Company Common Shares................... 38
Closing of Stock Transfer Records.................................... 39
Representations and Warranties....................................... 39
Alternative Proposals................................................ 40
Interim Operations of the Company.................................... 41
Certain Filings and Other Actions.................................... 42
Access to Information................................................ 43
Termination.......................................................... 46
(vi)
<PAGE>
Expenses............................................................. 47
Amendment............................................................ 48
Certain U.S. Federal Income Tax Consequences of the Merger........... 48
Accounting Treatment of the Merger................................... 49
Regulatory Approvals................................................. 49
MARKET INFORMATION......................................................... 50
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 50
Security Ownership of Certain Beneficial Owners...................... 51
Security Ownership of Management..................................... 52
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 53
OPTION CANCELLATION INFORMATION............................................ 53
PURCHASES OF COMMON STOCK BY AND OTHER
TRANSACTIONS WITH CERTAIN PERSONS.................................... 55
TRANSACTION OF OTHER BUSINESS.............................................. 56
INDEPENDENT ACCOUNTANTS.................................................... 56
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
(vii)
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere in
this Proxy Statement including in the Appendices hereto (the "Proxy Statement").
This summary is not intended to be a complete description of the matters covered
in this Proxy Statement and 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. 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.
<TABLE>
<S> <C>
TIME, DATE AND PLACE.............. The Meeting of the stockholders of
the Company will be held on ______
___, 1997 at __:00 _.m., New York
time, at the Huntington Hilton, 598
Broadhollow Road, Melville, New York
11747. 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 _____ ___,
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 approximately
________ 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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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 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
MERGER.............................. effective as of 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 For a description of the events
MERGER.............................. leading to the approval and adoption
of the Merger Agreement by the Board,
see "Special Factors--Background of
the Merger."
RECOMMENDATION OF THE The Board of Directors (with the
BOARD OF DIRECTORS.................. Funds-affiliated and management
directors abstaining) 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
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
of Fairness of the Merger by the
Special Committee and the Board of
Directors."
OPINION OF FINANCIAL The Special Committee retained
ADVISOR TO THE Wasserstein Perella & Co., Inc.
SPECIAL ("Wasserstein Perella") to act as its
COMMITTEE........................... 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."
CONFLICT OF INTERESTS OF THE If the Merger is consummated, the
FUNDS AND CERTAIN Funds will be the sole stockholders,
MEMBERS OF THE BOARD OF and Mr. Alan Rosenberg, a director,
DIRECTORS OF THE President and Chief Executive Officer
COMPANY IN THE of the Company, will have options to
MERGER.............................. purchase approximately 6.5% (on a
fully-diluted basis), of the
Surviving Corporation. Accordingly,
the Funds, the members of the Board
who are affiliated with the Funds and
Mr. Rosenberg, 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
MERGER.............................. own 100% of 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
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
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 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
COMPANY............................. 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.
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
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
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 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 The receipt of cash for Public Stock
INCOME TAX pursuant to the Merger will be a
CONSEQUENCES OF THE taxable transaction to the Public
MERGER.............................. 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,
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
local or foreign laws. See "The
Merger Agreement--Certain U.S.
Federal Income Tax Consequences of
the Merger."
ACCOUNTING TREATMENT OF The Merger will be accounted for as a
THE MERGER.......................... "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 It is currently expected that
EXPENSES; SOURCES OF approximately $22,658,426 will be
FUNDS............................... 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, 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. 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."
</TABLE>
6
<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.
(Amounts in Thousands)
<TABLE>
<CAPTION>
PROFORMA
YEAR YEAR YEAR YEAR TWELVE-MONTH
ENDED ENDED ENDED ENDED PERIOD ENDED
APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1995 APRIL 30, 1994 APRIL 30, 1993 (1)
--------------- --------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net Sales $251,175 $229,505 $215,857 $170,348 $162,576
Net Finance Charge Income 12,809 14,036 12,364 7,865 8,490
-------- -------- -------- -------- --------
Total 263,984 243,541 228,221 178,213 171,066
-------- -------- -------- -------- --------
Operating Costs & Expenses:
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>
(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.
7
<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 INCREASE (DECREASE)
PERCENTAGE OF NET SALES ------------------------------
----------------------- PROFORMA YEAR ENDED APRIL 30,
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 Income 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>
(AMOUNTS IN THOUSANDS)
------------------------------------------------------------
AT AT AT AT AT
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<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>
8
<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 ________ __,
1997 at __:00 _.m., New York time, at the Huntington Hilton, 598 Broadhollow
Road, Melville, New York 11747.
VOTING RIGHTS
Only holders of shares of Common Stock of record at the close of business on
_________ __, 1997, will be entitled to vote at the Meeting. On _________ __,
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
9
<PAGE>
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 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.
10
<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 the shares of Common Stock
beneficially owned by them. In connection with the Funds' consideration of a
possible sale, the Funds engaged a financial advisor to consider the potential
impact of a sale by the Funds 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.
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.
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. The sale of such customer accounts receivable was ultimately
consummated on August 5, 1997.
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
11
<PAGE>
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, among other things, to proceed with a proposed recapitalization
transaction, whether or not the transaction should take place as a tender offer
followed by a merger, the amount of the consideration to be paid, the ownership
of the Surviving Corporation and the financing of the 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, 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.
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
12
<PAGE>
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 upon advice of
counsel) unanimously adopted a resolution approving the Merger Agreement and
voted to recommend approval of the Merger Agreement to the Company's
stockholders.
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.
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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 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; and (e) to allow the Company to
continue to operate as an independent retailer of furniture. 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. In
addition, the Funds have indicated that they intend to 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 "--Future Plans 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 as one alternative structure to the proposed
Merger. The Funds ultimately rejected this alternative in the belief that a
tender offer transaction might have taken a significantly longer period of time
to consummate and might have been more expensive.
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<PAGE>
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 approve the Merger Agreement. At its August 13, 1997 meeting, the
Board of Directors, by unanimous vote (with Funds-affiliated and management
directors abstaining upon the advice of counsel) 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.
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, including those listed 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, including those listed below. In its consideration of the
following 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 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
15
<PAGE>
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 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. In addition, the Special Committee noted 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 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
16
<PAGE>
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."
(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.
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. 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."
17
<PAGE>
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.
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 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.
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
18
<PAGE>
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 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
acquiree in the selected
19
<PAGE>
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.
Based on the foregoing analysis, the Funds and Executive Management believe
that the proposed Merger transaction as a whole is fair to the Public
Stockholders. As noted above, representatives of the Funds 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 "--Purpose of and Reasons for the Merger."
The Funds and 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 comprised solely
of members of the Board of Directors who are neither affiliated with the Funds
nor officers of the Company; (ii) the Special Committee retained an independent
financial advisor, Wasserstein Perella, and independent legal counsel; and (iii)
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 and Executive Management to the Public Stockholders to vote to approve the
Merger Agreement. The Funds and Executive Management did not assign specific
relative importance to the analyses and factors considered in reaching its
belief as to fairness.
20
<PAGE>
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 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.
21
<PAGE>
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.
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.
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
22
<PAGE>
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
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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 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
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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.
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
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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 analyses described above, the Merger Consideration was
fair from a financial point of view to the Public Stockholders.
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
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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, the Funds will be the sole stockholders, and Mr.
Rosenberg will have options to purchase approximately 6.5%, on a fully-diluted
basis, of the common stock of the Surviving Corporation. Accordingly, the
Funds, the members of the Company's Board of Directors who are affiliated with
the Funds and Mr. Rosenberg, have a direct economic interest in the Merger.
This creates a conflict of interest for these Board members 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 the Funds and are not
officers of the Company. In addition, the Funds-affiliated and management
directors abstained from evaluating and voting on the Merger.
Also, Peter McGeough, a member of Executive Management, 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. Mr. McGeough and Mr. Halper,
another member of Executive Management, own certain stock options that will
entitle them to cash payments and options for shares of common stock of the
Surviving Corporation. See "Option Cancellation Information."
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."
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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.
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.
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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 immediately 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."
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.
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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.
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
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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.
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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 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
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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.
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)..................
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.......................
TOTAL......................................
===========
</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
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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."
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.
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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.
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.
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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,
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<PAGE>
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 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.
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<PAGE>
(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.
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.
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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.
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
39
<PAGE>
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.
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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
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
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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
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.
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<PAGE>
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 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
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<PAGE>
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 increases the aggregate expenses
thereof as of the date of the Merger Agreement in order to comply with
44
<PAGE>
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.
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<PAGE>
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) 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
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<PAGE>
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 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
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<PAGE>
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 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
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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.
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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.
Fiscal 1997 High Low Close
- ------------- ------ ------ ------
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
Fiscal 1996 High Low Close
- ------------- ------ ------ ------
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
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 __________ __, 1997, the most recent
practicable date prior to the printing of this Proxy Statement, the last
reported sales price quoted by Nasdaq was $____ per share of Common Stock. As
of the Record Date, there were _________ 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.
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
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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, 967,900(3) 21.3%(3)
L.P.
100 Pratt Street
Baltimore, MD 21202
Carl Marks Management Co., 938,050(4) 20.7%(4)
L.P.
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
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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.
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial 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.
52
<PAGE>
(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.
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.
53
<PAGE>
<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. 15,584 5,416 166,766 2,305
Colreavy
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. 15,334 5,666 91,270 2,388
Webber
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."
54
<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 Fiscal 1998 - 202 19.750 19.500
Company, Inc. 1st Quarter
M.D. Sass Fiscal 1997 - 21,777 18.500 - 18.927
Associates, Inc. 2nd Quarter 19.250
Fiscal 1997 - 41,500 17.875 - 18.468
1st Quarter 18.875
Fiscal 1996 - 47,950 15.500 - 17.716
4th Quarter 18.750
Fiscal 1996 - 4,000 18.875 18.925
3rd Quarter
Fiscal 1996 - 33,597 17.500 - 18.877
2nd Quarter 18.875
Carl Marks Fiscal 1997 - 21,777 18.500 - 18.927
Management Co., 2nd Quarter 19.250
L.P.
Fiscal 1997 - 16,500 17.875 - 18.468
1st Quarter 18.750
Fiscal 1996 - 47,950 15.500 - 17.716
4th Quarter 18.750
Fiscal 1996 - 4,000 18.125 - 18.925
3rd Quarter 18.875
Fiscal 1996 - 40,176 17.500 - 18.877
2nd Quarter 18.875
Peter McGeough Fiscal 1996 - 2,000 17.500 18.877
2nd Quarter
</TABLE>
55
<PAGE>
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.
56
<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
Page
----
1. The Merger............................................................. 1
1.1 The Merger........................................................ 1
1.2 The Closing....................................................... 1
1.3 Effective Time.................................................... 2
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................... 3
3. Conversion of Securities............................................... 3
3.1 Conversion of Securities.......................................... 3
3.2 Dissenting Stockholders........................................... 6
3.3 Payment for and Surrender of Company Common Shares................ 6
3.4 Stock Transfer Books.............................................. 8
4. Representations and Warranties of the Company.......................... 8
4.1 Existence; Good Standing; Corporate Authority..................... 8
4.2 Authorization, Validity and Effect of Agreement................... 8
4.3 Capitalization.................................................... 8
4.4 Subsidiaries...................................................... 9
4.5 No Conflict; Required Filings and Consents........................ 10
4.6 No Brokers........................................................ 10
4.7 State Takeover Statutes........................................... 10
4.8 Opinion of Financial Advisor...................................... 10
5. Representations and Warranties of Newco................................ 10
5.1 Existence; Good Standing; Corporate Authority..................... 10
5.2 Authorization, Validity and Effect of Agreement................... 11
5.3 Subsidiaries...................................................... 11
5.4 No Conflict; Required Filings and Consents........................ 11
5.5 No Brokers........................................................ 12
5.6 Newco............................................................. 12
6. Covenants.............................................................. 12
6.1 Alternative Proposals............................................. 12
6.2 Conduct of Business by the Company................................ 13
6.3 Conduct of Business by Newco...................................... 15
6.4 Meeting of Stockholders........................................... 15
6.5 Filings, Other Action............................................. 16
6.6 Access to Information; Confidentiality............................ 16
<PAGE>
TABLE OF CONTENTS (CONT'D)
Page
----
6.7 Publicity......................................................... 16
6.8 Further Action.................................................... 16
6.9 Expenses.......................................................... 17
6.10 Insurance; Indemnity.............................................. 17
6.11 Employee Benefits................................................. 18
6.12 Conveyance Taxes.................................................. 19
7. Conditions............................................................. 19
7.1 Conditions to Each Party's Obligation To Effect the Merger........ 19
7.2 Conditions to Obligation of Company To Effect the Merger.......... 19
7.3 Conditions to Obligation of Newco To Effect the Merger............ 20
8. Termination............................................................ 21
8.1 Termination....................................................... 21
8.2 Effect of Termination............................................. 22
8.3 Extension; Waiver................................................. 22
8.4 Payment of Fees and Expenses...................................... 22
9. General Provisions..................................................... 23
9.1 Nonsurvival of Representations, Warranties and Agreements......... 23
9.2 Notices........................................................... 23
9.3 Assignment; Binding Effect........................................ 23
9.4 Entire Agreement.................................................. 24
9.5 Amendment......................................................... 24
9.6 Governing Law..................................................... 24
9.7 Counterparts...................................................... 24
9.8 Headings.......................................................... 24
9.9 Interpretation.................................................... 24
9.10 Waivers........................................................... 24
9.11 Incorporation of Schedules........................................ 24
9.12 Severability...................................................... 25
9.13 Enforcement of Agreement.......................................... 25
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
----------------------
Page
----
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
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
<PAGE>
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."
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.
- ---------
A-2
<PAGE>
(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").
(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
A-3
<PAGE>
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.
A-4
<PAGE>
(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 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.
A-5
<PAGE>
(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.
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
A-6
<PAGE>
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
A-7
<PAGE>
or interest of any such holders or their successors, assigns or personal
representatives previously entitled thereto.
(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
A-8
<PAGE>
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.
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"),
A-9
<PAGE>
(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.
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.
A-10
<PAGE>
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
A-11
<PAGE>
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 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
A-12
<PAGE>
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
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
A-13
<PAGE>
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 (iv) any other contract in the ordinary course
A-14
<PAGE>
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
A-15
<PAGE>
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 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,
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<PAGE>
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, (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
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<PAGE>
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
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<PAGE>
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, 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:
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<PAGE>
(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 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.
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<PAGE>
(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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<PAGE>
(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
A-22
<PAGE>
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.
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 Fl. Woodbury, New York 11797
New York, New York 10036
Attention: James B. Rubin Attention: Barry J. Alperin
Fax No.: 212/768-8078 Fax No.: 516/682-1610
With copies to: With copies to:
Jones, Day, Reavis & Pogue Shereff, Friedman, Hoffman
599 Lexington Avenue & Goodman, LLP
New York, New York 10022 919 Third Avenue
Attention: John J. Hyland, Esq. New York, New York 10022
Fax No.: 212/755-7306 Attention: Charles I. Weissman, Esq.
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,
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<PAGE>
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.
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.
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<PAGE>
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.
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<PAGE>
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.
By: /s/ Steven H. Halper
---------------------------------------
Name: Steven H. Halper
Title: Executive Vice President
SFC MERGER COMPANY
By: /s/ Alan Rosenberg
---------------------------------------
Name: Alan Rosenberg
Title: President
A-26
<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.
<PAGE>
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 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
A-1-2
<PAGE>
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 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
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<PAGE>
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.
A-1-4
<PAGE>
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
A-1-5
<PAGE>
Exhibit B
---------
================================================================================
AMENDED AND RESTATED
BY-LAWS
OF
SEAMAN FURNITURE COMPANY, INC.
AS OF ________ __, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
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...................................................2
2.05 Quorum...............................................................2
2.06 Voting...............................................................2
2.07 Stockholders' Consent in Lieu of Meeting.............................3
ARTICLE III
BOARD OF DIRECTORS
3.01 Function.............................................................3
3.02 Number, Election, and Terms..........................................3
3.03 Vacancies and Newly Created Directorships............................3
3.04 Removal..............................................................4
3.05 Resignation..........................................................4
3.06 Regular Meetings.....................................................4
3.07 Special Meetings.....................................................4
3.08 Quorum...............................................................4
3.09 Written Action.......................................................4
3.10 Participation in Meetings by Telephone
Conference......................................................4
3.11 Compensation.........................................................5
3.12 Rules................................................................5
(i)
<PAGE>
TABLE OF CONTENTS (cont'd)
Page
----
ARTICLE IV
NOTICES
4.01 Generally............................................................5
4.02 Waivers..............................................................5
ARTICLE V
OFFICERS
5.01 Generally........................................................... 5
5.02 Compensation........................................................ 6
5.03 Term of Office, Resignation and Removal..............................6
5.04 Authority and Duties.................................................6
ARTICLE VI
STOCK
6.01 Certificates........................................................ 6
6.02 Transfers............................................................6
6.03 Lost, Stolen, or Destroyed Certificates..............................7
6.04 Record Dates.........................................................7
6.05 Classes of Stock.....................................................7
ARTICLE VII
INDEMNIFICATION
7.01 Damages and Expenses.................................................8
7.02 Insurance, Contracts, and Funding....................................8
ARTICLE VIII
GENERAL
8.01 Fiscal Year..........................................................9
8.02 Seal.................................................................9
(ii)
<PAGE>
TABLE OF CONTENTS (cont'd)
Page
----
8.03 Reliance upon Books, Reports, and Records............................9
8.04 Time Periods.........................................................9
8.05 Amendments...........................................................9
8.06 Certain Defined Terms................................................9
(iii)
<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
<PAGE>
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 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.
A-2-2
<PAGE>
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 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.
A-2-3
<PAGE>
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.
A-2-4
<PAGE>
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.
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
A-2-5
<PAGE>
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.
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
A-2-6
<PAGE>
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 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.
A-2-7
<PAGE>
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.
A-2-8
<PAGE>
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.
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.
A-2-9
<PAGE>
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,
<PAGE>
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 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
B-2
<PAGE>
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 wet 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.
B-3
<PAGE>
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:
<PAGE>
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.
(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
C-2
<PAGE>
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
C-3
<PAGE>
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.
(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
C-4
<PAGE>
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.
C-5
<PAGE>
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 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.)
C-6
<PAGE>
APPENDIX D
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
WOODBURY, NEW YORK 11797
-------------------------------------------- --------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, $.01 PAR VALUE NASDAQ NATIONAL MARKET
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.
D-1
<PAGE>
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.
D-2
<PAGE>
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 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.
D-3
<PAGE>
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.
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.
D-4
<PAGE>
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 the reputation of the Company as a
quality retailer and the value of "The Package/(R)/" concept of merchandising.
See "Business -
D-5
<PAGE>
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
D-6
<PAGE>
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.
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./TM/"
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
D-7
<PAGE>
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. 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.
D-8
<PAGE>
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
ligitation will not materially adversely affect the Company's financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
------------------------
None.
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.
D-9
<PAGE>
The following table sets forth (as reported by Nasdaq National Market) for
the periods indicated the prices of the common stock.
<TABLE>
<CAPTION>
FISCAL 1997 HIGH LOW CLOSE
----------- ---- --- -----
<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
1st Quarter 19 3/8 16 1/4 16 3/4
FISCAL 1996 HIGH LOW CLOSE
----------- ---- --- -----
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.
ITEM 6. FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Amounts in Thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Proforma
Year Year Year Year Twelve-month
ended ended ended ended Period ended
April 30, 1997 April 30, 1996 April 30, 1995 April 30, 1994 April 30, 1993 (1)
----------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net Sales $251,175 $229,505 $215,857 $170,348 $162,576
Net Finance Charge Income 12,809 14,036 12,364 7,865 8,490
----------- ------------- ------------ ------------ ------------
Total 263,984 243,541 228,221 178,213 171,066
----------- ------------- ------------ ------------ ------------
Operating Costs & Expenses:
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>
(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.
D-10
<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 of Net Sales Percentage Increase (Decrease)
------------------------------------------------------- ------------------------------
Proforma Year Ended April 30,
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 Income 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.
D-11
<PAGE>
<TABLE>
<CAPTION>
(Amounts in Thousands)
-----------------------------------------------------------------------------------
at at at at at
April 30, April 30, April 30, April 30, April 30,
1997 1996 1995 1994 1993
----------- ------------ ----------- --------------- --------------
<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>
D-12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
----------------------------------------------
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
D-13
<PAGE>
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.
D-14
<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
D-15
<PAGE>
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.
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
D-16
<PAGE>
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.
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.
D-17
<PAGE>
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 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
D-18
<PAGE>
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
D-19
<PAGE>
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.
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."
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.
D-20
<PAGE>
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.
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
D-21
<PAGE>
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.
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
</TABLE>
D-22
<PAGE>
<TABLE>
<S> <C> <C>
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
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<PAGE>
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.
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.
D-24
<PAGE>
<TABLE>
<CAPTION>
Long Term
------------------
Annual Compensation Compensation
------------------------- ------------------
=================================================================================================
Shares Underlying
Options
Bonus($) Other Annual (Number of
Name Year Salary($) (1) Comp.($)(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 - Merchandising 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 - Operations 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.
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 $10,000. Members of the Board of Directors, who are also
employees of the Company or any of its subsidiaries, receive no additional
compensation for service on the Board.
The Amended and Restated 1992 Stock Option Plan provides that options to
purchase Common Stock may be issued to directors who are not employees of the
Company. See "Executive Compensation - The Company's Amended and Restated 1992
Stock Option Plan."
D-25
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
None.
FISCAL YEAR END OPTION VALUES
The following table sets forth certain information regarding the total
number of stock options held by each of the named executive officers, and the
aggregate value of such stock options, on April 30, 1997. No options were
exercised by any of the named executives during the fiscal year ended April 30,
1997.
AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
---------------------------------
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised In-the Money
Unexercised Options Options at
at Fiscal Year End Fiscal Year End (1)
=======================================================================================================================
Name Shares acquired Value Exercisable (#) Unexercisable Exercisable ($) Unexercisable
on exercise (#) Realized ($) (#) ($)
<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
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<PAGE>
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 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.
D-27
<PAGE>
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 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
D-28
<PAGE>
(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
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
D-29
<PAGE>
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.
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
</TABLE>
D-30
<PAGE>
<TABLE>
<S> <C> <C>
T. Rowe Price Recovery 967,900(3) 21.3%(3)
Fund, L.P.
100 E. Pratt Street
Baltimore, MD 21202
Carl Marks 938,050(4) 20.7%(4)
Management Co., L.P.
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.
D-31
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial 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.
D-32
<PAGE>
(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.
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.
D-33
<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.
By: /s/ Alan Rosenberg
----------------------------------------
Alan Rosenberg, President and
Chief Executive Officer
Date: August , 1997
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.
<TABLE>
<S> <C>
/s/ Alan Rosenberg
- -----------------------------------------------------------------------
Alan Rosenberg, President, Chief Executive Officer Date: August , 1997
and Director
/s/ Peter McGeough
- -----------------------------------------------------------------------
Peter McGeough, Executive Vice President, Chief Financial Date: August , 1997
and Administrative Officer
/s/ Steven H. Halper
- -----------------------------------------------------------------------
Steven H. Halper, Executive Vice President, Date: August , 1997
Chief Operating Officer and Secretary
/s/ Coleen A. Colreavy
- ----------------------------------------------------------------------
Coleen A. Colreavy, Vice President, Corporate Controller Date: August , 1997
and Chief Accounting Officer
</TABLE>
D-34
<PAGE>
SIGNATURES
----------
<TABLE>
<S> <C>
/s/ Barry J. Alperin
- -------------------------------------------------------------
Barry J. Alperin, Director Date: August , 1997
/s/ Kim Z. Golden
- ------------------
Kim Z. Golden, Director Date: August , 1997
/s/ Leo Peraldo
- -------------------------------------------------------------
Leo Peraldo, Director Date: August , 1997
/s/ James B. Rubin
- -------------------------------------------------------------
James B. Rubin, Director Date: August , 1997
/s/ Robert C. Ruocco
- -------------------------------------------------------------
Robert C. Ruocco, Director Date: August , 1997
</TABLE>
D-35
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND
SUBSIDIARIES
- -----------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
ENDED APRIL 30, 1997, 1996 AND 1995
AND INDEPENDENT AUDITORS' REPORT
D-36
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
Index to Financial Statements and Schedules
Page No.
--------
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:
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.
D-37
<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.
/s/ Deloitte & Touche LLP
June 27, 1997, except for Note 9,
for which the date of our report
is August 13, 1997
D-38
<PAGE>
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
- -----------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1997 AND 1996 (IN THOUSANDS)
- --------------------------------------
ASSETS NOTES 1997 1996
- ------ ----- ---- ----
<S> <C> <C> <C>
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 NOTES 1997 1996
- -------------------- ----- ---- ----
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.
D-39
<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 costs 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.
D-40
<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.
D-41
<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.
D-42
<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>
D-43
<PAGE>
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>
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
D-44
<PAGE>
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.
3. LONG-TERM DEBT
LONG-TERM DEBT - At April 30, 1997 and 1996, long-term debt, consisted of
--------------
the following in thousands of dollars:
APRIL 30,
---------------------
1997 1996
--------- -------
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
======== =========
(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.
D-45
<PAGE>
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):
YEAR ENDED APRIL 30, AMOUNT
--------------------------- ---------
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
=========
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):
YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1995
-------------- -------------- --------------
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
====== ====== ======
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>
D-46
<PAGE>
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.
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.
D-47
<PAGE>
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:
Volatility Rate 5%
Risk-Free Interest Rate 9%
Dividend Rate 0%
Expected Term of Option In Years 5 years
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.
A summary of activity under the Company's stock option plans for the year
ended April 30, 1997 is as follows:
NUMBER OF EXERCISE
SHARES PRICE RANGE
---------- -----------------
Balance - May 1, 1993 555,555 $5.01
Granted 37,000 $9.00
---------- =================
Balance - April 30, 1994 592,555 $ 5.01 - $ 9.00
========== =================
Granted 93,000 $12.50 - $18.75
Exercised (2,075) $9.00
---------- -----------------
Balance - April 30, 1995 683,480 $ 5.01 - $18.75
========== =================
Granted 322,500 $20.50 - $35.00
Exercised (10,041) $ 9.00 - $12.50
Canceled (19,734) $20.50
---------- -----------------
Balance - April 30, 1996 976,205 $ 5.01 - $35.00
========== =================
Granted 213,000 $18.125-$28.00
Exercised (2,400) $ 9.00
Cancelled (169,710) $20.50 - $35.00
---------- -----------------
Balance - April 30, 1997 1,017,095 $ 5.01 - $28.00
========== =================
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.
D-48
<PAGE>
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):
YEAR ENDING APRIL 30, AMOUNT
--------------------- ------
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
=========
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.
D-49
<PAGE>
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)
YEAR ENDED FIRST SECOND THIRD FOURTH
APRIL 30, 1997 QUARTER QUARTER QUARTER QUARTER TOTAL
--------------------- -------- --------- -------- -------- -----------
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
YEAR ENDED FIRST SECOND THIRD FOURTH
APRIL 30, 1996 QUARTER QUARTER QUARTER QUARTER TOTAL
--------------------- -------- --------- -------- -------- -----------
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
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 August 5, 1997, the Company consummated the sale of substantially all
of its customer accounts receivable for net proceeds of approximately $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.
D-50
<PAGE>
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.
* * * * * *
D-51
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
------- -----------
*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.
D-52
<PAGE>
*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.
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.
21 Subsidiaries
* 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.
D-53
<PAGE>
** 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.
D-54
<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 ____________________ ____, 1997,
at __:00 a.m., New York time, at the Huntington Hilton, 598 Broadhollow Road,
Melville, New York 11747 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.
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.
